<PAGE>
As filed with the Securities and Exchange Commission on September 28, 1999
Registration No. 333-83515
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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TIVO INC.
(Exact name of registrant as specified in its charter)
Delaware 4841 77-0463167
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
894 Ross Drive, Suite 100
Sunnyvale, CA 94089
(408) 747-5080
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Michael Ramsay
President and Chief Executive Officer
TiVo Inc.
894 Ross Drive, Suite 100
Sunnyvale, CA 94089
(408) 747-5080
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to
Alan C. Mendelson, Esq. Danielle Carbone, Esq.
Cooley Godward LLP Shearman & Sterling
Five Palo Alto Square 599 Lexington Avenue
3000 El Camino Real New York, NY 10022-6069
Palo Alto, CA 94306 (212) 848-4000
(650) 843-5000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 145 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to such Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1999
5,500,000 Shares
[LOGO OF TIVO]
TiVo Inc.
Common Stock
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Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $11.00 and $13.00
per share. We have applied to list our common stock on The Nasdaq National
Market under the symbol "TIVO."
We have requested that the underwriters reserve up to 662,500 shares to be
offered to the persons identified on page 72 of the prospectus, including
250,000 shares to be offered to a single third party.
The underwriters have an option to purchase a maximum of 825,000 additional
shares of our common stock to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" starting on
page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions TiVo Inc.
-------- ------------- -----------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Allen & Company Incorporated
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
The date of this prospectus is , 1999.
<PAGE>
[DESCRIPTION OF ARTWORK]
[Inside Front Cover]
Large TiVo logo graphic.
[Gatefold]
The left page of the gatefold contains centered pictures of the TiVo remote
control, the TiVo personal video recorder and a screen shot of the Now Showing
page of the TiVo Service. To the right of these pictures is the captioned
statement "Viewers can create customized lineups and have instant access to
all their recorded shows - labeled and ready to watch." Above these graphics
is the heading "Introducing Personal TV by TiVo."
The right page of the gatefold contains four pictures of screen shots from the
TiVo Service with captioned statements below each screen shot. The top left
screen shot is a picture of live television viewed on the TiVo Service with
the captioned heading "TiVo allows viewers to pause, rewind and fast forward
live TV." The top right screen shot is a picture of the TiVo Central screen
with the captioned heading "TiVo Central puts viewers at the center of their
own TV network, with total control over their programming schedule." The
bottom right screen shot is a picture of the Network Showcases screen with the
captioned heading "Network Showcases provide specialized guides that group
related shows together." The bottom left screen shot is a picture of the
TiVolution Magazine screen with the captioned heading "TiVolution Magazine
features theme-based collections of shows and other content complied by TiVo's
editorial staff."
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
Use of Proceeds..................... 19
Dividend Policy..................... 19
Capitalization...................... 20
Dilution............................ 21
Selected Financial Data............. 22
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations...................... 23
Business............................ 31
Management.......................... 47
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Relationships And Related
Transactions...................... 60
Principal Stockholders............. 64
Description of Capital Stock....... 66
Shares Eligible for Future Sale.... 69
Underwriting....................... 71
Notice to Canadian Residents....... 73
Legal Matters...................... 74
Experts............................ 74
Where You Can Find More
Information....................... 74
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is
legal to sell these securities.
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Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully.
TiVo Inc.
The TiVo Service allows viewers to watch what they want when they want and
creates a richer and more enjoyable television viewing experience by offering
viewers greater control, choice, and convenience. The TiVo Service also serves
as a new platform for programmers, advertisers and network operators to deliver
new types of advertising and in-home commerce.
The key aspects of the TiVo Service include the following:
. Locate and Record Multiple Shows Quickly and Easily. Viewers can easily
locate and record a single show or schedule a customized lineup of
several shows. With the Season Pass feature, the TiVo Service
automatically records all episodes of viewers' favorite shows.
. Control Live Television. Viewers can pause or rewind live television
shows, fast forward to the live telecast, and execute any of TiVo's
advanced viewing commands, including slow motion and frame-by-frame.
Prior to the introduction of TiVo, the ability to control live
television in this manner was not available.
. Viewing Preferences and Suggested Programming. Using the Thumbs Up and
Thumbs Down buttons on the TiVo remote control, viewers can enter
preferences for particular types of shows. Based on these preferences,
the TiVo Service suggests programming that viewers are likely to enjoy.
. Specialized Content. The TiVo Service allows television programmers to
create Network Showcases, which are screens on the TiVo Service that
feature automatic recording options for selected programming, upcoming
movies, special events or mini-series of a particular programmer. The
TiVo Service also includes TiVolution Magazine, which features theme-
based collections of shows compiled by our editorial staff.
. Menu Driven Navigation and Viewer Interface. TiVo Central, the main
screen of the TiVo Service, allows viewers to access recorded shows,
Network Showcases, TiVolution Magazine and other features. Viewers can
quickly and easily browse through an on-air program guide that includes
a schedule of up to two weeks of available television programming.
The TiVo Service is a subscription-based service currently enabled by a
personal video recorder that we designed and developed. Together with other
companies, we are working on other devices that will provide access to the TiVo
Service. We generate revenues from subscriptions to the TiVo Service and, for a
limited time, from sales of our personal video recorder. Our plan is to stop
selling the personal video recorder. We are a development stage company and, as
of June 30, 1999, we generated only a limited amount of subscription revenues
and had approximately 1,000 subscribers. Also as of June 30, 1999, we had an
accumulated deficit of $21.9 million. We expect to lose money for the
foreseeable future and it is possible that personal television products and
services will not achieve a high level of commercial acceptance.
We were incorporated in Delaware in August 1997. Our headquarters are located
at 894 Ross Drive, Suite 100, Sunnyvale, California 94089. Our telephone number
is (408) 747-5080. The address of our web site is www.tivo.com. Information
contained on our web site should not be considered a part of this prospectus.
3
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The Offering
<TABLE>
<C> <S>
Common stock offered....................... 5,500,000 shares
Common stock to be outstanding after this
offering.................................. 35,736,164 shares
Use of proceeds............................ We intend to use the estimated proceeds for
working capital and general corporate
purposes, including advertising and
promotion of the TiVo Service and the TiVo
brand, product development, expansion of
our sales, marketing and service
capabilities. See "Use of Proceeds."
Proposed Nasdaq National Market symbol..... TIVO
</TABLE>
The number of shares of common stock to be outstanding after the offering is
estimated based on the number of shares outstanding on September 21, 1999. It
excludes 4,216,317 shares subject to outstanding options or reserved for future
grants or purchases pursuant to our stock option and purchase plans. See
"Management--Stock Plans."
Except as otherwise indicated, information in this prospectus is based on the
following assumptions:
. The conversion of all outstanding shares of preferred stock into shares
of common stock upon the closing of this offering; and
. No exercise of the underwriters' over-allotment option.
4
<PAGE>
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period From Period From
August 4, 1997 Six Months Ended August 4, 1997
(Inception) Year Ended June 30, (Inception)
to December 31, December ----------------- to June 30,
1997 1998 1998 1999 1999
--------------- ---------- ------- -------- --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Subscription revenues... $ -- $ -- $ -- $ 8 $ 8
Cost of services........ -- -- -- (1,170) (1,170)
Operating expenses...... (625) (9,837) (3,068) (10,376) (20,838)
Other operating income.. -- -- -- 895 895
Other operating
expenses............... -- -- -- (1,084) (1,084)
Net loss................ $ (595) $(9,721) $(3,046) $(11,628) $(21,944)
Net loss per share:
Basic and diluted....... $(0.20) $ (3.25) $ (1.04) $ (2.67) $ (6.59)
Weighted average
shares................. 2,917 2,990 2,933 4,356 3,330
Pro forma net loss per
share(1):
Basic and diluted....... $ (0.90) $ (0.64)
Weighted average
shares................. 10,759 18,089
</TABLE>
- ----------------------
(1) Pro forma net loss per share is calculated as if the convertible preferred
stock outstanding as of June 30, 1999 was converted into shares of common
stock on the date of its issuance on a one-for-one basis.
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
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<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $11,967 $76,986 $ 137,100
Working capital................................. 18,221 83,240 143,354
Total assets.................................... 23,804 88,823 148,937
Long-term portion of obligations under capital
lease.......................................... 558 558 558
Total stockholders' equity...................... 19,105 84,124 144,238
</TABLE>
The table above summarizes our balance sheet data as of June 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of 21,819,444
shares of preferred stock outstanding as of the date of this prospectus
into shares of common stock on a one-for-one basis; and
. on a pro forma as adjusted basis to reflect the sale of 5,500,000 shares
of common stock offered by this prospectus assuming an initial public
offering price of $12.00 per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
5
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RISK FACTORS
An investment in our common stock is very risky. If any of the following
risks occur, our business, operating results and financial condition could be
seriously harmed.
Risks Related To Our Business
We have recognized very limited revenue, have incurred significant net losses
and may never achieve profitability.
We have recognized limited revenues, have incurred significant losses and
have had substantial negative cash flow. From our inception in August 1997 to
June 30, 1999, we had $8,000 of subscription revenues and $895,000 of proceeds
resulting from the sale of personal video recorders that enable the TiVo
Service. As of June 30, 1999, we had an accumulated deficit of $21.9 million.
We expect to incur significant operating expenses over the next several years
in connection with the continued development and expansion of our business. As
a result, we expect to continue to lose money for the foreseeable future. The
size of these net losses depends in part on the growth in our subscriber base
and on our expenses. With increased expenses, we will need to generate
significant additional revenues to achieve profitability. Consequently, we may
never achieve profitability, and even if we do, we may not sustain or increase
profitability on a quarterly or annual basis in the future.
Our limited operating history may make it difficult for us or investors to
evaluate trends and other factors that affect our business.
We were incorporated in August 1997 and have been obtaining subscribers and
selling personal video recorders only since March 31, 1999. Prior to that
time, our operations consisted primarily of research and development efforts.
As of June 30, 1999, we had sold only a limited number of personal video
recorders and obtained a limited number of subscribers to the TiVo Service.
Sales and subscriptions to date have been generated through limited marketing
campaigns, word-of-mouth and our web site. As a result of our limited
operating history, our historical financial and operating information is of
limited value in evaluating our future operating results. In addition, any
evaluation of our business and prospects must be made in light of the risks
and difficulties encountered by companies offering products or services in new
and rapidly evolving markets. For example, it may be difficult to accurately
predict our future revenues, costs of revenues, expenses or results of
operations. Personal television is a new product category for consumers and it
may be difficult to predict the future growth rate, if any, or size of the
market for our products and services. We may be unable to accurately forecast
customer behavior and recognize or respond to emerging trends, changing
preferences or competitive factors facing us. As a result, we may be unable to
make accurate financial forecasts and adjust our spending in a timely manner
to compensate for any unexpected revenue shortfall. This inability could cause
our net losses in a given quarter to be greater than expected, which could
cause the price of our stock to decline.
If our retail launch is not successful, consumers and consumer electronics
manufacturers may not accept the TiVo Service and products that enable the
TiVo Service.
Our success depends upon a successful retail launch of the TiVo Service and
related personal video recorders, which will begin in the second half of 1999
and continue through the 1999 holiday season. During this time, we will rely
principally on Philips to manufacture, market, sell and support the personal
video recorder that enables the TiVo Service. We also will rely on the efforts
of DIRECTV to market, sell and support the TiVo Service to DIRECTV
subscribers. The launch requires, among other things, that we:
. educate consumers on the benefits of the TiVo Service and related
personal video recorder, which will require an extensive marketing
campaign;
. commit a substantial amount of human and financial resources to achieve
retail distribution; and
. coordinate our own sales, marketing and support activities with those of
Philips, DIRECTV and other strategic partners.
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We or our strategic partners may not achieve any or all of these objectives.
In addition, the launch may be delayed, consumers may perceive the TiVo Service
and related personal video recorder as too expensive or complex and our
marketing campaign may not effectively attract new subscribers. Because of
competitive offerings or changing preferences, consumers may delay or decline
the purchase of the TiVo Service and related personal video recorder. All of
these events would reduce consumer demand and market acceptance, diminish our
brand and impair our ability to attract subscribers to the TiVo Service.
We have agreed to share a substantial portion of the revenue we generate from
subscription fees with some of our strategic partners. We may be unable to
generate enough revenue to cover these obligations.
We have agreed to share a substantial portion of our subscription and other
fees with some of our strategic partners in exchange for manufacturing,
distribution and marketing support and discounts on key components for personal
video recorders. Given how these amounts are calculated, we may be required to
share substantial portions of the subscription and other fees attributable to
the same subscriber with multiple partners. These agreements require us to
share a portion of our subscription fees whether or not we reduce the price of
the TiVo Service. If we reduce our subscription fees in response to competitive
or other market factors, our operating results would be adversely affected. Our
decision to share subscription revenues is based on our expectation that our
partnerships will help us obtain subscribers, broaden market acceptance of
personal television and increase our future revenues. If these expectations are
not met, we may be unable to generate sufficient revenue to cover our expenses
and obligations.
We depend on a limited number of third parties to manufacture, distribute and
supply critical components and services for the personal video recorders that
enable the TiVo Service. We may be unable to operate our business if these
parties do not perform their obligations.
The TiVo Service is enabled through the use of a personal video recorder made
available by a limited number of third parties. In addition, we rely on sole
suppliers for a number of key components for the personal video recorders. We
do not control the time and resources that these third parties devote to our
business. We cannot be sure that these parties will perform their obligations
as expected or that any revenue, cost savings or other benefits will be derived
from the efforts of these parties. If any of these parties breaches or
terminates its agreement with us or otherwise fails to perform their
obligations in a timely manner, we may be delayed or prevented from
commercializing our products and services. Because our relationships with these
parties are non-exclusive, they may also support products and services that
compete directly with us, or offer similar or greater support to our
competitors. Any of these events could require us to undertake unforeseen
additional responsibilities or devote additional resources to commercialize our
products and services. This outcome would harm our ability to compete
effectively and quickly achieve market acceptance and brand recognition.
In addition, we face the following risks in relying on these third parties:
If our manufacturing partnerships with Philips and other third parties are
not successful, we may be unable to establish a market for our products and
services. To date, we have manufactured the personal video recorders that
enable the TiVo Service through a third-party contract manufacturer. We have
entered into an agreement with Philips to manufacture and distribute the
personal video recorders that enable the TiVo Service. We have begun
transitioning manufacture of the personal video recorder from the third-party
contract manufacturer to Philips, and anticipate that Philips will assume
manufacturing responsibility in the second half of 1999. However, we have no
minimum volume commitments from Philips or any other manufacturer. The
transition to using Philips as sole manufacturer, and its ability to reach
sufficient production volume of the personal video recorder to satisfy
anticipated demand, is subject to delays and unforeseen problems such as
defects, shortages of critical components and cost overruns. Moreover, Philips
and any other manufacturer will require substantial lead times to manufacture
anticipated quantities of the personal video recorders that enable the TiVo
Service. Philips may have very little time to remedy unforeseen delays or
problems that may arise. Such delays and other problems could impair our retail
launch and brand image and make it difficult for us to
7
<PAGE>
attract subscribers. In addition, the loss of Philips would require us to
identify and contract with alternative sources of manufacturing, which we may
be unable to do and which could prove time-consuming and expensive. Although we
expect to contract with additional consumer electronics companies for the
manufacture of personal video recorders in the future, we may be unable to
establish additional relationships on acceptable terms.
If our corporate partners fail to perform their obligations, we may be unable
to effectively market and distribute our products and services. As part of our
retail launch, Philips will distribute the personal video recorder that enables
the TiVo Service. We will rely on Philips' sales force, marketing budget and
brand image to promote and support the personal video recorder and the TiVo
Service. After the retail launch, we expect to continue to rely on Philips and
other strategic partners to promote and support the personal video recorder and
other devices that enable the TiVo Service. The loss of one or more of these
partners would require us to undertake more of these activities on our own. As
a result, we would spend significant resources to support personal video
recorders and other devices that enable the TiVo Service. We also expect to
rely on DIRECTV and other partners to provide marketing support for the TiVo
Service. The failure of one or more of these partners to provide anticipated
marketing support will require us to divert more of our limited resources to
marketing the TiVo Service. If we are unable to provide adequate marketing
support for the personal video recorder and the TiVo Service, our ability to
attract subscribers to the TiVo Service will be limited.
We are dependent on single suppliers for several key components and services.
If these suppliers fail to perform their obligations, we may be unable to find
alternative suppliers or deliver our products and services to our customers on
time. We currently rely on sole suppliers for a number of the key components
and services used in the personal video recorders and the TiVo Service. For
example:
. Quantum is the sole supplier of the hard disk drives;
. NEC is the sole supplier of the application specific integrated circuit,
a semiconductor device;
. Sony is the sole supplier of the MPEG2 encoder semiconductor device; and
. Tribune Media Services is the sole supplier of program guide data.
We cannot be sure that alternative sources for these and other key components
and services used in the personal video recorders and the TiVo Service will be
available when needed or, if available, that these components and services will
be available on favorable terms. If our agreements with Quantum, NEC, Sony or
Tribune Media Services were to terminate or expire, or if we were unable to
obtain sufficient quantities of these components or required program guide
data, our search for alternate suppliers could result in significant delays,
added expense or disruption in product availability.
Our ability to generate revenues from subscription fees is unproven and may
fail.
We expect to generate a substantial portion of our revenues from subscription
fees for the TiVo Service. Many of our potential customers already pay monthly
fees for cable or satellite television services. We must convince these
consumers to pay an additional subscription fee to receive the TiVo Service.
The availability of competing services that do not require subscription fees
will harm our ability to effectively attract subscribers. In addition, the
personal video recorder that enables the TiVo Service can be used to record
programs and pause, rewind and fast forward through live or recorded shows
without an active subscription to the TiVo Service. If a significant number of
purchasers of our personal video recorders use these devices without
subscribing to the TiVo Service, our revenue growth will decline and we may not
achieve profitability.
Our business is expanding rapidly and our failure to manage growth could
disrupt our business and impair our ability to generate revenues.
Since we began our business in August 1997, we have significantly expanded
our operations. We anticipate continued expansion in our headcount, facilities
and infrastructure to support potential growth in our
8
<PAGE>
subscriber base and to allow us to pursue market opportunities. This expansion
has placed, and will continue to place, a significant strain on our management,
operational and financial resources and systems. Specific risks we face as our
business expands include:
We need to attract and retain qualified personnel, and any failure to do so
may impair our ability to offer new products or grow our business. Our success
will depend on our ability to attract, retain and motivate managerial,
technical, marketing and customer support personnel. Competition for such
employees is intense, especially for engineers in the San Francisco Bay Area,
and we may be unable to successfully attract, integrate or retain sufficiently
qualified personnel. If we are unable to hire, train, retain and manage
required personnel, we may be unable to successfully introduce new products or
otherwise implement our business strategy.
Any inability of our systems to accommodate our expected subscriber growth
may cause service interruptions or delay our introduction of new services. We
internally developed many of the systems we use to run the TiVo Service and
perform other processing functions. The ability of these systems to scale as we
rapidly add new subscribers is unproven. We must continually improve these
systems to accommodate subscriber growth and add features and functionality to
the TiVo Service. Our inability to add additional software and hardware or to
upgrade our technology, systems or network infrastructure could adversely
affect our business, cause service interruptions or delay the introduction of
new services.
We will need to provide acceptable customer support, and any inability to do
so will harm our brand and ability to generate and retain new subscribers. Our
ability to increase sales, retain current and future subscribers and strengthen
our brand will depend in part upon the quality of our customer support
operations. Some customers require significant support when installing the
personal video recorder and becoming acquainted with the features and
functionality of the TiVo Service. We have limited experience with widespread
deployment of our products and services to a diverse customer base, and we may
not have adequate personnel to provide the levels of support that our customers
require. In addition, we expect to rely on third parties for a substantial
portion of our customer support functions. To date, we have not yet entered
into agreements with any third parties to provide this support. Our failure to
provide adequate customer support for the TiVo Service and personal video
recorder will damage our reputation in the personal television and consumer
electronics marketplace and strain our relationships with customers and
strategic partners. This could prevent us from gaining new or retaining
existing subscribers and could cause harm to our reputation and brand.
We will need to improve our operational and financial systems to support our
expected growth, and any inability to do so will adversely impact our billing
and reporting. To manage the expected growth of our operations and personnel,
we will need to improve our operational and financial systems, procedures and
controls. Our current and planned systems, procedures and controls may not be
adequate to support our future operations and expected growth. For example, we
expect to replace our accounting and billing system within the next year.
Delays or problems associated with any improvement or expansion of our
operational systems and controls could adversely impact our relationships with
viewers and cause harm to our reputation and brand. Delays or problems
associated with any improvement or expansion of our operational systems and
controls could also result in errors in our financial and other reporting.
If we are unable to create multiple revenue streams, we may not be able to
cover our expenses or meet our obligations to strategic partners and other
third parties.
Although our initial success will depend on building a significant customer
base and generating subscription fees from the TiVo Service, our long-term
success will depend on securing additional revenue streams such as:
. advertising;
. revenues from networks; and
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<PAGE>
. electronic commerce or couch commerce.
In order to derive substantial revenues from these activities, we will need
to attract and retain a large and growing base of subscribers to the TiVo
Service. We also will need to work closely with television advertisers, cable
and satellite network operators, electronic commerce companies and consumer
electronics manufacturers to develop products and services in these areas. We
may not be able to effectively work with these parties to develop products that
generate revenues that are sufficient to justify their costs. In addition, we
are currently obligated to share a portion of these revenues with one of our
strategic partners. Any inability to attract and retain a large and growing
group of subscribers and strategic partners will seriously harm our ability to
support new services and develop new revenue streams.
Risks Related To Establishing A Market For The TiVo Service
It will take a substantial amount of time and resources to achieve broad
market acceptance of the TiVo Service and products that enable the TiVo Service
and we cannot be sure that these efforts will generate a broad enough
subscriber base to sustain our business.
Personal television products and services represent a new, untested consumer
electronics category. The TiVo Service is in an early stage of development and
many consumers are not aware of its benefits. As a result, it is uncertain
whether the market will demand and accept the TiVo Service and products that
enable the TiVo Service. Retailers, consumers and potential partners may
perceive little or no benefit from personal television products and services.
Likewise, consumers may not value, and may be unwilling to pay for the TiVo
Service and products that enable the TiVo Service. To develop this market and
obtain subscribers to the TiVo Service, we will need to devote a substantial
amount of time and resources to educate consumers and promote our products. We
may fail to obtain subscribers, encourage the development of new devices that
enable the TiVo Service and develop and offer new content and services. We
cannot be sure that a broad base of consumers will ultimately subscribe to the
TiVo Service or purchase the products that enable the TiVo Service.
We face intense competition from a number of sources, which may impair our
revenues and ability to generate subscribers.
The personal television market is new and rapidly evolving and we expect
competition from a number of sources, including:
Internet-related companies and companies offering similar products and
services. We are likely to face intense direct competition from companies such
as WebTV Networks Inc., America Online, Inc., Replay Networks, Inc. and X-TV.
These companies offer, or have announced their intention to offer, products
with one or more of the TiVo Service's functions or features and, in some
instances, combine these features with Internet browsing or traditional
broadcast, cable or satellite television programming. Many of these companies
have greater brand recognition and market presence and substantially greater
financial, marketing and distribution resources than we do. For example,
Microsoft Corporation controls and provides financial backing to WebTV. Some of
these companies also have established relationships with third party consumer
electronic manufacturers, network operators and programmers, which could make
it difficult for us to establish relationships and enter into agreements with
these third parties. Some of these competitors also have relationships with our
strategic partners. For example, DIRECTV recently formed an alliance with
America Online. Faced with this competition, we may be unable to expand our
market share and attract an increasing number of subscribers to the TiVo
Service.
Established competitors in the consumer electronics market. We compete with
consumer electronic products in the television and home entertainment industry.
The television and home entertainment industry is characterized by rapid
technological innovation, a small number of dominant manufacturers and intense
price competition. As a new product category, personal television enters a
market that is crowded with several
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<PAGE>
established products and services. The competition for consumer spending in the
television and home entertainment market is intense, and our products and
services will compete with:
. satellite television systems;
. video on demand services; and
. laser disc players.
Most of these technologies or devices have established markets, a broad
subscriber base and proven consumer acceptance. In addition, many of the
manufacturers and distributors of these competing devices have substantially
greater brand recognition, market presence, distribution channels, advertising
and marketing budgets and promotional and other strategic partners. Faced with
this competition, we may be unable to effectively differentiate the personal
video recorder or the TiVo Service from these devices.
Personal television, in general, and TiVo, specifically, also compete with
traditional advertising media such as print, radio and television for a share
of advertisers' total advertising budgets. If advertisers do not perceive
personal television as an effective advertising medium, they may be reluctant
to devote a significant portion of their advertising budget to promotions on
the TiVo Service.
If we are unable to introduce new products or services, or if our new products
and services are unsuccessful, the growth in our subscriber base and revenues
may suffer.
To attract and retain subscribers and generate revenues, we must continue to
add functionality and content and introduce products and services which embody
new technologies and, in some instances, new industry standards. This challenge
will require hardware and software improvements, as well as new collaborations
with programmers, advertisers, network operators, hardware manufacturers and
other strategic partners. These activities require significant time and
resources and may require us to develop and promote new ways of generating
revenue with established companies in the television industry. These companies
include television advertisers, cable and satellite network operators,
electronic commerce companies and consumer electronics manufacturers. In each
of these examples, a small number of large companies dominate a major portion
of the market and may be reluctant to work with us to develop new products and
services for personal television. If we are unable to further develop and
improve the TiVo Service or expand our operations in a cost-effective or timely
manner, our ability to attract and retain subscribers and generate revenue will
suffer.
If we do not successfully establish strong brand identity in the personal
television market, we may be unable to achieve widespread acceptance of our
products.
We believe that establishing and strengthening the TiVo brand is critical to
achieving widespread acceptance of our products and services and to
establishing key strategic partnerships. The importance of brand recognition
will increase as current and potential competitors enter the personal
television market with competing products and services. Our ability to promote
and position our brand depends largely on the success of our marketing efforts
and our ability to provide high quality services and customer support. These
activities are expensive and we may not generate a corresponding increase in
subscribers or revenues to justify these costs. If we fail to establish and
maintain our brand, or if our brand value is damaged or diluted, we may be
unable to attract subscribers and effectively compete in the personal
television market.
Risks Related To Our Service And Technology
Product defects, system failures or interruptions to the TiVo Service may have
a negative impact on our revenues, damage our reputation and decrease our
ability to attract new subscribers.
Our ability to provide uninterrupted service and high quality customer
support depends on the efficient and uninterrupted operation of our computer
and communications systems. Our computer hardware and other operating systems
for the TiVo Service are vulnerable to damage or interruption from earthquakes,
floods, fires,
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<PAGE>
power loss, telecommunication failures and similar events. They are also
subject to break-ins, sabotage, intentional acts of vandalism and similar
misconduct. These types of interruptions in the TiVo Service may reduce our
revenues and profits. Our business also will be harmed if consumers believe our
service is unreliable. In addition to placing increased burdens on our
engineering staff, service outages will create a flood of customer questions
and complaints that must be responded to by our customer support personnel. Any
frequent or persistent system failures could irreparably damage our reputation
and brand.
We have detected and may continue to detect errors and product defects. These
problems can affect system uptime, result in significant warranty and repair
costs and cause customer relations problems. Correcting errors in our software
requires significant time and resources, which could delay product releases and
affect market acceptance of the TiVo Service. Any delivery by us of products or
upgrades with undetected material product defects or software errors could harm
our credibility and market acceptance and sales of our products.
Intellectual property claims against us can be costly and could result in the
loss of significant rights.
From time to time, we may be subject to intellectual property litigation
which could:
. be time-consuming and expensive;
. divert management's attention and resources away from our business;
. cause delays in product delivery and new service introduction;
. cause the cancellation of new products or services; or
. require us to pay significant royalties or licensing fees.
The emerging enhanced-television industry is highly litigious, particularly
in the area of on-screen program guides. Additionally, many patents covering
interactive television technologies have been granted but have not been
commercialized. For example, we are aware of at least seven patents for pausing
live television. A number of companies in the enhanced-television industry earn
substantial profits from technology licensing, and the introduction of new
technologies such as ours is likely to provoke lawsuits from such companies. A
successful claim of infringement against us, our inability to obtain an
acceptable license from the holder of the patent or other right or our
inability to design around an asserted patent or other right could cause us to
cease manufacturing the personal video recorder or providing our service, or
both, which would eliminate our ability to generate revenues.
In addition, we are aware that some media companies may attempt to form
organizations to develop standards and practices in the personal television
industry. These organizations or individual media companies may attempt to
require companies in the personal television industry to obtain copyright or
other licenses. A number of articles have appeared in the recent press
regarding the formation of a consortium of broadcast and cable television
networks called the Advanced Television Copyright Coalition. Some of those
articles have indicated that the coalition is prepared to support litigation
and to explore legislative solutions unless the members of the personal
television industry agree to obtain license agreements for use of the
companies' programming. On September 23, 1999, we received a letter from Time
Warner Inc. stating that Time Warner believed that our personal television
service exploits its copyrighted networks and programs without the necessary
licenses and business arrangements. Lawsuits or other actions taken by these
types of organizations or companies could make it more difficult for us to
introduce new services, delay widespread consumer acceptance of our products
and services, restrict our use of some television content, increase our costs
and adversely affect our business.
Our success depends on our ability to secure and protect patents, trademarks
and other proprietary rights.
Our success and ability to compete are substantially dependent upon our
internally developed technology. We rely on patent, trademark and copyright
law, trade secret protection and confidentiality or license agreements with our
employees, customers, partners and others to protect our proprietary rights.
However, the steps we take to protect our proprietary rights may be inadequate.
We have filed patent applications and provisional patent applications covering
substantially all of the technology used to deliver the TiVo Service and
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<PAGE>
its features and functionality. To date, none of these patents has been
granted, and we cannot assure you that any patents will ever be granted, that
any issued patents will protect our intellectual property or that third parties
will not challenge any issued patents. In addition, other parties may
independently develop similar or competing technologies designed around any
patents that may be issued to us. Our failure to protect our proprietary rights
could have a material adverse effect on our business.
Laws or regulations that govern the television industry and the delivery of
programming could expose us to legal action if we fail to comply or could
require us to change our business.
Personal television and the delivery of television programming through the
TiVo Service and a personal video recorder represents a new category in the
television and home entertainment industries. As such, it is difficult to
predict what laws or regulations will govern our business. Changes in the
regulatory climate or the enforcement or interpretation of existing laws could
expose us to additional costs and expenses and could require changes to our
business. For example, copyright laws could be applied to restrict the capture
of television programming, which would adversely affect our business. It is
unknown whether existing laws and regulations will apply to the personal
television market. Therefore, it is difficult to anticipate the impact of
current or future laws and regulations on our business.
The Federal Communications Commission has broad jurisdiction over the
telecommunications and cable industries. The majority of FCC regulations, while
not directly affecting TiVo, do affect many of the strategic partners on whom
we substantially rely for the marketing and distribution of the personal video
recorder and the TiVo Service. As such, the indirect effect of these
regulations may adversely affect our business. In addition, the FCC could
promulgate new regulations, or interpret existing regulations in a manner that
would cause us to incur significant compliance costs or force us to alter the
features or functionality of the TiVo Service.
We need to safeguard the security and privacy of our subscribers' confidential
data, and any inability to do so may harm our reputation and brand.
The personal video recorder collects and stores viewer preferences and other
data that many of our subscribers consider confidential. Any compromise or
breach of the encryption and other security measures that we use to protect
this data could harm our reputation and expose us to potential liability.
Advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments could compromise or breach the
systems we use to protect our subscribers' confidential information. We may be
required to make significant expenditures to protect against security breaches
or to remedy problems caused by any breaches.
Uncertainty in the marketplace regarding the use of data from subscribers
could reduce demand for the TiVo Service and result in increased expenses.
Consumers may be concerned about the use of personal information gathered by
the TiVo Service and personal video recorder. Under our current policy, we do
not access this data or release it to third parties. Privacy concerns, however,
could create uncertainty in the marketplace for personal television and our
products and services. Changes in our privacy policy could reduce demand for
the TiVo Service, increase the cost of doing business as a result of litigation
costs or increased service delivery costs, or otherwise harm our reputation and
business.
We would lose revenues and incur significant costs if our systems or those of
our key partners or suppliers are not year 2000 compliant.
Many computer programs have been written using two digits rather than four to
define the applicable year. This poses a problem at the end of the century
because these computer programs do not properly recognize the year. This could
result in major system failures or miscalculations that would disrupt our
business. We expect to complete our year 2000 assessment in September 1999 and
complete any remediation by November 1, 1999. Our
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<PAGE>
assessment may identify material non-compliance issues with the TiVo Service
or the personal video recorder, our information technology systems or the
systems of our partners or suppliers. We may not be able to successfully
resolve these issues, or it may be costly to do so. In addition, we cannot
assure you that governmental agencies, utility companies, third-party service
providers and others outside of our control will be year 2000 compliant. Such
entities' failure to be year 2000 compliant could result in a systemic failure
beyond our control. For example, a prolonged telecommunications or electrical
failure, which could prevent us from delivering upgrades and regular downloads
to the personal video recorders that enable the TiVo Service, could adversely
impact the functionality of the personal video recorder.
For a preliminary evaluation of the potential impact of these year 2000
issues on us, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Issue."
Financial Risks
In the future, our revenues and operating results may fluctuate
significantly, which may adversely affect the market price of our common
stock.
We expect our revenues and operating results to fluctuate significantly due
to a number of factors, many of which are outside of our control. Therefore,
you should not rely on period-to-period comparisons of results of operations
as an indication of our future performance. It is possible that in some future
periods our operating results may fall below the expectations of market
analysts and investors. In this event, the market price of our common stock
would likely fall.
Factors that may affect our quarterly operating results include:
. demand for personal video recorders and the TiVo Service;
. the timing and introduction of new services and features on the TiVo
Service;
. seasonality and other consumer and advertising trends;
. changes in revenue sharing arrangements with our strategic partners;
. entering into new or terminating existing strategic partnerships;
. changes in the subsidy payments we make to certain strategic partners;
. changes in our pricing policies, the pricing policies of our competitors
and general pricing trends in the consumer electronics market;
. loss of subscribers to the TiVo Service; and
. general economic conditions.
Because our expenses precede associated revenues, unanticipated shortfalls
in revenue could adversely effect our results of operations for any given
period and cause the market price of our common stock to fall.
Seasonal trends may cause our quarterly operating results to fluctuate, which
may adversely affect the market price of our common stock.
Consumer electronic product sales have traditionally been much higher during
the holiday shopping season than during other times of the year. Although
predicting consumer demand for our products will be very difficult, we believe
that sales of personal video recorders and new subscriptions to the TiVo
Service will be disproportionately high during the holiday shopping season
when compared to other times of the year. If we are unable to accurately
forecast and respond to consumer demand for our products, our reputation and
brand will suffer and the market price of our common stock would likely fall.
We expect that a portion of our future revenues will come from targeted
commercials and other forms of television advertising enabled by the TiVo
Service. Expenditures by advertisers tend to be seasonal and
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<PAGE>
cyclical, reflecting overall economic conditions as well as budgeting and
buying patterns. A decline in the economic prospects of advertisers or the
economy in general could alter current or prospective advertisers' spending
priorities or increase the time it takes to close a sale with our advertisers,
which could cause our revenues from advertisements to decline significantly in
any given period.
If we are unable to raise additional capital on acceptable terms, our ability
to effectively manage growth and build a strong brand could be harmed.
We expect that our existing capital resources, combined with the net proceeds
of this offering, will be sufficient to meet our cash requirements through at
least the next 12 months. However, as we continue to grow our business, we may
need to raise additional capital, which may not be available on acceptable
terms. If we cannot raise necessary additional capital on acceptable terms, we
may not be able to develop or enhance our products and services, take advantage
of future opportunities or respond to competitive pressures or unanticipated
requirements.
If additional capital is raised through the issuance of equity securities,
the percentage ownership of our existing stockholders will decline,
stockholders may experience dilution in net book value per share, or these
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Any debt financing, if available, may involve
covenants limiting, or restricting our operations or future opportunities.
We have agreed to subsidize the cost of manufacturing personal video
recorders, which may adversely affect our operating results and ability to
achieve profitability.
We anticipate that Philips will assume manufacturing responsibility for the
personal video recorders in the second half of 1999. We have agreed to pay
Philips a per unit subsidy for each personal video recorder that it
manufactures and sells. A portion of the subsidy amount is paid when the
personal video recorder is shipped. The remaining portion is due when the
subscriber activates the TiVo Service. The amount of the payments can vary
depending upon Philips' manufacturing costs and selling prices. In addition, in
the event Philips is unable to manufacture the personal video recorders at the
costs currently estimated or if selling prices are less than anticipated, we
will owe additional amounts to Philips, which could adversely affect our
operating results. We are obligated to pay a portion of the subsidy when the
personal video recorder is shipped, and we will not receive any revenues
related to the unit until the unit is sold and the purchaser activates the TiVo
Service. We may make additional subsidy payments in the future to consumer
electronic and other manufacturers in an effort to maintain a commercially
viable retail price for the personal video recorders and other devices that
enable the TiVo Service.
The lifetime subscriptions to the TiVo Service that we currently offer commit
us to providing services for an indefinite period. The revenue we generate from
these subscriptions may be insufficient to cover future costs.
We currently offer subscriptions that commit us to provide service for as
long as the original subscriber uses the personal video recorder purchased. We
receive the lifetime subscription fee for the TiVo Service in advance and
amortize it as revenue over four years, which is our estimate of the service
life of the personal video recorder. If these lifetime subscribers use the
personal video recorder for longer than anticipated, we will incur costs
without a corresponding revenue stream. If we spend amounts received from
lifetime subscriptions prior to the end of the lifetime commitment period, we
will be required to fund ongoing costs from other sources.
Risks Related To Key Employees
If we lose key management personnel, we may not be able to successfully
operate our business.
Our future performance will be substantially dependent on the continued
services of our senior management and other key personnel. The loss of any
members of our executive management team and our inability to hire
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<PAGE>
additional executive management could harm our business and results of
operations. In addition, we do not have employment agreements with, or key man
insurance policies for, any of our key personnel.
We have recently hired several senior executive officers. Any inability by
these individuals to execute our business strategy and manage our growth could
harm our ability to generate revenues and achieve profitability.
Several members of our executive management team were hired in 1999,
including our Chief Financial Officer and Vice President of Finance, our Vice
President of Business Development, our Vice President of Human Resources, our
Vice President of Sales and our Vice President of Information Technology and
Chief Information Officer. These individuals do not have significant
experience working with the other members of our management team, and
therefore may require time to adequately familiarize themselves with the
nature of our business and operations. We cannot assure you that these
individuals will be able to successfully work together or manage any growth we
may experience. The process of integrating these individuals into our
management team may detract from the operation of our business.
Risks Related To This Offering
Purchasers of our common stock in this offering will suffer immediate and
substantial dilution.
Our earlier investors paid substantially less for their shares than the
initial public offering price. As a result, the initial public offering price
per share will significantly exceed the net tangible book value per share. You
will experience immediate dilution of $7.95 in the pro forma adjusted net
tangible book value per share of common stock at an assumed public offering
price of $12.00 per share. You also will experience additional dilution when
outstanding options and warrants are exercised.
Management has broad discretion on how to use the proceeds from this
offering, and may apply these proceeds to uses that do not increase our
revenues or market value.
We expect to spend a substantial amount, including amounts from the net
proceeds we receive in connection with this offering, to advertise and promote
the TiVo Service and the TiVo brand, develop new products and services, and
for other working capital and general corporate purposes. We have not
determined the specific amounts we intend to spend in any of these areas or
the timing of these expenditures. Consequently, management will have broad
discretion with respect to the use of the net proceeds from this offering.
Because of the number and variability of factors that determine our use of
proceeds from this offering, we cannot assure you that the uses will not vary
from our current intentions.
Our certificate of incorporation, bylaws and Delaware law contain provisions
that could discourage a third party from acquiring us and consequently
decrease the market value of your investment.
Some provisions of our certificate of incorporation and bylaws and of
Delaware law could delay or prevent a change of control or changes in our
management that a stockholder might consider favorable. Any delay or
prevention of a change of control or change in management could cause the
market price of our common stock to decline. For more information about
particular anti-takeover provisions, see "Description of Capital Stock."
We expect to experience volatility in our stock price that could adversely
affect your investment.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between the representatives of the underwriters and us and may not be
indicative of the market price for the common stock that may develop after
this offering. We do not know the extent to which investor interest will lead
to the development of an active public market. Investors may not be able to
resell our common stock at or above the initial public offering price. In
addition, many factors could cause the market price of our common stock to
fluctuate substantially, including:
. changes in estimates of our financial performance or changes in
recommendations by securities analysts;
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<PAGE>
. release of new or enhanced products or introduction of new marketing
initiatives by us or our competitors;
. announcements by us or our competitors of the creation or termination of
significant strategic partnerships, joint ventures, significant
contracts, or acquisitions;
. the market price generally for technology-related stocks;
. fluctuations in general economic conditions;
. market conditions affecting the television and home entertainment
industry;
. fluctuations in operating results; and
. additions or departures of key personnel.
We may in the future be the target of securities class action litigation,
which could be costly and time consuming to defend.
In the past, securities class action litigation has often been brought
against a company following price declines. We may be the target of similar
litigation in the future that could harm the market price of our common stock.
Securities litigation could result in substantial costs and diversion of
management attention and resources, all of which could materially harm our
business.
An aggregate of 30,236,164 shares, or 84.6%, of our outstanding stock will
become eligible for resale in the public market between 180 days and one year
after this offering, and future sales of such stock may cause our stock price
to decline.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering or in
response to the perception that sales of a large number of shares could occur.
We cannot predict the effect that future sales of common stock will have on
the market price of our common stock. Of the 35,736,164 shares of our common
stock to be outstanding upon completion of the offering, the 5,500,000 shares
offered hereby (plus any shares issued upon exercise of the underwriters'
over-allotment option) will be freely tradable. All of the shares outstanding
prior to the offering will be "restricted securities" as the term is defined
under Rule 144 promulgated under the Securities Act. Unless sold pursuant to
Rule 144, which provides for minimum holding periods, public availability of
information, and volume and manner restrictions on sales, "restricted
securities" cannot be sold without an effective registration statement on file
with the SEC. These shares will be available for sale in the public market as
follows:
<TABLE>
<CAPTION>
Number of Shares/
Percent Outstanding Date When Shares Become Available for Resale in the
After the Offering Public Market
------------------- ---------------------------------------------------------
<C> <S>
18,172,664 / 50.8% 180 days after the date of this prospectus pursuant to
agreements between the stockholders and the underwriters
or TiVo, provided that Credit Suisse First Boston can
waive this restriction at any time. 12,359,842 of these
shares will also be subject to sales volume restrictions
under Rule 144 under the Securities Act
12,063,500 / 33.8% Upon expiration of applicable one-year holding periods
under Rule 144, which will expire between April 13, 2000
and September 21, 2000, subject to sales volume
restrictions under Rule 144
</TABLE>
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act approximately 90 days after the date of this offering to
register an aggregate of 9.3 million shares of common stock issued or reserved
for issuance under our various stock plans.
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<PAGE>
Forward-looking statements contained in this prospectus may not be realized.
All statements, trend analysis and other information contained in this
prospectus relating to markets for our products and trends in revenues, gross
margins and anticipated expense levels, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect" and
"intend" and other similar expressions constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks and
uncertainties, and our actual results of operations may differ materially from
those contained in the forward-looking statements.
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<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $60.1 million from the
sale of 5,500,000 shares of common stock in this offering, and an additional
$9.2 million from the sale of 825,000 shares if the underwriters' over-
allotment option is exercised in full, at an assumed initial public offering
price of $12.00 per share.
We have no specific plan for the net proceeds of this offering. The principal
reason for this offering is to raise capital for:
. advertising and promotion of the TiVo Service and the TiVo brand;
. development of new products and services; and
. other working capital and general corporate purposes.
The amounts and timing of these expenditures will vary depending on a number of
factors, including competitive and technological developments and the rate of
growth, if any, of our business. We may also use a portion of the net proceeds
to:
. acquire additional businesses, products or technologies;
. lease additional facilities; or
. establish joint ventures that we believe will complement our current or
future business.
However, we have no specific plans, agreements or commitments to do so and are
not currently engaged in any negotiations for any of these types of
transactions.
We will retain broad discretion in the allocation of the net proceeds of this
offering. Because of the number and variability of factors that determine our
use of proceeds from this offering, we cannot assure you that the uses will not
vary from our current intentions.
Pending the uses described above, we will invest the net proceeds in short-
term, interest bearing, investment-grade securities. We cannot predict whether
the proceeds will be invested to yield a favorable return.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. In
addition, under our bank credit facility, we cannot pay dividends without our
bank's consent, with limited exceptions. We currently intend to retain any
future earnings to fund the development and growth of our business and do not
anticipate paying any cash dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of 21,819,444
shares of preferred stock outstanding as of the date of this prospectus
into shares of common stock on a one-for-one basis; and
. on a pro forma as adjusted basis to reflect the sale of 5,500,000 shares
of common stock offered by this prospectus assuming an initial public
offering price of $12.00 per share after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
The capitalization information set forth in the table below is qualified by,
and you should read it in conjunction with, more detailed financial statements
and related notes and the information included under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data )
<S> <C> <C> <C>
Long-term portion of obligations under capital
lease......................................... $ 558 $ 558 $ 558
-------- -------- --------
Stockholders' equity
Convertible preferred stock par value $0.001;
20,100,000 shares authorized, 15,573,661
shares issued and outstanding actual;
23,415,000 shares authorized, no shares
issued and outstanding pro forma; 2,000,000
shares authorized, no shares issued and
outstanding pro forma as adjusted........... 39,580 -- --
Common stock, par value $0.001; 40,000,000
shares authorized, 8,291,876 shares issued
and outstanding actual; 50,000,000 shares
authorized, 30,111,320 shares issued and
outstanding pro forma, 75,000,000
authorized, 35,611,320 shares issued and
outstanding pro forma as adjusted........... 8 30 36
Additional paid-in capital................... 25,590 130,167 190,275
Deferred compensation........................ (2,628) (2,628) (2,628)
Prepaid marketing expenses................... (18,679) (18,679) (18,679)
Note receivable from stockholder............. (2,822) (2,822) (2,822)
Losses accumulated during the development
stage....................................... (21,944) (21,944) (21,944)
-------- -------- --------
Total stockholders' equity .................. 19,105 84,124 144,238
-------- -------- --------
Total capitalization....................... $ 19,663 $ 84,682 $144,796
======== ======== ========
</TABLE>
-----------------------
This table excludes the following shares as of June 30, 1999:
. 3,161,512 shares of common stock issuable upon the exercise of stock
options outstanding under our stock option plans at a weighted average
exercise price of $3.65 per share; and
. 560,288 shares of common stock available for issuance under our stock
option plans.
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DILUTION
The pro forma net tangible book value of TiVo Inc. on June 30, 1999 was
approximately $84.1 million, or approximately $2.79 per share. Pro forma net
tangible book value per share represents our pro forma stockholders' equity
divided by the pro forma number of shares of our common stock outstanding of
30,111,320. Pro forma common shares outstanding are calculated after giving
effect to the issuance of 21,819,444 shares of common stock upon the automatic
conversion of 21,819,444 shares of preferred stock outstanding as of the date
of this prospectus into shares of common stock on a one-for-one basis.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of our common
stock immediately afterwards. Assuming our sale of 5,500,000 shares of common
stock offered by this prospectus at an assumed initial public offering price
of $12.00 per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value at June 30, 1999 would have been approximately $144.2 million or $4.05
per share. This represents an immediate increase in net tangible book value of
$1.26 per share to new investors purchasing shares of common stock in this
offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share at June 30,
1999....................................................... $2.79
Increase per share attributable to new investors............ 1.26
Pro forma net tangible book value per share after this
offering..................................................... 4.05
------
Dilution per share to new investors........................... $ 7.95
======
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1999 the
differences between existing stockholders and the new investors with respect
to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid. We have assumed an
initial public offering price of $12.00 per share, and we have not deducted
estimated underwriting discounts and commissions and estimated offering
expenses in our calculations.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 30,111,320 84.6% $106,068,000 61.6% $3.52
New investors.............. 5,500,000 15.4% 66,000,000 38.4 12.00
---------- ----- ------------ ----- -----
Total.................... 35,611,320 100.0% $172,068,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables assume no exercise of any outstanding
stock options. To the extent that any shares reserved for issuance under our
stock plans are issued, there will be further dilution to new investors. See
"Capitalization" and "Management--Stock Plans."
If the underwriters exercise their over-allotment in full, the following
will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately 82.6% of the total number of shares of our
common stock outstanding; and
. the number of shares held by new public investors will increase to
6,325,000, or approximately 17.4% of the total number of our common
stock outstanding after this offering.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the period from
inception to December 31, 1997 and for the year ended December 31, 1998, and
the balance sheet data as of December 31, 1997 and 1998, are derived from the
audited financial statements included elsewhere in this prospectus. The
selected statement of operations data for the six months ended June 30, 1998
and 1999 and from the period from inception to June 30, 1999, and the selected
balance sheet data as of June 30, 1999 are derived from our unaudited financial
statements included elsewhere in this prospectus. The pro forma net loss per
share is calculated as if the convertible preferred stock outstanding as of
June 30, 1999 was converted into shares of common stock on the date of its
issuance on a one-for-one basis. Subsequent to June 30, 1999, we issued
3,121,994 shares of Series I preferred stock at $10.41 per share and 3,123,789
shares of Series J preferred stock at $10.41 per share. The balance sheet data
do not include the proceeds from these issuances.
These unaudited financial statements have been prepared on the same basis as
our audited financial statements and, in our opinion include all material
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly this unaudited financial information. The historical results are
not necessarily indicative of results to be expected for future periods.
<TABLE>
<CAPTION>
Period From Period From
August 4, 1997 Six Months Ended August 4, 1997
(Inception) to Year Ended June 30, (Inception) to
December 31, December 31, ----------------- June 30,
1997 1998 1998 1999 1999
-------------- ------------ ------- -------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Subscription revenues... $ -- $ -- $ -- $ 8 $ 8
Costs and expenses:
Cost of services...... -- -- -- (1,170) (1,170)
Research and
development.......... (356) (5,614) (1,809) (2,999) (8,969)
Sales and marketing... (28) (1,277) (356) (3,784) (5,089)
Sales and marketing --
related parties...... -- -- -- (382) (382)
General and
administrative
expenses............. (241) (2,946) (903) (3,024) (6,211)
Stock-based
compensation......... -- -- -- (187) (187)
Other operating
income............... -- -- -- 895 895
Other operating
expenses............. -- -- -- (1,084) (1,084)
------ ------- ------- -------- --------
Loss from
operations......... (625) (9,837) (3,068) (11,727) (22,189)
Interest income....... 49 116 35 277 442
Interest expense and
other................ (19) -- (13) (178) (197)
------ ------- ------- -------- --------
Net loss............ $ (595) $(9,721) $(3,046) $(11,628) $(21,944)
====== ======= ======= ======== ========
Net loss per share:
Basic and diluted..... $(0.20) $ (3.25) $ (1.04) $ (2.67) $ (6.59)
Weighted average
shares............... 2,917 2,990 2,933 4,356 3,330
Pro forma net loss per
share:
Basic and diluted..... $ (0.90) $ (0.64)
Weighted average
shares............... 10,759 18,089
</TABLE>
<TABLE>
<CAPTION>
As of
As of June
December 31, 30,
------------- -------
1997 1998 1999
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................ $2,110 $2,248 $11,967
Working capital.......................................... 2,044 1,329 18,221
Total assets............................................. 2,548 3,543 23,804
Long-term portion of obligations under capital lease..... -- -- 558
Total stockholders' equity............................... 2,405 2,121 19,105
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were incorporated as Teleworld Inc. in August 1997 and changed our name to
TiVo Inc. in July 1998. The TiVo Service is a subscription-based television
service that provides viewers with greater control, easier navigation and a
wider range of viewing options when watching television. The TiVo Service also
provides television content providers and advertisers with a new platform for
content delivery, interactive viewing options and in-home commerce. The TiVo
Service is enabled through a personal video recorder designed and developed by
TiVo.
We are a development-stage company. We have generated only a limited amount
of revenues to date and expect to incur significant operating expenses over the
next several years in connection with the continued development and expansion
of our business. In particular, we expect our sales and marketing expenses to
increase significantly as we initiate the retail launch of the TiVo Service and
the related personal video recorder, attempt to establish the TiVo brand and
attract subscribers. The retail launch is scheduled to begin in the second half
of 1999. As a result, we will lose money in 1999. We expect to continue to lose
money for the foreseeable future. As of June 30, 1999, we had an accumulated
deficit of $21.9 million.
We currently generate revenues from subscriptions to the TiVo Service and
other income from the sale of personal video recorders. We began selling
personal video recorders and subscriptions to the TiVo Service on March 31,
1999. For the six months ended June 30, 1999, we generated revenues of $8,000
from subscriptions to the TiVo Service. Subscriptions to the TiVo Service are
available on a monthly, annual or lifetime basis. A monthly subscription
currently costs $9.95 per month, an annual subscription costs $99 per year and
a lifetime subscription costs $199. A lifetime subscription allows access to
the TiVo Service as long as the viewer uses the personal video recorder that
activates the TiVo Service. Subscription fees are paid by the viewer prior to
activation of the TiVo Service. Subscription revenues from lifetime
subscriptions are recognized ratably over a four year period. Our current plan
is to stop selling personal video recorders in connection with the transition
of manufacturing and distribution to Philips. We expect that Philips will begin
to manufacture and distribute personal video recorders in the second half of
1999. The sales of personal video recorders are not expected to be recurring,
and are therefore considered incidental to our business. The proceeds from the
sale of personal video recorders for the six months ended June 30, 1999 of
$895,000 are recorded as other income. The cost of these personal video
recorders was $1.1 million.
We anticipate that the sources of our revenues will change over time. In the
future, we may generate revenue from other sources such as:
. advertising shown on the TiVo Service;
. revenues from networks; and
. electronic commerce or couch commerce.
We have agreed to share a substantial portion of our subscription and other
fees with some of our strategic partners in order to promote the TiVo Service
and encourage the manufacture and distribution of the personal video recorders
that enable the TiVo Service. Given how these amounts are calculated, these
agreements may require us to share substantial portions of the subscription and
other fees attributable to the same subscriber with multiple partners. These
agreements require us to share a portion of our subscription fees whether or
not we reduce the price of the TiVo Service. If we reduce our subscription fees
in response to competitive or other market factors, our operating results would
be adversely affected. Our decision to share subscription revenues is based on
our expectation that our partnerships will help us obtain subscribers, broaden
market acceptance of personal television and increase our future revenues. If
these expectations are not met, we may be unable to generate sufficient revenue
to cover our expenses and obligations.
23
<PAGE>
We have agreed to make monthly, formula-based payments to Philips, DIRECTV
and Quantum in exchange for manufacturing, marketing support and a discount
from Quantum on hard disk drives used in the personal video recorders. We have
also agreed to pay to Philips a per unit subsidy for each personal video
recorder that they manufacture and sell. A portion of the subsidy amount paid
to Philips is due when the personal video recorder is shipped. The remaining
portion is due when the subscriber activates the TiVo Service. The amount of
the payments can vary depending upon Philips' manufacturing costs and selling
prices. We may make additional subsidy payments in the future to consumer
electronic and other manufacturers in an effort to maintain a commercially
viable retail price for the personal video recorders and other devices that
enable the TiVo Service. Payments made to our strategic partners in exchange
for these services are recognized as sales and marketing expenses--related
parties. Subsidy payments are renegotiated on an annual basis.
In the past, we have issued stock in exchange for services by our strategic
partners. For example, we issued shares of our common stock to DIRECTV in
exchange for marketing support and a note which will be reduced as bandwidth
capacity is made available to TiVo on DIRECTV's satellite television system. We
also issued warrants exercisable for shares of our common stock to Quantum in
exchange for a discount on hard disk drives used in personal video recorders
that enable the TiVo Service. As of June 30, 1999, we had recorded prepaid
marketing expenses resulting from the issuance of this equity to DIRECTV and
Quantum in the amount of $18.7 million. This amount represents the estimated
fair value of the common stock at the date of issuance and the estimated fair
value of the 324,325 warrant shares which were vested as of that date out of
the total of 867,803 shares issuable upon exercise of the warrants. Of this
amount, zero was amortized in 1998 and $276,000 was amortized for the six
months ended June 30, 1999. These prepaid marketing expenses are amortized as
services are provided to us and charged to sales and marketing expense--related
parties.
From time to time, we have also granted stock options to employees,
consultants and directors and expect to continue to do so in the future. As of
June 30, 1999, we had recorded deferred compensation related to these options
in the total amount of $2.8 million, representing the difference between the
estimated fair value of our common stock, as determined for accounting
purposes, and the exercise price of options on the date of grant. Of this
amount, zero was amortized in 1998 and $187,000 was amortized for the six
months ended June 30, 1999. Deferred compensation is amortized over the vesting
period of each option.
Results of Operations
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998
Subscription revenues. Subscription revenues for the six months ended June
30, 1999 increased to $8,000 from zero for the six months ended June 30, 1998.
This increase is attributable to customer subscriptions to the TiVo Service
which began in March 1999. As of June 30, 1999, we had approximately 1,000
subscribers.
Cost of services. Cost of services consists primarily of employee salaries
and expenses related to providing the TiVo Service to subscribers. Cost of
services for the six months ended June 30, 1999 increased to $1.2 million from
zero for the six months ended June 30, 1998. This increase was primarily
attributable to the hiring of content programming and service operation
personnel in connection with the commercial release of the TiVo Service and the
personal video recorder that enables the TiVo Service.
Research and development expenses. The Company's research and development
expenses consist primarily of employee salaries and related expenses and
consulting fees relating to the design of the personal video recorder that
enables the TiVo Service. Research and development expenses for the six months
ended June 30, 1999 increased to $3.0 million from $1.8 million for the six
months ended June 30, 1998. This increase was primarily attributable to the
hiring of additional engineering personnel and related costs.
Sales and marketing expenses. Sales and marketing expenses consist primarily
of employee salaries and related expenses, development of media advertising,
public relations tours and special promotions, trade shows
24
<PAGE>
and the production of product related items, including packaging, manuals and
videos. Sales and marketing expenses for the six months ended June 30, 1999
increased to $3.8 million from $356,000 for the six months ended June 30, 1998.
This increase was primarily attributable to an increase in expenditures for
trade shows, public relations and advertising in connection with the commercial
release of the TiVo Service and the personal video recorder that enables the
TiVo Service. We expect our marketing expenses to increase significantly in
connection with the retail launch of the TiVo Service and the personal video
recorder that enables the TiVo Service. The retail launch is expected to occur
in the second half of 1999.
Sales and marketing expenses--related parties. Sales and marketing expenses--
related parties consist of cash and non-cash charges related to agreements with
DIRECTV, Philips and Quantum, all of whom hold stock or warrants in the
Company. Sales and marketing--related parties for the six months ended June 30,
1999 increased to $382,000 from zero for the six months ended June 30, 1998 as
services began to be rendered.
General and administrative expenses. General and administrative expenses
consist primarily of employee salaries and related expenses for executive,
administrative, accounting, information systems, customer service personnel,
facility costs, professional fees and recruiting. General and administrative
expenses for the six months ended June 30, 1999 increased to $3.0 million from
$903,000 for the six months ended June 30, 1998. This increase was primarily
attributable to an increase in salaries and related expenses and costs of
establishing Information Services and Service Operations departments which did
not exist in the six months ended June 30, 1998.
Stock-based compensation. During 1999, we granted stock options with exercise
prices that were less than the estimated fair market value of the underlying
shares of common stock for accounting purposes on the date of grant. This will
result in stock-based compensation expense over the period that these options
vest. The stock- based compensation expense was approximately $187,000 for the
six months ended June 30, 1999.
Other operating income. Other operating income consists of proceeds from the
sale of personal video recorders. We plan to stop selling personal video
recorders by the end of 1999 in connection with the transition of manufacturing
to Philips. The sales proceeds received through June 30, 1999 are considered
incidental to our business and have been classified as other operating income.
Other operating expenses. Other operating expenses consist of the cost of the
personal video recorders sold for the six months ended June 30, 1999.
Year Ended December 31, 1998 Compared to the Period from Inception to December
31, 1997
Research and development expenses. Research and development expenses for the
year ended December 31, 1998 increased to $5.6 million from $356,000 for the
period of inception through December 31, 1997. This increase was primarily
attributable to the hiring of additional engineering personnel and expenditures
on product design, development consulting and prototype manufacturing.
Sales and marketing expenses. Sales and marketing expenses for the year ended
December 31, 1998 increased to $1.3 million from $28,000 for the period of
inception through December 31, 1997. This increase was primarily attributable
to the hiring of additional sales and marketing personnel, corporate identity
development, retention of a public relations firm and professional web site
development.
General and administrative expenses. General and administrative expenses for
the year ended December 31, 1998 increased to $2.9 million from $241,000 for
the period of inception through December 31, 1997. This increase was primarily
attributable to hiring additional personnel, moving to a larger facility and
recruiting, travel, consulting, legal and other overhead costs to support the
growth of the business.
25
<PAGE>
Quarterly Results of Operations
The following table represents certain unaudited statement of operations data
for our six most recent quarters ended June 30, 1999. In management's opinion,
this unaudited information has been prepared on the same basis as the audited
annual financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair representation of the
unaudited information for the quarters presented. This information should be
read in conjunction with our financial statements, including the notes thereto,
included elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of results that may be expected for any
future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C>
Subscription
revenues......... $ -- $ -- $ -- $ -- $ -- $ 8
Costs and expenses
Cost of
services....... -- -- -- -- (618) (552)
Research and
development.... (793) (1,016) (1,659) (2,146) (1,369) (1,630)
Sales and
marketing...... (134) (222) (354) (567) (2,056) (1,728)
Sales and
marketing--
related
parties........ -- -- -- -- -- (382)
General and
administrative.. (293) (610) (706) (1,337) (1,535) (1,489)
Stock based
compensation... -- -- -- -- -- (187)
Other operating
expense, net... -- -- -- -- 12 (201)
------- ------- ------- ------- ------- -------
Loss from
operations... (1,220) (1,848) (2,719) (4,050) (5,566) (6,161)
Interest income... 18 17 46 55 53 224
Interest expense
and other........ (2) (11) (7) -- (2) (176)
------- ------- ------- ------- ------- -------
Net loss...... $(1,204) $(1,842) $(2,680) $(3,995) $(5,515) $(6,113)
======= ======= ======= ======= ======= =======
</TABLE>
We expect sales and marketing expenses to increase substantially in
connection with the retail launch of the TiVo Service in the second half of
1999. To launch the TiVo Service in retail channels, we intend to initiate an
extensive advertising campaign. We intend to hire additional sales and
marketing personnel and to begin a marketing campaign through television, print
and Internet-based advertising and direct mail. We further expect to commit a
significant amount of human and financial resources to supplement the sales and
marketing efforts of our strategic partners, to participate in trade shows,
produce commercials and infomercials and create other marketing collateral. We
expect to spend increasing amounts on sales and marketing to attract
subscribers and retailers.
The TiVo Service is enabled through a personal video recorder that is sold in
retail channels like other consumer electronic devices. As a result, we
anticipate that our business will be seasonal and we expect to generate a
significant number of our annual new subscribers during the holiday shopping
season. We also expect to generate a portion of future revenues from television
advertising which tends to be seasonal and cyclical, reflecting overall
economic conditions as well as budgeting and buying patterns.
Liquidity and Capital Resources
From inception through June 30, 1999, we financed our operations and met our
capital expenditure requirements primarily from proceeds of the private sale of
equity securities totaling approximately $39.9 million. At June 30, 1999, we
had $12.0 million of cash and cash equivalents along with $7.5 million of short
term investments. The expansion of our business will require significant
additional capital to fund operating losses, capital expenditures and working
capital needs.
26
<PAGE>
Net cash used in operating activities was $494,000 from inception to December
31, 1997, $8.8 million for the year ended December 31, 1998, and $10.7 million
for the six months ended June 30, 1999. Net cash used during these periods was
primarily a result of the research and development, sales and marketing and
general and administrative costs to support the development of the TiVo Service
and the personal video recorder that enables the TiVo Service. For the six
months ended June 30, 1999 we began providing the TiVo Service, incurring costs
of $1.2 million.
Net cash used in investing activities was $396,000 from inception to December
31, 1997, $817,000 for the year ended December 31, 1998, and $7.6 million for
the six months ended June 30, 1999. Net cash used during these periods was for
the acquisition of property and equipment and for the purchase of $7.5 million
of short term investments with proceeds primarily from the sale of preferred
stock in 1999.
Net cash provided by financing activities was $3.0 million from inception to
December 31, 1997. This financing was received from the issuance of Series A
preferred stock to several investors, including New Enterprise Associates and
Institutional Venture Partners VII, LP. Net cash provided by financing
activities was $9.8 million for the year ended December 31, 1998. This
financing was received primarily from the issuance of Series B and C preferred
stock to New Enterprise Associates, Institutional Venture Partners, Comdisco,
Odyssey and other private and institutional investors. Additionally, we
obtained financing through a bank overdraft of $442,000. Net cash provided by
financing activities was $28.0 million for the six months ended June 30, 1999.
This financing was received primarily from the issuance of Series D, E, F, G
and H preferred stock to Vulcan Ventures, Showtime, DIRECTV, NBC and Philips,
respectively. Additionally, the bank overdraft increased to $989,000 as of June
30, 1999.
In July 1999, we completed a private placement of $32.5 million of our Series
I preferred stock with the following programmers, cable network operators and
content providers:
<TABLE>
<S> <C>
. Advance/Newhouse . Discovery Communications
. CBS Corporation . Liberty Media Corporation
. Comcast Interactive . TV Guide Interactive
. Cox Communication . The Walt Disney Company
(through its wholly owned
subsidiary Catalyst Investments
</TABLE> L.L.C.)
In August 1999, we completed a private placement of $5.0 million of our
Series J preferred stock with America Online, Inc. In September 1999, we
completed a private placement of $27.5 million of our Series J preferred stock
with Sony Corporation of America, Inc.
In December 1997, we established a $750,000 line of credit with a financial
institution. The line bears interest at the bank's prime rate plus 0.75% and
expired on August 15, 1999. Substantially all of our assets are pledged as
collateral under the line. Borrowings of $610,000 were made under this line
between February and July 1998, at which time the line was repaid. The line is
partially utilized to secure a letter of credit in the amount of $600,000. No
amounts were outstanding at December 31, 1998 and June 30, 1999.
We have commitments under facilities operating leases of $901,000 and
obligations under capital leases of $670,000 as of June 30, 1999. The
obligations under the capital lease relate to equipment leased under a lease
line that expires in February 2000 of $2.5 million. The annual interest rate on
the used portion of the line is 7.25% plus the amortization of the value
assigned to a warrant to purchase 60,814 shares of Series B preferred stock at
$1.26 per share issued in connection with the lease line.
We have also entered into various purchase order commitments with a number of
vendors, primarily for the purchase of parts to manufacture our product, public
relations and marketing services, promotional activities, and engineering
design, materials and prototypes. As of June 30, 1999, our outstanding purchase
order commitments were approximately $7.5 million.
27
<PAGE>
On April 8, 1999, we entered into a secured convertible debenture purchase
agreement with New Enterprise Associates VII, L.P., Institutional Ventures VII,
LP. and two other stockholders. Under the terms of this agreement, we received
a commitment allowing us to borrow up to $3.0 million at an interest rate of
4.67%. The debentures are secured by substantially all of our assets, excluding
intellectual property, and are due June 30, 2000. In connection with the
agreement, we issued warrants to purchase 81,522 shares of common stock at an
exercise price of $2.50 per share, including warrants to purchase 35,307 shares
of common stock to New Enterprise VII, L.P. and warrants to purchase 35,307
shares of common stock to Institutional Ventures VII, L.P. The value assigned
to these warrants is being amortized over the six month term of the commitment.
As of June 30, 1999, we had no outstanding amounts under this agreement. All of
the warrants issued under the terms of this agreement expire upon the
completion of an initial public offering and are being exercised prior to the
completion of this offering.
Our future capital requirements will depend on a variety of factors,
including market acceptance of personal television and the TiVo Service, the
resources we devote to developing, marketing, selling and supporting our
products and other factors. We expect to devote substantial capital resources:
. to hire and expand our engineering, sales and marketing and customer
support organizations;
. to prepare for and execute the retail launch of the TiVo Service and
personal video recorder; and
. for general corporate purposes.
We believe that our cash and cash equivalents, the net proceeds from the sale
of our Series I and Series J preferred stock and the net proceeds from this
offering will be sufficient to fund our operations for at least the next 12
months. Despite our expectations, we may need to raise additional capital
before the end of the next 12 months. Beyond one year, we may need to raise
additional funds in order to:
. fund anticipated growth, including significant increases in personnel,
office facilities and computer systems;
. develop new or enhance existing services or products;
. expand into new markets and respond to competitive pressures; or
. acquire or invest in complementary businesses, technologies, services or
products.
In addition, in order to meet long term liquidity needs, we may need to raise
additional funds, establish a credit facility or seek other financing
arrangements. Additional funding may not be available on favorable terms or at
all. See "Risk Factors--If we are unable to raise additional capital on
acceptable terms, our ability to effectively manage growth and build a strong
brand could be harmed."
Year 2000 Issue
Many computer programs have been written using two digits rather than four to
define the applicable year. This poses a problem at the end of the century
because these computer programs would not properly recognize the year format.
This could result in major system failures or miscalculations that could
disrupt our business. We have formulated a year 2000 plan to assess and address
any year 2000 issues and have created a year 2000 task force headed by our
chief information officer to implement the plan.
We use an internal calendar in both the personal video recorder and the TiVo
Broadcast Center. The personal video recorder uses an internal calendar for
recording shows as well as to dial into the TiVo Broadcast Center for nightly
downloads of program guide data and other content. The TiVo Broadcast Center
uses a calendar to distribute program guide data and content.
State of Readiness
The TiVo Service and the personal video recorder that enables the TiVo
Service have been tested for year 2000 compliance and, at this time, there are
no known issues. We intend to test the TiVo Service and personal video recorder
for year 2000 issues again before the end of 1999.
28
<PAGE>
We have completed an initial assessment of the criticality of our suppliers'
technology being year 2000 compliant. We intend to internally test and prove
the year 2000 compliance of any vendors' and suppliers' technology that has a
high impact on our business. Those third-party technologies with moderate
impact on our business will be assessed by a review of these third parties'
web sites or by requesting a letter from such parties to prove compliance. We
do not intend to conduct further investigation on those third-party
technologies that have a low impact on our business other than reviewing these
parties' web sites.
As we have added strategic partners, we have inquired as to the year 2000
compliance of their systems. To date, all critical partners we are working
with have indicated that their systems are, or will be prior to the end of
1999, year 2000 compliant. We have not required any formal paperwork from, or
conducted any tests with, these partners.
We have completed a preliminary assessment of our information technology
systems, which includes, but is not limited to, hardware and software required
to support our broadcast service center as well as our internal business
systems. We also are in the process of assessing our non-information
technology systems, which include facility date sensitive systems. Most
information technology systems have been purchased in the last six months.
Year 2000 compliance has always been a major part of the selection criteria.
To date our assessment has consisted of the following steps:
. identification of categories of hardware and software that need to be
evaluated;
. listing of all hardware and software by category and rated by
criticality;
. determination of any known year 2000 issues;
. adoption of a proof assessment approach based on criticality to our
business;
. creation of a high level plan for assessment and remediation by item;
and
. implementation of the plan.
At this stage in our assessment, we are not aware of any year 2000 issues
that would have a material effect on our business. We plan to complete the
year 2000 assessment in September 1999 and complete any remediation by
November 1, 1999.
Cost
As of July 1, 1999, we have incurred costs of approximately $20,000 and we
expect to incur an additional $50,000 in connection with identifying,
evaluating and addressing year 2000 compliance issues. All of the expenses to
date have related to, and are expected to continue to relate to, operating
costs associated with time spent by our employees in the evaluation process.
There may be some charges related to upgrades if any issues are identified
during our vendor communications or testing. If such expenses are higher than
anticipated, our business could suffer.
Risks
Our assesment of year 2000 issues may identify material non-compliance
issues with the TiVo Service or the personal video recorder, our informational
technology systems or the systems of our partners or suppliers. We may not be
able to successfully resolve these issues, or it may be costly to do so. In
addition, we cannot assure you that governmental agencies, utility companies,
third-party service providers and others outside of our control will be year
2000 compliant. The failure by such entities to be year 2000 compliant could
result in a systemic failure beyond our control, such as a prolonged
telecommunications or electrical failure, which could prevent us from
delivering upgrades and regular downloads to the personal video recorders that
enable the TiVo Service or otherwise impact the functionality of the personal
video recorder. Any of these occurences would have a material adverse effect
on our business.
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Contingency Plans
Year 2000 issues that impair the delivery of the TiVo Service will be
addressed via software upgrades to the TiVo Broadcast Center and/or the
personal video recorder via the nightly download of data over the telephone
line. Up to 12 days of program guide data can be stored on the personal video
recorder. The program guide data related to the 12th day into the future is
downloaded onto the personal video recorder every night. If a year 2000 issue
prevents this nightly download of program guide data, there would still be up
to 12 days of program guide data on the personal video recorder at that point
in time. Each day a download does not arrive, however, there would be one less
day the subscriber could record in the future. After the 12th day following a
year 2000 issue that impacts these nightly downloads, the personal video
recorder could only be used in "non-service mode" until a software fix could be
downloaded. In non-service mode, a subscriber could still use the pause, rewind
and fast forward features, but could only record programs by manually
programming the channel and time into the personal video recorder.
If the personal video recorder's downloading process malfunctioned due to a
year 2000 issue, or if software downloads were unable to remedy the problem,
the personal video recorder would have to be returned and repaired either by
TiVo or its manufacturing partners.
To address potential facility-related year 2000 issues on our most critical
systems, we are moving the TiVo Broadcast Center into co-location at UUnet by
October 1999. The UUnet co-location is equipped with generators that can
provide several weeks of back-up power.
The results of our further assessment and testing will be taken into account
in determining the nature and extent of any additional contingency plans.
Impact of Inflation
We believe that inflation has not had a significant impact on our operating
results.
Recently Issued Accounting Standards
We have adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information" in 1998. SFAS No. 131 established standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No.131 also establishes standards for related disclosure
about products and services, geographic areas, and major customers. The
adoption of SFAS No. 131 required no additional disclosures in our consolidated
financial statements as we operate in a single reportable segment.
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BUSINESS
Overview
TiVo is a pioneer in the personal television industry. TiVo has created a
unique personal television service that allows viewers to watch what they want
when they want. The TiVo Service creates a richer and more enjoyable television
experience by offering viewers greater control, choice, and convenience. TiVo
believes that the TiVo Service also allows television programmers and
advertisers to reach a broader audience by making shows more accessible and
easier to record and to target their programming and advertising to specific
viewers. The TiVo Service is a subscription-based service enabled by a personal
video recorder designed and developed by TiVo.
TiVo intends to commence its retail launch in the second half of 1999.
Philips will manufacture, market and sell the personal video recorder enabling
the TiVo Service and spearhead the retail launch, allowing TiVo to focus its
resources on promoting and enhancing the TiVo Service. As part of the launch,
DIRECTV will provide marketing resources that will allow TiVo to target DIRECTV
subscribers. DIRECTV will also provide sales support in the retail channel.
Industry Background
The television is a truly ubiquitous consumer product. According to the
market research firm Nielsen Media Research, 98.0 million, or more than 98% of
all U.S. households, owned at least one television at the end of 1998. Nielsen
also reports that in 1998, U.S. households owned, on average, 2.4 televisions
and spent an average of 7 hours and 15 minutes per day viewing television.
The reach and popularity of television has been facilitated by the emergence
of new technologies and delivery systems for television programming. These new
technologies have enhanced the clarity, color and sound of television and, as a
result, have increased the entertainment value of watching television. In
addition, new delivery systems, including cable and satellite systems, now
offer a large number of programming choices and specialized programming such as
pay-per-view promotions. According to Paul Kagan Associates, 66.1 million U.S.
households spent $30.9 billion to receive subscription-based cable television
services in 1998. In addition, according to Skytrends, 10.6 million U.S.
households spent $5.3 billion to receive subscription-based satellite
television services in 1998.
These statistics have not been lost on advertisers, who have made television
their largest, most popular medium for reaching consumers. McCann-Erickson,
Inc., a market research firm, estimates that $47.4 billion was spent on
television advertising in 1998. This represents over 23% of total advertising
spending.
As the reach and popularity of television has grown, so too has the amount of
programming available to viewers. Cable and home satellite television systems
have dramatically increased the number of networks and channels available to
today's television viewer. According to the Television & Cable Fact Book, in
1998, over 60% of U.S. cable subscribers had access to more than 53 channels,
compared to less than 10% in 1985. The explosive growth in available channels
has led to an overwhelmingly diverse selection of programming and content. This
is due in large part to the emergence of specialized television channels and
networks which are formed around a given subject, theme or category of
interest. For example, channels have been created to deliver programming to
targeted groups, such as women or children, or to deliver specialized content,
such as news, cartoons, classic movies, golf, comedy or educational
programming. Subscription-based premium channels, such as HBO and Showtime,
also offer specialized programming including major motion pictures, made-for-
television movies and sporting events. Clearly, there is more television
programming to choose from now than ever before.
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The Need For Personal Television
From the introduction of color television and remote controls to the
proliferation of cable and satellite programming and home theater systems,
improvements in the television experience have been aimed at meeting viewer
demand for richer programming and a more enjoyable viewing experience.
However, the dramatic increase in the volume and diversity of television
programming has fragmented viewing audiences and created new challenges for
viewers, television programmers, network operators and advertisers.
Challenges Faced by Viewers. TiVo believes that today's television viewer
wants greater control, choice and convenience when watching television.
Today's television viewers:
. are unable to easily navigate through hundreds of channels and thousands
of programs;
. are unable to easily identify programs of interest;
. are limited to either watching shows at the time they are broadcast or
recording shows by using a VCR; and
. are often forced to miss portions of shows due to interruptions.
Challenges Faced by Television Programmers. Although the television has
become a ubiquitous product, the dramatic increase in the volume and diversity
of channels and programming has drawbacks for networks and other television
programmers. The major networks have been particularly affected by the
proliferation of channels and specialized programming, and are suffering from:
. brand dilution and declining viewer loyalty;
. greater fragmentation of their audience base; and
. the inability to effectively evaluate viewing habits, preferences and
demand.
The TV International Sourcebook for 1999 reports that networks have steadily
lost market share to other content providers, from 60% market share in 1993 to
approximately 45% in 1998. As television becomes more fragmented and the
competition for viewers increases, networks and other television programmers
must find new ways to attract viewers and increase viewer loyalty.
Challenges Faced by Advertisers. Similarly, TiVo believes that today's
television advertisers face new challenges as they seek greater effectiveness
and efficiency in targeting specific viewers and establishing brand identity
and loyalty. For example, advertisers must:
. spend increasing amounts of time and money to target desired demographic
groups;
. spread their advertising budgets over an ever-expanding number of
channels and programs; and
. find new ways to identify, monitor and respond to viewers' programming
and advertising preferences.
As viewer fragmentation has increased, so too has the cost of advertising.
Prime time advertisements on the major television networks are more expensive
today than ever before, yet ratings and market share for these networks are
declining. According to the Television Bureau of Advertising and Nielsen Media
Research, the average cost of a 30-second nighttime commercial has increased
from $92,700 in 1993 to $121,300 in 1998. Like television programmers,
advertisers must find new ways to reach their targeted audience and to
establish brand identity and loyalty among viewers.
Challenges Faced by Cable and Satellite Network Operators. As a result of
increased competition, cable and satellite network operators have begun
placing greater emphasis on acquiring and retaining subscribers and finding
ways to increase the monthly revenue they receive from these subscribers. In
order to successfully accomplish this, they must:
. improve customer satisfaction;
. enhance programming choice; and
. provide new features and functionality, such as electronic commerce.
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TiVo Solution
TiVo has created a personal television service that it believes meets the
challenges faced by viewers, television programmers, advertisers and network
operators. The TiVo Service provides viewers with greater control, easier
navigation and a wider range of viewing options when watching television than
what is currently available. The TiVo Service creates a richer and more
enjoyable viewing experience by allowing viewers to watch what they want when
they want. The TiVo Service also creates a new platform that enables television
programmers, advertisers, and network operators to deliver television
programming, advertising, and in-home commerce. TiVo believes that its service
allows television programmers and advertisers to reach a broader audience by
making shows more accessible and easier to record and to target their
programming and advertising to specific viewers. The TiVo Service is a
subscription-based service enabled by a personal video recorder designed and
developed by TiVo. The personal video recorder is a device that includes a hard
disk drive for recording shows and accessing the content available on the TiVo
Service.
The TiVo Service has many features that distinguish it from traditional
television viewing:
Locate and Record Multiple Shows Quickly and Easily. The TiVo Service offers
a variety of easy-to-use navigation and recording features that allow viewers
to easily locate and record their favorite shows. Viewers can record and play
back a single show or schedule a customized line-up of several shows to be
recorded without entering specialized codes, setting a timer or using a video
tape. With the Season Pass feature, the TiVo Service automatically records all
episodes of viewers' favorite shows.
Control Live Television. Using the TiVo Service and the personal video
recorder, viewers have more control over live television. For example, viewers
can utilize advanced viewing commands, such as pause, rewind, fast forward and
frame-by-frame. When a viewer pauses live television, the personal video
recorder continues to record the program that the viewer is watching. The
viewer can then resume viewing in normal mode, fast forward to catch up to the
live telecast, or execute any of the other advanced viewing commands. Prior to
the introduction of TiVo, the ability to control live television in this manner
was not available.
Viewing Preferences and Suggested Programming. The TiVo Service allows
viewers to create viewing preferences around particular shows or categories of
interest. Using the Thumbs Up and Thumbs Down buttons on the TiVo remote,
viewers can express their preferences for a particular type of show. These
preferences accumulate over time and are stored locally on the personal video
recorder. Based on these preferences, TiVo recommends programming that viewers
are likely to enjoy and, when storage space is available, TiVo will
automatically record shows that are most likely to match viewers' individual
preferences.
Specialized Content. The TiVo Service also includes a variety of specialized
content. For example, the TiVo Service allows television programmers to develop
Network Showcases that feature selected programming, such as an upcoming movie,
special event or mini-series, on easy-to-use interactive screens. Currently,
Network Showcases are areas on the TiVo Service that include directories of
simplified recording options for groups of related shows of particular
programmers. In the future, television programmers could use the TiVo Service
to directly offer viewers special programming packages and pay-per-view
promotions such as movies, sporting events, news headlines and other
programming. Subscribers to the TiVo Service also have access to TiVolution
Magazine, which features theme-based collections of shows compiled by TiVo's
editorial staff.
Menu-Driven Navigation and Viewer Interface. The TiVo Service employs a menu-
driven interface and easy-to-use navigation system. TiVo Central, the main
screen of the TiVo Service, allows viewers to access their customized lineup of
shows, Network Showcases, TiVolution Magazine and other TiVo services and
features. The Pick Programs to Record feature, located on the TiVo Central
screen, allows viewers to search for shows to record by subject, title, channel
or time of showing. Using the on-air guide, viewers can quickly and efficiently
browse through a schedule of up to two weeks of available television
programming and descriptions for each show.
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Benefits of the TiVo Service
For viewers, television programmers, advertisers and network operators, the
TiVo Service offers several benefits over traditional television viewing.
Benefits to Viewers. TiVo believes that its service offers an enhanced
television viewing experience. Key benefits offered to viewers include the
following:
Greater Control, Choice and Convenience. The TiVo Service provides
viewers with greater control, choice and convenience in watching
television. Using the search and navigation features and variety of
recording options, viewers can:
. automatically record all episodes of their favorite shows;
. quickly and easily create a customized lineup of shows to be
recorded up to two weeks in advance;
. pause, rewind and fast forward live television;
. skip through programming that they do not want to see; and
. immediately access their customized lineup of recorded shows and
other specialized content.
Making Sense of Available Content. The TiVo Service assists viewers in
navigating through the hundreds of channels and thousands of programs
available for viewing. Using the TiVo Service, viewers can browse pre-set
categories of programming, such as sports or action/adventure, and select a
desired show for viewing or recording simply by entering the title, channel
or time. With the TiVo Service, viewers can easily organize their
television viewing around shows they want to watch and receive suggestions
for programming that they are likely to enjoy.
Programming that Matches Viewers' Preferences. The TiVo Service ranks
and recommends programming according to viewers' preferences. This
functionality gives viewers access to programming that meets their personal
tastes but that they might otherwise never have known was being broadcast.
Benefits to Television Programmers. TiVo believes its TiVo Service offers
television programmers a new and exciting way to reach the viewing audience.
Key benefits offered to television programmers include the following:
Enhanced Viewer Loyalty and Retention. By making it easy for viewers to
find and record the shows they want to watch, the TiVo Service enables
programmers to make their shows accessible to a broader audience. TiVo
believes that these easy to use features, especially the Season Pass
feature, will increase the likelihood that viewers will continue viewing
new episodes of a particular series or show. Viewers also can easily play
back the shows they have recorded long after they have aired, enhancing
viewer retention and loyalty.
More Effective Promotions and Previews. The TiVo Service provides
television programmers with an opportunity to create more effective
promotions and previews such as Network Showcases for selected programming
and pay-per-view events. TiVo is also currently developing a service,
called iPreview, that consists of "active" previews and promotions that
allow a viewer to easily record featured programming at the touch of a
button. TiVo believes these promotions will be very effective in attracting
viewers and increasing a network's brand presence because they allow
viewers to "impulse record" featured programming and to watch these
programs at a more convenient time. TiVo also believes that by taking
advantage of these features, television programmers have a greater
opportunity to reach a larger viewing audience.
New Platform for Content Delivery. TiVo anticipates that television
programmers will embrace the TiVo Service as a new way to reach audiences
with programming, products and services and enable couch commerce. For
example, the TiVo Service can enable television programmers to allow
viewers to order and automatically record special programming packages,
including bundled episodes of previously run shows and pay-per-view
promotions. TiVo anticipates that viewers would be able to simply "point
and click" to order movies, sports events, programming packages, games and
other products and services.
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Benefits to Advertisers. TiVo believes that its TiVo Service will offer
advertisers a new platform with more efficient and effective ways to reach
their targeted audience. Key benefits offered to advertisers include the
following:
Targeting Consumers. In the future, the TiVo Service will allow
advertisers to offer advertising that is related to the viewing preferences
stored on the personal video recorder. For example, working with its
network partners TiVo could download and store several commercials on the
personal video recorder and select which of these commercials to show based
on the viewer's preferences. For example, an automobile advertiser may want
to advertise one of several models during the airing of a particular
program, depending on each viewer's preferences. If the viewer's
preferences suggest that the viewer is an outdoor enthusiast, the
commercial might feature a sport utility vehicle.
Platform for New Advertising Opportunities. The TiVo Service provides
advertisers with a new platform to offer advertisements to viewers. For
example, advertisers may be able to combine new advertising with recorded
shows and special promotions to reach new and existing viewers. TiVo also
intends to offer advertisers a new service, called iBuy, that will allow
viewers to get more information about and possibly purchase a featured
product or service using the TiVo remote. In this way, TiVo expects to
create an interactive on-air shopping experience for the viewer.
Benefits to Cable and Satellite Network Operators. The TiVo Service provides
a unique platform for network operators to reduce subscriber turnover and
create new sources of revenue. Key benefits offered to cable and satellite
network operators include the following:
Ability to Differentiate Services. The TiVo Service allows network
operators to differentiate and enhance their service offerings by making
available programming more accessible to viewers, and enhancing viewer
loyalty by offering subscribers the ability to customize their viewing
experience.
Platform for New Service Opportunities. The TiVo Service can also
provide new sources of revenue for network operators. For example, the TiVo
Service provides a platform upon which network operators can record a
number of pay-per-view movies onto the personal video recorder from which
subscribers can choose to purchase and view at their convenience, with the
added ability to pause rewind, skip and fast forward.
TiVo Strategy
TiVo's objective is to establish the TiVo Service as a new platform for
delivering richer television programming, advertising and in-home commerce. To
achieve this objective, TiVo intends to:
Establish the TiVo Service as the Market Leader in Personal Television. TiVo
is a pioneer in the personal television industry. As the personal television
industry develops, TiVo intends to aggressively grow its subscriber base,
create specialized content to enhance the value of the TiVo Service, and
develop new ways to deliver effective targeted advertising. TiVo also intends
to augment these efforts through strategic partnerships with cable and
satellite network operators, television programmers, advertisers and consumer
electronics manufacturers. TiVo believes that establishing and maintaining a
market leadership position in personal television is critical to establishing
new sources of revenues and the overall growth of its business.
Establish and Promote the TiVo Brand. TiVo believes that establishing the
TiVo brand is critical to attracting subscribers, advertisers and strategic
partners. TiVo intends to dedicate substantial resources to promoting its brand
through multiple advertising and marketing channels, participating in trade
shows, sponsoring events, merchandising and by leveraging existing and future
strategic partnerships.
Leverage Partnerships to Accelerate Market Acceptance. TiVo believes that
leveraging the market presence, brand recognition and distribution resources of
established television industry participants will help it establish broad
consumer awareness and acceptance of the TiVo Service and personal television.
TiVo intends to continue to establish partnerships with leading television
industry participants to expand its subscriber base,
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provide content and develop and distribute a wide variety of devices that
enable the TiVo Service. Such partnerships may include:
. Network Operators and Other Content Distributors. TiVo intends to
establish partnerships with an increasing number of network operators,
including cable and satellite operators. TiVo believes that agreements
with these companies will provide access to a large and established base
of viewers who are likely to purchase the TiVo Service. Relationships
with these companies will also provide opportunities to develop
additional devices that enable the TiVo Service and provide specialized
programming to viewers. For example, TiVo's agreement with DIRECTV
provides for a variety of assisted and joint marketing activities
targeting DIRECTV's installed base of subscribers.
. Networks and Other Television Programmers. TiVo intends to establish
partnerships with an increasing number of television programmers,
including broadcast and premium-service providers. TiVo believes that
partnerships with these companies can increase the amount and diversity
of customized content available on the TiVo Service and provide a
significant opportunity to offer specialized programming to viewers.
Partnerships with these companies also provide TiVo with opportunities
to develop new interactive services for viewers, such as iPreview and
iBuy. Currently, TiVo has relationships with NBC, HBO, Showtime, FliX,
E! Entertainment and The Movie Channel. Many of these relationships
provide for the delivery of Network Showcases and other specialized
programming to viewers.
. Consumer Electronic Manufacturers. TiVo intends to establish
partnerships with consumer electronic and other device manufacturers for
the development, manufacture and marketing of devices that enable the
TiVo Service. TiVo believes this strategy will accelerate the growth of
the market for personal television. TiVo currently has a strategic
relationship with Philips, who will manufacture the personal video
recorder, assist in developing a TiVo/DIRECTV combination receiver and
spearhead our retail launch.
. Advertisers. TiVo intends to pursue partnerships with advertisers in an
effort to generate new revenue streams. TiVo believes that garnering
advertiser support for the TiVo Service will accelerate the market
acceptance for personal television. TiVo also believes that its
proprietary software and other technology embedded in the personal video
recorder and the TiVo Service will enable advertisers to reach desired
viewers more effectively. Not only will advertisers be better equipped
to reach consumers with specific tastes or preferences, viewers will
receive more information about products in which they are likely to be
interested.
Offer an Increasing Range of Programming and Features. TiVo intends to offer
new programming and features in order to enhance the value of the TiVo Service
and create new sources of revenue. TiVo's technology allows for frequent
updates and improvements to the programming and features offered on the TiVo
Service. TiVo intends to develop other features, such as sports highlights,
condensed news programs and other specialized programming. TiVo believes that
the TiVo Service allows television programmers and advertisers to reach a
broader audience by making shows more accessible and easier to record and to
target their programming and advertising to specific viewers. Potential future
services include:
. Active Promotions. TiVo anticipates that programmers will be able to use
the TiVo Service to allow viewers to easily record a variety of
programming such as movies, sports events, television series and other
products and services. For example, TiVo is currently developing
iPreview, a service that allows viewers to schedule and record featured
programming using a "point and click" feature during previews.
. Active Ads. TiVo anticipates that advertisers will be able to use
special coding, called "data tags," to allow viewers to interact with
commercials. For example, when viewing a commercial, viewers may be able
to click a button on their remote control to request a longer
infomercial about the product, to request a brochure or ask for the
nearest retailer. TiVo is currently developing iBuy, a service that
allows viewers to get more information about and possibly purchase
featured products or services using the TiVo remote control.
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. Targeted Ads. TiVo anticipates that advertisers will be able to use the
TiVo Service to reach a broader base of consumers and offer commercials
that better match viewers' interests. Based on the viewers' preferences
stored on the personal video recorder, an automobile advertiser can
feature a sport utility vehicle in one household and a minivan in
another. This is accomplished by a software program utilizing data
stored on the personal video recorder. Individual viewing preferences
will not be released to advertisers or other third parties.
Encourage the Development of New Devices Enabling the TiVo Service. TiVo
intends to work in partnership with consumer electronics manufacturers and
others in developing new and complementary products that enable the TiVo
Service, such as televisions, DVD players or satellite television receivers.
This strategy is based on TiVo's belief that the TiVo Service enhances the
value of other television, entertainment and home theater products and
services. In pursuing these relationships, TiVo expects to continue to grant
broad licensing rights to its technology and intends to create a set of
standards that will allow consumer electronics manufacturers to embed the
technology that enables the TiVo Service in home entertainment products. TiVo
anticipates that the broad licensing of its technology will accelerate its
subscriber growth, enhance its market position and strengthen the TiVo brand.
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What Viewers Experience Using the TiVo Service
The TiVo Service is designed to appeal to a broad consumer base by being
easy-to-use and intuitive. The TiVo Service gives viewers the ability to
control and personalize television by letting them watch what they want when
they want. Navigation through the TiVo Service's menu-driven interface starts
from the TiVo Central screen.
TiVo Central. TiVo Central is the main screen on the TiVo Service and is the
first screen seen by the viewer when the television is turned on. TiVo Central
can also be accessed from anywhere in the TiVo Service by pushing the TiVo
button on the TiVo remote. Most of the recording and viewing features available
on the TiVo Service can be accessed through this screen. An example of TiVo
Central is shown below:
[Screen shot of TiVo Central appears here.]
Now Showing. The Now Showing screen allows viewers to easily choose from
their customized lineup of shows, which have been recorded and are stored on
the personal video recorder. For each show, viewers can get detailed
information, including a description of the show and its recorded time. Viewers
can also see when the program will be deleted from the personal video recorder
and can change the deletion time if desired.
[Screen shot of Now Showing appears here.]
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Network Showcases Screen. The Network Showcases screen can be used by
television programmers and advertisers to feature selected programming and
products. Network Showcases are separately categorized by each programmer.
Within their own Network Showcase, programmers can customize the manner in
which they highlight and package shows. In the future, we believe that
programmers will create a unique look and feel for their Network Showcases and
may include promotional video clips and trailers. Network Showcases screens are
shown below:
[Screen shots of the main Network Showcases screens appear here.]
Pick Programs to Record. Pick Programs to Record allows viewers to easily
select shows to be recorded. Viewers can choose to select shows by name,
channel or time. In addition, viewers can choose from a list of shows
recommended by the TiVo Service based upon their individual preferences.
Examples of Pick Programs to Record screens are shown below:
[Screen shot of the Pick Programs to Record screens appear here.]
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On-Air Program Guide. The TiVo Service includes an easy-to-use on-air program
guide that allows viewers to browse through available programming and receive
information about upcoming shows. The on-air program guide includes a brief
description of the program, the personalities featured and the time and channel
for viewing.
[Screen shot of the Watch Live TV screen appears here.]
TiVolution Magazine. TiVolution Magazine features theme-based collections of
shows and other content compiled by TiVo's editorial staff.
[Screen shot of the main Network Showcase screen appears here.]
How TiVo Works
The TiVo Service relies on three key components: the personal video recorder,
the TiVo remote control and the TiVo Broadcast Center. Individually, each of
these components serves a vital function in the TiVo Service.
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The Personal Video Recorder. The personal video recorder was initially
designed and developed by TiVo, and enables the basic functionality of the TiVo
Service. The personal video recorder automatically records live television
while the viewer is watching, which allows the viewer to control live
television. The current version of the personal video recorder, however, cannot
record a different show while concurrently watching live television. Two models
of the personal video recorder are currently available, one supporting up to 14
hours of recorded programming and one supporting up to 30 hours of recorded
programming. The personal video recorder works with analog broadcast, cable and
digital satellite systems. TiVo expects that future versions of the personal
video recorder will be incorporated with cable or satellite receivers into a
single device.
After the initial set-up, the TiVo personal video recorder will automatically
dial into the TiVo Broadcast Center via telephone on a nightly basis to
download the program guide data and other elements of the TiVo Service, such as
Network Showcases and other programs or features. Software upgrades to the
personal video recorder are also delivered directly via the phone line at no
charge. The data downloaded from the TiVo Broadcast Center does not decrease
the amount of programming that can be recorded on the personal video recorder.
When enabled with the TiVo Service, the personal video recorder also stores
the subscribers' viewing preferences. Based on these preferences, the TiVo
Service ranks every show listed in the on-air program guide and then recommends
the highest ranked shows to the viewer. If there is available storage capacity
in the personal video recorder, the personal video recorder may automatically
record the show or shows with the highest ranking.
The TiVo Service uses an advanced disk scheduling technique, which manages
the recording and deletion of programs on the system. This allows viewers to
select programming to record well in advance of airing and receive confirmation
that the selected program will be recorded, even if the length of the
programming selected for recording exceeds the then available storage capacity
on the recorder.
TiVo expects that the vast majority of purchasers of the personal video
recorder will activate the TiVo Service. However, if the TiVo Service is not
enabled or is subsequently cancelled, the personal video recorder provides
viewers basic capabilities, including pause, rewind and fast forward navigation
of live or recorded television, and the ability to record selected programs by
manually programming the personal video recorder without the aid of the TiVo
Service.
The TiVo Remote Control. The TiVo remote control can operate both the
personal video recorder and the viewer's television. Using the TiVo remote
control, a viewer is able to take advantage of the functionality of the TiVo
Service, including navigation of programming, selection of shows to be recorded
and advanced viewing features. The TiVo remote control also enables viewers to
indicate personal preferences through the use of the Thumbs Up or Thumbs Down
buttons. As the TiVo Service is expanded, the TiVo remote control will
accommodate expanded functionality associated with new features, services,
promotions and programming options.
The TiVo Broadcast Center. The TiVo Broadcast Center is a series of computer
servers that manage all of TiVo's programming and service data. The TiVo
Broadcast Center distributes proprietary services and specialized content such
as TiVo's on-air program guides, Network Showcases, TiVolution Magazine and
other content provided by TiVo and its partners. The TiVo Broadcast Center is
designed to be a platform for future services, such as iPreview, iBuy and other
interactive services. Presently, the data contained in the TiVo Broadcast
Center is communicated to each personal video recorder automatically on a
nightly basis through the subscriber's phone line. Upgrades to the software
that runs the TiVo Service are also provided automatically over this phone
line. In the future, TiVo expects to utilize satellite and cable bandwidth to
transmit data and communicate information from the TiVo Broadcast Center to the
personal video recorder.
Strategic Partnerships
TiVo's success depends on its ability to quickly build a large subscriber
base, integrate TiVo functionality into a broad range of consumer electronic
products, and develop new services and programming to enhance the
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TiVo Service. In order to better achieve these goals, TiVo has chosen to
aggressively pursue strategic partnerships with:
. cable and satellite network operators;
. television programmers;
. consumer electronics manufacturers; and
. suppliers of key components of the TiVo technology.
By working with strategic partners to develop a business model that
complements the businesses of other industry stakeholders, TiVo is seeking to
aggressively develop personal television as a major category of home
entertainment.
Through its partnerships, TiVo's personal video recorders and other devices
will be manufactured and distributed through retail and other channels. These
partners will also provide access to a large number of potential subscribers
and the resources to effectively market and promote the TiVo Service. In
addition, these partnerships will allow TiVo to provide its subscribers with
richer content, including Network Showcases, previews and promotions of
upcoming shows and other specialized viewing options on the TiVo Service. Some
of TiVo's major partnerships include:
DIRECTV. DIRECTV has agreed to promote TiVo and the TiVo Service to its
seven million subscribers. DIRECTV will provide a variety of marketing and
sales support, including commercial air time on the DIRECTV system, access
to DIRECTV subscribers for targeted mailings and placement on its web site
and in its on-air magazine. DIRECTV will also make a portion of the high
bandwidth capacity of DIRECTV's satellite network available to TiVo. TiVo
intends to use this capacity to expand and enrich the TiVo Service offered
to DIRECTV subscribers.
In connection with this agreement, DIRECTV purchased 405,405 shares of
TiVo's Series F preferred stock and received 2,981,196 shares of TiVo's
common stock, 1,128,867 of which are subject to repurchase by TiVo if
subscriber milestones are not met. In addition, DIRECTV will share in
specified revenues TiVo receives that relate to subscribers to the TiVo
Service who also subscribe to the DIRECTV satellite service.
NBC Multimedia. TiVo will work with NBC to produce weekly Network Showcases
and other programming packages that highlight current and upcoming NBC
programs. These NBC programming packages and specials will also be featured
in TiVolution Magazine. TiVo also granted NBC preferential placement on its
Network Showcases screen. TiVo and NBC have agreed to feature each other as
partners on their respective web sites.
In connection with this agreement, NBC purchased 1,013,513 shares of TiVo's
Series G preferred stock. In addition, NBC will receive certain rights with
respect to TiVo's couch commerce and Internet services if such services are
enabled on the TiVo Service.
Philips. Philips has agreed to manufacture, market and distribute personal
video recorders that enable the TiVo Service. Philips will market co-
branded personal video recorders with TiVo and support the TiVo Service in
retail channels. Philips also has a license to TiVo's technology for
developing, marketing and promoting other products that enable the TiVo
Service. For example, Philips has agreed to work with TiVo and DIRECTV to
develop and release an integrated device that enables the TiVo Service and
the DIRECTV satellite service.
Philips is also a stockholder of TiVo, having purchased 1,351,351 shares of
TiVo's Series H preferred stock. TiVo has agreed to offset certain of
Philips' manufacturing costs by paying a subsidy to Philips for each
personal video recorder that Philips manufactures and sells. TiVo has also
agreed to share a portion of the TiVo Service subscription revenues it
receives from purchasers of the personal video recorders and other devices
manufactured by Philips that enables the TiVo Service.
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Quantum. Quantum has agreed to develop and supply the hard disk drives used
in personal video recorders that enable the TiVo Service. Under the
agreement, TiVo or a designated third-party buyer may purchase from Quantum
up to an agreed number of hard disk drives at a discount. In addition,
Quantum has agreed to work with TiVo to customize its hard disk drives for
devices that enable the TiVo Service. Quantum and TiVo have also agreed to
work together in promoting TiVo and the TiVo Service.
Quantum received a warrant to purchase 324,325 shares of TiVo's Series C
preferred stock and a warrant to purchase 543,478 shares of TiVo's Series D
preferred stock in connection with this agreement. TiVo has also agreed to
share a portion of the TiVo Service subscription revenues it receives from
the personal video recorders and other devices equipped with Quantum hard
disk drives on which TiVo received a discount from Quantum.
Sales and Marketing
TiVo is building a team of sales and marketing professionals whose efforts
are focused on establishing the TiVo brand, educating consumers on the features
and benefits of the TiVo Service and personal television, and promoting sales
of personal video recorders and other devices that enable the TiVo Service.
TiVo anticipates that retail stores will be the dominant distribution channel
for its products and services and is establishing direct relationships with
potential retail partners. TiVo's marketing team maintains an on-going dialogue
with viewers via research and other consumer response vehicles to ensure that
TiVo continues to deliver services that match viewers' needs.
TiVo began selling personal video recorders and subscriptions to the TiVo
Service on March 31, 1999. To date, these sales have been made directly to
consumers, principally through TiVo's web site, www.tivo.com, and its toll-free
number, 1-877-FOR-TIVO. Philips plans to begin distributing co-branded personal
video recorders at national and regional retail chains in the second half of
1999, in time for the 1999 holiday selling season.
Philips will take primary responsibility for selling personal video recorders
to retailers and supporting the retail channel through marketing efforts, in-
store display materials and sales force training. TiVo, with the assistance of
DIRECTV, will support Philips' efforts by educating retailers about personal
video recorders and the TiVo Service and providing training where necessary. In
addition, DIRECTV plans to incorporate the TiVo logo in certain of its in-store
promotional materials starting in the first quarter of 2000. DIRECTV may also
encourage its existing and prospective customers to subscribe to the TiVo
Service by offering promotional incentives such as coupons or discounts on
DIRECTV's service.
In support of its expected retail launch, TiVo intends to initiate a
marketing campaign that utilizes print, outdoor, web and television
advertising. TiVo also intends to target certain DIRECTV subscribers with
direct mail and bill inserts. The goal of these efforts is to increase
awareness of the personal television category and to promote the TiVo brand as
the leader in this category. TiVo's marketing campaign will be augmented by a
significant advertising effort by Philips.
Privacy Policy
TiVo has adopted a privacy policy which it makes available on its web site
and delivers to each new subscriber to the TiVo Service. This policy provides
that all information that identifies a viewer as a specific person, including a
viewer's name and address, will not be disclosed to anyone without the viewer's
consent.
All information about viewers' preferences and how they use the TiVo Service
is separated from information that identifies a viewer personally, so that the
information becomes anonymous. TiVo may be able to use this anonymous
information to tell a broadcaster the percentage of TiVo viewers that recorded
a particular program, but TiVo will not know, nor be able tell the broadcaster,
which of its viewers did so, unless a viewer decides to provide that
information. No one at TiVo or anywhere else will ever know the kinds of
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programs a viewer watches or how they use the TiVo Service unless the viewer
chooses to provide that information. If a specific viewer does not want the way
in which they use their personal video recorder to be part of the anonymous
information that TiVo gathers and shares with other companies, they can ask for
a block on the release of this anonymous data.
TiVo is able to send information to viewers' personal video recorders that
allows TiVo and other companies to customize viewers' television experience.
Neither TiVo nor the company supplying the customizing options will know which
options viewers' personal video recorders select to show. If a viewer does not
want this customizing information sent to their personal video recorder, they
can simply ask for a block on such customized information.
Competition
The market for home entertainment goods and services is intensely
competitive, rapidly evolving and subject to rapid technological change. The
delivery of video and television programming is particularly competitive as new
products and services continue to be introduced and marketed. TiVo believes
that the principal competitive factors in these markets are name recognition,
performance, pricing, ease of use and functionality. Because the personal
television market is new and rapidly evolving, TiVo expects it will face
significant barriers in its efforts to secure broad market acceptance, and
intense competition at several different levels.
Established competitors in the consumer electronics market. Personal
television competes in a consumer electronics market that is crowded with
several established products and services, especially products delivering
television programming and other home video entertainment. Personal video
recorders and the TiVo Service compete with products and technologies that have
established markets and proven consumer support, such as VCRs, DVD players and
cable and satellite television systems. In addition, many of the manufacturers
and distributors of these established products have greater brand recognition,
market presence, distribution channels and advertising and marketing budgets,
and more strategic partners than we do. To be successful, TiVo believes it will
need to spend significant resources to develop consumer awareness of TiVo and
the personal television product category.
TiVo's initial success will depend not only on consumers agreeing to make a
minimum investment of $499 for a personal video recorder, but also paying a
monthly subscription fee to receive the TiVo Service. This is a significant
cost, and many consumers who have purchased VCRs, DVDs or other home video
entertainment products may be reluctant to purchase personal television systems
and services. The TiVo personal video recorder and the TiVo Service do,
however, offer several advantages over competing home video entertainment
products, including:
. an on-air guide to up to 12 days of television programming, updated on a
nightly basis;
. the ability to pause, rewind and fast forward live television;
. the ability to record every episode of a given show at the click of a
button;
. the ability to recommend television shows to viewers based upon their
particular preferences; and
. specialized content, including Network Showcases and TiVolution
Magazine.
Although the TiVo personal video recorder is not well-suited as an archival
system for recorded television shows, the TiVo System does contain a feature
that allows viewers to off-load recorded programming to a VCR. While the TiVo
personal video recorder and TiVo Service allow viewers to control live
television, the current version of the personal video recorder does not permit
viewers to record a show on one channel and watch a show being broadcast at the
same time on another channel.
Internet-related companies and companies offering similar products and
services. TiVo faces competition from Internet service providers and other
Internet companies such as WebTV, America Online and X-TV. These competitors
are seeking to meld Internet browsing and traditional broadcast, cable or
satellite
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television programming into a single medium. For example, WebTV and EchoStar
Communications have released the DishPlayer, which is a product that combines
Internet access with a program guide and the ability to pause live television.
While many of these products offer fewer services than the TiVo Service, TiVo
does not presently offer Internet browsing capability.
TiVo's primary competitor in the personal television market is Replay
Networks, Inc. Replay manufactures and markets a personal television recorder
that includes a hard disk drive and functionality similar to that of the TiVo-
enabled personal video receiver. While Replay's personal video recorder is more
expensive than the TiVo personal video recorder, Replay does not charge a
monthly subscription fee for its service.
Research and Product Development
From TiVo's inception until March 1999, TiVo's research and development
efforts were focused on designing and developing the personal video recorder
and the TiVo remote control, the TiVo Service and the TiVo Broadcast Center.
These activities included both hardware and software development. TiVo's
engineering staff is now focused on research and development in the following
three areas:
Performance engineering. TiVo will continue to devote considerable
engineering resources to improving TiVo's essential technologies. TiVo's
engineers and customer support personnel work together to quickly identify and
correct potential performance errors. TiVo also continually works to identify,
develop and implement features and functionality that improve performance in
areas such as video and audio quality, speed, and ease of use.
Platform engineering. Although TiVo does not intend to manufacture the
personal video recorder or other hardware products, the evolution of hardware
technology that enables the TiVo Service is a crucial element of TiVo's future
success. TiVo's hardware engineers are working with consumer electronics
manufacturers, component suppliers, and data storage suppliers to reduce the
manufacturing cost of the personal video recorder and integrate TiVo
functionality into other consumer electronics goods. For example, TiVo is
currently working with DIRECTV and Phillips to develop a DIRECTV satellite
receiver that enables the TiVo Service. Similarly, TiVo intends to integrate
the TiVo Service into components such as cable set-top boxes, televisions and
other consumer electronics products. TiVo intends to work with a broad range of
partners to develop its technology platform and establish TiVo as the prominent
technology in the personal television market.
Service engineering. TiVo intends to continue to develop the TiVo Service,
offering new features and programming. TiVo has assembled a group of
experienced television and multimedia professionals to create specialized
programming for the TiVo Service. As part of this effort, the programming team
is currently in the process of building software and video development tools
that will enable networks and other content providers to create specialized
programming for the TiVo Service.
TiVo's research and development expenses were $356,000 and $5.6 million for
the period from inception to December 31, 1997 and the year ended December 31,
1998, respectively, and $3.0 million for the six months ended June 30, 1999. As
of June 30, 1999, TiVo had 40 employees engaged in research and product
development activities.
Patents and Intellectual Property
TiVo has adopted a proactive patent and trademark strategy designed to
protect all important aspects of its technology and intellectual property. TiVo
has filed nine patent applications and six provisional patents. TiVo has also
jointly filed a patent application with Quantum. The patent applications that
TiVo has filed are broad in nature and are tied to fundamental inventions
rather than small, unrelated features or applications. These patent
applications cover substantially all of TiVo's technology, including hardware,
software, the TiVo Service
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functionality and appearance, network architecture, manufacturing and
international patent rights. TiVo has also filed patent applications that cover
technologies it intends to incorporate in future versions of the TiVo Service
and hardware. To date, none of these patents have been granted, and there can
be no assurance that any of these patents will ever be granted.
TiVo has filed trademark applications covering substantially all of its trade
dress, logos and slogans, including:
<TABLE>
<S> <C>
. TiVo logo
. Life's too short for bad TV
. Thumbs Up logo
. The way TV is meant to be
. Thumbs Down logo
. Viewergraphic
. Extensible Timeshifting Architecture
. Viewergraphic Profiling System
</TABLE>
These applications are currently pending with the U.S. Patent and Trademark
Office. Additionally, TiVo has international trademark applications pending for
its TiVo logo. TiVo has licensed the use of its name and logo to some of its
strategic partners. See "Risk Factors--Our success depends on our ability to
secure and protect patents, trademarks and other proprietary rights."
Trademarks
TiVo, Personal TV, the TiVo logo, Thumbs Up logo and Thumbs Down logo are
trademarks of TiVo Inc. All other trademarks and service marks appearing in
this prospectus are trademarks or service marks of the respective companies
that use them.
Employees
As of June 30, 1999, TiVo had 98 full-time employees and 2 part-time
employees. TiVo expects its workforce to increase substantially over the next
12 months. See "Risk Factors--Our business is expanding rapidly and our failure
to manage growth could disrupt our business and impair our ability to generate
revenues."
Facilities
TiVo has 29,122 square feet of space in a facility located in Sunnyvale,
California, under a lease that expires in March 2000. In July 1999, TiVo leased
an additional 3,854 square feet of space in the same facility. TiVo's lease to
this additional space will expire in June 2000. TiVo is currently searching for
a larger facility and expects to move its operations in the first quarter of
2000.
Legal Matters
TiVo is not currently engaged in any legal proceedings. However, TiVo is
aware that media companies and other organizations may support litigation or
explore legislative solutions unless the members of the personal television
industry agree to obtain license agreements for the use of certain programming.
On September 23, 1999, TiVo received a letter from Time Warner Inc. stating
that it believed TiVo's personal television service exploits Time Warner's
copyrighted networks and programs without the necessary licenses and business
arrangements. See "Risk Factors--Intellectual property claims against us can be
costly and could result in the loss of significant rights."
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MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees and their ages as of July
15, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Executive Officers and Directors
Michael Ramsay (1).................. 49 Chairman of the Board, Chief Executive Officer
and President
James Barton (1).................... 41 Vice President of Research and Development,
Chief Technical Officer and Director
David H. Courtney................... 40 Vice President of Finance and Chief Financial
Officer
Geoffrey Y. Yang (1) (2) (3)........ 40 Director
Stewart Alsop (1) (3)............... 47 Director
Randy Komisar (1) (3)............... 44 Director
Larry N. Chapman (2)................ 44 Director
Thomas S. Rogers.................... 44 Director
Michael J. Homer (2)................ 41 Director
Jan P. Oosterveld................... 55 Director
John S. Hendricks................... 47 Director
Howard Stringer..................... 57 Director
Key Employees
Ta-Wei Chien........................ 44 Vice President of Engineering and Operations
Morgan P. Guenther.................. 45 Vice President of Business Development
Stacy Jolna......................... 47 Vice President of Programming and Media
Relations
Michael A. Mutz..................... 47 Vice President of Sales
Karrin Nicol........................ 39 Vice President of Human Resources
Mark A. Roberts..................... 39 Vice President of Information Technology and
Chief Information Officer
Robert P. Vallone................... 41 Vice President of Service Operations and
Customer Service
</TABLE>
- -----------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Michael Ramsay is a co-founder of TiVo and has served as TiVo's Chairman of
the Board of Directors, Chief Executive Officer and President since its
inception in August 1997. From April 1996 to July 1997, Mr. Ramsay was the
Senior Vice President of the Silicon Desktop Group for SGI, a manufacturer of
advanced graphics computers. From August 1994 to April 1996, Mr. Ramsay was
President of Silicon Studio, Inc., a wholly owned subsidiary of SGI focused on
enabling applications development for emerging interactive media markets. From
July 1991 to August 1994, Mr. Ramsay served as the Senior Vice President and
General Manager of SGI's Visual Systems Group. Mr. Ramsay also held the
positions of vice president and general manager for the Entry Systems Division
of SGI. Prior to 1986, Mr. Ramsay held research & development and engineering
management positions at Hewlett-Packard and Convergent Technologies. Mr. Ramsay
holds a B.S. degree in Electrical Engineering from the University of Edinburgh,
Scotland.
James Barton is a co-founder of TiVo and has served as TiVo's Vice President
of Research and Development, Chief Technical Officer and director since its
inception. From June 1996 to August 1997, Mr. Barton was President and Chief
Executive Officer of Network Age Software, Inc., a company that he founded to
develop software products targeted at managed electronic distribution. From
November 1994 to May 1996, Mr. Barton served as Chief Technical Officer of
Interactive Digital Solutions Company, a joint venture of SGI
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and AT&T Network Systems created to develop interactive television systems.
From June 1993 to November 1994, Mr. Barton served as Vice President and
General Manager of the Media Systems Division of SGI. From January 1990 to May
1991, Mr. Barton served as Vice President and General Manager of the Systems
Software Division of SGI. Prior to joining SGI, Mr. Barton held technical and
management positions with Hewlett-Packard and Bell Laboratories. Mr. Barton
holds a B.S. degree in Electrical Engineering and an M.S. degree in Computer
Science from the University of Colorado at Boulder.
David H. Courtney joined TiVo in March 1999 as its Chief Financial Officer.
From May 1995 to July 1998, Mr. Courtney served as a Managing Director at J.P.
Morgan, an investment banking firm, where he was responsible for building and
expanding the firm's high technology investment banking business in the United
States. From 1986 to 1995, Mr. Courtney was a member of the high technology
investment banking group at Goldman, Sachs & Co., most recently serving as a
Vice President. Mr. Courtney holds a B.A. degree in Economics from Dartmouth
College and an M.B.A. degree from Stanford University.
Geoffrey Y. Yang has served as a director of TiVo since October 1997. Since
1989, Mr. Yang has been a general partner of Institutional Venture Partners, a
venture capital firm. Mr. Yang is a director of MMC Networks, Inc., a developer
of network processors, and Ask Jeeves, Inc., a provider of natural-language
question answering services on the Internet. Mr. Yang holds a B.A. degree in
economics from Princeton University, a B.S.E. degree in Engineering and
Management Systems from Princeton University and an M.B.A. degree from Stanford
University.
Stewart Alsop has served as a director of TiVo since October 1997. Since
1998, Mr. Alsop has served as a general partner at New Enterprise Associates, a
venture capital investment firm. Mr. Alsop was a Venture Partner at New
Enterprise Associates from 1996 to 1998. From June 1991 to 1996, Mr. Alsop
served as Senior Vice President and Editor-in-Chief of InfoWorld Media Group,
Inc., which publishes InfoWorld, a weekly newspaper for information-technology
professionals. Mr. Alsop also serves on the board of directors of Macromedia
Inc., an Internet software company. He holds a B.A. degree in English from
Occidental College.
Randy Komisar has served as a director of TiVo since March 1998. Since 1996,
Mr. Komisar has been a strategic business advisor to various startup companies.
Since November 1997, Mr. Komisar has served as Chairman of IQ.commerce Corp.,
an online promotions and merchandising services company. Mr. Komisar was
President and Chief Executive Officer of Crystal Dynamics Inc., a video game
development and publishing company, between May 1995 and June 1996. He served
as President and Chief Executive Officer of LucasArts Entertainment Company, a
film production company, between January 1994 and May 1995. Mr. Komisar holds a
B.A. degree in Economics from Brown University and a J.D. degree from Harvard
Law School.
Larry N. Chapman has served as a director of TiVo since April 1999. Since
1998, Mr. Chapman has been the Executive Vice President of DIRECTV, Inc., a
leading digital television service provider and a unit of Hughes Electronics
Corporation. Prior to serving as Executive Vice President of DIRECTV,
Mr. Chapman served in a number of capacities for DIRECTV since its inception in
1990, including Senior Vice President of Special Markets and Distribution,
Senior Vice President of Programming, and Vice President of Business Affairs
and Development. Mr. Chapman holds a B.S. degree and M.S. degree in Electrical
Engineering from the University of Florida.
Thomas S. Rogers has served as a director of TiVo since April 1999. Since
November 1988, he has been President of NBC Cable and since 1992, Executive
Vice President of National Broadcasting Company, Inc. Mr. Rogers founded NBC's
major cable networks, CNBC and MSNBC, and international operations and is
responsible for overseeing and coordinating NBC's interests in cable and new
media. Prior to joining NBC in 1987, Mr. Rogers served as Senior Counsel to the
House Subcommittee on Telecommunications, Consumer Protection and Finance. Mr.
Rogers is a member of the board of managers of SNAP! LLC and the board of
directors of NBC Multimedia, Inc., Rainbow Media Holdings Inc. and A&E
Television Network, and has been nominated to serve on the board of directors
of NBC Internet, Inc. Mr. Rogers is Chairman of the International
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Council of the National Academy of Television Arts and Sciences. He also serves
on the board of directors of the International Radio & Television Society.
Mr. Rogers graduated from Wesleyan University and received a J.D. degree from
Columbia Law School.
Michael J. Homer has served as a director of TiVo since July 1999. Mr. Homer
has been employed with Netscape Communications Corporation, an Internet
software company, since October 1994 and has served as Netscape's Executive
Vice President and General Manager, Web Site Division, since March 1998. From
July 1997 to March 1998, he was Executive Vice President of Sales and Marketing
for Netscape, and from October 1994 to July 1997, he served as Netscape's Vice
President of Marketing. Prior to joining Netscape, Mr. Homer served as Vice
President of Engineering for GO Corporation. Mr. Homer holds a B.S. degree in
Finance from the University of California at Berkeley.
Jan P. Oosterveld has served as a director of TiVo since September 1999.
Since 1972, Mr. Oosterveld has been employed with Royal Philips Electronics
B.V., a consumer electronics company. Since May 1998, he has served as Senior
Director of Corporate Strategy of Philips and a member of the company's Group
Management Committee. Since April 1999, he also has served as a director of
Philips Venture Capital Fund B.V. Prior to 1997, Mr. Oosterveld was involved in
the management of Philips' Key Modules division. Mr. Oosterveld holds a Masters
degree in Business Administration from the Instituto de Estudios Superiors de
la Empresa in Barcelona, Spain.
John S. Hendricks has served as a director of TiVo since September 1999.
Mr. Hendricks is the Chairman and Chief Executive Officer of Discovery
Communications, Inc., a privately held, diversified media company, which he
founded in 1982. He is also a member of the boards of directors of Excalibur
Technologies Corporation, a software solutions company; Interactive Pictures
Corporation, an interactive photography and imaging company; the National
Museum of Natural History, Smithsonian Institution; the James Madison Council,
the Library of Congress; and the National Cable Television Association.
Mr. Hendricks is a member of the advisory board of the Lowell Observatory,
Chairman of the board of trustees of the Walter Kaltz Foundation and Co-chair
of the CEO Forum on Education and Technology. Mr. Hendricks holds a B.A. degree
and an honorary doctorate from the University of Alabama.
Howard Stringer has served as a director of TiVo since September 1999.
Mr. Stringer has been Chairman and Chief Executive Officer of Sony Corporation
of America, Inc., an entertainment, media and consumer goods company, since
December 1998, with Sony Music Entertainment Inc., Sony Pictures Entertainment,
Sony Online Entertainment, and Sony Development reporting to him. He joined
Sony in May 1997, and was named to the board of directors of Sony Corporation,
a consumer electronics and entertainment company, in June 1999. From March 1995
to April 1997, Mr. Stringer was Chairman and CEO of TELE-TV, a company formed
by Bell Atlantic, Nynex and Pacific Telesis. Prior to that, Mr. Stringer had
been President of the CBS Broadcast Group from 1988 to 1995. Mr. Stringer holds
a B.A. and an M.A. degree in Modern History from Oxford University.
Ta-Wei Chien has served as Vice President of Engineering and Operations since
February 1998. From December 1996 to February 1998, Mr. Chien served as Vice
President of Engineering in the Desktop Workstations group at SGI, where he
managed engineering projects for desktop workstations. From April 1991 to
December 1996, Mr. Chien was a director of digital media and VLSI engineering
at SGI. Mr. Chien holds a B.S. degree in Electrical Engineering from National
Taiwan University and an M.S. degree in Electrical Engineering from the
University of California, Los Angeles.
Morgan P. Guenther has served as Vice President of Business Development since
June 1999. From March 1998 to June 1999, Mr. Guenther was a partner of the law
firm of Paul, Hastings, Janofsky & Walker LLP. From 1990 to March 1998, Mr.
Guenther was a partner at the law firm of Farella Braun & Martel. Mr. Guenther
also serves on the board of directors of Tier Technologies, Inc., an
information technology consulting
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company. Mr. Guenther holds J.D. and B.A. degrees from the University of
Colorado and an M.B.A. degree from the University of San Francisco.
Stacy Jolna has served as Vice President of Programming and Media Relations
since May 1998. Prior to joining TiVo, Mr. Jolna had served as a Vice
President at WebTV Networks Inc., an Internet services company and subsidiary
of Microsoft Corp., since May 1997. From December 1981 to February 1996, Mr.
Jolna was employed by Cable News Network, most recently serving as a Vice
President. Mr. Jolna holds a B.S. degree from State University of New York and
an M.S. degree in Journalism from Boston University.
Michael A. Mutz has served as Vice President of Sales since June 1999. Prior
to joining TiVo, Mr. Mutz served as Vice President of Operations at U.S.
Cellular Corporation, a wireless services provider, since January 1995. From
1983 to December 1994, Mr. Mutz was employed with AT&T Corporation. Mr. Mutz
holds a B.S. degree in Electrical Engineering from the United States Military
Academy and a Master of Management degree from J.L. Kellogg Graduate School of
Management.
Karrin Nicol joined TiVo in July 1999 as Vice President of Human Resources.
From 1987 to 1999, Ms. Nicol was employed with SGI, most recently as Director
of Human Resources. Prior to that, Ms. Nicol served in various positions at
Fairchild Semiconductor Corporation. Ms. Nicol holds a B.S. degree in Food and
Nutrition from California State University, Chico.
Mark A. Roberts has served as Chief Information Officer since March 1999 and
Vice President of Information Technology since July 1999. Prior to joining
TiVo, he served as Vice President of Information Technology at Acuson
Corporation, a medical ultrasound company, from March 1996 to March 1999. From
July 1990 to March 1996, Mr. Roberts was Director of Information Systems at
SGI. Mr. Roberts holds a B.S. degree in Economics from Santa Clara University.
Robert P. Vallone has served as Vice President of Service Operations and
Customer Service since March 1999. From November 1998 to April 1999, Mr.
Vallone served as Director of Operations for TiVo. Prior to joining TiVo, Mr.
Vallone served as Director of Engineering at SGI since October 1993. Mr.
Vallone holds a B.S. degree in Experimental Psychology from Cornell
University.
Board Composition
The number of directors is fixed by resolution of the board of directors.
Upon the closing of this offering, the number of directors will remain set at
eleven. In accordance with the terms of our Amended and Restated Certificate
of Incorporation, the terms of office of the members of the board of directors
will be divided into three classes, with each class holding office for
staggered three year terms: the Class I directors' term will expire at the
annual meeting of stockholders to be held in 2000, the Class II directors'
terms will expire at the annual meeting of stockholders to be held in 2001,
and the Class III directors' terms will expire at the annual meeting of
stockholders to be held in 2002. We anticipate that the Class I directors will
include Messrs. Ramsay, Yang and Komisar, the Class II directors will include
Messrs. Barton, Homer, Rogers and Alsop, and the Class III directors will
include Messrs. Chapman, Oosterveld, Hendricks and Stringer. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board
of directors may have the effect of delaying or preventing changes in control
or management. Under Delaware law, directors may be removed for cause by the
affirmative vote of the holders of a majority of the common stock.
Prior to this offering, our certificate of incorporation granted
stockholders the right to elect members to our board of directors as follows:
. Holders of common stock were granted the right to elect two directors.
Messrs. Ramsay and Barton were elected to fill these seats.
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. Holders of Series A and B preferred stock, voting together as a single
class, were granted the right to elect two directors. Messrs. Yang and
Alsop were elected to fill these seats.
. Holders of Series C, D and E preferred stock, voting together as a
single class, were granted the right to elect one director. Mr. Chapman
was elected to fill this seat.
. Holders of Series G preferred stock were granted the right to elect one
director. Mr. Rogers was elected to fill this seat.
. Holders of Series H preferred stock were granted the right to elect one
director. Mr. Oosterveld was elected to fill this seat.
. Holders of Series I preferred stock were granted the right to elect one
director. Mr. Hendricks was elected to fill this seat.
. Holders of Series J preferred stock were granted the right to elect one
director. Mr. Stringer was elected to fill this seat.
. Holders of common and preferred stock, voting together as a single
class, were granted the right to elect two directors. Messrs. Komisar
and Homer were elected to fill these seats.
Messrs. Alsop and Yang were elected to the board of directors pursuant to a
voting agreement by and among TiVo and some of its principal stockholders.
This voting agreement and these rights will terminate upon the completion of
this offering. Each of our current directors will continue to serve on the
board of directors upon completion of this offering.
Board Compensation
Directors who are also our executive officers do not receive any additional
compensation for serving as members of the board of directors or any committee
of the board. Under our 1999 Non-Employee Directors' Stock Option Plan, non-
employee directors are granted a nonstatutory option to purchase 20,000 shares
of common stock under the directors' plan on the date on which such person is
first elected or appointed a director. Options initially granted under our
directors' plan vest over a two year period at a rate of 1/24th per month. In
addition, on the day after each of our annual meetings of stockholders,
starting with the annual meeting in 2001, each non-employee director will
automatically receive an option for 10,000 shares if the director has been a
non-employee director for at least the prior eighteen months. This option will
be fully vested. The exercise price of options under the directors' plan will
be equal to the fair market value of the common stock on the date of grant.
For more information, please see "1999 Non-Employee Directors' Stock Option
Plan."
Board Committees
Executive Committee. The executive committee has broad discretionary
authority to take most actions that may be taken by the board of directors,
including acting upon recommendations of other committees of the board of
directors, declaring a dividend, authorizing the issuance of stock and
administering our stock plans. Actions the executive committee is not
authorized to take include amending our certificate of incorporation or
bylaws, adopting an agreement of merger or consolidation or appointing members
to committees of our board of directors. The executive committee typically
meets once per month and reports to the board of directors on a quarterly
basis. The executive committee consists of Messrs. Ramsay, Barton, Yang, Alsop
and Komisar.
Audit Committee. The audit committee is responsible for, among other things,
making recommendations to the board of directors regarding the engagement of
our independent public accountants, reviewing with the independent public
accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants, and
reviewing the adequacy of our internal accounting controls. The audit
committee consists of Messrs. Yang, Chapman and Homer.
Compensation Committee. The compensation committee is responsible for
determining salaries and incentives compensation for our directors, officers,
employees and consultants and administering our stock option incentive plans.
The compensation committee consists of Messrs. Alsop, Komisar and Yang.
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Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are Messrs. Alsop, Komisar and
Yang. None of the members of our compensation committee of the board of
directors 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 and incentive plans were made solely by
the board of directors.
Executive Compensation
The following table sets forth information for the year ended December 31,
1998, regarding the compensation of our chief executive officer and our other
most highly compensated executive officer whose salary and bonus for such year
was in excess of $100,000 on an annualized basis. We refer to these individuals
as our named executive officers. There were no other executive officers of TiVo
whose salary and bonus for that year were in excess of $100,000 on an
annualized basis.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------
Name and Principal Long-Term All Other
Position Salary($) Bonus($) Compensation Awards Compensation($)
- ------------------------ ----------- --------- ------------------- ---------------
<S> <C> <C> <C> <C>
Michael Ramsay.......... $ 150,000 $ -- -- $ --
Chairman of the Board,
Chief Executive Officer
and President
James Barton............ 148,764 -- -- --
Vice President of
Research and
Development and Chief
Technical Officer
</TABLE>
Option Grants in Last Fiscal Year
There were no stock option grants to our named executive officers during the
fiscal year ended December 31, 1998. On June 16, 1999, we granted an option to
purchase 650,000 shares of common stock to Mr. Ramsay and an option to purchase
100,000 shares of common stock to Mr. Barton. These options are subject to
vesting as follows: 25% of the shares vest twelve months after the date of
grant and 2.083% of the shares vest each month thereafter. The exercise price
of these options is $6.50 per share. We recorded $675,000 in deferred
compensation in connection with these options. The deferred compensation
reflects the difference between the exercise price and the deemed fair market
value of the common stock on the date of grant.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
There were no option exercises by the named executive officers during the
fiscal year ended December 31, 1998. There were no options held by the named
executive officers at December 31, 1998.
Stock Plans
Amended and Restated 1997 Equity Incentive Plan
The board adopted, and the stockholders approved, the 1997 Equity Incentive
Plan in October 1997. The board amended and restated the 1997 incentive plan as
the Amended and Restated 1997 Equity Incentive Plan on March 16, 1999, and our
stockholders approved the amendments on April 9, 1999.
Share Reserve. We have reserved 4,000,000 shares for issuance under the 1997
equity incentive plan. If stock awards granted under the 1997 equity incentive
plan expire or otherwise terminate before the recipients
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of the stock awards purchase the shares subject to such stock awards, the
shares not acquired pursuant to such stock awards again become available for
issuance under the 1997 equity incentive plan.
Administration. The board administers the 1997 equity incentive plan unless
it delegates administration to a committee. The board has the authority to
construe, interpret and amend the 1997 equity incentive plan as well as to
determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to employees of TiVo or its
affiliates. The board may grant nonstatutory stock options, stock bonuses and
restricted stock purchase awards to employees, directors and consultants of
TiVo or its affiliates.
. A stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) for a specified period
of time.
. An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. Such an option
is free from regular income tax at both the date of grant and the date
of exercise. If two holding period tests are met, two years between
grant date and sale date and one year between exercise date and sale
date, the profit on the option is long-term capital gain income. If the
holding periods are not met, there has been a disqualifying disposition,
and the difference between the exercise price and the fair market value
of the shares on the exercise date will be taxed at ordinary income
rates. The difference between the fair market value on date of exercise
and the exercise price is an item of alternative minimum tax unless
there is a disqualifying disposition in the year of exercise.
. A nonstatutory stock option is a stock option not meeting the Internal
Revenue Code criteria for qualifying incentive stock options and,
therefore, triggering a tax upon exercise. This type of option requires
payment of state and federal income tax and, if applicable, FICA/FUTA on
the difference between the exercise price and the fair market value on
the exercise date.
. A restricted stock purchase award is an offer to purchase shares at a
price either at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of our shares at no cost to the
recipient in consideration for past services rendered. However, we may
reacquire the shares under either type of award at the original purchase
price, which is zero in the case of a stock bonus, if the recipient's
service to TiVo and its affiliates is terminated before the shares vest.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns, or is deemed to own, stock possessing more than 10% of
the total combined voting power of TiVo or any affiliate of TiVo, unless the
exercise price is at least 110% of the fair market value of the stock on the
grant date and the option term is five years or less. In addition, the board
may not grant an employee an incentive stock option under the 1997 equity
incentive plan that exceeds the $100,000 per year limitation set forth in
Section 422(d) of the Internal Revenue Code. To calculate the $100,000 per year
limitation, we determine the aggregate number of shares under all incentive
stock options granted to the employee that will become exercisable for the
first time during a calendar year. For this purpose, we include incentive stock
options granted under the 1997 equity incentive plan as well as under any other
stock plans that our affiliates or we maintain. We then determine the aggregate
fair market value of such stock as of the grant date of the option. Taking the
options
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into account in the order in which they were granted, we treat only the
options covering the first $100,000 worth of stock as incentive stock options.
We treat any options covering stock in excess of $100,000 as nonstatutory
stock options.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the chief
executive officer or the four highest compensated officers in a taxable year
to the extent that the compensation exceeds $1,000,000. When we become subject
to Section 162(m), in order to prevent options from being included in such
compensation, the board may not grant options under the 1997 equity incentive
plan to a person covering an aggregate of more than 500,000 shares in any 12
month period.
Option Terms. The board may grant options with an exercise price of 100% or
more of the fair market value of a share of our common stock on the grant
date. The maximum option term is 10 years. The board may provide for exercise
periods of any length in individual option grants. However, generally an
option terminates three months after the optionholder's service to TiVo and
its affiliates terminates. If such termination is due to the optionholder's
disability, the exercise period generally is extended to 12 months. If such
termination is due to the optionholder's death or if the optionholder dies
within three months after his or her service terminates, the exercise period
generally is extended to 18 months following death.
The board can provide that a nonstatutory stock option (but not an incentive
stock option) will be transferable. The optionholder may designate a
beneficiary to exercise the option following the optionholder's death.
Otherwise, the option exercise rights will pass by the optionholder's will or
by the laws of descent and distribution.
Terms of Other Stock Awards. The board determines the purchase price of
other stock awards but it may not be less than the fair market value of our
common stock on the grant date. The board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the 1997 equity incentive plan may, but need not be, restricted
and subject to a repurchase option in favor of TiVo in accordance with a
vesting schedule that the board determines. The board, however, may accelerate
the vesting of such restricted stock.
Other Provisions. Transactions not involving receipt of consideration by
TiVo, such as a merger, consolidation, reorganization, stock dividend, or
stock split, may change the class and number of shares subject to the 1997
equity incentive plan and to outstanding awards. In that event, the board will
appropriately adjust the 1997 equity incentive plan as to the class and the
maximum number of shares subject to the 1997 equity incentive plan and subject
to the Section 162(m) limit. It also will adjust outstanding awards as to the
class, number of shares and price per share subject to such awards.
A change in control means:
. a sale, lease or other disposition of all or substantially all of TiVo's
assets;
. a sale by TiVo stockholders of TiVo voting stock to another corporation
and/or its subsidiaries that results in the ownership by such corporation
and/or its subsidiaries of 80% or more of the combined voting power of all
classes of the voting stock of TiVo entitled to vote;
. a merger or consolidation in which TiVo is not the surviving corporation;
or
. a reverse merger in which TiVo is the surviving corporation but the shares
of common stock outstanding immediately preceding the merger are converted
by virtue of the merger into other property.
Upon a change in control of TiVo, the surviving entity may either assume or
replace outstanding awards under the 1997 equity incentive plan. Otherwise,
the vesting and exercisability of the awards generally will accelerate. In
addition, depending upon the status of the participant, an award will
ordinarily become vested as
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to 25% or 50% of the shares, even if it was assumed or replaced, if, within 13
months after the change in control, the participant is discharged other than
for cause or voluntarily resigns for good reason, as specified in the 1997
equity incentive plan.
Awards Granted. As of June 30, 1999, we had issued 2,471,958 shares upon the
exercise of options under the 1997 equity incentive plan, 399,937 of which have
been repurchased at the original exercise price and 1,423,727 of which are
subject to repurchase at the original exercise price; options to purchase
1,215,907 shares at a weighted average exercise price of $0.46 were
outstanding; and 116,902 shares remained available for future grant. As of June
30, 1999, the board had granted 195,233 shares as part of stock awards under
the 1997 equity incentive plan.
Plan Termination. The 1997 equity incentive plan will terminate in 2007
unless the board terminates it sooner.
1999 Equity Incentive Plan
Our board adopted the 1999 Equity Incentive Plan on March 16, 1999, and our
stockholders approved it on April 9, 1999. Our board and stockholders amended
the 1999 equity incentive plan on July 14, 1999.
Share Reserve. We have reserved 4,200,000 shares for issuance under the 1999
equity incentive plan. On December 31 of each year, for 10 years, beginning in
1999, the number of shares in the reserve automatically will be increased by
the greater of:
. 7% of our outstanding shares on a fully-diluted basis; or
. 4,000,000 shares.
However, no more than 40,000,000 shares will be available for incentive stock
options. If stock awards granted under the 1999 equity incentive plan expire or
otherwise terminate before the recipients of the stock awards purchase the
shares subject to such stock awards, the shares not acquired pursuant to such
stock awards again become available for issuance under the 1999 equity
incentive plan.
Administration. The board administers the 1999 equity incentive plan unless
it delegates administration to a committee. The board has the authority to
construe, interpret and amend the 1999 equity incentive plan as well as to
determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to employees of TiVo and its
affiliates. The board may grant nonstatutory stock options, stock bonuses and
restricted stock purchase awards to employees, directors and consultants of
TiVo and its affiliates.
The board may not grant an incentive stock option to any person who, at the
time of the grant, owns, or is deemed to own, stock possessing more than 10% of
the total combined voting power of TiVo or any affiliate of TiVo, unless the
exercise price is at least 110% of the fair market value of the stock on the
grant date and the option term is five years or less. In addition, the board
may not grant an employee an incentive stock option under the 1999 incentive
plan that exceeds the $100,000 per year limitation set forth in Section 422(d)
of the Internal Revenue Code. Please see the discussion of this limitation with
respect to our 1997 equity incentive plan.
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Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for certain compensation paid to the
chief executive officer or the four highest compensated officers in a taxable
year to the extent that the compensation exceeds $1,000,000. When we become
subject to Section 162(m), in order to prevent options from being included in
such compensation, the board may not grant options under the 1999 equity
incentive plan to an employee covering an aggregate of more than 1,000,000
shares in any calendar year.
Option Terms. The board may grant options with an exercise price of 100% or
more of the fair market value of a share of our common stock on the grant
date. The maximum option term is 10 years. The board may provide for exercise
periods of any length in individual option grants. However, generally an
option terminates three months after the optionholder's service to TiVo and
its affiliates terminates. If such termination is due to the optionholder's
disability, the exercise period generally is extended to 12 months. If such
termination is due to the optionholder's death or if the optionholder dies
within three months after his or her service terminates, the exercise period
generally is extended to 18 months following death.
The board can provide that a nonstatutory stock option, but not an incentive
stock option, will be transferable. The optionholder may designate a
beneficiary to exercise the option following the optionholder's death.
Otherwise, the option exercise rights will pass by the optionholder's will or
by the laws of descent and distribution.
Terms of Other Stock Awards. The board determines the purchase price of
other stock awards but it may not be less than 100% of the fair market value
of our common stock on the grant date. The board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the 1999 equity incentive plan may, but need not be, restricted
and subject to a repurchase option in favor of TiVo in accordance with a
vesting schedule that the board determines. The board, however, may accelerate
the vesting of such restricted stock.
Other Provisions. Transactions not involving receipt of consideration by
TiVo, such as a merger, consolidation, reorganization, stock dividend, or
stock split, may change the class and number of shares subject to the 1999
equity incentive plan and to outstanding awards. In that event, the board will
appropriately adjust the 1999 equity incentive plan as to the class and the
maximum number of shares subject to the 1999 equity incentive plan, subject to
the incentive stock option limitation and subject to the Section 162(m)
limitation. It also will adjust outstanding awards as to the class, number of
shares and price per share subject to such awards.
Upon a change in control, the surviving entity may either assume or replace
outstanding awards under the 1999 equity incentive plan. Otherwise, the
vesting and exercisability of the awards generally will accelerate. In
addition, depending upon the status of the participant, an award will
ordinarily become vested as to 25% or 50% of the shares, even if it was
assumed or replaced, if, within 13 months after the change in control, the
participant is discharged other than for cause or voluntarily resigns for good
reason, as specified in the 1999 equity incentive plan.
Awards Granted. As of June 30, 1999, we had issued 17,000 shares upon the
exercise of options under the 1999 equity incentive plan, none of which have
been repurchased and 17,000 of which are subject to repurchase at the original
exercise price; options to purchase 1,945,605 shares at a weighted average
exercise price of $5.65 were outstanding; and 443,386 shares remained
available for future grant. As of June 30, 1999, the board had granted
94,009 shares as part of stock awards under the 1999 equity incentive plan.
Termination. The 1999 Equity Incentive Plan will terminate in 2009 unless
the board terminates it sooner.
1999 Non-Employee Directors' Stock Option Plan
Our board and the stockholders adopted the 1999 Non-Employee Directors'
Stock Option Plan on July 14, 1999. The plan became effective upon adoption by
the board. The directors' plan provides for the automatic grant to our non-
employee directors of options to purchase shares of our common stock.
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Share Reserve. We have reserved 500,000 shares of common stock for issuance
under the directors' plan. Every year, on December 31, the number of shares in
the reserve automatically will increase by 100,000 shares. If options granted
under the directors' plan expire or otherwise terminate without being
exercised, the shares not acquired pursuant to such options again become
available for issuance under the directors' plan.
Eligibility. Each person who was a non-employee director on July 14, 1999, or
is elected or appointed for the first time to be a non-employee director after
July 14, 1999, automatically received or will receive an initial option to
purchase 20,000 shares of common stock. The initial option will vest monthly
over two years at a rate of 1/24th per month. In addition, on the day after
each of our annual meetings of the stockholders, starting with the annual
meeting in 2001, each non-employee director will automatically receive an
option for 10,000 shares if the director has been a non-employee director for
at least the prior six months. However, with respect to the first annual grant
made to any non-employee director at least 18 months must have elapsed between
the initial grant to such person and the first annual grant to such person. The
annual grant will be fully vested.
Administration. The board administers the directors' plan unless it delegates
administration to a committee. The board has the authority to construe,
interpret and amend the directors' plan, but the directors' plan specifies the
essential terms of the options.
Option Terms. Options generally have an exercise price equal to 100% of the
fair market value of the common stock on the grant date. Prior to this initial
public offering, however, the exercise price of an option granted to a non-
employee director who owns (or is deemed to own) stock possessing more than 10%
of the total combined voting power of all classes of stock of TiVo or any of
its affiliates must have an exercise price equal to 110% of the fair market
value of the common stock on the grant date. The option term is 10 years but it
terminates three months after the optionholder's service as a director, an
employee or a consultant to TiVo and its affiliates terminates. If such
termination is due to the optionholder's disability, the exercise period is
extended to 12 months. If such termination is due to the optionholder's death
or if the optionholder dies within three months after his or her service
terminates, the exercise period is extended to 18 months following death.
Other Provisions. The optionholder may transfer the option by gift to
immediate family or for estate-planning purposes. The optionholder also may
designate a beneficiary to exercise the option following the optionholder's
death. Otherwise, the option exercise rights will pass by the optionholder's
will or by the laws of descent and distribution. Transactions not involving
receipt of consideration by TiVo, such as a merger, consolidation,
reorganization, stock dividend, or stock split, may change the class and number
of shares subject to the directors' plan and to outstanding options. In that
event, the board will appropriately adjust the directors' plan as to the class
and the maximum number of shares subject to the directors' plan and subject to
future option grants. It also will adjust outstanding options as to the class,
number of shares and price per share subject to such options. Upon a change in
control of TiVo, the vesting and exercisability of outstanding options will
accelerate, and the options will terminate unless an acquiring corporation
assumes or replaces outstanding options.
Options Issued. We have issued an aggregate of 180,000 shares under the
directors' plan.
Termination. The directors' plan will terminate in 2009 unless the board
terminates it sooner.
1999 Employee Stock Purchase Plan
Our board and stockholders adopted the 1999 Employee Stock Purchase Plan on
July 14, 1999.
Share Reserve. We have reserved 600,000 shares of our common stock for
issuance pursuant to purchase rights granted under the purchase plan. The first
offering under the purchase plan will begin on the effective date of this
initial public offering. For the first offering, the board has granted purchase
rights both to our full-time employees and to full-time employees of our
affiliates incorporated in the United States. We currently do not have any such
affiliates. However, if we acquire or establish an affiliate incorporated in
the United States
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during the first half of the first offering, then full-time employees of that
affiliate also may participate in the first offering. On December 31 of each
year for 10 years, beginning in 1999, the number of shares in the reserve
automatically will be increased by the lower of:
. 5% of our outstanding shares on a fully-diluted basis;
. 500,000 shares; or
. a smaller number of shares as determined by the board.
Eligibility. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement the purchase plan by offerings
of purchase rights to eligible employees. Generally, all full-time employees
who have been employed for at least 10 days may participate in the purchase
plan. However, no employee may participate in the purchase plan if immediately
after we grant the employee a purchase right, the employee has voting power
over, or the value of, 5% or more of the outstanding capital stock of TiVo or
an affiliate of TiVo.
Administration. The board administers the purchase plan unless it delegates
it to a committee. 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. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, common stock is
purchased for accounts of participating employees at a price per share equal to
the lower of:
. 85% of the fair market value of a share on the first day of the
offering; or
. 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, we will offer shares registered on a Form S-8
registration statement. The fair market value of the shares on the first date
of this offering will be the price per share at which our shares are first sold
to the public as specified in the final prospectus with respect to our initial
public offering. Otherwise, fair market value generally means the closing sales
price (rounded up where necessary to the nearest whole cent) for such shares
(or the closing bid, if no sales were reported) as quoted on the Nasdaq
National Market on the trading day prior to the relevant determination date, as
reported in The Wall Street Journal.
The board may provide that employees who become eligible to participate after
the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
. 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
. 85% of the fair market value of a share on the purchase date.
Participating employees may authorize payroll deductions of up to 15% of
their base compensation for the purchase of stock under the purchase plan.
Employees may end their participation in the offering at any time up to 10 days
before a purchase date. Participation ends automatically on termination of
employment with TiVo and its affiliates.
Other Provisions. The 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 TiVo or
its affiliates, do not permit the employee's rights to purchase our stock to
accrue at a rate which exceeds $25,000 of the fair market value of our stock
for each calendar year in which the purchase rights are outstanding.
Transactions not involving receipt of consideration by TiVo, 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, the 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 TiVo, the board may provide that the successor
corporation will assume or substitute for outstanding purchase rights.
Alternatively, the board may shorten the offering period and provide that our
stock will be purchased for the participants immediately before the change in
control.
Shares Issued. We have not issued any shares under the purchase plan.
Termination. The purchase plan will terminate when the share reserve is
exhausted unless the board terminates it sooner.
401(k) Plan
We maintain the TiVo Inc. 401(k) Retirement Plan for eligible 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 20% of his or her total annual
compensation to the 401(k) plan, or up to a statutorily prescribed annual
limit, if less. The annual limit for 1999 is $10,000. Each participant is
fully vested in his or her deferred salary contributions. Participant
contributions are held and invested by the 401(k) plan's trustee. We may make
discretionary contributions as a percentage of participant contributions,
subject to establish limits. To date, we have not made any contributions to
the 401(k) plan on behalf of the participants. The 401(k) plan is intended to
qualify under Section 401 of the Internal Revenue Code, so that contributions
by us or our employees to the 401(k) plan, and income earned on the 401(k)
plan contributions, are not taxable to employees until withdrawn from the
401(k) plan, and so that our contributions, if any, will be deductible by us
when made.
Limitation of Liability and Indemnification Matters
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a director of a corporation will not be personally liable for
monetary damages for breach of the fiduciary duties as a director except for
liability:
. for any breach of the director's duty of loyalty to TiVo or to our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derives an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the
full extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of an indemnified
party. Our bylaws also require us to advance expenses incurred by directors
and executive officers in connection with the defense of any action or
proceeding, subject to several exceptions, arising out of the status or
service as one of our directors or executive officers upon an undertaking by
that party to repay these advances if it is ultimately determined that the
party is not entitled to indemnification. Furthermore, our bylaws authorize us
to enter into indemnification agreements with our directors, officers,
employees and agents and we intend to enter into these agreements. A copy of
the form of the indemnity agreement has been filed as an exhibit to the
registration statement of which this prospectus is part. We also maintain
directors' and officers' liability insurance.
At present, we are not aware of any pending litigation or proceeding
involving any of our directors, officers, employees or agents where
indemnification will be required or permitted. Furthermore, we are not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
We are aware that the Securities and Exchange Commission considers
indemnification for liabilities arising under the Securities Act to be against
public policy. Even if our indemnification of our directors, officers and
controlling persons for liabilities arising under the Securities Act is
permitted under indemnification agreements, it would be unenforceable as a
matter of public policy.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Private Placement Financings
On August 5, 1997, we sold 1,400,000 shares (split to 1,458,332 shares on
September 24, 1997) of common stock to each of our founders, Michael Ramsay and
James Barton. The aggregate purchase price for these shares was $10,080.
Between September 24, 1997 and September 9, 1999, we sold an aggregate of
21,819,444 shares of preferred stock in the following rounds of financings:
. on September 24, 1997 and October 22, 1997, we sold an aggregate of
5,000,000 shares of Series A preferred stock at a per share price of
$0.60;
. on May 29, 1998, June 26, 1998 and July 27, 1998, we sold an aggregate
of 3,660,914 shares of Series B preferred stock at a per share price of
$1.26;
. on October 8, 1998, October 30, 1998 and December 22, 1998, we sold an
aggregate of 2,513,513 shares of Series C preferred stock at a per share
price of $1.85;
. on January 20, 1999, we sold 1,358,695 shares of Series D preferred
stock at a per share price of $3.68;
. on March 19, 1999, we sold 270,270 shares of Series E preferred stock at
a per share price of $7.40;
. on April 13, 1999, sold 405,405 shares of Series F preferred stock at a
per share price of $7.40;
. on April 16, 1999, we sold 1,013,513 shares of Series G preferred stock
at a per share price of $7.40;
. on April 23, 1999, we sold 1,351,351 shares of Series H preferred stock
at a per share price of $7.40;
. on July 21, 1999, we sold 3,121,994 shares of Series I preferred stock
at a per share price of $10.41; and
. on August 10, 1999 and September 9, 1999, we sold an aggregate of
3,123,789 shares of Series J preferred stock at a per share price of
$10.41.
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Each of the foregoing private financings was made pursuant to preferred stock
purchase agreements and investor rights agreements. The terms of those
agreements, with the exception of amount and price, were substantially similar
for the Series A through Series J financings, under which we made standard
representations, warranties and covenants, and which provided the purchasers
with rights of first offer and registrations rights. All of the material terms
of the Series A through Series J agreements, with the exception of the
registration rights, will terminate upon the effective date of the registration
statement of which this prospectus is a part. For a description of the
registration rights, see "Description of Capital Stock--Registration Rights."
The purchasers of the preferred stock included, among others, the following
directors, entities associated with directors, and each person or group who is
known by us to own beneficially 5% or more of our common stock:
<TABLE>
<CAPTION>
Common Common Common Common Common Common Common Common Common Warrants to
equivalent equivalent equivalent equivalent equivalent equivalent equivalent equivalent equivalent purchase
shares of shares of shares of shares of shares of shares of shares of shares of shares of shares of
Series A Series B Series C Series D Series F Series G Series H Series I Series J Series A
preferred preferred preferred preferred preferred preferred preferred preferred preferred preferred
Investor(1) stock stock stock stock stock stock stock stock stock stock
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michael
Ramsay(2)...... 666,667 -- -- -- -- -- -- -- -- --
James
Barton(3)...... 166,667 -- -- -- -- -- -- -- -- --
Randy
Komisar(4)..... -- 24,800 -- -- -- -- -- -- -- 52,083
Entities
affiliated with
New Enterprise
Associates
(Stewart Alsop).. 2,000,000 1,587,302 594,595 -- -- -- -- -- -- --
Entities
affiliated with
Institutional
Venture
Partners
(Geoffrey Y.
Yang).......... 2,000,000 1,587,302 594,595 -- -- -- -- -- -- --
DIRECTV, Inc
(Larry N.
Chapman)....... -- -- -- -- 405,405 -- -- -- -- --
Vulcan Ventures
Incorporated... -- -- -- 1,358,695 -- -- -- -- -- --
NBC Multimedia,
Inc.
(Thomas S.
Rogers)........ -- -- -- -- -- 1,013,513 -- -- -- --
Philips Venture
Capital Fund
B.V.
(Jan P.
Oosterveld) ... -- -- -- -- -- -- 1,351,351 -- -- --
Discovery
Communications,
Inc.
(John S.
Hendricks)..... -- -- -- -- -- -- -- 720,461 -- --
Sony Corporation
of America,
Inc.
(Howard
Stringer) ..... -- -- -- -- -- -- -- -- 2,643,482 --
</TABLE>
- --------------------
(1) Shares held by all affiliated persons and entities have been aggregated.
See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Michael Ramsay is Chairman of the Board, Chief Executive Officer and
President. The Series A preferred stock issued to Mr. Ramsay was not
compensatory. Mr. Ramsay paid the full purchase price for these shares in
cash. These shares have the same rights, preferences and privileges as all
other outstanding shares of Series A preferred stock and, upon completion
of this offering, will automatically convert, on a one-for-one basis, into
shares of common stock.
(3) James Barton is Vice President of Research and Development, Chief
Technical Officer and a director. The Series A preferred stock issued to
Mr. Barton was not compensatory. Mr. Barton paid the full purchase price
for these shares in cash. These shares have the same rights, preferences
and privileges as all other outstanding shares of Series A preferred stock
and, upon completion of this offering, will automatically convert, on a
one-for-one basis, into shares of common stock.
(4) Randy Komisar is a director. His Series B preferred stock is held by his
family trust, of which he is a trustee. The Series A warrant and Series B
preferred stock issued to Mr. Komisar was not compensatory. Mr. Komisar
paid the full purchase price for these shares of Series B in cash and the
exercise price of the Series A warrant is equal to the fair market value
of the Series A preferred stock at the time of issuance. The shares of
Series A preferred stock issuable upon exercise of the warrant and shares
of Series B preferred stock have the same rights, preferences and
privileges as all other outstanding shares of Series A and B preferred
stock and, upon completion of this offering, will automatically convert,
on a one-for-one basis, into shares of common stock.
The foregoing table has been adjusted to reflect the automatic conversion of
each outstanding share of Series A through J preferred stock into common stock
on a one-for-one basis upon the completion of this offering.
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<PAGE>
Series J Preferred Stock
On August 6, 1999, we entered into a stock purchase agreement with America
Online, Inc. for the sale and issuance of 480,307 shares of Series J preferred
stock at a per share price of $10.41. In connection with this transaction, we
also entered into a letter of intent with AOL, pursuant to which we agreed to
negotiate in good faith toward the execution of a commercial agreement relating
to the integration of an AOL television service onto the TiVo personal video
recorder.
On August 6, 1999, we entered into a stock purchase agreement with Sony
Corporation of America, Inc. for the sale and issuance of 2,643,482 shares of
Series J preferred stock at a per share price of $10.41. This transaction was
completed on September 9, 1999. As a holder of a majority of the outstanding
shares of Series J preferred stock, Sony can elect one member of our board of
directors. In connection with the sale of Series J preferred stock, we also
entered into a letter of intent with Sony, pursuant to which we agreed to
negotiate in good faith toward the execution of a commercial agreement relating
to manufacturing and content licensing arrangements.
Other transactions with major stockholders and directors
In connection with Mr. Komisar's appointment as a director in March 1998, he
received a warrant to purchase 52,083 shares of Series A preferred stock at an
exercise price of $0.60 per share. This warrant is fully exerciseable as of the
date of its issuance. The warrant expires on the closing of this offering.
On April 8, 1999, we entered into a secured convertible debenture purchase
agreement with certain stockholders, including the following 5% stockholders:
(1) New Enterprise Associates VII, L.P., and (2) Institutional Ventures VII,
L.P. Under the terms of this agreement, we can borrow up to $3,000,000 at an
interest rate of 4.67% per annum. The debentures to be delivered by us for any
loan made under this agreement are convertible into common stock on a one-for-
one basis and secured substantially by all of our assets other than
intellectual property. The debentures mature on June 30, 2000. In conjunction
with the agreement, we issued warrants to purchase 81,522 shares of common
stock at an exercise price of $2.50 per share, including warrants to purchase
35,307 shares of common stock to New Enterprise VII, L.P. and warrants to
purchase 35,307 shares of common stock to Institutional Ventures VII, L.P.
These warrants expire on the closing of this offering.
We intend to enter into indemnification agreements with our directors and
executive officers for the indemnification of and advancement of expenses to
these persons to the full extent permitted by law. We also intend to execute
these agreements with future directors and executive officers.
Agreement with DIRECTV, Inc.
On April 13, 1999, in connection with the issuance and sale of Series F
preferred stock to DIRECTV, we issued an aggregate of 2,981,196 shares of our
common stock to DIRECTV, Inc. at a per share purchase price of $2.50. Pursuant
to the terms of a marketing agreement with DIRECTV, Inc., $2,822,168 of the
common stock purchase price was paid by a promissory note maturing in 36
months, $2,981 of the purchase price was paid in past services and $4,627,841
of the purchase price was to be paid by future services.
Our marketing agreement with DIRECTV provides for the promotion and support
of our products and the TiVo Service on the DIRECTV satellite system. DIRECTV
has agreed to give us access to its seven million subscribers and to actively
market and promote TiVo and the TiVo Service. Specifically, DIRECTV has agreed
to use its commercially reasonable efforts to encourage retailers to distribute
our products and the TiVo Service. DIRECTV also has agreed to make broadcast
time available via its DIRECTV satellite broadcast system for infomercials and
commercials that promote the TiVo Service and our products. DIRECTV has agreed
to provide us with access to DIRECTV subscribers for the purpose of mailing
promotional materials relating to the TiVo Service and products that enable the
TiVo Service. Further, DIRECTV has agreed to include advertising relating to
our products and the TiVo Service on DIRECTV's website and in DIRECTV's On and
See magazines. DIRECTV has also agreed to make available to us a specified
level of bandwidth on
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<PAGE>
the DIRECTV system to expand and enrich the TiVo Service offered to DIRECTV
subscribers. Finally, DIRECTV and TiVo have agreed to work together with
Philips or other manufacturers to develop a combination DIRECTV/TiVo set-top
receiver. In exchange for these marketing and advertising obligations, DIRECTV
will receive a percentage of TiVo's revenue attributable to DIRECTV
subscribers.
Of the 2,981,196 shares granted to DIRECTV in connection with the marketing
agreement, 1,128,867 shares are subject to a right of repurchase held by TiVo.
Under the terms of the marketing agreement, we have the right to repurchase all
or a portion of these shares based on the number of DIRECTV subscribers who
activate the TiVo Service within three years.
Agreement with Philips Business Electronics B.V.
On March 31, 1999, we entered into an agreement with Philips Business
Electronics B.V., an affiliate of one of our stockholders, for the manufacture,
marketing and distribution of personal video recorders that enable the TiVo
Service. This agreement grants Philips the right to manufacture, market and
sell personal video recorders that enable the TiVo Service in North America. We
also granted Philips the right to manufacture, market and sell personal video
recorders in North America that incorporate both DIRECTV's satellite receiver
and the TiVo Service.
We also granted Philips a license to our technology for the purpose of
manufacturing personal video recorders and other devices that enable the TiVo
Service. In addition, we have agreed to subsidize Philips' manufacture and sale
of the personal video recorders. The amount of the subsidy is formula-based and
periodically adjusted based on Phillips' manufacturing costs and selling
prices. A portion of the subsidy is payable after shipment by Philips and the
balance is payable after the subscription is activated.
In addition to this manufacturing subsidy, we have agreed to pay Philips a
fixed amount per month for each Philips-branded personal video recorder that is
owned by an active TiVo Service subscriber. Finally, our agreement with Philips
provides that Philips will spend a specified amount on marketing activities
related to Philips-branded personal video recorders that enable the TiVo
Service. After this initial marketing expenditure, Philips has also agreed to
dedicate a percentage of the net sales revenues that it receives from personal
video recorders that enable the TiVo Service to further marketing activities.
Agreement with NBC Multimedia, Inc.
On April 16, 1999, in connection with the issuance and sale of Series G
preferred stock to NBC Multimedia, Inc., we entered into an agreement with NBC
relating to the TiVo Service. Under the agreement, we granted NBC preferential
"anchor" placement on the Showcase screen of the TiVo Service. In addition, NBC
programming packages and specials will be featured in TiVolution Magazine and
NBC may include NBC promotions and/or featured programs for inclusion on the
materials packaged with each personal video recorder. TiVo and NBC will feature
each other as partners on their respective Internet websites with a link to the
other's website. We have also agreed to work with NBC to produce weekly
showcases and special programming packages that highlight current and upcoming
NBC programs.
NBC also received the right to sell NBC merchandise through our couch
commerce service and the right to include links to websites and other Internet
content should such services be enabled on the TiVo Service during the term of
our agreement with NBC. After our couch commerce area is launched, NBC will
receive free placement in such area to sell NBC merchandise. In the event that
we enable Internet connection for the TiVo Service during the term of the NBC
agreement, we will ensure that any links and/or web content incorporated within
NBC signals will be passed through to TiVo Service viewers.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 21, 1999, and as
adjusted to reflect the sale of the shares of common stock offered hereby, by:
. each person or group of affiliated persons who is known by us to own
beneficially 5% or more of our common stock;
. each of our directors and named executive officers; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the persons listed below have sole voting and
investment power with respect to shares of our common stock shown as
beneficially owned by them, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with respect to
securities. Percentage of beneficial ownership prior to the offering is based
on 30,236,164 shares of common stock outstanding as of September 21, 1999, and
35,736,164 shares of common stock outstanding after completion of the offering.
In accordance with the rules of the SEC, each beneficial owner's percentage
ownership assumes the exercise or conversion of all options, warrants and other
convertible securities held by such person and that are exercisable or
convertible 60 days after September 21, 1999. Each beneficial owner's
percentage ownership does not include any shares of common stock that such
owner may purchase in the offering. Except as otherwise noted, the address of
each person listed is c/o TiVo Inc., 894 Ross Drive, Suite 100, Sunnyvale, CA
94089.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned
Shares --------------------
Beneficially Before After
Beneficial Owner Owned Offering Offering(1)
- ---------------- ------------ -------- -----------
<S> <C> <C> <C>
Named Executive Officers and Directors
Michael Ramsay(2)........................... 2,764,999 9.0 7.2
James Barton(3)............................. 1,724,999 5.7 4.8
Geoffrey Y. Yang(4)......................... 4,220,537 13.9 11.8
Stewart Alsop(5)............................ 4,220,537 13.9 11.8
Randy Komisar(6)............................ 236,466 * *
Larry N. Chapman(7)......................... 3,389,934 11.2 9.5
Thomas S. Rogers(8)......................... 1,016,846 3.4 2.8
Michael J. Homer(9)......................... 3,333 * *
Jan P. Oosterveld(10)....................... 1,353,017 4.5 3.8
John S. Hendricks(11)....................... 722,127 2.4 2.0
Howard Stringer(12)......................... 2,645,148 8.7 7.4
5% Stockholders
Entities Affiliated with Institutional
Venture Partners(4)........................ 4,217,204 13.9 11.8
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Entities Affiliated with New Enterprise
Associates(5).............................. 4,217,204 13.9 11.8
2490 Sand Hill Road
Menlo Park, CA 94025
DIRECTV, Inc. .............................. 3,386,601 11.2 9.5
2230 East Imperial Highway
El Segundo, CA 90245
Sony Corporation of America, Inc............ 2,643,482 8.7 7.4
550 Madison Avenue
New York, NY 10022
All executive officers and directors as a
group (12 persons)(13)..................... 22,552,761 72.0 61.3
</TABLE>
- -----------------------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." If the Underwriters' over-allotment option is exercised
in full, we will sell an additional 825,000 shares of common stock, and
36,561,164 shares of common stock will be outstanding after the
completion of the offering.
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<PAGE>
(2) Includes 650,000 shares Mr. Ramsay has the right to acquire pursuant to
outstanding options exercisable within 60 days, none of which will have
vested.
(3) Includes 100,000 shares Mr. Barton has the right to acquire pursuant to
outstanding options exercisable within 60 days, none of which will have
vested.
(4) Includes 4,006,440 shares of stock owned by Institutional Venture
Partners VII, L.P. ("IVP"), 83,638 shares of stock owned by Institutional
Venture Management VII, L.P. ("IVM VII") and 91,819 shares of stock owned
by IVP Founders Fund I, L.P. ("FFI"). Also includes 35,307 shares IVP has
the right to acquire pursuant to an outstanding warrant exercisable
within 60 days. Mr. Yang, one of our directors, is a general partner of
IVM VII, the general partner of IVP, and a general partner of
Institutional Venture Management VI, L.P., the general partner of FFI.
Mr. Yang disclaims beneficial ownership of these shares except to the
extent of his individual partnership interests, but exercises shared
voting and investment power with respect to these shares. Also includes
3,333 shares subject to stock options exercisable within 60 days of
September 21, 1999.
(5) Represents (a) 41,667 shares held by NEA Presidents Fund, L.P., (b) 8,333
shares held by NEA Ventures 1997, L.P., and (c) 4,131,897 shares held by
New Enterprise Associates VII, L.P. Also includes 35,307 shares New
Enterprise Associates VII, L.P. has the right to acquire pursuant to an
outstanding warrant exercisable within 60 days. Mr. Alsop, one of our
directors, is a limited partner of NEA Partners VII, which is the general
partner of New Enterprise Associates VII, L.P. Mr. Alsop disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interests therein. Mr. Alsop is not a partner of NEA Presidents Fund L.P.
or NEA Ventures 1997, L.P. Also includes 3,333 shares subject to stock
options exercisable within 60 days of September 21, 1999.
(6) Includes 156,250 shares Mr. Komisar acquired pursuant to the exercise of
stock options, 68,437 shares of which will be vested within 60 days. All
outstanding shares are held by Komisar/Dunn Family Trust, of which
Mr. Komisar is a trustee. Also includes 52,083 shares Mr. Komisar has the
right to acquire pursuant to an outstanding warrant exercisable within 60
days and 3,333 shares subject to stock options exercisable within 60 days
of September 21, 1999.
(7) Includes 3,386,601 shares held by DIRECTV, Inc. Mr. Chapman is an officer
of DIRECTV, Inc. and is a member of our board of directors. Mr. Chapman
disclaims beneficial ownership of such shares. Also includes 3,333 shares
subject to stock options exercisable within 60 days of September 21,
1999.
(8) Includes 1,013,513 shares held by NBC Multimedia, Inc., a wholly owned
subsidiary of National Broadcasting Company, Inc. Mr. Rogers is an
officer of National Broadcasting Company, Inc. and is a member of our
board of directors. Mr. Rogers disclaims beneficial ownership of such
shares. Also includes 3,333 shares subject to stock options exercisable
within 60 days of September 21, 1999. Mr. Rogers disclaims beneficial
ownership of such shares.
(9) Includes 3,333 shares subject to stock options exercisable within 60 days
of September 21, 1999.
(10) Includes 1,351,351 shares held by Philips Venture Capital Fund B.V.
Mr. Oosterveld is an officer of Royal Philips Electronics B.V., an
affiliate of Philips Venture Capital Fund B.V., and is a member of our
board of directors. Mr. Oosterveld disclaims beneficial ownership of such
shares. Also includes 1,666 shares subject to stock options exercisable
within 60 days of September 21, 1999.
(11) Includes 720,461 shares held by Discovery Communications, Inc.
Mr. Hendricks is an officer of Discovery Communications, Inc. and is a
member of our board of directors. Mr. Hendricks disclaims beneficial
ownership of such shares. Also includes 1,666 shares subject to stock
options exercisable within 60 days of September 21, 1999.
(12) Includes 2,643,482 shares held by Sony Corporation of America, Inc.
Mr. Stringer is an officer of Sony Corporation of America, Inc. and a
member of our board of directors. Mr. Stringer disclaims beneficial
ownership of such shares. Also includes 1,666 shares subject to stock
options exercisable within 60 days of September 21, 1999.
(13) Includes 954,814 shares subject to options exercisable within 60 days of
September 21, 1999, 24,996 of which will have vested, and 122,697 shares
subject to warrants exercisable within 60 days. Also includes 231,250
shares acquired pursuant to the exercise of stock options, 68,437 shares
of which will be vested within 60 days
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, after giving effect to the conversion of
all outstanding shares of preferred stock into common stock and the filing of
our Amended and Restated Certificate of Incorporation, our authorized capital
stock will consist of 75,000,000 shares of common stock, $0.001 par value per
share, and 2,000,000 shares of preferred stock, $0.001 par value per share.
Common Stock
As of September 21, 1999, there were 30,236,164 shares of common stock
outstanding held of record by 115 stockholders. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of the stockholders. A vote of the majority of the stockholders is
required to approve actions submitted to stockholders in accordance with
Delaware law. Unless Section 2115 of the California Corporations Code is
applicable to us, holders of common stock are not entitled to cumulative voting
rights with respect to the election of directors and, as a result, the holders
of a majority of the shares voted can elect all of the directors then standing
for election. See "--California Foreign Corporation Law."
Subject to preferences that may be applicable to any outstanding shares of
preferred stock, the holders of common stock are entitled to receive ratably
such dividends as may be declared by the board of directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up, holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive rights and no right to convert their
common stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock.
Preferred Stock
There are, and upon completion of this offering, there will be, no shares of
preferred stock outstanding. The board of directors has the authority, without
further action by the stockholders, to issue up to 2,000,000 shares of
preferred stock, $0.001 par value, in one or more series and to fix the powers,
preferences, privileges, rights and qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by stockholders. We believe that the board of directors'
authority to set the terms of, and our ability to issue, preferred stock will
provide flexibility in connection with possible financing transactions in the
future. The issuance of preferred stock, however, could adversely affect the
voting power of holders of common stock, and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control. We have no
present plan to issue any shares of preferred stock.
Warrants
On April 8, 1999, we issued warrants to purchase an aggregate of 81,522
shares of our common stock at an exercise price of $2.50 per share to four of
our stockholders.
On March 18, 1998, we issued a warrant to purchase 52,083 shares of our
Series A preferred stock at an exercise price of $0.60 per share to Randy
Komisar, one of our directors. On February 12, 1999, we issued a warrant to
purchase 60,813 shares of our Series B preferred stock at an exercise price of
$1.26 per share to Comdisco, Inc. On November 6, 1998, we issued a warrant to
purchase 324,325 shares of our Series C preferred stock at an exercise price of
$0.01 per share to Quantum Corporation. At the same time, we also issued
Quantum a warrant to purchase 543,478 shares of our Series D preferred stock at
an exercise price of $0.01 per share. On April 30, 1999, we issued a warrant to
purchase 1,250 shares of our Series E preferred stock at an exercise price of
$7.40 per share to Silicon Valley Bank. On July 21, 1999, we issued a warrant
to purchase 192,122 shares of our Series I preferred stock at an exercise price
of $10.41 per share to Creative Artists Agency, LLC.
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<PAGE>
Generally, each warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon exercise of the
warrant under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications, consolidations and certain dilutive
issuances of securities at prices below the then existing warrant price. The
warrants to purchase shares of our common stock will expire upon the closing of
an initial public offering at a per share price of not less than $5.00 and an
aggregate offering price of at least $10.0 million. The warrants to purchase
shares of our preferred stock will expire upon the closing of an initial public
offering without regard to the per share price or the aggregate offering price
of the offering.
Registration Rights
The holders of an aggregate of 24,800,640 shares of common stock, or their
transferees, are entitled to rights with respect to the registration of these
shares under the Securities Act. These rights are provided under the terms of
an investors rights agreement between us and the holders of these shares. In
the event our preferred stock warrant holders exercise their warrants they will
be added as parties to this agreement. Under the terms of the investor rights
agreement, we will be required, upon the written request from holders of at
least 30% of these shares, to use our best efforts to register these shares for
public resale, provided that the proposed aggregate offering price of such
shares exceeds $10.0 million. We are required to effect only two such
registrations, and we are not required to comply with such a demand prior to
the earlier of September 1, 2001 or 180 days after the closing of an initial
public offering of our stock. These holders also have the right, upon written
request from holders of at least 100,000 shares, to have these shares
registered by us on Form S-3 provided that such requested registration has an
anticipated aggregate offering price to the public of at least $3.0 million and
we have not already effected two such registrations on Form S-3 in any 12-month
period once we are eligible to use Form S-3. If we register any of our common
stock either for our own account or for the account of other security holders,
the holders of these shares are entitled to include their shares in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in this offering. All fees, costs and expenses of such
registrations will be borne by us and all selling expenses, including
underwriting discounts, selling commissions and stock transfer taxes, will be
borne by the holders of the securities being registered.
Delaware Law and Certain Charter Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
employees, owns or, within three years prior, did own 15% or more of the
corporation's voting stock.
Our Amended and Restated Certificate of Incorporation and Bylaws also require
that, effective upon the closing of this offering, any action required or
permitted to be taken by our stockholders must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing. In addition, special meetings of our stockholders may be
called only by our board of directors, the Chairman of the Board or the Chief
Executive Officer. Our Amended and Restated Certificate of Incorporation and
bylaws also provide that directors may be removed only for cause by a vote of a
majority of the stockholders and that vacancies on the board of directors
created either by resignation, death, disqualification, removal or by an
increase in the size of the board of directors may be filled by a majority of
the directors in office, although less than a quorum. Our Amended and Restated
Certificate of Incorporation also provides for a classified board of directors
and specifies that the authorized number of directors may be changed only by
resolution of the board of directors. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management. See
"Management--Board Composition."
67
<PAGE>
California Foreign Corporation Law
Pursuant to section 2115 of the California Corporations Code, under some
circumstances several provisions of the California Corporations Code may be
applied to foreign corporations qualified to do business in California
notwithstanding the law of the jurisdiction where the corporation is
incorporated. The corporations are referred to in this prospectus as "quasi-
California" corporations. Section 2115 applies to foreign corporations that
have more than half of their voting stock held by stockholders residing in
California and more than half of their business deriving from California,
measured on or after the 135th day of the corporation's fiscal year. If we were
determined to be a quasi-California corporation, we would have to comply with
California law with respect to, among other things, elections of directors and
distributions to stockholders. Under the California Corporations Code, a
corporation is prohibited from paying dividends unless:
(1) the retained earnings of the corporation immediately prior to the
distribution equals or exceeds the amount of the proposed
distribution; or
(2)(a) the assets of the corporation, exclusive of specific non-tangible
assets, equal or exceed 1 1/4 times its liabilities, exclusive of
specific liabilities; and
(b) the current assets of the corporation at least equal its current
liabilities. If the average pre-tax net earnings of the corporation
before interest expense for the two years preceding the
distribution was less than the average interest expense of the
corporation for those years, however, the current assets of the
corporation must exceed 1 1/4 times its current liabilities.
Following this offering, we will be exempt from the application of Section
2115 until January 1, 2000, and thereafter in the event that more than half of
our voting stock is held by stockholders with residences outside of California
or is held by more than 800 persons.
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for our common stock.
Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol TIVO.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock,
and we cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for our
common stock and impair our future ability to raise capital through an offering
of equity securities.
After this offering, we will have outstanding 35,736,164 shares of common
stock, assuming no exercise of outstanding options. Of these shares, the
5,500,000 shares to be sold in this offering, or 6,325,000 shares if the
underwriters' over-allotment option is exercised in full, will be freely
tradable in the public market without restriction under the Securities Act,
unless such shares are held by our "affiliates," as that term is defined in
Rule 144 under the Securities Act.
The remaining 30,236,164 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144. We
issued and sold the restricted shares in private transactions in reliance on
exemptions from registration under the Securities Act. Restricted shares may be
sold in the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act, as summarized below.
Pursuant to the "lock-up" agreements between our directors, executive
officers and stockholders and the underwriters, the holders of 29,962,826
shares have agreed not to offer, sell, pledge or otherwise dispose of, directly
or indirectly, or announce their intention to do the same, any of our common
stock or any security convertible into, or exchangeable or exercisable for our
common stock for a period of 180 days from the date of this offering. However,
the restrictions described in this paragraph do not apply to:
. transfers as a bona fide gift or gifts;
. transfers by an individual, either during his or her lifetime or on
death by will or intestacy, to his or her immediate family or to a trust
the beneficiaries of which are exclusively the holder of the securities
and/or a member of his or her immediate family;
. distributions to limited partners or stockholders;
. transfers of our common stock purchased on the open market after this
offering; and
. with respect to some stockholders, transfers to affiliates.
We also have entered into an agreement with the underwriters that we will not
offer, sell or otherwise dispose of common stock for a period of 180 days from
the date of this offering. On the date of the expiration of the lock-up
agreements, all of the restricted shares will be eligible for immediate sale,
of which shares will be subject to the volume, manner of sale and other
limitations under Rule 144.
Following the expiration of the lock-up periods, some shares issued upon
exercise of options that we granted prior to the date of this offering will
also be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 under the Securities Act but without compliance with the restrictions,
including the holding-period requirement, imposed under Rule 144. In general,
under Rule 144 as in effect at the closing of this offering, beginning 90 days
after the date of this prospectus, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including the holding period of any prior owner who is not an affiliate, would
be entitled to sell, within any three-month period, a number of shares that
does not exceed the greater of:
. 1% of the then-outstanding shares of common stock; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
69
<PAGE>
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner who is not an affiliate, is entitled to sell these shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately 9.3 million shares of common
stock reserved for issuance under the 1997 Amended and Restated Equity
Incentive Plan, the 1999 Equity Incentive Plan, the 1999 Non-Employee
Directors' Stock Option Plan and the 1999 Employee Stock Purchase Plan. The
registration statement will become effective automatically upon filing. Shares
issued under the foregoing plans after the filing of a registration statement
on Form S-8 may be sold in the public market, except for some holders, subject
to the Rule 144 limitations applicable to affiliates, the above-referenced
lock-up agreements and vesting restrictions imposed by us. Accordingly, subject
to the exercise of such options, shares registered under such registration
statement will be available for sale in the public market immediately after the
180-day lock-up period expires.
In addition, following this offering, the holders of 24,800,640 shares of
common stock will, under some circumstances, have rights to require us to
register their shares for future sale.
70
<PAGE>
UNDERWRITING
TiVo and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered in the underwritten
offering. Each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Credit Suisse First Boston
Corporation, BancBoston Robertson Stephens, Thomas Weisel Partners LLC and
Allen & Company Incorporated are acting as representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................
BancBoston Robertson Stephens Inc. ...............................
Thomas Weisel Partners LLC........................................
Allen & Company Incorporated......................................
Total........................................................... 5,500,000
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated. The obligations of the underwriters
are subject to a number of conditions, including but not limited to, the
delivery of certificates, opinions and other documents satisfactory to
underwriter's counsel.
We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to 825,000 additional shares at the initial public offering price less
the underwriting discounts and commissions. This option may be exercised only
to cover over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions payable
by us.................. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
approximately 30 public offerings of equity securities that have been
completed. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us pursuant to the underwriting
agreement entered into in connection with this offering.
We and our officers and directors and other stockholders and optionholders
have agreed that we and they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any additional
shares of our common stock or
71
<PAGE>
securities convertible into or exchangeable or exercisable for any shares of
our common stock, or publicly disclose the intention to make any such offer,
sale, pledge, disposition or filing, without the prior consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of
this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 412,500 shares of the common stock for our customers and business
partners. At the discretion of our management, other parties, including our
employees, may participate in the reserve share program. In addition, we have
requested that the underwriters reserve for sale at the initial public
offering price, 250,000 shares for Viacom International Inc. The number of
shares available for sale to the general public in the offering will be
reduced to the extent such persons purchase reserved shares. Any reserved
shares not so purchased will be offered by the underwriters to the general
public on the same terms as the other shares. Offers under our reserve share
program will be made via a letter from our management and this prospectus.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our shares of common stock on the Nasdaq National
Market under the symbol TIVO.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include:
. the information set forth in this prospectus and otherwise available to
the representatives;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for future earnings; the present state of our development
and our current financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member are purchased in stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
In July 1999, we issued an aggregate of 3,121,994 shares of our Series I
preferred stock at a per share price of $10.41. Allen & Company Incorporated
acted as the placement agent for this private placement for which it received
a customary fee for its services.
72
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom the purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions".
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario Securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts names
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors and with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
73
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Cooley Godward LLP, Palo Alto, California. As of the date
of this prospectus, certain members and associates of Cooley Godward LLP
beneficially own an aggregate of 41,666 shares of our Series A preferred stock
(convertible into 41,666 shares of common stock) and a warrant to purchase
2,715 shares of our common stock through an investment partnership. Certain
legal matters in connection with the offering will be passed upon for the
underwriters by Shearman & Sterling, Menlo Park, California.
EXPERTS
The financial statements of TiVo Inc. as of December 31, 1997 and 1998 and
for the period from August 4, 1997 (Inception) to December 31, 1997, and for
the year ended December 31, 1998 included in this prospectus and registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
A registration statement on Form S-1, including amendments thereto, relating
to the common stock offered by this prospectus has been filed by us with the
SEC. This prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
us and the common stock offered by this prospectus, reference is made to the
registration statement, exhibits and schedules. A copy of the registration
statement may be inspected by anyone without charge at the public reference
facilities maintained by the SEC at 450 Fifth Street, NW, Judiciary Plaza,
Washington, D.C. 20549, and copies of all or any part thereof maybe obtained
from the SEC upon payment of the fees prescribed by the SEC. The SEC maintains
a World Wide Web site that contains reports, proxy and information statements
and other information filed electronically with the SEC. The address of the
site is http://www.sec.gov.
74
<PAGE>
TIVO INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders Equity.......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of TiVo Inc.:
We have audited the accompanying balance sheets of TiVo Inc. (a Delaware
corporation in the development stage) as of December 31, 1997 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
the period from August 4, 1997 (Inception) to December 31, 1997, and for the
year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TiVo Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for
the period from August 4, 1997 (Inception) to December 31, 1997, and for the
year ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
January 15, 1999
F-2
<PAGE>
TIVO INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ Pro forma
1997 1998 June 30, 1999 June 30, 1999
---------- ------------ ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents........... $2,110,000 $ 2,248,000 $ 11,967,000 $ 11,967,000
Short-term
investments........... 20,000 164,000 7,623,000 7,623,000
Accounts receivable,
net of allowance for
doubtful accounts of
$14,000 as of June 30,
1999.................. -- -- 502,000 502,000
Inventories............ -- 120,000 1,202,000 1,202,000
Prepaid expenses and
other................. 57,000 219,000 1,068,000 1,068,000
---------- ------------ ------------ ------------
Total current assets... 2,187,000 2,751,000 22,362,000 22,362,000
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation of
$15,000, $170,000, and
$352,000 as of December
31, 1997, December 31,
1998, and June 30,
1999, respectively..... 361,000 792,000 1,442,000 1,442,000
---------- ------------ ------------ ------------
Total assets........... $2,548,000 $ 3,543,000 $ 23,804,000 $ 23,804,000
========== ============ ============ ============
LIABILITIES AND STOCK-
HOLDERS' EQUITY
LIABILITIES:
Bank overdraft......... $ -- $ 442,000 $ 989,000 $ 989,000
Accounts payable....... 117,000 305,000 688,000 688,000
Accrued liabilities.... 26,000 675,000 2,210,000 2,210,000
Deferred revenue....... -- -- 142,000 142,000
Current portion of
obligations under
capital lease ........ -- -- 112,000 112,000
---------- ------------ ------------ ------------
Total current
liabilities........... 143,000 1,422,000 4,141,000 4,141,000
Long-term portion of
obligations under
capital lease......... -- -- 558,000 558,000
---------- ------------ ------------ ------------
Total liabilities...... 143,000 1,422,000 4,699,000 4,699,000
---------- ------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Convertible preferred
stock, par value
$0.001:
Authorized shares at
December 31, 1997,
1998, June 30, 1999
(unaudited) and pro
forma June 30, 1999
(unaudited), are
5,200,000, 13,000,000,
20,100,000 and
23,415,000,
respectively
Issued and outstanding
shares at December 31,
1997, 1998, June 30,
1999 (unaudited) and
pro forma June 30,
1999 (unaudited) are
5,000,000, 11,174,427,
15,573,661 and 0,
respectively. (See
Note 7) .............. $2,990,000 $ 12,242,000 $ 39,580,000 $ --
Common stock, par value
$0.001:
Authorized shares at
December 31, 1997,
1998, June 30, 1999
(unaudited) and pro
forma June 30, 1999
(unaudited) are
25,500,000,
25,500,000,
40,000,000, and
50,000,000,
respectively.
Issued and outstanding
shares at December 31,
1997, December 31,
1998, June 30, 1999
(unaudited), and pro
forma June 30, 1999
(unaudited), are
2,916,664, 5,216,937,
8,291,876, and
23,865,537,
respectively.......... 3,000 5,000 8,000 24,000
Additional paid-in
capital................ 7,000 190,000 25,590,000 65,154,000
Deferred compensation... -- -- (2,628,000) (2,628,000)
Prepaid marketing
expenses............... -- -- (18,679,000) (18,679,000)
Note receivable......... -- -- (2,822,000) (2,822,000)
Losses accumulated
during the development
stage.................. (595,000) (10,316,000) (21,944,000) (21,944,000)
---------- ------------ ------------ ------------
Total stockholders'
equity................ 2,405,000 2,121,000 19,105,000 19,105,000
========== ============ ============ ============
Total liabilities and
stockholders' equity.. $2,548,000 $ 3,543,000 $ 23,804,000 $ 23,804,000
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
TIVO INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
August 4, 1997 Period from
(Inception), to Year Ended Six Months Ended August 4, 1997
December 31, December June 30, (Inception), to
1997 31, ------------------------- June 30,
(unaudited) 1998 1998 1999 1999
--------------- ----------- ----------- ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Subscription revenues... $ -- $ -- $ -- $ 8,000 $ 8,000
Costs and expenses:
Cost of services...... -- -- -- 1,170,000 1,170,000
Research and
development.......... 356,000 5,614,000 1,809,000 2,999,000 8,969,000
Sales and marketing... 28,000 1,277,000 356,000 3,784,000 5,089,000
Sales and marketing--
related parties...... -- -- -- 382,000 382,000
General and
administrative....... 241,000 2,946,000 903,000 3,024,000 6,211,000
Stock-based
compensation......... -- -- -- 187,000 187,000
Other operating
expense, net......... -- -- -- 189,000 189,000
---------- ----------- ----------- ------------ ------------
Loss from
operations......... (625,000) (9,837,000) (3,068,000) (11,727,000) (22,189,000)
Interest income......... 49,000 116,000 35,000 277,000 442,000
Interest expense and
other.................. (19,000) -- (13,000) (178,000) (197,000)
---------- ----------- ----------- ------------ ------------
Net loss............ $ (595,000) $(9,721,000) $(3,046,000) $(11,628,000) $(21,944,000)
========== =========== =========== ============ ============
Net loss per share
Basic and diluted... $ (0.20) $ (3.25) $ (1.04) $ (2.67) $ (6.59)
========== =========== =========== ============ ============
Weighted average
shares............. 2,916,664 2,989,717 2,933,261 4,356,323 3,330,342
========== =========== =========== ============ ============
Pro forma net loss per
share:
Basic and diluted... $ (0.90) $ (0.64)
=========== ============
Weighted average
shares............. 10,758,659 18,088,678
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
TIVO INC.
(a development-stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Losses
Convertible Accumulated
Preferred Stock Common Stock Additional Prepaid During the
---------------------- ----------------- Paid-in Deferred Marketing Note Development
Shares Amount Shares Amount Capital Compensation Expense Receivable Stage
---------- ----------- --------- ------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST
4, 1997.......... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock for
cash............ -- -- 2,916,664 3,000 7,000 -- -- -- --
Issuance of
Series A
preferred stock
at $0.60 per
share for cash.. 5,000,000 2,990,000 -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (595,000)
---------- ----------- --------- ------ ----------- ----------- ------------ ----------- ------------
BALANCE, DECEMBER
31, 1997......... 5,000,000 2,990,000 2,916,664 3,000 7,000 -- -- -- (595,000)
Issuance of
Series B
preferred stock
at $1.26 per
share for cash.. 3,660,914 4,609,000 -- -- -- -- -- -- --
Issuance of
Series C
preferred stock
at $1.85 per
share for cash.. 2,500,000 4,618,000 -- -- -- -- -- -- --
Exercise of
stock options
for common
stock........... -- -- 2,276,458 2,000 130,000 -- -- -- --
Common stock
exchanged for
services........ -- -- 198,586 -- 60,000 -- -- -- --
Series C
preferred stock
exchanged for
services........ 13,513 25,000 -- -- -- -- -- -- --
Common stock
repurchases..... -- -- (174,771) -- (7,000) -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- (9,721,000)
---------- ----------- --------- ------ ----------- ----------- ------------ ----------- ------------
BALANCE, DECEMBER
31, 1998......... 11,174,427 12,242,000 5,216,937 5,000 190,000 -- -- -- (10,316,000)
Issuance of
Series D
preferred stock
at $3.68 per
share for cash.. 1,358,695 4,973,000 -- -- -- -- -- -- --
Issuance of
Series E
preferred stock
at $7.40 per
share for cash.. 270,270 1,982,000 -- -- -- -- -- -- --
Issuance of
Series F
preferred stock
at $7.40 per
share for cash.. 405,405 2,960,000 -- -- -- -- -- -- --
Issuance of
Series G
preferred stock
at $7.40 per
share for cash.. 1,013,513 7,431,000 -- -- -- -- -- -- --
Issuance of
Series H
preferred stock
at $7.40 per
share for cash.. 1,351,351 9,992,000 -- -- -- -- -- -- --
Exercise of
stock options
for common
stock........... -- -- 212,500 -- 172,000 -- -- -- --
Common stock
exchanged for
services........ -- -- 106,422 -- 337,000 -- -- -- --
Issuance of
common stock
warrants for
services........ -- -- -- -- 290,000 -- -- -- --
Issuance of
preferred stock
warrants for
services........ -- -- -- -- 2,430,000 -- (2,400,000) -- --
Amortization of
prepaid
marketing
expenses........ -- -- -- -- -- -- 276,000 -- --
Recognition of
deferred
compensation.... -- -- -- -- 2,815,000 (2,815,000) -- -- --
Stock-based
compensation.... -- -- -- -- -- 187,000 -- -- --
Common stock
repurchases..... -- -- (225,179) -- (18,000) -- -- -- --
Issuance of
common stock for
marketing
services........ -- -- 1,852,329 2,000 12,038,000 -- (12,040,000) -- --
Issuance of
common stock for
marketing
services and
note
receivable...... -- -- 1,128,867 1,000 7,336,000 -- (4,515,000) (2,822,000) --
Net loss........ -- -- -- -- -- -- -- -- (11,628,000)
---------- ----------- --------- ------ ----------- ----------- ------------ ----------- ------------
BALANCE, JUNE 30,
1999
(unaudited)...... 15,573,661 $39,580,000 8,291,876 $8,000 $25,590,000 $(2,628,000) $(18,679,000) $(2,822,000) $(21,944,000)
========== =========== ========= ====== =========== =========== ============ =========== ============
<CAPTION>
Total
------------
<S> <C>
BALANCE, AUGUST
4, 1997.......... $ --
Issuance of
common stock for
cash............ 10,000
Issuance of
Series A
preferred stock
at $0.60 per
share for cash.. 2,990,000
Net loss........ (595,000)
------------
BALANCE, DECEMBER
31, 1997......... 2,405,000
Issuance of
Series B
preferred stock
at $1.26 per
share for cash.. 4,609,000
Issuance of
Series C
preferred stock
at $1.85 per
share for cash.. 4,618,000
Exercise of
stock options
for common
stock........... 132,000
Common stock
exchanged for
services........ 60,000
Series C
preferred stock
exchanged for
services........ 25,000
Common stock
repurchases..... (7,000)
Net loss........ (9,721,000)
------------
BALANCE, DECEMBER
31, 1998......... 2,121,000
Issuance of
Series D
preferred stock
at $3.68 per
share for cash.. 4,973,000
Issuance of
Series E
preferred stock
at $7.40 per
share for cash.. 1,982,000
Issuance of
Series F
preferred stock
at $7.40 per
share for cash.. 2,960,000
Issuance of
Series G
preferred stock
at $7.40 per
share for cash.. 7,431,000
Issuance of
Series H
preferred stock
at $7.40 per
share for cash.. 9,992,000
Exercise of
stock options
for common
stock........... 172,000
Common stock
exchanged for
services........ 337,000
Issuance of
common stock
warrants for
services........ 290,000
Issuance of
preferred stock
warrants for
services........ 30,000
Amortization of
prepaid
marketing
expenses........ 276,000
Recognition of
deferred
compensation.... --
Stock-based
compensation.... 187,000
Common stock
repurchases..... (18,000)
Issuance of
common stock for
marketing
services........ --
Issuance of
common stock for
marketing
services and
note
receivable...... --
Net loss........ (11,628,000)
------------
BALANCE, JUNE 30,
1999
(unaudited)...... $19,105,000
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
TIVO INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
August 4, 1997 For the Six Months Ended August 4, 1997
(Inception), to Year Ended June 30, (Inception), to
December 31, December 31, ------------------------- June 30,
1997 1998 1998 1999 1999
--------------- ------------ ----------- ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $ (595,000) $(9,721,000) $(3,046,000) $(11,628,000) $(21,944,000)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 15,000 242,000 208,000 182,000 439,000
Stock exchanged for
services............. -- 85,000 4,000 337,000 422,000
Issuance of warrants
for services......... -- -- -- 176,000 176,000
Amortization of
prepaid marketing
expenses............. -- -- -- 276,000 276,000
Noncash compensation
expense.............. -- -- -- 187,000 187,000
Changes in current
assets and
liabilities:
Accounts receivable.. -- -- -- (502,000) (502,000)
Inventories.......... -- (120,000) -- (1,083,000) (1,203,000)
Prepaid expenses and
other............... (57,000) (162,000) (107,000) (705,000) (924,000)
Accounts payable..... 117,000 188,000 (73,000) 383,000 688,000
Deferred revenue..... -- -- -- 142,000 142,000
Accrued liabilities.. 26,000 649,000 239,000 1,535,000 2,210,000
---------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities......... (494,000) (8,839,000) (2,775,000) (10,700,000) (20,033,000)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of
property and
equipment, net....... (376,000) (673,000) (128,000) (162,000) (1,211,000)
Purchase of short-term
investments.......... (20,000) (144,000) -- (7,459,000) (7,623,000)
---------- ----------- ----------- ------------ ------------
Net cash used in
investing
activities......... (396,000) (817,000) (128,000) (7,621,000) (8,834,000)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of convertible
preferred stock, net
of issuance costs.... 2,990,000 9,227,000 4,577,000 27,339,000 39,556,000
Borrowings under line
of credit............ -- 610,000 610,000 -- 610,000
Repayments under line
of credit............ -- (610,000) -- -- (610,000)
Proceeds from issuance
of common stock and
exercise of stock
options.............. 10,000 132,000 79,000 172,000 314,000
Repurchase of common
stock................ -- (7,000) (2,000) (18,000) (25,000)
Increase in bank
overdraft............ -- 442,000 -- 547,000 989,000
---------- ----------- ----------- ------------ ------------
Net cash provided by
financing
activities......... 3,000,000 9,794,000 5,264,000 28,040,000 40,834,000
NET INCREASE IN CASH
AND CASH EQUIVALENTS.. 2,110,000 138,000 2,361,000 9,719,000 11,967,000
---------- ----------- ----------- ------------ ------------
CASH AND CASH
EQUIVALENTS:
Balance at beginning
of period............ -- 2,110,000 2,110,000 2,248,000 --
---------- ----------- ----------- ------------ ------------
Balance at end of
period............... $2,110,000 $ 2,248,000 $ 4,471,000 $ 11,967,000 $ 11,967,000
========== =========== =========== ============ ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for
interest............. $ -- $ 19,000 $ -- $ 2,000 $ 21,000
SUPPLEMENTAL DISCLOSURE
OF NON-CASH
TRANSACTIONS:
Stock issued for a
note receivable...... -- -- -- $ 2,822,000 $ 2,822,000
Equipment acquired
under capital lease.. -- -- -- $ 670,000 $ 670,000
Deferred stock-based
compensation......... -- -- -- $ 2,815,000 $ 2,815,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the six months ended June 30, 1998 and 1999, and
the period from August 4, 1997 (Inception) to June 30, 1999, and as of June 30,
1999 is unaudited)
1. NATURE OF OPERATIONS:
TiVo Inc. (the Company or TiVo) was incorporated in August 1997 as a Delaware
corporation with facilities in Sunnyvale, California. The Company has developed
a subscription-based personal television service (the TiVo Service) that
provides viewers with the ability to pause, rewind and play back any live or
recorded television broadcasts, as well as to search for, watch and record
programs. The TiVo Service also provides television listings, daily suggestions
and special viewing packages. The TiVo Service relies on three key components:
the personal video recorder, the TiVo remote control and the TiVo Broadcast
Center. Beginning in the second half of 1999, the Company expects that
manufacturing and distribution of the personal video recorder and remote
control will be undertaken by Philips Business Electronics B.V. (Philips). The
Company also anticipates that Philips will begin marketing the TiVo Service and
the personal video recorder that enables the TiVo Service in retail markets in
the second half of 1999. The Company plans to stop selling personal video
recorders by the end of 1999. In the interim, the personal video recorder and
remote control are being manufactured by a contract manufacturer and, since
March 1999, have been sold by TiVo through its web site and toll-free telephone
number. The Company conducts its operations through one reportable segment.
The Company is in the early stages of development and insignificant
subscription revenues have been generated to date. No assurance can be given
that a market for the TiVo Service and products that enable the TiVo Service
will develop, or that customers will be willing to pay for the TiVo Service and
products that enable the TiVo Service. The Company is identified as a
development-stage company at this time. However, upon the transfer of
manufacturing and distribution responsibility to Philips and a successful
retail launch of the TiVo Service and products that enable the TiVo Service,
which management expects in the second half of 1999, the Company anticipates
that it will no longer be identified as a development-stage company.
The Company continues to be subject to certain risks common to companies in
similar stages of development, including the uncertainties outlined above, as
well as the uncertainty of availability of additional financing; dependence on
third parties for manufacturing and marketing and sales support; the
uncertainty of the market for personal television; dependence on key
management; limited manufacturing, marketing and sales experience; and the
uncertainty of future profitability.
The unaudited pro forma June 30, 1999 information reflected in the
accompanying balance sheets reflects the automatic conversion of all the shares
of the Company's convertible preferred stock outstanding as of June 30, 1999
into shares of common stock on a one-for-one basis upon completion of the
proposed initial public offering.
Unaudited Interim Financial Statements
The accompanying balance sheet as of June 30, 1999 and the accompanying
statements of operations, stockholders' equity and cash flows for the six
months ended June 30, 1998 and 1999 included herein have been prepared by the
Company and are unaudited. The information furnished in the unaudited financial
statements referred to above includes all adjustments that are, in the opinion
of management, necessary for a fair presentation of such financial statements.
The results of operations for the six months ended June 30, 1999, are not
necessarily indicative of the results to be expected for the entire fiscal
year.
F-7
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
The Company classifies financial instruments as cash equivalents if the
original maturity of such instruments is three months or less.
Short-term investments
Short-term investments consist of commercial paper investments and
certificates of deposit with original maturities at date of purchase ranging
between three and six months. The Company classifies these investments as held
to maturity and records the instruments at amortized cost, which approximates
fair value due to the short maturities.
Inventories
Inventories consist of raw materials, primarily hard-disk drives, work in
progress and finished goods. Inventory is valued at the lower of cost (first-
in, first-out) or market. Included in inventory costs are direct materials,
direct labor and allocated tooling costs. Once the Company transfers
manufacturing responsibility to Philips, all inventory will be sold to Philips.
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
(unaudited)
<S> <C> <C>
Raw materials................................ $120,000 $ 216,000
Work in progress............................. -- --
Finished goods............................... -- 986,000
-------- ----------
$120,000 $1,202,000
======== ==========
</TABLE>
Property and Equipment
Property and equipment are stated at cost. For financial reporting purposes,
depreciation is computed using the straight-line method over estimated useful
lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures.......................................... 5 years
Computer and office equipment................................... 1-5 years
</TABLE>
Maintenance and repair expenditures are expensed as incurred.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets or liabilities of a
change in tax rates is recognized in the period in which the rate change
occurs. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be recovered.
F-8
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, certificates of deposit,
short-term investments, accounts receivable, and accounts payable approximate
fair value due to the short-term maturity of these instruments.
Business Concentrations and Credit Risk
Financial instruments that subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable. The Company maintains
cash with various financial institutions. The Company performs periodic
evaluations of the relative credit standing of these institutions. The
Company's customers are primarily concentrated in the United States. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of customers and other information. The allowance
for doubtful accounts was $0 at December 31, 1997 and 1998, and $14,000 at June
30, 1999.
Net Loss Per Common Share
Historical--The Company computes net loss per share in accordance with SFAS
No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB
No. 98). Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss
per common share is computed by dividing net loss by the weighted average
number of common shares outstanding. Shares used in the computation of all net
loss per share amounts do not include repurchasable common stock issued to
DIRECTV (see Note 10) and unvested, repurchasable common stock issued under the
employee stock option plans (see Notes 7 and 8).
Diluted net loss per common share is computed by dividing net loss by the
weighted average number of common shares and dilutive common share equivalents
outstanding. Diluted net loss per share does not include the effect of the
following antidulutive common share equivalents:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998 June 30, 1999
--------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Repurchasable common stock............... -- 2,024,187 2,989,325
Options to purchase common stock......... 700,000 1,235,000 3,161,512
Warrants to purchase common stock........ -- -- 81,522
Convertible preferred stock warrants..... -- 52,083 981,949
Convertible preferred stock.............. 5,000,000 11,174,427 15,573,661
--------- ---------- ----------
5,700,000 14,485,697 22,787,969
========= ========== ==========
</TABLE>
Pro forma--Pro forma net loss per share is calculated as if the convertible
preferred stock outstanding as of June 30, 1999 was converted into shares of
common stock on the date of its issuance on a one-for-one basis. Preferred
stock automatically converts into shares of common stock at the date of an
initial public offering.
Stock-Based Compensation and Stock Exchanged for Services
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB 25,
when the exercise price of employee stock options is less than the market price
of the underlying stock on the date of grant, compensation expense is recorded
for the difference between fair value and the exercise price. Expense
associated with stock-based compensation is being amortized on an accelerated
basis over the vesting period of the individual award, generally four years.
The method of amortization is in accordance with Financial Accounting Standards
Board ("FASB") Interpretation No. 28, under which the
F-9
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
value assigned to options vesting in future periods is ratably amortized
beginning upon issuance of the option rather than at the vesting date. No stock
compensation expense was recorded in 1997 and 1998. The Company has recorded
compensation expense of $187,000 for the six months ended June 30, 1999
(unaudited). The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation."
The value of warrants, options or stock exchanged for services is expensed
over the period benefitted. The warrants and options are valued using the
Black-Scholes option pricing model. To calculate the expense, the Company uses
either the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
Revenue Recognition
Subscription revenues represent revenues from customer subscriptions to the
TiVo Service. Subscriptions to the TiVo Service are available on a monthly,
annual or lifetime basis. Subscription fees are generally charged to customers'
credit cards and are generally billed in advance on a monthly basis. A lifetime
subscription covers the life of the particular personal video recorder
purchased. Revenues from subscriptions are recognized ratably over the
subscription period. Subscription revenues from lifetime subscriptions are
recognized ratably over a 4 year period, the best estimate of the useful life
of the personal video recorder. Deferred revenue relates to subscription fees
collected but for which revenues have not been recognized.
Research And Development
Research and development expenses consist primarily of employee salaries and
related expenses and consulting fees relating to the development of the TiVo
Service and products that enable the TiVo Service. Research and development
costs are expensed as incurred.
Sales and Marketing--Related Parties
Sales and marketing--related parties consists of cash and noncash charges
related to the Company's agreements with DIRECTV, Inc. (DIRECTV), Philips, and
Quantum Corporation (Quantum), all of which hold stock or warrants in the
Company (see Note 10).
Other Operating Expense, Net
Prior to the anticipated transition of manufacturing and distribution
responsibility to Philips in the second half of 1999, the Company has sold
personal video recorders directly to consumers. The Company plans to stop
selling personal video recorders by the second half of 1999 in connection with
the transition of manufacturing to Philips. The sales of personal video
recorders are considered incidental to the Company's business and the cost of
the personal video recorders, net of sales proceeds of $895,000, is classified
as other operating expense, net. Income from the sale of the personal video
recorder is recognized upon shipment to the customer. The Company records a
provision for estimated warranty costs and returns at the time of sale. This
reserve was $15,000 at June 30, 1999.
Comprehensive Income
The Company has no material components of other comprehensive income or loss
and, accordingly, the comprehensive loss is the same as the net loss for all
periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Actual results could differ from those estimates.
F-10
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998 June 30, 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Furniture and fixtures..................... $ 18,000 $ 16,000 $ 20,000
Computer and office equipment.............. 358,000 946,000 1,104,000
-------- -------- ---------
376,000 962,000 1,124,000
Accumulated depreciation................... (15,000) (170,000) (352,000)
-------- -------- ---------
$361,000 $792,000 $ 772,000
======== ======== =========
</TABLE>
Equipment under capital leases was zero as of December 31, 1997 and 1998 and
$670,000 as of June 30, 1999. Depreciation and amortization expense was
$15,000, $155,000, $208,000 (unaudited) and $182,000 (unaudited) for the period
ended December 31, 1997, the year ended December 31, 1998, and the six months
ended June 30, 1998 and 1999, respectively.
4. Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998 June 30, 1999
------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Marketing and promotions...................... $ -- $223,000 $ 744,000
Compensation and vacation..................... 16,000 213,000 252,000
Legal and accounting.......................... -- 86,000 447,000
Consulting.................................... -- 11,000 353,000
Other......................................... 10,000 142,000 414,000
------- -------- ----------
$26,000 $675,000 $2,210,000
======= ======== ==========
</TABLE>
5. LINE OF CREDIT:
The Company has a line of credit with a bank under which a maximum of
$750,000 can be borrowed at the bank's prime rate plus 0.75% (8.5% at December
31, 1998). The line of credit expired on August 15, 1999. No amounts were
borrowed under this line in 1997 or 1999. During 1998, a maximum amount of
$610,000 was borrowed. The average amount outstanding was $159,000, at an
average interest rate of 8.5%. No amounts were outstanding under this line of
credit as of December 31, 1997 or 1998, or June 30, 1999. In April 1999, the
bank issued a letter of credit on behalf of the Company in the amount of
$600,000. This amount reduces the available borrowings on the Company's line of
credit to $150,000. Substantially all of the Company's assets other than
intellectual property are pledged as collateral under this line of credit.
F-11
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
6. INCOME TAXES:
There was no provision or benefit for income taxes for the period from August
4, 1997 (Inception) to June 30, 1999.
Significant components of deferred tax assets were as follows as of December
31, 1998:
<TABLE>
<S> <C>
Net operating loss carryforwards.............................. $3,930,000
Tax credit carryforwards...................................... 103,000
Temporary differences, net.................................... 25,000
----------
Gross deferred tax assets................................... 4,058,000
Valuation allowance........................................... (4,058,000)
----------
Net deferred tax assets..................................... $ 0
==========
</TABLE>
As of December 31, 1998, the Company had a tax net operating loss (NOL)
carryforward of approximately $10,300,000 for federal and California purposes.
The federal NOL expires beginning in 2117, and the California NOL expires
beginning in 2002. A significant change in ownership of the Company may limit
the Company's ability to utilize these NOL carryforwards. SFAS No. 109 requires
that the tax benefit of such NOL be recorded as an asset. A valuation allowance
for the entire amount has been provided because of uncertainties about the
realizability of the deferred tax assets.
7. STOCKHOLDERS' EQUITY:
Common Stock
In August 1997, the Company issued 2,800,000 shares of common stock to the
founders for $10,000. On September 24, 1997, the Company declared a stock split
of 1.04167 to 1, which resulted in 2,916,664 founders shares outstanding after
the split. No shares were subject to repurchase as of December 31, 1997.
In 1998, the Company issued 2,276,458 shares of common stock as a result of
the exercise of stock options. During 1998, 174,771 shares of common stock were
repurchased in accordance with the terms the Company's stock option plan (see
Note 8). The Company has the right to repurchase 2,024,187 unvested shares as
of December 31, 1998, at the stock issuance price, if the holders' service with
the Company terminates.
For the six months ended June 30, 1999, the Company issued 212,500 shares of
common stock as a result of the exercise of stock options and repurchased
225,166 shares. The Company has the right to repurchase 1,440,727 unvested
shares issued to employees as of June 30, 1999, at the stock issuance price, if
the holders' service with the Company terminates. See Note 10 for a description
of DIRECTV shares subject to repurchase.
In 1998, the Company issued 198,586 shares of common stock to consultants and
vendors in exchange for services. For the six months ended June 30, 1999, the
Company issued 106,409 shares of common stock in exchange for services. The
common stock issued was recorded at the estimated fair value of the common
stock at the time the services were performed and the expense was recorded. The
Company's management believes that the value of the common stock issued
approximates the value of services received.
F-12
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
Convertible Preferred Stock
Convertible preferred stock outstanding at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Issued and Liquidation
Authorized Outstanding Preference Carrying
Shares Shares Per Share Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A......................... 5,200,000 5,000,000 $0.60 $ 2,990,000
Series B......................... 4,400,000 3,660,914 1.26 4,609,000
Series C......................... 4,000,000 2,513,513 1.85 4,643,000
Series D......................... 2,500,000 1,358,695 3.68 4,973,000
Series E......................... 300,000 270,270 7.40 1,982,000
Series F......................... 500,000 405,405 7.40 2,960,000
Series G......................... 1,100,000 1,013,513 7.40 7,431,000
Series H......................... 2,100,000 1,351,351 7.40 9,992,000
---------- ---------- -----------
20,100,000 15,573,661 $39,580,000
========== ========== ===========
</TABLE>
In September and October 1997, the Company issued 5,000,000 shares of Series
A preferred stock at $0.60 per share. In May, June and July 1998, the Company
issued 3,660,914 shares of Series B preferred stock at $1.26 per share. In
October 1998, the Company issued 2,500,000 shares of Series C preferred stock
at $1.85 per share. In December 1998, the Company issued 13,513 shares of
Series C preferred stock at $1.85 per share in exchange for services received.
In January 1999, the Company issued 1,358,695 shares of Series D preferred
stock at $3.68 per share. In March 1999, the Company issued 270,270 shares of
Series E preferred stock at $7.40 per share. In April 1999, the Company issued
405,405, 1,013,513, and 1,351,351 shares of Series F, G and H preferred stock,
respectively, at $7.40 per share.
Each share of preferred stock is convertible into common stock at the option
of the holder on a one-for-one basis, subject to certain adjustments. Each
share of preferred stock has voting rights and, upon any liquidation of the
Company, the holders of preferred stock are entitled to a liquidation
preference, to be paid out of the assets of the Company, equal to the
respective original issue price per share plus all declared and unpaid
dividends. Each share of preferred stock will automatically be converted into
shares of common stock at any time upon the election of the holders of at least
two-thirds of the outstanding shares of the preferred or upon the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933.
F-13
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
8. STOCK OPTION PLAN:
Under the terms of the Company's 1997 Equity Incentive Plan, adopted in 1997
and amended and restated in 1999 (the 1997 Plan), options to purchase shares
of the Company's common stock may be granted to employees and other
individuals at a price equal to the fair market value of the common stock at
the date of grant. The options vest 25 percent after the first year of
service, and the remaining 75 percent vest ratably over the next 36 months.
Options expire 10 years after the grant date. The terms of the 1997 Plan allow
individuals to exercise their options prior to full vesting. In the event that
the individual terminates their service to the Company before becoming fully
vested, the Company has the right to repurchase the unvested shares at the
original option price. The number of shares authorized for option grants under
the 1997 Plan is 4,000,000; as of December 31, 1998, 3,773,458 have been
issued.
The Company accounts for stock options under APB Opinion No. 25, under
which, for the period from August 4, 1997 (Inception) to December 31, 1997 and
for the year ended December 31, 1998, no compensation cost was recognized when
the awards were granted to employees or directors. Stock-based Compensation
expense of $187,000 was recognized for the six months ended June 30, 1999 (see
Note 13). Had compensation cost for the stock options been determined
consistently with SFAS No. 123, the effect on the Company's net loss and basic
and diluted loss per share would have been changed to the following pro forma
amounts:
<TABLE>
<CAPTION>
Period from Period from
August 4, 1997 August 4,
(inception), 1997
to Year Ended Six Months Ended June 30, (Inception)
December 31, December 31, --------------------------- to June 30,
1997 1998 1998 1999 1999
-------------- ------------- ------------ ------------- ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net loss, as reported... $(595,000) $(9,721,000) $ (3,046,000) $ (11,628,000) $(21,944,000)
Pro forma effect of SFAS
No. 123................ -- (10,000) (2,000) (535,000) (545,000)
--------- ----------- ------------ ------------- ------------
Net loss, pro forma..... (595,000) (9,731,000) (3,048,000) (12,163,000) (22,489,000)
Basic and diluted loss
per share, as
reported............... $ (0.20) $ (3.25) $ (1.04) $ (2.67) $ (6.59)
Basic and diluted loss
per share, pro forma... $ (0.20) $ (3.25) $ (1.04) $ (2.79) $ (6.75)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants: weighted average risk-free interest rates of
between 4.45 percent and 5.9 percent; expected dividend yield of 0 percent;
expected lives of four years for the options; and expected volatility of 0
percent.
Refer to Note 12, Equity Incentive Plans, for a description of the 1999
Equity Incentive Plan (the 1999 Plan).
F-14
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
A summary of the status of the 1997 Plan and the 1999 Plan is presented in
the table and narrative below:
<TABLE>
<CAPTION>
Weighted
Range of Average
Shares Exercise Prices Exercise Price
---------- --------------- --------------
<S> <C> <C> <C>
Outstanding at inception........... 0 $0.00
Granted.......................... 700,000 0.04 0.04
---------- -----
Outstanding at December 31, 1997... 700,000 0.04
Granted.......................... 3,006,458 0.04--0.45 0.15
Exercised........................ (2,276,458) 0.06
Canceled......................... (195,000) 0.04
---------- -----
Outstanding at December 31, 1998... 1,235,000 $0.27
Granted.......................... 2,390,387 1.00--6.50 4.83
Exercised........................ (212,500) 0.82
Canceled......................... (251,375) 0.66
---------- -----
Outstanding at June 30, 1999
(unaudited)....................... 3,161,512 $3.65
========== =====
</TABLE>
The weighted average fair value of options granted as of December 31, 1998,
and June 30, 1999 (unaudited), is $0.02 and $0.84, respectively. Of the options
outstanding at December 31, 1998, and June 30, 1999, 93,542 and 733,481 are
vested, respectively. Included in the options exercised above in 1998 and for
the six months ended June 30, 1999 are 174,771 and 225,166, respectively,
unvested options where the Company repurchased the stock upon the individuals'
leaving the Company.
The options outstanding have the following contractual lives:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999 (unaudited)
- ------------------------------------------------------ -----------------------------------------------------
Weighted Average Weighted Average
Number of Options Exercise Remaining Number of Options Exercise Remaining
Outstanding and Exercisable Price Contractual Life Outstanding and Exercisable Price Contractual Life
- --------------------------- -------- ---------------- --------------------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
55,000 $0.04 9.25 years 55,000 $0.04 8.75 years
504,000 0.13 9.50 years 300,625 0.13 9.00 years
169,000 0.20 9.75 years 145,000 0.20 9.25 years
507,000 0.45 10.00 years 412,500 0.45 9.50 years
-- -- -- 30,000 0.75 9.50 years
-- -- -- 272,782 1.00 9.70 years
-- -- -- 263,000 2.50 9.75 years
-- -- -- 127,105 4.00 9.83 years
-- -- -- 188,000 5.00 9.90 years
-- -- -- 1,367,500 6.50 10.00 years
--------- ---------
1,235,000 3,161,512
========= =========
</TABLE>
F-15
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
9. WARRANTS:
In addition to receiving 156,250 options to purchase common stock under the
1997 Plan, in March 1998, a member of the Company's board of directors received
warrants to purchase a total of 52,083 shares of Series A preferred stock at an
exercise price of $0.60 per share, the estimated fair market value of the
Series A preferred stock at the date of issuance. These warrants will expire on
the earlier of (1) the closing of the initial public offering of the Company's
common stock or (2) March 18, 2008. The value of the above warrants has been
included in the calculation of pro forma net loss for the year ended December
31, 1998 under SFAS No. 123, discussed in Note 8.
See Note 10 for a description of Series C and Series D preferred stock
warrants issued to Quantum under a hard disk drive supply agreement.
The warrants outstanding have the following contractual lives:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999 (unaudited)
- ----------------------------------------------- ----------------------------------------------
Weighted Weighted
Number of Average Average
Warrants Outstanding Exercise Remaining Number of Exercise Remaining
and Exercisable Price Contractual Life Warrants Outstanding Price Contractual Life
- -------------------- -------- ---------------- -------------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Director Director
Preferred--52,083 $0.60 9.25 years Preferred-- 52,083 $0.60 8.75 years
Other
Preferred-- 60,813 1.26 9.67 years
Common-- 35,307 2.50 4.75 years
Common-- 35,307 2.50 4.75 years
Common-- 2,715 2.50 4.75 years
Common-- 8,193 2.50 4.75 years
Preferred-- 1,250 7.40 9.83 years
Supplier
Preferred-- 324,325 0.01 1.75 years
Preferred-- 543,478 0.01 2.75 years
--------------------
1,063,471
====================
</TABLE>
All of the warrants outstanding at June 30, 1999 except for the warrants for
543,478 shares of preferred stock are exercisable. The warrants for 543,478
shares of preferred stock outstanding automatically vest upon completion of an
initial public offering.
10. MARKETING AND MANUFACTURING AGREEMENTS
Quantum Agreement
In November 1998, the Company entered into a hard disk supply agreement with
Quantum to allow the Company or certain third-party manufacturers to purchase
up to an agreed-upon number of hard disk drives used in the personal video
recorder and other devices that enable the TiVo Service. Under the terms of the
agreement, the buyer is entitled to a discounted purchase price if certain
milestones are met. When the buyer receives the hard disk drives, the Company
is required to pay a fee to Quantum which is expensed at the time
F-16
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
of purchase. TiVo has also agreed to share with Quantum a portion of the TiVo
Service subscription fees it receives from the personal video recorders and
other devices equipped with these hard disk drives.
In addition, the Company issued a warrant to Quantum to purchase 324,325
shares of Series C preferred stock and 543,478 shares of Series D preferred
stock at an exercise price of $0.01 per share. The Series C and D warrants vest
and are exercisable upon the meeting of certain milestones which allow a
discounted purchase price on an agreed upon number of hard disk drives, or upon
the closing of an initial public offering of the Company's common stock. As of
December 31, 1998, Quantum had not vested in the warrants because the Company
had not met the required performance milestones and therefore had not received
the discounted price on its hard-disk drive purchases. The value of the
warrants will be determined and recorded when they vest, and expense will be
recorded as Quantum performs under the contract. In April 1999, the warrants to
purchase Series C preferred stock vested and the Company recorded as a contra
equity account a prepaid marketing expense of $2.4 million related to the
vesting of 324,325 shares of Series C preferred stock warrants. The $2.4
million represents the estimated fair value of the Series C warrants at the
vesting date and was recorded as a prepaid marketing expense contra equity
account. The $2.4 million will be recognized as a sales and marketing expense--
related parties as the specified number of hard disk drives related to this
agreement are shipped from Quantum. The fair value of the Series C vested
warrants was estimated using the Black-Scholes option pricing model with the
following assumptions: weighted average risk-free interest rate of 5.07%;
expected dividend yield of 0%; expected life of four years; expected volatility
of 50%; and market price of preferred stock of $7.40 per share. The Company
recorded $276,000 of sales and marketing expense--related parties for the six
months ended June 30, 1999 related to these warrants.
DIRECTV Agreement
The Company entered into a corporate partnership agreement with DIRECTV to
promote and offer support for the TiVo Service and products that enable the
TiVo Service (the DIRECTV Agreement). The DIRECTV Agreement provides that
DIRECTV will provide a variety of marketing and sales support to promote TiVo
and the TiVo Service, collaborate on certain product development efforts and
make a portion of the bandwidth capacity of DIRECTV's satellite network
available to TiVo.
The Company issued 1,852,329 shares of common stock in exchange for marketing
services under the DIRECTV Agreement. The shares are non-forfeitable and were
valued at an estimated fair value of $6.50 per share for accounting purposes.
The Company recorded prepaid marketing expenses classified as a contra equity
account related to the issuance of these shares of common stock of $12.0
million. These prepaid marketing expenses are expensed as the marketing
services are provided over the two year service period.
Additionally, the Company issued 1,128,867 shares of common stock in exchange
for a $2.8 million promissory note due in three years. For accounting purposes,
the shares were valued at an estimated fair value of $6.50 per share. The $4.5
million of estimated fair value in excess of the balance of the note was
recorded as a prepaid marketing expense contra equity account. This $4.5
million prepaid marketing expense is expensed as the bandwidth services are
provided over the three year service period. DIRECTV may repay the note either
by providing bandwidth capacity at no additional charge or by paying in cash.
At the end of three years, if specified milestones are not achieved, TiVo will
have the right to repurchase some or all of these shares at $.001 per share.
The value of the common stock issued to DIRECTV and recorded as prepaid
marketing expenses of $16.5 million is recognized as a sales and marketing
expense--related parties ratably as the services are provided to TiVo over the
contractual service periods under the agreement.
F-17
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
In addition to the equity consideration for DIRECTV's marketing services
described above, DIRECTV will receive a percentage of TiVo's revenues
attributable to DIRECTV/TiVo subscribers. These amounts are expensed as earned
and included in sales and marketing expense--related parties.
In April 1999, TiVo sold 405,405 shares of Series F preferred stock to
DIRECTV at $7.40 per share.
Philips Agreement
On March 31, 1999, the Company entered into an agreement with Philips for the
manufacture, marketing and distribution of personal video recorders that enable
the TiVo Service. Subject to certain limitations, this agreement grants Philips
the right to manufacture, market and sell personal video recorders that enable
the TiVo Service in North America. Philips was also granted the right to
manufacture, market and sell personal video recorders in North America that
incorporate both DIRECTV's satellite receiver and the TiVo Service. The Company
also granted Philips a license to TiVo technology for the purpose of developing
and manufacturing personal video recorders and other devices that enable the
TiVo Service.
The Company has agreed to pay Philips a subsidy on each personal video
recorder that is manufactured and sold by Philips. The amount of the subsidy is
formula-based and periodically adjusted based on Philips manufacturing costs
and selling prices. A portion of the subsidy amount paid to Philips is due when
the personal video recorder is shipped. The remaining portion is due when the
subscriber activates the TiVo Service. The Company will record the subsidy as a
sales and marketing expense--related parties upon shipment of the personal
video recorder by Philips. In addition to these amounts, the Company has agreed
to pay Philips a fixed amount per month for each Philips-branded personal video
recorder that has an active subscription to the TiVo Service.
Under the terms of the agreement, Philips has committed to provide a
specified amount of marketing activities related to Philips-branded personal
video recorders that enable the TiVo Service.
In April 1999, Philips purchased 1,351,351 shares of Series H preferred stock
for $7.40 per share.
11. COMMITMENTS AND CONTINGENCIES:
The Company leases its office space under operating leases that expire on
March 31 and June 30, 2000. As of December 31, 1998, and June 30, 1999, future
minimum rental payments under this lease are $1,327,000 and $901,000,
respectively. Rent expense under operating leases was approximately $45,000,
$619,000, and $483,000 for the period from inception to December 31, 1997, for
the year ended December 31, 1998 and for the six months ended June 30, 1999,
respectively.
The Company has entered into various supply or service agreements and
purchase commitments with a number of vendors. As of June 30, 1999, the
Company's commitment under these agreements is approximately $7.5 million.
12. RETIREMENT PLAN
In December 1997, the Company established a 401(k) Retirement Plan (the
Retirement Plan) available to employees who meet the plan's eligibility
requirements. Participants may elect to contribute a percentage of their
compensation to the Retirement Plan up to a statutory limit. Participants are
fully vested in their
F-18
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
contributions. The Company may make discretionary contributions to the
Retirement Plan as a percentage of participant contributions, subject to
established limits. The Company has not made any contributions to the
Retirement Plan through June 30 ,1999.
13. SUBSEQUENT EVENTS (unaudited):
Equipment Lease Line
In March 1999, the Company entered into an equipment lease line for $2.5
million over the 12 months following the date of the lease. The annual interest
rate is 7.25%, and the line is repayable over 36 months. The lessor received a
warrant for 60,814 shares of the Company's Series B preferred stock at an
exercise price of $1.26 per share. The Company expenses the estimated fair
value of the warrants of $304,000 over the life of the lease. The estimated
fair value of the warrants was determined using the Black-Scholes option
pricing model. The principle assumptions used in the computation are: 10 year
term, deemed fair value at the date of issuance of $5.50 per share, a risk-free
rate of return of 5.07%, dividend yield of 0% and a volatility of 50%. The
$670,000 used portion of the lease is accounted for as a capital lease. The
current portion of the capital lease obligation at June 30, 1999 is $112,000.
The unused lease line expires February 2000.
Equity Incentive Plans
In April 1999, the Company's stockholders approved the 1999 Plan. Amendments
to the 1999 Plan were adopted in July 1999. The 1999 Plan allows the grant of
options to purchase shares of the Company's common stock to employees and other
individuals at a price equal to the fair market value of the common stock at
the date of grant. The options vest 25 percent after the first year of service,
and the remaining 75 percent vest ratably over the next 36 months. Options
expire 10 years after the grant date. The terms of the 1999 Plan also allow
individuals to exercise their options prior to full vesting. In the event that
the individual terminates before becoming fully vested, the Company has the
right to repurchase the unvested shares at the original option price. The
number of shares authorized for option grants under the 1999 Plan is 4,200,000
subject to an annual increase of the greater of 7% of outstanding shares or
4,000,000 shares, up to a maximum of 40,000,000 shares.
In July 1999, the Company adopted the 1999 Non-Employee Directors' Stock
Option Plan (the Directors' Plan). The Director's Plan becomes effective upon
the completion of an initial public offering. The Directors' Plan provides for
the automatic grant of options to purchase shares of the Company's common stock
to nonemployee directors at a price equal to the fair market value of the stock
at the date of the grant. The options vest monthly over two years. The option
term is ten years after the grant date but terminates three months after a
director's service terminates. The number of shares authorized for option
grants under the Directors' Plan is 500,000, subject to an annual increase of
100,000 shares.
In July 1999, the Company adopted the 1999 Employee Stock Purchase Plan (the
Employee Stock Purchase Plan). The Employee Stock Purchase Plan provides a
means for employees to purchase TiVo common stock through payroll deductions of
up to 15 percent of their base compensation. The Company offers the common
stock purchase rights to eligible employees, generally all full-time employees
who have been employed for at least 10 days. This plan allows for common stock
purchase rights to be granted to employees of TiVo at a price equal to the
lower of 85% of the fair market value on the first day of the offering period
or on the common stock purchase date. Under the purchase plan, the board may
specify offerings up to 27 months. The number of shares reserved for issuance
under this plan is 600,000 subject to automatic annual
F-19
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to the six months ended June 30, 1998 and 1999 and
the period from
August 4, 1997 (Inception) to June 30, 1999 and as of June 30, 1999 is
unaudited)
increase by the lesser of (i) 5 percent of the outstanding shares of common
stock on a diluted basis, (ii) 500,000 shares, or (iii) a smaller number as
determined by the board of directors.
Convertible Debt
In April 1999, the Company entered into a secured convertible debenture
purchase agreement with certain stockholders. Under the terms of this
agreement, TiVo can borrow up to $3,000,000 at an interest rate of 4.67% per
annum. The debentures to be delivered by TiVo for any loan made under this
agreement are convertible into common stock on a one-for-one basis and secured
by substantially all of the Company's assets other than intellectual property.
In conjunction with the agreement, TiVo issued warrants to purchase 81,522
shares of common stock at an exercise price of $2.50 per share. Deferred
financing costs of $341,000 was recorded using the estimated fair value of the
warrants at the date of issuance. The estimated fair value of the warrants was
determined using the Black-Scholes option pricing model. The principle
assumptions used in the computation are: 5 year term; deemed fair value at the
date of issuance of $5.50 per share; a risk free rate of return of 5.07%;
dividend yield of 0%; and a volatility of 50%. The value assigned to the
warrants is being amortized over the term of the commitment which expires on
June 30, 2000. Of this amount, $145,000 was expensed for the six months ended
June 30, 1999. As of June 30, 1999, TiVo had no outstanding amounts under this
agreement. All of the warrants issued under the terms of this agreement expire
upon the completion of an initial public offering.
Deferred Compensation
During 1999, the Company granted stock options with exercise prices that were
less than the estimated fair market value of the underlying shares of common
stock on the date of grant. As a result, the Company has recorded deferred
compensation of approximately $2,815,000 as a contra equity account and
recorded stock-based compensation expense of $187,000 during the six months
ended June 30, 1999. These amounts will be recognized as stock-based
compensation over the vesting period of the options (four years).
Series I Preferred Stock
In July 1999, the Company issued 3,121,994 shares of Series I preferred stock
at $10.41 per share. Series I shares are convertible on a one-for-one basis
into shares of common stock and have a $10.41 liquidation preference per share.
All other terms are comparable with the prior series of preferred stock.
Series I Warrant
In July 1999 the Company also issued a Series I preferred stock warrant at
$10.41 per share. This warrant is exercisable immediately and terminates at the
earlier of the closing of a firmly underwritten public offering or five years
from the date of issuance. Upon exercise, the warrant converts into 192,123
shares of common stock.
Series J Preferred Stock
In August 1999, the Company issued 480,307 shares of Series J preferred stock
at $10.41 per share. Series J shares are convertible on a one-for-one basis
into shares of common stock and have a $10.41 liquidation preference per share.
All other terms are comparable with the prior series of preferred stock.
In September 1999, the Company plans to issue 2,643,482 additional shares of
Series J preferred stock at $10.41 per share. The sale of these shares is
subject to customary closing conditions and is anticipated to occur by
September 10, 1999.
Initial Public Offering
The Company is proposing an initial public offering of up to 5,500,000 shares
of common stock.
F-20
<PAGE>
DESCRIPTION OF ARTWORK APPEARING ON BACK COVER INSIDE
[Inside Back Cover]
Small TiVo logo graphic
<PAGE>
[LOGO OF TIVO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in
connection with the distribution of the common stock being registered. All
amounts are estimated, except the SEC Registration Fee, the NASD Filing Fee
and the Nasdaq National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 22,859
NASD Filing Fee............................................... 8,500
Nasdaq National Market Filing Fee............................. 95,000
Blue Sky Fees and Expenses.................................... 10,000
Accounting Fees............................................... 300,000
Legal Fees and Expenses....................................... 450,000
Transfer Agent and Registrar Fees............................. 5,000
Printing and Engraving........................................ 225,000
Miscellaneous................................................. 150,000
----------
Total....................................................... $1,266,359
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
The Registrant's Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.2 to the Registration Statement, provides that directors of the
Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
to the fullest extent permitted by the Delaware General Corporation Law,
except for liability (1) for any breach of duty of loyalty to Registrant or to
its stockholders, (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the Delaware General Corporation Law, or (4) for any transaction from which
the director derived an improper personal benefit. The Registrant's Amended
and Restated Certificate of incorporation further states that if the Delaware
General Corporation Law is amended after its stockholders approve its Amended
and Restated Certificate of Incorporation to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
The Registrant's Bylaws provide that Registrant shall indemnify its officers
and directors to the fullest extent not prohibited by Delaware law and
authorizes the Registrant to modify the extent of such indemnification by
individual contracts with its officers and directors. Registrant's Bylaws
further provide, however, that the Registrant shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (1) such indemnification is expressly
required to be made by law, (2) the proceeding was authorized by the Board of
Directors of the corporation, (3) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (4) such
indemnification is required to be made pursuant to Registrant's contractual
obligations to its directors and officers.
Section 145 of the Delaware General Corporation Law makes provision for such
indemnification in terms sufficiently broad to cover officers and directors
under certain circumstances for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any
directors' and officers' liability insurance.
II-1
<PAGE>
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since the Company's inception on August 4, 1997, the Company has sold and
issued the following unregistered securities:
(a) On August 5, 1997, the Registrant sold an aggregate of 2,800,000
shares of its Common Stock to its founders under the exemption from
registration provided by Rule 701 of the Securities Act, raising aggregate
proceeds of $10,080. Michael Ramsay, the Registrant's Chairman of the
Board, Chief Executive Officer and President, and James Barton, its Chief
Technical Officer and Vice President of Research and Development, each
purchased 1,400,000 shares pursuant to Founder Stock Purchase Agreements.
On September 24, 1997, these shares were split into an aggregate of
2,916,664 shares of Common Stock.
(b) On September 24, 1997, the Registrant sold an aggregate of
4,833,334 shares, and on October 22, 1997, an aggregate of 166,666 shares,
in a private placement of its Series A Preferred Stock having an aggregate
liquidation preference of $3.0 million and raising aggregate net proceeds
of $3.0 million, which were used for general corporate purposes. The
transactions were consummated pursuant to a Series A Preferred Stock
Purchase Agreement, Investor Rights Agreement and Stockholders Agreement,
agreements which designate certain rights and obligations of the Series A
Preferred Stock. In connection with the Series A offering, Michael Ramsay,
the Registrant's Chief Executive Officer, purchased 666,667 shares, James
Barton, the Registrant's Chief Technical Officer, purchased 166,667 shares,
entities affiliated with New Enterprise Associates, a stockholder owning in
excess of 5% of Registrant voting securities, purchased an aggregate of
2,000,000 shares, entities affiliated with Institutional Venture Partners,
a 5% stockholder, purchased an aggregate of 2,000,000 shares, and three
accredited investors purchased an aggregate of 166,666 shares.
(c) On February 23, 1998, the Registrant issued 7,870 shares of its
Common Stock to each of Kristen Smith and Thomas A. Tucker, in
consideration for past consulting services provided to the Registrant.
Based on the fair market value of these shares at that time, determined to
be $0.04 per share by the Registrants's board of directors, the value of
the consideration received from each of Ms. Smith and Mr. Tucker was
$314.80.
(d) On May 29, 1998, the Registrant sold an aggregate of 3,174,604
shares, on June 26, 1998, an aggregate of 461,310 shares, and on July 27,
1998, 25,000 shares in a private placement of an aggregate of 3,660,914
shares of its Series B Preferred Stock having an aggregate liquidation
preference of $4.6 million and raising aggregate net proceeds of
approximately $4.6 million which were used for general corporate purposes.
The transactions were pursuant to a Series B Preferred Stock Purchase
Agreement and Investor Rights Agreement, agreements which designate certain
rights and obligations of the Series B Preferred Stock. In connection with
the Series B offering, entities affiliated with New Enterprise Associates,
a stockholder owning in excess of 5% of Registrant voting securities,
purchased an aggregate of 1,587,302 shares, entities affiliated with
Institutional Venture Partners, a 5% stockholder, purchased an aggregate of
1,587,302 shares, Randy Komisar, a director of the Registrant, purchased
24,800 shares, an aggregate of 158,731 was sold to two accredited investors
and seven employees of the Registrant purchased an aggregate of 302,770
shares.
(e) On October 8, 1998 and October 30, 1998, the Registrant sold an
aggregate of 2,162,163 and 337,837 shares, respectively, in a private
placement of an aggregate of 2,500,000 shares of its Series C Preferred
Stock having an aggregate liquidation preference of $4.6 million, raising
aggregate net proceeds of approximately $4.6 million which were used for
general corporate purposes. The transactions were consummated pursuant to
the Series C Preferred Stock Purchase Agreement and Investor Rights
Agreement, agreements which designate certain rights and obligations of the
Series C Preferred Stock. In connection with the Series C offering,
entities affiliated with New Enterprise Associates and entities affiliated
with
II-2
<PAGE>
Institutional Venture Partners, each stockholders owning in excess of 5% of
Registrant voting securities, purchased an aggregate of 594,595 shares
each. Three venture capital investors purchased an aggregate of 1,243,245
shares and five employees of the Registrant purchased 13,513 shares each.
(f) On December 22, 1998, the Registrant issued 13,513 shares of its
Series C Preferred Stock to Odyssey Capital, L.L.C. at a purchase price of
$1.85 per share pursuant to a Series C Preferred Stock Purchase Agreement
and in consideration for past services.
(g) On January 20, 1999, the Registrant completed a private placement
to Vulcan Ventures Corporation of 1,358,695 shares of its Series D
Preferred Stock having a liquidation preference of $5.0 million and raising
net proceeds of approximately $5.0 million which were used for general
corporate purposes. The transaction were pursuant to a Series D Preferred
Stock Purchase Agreement and Investor Rights Agreement, agreements which
designate certain rights and obligations of the Series D Preferred Stock.
(h) On March 19, 1999, the Registrant completed a private placement to
Showtime Networks, Inc. of 270,270 shares of its Series E Preferred Stock
having a liquidation preference of $2.0 million and raising net proceeds of
approximately $2.0 million which were used for general corporate purposes.
The transaction was consummated pursuant to the Preferred Stock Purchase
Agreement and Investor Rights Agreement, agreements which designate certain
rights and obligations of the Series E Preferred Stock.
(i) On April 13, 1999, the Registrant completed a private placement to
DIRECTV, Inc. of 405,405 shares of its Series F Preferred Stock having a
liquidation preference of $3.0 million, raising net proceeds of
approximately $3.0 million which were used for general corporate purposes.
The transaction was consummated pursuant to a Series F Preferred Stock
Purchase Agreement and Investor Rights Agreement, agreements which
designate certain rights and obligations of the Series F Preferred Stock.
On the same date, the Registrant entered into a Marketing Agreement with
DIRECTV, Inc. under which it issued 2,981,196 shares of its Common Stock to
DIRECTV, Inc. in consideration for $2,981 of past and $4,627,841 of future
services to the Registrant by DIRECTV, Inc. and under which net proceeds of
approximately $2.8 million were raised under a promissory note.
(j) On April 16, 1999, the Registrant completed a private placement to
NBC Multimedia, Inc. of 1,013,513 shares of its Series G Preferred Stock
having a liquidation preference of $7.5 million, raising net proceeds of
approximately $7.5 million which were used for general corporate purposes.
The transaction was consummated pursuant to a Series G Preferred Stock
Purchase Agreement and Investor Rights Agreement, agreements which
designate certain rights and obligations of the Series G Preferred Stock.
(k) On April 23, 1999, the Registrant completed a private placement to
Philips Corporate External Ventures B.V. of 1,351,351 shares of its Series
H Preferred Stock having a liquidation preference of $10.0 million, raising
net proceeds of approximately $10.0 million which were used for general
corporate purposes. The transaction was consummated pursuant to a Series F
Preferred Stock Purchase Agreement and Investor Rights Agreement,
agreements which designate certain rights and obligations of the Series H
Preferred Stock.
(l) On July 21, 1999, the Registrant sold an aggregate of 3,121,994
shares of its Series I Preferred Stock having an aggregate liquidation
preference of $32.5 million and raising aggregate net proceeds of
approximately $32.5 million. The transaction was pursuant to a Series I
Preferred Stock Purchase Agreement and Investor Rights Agreement,
agreements which designate certain rights and obligations of the Series I
Preferred Stock. The following entities, either directly or through an
affiliate, purchased shares of Series I Preferred Stock in this
transaction:
<TABLE>
<S> <C>
. Advance/Newhouse . Discovery Communications
. CBS Corporation . Liberty Media
. Comcast Interactive . TV Guide Interactive
. Cox Communications . The Walt Disney Company
</TABLE>
II-3
<PAGE>
(m) On August 10, 1999, the Registrant completed a private placement
to America Online, Inc. of 480,307 shares of its Series J Preferred Stock
having an aggregate liquidation preference of approximately $5.0 million
and raising aggregate net proceeds of approximately $5.0 million.
The transaction was pursuant to a Series J Preferred Stock Purchase
Agreement and Investor Rights Agreement, agreements which designate certain
rights and obligations of the Series J Preferred Stock, including
registration rights, information and reporting rights, inspection rights,
rights of first refusal and rights relating to election of members of the
board of directors.
(n) On September 9, 1999, the Registrant completed a private placement
to Sony Corporation of America, Inc. of 2,643,482 shares of its Series J
Preferred Stock having an aggregate liquidation preference of approximately
$27.5 million and raising aggregate net proceeds of approximately
$27.5 million. This transaction was pursuant to a Series J Preferred Stock
Purchase Agreement and Investor Rights Agreement, agreements which
designate certain rights and obligations of the Series J Preferred Stock,
including registration rights, information and reporting rights, inspection
rights, rights of first refusal and rights relating to the election of
members of the board of directors.
(o) On March 18, 1998, the Registrant issued a warrant to purchase
52,083 shares of its Series A Preferred Stock at an exercise price of $0.60
per share to Randy Komisar, a director of the Company in consideration for
Board participation. The warrant, which was issued as an inducement for Mr.
Komisar to serve on the Registrant's board of directors, expires upon the
closing of an initial public offering of the Registrant's Common Stock. For
accounting purposes, this warrant was valued at approximately $32,000.
(p) On February 2, 1999, the Registrant issued a warrant to purchase
60,813 shares of its Series B Preferred Stock at an exercise price of $1.26
per share to Comdisco, Inc. in connection with a Lease Line Agreement. The
warrant, which was issued as an inducement for Comdisco to enter into the
lease line, expires upon the closing of an initial public offering of the
Registrant's Common Stock. For accounting purposes, this warrant has been
valued at $304,000.
(q) On November 6, 1998, the Registrant issued a warrant to purchase
324,325 shares of its Series C Preferred Stock at an exercise price of
$0.01 per share to Quantum Corporation in connection with a Hard Disk Drive
Supply Agreement dated November 6, 1998. The warrant, which was issued as
an inducement for Quantum to enter into the agreement, will automatically
be exercised prior to closing of an initial public offering of the
Registrant's Common Stock. For accounting purposes, this warrant has been
valued at $2.4 million.
(r) On November 6, 1998, the Registrant issued a warrant to purchase
543,478 shares of its Series D Preferred Stock at an exercise price of
$0.01 per share to Quantum Corporation in connection with a Hard Disk Drive
Supply Agreement dated November 6, 1998. The warrant, which was issued as
an inducement for Quantum to enter into the agreement, will automatically
be exercised prior to closing of an initial public offering of the
Registrant's Common Stock. For accounting purposes, this warrant has not
been valued as the warrant has not vested.
(s) On April 8, 1999, the Registrant issued warrants to purchase an
aggregate of 81,522 shares of its Common Stock at exercise prices of $2.50
per share to New Enterprise Associates VII, L. P., Institutional Venture
Partners VII, L.P., both of which own in excess of 5% of Registrant voting
securities, and two other accredited investors pursuant to a certain
Secured Convertible Debenture Purchase Agreement under which the Registrant
raised an aggregate of $3.0 million in a debt financing. The warrants,
which were issued as an inducement to the parties to enter into the
agreement, expire upon the closing of an initial public offering of the
Registrant's Common Stock in which the per share public offering price is
not less than $5.00 and the aggregate public offering price is at least
$10,000,000. For accounting purposes, the aggregate value of these warrants
has been set at $341,000.
II-4
<PAGE>
(t) Since the Registrant's inception on August 4, 1997 through June
30, 1999, options to purchase 4,109,240 shares of the Registrant's Common
Stock, net of 421,375 shares cancelled upon employee termination, were
granted to 72 optionees under the Registrant's 1997 Equity Incentive Plan.
Registrant has granted options to purchase 1,987,605 shares of its Common
Stock, net of 25,000 shares cancelled upon employee termination, to 45
optionees under its 1999 Equity Incentive Plan. Through June 30, 1999,
optionees have exercised 2,471,958 shares under the Registrant's 1997
Equity Incentive Plan raising net proceeds of $265,558, of which 399,937
shares have been repurchased upon employee termination at a cost of
$27,337. Optionees have exercised 17,000 shares under Registrant's 1999
Equity Incentive Plan through June 30, 1999. The Registrant has granted
stock awards for 195,233 shares of its Common Stock under its 1997 Equity
Incentive Plan and 94,009 shares under its 1999 Equity Incentive Plan for
past services.
The sales and issuances of securities in the transactions described in
paragraphs (a) and (c) and the exercise of stock options referred to in
paragraph (t) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraph (b) and paragraphs (d) through (s) above were deemed to be exempt
from registration under the Securities Act by virtue of Section 4(2) as
transactions by an issuer not involving any public offering. The purchasers in
each case represented their intention to acquire the securities for investment
only and not with a view to the distribution thereof. Appropriate legends are
affixed to the stock certificates issued in such transactions. Similar legends
were imposed in connection with any subsequent sales of any such securities.
All recipients either received adequate information about the Registrant or
had access, through employment or other relationships, to such information.
Item 16. Exhibits And Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
**1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Incorporation of the
Registrant as currently in effect.
**3.2 Form of Amended and Restated Certificate of Incorporation to be in
effect immediately upon the closing of the offering.
**3.3 Bylaws of the Registrant as currently in effect.
**3.4 Amended and Restated Bylaws of the Registrant to be in effect
immediately following the closing of the offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
**4.2 Specimen Common Stock Certificate.
**4.3 Ninth Amended and Restated Investor Rights Agreement between the
Registrant and certain investors dated as of August 6, 1999.
**5.1 Opinion of Cooley Godward LLP.
**10.1 Form of Indemnification Agreement between the Registrant and its
officers and directors.
**10.2 Registrant's 1999 Equity Incentive Plan and related documents.
**10.3 Registrant's Amended and Restated 1997 Equity Incentive Plan and
related documents.
**10.4 Registrant's 1999 Employee Stock Purchase Plan and related
documents.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
**10.5 Registrant's 1999 Non-Employee Directors' Stock Option Plan and
related documents.
+10.6 Hard Disk Drive Supply Agreement between Quantum Corporation and
the Registrant dated November 6, 1998.
+10.7 Master Agreement between Philips Business Electronics B.V. and the
Registrant dated March 31, 1999.
**+10.8 Marketing Agreement between DIRECTV, Inc. and the Registrant dated
April 13, 1999.
**+10.9 Agreement between NBC Multimedia, Inc. and the Registrant dated
April 16, 1999.
**10.10 Sublease Agreement between Verity, Inc. and the Registrant dated
February 23, 1998.
**10.11 Amendment to Sublease Agreement between Verity, Inc. and the
Registrant dated November 1998.
**10.12 Second Amendment to Sublease Agreement between Verity, Inc. and
the Registrant dated March 1999.
**10.13 Consent of Landlord to Sublease between Verity, Inc. and the
Registrant dated February 23, 1998.
**10.15 Master Lease Agreement between Comdisco, Inc. and the Registrant
dated February 12, 1999.
**+10.16 Warrant Purchase and Equity Rights Agreement between Quantum
Corporation and the Registrant dated November 6, 1998 and related
documents.
**10.17 Warrant to Purchase Shares of Series A Preferred Stock issued to
Randy Komisar dated March 18, 1998.
**10.18 Warrant Agreement between Comdisco, Inc. and the Registrant dated
February 12, 1999.
**10.19 Secured Convertible Debenture Purchase Agreement between the
Registrant and certain of its investors dated April 8, 1999, and
related documents.
**10.20 First Amendment to Hard Disk Supply Agreement between Quantum and
the Registrant dated June 25, 1999.
**10.21 Registrant's 401(k) Plan effective December 1, 1997.
**+10.22 Tribune Media Services Television Listing Agreement between
Tribune Media Services and the Registrant dated June 1, 1998.
**+10.23 Amendment to the Data License Agreement between Teleworld Inc.,
and Tribune Media Services, Inc. between Tribune Media Services
and the Registrant dated November 10, 1998.
23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
**24.1 Power of Attorney.
**27.1 Financial Data Schedule.
</TABLE>
- -----------------------
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. Such portions have been filed separately with the
Commission.
** Previously filed.
II-6
<PAGE>
(b) Financial Statement Schedules
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
Item 17. Undertakings
A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be
signed on its behalf, by the undersigned, thereunto duly authorized, in the
City of Sunnyvale, County of Santa Clara, State of California, on September
28, 1999.
TiVo Inc.
By: /s/ David H. Courtney
___________________________________
David H. Courtney
Vice President of Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive September 28, 1999
______________________________________ Officer, and Chairman of
Michael Ramsay the Board (Principal
Executive Officer)
/s/ David H. Courtney Vice President of Finance September 28, 1999
______________________________________ and Chief Financial
David H. Courtney Officer (Principal
Financial and Accounting
Officer)
* Vice President of Research September 28, 1999
______________________________________ and Development, Chief
James Barton Technical Officer and
Director
* Director September 28, 1999
______________________________________
Geoffrey Y. Yang
* Director September 28, 1999
______________________________________
Stewart Alsop
* Director September 28, 1999
______________________________________
Randy Komisar
* Director September 28, 1999
______________________________________
Larry N. Chapman
* Director September 28, 1999
______________________________________
Thomas S. Rogers
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director September 28, 1999
______________________________________
Michael J. Homer
/s/ John S. Hendricks Director September 28, 1999
______________________________________
John S. Hendricks
/s/ Jan P. Oosterveld Director September 28, 1999
______________________________________
Jan P. Oosterveld
Director September 28, 1999
______________________________________
Howard Stringer
</TABLE>
* By: /s/ David H. Courtney
-----------------------------
David H. Courtney
Attorney-in-Fact
II-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
**1.1 Form of Underwriting Agreement.
**3.1 Amended and Restated Certificate of Incorporation of the
Registrant as currently in effect.
**3.2 Form of Amended and Restated Certificate of Incorporation to be in
effect immediately upon the closing of the offering.
**3.3 Bylaws of the Registrant as currently in effect.
**3.4 Amended and Restated Bylaws of the Registrant to be in effect
immediately following the closing of the offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
**4.2 Specimen Common Stock Certificate.
**4.3 Ninth Amended and Restated Investor Rights Agreement between the
Registrant and certain investors dated as of August 6, 1999.
**5.1 Opinion of Cooley Godward LLP.
**10.1 Form of Indemnification Agreement between the Registrant and its
officers and directors.
**10.2 Registrant's 1999 Equity Incentive Plan and related documents.
**10.3 Registrant's Amended and Restated 1997 Equity Incentive Plan and
related documents.
**10.4 Registrant's 1999 Employee Stock Purchase Plan and related
documents.
**10.5 Registrant's 1999 Non-Employee Directors' Stock Option Plan and
related documents.
+10.6 Hard Disk Drive Supply Agreement between Quantum Corporation and
the Registrant dated November 6, 1998.
+10.7 Master Agreement between Philips Business Electronics B.V. and the
Registrant dated March 31, 1999.
**+10.8 Marketing Agreement between DIRECTV, Inc. and the Registrant dated
April 13, 1999.
**+10.9 Agreement between NBC Multimedia, Inc. and the Registrant dated
April 16, 1999.
**10.10 Sublease Agreement between Verity, Inc. and the Registrant dated
February 23, 1998.
**10.11 Amendment to Sublease Agreement between Verity, Inc. and the
Registrant dated November 1998.
**10.12 Second Amendment to Sublease Agreement between Verity, Inc. and
the Registrant dated March 1999.
**10.13 Consent of Landlord to Sublease between Verity, Inc. and the
Registrant dated February 23, 1998.
**10.15 Master Lease Agreement between Comdisco, Inc. and the Registrant
dated February 12, 1999.
**+10.16 Warrant Purchase and Equity Rights Agreement between Quantum
Corporation and the Registrant dated November 6, 1998 and related
documents.
**10.17 Warrant to Purchase Shares of Series A Preferred Stock issued to
Randy Komisar dated March 18, 1998.
**10.18 Warrant Agreement between Comdisco, Inc. and the Registrant dated
February 12, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
**10.19 Secured Convertible Debenture Purchase Agreement between the
Registrant and certain of its investors dated April 8, 1999, and
related documents.
**10.20 First Amendment to Hard Disk Supply Agreement between Quantum and
the Registrant dated June 25, 1999.
**10.21 Registrant's 401(k) Plan effective December 1, 1997.
**+10.22 Tribune Media Services Television Listing Agreement between
Tribune Media Services and the Registrant dated June 1, 1998.
**+10.23 Amendment to the Data License Agreement between Teleworld Inc.,
and Tribune Media Services, Inc. between Tribune Media Services
and the Registrant dated November 10, 1998.
23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
**24.1 Power of Attorney.
**27.1 Financial Data Schedule.
</TABLE>
- -----------------------
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. Such portions have been filed separately with the
Commission.
** Previously filed.
<PAGE>
EXHIBIT 10.6
HARD DISK DRIVE SUPPLY AGREEMENT
by and between
Quantum Corporation
and
TiVo Inc.
November 6, 1998
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 CONSTRUCTION AND DEFINITIONS............................ 1
Section 1.1 Construction........................................ 1
Section 1.2 Definitions......................................... 2
ARTICLE 2 TWO CENTER DEVELOPMENT.................................. 4
Section 2.1 Development Management.............................. 4
Section 2.2 Quantum Development Support......................... 4
Section 2.3 Support Procedures.................................. 4
Section 2.4 Facilities.......................................... 5
Section 2.5 Quantum Environmental Test Chambers................. 5
Section 2.6 Ownership of Intellectual Property Rights........... 5
Section 2.7 Trade Secret Licenses............................... 6
Section 2.8 No Other License.................................... 6
ARTICLE 3 HARD DISK DRIVE PURCHASES............................... 7
Section 3.1 Development Units................................... 7
Section 3.2 Production Units.................................... 7
Section 3.3 Hard Disk Drive Ordering Procedures................. 7
Section 3.4 Hard Disk Drive Use Restrictions.................... 7
Section 3.5 Future Hard Disk Drive Purchases.................... 7
ARTICLE 4 HARD DISK DRIVE PRICING................................. 7
Section 4.1 Generally........................................... 7
Section 4.2 Milestone 1 Discount................................ 8
Section 4.3 Milestone 2 Discount................................ 8
Section 4.4 Periodic Payments................................... 8
Section 4.5 Periodic Payment Reporting.......................... 9
Section 4.6 Inspection Rights................................... 9
Section 4.7 TiVo Licensee Rebate................................ 10
ARTICLE 5 EXCLUSIVITY............................................. 10
Section 5.1 Exclusivity......................................... 10
ARTICLE 6 TRADEMARK LICENSES...................................... 11
Section 6.1 License to TiVo..................................... 11
</TABLE>
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 6.2 License to Quantum.................................. 11
Section 6.3 TiVo Usage.......................................... 12
Section 6.4 Other Usage......................................... 12
Section 6.5 Trademark Usage Approval Process.................... 12
Section 6.6 Ownership........................................... 13
Section 6.7 Challenge........................................... 13
Section 6.8 Ouality Control..................................... 14
Section 6.9 Policing............................................ 14
Section 6.10 Registered User Filings............................. 14
ARTICLE 7 PROMOTIONAL ACTIVITIES................................ 14
Section 7.1 PR References....................................... 14
Section 7.2 Quantum Promotion................................... 14
Section 7.3 Manufacturer Relationships.......................... 15
Section 7.4 Corporate Publicity................................. 15
Section 7.5 TiVo End-User Mailing List.......................... 15
Section 7.6 TiVo Recommendation................................. 15
ARTICLE 8 INFORMATION REPORTING................................. 16
Section 8.1 Information Reporting............................... 16
ARTICLE 9 CONFIDENTIAL INFORMATION.............................. 16
Section 9.1 Confidential Information and Exclusions............. 16
Section 9.2 Confidentiality Obligation.......................... 16
Section 9.3 Confidentiality of Agreement........................ 16
Section 9.4 Compelled Disclosure................................ 17
Section 9.5 Remedies............................................ 17
ARTICLE 10 WARRANTIES, DISCLAIMERS AND INDEMNITIES............... 17
Section 10.1 General Warranty.................................... 17
Section 10.2 No Conflict......................................... 17
Section 10.3 Disclaimer.......................................... 17
Section 10.4 Third-Party Contracts............................... 17
Section 10.5 Intellectual Property Warranties.................... 18
</TABLE>
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 10.6 Quantum Indemnity...................................... 18
Section 10.7 TiVo Indemnity......................................... 18
ARTICLE 11 LIABILITY LIMITATIONS.................................... 19
Section 11.1 Quantum Liability...................................... 19
Section 11.2 Exclusion of Damages................................... 19
Section 11.3 Failure of Essential Purpose........................... 19
ARTICLE 12 TERM AND TERMINATION..................................... 19
Section 12.1 Term................................................... 19
Section 12.2 Default................................................ 20
Section 12.3 Breach of Auxiliary Agreements......................... 20
Section 12.4 Termination for Insolvency............................. 20
ARTICLE 13 SECURITY INTEREST........................................ 20
Section 13.1 Grant of Security Interest............................. 20
Section 13.2 Obligations Secured.................................... 20
Section 13.3 Representations and Warranties and Covenants of TiVo... 21
Section 13.4 Covenants of TiVo...................................... 21
Section 13.5 Events of Default...................................... 21
Section 13.6 Rights of Quantum Upon Default......................... 22
ARTICLE 14 MISCELLANEOUS............................................ 22
Section 14.1 Observation Right...................................... 22
Section 14.2 Governing Law.......................................... 23
Section 14.4 Assignment............................................. 23
Section 14.5 Amendment.............................................. 23
Section 14.6 No Waiver.............................................. 23
Section 14.7 Severability........................................... 24
Section 14.8 Notices................................................ 24
Section 14.9 Titles and Subtitles................................... 24
Section 14.10 Entire Agreement....................................... 24
Section 14.11 Counterparts........................................... 25
</TABLE>
<PAGE>
HARD DISK DRIVE SUPPLY AGREEMENT
This Agreement (the "Agreement") is entered into effective as of November
6, 1998 (the "Effective Date"), by and between Quantum Corporation ("Quantum"),
a Delaware corporation having a place of business at 500 McCarthy Boulevard,
Milpitas, CA 95052-8062 and Tivo, Inc. ("TiVo"), a Delaware corporation having
an office at 894 Ross Drive, Suite 100, Sunnyvale, CA 94089 (each of Quantum and
TiVo, a "Party"; together, the "Parties").
Witnesseth:
Whereas, Quantum is, among other things, a manufacturer of [*] and [*] hard
disk drives that Quantum sells under its "BigFoot TS" trademark;
Whereas, TiVo intends to develop a set-top-box product (the "TiVo Center"
as further defined below) containing such a hard disk drive;
Whereas, Quantum is willing to provide to TiVo assistance in the
development of the TiVo Center as set forth herein;
Whereas, Quantum is willing to sell up to [*] of such hard disk drives to
TiVo in accordance with an initial-payment-plus-periodic-payment arrangement as
set forth herein; and
Whereas, the Parties have entered into the "Auxiliary Agreements" (as
defined herein).
Now, Therefore, in consideration of the mutual covenants and promises
contained herein, the Parties hereby agree as follows:
ARTICLE 1
CONSTRUCTION AND DEFINITIONS
Section 1.1 Construction.
------------
(a) All references in this Agreement to "Articles," "Sections" and
"Exhibits" refer to the articles, sections and exhibits of this Agreement.
(b) As used in this Agreement, neutral pronouns and any variations
thereof shall be deemed to include the feminine and masculine and all terms used
in the singular shall be deemed to include the plural, and vice versa, as the
context may require.
(c) The words "hereof," "herein" and "hereunder" and other words of
similar import refer to this Agreement as a whole, as the same may from time to
time be amended or supplemented, and not to any subdivision contained in this
Agreement.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1.
<PAGE>
(d) The word "including" when used herein is not intended to be
exclusive and means "including, without limitation."
Section 1.2 Definitions. As used herein:
------------
(a) "Auxiliary Agreements" means that certain "Warrant Purchase and
--------------------
Equity Rights Agreement," that certain "Warrant to Purchase Shares of Series C
Preferred Stock" and that certain "Warrant to Purchase Shares of Series D
Preferred Stock," all of even date herewith.
(b) "Bankruptcy Event" means any of the following events or
----------------
circumstances with respect to a Party: such Party (i) ceases conducting its
business in the normal course; (ii) makes a general assignment for the benefit
of its creditors; (iii) petitions, applies for, or suffers or permits with or
without its consent the appointment of a custodian, receiver, trustee in
bankruptcy or similar officer for all or any substantial part of its business or
assets; or (iv) avails itself or becomes subject to any proceeding under the
U.S. Bankruptcy Code or any similar state, federal or foreign statute relating
to bankruptcy, insolvency, reorganization, receivership, arrangement, adjustment
of debts, dissolution or liquidation, which proceeding is not dismissed within
sixty (60) days of commencement thereof.
(c) "Change of Control" means, with respect to a Party: (A) the
-----------------
direct or indirect acquisition of either (i) the majority of the voting stock of
such Party or (ii) all or substantially all of the assets of such Party, by
another entity in a single transaction or series of related transactions; or (B)
such Party is merged with, or into, another entity.
(d) "Confidential Information" means (i) any information disclosed by
------------------------
one Party (the "Disclosing Party') to the other (the "Receiving Party'), which,
if in written, graphic, machine-readable or other tangible form is marked as
"Confidential" or "Proprietary," or which, if disclosed orally or by
demonstration, is identified at the time of initial disclosure as confidential
and reduced to a writing marked "Confidential" and delivered to the Receiving
Party within thirty (30) days of such disclosure; and the terms of this
Agreement as set forth in Section 9.3.
(e) "Discounted Price" means [*] of the OEM Price.
----------------
(f) "Design Maturity Test" means a test of a TiVo Center's readiness
--------------------
to be put into commercial production, the specification for which test is set
forth in Exhibit F.
(g) "Equivalent Drive" means one or both of the following, as the
----------------
context may require: (i) with respect to a [*] BigFoot TS hard disk drive, a
Quantum desktop personal computer hard disk drive having at least the
performance and capacity thereof, a price no greater than that thereof and
functionality thereof; or (ii) with respect to a [*] BigFoot TS hard disk
drive, a Quantum desktop personal computer hard disk drive having at least the
performance and capacity thereof, a price no greater than that thereof and the
functionality thereof. An Equivalent Drive may have the same or a different
shape and size as its corresponding BigFoot TS hard disk drive; provided that
such Equivalent Drive is a commercially practicable substitute for its
corresponding BigFoot TS hard disk drive.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2.
<PAGE>
(h) "Hard Disk Drive" means one or more of the following, as the context
---------------
may require: (i) Quantum [*] BigFoot TS hard disk drive, (ii) Quantum [*]
BigFoot TS hard disk drive or (iii) an Equivalent Drive.
(i) "Initial Payment" means the portion of the price of a Hard Disk Drive
---------------
other than the amount payable to Quantum in accordance with Section 4.4. The
Initial Payment for a Hard Disk Drive shall equal [*] therefore unless set equal
to [*] of the OEM Price pursuant to Section 4.2 or Section 4.3.
(j) "Integration" means TiVo's integration of the Hard Disk Drives into the
-----------
first TiVo Center design.
(k) "Intellectual Property Rights" means all rights of a Person in, to, or
----------------------------
arising out of: (i) any U.S., international or foreign patent or any application
therefor and any and all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof; (ii) inventions (whether
patentable or not in any country), invention disclosures, improvements, trade
secrets, proprietary information, know-how, technology and technical data; (iii)
copyrights, copyright registrations, mask works, mask work registrations, and
applications therefor in the U.S., or any foreign country, and all other
rights corresponding thereto throughout the world (iv) trademarks, trade names,
trade dress and similar product source identifiers and (v) any other proprietary
rights anywhere in the world.
(l) "OEM Price" means the amount calculated in accordance with Exhibit E.
---------
(m) "Person" means any legal person or entity, including any individual,
------
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated association, limited liability corporation, governmental
entity, or other person or entity of similar nature.
(n) "Qualified" shall describe a particular Hard Disk Drive during a
---------
particular calendar month if (i) either (1) TiVo's Initial Payment with respect
to such Hard Disk Drive was the Discounted Price or (2) Quantum has paid a
Rebate with respect to such Hard Disk Drive; and (ii) such Hard Disk Drive was
sold or otherwise distributed by TiVo or a third party in or for use in a TiVo
Center or third-party device that receives the TiVo Service to a customer who
subscribes to the TiVo Service at any time during such month, whether such
customer has continually subscribed to the TiVo Service since his or her
initiation thereof or such customer has, one (1) or more times, terminated and
reinitiated his or her TiVo Service subscription.
(o) "Quantum Trademark" means the trademark of Quantum shown on Exhibit D
-----------------
attached hereto.
(p) "Quantum Trademark Territory" means the territory described under the
---------------------------
heading "Quantum Trademark Territory" in Exhibit C.
(q) "Rebate" means an amount equal to the Discounted Price, paid by
------
Quantum, directly or indirectly through TiVo, to a third party pursuant to
Section 4.7.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
3.
<PAGE>
(r) "Support" shall mean the technical advice and consultation
-------
provided by Quantum to TiVo in accordance with Section 2.1.
(s) "Term" means the term of this Agreement as set forth in Section
----
12.1.
(t) "TiVo Center" means a TiVo hardware product containing a Hard Disk
-----------
Drive which product (i) implements the features of the TiVo Service and (ii) is
intended for commercial sale.
(u) "TiVo-Center-Compatible Product" means a device that is capable of
------------------------------
operating with, and exploiting the features of, the TiVo Service.
(v) "TiVo Service" means a personalizable television viewing service
------------
offered to end-user consumers; for example, a service having the features set
forth in Exhibit A.
(w) "TiVo Trademark" shall mean the TiVo mark shown on Exhibit D.
--------------
(x) "TiVo Trademark Territory" means the territory described under the
------------------------
heading "TiVo Trademark Territory" in Exhibit C.
ARTICLE 2
TWO CENTER DEVELOPMENT
Section 2.1 Development Management. Quantum and TiVo shall cause Don Adams
----------------------
and Ta-Wei Chien, respectively, or their successors, to meet not less than two
(2) times each month to agree on Quantum development support deliverables and
schedule and to discuss all other matters relating to the Integration (each such
meeting, a "Development Meeting") during the period described in Section 2.2.
Section 2.2 Quantum Development Support. During the period commencing on
---------------------------
the Effective Date and ending upon the sooner of (i) June 30, 1999 or (ii) the
completion of the Integration, Quantum shall provide to TiVo, in accordance
with the procedures set forth in Section 2.3, technical advice and
consultation (the "Support") in the following areas, in connection with the
Integration:
(a) Hard Disk Drive compatibility with the TiVo Center;
(b) Reduction of thermal effects on Hard Disk Drive performance,
including by altering the placement of a Hard Disk Drive within the TiVo Center
housing; and
(c) Integration of the Hard Disk Drives into the TiVo Center
generally, including with regard to acoustics, shock resistance and mounting.
In addition, Quantum shall make mutually acceptable modifications to the Hard
Disk Drives that enhance Hard Disk Drive performance in the TiVo Center
environment.
Section 2.3 Support Procedures.
------------------
4.
<PAGE>
(a) Quantum shall provide the Support as set forth in Section 2.2 via
two (2) engineers (the "Engineers") each devoting up to thirty (30) hours per
week to the provision of the Support. The Engineers shall have experience in the
following areas:
(i) Hard Disk Drive performance and firmware; and
(ii) Hard Disk Drive integration and environmental considerations
including mechanical shock and thermal effects.
(b) With respect to the Support, the Engineers shall report to Don
Adams or his successor.
(c) If TiVo desires that Quantum assign engineers in addition to the
Engineers to provide Support, TiVo shall notify Quantum during the next-to-occur
Development Meeting and Quantum shall, if Quantum reasonably believes that such
assignment is reasonably necessary to fulfill Quantum's obligation to provide
Support hereunder, make such an assignment.
Section 2.4 Facilities. TiVo shall provide to the Engineers reasonable
----------
office space within TiVo's facilities and all facilities, materials and
assistance reasonably necessary to permit the Engineers to perform Quantum's
obligations set forth in Section 2.2.
Section 2.5 Quantum Environmental Test Chambers. Prior to the first TiVo
-----------------------------------
Center's passing the Design Maturity Test, and within a reasonable time
following TiVo's written request, and subject to the availability of Quantum's
environmental hard disk drive test chambers, Quantum shall, at no charge to
TiVo, test the Hard Disk Drives as integrated into the first TiVo Center in
Quantum's environmental hard disk drive test chambers. Quantum shall perform
such tests using test scripts and procedures jointly developed by the Parties.
TiVo shall have the right to observe the performance of such tests.
Section 2.6 Ownership of Intellectual Property Rights.
-----------------------------------------
(a) Underlying Inventions and Works of Authorship. Neither the
---------------------------------------------
Parties' creation of joint inventions or joint works of authorship nor the
provisions of this Section 2.6 shall grant to a Party any right or license to
any invention or work of authorship of the other Party with respect to which
such joint inventions or joint works of authorship are improvements or
derivative works, as the case may be.
(b) Joint Ownership. Except as set forth in Section 2.6(c), each Party
---------------
shall jointly own all inventions and works of authorship invented or authored,
as the case may be, pursuant to this Agreement by one (1) or more employees of
each Party, without a duty to account to the other joint owner (such inventions
and works of authorship, "Joint Developments").
(C) Filings. The Parties shall confer on (i) protection of Joint
-------
Developments through, as appropriate, filings ("Filings") in the United States
Copyright Office, the United States Patent and Trademark Office or otherwise,
and/or through maintenance of the Joint Development as a trade secret, and (ii)
preparation, filing, prosecution and maintenance of Filings and rights related
to Joint
5.
<PAGE>
Developments. With respect to each country in which either Party desires to make
a Filing, the Parties shall designate one Party as responsible for such Filing.
If both Parties share the expense of such Filing, then the Filing shall be made
on behalf of both Parties and shall name each Party as joint and equal owner in
such country of the Joint Development and of the resulting associated rights. If
one Party does not share the expense of such Filing, then the Party that does
not make such Filing shall assign all its right, title and interest in and to
the relevant Joint Development to the Party that does make such Filing, and the
Party which makes such Filing shall be deemed to have granted the other Party a
nonexclusive, irrevocable, perpetual, fully paid, royalty-free license, without
right to sublicense, under the Filing Party's rights in and to the relevant
Joint Development, except as set forth below in this section, to use that Joint
Development without restriction, including without limitation to practice any
process, method, or procedure and to make, use, have made, and sell or otherwise
dispose of any product or item. If either Party does not pay its one-half share
of maintenance expenses with respect to the patent or other rights associated
with a Joint Development, then sole ownership of such rights shall be
transferred and assigned to the other Party, and the license set forth above
shall be terminated.
(d) Licensing and Infringement Prosecution. Neither Party shall
--------------------------------------
license to any third party, or bring any suit, action or proceeding against any
third party for the infringement of, any intellectual property right in any
Joint Development without the prior written consent of the other Party, which
consent shall not be unreasonably denied. A Party from whom such consent is
requested in writing shall provide or deny such consent in writing within twenty
(20) business days following such request. If such consent is denied, the
denying Party shall furnish to the requesting Party a detailed explanation of
the basis for such denial along with such denial. The Parties agree that
reasonable bases for denying such consent shall include the fact that the
denying Party is in litigation with, or otherwise has an adverse relationship
with, a third party to whom the requesting Party wishes to grant a license.
Section 2.7 Trade Secret Licenses.
---------------------
(a) Quantum hereby grants to TiVo a [*] license under Quantum's trade
secret rights in the information provided to TiVo by Quantum pursuant to this
Agreement to make, have made, use, sell, offer for sale and import the TiVo
Center.
(b) TiVo hereby grants to Quantum a [*] license under TiVo's trade
secret rights in the information provided by TiVo to Quantum pursuant to this
Agreement to make, have made, use, sell, offer for sale and import any product.
(c) Each Party may sublicense to third parties the rights granted to
such Party pursuant to this Section 2.7 in connection with the licensing of
other of its Intellectual Property Rights to third parties.
Section 2.8 No Other License. Neither Party grants to the other any
----------------
license to any of such Party's Intellectual Property Rights except as expressly
set forth herein. Nothing set forth herein prohibits or shall be construed to
prohibit either Party from independently making any invention or
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
6.
<PAGE>
creating any work of authorship, and, as between the Parties, each Party shall
exclusively own all inventions and works of authorship so created, except as may
be expressly licensed hereunder.
ARTICLE 3
HARD DISK DRIVE PURCHASES
SEction 3.1 Development Units. Upon TiVo's written request, Quantum shall
-----------------
provide to TiVo, at no charge to TiVo, as reasonably required by TiVo in
connection with the Integration, up to [*] [*] Hard Disk Drives and up to [*]
[*] Hard Disk Drives. Such Hard Disk Drives may be used by TiVo solely for
development, validation and testing of the TiVo Center and not for any other
purpose, including resale to third parties.
Section 3.2 Production Units. During the Term, TiVo may order from Quantum
----------------
Hard Disk Drives under the terms, conditions and procedures set forth herein.
Section 3.3 Hard Disk Drive Ordering Procedures. The terms and conditions
-----------------------------------
governing the placement and amendment of purchase orders for Hard Disk Drives
hereunder and terms and conditions relating to Hard Disk Drive shipments and
Hard Disk Drive warranties are set forth in Exhibit B attached hereto.
Section 3.4 Hard Disk Drive Use Restrictions. Except in connection with
--------------------------------
TiVo's provision of a replacement Hard Disk Drive to a TiVo Center customer in
exchange for an under-warranty, damaged or defective Hard Disk Drive contained
in such TiVo Center, TiVo shall not resell or otherwise provide to any third
party, alone or incorporated into any product, any Hard Disk Drive purchased
hereunder for which the Initial Payment equaled the Discounted Price except as
incorporated into a new TiVo Center sold to a customer who subscribes, at the
time of purchase of such TiVo Center, to the TiVo Service for a period of not
less than one (1) month. In the event that TiVo resells or otherwise provides to
any third party any Hard Disk Drive other than as incorporated into a new TiVo
Center sold to a customer who subscribes, at the time of purchase of such TiVo
Center, to the TiVo Service for a period of not less than one (1) month,
including upgrading the hard disk drive in a TiVo Center previously sold or
otherwise distributed to a third party, TiVo shall promptly notify Quantum
thereof and pay to Quantum [*] of the OEM Price for such Hard Disk Drive.
Section 3.5 Future Hard Disk Drive Purchases. At a mutually agreeable
--------------------------------
time, but not later than TiVo's purchase of [*] Hard Disk Drives hereunder, the
Parties shall meet and renegotiate in good faith the terms and conditions upon
which TiVo would continue to purchase Hard Disk Drives from Quantum.
ARTICLE 4
HARD DISK DRIVE PRICING
Section 4.1 Generally. The price to TiVo for Hard Disk Drives ordered
---------
hereunder shall equal the Initial Payment. Notwithstanding the foregoing, if
the Initial Payment for a Hard Disk Drive
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Excahnge
Commission.
7.
<PAGE>
equals the Discounted Price thereof pursuant to Section 4.2 or Section 4.3, then
the price to TiVo for such Hard Disk Drive shall equal the Initial Payment plus
the periodic payments as set forth in Section 4.4.
Section 4.2 Milestone 1 Discount. The Initial Payment for the first
--------------------
(1/st/) [*] Hard Disk Drives purchased hereunder shall equal the Discounted
Price if:
(a) TiVo has completed development of the TiVo Center having the
features and functionality set forth in the relevant portion of Exhibit A, as
evidenced by such product's passing the Design Maturity Test; and
(b) TiVo has completed development of the TiVo Service having the
features and functionality set forth in the relevant portion of Exhibit A, as
evidenced by TiVo's successful delivery of such service to a TiVo Center or a
prototype thereof, and
(c) TiVo has completed development of the viewer interface required to
control the TiVo Service, and such interface is ready for shipment to end-user
customers; and
(d) TiVo has successfully completed a TiVo Center and TiVo Service
pilot program, as evidenced by survey data convincingly demonstrating that
customers value the TiVo Center and the TiVo Service and are willing to pay a
monthly fee for such Service; and
(e) TiVo has entered into a written agreement with not less than one
(1) third party pursuant to which the other party thereto has agreed to
distribute not less than [*] TiVo Centers during the Term; and
(f) TiVo is not in breach of any provision of this Agreement.
Section 4.3 Milestone 2 Discount. The Initial Payment for the [*] Hard
--------------------
Disk Drives purchased hereunder immediately following the first (1/st/) [*] Hard
Disk Drives purchased hereunder shall be equal to the Discounted Price if
Quantum, in its commercially reasonable discretion, taking into account (a)
whether TiVo has put in place specific programs and/or activities that have a
high likelihood of (i) achieving a reasonable sell-through of TiVo Centers to
end-user customers, (ii) minimizing TiVo service subscriber disconnect and (iii)
attracting and signing strong business partners in the areas of content,
advertising, retail distribution, service providers and consumer electronics
manufacturers and (b) Quantum's discussions with TiVo commencing not less than
one (1) month prior to TiVo's expected placement of a Purchase Order hereunder
for Hard Disk Drives, such that TiVo's aggregate purchase of Hard Disk Drive
hereunder exceeds [*] Hard Disk Drives, determines to sell such Hard Disk Drives
to TiVo under such terms, provided TiVo gives to Quantum reasonable advance
written notice of TiVo's intention to submit such a Purchase Order.
Section 4.4 Periodic Payments.
-----------------
(a) With respect to [*], TiVo shall pay to Quantum [*] for each
Qualified [*] Hard Disk Drive and
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
8.
<PAGE>
each Qualified Equivalent Drive of a [*] Hard Disk Drive. With respect to each
[*] Hard Disk Drive and each Equivalent Drive thereof sold to TiVo or a third
party hereunder, TiVo shall pay such amount to Quantum for each of the [*]
commencing with the [*] TiVo or such third party [*] such Hard Disk Drive,
irrespective of whether such Hard Disk Drive is Qualified. TiVo shall pay the
amounts set forth above for each [*] Hard Disk Drive and each Equivalent Drive
thereof whether or not such Hard Disk Drive is returned to Quantum as defective
pursuant to the warranty provisions hereof; provided that TiVo shall have no
obligation to pay any amount pursuant to this Section 4.4(a) with respect to any
Hard Disk Drive provided by Quantum as a replacement for any such defective Hard
Disk Drive.
(b) With respect to [*], TiVo shall pay to Quantum [*] for each
Qualified [*] Hard Disk Drive and each Qualified Equivalent Drive of a [*] Hard
Disk Drive. With respect to each [*] Hard Disk Drive and each Equivalent Drive
thereof sold to TiVo or third party hereunder, TiVo shall pay such amount to
Quantum for each of the [*] commencing with the [*] TiVo or such third party [*]
such Hard Disk Drive, irrespective of whether such Hard Disk Drive is Qualified.
TiVo shall pay the amounts set forth above for each [*] Hard Disk Drive and each
Equivalent Drive thereof whether or not such Hard Disk Drive is returned to
Quantum as defective pursuant to the warranty provisions hereof; provided that
TiVo shall have no obligation to pay any amount pursuant to this Section 4.4(b)
with respect to any Hard Disk Drive provided by Quantum as a replacement for any
such defective Hard Disk Drive.
(c) Within [*] days of the last day of each [*], TiVo shall pay to
Quantum all amounts due to Quantum pursuant to Section 4.4(a) and Section 4.4(b)
[*].
Section 4.5 Periodic Payment Reporting. Within thirty (30) days of the
--------------------------
last day of each calendar quarter, TiVo shall deliver to Quantum a detailed
written report, certified as accurate by an officer of TiVo, indicating the
amount due to Quantum pursuant to Section 4.4, the basis for such amount and any
other related information reasonably requested by Quantum.
Section 4.6 Inspection Rights. TiVo shall make and maintain at TiVo's
-----------------
principal place of business, during the Term and for a period of [*] thereafter,
true and complete books of account containing an accurate record of all data
necessary for the verification of TiVo's performance under this Agreement,
including the making of any payments to Quantum required hereunder, and Quantum
may cause, at Quantum's expense except as below provided, an independent,
certified public accountant selected by Quantum and acceptable to TiVo in its
reasonable discretion to examine such books at all reasonable times (but not
more than two (2) times in each calendar year) upon no less than three (3)
business days' advance written notice. Such examination shall be made during
normal business hours at the principal place of business of TiVo. In the event
that any such examination reveals, for any period, payment by TiVo to Quantum of
less than the amount TiVo is obligated to pay to Quantum hereunder, TiVo shall
promptly pay to Quantum all amounts due to Quantum hereunder, plus interest
thereon, from the date such payment was originally due to Quantum to the date of
payment thereof to Quantum, at the rate of [*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
9.
<PAGE>
[*] per year or [*], whichever is [*]. In the event that any such examination
reveals, for any period, payment by TiVo to Quantum of less than [*] of the
amount TiVo is obligated to pay to Quantum hereunder, TiVo shall promptly
reimburse Quantum for all costs and expenses actually and reasonably incurred in
connection with such examination. Subject to Section 9.1, Quantum shall treat
all information learned by Quantum in connection with the conduct of such
examination as TiVo's Confidential Information. If such examination reveals, for
any period, payment by TiVo to Quantum of more than the amount of examination
reveals, for any period, payment by TiVo to Quantum of more than the amount TiVo
in obligated to pay Quantum hereunder, Quantum shall promptly pay to TiVo the
amount of such overpayment.
Section 4.7 TiVo Licensee Rebate. To the extent TiVo has the right to
--------------------
purchase Hard Disk Drives hereunder having an Initial Payment equal to the
Discounted Price, Quantum shall in its commercially reasonable discretion, upon
TiVo's written request, sell directly to a third-party TiVo technology licensee
a portion of such Hard Disk Drives at the OEM Price. If such a third party
enters into a written agreement with Quantum: (i) providing that such Hard Disk
Drives may only be resold as incorporated into a TiVo-Center-Compatible Product
to a customer who subscribes, at the time of purchase of such product, to the
TiVo Service for a period of not less than one (1) month; (ii) providing that
such Hard Disk Drives may only be resold as incorporated into a TiVo-Center-
Compatible-Product bearing the Quantum Trademark under terms and conditions
substantially similar to those set forth in Article 6 and (iii) otherwise having
terms and conditions reasonably acceptable to Quantum; then Quantum shall pay to
such third party, [*] an amount equal to [*] of the OEM Price of each Hard Disk
Drive sold by such third party during the relevant quarter incorporated into a
TiVo Center-Compatible product to a customer who subscribes, at the time of
purchase of such product, to the TiVo Service for a period of not less than one
(1) month.
ARTICLE 5
EXCLUSIVITY
Section 5.1 Exclusivity. Except as expressly set forth in Exhibit B
-----------
attached hereto, prior to TiVo's purchase of [*] Hard Disk Drives hereunder, for
so long as Quantum is obligated hereunder or otherwise willing to sell Hard Disk
Drives to TiVo at a price having an initial payment component equal to [*] of
the OEM Price, TiVo shall not purchase except as set forth herein any hard disk
drive from any Person for incorporation into any TiVo product having a hard disk
drive, provided that Quantum is willing to supply to TiVo a hard disk drive
product that Quantum is willing to supply to TiVo a hard disk drive product
that, with or without reasonable modification thereto at TiVo's expense, meets
TiVo's commercially reasonable needs. TiVo's cost to make such a modification
and the technical feasibility of making such a modification shall be considered
among other factors in determining whether such modification is "reasonable."
Notwithstanding the foregoing, TiVo shall not be relieved of its exclusivity
obligations set forth above if Quantum does not ship Hard Disk Drives hereunder
pursuant to the provisions of Exhibit B in response to TiVo's breach hereof.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
10.
<PAGE>
ARTICLE 6
TRADEMARK LICENSES
Section 6.1 License to TiVo.
---------------
(a) Quantum hereby grants to TiVo a [*] license to use the Quantum
Trademark, under Quantum's rights in the Quantum Trademark, in the Quantum
Trademark Territory, during the Term and solely in connection with (i) the
packaging, labeling, promotion, advertising, and distribution of the TiVo Center
and the TiVo Service, (ii) TiVo's performance of its obligations hereunder and
(iii) such activities as Quantum may permit in its sole discretion from time to
time. All such use shall be strictly in accordance with any reasonable
standards, specifications and instructions that may be supplied by Quantum from
time to time.
(b) If TiVo desires to use the Quantum Trademark as set forth above in
a territory outside the Quantum Trademark Territory, TiVo shall so notify
Quantum in writing and Quantum shall determine whether to register the Quantum
Trademark or undertake similar formalities in such territory. Following the
sooner of (i) Quantum's completion of such registration or undertaking, as
applicable, (ii) Quantum's written notification to TiVo that Quantum does not
wish to undertake such a registration or such formalities with respect to the
Quantum Trademark in such territory or (iii) forty-five (45) days from the date
of TiVo's notification of Quantum as set forth above, such territory shall be
considered a part of the Quantum Trademark Territory hereunder.
(c) Quantum may modify the Quantum Trademark from time to time in
Quantum's sole discretion by delivering to TiVo a modified Quantum Trademark;
provided that TiVo shall remain licensed as set forth herein to, and shall be
permitted to fulfill its obligations hereunder using, the unmodified Quantum
Trademark for [*] following such delivery.
Section 6.2 License to Quantum.
------------------
(a) TiVo hereby grants to Quantum a [*] license to use the TiVo
Trademark, under TiVo's rights in the TiVo Trademark, in the TiVo Trademark
Territory, during the Term and solely in connection with Quantum's performance
of its obligations hereunder. All such use shall be strictly in accordance with
any reasonable standards, specifications and instructions that may be supplied
by TiVo from time to time.
(b) If Quantum desires to use the TiVo Trademark as set forth above in
a territory outside the TiVo Trademark Territory, Quantum shall so notify TiVo
in writing and TiVo shall determine whether to register the TiVo Trademark or
undertake similar formalities in such territory. Following the sooner of (i)
TiVo's completion of such registration or undertaking, as applicable, (ii)
TiVo's written notification to Quantum that TiVo does not wish to undertake such
a registration or such formalities with respect to the TiVo Trademark in such
territory, or (iii) forty-five (45) days from the date of Quantum's notification
to TiVo as set forth above, such territory shall be considered a part of the
TiVo Trademark Territory hereunder.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
11.
<PAGE>
(c) TiVo may modify the TiVo Trademark from time to time in TiVo's
sole discretion by delivering to Quantum a modified TiVo Trademark; provided
that Quantum shall remain licensed as set forth herein to, and shall be
permitted to fulfill its obligations hereunder using, the unmodified TiVo
Trademark for [*] following such delivery.
Section 6.3 TiVo Usage. TiVo shall ensure that each of the following bears
----------
the Quantum Trademark in accordance herewith:
(a) as commercially reasonable, all TiVo Center and TiVo Service
documentation, including manuals, except as Quantum may otherwise direct or
agree;
(b) as commercially reasonable, all TiVo Center and TiVo Service
promotional material, including tradeshow collateral, brochures, advertisements
and point of sale materials, except as Quantum may otherwise direct or agree;
(c) all TiVo Center and TiVo Service exterior retail product
packaging, such that the Quantum Trademark is visible to a retail customer when
such products are on the retail shelf;
(d) the front of the TiVo Center, in the form of a silk screen or not-
easily-removable-by-an-end-user sticker; provided that Quantum shall pay to TiVo
its reasonable and actual costs to so affix the Quantum Trademark, including
reasonable and actual material costs, all of such costs not to exceed [*] per
TiVo Center bearing such silk screen or sticker;
(e) the "About TiVo" screen or similar screen of the TiVo Service; and
(f) the product configuration screen(s) of the TiVo Center and the
TiVo Service.
Section 6.4 Other Usage. The Parties shall work together in good faith
-----------
throughout the Term to identify appropriate locations for TiVo's display of the
Quantum Trademark in addition to those locations described in Section 6.3. Upon
the Parties' mutual agreement on any such appropriate locations, TiVo shall
display the Quantum Trademark in such locations in accordance herewith.
Section 6.5 Trademark Usage Approval Process.
--------------------------------
(a) Notwithstanding any other provision of this Agreement, TiVo shall
not make any use of the Quantum Trademark prior to Quantum's written approval of
the product and other materials bearing the Quantum Trademark. TiVo shall send
samples of such products and materials to Quantum, to the attention of Jonathan
Penn or his successor, in the Quantum Law Department.
(b) Quantum will use commercially reasonable efforts to approve or
reject in writing any product or other material bearing the Quantum Trademark
within ten (10) business days of Quantum's receipt of a sample thereof. TiVo
shall deliver to Quantum, along with each such sample delivered to Quantum
hereunder, a memorandum detailing the differences in product characteristics and
trademark usage between such sample and products previously approved by Quantum
pursuant to this Section 6.5(b). In the event that Quantum does not so approve
or reject within such time, such product or other material shall be deemed
rejected by Quantum pursuant to this Section 6.5(b).
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
12.
<PAGE>
(c) Notwithstanding any other provision of this Agreement, Quantum
shall not make any use of the TiVo Trademark prior to TiVo's written approval of
the product and other materials bearing the TiVo Trademark. Quantum shall send
samples of such products and materials to TiVo to the attention of Ed MacBeth or
his successor as the TiVo Vice President of Marketing and Business Development.
(d) TiVo will use commercially reasonable efforts to approve or reject
in writing any product or other material bearing the TiVo Trademark within ten
(10) business days of TiVo's receipt of a sample thereof Quantum shall deliver
to TiVo, along with each such sample delivered to TiVo hereunder, a memorandum
detailing the differences in product characteristics and trademark usage between
such sample and products previously approved by TiVo pursuant to this Section
6.5(d). In the event that TiVo does not so approve or reject within such time,
such product or other material shall be deemed rejected by TiVo pursuant to this
Section 6.5(d).
Section 6.6 Ownership.
---------
(a) TiVo acknowledges and agrees that Quantum is the sole owner of the
Quantum Trademark and that TiVo's right to use the Quantum Trademark is derived
solely from the license thereto granted by Quantum pursuant to this Agreement.
TiVo acknowledges and agrees that all of its use of the Quantum Trademark and
any goodwill established thereby shall inure to Quantum's exclusive benefit.
(b) Quantum acknowledges and agrees that TiVo is the sole owner of the
TiVo Trademark and that Quantum's right to use the TiVo Trademark is derived
solely from the license thereto granted by TiVo pursuant to this Agreement.
Quantum acknowledges and agrees that all of its use of the TiVo Trademark and
any goodwill established thereby shall inure to TiVo's exclusive benefit.
Section 6.7 Challenge.
---------
(a) If TiVo challenges or contests in any way Quantum's ownership of
the Quantum Trademark, Quantum's registration of the Quantum Trademark, or the
validity of the Quantum Trademark, Quantum shall have the right to terminate
this Agreement immediately. TiVo shall neither use, register nor attempt to
register any trademark confusingly similar to the Quantum Trademark in any
jurisdiction.
(b) If Quantum challenges or contests in any way TiVo's ownership of
the TiVo Trademark, TiVo's registration of the TiVo Trademark, or the validity
of the TiVo Trademark, TiVo shall have the right to terminate this Agreement
immediately. Quantum shall neither use, register nor attempt to register any
trademark confusingly similar to the TiVo Trademark in any jurisdiction.
Section 6.8 Quality Control.
---------------
(a) TiVo shall deliver to Quantum, at no cost, from time to time as
reasonably requested by Quantum, representative samples of any and all items
bearing the Quantum Trademark. If, at any time, any item made or assembled by
TiVo and bearing the Quantum Trademark shall, in the
13.
<PAGE>
by Quantum for any use of the Quantum Trademark, TiVo immediately shall take
such steps as are necessary to conform such item to Quantum's standards of
quality.
(b) Quantum shall deliver to TiVo, at no cost, from time to time as
reasonably requested by TiVo, representative samples of any and all items
bearing the TiVo Trademark. If, at any time, any item made or assembled by
Quantum and bearing the TiVo Trademark shall, in the reasonable opinion of TiVo,
fail to conform to the standards of quality set by TiVo for any use of the TiVo
Trademark, Quantum immediately shall take such steps as are necessary to conform
such item to TiVo's standards of quality.
Section 6.9 Policing.
--------
(a) As reasonable, TiVo shall aid Quantum in policing the use of the
Quantum Trademark and shall otherwise provide Quantum at Quantum's expense with
all reasonable cooperation in protecting the Quantum Trademark. TiVo shall
immediately notify Quantum of any apparent infringement of the Quantum Trademark
that comes to TiVo's attention.
(b) As reasonable, Quantum shall aid TiVo in policing the use of the
TiVo Trademark and shall otherwise provide TiVo at TiVo's expense with all
reasonable cooperation in protecting the TiVo Trademark. Quantum shall
immediately notify TiVo of any apparent infringement of the TiVo Trademark that
comes to Quantum's attention.
Section 6.10 Registered User Filings. The Parties shall cooperate to make
-----------------------
any filings or registrations that may be required in any jurisdiction in
connection with a Party's use of the other Party's trademarks therein as
authorized herein, at the sole expense of the Party using such other Party's
trademarks.
ARTICLE 7
PROMOTIONAL ACTIVITIES
Section 7.1 PR References. Each Party shall use commercially reasonable
-------------
efforts to assist the other Party in connection with its public relations
activities, including interviews and press releases, in connection with the
Integration.
Section 7.2 Quantum Promotion. During the first two (2) months following
-----------------
the Effective Date and for so long thereafter as TiVo is purchasing not less
than [*] Hard Disk Drives from Quantum hereunder per month, Quantum shall
reference the TiVo Center and the TiVo Service, in every place appropriate in
Quantum's reasonable discretion, in Quantum's Consumer Electronic Storage
Business Unit ("CESBU") advertising and promotional material. Where appropriate
in Quantum's reasonable discretion, CESBU shall reference TiVo as a customer
thereof in connection with CESBU's consumer electronics industry tradeshow
activities.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
14.
<PAGE>
Section 7.3 Manufacturer Relationships. Quantum shall use commercially
--------------------------
reasonable efforts to introduce TiVo senior management to personnel at the
consumer electronics manufacturing companies with which Quantum has business
relationships.
Section 7.4 Corporate Publicity. Quantum and TiVo shall publicly announce
-------------------
the business arrangement set forth in this Agreement at a time that is mutually
acceptable to the Parties. The content of such announcement shall be mutually,
reasonably acceptable to the Parties. Quantum and TiVo shall jointly make
future public announcements as the Parties deem advisable in their respective
discretions. Except as otherwise required by law, neither Party shall make any
public announcement or advertisement regarding this Agreement or the activities
hereunder without the prior consent of the other, which consent shall not be
unreasonably withheld.
[*]
Section 7.6 TiVo Recommendation. TiVo shall, with respect to each current
-------------------
and prospective TiVo technology licensee, (i) [*], respectively, in all printed
materials and electronic materials provided to such licensee or prospective
licensee, including presentation materials and technical specifications and
documentation required by such licensee or prospective licensee to develop its
products; and (ii) include Quantum, as reasonably appropriate, in initial and
ongoing technology licensing discussions with such licensee or prospective
licensee. TiVo shall use commercially reasonable efforts to cause its licensees
to whom Quantum offers an appropriate Quantum Trademark license to agree to use
the Quantum Trademark in the manner set forth in Section 6.3; provided that TiVo
shall have no obligation to ensure that such licensees actually use the Quantum
Trademark in any particular manner.
ARTICLE 8
INFORMATION REPORTING
Section 8.1 Information Reporting. TiVo shall provide to Quantum copies of
---------------------
TiVo internal reports covering the sale of TiVo Centers containing Hard Disk
Drives and TiVo's revenue by source (e.g., TiVo Service subscription,
advertising, product sales, etc.). TiVo shall prepare such reports not less
frequently than monthly and each report shall cover the time period from the
date of the last similar report until the date of such report. Notwithstanding
the foregoing sentence, TiVo
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
15.
<PAGE>
shall prepare and deliver such reports as set forth above not less frequently
than one (1) time every two (2) weeks as soon as commercially practicable.
ARTICLE 9
CONFIDENTIAL INFORMATION
Section 9.1 Confidential Information and Exclusions. Notwithstanding
---------------------------------------
Section 1.2(d), Confidential Information shall exclude information that the
Receiving Party can demonstrate: (i) was independently developed by the
Receiving Party without any use of the Disclosing Party's Confidential
Information or by the Receiving Party's employees or other agents (or
independent contractors hired by the Receiving Party) who have not been exposed
to the Disclosing Party's Confidential Information; (ii) becomes known to the
Receiving Party, without restriction, from a source other than the Disclosing
Party without breach of this Agreement and that had a right to disclose it;
(iii) was in the public domain at the time it was disclosed or becomes. in the
public domain through no act or omission of the Receiving Party; or (iv) was
rightfully known to the Receiving Party, without restriction, at the time of
disclosure. All confidential information of either Party pursuant to that
certain "Non-Disclosure Agreement" between the Parties dated as of December 8,
1997 shall be considered such Party's Confidential Information hereunder.
Section 9.2 Confidentiality Obligation. The Receiving Party shall treat as
--------------------------
confidential all of the Disclosing Party's Confidential Information. Without
limiting the foregoing, the Receiving Party shall use at least the same degree
of care which it uses to prevent the disclosure of its own confidential
information of like importance, but in no event with less than reasonable care,
to prevent the disclosure of the Disclosing Party's Confidential Information.
Notwithstanding the foregoing, each Party may disclose Confidential Information
of the other Party to a third-party sublicensee pursuant to Section 2.7 to the
minimum extent reasonably necessary to permit such sublicensee to exploit its
sublicense hereunder, provided that such sublicensee enters into a fully
executed written agreement with the relevant Receiving Party, pursuant to which
agreement such sublicensee is obligated to maintain the confidentiality of such
Confidential Information as set forth herein.
Section 9.3 Confidentiality of Agreement. Each Party agrees that the terms
----------------------------
and conditions, but not the existence, of this Agreement shall be treated as the
other's Confidential Information and that no reference to the terms and
conditions of this Agreement or to activities pertaining thereto can be made in
any form of public or commercial advertising without the prior written consent
of the other Party; provided, however, that each Party may disclose the terms
and conditions of this Agreement: (i) as required by any court or other
governmental body; (ii) as otherwise required by law; (iii) to legal counsel of
the Parties; (iv) in connection with the requirements of an initial public
offering or securities filing; (v) in confidence, to accountants, banks, and
financing sources and their advisors; (vi) in confidence, in connection with the
enforcement of this Agreement or rights under this Agreement; or (vii) in
confidence, in connection with a merger or acquisition or proposed merger or
acquisition, or the like.
16.
<PAGE>
Section 9.4 Compelled Disclosure. If a Receiving Party believes that it
--------------------
will be compelled by a court or other authority to disclose Confidential
Information of the Disclosing Party, it shall give the Disclosing Party prompt
written notice so that the Disclosing Party may take steps to oppose such
disclosure.
Section 9.5 Remedies. Unauthorized use by a Party of the other Party's
--------
Confidential Information will diminish the value of such information.
Therefore, if a Party breaches any of its obligations with respect to
confidentiality or use of Confidential Information hereunder, the other Party
shall be entitled to seek equitable relief to protect its interest therein,
including injunctive relief, as well as money damages.
ARTICLE 10
WARRANTIES, DISCLAIMERS AND INDEMNITIES
Section 10.1 General Warranty. Each Party hereby represents and warrants to
----------------
the other that: (i) all corporate action on the part of such Party, its
officers, directors and shareholders necessary for the authorization of this
Agreement and the performance of all obligations of such Party hereunder has
been taken; and (ii) this Agreement, when executed and delivered, will be a
valid and binding obligation of such Party enforceable in accordance with its
terms.
Section 10.2 No Conflict. Each Party hereby represents and warrants to the
-----------
other that such Party's making of this Agreement and performance hereunder does
not and will not violate any agreement existing between such Party and any third
party.
Section 10.3 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH HEREIN, NEITHER
----------
PARTY MAKES ANY WARRANTIES OR CONDITIONS, EXPRESS, STATUTORY, IMPLIED, OR
OTHERWISE, WITH RESPECT TO ANY PRODUCT OR SERVICE PROVIDED HEREUNDER, AND EACH
PARTY HEREBY DISCLAIMS THE IMPLIED WARRANTIES AND CONDITIONS OF NONINFRINGEMENT
OF THIRD PARTY RIGHTS, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT THERETO.
Section 10.4 Third-Party Contracts.
---------------------
(a) TiVo shall, in any contract with any third party for the sale,
lease or other transaction in connection with any product sold or licensed
hereunder, entirely in capital letters in text no smaller than the largest text
in such contract, (i) disclaim on Quantum's behalf all warranties disclaimed
herein to the full extent disclaimed herein, including the implied warranties of
noninfringement, merchantability and fitness for a particular purpose; and (ii)
exclude Quantum's liability to such third party for any indirect, special,
incidental or consequential damages, whether or not Quantum has been advised of
the possibility of such damages.
(b) TiVo shall include, with each TiVo product containing any Quantum
product, a warranty card that, entirely in capital letters in text no smaller
than the largest text on such card
17.
<PAGE>
(i) disclaims on Quantum's behalf all warranties disclaimed herein to the full
extent disclaimed herein, including the implied warranties of non-infringement,
merchantability and fitness for a particular purpose; and (ii) excludes
Quantum's liability to such third party for any indirect, special, incidental or
consequential damages, whether or not Quantum has been advised of the
possibility of such damages.
Section 10.5 Intellectual Property Warranties.
--------------------------------
(a) Quantum hereby represents and warrants to TiVo that (i) Hard Disk
Drives sold to TiVo hereunder, except to the extent that any such Hard Disk
Drive is modified by TiVo or by Quantum hereunder, and (ii) information and
materials, as provided by Quantum to TiVo hereunder, do not infringe or
misappropriate any third party's Intellectual Property Rights.
(b) TiVo hereby represents and warrants to Quantum that information
and materials, as provided by TiVo to Quantum hereunder, do not infringe any
third party's Intellectual Property Rights.
Section 10.6 Quantum Indemnity. Quantum shall defend, indemnify and hold
-----------------
harmless TiVo, its employees and directors, from and against all cost, loss,
liability, damage and expense any of them may incur to a third party as a result
of Quantum's breach of the warranty set forth in Section 10.5(a) or the warranty
set forth in Section 10.1; provided that (i) Quantum is permitted to control the
defense and, at Quantum's option, settlement, of any claim, action, suit or
proceeding (any "Claim") brought by such third party in connection therewith;
(ii) Quantum is promptly notified by TiVo of such Claim; and (iii) TiVo provides
to Quantum all reasonable cooperation in connection with Quantum's defense or
settlement of such Claim. Quantum shall reimburse TiVo's reasonable out-of-
pocket expenses incurred in the provision of such cooperation. THE PROVISIONS
OF THIS SECTION 10.6 STATE QUANTUM'S SOLE AND EXCLUSIVE OBLIGATION AND
LIABILITY, AND TIVO'S SOLE REMEDY FROM QUANTUM, IN CONNECTION WITH ANY
INFRINGEMENT OR MISAPPROPRIATION OF THIRD PARTY RIGHTS OR ANY CLAIM THEREOF.
Section 10.7 TiVo Indemnity. TiVo shall defend, indemnify and hold harmless
--------------
Quantum, its employees and directors from and against all cost, loss, liability,
damage and expense incurred or suffered by any of them arising out of (i) TiVo's
sale or other distribution of any product sold or licensed by Quantum to TiVo
hereunder, except to the extent such cost, loss, liability, damage and expense
arises out of (X) Quantum's breach of the warranty set forth in Section 10.5(a)
or (Y) any product liability claims for personal injury or property damage to
the extent such claims arise out of a defect in a Hard Disk Drive sold to TiVo
hereunder or (ii) any breach by TiVo of (a) any representation or warranty set
forth in Section 10.5(b) or in Section 10.1 or (b) any provision of Section
10.4; provided that (i) TiVo is permitted to control the defense and, at TiVo's
option, settlement, of any third-party Claim in connection therewith; (ii) TiVo
is promptly notified by Quantum of such Claim; and (iii) Quantum provides to
TiVo all reasonable cooperation in connection with TiVo's defense or settlement
of such Claim. TiVo shall reimburse Quantum's reasonable out-of-pocket expenses
incurred in the provision of such cooperation. THE PROVISIONS OF THIS SECTION
10.7 STATE TIVO'S SOLE AND EXCLUSIVE OBLIGATION AND LIABILITY, AND QUANTUM'S
SOLE REMEDY FROM TIVO, IN
18.
<PAGE>
CONNECTION WITH ANY INFRINGEMENT OR MISAPPROPRIATION OF THIRD PARTY RIGHTS OR
ANY CLAIM THEREOF.
ARTICLE 11
LIABILITY LIMITATIONS
Section 11.1 Quantum Liability. QUANTUM'S TOTAL LIABILITY TO TIVO FOR ANY
-----------------
KIND OF LOSS, DAMAGE OR LIABILITY ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT, UNDER ANY THEORY OF LIABILITY, SHALL NOT EXCEED THE AMOUNTS ACTUALLY
PAID BY TIVO TO QUANTUM BY THE EXPRESS TERMS OF THIS AGREEMENT IN THE TWELVE
(12)-MONTH PERIOD IMMEDIATELY PRECEDING THE DATE ON WHICH THE CAUSE OF ACTION
GIVING RISE TO SUCH LIABILITY AROSE.
Section 11.2 Exclusion of Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE
--------------------
TO THE OTHER FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), PRODUCT
LIABILITY, OR OTHERWISE, AND WHETHER OR NOT THE PARTY AGAINST WHOM LIABILITY IS
SOUGHT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
Section 11.3 Failure of Essential Purpose. The limitations specified in
----------------------------
this ARTICLE 11 shall survive and apply even if any limited remedy specified in
this Agreement is found to have failed of its essential purpose.
ARTICLE 12
TERM AND TERMINATION
Section 12.1 Term. This Agreement shall commence on the Effective Date and
----
continue in full force and effect until the earlier to occur of (i) the second
(2/nd/) anniversary of the First Shipment or (ii) Quantum's shipment to TiVo of
[*] Hard Disk Drives (such period, the "Term") unless earlier terminated in
accordance with the express provisions of this Agreement; provided, however,
that Articles I and 9-14 (except Section 14.1), Sections 2.6-2.8, 3.4, 4.4-4.6,
6.2, 6.4-6.9 and 6.11, Sections K, L and M of Exhibit B, and all rights and
obligations thereunder, shall survive the expiration or any termination of this
Agreement and shall continue in perpetuity, unless such provisions expire or
terminate by their terms. Following any expiration of this Agreement or any
termination of this Agreement for other than a material breach hereof by TiVo
(i) Quantum shall be obligated to deliver to TiVo, in accordance with the terms
and conditions hereof, Hard Disk Drives ordered hereunder pursuant to Purchase
Orders accepted by Quantum in accordance herewith; and (ii) TiVo shall be
obligated to pay for such Hard Disk Drives in accordance with the terms and
conditions hereof. Following any termination of this Agreement for a material
breach hereof by TiVo (i) Quantum shall have the right to deliver to TiVo, in
accordance with the terms and conditions hereof, Hard Disk Drives ordered
hereunder pursuant to Purchase
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
19.
<PAGE>
Orders accepted by Quantum in accordance herewith; and (ii) TiVo shall be
obligated to pay in accordance with the terms and conditions hereof for any Hard
Disk Drives so delivered.
Section 12.2 Default. If either Party defaults in the performance of any of
-------
its material obligations hereunder, such Party shall use its best efforts to
correct such default within thirty (30) days (or such additional time as the
Parties may agree) after written notice thereof from the other Party. If any
such default cannot be, or is not, corrected within such thirty (30)-day period,
then the non-defaulting Party shall have the right, in addition to any other
remedies it may have, to terminate this Agreement and all rights and licenses
granted by the non-defaulting Party hereunder by giving written notice to the
Party in default.
Section 12.3 Breach of Auxiliary Agreements. If TiVo breaches any provision
------------------------------
of any of the Auxiliary Agreements, such breach shall be deemed a TiVo default
in the performance of a material TiVo obligation hereunder and Quantum shall
have the right to terminate this Agreement in accordance with Section 12.2.
Section 12.4 Termination for Insolvency. Either Party may terminate this
--------------------------
Agreement if a Bankruptcy Event occurs with respect to the other Party.
ARTICLE 13
SECURITY INTEREST
Section 13.1 Grant of Security Interest. To secure the prompt and punctual
--------------------------
payment and performance of all of the Obligations (as defined below), (i) TiVo
hereby grants to Quantum a purchase money security interest in and lien on, and
hereby assigns as collateral and pledges to Quantum, all of TiVo's right, title
and interest in or to all of the Hard Disk Drives sold hereunder and (ii) TiVo
hereby grants to Quantum a security interest in and lien on, and hereby assigns
as collateral and pledges to Quantum all accounts, accounts receivables and
rights to payment of every kind and description related to or arising from the
TiVo Service, in each case, wherever located, whether now owned or existing or
hereafter acquired or arising, and all proceeds thereof of every kind and
nature, however evidenced, whether consisting of money or deposit accounts or
evidenced by documents, instruments, letters of credit chattel paper or
otherwise (all of the foregoing being hereinafter collectively called the
"Collateral"). Notwithstanding anything to the contrary, Quantum acknowledges
that it must take and perform certain actions under the Uniform Commercial Code
as enacted and in effect in the State of California (the "UCC") in order to
perfect its purchase money security interest in the Hard Disk Drives. Until
Quantum has taken and performed such actions, TiVo makes no representation or
warranty as to the priority of the security interest granted hereby in
connection with the Hard Disk Drives.
Section 13.2 Obligations Secured. "Obligations" shall mean all
------------------- -----------
indebtedness, obligations, and liabilities of TiVo to Quantum, direct or
indirect, absolute or contingent, liquidated or unliquidated, now existing or
hereafter arising, in connection with the payment of the Initial Payment for
each Hard Disk Drive sold hereunder or, as the case may be, the Discounted Price
therefor and the periodic payments described in Sections 4.4(a) and (b) hereof,
and all interest, costs, fees and
20.
<PAGE>
expenses (including attorneys' fees) incurred by Quantum in connection with the
interpretation and enforcement of this Agreement, and of protecting, preserving
and enforcing its rights with respect to, the Collateral.
Section 13.3 Representations and Warranties and Covenants of TiVo. TiVo
----------------------------------------------------
represents and warrants that (i) TiVo has title to the Collateral free and clear
of all liens and encumbrances other than (a) the liens of Quantum granted
hereunder, (b) any liens existing as of the date hereof in favor of Silicon
Valley Bank, (c) liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and for which adequate reserves therefor have been set
aside in connection with generally accepted accounting principles, (d) liens
arising from judgments, decrees or attachments to the extent and only so long as
such judgment, decree or attachment has not caused or resulted in an Event of
Default (as defined below), (e) liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods, (f) liens arising solely by virtue of
any statutory or common law provision relating to banker's liens, rights of
setoff or similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution, and (g) liens incurred in
connection with the extension, renewal, refunding, refinancing, modification,
amendment or restatement of the indebtedness secured by liens described in
clauses (a) and (b) above; provided that any extension, renewal or replacement
lien shall be limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase (the liens in clauses (a) through (g) collectively, "Permitted
Liens"); and (ii) the Collateral will be kept at the addresses set forth on the
attached Exhibit G, and will not be moved to any other location without thirty
(30) days' prior written notice to Quantum except sales of inventory and similar
transactions in the ordinary course of business.
Section 13.4 Covenants of TiVo. TiVo absolutely and unconditionally agrees
-----------------
to pay and perform all of the Obligations promptly as and when due and payable.
TiVo further covenants and agrees that it will (a) not transfer or encumber any
of the Collateral, except sales of inventory and similar transactions in the
ordinary course of business and Permitted Liens, without Quantum's prior written
consent, which consent shall not be unreasonably withheld, (b) maintain the
Collateral in good repair, ordinary wear and tear excepted, (c) insure the
Collateral in accordance with industry standards, and (d) take any other action,
including without limitation the delivery of documents and instruments, which
may from time to time be requested by Quantum to effectuate the purposes of this
Agreement, and TiVo hereby grants to Quantum an irrevocable power of attorney,
which is power coupled with an interest and full powers of substitution, to do
any act and deed in the name of TiVo that Quantum may deem necessary to enforce
any Collateral or perfect or continue perfection of Quantum's security interest
therein; provided, however, that such power of attorney shall be exercisable
only upon the occurrence and during the continuance of an Event of Default.
Section 13.5 Events of Default. The occurrence of each of the following
-----------------
events shall constitute an Event of Default hereunder: (a) TiVo shall fail to
pay any of the Obligations when due and payable, or fail to perform or observe
in any material respect any of its covenants under this Agreement with respect
to the Collateral, or make any representation or warranty with respect to the
Collateral which is false in any material respect, which failure or falsity is
not cured within three days of receipt of notice; (b) a material default under
any credit facility with Silicon Valley Bank
21.
<PAGE>
existing as of the date hereof shall have occurred entitling Silicon Valley Bank
to accelerate the indebtedness thereunder or otherwise enforce its rights; (c)
TiVo shall (i) make an assignment for the benefit of creditors, (ii) admit in
writing its inability to pay or generally fail to pay its debts as they become
due, (iii) petition or apply for the appointment of a trustee or other
custodian, liquidator or receiver of all or any substantial part of its assets,
(iv) commence or have commenced against it any case or proceeding under any
bankruptcy, reorganization, arrangement, insolvency, dissolution or similar law
of any jurisdiction; provided, that any such case or proceeding commenced
against TiVo shall constitute an Event of Default hereunder only if such case or
proceeding remains undismissed or unstayed for a period of sixty consecutive
days, or (v) consent to or acquiesce in any of the foregoing; or (d) there shall
remain in force, discharged or unsatisfied for more than thirty days, any
judgment lien against TiVo in excess of $5,000.
Section 13.6 Rights of Quantum Upon Default. Upon the occurrence of an
------------------------------
Event of Default, Quantum may declare all Obligations to be immediately due and
payable upon written notice to TiVo; provided, that in the event of any Event of
Default specified in Section 13.5(c), Quantum may declare the Obligations to be
immediately due and payable automatically without any notice thereof to TiVo. As
against the Collateral, upon the occurrence of an Event of Default, Quantum
shall have in any jurisdiction in which enforcement hereof is sought, in
addition to all other rights and remedies, the rights and remedies of a purchase
money secured party under the UCC. Quantum shall give to TiVo at least five
business days' prior written notice of the time and place of any public sale of
Collateral or of the time after which any private sale or any other intended
disposition is to be made. TiVo hereby acknowledges that five business days'
prior written notice of such sale or sales shall be reasonable notice. In
addition, TiVo waives any and all rights that it may have to judicial hearing
in advance of the enforcement of any of Quantum's rights hereunder, including,
without limitation, its right following demand to take immediate possession of
the Collateral and exercise its rights with respect thereto. Notwithstanding
the foregoing, TiVo and Quantum each agree that it shall be bound by the
provisions of the UCC.
ARTICLE 14
MISCELLANEOUS
Section 14.1 Observation Right
(a) Subject to Section 14.1(b), TiVo shall permit Quantum to have
one non-director representative attend each meeting of TiVo's board of
directors, and to participate in all discussions during each such meeting (but
not to vote on any matter). TiVo shall send to such representative notice of the
time and place of each meeting in the same manner and at the same time as it may
send such notice to its directors, and TiVo shall also provide to such
representative copies of all notices, reports (including, without limitation,
financial statements and budgets or plans), minutes and consents at the time and
in the manner as they are provided to such directors; provided, however, that
------------------
TiVo reserves the right to exclude such representative from any meeting or
portion thereof, and deny access to any material, if TiVo reasonably believes
that such exclusion or denial of access is necessary to preserve the attorney-
client privilege, to protect material and non-public confidential or proprietary
information or for other similar reasons; provided, further, however, that such
---------------------------
representative will be excluded only from that part of the meeting to which the
forgoing clause applies.
(b) The board observer rights described herein, and Quantum's
rights under this Section 14.1, shall terminate and be of no further force and
effect upon the earlier to occur of (i) the consummation of TiVo's initial
public offering of its common stock pursuant to a registration statement
declared effective by the Securities and Exchange Commission, or (ii) the
termination of this Agreement.
22.
<PAGE>
[*]
Section 14.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REFERENCE TO CONFLICT OF LAWS PRINCIPLES. Each Party hereby irrevocably consents
to the exclusive jurisdiction and venue of the Superior Court of Santa Clara
County and/or the United States District Court for the Northern District of
California in connection with any dispute hereunder or the enforcement of any
right or obligation hereunder. The Parties hereby exclude the application hereto
of the United Nations Convention on Contracts for the International Sale of
Goods.
Section 14.3 Independent Contractors. The Parties are independent
-----------------------
contractors. Nothing contained herein or done pursuant to this Agreement shall
constitute either Party the agent of the other Party for any purpose or in any
sense whatsoever, or constitute the Parties as partners or joint venturers.
Section 14.4 Assignment. TiVo shall not assign or delegate this Agreement,
----------
or any of its rights or duties hereunder, directly, indirectly, by operation of
law, in connection with a Change of Control or otherwise, and any such purported
assignment or delegation shall be void, except with the express written
permission of Quantum in its sole discretion. Notwithstanding the foregoing,
prior to any TiVo Change of Control, TiVo shall notify Quantum thereof and
Quantum shall either (i) consent to the assignment of this Agreement in
connection therewith or (ii) have the right to terminate, and terminate, this
Agreement effective immediately following such Change in Control. Without
limiting the foregoing, any permitted assigns or successors hereof shall be
bound by all terms and conditions of this Agreement.
Section 14.5 Amendment. No alteration, amendment, waiver, cancellation or
---------
any other change in any term or condition of this Agreement shall be valid or
binding on either Party unless mutually assented to in writing by both Parties.
Section 14.6 No Waiver. The failure of either Party to enforce at any time
---------
any of the provisions of this Agreement, or the failure to require at any time
performance by the other Party of any of the provisions of this Agreement, shall
in no way be construed to be a present or future waiver of such provisions, nor
in any way affect the validity of either Party to enforce each and every such
provision thereafter. The express waiver by either Party of any provision,
condition or requirement of this Agreement shall not constitute a waiver of any
future obligation to comply with such provision, condition or requirement.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
23.
<PAGE>
Section 14.7 Severability. If, for any reason, a court of competent
------------
jurisdiction finds any provision of this Agreement, or portion thereof, to be
invalid or unenforceable, such provision of the Agreement will be enforced to
the maximum extent permissible so as to effect the intent of the Parties, and
the remainder of this Agreement will continue in full force and effect. The
Parties agree to negotiate in good faith an enforceable substitute provision for
any invalid or unenforceable provision that most nearly achieves the intent and
economic effect of such provision.
Section 14.8 Notices. All notices, requests, demands, waivers, and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given: (i) when delivered by hand or confirmed
facsimile transmission; (ii) one day after delivery by receipted overnight
delivery; or (iii) four days after being mailed by certified or registered mail,
return receipt requested, with postage prepaid to the following, or to such
other person or address as either Party shall furnish to the other Party in
writing pursuant to the above:
(a) in the case of notices to Quantum, to the General Counsel the Vice
President and General Manager of Quantum's Hard Disk Drive division at the
relevant address set forth at the beginning of this Agreement, with a copy to
Selwyn B. Goldberg, Esq., Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, CA 94304.
(b) in the case of notices to TiVo, to the Chief Executive Officer at
the relevant address set forth at the beginning of this Agreement, with a copy
to Alan C. Mendelson, Esq., Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, CA 94306-2155.
Section 14.9 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 14.10 Entire Agreement. The terms and conditions herein contained
----------------
and the referenced Exhibits which are hereby incorporated herein by reference
constitute the entire agreement between the Parties with respect to the subject
matter hereof and supersede all previous and contemporaneous agreements and
understandings, whether oral or written, between the Parties with respect to the
subject matter hereof, including without limitation that certain nondisclosure
agreement between them dated as of December 8, 1997.
***Remainder of this page intentionally blank.***
24.
<PAGE>
Section 14.11 Counterparts. This Agreement may be executed in counterparts
------------
or duplicate originals, both of which shall be regarded as one and the same
instrument, and which shall be the official and governing version in the
interpretation of this Agreement.
In Witness Whereof, the Parties have caused this Agreement to be executed
by duly authorized officers or representatives to be effective as of the date
first above written.
QUANTUM CORPORATION Tivo, Inc.
By: /s/ Young Sohn By: /s/ Michael Ramsay
---------------------- ---------------------
Name: Young Sohn Name: Michael Ramsay
------------------ -------------------
Title: President, EPSG Title: CEO, President
------------------ ------------------
25.
<PAGE>
Exhibit A
TiVo Center Technical and Performance Characteristics
CPU: [*]
RAM: [*]
[*]
TiVo Media Switch custom ASIC--[*]
[*]
Operating System: [*]
Outputs: [*]
Inputs: [*]
[*]
Universal remote control.
[*]
Hardware enables trick play modes-pause, fastforward, rewind, etc. of live TV
programming as well as programming stored on the hard drive.
TiVo Service Personal Television Features
Pick programs-by name, by station, by timer.
Season pass-enables viewer to capture a particular program each time it occurs
with a single request at the beginning of a season.
"Thumbs up/Thumbs down" metaphor which allows viewers to rate the programs they
are watching and affect future programs captured by TiVo.
Teach TiVo what you like by actor, genre
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1.
<PAGE>
Preference engine-gathers and reports box and service usage and viewing info
which can later be used for marketing and data mining purposes.
"Showcases"-collections of programming being promoted by a network on the TiVo
Service such as HBO's "Friday Night at the Fights" collection of boxing matches.
TiVo recommended programming.
Mechanism for filtering shows according to person's viewing preferences.
TV show conflict resolution-forces the viewer to choose which show to capture if
TiVo has been told to capture 2 shows at the same time.
GIF icons to display partner logos throughout the TiVo service.
Sound effects and background music in service.
Bookmarking allows a viewer to mark a show and have it captured in its entirety
for later viewing.
Mechanism for the remote update of operating software and viewer interface.
2.
<PAGE>
Exhibit B
Certain Terms
A. Rolling Forecast. Within three (3) days of the first day of each month
----------------
during the Term, TiVo shall supply to Quantum a good-faith, [*] rolling forecast
of TiVo's estimated Hard Disk Drive purchases hereunder.
B. Purchase Orders. Within three (3) days of the first day of each month
---------------
during. the Term, TiVo shall deliver to Quantum a purchase order (a "Purchase
Order") that orders (i) not fewer than [*] of the number of Hard Disk Drives
(the "Forecasted Amount") forecast in the previous month pursuant to Section A
of this Exhibit to be purchased in such month and (ii) not more than [*] of the
Forecasted Amount. Each Purchase Order shall specify whether TiVo desires [*]
Hard Disk Drives, [*] Hard Disk Drives or a particular combination thereof. All
Purchase Orders shall be in writing, provided however, that an order may be
initially placed orally, by telecopy or fax if a confirmational written Purchase
Order is received by Quantum within five (5) days of such oral, telecopy or fax
order. Each Purchase Order shall request a shipping date (a "Shipping Date") of
the Hard Disk Drives ordered thereby not earlier than forty-five (45) days (or
such sooner time as Quantum may approve in writing following TiVo's request)
from the date of such Purchase Order and not later than thirty (30) days
following the last day of the Term. Purchase Orders submitted to Quantum from
time to time hereunder shall be governed by the terms of this Agreement only,
and nothing contained in any such Purchase Order shall in any way modify this
Agreement or add any term or condition hereto. TiVo shall not deliver to Quantum
any Purchase Order that orders a number of Hard Disk Drives whose aggregate cost
hereunder exceeds the credit limit established by Quantum with respect to TiVo,
and Quantum shall have no obligation with respect to any Purchase Order
delivered in breach of the foregoing obligation. Quantum shall notify TiVo of
the amount of such credit limit upon request.
C. Quantum Shipping. Quantum shall deliver to TiVo a written
----------------
confirmation of each Purchase Order submitted hereunder. Quantum shall ship the
Hard Disk Drives ordered pursuant to each Purchase Order, or, at Quantum's sole
discretion, corresponding Equivalent Drives, on or within ten (10) days of the
relevant Shipping Date. Quantum's sole liability, and TiVo's sole remedy, for
any breach of the foregoing obligation shall be to permit TiVo, notwithstanding
the provisions of Section 5.1, to purchase from a third party a number of hard
disk drives equal to [*] pursuant to a confirmed Purchase Order delivered to
Quantum in accordance herewith and (ii) [*] to TiVo on or within ten (10) days
of the relevant Shipping Date. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION C,
QUANTUM SHALL HAVE NO LIABILITY FOR ANY FAILURE TO SHIP HARD DISK DRIVES THAT
MAY BE ORDERED HEREUNDER. Notwithstanding any other provision of this Agreement,
Quantum shall have no obligation to ship any product hereunder if TiVo is in
breach of any provision of this Agreement. Quantum shall promptly notify TiVo if
Quantum elects not to ship a product hereunder in accordance with the foregoing
sentence. Without limiting any of the foregoing, Quantum shall have the
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1.
<PAGE>
right to ship Hard Disk Drives in partial fulfillment of a Purchase Order, and
TiVo shall pay for such Hard Disk Drives when invoiced therefor in accordance
herewith.
D. Quantum Notification. If, at any time during the Term, Quantum
--------------------
believes that it will be unable to provide Hard Disk Drives hereunder, whether
or not a Purchase Order for any quantity of Hard Disk Drives has been delivered
or confirmed in accordance herewith, Quantum may notify TiVo thereof. Following
such notification, (i) Quantum shall have no obligation to ship Hard Disk Drives
hereunder to the extent set forth in such notification and (ii) TiVo shall have
the right, notwithstanding the provisions of Section 5.1, to purchase hard disk
drives from a third party to such extent.
E. Purchase Order Alteration.
-------------------------
a. More than thirty (30) days prior to the relevant Shipping
Date, TiVo may, upon Written notice to Quantum, vary the number of Hard Disk
Drives to be shipped to TiVo on such Shipping Date such that the number of Hard
Disk Drives to be so shipped is not more than [*] of the number of Hard Disk
Drives forecasted to be ordered by the forecast immediately preceding the
submission hereunder of the relevant Purchase Order and not fewer than [*] of
the number of Hard Disk Drives so forecasted. Quantum shall provide TiVo with
written confirmation of any such written notice.
b. TiVo shall have no right to vary the quantity of Hard Disk
Drives to be shipped by Quantum hereunder within thirty (30) days of the
relevant Shipping Date.
F. Shipment/Risk of Loss. Hard Disk Drives delivered pursuant to the
---------------------
terms of this Agreement shall be marked for shipment to the destination
specified in TiVo's Purchase Order, and delivered to the carrier agent FOB
Quantum's designated facility, at which time risk of loss and title shall pass
to TiVo. All freight, insurance, and other shipping expenses, as well as
expenses for any special packing provided by Quantum, shall be paid by TiVo. All
shipment and freight charges will be deemed correct unless Quantum receives from
TiVo, no later than seven (7) days after the date of TiVo's receipt of the
relevant shipment, a written notice (addressed to the attention of Quantum's
shipping and legal departments) specifying the shipment, the purchase order
number, and the exact nature of the discrepancy between the order and the
shipment in number or type of products shipped, or freight or other charges, as
the case may be.
G. Export of Products. Notwithstanding any other provision of this
------------------
Agreement, TiVo and not Quantum shall be responsible for the export of Hard Disk
Drives from the United States.
H. Limited Warranty. Quantum represents and warrants to TiVo that all
----------------
Hard Disk Drives sold to TiVo hereunder will be free from defects in material
and workmanship and will materially conform to the relevant product data sheet
therefor attached hereto as Exhibit H (or, in the case of Equivalent Drives, to
the relevant, equivalent product data sheet therefor published by Quantum) (any
such data sheet a "Data Sheet" for a period of three (3) years commencing upon
Quantum's shipment thereof. Notwithstanding any other provision of this
Agreement, Quantum shall have no obligation or liability, and TiVo shall have no
remedy, in connection with the foregoing warranty with respect to any
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2.
<PAGE>
nonconformity of a Hard Disk Drive to the relevant Data Sheet caused by a
modification of such Hard Disk Drive by TiVo or by Quantum hereunder. Quantum's
sole liability and TiVo's sole remedy, in the event of a breach of the foregoing
warranty, shall be, at Quantum's option, Quantum's prompt repair or replacement,
consistent with Quantum's standard business practices, of, or issuance to TiVo
of a credit (applicable to future purchases hereunder only) (a "Credit") for,
the Hard Disk Drive for which the foregoing warranty is breached. TiVo shall at
its expense return any Hard Disk Drive for which the foregoing warranty is
breached to Quantum in accordance with Quantum's standard return materials
authorization policies and procedures then in effect. Following any expiration
or termination of this Agreement, Quantum shall pay to TiVo an amount equal to
TiVo's Credit not yet applied to purchases hereunder.
I. TiVo Warrant Only. Nothing set forth in this Agreement is or shall be
-----------------
construed as a warranty by Quantum to any third party, including any TiVo
customer or subscriber.
J. Acceptance and Rejection. Without limiting the warranty set forth in
------------------------
Section F of this Exhibit, TiVo shall inspect all Hard Disk Drives shipped by
Quantum hereunder and accept or reject as nonconforming such Hard Disk Drives
within thirty (30) days of TiVo's receipt thereof Any Hard Disk Drive not so
inspected and accepted or rejected shall be deemed accepted by TiVo hereunder.
If TiVo so rejects Hard Disk Drives shipped hereunder and returns such Hard Disk
Drives to Quantum, and if such rejection is not based upon damage suffered by
such Hard Disk Drives in shipping, Quantum shall refund TiVo's reasonable
shipping expense in connection with any such return if, in Quantum's reasonable
discretion, such Hard Disk Drive was properly rejected. Quantum shall use
commercially reasonable efforts to promptly deliver to TiVo, via a mutually
acceptable means, which may include Air Freight, Hard Disk Drives to replace
Hard Disk Drives properly rejected by TiVo as set forth above.
K. Invoicing. Quantum will issue an invoice to TiVo for the Initial
---------
Payment of each Hard Disk Drive sold hereunder upon Quantum's shipment of such
Hard Disk Drive. TiVo shall pay all such invoices within thirty (30) days of
invoice date.
L. Payment Mechanics. All payments made pursuant to this Agreement shall
-----------------
be made by telegraphic transfer to the designated account of Quantum in United
States Dollars, without any deduction or withholding of taxes or charges of any
kind. TiVo will pay interest to Quantum, from the date due until the date paid,
at the rate of eighteen percent (18%) per year, or the highest rate permitted by
law, whichever is lower, on any amounts not paid when due hereunder.
M. Post-Warranty Support. Quantum shall give TiVo the opportunity to
---------------------
receive the post-warranty support offered to all Quantum OEM customers.
3.
<PAGE>
Exhibit C
Quantum Trademark Territory
- ---------------------------
[*]
TiVo Trademark Territory
- ------------------------
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1.
<PAGE>
Exhibit D
Quantum Trademark
[LOGO APPEARS HERE]
1.
<PAGE>
Tivo Trademark
[PICTURE APPEARS HERE]
2.
<PAGE>
Exhibit E
OEM Price
A. For each Hard Disk Drive ordered hereunder having a requested delivery
date prior to [*],the OEM Price therefor shall be [*].
B. For each Hard Disk Drive ordered hereunder having a requested delivery
date during [*], the OEM Price therefor shall be [*] per [*] Hard Disk Drive and
[*] per [*] Hard Disk Drive.
C. Beginning with the [*], [*] prior to the [*], the OEM Price for a
Hard Disk Drive to be delivered to TiVo during such calendar quarter shall be
[*].
D. Notwithstanding the foregoing, if, as of [*] prior to the first
(1/st/) day of a particular calendar quarter, [*], the OEM Price therefor for
such Quarter shall be [*] and the [*].
E. With respect to a particular Hard Disk Drive, if Quantum notifies its
customers thereof that Quantum is designating such Hard Disk Drive "End-of-Life"
the OEM Price for such Hard Disk Drive shall thereafter be [*].
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1.
<PAGE>
Exhibit F
Design Maturity Test Specification
CONTROL NUMBER = 11
HARDWARE
DESIGN VERIFICATION TEST
PROCEDURE AND REPORT
(By Shawn Babrnasseb)
1.
<PAGE>
Exhibit G
Address at which Collateral Must Be Kept
Ionics
1933 Milmont Ave.
Milpitas, CA 95035
Avex-San Jose
2100 Senter Rd.
San Jose, California 95112
Avex-Huntsville
4807 Bradford Drive
Huntsville, Alabama 35805
Yaes Technology, Inc.
2141 Third St.
San Francisco, CA 94107
1.
<PAGE>
<TABLE>
<S> <C> <C>
Quantum Bigfoot TS 12.7 19.2
Form Factor 5.25 inch (low 5.25 inch
Interface profile) Ultra ATA (low profile)
Formatted Capacity (MB/1/) 12,720 Ultra ATA
19,292
Disk Drive Configuration 4 6
Recording Surfaces
ATA Logical 16,384/2/ 16,384/2/
Cylinders 16 16
Heads 63 63
Sectors
Physical Specifications
Dimensions-inches (mm) 5.75 (146.1) 5.75
Width 8.0 (203.2) (146.1)
Length 1.0 (25.4) 8.0 (203.2)
Height 0.25 (6.4) 1.0 (25.4)
Maximum Screw Penetration 2.1 (0.955) 0.25 (6.4)
Weight-pounds (kg) 2.5 (1.14)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Performance Specifications Non-Operating
Typical Seek Times/3/ (ms) Temperature (*C) -40 to 65
Average 10.5 Non-Condensing Humidity (%) 5 to 95
Track-toTrack 2 Shock (G)
Full Stroke 25 Short Duration (2 ms)) Sine
Average Rotational Latency (ms) 7.5 Long Duration (11 ms) Sine 200
Rotational Speed (RPM) 4,000 Sound Power (bets, typ/max) 70
Maximum Internal 3.6/3.9 Idle
Data Rate (MB/sec) 101 to 168 4.5/4.2 Seek
Burst Transfer Rates (MB/sec)
Ultra ATA 33.3
PIO Mode 4 16.7
DMA Mode 2 16.7
Buffer Size/4/ (KB) 512
Reliability Specifications Power Specifications
Start/Stop Cycles, Ambient 40,000 Nominal Voltage (V) +-5/+-12
Nonrecoverable Data Errors (per bits (less than) 10 per 10 Voltage Margin (%) +-5/+-10
read)
3 Typical Power Draw (W)
Warranty/5/ (years) Standby 1.0
Idle 5.75
Operating 6.5
Peak Current (mA on +5/+12 V) 450/2,000
Environmental Limits /1/ Quantum defines a megabyte (MB) as 10 or 1,000,000 bytes.
/2/ LBA addressing required above 8.4 GB.
/3/ Seek times are at nominal conditions and include setting for read
/4/ Upper 96 KB used for firmware.
/5/ This warranty is standard when products are purchased directly through
authorized quantum distributors/dealers. Unless otherwise agreed, a
one-year warranty is provided to all OEMs purchasing directly from
Quantum. End-user warranties provided by computer manufacturers may
vary.
/6/ Operating is defined as 40% seeking, 30% reading, 10% writing, and 20%
idle.
Operating/6/
Temperature ((degree)C) 5 to 55
Non-condensing Humidity (%) 5 to 85
Shock (G, 11 ms) 20
</TABLE>
- --------------------------------------------------------------------------------
[LOGO] [LOGO] [LOGO]
For More Information
for more information about Quantum's quality products, call toll-free: 1-800-624
5545 in the USA and Canada, or visit our World Wide Web site:
http://www.quantum.com
- --------------------------------------------------------------------------------
Quantum Corporation Quantum Asia-Pacific Pte Ltd.
500 McCarthy Boulevard 9 Temasek Boulevard
1-800-624-5545 #24-00/Suntec City Tower 2
http://www.quantum.com Singapore 038989
- ---------------------- 65-334-0880
Quntum Peripheral Quantum Peripherials Japan
Products S.A. Shinjuku Square Tower 4F
ICC Building D 6-22-1 Nishi-Shinjuku
20 Route de Pre-Bois Shinjuku-ku, Tokyo, 163-11 Japan
1215 Geneva, Switzerland 81-3-5321-7900
41-22-929-7600
- -------------------------------------------------------------------------------
Specifications subject to change without notice
(C)1998 Quantum Corporation. All rights reserved. Quantum, the Quantum logo,
DisCache, and WriteCache are trademarks of Quantum Corporation, registered in
the U.S.A. and other countries. AT-Bus Cable Select, AutoRead, AutoWrite,
Bigfoot, Defect Free interface, DiskWare, and Fireball are trademarks of Quantum
Corporation. Products mentioned herein are for identification purposes only and
may be trademarks or registered trademarks of their respective companies.
Printed in the U.S.A. 100K Df/CRFTSMN Printed on recycled paper btsds898
[LOGO OF QUANTUM APPEARS HERE]
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 10.7
Confidential
PHILIPS BUSINESS ELECTRONICS B.V. - TIVO INC.
MASTER AGREEMENT
This Master Agreement is between Philips Business Electronics B.V.,
Business Unit Digital Video Systems, having its principal place of business at
Building OAN-4, 5600 JB Eindhoven, The Netherlands ("Philips") and Tivo Inc.,
having its principal place of business at 894 Ross Drive, Sunnyvale California,
USA 94089 ("TiVo") and is effective as of March 31, 1999 (the "Effective Date")
and consists of this Master Agreement and following attached Addenda, which are
incorporated in full by this reference:
Addendum A: Purchase Addendum
Addendum B: Marketing Addendum
This Master Agreement and its Addenda are collectively referred to as the
"Agreement".
Recitals
Whereas, TiVo has designed and developed a Personal TV System based on
the TiVo Enabling Technology which enables the TiVo Service;
Whereas, TiVo has informed Philips that it is sufficiently advanced in
the development of a Personal TV System and the TiVo Service, that a TiVo Stand-
alone Box will meet consumer quality expectations so as to be available for
Commercial Release prior to July 1, 1999;
Whereas, assuming the foregoing is true, Philips intends to launch a
Philips-branded TiVo Stand-alone Box into the Territory through retail
distribution in the second half of calendar year 1999 and support such launch
with an appropriate marketing campaign;
Whereas, Philips and TiVo desire to enter into a commercial
relationship regarding the development, manufacture, marketing and distribution
of Philips-branded Personal TV System Boxes, incorporating the TiVo Enabling
Technology, which will enable the TiVo Service;
Whereas, Philips and TiVo acknowledge that Philips-branded Personal TV
Systems may include Philips Personal TV System Technology or Third Party
Technology and may enable: (i) Philips Personal TV Services and/or Third Party
Personal TV Services; and/or (ii) Value-added Services provided by Philips
and/or third parties;
Whereas, Philips and TiVo desire to additionally enter into a
commercial relationship with DIRECTV regarding the development, manufacture,
marketing and distribution of DTV Combination Boxes;
Whereas, Philips and TiVo desire to additionally enter into commercial
relationships with other Network Operators regarding the development,
manufacture, marketing and distribution of Philips-branded Combination Boxes
which will incorporate the TiVo Enabling Technology and enable the TiVo Service;
and
1.
<PAGE>
Whereas, Philips intends to market and sell Philips-branded systems
and services throughout the world and TiVo intends to market and sell TiVo-
branded services throughout the world;
Now, Therefore, in consideration of the foregoing and the mutual
covenants, promises and undertakings set forth in the Agreement, Philips and
TiVo agree as follows:
Master Agreement
1. Scope. This Master Agreement sets forth the basic terms and conditions
applicable to the relationship between Philips and TiVo. Additional and
different terms and conditions applicable to the manufacturing and marketing
aspects of Philips' and TiVo's relationship are set forth in the attached
addenda. Additional addenda may be added from time to time upon mutual
agreement of the parties. The capitalized terms in the Agreement shall have the
meanings set forth in Exhibit A ("Definitions") to this Master Agreement.
2. Business Relationship.
2.1 Implementation of Commercial Relationship. In order to achieve time
to market advantages for Philips-branded Personal TV System Boxes and to
establish the TiVo Service, the parties will initially focus their efforts on
the manufacture and distribution of Philips-branded TiVo Stand-alone Boxes and
Philips-branded DTV Combination Boxes; provided, however, except as otherwise
specifically provided in the Agreement, nothing shall preclude Philips from
developing, manufacturing or distributing Stand-alone Boxes, Combination Boxes,
Personal TV Systems, or Personal TV Services, either alone or together with any
other person, at any time. In addition, nothing shall preclude Philips from
offering other services in conjunction with Personal TV Services or by means of
Personal TV Systems. At all times and subject to Sections 3.2 and 5, Philips
shall have the flexibility to introduce Personal TV Systems and Personal TV
Services which may or may not incorporate TiVo Technology or enable the TiVo
Service. The parties' participation with one another in any development of any
Combination Boxes shall be pursuant to joint development agreements to be
negotiated in good faith between the parties at the time such development
efforts are contemplated.
3. Exclusivity.
3.1 Business Development Exclusivity.
(a) Territory Activities. From [*] until [*], the parties shall
jointly identify and pursue business development activities with Network
Operators to provide Personal TV Systems and Personal TV Services in the
Territory which would result in the manufacture and distribution of Philips-
branded Personal TV System Boxes which would enable the TiVo Service. During
such period, neither party shall pursue such development activities without the
participation of the other. Notwithstanding the foregoing:
(i) TiVo may separately pursue such business development
activities and execute agreements with Network Operators only if Philips and
TiVo agree, in good faith,
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2.
<PAGE>
that Philips is: [a] legally prohibited from participating in such development
activities; (b) unable to fulfill the Network Operator's reasonable technical
requirements; (c) unwilling after due inquiry to participate in such business
development activity or (d) after introduction and due consideration of Philips'
participation, rejected by the Network Operator, in writing, as a participant in
such business development activity. Upon notification by TiVo of a proposed
business development activity subject to this provision, Philips shall have
sixty (60) days to respond to TiVo in writing confirming Philips' ability and
willingness to participate in the proposed activity. If Philips does not provide
such confirmation within such sixty (60) day period, TiVo may separately pursue
such activity.
(ii) TiVo may separately pursue such business development
activities within the Territory with the third party consumer electronics
manufacturer referred to in Section 3.2. TiVo shall keep Philips reasonably
informed of such business development activities except where TiVo is prevented
from doing so by requirement of such third party.
(iii) Philips may separately pursue such business development
activities and execute agreements with Network Operators only if Philips and
TiVo agree, in good faith, that TiVo is: (a) legally prohibited from
participating in such development activities; (b) unable to fulfill the Network
Operator's reasonable technical requirements; (c) unwilling after due inquiry to
participant in such business development activity; (d) after introduction and
due consideration of TiVo's participation, rejected by the Network Operator, in
writing, as a participant in such business development activity. Upon
notification by Philips of a proposed business development activity subject to
this provision, TiVo shall have sixty (60) days to respond to Philips in writing
confirming TiVo's ability and willingness to participate in the proposed
activity. If TiVo does not provide such confirmation within such sixty (60) day
period, Philips may separately pursue such activity.
(b) [*] Activities. From [*] until [*], the parties shall jointly
identify and pursue business development activities with Network Operators to
provide Personal TV Systems and Personal TV Services [*] which would result in
the manufacture and distribution of Philips-branded Personal TV System Boxes
which would enable the TiVo Service. During such period, neither party shall
pursue such development activities without the participation of the other. The
provisions of this Section 3.1.b do not apply to the business development
activities of the parties within the Territory. Notwithstanding the foregoing,
(i) TiVo may separately pursue such business development
activities [*] with the third party consumer electronics manufacturer referred
to in Section 3.2. TiVo shall keep Philips reasonably informed of such business
development activities except where TiVo is prevented from doing so by
requirement of such third party.
(ii) TiVo may separately pursue such business development
activities and execute agreements with Network Operators if: (a) Philips is
legally prohibited from participating in such development activities; (b)
Philips is unable to fulfill the Network Operator's reasonable technical
requirements; (c) Philip is unwilling after due inquiry to participate in such
business development activity; (d) after introduction and due consideration of
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
3.
<PAGE>
Philips' participation, Philips is rejected by the Network Operator, in writing,
as a participant in such business development activity;or (e) within ninety (90)
days from the Effective Date of this Master Agreement, Philips fails to commit
in writing to the terms and conditions under which it will develop and market a
[*] (provided, however, that such terms and conditions shall provide for the
Commercial Release and launch of a [*] within such [*] exclusivity period).
Philips' written terms and conditions shall include a description of the
engineering resources Philips is willing to commit to such development effort
(including, without limitation, funding, staffing and overhead). Philips
acknowledges that such description shall include development funding for TiVo as
agreed by the parties. Upon notification by TiVo of a proposed business
development activity, Philips shall have [*] days to respond to TiVo in writing
confirming Philips' ability and willingness to participate in the proposed
activity. If Philips does not provide such confirmation within such [*] period,
TiVo may separately pursue such activity.
In the event that Philips so commits pursuant to 3.1.b.(ii)(e), TiVo shall
commit, in writing, to making the TiVo Services available in [*] within such [*]
exclusivity period and the terms and conditions under which such TiVo Services
will be provided. In the event that Philips does not so commit, Philips shall
have a right of first refusal to participate with any Network Operator contacted
by TiVo, in the same manner as specified in Section 3.1.c, below. In the event
that TiVo does not provide a TiVo Service in [*] within the [*] period
referenced in this Section 3.1.b, Philips' exclusive right to participate with
TiVo in [*] business development activities shall be extended until such time as
TiVo makes the TiVo Services available in [*].
(iii) Philips may separately pursue such business development
activities and execute agreements with Network Operators if: (a) TiVo is
legally prohibited from participating in such development activities; (b) TiVo
is unable to fulfill the Network Operator's reasonable technical requirements;
(c) TiVo is unwilling after due inquiry to participate in such business
development activity (d) after introduction and due consideration of TiVo's
participation, TiVo is rejected by the Network Operator, in writing, as a
participant in such business development activity; or (e) within ninety (90)
days from the Effective Date of this Master Agreement, TiVo fails to commit in
writing to make TiVo Services available in [*] sufficient to support a
Commercial Release of a [*] and to provide technical support to Philips in the
development of a [*]. Upon notification by Philips of a proposed business
development activity, TiVo shall have [*] days to respond to Philips in
writing confirming TiVo's ability and willingness to participate in the
proposed activity. If TiVo does not provide such confirmation within such [*]
day period, Philips may separately pursue such activity.
(c) Right of First Refusal. For a period of [*] each party, in
approaching any Network Operator within [*] (but subject to the same exceptions
set forth above), will identify the other party as its preferred supplier for
the providing of Personal TV System Boxes or Personal TV Services, as applicable
and shall give such other party the first right to participate in any
development activities with any such Network Operator. Prior to executing an
agreement with a third party for such business development activity, the party
proposing such activity (the
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
4.
<PAGE>
"Proposing Party"), shall offer to the other party (the "Non-Proposing Party")
the right to enter into such agreement on substantially the same terms and
conditions. Such offer will be contained in a notice that has attached to it a
copy of the proposed agreement with such third party and that contains the name
and address of such third party (the "Proposed Development Notice"). The Non-
Proposing Party may accept such offer (with such nonmaterial changes therein as
are appropriate) by written notice to the Proposing Party within [*] days of
receipt of the Proposed Development Notice. If the Non-Proposing Party does not
provide such a written acceptance notice within [*] days, the Proposing Party
shall be free to enter into such agreement, only with the named third party, on
terms no more favorable to such third party than those contained in the Proposed
Development Notice.
3.2 Product Exclusivity.
(a) TiVo Stand-alone Boxes. From the Effective Date of this Master
Agreement until [*], Philips shall have the exclusive right, even as to TiVo, to
market and sell TiVo Stand-alone Boxes in the Territory. Notwithstanding the
foregoing, unless TiVo otherwise allows, in the event that, prior to [*],
Philips releases a Stand-alone Personal TV System Box with a third party, with
which it has an existing business relationship, which is a Competitive Device
for sale to end-users within the Territory, TiVo shall have the right to market
and sell Stand-alone Personal TV System Boxes with an equal number of third
parties; provided that the release of such Stand-alone Personal TV System Boxes
for sale to end-users shall not occur less than [*] from the date of Philip's
release of such Competitive Device. Prior to [*], Philips shall not release such
a Personal TV System Box which is a Competitive Device with a third party with
which it does not have an existing business relationship. Notwithstanding the
provisions of this Section 3.2.a, TiVo shall have the right to manufacture, have
manufactured, market, distribute and sell third-party branded TiVo Stand-alone
Boxes with [*].
Unless sales of Philips-branded TiVo Stand-alone Boxes are less than [*]
units in the month immediately preceding the date on which Philips' TiVo Stand-
alone Box exclusivity expires or terminates (including pursuant to this
Section), TiVo shall not manufacture, have manufactured, market, distribute and
sell a TiVo-branded Personal TV System Box sooner than [*] after the date on
which such exclusivity expires or terminates. TiVo may manufacture, have
manufactured, market, distribute and sell a TiVo-branded Personal TV System Box
after [*].
(b) Combination Boxes. From the Effective Date of this Master
Agreement until [*] the first Philips-branded DTV Combination Box, Philips shall
have the exclusive right, even as to TiVo, to market and sell DTV Combination
Boxes in the Territory; provided, however (i) Philips must have a development
plan (including without limitation staffing, schedule, milestones and resources)
and be ready to begin implementation of such plan by September 1, 1999 unless
Philips proposes a more favorable deal which is acceptable to Tivo.
Notwithstanding the foregoing, unless TiVo otherwise allows, in the event that
[*], TiVo shall have the right to market and sell a DTV Combination Box with an
equal number of third parties;
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
5.
<PAGE>
provided that the release of such DTV Combination Boxes for sale to end-users
shall not occur less than [*] from the date of Philip's release of such
Competitive Device. During this exclusivity period, Philips shall not release
such Philips-branded DTV Combination Box which is a Competitive Device with a
third party with which it does not have an existing business relationship.
Notwithstanding the provisions of this Section 3.2.b, TiVo shall have the right
to manufacture, have manufactured, market, distribute and sell a third-party
branded DTV Combination Box with [*]; provided however, that TiVo shall not
authorize [*] to announce the availability of any [*] DTV Combination Box prior
to [*], and TiVo shall not authorize [*] to commence [*] of any [*] DTV
Combination Box prior to [*].
(c) [*]. Provided that Philips has the right to business development
exclusivity for [*] activities [*], as provided in Section 3.1.b above, from
[*] until [*], Philips shall have the exclusive right to manufacture, have
manufactured, market, distribute and sell [*] in [*]. Notwithstanding the
provisions of this Section 3.2.c, TiVo shall have the right to manufacture, have
manufactured, market, distribute and sell a third-party branded [*] with [*].
(d) Existing Business Relationships. Notwithstanding any provision
of Section 3.2, Philips shall have the right to release a Competitive Device
with any third party having an existing business relationship with Philips as of
the Effective Date of this Master Agreement. As of the Effective Date, Philips
represents and warrants that it does not have an existing business relationship
with Replay Networks, or any other company whose primary business is the
delivery of Personal TV Services.
(e) Additional Consumer Electronics Manufacturer. It is agreed by the
parties that in all cases, the third party consumer electronics manufacturer
referenced in Sections 3.2.(a), (b), and (c) is the same third party consumer
electronics manufacturer.
3.3 Additional Obligations. The parties shall have the following
additional obligations during the respective exclusivity periods for the TiVo
Stand-alone Box and the DTV Combination Box:
(a) Sales Calls. TiVo shall, at its own expense and upon reasonable
request by Philips, participate in sales calls with potential Philips
distributors and dealers.
4. TiVo Deliverables.
4.1 Stand-alone Box. No later than May 15, 1999, TiVo shall provide
commercially reasonable training and technical support, and all technical
documentation necessary to enable Philips to modify the user interface of the
TiVo Stand-alone Box. TiVo shall bear the cost of such training, technical
support, and technical documentation for the first generation of the TiVo Stand-
alone Box. Such training, technical support and documentation shall enable
Philips: (i) to
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
6.
<PAGE>
make reasonable modifications of the look and feel and the user interactive
model, (ii) to [*]; and (iii) to [*]; provided, however, that all such
modifications shall meet TiVo minimum requirements, when specified, or be
subject to the written approval of TiVo, which shall not be unreasonably
withheld or delayed.
Notwithstanding the foregoing, TiVo shall, prior to Commercial Release,
modify the user interface of the TiVo Stand-alone Box to comply with the
requirements of Exhibit C (Commercial Release Branding Requirements). Philips
shall pay TiVo's internal engineering costs (not to exceed $[*] cumulative)
and for all third party costs actually incurred and properly documented by
TiVo in connection with such modification, subject to Philips prior written
approval, which approval shall not be unreasonably withheld or delayed.
This Section 4.1 is subject to the provisions of Section 9.2.
4.2 Combination Boxes. No later than [*], TiVo and Philips shall work
together in good faith and jointly develop an interface, comprising both
hardware and software components, to enable communications between the DIRECTV
components and the TiVo Stand-alone Box components of a Philips-branded DTV
Combination Box (hereinafter the "Interface"). Such Interface shall be
[*](subject to TiVo's and Philips' applicable and respectively owned
Proprietary Rights in the Interface which do not directly result from the
joint development and TiVo and Philips shall be entitled to use such Interface
with no obligation to account to the other party, and either party may license
such jointly-held Proprietary Rights in the Interface without accounting to
the other party. In any event each party retains exclusive ownership of any
Technology such party independently develops.
(a) Patents. In the case where the Interface is or comprises an
invention jointly-made by Philips and TiVo that will be protected by one or more
patents, the parties agree that each party will be listed as the joint assignees
on each patent application filed.
(b) Copyrights. In the case where the Interface is or comprises a
copyrighted work jointly created or authored by Philips and TiVo, the parties
agree that the work was intended to be jointly owned and that each party
intended its contributions to such work to be merged into inseparable or
interdependent parts or a unitary whole.
(c) Procedures Relating to Proprietary Rights. Exhibit F sets forth
the procedures relating solely to the parties' jointly held Proprietary Rights
in the Interface.
4.3 [*]. Tivo shall provide, allocate, and make available [*] the
Philips-branded Personal TV System Boxes for [*].
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
7.
<PAGE>
4.4 Modifications and Upgrades. For so long as this Master Agreement is
in effect:
(a) TiVo Software Specification Upgrades. Subject to the payment
provision in Section 4.4.c, TiVo shall deliver all modifications and upgrades to
the Software Specification (excluding modifications and upgrades subject to
third party Proprietary Rights to the extent TiVo has no license under such
right to deliver such modifications and upgrades) and for use in or for Philips-
branded Personal TV System Boxes that enable the TiVo Service to Service
Subscribers and to Philips. TiVo shall deliver such modifications and upgrades
no later than it delivers such modifications and upgrades to any other person or
incorporates such modifications or upgrades into its own products or services.
To the extent that such modifications and upgrades are intended for end-users
who have already purchased Philips-branded Personal TV System Boxes, TiVo shall
provide such modifications and upgrades directly to such end-users over the TiVo
Service.
(b) TiVo Hardware Specification Upgrades. Subject to the payment
provision in Section 4.4.c, TiVo shall deliver all modifications and upgrades to
the Hardware Specification (excluding modifications and upgrades subject to
third party Proprietary Rights to the extent TiVo has no license under such
right to deliver such modifications and upgrades) and for use in or for Philips-
branded Personal TV System Boxes that enable the TiVo Service to Philips. TiVo
shall deliver such modifications and upgrades no later than it delivers such
modifications and upgrades to any other person or incorporates such
modifications or upgrades into its own products or services.
(c) Payment for Upgrades. Modifications and upgrades to the Software
Specification and the Hardware Specification shall be paid as follows: [*].
5. Manufacturing and Distribution License.
5.1 Patent License. Subject to the terms and conditions of the Agreement,
TiVo hereby grants to Philips a [*] right and license under its patents and
patent rights in the TiVo Enabling Technology (including modifications and
upgrades developed by TiVo and available for release) solely to [*] Philips-
branded Personal TV System Boxes which enable the TiVo Service. Philips shall
not attempt to reverse engineer, disassemble, decompile or similarly manipulate
all or any portion of the TiVo Technology for any purpose.
5.2 Copyright License. Subject to the terms and conditions of the
Agreement, TiVo hereby grants to Philips a [*] right and license under its
copyrights in the TiVo Enabling Technology (including modifications and upgrades
developed by TiVo and available for release, and developed by or for Philips
(pursuant to Section 4.1 and Section 5.3)) solely to [*] in the Philips-branded
Personal TV System Boxes which enable the TiVo Service manufactured by, or for,
or marketed, distributed, or sold by Philips. Philips shall not attempt to
reverse engineer,
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
8.
<PAGE>
disassemble, decompile or similarly manipulate all or any portion of the TiVo
Technology for any purpose.
5.3 User Interface License. Subject to the terms and conditions of the
Agreement, TiVo hereby grants to Philips a [*] right and license under its
copyrights in and to the user interface of the TiVo Service to [*] the TiVo
background screens and images and user navigation displays, delivered to Philips
pursuant to Sections 4.1 and 9.2 of this Master Agreement, solely for the
purpose of manufacturing, having manufactured, marketing, distributing or
selling Philips-branded Personal TV System Boxes which enable the TiVo Service.
5.4 Exclusive License. Notwithstanding the foregoing, during the
exclusivity periods specified in Sections 3.1 and 3.2 above, and subject to any
restrictions or conditions contained therein, TiVo shall not grant a right or
license to any person, except the third party consumer electronics manufacturer
referenced in Section 3.2.e, which allows for the marketing, distribution or
sale of TiVo Stand-alone Boxes or DTV Combination Boxes prior to the expiration
or termination of the applicable exclusivity period.
5.5 Source Code License Option.
(a) Subject to the terms and conditions of the Agreement, TiVo hereby
grants Philips an option to obtain a [*] right and license [*] to [*] those
components of TiVo's Source Code implemented in the Philips-branded Personal TV
System Boxes that enable the TiVo Service, solely as necessary to [*], and to
[*]; provided such Personal TV System Boxes: (i) enable the TiVo Service; and
(ii) do not enable the Personal TV Services of any third party, except as
allowed by TiVo. The parties hereby agree to negotiate in good faith additional
terms and conditions [*] pursuant to which TiVo shall grant such a license to
Philips in the event Philips chooses to execute its option under this Section
5.5(a). The terms and conditions shall be reflected in a separate licensing
agreement to be entered into by the parties.
(b) In the event the parties cannot agree in good faith to additional
terms and conditions for a license to be granted pursuant to Section 5.5(a),
TiVo shall grant pursuant to a license agreement to Philips a [*] right and
license [*] to [*] those components of TiVo's Source Code embedded in the
Philips-branded Personal TV System Boxes that enable the TiVo Service solely as
necessary to [*], and to [*]; provided that:
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
9.
<PAGE>
(i) [*];
(ii) [*];
(iii) [*];
(iv) [*];
(v) [*]; and
(vi) Philips shall be liable (up to a cumulative total of One
Hundred and Fifty Million Dollars (US $150,000,000)) for consequential,
special and incidental damages for any Philips' breach of any license,
confidentiality or ownership provisions of the license agreement referred to
in this Section 5.5(b).
5.6 New Technology License Option. Subject to the terms and conditions of
the Agreement, TiVo hereby grants Philips an option to a [*] right and license
to new technology relating to Personal TV System Boxes [*].
6. TiVo Manufacturing. Until such time as Philips commences manufacturing of
the Philips-branded TiVo Stand-alone Box under the licenses granted in the
Agreement or Commercial Release of the Philips-branded TiVo Stand-alone Box,
whichever is earlier, TiVo shall sell to Philips, and Philips shall purchase
from TiVo, such Boxes on the terms and conditions set forth in that certain
Purchase Addendum entered into by the parties on March 31, 1999. Beginning no
later than Commercial Release of the Philips-branded TiVo Stand-alone Box, TiVo
shall sell to Philips and Philips shall purchase from TiVo, Philips-branded TiVo
Stand-alone Boxes pursuant to a more comprehensive OEM Purchase Agreement which
shall replace the Purchase Addendum in its entirety. Such OEM Purchase Agreement
shall be negotiated by the parties in good faith.
7. Tivo Continuing Development Activities. No later than September 1, 1999 TiVo
and Philips shall [*] which will [*] from Commercial Release, with such [*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
10.
<PAGE>
[*] targeted for Commercial Release no later than [*].
8. Philips Manufacturing.
8.1 Commencement of Philips Manufacturing. Philips shall commence
manufacturing the Philips-branded TiVo Stand-alone Box as soon as commercially
practicable.
8.2 TiVo Deliverables. Prior to commencement of manufacturing by Philips,
TiVo shall provide Philips with all reasonably necessary documentation in TiVo's
possession relating to the manufacture and servicing of the TiVo Stand-alone Box
for the purpose of enabling Philips to manufacture and service, or have
manufactured and serviced, a Philips-branded TiVo Stand-alone Box which allows
end-users to access all functionality and features of the TiVo Service which are
available to end-users. Such documentation provided by TiVo shall include, but
shall not be limited to, the applicable bill of materials; material, component,
and sub-assembly suppliers; product specifications; schematics; manufacturing
processes; test routines; vendor contacts; authorizations; software in Object
Code form only; rights and licenses (to the extent commercially reasonable);
and/or such other materials reasonable and necessary to purchase materials,
component parts and subassemblies and to manufacture, assemble, market, and
service the Philips-branded TiVo Stand-alone Box. (Hereinafter, these materials
shall be referred to collectively as the "Manufacturing Package").
Notwithstanding the foregoing, the parties agree to work together in good faith
to make reasonable modifications to finalize the Specifications of the TiVo
Stand-alone Box prior to Commercial Release.
TiVo shall provide Philips with notice of all upgrades and modifications to
such Manufacturing Package not less than thirty (30) days prior to completion
and shall provide Philips with any such upgrade or modification no later than
it: (i) provides the Manufacturing Package or upgrades and modifications to the
Manufacturing Package (excluding modifications and upgrades subject to third
party Proprietary Rights) to any other person; or (ii) implements the
Manufacturing Package or upgrades and modifications to the Manufacturing Package
(excluding modifications and upgrades subject to third party Proprietary Rights)
for its own use. Philips may make a reasonable number of copies of the
Manufacturing Package or upgrades and modifications to the Manufacturing Package
(excluding modifications and upgrades subject to third party Proprietary
Rights), but shall not distribute or disclose the Manufacturing Package, or any
portion thereof, to any third party except as necessary to make or have made
Personal TV System Boxes or to incorporate brief excerpts, if necessary, into
Philips' user guides and technical documentation.
8.3 Third Party Components. The parties acknowledge that the
Specifications for the TiVo Stand-alone Box provide for certain TiVo and third
party components, parts, and/or subassemblies. Philips shall enter into its own
agreements with the suppliers of those parts; provided, however, Philips shall
have the right to purchase such components, parts, and/or subassemblies subject
to availability [*] from TiVo at cash prices which are no less favorable than
those now or hereafter offered to TiVo. In the event that TiVo controls the
supply of any such components, parts, and/or subassemblies, TiVo shall take
reasonable steps necessary to ensure an adequate supply of such parts to
Philips, including, without limitation, the purchase and resale to Philips
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
11.
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[*] of any such components, parts, and/or subassemblies. In the event that
TiVo controls the pricing of any such components, parts, and/or subassemblies,
TiVo shall arrange for pricing [*].
8.4 Transition and Technical Support. TiVo shall provide, [*] technical
support sufficient: (i) to enable Philips to transition the manufacturing
process from TiVo to itself and to ensure proper functioning of Philips-branded
Personal TV System Boxes which enable the TiVo Service; and (ii) to enable
Philips to manufacture products in conformance with any Quality Plans. TiVo and
Philips have each designated initial Coordinators regarding such transition and
Philips' ramp-up of its manufacturing process.
8.5 Philips Design Changes. Subject to Section 4.4.c, Philips reserves
the right to request reasonable changes and modifications to the Specifications
of the Philips-branded Personal TV System Boxes enabling the TiVo Service
manufactured by or on behalf of Philips at any time and from time to time;
provided, however, that any such changes and modifications: (i) shall not affect
the ability of such Boxes to receive and provide Service Subscribers with all
functionality and features of the TiVo Service; and (ii) shall meet or exceed
all requirements of the original Specifications. Upon written approval by TiVo,
which shall not be unreasonably withheld or delayed, TiVo shall provide such
requested changes and modifications in a timely manner, and in conformance with
the procedures agreed to between the parties from time to time. In the event
that such design change results in an increase to the Cost of Goods Sold and
Philips requests an associated increase in Manufacturing Subsidy, TiVo will not
be liable for the associated increase in Manufacturing Subsidy, or TiVo may
reject such change.
8.6 TiVo Design Changes. Subject to Section 4.4.c, TiVo reserves the
right to request reasonable changes and modifications to the Specifications of
the Philips-branded Personal TV System Boxes enabling the TiVo Service at any
time and from time to time; provided, however, that any such changes and
modifications: (i) shall not result in an increase in the cost of manufacturing;
and (ii) shall meet or exceed all requirements of the original Specifications.
Upon written approval by Philips, which shall not be unreasonably withheld or
delayed, Philips shall provide such requested changes and modifications in a
timely manner, and in conformance with the procedures agreed to by the parties
from time to time. In the event that such design change results in an increase
to the Cost of Goods Sold and Philips requests an associated increase in
Manufacturing Subsidy. If TiVo refuses to increase such Manufacturing Subsidy,
Philips may reject such change.
8.7 Testing and Certification. Prior to shipping any configuration of
Philips-branded Personal TV System Boxes, Philips will provide such
configuration to TiVo solely for testing and certification. Within two (2) weeks
of receipt, TiVo shall test the configuration to verify that it conforms to the
Specifications and properly enables the TiVo Service. If TiVo determines that
such configuration does not so conform or enable, TiVo shall deliver prompt
notice to Philips, in writing, setting forth the discovered nonconformities.
TiVo shall provide all technical support, at no cost to Phillips, as necessary,
to correct (or enable Philips to correct) such nonconformities. The process
shall continue until such time as TiVo certifies that the configuration so
conforms and enables.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
12.
<PAGE>
8.8 Philips End User License. Philips shall take all commercially
reasonable steps necessary to protect TiVo's interest in the TiVo Software and
to ensure that each copy of the TiVo Software distributed by Philips is
accompanied by a copy of an applicable TiVo or Philips' software license
agreement. Such license shall include terms and conditions substantially
equivalent to those set forth in Exhibit D.
9. Branding.
9.1 Box Branding.
(a) Subject to Section 9.1.b., Philips shall have the right to
determine branding on all Philips-branded Personal TV System Boxes; provided,
however, Philips shall place one designated TiVo Mark (as agreed by the parties)
on the front bezel of all Philips-branded Personal TV System Boxes that enable
the TiVo Service manufactured, and distributed by Philips. Philips shall also
place no fewer than one TiVo Mark on all external packaging for such Boxes. In
all cases, the Philips Marks shall have overall prominence over all other
trademarks, service marks, trade names, and logos of other persons. Philips
shall collaborate with TiVo on the relative appearance and placement of the
Philips Marks and TiVo Marks; provided, however, final determination as to the
appearance and placement of such Marks on all Philips-branded Personal TV System
Boxes shall be made by Philips, which shall not be unreasonably withheld or
delayed.
(b) Philips shall not brand TiVo Stand-alone Boxes or the DTV
Combination Boxes with any trademarks, service marks, trade names or logos other
than those of Philips, TiVo, Quantum, or DIRECTV, except as mutually agreed by
the parties, in writing.
9.2 User Interface Branding. For all Philips-branded Personal TV System
Boxes which enable the TiVo Service, the following user interface branding
provisions shall apply:
(a) Philips Exclusive Screens. Philips shall have the exclusive right
to determine the branding, including without limitation, the look and feel and
creative content, of screens relating to Philips Value-added Services.
(b) TiVo Exclusive Screens. TiVo shall have the exclusive right to
determine the branding, including without limitation, the look and feel and
creative content, of the following classes of screens: (i) TiVolution; (ii)
Showcases; (iii) non-Philips' Shopping Malls; and (iv) non-Philips intermissions
and interstitials.
(c) TiVo/Philips [*]. Philips shall [*] on the following classes of
screens: (i) [*]; (ii) [*] (the parties acknowledge that the [*]); and (iii)
[*]. For the [*] shall be [*]. On the [*]. For all of the foregoing, Philips
[*], or any other [*] shall be subject to the approval of TiVo, which approval
shall not be unreasonably withheld or delayed.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
13.
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(d) Other Screens. For screens not specified above, the parties will
work together, in good faith, to agree upon the presence of designated Philips
Marks, determined by Philips, on [*] the TiVo Service. In the event that the
parties cannot agree on the presence of designated Philips Marks, determined by
Philips, on [*] the TiVo Service, Philips shall have the right to place, on its
own behalf, designated Philips' Marks, determined by Philips, on [*] from
screens referred to in this Section 9.2.d. On [*] screens for which [*], Philips
shall have a [*]. For all of the foregoing, Philips placement of the Philips
Marks on all such screens, or any other overlay or modification of such
sequences or screens shall be subject to the approval of TiVo, which approval
shall not be unreasonably withheld or delayed.
(e) Commonality and Control. The parties will work together with the
goal to achieve a commonality in the creative look, feel, operation,
functionality, features and content of their respective Personal TV Services;
provided, however, each party shall retain exclusive control over such creative
look, feel, functionality, features and content of their respective Personal TV
Services, however delivered or provided.
(f) Interference with Functionality. Neither party shall denigrate
nor disable the Personal TV Services, Value-added Services, other services, or
functionality of the other party.
(g) Prominence. In determining prominence and branding presence, the
size, luster, color, relative placement, etc., of such Marks shall be
considered.
(h) Corporate Identity Policies. Use of each party's Marks shall at
all times comply with each such party's corporate identity policies.
10. Manufacturing Subsidy.
10.1 Paid on Each Box. TiVo shall pay Philips a Manufacturing Subsidy on
each Philips-branded TiVo Stand-alone Box [*] manufactured by Philips (or
manufactured by a third party for Philips). For as long as TiVo is paying a
Manufacturing Subsidy to Philips the parties acknowledge that the Manufacturing
Subsidy on [*] may be zero or negative depending on [*]. The total of such
negative subsidies shall not exceed TiVo's total subsidy liability to Philips,
and shall be paid in the form of a credit to TiVo's Manufacturing Subsidies paid
to Philips.
10.2 Fixed Amount. The Manufacturing Subsidy shall be a fixed amount on
each Philips-branded TiVo Stand-alone Box [*] manufactured by Philips (or
manufactured for Philips by a third party). For [*], the Manufacturing Subsidy
shall be [*] per unit for the [*], and shall be [*] on a per unit basis for the
[*]. On or prior to the dates specified in Section 10.3 and upon TiVo's written
request, Philips shall provide TiVo with cost and other relevant data (e.g.,
BOM) relating to the manufacture of Philips-branded Personal TV System Boxes by
or for Philips. In the event that the [*] during [*] for the [*] is different
than [*], then the [*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
14.
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[*] will be paid or credited to the appropriate party at [*]. Adjustments to the
Manufacturing Subsidy for the [*] for [*] will be agreed by the parties.
The Manufacturing Subsidy for [*] the Philips-branded TiVo Stand-alone Box
and [*] manufactured by Philips (or manufactured by a third party for Philips)
shall be an amount determined [*] and [*], based on [*], as reasonably agreed by
the parties.
10.3 Semi-Annual Basis. For Manufacturing Subsidies paid after [*],
the Manufacturing Subsidy shall be [*], based on [*].
10.4 [*]. Unless agreed otherwise in writing, Manufacturing Subsidies on
the Philips-branded TiVo Stand-alone Box and [*] paid after [*], shall be that
fixed dollar amount, per unit, which results in [*] that is equal to [*].
Notwithstanding the foregoing, during [*], the Manufacturing Subsidy on such [*]
shall be that fixed dollar amount, per unit, which results in [*] that is equal
to [*].
10.5 Quantum Drives. In connection with the manufacture of Personal TV
System Boxes which enable the TiVo Service, the parties acknowledge that
Philips shall have an option to purchase Quantum hard disk drives from Quantum
or TiVo at [*]. In such event, Philips shall credit an amount [*] against the
Manufacturing Subsidy due from TiVo.
10.6 Payment. An amount equal to [*] of the Manufacturing Subsidy due on
each Personal System TV Box shall be due and payable within [*] of the end of
the [*]. The remaining [*] of such manufacturing subsidy shall be payable within
[*] of the end of the [*]. TiVo shall pay Philips interest at the rate of [*],
compounded [*], on all late payments.
10.7 Most Favored Status. Until [*], provided Philips is manufacturing
(or having manufactured) Philips-branded Personal TV System Boxes which enable
the TiVo Service, TiVo shall not give any Manufacturing Subsidy to any third
party which is greater than the Manufacturing Subsidy given to Philips; provided
that such
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
15.
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Manufacturing Subsidy paid to such third party is paid on a Personal TV System
Box which is substantially similar to the Personal TV System Box(es)
manufactured by or for Philips. In the event TiVo pays a higher subsidy to any
such third party, TiVo shall pay Philips the difference in subsidy amounts
[*].
10.8 Direct Sales. In any given calendar year, if total direct sales of
Philips-branded TiVo Stand-alone Boxes to consumers exceed [*], Philips will
credit against sums due Philips from TiVo an amount equal to [*] for each such
Box sold in excess of the above percentage. Credits for [*] sales shall be
determined based on [*]. Credits shall be posted within [*] days of the end of
each calendar year.
10.9 Suggested [*] Retail Price. For all Philips-branded TiVo Stand-alone
Boxes [*] manufactured or subsidized by TiVo, TiVo shall have the right, at its
sole discretion, to [*] the manufacturer's suggested retail price, [*]: [*].
After [*], and based on a suggested retail price agreed to by the parties,
Philips shall [*]. Except for the foregoing, Philips is free to unilaterally
establish the manufacturers suggested retail pricing for the Philips-branded
Stand-alone Personal TV System Boxes and Philips-branded DTV Combination Boxes
to its customers.
10.10 Guaranty. At any time prior to the commencement of manufacturing by
Philips (or for Philips by third parties) of Philips-branded TiVo Stand-alone
Boxes, TiVo shall provide, for the benefit of Philips: (i) an irrevocable letter
of credit; (ii) other credit facility; or (iii) a guaranty from a third party;
in each case, from a financial institution with a minimum S&P rating of A+, any
other financial provider reasonably acceptable to Philips, which acceptance
shall not be unreasonably withheld, or any financial institution pre-approved by
Philips in the amount of One Million Dollars (US$1,000,000) (the "Guaranty
Facility"). Such Guaranty Facility shall provide that Philips shall have the
right, in its sole discretion, to directly draw against the Guaranty Facility in
the event that TiVo is sixty (60) days delinquent in its payment to Philips of
the Manufacturing Subsidy set forth in this Section 10. In no case may the
amount drawn by Philips exceed the Manufacturing Subsidy for which TiVo has
failed to pay. Such Guaranty Facility shall expire upon the earlier of an
initial public offering of TiVo common stock with gross proceeds to TiVo of at
least Fifteen Million Dollars (US$15,000,000), or December 31, 2001.
Philips acknowledges that it has pre-approved Comdisco Inc. (not an
affiliate or subsidiary thereof) for such Guaranty.
The amount available under such Guaranty Facility shall be reevaluated no
later than October 1, 1999. Such reevaluation shall be based on the product of
the total volume of Philips-branded TiVo Personal TV System Boxes shipped in the
previous quarter and the [*] Manufacturing Subsidy due to Philips from TiVo. For
the purposes of
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
16.
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this calculation, such per-box Subsidy shall be net of any Quantum subsidies
paid to TiVo or Philips. In the event the parties cannot agree to a revised
amount, the Guaranty Facility shall remain in place according to the terms of
this Section 10.10.
11. Service Revenue Share.
11.1 Amount. TiVo shall pay Philips a service revenue share (the "Service
Revenue Share") for each [*]. Such Service Revenue Share shall be in the amount
of [*] per [*] for each [*] in which such [*] for a total of [*]. Service
Revenue Share for [*] shall be [*] but in no case will the payment for such [*]
for each [*] in which such [*] for a total of [*].
11.2 Payment Due. Such Service Revenue Share shall be due and payable
within [*] of the end of the [*] in which each [*]; provided, however, payment
of Service Revenue Share for [*] shall be [*], and shall be paid at the [*]
until paid in full.
11.3 Monthly Reports. TiVo shall provide Philips with a monthly report
indicating the number of [*] from [*] and the amount of Service Revenue Share
earned or accrued in each such month.
12. Authentication Codes. In the event any authentication code, identifier, or
password is to be generated in conjunction with the use of any Philips-branded
Personal TV System Box, Philips shall have the right to generate any such code,
identifier, or password.
13. Tivo Services And Support. TiVo shall provide First, Second, and Third
Level Support for all service and software related to the Philips-branded TiVo
Stand-alone Box, the DTV Combination Box, and the TiVo Service. TiVo shall
provide end-users of Philips-branded Personal TV System Boxes (which enable the
TiVo Service) with direct telephone access to TiVo's customer support function.
TiVo customer support shall be provided 24 hours per day, seven days per week as
the market requires. In no event will TiVo offer customer support be provided
less than six days a week, from 9 a.m. to 9 p.m. PT. In the event that TiVo
customer support reasonably determines that the customer problem is a hardware
problem, TiVo support shall refer such customer to Philips for resolution.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
17.
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14. Philips Services.
14.1 Delivery of Value-added Services. TiVo acknowledges that Philips
intends to provide Value-added Services and other services for delivery through
Personal TV Systems. If requested by Philips, TiVo shall provide access to, and
modify the TiVo Service capabilities as necessary (including, without limitation
access to TiVo's servers), subject to the provisions of Section 17, to enable
Philips to provide Value-added Services and other services to end-users of
Philips-branded Personal TV Systems through, or in connection with, the TiVo
Service. Philips shall pay TiVo the reasonable cost of such modifications and
the increase in TiVo's reasonable cost of operation directly attributable to
the provision of Philips' Value-added Services and other services; provided,
however, in no event shall Philips pay more than the [*].
14.2 Collection and Modifications. In the event that Philips provides
value-added Services to end-users through, or in connection with, the TiVo
Service, TiVo shall, upon request by Philips: (i) bill and collect payment for
the Philips Value-added Services from such end-users; and (ii) provide such
modifications and upgrades to the Philips Value-added Services, as are intended
for end-users who have purchased Philips-branded Personal TV System Boxes,
directly to such end-users over the TiVo Service. TiVo shall remit such payments
to Philips within thirty (30) days of the end of the month in which each such
payment is received by TiVo. TiVo shall pay Philips interest at the rate of two
percent (2%) per month, compounded monthly, on all late payments.
15. Sales Agency. The parties contemplate that TiVo shall act as Philips'
agent, from time to time, for the purpose of booking direct sales and order
fulfillment for such sales from Philips to end-users of Philips-branded TiVo
Stand-alone Boxes through TiVo's web site. Any such agency shall be granted
only pursuant to a separate agreement containing the terms and conditions
which apply to any such agency. No such agency shall exist, or be created,
until the execution of such an agreement by Philips. At no time shall TiVo
have the right to make sales of Philips-branded products into the retail
channel. Notwithstanding the foregoing, the parties contemplate that, prior to
Commercial Release, TiVo shall purchase from Philips, and Philips shall sell
to TiVo, not more than [*] units of Philips-branded TiVo Stand-alone Boxes for
sale directly to end-users pursuant to the Purchase Addendum. The purchase
price of such Boxes shall be [*] per unit. For sales booked and fulfilled on
Philips' behalf after Commercial Release, Philips shall pay or credit to TiVo
a commission equal to [*] per unit sold. Such commissions shall be paid within
thirty (30) days of the end of each month during which TiVo is booking such
sales for which Philips has received full payment.
16. Audit Rights. The parties shall collect and retain complete, clear and
accurate records regarding the services and obligations performed in connection
with the Agreement. Upon seven (7) days advance written notice, relevant records
may be audited from time to time to the extent necessary to verify compliance
with the Agreement, but not more than once in each calendar year. Such audit
shall be performed by a reliable, independent, internationally-recognized audit
professional (reasonably acceptable to the other party) chosen and paid by the
auditing party. Such audit shall be conducted during normal business hours and
in such a manner as not to unreasonably interfere with normal business
operations. If an audit discloses that inaccurate information caused a
discrepancy in the amount actually due to the auditing party, payment of
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
18.
<PAGE>
such discrepancy shall promptly be made. In addition, if the discrepancy is of
ten percent (10%) or more of the amount actually due to or paid by the auditing
party, then the audited party will bear the costs of the audit. All information
disclosed by the party being audited during the course of such audit shall be
kept in confidence by the auditor except for such information which must be
disclosed to the other party in order to accomplish the purposes of this Section
16. In no event shall an auditor provide the auditing party with any information
which is confidential or proprietary. This provision will survive any
termination of the Agreement for two (2) years.
17. Confidentiality.
17.1 Confidential Information. Each party (the "Disclosing Party") may,
from time to time during the Term, disclose or make available to the other party
(the "Receiving Party") certain proprietary and/or non-public information of the
Disclosing Party, including, but not limited to Software, hardware, trade
secrets, know-how, formulas, flow charts, diagnostic routines, business
information, forecasts, financial plans and data, customer information,
marketing plans, the Specifications, Manufacturing Package, the TiVo Enabling
Technology and unannounced product information (collectively, "Confidential
Information"). For purposes of the Agreement, Confidential Information includes
all such information disclosed between the parties in the course of negotiating
the Agreement and the Memorandum of Understanding which preceded the Agreement.
If such Confidential Information is in writing, it shall be marked prominently
with the legend "confidential", "proprietary", or with a similar legend, or if
disclosed orally shall be described as Confidential Information at the time of
oral disclosure and confirmed as such in writing within forty-five (45) days
thereafter.
17.2 Protection. The Receiving Party shall not use or disclose
Confidential Information of the Disclosing Party, except as expressly authorized
by written agreement or in writing by the Disclosing Party, using the same
degree of care which the Receiving Party uses with respect to its own
proprietary information, but in no event with less than with reasonable care.
Disclosure of Confidential Information does not constitute a license with
respect to such Confidential Information.
17.3 Third Parties. The Receiving Party may disclose Confidential
Information only to its employees, consultants and contractors on a need-to-know
basis for purposes of the Agreement, provided such employees, consultants and
contractors are expressly bound by nondisclosure obligations and restrictions
containing terms no less restrictive than those set forth in this Master
Agreement.
17.4 Limitation. Confidential Information shall exclude information the
Receiving Party can demonstrate: (i) was independently developed by the
Receiving Party without any use of the Disclosing Party's Confidential
Information or by the Receiving Party's employees or other agents (or
independent contractors hired by the Receiving Party) who have not been exposed
to the Disclosing Party's Confidential Information; (ii) becomes known to the
Receiving Party, without restriction, from a source (having a right to disclose
such information) other than the Disclosing Party without breach of the
Agreement; (iii) was in the public domain at the time it was disclosed or enters
the public domain through no act or omission of the Receiving Party; (iv) was
rightfully known to the receiving party, without restriction, at the time of
disclosure; (v) was approved for disclosure by the Disclosing Party beforehand
and in writing; or (vi) was
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
19.
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disclosed by Disclosing Party to a competitor of Receiving Party without
obligation of confidentiality.
18. Ownership.
18.1 TiVo's Ownership. TiVo retains exclusive ownership of all
Proprietary Rights in any Technology, proprietary to TiVo, which is incorporated
into Personal TV Systems. Philips shall take reasonable measures to protect
TiVo's Proprietary Rights in such Technology, including giving of such
assistance and measures as are reasonably requested by TiVo from time to time.
Except as expressly granted in the Agreement, Philips is not granted any rights
or licenses with respect to TiVo's Proprietary Rights in any TiVo Technology.
TiVo shall remain the sole and exclusive owner of all of the TiVo-owned features
and functionality of the TiVo Service and related hardware components, including
all of TiVo's Proprietary Rights in the design, architecture and software or
hardware implementation thereof. No licenses or rights with respect to the TiVo
Service or related hardware components are granted in the Agreement.
18.2 Philips' Ownership. Philips retains exclusive ownership of all
Proprietary Rights in any Technology, proprietary to Philips, which is
incorporated into Personal TV Systems. TiVo shall take reasonable measures to
protect Philips' Proprietary Rights in such Technology, including giving of such
assistance and measures as are reasonably requested by Philips from time to
time. Except as expressly granted in the Agreement, TiVo is not granted any
rights or licenses with respect to Philips' Proprietary Rights in the Philips
Technology. Philips shall remain the sole and exclusive owner of all of the
Philips-owned features and functionality of the Philips' Value-added Services
and related hardware components, including all of Philips' Proprietary Rights in
the design, architecture and software implementation thereof. No licenses or
rights with respect to the Value-added Service or related hardware components
are granted in the Agreement.
19. Representations And Warranties.
19.1 By TiVo.
(a) TiVo represents and warrants that the bill of materials (the
"BOM") for the TiVo Stand-alone Box attached hereto as part of the Hardware
Specification shall have the following lead-time breakdown: (a) less than [*] of
the [*] shall be comprised of components having lead times greater than [*]; (b)
less than [*] of the [*] shall be comprised of components having lead times
greater than [*]; and (c) less than [*]of the [*] shall be comprised of
components having lead times greater than [*]. In the event of breach of this
warranty, Philips shall have the right to delay commencement of manufacturing.
(b) TiVo represents and warrants that the TiVo Enabling Technology
and the Specification will be sufficient to ensure that the TiVo Stand-alone Box
and DTV Combination Box shall achieve the Minimum Service Requirements set forth
in Exhibit E. In the event of breach of this warranty, TiVo shall modify the
TiVo Enabling Technology at its sole cost and expense in order that such Boxes
shall achieve the Minimum Service Requirements set forth in Exhibit E.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
20.
<PAGE>
19.2 By Philips. Philips represents and warrants that: (i) for so long as
Philips is manufacturing the Philips-branded TiVo Stand-alone Boxes and DTV
Combination Boxes, Philips shall manufacture or have manufactured, such Boxes in
accordance with the respective Specifications of such Philips-branded TiVo
Stand-alone Boxes and DTV Combination Boxes; and (ii) such Boxes will perform in
substantial accordance with such Specifications. In the event of breach of this
warranty, Philips shall repair or replace such Boxes for the benefit of the
purchasers of such Boxes.
19.3 General Representations and Warranties. Each party hereby represents
and warrants to the other party that:
(a) it has the full corporate power and authority under the laws of
the jurisdiction of its incorporation to enter into the Agreement and to carry
out the provisions hereunder;
(b) it will not take any material action or fail to take any
material action which would be in conflict with its obligations under the
Agreement;
(c) the Agreement is a legal and valid obligation binding upon it
and is enforceable in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights, and subject to
general equity principles and to limitations on availability of equitable
relief, including specific performance; and
(d) the execution, delivery and performance of the Agreement by it
does not materially conflict with any agreement, oral or written, to which it is
a party or by which it may be bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency having authority over
it.
(e) TiVo represents and warrants to Philips that, to TiVo's
knowledge, as of the Effective Date of the Agreement, there is not pending
before any U.S. federal or state court of competent jurisdiction any suit,
action or proceeding commenced by any third party against TiVo in which the
Proprietary Rights of TiVo to the TiVo Technology are being challenged by such
third party, nor has TiVo been notified by any third party that such third party
in writing intends to make any such claim.
19.4 Personal TV System Box Warranty. Philips shall not extend to third
parties, on TiVo's behalf, any warranty from TiVo covering defects in materials
or workmanship in the manufacture of the Philips-branded Personal TV System
Boxes, nor shall Philips direct or instruct any third party, including without
limitation retailers or end-users, to contact TiVo directly or indirectly with
respect to such defects. In the event of a defect in materials or workmanship,
in the event that any such third party contacts TiVo, TiVo shall direct such
third party to contact Philips directly. Philips shall indemnify and hold TiVo
harmless from and against any claims, liabilities and expenses (including, but
not limited to, attorneys' fees) asserted against, or incurred by, TiVo
resulting from any representation or warranty made by Philips in breach of the
foregoing.
21.
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19.5 TiVo Service Warranty. TiVo shall not extend to third parties, on
Philips' behalf, any warranty from Philips related to the TiVo Service or
TiVo's. Technology, nor shall TiVo direct or instruct any third party, including
without limitation retailers or end-users, to contact Philips directly or
indirectly with respect to the TiVo Service or use of the TiVo Technology in
operation of the Philips-branded Personal TV System Boxes. In the event of a
failure in the operation of the TiVo Service or in the operation of TiVo's
Technology, in the event that any such third party contacts Philips, Philips
shall direct such third party to contact TiVo directly. TiVo shall indemnify and
hold Philips harmless from and against any claims, liabilities and expenses
(including, but not limited to, attorneys' fees) asserted against, or incurred
by, Philips resulting from any representation or warranty made by TiVo in breach
of the foregoing.
19.6 Product Defect Warranties.
(a) Philips Authority to Authorize Recall. In the event of any
defects materially impacting end users, TiVo and Philips shall work together in
good faith to determine appropriate methods of addressing such defects but
Philips shall have the right, in its sole and reasonable discretion, to
determine the mitigation efforts involved in addressing any such defects
including, but not limited to, in the event of an Epidemic Defect or a Safety
Hazard, authorization and undertaking of a recall. For a period of [*] after
Commercial Release, in the event of a recall due to Epidemic Defect or Safety
Hazard of the first generation TiVo Stand-alone Box, if the parties determine
that the cause of such Epidemic Defect or Safety Hazard is a TiVo design defect,
TiVo shall cover all reasonably necessary costs involved in such recall. If the
parties determine that the cause of such Epidemic Defect or Safety Hazard is a
Philips manufacturing defect, Philips shall cover all reasonably necessary costs
involved in such recall. For purposes of this Section 19.6, Epidemic Defect
shall mean a defect materially impacting end users occurring within the same
Philips-branded Personal TV System Box configuration enabling the TiVo Service
with a recurrence rate of [*]. For purposes of this Section 19.6, Safety Hazard
shall mean a defect of any Philips-branded Personal TV System Box configuration
enabling the TiVo Service that could result in injury to person or damage to
property.
(b) Parties to Allocate Costs. For a period of [*] after the
applicable Commercial Release, for all other defects in all future jointly-
developed Personal TV System Boxes (including next-generation TiVo Stand-alone
Boxes and the DTV Combination Box), Philips and TiVo shall work together in good
faith to determine the cause of such defect. In the event the parties determine
that the cause of such defect is a design defect, the parties shall negotiate in
good faith to allocate all reasonably necessary costs involved in the mitigation
of such defect based on the respective amounts of design contribution each party
made to such design. If the parties determine that the cause of such defect is a
manufacturing defect, Philips shall cover all reasonably necessary costs
involved in the mitigation of such defect. In the event such defect is a hybrid
of a design defect and manufacturing defect, the parties shall work together in
good faith to allocate all reasonably necessary costs involved in the mitigation
of such defect between the parties. In the event the parties cannot reasonably
agree upon such allocation of any of the foregoing reasonably necessary costs,
TiVo shall cover half of all reasonably necessary costs involved in the
mitigation of such defect.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
22.
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19.7 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THE
AGREEMENT: (I) ALL TECHNOLOGY, INFORMATION AND SOFTWARE PROVIDED BY EITHER
PARTY TO THE OTHER IS ON AN "AS IS" BASIS; (II) BOTH PARTIES EXPRESSLY DISCLAIM
ANY AND ALL WARRANTIES, EXPRESS, IMPLIED AND STATUTORY WHETHER ARISING FROM
COURSE OF DEALING OR USAGE OF TRADE INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, TITLE, FITNESS FOR A PARTICULAR PURPOSE AND NON-
INFRINGEMENT; AND (III) NEITHER PARTY REPRESENTS OR WARRANTS THAT SUCH
TECHNOLOGY, INFORMATION OR SOFTWARE WILL MEET THE OTHER PARTY'S NEEDS OR WILL BE
FREE FROM ERRORS OR OMISSIONS.
20. Indemnification.
20.1 Philips Indemnification. With respect to those Philips-branded
Personal TV Systems manufactured by or for Philips (excluding units of the TiVo
Stand-alone Box manufactured by TiVo) which enable the TiVo Service and which,
subject to the Agreement, bear the TiVo Marks, Philips, at its own expense,
shall (i) defend TiVo from and against any claims, suits, and actions
(collectively "Claims") based upon allegations that, the Philips' Value-added
Services, Philips Marks, implementations of the Philips Technology used in such
Philips-branded Personal TV Systems that enable the TiVo Service or any
modifications or additions to, or derivatives of, the TiVo Enabling Technology
made by or for Philips, and portions of the Interface developed by or for
Philips, whether alone or in combination with such Philips-branded TV Systems
manufactured by or for Philips, infringe any third party's patents, copyrights,
trade marks or misappropriate any third party's trade secrets; and (ii)
indemnify and hold TiVo harmless from and against any award or damages or costs
(including, without limitation, attorneys' fees) in any such Claim.
20.2 TiVo Indemnification. TiVo, at its own expense, shall (i) defend
Philips from and against any claims, suits, and actions (collectively "Claims")
based upon allegations that the TiVo Enabling Technology, the TiVo Stand-alone
Box, portions of the Interface developed by or for TiVo, TiVo Marks, in the form
provided to Philips by TiVo and the TiVo Service, whether alone or in
combination with any Philips Branded Personal TV System Box, infringe any third
party's patents, copyrights, trade marks or misappropriate any third parties
trade secret; and (ii) indemnify and hold harmless Philips from and against any
award or damages or costs (including, without limitation, attorneys' fees) in
any such Claim.
20.3 Mutual Manufacturing Product Liability Indemnity. Each party (the
"Indemnifying Party") shall indemnify and defend the other party (the
"Indemnified Party") from and against any and all claims, suits, and actions
(collectively, "Claims") brought against the Indemnified Party arising out of
any defect in the Boxes manufactured by such Indemnifying Party; provided, that
any such Claim (i) is attributable to bodily injury, death or injury to or
destruction of physical property (other than the Box); (ii) that the Indemnified
Party actually pays out damages on such claim to a third party claimant; (iii)
with respect to Claims which arise out of a defect of the Box, that the
Indemnified Party is able to provide to the Indemnifying Party with reasonable
evidence of such Claim, which establishes based on a pursuing third party's
claim that the Indemnified Party is liable to such third party under applicable
product liability law; and (iv) that the Indemnified Party is not liable for the
defect. This obligation on the part of the Indemnifying Party is subject to the
Indemnified Parties obligations to (x) promptly notify the Indemnifying Party,
in writing, of all such Claims; (y) cooperate reasonably with the
23.
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Indemnifying Party (at the Indemnifying Party's expense) in defending such
Claims; and (z) allow the Indemnifying Party the sole right to control the
defense (including the selection of counsel), or at the Indemnifying Party's
sole option, to settle, all such Claims.
20.4 Design Defect Indemnity. TiVo, at its own expense, shall defend
Philips from and against any claims, suits, and actions (collectively "Claims")
based upon allegations that the TiVo Enabling Technology and the first
generation TiVo Stand-alone Box contain any design defect that is shown to have
caused bodily injury including death, or has damaged real property or tangible
personal property. This obligation on the part of TiVo is subject to Philips'
obligations to (x) promptly notify TiVo, in writing, of all such Claims; (y)
cooperate reasonably with TiVo (at TiVo's expense) in defending such Claims; and
(z) allow TiVo the sole right to control the defense (including the selection of
counsel), or at TiVo's sole option, to settle, all such Claims.
20.5 Modify or Obtain the Right to Use. In the event the party liable to
indemnify ("Indemnifying Party") reasonably believes that an infringement is
likely to have occurred, the Indemnifying Party shall be entitled, at
Indemnifying Party's option and expense, to: (a) suitably modify the applicable
Technology, Personal TV System Box or Personal TV Service to be reasonably
equivalent and non-infringing; (b) obtain for the Indemnified Party a license to
continue using the such Technology, Box or Service; or, if the foregoing
alternatives are not commercially practicable, then (c) the parties will
negotiate in good faith to establish a mutually agreeable alternative.
20.6 Conditions. The obligations on the part of the Indemnifying Party
in this Section 20 are subject to the other party's obligations to: (i) promptly
notify the Indemnifying Party, in writing, of all such Claims; (ii) cooperate
reasonably with the Indemnifying Party (at the Indemnifying Party's expense) in
defending such Claims; and (iii) allow the Indemnifying Party the sole right to
control the defense (including the selection of counsel) or settlement of all
such Claims.
20.7 Entire Obligation. The foregoing states the Indemnifying Party's
entire liability, and the other party's sole remedy, with respect to: (i) any
infringement of any patents, copyrights, trademarks, trade secrets or other
Proprietary Rights of any third party whether direct or contributory; and (ii)
any product liability.
21. Term and Termination.
21.1 Term. The term of this Master Agreement shall begin on the Effective
Date and continue seven (7) years therefrom. Subject to the provisions of this
Master Agreement, the Agreement may be terminated prior to end of the Term.
(a) Minimum Volume Requirement During Term. Beginning on the [*]
anniversary of the Effective Date of this Master Agreement, the number of units
sold by Philips of Philips-branded Personal TV System Boxes enabling the TiVo
Service (the "Philips Annual Volume") shall be at least [*] units per year (the
"Minimum Volume Requirement"). The Philips Annual Volume shall be calculated by
TiVo within [*] of the end of each month beginning on the [*] anniversary of the
Effective Date of this Master
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
24.
<PAGE>
Agreement. Such calculation shall based on the average unit volume during the
three (3) months preceding the month in which the calculation is made. Such
calculated quarterly volume shall be at least [*] units per quarter. In the
event the Philips Annual Volume is less than the Minimum Volume Requirement or
[*] units per quarter, the Agreement may be terminated by TiVo, at TiVo's sole
discretion, upon [*] written notice to Philips.
(b) Minimum Requirements After Term. Unless the Agreement is
terminated for any reason, beginning on the [*] anniversary of the Effective
Date of this Master Agreement:
(i) Base Unit Volume. The Philips Annual Volume shall be greater
than [*] units per year. The Philips Annual Volume shall be calculated by TiVo
within [*] of the end of each month beginning on the [*] anniversary of the
Effective Date of this Master Agreement. Such calculation shall be based on the
average unit volume during the [*] months preceding the month in which the
calculation is made.
(ii) Percentage of TiVo-Enabled Units. The Philips Annual Volume
shall be no less than [*] (the "Base Percentage") of the total unit volume of
Personal TV System Boxes sold for distribution to end users in the Territory in
the preceding year. The Philips Annual Volume and the total unit volume of
Personal TV System Boxes enabling the TiVo Service will be calculated by TiVo
within [*] of the end of each month beginning on the [*] anniversary of the
Effective Date of this Master Agreement based on the respective average unit
volumes during the [*] months preceding the month in which the calculation is
made.
For so long as the conditions in Section 21.1(b)(i) and (ii) are satisfied,
the provisions set forth in Sections 5.1 and 5.2, and the license(s) granted
under Section 5.5 (only to the extent the option to such license(s) has been
exercised prior to the end of the Term), and Section 11 will survive the
expiration of this Master Agreement; provided, with respect to Service Revenue
Share, the provisions of Section 21.l(c) below shall be satisfied.
(c) Service Revenue Share after Term. For so long as the Philips
Annual Volume is greater than [*] units per year, the provisions of Section 11
shall survive expiration of this Master Agreement. The Philips Annual Volume
shall be calculated by TiVo within [*] of the end of each month beginning on the
seventh anniversary of the Effective Date of this Master Agreement. Such
calculation shall be based on the average unit volume during the [*] months
preceding the month in which the calculation is made.
21.2 Termination of Select Provisions.
(a) TiVo shall within fifteen (15) days after the Effective Date of
this Master Agreement deliver to Philips a preliminary draft of the minimum
service requirement applicable to the TiVo Service. The parties intend for
such minimum service requirements to include customer service, billing and
back-office operations, and service performance and availability requirements.
If TiVo fails to deliver such preliminary draft of the minimum service
requirement applicable to the TiVo Service, Philips shall have the right, in
its sole discretion, to
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
25.
<PAGE>
terminate all, but not less than all, of the parties' obligations with respect
to TiVo Stand-alone Box exclusivity, Manufacturing Subsidy payments, and
Marketing Spend. Philips and TiVo shall work together in good faith to agree to
the definitive minimum service requirement applicable to the TiVo Service within
thirty (30) days of the Effective Date of this Master Agreement.
In addition to the foregoing, if prior to [*]: (i) Commercial Release of
the Philips-branded TiVo Stand-alone Box has not occurred; (ii) TiVo Service has
not met the minimum service requirements set forth in Exhibit E; or (iii) TiVo
has not entered into a commercial relationship with DIRECTV for the marketing of
Personal TV System Boxes, Philips shall have the right, in its sole discretion,
to terminate all, but not less than all, of the parties' obligations with
respect to TiVo Stand-alone Box exclusivity, Manufacturing Subsidy payments, and
Marketing Spend.
(b) If Philips: (i) has not commenced volume shipments of the Philips-
manufactured TiVo Stand-alone Box within forty-five (45) days from Commercial
Release of such TiVo Stand-alone Box; (ii) has not commenced volume shipments
of the Philips-manufactured TiVo Stand-Alone Box to the mainstream retail
channel within one hundred twenty (120) days from Commercial Release of such
Philips-manufactured TiVo Stand-alone Box, TiVo shall have the right, in its
sole discretion, to terminate all, but not less than all, of the parties'
obligations with respect to TiVo Stand-alone Box exclusivity, Manufacturing
Subsidy payments, and Marketing Spend.
(c) If cumulative sales of the TiVo Stand-alone Boxes have not reached
[*] units within ninety (90) days of Commercial Release, either party shall have
the right, in its sole discretion, to terminate all, but not less than all, of
the parties' obligations with respect to TiVo Stand-alone Box exclusivity,
Manufacturing Subsidy payments, and Marketing Spend.
21.3 Material Breach. The Agreement and all licenses granted by the non-
breaching party hereunder may be terminated, by the non-breaching party, if the
breaching party fails to cure: (i) any material breach within forty-five (45)
days of receipt of written notice of such breach; or (ii) any breach of Sections
5, 17 or 18 within five (5) days of receipt of written notice of such breach.
21.4 Effect of Termination. At the end of the Term or upon termination of
the Agreement under Sections 21.1 except as set forth in Section 21.1(b), 21.2,
and 21.3, notwithstanding any provision set forth in an Addendum hereto, all
provisions of this Master Agreement shall terminate, cease to be binding on the
parties and have no further force or effect. Upon written request by either
party (the "Requesting Party"), the other party shall promptly return or destroy
all Confidential Information and Technology of the Requesting Party in its
possession and existing in tangible form and shall promptly confirm in writing
to the Requesting Party that it has done so.
21.5 Inventory. Notwithstanding the foregoing, upon termination of the
Agreement, Philips shall be entitled to manufacture, and its right and license
shall continue hereunder for the purpose of: (i) manufacturing units of Personal
TV System Boxes to fulfill existing orders placed prior to the termination or
expiration date hereof and then in the process of being manufactured;
* Material has been omitted pursuant to a request for confidential treatment.
Such material has filed separately with the Securities and Exchange Commission.
26.
<PAGE>
(ii) to complete work in process; and (iii) to utilize unique materials unable
to be returned to the supplier. In no event shall such right extend for a period
of more than one (1) year following the date of such termination. Without
limiting the foregoing, Philips shall be entitled to offer for sale and sell any
Personal TV System Boxes in its inventory at the time of termination or
expiration.
21.6 No Liability. Each party understands that the rights of termination
hereunder are absolute. Neither party shall incur any liability whatsoever for
any damage, loss or expenses of any kind suffered or incurred by the other
arising from or incident to the terminating party's exercise of its termination
rights under this Master Agreement. In particular, without in any way limiting
the foregoing, neither party shall be entitled to any damages on account of
prospective profits or anticipated sales.
21.7 Survival. The provisions of Sections 20.1, 20.2, 21, and 24 shall
survive any termination or expiration of this Master Agreement.
22. Limitation Of Liability. In no event will either party be liable under
this Agreement under any contract, negligence, strict liability, tort or other
legal or equitable theory for any incidental, special or consequential damages
of any nature whatsoever, (including without limitation, loss of profits or
other commercial loss), or cost or procurement of substitute goods, technology
or services, arising out of or in connection with the performance of this
Agreement, even if such party has been advised of the possibility of such
damages.
23. Independent Development. Each party (the "Owning Party") acknowledges that
other companies, potentially including the other party to this Master Agreement
(the "Independent Developer"), have developed or will develop Personal TV
Systems and Personal TV Services with or incorporating Technology similar to the
Technology of the parties developed, or to be developed, hereunder. The Owning
Party acknowledges that nothing in the Agreement prohibits the Independent
Developer from creating and/or marketing Personal TV Systems or Personal TV
Services incorporating functionality similar or identical to the functionality
of such Personalized TV Systems. The Owning Party agrees that it will not be
entitled to any compensation because of the Independent Developer's development
or distribution of similar systems or services, unless such systems or services
would infringe the other party's Proprietary Rights (absent a license) or are
otherwise developed, manufactured or distributed in breach of any provision of
the Agreement.
24. General Provisions.
24.1 No Agency. Each party will in all matters relating to the Agreement
act as an independent contractor. Nothing contained in the Agreement, nor the
execution or performance thereof, shall be construed as creating any agency,
partnership, or other form of joint enterprise between the parties. Neither
party will have authority nor represent that it has any authority to assume or
create any obligation, express or implied, on behalf of the other party, or to
represent the other party as agent, employee or in any other capacity.
24.2 Governing Law. The Agreement shall be governed in all respects by
the laws of the United States of America and the State of New York excluding the
application of its conflict
27.
<PAGE>
of laws rules. The parties agree that the United Nations Convention on Contracts
for the International Sale of Goods is specifically excluded from application to
the Agreement.
24.3 Notices. All notices or reports permitted or required under the
Agreement shall be in writing and shall be delivered by personal delivery,
telegram, telex, telecopier, facsimile transmission or by certified or
registered mail, return receipt requested, and shall be deemed given upon
personal delivery, five (5) days after deposit in the mail, or upon
acknowledgment of receipt of electronic transmission. Notices shall be sent to
the address set forth below or such other address as either party may specify in
writing:
To: TiVo To: Philips
Michael Ramsay or General Counsel Jos Swillens
894 Ross Drive CEO Digital Receivers
Sunnyvale, CA 94089 Building OAN-3
Fax (408) 747-5096 PO Box 80002
5600 JB Eindhoven, The Netherlands
With a copy to: With a copy to:
Alan Mendelson Philips Business Electronics B.V.
Cooley Godward LLP Legal Department: Attn General Counsel
Five Palo Alto Square Building SX2
3000 E1 Camino Real Glaslaan 2
Palo Alto, CA 94306 5616 LW
Fax (650) 857-0663 Eindhoven, The Netherlands
24.4 Injunctive Relief. It is understood and agreed that, notwithstanding
any other provision of the Agreement, any breaches of Sections 5, 17 or 18 will
cause irreparable damage for which recovery of money damages would be
inadequate, and that both parties shall therefore be entitled to obtain timely
injunctive relief to protect their respective rights under the Agreement, in
addition to any and all remedies available at law.
24.5 Waiver. The failure of either party to require performance by the
other party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
24.6 Severability. In the event that any provision of the Agreement shall
be unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity shall not render the
Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
24.7 Headings. The section headings appearing in the Agreement are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section, or in any way affect the
Agreement.
28.
<PAGE>
24.8 Confidentiality of Agreement. Neither party will disclose any terms
of the Agreement, except pursuant to a mutually agreeable press release or as
otherwise required by law.
24.9 Compliance with Laws; Export Controls. Each party agrees to comply
with all applicable laws, rules and regulations in connection with its
activities under the Agreement. Each party further agrees that it will comply
with all U.S. export control laws and the applicable regulations thereunder, as
well as any other applicable laws of the U.S. affecting the export of
technology.
24.10 Assignment. Neither party shall assign any rights or obligations
arising under the Agreement without the prior written consent of the other
party, except that either party may assign the Agreement in the event of a
merger or acquisition of such party or: (i) to any Affiliate of such party; or
(ii) to a new entity as a spin-off of the business of such party.
Notwithstanding the foregoing, TiVo shall not assign any rights or obligations
arising under the Agreement without the prior written consent of Philips where
such assignment is to a third party consumer electronics manufacturer. Subject
to the above restriction on assignment, the Agreement shall inure to the benefit
of and bind the successors and assigns of the parties. Any assignment in
violation of this provision will be void. In any event, neither party shall
assign the right to use the Marks of the other party without that party's prior
written consent and the Agreement shall not, in any event, be construed to
include such right to assign the Marks.
24.11 Entire Agreement. The Agreement and Exhibits hereto constitute the
entire agreement between the parties with respect to the subject matter hereof.
The Agreement supersedes, and the terms of the Agreement govern, any prior or
collateral agreements with respect to the subject matter hereof. The Agreement
may only be changed by mutual agreement of authorized representatives of the
parties in writing.
Rest Of Page Intentionally Left Blank
29.
<PAGE>
In Witness Whereof, the parties hereto have duly executed this Master
Agreement by their respective duly authorized officers. This Master Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same original.
TiVo Inc. Philips Business Electronics B.V.
/s/ Michael Ramsay /s/ R.L. von Oostenbrugge
- --------------------------- ---------------------------------
Authorized Signature Authorized Signature
Michael Ramsay R.L. von Oostenbrugge
- --------------------------- ---------------------------------
Printed Name Printed Name
President, CEO Managing Director
- --------------------------- ---------------------------------
Title Title
April 2, 1999 31-03-1999
- --------------------------- ---------------------------------
Date Date
30.
<PAGE>
Exhibit A
DEFINITIONS
For purposes of the Agreement, the following terms shall have the
respective meanings indicated:
1. "Affiliate" shall mean shall mean any entity that directly or indirectly
through one or more intermediaries controls, is controlled by, or is under
common control with another entity.
2. "Combination Box(es)" shall mean any single, discrete, integrated Personal
TV System Box which incorporates (i) [*] and [*]; and (ii) the TiVo
Service.
3. "Commercial Release" shall mean the date on which the parties jointly agree
that a Personal TV System Box meets the applicable specification in such a
manner to allow general availability to the general public, and declare
that this milestone has been met.
4. "Competitive Device" shall mean any consumer electronic device capable
of [*].
5. "Confidential Information" shall be as defined in this Master Agreement
Section 17 ("Confidentiality").
6. "Co-Op Advertising Expenditures" shall mean amounts paid to retailers for
dealer advertising purposes, as such term is commonly used in the retail
trade.
7. "Coordinator" shall mean that person from each party who shall be
responsible for all matters pertaining to a specific element of the
Agreement, including but not limited to the following responsibilities:
(a) administering and coordinating the administrative or technical matters;
(b) arranging meetings, visits and consultations relating to the parties
performance; (c) coordinating the submission and acceptance of all
deliverables, if any; and (d) coordinating the exchange of Confidential
Information.
8. [*]
9. "Derivatives" shall mean any "Derivative Work" of all or part of a party's
Technology, as defined by the Copyright Law of the United States of
America, Title 17 U.S.C. (S) 101 et seq.
10. "DTV Combination Box(es)" shall mean any Combination Box which (i) [*],
(ii) enables the TiVo Service, and (iii) enables the DIRECTV service, and
(iv) [*].
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
i.
<PAGE>
11. [*] shall mean a Personal TV System Box, specifically designed
for use and distribution in [*] which enables the TiVo Service.
12. "First Level Support" shall mean direct telephone and/or on-line support of
customers.
13. [*]
14. "Hardware Specification" shall mean the hardware specification to the TiVo
Stand-alone Box set forth at Exhibit G. The parties will work together to
define the hardware specifications for the DTV Combination Box.
15. "[*]" shall mean a [*] having a [*] at [*].
16. "Joint Technology" shall mean any Technology that (i) is developed jointly
by both parties during the term of this Master Agreement and (ii) is
developed as a result of the technical collaboration that is the subject of
this Master Agreement.
17. "[*]" shall mean a [*] having a [*] at [*].
18. "Marketing Activities" shall mean: [*]
19. "Marketing Spend Period" shall mean that period from the Effective Date of
this Master Agreement until [*] after Commercial Release of the
Philip-branded TiVo Stand-alone Box.
20. "Manufacturing Subsidy" shall mean, a fixed dollar amount paid in
connection with the manufacture of Personal TV System Boxes to reduce the
Cost of Goods Sold or to encourage Philips or third parties to reduce the
manufacturer's suggested retail price of such Personal TV System Boxes. The
Manufacturing Subsidies paid to Philips by TiVo are specified in Section 10
of this Master Agreement.
21. "Marketing Principles" shall mean those principles identified in Exhibit c
to the Marketing Addendum.
* Material has been omitted pursuant to a request for confidential treatment.
Such Material has been filed separately with the Securities and Exchange
Commission.
ii.
<PAGE>
22. "Network Operator" shall mean [*].
23. "Personal TV System(s)" shall mean [*] of hardware [*], software, and
technology which enables Personal TV Services.
24. "Personal TV System Box(es)" shall mean any [*] which (i) provides, or
allows for: (i) [*]; and (ii) [*]; and (iii), [*].
25. "Personal TV Service(s)" shall mean any [*] which provides: (i) an [*]; and
(ii) [*].
26. "Philips Marks" shall mean the trademarks, service marks, trade names and
logos of Philips, specifically listed in Exhibit B ("Philips Marks") to the
Marketing Addendum, as such exhibit may be amended upon the agreement of
the parties from time to time.
27. "Pre-Existing Technology" shall mean any Technology that was developed by,
or for the benefit of, a party prior to the Effective Date of this Master
Agreement and not in the course of the technical collaboration which is the
subject of this Master Agreement.
28. "Proprietary Rights" shall mean any and all intellectual property rights
[*]arising under statutory law, common law or by contract and
whether or not perfected, including without limitation, all: (i) patents,
patent applications and patent rights; (ii) rights associated with works or
authorship including copyrights, copyright applications, copyright
registrations, mask works rights, mask work applications, mask work
registrations; (iii) trade and service marks; (iv) rights relating to the
production of trade secrets and confidential information; (v) rights
analogous to those set forth in this definition and any other proprietary
rights relating to intellectual property; and (vi) divisional applications,
continuations, renewals, reissues and extension of the foregoing (as and to
the extent applicable) now existing, hereafter filed, used or acquired,
whether registered or unregistered.
29. "Quality Plan" shall mean the quality assurance agreement mutually agreed
to by the parties for each of the Personal TV System Boxes to be
manufactured as contemplated by the Agreement.
30. "Retail Price" shall mean the price equal to the maximum price as
established by TiVo for subsidized Stand-alone Personal TV Systems and DTV
Combo Boxes and the suggested retail price for all other Personal TV
Systems.
31. "Retail Rollout" shall mean a Commercial Release through national retail
and distribution channels including, without limitation, compliance with
the Roll Out milestones set forth in the Marketing Addendum.
[*]Material has been omitted pursuant to a request for confidential treatment.
such material has been filled seperately with the Securities and Exchange
Commission.
iii.
<PAGE>
32. "Second Level Support" shall mean support of First Level Support staff. No
calls from customers are to be fielded by Second Level Support staff.
33. "Service Subscriber" shall mean an end user who subscribes, activates and
pays for a subscription to Personal TV Services.
34. "Showcase Screen(s)" shall mean screens dedicated to network programming
promotions sold by TiVo.
35. "Software" shall mean computer programming software including both Object
Code and Source Code. "Object Code" shall mean computer programming code
substantially in binary form that is directly executable by a computer
after processing, but without compilation or assembly. "Source Code" shall
mean computer programming code that may be displayed in a form readable and
understandable by a programmer of ordinary skill; including related source
code level system documentation, comments and procedural code, such as job
control language. Source Code does not include Object Code, and vice-versa.
36. "Software Specification" shall mean the software specification for the TiVo
Stand-alone Box set forth at Exhibit H. The parties will work together to
define the software specifications for the DTV Combination Box.
37. "Specifications" shall mean the Hardware Specification and Software
Specification, including the engineering, operational and/or functional
descriptions, features, manufacturing specifications (including Bills of
Materials, "BOMs") and requirements as mutually designated and agreed by
the parties.
38. "Stand-alone Box(es)" shall mean a discrete Personal TV System Box which
provides external connectivity to a satellite, cable or television
broadcast receiver and contains a standard television tuner.
39. "Subsidy" shall mean hardware subsidies paid by TiVo to Philips to offset
the costs associated with the manufacturing and distribution of the Stand-
alone Box and/or DTV Combo Box.
40. "Technology" shall mean any discovery, improvement or invention whether or
not patentable, and all related know-how, designs, mask works, formulae,
processes, manufacturing techniques, trade secrets, ideas, artwork,
software or other copyrightable or patentable works.
41. "Territory" shall mean[*].
42. "Third Level Support" shall mean appropriate response, such as software bug
fixes, to recurrent issues brought to the attention TiVo's software
development organization by Second Level Support staff.
43. "Third Party Technology" shall mean any Technology that is owned or
controlled by a party other than Philips, TiVo or one of their Affiliates.
[*]Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
iv.
<PAGE>
"TiVo Enabling Technology" shall mean that Technology set forth in Exhibit
B.
45. "TiVo Marks" shall mean the trademarks, service marks, trade names and
logos of TiVo, specifically listed in Exhibit A ("TiVo Marks") to the
Marketing Addendum, as such exhibit may be amended upon the agreement of
the parties from time to time.
46. "TiVo Service(s)" shall mean services provided by TiVo over the Personal TV
System, including, without limitation, Personal TV Services.
47. "TiVo Stand-alone Box" shall mean a Stand-alone Box which enables the TiVo
Service and does not enable the Personal TV Services of any third party.
[*].
48. "Value-added Services" shall mean services, other than Personal TV
Services, which are capable of being provided via Personal TV Systems.
* Material has been omitted pursuant to a request for confidential treatment.
Such maaterial has been filed seperately with the Securities and Exchange
Commission.
v.
<PAGE>
Confidential
Exhibit B
TIVO ENABLING TECHNOLOGY
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such maaterial has been filed seperately with the Securities and Exchange
Commission.
i.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
ii.
<PAGE>
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
iii.
<PAGE>
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
iv.
<PAGE>
Confidential
Exhibit C
COMMERCIAL RELEASE BRANDING REQUIREMENTS
. Pre-open sequence with a duration of approximately five (5) seconds
highlighting the transition between the Philips and TiVo Marks. The Philips
shield comes in to view, pauses to state "Philips Presents", and then fades
into the glint in TiVo's eye.
. Philips will be in the video background loop of both TiVo Central and Setup
page and the OSD layer of the Setup page.
. Philips will be offered an opportunity to create a "Philips Corner" line-
item on TiVo Central provided that Philips has content for viewers to
navigate through from that line-item. The Philips line-item will be
replaced by an "anchor tenant" position in the TiVo On-Air mall as soon as
technically feasible.
. Philips will be offered the opportunity to create additional Philips
branding via background video loops and the OSD layer.
. TiVo will notify Philips of changes that are made to the user interface
from the agreed specifications for commercial release to the extent such
changes affect Philips' brand presence as set forth in this Exhibit C.
<PAGE>
Confidential
Exhibit D
MINIMUM TERMS AND CONDITIONS OF END USER AGREEMENTS
This package may contain the following materials provided by Licensor to
Licensee: software and related explanatory written materials ("Documentation").
The term "Software" shall include any updates, modified versions, additions, and
copies of the Software that may be provided by Licensor from time to time.
Licensor grants to Licensee a nonexclusive license to use the Software and
Documentation, provided that Licensee agrees to the following:
1. License Grant. Licensee may use the Software solely in machine executable
object code form and solely in conjunction with the Product purchased by
Licensee.
2. Documentation. Licensor will deliver a copy of the End User documentation
for the Software (the "Documentation") to Licensee. Licensee shall have
the right to use the Documentation solely in connection with Licensee's use
of the Software with the Product.
3. Restrictions. Licensee may not copy, modify, or transfer the Software, or
any copy thereof, in whole or in part. Licensee may not reverse engineer,
disassemble, decompile, or translate the Software, or otherwise attempt to
derive the source code of the Software, except to the extent allowed under
any applicable law. Any attempt to transfer any of the rights, duties or
obligations hereunder is void. Licensee may not rent, lease, load, resell
for profit, or distribute the Software, or any part thereof.
4. Ownership. The Software is licensed, not sold, to Licensee for use only
under the terms of this Agreement, and Licensor and its suppliers reserve
all rights not expressly granted to Licensee. Licensee owns the media, if
any, on which the Software or Documentation is recorded, but Licensor and
its suppliers retain ownership of all copies of the Software and
Documentation itself.
5. Reservation of Rights. Except as stated above, this Agreement does not
grant Licensee any intellectual property rights in the Software or
Documentation.
6. Term. This Agreement will terminate immediately upon notice to Licensee if
Licensee materially breaches any term or condition of this Agreement.
Licensee agrees upon termination to promptly destroy the Software and all
copies.
7. Warranty Disclaimer. NEITHER LICENSOR NOR ANY OF ITS REPRESENTATIVES MAKES
OR PASSES ON TO LICENSEE OR OTHER THIRD PARTY ANY WARRANTY OR
REPRESENTATION ON BEHALF OF LICENSOR'S SUPPLIERS, INCLUDING BUT NOT LIMITED
TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR
A PARTICULAR PURPOSE.
i.
<PAGE>
8. Limitation of Liability. IN NO EVENT WILL LICENSOR'S SUPPLIERS BE LIABLE TO
LICENSEE FOR ANY CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING
ANY LOST PROFITS OR LOST SAVINGS, EVEN IF LICENSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY THIRD PARTY. Some
states or jurisdictions do not allow the exclusion or limitation of
incidental, consequential or special damages, so the above limitations may
not apply to Licensee.
9. General. This Agreement will be governed by the laws of the State of
California without regard to or application of conflicts of law rules or
principles. This Agreement will not be governed by the United Nations
Convention on Contracts for the International Sale of Goods, the
application of which is expressly excluded. If any part of this Agreement
is found void and unenforceable, it will not affect the validity of the
balance of the Agreement, which shall remain valid and enforceable
according to its terms. Licensee agrees that the Software will not be
shipped, transferred or exported into any country or used in any manner
prohibited by the United States Export Administration Act or any other
export laws, restrictions or regulations. This Agreement shall
automatically terminate upon failure by Licensee to comply with its terms.
This Agreement may only be modified in writing signed by an authorized
officer of Licensor and its suppliers.
10. Third-Party Beneficiary. Licensee is hereby notified that TiVo Inc., a
California corporation, and having its principal place of business at 894
Ross Drive, Sunnyvale, California USA 94089, is a third-party beneficiary
to this Agreement to the extent that this Agreement contains provisions
which relate to Licensee's use of the Software and Documentation licensed
hereby. Such provisions are made expressly for the benefit of TiVo and are
enforceable by TiVo in addition to Licensor.
ii.
<PAGE>
Confidential
Exhibit E
MINIMUM SERVICE REQUIREMENTS
<PAGE>
Confidential
Exhibit F
PROCEDURES RELATING TO PROPRIETARY RIGHTS
1. Technology Notification. With respect to Philips Technology developed
exclusively pursuant to development of the Interface, Philips agrees to
disclose promptly each such Philips Technology to TiVo specifically
pointing out the features or concepts that Philips believes to be new or
different. With respect to TiVo Technology developed pursuant to
development of the Interface, TiVo agrees to disclose promptly such TiVo
Technology to Philips specifically pointing out the features or concepts
that TiVo believes to be new or different.
2. Proprietary Rights Protection.
(a) Assistance. Each party shall give the other party all reasonable
assistance in obtaining patent or other Proprietary Rights protection for
jointly-made inventions and in preparing and prosecuting any patent or other
Proprietary Rights application for such jointly-made inventions filed by the
other party (at such party's expense), and shall cause to be executed
assignments and other instruments and documents as the other party may consider
necessary or appropriate to perfect the rights granted pursuant to joint
development of the Interface.
(b) Election Not To Seek Protection. In the event that one party
elects not to seek and/or maintain patent or other Proprietary Rights protection
for the Interface in any particular country or not share equally in the expenses
thereof with the other party, the other party shall have the right to seek
and/or maintain such protection at its own expense in such country and shall
have full control over the prosecution and maintenance thereof even though title
to any patent or other Proprietary Rights protection issuing therefrom is
jointly owned. The other party shall keep the party electing not to seek or
maintain patent or other Proprietary Rights protection fully informed concerning
the prosecution or maintenance of such patent or other Proprietary Rights
protection for such jointly-made inventions by providing copies of all
communications with patent offices and by giving the party electing to seek or
maintain patent or other Proprietary Rights protection for such jointly-made
inventions the right to comment on such communications. Regardless of who has
responsibility, patent applications relating to the Interface may be filed only
after review of such applications by both parties. During the pendency of such
applications, and until a patent issues thereon or the application is officially
published by the governmental agency handling such applications, the contents of
such applications shall be considered Confidential Information.
(c) Third Party Obligations. In rendering performance pursuant to
development of the Interface, both parties shall comply at all times with all
restrictions and covenants applicable to third party Technology. Each party
shall have sole responsibility for payment of all royalties and other charges
with respect to the third party Technology it supplies to the other party and
the developed efforts hereunder, including royalties and charges that accrue as
a result of the subsequent exercise by a party, its Affiliates and their
successors and assigns, and sublicensees, end users and resellers of such party
of rights and licenses in and to end-products derived from development
hereunder.
i.
<PAGE>
(d) Proprietary Rights Claims. Each party shall make reasonable
efforts to notify, without unnecessary delay, the other party in writing of, and
to give such party any information provided by the third party claimant
concerning, any suits or claims of patent, copyright, trademark, mask work
infringement or trade secret misappropriation which have been made in writing
with respect to each party's respective Personal TV Systems and Services in
which such third party claims to have Proprietary Rights.
ii.
<PAGE>
Confidential
Exhibit G
HARDWARE SPECIFICATION
<PAGE>
- --------------------------------------------------------------------------------
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
3.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such maaterial has been filed seperately with the Securities and Exchange
Commission.
4.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such maaterial has been filed seperately with the Securities and Exchange
Commission.
5.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
6.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
7.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
8.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
9.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
10.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
11.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
12.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
13.
<PAGE>
[*]
* Material has been omitted pursuant to a request for Confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
14.
<PAGE>
Confidential
Exhibit H
SOFTWARE SPECIFICATION
<PAGE>
[*]
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
3.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
4.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
5.
<PAGE>
[*]
*Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
6.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
7.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
8.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
9.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
10.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
11.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
12.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
13.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
14.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
15.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
16.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
17.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
18.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
19.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
20.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
21.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
22.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed seperately with the Securities and Exchange
Commission.
23.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed seperately with the Securities and Exchange
Commission.
24.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed seperately with the Securities and Exchange
Commission.
25.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed seperately with the Securities and Exchange
Commission.
26.
<PAGE>
[*]
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed seperately with the Securities and Exchange
Commission.
27.
<PAGE>
CONFIDENTIAL
ADDENDUM A
PHILIPS BUSINESS ELECTRONICS B.V. - TIVO INC.
PURCHASE ADDENDUM
<PAGE>
CONFIDENTIAL
PURCHASE ADDENDUM
This Purchase Addendum ("Purchase Addendum") by and between TiVo
Inc. ("TiVo") and Philips Business Electronics B.V. ("Philips") shall be
effective as of March 31, 1999 (the "Effective Date"). Capitalized terms not
defined herein shall have the meanings assigned to such terms in that certain
Master Agreement (the "Master Agreement") between the parties dated March 31,
1999.
1. Scope. This Purchase Addendum sets forth the rights and obligations of the
parties with respect to Philips' initial purchase of [*] TiVo Stand-alone Boxes
from TiVo. The parties intend that this Purchase Addendum shall be replaced, in
its entirety, with a more comprehensive OEM Purchase Addendum to the Master
Agreement that will set forth the terms and conditions for subsequent purchases
of the TiVo Stand-alone Box by Philips.
2. Initial Purchase Obligation. Philips shall purchase [*] TiVo Stand-alone
Boxes that have been manufactured by TiVo in accordance with TiVo's current
Specifications.
3. Terms and Conditions for Purchase.
3.1 Philips' Standard Purchase Order. Philips and TiVo acknowledge and
agree that except as expressly set forth in this Purchase Addendum, the terms
and conditions set forth in Philips' standard purchase order shall govern and
control such purchase by Philips. To the extent that Philips' standard terms and
conditions of purchase conflict with those of this Purchase Addendum, the terms
and conditions of this Purchase Addendum shall prevail. A copy of Philips'
standard terms and conditions of purchase is attached hereto as Exhibit A
("Terms and Conditions of Purchase").
3.2 Payment Terms. Philips shall pay TiVo [*] for each TiVo Stand-alone
Box within [*] of the date of invoice. Philips shall pay TiVo interest at a rate
of [*] compounded [*] on all late payments.
3.3 Warranty. The parties acknowledge that Philips shall sell the
Philips-branded TiVo Stand-alone Boxes (which are subject to this Purchase
Addendum) to TiVo for resale to end users. TiVo shall provide all end users
with the TiVo standard end user warranty agreement attached hereto as Exhibit B
and shall be responsible for all warranty claims made by end users for defective
Philips-branded TiVo Stand-alone Boxes. TiVo shall defend, indemnify and hold
Philips harmless from and against all claims, suits and actions based on
warranty claims by end users.
3.4 Year 2000 Warranty. TiVo warrants that the Philips-branded TiVo
Stand-alone Boxes delivered pursuant to this Purchase Addendum will be Year 2000
Compliant. "Year 2000 Compliant" means that neither performance nor
functionality is affected by dates prior to, during, and after the year 2000.
3.5 Indemnification. Except as otherwise provided in Section 3.3 of
this Purchase Addendum, the indemnification provisions set forth in the Master
Agreement are incorporated herein by reference.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
1
<PAGE>
CONFIDENTIAL
3.6 No Changes or Termination. Philips' acknowledges and agrees that its
purchase of [*] TiVo Stand-alone Boxes is firm and the "Changes" and
"Termination" provisions of the Philips' standard terms and conditions of
purchase shall not apply to this transaction.
4. OEM Purchase Agreement. Within [*] of execution of this Purchase Addendum,
the parties agree to negotiate in good faith the terms and conditions of and to
execute a more comprehensive OEM Purchase Addendum that shall supersede and
replace, in its entirety, this Purchase Addendum.
In Witness Whereof, the parties hereto have caused this Purchase Addendum
to be duly executed as of the date first set forth above.
TiVo Inc. Philips Business Electronics B.V.
/s/ Michael Ramsay /s/ R. L. von Oostenbrugge
- -------------------------------------- --------------------------------------
Authorized Signature Authorized Signature
Michael Ramsay R. L. von Oostenbrugge
- -------------------------------------- --------------------------------------
Printed Name Printed Name
President, CEO Managing Director
- -------------------------------------- --------------------------------------
Title Title
April 2, 1999 31-03-1999
- -------------------------------------- --------------------------------------
Date Date
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
2
<PAGE>
CONFIDENTIAL
Exhibit A
TERMS AND CONDITIONS OF PURCHASE
ACCEPTANCE. This Order can be accepted only on the terms and conditions set
forth in this Purchase Order and any attachments hereto by a written
acknowledgment and/or commencement of performance. Additional or different terms
proposed by Seller or set forth on Seller's acknowledgment, invoice or other
communication to Buyer shall not become part of the Agreement unless such is
accepted in writing and signed by Buyer.
INVOICES. Invoices shall be submitted in triplicate and shall contain the
following information: purchase order number, item number, description of
items, sizes, quantities, unit prices and extended totals in addition to any
other information specified elsewhere herein. Payment of invoice shall not
constitute acceptance of goods and shall be subject to adjustment for errors,
shortage, defects in goods or other failure of Seller to meet the requirements
of the Order.
ASSIGNMENT AND SUBCONTRACTS. Seller shall not assign the accounts receivables
or subcontract this Order or any right or obligation hereunder without the
written consent of Buyer. Purchases of parts and materials to comply with this
Order shall not be construed as assignments or subcontracts.
CASH DISCOUNTS. Time in connection with any discount offered will be computed
from (i) scheduled delivery date, (ii) date of actual delivery, or (iii) date an
acceptable invoice is received by Buyer's Accounts Payable Department, whichever
is later. Payment is deemed to be made for purpose of earning a discount on the
date of mailing of Buyer's check.
TAXES. Unless otherwise specified, the prices set forth in this Order exclude
all applicable federal, state and local taxes. All such taxes shall be stated
separately on Seller's invoice.
GIFTS. Seller shall not make or offer gifts or gratuities of any kind to
Buyer's employees agents or members of their families to secure or influence any
business transaction. Violations shall be a material breach of this Agreement.
TRANSPORTATION. F.O.B. POINT. Unless otherwise specified, shipment will be
made F.O.B. destination to Buyer's designated plant or plants. Packing and
Shipment. Unless otherwise specified, when the price of this Order is based on
the weight of ordered goods, such price covers net weight of material ordered
only. Any charges for boxing, crating, handling, storage or other packing
requirements shall be stated separately on Seller's invoice. Seller shall mark
all containers with necessary lifting, handling a shipping information and also
purchase order numbers, release numbers, dates of shipment, and the names of the
consignee and consignor. An itemized packaging sheet must accompany each
shipment. No partial or complete delivery shall be made prior to the date or
dates shown unless Buyer has given prior written consent.
CHANGES. The Buyer may at any time, by a written and/or verbal order and
without notice to sureties or assignees, suspend performance hereunder, increase
or decrease the ordered quantities or
A-1.
<PAGE>
CONFIDENTIAL
make changes within the general scope of this Order in any one or more of the
following ways: a) Applicable drawings, designs or specifications; b) Method of
shipment or packing, and/or. c) Place of delivery and /or delivery schedule. If
any such change causes an increase or decrease in the cost of, or the time
required for performance of this Order, an equitable adjustment shall be made in
the Order price or delivery schedule, or both and the Order shall be modified in
writing accordingly. No claim by Seller for adjustment shall be valid unless
asserted within twenty (20) days from the date or receipt by the Seller of the
notification of change provided, however that such period may be extended upon
the written approval of the Buyer. Nothing in this clause shall excuse the
Seller from proceeding with the order as changed or amended.
DIRECT ALL COMMUNICATIONS TO BUYER
P.O. ORIGIN Sunnyvale, CA Telephone: (408) 991-2000 Fax: (408) 991-2487
P.O. ORIGIN Albuquerque, New Mexico Telephone: (505) 822-7000 Fax: (505) 822-
7002
RESALE NO. California SYGH 99-65467 5 NM Tax Idnet. 02-096896-005
RESPONSIBILITY FOR GOODS. Irrespective of any prior inspections or the F.O.B.
point named herein, Seller shall bear all risks of loss, damage, or destruction
for nonconforming goods. Seller shall also bear the same risks with respect to
goods rejected by Buyer. Buyer shall be responsible for any loss occasioned by
the gross negligence of its employees.
PATENTS. Seller will settle or defend at Seller's expense (and pay any costs,
fines or damages resulting from) all proceedings or claims against Buyer, its
subsidiaries or affiliates and their respective customers, for infringement or
alleged infringement by the goods furnished under this Order, or any part or use
thereof, of patents (including utility models and registered designs) now or
hereafter granted in the United States or any country where the Seller, its
subsidiaries or affiliates have furnished similar goods. Seller will at Buyer's
request identify the countries in which Seller, its subsidiaries or affiliates
have furnished similar goods.
TOOLING AND DOCUMENTS. All specifications, drawings or other documents and data
furnished by Buyer and all tools, dies, molds, jugs, fixtures, patterns,
machinery, special test equipment, special taps and gauges which have been
furnished, paid for, or charged against Buyer, or which have and their cost
amortized shall be deemed Buyer's property, treated as confidential information,
and delivered in good condition, normal wear and tear excepted, by Seller to
Buyer, F.O.B. Seller's plant, immediately upon request.
APPLICABLE LAW. The Agreement arising pursuant to the Order shall be governed
by and construed in accordance with the laws of the State of California. Any
rights, remedies and warranties available to Buyer by operation of law may only
be waived or modified in writing by Buyer in a supplement or an amendment to
this Order.
COMPLIANCE WITH LAWS AND REGULATIONS. Seller agrees to comply with all
applicable federal, state and local laws, rules and regulations. This Order
incorporates the provision of Executive Order No. 11246 (as amended) of the
President of the United States on Equal Employment Opportunity and the rules and
regulations issued pursuant thereto with which the Seller represents that it
will comply unless exempted. Seller further agrees to comply with all
provisions of Section 503 of the Rehabilitation of Act of 1973, as amended,
prohibiting
A-2.
<PAGE>
CONFIDENTIAL
discrimination against any employee or applicant for employment because of
physical or mental handicap in regard to any position for which the employee or
applicant for employment is qualified, and agrees to comply with the rules and
regulations promulgated with respect to this Act. Seller further agrees to
comply with the provisions of 38 USC Section 2012, and following, with respect
to the employment and training of disabled and Vietnam Era veterans. Seller
agrees not to discriminate against any employee or applicant for employment
because he or she is a disabled veteran or a veteran of the Vietnam Era in
regard to any position for which the employee or applicant for employment is
qualified. Seller agrees to comply with all rules and regulations issued
pursuant to these provisions of law. There are incorporated in this Order the
following provisions of Federal Acquisition Regulations they apply to performing
work or rendering services under Government procurement contract. all applicable
federal, state and local taxes. All such taxes shall be stated separately on
Seller's invoice.
GIFTS. Seller shall not make or offer gifts or gratuities of any kind to
Buyer's employees agents or members of their families to secure or influence any
business transaction. Violations shall be a material breach of this Agreement.
Utilization of Small Business Concerns and Small Disadvantaged Business Concerns
(if in excess of $10,000) [FAR 19.708]; Small Business and Small Disadvantaged
Business Subcontracting Plan (if in excess of $500,000) [FAR 19.708(b)];
Utilization of Labor Surplus Area Concerns (if in excess of $10,000) [FAR
20.301(b)]; Labor Surplus Area Subcontracting Program (if in excess of
$5000,000) [FAR 20.301(b)]; Employment of the Handicapped (if excess of $2,500)
[FAR 22.1402]; Listing of Employment Openings (if in excess of $10,000)
[FAR22.1302]. Seller warrants that in the performance of the Order he has
complied with all the provisions of the Fair Labor Standards Act of 1938 (as
amended) of the United States. If Seller does not have Workers Compensation of
Disability Benefits Insurance, Seller agrees to indemnify Buyer against all
damages sustained by Buyer resulting from Seller failure to have such insurance.
TERMINATION. Buyer may terminate this Order for convenience in whole or in
part, at any time, by verbal and/or written notice prior to Seller's written
order acknowledgment or commencement of performance under this Order. After
Seller has given written acknowledgment of this Order or has commenced
performance, Buyer may terminate this Order by giving ten (10) days written
notice of such termination.
A-3.
<PAGE>
Exhibit B
STATEMENT OF LIMITED WARRANTY
- --------------------------------------------------------------------------------
IMPORTANT
THIS STATEMENT OF LIMITED WARRANTY ("LIMITED WARRANTY") DESCRIBES THE WARRANTY
FOR THE ACCOMPANYING TIVO CENTER UNIT, ACCESSORIES AND DOCUMENTATION
(COLLECTIVELY, THE "DEVICE"). BY KEEPING THIS DEVICE BEYOND THIRTY (30) DAYS
AFTER THE DATE OF PURCHASE, YOU ACCEPT THIS LIMITED WARRANTY. PLEASE READ THIS
LIMITED WARRANTY CAREFULLY BEFORE OPERATING THE DEVICE. IF YOU DO NOT AGREE
WITH THESE TERMS AND CONDITIONS, YOU MUST NOT OPERATE THE DEVICE AND SHOULD
RETURN THE DEVICE FOR A FULL REFUND.
- --------------------------------------------------------------------------------
1. Warranty. TiVo Inc. ("TiVo") warrants that the Device will be free of
defects in materials and workmanship in normal use in an environment specified
by TiVo for up to one (1) year from the date of purchase (the "Warranty Period")
as follows. In the event of any such defects in materials or workmanship which
arise up to and including ninety (90) days from the date of purchase of the
Device (the "Purchase Date"), TiVo will repair or replace, at its option and
expense, any affected Device which is returned to TiVo within ten (10) days of
the end of the Warranty Period, and shall return a repaired or replacement
Device to you at TiVo's expense. In the event of any such defects in materials
or workmanship which arise beginning ninety-one (91) days from the Purchase Date
until one (1) year from the Purchase Date, TiVo will provide at its own expense
repair parts for any affected Device which is returned to TiVo within ten (10)
days of the end of the Warranty Period, subject to payment by you of TiVo's
then-applicable labor rates for associated Device repair, and shall return a
repaired Device to you at TiVo's expense. This Limited Warranty is extended
only to the original purchaser of the Device, and not to any subsequent owner or
purchaser of the Device. This Limited Warranty does not cover any defect in,
damage to, or inoperability or incorrect performance of, the Device due to acts
of God, negligence, misuse, abuse, accident, neglect, or unauthorized
alterations, modifications or repairs to any part of the Device. This Limited
Warranty does not cover improper installation of the Device, loss of use of the
Device, wasted service charges due to Device malfunction, damages due to
improper operation or maintenance, connection to an improper voltage supply,
customer installation, setup, instruction or television signal reception
problems. This Limited Warranty is valid only for Devices purchased and used in
the United States. As TiVo's sole obligation and your exclusive remedy for any
defective Device returned to TiVo within ten (10) days of the end of the
Warranty Period, TiVo will, at its option and expense, repair or replace the
Device as provided above, or give you a refund of the price you paid for the
Device. Any replacement Device will be warranted only for the remainder of the
original Warranty Period. This Limited Warranty is invalid if the TiVo serial
number has been altered or removed from the Device.
2. Warranty Procedure. To obtain warranty service for a Device which is
subject to the foregoing warranty, you should contact TiVo by calling toll-free
1-877-FOR-TIVO during TiVo's normal business hours. The responding TiVo
representative authorizing the return of your Device will give you a return
authorization number by telephone, and instructions on where and how to return
such Device to TiVo. You are responsible to select a shipment means for the
Device, and to insure such Device for its full replacement value. You must also
enclose your original receipt, invoice or bill of sale.
3. Disclaimer. TIVO MAKES NO WARRANTY THAT YOUR USE OF THE DEVICE WILL BE
ERROR-FREE OR UNINTERRUPTED. THE LIMITED WARRANTY ABOVE IS PROVIDED IN LIEU OF
ALL OTHER WARRANTIES CONCERNING THE DEVICE, WHETHER EXPRESS, IMPLIED, OR
PROVIDED BY STATUTE, INCLUDING ANY WARRANTIES OF
B-1
<PAGE>
CONFIDENTIAL
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NON-INFRINGEMENT.
TIVO EXPRESSLY DISCLAIMS ALL SUCH WARRANTIES. Because some jurisdictions do not
permit the exclusion of implied warranties, this disclaimer may not apply to
you. HOWEVER, EXCEPT TO THE EXTENT PROHIBITED BY APPLICABLE LAW, ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, OR NON-
INFRINGEMENT THAT MAY BE AVAILABLE IS LIMITED IN DURATION TO THE WARRANTY
PERIOD. Because some jurisdictions also do not allow limitations on how long an
implied warranty lasts, this limitation may also not apply to you. TIVO'S
SUPPLIERS MAKE NO WARRANTIES OF ANY KIND CONCERNING THE DEVICE. This Limited
Warranty gives you specific rights, and you may also have other rights that vary
from state to state.
4. Limitation Of Liability. IN NO EVENT WILL TIVO OR ITS SUPPLIERS BE LIABLE
TO YOU OR ANY THIRD PARTY FOR ANY LOST PROFITS, LOSS OF DATA, OR OTHER
CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL, OR PUNITIVE DAMAGES ARISING FROM
OR RELATING TO THE USE OF OR INABILITY TO USE THE DEVICE, EVEN IF TIVO HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. TIVO'S SUPPLIERS WILL HAVE NO
LIABILITY OF ANY NATURE TO YOU OR ANY SUBSEQUENT OWNER OR PURCHASER OF THE
DEVICE, WHETHER OR NOT THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO CASE WILL TIVO'S TOTAL CUMULATIVE LIABILITY EXCEED THE PRICE YOU
PAID FOR THE DEVICE. YOU UNDERSTAND THAT THESE LIMITATIONS OF TIVO'S AND TIVO'S
SUPPLIERS' LIABILITY ARE A FUNDAMENTAL PART OF THIS LIMITED WARRANTY. Some
states do not allow the exclusion or limitation of incidental or consequential
damages, so the above limitation or exclusion may not apply to you.
5. Other Matters. The following two (2) sentences apply if you are a branch,
agency, or representative of the U.S. government. The Device is a "commercial
item" as that term is defined at 48 CFR 2.101 and is provided to the U.S.
Government only as a commercial end item. Consistent with FAR 12.211-12.212,
DFARS 227.7202-1 through 227.7202-4, and DFARS 252.227-7015, all U.S. Government
end users acquire the Device with only those rights, and subject to the
limitations, set forth herein. The laws of the United States and of the State
of California will govern this Limited Warranty. The State and Federal Courts
located in Santa Clara County, California shall have sole jurisdiction over any
disputes under this Limited Warranty, and you hereby submit to the personal
jurisdiction of such courts. The United Nations Convention on Contracts for the
International Sale of Goods will not apply to this Limited Warranty. If any
provision in this Limited Warranty is unenforceable under applicable law, it
will be deemed modified to the extent necessary to render it enforceable, and in
any event the other provisions will remain in full force and effect. Unless you
have entered into a signed, written agreement with TiVo governing your purchase
of the Device, this Limited Warranty is the complete and exclusive statement of
the warranty between you and TiVo with respect to the Device, and supersedes any
and all demonstrations, advertisements, proposals, and other oral or written
communications between you and TiVo (or your supplier) relating thereto. Should
you have any questions concerning this statement of Limited Warranty or, if you
desire to contact TiVo for any reason, please write to:
TiVo Inc.
894 Ross Drive, Suite 100
Sunnyvale, CA 94089
ATTN: TiVo Customer Service
or call toll-free:
1-877-FOR-TIVO (Toll-Free)
--------
B-2.
<PAGE>
Confidential
Marketing Addendum
Addendum B to
Philips Business Electronics B.V-TiVo Inc.
Master Agreement
<PAGE>
Confidential
Marketing Addendum
This Marketing Addendum ("Marketing Addendum") by and between TiVo Inc.
("TiVo") and Philips Business Electronics B.V. ("Philips") is incorporated by
reference into the Master Agreement, and is an integral part thereof. To the
extent that the terms and conditions of this Marketing Addendum conflict with
those of the Master Agreement, the terms and conditions of Master Agreement
prevail. Capitalized terms not defined herein shall have the same meaning as
those defined in the Master Agreement. This Marketing Addendum shall be
effective as of March 31, 1999 (the "Effective Date").
1. Scope. This Marketing Addendum sets forth the rights and obligations
of the parties with respect to the promotion and marketing of Philips Personal
TV Systems, the Philips- branded TiVo Stand-alone Box, and the DTV Combination
Box.
2. Marketing, Promotion And Advertising.
2.1 Philips' Marketing Spend.
(a) Initial Spend. Philips shall spend [*] (herein, the
"Marketing
Spend") on Marketing Activities prior to [*] and intends to spend
[*] cumulative during the Marketing Spend Period; provided, however, for each
day that Commercial Release is delayed past June 1, 1999, the Marketing Spend
Period shall be extended for an equal number of days. Such Marketing Spend shall
[*]. All Marketing Activities shall be conducted according to a marketing plan
or plans adopted by Philips. During such period, marketing plans shall be
developed in collaboration with TiVo and shall be consistent with the principles
set forth in Exhibit C ("Marketing Principles"). The Marketing Spend shall be
implemented, as follows:
(i) Not less than [*] by [*].
(ii) Not less than [*] by [*].
(iii) Not less than [*] by [*].
In the event Philips spends, on Marketing Activities, less
than [*] by [*], [*] by [*], or [*] by [*], the parties will renegotiate, in
good faith, the terms of the Master Agreement and all Addenda. If the parties
cannot agree, each party shall have the option, in its sole discretion, to
terminate the Master Agreement and all Addenda.
(b) Subsequent Spending. Thereafter, Philips shall spend, on
marketing and promotional activities and campaigns for Philips-branded Personal
TV Systems and Personal TV Systems Boxes, a minimum of [*] of that portion of
[*], received by Philips [*]. So, for example, [*].
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
-1-
<PAGE>
Confidential
For purposes of the Agreement, Philips' Co-Op Advertising Expenditures shall
be [*]
2.2 Retail Rollout. Philips, in good faith, shall use commercially
reasonable efforts to achieve the Retail Rollout of the Philips-branded TiVo
Stand-alone Box no later than [*].
2.3 Philips Advertising. Philips shall establish the character of all
advertising and promotional activities conducted by Philips for the Marketing
Activities. Notwithstanding the foregoing, and provided such advertising and
promotion is for products which enable the TiVo Service, TiVo Marks shall be
displayed consistent with the Marketing Principles. In no event shall the TiVo
Marks be more prominent than Philips' Marks. Final determination as to the
appearance and relative placement of the Philips Marks and TiVo Marks shall be
made by Philips. Notwithstanding the foregoing, use of each party's Marks shall
at all times comply with each such party's corporate identity policies. From and
after the Marketing Spend Period, Philips shall have no obligation to include
the TiVo Marks in Philips' advertising and promotion.
2.4 TiVo Advertising. TiVo shall establish the character of all
advertising and promotional activities conducted by TiVo. Notwithstanding the
foregoing, and provided such advertising and promotion is for the TiVo Service,
Philips Marks shall be displayed consistent with the Marketing Principles. In no
event shall the Philips Marks be more prominent than the TiVo Marks. Final
determination as to the appearance and relative placement of the Philips Marks
and TiVo Marks shall be made by TiVo. Notwithstanding the foregoing, use of each
party's Marks shall at all times comply with each such party's corporate
identity policies. From and after the Marketing Spend Period, TiVo shall have no
obligation to include the Philips Marks in TiVo's advertising and promotion.
2.5 Industry Promotion.
(a) Philips shall conduct [*] during the Marketing Spend Period.
During the Exclusivity Periods for the Philips-branded TiVo Stand-alone Box and
the DTV Combination Box, TiVo shall, [*] and upon the reasonable request of
Philips, support Philips' promotional campaigns by (i) [*], (ii) [*], and (iii)
[*]. [*], Philips may invite TiVo to [*]. Philips shall feature Philips-branded
TiVo Stand-alone Boxes and other Personal TV System Boxes enabling the TiVo
Service, as agreed by the parties at [*].
(b) Neither party shall issue any written press release
regarding cooperative developments and joint efforts with, or the intentions of,
the other party, without the prior written consent of such other party.
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
-2-
<PAGE>
Confidential
(c) For so long as the Agreement is in effect, the parties shall
reasonably cooperate in promoting Personal TV System Technology with all
appropriate standard-setting bodies and associations.
(d) The parties agree that TiVo will be the lead public
relations contact for the TiVo Personal TV Service and that Philips will be the
lead public relations contact for the Philips-branded Personal TV System boxes.
3.[*]
3.1 [*]. TiVo and Philips recognize that [*]. For each Philips-branded
TiVo Stand-alone Personal TV System and each Philips-branded DTV Combination
System [*]. At the end of each calendar quarter the [*]. Notwithstanding the
foregoing, TiVo [*] pursuant to this Section 3 reasonably necessary to [*].
3.2 [*]. TiVo will be invited to participate in any meetings [*] and
will retain sole discretion over whether [*].
3.3 [*]. TiVo will be responsible for the management of [*]. Upon agreement
with [*] TiVo will establish [*]. Philips will provide any information requested
to assist in the establishment and maintenance of such [*].
4. Promotional Materials. Philips shall include, and have final approval
of, all promotional material to be included in the packaging of Philips-branded
Personal TV System Boxes. Notwithstanding the foregoing, TiVo shall have the
right, during the Marketing Spend Period, to include certain promotional
materials in Philips' packaging of all such Boxes which enable the TiVo Service
subject to the approval of Philips, which approval shall not be unreasonably
withheld or delayed.
5. Registration Forms. The registration forms included in Philips-branded
TiVo Stand-alone Boxes and DTV Combination Boxes shall have a distinctive look
and feel. Each party shall be supplied with the information provided by the end
user on such forms and may be used by either party for any purpose, without
restriction; provided, that both parties shall comply with any privacy statement
of use restrictions contained within such forms. Either party may contact such
end users at any time without the consent of the other party.
6. End-User Data. TiVo shall provide to Philips copies of all names and
addresses of Service Subscribers who have purchased Philips-branded Personal TV
System Boxes; provided, however, that Philips and TiVo shall: (i) not use such
data for any purposes prohibited
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
-3-
<PAGE>
Confidential
by any such Service Subscriber pursuant to the TiVo/Philips privacy statement
included with the end-user documentation; (ii) only use such data for their own
advertising, marketing, customer support, warranty, and product development
purposes; (iii) shall protect such information as they do their own confidential
information; and (iv) shall not distribute such data to any third party for any
purpose, except their employees, consultants and contractors with a need to
know.
7. Not For Resale Units.
7.1 TiVo Service. TiVo shall provide Philips with not less than fifty
(50) subscriptions to the TiVo Service, at no cost; provided, however, such
subscription may only be used for its own evaluation, testing, marketing and
public relations purposes.
7.2 Philips Boxes. Philips shall provide TiVo with not fewer than
fifty (50) Philips-branded Personal TV System Boxes (which enable the TiVo
Service), each quarter, at cost; provided, however, such Personal TV System
Boxes may only be used for its own evaluation, testing, marketing and public
relations purposes.
8. Trademark Licenses.
8.1 Philips Marks. Subject to the terms and conditions of the
Agreement, unless sooner terminated, in Philips' sole discretion, Philips hereby
authorizes TiVo to use Philips Marks, during the term of the Agreement solely:
(i) for purposes of branding Personal TV System Boxes manufactured by TiVo for
sale to Philips; and (ii) in the advertising and promotion of the Philips-
branded Personal TV Systems Boxes in connection with the TiVo Services as
provided in the Agreement. Before making use of any Philips Mark, TiVo will
provide Philips with a sample of the proposed use of the Philips Mark for
approval by Philips. If Philips does not accept, in writing, the proposed use of
the Philips Mark within five (5) days after receipt of the sample from TiVo,
Philips will be deemed to have rejected the proposed use. If Philips rejects
the proposed use of the Philips Mark, TiVo will modify or cancel the proposed
use, as requested by Philips. In addition, TiVo will comply with all trademark
usage guidelines or policies that Philips may furnish to TiVo in writing from
time to time concerning use of the Philips Marks. All use of the Philips Marks
hereunder will inure to the benefit of Philips. Philips has and will retain
exclusive ownership of the Philips Marks, and TiVo will not contest or
challenge, or do anything inconsistent with, Philips' exclusive ownership of
the Philips Marks. Without limiting the generality of the foregoing, TiVo may
not affix, append, or place any of its trademarks, trade names, or logos to,
or in close proximity to, the Philips Marks in a manner that results or could
result in the creation of a unitary composite mark. Except as otherwise
provided for herein, nothing in the Agreement shall be construed to create, by
implication or otherwise, a right by TiVo to manufacture or distribute Philips-
branded Personal TV System Boxes except for sale to Philips (as provided in
the Purchase Agreement and the contemplated OEM Purchase Addendum) or as
otherwise specifically authorized by Philips in writing.
8.2 TiVo Marks. Subject to the terms and conditions of the Agreement,
unless sooner terminated, in TiVo's sole discretion, TiVo hereby authorizes
Philips to use TiVo Marks, during the term of the Agreement solely for purposes
of branding and in the advertising and promotion of Philips-branded Personal TV
System Boxes which enable the TiVo Service as provided in this Agreement. Before
making use of any TiVo Mark, Philips will provide TiVo
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
-4-
<PAGE>
Confidential
with a sample of the proposed use of the TiVo Mark for approval by TiVo. If
TiVo does not accept, in writing, the proposed use of the TiVo Mark within
five (5) days after receipt of the sample from Philips, TiVo will be deemed to
have rejected the proposed use. If TiVo rejects the proposed use of the TiVo
Mark, Philips will modify or cancel the proposed use, as requested by TiVo. In
addition, Philips will comply with all trademark usage guidelines or policies
that TiVo may furnish to Philips in writing from time to time concerning use
of the TiVo Marks. All use of the TiVo Marks hereunder will inure to the
benefit of TiVo. TiVo has and will retain exclusive ownership of the TiVo
Marks, and Philips will not contest or challenge, or do anything inconsistent
with, TiVo's exclusive ownership of the TiVo Marks. Without limiting the
generality of the foregoing, Philips may not affix, append, or place any of
its trademarks, trade names, or logos to, or in close proximity to, the TiVo
Marks in a manner that results or could result in the creation of a unitary
composite mark.
9. Survival. The provisions of Sections 8 shall survive any termination or
expiration of this Marketing Addendum.
In Witness Whereof, the parties hereto have caused this Collaboration and
Marketing Addendum to be duly executed as of the date first set forth above.
TiVo Inc. Philips Business Electronics B.V.
/s/ Michael Ramsay /s/ R.L. von Oostenbrugge
- --------------------------- ---------------------------------
Authorized Signature Authorized Signature
Michael Ramsay R.L. von Oostenbrugge
- --------------------------- ---------------------------------
Printed Name Printed Name
President, CEO Managing Director
- --------------------------- ---------------------------------
Title Title
April 2, 1999 31-03-1999
- --------------------------- ---------------------------------
Date Date
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
-5-
<PAGE>
Confidential
Philips Business Electronics B.V.- TiVo Inc.
Master Agreement
<PAGE>
Confidential
Exhibit A
TiVo Marks
[PICTURE APPEARS HERE]
-A-1-
<PAGE>
Confidential
Exhibit B
Philips Marks
[LOGO OF PHILIPS APPEARS HERE]
-B-1-
<PAGE>
Confidential
Exhibit C
Marketing Principles
Goals:
Define guidelines in their respective marketing plans that will be
beneficial to both parties and position them as the leaders in creating personal
television while developing clear brand association for both parties.
Promote the use of the Philips-branded Personal TV System Boxes with the
TiVo Service.
Implementation:
Marketing Activities shall be implemented such that:
(i) Philips shall leverage its strength with consumer
electronic retail sales and distribution channels to promote the Retail Rollout
of the Philips-branded Personal TV System Boxes and the on-going promotion,
marketing and sales of such products following the Retail Rollout.
(ii) Philips and TiVo shall encourage synergy and coordination
between all advertising, public relations and research agencies to establish
consistent marketing messages for the Philips-branded Personal TV System Boxes
and the TiVo Service.
(iii) Philips and TiVo shall develop and implement a direct
marketing and fulfillment campaign for the Philips-branded TiVo Stand-alone Box.
(iv) Philips and TiVo shall develop and implement a specific
marketing and sales campaign targeted to DIRECTV subscribers and potential
subscribers.
Relative Positioning:
In promoting personal television, the positioning of the two companies
shall strive to work cohesively so it is clear to the consumer how the two
together deliver the value experience.
Until [*] (i) TiVo shall include the designated Philips Marks and mention
of the Philips Personal TV Systems in its advertising in a manner which is
appropriate for the medium and the number of consumer electronics manufacturers
who have commercially released Personal TV System Boxes enabling the TiVo
Service; and (ii) Philips shall include the designated TiVo Marks and mention of
the TiVo Service in its Personal TV System advertising in a manner which is
appropriate for the medium.
From [*] Philips shall market the Personal TV category
* Material has been omitted pursuant to a request for confidential treatment.
Such material has been filed separately with the Securities and Exchange
Commission.
-C-1-
<PAGE>
Confidential
which will include a TiVo presence, and TiVo shall include Philips in its
advertising consistent with the way it includes other consumer electronics
manufacturers.
From date which is one year after Commercial Release of the first Philips-
branded Standalone Personal TV box and thereafter, Philips shall have no
obligation to include the TiVo Marks in Philips' advertising and promotion, and
TiVo shall have no obligation to include the Philips Marks in TiVo's advertising
and promotion.
Materials To Be Included:
Each party's advertising materials (such as TV spots, print ads,
infomercials, direct marketing materials, sales materials, product brochures,
data sheets, etc.) shall include representation of the other party in a manner
pre-approved by such other party during Marketing Spend Period. Such
advertising materials are not intended to include either party's corporate
collateral such as company backgrounders, strategy documents and press releases.
Retail Channel Marketing:
Marketing activities may include, but are not limited to the following:
. TV, radio, Internet and print advertising
. Promotional activities including trade show promotions, product
announcements, press releases, etc.
. Point-of-sale materials including marketing collateral, point-of-sale
advertisements, etc.
. Sales force training
. Marketing collateral for inclusion in device packaging
. Sales promotions and incentives
-C-2-
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
_____________________________________
September 28, 1999
