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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999
Commission file number 000-27141
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TIVO INC.
(Exact name of registrant as specified in its charter)
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Delaware 77-0463167
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
2160 Gold Street, PO Box 649101, San Jose, CA 95164-9101
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(Address of principal executive offices) (Zip Code)
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(408) 519-9100
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of March 15, 2000 there were 16,204,153 shares of registrant's common stock
outstanding, and the aggregate market value of such shares held by non-
affiliates of the registrant (based upon the closing sale price of such shares
on the NASDAQ National Market on March 15, 2000) was approximately $583.3
million. Shares of the registrant's common stock held by each executive
officer, director and holder of five percent or more of the registrant's common
stock outstanding as of March 15, 1999 have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
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Designated portions of registrant's definitive proxy statement, which will be
filed with the Securities and Exchange Commission in connection with the 2000
Annual Meeting of Stockholders, are incorporated by reference into Part III of
this Form 10-K.
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TABLE OF CONTENTS
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PART I............................................................................................ 3
Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 17
Item 3. Legal Proceedings....................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders..................................... 18
PART II........................................................................................... 19
Item 5. Market For The Company's Common Equity and Related Stockholder Matters.................. 19
Item 6. Selected Financial Data................................................................. 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 21
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.............................. 37
Item 8. Financial Statements and Supplementary Data............................................. 38
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.... 58
PART III.......................................................................................... 58
Item 10. Directors and Executive Officers of the Company........................................ 58
Item 11. Executive Compensation................................................................. 58
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 58
Item 13. Certain Relationships and Related Transactions......................................... 58
PART IV........................................................................................... 59
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 59
Signatures....................................................................................... 61
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PART I
ITEM 1. BUSINESS
The Business of the Company
This Annual Report on Form 10-K (The "Annual Report") contains certain
forward-looking statements within the meaning of section 21E of the Securities
Exchange Act of 1934 as amended, (The "Exchange Act"), including statements that
indicate what the Company "believes," "expects" and "anticipates" or similar
expressions. These statements involve known and unknown risks, uncertainties
and other factors, which may cause actual results, performance or achievements
of the Company to differ materially from those expressed or implied by such
forward-looking statements. Such factors include, among others, the information
contained under the captions "Part I, Item 1. Business," and "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report. The reader is cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date of this Annual Report. The Company undertakes no
obligation to publicly release the results of any revision of these forward-
looking statements. The reader is strongly urged to read the information set
forth under the captions "Part I, Item 1, Business," and "Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed description of these significant risks and
uncertainties.
Overview
TiVo Inc. ("TiVo" or the "Company") 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 commenced its retail launch in the second half of 1999. Philips
Business Electronics B.V. ("Philips") currently manufactures, markets and sells
the personal video recorder enabling the TiVo Service, allowing TiVo to focus
its resources on promoting and enhancing the TiVo Service. DIRECTV, Inc., a
unit of Hughes Electronics Corporation ("DIRECTV"), provides marketing resources
that allows TiVo to target DIRECTV subscribers and provides 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
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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.
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
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networks are declining. According to the Television Bureau of Advertising and
Nielsen Media Research, the average cost of a 30-second night-time 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.
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 was formerly 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, including:
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 the viewer's stored preferences, TiVo recommends programming
that viewers are likely to enjoy and, when storage space is available, the TiVo
Service 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 and deliver "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" available on the TiVo
Service 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.
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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.
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
. 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 not
only gives viewers access to programming that meets their personal tastes, but
also displays programming, based on viewer preferences, 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 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.
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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 as a way to 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.
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 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 the platform for
delivering richer television programming, advertising and in-home commerce. The
key elements of TiVo's strategy are:
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, provide
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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 continue
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 continue 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. 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 Electronics Manufacturers. TiVo intends to continue 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 has a strategic relationship with Philips, who
launched the personal video recorder into the retail channel in the third
quarter of 1999 and who currently manufactures it. Additionally, TiVo has
entered into an agreement with Sony to manufacture and distribute the personal
video recorder.
Advertisers. TiVo intends to pursue partnerships with advertisers in an
effort to generate new sources of revenue. 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
continue 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
a service that allows viewers to get more information about and possibly
purchase featured products or services using the TiVo remote control.
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. For example, 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
has continued to work in partnership with consumer electronics manufacturers and
others in developing new and complementary products
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that enable the TiVo Service, such as televisions, DVD players and 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.
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.
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.
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.
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.
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 and the time and channel for viewing.
TiVolution Magazine. TiVolution Magazine features theme-based collections
of shows and other content compiled by TiVo's editorial staff.
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.
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 personal video recorder will automatically
dial into the TiVo Broadcast Center via a telephone line on a nightly basis to
download the program guide data, Network Showcases and other programs or
features of the TiVo Service. Software upgrades to the personal video recorder
are also delivered directly to the personal video recorder via the phone line at
no charge. The program guide data downloaded from the TiVo Broadcast Center does
not decrease the amount of programming that can be recorded by the subscriber on
the personal video recorder.
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When enabled with the TiVo Service, the personal video recorder 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 with several 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 interactive services. Presently, 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 enables 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 electronics
products, and develop new services and programming to enhance the TiVo Service.
In order to achieve these goals, TiVo has chosen to aggressively pursue
strategic partnerships with:
. cable and satellite network operators;
. television programmers;
. consumer electronics manufacturers;
. marketing support partners; 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:
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DIRECTV. DIRECTV is promoting TiVo and the TiVo Service to its eight
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 also made an equity investment
in TiVo. Additionally, 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 also made an equity investment in
TiVo. 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 continue to market
co-branded personal video recorders with TiVo and support the TiVo Service in
retail channels. Philips has also licensed TiVo's technology to develop,
market, and promote other products that enable the TiVo Service.
TiVo has agreed to offset a portion 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. Philips is also a stockholder of TiVo.
Quantum. Quantum Corporation ("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 has
acquired shares of TiVo's stock in connection with this agreement. TiVo has
also agreed to share a portion of the TiVo Service subscription revenues it
receives from the subscribers who have purchased 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 ongoing
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 directly to consumers, principally through TiVo's web
site, www.tivo.com and its toll-free telephone number, 1-877-FOR-TIVO. Philips
------------
began distributing co-branded personal video recorders to national retail chains
and regional retail stores and distributors and online e-tailers in the fourth
quarter of 1999.
Philips began 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
incorporated the TiVo logo in certain of its in-store promotional
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<PAGE>
materials starting in the first quarter of 2000. Philips and DIRECTV also
encourage their existing and prospective customers to subscribe to the TiVo
Service by offering promotional incentives such as coupons or discounts.
TiVo initiated a marketing campaign in support of the retail launch of the
personal video recorder that utilized print, outdoor, web and television
advertising. TiVo also targeted 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 was 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 to 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
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
purchase 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
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. specialized content, including Network Showcases and TiVolution
Magazine.
Although the 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
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 and X-TV. These competitors are seeking to
meld Internet browsing and traditional broadcast, cable or satellite 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 ReplayTV,
Inc. Replay manufactures and markets a personal television recorder that
includes a hard disk drive and functionality similar to that of our personal
video recorder. While Replay's personal video recorder is more expensive than
our 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 improve 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 that improve performance in areas such as video and audio
quality, speed, ease of use and additional features and functionality.
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 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 platforms 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.
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 fifteen patent applications and seven 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 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
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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 many trademark applications covering substantially all of
its trade dress, logos and slogans, including:
. Active Preview
. Can't Miss TV
. DIRECTIVO
. Instant Replay logo
. Ipreview
. Jump logo
. Life's too short for bad TV
. Network Showcase
. Personal TV
. Personal Video Recorder
. Primetime Anytime
. Season Pass
. See it, want it, get it
. The New Face of Television
. The way TV is meant to be
. Thumbs Down (logo and text)
. Thumbs Up (logo and text)
. TiVo Central
. TiVo (logo, name and character)
. TiVolution
. What you want, when you want it
. You run the shows
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 "Factors That May Affect Future Operating Results --
Our success depends on our ability to secure and protect patents, trademarks and
other proprietary rights."
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Recent Developments
On January 6, 2000, TiVo and DIRECTV announced a new integrated device that
would deliver DIRECTV's television programming and the TiVo Service, and store
up to 30 hours of recorded programming.
On January 7, 2000, TiVo formed an alliance with Blockbuster, Inc. to
deliver an entertainment service through the TiVo Service that would allow TiVo
subscribers to obtain a selection of movies for viewing through their personal
video recorders. The alliance includes cross-promotional opportunities that TiVo
believes will benefit each company's customers.
On January 6, 2000, TiVo agreed to license and incorporate Liberate
Technologies'("Liberate") TV Navigator software into future versions of TiVo's
personal television reference platform, thus integrating Liberate's platform for
interactive TV with the TiVo Service. Additionally, this license agreement
allows America Online, Inc. to partner with TiVo to enhance AOLTV.
On February 29, 2000, TiVo formed an exclusive alliance with British Sky
Broadcasting Group PLC ("BSkyB") to introduce the personal television service in
the United Kingdom. Under this agreement TiVo and BSkyB will co-brand and co-
market the sale of personal video recorders in the United Kingdom.
Employees
At December 31, 1999, we employed a total of 181 employees, including 28 in
service operations, 82 in research and development, 37 in sales and marketing
and 34 in general and administration. We also employ, from time to time, a
number of temporary and part-time employees as well as consultants on a contract
basis. At December 31, 1999, we employed 17 such persons. We intend to hire
additional personnel during the next twelve months in each of these areas. Our
future success will depend in part on our ability to attract, train, retain and
motivate highly qualified employees, who are in great demand. We may not be
successful in attracting and retaining such personnel. Our employees are not
represented by a collective bargaining organization and we have never
experienced a work stoppage or strike. We consider our employee relations to be
good.
Executive Officers and Key Employees:
Our executive officers and key employees and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
Executive Officers
<S> <C> <C>
Michael Ramsay.......................... 50 Chairman of the Board, Chief Executive Officer and
President
James Barton............................ 42 Sr. Vice President of Research and Development, Chief
Technical Officer
David H. Courtney....................... 41 Sr. Vice President of Finance and Chief Financial Officer
Key Employees
Susan Cashen............................ 39 Vice President of Corporate Communications
Ta-Wei Chien............................ 45 Sr. Vice President of Engineering and Operations
Morgan P. Guenther...................... 46 Vice President of Business Development
Stacy Jolna............................. 48 Vice President of Programming and Media Relations
Brodie Keast............................ 44 Vice President of Sales and Marketing
Michael A. Mutz......................... 48 Vice President of Sales
Karrin Nicol............................ 40 Vice President of Human Resources
Mark A. Roberts......................... 39 Vice President of Information Technology and Chief
Information Officer
Robert P. Vallone....................... 42 Vice President of Service Operations and Customer Service
</TABLE>
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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 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 for 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 Chief Financial Officer and
is currently Sr. Vice President of Finance and 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 Vice
President. Mr. Courtney currently serves as a Director of KQED Television, a
non-profit affiliate of the Public Broadcasting System in San Francisco,
California. Mr. Courtney holds a B.A. degree in Economics from Dartmouth
College and an M.B.A. degree from Stanford University.
Susan Cashen joined TiVo in March 2000 as Vice President of Corporate
Communications. From November 1994 to March 2000, Ms. Cashen was employed at
Blanc & Otus, a leading technology public relations firm based in San Francisco,
California and most recently served as Senior Vice President and Partner from
March 1999 to March 2000. Prior to joining Blanc & Otus, Ms. Cashen managed her
own consulting practice. Ms. Cashen holds a B.A. degree in Russian Studies from
Hamilton College.
Ta-Wei Chien has served as Vice President of Engineering and Operations
since February 1998 and is currently Sr. Vice President of Engineering and
Operations. 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 of the law firm of Farella Braun & Martel. Mr.
Guenther also serves on the board of directors of Tier Technologies, Inc., an
information technology consulting 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.
Brodie Keast joined TiVo in December 1999 as Vice President of Sales and
Marketing. Prior to joining TiVo, Mr. Keast was employed with Quantum
Corporation from 1996 through 1999; most recently serving as Vice
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President and General Manager for Quantum's DLT Tape Division. Prior to joining
Quantum, he spent ten years at Apple Computer where he held a number of
executive marketing positions. Mr. Keast holds a B.S. degree in Computer Science
from California State University, Chico.
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 and a Masters in Human
Resources and Organizational Development from University of San Francisco.
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.
ITEM 2. PROPERTIES
In March 2000, TiVo moved its corporate headquarters, which houses its
administrative, sales and marketing, customer service and product development
activities, to a leased facility at 2160 Gold Street, PO Box 649101, San Jose,
California 95164-9101. TiVo believes that its new corporate facilities of
approximately 127,000 square feet, will be adequate to meet its office space
needs for the next several years. The lease for this space expires in 2007.
ITEM 3. LEGAL PROCEEDINGS
PhoneTel Communications. On January 6, 2000, a suit was filed against TiVo
by PhoneTel Communications, Inc. ("PhoneTel") in the U.S. District Court for the
Northern District of Texas alleging willful and deliberate violation of a patent
held by PhoneTel. The suit seeks unspecified monetary damages as well as an
injunction against TiVo's operations. It also seeks attorneys' fees and costs.
TiVo believes that it has meritorious defenses against this suit and intends to
vigorously defend itself. TiVo could be forced to incur material expenses during
this defense, and in the event it were to lose this suit, its business would be
harmed.
StarSight Telecast. On January 18, 2000, a suit was filed against TiVo by
StarSight Telecast Inc, a subsidiary of Gemstar International Group Limited
("StarSight"), in the U.S. District Court for the Northern District of
California alleging willful and deliberate violation of a patent held by
StarSight. The suit seeks unspecified monetary damages as well as an injunction
against TiVo's operations. It also seeks attorneys' fees and costs. TiVo
believes that it has meritorious defenses against this suit and intends to
vigorously defend itself. TiVo could be forced to incur material expenses during
this defense, and in the event it were to lose this suit its business would be
harmed. See "Factors that May Affect Future Operating Results --Intellectual
property claims against us can be costly and could result in the loss of
significant rights."
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. TiVo has received letters from Time Warner Inc. and Fox Television
stating that these entities believe TiVo's personal television service exploits
copyrighted networks and programs without the necessary licenses and business
arrangements.
17
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information for Common Equity
TiVo's common stock is traded on the National Association of Securities
Dealers Automated Quote system, ("NASDAQ") under the symbol "TIVO". The number
of record holders of the Company's common stock as of March 15, 2000 was
approximately 212.
The following table sets forth, for the periods indicated, the high and low
per-share closing prices for TiVo's common stock as reported by the NASDAQ
National Market:
<TABLE>
<CAPTION>
Fiscal Year 2000 High Low
---------------- ----- ---
<S> <C> <C>
First Quarter through March 15, 2000 $71.50 $30.50
Fiscal Year 1999
----------------
Fourth Quarter ended December 31, 1999 $51.00 $25.13
Third Quarter ended September 30, 1999 $29.94 $29.94
</TABLE>
On March 15, 2000, the per-share closing price as reported by the NASDAQ
National Market for TiVo's common stock was $36.00 per share.
Dividend Policy
The Company expects to continue its current policy of paying no cash
dividends to holders of common stock for the foreseeable future.
Recent Sales of Unregistered Securities
None.
Transfer Agent and Registrar
The Transfer Agent and Registrar for TiVo's common stock is Norwest Bank
Minnesota, N.A. Their address is 161 North Concord Exchange, PO Box 738, South
St. Paul, Minnesota 55075-0738, and their telephone number is 1-800-767-3330.
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Item 6. Selected Financial Data
The following selected financial data as of and for the years ended
December 31, 1999 and December 31, 1998 and for the period from August 4, 1997
(Inception) to December 31, 1997 have been derived from and are qualified by
reference to, our financial statements audited by Arthur Andersen LLP,
independent accountants. These historical results are not necessarily
indicative of the results of operations to be expected for any future period.
The data set forth below (in thousands, except for per share data) are
qualified by reference to, and should be read in conjunction with Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements included in Item 8. "Financial
Statements and Supplementary Data."
<TABLE>
<CAPTION>
Year Ended Year Ended Period From August 4,
December 31, December 31, 1997 (Inception), to
1999 1998 December 31, 1997
-------------- ------------ -------------------------
Statement of Operations Data: (in thousands, except per-share data)
<S> <C> <C> <C>
Subscription revenues.............................. $ 223 $ -- $ --
Costs and expenses
Cost of services................................ (4,067) -- --
Research and development........................ (9,727) (5,614) (356)
Sales and marketing............................. (24,502) (1,277) (28)
Sales and marketing-related parties............. (15,172) -- --
General and administrative...................... (7,027) (2,946) (241)
Stock-based compensation........................ (1,530) -- --
Other operating expense, net.................... (7,210) -- --
-------------- ------------ -------------------------
Loss from operations............................... (69,012) (9,837) (625)
-------------- ------------ -------------------------
Interest income................................. 2,913 136 49
Interest expense and other...................... (466) (20) (19)
-------------- ------------ -------------------------
Net loss........................................... $ (66,565) $ (9,721) $ (595)
============== ============ =========================
Net loss per share
Basic and diluted............................... $ (5.49) $ (3.25) $ (0.20)
Weighted average shares......................... 12,129 2,990 2,917
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------
1999 1998
-------------- ------------
Balance Sheet Data: (in thousands)
<S> <C> <C>
Cash and cash equivalents.......................... $139,687 $2,248
Working capital.................................... 130,327 1,329
Total assets....................................... 152,842 3,543
Long-term portion of obligations
under capital lease........................... 1,141 --
Total stockholders' equity......................... 133,247 2,121
</TABLE>
20
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included in Item 8 of this Form 10-K.
The discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements include, without limitation,
statements containing the words "believes," "anticipates," "expects," and words
of similar import. Such forward-looking statements will have known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The Company assumes no
obligation to update any forward-looking statements contained herein. Actual
results could differ materially from those set forth in such forward-looking
statements as a result of the "Factors That May Affect Future Operating Results"
and other risks detailed in the Company's reports filed with the Securities and
Exchange Commission.
Overview
We were incorporated in August 1997, as a Delaware corporation and are
currently located in San Jose, California. 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 have generated 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 personal
video recorders gain market acceptance in the retail channel with the consumer
and as we establish the TiVo brand and attract subscribers. We launched the
personal video recorder and service into the retail channel in the second half
of 1999. We incurred losses of $66.6 million in 1999 and we expect to continue
to incur losses for the foreseeable future.
We currently generate revenues from subscriptions to the TiVo Service.
Subscriptions to the TiVo Service are available on a monthly, annual or lifetime
basis. The current price for a monthly subscription to the TiVo Service is
$9.95 per month, an annual subscription is $99.00 per year and a lifetime
subscription is $199.00. A lifetime subscription allows access to the TiVo
Service for the life of the personal video recorder. Subscription fees are paid
by the viewer when activating the TiVo Service. Subscription revenues from
lifetime subscriptions are recognized ratably over a four-year period.
We began selling personal video recorders and subscriptions to the TiVo
Service on March 31, 1999. We transitioned manufacturing to Philips, our
manufacturing partner, in the fourth quarter of 1999. The sales of personal
video recorders in 1999 were not expected to be recurring for TiVo, and were
therefore considered incidental to our business. The sales less the cost of
sales for the personal video recorders sold directly by TiVo for the year ended
December 31, 1999 were recorded as "other operating expense, net."
Since the TiVo Service is enabled through a personal video recorder that is
sold in retail channels like other consumer electronic devices, we anticipate
that our business will be seasonal and we expect to generate a significant
number of our annual new subscriptions during the holiday shopping season
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.
21
<PAGE>
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. These agreements may require us to share
substantial portions of the subscription and other fees attributable to the same
subscriber with multiple partners. 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 have agreed to make monthly, formula-based payments to Quantum, Philips,
and DIRECTV in exchange for key activities and results. Quantum provided us a
discount payment for hard disk drives purchased by our manufacturing partners
for use in the personal video recorder from Quantum. We have 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 enabled by the personal video
recorder. The amount of the payments can vary depending on 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. Subsidy payments are renegotiated
on an annual basis. We pay DIRECTV a revenue share for our subscription
revenues generated from DIRECTV subscribers in exchange for DIRECTV's marketing
efforts. Payments made to our strategic partners in exchange for these services
are recognized as "sales and marketing expenses--related parties."
In the past, we have issued stock in exchange for services to 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, which were exercised for shares of our common stock to
Quantum in exchange for a discount on hard disk drives used in the personal
video recorders that enable the TiVo Service. We recorded prepaid marketing
expenses resulting from the issuance of this equity to DIRECTV and Quantum.
These prepaid marketing expenses are amortized as services are provided to us
and charged to "sales and marketing expenses--related parties."
Prior to our initial public offering, we granted stock options to
employees, consultants and directors at prices that were less than the estimated
fair value of our common stock at the date of grant. We recorded deferred
compensation related to these options, which is amortized over the vesting
period of each option as "stock-based compensation."
Results of Operations
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998 and
the period from August 4, 1997 (Inception) to December 31, 1997.
Subscription revenues. Subscription revenues for the year ended December
31, 1999 were $223,000, compared to zero for the year ended December 31, 1998
and zero for the period from August 4, 1997 (Inception) to December 31, 1997.
The increase is attributable to customer subscriptions to the TiVo Service,
which began in March 1999. As of December 31, 1999, we had approximately 18,000
subscribers.
Cost of services. Cost of services consists primarily of employee
salaries, telephone expenses, call center and other expenses related to
providing the TiVo Service to subscribers. Cost of services for the year ended
December 31, 1999 was $4.1 million compared to zero for the year ended December
31, 1998 and zero for the period from August 4, 1997 (Inception) to December 31,
1997. This increase was primarily attributable to the hiring of content
programming and service operation personnel and establishing a customer call
center in connection with the retail release of the TiVo Service and the
personal video recorder that enables the TiVo Service. Additionally, as
subscribers increased there were other variable costs, such as telephone charges
that increased.
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 year ended
December 31, 1999 were $9.7 million compared to $5.6 million for the year ended
December 31, 1998 and $356,000 for the period from August 4, 1997 (Inception) to
December 31, 1997. The increase was primarily attributable to the hiring of
additional engineering personnel and costs related to the improvement and
addition of features and functionality of current products as well as the design
of new platforms.
22
<PAGE>
Sales and marketing expenses. Sales and marketing expenses consist
primarily of employee salaries and related expenses, media advertising, public
relations activities, special promotions, trade shows and the production of
product related items, including collateral and videos. Sales and marketing
expenses for the year ended December 31, 1999 were $24.5 million compared to
$1.3 million for the year ended December 31, 1998 and $28,000 for the period
from August 4, 1997 (Inception) to December 31, 1997. The increase was
primarily attributable to an increase in expenditures for advertising, public
relations and trade shows in connection with the continued retail marketing
campaign of the TiVo Service and the personal video recorder that enables the
TiVo Service. We expect our marketing expenses to continue to increase
significantly in connection with the continued retail marketing campaign for the
TiVo Service and the personal video recorder that enables the TiVo Service,
which began with the retail launch in the third quarter of 1999.
Sales and marketing--related parties. Sales and marketing--related parties
consist of cash and non-cash charges related primarily to agreements with
DIRECTV, Philips, Quantum, and Creative Artists Agency, LLC ("CAA") all of which
hold stock in the Company. Sales and marketing--related parties for the year
ended December 31, 1999 was $15.2 million compared to zero for the year ended
December 31, 1998 and zero for the period from August 4, 1997 (Inception) to
December 31, 1997. The increase in sales and marketing--related parties expenses
is attributable to the manufacturing and shipments of personal video recorders
and to the related activations of subscribers to the TiVo Service, which began
in March 1999.
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, and professional fees. General and administrative expenses for
the year ended December 31, 1999 were $7.0 million compared to $2.9 million for
the year ended December 31, 1998 and $241,000 for the period from August 4, 1997
(Inception) to December 31, 1997. The increase was primarily attributable to
the hiring of additional personnel and related expenses and the costs of
establishing Information Services and Service Operations departments, which did
not exist during the year ended December 31, 1998 or prior.
Stock-based compensation. During 1999, we granted stock options with
exercise prices that were less than the estimated fair value of the underlying
shares of common stock on the date of grant. As a result, stock-based
compensation expense is being recognized over the period that these stock
options vest. The stock-based compensation expense was approximately $1.5
million for the year ended December 31, 1999, zero for the year ended
December 31, 1998 and zero for the period from August 4, 1997 (Inception) to
December 31, 1997.
Other operating expenses, net. Other operating expenses, net consists of
the revenues from the sale of personal video recorders sold directly by TiVo,
less the cost of the personal video recorders sold. For the year ended December
31, 1999, other operating expenses, net was $7.2 million compared to zero for
the year ended December 31, 1998 and zero for the period from August 4, 1997
(Inception) to December 31, 1997. We transitioned manufacturing and selling
personal video recorders in the fourth quarter of 1999 to Philips. The revenues
and costs resulting from the sale of personal video recorders were not expected
to be recurring and are therefore considered incidental to our business and as
such have been classified as other operating expense, net.
Interest income. Interest income resulting from cash and cash equivalents
held in interest bearing accounts and short term investments was $2.9 million
for the year ended December 31, 1999 compared to $136,000 for the year ended
December 31, 1998 and $49,000 for the period from August 4, 1997 (Inception) to
December 31, 1997, as cash balances have increased.
Interest expense and other. Interest expense and other was $466,000 for
the year ended December 31, 1999. This includes amortization of the value
assigned primarily to the Comdisco and convertible debt warrants of $432,000 and
interest expense of $34,000 resulting from borrowings under the capital lease
obligation. For the year ended December 31, 1998 and the period from August 4,
1997 (Inception) to December 31, 1997, interest expense and other was $20,000
and $19,000, respectively.
23
<PAGE>
Quarterly Results of Operations
The following table represents certain unaudited statement of operations
data for our eight most recent quarters ended December 31, 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 Annual Report. The
results of operations for any quarter are not necessarily indicative of results
that may be expected for any future period. The three months ended March 31,
1999, June 30, 1999 and September 30, 1999 have been reclassified in order to
conform to 1998 and current quarter classifications.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
----------------------------------------------------------------------------------------------------
(unaudited, in thousands)
<S> <C> <C> <C> <C> <C>
Subscription revenues.. $ -- $ -- $ -- $ -- $ --
Costs and expenses
Cost of services....... -- -- -- -- (689)
Research and
development........... (793) (1,016) (1,659) (2,146) (1,596)
Sales and
marketing.............. (134) (222) (354) (567) (2,168)
Sales and
marketing--related
parties............... -- -- -- -- --
General and
administrative........ (293) (610) (706) (1,337) (1,125)
Stock-based
compensation.......... -- -- -- -- --
Other operating
expense, net.......... -- -- -- -- 12
-------- --------- ---------- --------- --------
Loss from operations... (1,220) (1,848) (2,719) (4,050) (5,566)
Interest income........ 18 17 46 55 53
Interest expense and
other................. (2) (11) (7) -- (2)
-------- -------- ---------- -------- --------
Net loss............... $(1,204) $(1,842) $(2,680) $(3,995) $(5,515)
======== ======== ========== ======== ========
<CAPTION>
Three Months Ended
-----------------------------------------------------------
June 30, September 30, December 31,
1999 1999 1999
-----------------------------------------------------------
(unaudited, in thousands)
<S> <C> <C> <C>
Subscription revenues.. $ 8 $ 33 $ 182
Costs and expenses
Cost of services....... (636) (749) (1,993)
Research and
development........... (1,859) (2,327) (3,945)
Sales and
marketing.............. (1,847) (5,323) (15,164)
Sales and
marketing--related
parties............... (382) (4,946) (9,844)
General and
administrative........ (1,057) (1,757) (3,088)
Stock-based
compensation.......... (187) (501) (842)
Other operating
expense, net.......... (201) (4,808) (2,213)
---------- -------- --------
Loss from operations... (6,161) (20,378) (36,907)
Interest income........ 224 614 2,022
Interest expense and
other................. (176) (281) (7)
---------- -------- --------
Net loss............... $(6,113) $(20,045) $(34,892)
========== ======== ========
</TABLE>
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 December 31, 1999, we financed our operations and
met our capital expenditure requirements primarily from the proceeds of the
private sale of equity securities and the proceeds from our initial public
offering. At December 31, 1999, we had $139.7 million of cash and cash
equivalents and $6.2 million of short-term investments. As of December 31, 1998,
we had $2.2 million of cash and cash equivalents and $164,000 of short-term
investments. The expansion of our business will require significant additional
capital to fund operations, capital expenditures and working capital needs.
Accordingly, we may choose to raise additional capital through debt or equity
financing prior to the end of 2000.
Net cash used in operating activities was $35.9 million for the year ended
December 31, 1999. During the year ended December 31, 1999, we began providing
the TiVo Service, incurring a net loss of $66.6 million. Uses of cash from
operating activities also included an increase in prepaid expenses and other of
$2.5 million and an increase in accounts receivable of $337,000. These uses were
offset by sources of cash provided from operating activities consisting of an
increase in accounts payable of $8.1 million, an increase in accrued liabilities
of $4.1 million, an increase in accrued marketing--related parties of $2.3
million, an increase in deferred revenue of $2.3 million and a decrease in
inventories of $120,000.
24
<PAGE>
Net cash used in investing activities was $9.9 million for the year ended
December 31, 1999. Net cash used in investing activities during the year ended
December 31, 1999 included $6.0 million to purchase short-term investments and
$3.9 million for the acquisition of property and equipment.
Net cash provided by financing activities was $183.3 million for the year
ended December 31, 1999. Of this amount, $90.6 million was received from the
issuance of Series D, E, F, G, H, I and J preferred stock to several investors,
including Vulcan Ventures Incorporated, Showtime Networks, Inc., DIRECTV, NBC
Multimedia, Inc., Philips Corporate External Ventures B.V., Advance/Newhouse,
CBS Corporation, Comcast Interactive, Cox Communication, Discovery
Communications, Liberty Media Corporation, TV Guide Interactive, The Walt Disney
Company (through its wholly owned subsidiary Catalyst Investments L.L.C.),
America Online, Inc. and Sony Corporation of America, Inc. Additionally, we
received $90.3 million in proceeds from the issuance of common stock through our
initial public offering, net of issuance costs. We obtained $1.8 million of
financing through a capital lease and $1.2 million from the issuance of common
stock for stock options exercised. Cash was used to offset a bank overdraft of
$442,000 during the period and was used to repurchase unvested common stock
options, which had been exercised for $28,000.
In December 1997, we established a $750,000 line of credit with a financial
institution, which expired on August 15, 1999. The line was partially utilized
to secure a letter of credit in the amount of $600,000, which expired in July
1999. No amounts were outstanding at December 31, 1999 and December 31, 1998.
Net cash used in operating activities was $8.8 million for the year ended
December 31, 1998 and $494,000 for the period from August 4, 1997 (Inception) to
December 31, 1997. Net cash used during these periods was primarily a result of
the research and development, sales and marketing and general and administrative
expenses to support the development of the TiVo Service and the personal video
recorder that enables the TiVo Service.
Net cash used in investing activities was $817,000 for the year ended
December 31, 1998 and $396,000 for the period from August 4, 1997 (Inception) to
December 31, 1997. Net cash used during these periods was for the acquisition
of property and the purchase of short-term investments.
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 $9.2 million of Series B and C preferred stock to New Enterprise
Associates, Institutional Venture Partners, Comdisco, Odyssey and other private
and institutional investors and the issuance of $132,000 of common stock.
Additionally, we obtained financing through a bank overdraft of $442,000. Net
cash provided by financing activities was $3.0 million for the period from
August 4, 1997 (Inception) to December 31, 1997. This financing was received
primarily from the issuance of Series A preferred stock to several investors,
including entities affiliated with New Enterprise Associates and Institutional
Venture Partners.
We have commitments for future lease payments under facilities operating
leases of $20.5 million and obligations under capital leases of $1.8 million as
of December 31, 1999. The obligations under the capital lease relate to
equipment leased under a total available lease line of $2.5 million, which
expired in February 2000.
On April 8, 1999, we entered into a secured convertible debenture purchase
agreement with New Enterprise Associates VII, L.P., Institutional Ventures VII,
L.P. and two other stockholders. In connection with the agreement, we issued
warrants. The value assigned to these warrants has been fully amortized as of
December 31, 1999. As of December 31, 1999, we had no outstanding amounts under
this agreement. All of the warrants issued under the terms of this agreement
were exercised at the completion of our initial public offering.
Our future capital requirements will depend on a variety of factors,
including market acceptance of the personal video recorder 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 subsidize the sale of personal video recorders;
. to hire and expand our engineering, sales and marketing and customer
support organizations;
. to expand into the European market;
. for a new facility; and
25
<PAGE>
. for general corporate purposes.
We believe that our cash and cash equivalents, the net proceeds from the
sale of our preferred stock and the net proceeds from the initial public
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 "Factors That May Affect Future Operating Results-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."
Impact of Inflation
We believe that inflation has not had a significant impact on our operating
results.
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 formulated a year 2000 plan to assess and address any year
2000 issues and created a year 2000 task force headed by our chief information
officer to implement the plan. This plan was implemented and we did not
experience any problems due to year 2000 issues at the turn of the year.
State of Readiness. We use an internal calendar in both the personal video
recorder and the TiVo broadcast service center. The personal video recorder
uses an internal calendar for recording shows as well as to dial into the TiVo
broadcast service center for nightly downloads of program guide data and other
content. The TiVo broadcast service center uses a calendar to distribute
program guide data and content. The TiVo Service and the personal video
recorder that enables the TiVo Service were tested for year 2000 compliance and,
at this time, there are no known issues nor did we experience any problems at
the turn of the year.
We completed an initial assessment of the criticality of our suppliers'
technology being year 2000 compliant. We tested the year 2000 compliance of any
vendors' and suppliers' interfaces that have a high impact on our business.
Those third-party interfaces with moderate impact on our business were assessed
by reviewing these third parties' web sites or by requesting a letter from such
parties to prove compliance. We did not 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 added strategic partners, we 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 year 2000 compliant. We have not required any
formal paperwork from, or conducted any tests with, these partners. We did not
experience any problems at the turn of the year due to our partners' systems.
We completed an 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
assessed our non-information technology systems, which included facility date
sensitive systems. Most information technology systems were purchased in the
last nine months. Year 2000 compliance was a major part of the selection
criteria. Our assessment included the following steps:
. identification of categories of hardware and software that need to be
evaluated;
26
<PAGE>
. 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.
We completed our year 2000 assessment in September 1999 and completed
interface testing and remediation prior to the end of 1999. We are not aware
of any year 2000 issues that have not yet surfaced or that would have a material
effect on our business, nor did we experience any problems at the turn of the
year.
Costs. As of December 31, 1999, we had incurred costs of approximately
$35,000, in connection with identifying, evaluating and addressing year 2000
compliance issues. All of the expenses have related to operating costs
associated with time spent by our employees in the evaluation process and some
charges related to upgrades identified during our vendor communications or
testing.
Risks. Our ongoing attention to 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 occurrences would have a material adverse effect on our
business.
Contingency Plans. The results of our assessment and testing were taken
into account in determining the nature and extent of our contingency plans.
Year 2000 issues that impair the delivery of the TiVo Service have been
addressed via software upgrades to the TiVo broadcast service 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
our manufacturing partners.
To address potential facility-related year 2000 issues on our most critical
systems, we moved the TiVo broadcast service center into co-location at UUnet in
November 1999. The UUnet co-location is equipped with generators that can
provide several weeks of back-up power.
Factors that May Affect Future Operating Results
In addition to the other information included in this Report, the following
factors should be considered in evaluating our business and future prospects:
We have recognized very limited revenue, have incurred significant net losses
and may never achieve profitability.
27
<PAGE>
We have recognized limited revenues, have incurred significant losses and
have had substantial negative cash flow. During the year ended December 31,
1999, we recognized subscription revenues of $223,000. As of December 31, 1999,
we had an accumulated deficit of $76.9 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 incur losses 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
December 31, 1999, only a limited number of personal video recorders had been
sold and we obtained only a limited number of subscribers to the TiVo Service.
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 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 marketing in the retail channel 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 continually successful retail marketing campaign
for the TiVo Service and related personal video recorders, which began in the
third quarter of 1999. We will rely principally on our consumer electronics
partners, such as Philips and Sony 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 ongoing marketing campaign 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
continued, successful retail distribution; and
. coordinate our own sales, marketing and support activities with those of
Philips, DIRECTV and other strategic partners.
We or our strategic partners may not achieve any or all of these
objectives. In addition, 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
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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 are not successful, we may be unable to
establish a market for our products and services. We initially manufactured the
personal video recorders that enable the TiVo Service through a third-party
contract manufacturer. We have entered into agreements with Philips and Sony to
manufacture and distribute the personal video recorders that enable the TiVo
Service. We have transitioned manufacturing of the personal video recorder from
our third-party contract manufacturer to Philips, who assumed manufacturing
responsibility in the fourth quarter of 1999. However, we have no minimum
volume commitments from Philips, Sony or any other manufacturer. The ability of
our manufacturing partners 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, they will require substantial lead times to manufacture
anticipated quantities of the personal video recorders that enable the TiVo
Service. Delays and other problems could impair the retail distribution and
brand image and make it difficult for us to attract subscribers. In addition,
the loss of a manufacturing partner 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 continue
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. Our
manufacturing partners distribute the personal video recorder that enables the
TiVo Service. We rely on their sales forces, marketing budgets and brand images
to promote and support the personal video recorder and the TiVo Service. We
expect to continue to rely on our manufacturing partners 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 could
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;
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. 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.
In addition to the above, we have several sole suppliers for key components
of our products currently under development.
We cannot be sure that alternative sources for 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 or our manufacturing partners' agreements
with Quantum, NEC, Sony or Tribune Media Services were to terminate or expire,
or if we or our manufacturing partners 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 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, financial, administrative 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 provide 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 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 have entered into agreements with third parties to
provide this support and will rely on them for a substantial portion of our
customer support functions. Our failure to provide adequate customer support
for the TiVo Service and personal video recorder will damage our reputation in
the personal
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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 in
2000. Delays or problems associated with any improvement or expansion of our
operational and financial systems and controls could adversely impact our
relationships with subscribers and cause harm to our reputation and brand.
Delays or problems associated with any improvement or expansion of our
operational and financial 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
. 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 several 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.
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., ReplayTV, 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,
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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 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;
. digital video disc players; 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.
Established competition for advertising budgets. 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
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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.
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, 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 problems, which could cause customer service and 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 of the personal video recorders and the TiVo Service.
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 our manufacturing
partners to cease manufacturing the personal video recorder or us to cease
providing our service, or both, which would eliminate our ability to generate
revenues.
On January 6, 2000, PhoneTel Communications, Inc. filed a lawsuit against
us in the U.S. District Court for the Northern District of Texas alleging that
the TiVo Service violates a patent held by PhoneTel. The lawsuit seeks
unspecified monetary damages as well as an injunction against our operations.
It also seeks attorneys' fees and costs. We could be forced to incur material
expenses to defend this suit, and in the event that we were to lose this lawsuit
our business would be harmed.
On January 18, 2000, StarSight Telecast Inc., a subsidiary of Gemstar
International Group Limited filed a lawsuit against us in the U.S. District
Court for the Northern District of California alleging that the TiVo Service
violates a patent held by StarSight. This lawsuit also seeks unspecified
monetary damages and an injunction against our operations. The suit also seeks
attorneys' fees and costs. To defend this lawsuit, we could be forced to incur
material expenses. Additionally, in the event that we were to lose this lawsuit
our business would be harmed.
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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 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. We have received
letters from Time Warner Inc. and Fox Television stating that these entities
believe our personal television service exploits 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 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 secure and 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 us, 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 and expose us
to legal action.
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.
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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 posed a problem at the end of the century
because these computer programs do not properly recognize the year. Although
there was no interruption of our systems or other problems related to Year 2000
issues at the turn of the year, there may still be Year 2000 related problems
during the year caused by systems that have not yet been triggered by the Year
2000 date. This could result in major system failures or miscalculations that
would disrupt our business.
We completed our year 2000 assessment in September 1999 and completed
interface testing and remediation in December 1999. We are not aware of any
year 2000 issues, at this time, that would have a material effect on our
business. Our assessment, however, may not have identified 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. If
present, 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 throughout the year 2000 could result in a systemic failure beyond our
control. For example, a prolonged telecommunications or electrical failure, due
to equipment being shut down if maintenance is not performed by a specific date
during the year 2000, could prevent us from delivering upgrades and regular
downloads to the personal video recorders that enable the TiVo Service and could
adversely impact the functionality of the personal video recorder. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue."
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.
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Because our expenses precede associated revenues, unanticipated shortfalls
in revenue could adversely affect 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 and our
inability to forecast these trends 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 is 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 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 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 have agreements with our consumer electronic manufacturing partners to
manufacture the personal video recorder that enables the TiVo Service. Philips
began manufacturing the personal video recorders in the fourth quarter of 1999.
We have agreed to pay our manufacturing partners a per-unit subsidy for each
personal video recorder that they manufacture and sell. 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 the manufacturing costs and
selling prices. In addition, in the event our manufacturing partners are unable
to manufacture the personal video recorders at the costs currently estimated or
if selling prices are less than anticipated, we may owe additional amounts to
them, 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 lifetime subscriptions that commit us to provide service
for as long as the subscription to the TiVo Service is active for the personal
video recorder. We receive the lifetime subscription fee for the TiVo Service
in advance and amortize it as subscription 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
36
<PAGE>
anticipated, we will incur costs without a corresponding revenue stream and
therefore will be required to fund ongoing costs of service from other sources.
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 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 Sr. Vice President of Finance, our
Vice President of Business Development, our Vice President of Human Resources,
our Vice President of Sales, our Vice President of Information Technology and
Chief Information Officer, and our Vice President of Sales and Marketing. Our
Vice President of Corporate Communications was hired in March 2000. 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.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We do not use derivative financial instruments in
our investment portfolio and conduct all transactions in U.S. dollars. Our
investment portfolio only includes highly liquid instruments with original
maturities of less than one year.
We are subject to fluctuating interest rates that may impact, adversely or
otherwise, our results of operations or cash flows for our cash and cash
equivalents and our short-term investments.
The table below presents principal amounts and related weighted average
interest rates as of December 31, 1999 for our cash and cash equivalents and our
investment portfolio. All amounts mature in fiscal year 2000.
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents............................... $139,687,000
Average interest rate................................ 5.80%
Short-term investments.................................. $ 6,168,000
Average interest rate................................ 6.22%
</TABLE>
Although payments under the operating lease for our facility are tied to
market indices, we are not exposed to material interest rate risk associated
with the operating lease. Our capital lease obligations are not subject to
changes in the interest rate and, therefore, are not exposed to interest rate
risk.
37
<PAGE>
Item 8. Financial Statements and Supplementary Data
The Company's financial statements and notes thereto appear on pages 39
to 55 of this Form 10-K.
<TABLE>
<CAPTION>
Index to Financial Statements
<S> <C>
Report of Independent Public Accountants... 39
Balance Sheets............................. 40
Statements of Operations................... 41
Statements of Stockholders' Equity......... 42
Statements of Cash Flows................... 44
Notes to Financial Statements.............. 45
</TABLE>
38
<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) as of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1999 and for the period from August 4, 1997
(Inception) to December 31, 1997. 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,
1999 and 1998, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 1999 and for the period from
August 4, 1997 (Inception) to December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
January 17, 2000
The accompanying notes are an integral part of these statements.
39
<PAGE>
TIVO INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1999 1998
------------ --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................... $139,687,000 $ 2,248,000
Short-term investments.................................................. 6,168,000 164,000
Accounts receivable..................................................... 127,000 --
Accounts receivable from related parties................................ 210,000 --
Inventories............................................................. -- 120,000
Prepaid expenses and other.............................................. 2,589,000 219,000
------------ ------------
Total current assets................................................... 148,781,000 2,751,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $831,000 and
$170,000 as of December 31, 1999 and 1998, respectively................. 4,061,000 792,000
------------ ------------
Total assets...................................................... $152,842,000 $ 3,543,000
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Bank overdraft.......................................................... $ -- $ 442,000
Accounts payable........................................................ 8,432,000 305,000
Accrued liabilities..................................................... 4,778,000 675,000
Accrued marketing-related parties....................................... 2,349,000 --
Deferred revenue........................................................ 2,271,000 --
Current portion of obligations under capital lease...................... 624,000 --
------------ ------------
Total current liabilities.............................................. 18,454,000 1,422,000
Long-term portion of obligations under capital lease.................... 1,141,000 --
------------ ------------
Total liabilities................................................. 19,595,000 1,422,000
============ ============
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value $0.001:
Authorized shares at December 31, 1999 and 1998 are 2,000,000 and
13,000,000, respectively.
Issued and outstanding shares at December 31, 1999 and 1998 are
zero and 11,174,427, respectively..................................... $ -- $ 12,242,000
Common stock, par value $0.001:
Authorized shares at December 31, 1999 and 1998 are 75,000,000 and
25,500,000, respectively.
Issued and outstanding shares at December 31, 1999 and 1998 are
37,746,391 and 5,216,937, respectively................................ 38,000 5,000
Additional paid-in capital.............................................. 235,423,000 190,000
Deferred compensation................................................... (6,170,000) --
Prepaid marketing expenses.............................................. (16,341,000) --
Note receivable......................................................... (2,822,000) --
Retained deficit........................................................ (76,881,000) (10,316,000)
------------ ------------
Total stockholders' equity........................................ 133,247,000 2,121,000
------------ ------------
Total liabilities and stockholders' equity........................ $152,842,000 $ 3,543,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE>
TIVO INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31, Period from
--------------------------- August 4, 1997
(Inception), to
1999 1998 December 31, 1997
------------- ------------ -------------------
<S> <C> <C> <C>
Subscription revenues........ $ 223,000 $ -- $ --
Costs and expenses
Cost of services............ 4,067,000 -- --
Research and development.... 9,727,000 5,614,000 356,000
Sales and marketing......... 24,502,000 1,277,000 28,000
Sales and marketing-related
parties.................... 15,172,000 -- --
General and administrative.. 7,027,000 2,946,000 241,000
Stock-based compensation.... 1,530,000 -- --
Other operating expense,
net........................ 7,210,000 -- --
------------ ----------- ------------------
Loss from operations....... (69,012,000) (9,837,000) (625,000)
Interest income......... 2,913,000 136,000 49,000
Interest expense and
other.................. (466,000) (20,000) (19,000)
------------ ----------- ------------------
Net loss................... $(66,565,000) (9,721,000) $ (595,000)
============ =========== ==================
Net loss per share
Basic and diluted........... $ (5.49) $ (3.25) $ (0.20)
------------ ----------- ------------------
Weighted average common
shares outstanding Basic
and diluted................ 12,128,560 2,989,717 2,916,664
============ =========== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE>
TIVO INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
----------------------------- -------------------------------- Paid-In
Shares Amount Shares Amount Capital
-------------- ----------- --------------- ------------- ------------
<S> <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................................... -- -- -- -- --
---------- ------------- ------------- ------- ---------
BALANCE, DECEMBER 31, 1997.................. 5,000,000 $ 2,990,000 2,916,664 $ 3,000 $ 7,000
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................................... -- -- -- -- --
---------- ------------- ------------- ------- ---------
BALANCE, DECEMBER 31, 1998.................. 11,174,427 $ 12,242,000 5,216,937 $ 5,000 $ 190,000
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 -- -- --
Issuance of Series I preferred stock at
$10.41 per share for cash................. 3,121,994 31,494,000 -- -- --
Issuance of Series J preferred stock at
$10.41 per share for cash................. 3,123,789 31,740,000 -- --
Conversion of preferred stock to common
stock..................................... (21,819,444) (102,814,000) 21,819,444 22,000 102,792,000
Issuance of preferred stock warrants for
services.................................. -- -- -- -- 12,828,000
Issuance of common stock through initial
public offering, net of issuance costs.... -- -- 6,166,875 6,000 90,249,000
Issuance of common stock for marketing
services.................................. -- -- 1,852,329 2,000 12,038,000
<CAPTION>
Prepaid
Deferred Marketing Note Retained
Compensation Expense Receivable Deficit Total
------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <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) (595,000)
---------- ------------- ------------- ------------ ----------
BALANCE, DECEMBER 31, 1997.................. $ -- $ -- $ -- $ (595,000) $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) (9,721,000)
---------- ------------- ------------- ------------ ----------
BALANCE, DECEMBER 31, 1998.................. $ -- $ -- $ -- $(10,316,000) $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
Issuance of Series I preferred stock at
$10.41 per share for cash................. -- -- -- -- 31,494,000
Issuance of Series J preferred stock at
$10.41 per share for cash................. -- -- -- -- 31,740,000
Conversion of preferred stock to common
stock..................................... -- -- -- -- --
Issuance of preferred stock warrants for
services.................................. -- (12,454,000) -- -- 374,000
Issuance of common stock through initial
public offering, net of issuance costs.... -- -- -- -- 90,255,000
Issuance of common stock for marketing
services.................................. -- (12,040,000) -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
TIVO INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
----------------------------- -------------------------------- Paid-In
Shares Amount Shares Amount Capital
-------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for marketing
services and note receivable.............. -- -- 1,128,867 1,000 7,336,000
Issuance of common stock warrants for
services.................................. -- -- -- -- 498,000
Exercise of stock options for common stock. -- -- 525,064 1,000 1,191,000
Exercise of warrants for common stock...... -- -- 1,125,234 1,000 (1,000)
Common stock exchanged for services........ -- -- 137,983 -- 605,000
Common stock repurchases................... -- -- (226,342) -- (28,000)
Amortization of prepaid marketing expenses. -- -- -- -- --
Amortization of warrants for services...... -- -- -- -- 25,000
Recognition of deferred compensation....... -- -- -- -- 7,700,000
Stock-based compensation expense........... -- -- -- -- --
Net loss................................... -- -- -- -- --
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999................. -- $ -- 37,746,391 $38,000 $235,423,000
================================================================================
<CAPTION>
Prepaid
Deferred Marketing Note Retained
Compensation Expense Receivable Deficit Total
------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for marketing
services and note receivable.............. -- (4,515,000) (2,822,000) -- --
Issuance of common stock warrants for
services.................................. -- -- -- -- 498,000
Exercise of stock options for common stock. -- -- -- -- 1,192,000
Exercise of warrants for common stock...... -- -- -- -- --
Common stock exchanged for services........ -- -- -- -- 605,000
Common stock repurchases................... -- -- -- -- (28,000)
Amortization of prepaid marketing expenses. -- 12,668,000 -- -- 12,668,000
Amortization of warrants for services...... -- -- -- -- 25,000
Recognition of deferred compensation....... (7,700,000) -- -- -- --
Stock-based compensation expense........... 1,530,000 -- -- -- 1,530,000
Net loss................................... -- -- -- (66,565,000) (66,565,000)
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999................. $(6,170,000) $(16,341,000) $(2,822,000) $(76,881,000) $133,247,000
===============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
43
<PAGE>
TIVO INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Year Ended August 4, 1997
December 31, (Inception), to
---------------------------- December 31,
1999 1998 1997
---------------------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.............................................................. $(66,565,000) $(9,721,000) $(595,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 661,000 242,000 15,000
Issuance of preferred stock warrants for services.................. 374,000 -- --
Issuance of common stock warrants for services..................... 498,000 -- --
Common stock exchanged for services................................ 605,000 85,000 --
Amortization of prepaid marketing expenses......................... 12,668,000 -- --
Amortization of warrants for services.............................. 110,000 -- --
Stock-based compensation expense................................... 1,530,000 -- --
Changes in current assets and liabilities:
Accounts receivable................................................ (337,000) -- --
Inventories........................................................ 120,000 (120,000) --
Prepaid expenses and other......................................... (2,455,000) (162,000) (57,000)
Accounts payable................................................... 8,127,000 188,000 117,000
Accrued liabilities................................................ 4,103,000 649,000 26,000
Accrued marketing-related parties.................................. 2,349,000 -- --
Deferred revenue................................................... 2,271,000 -- --
------------ ----------- ----------
Net cash used in operating activities................................ (35,941,000) (8,839,000) (494,000)
------------ ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment, net............................ (3,930,000) (673,000) (376,000)
Purchase of short-term investments.................................... (6,004,000) (144,000) (20,000)
------------ ----------- ----------
Net cash used in investing activities................................ (9,934,000) (817,000) (396,000)
------------ ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock, net of
issuance costs....................................................... 90,572,000 9,227,000 2,990,000
Proceeds from issuance of common stock through initial public 90,255,000 -- --
offering, net of issuance costs......................................
Proceeds from issuance of common stock and exercise of stock options.. 1,192,000 132,000 10,000
Repurchase of common stock............................................ (28,000) (7,000) --
Net borrowings under capital lease.................................... 1,765,000 -- --
Borrowings under line of credit....................................... -- 610,000 --
Repayments under line of credit....................................... -- (610,000) --
(Decrease) increase in bank overdraft................................. (442,000) 442,000 --
------------ ----------- ----------
Net cash provided by financing activities............................ 183,314,000 9,794,000 3,000,000
------------ ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............................... 137,439,000 138,000 2,110,000
------------ ----------- ----------
CASH AND CASH EQUIVALENTS:
Balance at beginning of period........................................ 2,248,000 2,110,000 --
------------ ----------- ----------
Balance at end of period.............................................. $139,687,000 $ 2,248,000 $2,110,000
============ =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................................ $ 41,000 $ 19,000 $ --
Stock issued for a note receivable.................................... 2,822,000 -- --
Equipment acquired under capital lease................................ 1,978,000 -- --
Deferred stock-based compensation..................................... 7,700,000 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
44
<PAGE>
TIVO INC.
NOTES TO FINANCIAL STATEMENTS
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 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. In the fourth quarter of 1999, the Company transitioned the
manufacturing and distribution of the personal video recorder and remote control
to Philips Business Electronics B.V. ("Philips"). Philips began marketing the
TiVo Service and the personal video recorder that enables the TiVo Service in
retail markets in the third quarter of 1999. The Company stopped selling
personal video recorders directly during the fourth quarter of 1999. Prior to
the transition, the personal video recorder and remote control were manufactured
by a contract manufacturer and, since March 1999, were sold by TiVo through its
web site and toll-free telephone number. The Company conducts its operations
through one reportable segment.
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 began in the third quarter of 1999, the Company
was no longer identified as a development-stage company. The Company continues
to be subject to certain risks, including the uncertainty of availability of
additional financing; dependence on third parties for manufacturing, 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and 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 the date of purchase ranging
between three and twelve 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 and
enclosures. Inventory is valued at the lower of cost (first-in, first-out) or
market. Upon the transfer of manufacturing responsibilities to Philips during
the fourth quarter of 1999, all inventory was sold to Philips.
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................................ 3-5 years
Computer and office equipment......................... 3-5 years
Lab equipment......................................... 3 years
Leasehold improvements................................ 7 years
Capitalized software.................................. 1-5 years
</TABLE>
Maintenance and repair expenditures are expensed as incurred.
45
<PAGE>
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.
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. 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
concentrated in the United States. The Company is not subject to significant
credit risk of these customers as subscription revenue is primarily obtained
through credit cards, therefore as of December 31, 1999 the Company has recorded
no allowance for doubtful accounts.
Net Loss Per Common Share
Net loss per share is calculated 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 9) and
unvested, repurchasable common stock issued under the employee stock option
plans (see Notes 6 and 7).
Diluted net loss per common share is calculated 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 antidilutive common share equivalents:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Repurchasable common stock............................... 1,364,366 2,024,187
Options to purchase common stock......................... 4,346,522 1,235,000
Warrants to purchase common stock........................ -- --
Convertible preferred stock warrants..................... -- 52,083
Convertible preferred stock.............................. -- 11,174,427
-------------------- ------------------
5,710,888 14,485,697
==================== ==================
</TABLE>
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 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
46
<PAGE>
expense was recorded in 1997 and 1998. The Company has recorded stock-based
compensation expense of $1.5 million for the year ended December 31, 1999. 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 benefited. 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 four-year period, the best estimate of the useful life
of the personal video recorder. Deferred revenue relates to subscription fees
collected but for which service has not yet been provided.
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 non-cash charges
related to the Company's agreements with DIRECTV, Inc. ("DIRECTV"), Philips,
Quantum Corporation ("Quantum"), and Creative Artists Agency, LLC ("CAA"), all
of which hold stock in the Company (see Note 10).
Other Operating Expense, Net
Prior to the transition of manufacturing and distribution responsibility to
Philips in the fourth quarter of 1999, the Company sold personal video recorders
directly to consumers. The Company's direct sales of personal video recorders of
$13.5 million, less the cost of the personal video recorders sold of $20.7
million for the year ended December 31, 1999 is classified as other operating
expense, net. Other operating expense, net is considered incidental to the
Company's business and 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 $30,000 at December 31, 1999.
Advertising Costs
In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs", the Company expensed advertising costs as incurred. Advertising
expenses were $13.4 million for the year ended December 31, 1999, zero for
the year ended December 31, 1998 and zero for the period from August 4, 1997
(Inception) to December 31, 1997.
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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
47
<PAGE>
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
---------- ---------
<S> <C> <C>
Furniture and fixtures......................................... $ 184,000 $ 16,000
Computer and office equipment.................................. 3,384,000 946,000
Lab equipment.................................................. 559,000 --
Leasehold improvements......................................... 287,000 --
Capitalized software........................................... 478,000 --
---------- ---------
4,892,000 962,000
Accumulated depreciation....................................... (831,000) (170,000)
---------- ---------
Property and equipment, net.................................... $4,061,000 $ 792,000
========== =========
Equipment under capital leases was $1,978,000 and zero as of December 31,
1999 and 1998. Depreciation and amortization expense was $661,000, $155,000 and
$15,000 for the years ended December 31, 1999 and 1998 and the period from
August 4, 1997 (Inception) to December 31, 1997, respectively.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<CAPTION>
December 31,
-------------------------------
1999 1998
---------- ---------
<S> <C> <C>
Marketing and promotions....................................... $2,012,000 $ 223,000
Consulting and outside services................................ 750,000 11,000
Compensation and vacation...................................... 626,000 213,000
Commissions.................................................... 227,000 --
Employee stock purchase plan................................... 491,000 --
Legal and accounting........................................... 188,000 86,000
Other.......................................................... 484,000 142,000
---------- ---------
$4,778,000 $ 675,000
========== =========
</TABLE>
5. LINE OF CREDIT
In December 1997, the Company established a $750,000 line of credit with a
financial institution, which expired on August 15, 1999. The line was partially
utilized to secure a letter of credit in the amount of $600,000, which expired
in July 1999. No amounts were outstanding at December 31, 1999 and 1998.
6. INCOME TAXES
There was no provision or benefit for income taxes for the years ended
December 31, 1999 and 1998 and the period from August 4, 1997 (Inception) to
December 31, 1997.
Significant components of deferred tax assets were as follows as of
December 31, 1999:
<TABLE>
<S> <C>
Net operating loss carryforwards.................................... $ 30,081,834
Tax credit carryforwards............................................ 269,287
Temporary differences, net.......................................... 654,733
------------
Gross deferred tax assets.......................................... 31,005,854
Valuation allowance................................................. (31,005,854)
------------
Net deferred tax assets............................................ $ --
============
</TABLE>
As of December 31, 1999, the Company had a tax net operating loss (NOL)
carryforward of approximately $75.2 million for federal and California purposes.
The federal NOL expires beginning in 2017, and the California NOL expires
beginning in 2005. 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.
48
<PAGE>
A valuation allowance for the entire amount has been provided because of
uncertainties about the Company's ability to realize the value 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). As of December 31, 1998, the Company had the right to repurchase
2,024,187 unvested shares at the stock issuance price, if the holders' service
with the Company terminated.
In 1999, the Company issued 525,064 shares of common stock as a result of
the exercise of stock options. During 1999, 226,342 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 1,364,366 unvested shares as of
December 31, 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. In 1999, the Company issued 137,983
shares of common stock to consultants and vendors 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 related expense was recorded.
The Company's management believes that the value of the common stock issued
approximates the value of services received.
In 1999, the Company issued 1,852,329 shares of common stock in exchange
for marketing services under the DIRECTV Agreement and 1,128,867 shares of
common stock in exchange for a $2.8 million promissory note due at the end of a
three-year service period.
The Company's initial public offering (IPO) of 6,166,875 shares of common
stock with net proceeds of $90.3 million was effective on September 29, 1999 and
closed on October 5, 1999. At the closing date, the preferred stock was
converted into common stock on a one-for-one basis and the warrants were
exercised. The Company issued 1,125,234 shares of common stock as a result of
the exercise of common stock warrants.
Convertible Preferred Stock
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. In July 1999, the Company issued 3,121,994
shares of Series I preferred stock at $10.41 per share. In August 1999, the
Company issued 480,307 shares of Series J preferred stock at $10.41 per share.
In September 1999, the Company issued 2,643,482 shares of Series J preferred
stock at $10.41 per share.
On October 5, 1999, 21,819,444 shares of the outstanding preferred stock
converted into common stock on a one-for-one basis, therefore, no shares of
preferred stock were outstanding as of December 31, 1999.
49
<PAGE>
8. EQUITY INCENTIVE PLANS
1997 Equity Incentive 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, 1999, options to purchase 985,482 shares of
common stock remain outstanding.
1999 Equity Incentive Plan
In April 1999, the Company's stockholders approved the 1999 Equity
Incentive Plan (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 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 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. As of December 31, 1999, options to
purchase 3,201,040 shares of common stock remain outstanding.
1999 Non-Employee Directors' Stock Option Plan
In July 1999, the Company adopted the 1999 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"). The Directors' Plan provides for the
automatic grant of options to purchase shares of the Company's common stock to
non-employee 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 from the date of
grant. 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. Options to purchase 160,000 shares of common stock
are outstanding as of December 31, 1999.
1999 Employee Stock Purchase Plan
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 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.
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. The Company has recorded deferred
compensation of approximately $7.7 million as a contra-equity account and stock-
based compensation expense of $1.5 million for the year ended December 31, 1999.
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:
50
<PAGE>
<TABLE>
<CAPTION>
Year Ended Period from August 4,
December 31, 1997 (Inception), to
------------------------------------ December 31,
1999 1998 1997
------------ ------------ ---------------------
<S> <C> <C>
Net loss, as reported.................... $(66,565,000) $(9,721,000) $(595,000)
Pro forma effect of SFAS No. 123......... (4,100,000) (10,000) --
Net loss, pro forma...................... $(70,665,000) $(9,731,000) $(595,000)
Basic and diluted
loss per share, as reported.............. $ (5.49) $ (3.25) $ (0.20)
============ =========== =========
Basic and diluted
loss per share, pro forma................ $ (5.83) $ (3.25) $ (0.20)
============ =========== =========
</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% and 6.14%; expected dividend yield of zero percent; expected lives
of four years for the options; and expected volatility of 50%.
A summary of the status of the 1997 Plan, the 1999 Plan and the Director's
Plan is presented in the table and narrative below:
<TABLE>
<CAPTION>
Range of Exercise Weighted Average
Shares Prices Exercise Price
-------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1997......... 700,000 $ .04
--------------------------- ---------------------
Granted................................. 3,006,458 $ .04 - $.45 .15
Exercised............................... (2,276,458) .06
Canceled................................ (195,000) .04
---------------------------
Outstanding at December 31, 1998......... 1,235,000 $ .27
--------------------------- ---------------------
Granted................................. 4,307,087 $1.00-$39.94 8.46
Exercised............................... (525,064) 2.29
Canceled................................ (670,501) 5.25
Outstanding at December 31, 1999......... 4,346,522 $7.37
--------------------------- ---------------------
</TABLE>
The weighted average fair value of options granted during 1999 and 1998 is
$10.15 and $.02, respectively. Of the options outstanding at December 31, 1999
and 1998, 1,270,888 and 93,542 are vested, respectively. The Company
repurchased 226,342 and 174,771 unvested options during 1999 and 1998,
respectively, upon the optionees' terminating employment with the Company.
The options outstanding have the following contractual lives:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
- -------------------------------------------------------------- ---------------------------------------------------------------
Number of
Options Weighted Average Number of Options Weighted Average
Outstanding Range of Exercise Remaining Outstanding and Exercise Remaining
and Exercisable Prices Contractual Life Exercisable Prices Contractual Life
- -------------------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
55,000 $ 0.04 7.75 years 55,000 $0.04 9.25 years
217,250 0.13 8.51 years 504,000 0.13 9.50 years
142,250 0.20 8.76 years 169,000 0.20 9.75 years
264,700 0.45 8.91 years 507,000 0.45 10.00 years
299,282 1.00 9.16 years
240,500 2.50 9.20 years
299,700 4.00 - 5.00 9.34 years
2,193,817 6.50 - 9.50 9.51 years
319,523 10.50 - 11.00 9.72 years
75,000 16.00 9.95 years
203,500 25.13 - 37.63 9.93 years
36,000 38.93 - 39.94 9.91 years
- --------- ------------
4,346,522 1,235,000
========= ============
</TABLE>
51
<PAGE>
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 were exercised and
converted to common stock on a one-for-one basis upon the closing of the initial
public offering of the Company's common stock. 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.
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 (the
buyer) 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 Company is entitled to a discounted purchase
price if certain milestones are met. TiVo has 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. 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 324,325 shares of Series C preferred stock warrants. In September 1999, the
warrants to purchase Series D preferred stock vested and the Company recorded as
a contra-equity account a prepaid marketing expense of $8.7 million related to
the 543,478 shares of Series D preferred stock warrants. The $2.4 million and
the $8.7 million are being amortized as 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 and Series D vested
warrants were 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 zero percent; expected life of four years; expected
volatility of 50%; and market price of preferred stock of $7.40 per share for
Series C and $16.00 per share for Series D. These warrants were exercised and
converted to common stock on a one-for-one basis upon the closing of the initial
public offering.
The Company recognized $10.4 million of sales and marketing expense--
related parties for the year ended December 31, 1999 related to these warrants.
DIRECTV Agreement
The Company entered into an agreement with DIRECTV to promote and offer
support for the TiVo Service and products that enable the TiVo Service (the
DIRECTV Agreement). Under the DIRECTV Agreement, 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.
In April 1999, 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.
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.
52
<PAGE>
Additionally, in April 1999, the Company issued 1,128,867 shares of common
stock in exchange for a $2.8 million promissory note due at the end of a three-
year service period. 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 amortized into sales and marketing-
related parties expense as the bandwidth services are provided over the three
year service period. As of December 31, 1999, the three-year service period had
not yet begun. DIRECTV may repay the note either by providing bandwidth
capacity at no additional charge or by paying in cash. At the end of the three
year service period, 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 expense of $16.5 million is recognized as a sales and marketing-
related parties expense ratably as the services are provided to TiVo over the
contractual service periods under the agreement.
In addition to the equity consideration for DIRECTV's marketing services
described above, DIRECTV will receive a percentage of TiVo's subscription
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 which were converted to common stock on a one-for-one
basis upon the closing of the initial public offering.
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
incorporates 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
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 sales and marketing--
related parties expense 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 which were converted to common stock on a one-for-one
basis upon the closing of the initial public offering.
Creative Artist Agency Agreement
In July 1999, the Company entered into an agreement with Creative Artists
Agency, LLC, (CAA), for the marketing and promotional support of the personal
video recorder. CAA was issued warrants to purchase 192,123 shares of Series I
preferred stock for $10.41 per share. The Company expenses the estimated fair
value of the warrants of $1.4 million over one year. The estimated fair value of
the warrants was determined using the Black-Scholes option pricing model. The
principal assumptions used in the computation are: one year term; deemed fair
value at the date of issuance of $8.50 per share; a risk-free rate of return of
5.07%; dividend yield of zero percent; and a volatility of 50%. As a result of
CAA's exercise of these warrants, upon the closing of the initial public
offering, TiVo issued 67,122 shares of preferred stock. The 67,122 shares of
preferred stock were converted to common stock on a one-for-one basis upon the
closing of the initial public offering.
53
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
Facilities Leases
The Company leases its current office space under operating leases that
expire on March 31 and June 30, 2000. As of December 31, 1999 and 1998, future
minimum rental payments under this lease are $309,000 and $1,327,000,
respectively. Rent expense under operating leases was approximately $1,040,000,
$619,000 and $45,000 for the years ended December 31, 1999 and 1998 and the
period from August 4, 1997 (Inception) to December 31, 1997, respectively.
In October 1999, the company entered into a new office lease with WIX/NSJ
Real Estate Limited Partnership. The lease begins on March 10, 2000 and has a
seven-year term. Monthly rent is approximately $116,000 with built-in base rent
escalations periodically throughout the lease term. Future minimum lease
payments under this lease are $20.2 million.
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
principal assumptions used in the computation are: ten 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 zero percent and a volatility of 50%. As of December
31, 1999, $1.8 million of the available lease line has been used and has been
accounted for as a capital lease. The current portion of the capital lease
obligation at December 31, 1999 is $624,000. The unused equipment lease line
expires February 2000.
Future minimum lease payments as of December 31, 1999, by year are as follows:
<TABLE>
<CAPTION>
Capital
Year Facilities Leases Equipment Lease Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 1,802,000 $ 624,000 $ 2,426,000
2001 2,814,000 670,000 3,484,000
2002 2,899,000 471,000 3,370,000
2003 2,987,000 -- 2,987,000
2004 and thereafter 10,055,000 -- 10,055,000
--------------------------------------------------------
Total $20,557,000 $1,765,000 $22,322,000
========================================================
</TABLE>
Convertible Debt
In April 1999, the Company entered into a secured convertible debenture
purchase agreement with certain stockholders, which terminated on December 31,
1999. Under the terms of the agreement, TiVo could borrow up to $3.0 million at
an interest rate of 4.67% per annum. The debentures delivered by TiVo for any
loan made under this agreement were 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 were 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 principal
assumptions used in the computation were: five 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 zero percent; and a volatility of 50%. During the year ended
December 31, 1999, the entire value of the warrants of $341,000 was expensed.
The Company issued 81,522 shares of common stock as a result of the exercise of
the warrants upon the closing of the initial public offering of the Company's
common stock.
Legal Matters
In September 1999, TiVo received letters from Time Warner, Inc. and Fox
Television stating that TiVo's personal television service exploits these
companies' copyrights without the necessary licenses. The Company
54
<PAGE>
believes that the TiVo Service does not infringe on these copyrights and
believes that there will not be an adverse impact as a result of these letters.
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 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 December 31, 1999.
13. SUBSEQUENT EVENTS (unaudited)
Agreements
In January 2000, TiVo entered into a strategic alliance with Blockbuster,
Inc. ("Blockbuster") to jointly develop and deploy a service that will enable
TiVo subscribers to access a selection of movies for viewing through their
personal television recorders.
In January 2000, TiVo entered into a licensing agreement with Liberate
Technologies ("Liberate") to incorporate Liberate's TV Navigator software on
future versions of TiVo's Personal TV reference platform.
In February 2000, TiVo entered into a strategic alliance with British Sky
Broadcasting Limited ("BSkyB") under which a version of the TiVo Service and the
TiVo personal television recorder now offered in the United States will be
adapted and made available in the United Kingdom.
Legal Matters
In January 2000, patent infringement suits were filed against TiVo by
StarSight Telecast, Inc. and PhoneTel Communications, Inc. TiVo's legal counsel
is currently researching the patents, which were referenced in the complaints.
55
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
Certain information required by Part III has been omitted from this Form
10-K. This information is instead incorporated by reference to our definitive
proxy statement (the "Proxy Statement"), which we will file with the Securities
and Exchange Commission in connection with our 2000 Annual Meeting of
Stockholders.
Identification of Executive Officers
Information regarding our directors is incorporated by reference from the
Company's Proxy Statement. The information identifying our current executive
officers is found under the caption "Executive Officers and Key Employees" in
Part I hereof, and is also incorporated by refernce into this Item 10.
The information concerning the Company's Executive Officers is incorporated
by reference from the Company's Proxy Statement.
Identification of Directors
The information concerning the Company's directors and nominees is
incorporated by reference from the Company's Proxy Statement.
Compliance with Section 16 (a) of the Exchange Act
The information concerning compliance with Section 16 (a) of the Exchange
Act is incorporated by reference from the section entitled "Compliance with
Section 16 (a) of the Exchange Act" in the Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
section entitled "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
section entitled "Stock Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
section entitled "Certain Relationships and Related Transactions" in the Proxy
Statement.
56
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<C> <S>
3.2* Amended and Restated Certificate of Incorporation.
3.4* Amended and Restated Bylaws.
4.3* Ninth Amended and Restated Investor Rights Agreement between TiVo and
certain investors, dated as of August 6, 1999.
10.1* Form of Indemnification Agreement between TiVo and its officers and directors.
10.2* TiVo's 1999 Equity Incentive Plan and related documents.
10.3* TiVo's Amended and Restated 1997 Equity Incentive Plan and related documents.
10.4* TiVo's 1999 Employee Stock Purchase Plan and related documents.
10.5 TiVo's 1999 Non-Employee Directors' Stock Option Plan and related documents.
10.6*+ Hard Disk Drive Supply Agreement between Quantum Corporation and TiVo,
dated November 6, 1998.
10.7*+ Master Agreement between Philips Business Electronics B.V. and TiVo,
dated March 31, 1999.
10.8*+ Marketing Agreement between DIRECTV, Inc. and TiVo, dated April 13, 1999.
10.9*+ Agreement between NBC Multimedia, Inc. and TiVo, dated April 16, 1999.
10.10* Sublease Agreement between Verity, Inc. and TiVo, dated February 23, 1998.
10.11* Amendment to Sublease Agreement between Verity, Inc. and TiVo,
dated November 1998.
10.12* Second Amendment to Sublease Agreement between Verity, Inc. and TiVo,
dated March 1999.
10.13* Consent of Landlord to Sublease between Verity, Inc. and TiVo, dated February 23, 1998.
10.15* Master Lease Agreement between Comdisco, Inc. and TiVo, dated February 12, 1999.
10.16*+ Warrant Purchase and Equity Rights Agreement between
Quantum Corporation and TiVo, 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 TiVo, dated February 12, 1999.
10.19* Secured Convertible Debenture Purchase Agreement between TiVo and
certain of its investors, dated April 8, 1999, and related documents.
10.20* First Amendment to Hard Disk Supply Agreement between Quantum and TiVo,
dated June 25, 1999.
10.21* TiVo's 401(k) Plan, effective December 1, 1997.
10.22*+ Tribune Media Services Television Listing Agreement between Tribune Media Services and
TiVo, 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 TiVo,
dated November 10, 1998.
10.24** Lease Agreement between WIX/NSJ Real Estate Limited Partnership and TiVo,
dated October 6, 1999.
99.5*** Form of Stock Option Grant used in connection with an option granted outside of
TiVo's stock option plans and related documents
23.1 Consent of Independent Public Accountants
27.1++ Financial Data Schedule.
</TABLE>
-----------------------
* Incorporated by reference to the same numbered exhibit previously filed
with TiVo's Registration Statement on Form S-1 (SEC File No. 333-83515),
originally filed on July 22, 1999.
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<PAGE>
** Incorporated by reference to the same numbered exhibit previously
filed with TiVo's Quarterly report on Form 10-Q filed November 15, 1999.
*** Incorporated by reference to the same numbered exhibit previously
filed with TiVo's Registration Statement on Form S-8 (SEC File No. 333-94629),
filed on January 13, 2000.
+ Confidential treatment granted as to portions of this exhibit.
++ Submitted as an exhibit only in the electronic format of this Annual
Report on Form 10-K submitted to the Securities and Exchange Commission.
Reports on Form 8-K
TiVo did not file any reports on Form 8-K during the year ended December
31, 1999.
Trademark Acknowledgments
"Active Preview", "Can't Miss TV", "DIRECTIVO", Instant Replay logo,
"Ipreview", Jump logo, "Life's too short for bad TV", "Network Showcase",
"Personal TV", "Personal Video Recorder", "Primetime Anytime", "Season Pass",
"See it, want it, get it", "The New Face of Television", "The way TV is meant to
be", "Thumbs Down" (logo and text), "Thumbs Up" (logo and text), "TiVo Central",
"TiVo" (logo, name and character), "TiVolution", "What you want, when you want
it", and "You run the shows" are trademarks of TiVo Inc. All other trademarks
or trade names appearing in this report are the property of their respective
owners.
58
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TIVO INC.
Date: March 29, 2000 By: /s/ Michael Ramsay
----------------------------
Michael Ramsay
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Ramsay and David H. Courtney and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Michael Ramsay President, Chief Executive Officer and March 29, 2000
- ---------------------------------------------- Chairman of the Board (Principal Executive
Michael Ramsay Officer)
/s/ David H. Courtney Sr. Vice President of Finance and Chief March 29, 2000
- ---------------------------------------------- Financial Officer (Principal Financial and
David H. Courtney Accounting Officer)
/s/ James Barton Sr. Vice President of Research and March 29, 2000
- ---------------------------------------------- Development, Chief Technical Officer and
James Barton Director
/s/ Geoffrey Y. Yang Director March 29, 2000
- ----------------------------------------------
Geoffrey Y. Yang
/s/ Stewart Alsop Director March 29, 2000
- ----------------------------------------------
Stewart Alsop
/s/ Randy Komisar Director March 29, 2000
- ----------------------------------------------
Randy Komisar
/s/ Michael Homer Director March 29, 2000
- ----------------------------------------------
Michael Homer
</TABLE>
59
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Larry N. Chapman Director March 29, 2000
- ----------------------------------------------
Larry N. Chapman
/s/ Jan P. Oosterveld Director March 29, 2000
- ----------------------------------------------
Jan P. Oosterveld
/s/ John S. Hendricks Director March 29, 2000
- ----------------------------------------------
John S. Hendricks
Director
- ----------------------------------------------
Margaret Murphy
Director
- ----------------------------------------------
Howard Stringer
=============================================================================================================================
</TABLE>
60
<PAGE>
TiVo Inc.
1999 Non-Employee Directors' Stock Option Plan
Adopted by the Board of Directors July 14, 1999
Approved By Stockholders July 14, 1999
Amended by the Board of Directors January 5, 2000
Stockholder Approval Not Required
Effective Date: July 14, 1999
Termination Date: July 13, 2009
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options are
the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of its Non-Employee Directors, to secure and retain the services of new
Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of the
Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means TiVo Inc., a Delaware corporation.
1
<PAGE>
(h) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(i) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
2
<PAGE>
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "Initial Grant" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(p) "IPO Date" means the effective date of the initial public offering of
the Common Stock.
(q) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(r) "Non-Employee Director" means a Director who is not an Employee.
(s) "Nonstatutory Stock Option" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(t) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Plan" means this TiVo Inc. 1999 Non-Employee Directors' Stock Option
Plan.
(x) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3
<PAGE>
3. Administration.
(a) Administration by Board. The Board shall administer the Plan. The Board
may not delegate administration of the Plan to a committee.
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate Five Hundred Thousand (500,000) shares
of Common Stock.
(b) Additional Shares. Commencing on December 31, 1999, the aggregate
number of shares of Common Stock that may be issued pursuant to Options granted
under the Plan as specified in subsection 4(a) shall automatically be increased
each December 31 by one hundred thousand (100,000) shares of Common Stock.
(c) Reversion of Shares to the Share Reserve. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan.
(d) Source of Shares. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
(e) Share Reserve Limitation. Prior to the Listing Date and to the
extent then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of
4
<PAGE>
the Company shall not exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of Section 260.140.45 of Title 10
of the California Code of Regulations, based on the shares of Common Stock of
the Company that are outstanding at the time the calculation is made./1/
5. Eligibility. Nondiscretionary Options as set forth in section 6 shall be
granted under the Plan to all Non-Employee Directors.
6. Non-Discretionary Grants.
(a) Initial Grants.
(i) Each person who a Non-Employee Director on the July 14, 1999
automatically shall be granted an Initial Grant to purchase Twenty Thousand
(20,000) shares of Common Stock on the terms and conditions set forth herein.
(ii) Each person who is elected or appointed for the first time to be
a Non-Employee Director after July 14, 1999 automatically shall, upon the date
of his or her initial election or appointment to be a Non-Employee Director by
the Board or stockholders of the Company, be granted an Initial Grant to
purchase Twenty Thousand (20,000) shares of Common Stock on the terms and
conditions set forth herein.
(b) Annual Grants. On the day following each Annual Meeting commencing with
the Annual Meeting in 2001, each person who is then a Non-Employee Director and
has been a Non-Employee Director for at least six (6) months automatically shall
be granted an Annual Grant to purchase Ten Thousand (10,000) shares of Common
Stock on the terms and conditions set forth herein; provided, however, that,
with respect to the first Annual Grant made to any Non-Employee Director, at
least eighteen (18) months must have elapsed between the Initial Grant to such
person and the first Annual Grant to such person.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
- ---------------------
/1/ Section 260.140.45 generally provides that the total number of shares
issuable upon exercise of all outstanding options (exclusive of certain rights)
and the total number of shares called for under any stock bonus or similar plan
shall not exceed a number of shares which is equal to 30% of the then
outstanding shares of the issuer (convertible preferred or convertible senior
common shares counted on an as if converted basis), exclusive of shares subject
to promotional waivers under Section 260.141, unless a percentage higher than
30% is approved by at least two-thirds of the outstanding shares entitled to
vote.
5
<PAGE>
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Exercise Price.
(i) General. Subject to subsection 6(b)(ii) below, the exercise
price of each Option shall be one hundred percent (100%) of the Fair Market
Value of the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(ii) Ten Percent Stockholders. Prior to the Listing Date, the
exercise price of each Option granted to a Ten Percent Stockholder shall be (i)
one hundred ten percent (110%) of the Fair Market Value of the Common Stock at
the date of grant or (ii) subject to subsection 6(b)(i) above, such lower
percentage of the Fair Market Value of the Common Stock at the date of grant as
is permitted by Section 260.140.41 of Title 10 of the California Code of
Regulations at the time of the grant of the Option.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock, (ii) deferred payment or (iv) any other form of
legal consideration that may be acceptable to the Board and provided in the
Option Agreement; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) Transferability. An Option is not transferable, except (i) by will or
by the laws of descent and distribution, (ii) by instrument to an inter vivos or
testamentary trust, in a form accepted by the Company, in which the Option is to
be passed to beneficiaries upon the death of the trustor (settlor) and (iii) by
gift, in a form accepted by the Company, to a member of the "immediate family"
of the Optionholder as that term is defined in 17 C.F.R. 240.16a-1(e). In
addition, Optionholder may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(e) Vesting and Exercise.
(i) Initial Grants shall vest at the rate of 1/24th of the shares
subject to the Initial Grant per month over two (2) years from the date of
grant. An Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Optionholder's
6
<PAGE>
Initial Grant as to any part or all of the shares of Common Stock subject to the
Initial Grant prior to the full vesting of the Initial Grant. Any unvested
shares of Common Stock so purchased shall be subject to a seven-month repurchase
option (or such longer period of time required to avoid a charge to earnings for
financial accounting purposes) in favor of the Company and to any other
restriction that the Company determines to be appropriate. The Company will not
exercise its repurchase option until at least six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes) have elapsed following exercise of the Initial Grant.
(ii) Annual Grants shall be fully vested and exercisable on the date
of grant.
(f) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option but only within
such period of time ending on the earlier of (i) the date three (3) months
following the termination of the Optionholder's Continuous Service, or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(g) Extension of Termination Date. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
(h) Disability of Optionholder. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option, but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
termination or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified herein, the Option shall terminate.
(i) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised by the Optionholder's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the Option upon the Optionholder's death, but only within the period
ending on the earlier of (1) the date eighteen (18) months following the date of
death or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
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<PAGE>
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute general
funds of the Company.
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(b) No Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock.
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<PAGE>
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (iv)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.
(e) Information Obligation. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Optionholders at
least annually. This subsection 10(e) shall not apply to Optionholders whose
duties in connection with the Company assure them access to equivalent
information.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject both to the Plan pursuant to
subsection 4(a) and to the nondiscretionary Options specified in Section 5, and
the outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such outstanding
Options. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then the vesting and exercisability
of outstanding Options shall accelerate immediately prior to such event, and all
outstanding Options shall terminate immediately prior to such event.
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(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse Merger.
In the event of (i) a sale, lease or other disposition of all or substantially
all of the assets of the Company, (ii) a sale by the stockholders of the Company
of the voting stock of the Company to another corporation and/or its
subsidiaries that results in the ownership by such corporation and/or its
subsidiaries of eighty percent (80%) or more of the combined voting power of all
classes of the voting stock of the Company entitled to vote; (iii) a merger or
consolidation in which the Company is not the surviving corporation or (iv) a
reverse merger in which the Company 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, whether in the form of securities,
cash or otherwise, then any surviving corporation or acquiring corporation shall
assume any Options outstanding under the Plan or shall substitute similar
options (including an option to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c)) for those
outstanding under the Plan. Whether or not any surviving corporation or
acquiring corporation assumes such Options or substitutes similar options for
those outstanding under the Plan, the vesting and exercisability of outstanding
Options shall accelerate ten (10) days prior to such event. In the event any
surviving corporation or acquiring corporation refuses to assume such Options or
to substitute similar options for those outstanding under the Plan, then such
Options shall terminate if not exercised prior to such event.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to time, may
amend the terms of any one or more Options; provided, however, that the rights
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
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(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective upon adoption by the Board, but no Option
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
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TiVo Inc.
1999 Non-Employee Directors' Stock Option Plan
Stock Option Agreement
(Initial Grant)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, TiVo Inc. (the "Company") has granted you an option under its
1999 Non-Employee Directors' Stock Option Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. Vesting. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. Number of Shares and Exercise Price. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. Exercise prior to Vesting ("Early Exercise"). As permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement; and
(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred.
4. Method of Payment. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of
the exercise price in cash or by check or by one or more of the following:
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(a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
5. Whole Shares. You may exercise your option only for whole shares of
Common Stock.
6. Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also
comply with other applicable laws and regulations governing your option, and you
may not exercise your option if the Company determines that such exercise would
not be in material compliance with such laws and regulations.
7. Term. The term of your option commences on the Date of Grant and
expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service
for any reason other than your Disability or death, provided that if during any
part of such three- (3-) month period your option is not exercisable solely
because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
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(c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates; or
(d) the Expiration Date indicated in your Grant Notice.
8. Exercise.
(a) You may exercise your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of the exercise of your
option.
(c) Your option is not transferable, except (i) by will or by the laws
of descent and distribution, (ii) by instrument to an inter vivos or
testamentary trust, in a form accepted by the Company, in which the option is to
be passed to beneficiaries upon the death of the trustor (settlor) and (iii) by
gift, in a form accepted by the Company, to your "immediate family" as that term
is defined in 17 C.F.R. 240.16a-1(e). The term "immediate family" is defined in
17 C.F.R. 240.16a-1(e) to mean any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-
law, daughter-in-law, brother-in-law, or sister-in-law, and includes adoptive
relationships. Your option is exercisable during your life only by you or a
transferee satisfying the above-stated conditions. The right of a transferee to
exercise the transferred portion of your option after termination of your
Continuous Service shall terminate in accordance with your right to exercise
your option as specified in your option. In the event that your Continuous
Service terminates due to your death, your transferee will be treated as a
person who acquired the right to exercise your option by bequest or inheritance.
In addition to the foregoing, the Company may require, as a condition of the
transfer of your option to a trust or by gift, that your transferee enter into
an option transfer agreement provided by, or acceptable to, the Company. The
terms of your option shall be binding upon your transferees, executors,
administrators, heirs, successors, and assigns. Notwithstanding the foregoing,
by delivering written notice to the Company, in a form satisfactory to the
Company, you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.
9. Option not a Service Contract. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
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<PAGE>
10. Notices. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
11. Governing Plan Document. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
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<PAGE>
TiVo Inc.
Form of Early Exercise Stock Purchase Agreement
Under the 1999 Non-Employee Directors' Stock Option Plan
This Agreement is made by and between TiVo Inc., a Delaware corporation (the
"Company"), and _______________ ("Purchaser").
Witnesseth:
Whereas, Purchaser holds a stock option dated _______________ to purchase
shares of common stock ("Common Stock") of the Company (the "Option") pursuant
to the Company's 1999 Non-Employee Directors' Stock Option Plan (the "Plan");
and
Whereas, the Option consists of a Stock Option Grant Notice and a Stock Option
Agreement; and
Whereas, Purchaser desires to exercise the Option on the terms and conditions
contained herein; and
Whereas, Purchaser wishes to take advantage of the early exercise provision of
the Purchaser's Option and therefore to enter into this Agreement;
Now, therefore, it is agreed between the parties as follows:
1. Incorporation of Plan and Option by Reference. This Agreement is subject
to all of the terms and conditions as set forth in the Plan and the Option. If
there is a conflict between the terms of this Agreement and/or the Option and
the terms of the Plan, the terms of the Plan shall control. If there is a
conflict between the terms of this Agreement and the terms of the Option, the
terms of the Option shall control. Defined terms not explicitly defined in this
Agreement but defined in the Plan shall have the same definitions as in the
Plan. Defined terms not explicitly defined in this Agreement or the Plan but
defined in the Option shall have the same definitions as in the Option.
2. Purchase and Sale of Common Stock.
(a) Agreement to purchase and sell Common Stock. Purchaser hereby agrees
to purchase from the Company, and the Company hereby agrees to sell to
Purchaser, shares of the Common Stock of the Company in accordance with the
Notice of Exercise duly executed by Purchaser and attached hereto as Exhibit A.
(b) Closing. The closing hereunder, including payment for and delivery of
the Common Stock, shall occur at the offices of the Company immediately
following the execution of this Agreement, or at such other time and place as
the parties may mutually agree; provided, however, that if shareholder approval
of the Plan is required before the Option may be exercised,
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<PAGE>
then the Option may not be exercised, and the closing shall be delayed, until
such shareholder approval is obtained. If such shareholder approval is not
obtained within the time limit specified in the Plan, then this Agreement shall
be null and void.
3. Unvested Share Repurchase Option
(a) Repurchase Option. In the event Purchaser's Continuous Service
terminates, then the Company shall have an irrevocable option (the "Repurchase
Option") for a period of seven (7) months after said termination (or in the case
of shares issued upon exercise of the Option after such date of termination,
within seven (7) months after the date of the exercise), or such shorter or
longer period as may be agreed to by the Company and the Purchaser, to
repurchase from Purchaser or Purchaser's personal representative, as the case
may be, those shares that Purchaser received pursuant to the exercise of the
Option that have not as yet vested as of such termination date in accordance
with the Vesting Schedule indicated on Purchaser's Stock Option Grant Notice
(the "Unvested Shares").
(b) Shares Repurchasable at Purchaser's Original Exercise Price. The
Company may repurchase all or any of the Unvested Shares at a price ("Option
Price") equal to the Purchaser's Exercise Price for such shares as indicated on
Purchaser's Stock Option Grant Notice.
4. Exercise of Repurchase Option. The Repurchase Option shall be exercised
by written notice signed by an Officer of the Company and delivered or mailed as
provided herein. Such notice shall identify the number of shares of Common Stock
to be purchased and shall notify Purchaser of the time, place and date for
settlement of such purchase, which shall be scheduled by the Company within the
term of the Repurchase Option set forth above. The Company shall be entitled to
pay for any shares of Common Stock purchased pursuant to its Repurchase Option
at the Company's option in cash or by offset against any indebtedness owing to
the Company by Purchaser (including without limitation any Note given in payment
for the Common Stock), or by a combination of both. Upon delivery of such notice
and payment of the purchase price in any of the ways described above, the
Company shall become the legal and beneficial owner of the Common Stock being
repurchased and all rights and interest therein or related thereto, and the
Company shall have the right to transfer to its own name the Common Stock being
repurchased by the Company, without further action by Purchaser.
5. Capitalization Adjustments to Common Stock. In the event of a
"Capitalization Adjustment" affecting the Company's outstanding Common Stock as
a class as designated in the Plan, then any and all new, substituted or
additional securities or other property to which Purchaser is entitled by reason
of Purchaser's ownership of Common Stock shall be immediately subject to the
Repurchase Option and be included in the word "Common Stock" for all purposes of
the Repurchase Option with the same force and effect as the shares of the Common
Stock presently subject to the Repurchase Option, but only to the extent the
Common Stock is, at the time, covered by such Repurchase Option. While the
total Option Price shall remain the same after each such event, the Option Price
per share of Common Stock upon exercise of the Repurchase Option shall be
appropriately adjusted.
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6. Change in Control. In the event of a "Change in Control" as designated
in the Plan, then the Repurchase Option may be assigned by the Company to the
successor of the Company (or such successor's parent company), if any, in
connection with such Change in Control. To the extent the Repurchase Option
remains in effect following such Change in Control, it shall apply to the new
capital stock or other property received in exchange for the Common Stock in
consummation of the Change in Control, but only to the extent the Common Stock
was at the time covered by such right. Appropriate adjustments shall be made to
the price per share payable upon exercise of the Repurchase Option to reflect
the Change in Control upon the Company's capital structure; provided, however,
that the aggregate Option Price shall remain the same.
7. Escrow of Unvested Common Stock. As security for Purchaser's faithful
performance of the terms of this Agreement and to insure the availability for
delivery of Purchaser's Common Stock upon exercise of the Repurchase Option
herein provided for, Purchaser agrees, at the closing hereunder, to deliver to
and deposit with the Secretary of the Company or the Secretary's designee
("Escrow Agent"), as Escrow Agent in this transaction, three (3) stock
assignments duly endorsed (with date and number of shares blank) in the form
attached hereto as Exhibit B, together with a certificate or certificates
evidencing all of the Common Stock subject to the Repurchase Option; said
documents are to be held by the Escrow Agent and delivered by said Escrow Agent
pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth
in Exhibit C, attached hereto and incorporated by this reference, which
instructions shall also be delivered to the Escrow Agent at the closing
hereunder.
8. Rights of Purchaser. Subject to the provisions of the Option, Purchaser
shall exercise all rights and privileges of a shareholder of the Company with
respect to the shares deposited in escrow. Purchaser shall be deemed to be the
holder of the shares for purposes of receiving any dividends that may be paid
with respect to such shares and for purposes of exercising any voting rights
relating to such shares, even if some or all of such shares have not yet vested
and been released from the Company's Repurchase Option.
9. Limitations on Transfer. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not sell,
assign, hypothecate, donate, encumber or otherwise dispose of any interest in
the Common Stock while the Common Stock is subject to the Repurchase Option.
After any Common Stock has been released from the Repurchase Option, Purchaser
shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of
any interest in the Common Stock except in compliance with the provisions herein
and applicable securities laws. Furthermore, the Common Stock shall be subject
to any right of first refusal in favor of the Company or its assignees that may
be contained in the Company's Bylaws.
10. Restrictive Legends. All certificates representing the Common Stock
shall have endorsed thereon legends in substantially the following forms (in
addition to any other legend which may be required by other agreements between
the parties hereto):
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<PAGE>
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER,
OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY
SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT
OF THE COMPANY."
(b) Any legend required by appropriate blue sky officials.
11. Section 83(b) Election. Purchaser understands that Section 83(a) of the
Code, taxes as ordinary income the difference between the amount paid for the
Common Stock and the fair market value of the Common Stock as of the date any
restrictions on the Common Stock lapse. In this context, "restriction" includes
the right of the Company to buy back the Common Stock pursuant to the Repurchase
Option set forth above. Purchaser understands that Purchaser may elect to be
taxed at the time the Common Stock is purchased, rather than when and as the
Repurchase Option expires, by filing an election under Section 83(b) (an "83(b)
Election") of the Code with the Internal Revenue Service within thirty (30) days
from the date of purchase. Even if the fair market value of the Common Stock at
the time of the execution of this Agreement equals the amount paid for the
Common Stock, the 83(b) Election must be made to avoid income under Section
83(a) in the future. Purchaser understands that failure to file such an 83(b)
Election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that Purchaser must file an additional
copy of such 83(b) Election with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Common Stock hereunder, and does
not purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death. Purchaser assumes all responsibility for filing an 83(b)
Election and paying all taxes resulting from such election or the lapse of the
restrictions on the Common Stock.
12. Refusal to Transfer. The Company shall not be required (a) to transfer
on its books any shares of Common Stock of the Company which shall have been
transferred in violation of any of the provisions set forth in this Agreement or
(b) to treat as owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred.
13. No Employment Rights. This Agreement is not an employment contract and
nothing in this Agreement shall affect in any manner whatsoever the right or
power of the Company (or a parent or subsidiary of the Company) to terminate
Purchaser's employment for any reason at any time, with or without cause and
with or without notice.
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<PAGE>
14. Miscellaneous.
(a) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at such party's address hereinafter shown below its signature
or at such other address as such party may designate by ten (10) days' advance
written notice to the other party hereto.
(b) Successors and Assigns. This Agreement shall inure to the benefit
of the successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, Purchaser's successors,
and assigns. The Company may assign the Repurchase Option hereunder at any time
or from time to time, in whole or in part.
(c) Attorneys' Fees; Specific Performance. Purchaser shall reimburse
the Company for all costs incurred by the Company in enforcing the performance
of, or protecting its rights under, any part of this Agreement, including
reasonable costs of investigation and attorneys' fees. It is the intention of
the parties that the Company, upon exercise of the Repurchase Option and payment
of the Option Price, pursuant to the terms of this Agreement, shall be entitled
to receive the Common Stock, in specie, in order to have such Common Stock
available for future issuance without dilution of the holdings of other
shareholders. Furthermore, it is expressly agreed between the parties that money
damages are inadequate to compensate the Company for the Common Stock and that
the Company shall, upon proper exercise of the Repurchase Option, be entitled to
specific enforcement of its rights to purchase and receive said Common Stock.
(d) Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) Further Execution. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(f) Independent Counsel. Purchaser acknowledges that this Agreement
has been prepared on behalf of the Company by Cooley Godward llp, counsel to the
Company and that Cooley Godward llp does not represent, and is not acting on
behalf of, Purchaser. Purchaser has been provided with an opportunity to consult
with Purchaser's own counsel with respect to this Agreement.
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<PAGE>
(g) Entire Agreement; Amendment. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and merges all prior agreements or understandings, whether
written or oral. This Agreement may not be amended, modified or revoked, in
whole or in part, except by an agreement in writing signed by each of the
parties hereto.
(h) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
_______________.
TiVo Inc.
By _____________________________________
Title __________________________________
Address: 894 Ross Drive, Suite 100
Sunnyvale, CA 94089
________________________________________
Purchaser
Address: ________________________________________
________________________________________
Attachments:
Exhibit A Notice of Exercise
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
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Exhibit A
Notice of Exercise
<PAGE>
Exhibit B
Stock Assignment Separate from Certificate
<PAGE>
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
For Value Received, _______________________ hereby sells, assigns and
transfers unto TiVo Inc., a Delaware corporation (the "Company"), pursuant to
the Repurchase Option under that certain Early Exercise Stock Purchase
Agreement, dated _______________ by and between the undersigned and the Company
(the "Agreement"), _______________ (_______________) shares of Common Stock of
the Company standing in the undersigned's name on the books of the Company
represented by Certificate No(s). _______________ and does hereby irrevocably
constitute and appoint the Company's Secretary attorney to transfer said Common
Stock on the books of the Company with full power of substitution in the
premises. This Assignment may be used only in accordance with and subject to
the terms and conditions of the Agreement, in connection with the repurchase of
shares of Common Stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: _______________
________________________________
(Signature)
________________________________
(Print Name)
(Instruction: Please do not fill in any blanks other than the "Signature" line
and the "Print Name" line.)
<PAGE>
Exhibit C
Joint Escrow Instructions
<PAGE>
JOINT ESCROW INSTRUCTIONS
Secretary
TiVo Inc.
894 Ross Drive, Suite 100
Sunnyvale, CA 94089
Dear Sir or Madam:
As Escrow Agent for both TiVo Inc., a Delaware corporation ("Company"), and
the undersigned purchaser of Common Stock of the Company ("Purchaser"), you are
hereby authorized and directed to hold the documents delivered to you pursuant
to the terms of that certain Early Exercise Stock Purchase Agreement
("Agreement"), dated _______________ to which a copy of these Joint Escrow
Instructions is attached as Exhibit C, in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to exercise the
Repurchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
Common Stock to be purchased, the purchase price, and the time for a closing
hereunder at the principal office of the Company. Purchaser and the Company
hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of Common Stock to be transferred, to the Company against
the simultaneous delivery to you of the purchase price (which may include
suitable acknowledgment of cancellation of indebtedness) of the number of shares
of Common Stock being purchased pursuant to the exercise of the Repurchase
Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of Common Stock to be held by you hereunder and
any additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as the Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of the
Repurchase Option, whichever occurs first.
<PAGE>
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as the Purchaser's attorney-in-fact and agent to the full extent of
your appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
<PAGE>
13. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities, you
are authorized and directed to retain in your possession without liability to
anyone all or any part of said securities until such dispute shall have been
settled either by mutual written agreement of the parties concerned or by a
final order, decree or judgment of a court of competent jurisdiction after the
time for appeal has expired and no appeal has been perfected, but you shall be
under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including delivery
by express courier or five days after deposit in the United States Post Office,
by registered or certified mail with postage and fees prepaid, addressed to each
of the other parties hereunto entitled at the following addresses, or at such
other addresses as a party may designate by ten days' advance written notice to
each of the other parties hereto:
COMPANY: TiVo Inc.
894 Ross Drive, Suite 100
Sunnyvale, CA 94089
PURCHASER: __________________________________
__________________________________
__________________________________
ESCROW AGENT: Secretary
TiVo Inc.
894 Ross Drive, Suite 100
Sunnyvale, CA 94089
15. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
(including without limitation the firm of Cooley Godward LLP) as you may deem
necessary properly to advise you in connection with your obligations hereunder.
You may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor. The Company shall be responsible for all fees
generated by such legal counsel in connection with your obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
<PAGE>
18. This Agreement shall be governed by and interpreted and determined in
accordance with the laws of the State of Delaware, as such laws are applied by
Delaware courts to contracts made and to be performed entirely in Delaware by
residents of that state.
Very truly yours,
TiVo Inc.
By__________________________
Title_______________________
PURCHASER:
____________________________
Escrow Agent:
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated January 17, 2000
included in this Form 10-K into the Company's previously filed Registration
Statements on Form S-8 (No. 333-94629). It should be noted that we have not
audited any financial statements of the company subsequent to December 31, 1999
or performed any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 139,687
<SECURITIES> 6,168
<RECEIVABLES> 337
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 148,781
<PP&E> 4,061
<DEPRECIATION> 831
<TOTAL-ASSETS> 152,842
<CURRENT-LIABILITIES> 18,454
<BONDS> 1,141
0
0
<COMMON> 38
<OTHER-SE> 210,090
<TOTAL-LIABILITY-AND-EQUITY> 152,842
<SALES> 223
<TOTAL-REVENUES> 223
<CGS> 0
<TOTAL-COSTS> 4,067
<OTHER-EXPENSES> 65,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 466
<INCOME-PRETAX> (66,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,565)
<EPS-BASIC> ($5.49)
<EPS-DILUTED> ($5.49)
</TABLE>
