TiVo 2004 Annual Report Download - page 82

Table of Contents
Index to Financial Statements
provided that any such affiliate agrees to be bound by the terms of the Stockholders and Registration Rights Agreement, and that it agrees to
transfer such securities back to AOL if it ceases to be an affiliate of AOL;
• AOL will not, subject to certain exceptions, acquire additional equity securities of TiVo without the Company's prior written consent;
• AOL will not make any solicitation of proxies or seek to influence any person with respect to TiVo voting securities without the Company's prior
written consent; and
• AOL will not submit any offer or purchase proposal that is required to be made public by TiVo for any merger, consolidation, purchase of
substantial assets or tender offer for the Company's securities without the Company's prior written consent.
In addition, the Stockholders and Registration Rights Agreement granted AOL the right to designate one person for election to the Company's Board of
Directors. In lieu of a Board member, AOL had the right to appoint an observer to attend all regular and special meetings of the Board of Directors. AOL was
also entitled under the Stockholders and Registration Rights Agreement to receive financial and other information from TiVo, and have access to TiVo
management. AOL waived these rights pursuant to the Funds Release Agreement.
Funds Release Agreement
In addition to providing for the release of the restricted funds and the amendments to the Company's other agreements with AOL described above, TiVo
and AOL also agreed to the following pursuant to the Funds Release Agreement that, at any time when AOL is no longer an affiliate of the Company, and
subject to owning a minimum number of shares, AOL will be required to notify TiVo before making a block sale of greater than 500,000 shares at a discount
of greater than a specified percentage and TiVo will have the option, in lieu of such block sale, to facilitate an underwritten secondary offering of such shares.
Initial Common Stock Warrants A and B
Under the terms of the Investment Agreement, the Company issued two initial warrants that vested immediately:
• one warrant to purchase up to 2,308,475 shares of common stock at an initial exercise price of $23.11 per share,
• one warrant to purchase up to 295,428 shares of common stock at an initial exercise price of $30.00.
Pursuant to the Second Amendment to the Investment Agreement, on January 30, 2001 the Company issued amended initial warrants to AOL which
reduced the per share exercise price of both initial warrants to $7.29 per share.
The initial warrant exercisable for 2,308,475 shares expired unexercised on December 31, 2001. The initial warrant exercisable for 295,428 shares
expired unexercised on December 31, 2003. The estimated fair value of the initial warrants and the incremental fair value of the warrants as a result of the
reduction in the per share exercise price was recognized as prepaid marketing expense within stockholders deficit and was being amortized over the term of
the Product Integration and Marketing Agreement. The remaining unamortized portion of this prepaid marketing expense of $11.6 million at January 31,
2002, was expensed as sales and marketing—related parties expense during the quarter ended April 30, 2002 since the June 2000 Investment Agreement was
terminated by the April 2002 Funds Release Agreement.
14. DEVELOPMENT AGREEMENT AND SERVICES AGREEMENT WITH DIRECTV, INC.
On February 15, 2002, the Company entered into a product development agreement (the "Development Agreement") and a services agreement (the
"Services Agreement") with DIRECTV, Inc., with whom it jointly introduced the first DIRECTV receiver with the Company's digital video recording
technology in October of 2000. The Development Agreement provides for the development of the next generation DIRECTV-TiVo combination receiver,
based on the Company's Series2 digital video recording technology platform, known as the "Provo receiver" and for software upgrades to the existing
combination receivers, known as "Reno receivers," to enable customers to receive the upgraded DVR functionality.
Under the Development Agreement, DIRECTV assumed primary responsibility for customer acquisition and support for all next-generation DIRECTV
receivers, as well as packaging and branding of DIRECTV's digital video recording services. The revenue share provision on the Reno receivers was
discontinued and replaced by a per-household monthly fee that DIRECTV pays to TiVo. The per-household monthly fee also applies to the Provo receivers.
Therefore, under this new agreement, the relationship with the consumer was changed so that DIRECTV provides primary customer service and support to
DIRECTV subscribers with TiVo service.
76