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Table of Contents
15. INVESTMENT IN TGC, INC.
On August 9, 2004, the Company acquired a minority interest in TGC, Inc. ("TGC"), a newly formed independent entity. In exchange for the
Company's interest in TGC, it granted TGC a license to certain aspects of its technology for use in The People's Republic of China, Singapore, Hong Kong,
Macau and The Republic of China. The Company accounts for its investment in TGC under the equity method of accounting as it owns less than 50% of
TGC's equity. No gain was recognized by the Company for its interest in TGC. There is significant uncertainty as to the realization of a gain due to the start-
up nature of TGC. Accordingly since the intellectual property licensed had no carrying value on the Company's financial statements, no value has been
assigned to the Company's interest in TGC. This transaction did not have a material effect on the Company's results of operations in fiscal years 2005 and
2006 as TGC's activity and financial position were not material.
Through TGC, the Company has gained access to high quality, engineering resources for the design and development of additional digital video
recorder platforms. TGC engages in design, development, and licensing activities related to digital video recorder platforms and technology. In fiscal years
2005 and 2006, TGC performed design and development activities related to a potential TiVo product for the US market. During fiscal year ended January 31,
2006 the Company paid TGC $894,000 for a variety of services including research and development, and service fees related to designing and building the
Company's product. In December 2005, TGC launched a DVR product that includes TiVo technology and branding in The Republic of China. Management
expects TGC will pursue opportunities to market TiVo technology in The Republic of China, Singapore, Hong Kong, and Macau. TGC's technology license
from TiVo is exclusive for the first five years and non-exclusive to TGC for a perpetual period afterwards. Subject to certain terms and conditions, this license
grants TGC limited access to portions of TiVo's source code and provides for both parties to exchange improvements to that code during the first five years.
The Company will be entitled to royalty payments from TGC in limited circumstances. In addition, TGC has agreed not to market, without the prior consent
of TiVo, any DVR products or DVR services that do not support the TiVo service outside of The People's Republic of China, Singapore, Hong Kong, Macau
and The Republic of China. In the United States, TGC may offer DVR products that support the U.S. TiVo service to TiVo, authorized TiVo licensees, or
with TiVo's prior approval, retail distributors.
As of January 31, 2006, TiVo's preferred share investment accounted for approximately 49.3% of TGC's equity (approximately 44.1% on a fully-
diluted basis assuming the issuance of options to executives of TGC). The remainder of TGC's shareholders include financial investors (including New
Enterprise Associates, a stockholder of TiVo Inc. that has a representative on TiVo's board of directors and holds less then 10% of TGC's equity) and certain
members of TGC's management team who have contributed cash or services in exchange for equity. The Company has two seats on TGC's five-member
board of directors. Subject to restrictions and under specific circumstances, the Company also has a limited call right to acquire all of TGC after five years or
upon a change of control of TiVo at a premium to TGC's fair market value. The Company also has the right to acquire at least a majority of TGC in the event
of a TGC initial public offering at the net initial public offering price. TGC is incorporated in the Cayman Islands.
With the approval of the Company's board of directors, Ta-Wei Chien, TiVo's former Senior Vice President, General Manager of TiVo Technologies,
serves as TGC's Chief Executive Officer and Chairman of TGC's board of directors. Mr. Chien resigned from his position at TiVo on August 3, 2004.
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