TiVo 2003 Annual Report Download - page 42

Table of Contents
September 30, 1999, the time of our initial public offering, through December 6, 2000. The central allegation in this action is that our IPO underwriters
solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased our common stock in
our IPO and in the after-market. The complaint also alleges that the TiVo defendants violated the federal securities laws by failing to disclose in our IPO
prospectus that the underwriters had engaged in these allegedly undisclosed arrangements. More than 150 issuers have been named in similar lawsuits. In July
2002, an omnibus motion to dismiss all complaints against issuers and individual defendants affiliated with issuers (including the TiVo defendants) was filed
by the entire group of issuer defendants in these similar actions. On October 8, 2002, our officers were dismissed as defendants in the lawsuit. On February
19, 2003, the court in this action issued its decision on defendants' omnibus motion to dismiss. This decision dismissed the Section 10(b) claim as to TiVo but
denied the motion to dismiss the Section 11 claim as to TiVo and virtually all of the other issuer-defendants.
On June 26, 2003, the plaintiffs announced a proposed settlement with us and the other issuer defendants. The proposed settlement provides that the
insurers of all settling issuers will guarantee that the plaintiffs recover $1 billion from non-settling defendants, including the investment banks who acted as
underwriters in those offerings. In the event that the plaintiffs do not recover $1 billion, the insurers for the settling issuers will make up the difference. Under
the proposed settlement, the maximum amount that could be charged to our insurance policy in the event that the plaintiffs recovered nothing from the
investment banks would be approximately $3.9 million. We believe that we have sufficient insurance coverage to cover the maximum amount that we may be
responsible for under the proposed settlement. Our board of directors approved the proposed settlement at a meeting held on June 25, 2003. It is possible that
the parties may not reach agreement on the final settlement documents or that the Federal District Court may not approve the settlement in whole or part. In
the event that the parties do not reach agreement on the final settlement, we believe we have meritorious defenses and intend to defend this action vigorously;
however, we could be forced to incur material expenses in the litigation, and in the event there is an adverse outcome, our business could be harmed.
Legislation, laws or regulations that govern the television industry, the delivery of programming and the collection of viewing information
from subscriptions could expose us to legal action if we fail to comply or could require us to change our business.
The delivery of television programming and the collection of viewing information from subscriptions via the TiVo service and a DVR represent a
relatively 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, the enactment of new legislation, or the expansion, enforcement or interpretation of existing laws could expose us
to additional costs and expenses and could require changes to our business. For example, legislation regarding customer privacy or copyright could be enacted
or expanded to apply to the TiVo service, which could adversely affect our business. New or existing 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 digital video
recorder 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 companies on whom we substantially rely for the marketing and distribution of the DVR 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.
Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs and may affect our ability to be in
compliance with such new corporate governance provisions in the future.
The existing federal securities laws and regulations impose complex and continually changing regulatory requirements on our operations and reporting.
With the enactment of the Sarbanes-Oxley Act of 2002 in July 2002, a significant number of new corporate governance requirements have been adopted or
proposed. These new requirements impose comprehensive reporting and disclosure requirements, set stricter independence and financial expertise standards
for audit committee members, and impose increased civil and criminal penalties for companies, their chief executive officers, chief financial officers and
directors for securities law violations. We expect these developments to increase our legal compliance costs, increase the difficulty and expense in obtaining
director and officer liability insurance, and make it harder for us to attract and retain qualified members of our board of directors and/or qualified executive
officers. Such developments could harm our results of operations and divert management's attention from business operations. Additionally, we will have to
comply with Section 404 of the
41