TiVo 2003 Annual Report Download - page 80

Table of Contents
delivery services. The acquisition was accounted for as an intangible asset purchase as Strangeberry as a company was in the development stage. The
purchase price of approximately $1.9 million was allocated to developed technology that will be amortized into cost of revenues over its estimated life of 5
years. In exchange for all of the issued and outstanding capital stock of Strangeberry, the Company issued 216,760 shares of TiVo common stock, par value $.
001, to the stockholders of Strangeberry in a private placement. Redpoint Associates II, LLC and Redpoint Ventures II, LP were stockholders of Strangeberry
prior to the acquisition. One of the managing directors of Redpoint Ventures II, LLC who exercises investment control over Redpoint Associates II, LLC and
Redpoint Ventures III, LP is a member of our board of directors. In addition, the Company issued 108,382 shares of restricted stock to four former employees
of Strangeberry that vest over 2 years of continued employment with TiVo Inc.
15. MARKETING AND MANUFACTURING AGREEMENTS
Maxtor 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 digital 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 Maxtor
a portion of the TiVo service subscription fees it receives from the digital video recorders and other devices equipped with these hard disk drives. For the year
ended January 31, 2004 the Company expensed $1.4 million as sales and marketing—related parties expense for payments made under this revenue share
agreement.
On June 16, 2000, the Company entered into a second amendment to the agreement with Maxtor revising provisions relating to, among other things, the
rebate terms, audit and business reporting rights, marketing obligations and hard disk drive specifications.
In April 2001, Maxtor acquired Quantum's hard disk drive business. In March 2003, as part of the formal novation of the agreement, Maxtor assumed
all the rights and responsibilities under the agreement. Additionally, the novation extinguished a security interest Maxtor held in hard disk drives purchased by
TiVo and in the accounts receivable associated with the TiVo service.
DIRECTV Agreement
On April 13, 1999, 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 provides 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 1,128,867 shares of common stock in exchange for a $2.8 million promissory note due at the end of a three-year
service period that began October 2000. 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 was
amortized into sales and marketing—related parties expense as the bandwidth services were provided over the three-year service period. DIRECTV repaid the
note by providing bandwidth capacity at no additional charge. Amortization of the prepaid marketing expense and the note receivable began in calendar year
2000. For the fiscal years ended January 31, 2004, 2003, and 2002, $627,000, $941,000, and $941,000 was amortized, respectively, for providing bandwidth
as repayment of the note receivable as sales and marketing—related parties expense. In addition, $1.0 million, $1.5 million, and $1.5 million, was amortized
for prepaid marketing expense as sales and marketing—related parties expense for the fiscal years ended January 31, 2004, 2003, and 2002, respectively.
In addition to the equity consideration for DIRECTV's marketing services described above, DIRECTV receives a percentage of TiVo's subscription
revenues attributable to DIRECTV/TiVo subscribers. These amounts are expensed as incurred and included in sales and marketing—related parties expense.
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