TiVo 2003 Annual Report Download - page 81

Table of Contents
On October 6, 2000, TiVo and DIRECTV signed a Warrant and Registration Rights Agreement. Under the terms of this agreement, DIRECTV had the
right to purchase shares of TiVo common stock for each sale of the DIRECTV receiver with TiVo recorder. The strike price is calculated as the average daily
closing price of a share of common stock of the Company as reported on the Nasdaq for the five trading days prior to the last day of the month in which the
warrants were earned. As of January 31, 2002, DIRECTV had earned the right to receive common stock warrants to purchase 155,941 shares at exercises
prices ranging from $4.58-$12.88. These warrants have since been transferred by DIRECTV to Hughes Electronics Corporation. The fair value of each
warrant 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 3.99% and 5.85%; expected dividend yield of zero percent; term of two years for the warrants; and
expected volatility of 70%. The remaining warrants expire on April 16, 2004.
On February 15, 2002, the Company entered into a product development agreement and a 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. (See Note 12. "Development
Agreement with DIRECTV, Inc.").
Philips Agreement
On March 31, 1999, the Company entered into an agreement with Philips for the manufacture, marketing and distribution of digital video recorders that
enable the TiVo service. Subject to certain limitations, this agreement granted Philips the right to manufacture, market, and sell digital video recorders that
enable the TiVo service in North America. Philips was also granted the right to manufacture, market, and sell digital video recorders in North America that
incorporate both DIRECTV's satellite receiver and the TiVo service. The Company also granted Philips a limited license to TiVo technology for the purpose
of manufacturing digital video recorders that enable the TiVo service.
The Company agreed to pay Philips a subsidy on each digital video recorder manufactured and sold by Philips under this agreement. A portion of the
subsidy amount paid to Philips was due when the digital video recorder was shipped. The remaining portion was due when the subscriber activated the TiVo
service. The Company recorded the subsidy as sales and marketing—related parties expense. In addition to these amounts, the Company agreed to pay Philips
a fixed amount per month for each Philips-branded digital video recorder that had a subscription to the TiVo service.
The Philips agreement terminated on July 30, 2003.
Sony Agreement
On August 6, 1999, the Company entered into a Letter of Intent with Sony for the manufacture, marketing and distribution of digital video recorders
that enable the TiVo service. Subject to certain limitations, this agreement grants Sony the right to manufacture, market, and sell digital video recorders that
enable the TiVo service in North America. Sony was also granted the right to manufacture, market, and sell digital video recorders in North America that
incorporates both DIRECTV's satellite receiver and the TiVo service. The Company also granted Sony a limited license to TiVo technology for the purpose of
developing and manufacturing digital video recorders and other devices that enable the TiVo service.
The Company had agreed to pay Sony a subsidy on each digital video recorder manufactured and sold by Sony under this agreement. The amount of the
subsidy is periodically adjusted based on Sony's manufacturing costs and selling prices. The subsidy amount paid to Sony is due when the digital video
recorder is shipped. The Company records the subsidy as sales and marketing—related parties expense upon shipment. In addition to these amounts, the
Company has agreed to pay Sony a calculated amount per month for each Sony-branded digital video recorder that has a subscription to the TiVo service.
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