TiVo 2006 Annual Report Download - page 89

Table of Contents
law that restricts the sale of gift certificates in California containing an expiration date. On March 23, 2007, the Court entered final judgment in the lawsuit
approving the Company's settlement agreement with plaintiffs that included no admission or findings of any violations and dismissed the action. The
settlement did not have a material effect on the Company's results of operations.
Securities Litigation. On June 12, 2001, a securities class action lawsuit in which the Company and certain of its officers and directors are named as
defendants was filed in the United States District Court for the Southern District of New York. This action, which is captioned Wercberger v. TiVo et al., also
names several of the underwriters involved in the Company's initial public offering as defendants. This class action was brought on behalf of a purported class
of purchasers of the Company's common stock from October 31, 1999, the time of its initial public offering, through December 6, 2000. The central allegation
in this action is that the underwriters in the initial public offering solicited and received undisclosed commissions from, and entered into undisclosed
arrangements with, certain investors who purchased TiVo common stock in the initial public offering and the after-market. The complaint also alleges that the
TiVo defendants violated the federal securities laws by failing to disclose in the initial public offering prospectus that the underwriters had engaged in these
alleged 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, TiVo's 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 the Company and the other issuer defendants. The proposed settlement provides
that the plaintiffs will be guaranteed $1.0 billion dollars in recoveries by the insurers of the Company and other issuer defendants. Accordingly, any direct
financial impact of the proposed settlement is expected to be borne by the Company's insurers in accordance with the proposed settlement. In addition, the
Company and the other settling issuer defendants will assign to the plaintiffs certain claims that they may have against the underwriters. If recoveries in
excess of $1.0 billion dollars are obtained by the plaintiffs from the underwriters, the Company's and the other issuer defendants' monetary obligations to the
class plaintiffs will be satisfied. Furthermore, the settlement is subject to a hearing on fairness and approval by the Federal District Court overseeing the
litigations. On February 15, 2005, the Court issued an order preliminarily approving the terms of the proposed settlement. The Court also certified the
settlement classes and class representatives for purposes of the proposed settlement only. On April 24, 2006, the Court held a fairness hearing to determine
whether the proposed settlement should be approved. It is possible that the Federal District Court may not provide final approval to the settlement in whole or
part. On December 5, 2006, the United States Court of Appeals for the 2nd Circuit issued a decision in In re: Initial Public Offering Securities Litigation
(Docket No. 05-3349-cv), reversing the Federal District Court's finding that six focus cases involved in this litigation could be certified as class actions. It is
not yet clear what impact, if any, the decision may have on the proposed settlement agreement. Plaintiffs have filed a petition for rehearing and/or for en banc
review of the Second Circuit's decision, and the Federal District Court has indicated that it will not make any decision regarding the proposed settlement until
the Second Circuit decides whether it will consider a rehearing. On January 24, 2007, the Second Circuit ordered the Underwriters to file a response on certain
issues to Plaintiffs' request for a rehearing. Due to the inherent uncertainties of litigation and assignment of claims against the underwriters, and because the
settlement has not yet been finally approved by the Federal District Court, the ultimate outcome of the matter cannot be predicted. In accordance with SFAS
No. 5, "Accounting for Contingencies" the Company believes any contingent liability related to this claim is not probable or estimable and therefore no
amounts have been accrued in regards to this matter as of January 31, 2007.
The Company is involved in numerous lawsuits and receives numerous threats of litigation in the ordinary course of its business. The Company
assesses potential liabilities in connection with these lawsuits and threatened lawsuits under SFAS No. 5. The Company accrues an estimated loss
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