-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UXtquwdy5rNQXrbEYPpJJRIdBAyHkmbt6X+pxD2E8UkM9W8gtAAO1twAthBstbIk 4jRMxXov3v2RYG7UeQBwng== 0001012870-01-501874.txt : 20010917 0001012870-01-501874.hdr.sgml : 20010917 ACCESSION NUMBER: 0001012870-01-501874 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF DATE: 20010914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIVO INC CENTRAL INDEX KEY: 0001088825 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 770463167 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27141 FILM NUMBER: 1737545 BUSINESS ADDRESS: STREET 1: 2160 GOLD STREET STREET 2: PO BOX 2160 CITY: ALVISO STATE: CA ZIP: 95002 BUSINESS PHONE: 4087476080 MAIL ADDRESS: STREET 1: 894 ROSS DRIVE STREET 2: SUITE 100 CITY: SUNNYVALE STATE: CA ZIP: 94089 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange - --- Act of 1934. For the quarterly period ended July 31, 2001. Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ___________________to___________________ Commission file number 000-27141 --------- TIVO INC. (Exact name of registrant as specified in its charter) Delaware 77-0463167 - -------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2160 Gold Street, PO Box 2160, Alviso, CA 95002 - ----------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) (408) 519-9100 -------------------------------------------------------------- (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of outstanding shares of the registrant's Common Stock, $0.001 par value, was 43,654,241 as of September 10, 2001. TABLE OF CONTENTS PART I : FINANCIAL INFORMATION................................................. 3 ITEM 1. Financial Statements............................................... 3 Consolidated Balance Sheets........................................ 3 Consolidated Statements of Operations.............................. 5 Consolidated Statements of Stockholders' Equity (Deficit).......... 6 Consolidated Statements of Cash Flows.............................. 7 Notes to Financial Statements...................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 19 Item 3. Quantitative and Qualitative Disclosure About Market Risk.......... 36 PART II : OTHER INFORMATION.................................................... 37 Item 1. Legal Proceedings.................................................. 37 Item 2. Changes in Securities and Use of Proceeds.......................... 38 Item 3. Defaults Upon Senior Securities.................................... 38 Item 4. Submission of Matters to a Vote of Security Holders................ 38 Item 5. Other Information.................................................. 39 Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 39 Signatures.................................................................. 43
The accompanying notes are an integral part of these statements. 2 PART I: FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements TIVO INC. CONSOLIDATED BALANCE SHEETS
Pro Forma July 31, July 31, January 31, 2001 2001 2001 ------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents ........................................ $ 79,098,000 $ 38,298,000 $124,474,000 Short-term investments ........................................... 1,989,000 1,989,000 -- Restricted cash .................................................. 51,156,000 51,156,000 50,104,000 Accounts receivable, net of allowance for doubtful accounts of $294,000 and $201,000, as of July 31, 2001 and January 31, 2001 657,000 657,000 1,834,000 Accounts receivable-related parties, net of allowance for doubtful accounts of $62,000 and $62,000, as of July 31, 2001 and January 31, 2001 ....................................................... 3,301,000 3,301,000 4,816,000 Prepaid expenses and other ....................................... 9,368,000 4,983,000 6,693,000 Prepaid expenses and other-related parties ....................... 17,419,000 4,319,000 1,698,000 ------------ ------------ ------------ Total current assets ........................................... 162,988,000 104,703,000 189,619,000 ACCOUNTS RECEIVABLE-RELATED PARTIES, long-term ...................... 560,000 560,000 -- PROPERTY AND EQUIPMENT, net of accumulated depreciation of $8,133,000 and $4,813,000 as of July 31, 2001 and January 31, 2001 ....... 21,599,000 21,599,000 21,924,000 ------------ ------------ ------------ Total assets .......................................... $185,147,000 $126,862,000 $211,543,000 ============ ============ ============ LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) LIABILITIES CURRENT LIABILITIES Accounts payable ................................................. $ 6,679,000 $ 6,679,000 $ 21,971,000 Accrued liabilities .............................................. 17,144,000 17,144,000 19,863,000 Accrued liabilities-related parties .............................. 30,285,000 25,285,000 49,839,000 Deferred interest income on restricted cash ...................... 3,156,000 3,156,000 2,104,000 Deferred revenue, short-term ..................................... 9,127,000 9,127,000 6,210,000 Current portion of obligations under capital lease ............... 786,000 786,000 796,000 ------------ ------------ ------------ Total current liabilities ...................................... 67,177,000 62,177,000 100,783,000 LONG-TERM LIABILITIES Long-term portion of obligations under capital lease ............. 157,000 157,000 538,000 Accrued liabilities-related parties .............................. 3,126,000 3,126,000 -- Convertible notes payable ........................................ 29,927,000 -- -- Convertible notes payable-related parties ........................ 12,215,000 -- -- Deferred revenue ................................................. 16,795,000 16,795,000 12,113,000 Other long-term liabilities ...................................... 908,000 908,000 1,217,000 ------------ ------------ ------------ Total long-term liabilities .................................... 63,128,000 20,986,000 13,868,000 ------------ ------------ ------------ Total liabilities ..................................... 130,305,000 83,163,000 114,651,000 ------------ ------------ ------------
The accompanying notes are an integral part of these statements. 3 TIVO INC. CONSOLIDATED BALANCE SHEETS (continued)
Pro Forma July 31, July 31, January 31, 2001 2001 2001 ----------------------------------------------- REDEEMABLE CONVERTIBLE PREFERRED STOCK Series A Redeemable convertible preferred stock, par value $0.001: Issued and outstanding shares at July 31, 2001 and January 31, 2001 are 1,600,000 ........................................... $ 2,000 $ 2,000 $ 2,000 Additional paid-in capital ..................................... 46,553,000 46,553,000 46,553,000 ------------- ------------- ------------- Total redeemable convertible preferred stock ......... 46,555,000 46,555,000 46,555,000 STOCKHOLDERS' EQUITY (DEFICIT) Series A Convertible preferred stock, par value $0.001: Authorized shares at July 31, 2001 and January 31, 2001 are 10,000,000 Issued and outstanding shares at July 31, 2001 and January 31, 2001 are 1,111,861 ....................................... $ 1,000 $ 1,000 $ 1,000 Common stock, par value $0.001: Authorized shares at July 31, 2001 and January 31, 2001 are 150,000,000 Issued and outstanding shares at July 31, 2001 and January 31, 2001 are 43,648,918 and 43,430,023 ....................... 44,000 44,000 43,000 Additional paid-in capital ..................................... 418,344,000 407,201,000 406,294,000 Deferred compensation .......................................... (1,771,000) (1,771,000) (2,786,000) Prepaid marketing expenses ..................................... (19,400,000) (19,400,000) (48,458,000) Note receivable ................................................ (2,038,000) (2,038,000) (2,509,000) Retained deficit ............................................... (386,893,000) (386,893,000) (302,248,000) ------------- ------------- ------------- Total stockholders' equity (deficit) ................. 8,287,000 (2,856,000) 50,337,000 ------------- ------------- ------------- Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) ............. $ 185,147,000 $ 126,862,000 $ 211,543,000 ============= ============= =============
The accompanying notes are an integral part of these statements. 4 TIVO INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended July 31, July 31, -------------------------- -------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Revenues .................................................................. $ 4,106,000 $ 869,000 $ 7,302,000 $ 1,368,000 Costs and expenses Cost of services (excludes ($7,000) and $32,000 of amortization of stock-based compensation for the quarters ended July 31, 2001 and July 31, 2000, respectively and ($37,000) and $77,000 for the six months ended July 31, 2001 and July 31, 2000, respectively) ................. 4,415,000 4,295,000 9,911,000 9,289,000 Research and development (excludes $112,000 and $201,000 of amortization of stock-based compensation for the quarters ended July 31, 2001 and July 31, 2000, respectively and $208,000 and $464,000 for the six months ended July 31, 2001 and July 31, 2000, respectively) ........................................................ 6,786,000 6,788,000 13,613,000 11,632,000 Sales and marketing (excludes $143,000 and $280,000 of amortization of stock-based compensation for the quarters ended July 31, 2001 and July 31, 2000, respectively and $291,000 and $548,000 for the six months ended July 31, 2001 and July 31, 2000, respectively) ........................................................ 5,756,000 16,422,000 18,776,000 24,901,000 Sales and marketing-related parties .................................... 16,146,000 9,293,000 39,634,000 12,635,000 General and administrative (excludes $91,000 and $295,000 of amortization of stock-based compensation for the quarters ended July 31, 2001 and July 31, 2000, respectively and $166,000 and $693,000 for the six months ended July 31, 2001 and July 31, 2000, respectively) ........................................................ 4,288,000 3,720,000 8,796,000 6,698,000 Stock-based compensation ............................................... 339,000 808,000 628,000 1,782,000 ------------ ------------ ------------ ------------ Loss from operations ................................................. (33,624,000) (40,457,000) (84,056,000) (65,569,000) Interest income .................................................. 607,000 1,752,000 1,998,000 3,518,000 Interest expense and other ....................................... (604,000) (276,000) (655,000) (377,000) ------------ ------------ ------------ ------------ Net loss ............................................................. (33,621,000) (38,981,000) (82,713,000) (62,428,000) Less: Series A redeemable convertible preferred stock dividend ........................................... (840,000) -- (1,932,000) -- ------------ ------------ ------------ ------------ Net loss attributable to common stock ..................................... $(34,461,000) $(38,981,000) $(84,645,000) $(62,428,000) ============ ============ ============ ============ Net loss per common share basic and diluted .................................................... $ (0.82) $ (1.09) $ (2.02) $ (1.75) ============ ============ ============ ============ Weighted average common shares outstanding basic and diluted .................................................... 42,094,554 35,864,820 41,940,982 35,663,178 ============ ============ ============ ============
The accompanying notes are an integral part of these statements. 5 TIVO INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Convertible Additional Preferred Stock Common Stock Paid-In ----------------------------- ----------------------------- Shares Amount Shares Amount Capital ------------- ------------- ------------ ------------- ------------- BALANCE, JANUARY 31, 2001.......................... 1,111,861 $ 1,000 43,430,023 $ 43,000 $ 406,294,000 Series A redeemable convertible preferred stock dividend declared, $0.40 per share............. -- -- -- -- -- Issuance of common stock-employee stock purchase plan........................................... -- -- 193,840 -- 746,000 Exercise of stock options for common stock....... -- -- 8,741 -- 15,000 Common stock repurchases......................... -- -- (52,545) -- (20,000) Issuance of common stock warrants for marketing expenses....................................... -- -- -- -- 120,000 Recognition of prepaid marketing expenses........ -- -- -- -- -- Amortization of value of warrants................ -- -- -- -- -- Amortization of prepaid marketing expenses....... -- -- -- -- -- Reversal of deferred compensation................ -- -- -- -- (336,000) Recognition of stock-based compensation expense.. -- -- -- -- -- Amortization of note receivable.................. -- -- -- -- -- Net loss......................................... -- -- -- -- -- ------------- ------------- ------------ ------------- ------------- BALANCE, APRIL 30, 2001.......................... 1,111,861 $ 1,000 43,580,059 43,000 406,819,000 Series A redeemable convertible preferred stock dividend declared, $0.31 per share............. -- -- -- -- -- Exercise of stock options for common stock....... -- -- 68,859 1000 217,000 Issuance of common stock warrants for marketing expenses....................................... -- -- -- -- 216,000 Recognition of prepaid marketing expenses....... -- -- -- -- -- Amortization of value of warrants................ -- -- -- -- -- Amortization of prepaid marketing expenses....... -- -- -- -- -- Reversal of deferred compensation................ -- -- -- -- (51,000) Recognition of stock-based compensation expense.. -- -- -- -- -- Amortization of note receivable.................. -- -- -- -- -- Net loss......................................... -- -- -- -- -- ------------- ------------- ------------ ------------- ------------- BALANCE, JULY 31, 2001........................... 1,111,861 $ 1,000 43,648,918 $ 44,000 $ 407,201,000 ============= ============= ============ ============= ============= Prepaid Deferred Marketing Note Retained Compensation Expense Receivable Deficit Total ------------- ------------- ------------ ------------- ------------- BALANCE, JANUARY 31, 2001.......................... $ (2,786,000) (48,458,000) $ (2,509,000) $(302,248,000) $ 50,337,000 Series A redeemable convertible preferred stock dividend declared, $0.40 per share............. -- -- -- (1,092,000) (1,092,000) Issuance of common stock-employee stock purchase plan........................................... -- -- -- -- 746,000 Exercise of stock options for common stock....... -- -- -- -- 15,000 Common stock repurchases......................... -- -- -- -- (20,000) Issuance of common stock warrants for marketing expenses...................................... -- -- -- -- 120,000 Recognition of prepaid marketing expenses........ -- 14,116,000 14,116,000 Amortization of value of warrants................ -- 1,755,000 -- -- 1,755,000 Amortization of prepaid marketing expenses....... -- 1,881,000 -- -- 1,881,000 Reversal of deferred compensation................ 336,000 -- -- -- -- Recognition of stock-based compensation expense.. 289,000 -- -- -- 289,000 Amortization of note receivable.................. -- -- 236,000 -- 236,000 Net loss......................................... -- -- -- (49,092,000) (49,092,000) ------------- ------------- ------------ ------------- ------------- BALANCE, APRIL 30, 2001.......................... (2,161,000) (30,706,000) (2,273,000) (352,432,000) 19,291,000 Series A redeemable convertible preferred stock dividend declared, $0.31 per share............. -- -- -- (840,000) (840,000) Exercise of stock options for common stock....... -- -- -- -- 218,000 Issuance of common stock warrants for marketing expenses....................................... -- -- -- -- 216,000 Recognition of prepaid marketing expenses........ -- 7,611,000 7,611,000 Amortization of value of warrants................ -- 1,814,000 -- -- 1,814,000 Amortization of prepaid marketing expenses....... -- 1,881,000 -- -- 1,881,000 Reversal of deferred compensation................ 51,000 -- -- -- -- Recognition of stock-based compensation expense.. 339,000 -- -- -- 339,000 Amortization of note receivable.................. -- -- 235,000 -- 235,000 Net loss......................................... -- -- -- (33,621,000) (33,621,000) ------------- ------------- ------------ ------------- ------------- BALANCE, JULY 31, 2001........................... $ (1,771,000) $ (19,400,000) $ (2,038,000) $(386,893,000) $ (2,856,000) ============= ============= ============ ============= =============
The accompanying notes are an integral part of these statements. 6 TIVO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended July 31, ---------------------------- 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss ................................................... $(82,713,000) $(62,428,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .......................... 3,320,000 1,238,000 Issuance of common stock warrants for services ......... 336,000 193,000 Amortization of prepaid marketing expenses ............. 3,762,000 4,089,000 Amortization of warrants for services .................. 3,569,000 19,000 Recognition of prepaid marketing expense ............... 21,727,000 -- Stock-based compensation expense ....................... 628,000 1,782,000 Amortization of note receivable ........................ 471,000 -- Changes in assets and liabilities: Accounts receivable .................................... 1,177,000 (32,000) Accounts receivable-related parties .................... 1,515,000 (2,588,000) Prepaid expenses and other ............................. 1,710,000 (1,122,000) Prepaid expenses and other-related parties ............. (2,621,000) (454,000) Accounts receivable-related parties, long-term ......... (560,000) -- Accounts payable ....................................... (15,292,000) 5,380,000 Accrued liabilities .................................... (2,719,000) (3,208,000) Accrued liabilities-related parties .................... (24,554,000) 8,963,000 Deferred revenue ....................................... 2,917,000 3,426,000 Accrued liabilities-related parties, long term ......... 3,126,000 -- Deferred revenue, long term ............................ 4,682,000 -- Other long-term liabilities ............................ (309,000) 1,436,000 ------------ ------------ Net cash used in operating activities ................... (79,828,000) (43,306,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment ...................... (2,995,000) (13,075,000) (Purchase) of short-term investments, net .................. (1,989,000) (2,327,000) ------------ ------------ Net cash used in investing activities .................... (4,984,000) (15,402,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Series A convertible preferred stock dividend .............. (1,932,000) -- Proceeds from issuance of common stock - employee stock purchase plan .......................................... 746,000 1,142,000 Proceeds from exercise of common stock options .......... 233,000 475,000 Issuance costs related to issuance of common stock through initial public offering .................................... (14,000) Repurchases of common stock ................................ (20,000) 7,000 Net borrowings (payments) under capital lease .............. (391,000) (242,000) ------------ ------------ Net cash (used in) provided by financing activities ...... (1,364,000) 1,368,000 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............ (86,176,000) (57,340,000) ------------ ------------
The accompanying notes are an integral part of these statements. 7 TIVO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended July 31, ---------------------------- 2001 2000 ------------ ------------ CASH AND CASH EQUIVALENTS: Balance at beginning of period ............................. 124,474,000 137,658,000 ------------ ------------ Balance at end of period ................................... $ 38,298,000 $ 80,318,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest ..................................... $ 601,000 $ 69,000 SUPPLEMENTAL DISCLOSURE OF RESTRICTED CASH AND OTHER NON-CASH FINANCING INFORMATION Interest earned on restricted cash ......................... 1,052,000 -- Equipment acquired under capital lease ..................... -- 121,000
The accompanying notes are an integral part of these statements. 8 TIVO INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS TiVo Inc. (the "Company" or "TiVo") was incorporated in August 1997 as a Delaware corporation and is located in Alviso, California. On August 21, 2000, TiVo (UK) Limited, a wholly owned subsidiary of TiVo Inc., was incorporated in the United Kingdom. The Company has developed a subscription-based personal television service (the "TiVo Service") that provides viewers with the ability to pause, rewind and play back live or recorded television broadcasts, as well as to search for, watch and record programs. The TiVo Service also provides television listings, daily suggestions and special viewing packages. The TiVo Service relies on three key components: the personal video recorder, the TiVo remote control and the TiVo Broadcast Center. The Company conducts its operations through one reportable segment. The Company continues to be subject to certain risks, including the uncertainty of availability of additional financing; dependence on third parties for manufacturing, marketing and sales support; the uncertainty of the market for personal television; dependence on key management; limited manufacturing, marketing and sales experience; and the uncertainty of future profitability and positive cash flow. TiVo has recognized limited revenue, has incurred significant losses and has had substantial negative cash flow. During the quarter ended July 31, 2001, TiVo recognized revenues of $4.1 million. As of July 31, 2001, TiVo had an accumulated deficit of $386.9 million. On August 28, 2001, the Company closed a private placement of $51.8 million of convertible debt with net proceeds of approximately $40.8 million to accredited investors. The Company intends to use the net proceeds from the sales of these notes with warrants for marketing and promotion, customer service and general corporate purposes. The unaudited pro forma consolidated balance sheet as of July 31, 2001 shows the effect as if the private placement of convertible debt of $51.8 million had closed as of July 31, 2001, instead of the closing date of the offering, August 28, 2001. TiVo received cash proceeds of approximately $43.7 million and non-cash proceeds of $8.1 million in the form of advertising and promotional services from Discovery Communications, Inc. ("Discovery") and the National Broadcasting Company, Inc. ("NBC"), who are existing shareholders. TiVo anticipates its issuance cost to be approximately $2.9 million resulting in net proceeds of approximately $40.8 million. Additionally, as part of the agreement for convertible debt, TiVo entered into a non-cancelable commitment to pay $5.0 million on or before October 1, 2001, to NBC for advertising that will run during the period beginning October 1, 2001 and ending December 31, 2001 (see Note 5). Unaudited Interim Consolidated Financial Statements The accompanying consolidated balance sheets as of July 31, 2001 and the accompanying consolidated statements of operations, consolidated statements of stockholders' equity (deficit) and consolidated statements of cash flows for the six months ended July 31, 2001 and 2000 included herein have been prepared by the Company and are unaudited. The information furnished in the unaudited financial statements referred to above include all normal adjustments that are, in the opinion of management, necessary for a fair presentation of such financial statements. The results of operations for the three and six months ended July 31, 2001 are not necessarily indicative of results for the entire fiscal year or future periods. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash equivalents The Company classifies financial instruments as cash equivalents if the original maturity of such instruments is three months or less. 9 Short-term Investments Short-term investments consist of commercial paper investments and certificates of deposit with original maturities at the date of purchase ranging between three and twelve months. The Company classifies these investments as held to maturity and records the instruments at amortized cost, which approximates fair value due to the short maturities. Restricted Cash Under the terms of the Investment Agreement between America Online, Inc. ("AOL") and TiVo, dated June 9, 2000 and the First Amendment to the Investment Agreement dated September 11, 2000 (the "Investment Agreement"), the Company deposited $91.5 million into an interest bearing escrow account as restricted cash. The $91.5 million in restricted cash is intended to be used for subsidy payments to manufacturer(s) in accordance with the Production Integration and Marketing Agreement between AOL and TiVo, (the "Commercial Agreement"). On January 30, 2001, the Company entered into the Second Amendment to the Investment Agreement with AOL (the "Second Amendment"). The Second Amendment provided for, among other things, an amendment to the Escrow Agreement, dated as of September 11, 2000, by and among the Company, AOL and U.S. Trust Company, National Association, as escrow agent, pursuant to which the Company had deposited a portion of the proceeds it received from AOL in connection with AOL's purchase of shares of the Company's Series A redeemable convertible preferred stock. The First Amendment to the Escrow Agreement, dated as of January 30, 2001, authorized the release to the Company of $43.5 million in restricted funds previously held in escrow pursuant to the Escrow Agreement (see Note 4). Accounts Receivable - Related Parties Accounts Receivable-related parties consist of amounts owed to the Company from the Company's strategic partners such as DIRECTV, Inc. ("DIRECTV"), Philips Business Electronics B.V. ("Philips"), Quantum Corporation ("Quantum") and Sony Corporation of America ("Sony"). These receivables are comprised of monies collected from subscribers on the Company's behalf, volume discounts and amounts owed for reimbursement of a portion of the Company's development costs. Prepaid Expenses and Other Prepaid expenses consist of payments made in advance of recognizing the expense, including primarily marketing expenses related to media purchases and trade show expenses. Other consists primarily of TiVo stand-alone recorders and DIRECTV receivers with TiVo Service held for future marketing programs. Prepaid Expenses and Other - Related Parties Prepaid expenses and other-related parties consist of payments made to our partners in advance of recognizing the expense primarily resulting from the Company's revenue share arrangements. Other consists primarily of prepaid joint advertising with our partners. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over estimated useful lives as follows: Furniture and fixtures................ 3-5 years Computer and office equipment......... 3-5 years Lab equipment......................... 3 years Leasehold improvements................ 7 years or the life of the lease Capitalized software.................. 1-5 years Maintenance and repair expenditures are expensed as incurred. 10 Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in the period in which the rate change occurs. Valuation allowances have been established when necessary to reduce deferred tax assets to the amounts expected to be recovered. Accrued Liabilities - Related Parties, Long-Term Accrued liabilities -related parties, long-term consist of the long-term portion of negotiated deferred payment of payables due as of March 31, 2001 with our partners who are existing shareholders. Pro Forma Convertible Notes Payable, Long-Term Convertible notes payable, long-term consist of the long-term portion of the notes issued as a result of the private placement which closed on August 28, 2001 (see Note 5). Pro Forma Convertible Notes Payable - Related Parties, Long-Term Convertible notes payable, long-term consist of the long-term portion of the notes issued to our existing shareholders as a result of the private placement which closed on August 28, 2001 (see Note 5). Other Long-Term Liabilities Other long-term liabilities consist of deferred rent. Deferred rent of $908,000 results from the recognition of rent expense under the facilities lease amortized on a straight line basis over 7 years, the life of the related lease. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate fair value due to the short-term maturity of these instruments. Business Concentrations and Credit Risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash. The Company maintains cash with various financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. The majority of the Company's customers are concentrated in the United States. The Company is subject to a minimal amount of credit risk related to these customers as subscription revenue is primarily obtained through credit card sales. The reserve for doubtful accounts at July 31, 2001 was $294,000 and $62,000 for accounts receivable and accounts receivable--related parties, respectively. The Company does not consider credit risk associated with accounts receivable-related parties (DIRECTV, Philips, Sony, AOL and Quantum) to be significant Stock-Based Compensation and Stock Exchanged for Services The Company has elected to follow Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee stock options. Under APB 25, when the exercise price of employee stock options is less than the market price of the underlying stock on the date of grant, compensation expense is recorded for the difference between fair value and the exercise price. Expense associated with 11 stock-based compensation is being amortized on an accelerated basis over the vesting period of the individual award, generally four years. The method of amortization is in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 28, under which value assigned to options vesting in future periods is ratably amortized beginning upon issuance of the option rather than at the vesting date. The Company has recorded stock-based compensation expenses of $339,000 for the quarter ended July 31, 2001. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The value of warrants, options or stock exchanged for services is expensed over the period benefited. The warrants and options are valued using the Black-Scholes option pricing model. To calculate the expense, the Company uses either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Revenue Recognition In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 clarifies the SEC staff's views on application of generally accepted accounting principles to revenue recognition. The Company has concluded its revenue recognition policy continues to be appropriate and in accordance with generally accepted accounting principles and SAB 101. Revenue arises from two sources, subscription revenue and non-subscription revenue. Subscription revenues represent revenues from customer subscriptions to the TiVo Service. Subscriptions to the TiVo Service are available on a monthly or lifetime basis. Subscription fees are generally charged to customers' credit cards and are generally billed in advance on a monthly basis. A lifetime subscription covers the life of the particular personal video recorder purchased. Revenues from subscriptions are recognized ratably over the subscription period. Subscription revenues from lifetime subscriptions are recognized ratably over a four-year period, the best estimate of the useful life of the personal video recorder. Deferred revenue relates to subscription fees collected but for which service has not yet been provided. Non-subscription revenue primarily includes Charter Advertising and Sponsorship revenue from consumer companies and media networks who have provided content on the TiVo Service. Revenue is recognized as the advertising and content is delivered. Research and Development Research and development expenses consist primarily of employee salaries and related expenses and consulting fees relating to the development of the TiVo Service and products that enable the TiVo Service. Research and development costs are expensed as incurred. Sales and Marketing--Related Parties Expense Sales and marketing--related parties expense consists of cash and non-cash charges related to the Company's agreements with DIRECTV, Philips, Quantum, Sony, AOL and Creative Artists Agency, LLC ("CAA"), all of which hold stock in the Company. Other Operating Expense, Net Prior to the transition of manufacturing and distribution responsibility to Philips in the fourth quarter of 1999, the Company sold personal video recorders directly to consumers. The Company's direct sales of personal video recorders of $13.5 million, less the cost of the personal video recorders sold of $20.7 million for the year ended December 31, 1999 was classified as other operating expense, net. Other operating expense, net is considered incidental to the Company's business and was recognized upon shipment to the customer. 12 Advertising Costs In accordance with Statement of Position 93-7, "Reporting on Advertising Costs," the Company expensed advertising costs as incurred. Advertising expenses were $8.9 million for the three months ended July 31, 2001 including expenses related to a portion of the AOL media insertion orders (See Note 4). Comprehensive Income The Company has no material components of other comprehensive income or loss and, accordingly, the comprehensive loss is the same as the net loss for all periods presented. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to prior years' financial information to conform with the current period presentation. Net Loss Per Common Share Net loss per share is calculated in accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB No. 98). Under the provisions of SFAS No. 128 and SAB No. 98, Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Shares used in the computation of the three and six months ended July 31, 2001, net loss per share amount do not include repurchasable common stock issued to DIRECTV, options and warrants to purchase common stock, Series A convertible preferred stock and Series A redeemable convertible preferred stock (see Note 4) and unvested, repurchasable common stock issued under the employee stock option plans. 3. COMMITMENTS AND CONTINGENCIES Facilities Leases In April 2001, the Company entered into a new office lease for its UK office with Thomas Lawrence & Sons (Bracknell) Limited for Prince Leopold House in Windsor, Berkshire. The lease has a five-year term. Monthly rent is approximately $8,000. 4. AOL RELATIONSHIP On September 13, 2000, the Company closed the Investment Agreement with AOL for $200 million. Under the terms of the Investment, the Company issued 2,711,861 shares of Series A redeemable convertible preferred stock at $30.00 per share, 5,134,722 shares of common stock at $23.11 per share, 806,889 shares of which were subject to redemption as of December 31, 2000, two initial warrants to purchase an aggregate of 2,603,903 shares of the Company's common stock and two performance warrants to purchase an aggregate of up to 5,207,806 shares of common stock. The portion of common stock subject to redemption is shown as redeemable common stock on the Company's consolidated financial statements. The two performance warrants are contingent upon future performance. The AOL investment is part of a three-year Commercial Agreement, in which TiVo became an AOL TV programming partner, offering AOL TV subscribers access to features of TiVo's Personal TV Service. 13 On January 30, 2001, the Company entered into the Second Amendment to the Investment Agreement with AOL, dated as of June 9, 2000, as amended by the First Amendment to the Investment Agreement, dated as of September 11, 2000. The Second Amendment provided for, among other things, an amendment to the Escrow Agreement, dated as of September 11, 2000, by and between the Company and AOL in which the Company had deposited a portion of the proceeds it received from AOL in connection with AOL's purchase of shares of the Company's Series A redeemable convertible preferred stock. Restricted Cash Under the terms of the Investment Agreement, the Company deposited $91.5 million of the proceeds received from the AOL investment in an escrow account as restricted cash. In accordance with the Commercial Agreement, $91.5 million of the restricted cash is intended to be used as subsidy payments to manufacturer(s) of set-top boxes that enable the TiVo Service. However, the restricted cash would be used in the event AOL exercises its put option to repurchase Series A redeemable convertible preferred stock and their portion of common stock subject to redemption. The terms of the put option are described below. The interest income earned on this restricted cash is shown on the consolidated balance sheets as deferred interest income on restricted cash until such time as the cash is no longer restricted. For the quarter ended July 31, 2001, $459,000 was deferred as interest income. The First Amendment to the Escrow Agreement, dated as of January 30, 2001, authorized the release to the Company of $43.5 million in restricted funds previously held in escrow pursuant to the Escrow Agreement. Series A Redeemable Convertible Preferred Stock In September 2000, the Company issued 2,711,861 shares of Series A redeemable convertible preferred stock at $30.00 per share to AOL in exchange for $81.4 million, before issuance costs of $2.4 million. In January 2001, under the terms of the Second Amendment, 1,111,861 shares of Series A redeemable convertible preferred had their redemption feature removed. As of January 31, 2001, each of the 1,600,000 shares of the Series A redeemable convertible preferred stock is initially convertible into one share of common stock, subject to adjustment for stock splits, dividends, combinations, reclassifications or similar transactions, as provided in the Company's Amended and Restated Certificate of Incorporation. The Series A redeemable convertible preferred stock is convertible upon AOL's option or is mandatorily convertible if the price of the Company's common stock exceeds $30.00 per share for 18 trading days in any 20 consecutive trading day period. Put Option Under the terms of the First Amendment to the Investment Agreement, if the set-top box launch of the Integrated Product does not occur by December 31, 2001, and AOL has not committed a material breach of the Commercial Agreement or the Company has breached its obligations with respect to the financial covenants, then AOL would have a put option pursuant to which AOL could require the Company to repurchase from AOL the number of shares of Series A redeemable convertible preferred stock which have an initial liquidation value of $91.5 million. If all the shares of Series A redeemable convertible preferred stock have an aggregate initial liquidation value of less than $91.5 million, then AOL could require the Company to repurchase the number of shares of common stock having a value equal to the difference between that aggregate initial liquidation value and $91.5 million. In the event that the set-top box launch occurred after the planned launch date, but prior to the exercise of the put option, the put option would immediately expire. The Second Amendment to the Investment Agreement modified the terms of AOL's put option with respect to the Series A redeemable convertible preferred stock held by AOL. Under the Second Amendment, the Company could be required to repurchase that number of shares of Series A redeemable convertible preferred stock having a liquidation value of $48.0 million, which is equal to the amount of the funds remaining in the restricted cash account, following AOL's release of $43.5 million of restricted cash in January 2001, excluding any interest earned on such funds. 14 Series A Redeemable Convertible Preferred Stock Dividend Under the terms of the Investment Agreement between AOL and the Company, the Company issued Series A redeemable convertible preferred stock, with certain dividend and voting rights. Dividends on the Series A convertible preferred stock are calculated by multiplying the Non-Government Institutional Funds Simple Average Rate by $30.00 per share times the number of shares of Series A convertible preferred stock outstanding. Dividends are payable quarterly as declared by the Company's Board of Directors. As of July 31, 2001, $256,000 was payable. Common Stock In September 2000, the Company issued 5,134,722 shares of common stock at $23.11 per share, of which 806,889 shares were subject to redemption as of December 31, 2000, to AOL in exchange for $118.6 million, before issuance costs of $4.4 million. As of July 31, 2001, there were no shares of common stock subject to redemption under the Second Amendment to the Investment Agreement signed in January 2001. Initial Common Stock Warrants A and B In September 2000, in conjunction with AOL's investment, the Company issued two initial warrants to AOL to purchase common stock. The initial warrants were vested immediately and exercisable as follows: . Initial Warrant A - AOL was issued warrants to purchase 2,308,475 shares of common stock at $23.11 per share. The Company is expensing the estimated fair value of the warrants of $13.5 million over 3 years, the term of the Commercial Agreement. The estimated fair value of the warrants was determined using the Black-Scholes option pricing model. The principal assumptions used in the computation are: 16-month term; fair market value at the date of issuance of $20.00 per share; a risk-free rate of return of 6.05%; dividend yield of zero percent; and a volatility of 70%. . Initial Warrant B - AOL was issued warrants to purchase 295,428 shares of common stock at $30.00 per share. The Company is expensing the estimated fair value of the warrants of $2.5 million over 3 years, the term of the Commercial Agreement. The estimated fair value of the warrants was determined using the Black-Scholes option pricing model. The principal assumptions used in the computation are: 40-month term; fair market value at the date of issuance of $20.00 per share; a risk-free rate of return of 6.05%; dividend yield of zero percent; and a volatility of 70%. In January 2001, the Second Amendment to the Investment Agreement provided for the reduction in the exercise price of the two initial warrants. The Company issued amended warrants to AOL, which reduced the per share exercise price of AOL's warrant to purchase 2,308,475 shares of common stock from $23.11 to $7.29, and reduced the per share exercise price of AOL's warrant to purchase 295,428 shares of common stock from $30.00 to $7.29. The initial warrants are vested immediately and exercisable as follows: . Initial Warrant A - AOL was issued warrants to purchase 2,308,475 shares of common stock at $7.29 per share. The Company is expensing the estimated incremental fair value of the repriced warrants of $4.2 million over the remaining term of the Commercial Agreement (original term of 3 years). The estimated fair value of the warrants was determined using the Black-Scholes option pricing model. The principal assumptions used in the computation are: 9-month remaining life of the warrant; fair market value at the date of issuance of $7.13 per share; a risk-free rate of return of 6.05%; dividend yield of zero percent; and a volatility of 70%. . Initial Warrant B - AOL was issued warrants to purchase 295,428 shares of common stock at $7.29 per share. The Company is expensing the estimated incremental fair value of the repriced warrants of $720,000 over the remaining term of the Commercial Agreement (original term of 3 years). The estimated fair value of the warrants was determined using the Black-Scholes option pricing model. The principal assumptions used in the computation are: 33-month remaining life of the warrant; fair market value at the date of issuance of $7.13 per share; a risk-free rate of return of 6.05%; dividend yield of zero percent; and a volatility of 70%. 15 The expiration of Initial Warrant A is December 31, 2001 and Initial Warrant B expires December 31, 2003. The estimated incremental fair value of the warrants of $4.9 million was recorded as prepaid marketing expense (contra-equity) as of January 31, 2001. Performance Warrants In conjunction with AOL's investment in September 2000, the Company issued two performance warrants to AOL to purchase common stock. If AOL meets certain performance criteria, it may exercise these two performance warrants to purchase common stock. The warrants are exercisable as follows: . Performance Warrant A - AOL was issued warrants to purchase up to 2,603,903 shares of common stock at the exercise price described below. Performance Warrant A may be exercised within six months following the execution of the Launch Commitment. The Launch Commitment is a binding contractual commitment to market the Integrated Service to 1,500,000 activated users on Time Warner cable systems. . Performance Warrant B - AOL was issued warrants to purchase up to 2,603,903 shares of common stock at the exercise price described below. Performance Warrant B may be exercised within the six month period following the date on which AOL notifies the Company that 1,500,000 activated users of the Integrated Service exist at one time. Performance Warrants A and B shall be valued at the date that AOL meets the performance criteria. The exercise price for each performance warrant is equal to 90% of the average of the last reported trading prices of the Common Stock on the Nasdaq for the ten consecutive trading days preceding the date of AOL's Notice of Exercise. Performance Warrant A shall be valued at the date that TiVo receives a written binding contractual commitment from AOL for the set- top box launch to occur on cable television systems owned or controlled by Time Warner or its affiliates in markets where TiVo has the potential to acquire at least 1.5 million activated users in the aggregate on such cable systems. Performance Warrant B shall be valued at the date that it is probable that AOL will meet the performance criteria of notifying the Company that 1,500,000 activated users of the Integrated Service exist at one time. If the Company were to value the performance warrants as of July 31, 2001, it would record the estimated value of the performance warrants of $3.7 million as prepaid marketing expense (contra-equity). If market conditions at the time that AOL earns the performance warrants are different than those at July 31, 2001 than the valuation of the warrants could significantly increase or decrease from the following calculated valuation: . Performance Warrant A - AOL would be issued warrants to purchase up to 2,603,903 shares of common stock at $6.57 per share. Performance Warrant A would be valued when it is earned by AOL. The Company would expense the estimated fair value of the warrants of $1.9 million over 3 years, the term of the Commercial Agreement. The estimated fair value of the warrants would be determined using the Black-Scholes option pricing model. The principal assumptions that would be used in the computation are: 6-month term; fair market value at the date of issuance of $7.30 per share; a risk-free rate of return of 3.44%; dividend yield of zero percent; and a volatility of 50%. . Performance Warrant B - AOL would be issued warrants to purchase up to 2,603,903 shares of common stock at $6.57 per share. Performance Warrant B would be valued when it is probable of being earned by AOL. The Company would expense the estimated fair value of the warrants of $1.9 million over 3 years, the term of the Commercial Agreement. The estimated fair value of the warrants would be determined using the Black-Scholes option pricing model. The principal assumptions that would be used in the computation are: 6-month term; fair market value at the date of issuance of $7.30 per share; a risk-free rate of return of 3.44%; dividend yield of zero percent; and a volatility of 50%. Additionally, Performance Warrants A and B would also become exercisable immediately upon the occurrence of either a material breach of the Commercial Agreement by the Company or if the Company enters into a definitive agreement for a change of control of the Company. The performance warrants would expire on the earlier of September 11, 2003 or in the event that AOL commits a material breach of the Commercial Agreement. 16 Since these warrants are contingent on AOL's performance or probable performance and the criteria have not been met at this time, the Company has not recorded nor valued the performance warrants at this time in the financial statements. If market conditions at the time that AOL earns the performance warrants are different than those at July 31, 2001 than the valuation of the warrants could significantly increase or decrease from the above amount. AOL Advertising Insertion Order Under the terms of the Investment Agreement, the Company has agreed to pay $12.0 million to AOL for advertising media under the AOL Advertising Insertion Order. On September 13, 2000, $8.5 million of this amount was paid to AOL. The Company recorded this payment as prepaid marketing expense (contra equity). On January 30, 2001, the Company signed an additional media insertion order with AOL Time Warner for $21.5 million in advertising programs to promote the TiVo Service on AOL Time Warner properties. The $21.5 million media insertion order was comprised of $3.5 million, the balance of the original AOL Insertion Order, and 18.0 million. As of July 31, 2001, the Company recorded $27.0 million of advertising expense. Financial Covenants Under the terms of the Investment Agreement, the Company must maintain a positive net cash position in excess of $25.0 million measured, at the end of each fiscal quarter. Net cash is defined as consolidated current assets (excluding deferred tax assets and escrowed funds) minus consolidated current liabilities (excluding deferred revenue, deferred interest income on escrowed funds, sublessee prepaid rent and leasing obligations). The Company advises AOL monthly, on an informational basis, of the Company's net cash position. Per the agreement, if the Company falls below the $25.0 million net cash position at the end of a quarter, AOL has the right to exercise its put option. The Company was not in compliance with this covenant as of the end of the second quarter of this fiscal year. On July 22, 2001, AOL agreed to waive its right to exercise its put option as of the July 31, 2001 measurement date and instead measure such minimum capital requirement and have such right to exercise its put option as of August 31, 2001. On August 28, 2001, the Company closed a private placement of $51.8 million of convertible debt and warrants to accredited investors. With the completion of the private placement, the Company was in compliance with the net cash position requirement as of August 31, 2001. The financial covenants shall terminate upon the earlier of the date of the set-top box launch, so long as such set-top box launch occurs before the planned launch date, the expiration of the put option or the day following the first anniversary of the planned launch date. 5. SUBSEQUENT EVENTS Private Placement Financing On August 28, 2001, the Company closed a private placement of $51.8 million of convertible debt with warrants to accredited investors. The consolidated balance sheets as of July 31, 2001 includes a pro forma column that shows the effect as if the private placement of $51.8 million had closed as of July 31, 2001, instead of the closing date of the offering, August 28, 2001. The pro forma balance sheet data has been calculated based upon the following assumptions and estimates: . Cash and cash equivalents have increased by $40.8 million for the estimated net cash proceeds from this offering. The $40.8 million is estimated to be the aggregate purchase price of the securities offered of $51.8 million, less the cash issuance costs of an estimated $2.9 million and the non-cash advertising and promotional services consideration of an estimated $8.1 million from NBC and Discovery, who are existing shareholders. 17 . Prepaid expenses and other have increased by $4.4 million for cash and non-cash financing costs and the value of beneficial conversion. . Prepaid expenses and other -related parties have increased by $13.1 million for prepaid advertising. A total of $8.1 million of the $13.1 million is for prepaid advertising media that will be provided by our existing shareholders, Discovery and NBC. Additionally, as part of the agreement for convertible debt, TiVo has entered into a non-cancelable commitment to pay NBC $5.0 million on or before October 1, 2001 for advertising that will run during the period beginning October 1, 2001 and ending December 31, 2001. . Accrued liabilities -related parties have increased by $5.0 million due to an advertising commitment to a certain existing shareholder. As part of the agreement for convertible debt, TiVo has entered into a non-cancelable commitment to pay NBC $5.0 million on or before October 1, 2001 for advertising that will run during the period beginning October 1, 2001 and ending December 31, 2001. . Convertible notes payable, long-term increased by $29.9 million as a result of the face value of the notes less the value of the warrants issued to note holders. . Convertible notes payable-related parties, long-term increased by $12.2 million as a result of the face value of the notes less the value of the warrants issued to existing shareholders. . Additional paid-in capital increased by $11.1 million for the value of the warrants issued to note holders, the non-cash financing costs and the value of beneficial conversion. The private placement consisted of the following securities: . $51,750,000 of 7% Convertible Senior Notes due 2006. The notes --------------------------------------------------- are convertible at any time, unless earlier redeemed pursuant to their terms, into TiVo common stock at an initial conversion price of $6.73 per share, which is calculated as 120% of $5.61 the fair market value of TiVo common stock on the pricing date of August 23, 2001. A beneficial conversion amount of $983,000 will be recorded as additional interest expense over the life of the debt. . Warrants to purchase TiVo common stock over the next five years. --------------------------------------------------------------- These warrants give investors the right to purchase a total of approximately 2.5 million additional shares at an exercise price of $7.85 per share. The warrants expire in five years. The estimated fair value of the warrants was determined using both the Black-Scholes and binomial option pricing models. The principal assumptions that would be used in the Black-Scholes computation are: 5 - year term; fair market value at the date of issuance of $7.85 per share; a risk-free rate of return of 4.42%; dividend yield of zero percent; and a volatility of 50%. . Additional Warrants. As part of the private placement, TiVo ------------------- issued two additional sets of warrants. One set of warrants, which expire after one year unless earlier terminated, gives investors the right to purchase a total of approximately 3.8 million additional shares of TiVo common stock at a cash price of $6.73 per share. The other set of warrants, which expire after five years unless earlier terminated, gives investors the right to purchase a total of approximately 1.3 million additional shares of TiVo common stock at a price of $7.85 per share. These five-year terminable warrants may only be exercised if the one-year warrants have been exercised. The estimated fair value of the warrants was determined using both the Black-Scholes and binomial option pricing models. The principal assumptions that would be used in the Black-Scholes computation for the one year warrants are: 1-year term; fair market value at the date of issuance of $6.73 per share; a risk-free rate of return of 4.42%; dividend yield of zero percent; and a volatility of 50%. The principal assumptions that would be used in the Black-Scholes computation for the five-year warrants are: 5-year term; fair market value at the date of issuance of $7.85 per share; a risk- free rate of return of 4.42%; dividend yield of zero percent; and a volatility of 50%. The value of the warrants will be accreted expense over the five-year life of the notes payable. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements regarding our anticipated financial results, revenues, subscribers, use of funds and business plan. You can recognize forward-looking statements by use of the words "believes," "anticipates," "expects," and words of similar import or the negative of those terms or expressions. Such forward-looking statements will have known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual results could differ materially from those set forth in such forward-looking statements as a result of the "Factors That May Affect Future Operating Results" and other risks detailed in the Company's reports filed with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- During the quarter ended July 31, 2001, TiVo maintained continued interest from the advertising community in using TiVo as an advertising platform. TiVo's Charter Advertising partners include companies such as Lexus, Miller Brewing and Pfizer. During this quarter, BMW and Coca Cola signed up as TiVo's latest partners. While minimal revenue has been earned to date, by the end of the quarter, TiVo had accumulated over $1.1 million of backlog for future advertising revenues. On August 28, 2001, the Company closed a private placement of $51.8 million of convertible debt with warrants to accredited investors. The unaudited pro forma consolidated balance sheet as of July 31, 2001 shows the effect as if the private placement of $51.8 million had closed as of July 31, 2001, instead of the closing date of the offering, August 28, 2001. TiVo received cash proceeds of approximately $43.7 million and non-cash proceeds of $8.1 million in the form of advertising and promotional services from Discovery and NBC, who are existing shareholders. TiVo anticipates its issuance cost to be approximately $2.9 million resulting in net proceeds of approximately $40.8 million. Additionally, as part of the agreement for convertible debt, TiVo entered into a non-cancelable commitment to pay $5.0 million on or before October 1, 2001, to NBC for advertising that will run during the period beginning October 1, 2001 and ending December 31, 2001 (see Note 5). Results of Operations Revenues. Revenues for the three and six months ended July 31, 2001 were $4.1 million and $7.3 million compared to $869,000 and $1.4 million for prior year comparable periods. The increase is largely attributable to increased customer subscriptions to the TiVo Service. TiVo activated approximately 40,000 new subscribers to the TiVo Service during the three-month period ended July 31, 2001 compared to approximately 15,000 subscribers activated during the prior year comparable period. A large part of the increase for comparable six-month periods was due to TiVo's existing monthly subscribers upgrading to lifetime subscriptions for $199 before the new price increase. This promotion generated an additional $1 million in cash for the quarter ended April 2001. As of July 31, 2001, the total installed subscriber base had grown to approximately 229,000 subscribers. Cost of services. Cost of services consists primarily of telecommunication and network expenses, employee salaries, call center and other expenses related to providing the TiVo Service to subscribers. Cost of services for the three and six months ended July 31, 2001 was $4.4 million and $9.9 million compared to $4.3 million and $9.3 million for the three and six months ended July 31,2000. This increase was primarily attributable to increased salaries and benefits and service center expenses. Total salaries and benefits accounted for the majority of the total increase due to the expansion and staffing of the 19 Broadcast Operations department. Additionally, telecommunications and network expense decreased by 29%, from the six months ended July 31, 2000 to the six months ended July 31, 2001. This decrease was a result of reducing the service cost per subscriber by using satellite transmission of the Service for subscribers using the DIRECT Receiver with TiVo. Research and development expenses. TiVo's research and development expenses consist primarily of employee salaries and related expenses and consulting fees relating to the design of the personal video recorder that enables the TiVo Service. Research and development expenses for the three and six months ended July 31, 2001 were $6.8 million and $13.6 million compared to $6.8 million and $11.6 million for the three and six months ended July 31, 2000. Salaries and related benefits increased approximately 37% for the six-month period and was due to the hiring of additional engineers to help support the improvement and addition of features and functionality of current products as well as the design of new platforms. Other outside services decreased for the six-month period by 64% because employees were hired to perform work previously done by outside services. Sales and marketing expenses. Sales and marketing expenses consist primarily of employee salaries and related expenses, media advertising, public relations activities, special promotions, trade shows and the production of product related items, including collateral and videos. Sales and marketing expenses for the three and six months ended July 31, 2001 were $5.8 million and $18.8 million compared to $16.4 million and $24.9 million for the three and six months ended July 31, 2000. The significant decrease for the six-month period was primarily attributable to a 45% decrease in expenditures for advertising, public relations and trade shows. This is due to the initiatives we have put in place with our partners to maximize our joint marketing effectiveness with much lower levels of cash investment by TiVo. Although the marketing expenses have decreased over prior periods we expect our marketing expenses to continue to be a large portion of our total company expenses for fiscal year 2002. Advertising expense for fiscal year 2002 will be comprised mostly of marketing campaigns focused on consumer education. Sales and marketing--related parties. Sales and marketing--related parties expense consist of cash and non-cash charges related primarily to agreements with AOL, DIRECTV, Philips, Sony, Quantum, and Creative Artists Agency, LLC ("CAA"),all of which hold stock in TiVo. Sales and marketing--related parties expense for the three and six months ended July 31, 2001 was $16.1 million and $39.6 million compared to $9.3 million and $12.6 million for the three and six months ended July 31, 2000. The increase in sales and marketing--related parties expense is primarily attributable to the activations of subscribers to the TiVo Service and AOL media insertion orders. Sales and marketing--related parties expense for the three and six months ended July 31, 2001, consists of cash charges of $12.0 million and $31.5 million, respectively and non-cash charges of $4.1 million and $8.1 million, respectively. Sales and marketing--related parties expense for the same periods in the prior year consisted of cash charges of $8.1 million and $8.5 million, respectively and non-cash charges of $1.2 million and $4.1 million, respectively. The non-cash portion is related to the amortization of warrants or common stock issued for services that we issued to AOL and DIRECTV. We amortize the valuation of the warrants and common stock issued for services on a straight-line basis over the period that the services are provided. The cash portion of sales and marketing--related parties expense is comprised of revenue share and manufacturing subsidy payments to Philips, Sony, Quantum and DIRECTV. Additionally included are media insertion orders paid to AOL. Subsidies are formula based payments to our partners in exchange for key activities and results. The formulas are periodically adjusted based on our partners' manufacturing costs and selling prices. A portion of the subsidy is payable after shipment and the balance is payable after the subscription is activated. We have also agreed to share a portion of our revenues with some of our strategic partners in order to promote the TiVo Service and encourage the manufacture and distribution of the personal video recorders that enable the TiVo Service. Revenue share is calculated as an agreed upon percentage of revenue for a specified group of TiVo subscribers. We anticipate that our business will continue to grow and, as such, we expect the revenue share and manufacturing subsidy amounts to continue to be large for the foreseeable future. We have negotiated deferred payment schedules of payables due as of March 31, 2001 with certain partners in the amount of $15.6 million reflected in accrued liabilities--related parties. In general, interest started accruing from March 31, 2001 and beginning in October, we anticipate that we will make payments including interest for the deferred amounts as well as continue to pay 20 current payables on a timely basis. Additionally, we expect to continue to work with our partners to manage manufacturing costs. By decreasing manufacturing costs per unit, we expect this will decrease subsidy costs on a per unit basis. General and administrative expenses. General and administrative expenses consist primarily of employee salaries and related expenses for executive, administrative, accounting, information systems, customer operations personnel, facility costs, and professional fees. General and administrative expenses for the three and six months ended July 31, 2001 were $4.3 million and $8.8 million compared to $3.7 million and $6.7 million for the three and six months ended July 31, 2000. Salaries and related expenses increased over 73% primarily due to the hiring of additional information systems, legal and accounting personnel. Also contributing to the increase were consulting and temporary expenses totaling 22% of the total increase. Stock-based compensation. During calendar years 1999 and 2000, we granted stock options with exercise prices that were less than the estimated fair value of the underlying shares of common stock for accounting purposes on the date of grant. As a result, stock-based compensation expense is being recognized over the period that these stock options vest on an accelerated basis. The stock-based compensation expense was approximately $339,000 and $628,000 for the three and six months ended July 31, 2001and $808,000 and $1.8 million for the prior year comparable period. Interest income. Interest income resulting from cash and cash equivalents held in interest bearing accounts and short- term investments was $607,000 million and $2.0 million for the three and six months ended July 31, 2001 compared to $1.8 million and $3.5 million for the three and six months ended July 31, 2000. The decrease is a result of cash balances decreasing largely due to a declining cash balance. Interest expense and other. Interest expense and other was $604,000 and $655,000 for the three and six months ended July 31, 2001. This includes $544,000 for both the three-month and six-month periods for interest expense payable to our strategic partners according to negotiated deferred payment schedules. Additionally included is the amortization of the value assigned primarily to the Comdisco warrant for interest expense of $25,000. For the three and six months ended July 31, 2000, interest expense and other was $276,000 and $377,000, respectively. Series A redeemable convertible preferred stock dividend. Under the terms of the Investment Agreement between AOL and TiVo, the Company is required to pay dividends to the Series A redeemable convertible preferred stockholders. The dividends payable for the three and six months ended July 31, 2001 were $840,000 and $1.9 million, respectively. The dividends are payable quarterly as declared by our board of directors. Quarterly Results of Operations The following table represents certain unaudited statement of operations data for our eight most recent quarters ended July 31, 2001. In management's opinion, this unaudited information has been prepared on the same basis as the audited annual financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair representation of the unaudited information for the quarters presented. This information should be read in conjunction with our consolidated financial statements, including the notes thereto, included elsewhere in this Form 10-Q. The results of operations for any quarter are not necessarily indicative of results that may be expected for any future period. Prior quarters have been reclassified in order to conform to current quarter classifications. 21
Three Months Ended ----------------------------------------------------------------------------------------------- October 31, January 31, April 30, July 31, October 31, January 31, April 30, July 31, 1999 2000 2000 2000 2000 2001 2001 2001 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (unaudited, in thousands except per share data) Revenues.......................... $ 53 $ 287 $ 499 $ 869 $ 1,102 $ 2,166 $ 3,196 $ 4,106 Costs and expenses Cost of services.................. 1,032 2,746 4,994 4,295 4,149 5,661 5,497 4,415 Research and development..................... 2,684 4,626 4,844 6,788 7,572 5,888 6,827 6,786 Sales and marketing....................... 10,341 12,215 8,479 16,422 34,638 46,905 13,020 5,756 Sales and marketing--related parties......................... 9,049 7,323 3,342 9,293 24,283 21,093 23,488 16,146 General and administrative........ 2,140 2,888 2,978 3,720 3,876 4,483 4,507 4,288 Stock-based compensation.......... 632 878 974 808 624 562 289 339 Other operating expense, net...... 5,947 (69) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Loss from operations.............. (31,772) (30,320) (25,112) (40,457) (74,040) (82,426) (50,432) (33,624) Interest income................... 1,132 2,097 1,766 1,752 2,056 2,305 1,390 607 Interest expense and other........ (362) 110 (101) (276) (46) (86) (50) (604) -------- -------- -------- -------- -------- -------- -------- -------- Net loss.......................... (31,002) (28,113) (23,447) (38,981) (72,030) (80,207) (49,092) (33,621) Less: Series A redeemable convertible preferred stock dividend.......................... -- -- -- -- (665) (1,272) (1,092) (840) -------- -------- -------- -------- -------- -------- -------- -------- Net loss attributable to common stock...................... $(31,002) $(28,113) $(23,447) $(38,981) $(72,695) $(81,479) $(50,184) $(34,461) ======== ======== ======== ======== ======== ======== ======== ======== Net loss per share Basic and diluted............ $ (2.15) $ (0.80) $ (0.66) $ (1.09) $ (1.89) $ (2.00) $ (1.20) $ (0.82) Weighted average shares...... 14,426 35,215 35,462 35,865 38,461 40,774 41,787 42,095
The TiVo Service is enabled through a personal video recorder that is sold in retail channels like other consumer electronic devices. As a result, we anticipate that our business will be seasonal and we expect to generate a significant number of our new subscribers during the holiday shopping season. Although advertising revenue to date has been minimal, we also expect to generate a portion of future revenues from television advertising, which tends to be seasonal and cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. Liquidity and Capital Resources From inception through July 31, 2001, we financed our operations and met our capital expenditure requirements primarily from the proceeds of the private sale of equity securities and the proceeds from our initial public offering. At July 31, 2001, we had $40.3 million of cash and cash equivalents. On August 28, 2001, the Company closed a private placement of $51.8 million of convertible debt with warrants to accredited investors. The Company intends to use the net proceeds estimated to be $40.8 million from the sale of these notes with warrants for marketing and promotion, customer services and general corporate purposes. Net cash used in operating activities was $79.8 million for the six months ended July 31, 2001. During this period we continued to provide the TiVo Service, incurring a net loss of $82.7 million. Uses of cash from operating activities also included a decrease in accrued liabilities--related parties of $24.6 million, a decrease in accounts payable of $15.3 million and a decrease in accrued liabilities of $2.7 million, an increase in prepaid expenses--related parties of $2.6 million, an increase in accounts receivable related parties, long-term of $560,000 and a decrease in other long-term liabilities of $309,000. These uses were offset by sources of cash provided from operating activities consisting of an increase in long-term deferred revenue of $4.7 million, an increase in accrued liabilities--related parties, long term of $3.1 million, an increase in 22 deferred revenue of $2.9 million, a decrease in accounts receivable of $1.2 million, a decrease in prepaid expenses of $1.7 million and a decrease in accounts receivable-related parties of $1.5 million. Net cash used in investing activities was $5.0 million for the six months ended July 31, 2001 of which $3.0 million was for the acquisition of property and equipment and $2.0 million was for the purchase of short-term investments. Net cash used for financing activities was $1.4 million for the six months ended July 31, 2001. Of this amount, $1.9 million was used for payment of the Series A redeemable convertible preferred stock dividend and $391,000 for payment on a capital lease. We obtained $746,000 of financing as proceeds from the issuance of common stock through our employee stock purchase plan and $233,000 from the issuance of common stock for stock options exercised. We have commitments for future lease payments under facilities operating leases of $17.6 million and obligations under a capital lease of $987,000 as of July 31, 2001. The obligations under the capital lease relate to equipment leased under a total available lease line of $2.5 million, which expired in February 2000. Our future capital requirements will depend on a variety of factors, including market acceptance of the personal video recorder and the TiVo Service, the resources we devote to developing, marketing, selling and supporting our products and other factors. We expect to devote substantial capital resources: . to develop new or enhance existing services or products; . to continue support of our customer call center . to subsidize the sale of personal video recorders; . for advertising to educated consumers; . to continue to support our existing efforts in the United Kingdom market; and . for general corporate purposes. We believe that our cash and cash equivalents, the net proceeds from the sale of our Series A redeemable convertible preferred stock, the private sales of equity securities, the net proceeds from the initial public offering and the private placement of convertible debt with warrants that we have raised to date will be sufficient to fund our operations through our fiscal year ending January 31, 2002. Despite our expectations, we may choose to raise additional capital before the end of the next 12 months in order to: . fund anticipated growth, including significant increases in personnel, office facilities and computer systems; . develop new or enhance existing services or products; . expand into new markets and respond to competitive pressures; or . acquire or invest in complementary businesses, technologies, services or products. In addition, in order to meet long-term liquidity needs, we may need to raise additional funds, establish a credit facility or seek other financing arrangements. Additional funding may not be available on favorable terms or at all. See "Factors That May Affect Future Operating Results-If we are unable to raise additional capital on acceptable terms, our ability to effectively manage growth and build a strong brand could be harmed." 23 Impact of Inflation We believe that inflation has not had a significant impact on our operating results. Factors That May Affect Future Operating Results In addition to the other information included in this Report, the following factors should be considered in evaluating our business and future prospects: We have recognized very limited revenue, have incurred significant net losses and may never achieve profitability. We have recognized limited revenue, have incurred significant losses and have had substantial negative cash flow. During the six months ended July 31, 2001 we recognized revenues of $7.3 million. As of July 31, 2001, we had an accumulated deficit of $386.9 million. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our business. As a result, we expect to continue to incur losses for the foreseeable future. The size of these net losses depends in part on the growth in our subscriber base and on our expenses. With increased expenses, we will need to generate significant additional revenues to achieve profitability. Consequently, we may never achieve profitability, and even if we do, we may not sustain or increase profitability on a quarterly or annual basis in the future. Our limited operating history may make it difficult for us or investors to evaluate trends and other factors that affect our business. We were incorporated in August 1997 and have been obtaining subscribers only since March 31, 1999. Prior to that time, our operations consisted primarily of research and development efforts. As of July 31, 2001, only a limited number of personal video recorders had been sold and we obtained only a limited number of subscribers to the TiVo Service. As a result of our limited operating history, our historical financial and operating information is of limited value in evaluating our future operating results. In addition, any evaluation of our business must be made in light of the risks and difficulties encountered by companies offering products or services in new and rapidly evolving markets. For example, it may be difficult to accurately predict our future revenues, costs of revenues, expenses or results of operations. Personal television is a new product category for consumers and it may be difficult to predict the future growth rate, if any, or size of the market for our products and services. We may be unable to accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us. As a result, we may be unable to make accurate financial forecasts and adjust our spending in a timely manner to compensate for any unexpected revenue shortfall. This inability could cause our net losses in a given quarter to be greater than expected, which could cause the price of our stock to decline. If our marketing in the retail channel is not successful, consumers and consumer electronics manufacturers may not accept the TiVo Service and products that enable the TiVo Service. Our success depends upon a continually successful retail marketing campaign for the TiVo Service and related personal video recorders, which began in the third quarter of calendar year 1999. We will rely principally on our consumer electronics partners, such as Philips and Sony, to manufacture, market, sell and support the personal video recorder that enables the TiVo Service. We also will rely on the efforts of DIRECTV and BSkyB to market, sell and support the TiVo Service to DIRECTV and BSkyB subscribers. The ongoing marketing campaign requires, among other things, that we: . educate consumers on the benefits of the TiVo Service and related personal video recorder, which will require an extensive marketing campaign; . commit a substantial amount of human and financial resources to achieve continued, successful retail distribution; and 24 . coordinate our own sales, marketing and support activities with those of Philips, Sony, BSkyB, DIRECTV, AOL and other strategic partners. We or our strategic partners may not achieve any or all of these objectives. In addition, consumers may perceive the TiVo Service and related personal video recorder as too expensive or complex and our marketing campaign may not effectively attract new subscribers. Because of competitive offerings or changing preferences, consumers may delay or decline the purchase of the TiVo Service and related personal video recorder. All of these events would reduce consumer demand and market acceptance, diminish our brand and impair our ability to attract subscribers to the TiVo Service. We have agreed to share a substantial portion of the revenue we generate from subscription fees with some of our strategic partners. We may be unable to generate enough revenue to cover these obligations. We have agreed to share a substantial portion of our subscription and other fees with some of our strategic partners in exchange for manufacturing, distribution and marketing support and discounts on key components for personal video recorders. Given how these amounts are calculated, we may be required to share substantial portions of the subscription and other fees attributable to the same subscriber with multiple partners. These agreements require us to share a portion of our subscription fees whether or not we increase or decrease the price of the TiVo Service. If we change our subscription fees in response to competitive or other market factors, our operating results would be adversely affected. Our decision to share subscription revenues is based on our expectation that our partnerships will help us obtain subscribers, broaden market acceptance of personal television and increase our future revenues. If these expectations are not met, we may be unable to generate sufficient revenue to cover our expenses and obligations. We depend on a limited number of third parties to manufacture, distribute and supply critical components and services for the personal video recorders that enable the TiVo Service. We may be unable to operate our business if these parties do not perform their obligations. The TiVo Service is enabled through the use of a personal video recorder made available by a limited number of third parties. In addition, we rely on sole suppliers for a number of key components for the personal video recorders. We do not control the time and resources that these third parties devote to our business. We cannot be sure that these parties will perform their obligations as expected or that any revenue, cost savings or other benefits will be derived from the efforts of these parties. If any of these parties breaches or terminates its agreement with us or otherwise fails to perform their obligations in a timely manner, we may be delayed or prevented from commercializing our products and services. Because our relationships with these parties are non-exclusive, they may also support products and services that compete directly with us, or offer similar or greater support to our competitors. Any of these events could require us to undertake unforeseen additional responsibilities or devote additional resources to commercialize our products and services. This outcome would harm our ability to compete effectively and quickly achieve market acceptance and brand recognition. In addition, we face the following risks in relying on these third parties: If our manufacturing partnerships are not successful, we may be unable to establish a market for our products and services. We initially manufactured the personal video recorders that enable the TiVo Service through a third-party contract manufacturer. We have entered into agreements with Philips, Sony, Hughes and Thomson UK to manufacture and distribute the personal video recorders that enable the TiVo Service. However, we have no minimum volume commitments from Philips, Sony, Hughes, Thomson UK or any other manufacturer. The ability of our manufacturing partners to reach sufficient production volume of the personal video recorder to satisfy anticipated demand is subject to delays and unforeseen problems such as defects, shortages of critical components and cost overruns. Moreover, they will require substantial lead times to manufacture anticipated quantities of the personal video recorders that enable the TiVo Service. Delays and other problems could impair the retail distribution and brand image and make it difficult for us to attract subscribers. In addition, the loss of a manufacturing partner would require us to identify and contract with alternative sources of manufacturing, which we may be unable to do and which could prove ime-consuming and expensive. Although we expect to continue to contract 25 with additional consumer electronics companies for the manufacture of personal video recorders in the future, we may be unable to establish additional relationships on acceptable terms. If our corporate partners fail to perform their obligations, we may be unable to effectively market and distribute our products and services. Our manufacturing partners distribute the personal video recorder that enables the TiVo Service. We rely on their sales forces, marketing budgets and brand images to promote and support the personal video recorder and the TiVo Service. We expect to continue to rely on our manufacturing partners and other strategic partners to promote and support the personal video recorder and other devices that enable the TiVo Service. The loss of one or more of these partners could require us to undertake more of these activities on our own. As a result, we would spend significant resources to support personal video recorders and other devices that enable the TiVo Service. We also expect to rely on AOL, DIRECTV and other partners to provide marketing support for the TiVo Service. The failure of one or more of these partners to provide anticipated marketing support will require us to divert more of our limited resources to marketing the TiVo Service. If we are unable to provide adequate marketing support for the personal video recorder and the TiVo Service, our ability to attract subscribers to the TiVo Service will be limited. We are dependent on single suppliers for several key components and services. If these suppliers fail to perform their obligations, we may be unable to find alternative suppliers or deliver our products and services to our customers on time. We currently rely on sole suppliers for a number of the key components and services used in the personal video recorders and the TiVo Service. For example: . Quantum is the sole supplier of the hard disk drives; . NEC is the sole supplier of the application specific integrated circuit, a semiconductor device; . Sony is the sole supplier of the MPEG2 encoder semiconductor device; and . Tribune Media Services is the sole supplier of program guide data. In addition to the above, we have several sole suppliers for key components of our products currently under development. We cannot be sure that alternative sources for key components and services used in the personal video recorders and the TiVo Service will be available when needed or, if available, that these components and services will be available on favorable terms. If our agreements or our manufacturing partners' agreements with Quantum, NEC, Sony or Tribune Media Services were to terminate or expire, or if we or our manufacturing partners were unable to obtain sufficient quantities of these components or required program guide data, our search for alternate suppliers could result in significant delays, added expense or disruption in product availability. Our ability to generate revenues from subscription fees is unproven and may fail. We expect to generate a substantial portion of our revenues from subscription fees for the TiVo Service. Many of our potential customers already pay monthly fees for cable or satellite television services. We must convince these consumers to pay an additional subscription fee to receive the TiVo Service. The availability of competing services that do not require subscription fees will harm our ability to effectively attract subscribers. In addition, the personal video recorder that enables the TiVo Service can be used to record programs and pause, rewind and fast forward through live or recorded shows without an active subscription to the TiVo Service. If a significant number of purchasers of the personal video recorders use these devices without subscribing to the TiVo Service, our revenue growth will decline and we may not achieve profitability. Our business is expanding rapidly and our failure to manage growth could disrupt our business and impair our ability to generate revenues. 26 Since we began our business in August 1997, we have significantly expanded our operations. We anticipate continued expansion in our headcount and infrastructure to support potential growth in our subscriber base and to allow us to pursue market opportunities. This expansion has placed, and will continue to place, a significant strain on our management, operational and financial resources and systems. Specific risks we face as our business expands include: We need to attract and retain qualified personnel, and any failure to do so may impair our ability to offer new products or grow our business. Our success will depend on our ability to attract, retain and motivate managerial, technical, marketing, financial, administrative and customer support personnel. Competition for such employees is intense, especially for engineers in the San Francisco Bay Area, and we may be unable to successfully attract, integrate or retain sufficiently qualified personnel. If we are unable to hire, train, retain and manage required personnel, we may be unable to successfully introduce new products or otherwise implement our business strategy. Any inability of our systems to accommodate our expected subscriber growth may cause service interruptions or delay our introduction of new services. We internally developed many of the systems we use to provide the TiVo Service and perform other processing functions. The ability of these systems to scale as we rapidly add new subscribers is unproven. We must continually improve these systems to accommodate subscriber growth and add features and functionality to the TiVo Service. Our inability to add software and hardware or to upgrade our technology, systems or network infrastructure could adversely affect our business, cause service interruptions or delay the introduction of new services. We will need to provide acceptable customer support, and any inability to do so will harm our brand and ability to generate and retain new subscribers. Our ability to increase sales, retain current and future subscribers and strengthen our brand will depend in part upon the quality of our customer support operations. Some customers require significant support when installing the personal video recorder and becoming acquainted with the features and functionality of the TiVo Service. We have limited experience with widespread deployment of our products and services to a diverse customer base, and we may not have adequate personnel to provide the levels of support that our customers require. In addition, we have entered into agreements with third parties to provide this support and will rely on them for a substantial portion of our customer support functions. Our failure to provide adequate customer support for the TiVo Service and personal video recorder will damage our reputation in the personal television and consumer electronics marketplace and strain our relationships with customers and strategic partners. This could prevent us from gaining new or retaining existing subscribers and could cause harm to our reputation and brand. We will need to improve our operational and financial systems to support our expected growth, and any inability to do so will adversely impact our billing and reporting. To manage the expected growth of our operations and personnel, we will need to improve our operational and financial systems, procedures and controls. Our current and planned systems, procedures and controls may not be adequate to support our future operations and expected growth. For example, we replaced our accounting and billing system at the beginning of August 2000. Delays or problems associated with any improvement or expansion of our operational and financial systems and controls could adversely impact our relationships with subscribers and cause harm to our reputation and brand. Delays or problems associated with any improvement or expansion of our operational and financial systems and controls could also result in errors in our financial and other reporting. If we are unable to create multiple revenue streams, we may not be able to cover our expenses or meet our obligations to strategic partners and other third parties. Although our initial success will depend on building a significant customer base and generating subscription fees from the TiVo Service, our long-term success will depend on securing additional revenue streams such as: . advertising; . revenues from networks; and . electronic commerce or couch commerce. 27 In order to derive substantial revenues from these activities, we will need to attract and retain a large and growing base of subscribers to the TiVo Service. We also will need to work closely with television advertisers, cable and satellite network operators, electronic commerce companies and consumer electronics manufacturers to develop products and services in these areas. We may not be able to effectively work with these parties to develop products that generate revenues that are sufficient to justify their costs. In addition, we are currently obligated to share a portion of these revenues with several of our strategic partners. Any inability to attract and retain a large and growing group of subscribers and strategic partners will seriously harm our ability to support new services and develop new revenue streams. It will take a substantial amount of time and resources to achieve broad market acceptance of the TiVo Service and products that enable the TiVo Service and we cannot be sure that these efforts will generate a broad enough subscriber base to sustain our business. Personal television products and services represent a new, untested consumer electronics category. The TiVo Service is in an early stage of development and many consumers are not aware of its benefits. As a result, it is uncertain whether the market will demand and accept the TiVo Service and products that enable the TiVo Service. Retailers, consumers and potential partners may perceive little or no benefit from personal television products and services. Likewise, consumers may not value, and may be unwilling to pay for the TiVo Service and products that enable the TiVo Service. To develop this market and obtain subscribers to the TiVo Service, we will need to devote a substantial amount of time and resources to educate consumers and promote our products. We may fail to obtain subscribers, encourage the development of new devices that enable the TiVo Service and develop and offer new content and services. We cannot be sure that a broad base of consumers will ultimately subscribe to the TiVo Service or purchase the products that enable the TiVo Service. We face intense competition from a number of sources, which may impair our revenues and ability to generate subscribers. The personal television market is new and rapidly evolving and we expect competition from a number of sources, including: Internet-related companies and companies offering similar products and services. We are likely to face intense direct competition from companies such as WebTV Networks Inc., SonicBlue and X-TV. These companies offer, or have announced their intention to offer, products with one or more of the TiVo Service's functions or features and, in some instances, combine these features with Internet browsing or traditional broadcast, cable or satellite television programming. Many of these companies have greater brand recognition and market presence and substantially greater financial, marketing and distribution resources than we do. For example, Microsoft Corporation controls and provides financial backing to WebTV. Some of these companies also have established relationships with third party consumer electronic manufacturers, network operators and programmers, which could make it difficult for us to establish relationships and enter into agreements with these third parties. Some of these competitors also have relationships with our strategic partners. For example, DIRECTV recently formed an alliance with Microsoft. Faced with this competition, we may be unable to expand our market share and attract an increasing number of subscribers to the TiVo Service. Established competitors in the consumer electronics market. We compete with consumer electronic products in the television and home entertainment industry. The television and home entertainment industry is characterized by rapid technological innovation, a small number of dominant manufacturers and intense price competition. As a new product category, personal television enters a market that is crowded with several established products and services. The competition for consumer spending in the television and home entertainment market is intense, and our products and services will compete with: . satellite television systems; . video on demand services; 28 . digital video disc players; and . laser disc players. Most of these technologies or devices have established markets, a broad subscriber base and proven consumer acceptance. In addition, many of the manufacturers and distributors of these competing devices have substantially greater brand recognition, market presence, distribution channels, advertising and marketing budgets and promotional and other strategic partners. Faced with this competition, we may be unable to effectively differentiate the personal video recorder or the TiVo Service from these devices. Established competition for advertising budgets. Personal television, in general, and TiVo, specifically, also compete with traditional advertising media such as print, radio and television for a share of advertisers' total advertising budgets. If advertisers do not perceive personal television as an effective advertising medium, they may be reluctant to devote a significant portion of their advertising budget to promotions on the TiVo Service. If we are unable to introduce new products or services, or if our new products and services are unsuccessful, the growth in our subscriber base and revenues may suffer. To attract and retain subscribers and generate revenues, we must continue to add functionality and content and introduce products and services which embody new technologies and, in some instances, new industry standards. This challenge will require hardware and software improvements, as well as new collaborations with programmers, advertisers, network operators, hardware manufacturers and other strategic partners. These activities require significant time and resources and may require us to develop and promote new ways of generating revenue with established companies in the television industry. These companies include television advertisers, cable and satellite network operators, electronic commerce companies and consumer electronics manufacturers. In each of these examples, a small number of large companies dominate a major portion of the market and may be reluctant to work with us to develop new products and services for personal television. If we are unable to further develop and improve the TiVo Service or expand our operations in a cost-effective or timely manner, our ability to attract and retain subscribers and generate revenue will suffer. If we do not successfully establish strong brand identity in the personal television market, we may be unable to achieve widespread acceptance of our products. We believe that establishing and strengthening the TiVo brand is critical to achieving widespread acceptance of our products and services and to establishing key strategic partnerships. The importance of brand recognition will increase as current and potential competitors enter the personal television market with competing products and services. Our ability to promote and position our brand depends largely on the success of our marketing efforts and our ability to provide high quality services and customer support. These activities are expensive and we may not generate a corresponding increase in subscribers or revenues to justify these costs. If we fail to establish and maintain our brand, or if our brand value is damaged or diluted, we may be unable to attract subscribers and effectively compete in the personal television market. Product defects, system failures or interruptions to the TiVo Service may have a negative impact on our revenues, damage our reputation and decrease our ability to attract new subscribers. Our ability to provide uninterrupted service and high quality customer support depends on the efficient and uninterrupted operation of our computer and communications systems. Our computer hardware and other operating systems for the TiVo Service are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. These types of interruptions in the TiVo Service may reduce our revenues and profits. Our business also will be harmed if consumers believe our service is unreliable. In addition to placing increased burdens on our engineering staff, service outages will create a flood of customer questions and complaints that must be responded to by our customer support personnel. Any frequent or persistent system failures could irreparably damage our reputation and brand. 29 We have detected and may continue to detect errors and product defects. These problems can affect system uptime, result in significant warranty and repair problems, which could cause customer service and customer relations problems. Correcting errors in our software requires significant time and resources, which could delay product releases and affect market acceptance of the TiVo Service. Any delivery by us of products or upgrades with undetected material product defects or software errors could harm our credibility and market acceptance of the personal video recorders and the TiVo Service. Intellectual property claims against us can be costly and could result in the loss of significant rights. From time to time, we may be subject to intellectual property litigation, which could: . be time-consuming and expensive; . divert management's attention and resources away from our business; . cause delays in product delivery and new service introduction; . cause the cancellation of new products or services; or . require us to pay significant royalties or licensing fees. The emerging enhanced-television industry is highly litigious, particularly in the area of on-screen program guides. Additionally, many patents covering interactive television technologies have been granted but have not been commercialized. For example, we are aware of at least seven patents for pausing live television. A number of companies in the enhanced-television industry earn substantial profits from technology licensing, and the introduction of new technologies such as ours is likely to provoke lawsuits from such companies. A successful claim of infringement against us, our inability to obtain an acceptable license from the holder of the patent or other right or our inability to design around an asserted patent or other right could cause our manufacturing partners to cease manufacturing the personal video recorder or us to cease providing our service, or both, which would eliminate our ability to generate revenues. On January 18, 2000, StarSight Telecast Inc., a subsidiary of Gemstar International Group Limited filed a lawsuit against us in the U.S. District Court for the Northern District of California alleging willful and deliberate violation of U.S. Patent Number 4,706,121, entitled "TV Schedule System and Process," held by StarSight. The complaint alleged that we infringed the patent by, among other things, making, using, selling, offering to sell and/or importing our TV schedule systems and processes without a license from StarSight. Starsight seeks unspecified monetary damages and an injunction against our operations. The suit also seeks attorneys' fees and costs. We believe that we have meritorious defenses against the suit and intend to vigorously defend ourselves. On February 25, 2000, we counterclaimed against StarSight, Gemstar Development Corporation and Gemstar International Group Limited seeking damages for federal antitrust violations and state unfair business practices claims, as well as declaratory relief of non-infringement, invalidity and unenforceability with respect to the 30 patent. We could be forced to incur material expenses during this litigation, and in the event we were to lose this suit, our business would be harmed. In addition, we are aware that some media companies may attempt to form organizations to develop standards and practices in the personal television industry. These organizations or individual media companies may attempt to require companies in the personal television industry to obtain copyright or other licenses. A number of articles have appeared in the press regarding the formation of a consortium of broadcast and cable television networks called the Advanced Television Copyright Coalition. Some of those articles have indicated that the coalition is prepared to support litigation and to explore legislative solutions unless the members of the personal television industry agree to obtain license agreements for use of the companies' programming. We have received letters from Time Warner Inc. and Fox Television stating that these entities believe our personal television service exploits copyrighted networks and programs without the necessary licenses and business arrangements. Lawsuits or other actions taken by these types of organizations or companies could make it more difficult for us to introduce new services, delay widespread consumer acceptance of our products and services, restrict our use of some television content, increase our costs and adversely affect our business. Our success depends on our ability to secure and protect patents, trademarks and other proprietary rights. Our success and ability to compete are substantially dependent upon our internally developed technology. We rely on patent, trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our proprietary rights. However, the steps we take to protect our proprietary rights may be inadequate. We have filed patent applications and provisional patent applications covering substantially all of the technology used to deliver the TiVo Service and its features and functionality. To date, several of these patents have been granted, and we cannot assure you that any additional patents will ever be granted, that any issued patents will protect our intellectual property or that third parties will not challenge any issued patents. In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us. Our failure to secure and protect our proprietary rights could have a material adverse effect on our business. Laws or regulations that govern the television industry and the delivery of programming could expose us to legal action if we fail to comply or could require us to change our business. Personal television and the delivery of television programming through the TiVo Service and a personal video recorder represents a 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 or the enforcement or interpretation of existing laws could expose us to additional costs and expenses and could require changes to our business. For example, 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 personal television 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 strategic partners on whom we substantially rely for the marketing and distribution of the personal video recorder 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. We need to safeguard the security and privacy of our subscribers' confidential data, and any inability to do so may harm our reputation and brand and expose us to legal action. The personal video recorder collects and stores viewer preferences and other data that many of our subscribers consider confidential. Any compromise or breach of the encryption and other security measures that we use to protect this data could harm our reputation and expose us to potential liability. Advances in computer capabilities, new discoveries in the 31 field of cryptography, or other events or developments could compromise or breach the systems we use to protect our subscribers' confidential information. We may be required to make significant expenditures to protect against security breaches or to remedy problems caused by any breaches. Uncertainty in the marketplace regarding the use of data from subscribers could reduce demand for the TiVo Service and result in increased expenses. Consumers may be concerned about the use of viewing information gathered by the TiVo Service and personal video recorder. Currently, we gather anonymous information about our subscribers' viewing choices while using the TiVo Service, unless a subscriber affirmatively consents to the collection of personally identifiable viewing information. This anonymous viewing information does not identify the individual subscriber. Privacy concerns, however, could create uncertainty in the marketplace for personal television and our products and services. Changes in our privacy policy could reduce demand for the TiVo Service, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our reputation and business. In the future, our revenues and operating results may fluctuate significantly, which may adversely affect the market price of our common stock. We expect our revenues and operating results to fluctuate significantly due to a number of factors, many of which are outside of our control. Therefore, you should not rely on period-to-period comparisons of results of operations as an indication of our future performance. It is possible that in some future periods our operating results may fall below the expectations of market analysts and investors. In this event, the market price of our common stock would likely fall. Factors that may affect our quarterly operating results include: . demand for personal video recorders and the TiVo Service; . the timing and introduction of new services and features on the TiVo Service; . seasonality and other consumer and advertising trends; . changes in revenue sharing arrangements with our strategic partners; . entering into new or terminating existing strategic partnerships; . changes in the subsidy payments we make to certain strategic partners; . changes in our pricing policies, the pricing policies of our competitors and general pricing trends in the consumer electronics market; . loss of subscribers to the TiVo Service; and . general economic conditions. Because our expenses precede associated revenues, unanticipated shortfalls in revenue could adversely affect our results of operations for any given period and cause the market price of our common stock to fall. Seasonal trends may cause our quarterly operating results to fluctuate and our inability to forecast these trends may adversely affect the market price of our common stock. Consumer electronic product sales have traditionally been much higher during the holiday shopping season than during other times of the year. Although predicting consumer demand for our products is very difficult, we believe that sales 32 of personal video recorders and new subscriptions to the TiVo Service will be disproportionately high during the holiday shopping season when compared to other times of the year. If we are unable to accurately forecast and respond to consumer demand for our products, our reputation and brand will suffer and the market price of our common stock would likely fall. We expect that a portion of our future revenues will come from targeted commercials and other forms of television advertising enabled by the TiVo Service. Expenditures by advertisers tend to be seasonal and cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective advertisers' spending priorities or increase the time it takes to close a sale with our advertisers, which could cause our revenues from advertisements to decline significantly in any given period. If we are unable to raise additional capital on acceptable terms, our ability to effectively manage growth and build a strong brand could be harmed. We expect that our existing capital resources will be sufficient to meet our cash requirements through our fiscal year end. However, as we continue to grow our business, we may need to raise additional capital, which may not be available on acceptable terms or at all. If we cannot raise necessary additional capital on acceptable terms, we may not be able to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. If additional capital is raised through the issuance of equity securities, the percentage ownership of our existing stockholders will decline, stockholders may experience dilution in net book value per share, or these equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Any debt financing, if available, may involve covenants limiting, or restricting our operations or future opportunities. We have agreed to subsidize the cost of manufacturing personal video recorders, which may adversely affect our operating results and ability to achieve profitability. We have agreements with our consumer electronic manufacturing partners to manufacture the personal video recorder that enables the TiVo Service. We have agreed to pay our manufacturing partners a per-unit subsidy for each personal video recorder that they manufacture and sell. The amount of the payments can vary depending upon the manufacturing costs and selling prices. In addition, in the event our manufacturing partners are unable to manufacture the personal video recorders at the costs currently estimated or if selling prices are less than anticipated, we may owe additional amounts to them, which could adversely affect our operating results. We are obligated to pay a portion of the subsidy when the personal video recorder is shipped, and we will not receive any revenues related to the unit until the unit is sold and the purchaser activates the TiVo Service. We may make additional subsidy payments in the future to consumer electronic and other manufacturers in an effort to maintain a commercially viable retail price for the personal video recorders and other devices that enable the TiVo Service. The lifetime subscriptions to the TiVo Service that we currently offer commit us to providing services for an indefinite period. The revenue we generate from these subscriptions may be insufficient to cover future costs. We currently offer product lifetime subscriptions that commit us to provide service for as long as the personal video recorder is in service. We receive the lifetime subscription fee for the TiVo Service in advance and amortize it as subscription revenue over four years, which is our estimate of the service life of the personal video recorder. If these lifetime subscribers use the personal video recorder for longer than anticipated, we will incur costs without a corresponding revenue stream and therefore will be required to fund ongoing costs of service from other sources. If we lose key management personnel, we may not be able to successfully operate our business. 33 Our future performance will be substantially dependent on the continued services of our senior management and other key personnel. The loss of any members of our executive management team and our inability to hire additional executive management could harm our business and results of operations. In addition, we do not have employment agreements with, or key man insurance policies for, any of our key personnel. If there is an adverse outcome in the class action litigation that has been filed against TiVo, our business may be harmed. On June 12, 2001, a securities class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of all persons who acquired our stock between September 30, 1999 and December 6, 2000. TiVo, certain of our executive officers, and certain underwriters involved in our initial public offering are named as defendants in the complaint. Six other complaints that are virtually identical were filed in the same court in June through August 2001. These complaints allege that certain of the underwriters of our initial public offering violated the federal securities laws by failing to disclose that they had solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased restricted stock in our initial public offering, and had entered into undisclosed arrangements with certain investors whereby the underwriters allocated shares in our initial public offering to those investors in exchange for their agreement to purchase our shares in the after-market at pre-determined prices. The complaints also allege that the defendants violated the federal securities laws by issuing a registration statement in connection with our initial public offering that contained material misstatements and/or omissions because it did not disclose that these allegedly undisclosed arrangements had occurred. The complaints seek damages on behalf of all those who purchased or otherwise acquired our securities during the period covered by the complaint. The deadline for defendants to respond to the complaints has not yet expired. 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. On March 15, 2001, Ezra Birnbaum, an individual resident in the state of New York, filed, on behalf of himself and all similarly situated purchasers of the TiVo Service and the personal video recorder, a class action complaint against us in the Supreme Court of the State of New York, Kings County, alleging violation of New York's consumer protection act, breach of implied warranties of merchantability and fitness under the Uniform Commercial Code, breach of contract and fraud. The complaint states that Mr. Birnbaum experienced continued problems with the system he had purchased, specifically stating that the screen image froze and preprogrammed channels were lost. He alleges, among other things, that we knew or had reason to know of these malfunctions and had therefore misrepresented or failed to disclose material information regarding our product to consumers. The complaint seeks repayment of the amount spent to purchase our product to each member of the class of purchasers, plus interest from the date of purchase, as well as unspecified punitive damages, attorneys' and expert witness fees and other costs. The complaint additionally seeks broad equitable relief, requesting that we be enjoined from continuing the practices described in the complaint. On May 3, 2001, we answered the complaint. After an initial exchange of discovery requests and answers between the parties, on August 2, 2001, Mr. Birnbaum filed a motion for class certification and, on August 10, 2001, we filed a motion for summary judgment. Based on the information available, we are unable to form a conclusion regarding the amount, materiality or range of potential loss, if any, which might result if the outcome of this matter were unfavorable; 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. On August 13, 2001, Alan Federbush, an individual resident in the state of New York, and Mitchell Brink, an individual resident in the state of Illinois, filed, on behalf of themselves and all similarly situated purchasers of Sony or Philips digital television recorders and the TiVo Service, a class action complaint against us in the Superior Court of the State of California, Santa Clara County, alleging violation of California's Consumers' Legal Remedies Act, California's Unfair Practices Act, and fraudulent concealment. The complaint states that Mr. Federbush and Mr. Brink each experienced problems with the modem contained in the digital television recorders. The complaint alleges, among other things, that we knew or had reason to know of these malfunctions and therefore misrepresented or failed to disclose material information about the digital television recorders to consumers. The complaint seeks an award of actual damages, as well as unspecified punitive damages, interest, attorneys' fees and other costs. The complaint additionally seeks broad equitable relief, 34 requesting that we be enjoined from continuing the practices described in the complaint and engaging in false and misleading advertising regarding the digital television recorders. Under the applicable rules, we have not been required to answer the complaint. In addition, discovery, through which we would seek to investigate the plaintiff's claims, has not commenced. Based on the information available, we are unable to form a conclusion regarding the amount, materiality or range of potential loss, if any, which might result if the outcome of this matter were unfavorable; 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. We expect to experience volatility in our stock price. The market price of our common stock is highly volatile. Since our initial public offering in September 1999 through September 10, 2001, our common stock has closed between $71.50 per share and $4.00 per share, closing at $4.30 on September 10, 2001. The market price of our common stock may be subject to significant fluctuations in response to, among other things, the factors discussed in this section and the following factors: . Changes in estimates of our financial performance or changes in recommendations by securities analysts; . Our failure to meet the expectations of securities analysts or investors; . Release of new or enhanced products or introduction of new marketing initiatives by us or our competitors; . Announcements by us or our competitors of the creation, developments under or termination of significant strategic partnerships, joint ventures, significant contracts or acquisitions; . Fluctuations in the market prices generally for technology-related stocks; . Fluctuations in general economic conditions; . Fluctuations in interest rates; . Market conditions affecting the television and home entertainment industry; . Fluctuations in operating results; and . Additions or departures of key personnel. The stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging companies, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock. Our Certificate of Incorporation, Bylaws, Rights Agreement and Delaware law could discourage a third party from acquiring us and consequently decrease the market value of our common stock. We may become the subject of an unsolicited attempted takeover of our company. Although an unsolicited takeover could be in the best interests of our stockholders, certain provisions of Delaware law, our organizational documents and our Rights Agreement could be impediments to such a takeover. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Our Amended and Restated Certificate of Incorporation and Bylaws also require that any action required or permitted to be taken by our stockholders must be effected 35 at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, special meetings of our stockholders may be called only by our board of directors, the chairman of the board or the chief executive officer. Our Amended and Restated Certificate of Incorporation and Bylaws also provide that directors may be removed only for cause by a vote of a majority of the stockholders and that vacancies on the board of directors created either by resignation, death, disqualification, removal or by an increase in the size of the board of directors may be filled by a majority of the directors in office, although less than a quorum. Our Amended and Restated Certificate of Incorporation also provides for a classified board of directors and specifies that the authorized number of directors may be changed only by resolution of the board of directors. On January 9, 2001, our board of directors adopted a Rights Agreement. Each share of our common stock has attached to it a right to purchase one one-hundredth of a share of our Series B Junior Participating Preferred Stock at a price of $60 per one one-hundredth of a preferred share in the event that the rights become exercisable. The rights become exercisable upon the earlier to occur of (i) ten days following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of our common stock, subject to limited exceptions, or (ii) ten business days (or such later date as may be determined by action of our board of directors prior to such time as any person or group of affiliated persons becomes an acquiring person as described in the preceding clause) following the commencement or announcement of an intention to make a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of our common stock, subject to limited exceptions. These provisions of Delaware law, our Amended and Restated Certificate of Incorporation and Bylaws and our Rights Agreement could make it more difficult for us to be acquired by another company, even if our acquisition is in the best interests of our stockholders. Any delay or prevention of a change of control or change in management could cause the market price of our common stock to decline. The nature of some of our strategic relationships may restrict our ability to operate freely in the future. From time to time, we may engage in discussions with other parties concerning strategic relationships, which may include equity investments by such parties in our company. We currently have such relationships with a number of our strategic partners, including AOL, DIRECTV, Sony and Philips. While we believe that such relationships have enhanced our ability to finance and develop our business model, the terms and conditions of such relationships may place some restrictions on our freedom to operate in the future. Certain provisions of the notes issued in the private placement could cause a reduction in the conversion price on the notes and result in dilution to the existing holders of our common stock. The conversion price on the notes issued in the private placement will be reduced: . on the date that is two days after the SEC declares effective our registration statement covering the resale of the notes, warrants and underlying common stock, if the average closing price of our common stock for the ten trading days preceding that date is less than the conversion price then in effect; . on August 23, 2002, if the average closing price of our common stock for the ten trading days preceding that date is less than the conversion price then in effect; and . in the event that we issue common stock or common stock equivalents at an issuance price per share (or, with respect to common stock equivalents, with a conversion price or exercise price per share) that is lower than the conversion price then in effect immediately prior to the issuance. If the conversion price on the notes is reduced as a result of these adjustments, holders of the notes will receive a greater number of shares of our common stock in connection with the conversion of their notes, thereby resulting in dilution to the existing holders of our common stock. Item 3. Quantitative and Qualitative Disclosure About Market Risk 36 Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio and conduct transactions in U.S. dollars. Our investment portfolio only includes highly liquid instruments with original maturities of less than one year. We are subject to fluctuating interest rates that may impact, adversely or otherwise, our results of operations or cash flows for our cash and cash equivalents and our short-term investments. Although payments under the operating lease for our facility are tied to market indices, we are not exposed to material interest rate risk associated with the operating lease. Our capital lease obligations are not subject to changes in the interest rate and, therefore, are not exposed to interest rate risk. PART II : Other Information Item 1. Legal Proceedings On June 12, 2001, a securities class action lawsuit was filed in the United States District Court for the Southern District of New York on behalf of all persons who acquired our stock between September 30, 1999 and December 6, 2000. TiVo, certain of our executive officers, and certain underwriters involved in our initial public offering are named as defendants in the complaint. Six other complaints that are virtually identical were filed in the same court in June through August 2001. These complaints allege that certain of the underwriters of our initial public offering violated the federal securities laws by failing to disclose that they had solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased restricted stock in our initial public offering, and had entered into undisclosed arrangements with certain investors whereby the underwriters allocated shares in our initial public offering to those investors in exchange for their agreement to purchase our shares in the after-market at pre-determined prices. The complaints also allege that the defendants violated the federal securities laws by issuing a registration statement in connection with our initial public offering that contained material misstatements and/or omissions because it did not disclose that these allegedly undisclosed arrangements had occurred. The complaints seek damages on behalf of all those who purchased or otherwise acquired our securities during the period covered by the complaint. The deadline for defendants to respond to the complaints has not yet expired. 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. Ezra Birnbaum. On March 15, 2001, Ezra Birnbaum, an individual resident in the state of New York, filed, on behalf of himself and all similarly situated purchasers of the TiVo Service and the personal video recorder, a class action complaint against us in the Supreme Court of the State of New York, Kings County, alleging violation of New York's consumer protection act, breach of implied warranties of merchantability and fitness under the Uniform Commercial Code, breach of contract and fraud. The complaint states that Mr. Birnbaum experienced continued problems with the system he had purchased, specifically stating that the screen image froze and preprogrammed channels were lost. He alleges, among other things, that we knew or had reason to know of these malfunctions and had therefore misrepresented or failed to disclose material information regarding our product to consumers. The complaint seeks repayment of the amount spent to purchase our product to each member of the class of purchasers, plus interest from the date of purchase, as well as unspecified punitive damages, attorneys' and expert witness fees and other costs. The complaint additionally seeks broad equitable relief, requesting that we be enjoined from continuing the practices described in the complaint. On May 3, 2001, we answered the complaint. After an initial exchange of discovery requests and answers between the parties, on August 2, 2001, Mr. Birnbaum filed a motion for class certification and, on August 10, 2001, we filed a motion for summary judgment. Based on the information available, we are unable to form a conclusion regarding the amount, materiality or range of potential loss, if any, which might result if the outcome of this matter were unfavorable; 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. Alan Federbush and Mitchell Brink. On August 13, 2001, Alan Federbush, an individual resident in the state of New York, and Mitchell Brink, an individual resident in the state of Illinois, filed, on behalf of themselves and all similarly 37 situated purchasers of Sony or Philips digital television recorders and the TiVo Service, a class action complaint against us in the Superior Court of the State of California, Santa Clara County, alleging violation of California's Consumers' Legal Remedies Act, California's Unfair Practices Act, and fraudulent concealment. The complaint states that Mr. Federbush and Mr. Brink each experienced problems with the modem contained in the digital television recorders. The complaint alleges, among other things, that we knew or had reason to know of these malfunctions and therefore misrepresented or failed to disclose material information about the digital television recorders to consumers. The complaint seeks an award of actual damages, as well as unspecified punitive damages, interest, attorneys' fees and other costs. The complaint additionally seeks broad equitable relief, requesting that we be enjoined from continuing the practices described in the complaint and engaging in false and misleading advertising regarding the digital television recorders. Under the applicable rules, we have not been required to answer the complaint. In addition, discovery, through which we would seek to investigate the plaintiff's claims, has not commenced. Based on the information available, we are unable to form a conclusion regarding the amount, materiality or range of potential loss, if any, which might result if the outcome of this matter were unfavorable; 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. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of TiVo Inc. was held at the offices of Latham & Watkins, 135 Commonwealth Drive, Menlo Park, California, 94025, on June 15, 2001. Of the 44,833,643 shares of common stock entitled to vote at the meeting, 24,420,580 shares were represented at the meeting. . Proposal 1 The vote for nominated directors James Barton, Michael J. Homer, Stewart Alsop and David M. Zaslav to hold office until the 2004 Annual Meeting of Stockholders was as follows: In Favor Withheld -------- -------- James Barton 24,290,504 130,076 Michael J. Homer 24,349,957 70,623 Stewart Alsop 24,352,349 68,231 David M. Zaslav 24,359,063 61,517 Directors continuing in office are Michael Ramsay, Geoffrey Y. Yang, Randy Komisar, Larry N. Chapman, Jan P. Oosterveld and John S. Hendricks. . Proposal 2 The vote for ratification of Arthur Andersen LLP as the independent auditors of the Company for its fiscal year ending January 31, 2002 was as follows: In Favor Abstain 38 Ratification of Auditors 24,375,464 15,493 Item 5. Other Information Private Placement of Convertible Debt and Warrants On August 28, 2001, the Company closed a private placement of $51.8 million of convertible debt with warrants to accredited investors. The private placement consisted of the following securities: . $51,750,000 of 7% Convertible Senior Notes due 2006. The notes --------------------------------------------------- are convertible at any time, unless earlier redeemed pursuant to their terms, into TiVo common stock at an initial conversion price of $6.73 per share. . Warrants to purchase TiVo common stock over the next five years. --------------------------------------------------------------- These warrants give investors the right to purchase a total of approximately 2.5 million additional shares at an exercise price of $7.85 per share and expire in five years. . Additional Warrants. As part of the private placement, TiVo ------------------- issued two additional sets of warrants. One set of warrants, which expire after one year unless earlier terminated, gives investors the right to purchase a total of approximately 3.8 million additional shares of TiVo common stock at a cash price of $6.73 per share. If exercised in full, these one-year warrants would generate approximately $25.9 million in additional cash proceeds for TiVo over the next year. The other set of warrants, which expire after five years unless earlier terminated, gives investors the right to purchase a total of approximately 1.3 million additional shares of TiVo common stock at a price of $7.85 per share. These five-year terminable warrants may only be exercised if the one-year warrants have been exercised. TiVo received cash proceeds of $43.7 million and non-cash proceeds of $8.1 million in the form of advertising and promotional services from Discovery and NBC. TiVo anticipates its issuance cost to be approximately $2.9 million, resulting in net proceeds of approximately $40.8 million. Additionally, as part of the agreement for convertible debt, TiVo entered into a non-cancelable commitment to pay $5.0 million on or before October 1, 2001, to NBC for advertising that will run during the period beginning October 1, 2001 and ending December 31, 2001 (see Note 5). The Company intends to use the net proceeds from the sales of these notes with warrants for marketing and promotion, customer service and general corporate purposes. Board Approval of New Stock Option Agreement On August 8, 2001, our board of directors approved a new form of stock option agreement for future grants subsequent to August 8, 2001. The new agreement provides that grants be exercised according to the vesting schedule and not be exercised prior to vesting. This change does not affect options granted prior to August 8, 2001. Item 6. Exhibits, Financial Statement Schedules, and Reports On Form 8-K Exhibits EXHIBIT NUMBER DESCRIPTION ------ ----------- 39 EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of the registrant's Quarterly Report on Form 10-Q filed on November 14, 2000). 3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 of the registrant's Quarterly Report on Form 10-Q filed on November 15, 1999). 4.1 Form of 7% Convertible Senior Note (filed herewith). 4.2 Form of Five-Year Warrant (filed herewith). 4.3 Form of One-Year Warrant (filed herewith). 4.4 Form of Five-Year Terminable Warrant (filed herewith). 5+ Warrant and Registration Rights Agreement, dated as of October 6, 2000, by and between DIRECTV, Inc. (incorporated by reference to Exhibit 4.1 of the registrant's Annual Report on Form 10-K filed on April 2, 2001). 6 Stockholders and Registration Rights Agreement, dated as of June 9, 2000, between TiVo and America Online, Inc. (incorporated by reference to Exhibit 4.4 of the registrant's Quarterly Report on Form 10-Q filed on November 14, 2000). 7 Ninth Amended and Restated Investor Rights Agreement by and among TiVo and certain investors, dated as of August 6, 1999 (incorporated by reference to Exhibit 4.3 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 8 Certificate of Designations of the Series B Junior Participating Preferred Stock of TiVo (incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K/A filed on January 19, 2001). 9 Certificate of Correction to the Certificate of Designations of the Series B Junior Participating Preferred Stock of TiVo (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K/A filed on January 19, 2001). 10.1 Rights Agreement, dated as of January 16, 2001, between TiVo and Wells Fargo Shareowner Services, as Rights Agent (incorporated by reference to Exhibit 10.1 of the registrant's Current Report on Form 8-K/A filed on January 19, 2001). 10.2 First Amendment to Rights Agreement, dated as of February 20, 2001, between TiVo Inc. and Wells Fargo Shareowner Services, as Rights Agent (incorporated by reference to Exhibit 10. of the registrant's Current Report on Form 8-K filed on February 28, 2001). 10.3 Form of Indemnification Agreement between TiVo and its officers and directors (incorporated by reference to Exhibit 10.1 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.4 TiVo's 1999 Equity Incentive Plan and related documents (incorporated by reference to Exhibit 10.2 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.5 TiVo's Amended and Restated 1997 Equity Incentive Plan and related documents (incorporated by reference to Exhibit 10.3 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.6 TiVo's 1999 Employee Stock Purchase Plan and related documents (incorporated by reference to Exhibit 10.4 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.7 TiVo's 1999 Non-Employee Directors' Stock Option Plan and related documents (incorporated by reference to Exhibit 10.5 of the registrant's Annual Report on Form 10-K filed on March 30, 2000). 10.8+ Hard Disk Drive Supply Agreement between Quantum Corporation and TiVo, dated November 6, 1998 (incorporated by by reference to Exhibit 10.6 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.9 First Amendment to Hard Disk Supply Agreement between Quantum and TiVo, dated June 25, 1999 (incorporated by reference to Exhibit 10.20 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 40 EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.10+ Warrant Purchase and Equity Rights Agreement between Quantum Corporation and TiVo, dated November 6, 1998 and related documents (incorporated by reference to Exhibit 10.16 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.11+ Master Agreement between Philips Business Electronics B.V. and TiVo, dated March 31, 1999 (incorporated by reference to Exhibit 10.7 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.12+ Marketing Agreement between DIRECTV, Inc. and TiVo, dated April 13, 1999 (incorporated by reference to Exhibit 10.8 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.13+ Agreement between NBC Multimedia, Inc. and TiVo, dated April 16, 1999 (incorporated by reference to Exhibit 10.9 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.14 Sublease Agreement between Verity, Inc. and TiVo, dated February 23, 1998 (incorporated by reference to Exhibit 10.10 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.15 Amendment to Sublease Agreement between Verity, Inc. and TiVo, dated November 1998 (incorporated by reference to Exhibit 10.11 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.16 Second Amendment to Sublease Agreement between Verity, Inc. and TiVo, dated March 1999 (incorporated by reference to Exhibit 10.12 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.17 Consent of Landlord to Sublease between Verity, Inc. and TiVo, dated February 23, 1998 (incorporated by reference to Exhibit 10.13 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.18 Master Lease Agreement between Comdisco, Inc. and TiVo, dated February 12, 1999 (incorporated by reference to Exhibit 10.15 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.19 Warrant to Purchase Shares of Series A Preferred Stock issued to Randy Komisar, dated March 18, 1998 (incorporated by reference to Exhibit 10.17 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.20 Warrant Agreement between Comdisco, Inc. and TiVo, dated February 12, 1999 (incorporated by reference to Exhibit 10.18 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.21 Secured Convertible Debenture Purchase Agreement between TiVo and certain of its investors, dated April 8, 1999, and related documents (incorporated by reference to Exhibit 10.19 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.22 TiVo's 401(k) Plan, effective December 1, 1997 (incorporated by reference to Exhibit 10.21 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.23+ Tribune Media Services Television Listing Agreement between Tribune Media Services and TiVo, dated June 1, 1998 (incorporated by reference to Exhibit 10.22 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.24+ Amendment to the Data License Agreement between Teleworld Inc., and Tribune Media Services, Inc. between Tribune Media Services and TiVo, dated November 10, 1998 (incorporated by reference to Exhibit 10.23 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). 10.25 Lease Agreement between WIX/NSJ Real Estate Limited Partnership and TiVo, dated October 6, 1999 (incorporated by reference to Exhibit 10.24 of the Quarterly Report on 41 EXHIBIT NUMBER DESCRIPTION ------ ----------- Form 10-Q filed on November 15, 1999). 99.5 Form of Stock Option Grant used in connection with an option granted outside of TiVo's stock option plans and related documents (incorporated by reference to Exhibit 99.5 of the registrant's Registration Statement on Form S-1 (SEC File No. 333-83515)). ____________ + Confidential treatment granted as to portions of this exhibit. REPORTS ON FORM 8-K The registrant filed the following reports on Form 8-K during the quarter ended July 31, 2001: . Current Report on Form 8-K on July 24, 2001, regarding the agreement of AOL Time Warner, Inc. to waive its repurchase right at July 31, 2001, and instead measure such minimum capital requirement and have such repurchase right as of August 31, 2001. Trademark Acknowledgments TiVo is a registered trademark of TiVo Inc. "Active Preview", "Can't Miss TV", "DIRECTIVO", Instant Replay logo, "Ipreview", Jump logo, "Life's too short for bad TV", "Network Showcase", "Personal TV", "Personal Video Recorder", "Primetime Anytime", "Season Pass", "See it, want it, get it", "The New Face of Television", "The way TV is meant to be", "Thumbs Down" (logo and text), "Thumbs Up" (logo and text), "TiVo Central", "TiVo" (logo, name and character), "TiVolution", "What you want, when you want it", and "You run the shows" are trademarks of the registrant. All other trademarks or trade names appearing in this report are the property of their respective owners. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. 42 TIVO INC. Date: September 14, 2001 By: /s/ Michael Ramsay ---------------------------------- Michael Ramsay Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) Date: September 14, 2001 By: /s/ David H. Courtney ---------------------------------- David H. Courtney Chief Financial Officer and Sr. Vice President of Finance and Administration (Principal Financial and Accounting Officer) 43 EX-4.1 3 dex41.txt FORM OF 7% CONVERTIBLE SENIOR NOTE Exhibit 4.1 ----------- FORM OF 7% CONVERTIBLE SENIOR NOTE ---------------------------------- TIVO INC. [FORM OF FACE OF NOTE] [THE FOLLOWING PARAGRAPH SHALL APPEAR ON THE FACE OF EACH RESTRICTED NOTE.] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE ISSUER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) TO A PERSON THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY) AND THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER IS AN EXHIBIT TO THE INDENTURE GOVERNING THIS SECURITY AND MAY BE OBTAINED FROM THE TRUSTEE AND/OR THE TRANSFER AGENT) IS DELIVERED PRIOR TO SUCH TRANSFER BY THE TRANSFEREE TO THE ISSUER AND THE TRUSTEE AND/OR THE TRANSFER AGENT, (4) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (6) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. THE HOLDER HEREOF AGREES THAT, PRIOR TO SUCH TRANSFER, IT WILL FURNISH TO THE ISSUER AND THE TRUSTEE AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS (OTHER THAN WITH RESPECT TO A TRANSFER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) AND SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS AND IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER HEREOF AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF SUCH LEGEND. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE A-1 ISSUER THAT IT IS (1) AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (2) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. [THE COMPANY MAY, BUT IS NOT OBLIGATED TO, INSTRUCT THE TRUSTEE TO PLACE THE FOLLOWING PARAGRAPH ON THE FACE OF EACH NOTE HELD BY OR TRANSFERRED TO AN "AFFILIATE" (AS DEFINED IN RULE 501(B) OF REGULATION D UNDER THE SECURITIES ACT) OF THE COMPANY:] THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT. A-2 TIVO INC. 7% Convertible Senior Notes due 2006 No. ___ $_______________ CUSIP No._____________ TiVo Inc., a corporation duly organized and validly existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received hereby promises to pay to ____________________, or registered assigns, the principal sum of ___________ Dollars on August 15, 2006 and to pay interest on said principal sum semi-annually on August 15 and February 15 of each year, commencing February 15, 2002 at the rate per annum specified in the title of this Note, accrued from August 24, 2001. The interest so payable on any August 15 or February 15 will be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the August 1 or February 1 (whether or not a Business Day) next preceding such August 15 or February 15, respectively; provided that any such interest not punctually paid or duly provided for shall - -------- ---- be payable as provided in the Indenture. Payment of the principal of and interest accrued on this Note (including Liquidated Damages, if any) shall be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at any other office or agency permitted by the Indenture, in such lawful money of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided further, however, that, with respect to any holder of ------------------------- Notes with an aggregate principal amount equal to or in excess of $500,000, at the request of such holder in writing to the Company, interest on such holder's Notes shall be paid by wire transfer in immediately available funds in accordance with the written wire transfer instruction supplied by such holder from time to time to the Trustee and paying agent (if different from the Trustee) at least two days prior to the applicable record date. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, including, without limitation, Section 5- 1401 of the New York General Obligations Law. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. A-3 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed. TIVO INC. By: ________________________________________ Name: Title: Attest: By: ___________________________ Name: Title: [FORM OF CERTIFICATE OF AUTHENTICATION] TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE BANK OF NEW YORK, as Trustee, certifies that this is one of the Notes described in the within-named Indenture. Dated: By: ___________________________ Authorized Signatory A-4 [FORM OF REVERSE OF NOTE] TIVO INC. 7% Convertible Senior Note Due 2006 This Note is one of a duly authorized issue of Notes of the Company, designated as its 7% Convertible Senior Notes due 2006 (herein called the "Notes"), limited to the aggregate principal amount of $__________ all issued or to be issued under and pursuant to an Indenture dated as of August 28, 2001 (herein called the "Indenture"), between the Company and The Bank of New York, (herein called the "Trustee"), to which the Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. All capitalized terms used herein without definition shall have the meaning set forth in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. Liquidated damages paid pursuant to Section 15.2 of the Indenture, if any, shall be paid within ten (10) Business Days of the date from which such liquidated damages accrued pursuant to Section 15.2. Liquidated Damages on the Notes paid pursuant to Section 3(e) of the Registration Rights Agreement, if any, shall be paid at the times and in the manner provided therein. The Indenture contains provisions permitting the Company and the Trustee in certain limited circumstances, without the consent of the holders of the Notes, and in other circumstances, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute amendments to the Indenture or supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided, however, that no such amendment or supplemental indenture shall (i) - -------- ------- extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption or repurchase thereof, impair, or change in any respect adverse to the holder of Notes, the obligation of the Company to repurchase any Note at the option of the holder upon the happening of a Repurchase Event, or impair or adversely affect the right of any Noteholder to institute suit for the payment thereof, or change the currency in which the Notes are payable, or impair or change in any respect adverse to the Noteholders the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, including Section 15.6 thereof, or subordinate in right of payment the Notes to any other Indebtedness, without the consent of the holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. A-5 It is also provided in the Indenture that the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except (i) a default in the payment of interest or premium, if any, on, or the principal of, the Notes when due, (ii) a failure by the Company to convert any Notes into Common Stock or (iii) a default in respect of a covenant or provisions of the Indenture which under Article XI thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether any notation thereof is made upon this Note or such other Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note as and when the same shall become due and payable in accordance with the terms herein. Interest on the Notes shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture, without payment of any service charge but with payment of a sum sufficient to cover any tax, assessments or other governmental charges that may be imposed in connection with any registration or exchange of Notes, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations. The Company may, at its option, redeem all or any part of the Notes on any date prior to maturity, upon mailing a notice of such redemption, and at a redemption price equal to $1,000 per $1,000 principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, provided, however, that, prior to August 28, 2004, the Company shall only have such right of redemption if (1) the Closing Price per share of the Company's Common Stock has exceeded 200% of the Conversion Price then in effect (not including the effect of any adjustment to the Conversion Price made pursuant to Section 15.11 of the Indenture) for at least 20 Trading Days within a period of 30 consecutive Trading Days, and (2) within 10 days following the Determination Period, the Company mails to holders the notice required pursuant to Section 3.2 (the date of such notice, the "Notice Date"), and provided, further, that, prior to the last date on which the shelf registration statement covering resales of the Notes and the Common Stock issuable upon conversion of the Notes is required to remain effective pursuant to the Registration Rights Agreement, such shelf registration statement is effective and available for use at all times during the period beginning 30 days prior to the Notice Date and ending on the earlier of the redemption date or the last date on which the Shelf Registration Statement is required to remain effective and available pursuant to the Registration Rights Agreement, and is expected to remain effective and available for use until the earlier of 30 days following the redemption date or the last date on which the Shelf Registration Statement is required to remain A-6 effective pursuant to the Registration Rights Agreement. If the Company exercises such right of redemption prior to August 28, 2002, the Company shall make an additional payment in cash to holders of the redeemed Notes with respect to the Notes called for redemption, in an amount equal to $70 per each $1,000 principal amount of the Note, less the amount of any interest actually paid on such Notes prior to the date of notice of redemption is mailed. The Company shall make this additional payment on all Notes called for redemption prior to August 28, 2002, including any Notes converted after the date the notice of redemption is mailed and before the provisional redemption date. If such notice of redemption has been given as provided in the Indenture, the Notes or portion of Notes called for redemption shall, unless converted into Common Stock pursuant to the terms of the Indenture, become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, together with the Provisional Payment, if any, and interest accrued to, but excluding, the date fixed for redemption, and on and after such date (unless the Company shall default in the payment of such Notes at the redemption price, together with the Provisional Payment, if any, and interest accrued to, but excluding, said date) interest on the Notes or portion of Notes so called for redemption shall cease to accrue and such Notes shall cease after the close of business on the Business Day next preceding the date fixed for redemption to be convertible into Common Stock and, except as provided in Sections 8.5 and 13.4 of the Indenture, to be entitled to any benefit or security under the Indenture, and the holders of such Notes shall have no right in respect of such Notes except the right to receive the redemption price and unpaid interest to, but excluding, the date fixed for redemption. On presentation and surrender of such Notes at a place of payment specified in such notice, such Notes or the specified portions thereof to be redeemed shall be paid and redeemed by the Company at the applicable redemption price, together with the Provisional Payment, if any, and interest accrued thereon to, but excluding, the date fixed for redemption; provided that, if the applicable -------- redemption date is an interest payment date, the semi-annual payment of interest becoming due on such date shall be payable to the holders of such Notes registered as such on the relevant record date subject to the terms and provisions of Section 2.3 of the Indenture. The Notes are not subject to redemption through the operation of any sinking fund. Upon the occurrence of a "Repurchase Event," the Noteholder has the right, at such holder's option, to require the Company to repurchase all or any portion of such holder's Notes on the 40th calendar day (or, if such 40th day is not a Business Day, the next succeeding Business Day) after notice of such Repurchase Event at a price equal to 110% of the principal amount of the Notes such holder elects to require the Company to repurchase, together, in each case, with accrued interest to the date fixed for repurchase; provided that if such -------- repurchase date is August 15 or February 15, then the interest payable on such date shall be paid to the holder of record of the Note on the next preceding August 15 or February 15, respectively. The Company or, at the written request of the Company, the Trustee shall mail to all holders of record of the Notes a notice of the occurrence of a A-7 Repurchase Event and of the repurchase right arising as a result thereof on or before the tenth (10th) calendar day after the occurrence of such Repurchase Event. If a redemption date pursuant to Article III of the Indenture shall occur prior to any repurchase date established pursuant to a Company Notice under Section 16.2 of the Indenture, provided that the Company shall have deposited or set aside an amount of money sufficient to redeem such Notes as set forth in Section 3.2 of the Indenture on or before such repurchase date, all such Notes shall be redeemed pursuant to Article III of the Indenture and the repurchase rights under Article XVI of the Indenture shall have no effect. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time following the date of original issuance of the Notes and prior to the close of business on August 15, 2006, (except that, with respect to any Note or portion of a Note that shall be called for redemption, such right shall terminate, except as otherwise provided in the Indenture, at the close of business on the Business Day next preceding the date fixed for redemption unless the Company shall default in payment due upon redemption), to convert the principal hereof or any portion of such principal which is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of the Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Note or portion thereof to be converted by the conversion price of $6.73 or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture and this Note, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or at any other office or agency permitted by the Indenture, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. Copies of such notice shall also be sent via facsimile to the Company, attention General Counsel ((650) 519-5333) and Latham & Watkins, attention John Donohue ((650) 463-2600). The Company shall pay in cash, on this Note or portion thereof surrendered for conversion during the period from the close of business on any interest payment date to which interest has been fully paid through the close of business on the Business Day preceding the record date for the next such interest payment date, accrued and unpaid interest, if any, to, but excluding, the date of conversion. Any such payment of interest shall be made with ten (10) Business Days after the Conversion Date. Notwithstanding the foregoing, if this Note shall be surrendered for conversion during the period from the close of business on any record date for any interest payment date through the close of business on the Business Day next preceding such interest payment date, this Note (unless the Note or the portion thereof being converted shall have been called for redemption pursuant to a redemption notice mailed to the Noteholders in accordance with Section 3.2 of the Indenture or shall have become due prior to such interest payment date as a result of a Repurchase Event) must be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company, of an amount equal to the interest otherwise payable on such interest payment date on the principal amount being converted; provided, however, that no such payment need be made if there -------- ------- shall exist at the time of conversion a default in the payment of interest on the Notes. No fractional shares of Common Stock will be issued upon any conversion, but an adjustment in cash will be paid to the holder, as provided A-8 in the Indenture, in respect of any fraction of a share which would otherwise be issuable upon the surrender of any Note or Notes for conversion. In addition to any adjustments to the Conversion Price required to be made pursuant to Section 15.5 of the Indenture, the Conversion Price (1) shall be adjusted on the date which is the earlier of (A) the date by which the Company is required to have had the Shelf Registration Statement declared effective by the Securities and Exchange Commission or be subject to Liquidated Damages under the Registration Rights Agreement or (B) two calendar days after the date on which the Commission declares effective the Shelf Registration Statement (the earlier of such date, the "Registration Date"), if the Current Market Price on the Registration Date is less than the Conversion Price otherwise in effect on the Registration Date, to the greater of such Current Market Price or 75% of the Benchmark Price and (2) shall be adjusted on August 23, 2002 (the "August 23, 2002 Date" and, together with the Registration Date, the "Adjustment Date"), if the Current Market Price on the August 23, 2002 Date is less than the Conversion Price otherwise in effect on the August 23, 2002 Date, to the greater of such Current Market Price or 75% of the Benchmark Price, which Benchmark Price is subject to adjustment as provided in the Indenture. In addition to any adjustment to the Conversion Price required to be made pursuant to Section 15.5, Section 15.6 or Section 15.11(a) of the Indenture, the Conversion Price shall be adjusted in accordance with Section 15.11(b) of the Indenture. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes not converted prior to the expiration of such conversion right by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or before the date fixed for redemption, an amount not less than the applicable redemption price, together with the Provisional Payment, if any, and interest accrued to the date fixed for redemption, of such Notes. Upon due presentment for registration of transfer of this Note and any other documents as may be required to be delivered by the Indenture at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at any other office or agency permitted by the Indenture, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the requirements and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment hereof (including Liquidated Damages to the extent accrued but unpaid), or on account hereof, for the conversion hereof and for all other purposes; and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to, or upon the order of, such registered holder for the time A-9 being shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable on this Note. No recourse for the payment of the principal of or any premium or interest on this Note (including Liquidated Damages, if any), or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. A-10 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - _____________________________ Custodian (Cust) TEN ENT - as tenants by the entireties _____________________________ (Minor) JT TEN - as joint tenants with right of survivorship and not as tenants Uniform Gifts to Minors Act ___________ in common (State) Additional abbreviations may also be used though not in the above list. A-11 EX-4.2 4 dex42.txt FORM OF FIVE-YEAR WARRANT EXHIBIT 4.2 ----------- FORM OF WARRANT --------------- TIVO INC. No. ___________________ CUSIP No. ________________ [THE FOLLOWING PARAGRAPHS SHALL APPEAR ON THE FACE OF EACH RESTRICTED WARRANT.] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR -------------- THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE ISSUER, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE ---- 144A"), TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED - ---- INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPEARING ON THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPEARING ON THIS SECURITY), (4) TO A PERSON THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPEARING ON THIS SECURITY) AND THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER IS AN EXHIBIT TO THE WARRANT AGREEMENT GOVERNING THIS SECURITY AND MAY BE OBTAINED FROM THE WARRANT AGENT) IS DELIVERED PRIOR TO SUCH TRANSFER BY THE TRANSFEREE TO THE ISSUER AND THE WARRANT AGENT, (5) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (7) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. THE HOLDER HEREOF AGREES, THAT PRIOR TO SUCH TRANSFER, IT WILL FURNISH TO THE ISSUER AND THE WARRANT AGENT AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS (OTHER THAN WITH RESPECT TO A TRANSFER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) AND SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS AND IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER HEREOF AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF SUCH LEGEND. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. [THE COMPANY MAY, BUT IS NOT OBLIGATED TO INSTRUCT THE WARRANT AGENT TO PLACE THE FOLLOWING LEGEND ON ANY WARRANT HELD BY OR TRANSFERRED TO AN "AFFILIATE" (AS DEFINED IN RULE 501(B) OF REGULATION D UNDER THE SECURITIES ACT):] THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT. A-2 WARRANT REPRESENTING _________ WARRANTS TO PURCHASE COMMON STOCK This certifies that _________, or its registered assigns, is the registered owner of __________ Warrants, each expiring August 28, 2006, and each of which entitles the registered owner thereof (the "Warrantholder") to purchase ------------- at any time prior to the expiration hereof from TIVO INC., a Delaware corporation (the "Company"), one share of Common Stock (the "Common Stock"), ------- ------------ $0.001 par value per share, of the Company at the purchase price of $7.85 per share of Common Stock (the "Exercise Price"), subject to adjustment as provided -------------- in the Warrant Agreement hereinafter referred to. The Warrants evidenced by this Warrant are issued under and in accordance with the Warrant Agreement, dated as of August 28, 2001 (the "Warrant ------- Agreement"), between the Company and The Bank of New York, as warrant agent (the - --------- "Warrant Agent"), and the Registration Rights Agreement, dated of even date ------------- therewith (the "Registration Rights Agreement"), among the Company and the ----------------------------- initial purchasers of the Warrants, and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Warrant consents by acceptance of this Warrant and which Warrant Agreement and Registration Rights Agreement are hereby incorporated by reference in and made a part of this Warrant. Reference is hereby made to the Warrant Agreement and the Registration Rights Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Company and the Warrantholders. The summary of the terms of the Warrant Agreement and the Registration Rights Agreement contained in this Warrant is qualified in its entirety by express reference to such agreements. All capitalized terms used but not defined in this Warrant shall have the meanings assigned to them in the Warrant Agreement. As provided in the Warrant Agreement, and subject to the terms and conditions set forth therein, the Warrants shall be exercisable at any time during the period commencing on the day after the date of the Warrant Agreement and ending at 5:00 p.m., New York time, on August 28, 2006 (the "Expiration ---------- Date"). This Warrant may be exercised on any Business Day on or prior to close - ---- of business on the Expiration Date. Any Warrant not exercised before the close of business on the Expiration Date, or the Termination Date, as the case may be, shall become void, and all rights of the holder under the Warrant Certificate evidencing such Warrant and under this Agreement shall cease. The Exercise Price and the number of shares of Common Stock purchasable upon exercise of each Warrant are subject to adjustment as provided in the Warrant Agreement. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or A-3 combination of the Company with another person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, (iii) any statutory exchange, as a result of which holders of Common Stock generally shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (such transaction, a "Statutory Exchange"), (iv) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing person, as the case may be, shall execute with the Warrant Agent a supplemental warrant agreement providing that such Warrant shall be exercisable for the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance by a holder of a number of shares of Common Stock issuable upon exercise of such Warrants (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available for issuance upon exercise of all such Warrants) immediately prior to such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, that holders of Common Stock who were entitled to vote or consent to such transaction had as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purposes of Section 13 of the Warrant ------------------ Agreement the kind and amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 12 of the Warrant Agreement. If, in the case of any such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock include shares of stock or other securities and assets of a corporation other than the successor or purchasing person, as the case may be, in such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance, then such supplemental warrant agreement shall also be executed by such other person and shall contain such additional provisions to protect the interests of the holders of the Warrants as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Exercise Price for the stock and other securities, property and assets (including cash) so receivable upon such event shall be an amount equal to the Exercise Price immediately prior to such event. The Company shall not be required to issue fractions of shares of Common Sock upon exercise of the Warrants or to distribute certificates which evidence such fractional shares. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon the exercise thereof shall be A-4 computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of all Warrants so presented. In lieu any of fractional shares, there shall be paid to the registered holders of Warrant Certificates at the time such Warrant Certificates are exercised an amount in cash equal to the same fraction of the current market value of a share of Common Stock. For purposes of this calculation, the current market value of a share of Common Stock shall be the Closing Price of a share of Common Stock for the Trading Day immediately prior to the date of such exercise. The Company covenants that it will at all times through 5:00 p.m., New York time, on the Expiration Date (or, if the Expiration Date shall not be a Business Day, then on the next-succeeding Business Day) reserve, free from preemptive rights, and keep available out of its authorized but unissued shares or shares held in treasury or a combination thereof of Common Stock, solely for the purpose of issue upon exercise of Warrants as herein provided, sufficient shares of Common Stock, for issuance upon exercise of, the Warrants from time to time as such Warrants are presented for exercise. The Company covenants that all shares of Common Stock issued upon exercise of Warrants shall be duly and validly issued and fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. The initial issuance of certificates of Common Stock upon the exercise of Warrants shall be made without charge to the exercising Warrantholders for any tax in respect of the issuance of such stock certificates, and such stock certificates shall be issued in the respective names of, or in such names as may be directed by, the registered holders of the Warrants exercised, subject to the restrictions on transfer set forth herein and in the Warrant Agreement; provided, however, that the Company shall not be required to pay any tax that - -------- ------- may be payable in respect of any transfer involved in the issuance and delivery of any such stock certificate, any Warrant Certificates or other securities in a name other than that of the registered holder of the Warrant Certificate surrendered upon exercise of the Warrant, and the Company shall not be required to issue or deliver such certificates or other securities unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Subject to the terms and provisions of the Registration Rights Agreement, the Company shall file under the Securities Act a registration statement providing for the registration of all of the Warrants and the shares of Common Stock issuable upon exercise thereof. As provided in the Warrant Agreement and the Registration Rights Agreement, the Warrantholders have additional rights and duties with respect to the registration of the Warrants and the Common Stock issuable upon exercise of the Warrants. A Warrantholder may be required to indemnify and hold the Company and certain other persons harmless in connection with written information furnished to the Company by or on behalf of such Warrantholder specifically for use in any registration statement, or any preliminary or final or summary Prospectus contained therein or any amendment or supplement thereto. By its acceptance of any Warrant represented by a Warrant Certificate bearing a restrictive legend, each holder and beneficial owner of such a Warrant acknowledges the restrictions on transfer A-5 of such a Warrant set forth in such legend and agrees that it will transfer such a Warrant only in accordance with such legend. Subject to the restrictions on transfer set forth herein and in the Warrant Agreement, this Warrant and all rights hereunder are transferable by the registered Warrantholder hereof, in whole or in part, on the Warrant register, upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Warrant Agent duly executed, with signatures guaranteed as specified in the attached "Form of Assignment," by the registered Warrantholder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and the Warrant Agent will countersign and deliver to such Warrantholder a new Warrant Certificate or Warrant Certificates with respect to any portion not so transferred. Each taker and holder of this Warrant, by taking and holding the same, consents and agrees that prior to the registration of transfer as provided in the Warrant Agreement, the Company and the Warrant Agent may treat the person in whose name the Warrants are registered as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding. This Warrant Certificate may be exchanged at the office of the Warrant Agent for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant shall not be entitled, as such, to any rights of a stockholder of the Company, including, without limitation, the right to vote or to consent to any action of the stockholders of the Company, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders of the Company, and shall not be entitled to receive any notice of any proceedings of the Company except as provided in the Warrant Agreement. Copies of the Warrant Agreement are on file at the office of the Warrant Agent and may be obtained by writing to the Warrant Agent at the following address: The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Attention: Corporate Trust Administration THE WARRANT AGREEMENT AND THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, INCLUDING WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. A-6 This Warrant shall not be valid for any purpose until it shall have been countersigned by the Warrant Agent. TIVO INC. By: __________________________________ Name: Title: Attest: By: _________________________________ Name: Title: Countersigned: THE BANK OF NEW YORK as Warrant Agent By:__________________________________ Authorized Signatory Dated: A-7 EX-4.3 5 dex43.txt FORM OF ONE-YEAR WARRANT EXHIBIT 4.3 ----------- FORM OF WARRANT --------------- TIVO INC. No. ___________________ CUSIP No. ________________ [THE FOLLOWING PARAGRAPHS SHALL APPEAR ON THE FACE OF EACH RESTRICTED WARRANT.] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR -------------- THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE ISSUER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPENDED TO THIS SECURITY), (3) TO A PERSON THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPENDED TO THIS SECURITY) AND THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, ___ AND A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER IS AN EXHIBIT TO THE AGREEMENT GOVERNING THIS SECURITY AND MAY BE OBTAINED FROM THE WARRANT AGENT) IS DELIVERED PRIOR TO SUCH TRANSFER BY THE TRANSFEREE TO THE ISSUER AND THE WARRANT AGENT, (4) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (6) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. THE HOLDER HEREOF AGREES, THAT PRIOR TO SUCH TRANSFER, IT WILL FURNISH TO THE ISSUER AND THE WARRANT AGENT AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS (OTHER THAN WITH RESPECT TO A TRANSFER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) AND SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS AND IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER HEREOF AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF SUCH LEGEND. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. [THE FOLLOWING PARAGRAPH SHALL APPEAR ON THE FACE OF EACH WARRANT:] EACH WARRANT REPRESENTED BY THIS CERTIFICATE MUST TRADE AS A UNIT WITH ONE FIVE-YEAR TERMINABLE WARRANT (AS DEFINED IN THE WARRANT AGREEMENT GOVERNING THIS SECURITY) AND MAY NOT BE TRANSFERRED OR EXCHANGED WITHOUT THE SIMULTANEOUS TRANSFER OR EXCHANGE OF CERTIFICATES REPRESENTING ONE FIVE-YEAR TERMINABLE WARRANT FOR EACH WARRANT BEING TRANSFERRED OR EXCHANGED. [THE COMPANY MAY, BUT IS NOT OBLIGATED TO INSTRUCT THE WARRANT AGENT TO PLACE THE FOLLOWING LEGEND ON ANY WARRANT HELD BY OR TRANSFERRED TO AN "AFFILIATE" (AS DEFINED IN RULE 501(B) OF REGULATION D UNDER THE SECURITIES ACT):] THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT. A-2 WARRANT REPRESENTING _________ WARRANTS TO PURCHASE COMMON STOCK This certifies that _________, or its registered assigns, is the registered owner of __________ Warrants, each expiring August 28, 2002, and each of which entitles the registered owner thereof (the "Warrantholder") to purchase ------------- at any time prior to the expiration hereof from TIVO INC., a Delaware corporation (the "Company"),one share of Common Stock (the "Common Stock"), ------- ------------ $0.001 par value per share, of the Company at the purchase price of $6.73 per share of Common Stock (the "Exercise Price"), subject to adjustment as provided -------------- in the Warrant Agreement hereinafter referred to. The Warrants evidenced by this Warrant are issued under and in accordance with the Warrant Agreement, dated as of August 28, 2001 (the "Warrant ------- Agreement"), between the Company and The Bank of New York, as warrant agent (the - --------- "Warrant Agent"), and the Registration Rights Agreement, dated of even date ------------- therewith (the "Registration Rights Agreement"), among the Company and the ----------------------------- initial purchasers of the Warrants, and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Warrant consents by acceptance of this Warrant and which Warrant Agreement and Registration Rights Agreement are hereby incorporated by reference in and made a part of this Warrant. Any Warrants represented by this Certificate shall be transferable or exchangeable only as a Unit with a like number of Five-Year Terminable Warrants (as defined in the Warrant Agreement). Reference is hereby made to the Warrant Agreement and the Registration Rights Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Company and the Warrantholders. The summary of the terms of the Warrant Agreement and the Registration Rights Agreement contained in this Warrant is qualified in its entirety by express reference to such agreements. All capitalized terms used but not defined in this Warrant shall have the meanings assigned to them in the Warrant Agreement. As provided in the Warrant Agreement, and subject to the terms and conditions set forth therein including early termination at the Company's option, the Warrants shall be exercisable, unless earlier terminated at the Company's option as described below, if applicable, at any time during the period commencing on the day after the date of the Warrant Agreement and ending at 5:00 p.m., New York time, on August 28, 2002 (the "Expiration Date"). This --------------- Warrant may be exercised on any Business Day on or prior to close of business on the Expiration Date. Any Warrant not exercised before the close of business on the Expiration Date, or the Termination Date, as the case may be, shall become void, and all rights of the holder under the Warrant Certificate evidencing such Warrant and under this Agreement shall cease. A-3 If at any time prior to the Expiration Date, (1) the Closing Price (as defined in Section 12 of the Warrant Agreement) per share of the Common Stock has exceeded 150% of the Exercise Price then in effect for at least 20 Trading Days (as defined in Section 12(h) of the Warrant Agreement) within a period of 30 consecutive Trading Days (the "Determination Period") and (2) a shelf -------------------- registration statement covering resales of the Common Stock issuable upon exercise of the Warrants is effective and available for use at all times during the period beginning 60 days prior to the Notice Date and ending on the Termination Date, and is expected to remain effective and available for use for at least 30 days following the Termination Date, then the Company may, at its option, terminate the Warrants. By following the procedures set forth below, the Company may exercise this right of termination only if, within 30 days following the Determination Period, the Company or, at its request, the Warrant Agent, in the name of and at the expense of the Company, shall mail or cause to be mailed a notice of such termination (the "Termination Notice," and the date such ------------------ Termination Notice is mailed, the "Notice Date") to the holders of the Warrants ----------- at their last addresses as the same appear on the Warrant register (provided -------- that if the Company shall give such notice, it shall also give such notice to the Warrant Agent). Such mailing shall be by first class mail and the Company shall contemporaneously issue a press release through PRNewswire or Bloomberg containing substantially the same information as the notice of termination described below. Each such notice of termination shall specify the CUSIP number or numbers of such Warrants, the Termination Date, that the Warrants may not be exercised after 5:00 p.m., New York City time, on the Termination Date, the current Exercise Price, that the Five-Year Terminable Warrants with which such Warrants comprise Units shall also terminate, and the CUSIP number or numbers of such Five-Year Warrants. The notice, if mailed in the manner herein provided, shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Warrant shall not affect the validity of the proceedings for the termination of any other Warrant. If the conditions described in the preceding paragraph have been met, any Warrant not exercised before the close of business on the 60th day after the mailing date of the notice of termination (such 60/th/ day, the "Termination ----------- Date") shall become void and all of the rights of the holder under the Warrant - ---- Certificate evidencing such Warrant and under this Agreement shall cease. The Exercise Price and the number of shares of Common Stock purchasable upon exercise of each Warrant are subject to adjustment as provided in the Warrant Agreement. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, (iii) any statutory exchange, as a result of which holders of Common Stock generally shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (such transaction, a "Statutory Exchange"), (iv) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect A-4 to or in exchange for such Common Stock, then the Company or the successor or purchasing person, as the case may be, shall execute with the Warrant Agent a supplemental warrant agreement providing that such Warrant shall be exercisable for the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance by a holder of a number of shares of Common Stock issuable upon exercise of such Warrants (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available for issuance upon exercise of all such Warrants) immediately prior to such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, that holders of Common Stock who were entitled to vote or consent to such transaction had as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing ------------ share"), then for the purposes of Section 13 of the Warrant Agreement the kind - ----- and amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 12 of the Warrant Agreement. If, in the case of any such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock include shares of stock or other securities and assets of a corporation other than the successor or purchasing person, as the case may be, in such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance, then such supplemental warrant agreement shall also be executed by such other person and shall contain such additional provisions to protect the interests of the holders of the Warrants as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Exercise Price for the stock and other securities, property and assets (including cash) so receivable upon such event shall be an amount equal to the Exercise Price immediately prior to such event. The Company shall not be required to issue fractions of shares of Common Sock upon exercise of the Warrants or to distribute certificates which evidence such fractional shares. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of all Warrants so presented. In lieu any of fractional shares, there shall be paid to the registered holders of Warrant Certificates at the time such Warrant Certificates are exercised an amount in cash equal to the same fraction of the current market value of a share of Common Stock. For purposes of this calculation, the current market value of a share of Common Stock shall be the Closing Price of a share of Common Stock for the Trading Day immediately prior to the date of such exercise. A-5 The Company covenants that it will at all times through 5:00 p.m., New York time, on the Expiration Date (or, if the Expiration Date shall not be a Business Day, then on the next-succeeding Business Day) reserve, free from preemptive rights, and keep available out of its authorized but unissued shares or shares held in treasury or a combination thereof of Common Stock, solely for the purpose of issue upon exercise of Warrants as herein provided, sufficient shares of Common Stock, for issuance upon exercise of, the Warrants from time to time as such Warrants are presented for exercise. The Company covenants that all shares of Common Stock issued upon exercise of Warrants shall be duly and validly issued and fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. The initial issuance of certificates of Common Stock upon the exercise of Warrants shall be made without charge to the exercising Warrantholders for any tax in respect of the issuance of such stock certificates, and such stock certificates shall be issued in the respective names of, or in such names as may be directed by, the registered holders of the Warrants exercised, subject to the restrictions on transfer set forth herein and in the Warrant Agreement; provided, however, that the Company shall not be required to pay any tax that - -------- ------- may be payable in respect of any transfer involved in the issuance and delivery of any such stock certificate, any Warrant Certificates or other securities in a name other than that of the registered holder of the Warrant Certificate surrendered upon exercise of the Warrant, and the Company shall not be required to issue or deliver such certificates or other securities unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Subject to the terms and provisions of the Registration Rights Agreement, the Company shall file under the Securities Act a registration statement providing for the registration of all of the Warrants and the shares of Common Stock issuable upon exercise thereof. As provided in the Warrant Agreement and the Registration Rights Agreement, the Warrantholders have additional rights and duties with respect to the registration of the Warrants and the Common Stock issuable upon exercise of the Warrants. A Warrantholder may be required to indemnify and hold the Company and certain other persons harmless in connection with written information furnished to the Company by or on behalf of such Warrantholder specifically for use in any registration statement, or any preliminary or final or summary Prospectus contained therein or any amendment or supplement thereto. By its acceptance of any Warrant represented by a Warrant Certificate bearing a restrictive legend, each holder and beneficial owner of such a Warrant acknowledges the restrictions on transfer of such a Warrant set forth in such legend and agrees that it will transfer such a Warrant only in accordance with such legend. Subject to the restrictions on transfer set forth herein and in the Warrant Agreement, this Warrant and all rights hereunder are transferable by the registered Warrantholder hereof, in whole or in part, on the Warrant register, upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the A-6 Warrant Agent duly executed, with signatures guaranteed as specified in the attached "Form of Assignment," by the registered Warrantholder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and the Warrant Agent will countersign and deliver to such Warrantholder a new Warrant Certificate or Warrant Certificates with respect to any portion not so transferred. Each taker and holder of this Warrant, by taking and holding the same, consents and agrees that prior to the registration of transfer as provided in the Warrant Agreement, the Company and the Warrant Agent may treat the person in whose name the Warrants are registered as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding. This Warrant Certificate may be exchanged at the office of the Warrant Agent for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant shall not be entitled, as such, to any rights of a stockholder of the Company, including, without limitation, the right to vote or to consent to any action of the stockholders of the Company, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders of the Company, and shall not be entitled to receive any notice of any proceedings of the Company except as provided in the Warrant Agreement. Copies of the Warrant Agreement are on file at the office of the Warrant Agent and may be obtained by writing to the Warrant Agent at the following address: The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Attention: Corporate Trust Administration THE WARRANT AGREEMENT AND THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, INCLUDING WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. A-7 This Warrant shall not be valid for any purpose until it shall have been countersigned by the Warrant Agent. TIVO INC. By: __________________________________ Name: Title: Attest: By: ______________________________________ Name: Title: Countersigned: THE BANK OF NEW YORK as Warrant Agent By:________________________________________ Authorized Signatory Dated: A-8 EX-4.4 6 dex44.txt FORM OF FIVE-YEAR TERMINABLE WARRANT EXHIBIT 4.4 ----------- FORM OF WARRANT --------------- TIVO INC. No. __________ CUSIP No. __________ [THE FOLLOWING PARAGRAPHS SHALL APPEAR ON THE FACE OF EACH RESTRICTED WARRANT.] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR -------------- THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE ISSUER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPEARING ON THIS SECURITY), (3) TO A PERSON THAT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPEARING ON THIS SECURITY) AND THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER IS AN EXHIBIT TO THE AGREEMENT GOVERNING THIS SECURITY AND MAY BE OBTAINED FROM THE WARRANT AGENT) IS DELIVERED PRIOR TO SUCH TRANSFER BY THE TRANSFEREE TO THE ISSUER AND THE WARRANT AGENT, (4) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (6) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. THE HOLDER HEREOF AGREES, THAT PRIOR TO SUCH TRANSFER, IT WILL FURNISH TO THE ISSUER AND THE WARRANT AGENT AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS (OTHER THAN WITH RESPECT TO A TRANSFER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT) AND SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS AND IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER HEREOF AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF SUCH LEGEND. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE ISSUER THAT IT IS AN ACCREDITED INVESTOR AS DEFINED IN RULE 501(A)(1), (2), (3), (5), (6) OR (7) OF REGULATION D UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. [THE FOLLOWING PARAGRAPH SHALL APPEAR ON THE FACE OF EACH WARRANT THAT COMPRISES A PART OF A UNIT:] EXCEPT AS DESCRIBED IN THE NEXT SENTENCE, EACH WARRANT REPRESENTED BY THIS CERTIFICATE MUST TRADE AS A UNIT WITH ONE ONE-YEAR WARRANT (AS DEFINED IN THE WARRANT AGREEMENT GOVERNING THIS SECURITY) AND MAY NOT BE TRANSFERRED OR EXCHANGED WITHOUT THE SIMULTANEOUS TRANSFER OR EXCHANGE OF CERTIFICATES REPRESENTING ONE ONE-YEAR WARRANT FOR EACH WARRANT BEING TRANSFERRED OR EXCHANGED. UPON THE EXERCISE OF THE ONE-YEAR WARRANTS TO WHICH ALL OR A PORTION OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE RELATE, SUCH WARRANTS (OR THE PORTION OF SUCH WARRANTS EQUAL TO THE NUMBER OF ONE-YEAR WARRANTS EXERCISED) MAY BE TRANSFERRED SEPARATELY AND THIS LEGEND SHALL BE REMOVED WITH RESPECT TO SUCH WARRANTS (OR THE PORTION OF SUCH WARRANTS EQUAL TO THE NUMBER OF ONE-YEAR WARRANTS EXERCISED). [THE COMPANY MAY, BUT IS NOT OBLIGATED TO INSTRUCT THE WARRANT AGENT TO PLACE THE FOLLOWING LEGEND ON ANY WARRANT HELD BY OR TRANSFERRED TO AN "AFFILIATE" (AS DEFINED IN RULE 501(B) OF REGULATION D UNDER THE SECURITIES ACT):] THE SHARES REPRESENTED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT. A-2 WARRANT REPRESENTING _________ WARRANTS TO PURCHASE COMMON STOCK This certifies that _________, or its registered assigns, is the registered owner of __________ Warrants, each expiring August 28, 2006 and each of which entitles the registered owner thereof (the "Warrantholder") to purchase at any ------------- time prior to the expiration hereof from TIVO INC., a Delaware corporation (the "Company"), 0.33 of one share of Common Stock (the "Common Stock"), $0.001 par ------- ------------ value per share, of the Company at the purchase price of $7.85 per share of Common Stock (the "Exercise Price"), subject to adjustment as provided in the -------------- Warrant Agreement hereinafter referred to. The Warrants evidenced by this Warrant are issued under and in accordance with the Warrant Agreement, dated as of August 28, 2001 (the "Warrant ------- Agreement"), between the Company and The Bank of New York, as warrant agent (the "Warrant Agent"), and the Registration Rights Agreement, dated of even date ------------- therewith (the "Registration Rights Agreement"), among the Company and the ----------------------------- initial purchasers of the Warrants, and are subject to the terms and provisions contained therein, to all of which terms and provisions the holder of this Warrant consents by acceptance of this Warrant and which Warrant Agreement and Registration Rights Agreement are hereby incorporated by reference in and made a part of this Warrant. Until the Separation Date, any Warrants represented by this Certificate shall be transferable or exchangeable only as a Unit with a like number of One- Year Warrants (as defined in the Warrant Agreement). The Separation Date, with respect to any Warrant shall be the date upon which such One-Year Warrant with which such Warrant comprises a Unit shall have been exercised in accordance with its terms and the terms of the One-Year Warrant Agreement (as defined in the Warrant Agreement). Reference is hereby made to the Warrant Agreement and the Registration Rights Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Company and the Warrantholders. The summary of the terms of the Warrant Agreement and the Registration Rights Agreement contained in this Warrant is qualified in its entirety by express reference to such agreements. All capitalized terms used but not defined in this Warrant shall have the meanings assigned to them in the Warrant Agreement. As provided in the Warrant Agreement, and subject to the terms and conditions set forth therein including early termination of the Warrants, the Warrants shall be exercisable, unless earlier terminated as described below, at any time during the period commencing on the Separation Date and ending at 5:00 p.m., New York time, on August 28, 2006 (the "Expiration Date"). This Warrant --------------- may be exercised on any Business Day on or prior to close of business on the Expiration Date. Any Warrant not exercised before the close of business on the Expiration Date, or the Termination Date, as the case may be, shall become void, and all rights of the holder under the Warrant Certificate evidencing such Warrant and under this Agreement shall cease. A-3 With respect to any Warrant, if at any time prior to the Expiration Date, the One-Year Warrant with which such Warrant comprises a Unit expires or terminates pursuant to the terms of the One-Year Warrant Agreement without having been exercised pursuant to the terms thereof (the date of such expiration or termination, the "Termination Date") then such Warrant shall terminate if not ---------------- exercised before 5:00 p.m., New York City time, on the Termination Date. The Exercise Price and the number of shares of Common Stock purchasable upon exercise of each Warrant are subject to adjustment as provided in the Warrant Agreement. If any of the following events occur, namely (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, (iii) any statutory exchange, as a result of which holders of Common Stock generally shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (such transaction, a "Statutory Exchange"), (iv) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing person, as the case may be, shall execute with the Warrant Agent a supplemental warrant agreement providing that such Warrant shall be exercisable for the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance by a holder of a number of shares of Common Stock issuable upon exercise of such Warrants (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available for issuance upon exercise of all such Warrants) immediately prior to such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance assuming such holder of Common Stock did not exercise his rights of election, if any, that holders of Common Stock who were entitled to vote or consent to such transaction had as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the ------------------ purposes of Section 13 of the Warrant Agreement the kind and amount of securities, cash or other property receivable upon such consolidation, merger, combination, Statutory Exchange, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section 12 of the Warrant Agreement. If, in the case of any such reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock include shares of stock or other securities and assets of a corporation other than the successor or purchasing person, as the case may be, in such A-4 reclassification, change, consolidation, merger, combination, Statutory Exchange, sale or conveyance, then such supplemental warrant agreement shall also be executed by such other person and shall contain such additional provisions to protect the interests of the holders of the Warrants as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Exercise Price for the stock and other securities, property and assets (including cash) so receivable upon such event shall be an amount equal to the Exercise Price immediately prior to such event. The Company shall not be required to issue fractions of shares of Common Sock upon exercise of the Warrants or to distribute certificates which evidence such fractional shares. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of all Warrants so presented. In lieu any of fractional shares, there shall be paid to the registered holders of Warrant Certificates at the time such Warrant Certificates are exercised an amount in cash equal to the same fraction of the current market value of a share of Common Stock. For purposes of this calculation, the current market value of a share of Common Stock shall be the Closing Price of a share of Common Stock for the Trading Day immediately prior to the date of such exercise. The Company covenants that it will at all times through 5:00 p.m., New York time, on the Expiration Date (or, if the Expiration Date shall not be a Business Day, then on the next-succeeding Business Day) reserve, free from preemptive rights, and keep available out of its authorized but unissued shares or shares held in treasury or a combination thereof of Common Stock, solely for the purpose of issue upon exercise of Warrants as herein provided, sufficient shares of Common Stock, for issuance upon exercise of, the Warrants from time to time as such Warrants are presented for exercise. The Company covenants that all shares of Common Stock issued upon exercise of Warrants shall be duly and validly issued and fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. The initial issuance of certificates of Common Stock upon the exercise of Warrants shall be made without charge to the exercising Warrantholders for any tax in respect of the issuance of such stock certificates, and such stock certificates shall be issued in the respective names of, or in such names as may be directed by, the registered holders of the Warrants exercised, subject to the restrictions on transfer set forth herein and in the Warrant Agreement; provided, however, that the Company shall not be required to pay any tax that - -------- ------- may be payable in respect of any transfer involved in the issuance and delivery of any such stock certificate, any Warrant Certificates or other securities in a name other than that of the registered holder of the Warrant Certificate surrendered upon exercise of the Warrant, and the Company shall not be required to issue or deliver such certificates or other securities unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Subject to the terms and provisions of the Registration Rights Agreement, the Company shall file under the Securities Act a registration statement providing for the registration of all of the Warrants and the shares of Common Stock issuable upon exercise thereof. A-5 As provided in the Warrant Agreement and the Registration Rights Agreement, the Warrantholders have additional rights and duties with respect to the registration of the Warrants and the Common Stock issuable upon exercise of the Warrants. A Warrantholder may be required to indemnify and hold the Company and certain other persons harmless in connection with written information furnished to the Company by or on behalf of such Warrantholder specifically for use in any registration statement, or any preliminary or final or summary Prospectus contained therein or any amendment or supplement thereto. By its acceptance of any Warrant represented by a Warrant Certificate bearing a restrictive legend, each holder and beneficial owner of such a Warrant acknowledges the restrictions on transfer of such a Warrant set forth in such legend and agrees that it will transfer such a Warrant only in accordance with such legend. Subject to the restrictions on transfer set forth herein and in the Warrant Agreement, this Warrant and all rights hereunder are transferable by the registered Warrantholder hereof, in whole or in part, on the Warrant register, upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Warrant Agent duly executed, with signatures guaranteed as specified in the attached "Form of Assignment," by the registered Warrantholder hereof or his attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and the Warrant Agent will countersign and deliver to such Warrantholder a new Warrant Certificate or Warrant Certificates with respect to any portion not so transferred. Each taker and holder of this Warrant, by taking and holding the same, consents and agrees that prior to the registration of transfer as provided in the Warrant Agreement, the Company and the Warrant Agent may treat the person in whose name the Warrants are registered as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, any notice to the contrary notwithstanding. This Warrant Certificate may be exchanged at the office of the Warrant Agent for Warrant Certificates representing the same aggregate number of Warrants, each new Warrant Certificate to represent such number of Warrants as the holder hereof shall designate at the time of such exchange. Prior to the exercise of the Warrants represented hereby, the holder of this Warrant shall not be entitled, as such, to any rights of a stockholder of the Company, including, without limitation, the right to vote or to consent to any action of the stockholders of the Company, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of stockholders of the Company, and shall not be entitled to receive any notice of any proceedings of the Company except as provided in the Warrant Agreement. A-6 Copies of the Warrant Agreement are on file at the office of the Warrant Agent and may be obtained by writing to the Warrant Agent at the following address: The Bank of New York 101 Barclay Street, Floor 21W New York, NY 10286 Attention: Corporate Trust Administration THE WARRANT AGREEMENT AND THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, INCLUDING WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW. A-7 This Warrant shall not be valid for any purpose until it shall have been countersigned by the Warrant Agent. TIVO INC. By: ______________________ Name: Title: Attest: By: ______________________ Name: Title: Countersigned: THE BANK OF NEW YORK as Warrant Agent By: ______________________ Authorized Signatory Dated: A-8 -----END PRIVACY-ENHANCED MESSAGE-----