Investment Agreement

TIVO INC.


INVESTMENT AGREEMENT


This Investment Agreement (the "Agreement") is entered into as of June 9, 2000, by and between TiVo Inc., a Delaware corporation (the "Company"), and America Online, Inc., a Delaware Corporation (the "Purchaser"), relating to, among other things, the Company's common stock, par value $0.001 per share (the "Common Stock"), and the Company's Series A Convertible Preferred Stock, par value $0.001 per share (the "Preferred Stock").


Recitals


Whereas, the Company desires to sell to the Purchaser and the Purchaser desires to purchase from the Company, Common Stock and, depending on the trading price of the Common Stock, Preferred Stock (collectively, the "Shares") on the terms and conditions set forth in this Agreement (the "Share Purchase");


Whereas, in connection with the sale and issuance of the Shares, the Company desires to issue to the Purchaser the Warrants (as defined herein) to purchase shares of Common Stock;


Whereas, simultaneously herewith, the Company and the Purchaser are entering into (i) a Stockholders and Registration Rights Agreement (the "Stockholders Agreement") which will provide for certain rights and obligations of the parties related to, among other things, the Purchaser's equity interests in the Company, and (ii) a Product Integration and Marketing Agreement (the "Commercial Agreement"), pursuant to which the Company and the Purchaser will work together to jointly develop a branded interactive television service;


Whereas, simultaneously herewith, certain stockholders of the Company collectively owning in excess of a majority of the outstanding shares of Common Stock are entering into a Voting Agreement (the "Voting Agreement") with the Purchaser, pursuant to which such stockholders agree to vote their shares of Common Stock in favor of certain of the transactions contemplated hereby and by the Related Agreements (as defined herein);


Now, Therefore, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


Section 1. Agreement To Sell And Purchase.


1.1 Authorization of Shares. Subject to receipt of the Company Stockholder Approval (as defined below), the Company has authorized (i) the sale and issuance to the Purchaser of the Shares and the Warrants, (ii) the issuance of the shares of Common Stock to be issued upon conversion of the Preferred Shares (the "Conversion Shares") and (iii) the issuance of the Warrant Shares (as defined herein) to be issued upon exercise of the Warrants. The Shares, Conversion Shares and Warrant Shares shall have the rights, preferences, privileges and restrictions set forth in the Amended and Restated Certificate of Incorporation of the Company in the form attached hereto as Exhibit A (the "Restated Certificate").


1.2 Sale and Purchase.


(a) Common Stock. Subject to Section 1.2(c) and the other terms and conditions of this Agreement, the Company agrees to issue and sell to the Purchaser and the Purchaser agrees to purchase at the Closing (as defined below) that number of shares of Common Stock, which when multiplied by the Common Stock Price (as defined below) is as near as possible to two hundred million dollars ($200,000,000) (the "Common Shares"). Subject to Section 1.2(b), the per share purchase price for the Common Shares shall be equal to the higher of (i) $23.00, or (ii) the average closing price of the Common Stock on the Nasdaq National Market System for the 10 consecutive full trading days ending on the Determination Date (as defined below) (the "Closing Average"), subject to a maximum per share purchase price of thirty-five dollars ($35) (the "Common Stock Price"). If the Closing Average is less than ten dollars ($10) per share, the Purchaser will have the right to terminate this Agreement and the transactions contemplated hereby, subject to the Company's rights under Section 1.2(b), at any time during the four Business Day period commencing on the Determination Date, exercisable by the Purchaser's delivery of written notice to such effect to the Company during such four Business Day period; provided that such notice and the Purchaser's termination of this Agreement may be withdrawn at any time during such four Business Day period. For purposes hereof, "Determination Date" means the trading day immediately preceding the date on which all the conditions to Closing (other than conditions that, by their terms, cannot be satisfied until the Closing) set forth in Section 5 hereof shall have been satisfied or waived.


(b) Adjustment of Common Stock Price. If the Purchaser exercises its termination right pursuant to Section 1.2(a), the Company shall have the right, exercisable during the three Business Day period following the date of the Purchaser's notice of termination by delivery of written notice to the Purchaser during such three Business Day period, to adjust the Common Stock Price to be ten dollars ($10) per share. If the Company makes an election to adjust the terms of the transaction as contemplated by the preceding sentence within such three Business Day period, (i) no termination of this Agreement shall be deemed to have occurred pursuant to Section 1.2(a) and (ii) this Agreement shall remain in effect in accordance with its terms, except that all references in this Agreement to the Common Stock Price shall be deemed to refer to the Common Stock Price as adjusted pursuant to this Section 1.2(b).


(c) Restructuring of Share Purchase if Common Stock Price Is Less Than Thirty Dollars. In the event that the Common Stock Price is less than thirty dollars ($30) per share, the number of shares of Common Stock to be purchased by the Purchaser shall be reduced and, subject to the terms and conditions of this Agreement, the Company shall issue to the Purchaser shares of Preferred Stock in accordance with this Section 1.2(c). For purposes of this Section 1.2(c), the term "Adjustment Price" shall mean (i) if the Closing Average is equal to or greater than ten dollars ($10) per share, the Common Stock Price or (ii) if the Closing Average is less than $10, the Closing Average.


(i) Decrease in Number of Common Shares Purchased. The number of Common Shares that the Company shall issue to the Purchaser shall be reduced to a number equal to 6,666,667 shares multiplied by a fraction, the numerator of which is the Adjustment Price and the denominator of which is thirty dollars ($30).


(ii) Sale of Preferred Stock to the Purchaser. The Company agrees to issue to the Purchaser and the Purchaser agrees to purchase in accordance with the terms hereof that number of shares of Preferred Stock having an aggregate initial liquidation value equal to (x) two hundred million dollars ($200,000,000) less (y) the aggregate number of Common Shares purchased multiplied by the Adjustment Price (the "Preferred Shares"). If, as of the Closing Date, the sum of (1) the aggregate initial liquidation value of the Preferred Shares to be purchased pursuant to the preceding sentence, (2) the value of the Common Shares to be purchased (calculated as the product of the number of Common Shares to be purchased and the Common Stock Price) and (3) the value of the Common Stock previously owned by the Purchaser (calculated as the product of the number of such shares and the amount paid therefor), exceeds 25% of the sum of (1) the aggregate initial liquidation value of Preferred Shares to be purchased, (2) the value of Common Shares to be purchased (calculated as the product of the number of Common Shares to be purchased and the Common Stock Price) and (3) the value of all the shares of Common Stock outstanding on the Closing Date prior to the transactions contemplated hereby (calculated as the product of the number of such shares and the Closing Average) (such excess above 25%, the "Excess Equity Value"), then the number of shares of Preferred Stock to be purchased by the Purchaser shall be reduced by a number of shares as would have an aggregate initial liquidation value equal to the Excess Equity Value (the "Excess Preferred Shares").


1.3 Warrants. Upon the closing of the Share Purchase, in accordance with this Section 1.3, the Company shall issue to the Purchaser warrants (the "Warrants") to purchase in the aggregate a number of shares of Common Stock which, when combined with the number of shares of Common Stock owned by the Purchaser as of the Closing Date and the number of shares of Common Stock that would be issuable as of the Closing pursuant to the Preferred Shares to be issued pursuant to Section 1.2(c)(ii), if any, would constitute (after issuance) 30% of all the issued and outstanding capital stock of the Company as of the Closing Date, rounded to the nearest whole share (the "Warrant Shares"). The Warrant Shares shall be allocated among different forms of warrants as follows:


(i) a warrant to purchase the lesser of (i) 33 1/3% of all the Warrant Shares and (ii) 2,941,402 Warrant Shares shall be issued in the form of Exhibit B hereto;


(ii) a warrant to purchase the lesser of (i) 33 1/3% of all the Warrant Shares and (ii) 2,941,401 Warrant Shares shall be issued in the form of Exhibit C hereto; and


(iii) (A) if the Closing Average is equal to or greater than thirty dollars ($30), a warrant to purchase the remaining Warrant Shares after the allocation set forth in clauses (i) and (ii) above (the "Vested Warrant Shares") in the form of Exhibit D hereto, having a per share exercise price equal to the Common Stock Price or (B) if the Closing Average is less than thirty dollars ($30), (1) a warrant to purchase a number of Warrant Shares equal to the number of Vested Warrant Shares multiplied by a fraction, the numerator of which is the Adjustment Price and the denominator of which is thirty dollars ($30) in the form of Exhibit D hereto, having a per share exercise price equal to the Common Stock Price, and (2) a warrant to purchase the remaining Vested Warrant Shares after the allocation set forth in the preceding clause (1) in the form of Exhibit E hereto, having a per share exercise price equal to the lesser of (x) thirty dollars ($30) and (y) three times the Closing Average; provided that a portion of any Warrant to be issued pursuant to this Section 1.3(iii)(B)(2) shall be mandatorily exercisable in accordance with its terms with respect to a number of Vested Warrant Shares equal to the number of shares of Common Stock, if any, that would have been issuable upon conversion of the Excess Preferred Shares (if they were issued) as of the Closing Date, subject to a maximum of all the Vested Warrant Shares subject to such Warrant.


The Purchaser shall not be obligated to pay any additional consideration for the issuance of the Warrants and, in addition to the terms set forth above, the terms of each of the Warrants shall be as set forth in Exhibits B, C, D and, if applicable, E.


1.4 Use and Escrow of Certain Funds.


(a) The Company and the Purchaser agree that (i) sixty percent (60%) of the proceeds received by the Company in the Share Purchase and forty percent (40%) of the proceeds received by the Company upon the exercise of any of the Warrants shall be retained by the Company without any restriction whatsoever on the use thereof and (ii) an amount in cash equal to forty percent (40%) of any proceeds received by the Company in the Share Purchase and sixty percent (60%) of the proceeds received by the Company upon the exercise of any of the Warrants shall be deposited into an interest-bearing escrow account (the "Escrow Account") with an escrow agent to be selected by mutual agreement of the Company and the Purchaser pursuant to an escrow agreement in the form of Exhibit F hereto, with such changes and additions as shall be requested by the escrow agent or the L/C Bank (as defined below) and reasonably acceptable to the Company and the Purchaser (the "Escrow Agreement"). At any time that this Agreement provides for the Escrowed Funds to be released from the Escrow Account, both parties agree to take any action required under the Escrow Agreement to cause the release of the Escrowed Funds. Such proceeds shall be allocated in such manner until such time as the aggregate amount of proceeds retained by the Company pursuant to clause (i) above equals one hundred million dollars ($100,000,000), after which time an amount in cash equal to all such proceeds shall be deposited into the Escrow Account until such time as all such deposited funds (but excluding any interest earned on such funds) equal one hundred million dollars ($100,000,000), after which time all further proceeds shall be retained by the Company. All amounts deposited into the Escrow Account, together with all interest earned on amounts in the Escrow Account (all such funds and interest, the "Escrowed Funds"), shall be held as a trust fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any party hereto, and shall be held and distributed in accordance with the terms, at the times and to the parties in accordance with the terms hereof and the Escrow Agreement. Upon release to the Company in accordance with this Section 1.4 and the terms of the Escrow Agreement, one hundred million dollars ($100,000,000) of the Escrowed Funds shall be designated as "Earmarked Funds" and used exclusively in accordance with Section 8.2 of the Commercial Agreement and any additional Escrowed Funds shall be released to the Company and may be used by the Company for any purpose whatsoever. If, upon the release of the Escrowed Funds to the Company in accordance with the terms of the Escrow Agreement, the amount of Escrowed Funds (excluding any interest earned while in the Escrow Account) is less than one hundred million dollars ($100,000,000) at such time, then 60% of the proceeds from the exercise of any of the Warrants (up to the difference between one hundred million dollars ($100,000,000) and such amount of Escrowed Funds) shall also be designated as "Earmarked Funds" and used exclusively in accordance with Section 8.2 of the Commercial Agreement.


(b) If (i) the bona fide commercial release and deployment ("Set Top Box Launch") of the Integrated Product (as defined in the Commercial Agreement) has not occurred by December 31, 2001, and (ii) the Purchaser has not committed a Material Breach (as defined in the Commercial Agreement) of the Commercial Agreement that has not been cured or waived at such time, then the Purchaser shall have the option to require the Company, exercisable by written notice to such effect to the Company (a "Put Notice"), to repurchase that number of Preferred Shares having an initial liquidation value equal to the amount of proceeds deposited by the Company into the Escrow Account (the "Put Amount") and, if all the Preferred Shares have an aggregate initial liquidation value of less than the Put Amount, then the Purchaser may also require the Company to repurchase a number of shares of Common Stock having a value (calculated as the product of the number of shares of Common Stock and the Common Stock Price) equal to the difference between the aggregate initial liquidation value of the Preferred Shares and the Put Amount. Subject to Section 1.4(c), the aggregate purchase price for the repurchase of Shares pursuant to this Section 1.4(b) shall be deemed paid by the release to the Purchaser of all the Escrowed Funds (including all interest included therein); provided that amount of the interest earned on funds deposited into the Escrow Account to be released to the Purchaser shall be reduced by the amount of dividends actually paid in cash or Common Stock to the Purchaser on the Preferred Shares, subject to a maximum equal to the amount of all such interest. The closing of such repurchase shall occur as soon as practicable following delivery of the Purchaser's notice of exercise, subject to the receipt of necessary governmental approvals. The Company agrees to use its best efforts to obtain all such governmental approvals and take all such other actions as shall be required to consummate such repurchase. At such closing, the Purchaser shall deliver to the Company certificates representing the Shares to be repurchased and the Company shall deliver to the Purchaser and the escrow agent under the Escrow Agreement any notice of release or other instrument reasonably requested by either of them to effectuate the release of the Escrowed Funds (including all interest earned thereon, subject to the proviso in the second sentence of this section) in accordance with the terms of the Escrow Agreement and this Section 1.4(b).


(c) Within thirty (30) days after the execution and delivery of this Agreement, the Company and the Purchaser shall establish with a financial institution selected by the Purchaser (the "L/C Bank") an irrevocable letter of credit in an amount equal to the amount of Escrowed Funds (as changed from time to time) for the benefit of the Purchaser in the form mutually agreed to be the parties (the "Letter of Credit"), which Letter of Credit shall be available for drawing by the Purchaser pursuant to this Section 1.4(c) and shall be secured by a first priority security interest in the Escrowed Funds as collateral for the Company's repayment of any amounts drawn on the Letter of Credit. The terms of the Letter of Credit shall include, without limitation, (i) a draw down period that shall expire no earlier than the 180th day after December 31, 2001 and (ii) the right of the Purchaser to draw upon the Letter of Credit as provided under this Section 1.4(c) without action or authorization on the part of the Company. In the event that, for any reason, all or any portion of the Escrowed Funds are not released to the Purchaser in accordance with Section 1.4(b) and the terms of the Escrow Agreement within thirty (30) days of the Purchaser's Put Notice, then the Purchaser shall have the right to draw on the Letter of Credit in an amount equal to the total amount of Escrowed Funds at the time of Purchaser's Put Notice less the amounts of any Escrowed Funds actually received by the Purchaser, and the Purchaser shall receive such funds at the closing contemplated by Section 1.4(b). The costs of the Letter of Credit shall be divided equally between the Company and the Purchaser; provided that the Company shall not be required to pay more than four hundred thousand dollars ($400,000) of such costs.


(d) If the Set Top Box Launch occurs prior to December 31, 2001, the Company shall be entitled to receive from the escrow under the Escrow Agreement all Escrowed Funds. One hundred million dollars ($100,000,000) of the Escrowed Funds released to the Company shall be designated as Earmarked Funds and used exclusively in accordance with Section 8.2 of the Commercial Agreement and any additional Escrowed Funds shall be released to the Company and may be used by the Company for any purpose whatsoever. If, upon the release of the Escrowed Funds to the Company in accordance with the foregoing and the terms of the Escrow Agreement, the amount of Escrowed Funds (excluding any interest earned thereon) is less than one hundred million dollars ($100,000,000) at such time, then 60% of the proceeds from the exercise of any of the Warrants (up to the difference between one hundred million dollars ($100,000,000) and such amount of Escrowed Funds) shall also be designated as Earmarked Funds and used exclusively in accordance with Section 8.2 of the Commercial Agreement.


1.5 Adjustments. To the extent not actually adjusted pursuant to the adjustment provisions for the Preferred Stock in the Restated Certificate or in the terms of each applicable Warrant, the applicable purchase price, conversion price and exercise price with respect to the purchase of the Shares, the conversion of the Preferred Stock and the exercise of the Warrants and the number and nature of the securities to be received upon the conversion of the Preferred Stock and the exercise of the Warrants shall be adjusted to reflect any stock splits, cash or noncash dividends, recapitalizations, mergers, combinations, distributions, issuances, reclassifications, exchanges, substitutions or other similar events with respect to the capital stock of the Company, or sales of capital stock below the applicable purchase price with respect to the Shares, in each case, to provide the Purchaser with such terms and rights, economic and otherwise, that the Purchaser would have received if such event occurred after the Closing.


Section 2. Closing, Delivery and Payment.


2.1 Closing. The closing of the sale and purchase of the Shares and Warrants by the Purchaser under this Agreement (the "Closing") shall take place five (5) days following the Determination Date, unless the Purchaser shall have delivered to the Company a notice exercising its termination right pursuant to Section 1.2(a) and the Company shall have exercised its right to adjust the terms of the transactions contemplated hereby pursuant to Section 1.2(b), in which case the Closing shall occur ten (10) Business Days following the Determination Date (or, if any such day is not a Business Day, on the next succeeding Business Day), at the offices of Cooley Godward LLP, 3175 Hanover Street, Palo Alto, California 94304 or at such other time or place as the Company and the Purchaser may mutually agree (the "Closing Date").


2.2 Delivery. At the Closing, subject to the terms and conditions hereof, the Company shall deliver to the Purchaser (i) certificates registered in the name of the Purchaser representing the Shares to be purchased by the Purchaser in accordance with Section 1, free and clear of all liens, claims, encumbrances (other than those arising pursuant to this Agreement and the Related Agreements), and (ii) the Warrants in the form of the applicable exhibits attached hereto, for the Warrants to be issued to the Purchaser in accordance with Section 1, free and clear of all liens, claims and encumbrances (other than those arising pursuant to this Agreement and the Related Agreements), in each case duly executed by an authorized officer of the Company and registered in the name of the Purchaser. At the Closing, subject to the terms and conditions hereof, the Purchaser shall deliver to the Company the purchase price for the Shares by check or wire transfer of immediately available funds.


Section 3. Representations and Warranties of the Company.


Except as expressly set forth on a Schedule of Exceptions delivered by the Company to the Purchaser simultaneously herewith, the Company hereby represents and warrants to the Purchaser as of the date of this Agreement and the Closing Date as follows:


3.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement and the Stockholders Agreement, the Commercial Agreement, the Warrants and the Escrow Agreement, (collectively, the "Related Agreements"), to give affect to the Restated Certificate, to issue and sell the Shares, the Warrants, the Warrant Shares and the Conversion Shares, to carry out the provisions of this Agreement, the Related Agreements and the Restated Certificate, and to carry on its business as presently conducted and as presently proposed to be conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the Company or its business, assets, financial condition, prospects, liabilities or results of operations (a "Material Adverse Effect"). The Company does not, directly or indirectly, own or control any interest in any corporation, joint venture, limited partnership or similar entity. Attached hereto as Exhibit G is a complete and correct copy of the by-laws of the Company, as amended to the date of this Agreement (the "By-laws").


3.2 Capitalization; Voting Rights. The authorized capital stock of the Company as of May 31, 2000 consists of seventy-five million (75,000,000) shares of Common Stock (par value $.001 per share), of which (i) 37,977,220 shares were issued and outstanding and (ii) 6,141,409 shares were reserved for future issuance to employees and non-employee directors pursuant to outstanding stock options issued pursuant to the Company Option Plans (as defined below) and (iii) 25,000 shares were reserved for future issuance pursuant to the Outstanding Warrants (as defined below), and two million (2,000,000) shares of Preferred Stock (par value $.001 per share), of which no shares have been issued. The Company has not issued any shares of its capital stock between May 31, 2000 and the date of this Agreement, except pursuant to the exercise of options. All issued and outstanding shares of the Company's Common Stock: (a) have been duly authorized and validly issued, (b) are fully paid and nonassessable, (c) were issued without violation of any preemptive or preferential right, and (d) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. The rights, preferences, privileges and restrictions of the Shares are as stated in the Restated Certificate. The Company will reserve an adequate number of shares of Common Stock for issuance upon conversion of the Preferred Shares and exercise of the Warrants. Except as may be granted pursuant to the Related Agreements, stock awards and options to purchase shares of Common Stock granted pursuant to the Company's 1997 Equity Incentive Plan, 1999 Equity Incentive Plan and 1999 Non-Employee Directors' Stock Option Plan (the "Company Option Plans") issued pursuant to the 1999 Employee Stock Purchase Plan (the "Purchase Plan") and outstanding warrants to purchase shares of the Company's Common Stock (the "Outstanding Warrants"), there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or shareholder agreements, or agreements of any kind for the purchase or acquisition from the Company of any of its securities or the designation of any board member by any series of Preferred Stock or by holders of Common Stock. The Company has reserved 12,800,000 shares of Common Stock for issuance to employees, officers or directors of, or consultants or advisors to the Company pursuant to the Company Option Plans, of which 3,677,766 remain available for future grant and has reserved 600,000 shares of Common Stock for issuance to employees pursuant to the Purchase Plan, of which 516,033 shares remain available for future issuance. When issued in compliance with the provisions of this Agreement and the Restated Certificate, the Shares, the Warrant Shares and the Conversion Shares will be duly authorized, validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares and the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. Except as contained in the Related Agreements and the Restated Certificate, or as set forth in Section 3.2 of the Schedule of Exceptions, the Company is not aware of any written agreement or other understandings relating to the voting of its securities. Except as expressly provided in this Agreement or the Related Agreements, (x) there are no outstanding obligations of the Company to repurchase, redeem or ...