Investment Agreement [Amendment No. 1] - TiVo Inc. and America Online Inc.
FIRST AMENDMENT TO
INVESTMENT AGREEMENT
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This First Amendment, dated as of September 11, 2000 (this "First
Amendment"), to the Investment Agreement, dated as of June 9, 2000 (the
"Investment Agreement"), is made by and between TiVo Inc., a Delaware
corporation (the "Company"), and America Online, Inc., a Delaware corporation
(the "Purchaser"). Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Investment Agreement.
W I T N E S S E T H :
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WHEREAS, Section 7.8 of the Investment Agreement provides for the
amendment of the Investment Agreement upon the written consent of the Company
and the Purchaser;
WHEREAS, Section 1.4 of the Investment Agreement provides for a
certain portion of the Escrowed Funds to be designated as Earmarked Funds to be
used exclusively in accordance with Section 8.2 of the Product Integration and
Marketing Agreement (the "Commercial Agreement");
WHEREAS, Purchaser and the Company are entering into an AOL
Advertising Insertion Order, dated as of the date hereof (the "Carriage Order"),
pursuant to which the Company has agreed to certain advertising commitments;
WHEREAS, in connection with the Carriage Order, the Company and the
Purchaser desire to amend certain provisions of the Investment Agreement;
NOW THEREFORE, the parties hereto agree as follows:
1. Amendment to Section 1.4(a). Section 1.4(a) of the Investment
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Agreement is hereby amended by deleting such section in its entirety and
substituting therefor the following:
"(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 (the "Discretionary Funds") shall be retained by the
Company without any restriction on the use thereof, except that the first
three million, five hundred thousand dollars ($3,500,000) of the
Discretionary Funds shall be used in accordance with the Carriage Order,
and (ii) an amount in cash equal to forty percent (40%) of any proceeds
received by the Company
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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
and are reasonably acceptable to the Company and the Purchaser (the "Escrow
Agreement"), except that the first eight million, five hundred thousand
dollars ($8,500,000) of the proceeds received by the Company that are not
Discretionary Funds shall not be deposited into the Escrow Account and
shall be used in accordance with the Carriage Order (together with the
three million, five hundred thousand dollars ($3,500,000) of Discretionary
Funds also to be so used, the "Carriage Funds"). Such proceeds shall be
allocated in such manner until such time as the aggregate amount of
Discretionary Funds 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 (except for Carriage Funds as set forth
in clause (ii) of the immediately preceding sentence) until such time as
all such deposited funds (but excluding any interest earned on such funds)
equal ninety-one million, five hundred thousand dollars ($91,500,000),
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, ninety-one million, five hundred
thousand dollars ($91,500,000) of the Escrowed Funds (or such lesser amount
as shall have been deposited in the Escrow Account pursuant to this Section
1.4(a)) 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. 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. 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 ninety-one million, five hundred
thousand dollars ($91,500,000) at such time, then 60% of the proceeds from
the exercise of any of the Warrants (up to the difference between ninety-
one million, five hundred thousand dollars ($91,500,000)) 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."
2. Amendment to Section 1.4(b). Section 1.4(b) of the Investment
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Agreement is hereby amended by deleting such section in its entirety and
substituting therefore the following:
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"(b) If (i) (x) 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, or such later date as may
be mutually agreed by the Company and the Purchaser pursuant to Section 3.6
of the Commercial Agreement or otherwise (the "Planned Launch Date"), and
(y) 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, or (ii) the Company breaches its obligations
pursuant to Section 6.9, Section 6.10 or Section 6.13 of this Agreement
(collectively, the "Financial Covenants"), then the Purchaser shall have
the option (the "Put Option"), exercisable for a period of ninety (90)
days, subject to the further provisions set forth herein, to require the
Company, exercisable by written notice to such effect to the Company, 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 (or if no
shares of Preferred Stock are issued pursuant to the terms of this
Agreement), 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, if any, and the Put Amount. 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
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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. Notwithstanding the
foregoing, in the event that the Set Top Box Launch occurs after the
Planned Launch Date, but prior to the exercise of the Put Option, the Put
Option shall immediately expire and be of no further force or effect.
In the event that the Put Option is exercised in accordance with the
terms of this Section 1.4(b), 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). It is agreed that, in the event the
Purchaser is entitled to exercise the Put Option pursuant to clause (ii) of
the first sentence of this Section 1.4(b), such exercise shall be in
addition to and without limiting any other remedy or right, whether at law
or equity, that the Purchaser may have as a result of the breach of a
Financial Covenant.
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3. Amendment to Sections 1.4(c) and 1.4(d). Sections 1.4(c) and
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1.4(d) of the Investment Agreement are hereby amended by deleting Section 1.4(c)
in its entirety, renumbering Section 1.4(d) as Section 1.4(c) and amending the
new Section 1.4(c) to replace all references to "one hundred million dollars
($100,000,000)" to "ninety-one million, five hundred thousand dollars
($91,500,000)."
4. Amendment to Section 5.1(k). Section 5.1(k) of the Investment
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Agreement is hereby amended by replacing the clause in the first sentence
thereof which reads "Cooley Godward LLP," with "Latham & Watkins,".
5. Amendments to Section 6. Section 6 of the Investment Agreement is
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hereby amended by adding the following new sections immediately after Section
6.8:
"6.9 Limitations on Indebtedness.
(a) Subject to Section 6.11, the Company will not, and will not
permit any of its subsidiaries to, without the prior written consent
of the Purchaser, Incur any Indebtedness (each as defined below) that
shall mature or for which payments of principal shall otherwise become
due, including, without limitation, upon the acceleration of any
Indebtedness, on or prior to January 1, 2003, except for (x)
Indebtedness up to an aggregate maximum amount of twenty-five million
dollars ($25,000,000) to be used to fund the ongoing operations of the
Company, and (y) Leasing Obligations (as defined below) up to an
aggregate maximum amount of one hundred fifty million dollars
($150,000,000), each as calculated in accordance with generally
accepted accounting principles in the United States of America
("GAAP").
(b) For the purposes hereof:
(i) "Incur" means to issue, create, assume, guarantee,
incur or otherwise become liable for;
(ii) "Indebtedness", means any indebtedness of a person,
whether or not contingent, including, without duplication, (1) all
obligations in respect of borrowed money, (2) all obligations
evidenced by bonds, notes, debentures or similar instruments, (3)
letters of credit, bankers' acceptances or other similar instruments
(or reimbursement agreements in respect thereof), (4) all obligations
representing the balance of deferred and unpaid purchase price of
property (including pursuant to capital leases) or services that in
accordance with GAAP would be shown on the liability side of the
balance sheet of such person, (5) all indebtedness of others secured
by any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind on any asset of such person (whether or not such
indebtedness is assumed by such person), (6) all obligations of such
person with respect to the redemption, repayment or other repurchase
of any capital stock of such person or any warrants, rights or options
to acquire such
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capital stock, (7) the indebtedness of any other person to the extent
Guaranteed by such person, (8) to the extent not otherwise included in
this definition, net obligations of such person under any swap
agreement (as such term is defined in the Section 101 of the United
States Bankruptcy Code, as amended) and any other agreements or
arrangements designed to provide protection against fluctuations in
interest or currency exchange rates or commodity prices, and (9) any
principal, interest, premiums, penalties, overadvances, breakage
costs, fees, expenses and indemnities due thereunder, to the extent
paid in respect of those items listed in clauses (1) through (8) of
this Section 6.9(b)(ii); provided, however, that "Indebtedness" shall
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not include trade payables and accrued expenses, in each case arising
in the ordinary course of business;
(iii) "Guarantee" means any obligation, contingent or
otherwise, of any person directly or indirectly guaranteeing any
Indebtedness of any other person and any obligation, direct or
indirect, contingent or otherwise, of such person; and
(iv) "Leasing Obligations" means all obligations
representing the balance of deferred and unpaid purchase price of set
top boxes (including pursuant to capital leases and other financing
devices) that in accordance with GAAP would be shown on the liability
side of the balance sheet of the Company or the balance of rent due
under operating leases of set top boxes, assumed in order to support
the Company's relationships or agreements with cable companies for
distribution by cable companies of the Company's interactive
television service in exchange for a portion of the cable company's
subscription revenues and/or other consideration.
6.10 Minimum Capital Requirements. Subject to Section 6.11, the
Company will, at the end of each fiscal quarter commencing after August 31,
2000, maintain a positive Net Cash position in excess of twenty-five
million dollars ($25,000,000). "Net Cash" means (x) consolidated current
assets (excluding deferred tax assets and the Escrowed Funds), minus (y)
consolidated current liabilities (however arising), but excluding any (i)
deferred revenue, (ii) other non-cash liabilities, as set forth on Schedule
6.10 attached hereto, which Schedule 6.10 may be amended from time to time
by the Company with Purchaser's consent (such consent not to be
unreasonably withheld), which the Company reasonably believes are not
likely to become cash liabilities on or before the termination of the
Financial Covenants as set forth in Section 6.11 of this Agreement, and
(iii) Leasing Obligations, each as determined in accordance with GAAP. In
addition, the Company agrees to advise the Purchaser of the Company's Net
Cash position, calculated as set forth above, on an informational basis at
the end of each calendar month, beginning August 31, 2000. On or before
the twentieth (20/th/) day following each calendar month, the Company shall
deliver to Purchaser a certificate, duly signed by the Chief Financial
Officer of the Company, providing the Purchaser with the following
information for the preceding calendar month: (i) its Net Cash position
and (ii) the Company's consolidated current assets and consolidated current
liabilities (and
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any exclusions therefrom) in a format consistent with the Company's public
filings, in each case as of the end of such preceding calendar month.
6.11 Termination of Financial Covenants. The Financial Covenants
shall terminate and be of no further force or effect on and from the
earlier of (i) the date of the Set Top Box Launch, so long as such Set Top
Box Launch occurs before the Planned Launch Date, (ii) the expiration of
the Put Option in accordance with the provisions of Section 1.4(b), or
(iii) the day following the first anniversary of the Planned Launch Date.
6.12 Reporting and Audit Rights. From and after the Closing until
the termination of the Financial Covenants, (i) the Purchaser shall have
the right, upon reasonable notice and during regular business hours, to
audit the books and records of the Company as may be necessary in order to
determine if the Company is in compliance with the Financial Covenants, and
(ii) the Company shall promptly notify the Purchaser of any breach of a
Financial Covenant.
6.13 Contractual Restrictions. Subject to Section 6.11, the Company
hereby agrees that it will not enter into any contract with any Person that
prohibits, restricts, delays in any manner or otherwise adversely affects
the release of the Escrowed Funds to the Purchaser in accordance with the
terms of the Escrow Agreement and of this Agreement."
4. Counterparts. This First Amendment may be executed simultaneously
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or in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same instrument.
5. Effective Date. This First Amendment shall become effective as of
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the day and year first above written.
6. Construction and Governing Law. This First Amendment shall be
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construed together with, and as a part of, the Investment Agreement and shall be
governed in all respects by the laws of the State of New York as such laws are
applied to agreements to be performed entirely in such state.
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IN WITNESS WHEREOF, the undersigned have executed this First Amendment
dated as of the date first written above.
TIVO INC.
By: /s/ David H. Courtney
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Name: David H. Courtney
Title: Senior Vice President,
Finance & Administration
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
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Name: David M. Colburn
Title: President, Business Affairs
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