S-1

As filed with the Securities and Exchange Commission on January 30, 2003

Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

INTERVIDEO, INC.

(Exact name of Registrant as specified in its charter)

Delaware	7372	94-3300070
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

47350 Fremont Boulevard

Fremont, California 94538

(510) 651-0888

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Steve Ro

Chief Executive Officer

InterVideo, Inc.

47350 Fremont Boulevard

Fremont, California 94538

(510) 651-0888

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Matthew W. Sonsini, Esq. Craig D. Norris, Esq. Christine S. Wong, Esq. Ritu K. Tariyal, Esq. Barbara A. Wiseman, Esq. Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304 (650) 493-9300 Timothy R. Curry, Esq. Stephen B. Sonne, Esq. Brent D. Johnson, Esq. Brobeck, Phleger & Harrison LLP 2000 University Ave. East Palo Alto, CA 94303 (650) 331-8000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.  

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Amount(1)	Amount of Registration Fee(2)
Common Stock $0.001 par value	$56,350,000	$5,184.20

(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(2) A registration fee of $4,761 was previously paid in connection with the Registration Statement on Form S-1 (No. 333-76640) filed by the Registrant on January 11, 2002 and withdrawn on January 30, 2003. An additional fee of $423.20 was paid in a subsequent filing on April 26, 2002 relating to an increase in the aggregate offering amount. Thus, pursuant to Rule 457(p) under the Securities Act, the total filing fee of $5,184.20 is offset against the entire filing fee for this Registration Statement. As a result, no filing fee is due in connection with this filing.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall then become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange  Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

(Subject to Completion) January 30, 2003

                   Shares

Common Stock

We are selling                    shares of our common stock. This is our initial public offering of shares of our common stock. No public market currently exists for any shares of our common stock. We currently estimate that the initial public offering price of our common stock will be between $           and $           per share.

Our common stock has been approved for quotation on the Nasdaq National Market under the symbol “IVII,” subject to official notice of issuance.

Our business and an investment in our common stock involve risks. These risks are described under the caption “ Risk Factors” beginning on page 5 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$

The underwriters may also purchase up to                shares of our common stock from us at the public offering price, less underwriting discounts and commissions, to cover over-allotments.

The underwriters expect to deliver the shares in New York, New York on or about                 , 2003.

SG Cowen   

SoundView Technology Group

EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK

The phrase “A Technology Platform for the Digital Media Cycle” heads the page and the InterVideo logo is located in the bottom right hand corner. An orange arrow curves around the center of the page next to images of a DVR, CD and other CE products. The terms “Capture,” “Edit,” “Burn,” “Distribute” and “Watch” are listed around the arrow. Images of InterVideo’s WinDVD Creator and WinDVD Recorder product boxes are illustrated across the bottom of the page.

Through and including                                 , 2003 (25 days after the date of this prospectus), all dealers selling shares of our common stock, whether or not participating in this offering, may need to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS

Prospectus Summary	1
The Offering	3
Summary Consolidated Financial Data	4
Risk Factors	5
Forward-Looking Information	20
Use of Proceeds	21
Dividend Policy	21
Capitalization	22
Dilution	23
Selected Consolidated Financial Data	24
Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Business	43
Management	57
Related Party Transactions	66
Principal Stockholders	68
Description of Capital Stock	70
Shares Eligible for Future Sale	73
Underwriting	75
Legal Matters	78
Experts	78
Where You Can Find More Information	78
Index to Consolidated Financial Statements	F-1

PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.”

Our Business

We are a leading provider of DVD software. We have developed a technology platform from which we have created a broad suite of integrated multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. Our multimedia software products bring the functionality of popular consumer electronics, or CE, products such as the DVD player and the digital video recorder, or DVR (also known as a PVR), to personal computers, or PCs. Our software is also used to enhance the functionality of next-generation CE devices.

To date, we have sold more than 35 million copies of our WinDVD product, a software DVD player for PCs. Although we have historically derived nearly all of our revenue from WinDVD, in the future we expect to derive an increasing percentage of our revenue from our integrated suite of DVD authoring, editing and recording products for PCs and from sales of our software designed for CE devices.

Our software is bundled with products sold by eight of the top ten PC original equipment manufacturers, or OEMs, ranked in terms of sales by IDC. Our OEM customers include Dell Products, L.P., Fujitsu Limited, Fujitsu Siemens Computer GmbH, Hewlett-Packard Company (including the former Compaq Computer Corporation), International Business Machines Corporation, or IBM, Sony Corporation and Toshiba Corporation. In addition to PC OEMs, we sell our products to CE manufacturers and PC peripherals manufacturers worldwide and offer our software in up to 27 languages. We also sell our products directly to consumers through retail channels and our websites, which currently operate in 12 languages.

We believe our PC OEM customers choose our products because we offer them quality and functionality, support, ease-of-use and integration and a single vendor for video software.

Market Opportunity

Advances in digital technology, including improvements in storage technology, microprocessor technology and multimedia applications, have enabled the PC to serve as a versatile, feature-rich and reasonably priced digital entertainment platform. The rapid growth in consumer interest in digital multimedia functionality has increased the demand for DVD-ROM and DVD-recordable drives.

All PC multimedia hardware components require software to operate. As a result, multimedia software not only has become a necessary component of the PC, but has also enabled PC OEMs to add value to their products, improve margins and differentiate their products from those of their competitors.

As CE manufacturers migrate from dedicated hardware solutions to a PC architecture in order to reduce the cost and increase the flexibility of their products, we expect the market opportunity for multimedia software to grow in the CE market segment as well. We believe that all of these factors will create market opportunities for a complete multimedia software solution in both the PC and CE market segments.

The InterVideo Solution

Key elements of our solution include the following:

• A broad, integrated multimedia software solution for the PC.    Our broad software suite provides OEMs and consumers with a single solution for a variety of multimedia functions. PCs running our integrated multimedia software can replace several dedicated hardware components such as separate DVD players, DVRs, MP3 players, CD players and digital television set-top boxes. Our products have a common look and feel and allow users to toggle quickly and seamlessly between multimedia functions, such as viewing DVDs or TV and listening to music.

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• Core technology that operates on a variety of platforms.    Over 90% of our code is platform independent which allows us to quickly port our existing products to new operating systems or hardware platforms, including CE devices. Our “single build” approach allows the current version of our software to be used with multiple Windows platforms. We have developed versions of our key products for the Linux operating system, the primary operating system used in next-generation CE devices. In addition, our products are compatible with a broad range of peripherals and other hardware products.

• Layered architecture that we have adapted to new technologies and upgraded to incorporate new features.    Our core technology is based on a layered architecture that enables us to respond and adapt to new technologies in an industry characterized by rapid change. Our architecture has allowed us to efficiently add new features and develop new products for consumers and PC OEMs.

Our Strategy

Our goal is to be the leading global provider of advanced digital video and audio multimedia software solutions for PCs, CE devices, PC peripherals, and home networks and other emerging markets. Key elements of our strategy include the following:

• Increase PC OEM penetration and leverage existing and prospective OEM relationships to promote adoption of new products.    We will seek to increase our market share by aggressively pursuing additional OEM relationships by leveraging our strong market position and broad, integrated product suite. Because our customer base already includes eight of the world’s top ten PC OEMs ranked in terms of sales by IDC, our expansion will focus primarily on smaller PC OEMs and on expanding our base of PC peripheral OEMs. We plan to leverage our strong market position and broad, integrated product suite to encourage our PC OEM customers to license additional software products.

• Grow our established retail channel.    We intend to expand the sale of our products through retail channels and our websites. Our products are sold in more than 240 CompUSA, Fry’s and Microcenter retail stores. We are currently in negotiations with several additional national retailers that sell software for PCs.

• Capitalize on emerging product markets.    We have adapted our technology for use in CE devices and have agreements with two CE manufacturers to incorporate our software in their DVR devices. We believe that we can adapt our technology effectively for use in a variety of emerging CE and MPEG-4 wireless devices being developed for use within home and wireless networks.

• Extend our technology platform.    We intend to continue our technology development efforts to extend our portfolio of intellectual property, enhance the functionality of our multimedia software solutions and offer new solutions to our customers.

• Maintain and enhance strategic relationships and acquire companies and technologies.    We have established strategic relationships with several technology and market leaders, including Microsoft and RealNetworks. We intend to maintain existing and pursue additional strategic relationships. We also intend to pursue acquisitions of complementary products, technologies and companies.

Company Information

We were incorporated in California in April 1998 and reincorporated in Delaware in May 2002.

Our principal executive offices are located at 47350 Fremont Boulevard, Fremont, CA 94538. Our telephone number is (510) 651-0888. Our website is www.intervideo.com. The information found on our website is not a part of this prospectus.

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THE OFFERING

Common stock we are offering                      shares

Common stock to be outstanding after this offering                      shares

Proposed Nasdaq National Market symbol IVII

Use of proceeds For general corporate purposes, including working capital and capital expenditures. In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. See “Use of Proceeds.”

Except as otherwise indicated, whenever we present the number of shares of our common stock outstanding, we have:

• based this information on the shares outstanding as of September 30, 2002, excluding:

— 2,579,837 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $2.48 per share;

— 646,649 shares of common stock available for issuance under our existing stock option plan;

— an additional 352,000 shares of common stock reserved for issuance under our stock option plan and employee stock purchase plan adopted in connection with this offering;

• given effect to a 0.44-for-one reverse stock split of our common stock effected in May 2002;

• given effect to the automatic conversion of our outstanding preferred stock into common stock upon completion of this offering;

• assumed no exercise of stock options after September 30, 2002; and

• assumed no exercise of the underwriters’ over-allotment option.

InterVideo and WinDVD are registered trademarks and WinDVD Creator, WinDVD Recorder, LinDVD, WinDVR, WinProducer, WinDTV and WinRip are trademarks or service marks of InterVideo. This prospectus also contains brand names, trademarks and service marks of companies other than InterVideo, and these brand names, trademarks and service marks are the property of their respective holders.

This prospectus contains market data and industry forecasts that were obtained from industry publications. These publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. While we believe that these market data and industry forecasts are reliable, we have not independently verified, and make no representation as to the accuracy of, such information. Information provided by Gartner Dataquest represents Gartner Dataquest’s estimates. Information provided by IDC is derived from the IDC Worldwide Quarterly PC Tracker, December 2002, and the IDC Worldwide Digital Set-Top Box and PVR Forecast and Analysis, 2001-2006, December 2002.

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SUMMARY CONSOLIDATED FINANCIAL DATA

Our summary consolidated financial data is presented in the following table to aid you in your analysis of a potential investment in our common stock. You should read this data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this prospectus. Pro forma net income (loss) per common share reflects the conversion of all outstanding preferred stock into common stock from the beginning of the period presented or at the date of original issuance, if later. The as adjusted balance sheet data reflects our receipt of the estimated net proceeds from the sale of                  shares of our common stock in this offering at an assumed initial public offering price of $         per share after deducting the estimated underwriting discounts and commissions and the estimated expenses of this offering.

In May 2002, we terminated Arthur Andersen LLP as our independent auditors. Subsequently, we engaged KPMG LLP and, as a result of their reaudit, restated our financial statements as of December 31, 2000 and 2001 and for each of the years in the three-year period ended December 31, 2001.

	Year ended December 31,									Nine months ended       September 30,
	1999(1)			2000(1)			2001			2001			2002
	Restated(2)			Restated(2)			Restated(2)			Restated(2)
										(unaudited)
	(in thousands, except per share data))
Consolidated Statement of Operations Data
Revenue	$	3,036		$	15,426		$	33,763		$	23,266		$	34,145
Product costs		1,118			5,133			16,895			8,756			12,103
Amortization of software license agreement		—			—			1,000			987			23
Gross profit		1,918			10,293			15,868			13,523			22,019
Operating expenses:
Research and development		1,300			6,581			9,035			6,931			5,629
Sales and marketing		1,165			4,916			7,878			6,233			5,725
General and administrative		766			2,667			2,990			2,225			2,845
Stock compensation(3)		339			2,909			1,854			1,379			2,195
Other operating expenses(4)		—			174			2,408			2,333			1,708
Total operating expenses		3,570			17,247			24,165			19,101			18,102
Income (loss) from operations	$	(1,652	)	$	(6,954	)	$	(8,297	)	$	(5,578	)	$	3,917
Net income (loss)	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	(5,616	)	$	6,480
Net income (loss) per common share, basic	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	3.28
Net income (loss) per common share, diluted	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	0.67
Pro forma net income (loss) per common share, basic (unaudited)							$	(1.26	)				$	0.86
Pro forma net income (loss) per common share, diluted (unaudited)							$	(1.26	)				$	0.67

	As of September 30, 2002
	Actual		As adjusted
	(in thousands) (unaudited)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	18,511	$
Working capital		14,210
Total assets		32,177
Long-term obligations, net of current portion		—
Total stockholders’ equity		20,938

(1) Excludes the results of operations of the Audio/Video Products Division of Formosoft International Inc., or AVPD, prior to our acquisition on June 7, 2000. See the financial statements of AVPD included elsewhere in this prospectus.

(2) See Note 2 of notes to consolidated financial statements.

(3) Stock compensation is allocated among the operating expense classifications as follows:

	Year ended December 31,						Nine months ended September 30,
	1999		2000		2001		2001		2002
	Restated		Restated		Restated		Restated
							(unaudited)
	(in thousands)
Research and development	$	25	$	745	$	581	$	497	$	824
Sales and marketing		133		1,523		605		416		753
General and administrative		181		641		668		466		618
	$	339	$	2,909	$	1,854	$	1,379	$	2,195

(4) See “Selected Consolidated Financial Data” and “Consolidated Financial Statements.”

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RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this prospectus before making an investment decision. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we may currently deem immaterial, may become important factors that harm our business. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We have a history of losses, and we may not sustain profitability or achieve profitability on an annual basis.

We have incurred losses since our inception and have only achieved profitability in our last three fiscal quarters ended September 30, 2002. As of September 30, 2002, we had an accumulated deficit of $11.4 million. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our business. Our expenses include research and development and marketing expenses relating to products that will not be introduced and will not generate revenue until later periods, if at all. We may never achieve profitability on an annual basis. Even if we achieve profitability on an annual basis, we may not sustain or increase profitability on a quarterly or annual basis in the future.

Our limited operating history and the rapidly evolving nature of our industry make the forecasting of our future results difficult.

We were incorporated in April 1998 and began shipping our products in February 1999. Prior to February 1999, our operations consisted primarily of research and development efforts. As a result of our limited operating history, our historical financial and operating information is of limited value in predicting our future operating results. In addition, any evaluation of our business and prospects must be made in light of the risks and difficulties encountered by companies offering products or services in new and rapidly evolving markets. Licensing software-based digital video and audio solutions for incorporation in products in the PC and consumer electronics industries is new, and it is difficult to forecast the future growth rate, if any, or size of the market for our products. We may be unable to accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us. Our current and future expense levels are based largely on our investment plans and estimates of future revenue and are, to a large extent, fixed. As a result, we may fail to make accurate financial forecasts, and we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would harm our operating results.

We expect our operating results to fluctuate on an annual and quarterly basis, which may result in volatility of our stock price.

We expect our operating results to fluctuate on an annual and quarterly basis, which may cause our stock price to be volatile. Important factors, many of which are outside our control, that could cause our operating results to fluctuate include:

• fluctuations in demand for, and sales of, our products and the PCs and CE devices with which our products are bundled;

• timely and accurate reporting to us by our OEM customers of units shipped, which determines the timing and level of revenue received from these customers;

• changes in the timing of orders or the completion of customer contracts with significant OEM customers;

• competitive factors, including introductions of new products, product enhancements and the introduction of new technologies by our competitors and the entry of new competitors into the digital video and audio software markets;

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• changes in consumer demand for our products due to the marketing of alternative technologies by our OEM customers;

• declines in selling prices of our products to our OEM customers or other customers;

• market acceptance of new products developed by us;

• changes in the relative portion of our revenue represented by our various products and customers;

• the mix of international and domestic revenue;

• the costs of litigation and intellectual property claims, including the settlement of claims based upon our violation or alleged violation of others’ intellectual property rights; and

• economic conditions specific to the PC, consumer electronics and related industries.

Due to these and other factors, quarter-to-quarter comparisons of our operating results may not be meaningful, and you should not rely on our results for any one quarter as an indication of our future performance. In addition, our future operating results may fall below the expectations of public market analysts or investors. In this event, our stock price could decline significantly.

We expect our product prices to decline, which could harm our operating results.

We expect prices for our products to decline over the next few years. Because of competition from other software providers, competition in the PC industry and diminishing margins experienced by PC OEMs as a result of decreased selling prices and lower unit sales, we have reduced the prices we charge PC OEMs for our WinDVD product. We expect this trend to continue, which will make it more difficult to increase or maintain our revenue and may cause a decline in our gross margins, even if our WinDVD unit sales increase. If unit sale increases do not offset anticipated price declines, our revenue will decline. Accordingly, our future success will depend in part on our ability to introduce and sell new products and upgrades to our existing products, which could increase our revenue and could improve our profit margins.

We have received notices of claims, and may receive additional notices of claims in the future, regarding the alleged infringement of third parties’ intellectual property rights that may result in restrictions or prohibitions on the sale of our products and cause us to pay license fees and damages.

Some third parties hold patents that such parties claim cover various aspects of DVD technology incorporated into our and our customers’ products.    Our digital video and audio products comply with industry standard DVD specifications. Some third parties have claimed that various aspects of DVD technology incorporated into our and our customers’ products infringe upon patents held by them, including the following:

• MPEG LA.    DVD specifications include technology known as “MPEG-2” that governs the process of storing video in digital form. A group of companies, comprised primarily of CE manufacturers, has formed a consortium known as “MPEG LA, LLC” to enforce member companies’ patents covering certain aspects of MPEG-2 technology. MPEG LA, and certain members of the consortium, have notified us that they believe that our products infringe on patents owned by members of the consortium. In March 2002, we entered into a license agreement with MPEG LA pursuant to which we obtained a license, retroactive to our inception, to MPEG LA’s patents necessary to the MPEG-2 standard in exchange for a cash payment and our agreement to make ongoing royalty payments. This license requires that we pay a royalty to MPEG LA for our sales to end users and that we notify the OEMs to whom we sell our products that they are obligated to obtain a license from MPEG LA for any use of our products that comply with the MPEG-2 standard. In addition, MPEG LA, and certain members of the consortium, have notified a number of PC OEMs, including some of our customers, that they believe MPEG LA members’ patents are infringed by those PC OEM products that incorporate MPEG-2 technology. We are aware that a number of PC OEMs, including some of our customers, have settled the MPEG LA claims and entered into license agreements with MPEG LA.

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• 6C.    Another group of companies has formed a consortium known as “6C,” formerly known as “the DVD Patent License Program,” to enforce the proprietary rights of holders of patents covering some aspects of DVD technology. 6C has notified us that we may need a license so that our products that incorporate DVD technology do not infringe patents owned by members of the consortium. In addition, 6C may demand that PC OEMs or other companies manufacturing or licensing DVD-related products, including our customers, pay license fees or stop selling products covered by the 6C patents.

• Others.    Other third parties, including Nissim Corporation, have notified a number of PC OEMs, including some of our customers, that they believe their patents are infringed by the products of these PC OEMs that incorporate certain DVD-related technology. Nissim and the other third parties making such claims may demand that these PC OEMs pay license fees or stop selling products that are covered by the third party’s patents.

We and our customers may be subject to additional third-party claims that our and our customers’ products violate the intellectual property rights of those parties.    In addition to the claims described above, we may receive notices of claims of infringement of other parties’ proprietary rights. Many companies aggressively use their patent portfolios to bring infringement claims against competitors and other parties. As a result, we may become a party to litigation in the future as a result of an alleged infringement of the intellectual property rights of others, including 6C or Nissim. In addition, we are aware that a consortium of companies, known as “3C,” has been formed for the purpose of asserting the patent rights of its members covering some aspects of DVD technology. 3C may demand that PC OEMs or other companies manufacturing or licensing DVD-related products, including us and our customers, pay license fees and damages for the use of the technology, or be prohibited from selling products, covered by the 3C patents. Similarly, other parties have alleged that aspects of MPEG-2 and other multimedia technologies infringe upon patents held by them. We may be required to pay license fees and damages or be prohibited from selling our products in the future if it is determined that our products infringe on patents owned by these third parties. In addition, other companies may form consortia in the future, similar to MPEG LA, 6C and 3C, to enforce their proprietary rights and these consortia may seek to enforce their patent rights against us and our customers.

We may be required to pay substantial damages and may be restricted or prohibited from selling our products if it is proven that we violate the intellectual property rights of others.    If 6C, 3C, Nissim or another third party proves that our technology infringes its patents, we may be required to pay substantial damages for past infringement and may be required to pay license fees or royalties on future sales of our products. If we are required to pay license fees in the amounts that are currently published by, for example, 6C, for past sales to our large PC OEM customers, such fees would exceed the revenue we have received from those PC OEM customers. In addition, if it were proven that we willfully infringed on a third party’s patents, we may be held liable for three times the amount of damages we would otherwise have to pay. In addition, intellectual property litigation may require us to:

• stop selling, incorporating or using our products that use the infringed intellectual property;

• obtain a license to make, sell or use the relevant technology from the owner of the infringed intellectual property, which license may not be available on commercially reasonable terms, if at all; and

• redesign our products so as not to use the infringed intellectual property, which may not be technically or commercially feasible and may cause us to expend significant resources.

Furthermore, the defense of infringement claims and lawsuits, regardless of their outcome, would likely be expensive to resolve and could require a significant portion of management’s time. In addition, rather than litigating an infringement matter, we may determine that it is in our best interests to settle the matter. Terms of a settlement may include the payment of damages and our agreement to license technology in exchange for a license fee and ongoing royalties. These fees may be substantial. If we are forced to take any of the actions described above, defend against any claims from third parties or pay any license fees or damages, our business could be harmed.

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We may be liable to some of our customers for damages that they incur in connection with intellectual property claims.    Some of our license agreements, including many of the agreements we have entered into with our large PC OEM customers, contain warranties of non-infringement and commitments to indemnify our customers against liability arising from infringement of third-party intellectual property rights. Examples of third-party intellectual property rights include the patents held by Nissim and by members of MPEG LA, 6C and 3C. These commitments may require us to indemnify or pay damages to our customers for all or a portion of any license fees or other damages, including attorneys’ fees, our customers are required to pay, or agree to pay, these or other third parties. We have received notices from certain of our customers asserting that we are required to indemnify them under our agreements with them, or providing notice that they have received from third parties infringement claims that are related to our products. These customers include Acer, Dell, Gateway, Hewlett-Packard (including the former Compaq), Micron Electronics and Micron PC LLC. Although MPEG LA has stated that some of our PC OEM customers, including Dell, Fujitsu Limited, Gateway, Hewlett-Packard, Sony and Toshiba, are currently MPEG LA licensees, not all of our PC OEM customers are current MPEG LA licensees. Notwithstanding the fact that we have signed a license agreement with MPEG LA, we may continue to be liable to some of our customers for amounts that those customers pay or have paid to MPEG LA in settlement of claims of infringement brought by MPEG LA against those customers. Even with respect to those PC OEM customers that have become licensees, we may have liability to these customers for prior infringement and future royalty payments. If we are required to pay damages to our customers or indemnify our customers for damages they incur, our business could be harmed. If our customers are required to pay license fees in the amounts that are currently published by some claimants, and we are required to pay damages to our customers or indemnify our customers for such amounts, such payments would exceed our revenue from these customers. Even if a particular claim falls outside of our indemnity or warranty obligations to our customers, our customers may be entitled to additional contractual remedies against us. Furthermore, even if we are not liable to our customers, our customers may attempt to pass on to us the cost of any license fees or damages owed to third parties by reducing the amounts they pay for our products. These price reductions could harm our business.

In April 2002, we agreed to a settlement with Dell concerning certain amounts that Dell alleged we owed to it as a result of Dell’s prior settlements with MPEG LA and Nissim of certain infringement claims brought against Dell by these parties. Without admitting any liability to Dell, we issued shares of preferred stock convertible into 286,000 shares of our common stock to Dell in settlement of all past and future claims that Dell might have against us based upon the alleged infringement of certain patents held by MPEG LA and Nissim. We accounted for the issuance of these shares as a charge to our cost of revenue under product costs for the year ended December 31, 2001 in an amount equal to the fair market value of the shares, or $3.7 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In June 2002, we agreed to a cash settlement with Gateway concerning certain amounts that Gateway alleged that we owed to it as a result of Gateway’s prior settlements with MPEG LA and Nissim of certain infringement claims brought against Gateway by these parties. Without admitting any liability to Gateway, we settled all past and future claims that Gateway might have against us based on the alleged infringement of certain patents held by MPEG LA and Nissim.

In addition, we have accrued $2.1 million at September 30, 2002 for liabilities relating to unlicensed royalty and related intellectual property claims and may continue to accrue for such liabilities in the future. Our actual liability may exceed the amount we have accrued or accrue in the future, which could harm our business.

Because there is a small number of large PC OEMs, we have only a limited number of potential new large OEM customers for our WinDVD product, which will likely cause our revenue to grow at a slower rate than in recent periods.

Our revenue growth has been achieved in large part due to sales of our WinDVD product to new, large PC OEM customers. Our software is bundled with products sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. Because there is only a limited number of potential new, large PC OEM customers for our WinDVD product, we must derive any future revenue growth principally from increased sales of WinDVD or

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other products to existing PC OEMs and PC peripherals manufacturers and from sales to smaller regional PC OEMs and directly to consumers through retail channels and our websites. Because some of these other revenue opportunities are more fragmented than the PC OEM market and will take more time and effort to penetrate, we expect that our revenue will grow at a slower rate than in recent periods.

We depend substantially on our relationships with a small number of PC OEMs, and our failure to maintain or expand these relationships would harm our business.

The PC industry is highly concentrated, and we have derived a substantial portion of our revenue from sales of our products to a small number of PC OEMs. For the year ended December 31, 2001, our three largest customers accounted for a majority of our revenue, with Dell accounting for 29%, Fujitsu accounting for 12% and Hewlett-Packard (including the former Compaq) accounting for more than 14% of our revenue during that period. For the nine months ended September 30, 2002, Hewlett-Packard (including the former Compaq) accounted for 18% of our revenue, Dell accounted for 15% of our revenue and Fujitsu accounted for 10% of our revenue. We expect that a small number of customers will account for a majority of our revenue and gross profit, if any, for the foreseeable future. If the PC industry continues to consolidate, the number of customers accounting for the majority of our revenue could decrease further. Our agreements with our customers typically do not contain minimum purchase commitments and are of limited duration or are terminable with little or no notice. The loss of any of these customers, or a material decrease in revenue from these customers, would harm our business.

If our competitors offer our OEM customers more favorable terms than we do or if our competitors are able to take advantage of their existing relationships with these OEMs, then these OEMs may not include our software with their PCs. If we are unable to maintain or expand our relationships with PC OEMs, our business will suffer.

As a result of our dependency on a small number of large PC OEMs, any problems those customers experience, or their failure to promote products that contain our software, may harm our business.

As a result of our concentrated customer base, problems that our PC OEM customers experience may harm our business. Some of the factors that affect the business of our PC OEM customers, all of which are beyond our control, include:

• the competition these customers face and the market acceptance of their products;

• the engineering, marketing and management capabilities of these customers and the technical challenges that they face in developing their products;

• the financial and other resources of these customers;

• new governmental regulations or changes in taxes or tariffs applicable to these customers; and

• the failure of third parties to develop and introduce content for DVD and other digital media applications in a timely fashion.

The inability of our PC OEM customers to successfully address any of these risks could harm our business. In addition, we have little or no influence over the degree to which these customers promote products that incorporate our software or the prices at which these products are sold to end users. If our PC OEM customers fail to adequately promote products that incorporate our software, our business could suffer.

We have derived a substantial majority of our revenue from the sale of our WinDVD product to PC OEMs, and these customers may not continue to purchase this product or we may fail to attract new customers for this product.

We derived approximately 90% of our revenue for the year ended December 31, 2001 and the nine months ended September 30, 2002 from the sale of our WinDVD product, primarily to PC OEMs. We expect that

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revenue from the sale of our WinDVD product to PC OEMs will continue to account for a substantial portion of our revenue for the foreseeable future. Accordingly, our business will suffer if our existing PC OEM customers do not continue to incorporate our WinDVD product into the PCs they sell or if we are unable to obtain new PC OEM customers for our WinDVD product.

Continued slow growth, or negative growth, in the PC industry could harm our business.

Our revenue depends in large part on the demand for our products by PC OEMs. The PC industry is currently experiencing slow or negative growth due to a general economic slowdown, market saturation and other factors. If slow or negative growth in the PC industry continues, demand for our products may decrease. Furthermore, if a reduction in demand for our products occurs, we may not be able to reduce expenses commensurately, due in part to the continuing need for research and development. Accordingly, continued slow growth or negative growth in the PC industry could harm our business.

Our success in generating revenue depends on the growth of the use of software solutions in the PC and consumer electronics industries.

Our continued success in generating revenue depends on growth in the use of software solutions to add features and functionality to PCs and CE devices. Our software is currently used primarily in PCs, and we expect it to be useful for CE products. These markets are rapidly evolving, and it is difficult to predict their potential size or future growth rate. In addition, we are uncertain as to the extent to which software products such as ours will be used in these markets in the future. Their market acceptance may be impacted by the performance, cost and availability of semiconductors that perform similar functions and the level of copy protection that can be attained and maintained in software products. Our success in generating revenue in these markets will depend on increased adoption of software solutions based on the same standards as ours. If the PC and consumer electronics markets adopt software solutions more slowly than we expect, or if content providers are dissatisfied with the level of copy protection available in software products, our growth would not likely continue, and our business would likely suffer.

Our products are based primarily on the Microsoft Windows operating system, and most of our customers require that the combination of our software products and their PCs be certified by Microsoft’s Windows Hardware Qualification Labs. Accordingly, we are dependent on Microsoft, which exposes us to risks, particularly if Microsoft chooses to compete with us in the future.

Our products are based primarily on the Microsoft Windows operating system. If industry and customer preferences in operating systems shift, our products may not be compatible with other operating systems and our business could be harmed.    Our revenue is highly dependent upon acceptance of products that are based on the Microsoft Windows operating system, which is currently the dominant operating system used in the PC industry. Microsoft could make changes to its operating system that could render our products incompatible. Other industry participants could develop operating systems to replace the Windows operating system, and our products might not be compatible with those operating systems. If our products are not compatible with one or more of the operating systems with significant PC market share, we could incur substantial costs and expend significant capital and other resources to adapt our products to one or more operating systems. There is no assurance that we would be able to adapt our products to changes made in the Windows operating system in the future or to a new operating system, and any failure to adapt to changes in operating systems by the PC industry could result in significant harm to our business.

Most of our customers require that the combination of our software products and their PCs be certified by Microsoft’s Windows Hardware Qualification Labs. If certification is not obtained, our revenue could decline or our customers may license a competitor’s software.    We sell most of our products through PC OEMs, which bundle our products with their hardware products. Because Microsoft provides OEMs that purchase the Windows operating system a financial incentive to obtain certification by Microsoft’s Windows Hardware Qualification

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Labs, or WHQL, most of our customers require WHQL certification for our products on each PC platform before bundling and distribution. The certification process is entirely under Microsoft’s control, and we may not obtain certification for any product on a timely basis or at all. Furthermore, Microsoft may change the requirements for certification at any time without notice. At various times in the past, Microsoft has changed standards applicable to our products, which caused us to be out of compliance for a period of time. In the future, we may not be able to obtain necessary certification on a timely basis, if at all, for new PC models introduced by our customers, for any of our products under development or for existing products, if the current standards are changed. Any delays in receipt of, or failure to receive, such certification could cause our revenue to decline or our customers to license a competitor’s software.

If Microsoft develops or licenses digital video and audio solutions that compete directly with ours, our business could suffer.    Microsoft currently offers products in the digital video and audio software markets. Some video and audio capabilities are built directly into their operating systems or are offered as upgrades to those operating systems at no additional charge. If Microsoft develops or licenses digital video and audio solutions that compete directly with ours and incorporates the solutions into its operating system, or otherwise changes its operating system or its Windows Hardware Qualification Labs standards to render our products incompatible, our business could be harmed.

Competition in our industry is intense and is likely to continue to increase, which could harm our business.

Our industry is intensely competitive, and we expect competition to intensify in the future. Our competitors include:

• software companies that offer digital video or audio applications;

• companies offering hardware or semiconductor solutions as alternatives to our software products; and

• operating system providers that may develop and integrate applications into their products.

Our primary competitors are Cyberlink Corporation, Roxio, Inc., Sonic Solutions, Inc., Pinnacle Systems, Inc. and Ulead Systems, Inc. Additional competitors are likely to enter our industry in the future. We also face competition from the internal research and development departments of other software companies and PC and CE manufacturers, including some of our current customers. Some of our customers have the capability to integrate their operations vertically by developing their own software-based digital and audio solutions or by acquiring our competitors or the rights to develop competitive products or technologies, which may allow these customers to reduce their purchases or cease purchasing from us completely. Operating system providers with an established customer base, such as Microsoft, already offer products in the digital video and audio software markets. Some video and audio capabilities are built directly into their operating systems or are offered as upgrades to those operating systems at no additional charge. If Microsoft or other operating system providers develop or license digital video and audio solutions that compete directly with ours, and incorporate the solutions into their operating systems, our business could be harmed.

We expect our current competitors to introduce improved products at lower prices, and we will need to do the same to remain competitive. We may not be able to compete successfully against either current or future competitors with respect to new or improved products. We believe that competitive pressures may result in price reductions, reduced margins and our loss of market share.            

Many of our current competitors and potential competitors have longer operating histories and significantly greater financial, technical, sales and marketing resources or greater name recognition than we do. As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of their products. In addition, our competitors that have large market capitalizations or cash reserves are in a better position to acquire other companies in order to gain new technologies or products that may displace our products. Any of these potential acquisitions could give our competitors a strategic advantage. In addition, some of our

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current competitors and potential competitors have greater brand name recognition, a more extensive customer base, more developed distribution channels and broader product offerings than we do. These companies can use their broader customer base and product offerings, or adopt aggressive pricing policies, to gain market share. Increased competition in the market may result in price reductions, decreased customer orders, reduced profit margins and loss of market share, any of which could harm our business.

If we do not provide acceptable customer support, our reputation will suffer and it will be difficult to retain existing customers or to acquire new customers.

We will need to continue to provide acceptable customer support to our customers. An inability to do so will harm our reputation and make it difficult to retain existing customers or acquire new customers. Most of our experience to date has been with corporate customers, some of which require significant support when familiarizing themselves with the features and functionality of our products. We intend to increase sales of our products directly to consumers. We have limited experience with widespread distribution of our products directly to consumers, and we may not have adequate experience or personnel to provide the levels of support that these customers require. Our failure to provide adequate customer support for our products to either our corporate or consumer customers could damage our reputation and brand in the marketplace and strain our relationships with customers. This could prevent us from retaining existing customers or acquiring new customers.

Our ability to achieve profitability will suffer if we fail to manage our growth effectively.

Our success depends on our ability to manage effectively the growth of our operations. During 2000 and the first half of 2001, we experienced significant headcount growth, which exceeded the level that our revenue could support. In June 2001, we reduced our headcount by approximately 25%. We cannot be certain that our current cost structure is appropriate for the level of revenue that we generate. Furthermore, we expect to increase the scope of our operations for the foreseeable future. To manage the actual and 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 have recently purchased sophisticated software to manage our financial systems, and our operations may be disrupted if we do not implement this software in an orderly manner. Delays or problems associated with any improvement or expansion of our operational systems and controls could harm our relationships with customers, reputation and brand and could also result in errors in our financial and other reporting.

We license technology from third parties for use in our WinDVD and other standards-based products, and our business will suffer if we fail to maintain these license arrangements.

We license technology for use in our WinDVD product, our WinRip product, our WinCreator product, our WinRecorder product and other existing and planned products from third parties under agreements, some of which have a limited duration. For example, we have a license agreement with Dolby Laboratories for its audio technology and logo, a license agreement with the DVD Copy Control Association, Inc. for the content scrambling system designed to prevent the copying of DVDs, a license with MPEG-LA for its MPEG-2 video technology, a license from Thomson Licensing S.A. for its MP3 audio technology and various other license agreements relating to patents, know-how and trademarks that are important to various aspects of the development, marketing and sale of our products. We are obligated to pay royalties under each of the Dolby, DVD Copy Control Association, MPEG-LA and Thomson Licensing S.A. agreements, and Dolby, DVD Copy Control Association, MPEG LA and Thomson Licensing may each terminate its license if we breach any material provision of the license or if other events occur, as specified in the license agreement. If we fail to maintain these license arrangements, we might not be able to ship our products in their present forms and our business could be harmed.

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The loss of any of our strategic relationships would make it more difficult to design appealing products and keep pace with evolving industry standards, which could harm our business.

We must design our software products to interoperate effectively with a variety of hardware and software products, including operating system software, graphics chips, DVD drives, PCs and PC chipsets. We depend on strategic relationships with software developers and manufacturers of these products to achieve our design objectives, to produce products that interoperate successfully, to provide us with information concerning customer preferences and evolving industry standards and trends, and to assist us in distributing our products to users. For example, we have been able to learn about future product lines being developed by some of our OEM customers in advance so that we were able to more efficiently design products that our customers, and the ultimate end users, find valuable. However, we generally do not have any agreements with these third parties to ensure that such information will be provided to us, and these relationships may not continue in the future. The loss of any one of these relationships could harm our business.

Our products may have defects or may be incompatible with other software or components contained in our customers’ products, which could cause us to lose customers, damage our reputation and create substantial costs.

Defects, referred to in the software industry as “bugs,” have been found in our products in the past and may be found in the future. In addition, our products may fail to meet our customers’ design specifications or be incompatible with other software or components contained in our customers’ products, or our customers may change their design specifications or add additional third-party software or components after the production of our products. We may be required to devote significant financial resources and personnel to correct any defects. A failure to meet our customers’ design specification often results in a loss of sales due to the length of time required to redesign the product. Our products may also be required to interface with defective third-party software or components. If we are unable to detect or fix errors, or meet our customers’ design specifications, our business and results of operations would suffer.

We may experience seasonality in our business, which could cause our operating results to fluctuate.

Our financial condition and results of operations are likely to be affected by seasonality in the future. Historically, PC OEMs have experienced their highest volume of sales during the year end holiday season. Because of the timing of our recognition of revenue associated with the sale of our products to OEMs, we expect to experience our highest revenue and operating income in the first quarter of each calendar year, followed by lower revenue and operating income in the second quarter of that year. To the extent our retail sales increase as a percentage of our revenue, we expect that revenue from retail sales in the fourth quarter will increase relative to other quarters.

The market for our products is new and constantly changing. If we do not respond to changes in a timely manner, our products likely will no longer be competitive.

The market for our products is characterized by rapid technological change, new and improved product introductions, changes in customer requirements and evolving industry standards. Our future success will depend to a substantial extent on our ability to develop, introduce and support cost-effective new products and technologies on a timely basis. If we fail to develop and deploy new cost-effective products and technologies or enhancements of existing products on a timely basis, or if we experience delays in the development, introduction or enhancement of our products and technologies, our products will no longer be competitive and our business will suffer.

The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipation of technological and market trends. We may not be able to identify, develop, manufacture, market or

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support new or enhanced products on a timely basis, if at all. Furthermore, our new products may never gain market acceptance, and we may not be able to respond effectively to product announcements by competitors, technological changes or emerging industry standards. Our failure to respond to product announcements, technological changes or changes in industry standards would likely prevent our products from gaining market acceptance and harm our business.

If we do not successfully establish strong brand identity in the PC and CE market, we may be unable to achieve widespread acceptance of our products.

We believe that establishing and strengthening the InterVideo brand is critical to achieving widespread acceptance of our products and to establishing key strategic relationships. The importance of brand recognition will increase as current and potential competitors enter the market with competing products. Our ability to promote and position our brand depends largely on the success of our marketing efforts and our ability to provide high quality products and customer support. These activities are expensive and we may not generate a corresponding increase in customers or revenue 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 new customers and compete effectively.

Historically, we have relied primarily on a limited direct sales force, supported by third-party manufacturers’ representatives and distributors, to sell our products. Our sales strategy focuses primarily on our corporate customers bundling our products with their hardware and distributing our products through their own distribution channels. We rely on our customers’ sales forces, marketing budgets and brand images to promote sales of bundled products. If our corporate customers fail to successfully market and sell their products bundled with our products, or if our relationship with our corporate customers are terminated, we may be unable to effectively market and distribute our products and services.

We rely on patents, trademarks, copyrights, trade secrets and license agreements to protect our proprietary rights, which afford only limited protection.

Our success depends upon the ability to protect our proprietary rights. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as license and confidentiality agreements with our employees, customers, strategic partners and others to establish and protect our proprietary rights. The protection of patentable inventions is important to our future opportunities. We currently have one patent issued in Taiwan, and we have 41 pending patent applications, including 29 U.S. patent applications and 12 foreign patent applications. It is possible that:

• our pending patent applications may not result in the issuance of patents;

• we may not apply for or obtain effective patent protection in every country in which we do business;

• our patents may not be broad enough to protect our proprietary rights;

• any issued patent could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from using the inventions claimed in those patents;

• we may be required to grant cross-licenses to our patents in accordance with the terms of the agreements we enter into with customers or strategic partners;

• for business reasons we may choose not to enforce our patents against certain third parties; and

• current and future competitors may independently develop similar technology, duplicate our products or design new products in a way that circumvents our patents.

Existing copyright, trademark and trade secret laws and license and confidentiality agreements afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the

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same extent as do the laws of the United States, and policing the unauthorized use of our products is difficult. Any failure to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue. Infringement claims and lawsuits would likely be expensive to resolve and would require management’s time and resources and, therefore, could harm our business.

Our success depends on retaining our key personnel, including our executive officers, the loss of any of whom could harm our business.

Our success depends on the continued contributions of our senior management and other key engineering, sales and marketing and operations personnel. Competition for employees in our industry can be intense. We do not have employment agreements with, or key man life insurance policies covering, any of our executives. In addition, significant portions of the capital stock and options held by the members of our management are vested, and some of our executives are parties to agreements that provide for the acceleration of the vesting of a portion of their unvested shares and options under certain circumstances in connection with a change of control. There can be no assurance that we will retain our key employees or be able to hire replacements. Our loss of any key employee or an inability to replace lost key employees and add new key employees as we grow could harm our business.

We rely on the accuracy of our customers’ sales reports for collecting and reporting revenue. If these reports are not accurate, our reported revenue will be inaccurate.

A substantial majority of our revenue is generated by our PC OEM customers that pay us a license fee based upon the number of copies of our software they bundle with the PCs that they sell. In collecting these fees, preparing our financial reports, projections and budgets and in directing our sales efforts and product development, we rely on our customers to accurately report the number of units licensed. We have never audited any of our customers to verify the accuracy of their reports or payments. Most of our license agreements permit us to audit our customers, but audits are expensive and time consuming and could harm our customer relationships. From time to time, customers have provided us with inaccurate reports, which resulted in us underreporting revenue for the associated period and recording a one-time credit in a future period. If any of our customer reports are inaccurate, the revenue we collect and report will be inaccurate and we may be required to make an adjustment to our revenue for a subsequent period, which could harm our business and credibility in the financial community.

Our international operations may expose us to regulatory, financial and operational risks.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. International sales (i.e., sales outside the United States) accounted for approximately 45% of our revenue for the year ended December 31, 2001 and 50% of our revenue for the nine months ended September 30, 2002, and we expect to continue to derive a significant portion of our revenue from international sales. We intend to expand our international operations in the future. Significant management attention and financial resources are needed to develop our international sales, support and distribution channels and manufacturing. We may not be able to maintain international market demand for our products. Our future results could be harmed by a variety of factors related to international operations, including:

• foreign currency exchange rate fluctuations;

• seasonal fluctuations in sales;

• changes in a specific country’s or region’s political or economic condition, particularly in emerging markets;

• unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements;

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• trade protection measures and import or export licensing requirements;

• potentially adverse tax consequences;

• longer accounts receivable collection cycles and difficulties in collecting accounts receivables;

• difficulty in managing widespread sales, development and manufacturing operations; and

• less effective protection of intellectual property.

Currently, most of our international sales are denominated in U.S. dollars. Therefore, a strengthening of the dollar could make our products less competitive in foreign markets. Our current distribution agreements shift foreign exchange risk to our foreign distributors. This exchange risk may harm the businesses of those distributors or make them less willing to carry and sell our products. We do not use derivative instruments to hedge foreign exchange risk. In the future, a portion of our international revenue and expenses may be denominated in foreign currencies. Accordingly, we could experience the risks of fluctuating currencies and may choose to engage in currency hedging activities. In addition, if we conduct sales in local currencies, we may engage in hedging activities, which may not be successful and could expose us to additional risks.

In addition, we and certain of our OEM customers maintain significant operations in Asia. Any kind of economic, political or environmental instability in this region of the world can have a severe negative impact on our operating results due to the large concentration of production and sales activities in this region. We may be greatly impacted by the political, economic and military conditions in Taiwan. Taiwan and China are engaged in political disputes, and both countries have continued to conduct military exercises in or near the other’s territorial waters and airspace. These disputes may continue and even escalate, resulting in an economic embargo, a disruption in shipping or even military hostilities.

Our business and future operating results are subject to a broad range of uncertainties arising out of the terrorist attacks on the United States.

Our business and operating results are subject to uncertainties arising out of the terrorist attacks on the United States. These uncertainties include the potential worsening or extension of the current global economic slowdown and the economic consequences of military action or additional terrorist activities. Any similar activity of this nature or even rumors of such activity in the future could harm our operating results and stock price.

We may not be successful in addressing problems encountered in connection with any acquisitions we may undertake, which could harm our business.

In the past, we have made acquisitions. We expect to continue to review opportunities to buy or make investments in other businesses, products or technologies that would enhance our technical capabilities, complement our current products or expand the breadth of our markets or that may otherwise offer growth opportunities. Our continued acquisitions of businesses or technologies will require significant commitment of resources. We may be required to pay for any acquisitions with cash, but we cannot be certain that additional capital will be available to us on favorable terms, if at all. In lieu of paying cash, we could issue stock as consideration for an acquisition that would dilute existing stockholders’ percentage ownership, incur substantial debt or assume contingent liabilities. We have limited experience in acquiring other businesses and technologies. Potential and completed acquisitions and investments also involve numerous risks, including:

• problems assimilating the purchased operations, technologies or products;

• problems maintaining uniform standards, procedures, controls and policies;

• unanticipated costs associated with the acquisition;

• diversion of management’s attention from our core business;

• adverse effects on existing business relationships with suppliers and customers;

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• risks associated with entering markets in which we have no or limited prior experience; and

• potential loss of key employees of purchased organizations.

We may require substantial additional capital, which may not be available on acceptable terms or at all.

Our capital requirements will depend on many factors, including:

• acceptance of, and demand for, our products;

• the costs of developing new products;

• the need to license new technology or to enter into license agreements for existing technology;

• the extent to which we invest in new technology and research and development projects;

• the number and timing of acquisitions; and

• the costs associated with our expansion.

To the extent the proceeds of this offering and our existing sources of cash and cash flow from operations are not sufficient to fund our activities, we may need to raise additional funds. If we issue additional stock to raise capital, your percentage ownership in us would be reduced. Additional financing may not be available when needed on terms acceptable to us or at all. If we raise funds through debt financing, we will have to pay interest and may be subject to restrictive covenants, which could limit our ability to take advantage of future opportunities, respond to competitive pressures or unanticipated industry changes. If we cannot raise necessary additional capital on acceptable terms, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated industry changes.

Risks Related to This Offering

There has been no prior public market for our common stock, and a public market may not develop.

Prior to this offering, there has been no public market for our common stock. We cannot assure you that an active trading market will develop or be sustained or that the market price of our common stock will not decline. The initial public offering price for the shares of our common stock will be determined by us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. We do not know the extent to which investor interest will lead to the development of an active public market. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price which you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technology by using our shares as consideration.

We expect our stock price to be volatile.

The price at which our common stock will trade after this offering is likely to be highly volatile and may fluctuate substantially due to many factors, some of which are:

• actual or anticipated fluctuations in our results of operations;

• changes in securities analysts’ expectations or our failure to meet those expectations;

• developments with respect to intellectual property rights;

• announcements of technological innovations or significant contracts by us or our competitors;

• introduction of new products by us or our competitors;

• commencement of or our involvement in litigation;

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• our sale of common stock or other securities in the future;

• conditions and trends in technology industries;

• changes in market valuation or earnings of our competitors;

• the trading volume of our common stock;

• changes in the estimation of the future size and growth rate of our markets; and

• general economic conditions.

In addition, the stock market has experienced significant price and volume fluctuations that has affected the market prices for the common stock of technology companies. In the past, these market fluctuations were often unrelated or disproportionate to the operating performance of these companies. Any significant fluctuations in the future might result in a significant decline in the market price of our common stock.

We have implemented anti-takeover provisions that could discourage a third party from acquiring us and consequently decrease the market value of your investment.

Our certificate of incorporation and bylaws contain provisions that may have the effect of delaying or preventing a change of control or changes in management that a stockholder might consider favorable. The certificate and bylaws, among other things, provide for a classified board of directors, require that stockholder actions occur at duly called meetings of the stockholders, limit who may call special meetings of stockholders and require advance notice of stockholder proposals and director nominations. These provisions, along with the provisions of the Delaware General Corporation Law, such as Section 203, prohibiting certain business combinations with an interested stockholder, may delay or impede a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in management could cause the market price of our common stock to decline. For more information about particular anti-takeover provisions, see “Description of Capital Stock.”

Because of their significant stock ownership, our officers and directors will be able to exert significant influence over our future direction.

Executive officers, directors and entities affiliated with them will, in the aggregate, beneficially own approximately         % of our outstanding common stock following the completion of this offering. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. See “Principal Stockholders.”

Management will have broad discretion over the use of proceeds from this offering.

The net proceeds from this offering will be used for working capital and other general corporate purposes. In particular, we intend to use the net proceeds of the offering for working capital, marketing, research and development, and capital expenditures. We may also use certain of the proceeds to acquire other products, technology or businesses that would complement our existing products, enhance our technological capabilities or expand our market coverage. We have not reserved or allocated the net proceeds for any specific transaction, and we cannot specify with certainty how we will use the net proceeds. Accordingly, our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce income or that lose value.

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Sales of substantial amounts of our common stock could harm the market price of our stock.

A substantial amount of our shares will be eligible for sale shortly after this offering. If our stockholders sell substantial amounts of common stock in the public market soon after the lock-up period ends, the market price of our common stock could fall. Based on shares outstanding as of September 30, 2002, upon completion of this offering, we will have                    shares of common stock outstanding. Of these shares, the                  shares sold in this offering will be freely tradable. Another 7,584,315 shares will be eligible for sale in the public market 180 days from the date of this prospectus, substantially all of which are subject to lock-up agreements. SG Cowen Securities Corporation may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. The remaining 214,500 shares are restricted securities that will become eligible for sale in the public market pursuant to Rule 144 at various dates in the future. The sale of a significant number of these shares could cause the price of our common stock to decline. See “Shares Eligible for Future Sale” for more detailed information.

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FORWARD-LOOKING INFORMATION

This prospectus contains forward-looking statements. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “will,” “intend” and “expect” and similar expressions identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in those forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Our actual results, performance or achievements could differ materially from those contemplated, expressed or implied, by the forward-looking statements contained in this prospectus. Important factors that could cause actual results to differ materially from our forward-looking statements are set forth in this prospectus, including under the heading “Risk Factors.” All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth in this prospectus. Other than as required by federal securities laws, we are under no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $        million, or $        million if the underwriters exercise their over-allotment option in full, from this offering of our common stock, based on an assumed initial public offering price of $          per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses. We expect to use the net proceeds of the offering for general corporate purposes, including working capital and capital expenditures. We have not yet allocated any specific amounts for these purposes. In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. We have no commitments with respect to any acquisition or investment, and we are not involved in any negotiations with respect to any similar transaction. The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our product development efforts, sales and marketing activities, technological advances, amount of cash generated or used by our operations and competition. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the balance of the net proceeds. Pending the uses described above, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and do not intend to pay dividends in the foreseeable future. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business.

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CAPITALIZATION

Our capitalization as of September 30, 2002 is set forth in the following table:

• on an actual basis;

• on a pro forma basis to reflect the conversion of all outstanding preferred stock into shares of our common stock; and

• on the same pro forma basis as adjusted to give effect to the receipt of the estimated net proceeds from this offering, at an assumed initial public offering price of $          per share.

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our financial statements and the notes to those financial statements and “Description of Capital Stock.”

	As of September 30, 2002
	Actual			Pro forma			Pro forma as adjusted
	(in thousands, except share data)
	(unaudited)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value: aggregate liquidation preference of $23,855 actual and $0 pro forma and pro forma as adjusted; 13,000,000 shares authorized, 12,838,750 shares issued and outstanding, actual; 5,000,000 shares authorized, pro forma and pro forma as adjusted; no shares issued and outstanding, pro forma and pro forma as adjusted	$	13		$	—		$	—
Common stock, $0.001 par value: 25,000,000 shares authorized, 2,149,765 shares issued and outstanding, actual; 150,000,000 shares authorized, pro forma and pro forma as adjusted; 7,798,815 shares issued and outstanding, pro forma;                    shares issued and outstanding, pro forma as adjusted		2			8
Additional paid-in capital		35,271			35,278
Notes receivable from stockholders		(854	)		(854	)
Deferred stock compensation		(1,961	)		(1,961	)
Accumulated other comprehensive loss		(170	)		(170	)
Accumulated deficit		(11,363	)		(11,363	)
Total stockholders’ equity		20,938			20,938
Total capitalization	$	20,938		$	20,938		$

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DILUTION

Our pro forma net tangible book value as of September 30, 2002 was approximately $2.49 per share of our common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of September 30, 2002. After giving effect to our sale in this offering of shares of our common stock at an assumed initial public offering price of $          per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of September 30, 2002 would have been $        per share of our common stock. This represents an immediate increase in net tangible book value of $        per share to our existing stockholders and an immediate dilution of $        per share to you. The following table illustrates this per share dilution:

Assumed initial public offering price per share			$
Pro forma net tangible book value per share before this offering	$	2.49
Increase per share attributable to investors in this offering
Pro forma net tangible book value per share after this offering
Dilution per share to investors in this offering			$

The differences between our existing stockholders and investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid for both common and preferred stock is summarized on a pro forma basis, as of September 30, 2002 before underwriters’ discount and offering expenses in the following table. The following table does not include 2,579,837 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $2.48 per share as of September 30, 2002. To the extent that outstanding options are exercised, there will be further dilution to new investors.

	Shares Purchased			Total Consideration				Average Price per Share
	Number	Percent		Amount		Percent
Existing shareholders	7,798,815		%	$	21,567,000		%	$	2.77
New investors
Total			%	$			%	$

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in conjunction with our consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The selected consolidated statement of operations data and balance sheet data are derived from our audited financial statements. As described in Note 2 of the consolidated financial statements, we have restated our financial statements as of December 31, 2000 and 2001, and for each of the years in the three-year period ended December 31, 2001. The unaudited information has been prepared on the same basis as our audited financial statements and, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our operating results for these periods and our financial condition as of September 30, 2002. The pro forma data and the pro forma share and earnings per share data for the year ended December 31, 2001 and the nine months ended September 30, 2002 gives effect to the conversion of all outstanding shares of preferred stock into common stock.

	Year ended December 31,									Nine months ended September 30,
	1999(1)			2000(1)			2001			2001			2002
	Restated(2)			Restated(2)			Restated(2)			Restated(2)
										(unaudited)
	(in thousands, except per share data)
Consolidated Statement of Operations Data
Revenue	$	3,036		$	15,426		$	33,763		$	23,266		$	34,145
Product costs		1,118			5,133			16,895			8,756			12,103
Amortization of software license agreement		—			—			1,000			987			23
Cost of revenue		1,118			5,133			17,895			9,743			12,126
Gross profit		1,918			10,293			15,868			13,523			22,019
Operating expenses:
Research and development		1,300			6,581			9,035			6,931			5,629
Sales and marketing		1,165			4,916			7,878			6,233			5,725
General and administrative		766			2,667			2,990			2,225			2,845
Stock compensation(3)		339			2,909			1,854			1,379			2,195
Amortization of goodwill		—			174			298			223			—
Cost of delayed public offering		—			—			710			710			1,728
Impairment of promotional agreement		—			—			550			550			—
Restructuring costs		—			—			850			850			(20	)
Total operating expenses		3,570			17,247			24,165			19,101			18,102
Income (loss) from operations		(1,652	)		(6,954	)		(8,297	)		(5,578	)		3,917
Other income (expenses), net		32			555			537			430			(97	)
Income (loss) before provision (benefit) for income taxes		(1,620	)		(6,399	)		(7,760	)		(5,148	)		3,820
Provision (benefit) for income taxes		63			552			924			468			(2,660	)
Net income (loss)	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	(5,616	)	$	6,480
Net income (loss) per common share, basic	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	3.28
Net income (loss) per common share, diluted	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	0.67
Pro forma net income (loss) per common share, basic (unaudited)							$	(1.26	)				$	0.86
Pro forma net income (loss) per common share, diluted (unaudited)							$	(1.26	)				$	0.67
Weighted average common shares outstanding, basic		246			1,155			1,532			1,493			1,977
Weighted average common shares outstanding, diluted		246			1,155			1,532			1,493			9,644
Pro forma weighted average common shares outstanding, basic (unaudited)								6,895						7,505
Pro forma weighted average common shares outstanding, diluted (unaudited)								6,895						9,644

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	As of December 31,				As of September 30, 2002
	2000		2001
	Restated(2)		Restated(2)		(unaudited)
	(in thousands)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	14,668	$	14,348	$	18,511
Working capital		11,544		3,955		14,210
Total assets		22,134		22,153		32,177
Redeemable preferred stock		1,000		—		—
Convertible preferred stock		12		12		13
Total stockholders’ equity		15,314		8,467		20,938

(1) Excludes the results of operations of AVPD prior to its acquisition on June 7, 2000. See the financial statements of AVPD, included elsewhere in this prospectus.

(2) See Note 2 of the notes to the consolidated financial statements.

(3) Stock compensation is allocated among the operating expense classifications as follows:

	Year ended December 31,						Nine months ended September 30,
	1999		2000		2001		2001		2002
	Restated		Restated		Restated		Restated
							(unaudited)
	(in thousands)
Research and development	$	25	$	745	$	581	$	497	$	824
Sales and marketing		133		1,523		605		416		753
General and administrative		181		641		668		466		618
	$	339	$	2,909	$	1,854	$	1,379	$	2,195

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. As described in Note 2 to our consolidated financial statements, we have restated our financial statements as of December 31, 2000 and 2001 and for each of the years in the three-year period ended December 31, 2001. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview

We are a leading provider of DVD software. We have developed a technology platform from which we have created a broad suite of integrated multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. We have historically derived nearly all of our revenue from sales of our WinDVD product, a software DVD player for PCs. In the future, we expect to derive an increasing percentage of our revenue from other products, including WinDVD Creator, a video editing, DVD authoring and burning application, WinDVD Recorder, a software product with the functionality of a DVD recorder/player, WinDVR, a digital video recorder with the functionality of a set-top box DVR, WinProducer, a higher-end video capturing and editing software application, WinRip, a digital music recorder and player, and versions of our multimedia software designed for CE devices.

We began operations in 1998 and shipped our first products in 1999. Our software is bundled with products sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. Our OEM customers include Dell, Fujitsu, Fujitsu Siemens, Hewlett-Packard (including the former Compaq), IBM, Sony and Toshiba. We sell our products to PC OEMs, CE manufacturers and PC peripherals manufacturers worldwide and offer our software in up to 27 languages. In addition, we sell our products directly to consumers through our websites, which currently operate in 12 languages.

We derive revenue primarily from the sale of software licenses to OEMs, which install our software onto PCs prior to delivery to consumers. We also derive revenue from the license of our software to CE manufacturers and manufacturers of PC peripherals that incorporate our software into their own products for distribution as well as sales directly to users through retail channels and our website. We recognize revenue generated from sales to PC OEMs, CE manufacturers, PC peripherals manufacturers and end users in accordance with Statement of Position (SOP) 97-2, “Software Revenue Recognition,” as amended, under which revenue is recognized when evidence of an arrangement exists, delivery of the software has occurred, the fee is fixed and determinable and collection is probable.

Under the terms of our license agreements with OEMs, they are entitled only to unspecified upgrades on a when and if available basis, prior to sell through to end users. Under the terms of our revenue recognition policy, we recognize revenue based on evidence of products being sold by the OEMs. We do not have any obligation to provide upgrades to the OEMs’ customers. Accordingly, we do not defer any revenue as we no longer have an obligation once the OEM’s products have been shipped and we have recorded revenue. Under the terms of the OEM license agreements, the OEM will qualify the software on its then current platform. Once the software has been qualified, the OEM will begin to ship products and report sales to us, at which point we will record revenue. The OEM will have the right to return the software prior to it being qualified. Once the software has been shipped, the OEM does not have a right of return to us. Therefore, we do not maintain a returns reserve related to OEM sales. Under the terms of our OEM license agreements, the OEM has certain inspection and acceptance rights. These rights lapse once the product has been qualified and the shipment reported to us. Therefore, these acceptance rights do not impact the amount or timing of revenue recognition.

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Most OEMs pay a license fee based on the amount of licensed software included in the products sold to their customers. OEMs pay these fees on a per unit basis, and we record associated revenue when we receive notification of the OEMs’ sales of the licensed software to the end user. The terms of our license agreements generally require the OEMs to notify us of sales of their products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, we generally recognize revenue in the month or quarter following the sale of the product to the OEMs’ customers.

A small number of OEMs that primarily sell PC components place orders with us for a fixed quantity of units at a fixed price. Qualification of our products are not necessary, and these OEMs have no rights to upgrades or returns. We generally recognize revenue upon shipment to these OEMs.

End-user sales are primarily sales made directly from our websites. There are no unspecified upgrade rights related to these sales, and we do not offer specified upgrade rights to any class of customer. We recognize revenue from sales through our websites upon delivery of product and the receipt of payment by means of an authorized credit card. The end users who purchase our software from our websites do not have rights of return.

Certain distributors and retailers, primarily in Japan, have limited rights to return products that were purchased in the previous six months. These distributors have no rights to product upgrades. We generally recognize revenue, net of estimated returns, upon shipment to these distributors and retailers. Other distributors and retailers, primarily in the United States, have unlimited rights of return. We generally recognize revenue upon receipt of evidence that the distributors and retailers have sold our products.

We expect prices for our products to decline over the next few years. Because of competition from other software providers, competition in the PC industry and diminishing margins experienced by PC OEMs as a result of decreased selling prices and lower unit sales, we have reduced the prices we charge PC OEMs for our WinDVD product. We expect this trend to continue, which will make it more difficult to increase or maintain our revenue and may cause a decline in our gross margins even if our WinDVD unit sales increase.

Our revenue growth has been achieved in large part due to sales of our WinDVD product to new, large PC OEM customers. Because there is only a limited number of potential new, large PC OEM customers for our WinDVD product, we must derive any future revenue growth principally from increased sales of WinDVD or other products to existing PC OEMs, PC peripherals manufacturers, smaller PC OEMs and directly to consumers through retail channels and our websites. Because some of these other revenue opportunities are more fragmented than the PC OEM market and will require more time and effort to penetrate, our revenue may grow at a slower rate than in recent periods.

Due to concentration in the PC OEM industry, we derive a substantial portion of our revenue from a small number of customers. For the year ended December 31, 2001 and the nine months ended September 30, 2002, our three largest customers accounted for a majority of our revenue. During these periods, Dell, Fujitsu and Hewlett-Packard (including the former Compaq) each accounted for more than 10% of our revenue. We expect that a small number of customers will continue to account for a majority of our revenue and gross profit for the foreseeable future.

We derived approximately 90% of our revenue for the year ended December 31, 2001 and the nine months ended September 30, 2002 from the sale of our WinDVD product, primarily to PC OEMs. We expect that revenue from the sale of our WinDVD product to PC OEMs will continue to account for a substantial portion of our revenue for the foreseeable future.

Sales outside of the United States accounted for 45% of our revenue for the year ended December 31, 2001 and 50% of our revenue for the nine months ended September 30, 2002. We expect to continue to derive a significant portion of our revenue from sales outside of the United States. Currently, most of our international sales are denominated in U.S. dollars. Therefore, a strengthening of the dollar could make our products less

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competitive in foreign markets. Our current distribution agreements shift foreign exchange risk to our foreign distributors. We do not use derivative instruments to hedge foreign exchange risk. In the future, a portion of our international revenue and expenses may be denominated in foreign currencies.            

In 2000, we started an Internet commerce sales initiative that allows users to purchase products from our websites. For the year ended December 31, 2001 and the nine months ended September 30, 2002, we derived 8% and 10%, respectively, of our revenue from sales through our websites. To increase our Web sales in the future, we intend to increase investments in associated selling and marketing, capital equipment and research and development.

Cost of revenue consists of two components: product costs and amortization of software license agreement. Product costs consist primarily of licensed and unlicensed royalties and settlements paid or accrued for payment to third parties for technologies incorporated into our products, expenses incurred to manufacture, package and distribute our software products, the amortization of developed technology and costs associated with end-user post-contract customer support. Cost of settlement of intellectual property matters consists of amounts that we have agreed to pay to third parties in settlement of alleged infringement of certain patents used in our and our customers’ products, and accruals for royalties related to our usage of technologies under patent where no agreement exists.

In April 2002, we reached a settlement with one customer concerning certain amounts that the customer alleged we owed it as a result of certain infringement claims brought against the customer. In connection with this settlement, we issued shares of preferred stock having a total value of $3.7 million. These shares are convertible into 286,000 shares of our common stock upon the closing of this offering. We also have reached agreements with other parties in settlement of similar claims. See Note 4 of notes to consolidated financial statements. We expect to make additional cash payments to settle similar claims in the future. See “Risk Factors—Risks Related to Our Business—We have received notices of claims, and may receive additional notices of claims in the future, regarding the alleged infringement of third parties’ intellectual property rights that may result in restrictions or prohibitions on the sale of our products and cause us to pay license fees and damages.”

Post-contract customer support costs include the costs associated with answering end-user customer inquiries and providing telephone assistance to end users of our products. We do not defer the recognition of any revenue associated with sales to end users, because no updates are provided and the post-contract customer support is provided within 90 days after the associated revenue is recognized. Over the next several quarters, we expect our product costs to increase as a percentage of revenue due to lower selling prices.

Amortization of software license agreement consists of royalty payments for a license royalty agreement. In December 2000, we entered into a software license agreement providing for an aggregate of $1.1 million of minimum royalty payments through October 2002. The associated expense was recognized on a straight-line basis over the agreement term. In September 2001, we determined that a large portion of the minimum royalty payment would be unrealizable and was impaired.

Our gross profit is affected by many factors, including competitive pricing pressures, fluctuations in unit volumes, changes in third party license fees and changes in the mix of products sold and in our mix of distribution channels.

Research and development expenses consist primarily of personnel and related costs, consulting expenses associated with the development of new products, technology license fees and quality assurance and testing. To date, we have not capitalized any research and development expenses.

Sales and marketing expenses consist primarily of personnel and related costs, including salaries and commissions, travel expenses, commissions paid to third-party sales representatives and costs associated with trade shows, advertising and other marketing efforts.

General and administrative expenses consist primarily of personnel and related costs, and support costs for finance, human resources, legal, operations, information systems and administration departments as well as professional fees.

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For the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002, we recorded deferred stock compensation of $272,000, $3.6 million, $1.6 million and $2.4 million. Deferred stock compensation represents the difference between the deemed fair market value of our common stock at the time of option grants during these periods and the exercise prices of these options. We amortize deferred stock compensation, as stock-based compensation expense, using an accelerated method of amortization under FASB Interpretation No. 28 over the vesting periods of the applicable options, which is generally four years. See Note 8 of notes to consolidated financial statements. The amortization of deferred stock compensation for options granted through September 30, 2002 for the next four years totals $404,000 for the fourth quarter of 2002, $1.0 million in 2003, $425,000 in 2004 and $101,000 in 2005.

We completed the acquisition of the business and assets of AVPD, a developer of audio and video software products, in 2000. The purchase cost of the acquisition was $3.2 million, including legal, valuation and accounting fees of $200,000, and was accounted for as a purchase. The purchase price was allocated as follows: $700,000 to in-process research and development, $1.3 million to goodwill, $150,000 to the assembled work force and $1.0 million to developed technology. Before January 1, 2002, goodwill and other intangible assets were amortized on the straight-line method over their estimated useful life of five years.

On January 1, 2002, we adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), and no longer amortize goodwill and intangibles with an indefinite life, including our assembled workforce. We will continue to amortize developed technology as a cost of revenue. Developed technology amortization included in the cost of revenue was $116,000, $200,000 and $150,000 for the years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, respectively. Goodwill and assembled workforce amortization was $174,000, $298,000 and $0 for the years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, respectively.

As a result of implementing SFAS No. 142, we will evaluate our goodwill and indefinite-lived intangibles, with a net book value of approximately $1.0 million, for impairment at least annually and more frequently upon the occurrence of certain events. If at anytime we determine this goodwill to be impaired, we will record an impairment charge in the period in which this determination is made.

Interest income and other, net consists primarily of interest earned on our cash and cash equivalent balances, offset by other expenses.

Change in Accountants and Restatement

In May 2002, with the approval of our board of directors (including the audit committee of the board), we terminated Arthur Andersen LLP as our outside accounting firm and engaged KPMG LLP as our principal accountants. Arthur Andersen’s reports on our 1999, 2000 and 2001 consolidated financial statements contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In addition, during 2000 and 2001 and the interim period prior to this change, there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports. We furnished Arthur Andersen with a copy of the above statements and requested that Arthur Andersen furnish a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements in accordance with Item 304(a)(3) of Regulation S-K. Representatives of Arthur Andersen have informed us, however, that Arthur Andersen is no longer in the business of providing auditing services and is not in a position to furnish the requested letter. We did not consult KPMG LLP on any financial or accounting reporting matters in the period before their appointment.

We have restated our consolidated financial statements as of December 31, 2000 and 2001, and for each of the years in the three-year period ended December 31, 2001. The restatement is explained in more detail in Note 2 of the notes to our consolidated financial statements.

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Results of Operations

	Year ended December 31,						Nine months ended September 30,
	1999		2000		2001		2001		2002
As a percentage of revenue:
Revenue	100	%	100	%	100	%	100	%	100	%
Product costs	37		33		50		38		36
Amortization of software license agreement	—		—		3		4		—
Cost of revenue	37		33		53		42		36
Gross margin	63		67		47		58		64
Operating expenses:
Research and development	43		43		27		30		17
Sales and marketing	38		32		23		27		17
General and administrative	25		17		9		10		8
Stock compensation	11		19		5		6		6
Amortization of goodwill	—		1		1		1		—
Cost of delayed public offering	—		—		2		3		5
Impairment of promotional agreement	—		—		2		2		—
Restructuring costs	—		—		3		4		—
Total operating expenses	117		112		72		83		53
Income (loss) from operations	(54	)	(45	)	(25	)	(25	)	11
Other income (expenses), net	1		4		2		2		—
Income (loss) before provision for income taxes	(53	)	(41	)	(23	)	(23	)	11
Provision (benefit) for income taxes	2		4		3		2		(8	)
Net income (loss)	(55	)%	(45	)%	(26	)%	(25	)%	19	%

Comparison of Nine Months Ended September 30, 2002 and 2001

Revenue

Revenue increased 47% to $34.1 million for the nine months ended September 30, 2002 from $23.3 million for the nine months ended September 30, 2001. The growth in revenue resulted primarily from increased sales of our WinDVD product in Japan and North America, as well as increased Web sales.

Gross margin

Gross margin increased to 64% of revenue for the nine months ended September 30, 2002 from 58% for the nine months ended September 30, 2001. The increase resulted primarily from lower third-party royalty costs. Product costs for the nine months ended September 30, 2002 included royalty settlements of $303,000 with certain OEM customers and patent holders offset by a reduction in accrued unlicensed royalty costs of $363,000 resulting from one of the settlements incurred during the nine months ended September 30, 2002.

Research and development expenses

Research and development expenses decreased to $5.6 million, or 17% of revenue, for the nine months ended September 30, 2002 from $6.9 million, or 30% of revenue, for the nine months ended September 30, 2001. The decrease resulted primarily from lower payroll costs, consulting costs and rent due to the restructuring we implemented in June 2001. We believe that a significant level of research and development expenses will be required to remain competitive, and, as a result, we currently expect these expenses to increase in absolute dollars in the future.

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Sales and marketing expenses

Sales and marketing expenses decreased to $5.7 million, or 17% of revenue, for the nine months ended September 30, 2002 from $6.2 million, or 27% of revenue, for the nine months ended September 30, 2001. The decrease was primarily attributable to lower third-party commissions paid to outside sales representatives and lower promotion expense, offset by higher payroll and communication expenses due to increased sales and marketing headcount in the nine months ended September 30, 2002. We intend to actively market, sell and promote our products and further develop our brand name. Therefore, we expect expenses related to these programs to increase in absolute dollars in the future.

General and administrative expenses

General and administrative expenses increased to $2.8 million, or 8% of revenue, for the nine months ended September 30, 2002 from $2.2 million, or 10% of revenue, for the nine months ended September 30, 2001. The increase in absolute dollars was primarily attributable to increased personnel costs and professional services. We expect general and administrative expenses to continue to increase in absolute dollars as we build our infrastructure to support our anticipated growth and operations as a public company.

Stock-based compensation

Stock-based compensation expenses increased to $2.2 million for the nine months ended September 30, 2002 from $1.4 million for the nine months ended September 30, 2001. Stock-based compensation expenses related to the issuance of stock options are amortized on an accelerated basis over the next four years. Accordingly, we expect stock-based compensation expenses to decrease in future periods.

Amortization of goodwill

Amortization of goodwill decreased to $0 for the nine months ended September 30, 2002 from $223,000 for the nine months ended September 30, 2001 as a result of implementing SFAS No. 142. If at anytime we determine this goodwill to be impaired, we will record an impairment charge in the period in which this determination is made.

Cost of delayed public offering

During the nine months ended September 30, 2001 and 2002, we incurred $710,000 and $1.7 million, respectively, of professional costs in connection with the preparation of our initial public offering. In September 2001 and again in September 2002 our offering was delayed and all costs previously capitalized were expensed.

Impairment of promotional agreement

In March 2001, we entered into a promotional agreement with an online music provider for exclusive marketing and promotion space for our WinRip product. In accordance with the agreement, we were required to pay $1.1 million over 12 months and provide a $600,000 standby line of credit. During the period from March 2001 to August 2001, we incurred $550,000 for promotional costs, which have been recorded in sales and marketing expenses. Based on the results of the promotion, we believed that the remaining $550,000 of committed promotional expense under the contract was unrealizable. There were no charges recorded during the nine months ended September 30, 2002.

Restructuring costs

During the second quarter of 2001, management approved a restructuring plan to reduce our workforce and consolidate offices to align our cost structure with our projected revenue growth and economic and industry

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conditions at the time. A one-time charge of $850,000 related to this plan was recorded in operating expenses in the second quarter. This charge included $257,000 related to employee terminations and $593,000 related to office closures. As of September 30, 2002, the remaining accrual was $136,000 related to the future payment of restructuring expenses, all of which was related to office closures.

This restructuring eliminated approximately 25% of our worldwide employee workforce, including employees in research and development, sales and marketing, and general and administrative. We will continue to manage our operating expenses relative to expected revenue growth and will undertake additional cost-cutting actions if necessary to optimize profitability.

Other income (expenses), net

Other income (expenses), net primarily consists of interest income, realized and unrealized foreign currency gain or loss, loss on disposal of fixed assets and impairment on private company investments, if any. Other income (expenses), net decreased to $(97,000) for the nine months ended September 30, 2002 from $430,000 for the nine months ended September 30, 2001. The decrease related primarily to a write-down in the carrying value of an investment in a private company that management determined was no longer recoverable, a loss resulting from the completion of a fixed asset physical inventory and lower interest income due to lower interest rates.

Provision (benefit) for income taxes

We recorded a benefit for income taxes of $2.7 million for the nine months ended September 30, 2002 and a provision for income taxes of $468,000 for the nine months ended September 30, 2001. The benefit for income taxes in 2002 reflects management’s reassessment of available evidence that, in the third quarter of 2002, indicated it was more likely than not that we would realize deferred tax assets for which a full valuation allowance had previously been recorded. The amount of the valuation allowance that existed at December 31, 2001 and that was reversed in the third quarter of 2002 was $5.7 million. Excluding the effects of this reversal, the provision for income taxes increased to $3.0 million for the nine months ended September 30, 2002 from $468,000 for the nine months ended September 30, 2001 due to higher foreign sales in countries subject to withholding taxes, a reduction in the valuation allowance in the third quarter of 2002 and the recording in 2002 of a tax provision for payment of federal and state taxes.

Comparison of Years Ended December 31, 2001 and 2000

Revenue

Revenue increased 119% to $33.8 million for the year ended December 31, 2001 from $15.4 million for the year ended December 31, 2000. The growth in revenue resulted primarily from increased sales of our WinDVD product.

Gross margin

Gross margin decreased to 47% of revenue in the year ended December 31, 2001 from 67% in the year ended December 31, 2000. The decrease in gross margin resulted from an increase in cost of revenue to $17.9 million for the year ended December 31, 2001, from $5.1 million for the year ended December 31, 2000. Product costs increased to $16.9 million, or 50% of revenue, for the year ended December 31, 2001 from $5.1 million, or 33% of revenue, for the year ended December 31, 2000. The increases were primarily due to unlicensed royalty expense and settlement of intellectual property costs of $5.4 million, or 16% of revenue, and an increase in average royalty unit costs owed to third parties for incorporation of their technology into our products. The settlement payments are for past liabilities, and we believe we have no future obligations to these customers related to the matters covered by those settlement agreements. However, we may be subject to additional claims in the future for which we will have to accrue and pay additional amounts. See “Risk Factors—

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Risks Related to Our Business—We have received notices of claims, and may receive additional notices of claims in the future, regarding the alleged infringement of third parties’ intellectual property rights that may result in restrictions or prohibitions on the sale of our products and cause us to pay license fees and damages.”

In December 2000, we entered into a software license agreement providing for an aggregate of $1.1 million of minimum royalty payments through October 2002. The associated expense was recognized on a straight-line basis over the agreement term. In September 2001, we determined that a large portion of the minimum royalty payment would be unrealizable and was impaired. Accordingly, during the year ended December 31, 2001, $1.0 million has been charged to amortization of software license agreement of which $724,000 represents a charge for impairment. The amount remaining of $50,000 as of December 31, 2001 will be recorded as cost of revenue over the remaining agreement term.

Research and development

Research and development expenses increased to $9.0 million, or 27% of revenue, for the year ended December 31, 2001 from $6.6 million, or 43% of revenue, for the year ended December 31, 2000. The increase in absolute dollars resulted primarily from increased personnel and consulting costs, facilities-related expenses and outside professional fees. Research and development expenses for the year ended December 31, 2000 include a special in-process research and development charge resulting from the AVPD acquisition.

Sales and marketing

Sales and marketing expenses increased to $7.9 million, or 23% of revenue, for the year ended December 31, 2001 compared to $4.9 million, or 32% of revenue, for the year ended December 31, 2000. The increase in absolute dollars was primarily attributable to supporting our higher level of sales, which included higher personnel costs, commission costs paid to third-party sales representatives, promotional expenses, consulting costs and facilities-related expenses.

General and administrative

General and administrative expenses increased to $3.0 million, or 9% of revenue, for the year ended December 31, 2001 from $2.7 million, or 17% of revenue, for the year ended December 31, 2000. The increase in absolute dollars was primarily attributable to increased personnel costs and professional services.

Stock-based compensation

Stock-based compensation expenses decreased to $1.9 million for the year ended December 31, 2001 from $2.9 million for the year ended December 31, 2000, due to the reduction in the number of stock options issued to non-employees during 2001 and the accelerated employee stock compensation expense in 2000.

Amortization of goodwill

The amortization of goodwill increased to $298,000 for the year ended December 31, 2001 from $174,000 for the year ended December 31, 2000. The year ended December 31, 2000 includes seven months of amortization expense compared to twelve months included in the year ended December 31, 2001.

Cost of delayed public offering

During the year ended December 31, 2001, we incurred $710,000 of professional costs in connection with the preparation of our initial public offering. In September 2001, this offering was delayed and all costs were expensed.

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Impairment of promotional agreement

In March 2001, we entered into a promotional agreement with an online music provider for exclusive marketing and promotion space for our WinRip product. In accordance with the agreement, we were required to pay $1.1 million over 12 months and provide a $600,000 standby line of credit. During the period from March 2001 to August 2001, we incurred $550,000 for promotional costs under the agreement, which have been recorded in sales and marketing expenses. Based on the results of the promotion, we believed that the remaining $550,000 of committed promotional expense under the contract was unrealizable.

Restructuring costs

During the second quarter of 2001, management approved a restructuring plan to reduce our workforce and consolidate offices to align our cost structure with our projected revenue growth and economic and industry conditions at the time. A charge of $850,000 related to this plan was recorded in operating expenses in the second quarter. This charge included $257,000 related to employee terminations and $593,000 related to office closures. As of December 31, 2001, the remaining accrual was $307,000 related to the future payment of restructuring expenses, of which $2,000 related to employee terminations and $305,000 related to office closures.

This restructuring eliminated approximately 25% of our worldwide employee workforce, including employees in research and development, sales and marketing, and general and administrative. We will continue to manage our operating expenses relative to expected revenue growth and will undertake additional cost-cutting actions if necessary to optimize profitability.

Other income (expenses), net

Other income (expenses), net decreased to $537,000 for the year ended December 31, 2001 from $555,000 for the year ended December 31, 2000. Interest income decreased to $460,000 for the year ended December 31, 2001 compared to $652,000 for the year ended December 31, 2000. This decrease in interest income was primarily attributable to lower average cash and cash equivalent balances in 2001. In 2000, we also recorded a $112,000 loss on fixed assets disposed during this period. No significant fixed assets were disposed of in the year ended December 31, 2001, excluding certain assets disposed of as a result of restructuring.

Provision (benefit) for income taxes

The provision for income taxes increased to $924,000 in the year ended December 31, 2001 from $552,000 in the year ended December 31, 2000 due to higher withholding tax generated from foreign sales in Japan and Taiwan and taxable income generated in our Japanese subsidiary.

Comparison of Years Ended December 31, 2000 and 1999

Revenue

Revenue increased 408% to $15.4 million for the year ended December 31, 2000 from $3.0 million for the year ended December 31, 1999. The growth in revenue resulted primarily from increased sales of our WinDVD product. Product sales in the years ended December 31, 2000 and 1999 were highly concentrated, with 52% of revenue in the year ended December 31, 2000 coming from five customers and 60% of revenue in the year ended December 31, 1999 coming from five customers.

Gross margin

Gross margin increased to 67% of revenue for the year ended December 31, 2000 compared to 63% for the year ended December 31, 1999. This was primarily due to a decrease in the average royalty unit cost owed to

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third parties for incorporation of their technology into our products, partially offset by a slight decrease in average selling prices.

Research and development

Research and development expenses increased to $6.6 million, or 43% of revenue, for the year ended December 31, 2000 from $1.3 million, or 43% of revenue, for the year ended December 31, 1999. This increase primarily resulted from our continued research and development efforts including increase in personnel costs, consulting and professional fees, facilities related expenses, travel costs and the licensing of certain software. In connection with the purchase of AVPD in 2000, we recorded an in-process research and development charge of $700,000. The value of the acquired in-process technology was computed using a discounted cash flow analysis rate of 35% on the anticipated income stream of the related product revenue. The discounted cash flow analysis was based on an estimate of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions.

Sales and marketing

Sales and marketing expenses increased to $4.9 million, or 32% of revenue, for the year ended December 31, 2000 from $1.2 million, or 38% of revenue, for the year ended December 31, 1999. The increase in absolute dollars was primarily attributable to support our higher level of sales, including increased personnel costs, promotional expenses, outside commission costs, professional fees, facilities-related expenses and travel expenses.

General and administrative

General and administrative expenses increased to $2.7 million, or 17% of revenue, for the year ended December 31, 2000 compared to $766,000, or 25% of revenue, for the year ended December 31, 1999. This increase was primarily attributable to increased personnel costs and professional fees.

Stock-based compensation

Stock-based compensation expenses increased to $2.9 million for the year ended December 31, 2000 compared to $339,000 for the year ended December 31, 1999, due to an increase in the number of options issued to employees and non-employees.

Amortization of goodwill

The amortization of goodwill increased to $174,000 for the year ended December 31, 2000 from $0 for the year ended December 31, 1999. We started to amortize goodwill in June 2000, after completion of the AVPD purchase.

Other income (expenses), net

Other income (expenses), net increased to $555,000 for the year ended December 31, 2000 from $32,000 for the year ended December 31, 1999. This increase was primarily attributable to an increase in interest income resulting from higher cash balances received from the sale of our preferred stock, which was partially offset by a disposal of fixed assets.

Provision (benefit) for income taxes

Although we had not generated taxable income in the United States, our revenue from Japan and Taiwan is subject to withholding taxes in those countries. The provision for income taxes increased to $552,000 for the year ended December 31, 2000 from $63,000 for the year ended December 31, 1999. This increase was due to greater foreign sales.

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Quarterly Results of Operations

The following table sets forth unaudited consolidated statements of operations data for the seven quarters ended September 30, 2002. The unaudited consolidated information for each of these quarters has been prepared on substantially the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in our opinion, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. Historical results are not necessarily indicative of the results to be expected in the future, and results of the interim periods are not necessarily indicative of our results of operations for the entire year.

	Three months ended
	March 31, 2001			June 30, 2001			Sept. 30, 2001			Dec. 31, 2001			March 31, 2002		June 30, 2002			Sept. 30, 2002
	Restated(1)			Restated(1)			Restated(1)			Restated(1)			Restated(1)
Revenue	$	7,722		$	7,359		$	8,185		$	10,497		$	11,167	$	11,802		$	11,176
Product costs		2,797			2,847			3,016			8,235			3,955		4,172			3,976
Amortization of software license agreement		131			131			725			13			13		5			5
Cost of revenue		2,928			2,978			3,741			8,248			3,968		4,177			3,981
Gross profit		4,794			4,381			4,444			2,249			7,199		7,625			7,195
Operating expenses:
Research and development		2,468			2,367			2,096			2,104			2,022		1,905			1,702
Sales and marketing		2,004			2,154			2,075			1,645			1,758		1,922			2,045
General and administrative		675			777			773			765			896		1,006			943
Stock compensation		526			378			475			475			921		813			461
Amortization of goodwill		74			74			75			75			—		—			—
Cost of delayed public offering		—			—			710			—			—		—			1,728
Impairment of promotional agreement		—			—			550			—			—		—			—
Restructuring costs		—			850			—			—			—		(20	)		—
Total operating expenses		5,747			6,600			6,754			5,064			5,597		5,626			6,879
Income (loss) from operations		(953	)		(2,219	)		(2,310	)		(2,815	)		1,602		1,999			316
Other income (expenses), net		178			122			130			107			75		(107	)		(65	)
Income (loss) before provision (benefit) for income taxes		(775	)		(2,097	)		(2,180	)		(2,708	)		1,677		1,892			251
Provision (benefit) for income taxes		151			232			85			456			596		1,063			(4,319	)
Net income (loss)	$	(926	)	$	(2,329	)	$	(2,265	)	$	(3,164	)	$	1,081	$	829		$	4,570

(1) See Note 2 of notes to consolidated financial statements. The operating results for the quarters ended March 31, June 30 and September 30, 2001 have been restated to reflect the following:

• A decrease in revenue of $366,000 and $41,000 for the quarters ended March 31 and June 30, 2001, respectively, and an increase in revenue of $407,000 for the quarter ended September 30, 2001 to recognize revenue from two OEM customers upon our receipt of both evidence of a signed agreement and evidence of the products being sold by the OEMs.

• A decrease of $110,000 and $16,000 in commission and foreign withholding tax expense in the quarters ended March 31 and June 30, 2001, and an increase of $126,000 in such expense during the quarter ended September 30, 2001 to recognize the expense as incurred with respect to the two OEM agreements discussed above.

• An increase in cost of amortization of software license agreement of $131,000 and $118,000 for the quarters ended March 31 and June 30, 2001, respectively, and a decrease in cost of amortization of software license agreement of $249,000 for the quarter ended September 30, 2001 to amortize the cost on a straight-line basis until the point of impairment during the quarter ended September 30, 2001.

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Over the seven quarters presented, our quarterly revenue grew to $11.2 million for the quarter ended September 30, 2002 from $7.7 million for the quarter ended March 31, 2001. Revenue has increased over the periods as we have increased OEM and retail sales of our products and expanded our product line. In the quarter ended June 30, 2001, revenue decreased to $7.4 million from $7.7 million for the prior quarter due to lower average selling prices partially offset by increased unit sales. In the quarter ended September 30, 2002, revenue decreased to $11.2 million from $11.8 million for the prior quarter resulting primarily from a decline in our PC OEM customers’ unit sales. The growth over the periods presented was primarily the result of increased sales of our WinDVD product.

Our gross profit and gross margin fluctuated over the seven quarters presented in the table above. Gross margin generally increased from 61% and 60% in the quarters ended March 31, 2001 and June 30, 2001, respectively, to 65% and 64% in the quarters ended June 30, 2002 and September 30, 2002, respectively. This increase primarily resulted from higher margin sales in Japan and Web sales in 2002 partially offset by declining selling prices. Gross margin for the quarter ended September 30, 2001 was 51%, with the decrease primarily resulting from a charge of $725,000 relating to the amortization of a software license agreement. Gross margin for the quarter ended December 31, 2001 was 22%, with the decrease primarily resulting from a charge of $4.2 million relating to the settlement of intellectual property matters. Without these charges, our gross margin for the quarters ended September 30, 2001 and December 31, 2001 would have been 63%.

Our total operating expenses have fluctuated over the seven quarters presented in the table above. In the second quarter of 2001, we effected a corporate restructuring and recorded an associated charge of $850,000. Operating expenses remained constant between the second quarter of 2001 and the third quarter of 2001. In the third quarter of 2001, we recorded a charge of $710,000 related to a delayed public offering and $550,000 related to the impairment of a promotional agreement. The decrease in research and development expenses from the first quarter of 2001 to the second quarter of 2001 was primarily attributable to lower consulting expenses due to the completion of WinRip. The overall decrease in research and development costs from the second quarter of 2001 to the third quarter of 2002 was primarily due to decreased payroll, contractor and rent costs resulting from the corporate restructuring effected in June 2001. The decrease in marketing and sales expenses from $2.1 million in the third quarter of 2001 to $1.6 million in the fourth quarter of 2001 was primarily due to a decrease in marketing activities such as trade show and other promotional activities. The overall increase in marketing and sales expense from the fourth quarter of 2001 to the third quarter of 2002 was due to an increase in personnel and associated costs as we grew our marketing and sales infrastructure to support our expanding customer base and new products. The overall increase in general and administrative expenses from $675,000 in the first quarter of 2001 to $943,000 in the third quarter of 2002 was primarily due to increased personnel expense and outside professional fees in line with our growing worldwide customer base and increased business complexity. In the third quarter of 2002, we recorded a charge of $1.7 million related to a delayed public offering.

Our financial condition and results of operations are likely to be affected by seasonality in the future. Historically, PC OEMs have experienced their highest volume of sales during the year end holiday season. Because of the timing of our recognition of revenue associated with the sale of our products to OEMs, we expect to experience our highest revenue and operating income in the first quarter of each calendar year, followed by lower revenue and operating income in the second quarter of that year. To the extent our retail sales increase as a percentage of our revenue, we expect to experience seasonally higher revenue in the fourth quarter.

We expect our operating results to fluctuate on an annual and quarterly basis in the future due to a variety of factors, many of which are outside our control. The license of software-based digital video and audio solutions for incorporation in products in the PC and consumer electronics industries is new, and it is difficult to predict the future growth rate, if any, or size of the market for our products. We may be unable to accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us. Our current and future expense levels are based largely on our investment plans and estimates of future revenue and are, to a large extent, fixed. As a result, we may fail to make accurate financial forecasts and adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would harm our

37

operating results. Due to these and other factors, quarter-to-quarter comparisons of our operating results may not be meaningful, and you should not rely on our results for any one quarter as an indication of our future performance.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private sales of convertible preferred stock, which generated gross proceeds of $21.2 million, and the sale of our products. As of September 30, 2002, we had cash and cash equivalents of $18.5 million.

Net cash provided by operating activities was $1.4 million for the year ended December 31, 2001 and $5.1 million for the nine months ended September 30, 2002. This primarily resulted from sales of our WinDVD product. Net cash used in operating activities was $329,000 in 2000 and $573,000 in 1999. Cash used in operating activities resulted primarily from net losses from operations in each period.

Net cash used in investing activities was $1.7 million for the year ended December 31, 2001 and $960,000 for the nine months ended September 30, 2002. Of the $1.7 million expended in 2001, $1.0 million was the final payment for the purchase of AVPD and the remainder was property and equipment purchases. Cash used in investing activities in the nine months ended September 30, 2002 was due to the purchases of property and equipment and short-term investments. Net cash used in investing activities was $4.4 million in 2000 and $657,000 in 1999. Of the $4.4 million used in 2000, $2.2 million was partial payment for the purchase of AVPD and $2.4 million was purchases of property and equipment and long-term investments. Cash used in investing activities in 1999 was due to the purchases of property and equipment and long-term investments.

Cash provided by financing activities was $111,000 for the year ended December 31, 2001 primarily due to the issuance of common stock upon the exercise of stock options. Cash provided by financing activities for the nine months ended September 30, 2002 was $90,000 from the issuance of common stock upon the exercise of stock options. Cash provided by financing activities was $16.8 million in 2000 and $3.7 million in 1999. Cash provided by financing activities in 2000 and 1999 was primarily due to sales of convertible preferred stock and, to a lesser extent, the issuance of common stock upon the exercise of stock options.

We currently have no significant commitments for capital expenditures. We anticipate that we will increase our capital expenditures consistent with our anticipated growth in personnel and infrastructure, including facilities and systems.

We believe that the net proceeds from the sale of common stock in this offering, together with our current cash and cash equivalents, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. To the extent the proceeds of this offering and our existing sources of cash and cash flow from operations are not sufficient to fund our activities, we will need to raise additional funds. If we issue additional stock to raise capital, your percentage ownership in us will be reduced. Additional financing may not be available when needed and, if such financing is available, it may not be available on terms acceptable to us. If we raise funds through debt financing, we will have to pay interest and may be subject to restrictive covenants, which could limit our ability to take advantage of future opportunities, respond to competitive pressures or unanticipated industry changes. In addition, although we have no present understandings, commitments or agreements with respect to any acquisitions of other businesses, services, products or technologies, we may from time to time evaluate potential acquisitions. These acquisitions may increase our capital requirements and reduce your percentage ownership in us.

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Critical Accounting Policies

Our critical accounting policies are as follows:

Revenue recognition

Our revenue is derived from fees paid under software licenses granted primarily to PC OEMs, retail distributors, retail customers and directly to end users. We record revenue generated from these sales in accordance with SOP 97-2, “Software Revenue Recognition,” as amended, under which revenue is recognized when evidence of an arrangement exists, delivery of the software has occurred, the fee is fixed and determinable, and collectibility is probable.

We sell to OEMs and directly to end users. Under the terms of our license agreements with the OEMs, they are entitled only to unspecified upgrades on a when and if available basis prior to sell through to end users. Under the terms of our revenue recognition policy, we recognize revenue based on evidence of products being sold by the OEMs. We do not have any obligation to provide upgrades to the OEMs’ customers. Accordingly, we do not defer any revenue as we no longer have an obligation once an OEM’s product has been shipped and we have recorded revenue.

Under the terms of each OEM license agreement, the OEM will “qualify” the software on its then current platform. The OEM will have the right to return the software prior to it being qualified. Once the software has been qualified, the OEM will begin to ship product and report sales to us at which point we will record revenue. Once the software has been shipped, the OEM does not have a right of return to us. Therefore, we do not maintain a returns reserve related to OEM sales.

Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a per-unit basis, and we record associated revenue when we receive notification of the OEMs’ sales of the licensed software to the end users. The terms of the license agreements generally require the OEMs to notify us of sales of our products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, we generally recognize revenue in the month or quarter following the sales of the product to these OEMs’ customers.

Under the terms of our OEM license agreements, the OEMs have certain inspection and acceptance rights. These rights lapse once the product has been qualified and the shipment has been reported to us by the OEM. Therefore, these acceptance rights do not impact the amount or timing of revenue recognition.

A small number of OEMs that primarily sell PC components place orders with us for a fixed quantity of units at a fixed price. Qualification of our products are not necessary, and these OEMs have no rights to upgrades or returns. We generally recognize revenue upon shipment to these OEMs.

Sales to end users are primarily made directly through our website. There are no unspecified upgrade rights related to these sales. We do not offer specified upgrade rights to any class of customer. We recognize revenue from sales through our websites upon delivery of product and the receipt of payment by means of an authorized credit card. The end users who purchase our software from our website do not have rights of return.

Certain distributors and retailers, primarily in Japan, have limited rights to return products that were purchased in the previous six months. These distributors have no rights to product upgrades. We generally recognize revenue, net of estimated returns, upon shipment to these distributors and retailers. Other distributors and retailers, primarily in the United States, have unlimited rights of return. We generally recognize revenue upon receipt of evidence that the distributors and retailers have sold our products.

Valuation of accounts receivable

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required.

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Impairment of long-lived assets

When events and circumstances warrant a review, we evaluate the carrying value of long-lived assets to be held and used. The carrying value of an asset is considered impaired when the anticipated undiscounted cash flow from such an asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value. Fair market value is determined using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced by the cost to dispose of such assets.

Impairment of goodwill and other intangible assets

With the implementation of new accounting pronouncements in 2002, we will continue to amortize finite-lived intangibles, but will no longer amortize infinite-lived intangibles such as goodwill and assembled workforce. Previously we amortized goodwill over its estimated useful life. Following adoption of SFAS 142, we will continue to evaluate whether any event has occurred which might indicate that the carrying value of an intangible asset, including goodwill, is not recoverable. In addition, SFAS 142 requires that goodwill be subject to at least an annual assessment for impairment by applying a fair value based test. The implementation of SFAS 142 did not have a material impact on our consolidated financial statements.

Accruals for unlicensed royalties and settlement agreement

We utilize technology in our products for which we do not currently hold, or have not in the past held, a license. We have accrued amounts for such usage as a component of cost of revenue based upon units sold under arrangements where we believe that we have a probable and estimatable legal obligation and upon published rates for such amounts. We recognized expense of approximately $820,000, $5.4 million and $0 for the year ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, respectively. We also entered into settlement agreements and paid $4.1 million in stock and cash in the nine months ended September 30, 2002. As of September 30, 2002, accruals for unsigned agreements is $2.1 million. The published rates utilized have remained consistent but are expected to decrease in the future which will impact the accrual in future periods. It is not known when agreements will ultimately be signed. Should the final arrangements result in royalty rates significantly different from these assumptions, our business could be harmed.

Determination of fair value of options granted to employees

We have recorded stock-based compensation charges representing the difference between the deemed fair value of our common stock for accounting purposes and the option exercise price. We determined the deemed fair value based upon several factors including our operating performance, significant events in our history, issuances of our convertible preferred stock, trends in the broad market for technology stocks and the expected valuation we would obtain in an initial public offering. We recorded employee stock-based deferred compensation of $272,000, $3.6 million, $1.6 million and $2.4 million and amortization of such expense of $189,000, $1.9 million, $1.7 million and $2.0 million in the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002, respectively. Had different assumptions or criteria been used to determine the deemed fair value of the stock options, materially different amounts of stock-based compensation could have been reported.

Accounting for income taxes

In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be realized from future taxable income. We establish a valuation allowance if we determine that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Changes in the valuation allowance are included in our consolidated statement of operations as provision (benefit) from income taxes. We exercise significant judgment in determining our provision (benefit) for income taxes, our deferred tax assets and

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liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefits from our deferred tax assets.

As of September 30, 2002, we determined that it was more likely than not that we would realize a significant portion of our deferred tax asset in future periods. As a result, we determined that it was no longer necessary or appropriate to maintain a full valuation allowance related to the deferred tax assets which have been established in each year from inception to 2001. If actual circumstances differ from our expectations, we would be required to adjust these estimates in future periods and our financial position, cash flows and results of operations could be materially affected.

Disclosures About Contractual Obligations and Commercial Commitments

As of December 31, 2001, future minimum commitments under operating leases are as follows (in thousands):

Fiscal Year	Lease
2002	$	852
2003		607
	$	1,459

We have no other fixed contractual obligations or commercial commitments that are not already accrued for in our financial statements.

Disclosures About Effects of Transactions With Related and Certain Other Parties

See “Related Party Transactions” for a discussion of transactions with related and certain other parties.

Quantitative and Qualitative Disclosures About Market Risk

Foreign currency risk

To date, all of our revenue has been denominated in U.S. dollars. We expect, however, to begin denominating revenue from selected international markets in the currency of the applicable market. As a result, our operating results may become subject to significant fluctuations based upon changes in the exchange rates of some currencies in relation to the U.S. dollar. Although we will continue to monitor our exposure to currency fluctuations and, when appropriate, may use financial hedging techniques to minimize the effect of these fluctuations, exchange rate fluctuations may harm our financial results.

Interest rate risk

We have limited exposure to financial market risks, including changes in interest rates. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that we are not exposed to any material market risk.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These new standards are effective for fiscal years beginning after December 15, 2001. Under the new standards,

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goodwill will no longer be amortized, but will be subject to an annual impairment test. The standards also promulgate, among other things, new requirements for accounting for other intangible assets. Effective January 2002, we adopted SFAS No. 142. See Notes 3 and 13 of notes to consolidated financial statements for further discussion on treatment of goodwill and other intangible assets.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. We will adopt SFAS No. 143 effective January 1, 2003 and do not expect to have a material impact on our financial position or results of operations.

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (“SFAS No. 145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Among other provisions, SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.” Accordingly, gains or losses from extinguishment of debt are not reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of APB No. 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. We will adopt SFAS No. 145 beginning January 1, 2003. We do not expect the adoption of SFAS No. 145 to have a material impact on our financial position or results of operations.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS No. 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Previous guidance, provided under Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring),” required an exit cost liability be recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated by a company after December 31, 2002. We do not expect the adoption of SFAS 146 to have a material impact on our financial position or results of operations.

In November 2002, the FASB issued Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and supersedes FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others.” It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. We adopted FIN 45 as of January 1, 2003, and do not expect the adoption of FIN 45 to have a material impact on the consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS 148, “Summary of Statement No. 148 Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” This Statement amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Because we use the intrinsic-value method of accounting for stock-based employee compensation, SFAS 148 does not impact the our financial position or results of operations.

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BUSINESS

Company Overview

We are a leading provider of DVD software. We have developed a technology platform from which we have created a broad suite of integrated multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. Our multimedia software products bring the functionality of popular consumer electronics, or CE, products such as the DVD player and the digital video recorder, or DVR (also known as a PVR), to PCs. Our software is also used to enhance the functionality of next-generation CE devices.

To date, we have sold more than 35 million copies of our flagship product, WinDVD, a software DVD player for PCs. We have historically derived nearly all of our revenue from sales of WinDVD. In the future, we expect to derive an increasing percentage of our revenue from other products, including:

• WinDVD Creator, a video editing, DVD authoring and burning application;

• WinDVD Recorder, a software product with the functionality of a DVD recorder/player;

• WinDVR, a digital video recorder with the functionality of a set-top box DVR;

• WinProducer, a higher-end video capturing and editing software application;

• WinRip, a digital music recorder and player; and

• versions of our multimedia software designed for CE devices.

Our software is bundled with products sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. Our OEM customers include Dell, Fujitsu, Fujitsu Siemens, Hewlett-Packard (including the former Compaq), IBM, Sony and Toshiba. In addition to PC OEMs, we sell our products to CE manufacturers and PC peripherals manufacturers worldwide and offer our software in up to 27 languages. We also sell our products directly to consumers through retail channels and our websites, which currently operate in 12 languages.

We believe our PC OEM customers choose our products because of the following factors:

Quality and functionality:    We strive to improve and expand the quality and functionality of our products in each generation. Our multimedia software solutions utilize our well-established technology to offer many advanced features that enhance the user’s experience.

OEM support:    We have extensive experience working with and supporting the demands of OEM customers and have established practices and procedures to offer them fast, efficient and global support.

Ease-of-use:    Our products feature interfaces that are intuitive and easy to use. Most of our products feature a common interface that helps users feel comfortable using our different products.

Ease-of-integration:    We have worked with leading PC OEMs and incorporated our software on over 1,200 PC configurations. Our layered architecture and modular components enable us to quickly integrate our products on new platforms and with other technologies.

Single vendor:    With our recent product releases and upgrades, we are able to offer integrated multimedia software to capture, edit, author, distribute, burn and play digital video. This allows our PC OEM customers to minimize direct purchasing costs and reduce the burden of providing technical support for multiple tools from separate vendors.

We believe that we have developed the core technologies and products to enable rapid migration of our products to future CE devices in addition to PC platforms. We intend to continue developing our intellectual property portfolio and expanding our product offerings to include additional digital multimedia features, such as the ability to deliver digital video and audio through a home network and to wireless electronics devices.

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We began operations in 1998 and shipped our first products in 1999. In 2000, we completed the acquisition of the business and assets of AVPD, a developer of audio and video software products. During 2002 and 2003, we introduced WinProducer 3 DVD, WinDVR 3, WinDVD Creator and WinDVD Recorder, a series of new products that incorporate our newly developed technologies for digital video solutions, including digital video editing, DVD authoring, DVD burning, direct recording from a camcorder or TV tuner to DVD and on-disk DVD editing.

Industry Background

Adoption and growth of digital technologies for multimedia content

Consumers have rapidly adopted digital technologies for capturing, editing, authoring, distributing, burning and playing multimedia content, beginning with the CD and continuing with the DVD. Manufacturers have incorporated these digital technologies into PCs and CE devices to meet this growing demand. According to the Consumer Electronics Association, the DVD player, which can be used for playing both CDs and DVDs, is the fastest growing consumer electronics product of all time.

The functionality of multimedia hardware and software for the PC continues to grow. Users increasingly consider multimedia hardware and software to be necessary components of a PC. This consumer demand is reflected in the large percentage of new PCs that include DVD-ROM or DVD-recordable drives or other multimedia functionality. Gartner Dataquest estimates that the total market for PC DVD-ROM drives, combination DVD-ROM and CD-RW drives as well as DVD-recordable drives will grow from approximately 33 million units in 2001 to approximately 160 million units in 2006, a compound annual growth rate of approximately 37%. All of these hardware PC components or peripheral devices require software to function and must share operating standards with other components of the PC.

The establishment of common standards by government and private organizations has helped drive the growth of digital technologies for multimedia content. The consumer electronics, computer, broadcast and telecommunications industries have recognized that broad consumer acceptance of products embodying new digital technologies depends upon the adoption of industry-wide technical and performance standards. The standards that have driven, and we believe will continue to drive, the growth of digital technologies for multimedia content include:

• DVD format—digital encoding of high quality digital video and audio content on optically readable discs, with multiple language options, subtitle options and other navigation and entertainment features;

• MPEG-1—compression of still images and real-time, low-cost compression and decompression of moving images;

• MPEG-2—compression of video and audio data for broadcast and playback applications used in DVD and HDTV;

• MP3—compression of audio data for playback applications, technically referred to as MPEG-1 Layer 3;

• MPEG-4—a developing standard for compression of video and audio under low transmission rates used particularly in wireless applications;

• Dolby Digital and Digital Theater Systems, or DTS—compression of audio for use in multi-channel digital surround sound systems; and

• 802.11, RTP, RTCP and RTSP—physical and logical protocols for the transmission of multimedia content, including digital video, over wired and wireless networks.

The PC as a digital multimedia platform

PCs are well suited for high quality multimedia entertainment and have emerged as a pervasive platform for digital multimedia technologies primarily due to improvements in storage technology, advances in

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microprocessor technology and developments in multimedia applications. In the mid-1980s, consumer electronics companies pioneered digital multimedia technologies, such as CD technology, which paved the way for the growth of high quality multimedia content. In recent years, DVD technology has emerged as an important format for portable distribution of high quality video and audio. DVDs can store up to 18 gigabytes of compressed data on a single disc. In comparison to hard disk drives, DVDs and DVD drives also offer a cost-effective means of storing and playing professional broadcast-quality video and audio content. In addition, the increased capacity of hard disk drives and corresponding decrease in the cost of storage have enabled consumers to use the PC as a tool to manage multimedia content, which often requires large amounts of storage capacity. At the same time, the advent of high-powered, low-cost microprocessors has enabled consumers to capture, edit, author, distribute, burn and play high quality digital video and audio on PCs at a more affordable cost.

The introduction of new multimedia applications designed for both entertainment and computing has enabled consumers to more easily use PCs as their digital multimedia platform. An example of these types of applications is Microsoft’s Windows Media Center. Windows Media Center and competitive media center applications from other vendors enable users to watch or record television, watch DVD movies, listen to music and utilize other multimedia functions using a PC with a television as the interface. The introduction of these types of products has created an entirely new product category for PC manufacturers called the living room PC. In addition, as home networking becomes more popular, many of the functions of dedicated CE devices may be incorporated into the PC and distributed through set-top hardware, which can receive signals from the PC acting as the central multimedia entertainment gateway for the home.

The proliferation of digital multimedia CE devices

In addition to the rapid growth in popularity of PCs offering full-featured digital multimedia functionality, demand for CE devices that provide digital multimedia functions is also growing rapidly. For instance, DVRs, which record and time shift television programming, are growing in popularity. According to IDC, worldwide shipments of stand-alone DVRs and DVR-enabled set-top boxes should reach nearly 17.8 million in 2006, from 570,000 in 2001, representing a compound annual growth rate of approximately 99%. We anticipate that CE device manufacturers will increasingly utilize third-party Linux-based software to operate these DVRs because of the inherent cost advantages. Device makers may look to partner with third-party multimedia software vendors in creating these next-generation CE devices.

As Internet usage increases, more households will have ready access to the variety of digital multimedia content available over the Internet. Consumers may replace traditional fixed-function CE devices with more sophisticated and flexible devices that incorporate multimedia software. We believe these devices will act as the home digital multimedia entertainment center, thus creating a new class of CE devices that enable consumers to access, store and distribute multimedia content throughout the home.

Market opportunity for a complete multimedia software solution

Advances in digital technology enable the PC to serve as a versatile, feature-rich and reasonably priced digital entertainment platform. All PC multimedia hardware components require software to operate. As a result, we believe that multimedia software not only has become a necessary component of the PC, but also serves as an opportunity for OEMs to add value to their products, improve margins and differentiate their products from those of their competitors.

As CE manufacturers increasingly develop and market products based on a PC architecture in order to reduce the cost and increase the flexibility of their products, we expect the market opportunity for multimedia software to grow in this market segment as well. We believe that all of these factors will create market opportunities for a complete multimedia software solution that:

• consists of an integrated and interoperable suite of multimedia software products providing broad functionality;

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• works with a variety of PC operating systems and multimedia devices, thereby reducing costs and improving time to market for OEMs; and

• can be upgraded rapidly to incorporate new features, technologies and products, thereby reducing development time and costs and mitigating the risk of obsolescence for consumers.

The InterVideo Solution

We are a leading provider of DVD software, and we offer a broad suite of advanced digital video and audio multimedia software products that allow users to record, edit, author, distribute, burn and play digital multimedia content on PCs and CE devices. We help PC OEMs, CE manufacturers and PC peripherals manufacturers add value to their products, improve margins and differentiate their products from those of their competitors.

Key elements of our solution include the following:

A broad, integrated multimedia software solution for the PC

Our broad software suite provides OEMs and consumers with a single solution for a variety of multimedia functions. PCs running our integrated multimedia software can replace several dedicated hardware components such as separate DVD players, DVRs, MP3 players, CD players and digital television set-top boxes. Our products have a common look and feel and allow users to toggle quickly and seamlessly between multimedia functions, such as viewing DVDs or TV and listening to music.

Core technology that operates on a variety of platforms

Over 90% of our code is platform independent, which enables us to quickly port our suite of products to new operating systems or hardware platforms, including CE devices. Our “single build” approach allows the current version of our software to operate on multiple Windows operating systems, including Windows 95, 98, NT4.0, 2000, ME and XP editions. We have also developed versions of our key products for the Linux operating system, which is one of the primary operating systems used in next-generation CE devices. We believe that our LinDVD product is the only commercially available software DVD player for Linux platforms.

WinDVD has been certified by Microsoft’s Windows Hardware Quality Lab, or WHQL, as a Motion Video Device on more than 1,200 PC hardware and software configurations, which is more than any other PC DVD software provider. In addition, our software is compatible with a broad range of multimedia hardware products, including specialized graphics chips, audio cards and DVD drives from various suppliers and in various configurations. We believe this is a significant benefit to OEMs because they do not have to undertake as time-consuming and cost-intensive a qualification process for each new combination of multimedia software and hardware.

Layered architecture that we have adapted to new technologies and upgraded to incorporate new features

Our core technology is based on a layered architecture that enables us to respond and adapt to new technologies in an industry characterized by rapid change. We believe that our layered architecture enables PC OEMs to offer their customers highly customized PCs with lower customer service costs than would be required if they had to support multiple builds. Because our modular components are arranged in layered structures, we can add new features to a product and create new products by plugging in new components into appropriate layers. For example, our WinDVD Recorder product reuses the WinDVD architecture with integrated TV and DV recording components. Because we generally customize only a small portion of code in order to develop a new product, we have been able to meet OEM demand for a variety of new products efficiently.

Our architecture has allowed us to efficiently develop new products incorporating additional functionality, such as digital video recording, on-disk editing and direct recording onto DVDs. As a result, we can provide our

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customers with the ability to increase the functionality of their products at a low cost and in a short time frame, which we believe has enabled them to differentiate their products from competitors’ product offerings. Our proprietary layered architecture also generally enables consumers to update or upgrade multimedia features and capabilities without replacing hardware components, which decreases the risk of obsolescence.

Our Strategy

Our goal is to be the leading global provider of advanced digital video and audio multimedia software solutions for PCs, CE devices, PC peripherals, and home networks and other emerging markets. Key elements of our strategy include the following:

Increase PC OEM penetration and leverage existing and prospective OEM relationships to promote adoption of new products

We will seek to increase our market share by aggressively pursuing additional OEM relationships. Because our customer base already includes eight of the world’s top ten PC OEMs ranked in terms of sales by IDC, our expansion will focus primarily on smaller PC OEMs that are leaders in their regional markets and on expanding our base of PC peripherals OEMs.

We plan to leverage our strong market position and broad, integrated product suite to encourage our PC OEM customers to license additional software products and to encourage prospective PC OEMs to adopt our products. We have implemented this strategy with Hewlett-Packard (including the former Compaq), which first installed our WinDVD product on their PCs and then added our WinDVR product. In addition, the rapid market adoption of DVD recordable devices, such as DVD+RW drives, creates an opportunity for us to sell our OEM customers additional products such as WinDVD Recorder and WinDVD Creator. We expect our customers to bundle more of our software products with their PC products.

We believe that existing and prospective OEM customers will find our broad suite of integrated products with similar user interfaces more attractive than discrete products with different user interfaces, because the similarity of the user interfaces allows end users to learn how to use the software more quickly and easily. We believe this reduces customer support calls to our OEMs, which, in turn, reduces their costs.

Grow our established retail channel

We also intend to expand the sale of our products through retail channels and our websites. Our products are sold in more than 240 CompUSA, Fry’s and Microcenter retail stores. We have recently hired a Vice President of Retail Sales with experience at a leading multimedia software retail vendor to manage and grow our retail presence. We are currently in negotiations with several additional national retailers that sell software for PCs.

We believe that expanding our retail presence would increase our overall margins because of the higher average selling prices of products sold through this channel. Further, we believe an expanded retail presence would increase our brand awareness, which might drive increased traffic to our websites and increase our e-commerce revenues. The increased brand awareness might also result in more OEM design wins for our products.

Capitalize on emerging product markets

We believe that our flexible product design architecture allows us to respond rapidly to changes in technology, adapt our products to new hardware platforms and operating systems and develop new products in a cost-effective manner. We intend to closely monitor evolving technologies and identify additional markets for our products. We have adapted our technology for use in CE devices and have agreements with two CE manufacturers to incorporate our software in their DVR devices. We believe that we can adapt our technology

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effectively for use in a variety of emerging CE products and MPEG-4 wireless devices being developed for use within home and wireless networks. We are currently developing a media center software product for the management of consumer digital media assets, such as photos, music and video, as well as a home networking software product that would allow the PC to be used as the central multimedia entertainment gateway for an entire household, eliminating the need for consumers to purchase separate CE devices.

Extend our technology platform

We intend to continue our technology development efforts to expand our portfolio of intellectual property, enhance the functionality of our multimedia software solutions and offer new solutions to our customers. We plan to continue utilizing our technological expertise to increase the ease of use, capabilities and performance of our products. We believe that as we continue to develop critical technology and incorporate it into our suite of products, we will be able to meet customer demands and enhance the end-user digital multimedia experience.

Maintain and enhance strategic relationships and acquire companies and technologies

We have established strategic relationships with several technology and market leaders, including Microsoft and RealNetworks. Under our arrangement with Microsoft, consumers are prompted automatically to download WinDVD when they upgrade from older Windows operating systems to the new Windows XP operating system. In addition, PC OEMs can use our WinDVD technology to power the new Windows Media Center. Currently, we provide the underlying DVD playback technology for a significant majority of Windows Media Center platforms. We have also worked with RealNetworks to integrate our WinDVD product with their Real Media Player to enable DVD playback.

We intend to maintain existing and pursue additional strategic relationships with technology providers, such as providers of operating systems, microprocessors and graphic chips. We believe these relationships will continue to enable us to achieve our design objectives, produce interoperable products and gain valuable information concerning customer preferences and evolving industry standards and trends.

We intend to pursue acquisitions of complementary products, technologies and companies to gain further OEM penetration, capitalize on emerging product markets, maintain and extend our technology leadership and expand our global presence and distribution channels.

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Products

We offer a broad suite of advanced digital video and audio software solutions. Our products are based on industry standards and incorporate a graphical user interface with a common look and feel.

The following table lists the products that we currently license to OEMs, PC peripherals manufacturers and end users:

Product	Function	Compatible Operating Systems	Release Dates
WinDVD	DVD player software	Windows 95, 98 Second Edition (SE), Millennium Edition (ME), NT 4.0, 2000, XP, Linux (Lin DVD)	Version 1.0: Feb 1999 Latest version (Platinum): Nov 2002
WinDVD Creator	Digital video editing and DVD authoring software	Windows 98, ME, 2000, XP	Sept 2002
WinDVD Recorder	Television and home movie recording software for transfer onto DVDs	Windows 98, ME, 2000, XP	Jan 2003
WinDVR	Digital video recorder software	Windows 98SE, ME, 2000, XP	Version 1.0: Sept 2000 Latest version (3.0): Dec 2002
WinProducer	Digital video editing, distribution and DVD authoring software	Windows 98SE, ME, 2000, XP	Version 1.0: July 2001 Latest version (3.0): May 2002
WinRip	MP3 audio player, organizer and encoder	Windows 98SE, ME, 2000, XP	Version 1.0: Nov 2000 Latest version (2.0): Nov 2001
WinDTV	Standard and high definition digital TV software	Windows 98SE, ME, 2000, XP	July 2001

WinDVD

We have historically derived nearly all of our revenue from sales of our WinDVD product. Our OEM customers bundle WinDVD with PCs equipped with DVD drives and Microsoft Windows compatible software to enable those PCs to decode and play DVDs. WinDVD software allows users to enjoy the advantages of DVDs, such as high picture quality, Dolby Digital and DTS surround sound audio decoding, multiple language and subtitle options, navigation and other entertainment options. Our user interface, which appears on the computer screen, resembles the controls for a stand-alone DVD player and other home electronics devices.

WinDVD has been Microsoft WHQL certified as a Motion Video Device on more than 1,200 PC hardware and software configurations, which is more than any other PC DVD software provider. We offer WinDVD in 27 different languages, including the most common languages in Europe, South America and Asia, including both traditional and simplified Chinese, Japanese and Korean.

We have also developed versions of our DVD software for Linux-based PCs and for Linux-based CE devices. This product, LinDVD, shares a substantial amount of code with WinDVD, but adds special driver and video support for the Linux operating system. LinDVD has shipped on PCs sold by IBM, Legend and other companies.

WinDVD Creator

In order to capitalize on increased sales of DVD-recordable drives, we have developed an easy-to-use tool that allows end users to create their own DVDs from their home movies, television and other video content. We have recently reached agreement with several PC OEMs and DVD drive vendors to bundle WinDVD Creator with their hardware.

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We have integrated into a single package and interface a number of functions that are generally sold as separate applications by our competitors. WinDVD Creator combines video DVD authoring and streamlined editing features. We have also integrated proprietary technology that allows end users to record directly from a camcorder or TV tuner onto a DVD disk without caching onto a hard drive. Our on-disk DVD editing technology allows users to save time by making changes to a DVD directly on the optical media without having to transfer the contents of the DVD to the PC.

WinDVD Recorder

WinDVD Recorder provides all the functionality of WinDVD and WinDVR and adds a “single button” recording function that allows users to record television or camcorder home movies onto their computer hard disk or onto DVD recordable media. WinDVD Recorder is designed to take advantage of the same market growth in DVD recordable drives that WinDVD Creator leverages. WinDVD Recorder targets the non-expert user who is more comfortable with the features typically found on CE products such as VCRs.

WinDVR

Our WinDVR software permits PC users to create high-quality digital recordings of broadcast, cable and satellite television programming with functionality similar to a set-top DVR. Combined with a TV tuner card, WinDVR permits users to manage their television viewing experience by recording programs, movies or sporting events. Users may also utilize sophisticated time shifting features such as live TV pause, simultaneous record and playback, commercial skip, instant replay and multiple-channel preview.

WinProducer

WinProducer enables users to edit and create video clips and digital audio files. WinProducer provides an easy-to-use drag-and-drop interface combined with powerful video editing functions including transition effects, filters, scene change detection, overlays, text titling and music soundtracks. The software includes an integrated video capture capability that allows users to easily transfer external video materials to the PC from various devices including VCRs, camcorders, DV camcorders and webcams. Users can also edit and enhance home movies and transfer them to DVDs or Video CDs. WinProducer also enables the transfer of video data to CD-RW or DVD-recordable devices.

WinRip

Our audio player and encoder software, WinRip, enables PC users to play and record MP3, Windows Media Audio, or WMA, format and WAV audio content and to play WMA and Musical Instrument Digital Interface, or MIDI, clips and audio CDs. WinRip provides the ability to move music from CDs to digital files, to access an online music database to automatically add information, such as artist and track names, to the “ripped” music files and to turn digital music into audio CDs. WinRip also enables users to output files to portable devices.

WinDTV

WinDTV enables PC users to watch high definition television, or HDTV, digital video broadcast, or DVB, or other digital video and audio input. With a digital TV tuner card and our WinDTV software, users can watch digital broadcasts on a PC or on a DTV-ready television set. WinDTV supports all 18 ATSC, or American Television Systems Committee, formats and DVB formats used in Europe and Asia. It also offers data-enhanced digital television for interactive DTV broadcasting on the PC.

InterVideo Technology Platform

Our technology platform incorporates the following principles:

• Modular and layered design for greater expandability and reusability;

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• Generic design and portable implementation for greater platform independence; and

• Utilization of industry standards whenever possible to promote market acceptance of our products.

Our modular and layered design approach enhances product expandability and component reusability. Because we arrange modular components in layered structures, we can more quickly and efficiently add new features to a product by plugging in new components into appropriate layers. For example, we incorporated the Video CD feature into our WinDVD product with the addition of only a few new components. Similarly, we created our WinDVD Recorder product by reusing the WinDVD architecture with integrated TV and DV recording components. Because of component reusability, these products were developed with fewer resources and less time than would have been required to design them using entirely new components. As a result, we have been able to develop new products such as WinDVD Creator, WinDVD Recorder, WinDVR, WinProducer and WinRip more efficiently and with less development time.

Our flexible design approach and portable implementation allow our software to support a significant number of PC platforms and to work with a broad variety of PC configurations. Over 90% of the code that is used to implement our products is platform independent. As a result, we can efficiently port an existing product to a new operating system or hardware platform and cost-effectively support many customers and varied product lines.

Customers

Our customer base consists primarily of PC OEMs and manufacturers of PC peripherals that incorporate our software into their products, including:

Asus Dell Fujitsu Fujitsu Siemens Gateway Hewlett-Packard (including the former Compaq) IBM Medion Sharp Sony Toshiba

Our software is bundled with products sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. For the year ended December 31, 2001, our three largest customers accounted for a majority of our revenue. During that period, Dell accounted for 29%, Fujitsu accounted for 12% and Hewlett-Packard (including the former Compaq), accounted for 14% of our revenue. For the nine months ended September 30, 2002, Hewlett-Packard (including the former Compaq) accounted for 18% of our revenue, Dell accounted for 15% of our revenue and Fujitsu accounted for 10% of our revenue. Our license agreements with customers are typically for a term of one or two years and do not contain any minimum volume commitments.

Consumers may purchase products and product upgrades directly through our Internet commerce sites. Revenue derived from our websites accounted for 8% of our revenue in 2001 and 10% of our revenue for the nine months ended September 30, 2002. We also license our products to distributors that sell our products to consumers through retail distribution channels.

Sales, Marketing and Technical Support

Our sales and marketing strategy focuses on establishing and maintaining license arrangements with PC, peripherals and CE manufacturers. We license our digital multimedia solutions on a non-exclusive worldwide basis to PC, peripherals and consumer electronics manufacturers that sell products incorporating these technologies to end users. Members of our sales force, located in China, Germany, Japan, Taiwan and the United States, work closely with our OEM customers to define and customize products, conduct on-site testing and provide engineering and field application engineering support. We have also established a network of

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independent sales representatives and manufacturing representatives in the United States, Asia and Europe to assist in OEM sales. An increasing percentage of our revenue is derived from our established and growing Web and retail channels. We use our distribution channels through the Internet to increase direct contact with our customers, facilitate electronic sales of our products and sell associated products directly to consumers. As part of our retail channel growth strategy, we have hired a new Vice President of Retail Sales with experience at a leading multimedia software vendor, and intend to continue to increase our retail presence at several of the larger U.S. retailers that sell PC software. We also distribute free trial versions of our software through consumer distribution channels, including media and computer magazines, corporate, educational and training DVD titles and on our Internet commerce site.

We believe the technical assistance that we provide to OEMs represents an important part of our competitive advantage in maintaining strong relationships with these OEMs. We have built a customer assistance infrastructure composed of sales staff, program managers and quality assurance engineers. We have also created an efficient, cost-effective Internet-based system for the delivery of software and software fixes to OEMs. This infrastructure reduces duplication of effort and fosters better communication channels between the OEMs and ourselves. This infrastructure enables us to provide technical assistance to OEMs with a relatively small staff and has been a key factor in our ability to maintain and grow our OEM customer base.

Our on-line technical support group provides direct customer support to users that purchase our products through retail channels or our websites. Our on-line technical support group also trains the technical support groups of our OEM customers so that they can provide more effective telephone and on-line support for their customers.

As of September 30, 2002, we had 57 sales, marketing and technical support personnel residing in our offices in Fremont, California; Taipei, Taiwan; Shenzhen and Hanzhou, China; and Tokyo, Japan.

Research and Development

We have assembled a qualified team of engineers with core competencies in software architecture and development for the Windows, Windows CE and Linux operating systems and digital video and audio encoders and decoders. Our engineers are located in Fremont, California; Taipei, Taiwan; and Shenzhen and Hanzhou, China. We will continue to focus our research and development activities on enhancing our existing products and developing new products to meet the evolving needs of our customers within the PC and the CE markets.

We believe that interaction with our OEM customers throughout the product design process enables us to anticipate technology trends and focus our research and development efforts on addressing these emerging needs. We design products to meet our OEM and CE manufacturing customers’ specifications and current industry standards and will continue to support emerging standards that are complementary to our product strategy. For example, we meet periodically with members of the Intel microprocessor architecture team and they provide details about upcoming products and give us source code libraries of new microprocessor instructions that can help us anticipate future market trends and improve the performance and the capabilities of our multimedia software.

We believe that our competitive position will depend in large part on our ability to develop new and enhanced digital entertainment solutions and our ability to meet the evolving and rapidly changing needs of PC, peripherals and CE manufacturers and consumers. We expect to increase our total research and development expenses in the future to provide resources for enhancement of existing and development of new product lines.

As of September 30, 2002, we employed 98 research and development personnel in three offices. For the nine months ended September 30, 2002, our research and development expenditures totaled $5.6 million. Of the 77 research and development personnel who are engineers, 13 hold PhDs. We intend to recruit, hire and retain highly qualified engineers and technicians to support our further research and development efforts. To improve

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the quality of our developer base and to lower our overall developer costs, we intend to increase the number of developers in Taiwan and mainland China.

Competition

Our industry is intensely competitive, and we expect competition to intensify in the future. Our competitors include software companies that offer digital video or audio applications, companies offering hardware or semiconductor solutions as alternatives to our software products and operating system providers that may develop and integrate applications into their products.

Additional competitors are likely to enter our industry in the future. We also face competition from the internal research and development departments of other software companies and personal computer and CE manufacturers, including some of our current customers. Some of our customers have the capability to integrate their operations vertically by developing their own software-based digital and audio solutions or by acquiring our competitors or the rights to develop competitive products or technologies, which may allow these customers to reduce their purchases or cease purchasing from us completely. Operating system providers with an established customer base, such as Microsoft, already offer products in the digital video and audio software markets. Some video and audio capabilities are built directly into their operating systems or are offered as upgrades to those operating systems at no additional charge. If Microsoft or other operating system providers developed or licensed digital video and audio solutions that compete directly with ours, and incorporate the solutions into their operating systems, our business could be harmed.

We expect our current competitors to introduce improved products at lower prices, and we will need to do the same to remain competitive. We may not be able to compete successfully against either current or future competitors with respect to new or improved products. We believe that competitive pressures may result in price reductions, reduced margins and our loss of market share.

Many of our current competitors and potential competitors have longer operating histories and significantly greater financial, technical, sales and marketing resources or greater name recognition than we do. As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of their products. In addition, our competitors that have large market capitalizations or cash reserves are in a better position to acquire other companies in order to gain new technologies or products that may displace our products. Any of these potential acquisitions could give our competitors a strategic advantage. In addition, some of our current competitors and potential competitors have greater brand name recognition, a more extensive customer base, more developed distribution channels and broader product offerings, than we do. These companies can use their broader customer base and product offerings, or adopt aggressive pricing policies, to gain market share. Increased competition in the market may result in price reductions, decreased customer orders, reduced profit margins and loss of market share, any of which could harm our business.

We believe the primary competitive factors impacting our business are:

• the quality and reputation of products;

• the quality of the program management team;

• relationships with OEMs;

• compatibility with emerging industry standards;

• scope and responsiveness of service and technical support;

• ability to offer cost-effective products that balance performance and cost;

• timeliness and relevance of new product introductions;

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• timeliness and quality of modifications and enhancements to existing products to comply with new and evolving hardware and software;

• technical innovation;

• breadth of product offerings; and

• price structure and business model characteristics.

Although we believe our products compete favorably with respect to each of these factors, the market for our products is rapidly evolving and we may not be able to maintain our competitive position against current and potential competitors, especially those with greater resources.

Intellectual Property

Our success depends upon our ability to protect our proprietary rights. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as license and confidentiality agreements with our employees, customers, strategic partners and others, to establish and protect our proprietary rights. The protection of patentable inventions is important to our competitive position. We currently have one patent issued in Taiwan, and we have 41 pending patent applications in various jurisdictions, including 29 U.S. patent applications and 12 foreign patent applications.

Existing patent, copyright, trademark and trade secret laws and license and confidentiality agreements afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and detecting and preventing the unauthorized use of our products is difficult. Any failure to adequately protect our proprietary rights could result in our competitors offering similar products, potentially resulting in the loss of revenue and some of our competitive advantage. Infringement claims and lawsuits to protect our proprietary rights would likely be expensive to resolve and would require management’s time and resources, and, therefore, could harm our business.

Our digital video and audio solutions comply with industry standard DVD specifications. Some third parties have claimed that various aspects of DVD technology incorporated into our and our customers’ products infringe upon patents held by them, including MPEG LA, a consortium formed to enforce the proprietary rights of certain holders of patents covering certain aspects of MPEG-2 technology and a consortium known as “6C,” formed by a separate group of companies to enforce the proprietary rights of certain holders of patents covering some aspects of DVD technology. In March 2002, we entered into a license agreement with MPEG LA pursuant to which we obtained a license, retroactive to our inception, to MPEG LA’s patents related to the MPEG-2 standard in exchange for a cash payment and our agreement to make ongoing royalty payments. This license requires that we pay a royalty to MPEG LA for our sales to end users and that we notify the OEMs to whom we sell our products that they are obligated to obtain a license from MPEG LA for any use of our products that comply with the MPEG-2 standard. In addition to these claims, we may receive notices of claims of infringement of other parties’ proprietary rights, including Nissim or 3C, another consortium formed to enforce the proprietary rights of certain holders of patents covering some aspects of DVD technology. Many companies aggressively use their patent portfolios to bring infringement claims against competitors and other parties. As a result, we may become a party to litigation in the future as a result of an alleged infringement of the intellectual property rights of others, including 6C, 3C or Nissim. Similarly, other parties have alleged that aspects of MPEG-2 and other multimedia technologies infringe upon patents held by them. We may be required to pay license fees and damages or be prohibited from selling our products in the future if it is determined that our products infringe on patents owned by these third parties. In addition, other companies may form consortia in the future, similar to MPEG LA, 6C and 3C, to enforce their proprietary rights and these consortia may seek to enforce their patent rights against us and our customers. If 6C, 3C, Nissim or another third party proves that our technology infringes its proprietary rights, we may be required to pay substantial damages for past infringement and may be required to pay license fees or royalties on future sales of our products, or we may be prohibited from selling our products. If we are

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required to pay license fees in the amounts that are currently published by, for example, 6C, for past sales to our large PC OEM customers, because such PC OEMs were not themselves licensed, such fees would exceed the revenue we have received from those customers. In addition, if it were proven that we willfully infringed on a third party’s proprietary rights, we may be held liable for three times of amount of damages we would otherwise have to pay. In addition, intellectual property litigation may require us to stop selling our products, obtain a license from the owner of the infringed intellectual property or redesign our products.

Some of our license agreements, including many of the agreements we have entered into with our large PC OEM customers, contain warranties of non-infringement and commitments to indemnify our customers against liability arising from infringement of third-party intellectual property rights. Examples of third-party intellectual property rights include the patents held by Nissim and by members of MPEG LA, 6C and 3C. These commitments may require us to indemnify or pay damages to our customers for all or a portion of any license fees or other damages, including attorneys’ fees, they are required to pay or agree to pay these or other third parties. If we are required to pay damages to our customers or indemnify our customers for damages they incur, our business could be harmed. If our customers are required to pay license fees in the amounts that are currently published by some claimants, and we are required to pay damages to our customers or indemnify our customers for such amounts, such payments would exceed our revenue from these customers. Even if a particular claim falls outside of our indemnity or warranty obligations to our customers, our customers may be entitled to additional contractual remedies against us. Furthermore, even if we are not liable to our customers, our customers may attempt to pass on to us the cost of any license fees or damages owed to third parties, by reducing the amounts they pay for our products. Notwithstanding the fact that we have signed a license agreement with MPEG LA, we may continue to be liable to some of our customers for amounts that those customers pay or have paid to MPEG LA in settlement of any claims of infringement brought by MPEG LA against those customers.

In April 2002, we agreed to a settlement with Dell concerning certain amounts that Dell alleged we owed to it as a result of Dell’s prior settlements with MPEG LA and Nissim of certain infringement claims brought against Dell by these parties. Without admitting any liability to Dell, we issued shares of preferred stock convertible into 286,000 shares of our common stock upon the closing of this offering to Dell in settlement of all past and future claims that Dell might have against us based upon the alleged infringement of certain patents held by MPEG LA and Nissim. We accounted for the issuance of these shares as a charge to our cost of revenue under cost of settlement of intellectual property matters for the year ended December 31, 2001 in an amount equal to the fair market value of the shares, or $3.7 million. In June 2002, we agreed to a cash settlement with Gateway concerning certain amounts that Gateway alleged that we owed to it as a result of Gateway’s prior settlements with MPEG-LA and Nissim of certain infringement claims brought against Gateway by these parties. Without admitting any liability to Gateway, we settled all past and future claims that Gateway might have against us based on the alleged infringement of certain patents held by MPEG-LA and Nissim. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors—Risks Related to Our Business—We have received notice of claims, and may receive additional notices of claims in the future, regarding the alleged infringement of third parties’ intellectual properly rights that may result in restrictions or prohibitions on the sale of our products and cause us to pay license fees and damages.”

We license technology from Dolby Laboratories for use in our DVD-related products. We pay a royalty to Dolby on a lump-sum and per-unit shipped basis. The technology is comprised of Dolby Pro Logic, Dolby Digital, Dolby Virtual Surround, MLP Lossless, Dolby Digital Audio System, Dolby Headphone System and other related technologies which create “theater quality” sound by routing audio signals from a DVD to different speakers in a multi-speaker setup. The Dolby Digital technology is part of the industry standard DVD specification.

We license encryption software technology from the DVD Copy Control Association, Inc. This technology is designed to provide protection for content encoded onto DVD discs. We pay DVD Copy Control Association, Inc. an annual license fee for this technology.

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If any of the licenses for the technologies and software described above terminate and are not renewed on commercially reasonable terms, our business could be harmed, and we could be prevented from shipping products using the MPEG-2 standards.

Employees

As of September 30, 2002, we employed 192 people, of whom 81 worked in the United States and 111 worked in our various international locations. Of the U.S. employees, 28 were in sales and marketing, 34 were in research and development and 19 were in general and administration. Of the international employees, 29 were in sales and marketing, 64 were in research and development and 18 were in general and administration.

Facilities

We currently lease the following properties:

Location	Primary Use	Square Footage	Date Lease Expires
Fremont, California	Corporate/Research and Development/Sales	19,395	October 30, 2003
Torrance, California	Research and Development/Sales and Marketing	5,567	September 1, 2003
Tokyo, Japan	Sales and Marketing	2,428	September 30, 2003
Shenzhen, China	Research and Development/Sales and Marketing	6,058	May 31, 2003
Hanzhou, China	Research and Development	3,066	March 25, 2003
Taipei, Taiwan	Research and Development/Sales and Marketing	4,625	June 14, 2003

We believe that our existing space is adequate for our current operations. We believe that suitable replacement and additional space will be available in the future on commercially reasonable terms.

Legal Proceedings

We are not a party to any material legal proceedings.

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MANAGEMENT

Executive Officers and Directors

Set forth below is information concerning our directors and executive officers as of September 30, 2002.

Name	Age	Position(s)
Steve Ro	45	President, Chief Executive Officer and Director
Randall Bambrough	47	Chief Financial Officer
Honda Shing	41	Chief Technology Officer
Chinn Chin	42	Vice President of Engineering
Raul Diaz	40	Vice President of Sales
Mike Ling	46	Vice President of Marketing
George Haber(2)	49	Director
Joseph Liu(1)(2)	51	Director
Henry Shaw(1)(2)	48	Director

(1) Member of our compensation committee.

(2) Member of our audit committee.

Steve (Sencuo) Ro has served on our board of directors since July 1998 and has served as our President and Chief Executive Officer since April 1999. From April 1998 to November 2000, Mr. Ro served as Chairman and Chief Executive Officer of Rosun Technologies, Inc., a manufacturer of ADSL chipsets, and served as a director of Rosun Technologies until March 2001. Rosun Technologies filed for bankruptcy in November 2001. Mr. Ro was the co-founder of LuxSonor Semiconductors (which was acquired by Cirrus Logic, Inc.), a company that designs VCD and DVD semiconductors for the PC and consumer markets. Mr. Ro served as Vice President of Marketing and Sales at LuxSonor from August 1995 to April 1998. Prior to LuxSonor, Mr. Ro served as the Director of Sales and Marketing at NexGen Microsystems, Inc. (which went public in 1995 and was later acquired by Advanced Micro Devices, Inc.), a manufacturer of CPU chipsets, from January 1988 to August 1995. Mr. Ro earned an MBA from National University in San Jose, California and an MS in computer science from California State University at Chico.

Randall Bambrough joined us in March 2001 as Chief Financial Officer. Prior to joining us, Mr. Bambrough was Vice President of Finance at Optibase Ltd., a provider of digital media transmission devices, from December 2000 to March 2001. Prior to that, Mr. Bambrough was Chief Financial Officer of View Graphics, Incorporated (which was acquired by Optibase) from June 2000 to December 2000. From January 1999 to June 2000, Mr. Bambrough was Chief Financial Officer at Decide.com, a company that sold consumer telecommunications products. Mr. Bambrough served as Chief Financial Officer and Secretary from August 1995 to January 1999 and in various senior financial management roles from June 1992 to July 1995 at Castelle, a manufacturer of specialized network devices. Mr. Bambrough earned a BS in business management from Brigham Young University, another BS in accounting from Weber State University and an MBA from Utah State University.

Honda Shing joined us in July 1998 as our Chief Technology Officer. From December 1995 to April 1998, Dr. Shing worked as an independent consultant developing tools for the rapid development of application software systems. From May 1992 to November 1995, Dr. Shing served as Senior Software Engineer at Unisys Corporation, a company that develops and markets computer hardware, software and services. Dr. Shing earned a PhD in computer science from Michigan State University.

Chinn Chin has served as our Vice President of Engineering since July 1998. Mr. Chin was the Director of Software Engineering for LuxSonor Semiconductors from July 1996 to July 1998, where he was in charge of firmware, chip verification and driver and application development. Mr. Chin earned a BS in computer engineering from National Chiao Tung University and an MS in computer science from California State University at Chico.

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Raul Diaz has served as our Vice President of Sales since March 2002. He served as our Vice President of Marketing from June 2001 to March 2002 and Vice President of Business Development from September 1999 to June 2001. Mr. Diaz was the Senior Director of the Advanced Technology Lab Group, responsible for research and development relating to multimedia products, at STMicroelectronics, a semiconductor company, from July 1998 to September 1999. From June 1996 to June 1998, Mr. Diaz was the Director of Marketing at LuxSonor Semiconductors. From October 1988 to June 1996, Mr. Diaz served in many capacities at STMicroelectronics, most recently as the Director of Strategic Programs, where he was responsible for research and development relating to DVD products. Mr. Diaz earned a BS in electrical engineering from Yale University.

Mike Ling has served as our Vice President of Marketing since March 2002. Prior to joining us, Mr. Ling served as General Manager and Vice President of Business Development at Cyberlink Corporation, a software company, from January 1999 to March 2002. From October 1997 to January 1999, Mr. Ling served as Regional Director of Marketing for Asia Pacific at Intel Corporation. Mr. Ling earned a BS in computer science from National Chiao Tung University and an MS in computer science from California Polytech State University.

George Haber has served on our board of directors since June 2001. Mr. Haber is the chairman of Mobilygen, a company that specializes in digital hardware and software development for the wireless communications and digital TV markets. In August 1997, Mr. Haber founded GigaPixel, a provider of 3-D graphics technology, and served as its President and Chief Executive Officer from August 1997 to September 2000. GigaPixel was subsequently acquired by 3Dfx. In 1993, Mr. Haber co-founded CompCore Multimedia, a provider of technology for multimedia compression, and served as its President and Chief Executive Officer from 1993 to 1996. CompCore Multimedia was subsequently merged with Zoran Corporation. From 1992 to 1993, he managed the SGI-Toshiba project which culminated in the 3-D engine for SGI’s INDY-2 professional workstation. From 1989 to 1992, Mr. Haber was with Sun Microsystems as a project manager responsible for the design and integration of the floating-point unit in the UltraSPARC chip. Mr. Haber serves on the board of directors of Mobilygen. Mr. Haber received a BSEE from Technion Israel Institute of Technology.

Joseph Liu has served on our board of directors since June 2001. Mr. Liu is one of the founders of Oplink Communications, Inc., a company that manufactures fiber optic networking components and integrated optical modules, and served as its Chief Executive Officer from September 1999 to November 2001. Mr. Liu also served as Chairman of the Board of Oplink Communications from 1995 to May 2000 and from November 2001 to the present. From 1994 to August 1999, Mr. Liu was the General Partner of Techlink Technology Ventures. Prior to 1994, Mr. Liu spent ten years as Chairman and Chief Executive Officer of Techlink Semiconductor and Equipment Corp., a semiconductor equipment and technology company. In addition to serving on the boards of directors of Oplink Communications and Syscan, Inc., Mr. Liu also serves as a director for several privately-held companies involved in semiconductor integrated circuit design and manufacturing. Mr. Liu received a BS from Chinese Cultural University in Taiwan and an MS from California State University, Chico.

Henry Shaw has served on our board of directors since September 2000. Since August 1996, Mr. Shaw has served as the Executive Managing Director of AsiaVest Partners, TCW/YFY (Taiwan), Ltd., which specializes in venture capital investment, where Mr. Shaw is responsible for assessing potential investments. Mr. Shaw was Vice President of Tanspac Capital Pte. Ltd., which specializes in regional equity investment, from 1993 to 1996 and the Chief Financial Officer of Mosel-Vitelic, Inc., a publicly-listed semiconductor memory company in Taiwan, from 1984 to 1993. Mr. Shaw serves on the board of directors of a number of companies in Taiwan, including Amtran Technology Co., Ltd, ABIT Computer Corporation, Taiwan Memory Technology Inc., and Prolink Microsystems Corporation. Mr. Shaw received an MBA from National Cheng-Chi University in Taiwan in 1978.

Board Composition

Our board of directors is composed of four members, including three directors who are not employees and who are otherwise independent. Following this offering, the directors will be divided into three classes, each

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serving staggered three year terms. Mr. Haber has been designated a Class I director whose term expires at the 2004 annual meeting of stockholders. Mr. Shaw has been designated a Class II director whose term expires at the 2005 annual meeting of stockholders. Messrs. Liu and Ro have been designated Class III directors whose terms expire at the 2006 annual meeting of stockholders. This classification of our board of directors may delay or prevent a change in control of our company or a change in our management.

Board Committees

• Audit Committee—The audit committee of our board of directors is composed of Messrs. Haber, Liu and Shaw. The audit committee oversees and monitors our management and independent auditors and their activities with respect to our financial management and financial reporting process and reports to and advises our board of directors on financial matters.

• Compensation Committee—The compensation committee of our board of directors is composed of Messrs. Liu and Shaw. The compensation committee is responsible for designing, reviewing and recommending compensation arrangements for our directors, executive officers and employees, for administering various incentive compensation and benefit plans. Prior to the formation of a compensation committee, compensation decisions were be made by our entire board of directors.

Our board of directors may establish other committees to facilitate the management of our business.

Compensation Committee Interlocks and Insider Participation

We did not have a compensation committee or other board committee performing equivalent functions in fiscal year 2002. Compensation for our executive officers was determined by the entire board of directors. All members of our board of directors, including Mr. Ro, who served as an executive officer in fiscal year 2002, participated in deliberations concerning executive officer compensation during fiscal year 2002. No interlocking relationship exists in connection with this offering, or has existed in the past, between our board of directors and the board of directors or compensation committee of any other company.

Director Compensation

We do not currently compensate our directors in cash for their service as members of our board of directors. Employee and non-employee directors are eligible to receive option grants under our 2003 Stock Plan as determined by our board of directors.

Our 2003 Stock Plan will also provide for the automatic grant of options to our non-employee directors. After the completion of this offering, each new non-employee director will receive an initial option to purchase 16,500 shares upon appointment to the board, except for those directors who become non-employee directors by ceasing to be employee directors. In addition, beginning in 2004, non-employee directors who have been directors for at least six months will receive a subsequent option to purchase 4,400 shares following each annual meeting of our stockholders. All options granted under the automatic grant provisions will have a term of ten years and an exercise price equal to fair market value on the date of grant. Each initial option becomes exercisable as to 5,500 of the shares subject to the option on the first anniversary of the date of grant and becomes exercisable as to 458 of the shares each full month thereafter, provided the non-employee director remains a service provider on such dates. Each subsequent option becomes exercisable as to 100% of the shares subject to the option on the first anniversary of the date of grant, provided the non-employee director remains a service provider on such date.

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Executive Compensation

Summary of cash and other compensation

The following summary compensation table indicates the cash and non-cash compensation earned during the fiscal years ended December 31, 2002 and 2001 by our Chief Executive Officer and the four other most highly compensated executive officers whose total compensation exceeded $100,000 on an annualized basis during the fiscal year ended December 31, 2002. These individuals are referred to as the “named executive officers.”

Summary Compensation Table

						Long-term compensation	All other compensation(1)
						Awards
		Annual compensation				Securities underlying options
Name and Principal Position	Year	Salary		Bonus
Steve Ro President and Chief Executive Officer	2002 2001	$	150,000 150,000	$	— —	66,000 —	$	3,289 3,714
Randall Bambrough Chief Financial Officer	2002 2001		180,000 139,846		27,968 —	22,000 132,000		7,809 1,866
Honda Shing Chief Technology Officer	2002 2001		150,000 150,000		— 3,000	22,000 —		1,442 290
Raul Diaz Vice President of Sales	2002 2001		140,000 140,000		35,000 20,000	22,000 —		1,449 357
Chinn Chin Vice President of Engineering	2002 2001		150,000 150,000		— —	22,000 —		2,945 2,905

(1) Represents life insurance premiums paid by us for policies under which we are not the beneficiary, health club memberships and company-sponsored vacation.

Option grants in last fiscal year

The following table sets forth information regarding options granted to our named executive officers during the fiscal year ended December 31, 2002. We have never granted any stock appreciation rights. All options were granted pursuant to the 1998 Stock Option Plan.            

	Individual grants						Potential realizable value at assumed annual rates of stock price appreciation for option term(4)
	Number of shares of common stock underlying options	Percent of total options granted to employees in fiscal		Exercise price		Expiration
Name	granted(1)	year(2)		per share(3)		date	5%	10%
Steve Ro	66,000	14.3	%	$	7.50	1/10/07
Randall Bambrough	22,000	4.8			6.82	1/10/12
Honda Shing	22,000	4.8			7.50	1/10/07
Raul Diaz	22,000	4.8			6.82	1/10/12
Chinn Chin	22,000	4.8			6.82	1/10/12

(1) These options vest as to 25% of the shares 12 months after the vesting commencement date and as to 1/48 of the shares at the end of each successive month of employment.

(2) The percentage of total options granted is based on an aggregate of 461,020 granted by us during the fiscal year ended December 31, 2002 to our employees.

(3) Options were granted with an exercise price per share equal to the fair market value of our common stock on the date of grant, as determined by our board of directors.

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(4) The potential realizable values are net of exercise price, but before the payment of taxes associated with exercise. Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. These amounts represent assumed rates of appreciation in the value of our common stock from the date of grant based on the assumed initial public offering price of $          per share. Actual gains, if any, on stock option exercises are dependent on the future performance of our common stock and overall stock market conditions and the option holders continued service through the vesting period.

Aggregate option exercises during fiscal year 2002 and values at December 31, 2002

The following table sets forth the number of options exercised during the fiscal year ended December 31, 2002 and the value of unexercised options held by our named executive officers on December 31, 2002.

Name	Shares acquired on exercise	Value realized(1)		Number of shares of common stock underlying unexercised options at December 31, 2002		Value of unexercised in-the-money options at December 31, 2002(2)
				Exercisable	Unexercisable	Exercisable	Unexercisable
Steve Ro	—	$	—	176,000	66,000	$	$
Randall Bambrough	—		—	—	22,000
Honda Shing	—		—	44,000	22,000
Raul Diaz	—		—	89,100	38,500
Chinn Chin	22,000		147,620	748,000	22,000

(1) The value realized reflects the fair market value of our common stock underlying the option on the date of exercise, as determined by our board of directors, minus the exercise price of the option.

(2) The value of unexercised in-the-money options is based on the assumed initial public offering price of $         per share.

1998 Stock Option Plan

Our 1998 Stock Option Plan was adopted by our board of directors and approved by our stockholders in June 1998. Our 1998 Stock Option Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to our employees, and for the grant of nonstatutory stock options to our employees, directors and consultants. As of September 30, 2002, options to purchase 2,553,437 shares of common stock were outstanding and 646,649 shares were available for future grant under the plan. We will not grant any additional options under our 1998 Stock Option Plan following this offering. Instead we will grant options under our 2003 Stock Plan. The 1998 Stock Option Plan provides that in the event of a merger, consolidation or reorganization in which our company is not the surviving corporation, the successor corporation may assume all outstanding options or, after giving 30 days notice to the optionees, the options will terminate. Following a dissolution, liquidation or the sale of substantially all of the assets of our company, outstanding options will terminate upon an optionee’s termination of employment with us.

2003 Stock Plan

In connection with this offering, we have adopted the 2003 Stock Plan. The 2003 Stock Plan was adopted by our board in January 2002 and our stockholders in April 2002. The 2003 Stock Plan was amended by our board in January 2003. The 2003 Stock Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to our employees, and for the grant of nonstatutory stock options, stock purchase rights, stock appreciation rights, restricted stock, performance units and performance shares to our employees, directors and consultants.

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Number of Shares of Common Stock Available under the 2003 Stock Plan.    We have reserved a total of 176,000 shares of our common stock for issuance pursuant to the 2003 Stock Plan plus (a) any shares which have been reserved but not issued under our 1998 Stock Option Plan as of the effective date of this offering and (b) any shares returned to our 1998 Stock Option Plan on or after the effective date of this offering as a result of termination of options or the repurchase of unvested shares issued under the 1998 Stock Option Plan. In addition, our 2003 Stock Plan provides for annual increases in the number of shares available for issuance under our 2003 Stock Plan on the first day of each fiscal year, beginning with our fiscal year 2004, equal to the lesser of (i) 5% of the outstanding shares of our common stock on the first day of the applicable fiscal year, (ii) 880,000 shares or (iii) another amount as our board may determine.

Administration of the 2003 Stock Plan.    Our board of directors or, with respect to different groups of optionees, different committees appointed by our board, will administer the 2003 Stock Plan. In the case of options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, the committee will consist of two or more “outside directors” within the meaning of Section 162(m). The administrator has the power to determine the terms of the awards granted, including the exercise price (which may be changed by the administrator after the date of grant), the number of shares subject to each award, the exercisability of the awards and the form of consideration payable upon exercise. The administrator has the authority to institute an exchange program by which outstanding awards may be surrendered in exchange for awards with a lower exercise price.

Options.    The administrator determines the exercise price of options granted under the 2003 Stock Plan, but with respect to nonstatutory stock options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) and all incentive stock options, the exercise price must be at least equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding capital stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator determines the term of all other options. The terms of 2003 Stock Plan allow the administrator to grant options at exercise prices that are below, equal to or above market.

No optionee may be granted an option to purchase more than 880,000 shares in any fiscal year. However, in connection with his or her initial service as an employee, an optionee may be granted an additional option to purchase up to 440,000 shares.

After termination of one of our employees, directors or consultants, he or she may exercise his or her option for the period of time stated in the option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for three months. However, an option may never be exercised later than the expiration of its term.

Stock Purchase Rights.    Stock purchase rights, which represent the right to purchase our common stock, may be issued under our 2003 Stock Plan. The administrator determines the purchase price of stock purchase rights granted under our 2003 Stock Plan. Unless the administrator determines otherwise, a restricted stock purchase agreement, an agreement between us and an optionee which governs the terms of stock purchase rights, will grant us a repurchase option that we may exercise upon the voluntary or involuntary termination of the purchaser’s service with us for any reason, including death or disability. The purchase price for shares we repurchase will generally be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to us. The administrator determines the rate at which our repurchase option will lapse. The terms of our 2003 Stock Plan allow the administrator to issue stock purchase rights at purchase prices which are below, equal to or above market.

Stock Appreciation Rights.    Stock appreciation rights may be granted under our 2003 Stock Plan. A stock appreciation right is the right to receive the appreciation in the fair market value of our common stock between

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the exercise date and the date of grant. We can pay the appreciation in either cash or in shares of our common stock. Stock appreciation rights are subject to the terms established by the administrator and become exercisable at the times and on the terms established by the administrator.

Restricted Stock.    Restricted stock may be granted under our 2003 Stock Plan. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The number of shares of restricted stock granted to any employee will be determined by the administrator. The administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Performance Units; Performance Shares.    Performance units and performance shares may be granted under our 2003 Stock Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an initial value established by the administrator on the grant date.

Automatic Option Grants to Outside Directors.    Our 2003 Stock Plan also provides for the automatic grant of options to our non-employee directors. Each non-employee director appointed to the board after the completion of this offering will receive an initial option to purchase 16,500 shares upon such appointment except for those directors who become non-employee directors by ceasing to be employee directors. In addition, beginning in 2004, non-employee directors who have been directors for at least six months will receive a subsequent option to purchase 4,400 shares following each annual meeting of our stockholders.

All options granted under the automatic grant provisions have a term of ten years and an exercise price equal to fair market value on the date of grant. Each initial option becomes exercisable as to 5,500 of the shares subject to the option on the first anniversary of the date of grant and becomes exercisable as to 458 of the shares each full month thereafter, provided the non-employee director remains a service provider on such dates. Each subsequent option becomes exercisable as to 100% of the shares subject to the option on the anniversary of the date of grant, provided the non-employee director remains a service provider on such date.

Transferability of Awards.    Our 2003 Stock Plan generally does not allow for the transfer of awards and only the participant may exercise an award during his or her lifetime.

Adjustments upon Change in Control.    Our 2003 Stock Plan provides that in the event of a change of control, the successor corporation will assume or substitute each option or stock purchase right. If the outstanding options or stock purchase rights are not assumed or substituted, the administrator will provide notice to the optionee that he or she has the right to exercise the option or stock purchase right as to all of the shares subject to the option or stock purchase right, including shares which would not otherwise be exercisable, for a period of 15 days from the date of the notice. The option or stock purchase right will terminate upon the expiration of the 15-day period. In the event an outside director is terminated following a change in control, other than pursuant to a voluntary resignation, his or her options will fully vest and become immediately exercisable.

Amendment and Termination of our 2003 Stock Plan.    Our 2003 Stock Plan will automatically terminate in 2012, unless we terminate it sooner. In addition, the administrator has the authority to amend, suspend or terminate the 2003 Stock Plan provided such amendment does not impair the rights of any participant.

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2003 Employee Stock Purchase Plan

Concurrently with this offering, we intend to establish an Employee Stock Purchase Plan. The 2003 Employee Stock Purchase Plan was adopted by our board in January 2002 and our stockholders in April 2002. The 2003 Employee Stock Purchase Plan was amended by our board in January 2003.

Number of Shares of Common Stock Available under the Plan.    A total of 176,000 shares of our common stock will be made available for sale under the 2003 Employee Stock Purchase Plan. In addition, the plan provides for annual increases in the number of shares available for issuance under the plan on the first day of each fiscal year, beginning with our fiscal year 2004, equal to the lesser of (i) 1 ¹/2% of the outstanding shares of our common stock on the first day of the applicable fiscal year, (ii) 176,000 shares or (iii) another amount as our board may determine.

Administration of the Plan.    Our board of directors or a committee established by our board will administer the 2003 Employee Stock Purchase Plan. Our board of directors or its committee has full and exclusive authority to interpret the terms of the plan and determine eligibility.

Eligibility to Participate.    Our employees and employees of designated subsidiaries are eligible to participate in the 2003 Employee Stock Purchase Plan if they are customarily employed for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted an option to purchase stock under the 2003 Employee Stock Purchase Plan if:

• the employee immediately after grant owns stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock, or

• if the employee’s rights to purchase stock under all of our employee stock purchase plans accrues at a rate that exceeds $25,000 worth of stock for each calendar year.

Offering Periods and Contributions.    Our 2003 Employee Stock Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code and contains consecutive, overlapping 24-month offering periods. Each offering period includes four six-month purchase periods. The offering periods generally start on the first trading day on or after May 1 and November 1 of each year, except for the first such offering period which will commence on the first trading day on or after the effective date of this offering and will most likely end on the last trading day on or before May 1, 2005 and the second offering period which will commence on November 1, 2003. All eligible employees will be automatically enrolled in the first offering period, but payroll deductions and continued participation in the first offering period will not be determined until after the effective date of the Form S-8 registration statement which is intended to register the shares reserved for issuance under the plan.

The plan permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation which includes a participant’s base salary, bonuses and commissions, but excludes all other compensation. A participant may purchase a maximum of 4,400 shares during a six-month purchase period.

Purchase of Shares.    Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month purchase period. The price is 85% of the lower of the fair market value of our common stock at the beginning of an offering period or at the end of a purchase period. If the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, participants will be withdrawn from the current offering period following their purchase of shares on the purchase date and will be automatically re-enrolled in a new offering period. Participants may end their participation at any time during an offering period, and will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with us.

Transferability of Rights.    A participant may not transfer rights granted under the 2003 Employee Stock Purchase Plan other than by will, the laws of descent and distribution or as otherwise provided under the plan.

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Adjustments upon Change in Control.    In the event of a change of control, a successor corporation may assume or substitute each outstanding option. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened, and a new exercise date will be set. In such event, the administrator will provide notice of the new exercise date to each optionee at least ten business days before the new exercise date.

Amendment and Termination of the Plan.    The administrator has the authority to amend or terminate our plan, except that, subject to certain exceptions described in the 2003 Employee Stock Purchase Plan, no such action may adversely affect any outstanding rights to purchase stock under the plan.

Employment and Change of Control Arrangements

We entered into an agreement with Dr. Honda Shing that provides for full acceleration of all unvested shares of restricted common stock held by Dr. Shing in the event of a change of control. A change of control means the merger or consolidation of our company, or the sale of all or substantially all of our assets or stock, where less than 51% of the capital stock of the successor corporation is owned by persons who are holders of shares of our capital stock immediately before such merger, consolidation or sale.

Under an agreement with Randall Bambrough, if Mr. Bambrough’s employment is terminated without cause, or Mr. Bambrough leaves his employment for good reason, we are required to pay his base salary and benefits for a period of 12 months. In addition, if such termination occurs prior to a change of control, the vesting of Mr. Bambrough’s stock options will accelerate as to 50% of the unvested shares. If such termination occurs within twelve months after a change of control, all remaining unvested stock options will immediately vest. Change of control means a sale of substantially all our assets, a merger or consolidation in which we are not the surviving corporation or any transaction involving the transfer of greater than 50% of our voting power.

We have entered into change of control agreements with Steve Ro, Chinn Chin and Raul Diaz to provide for full acceleration of all unvested options in the event the employee is involuntarily terminated without cause within one month prior to or 13 months following a change of control. A change of control means a plan of complete liquidation, a sale of all or substantially all of our assets or a merger or consolidation involving the transfer of more than 50% of the total voting power represented by our then outstanding voting securities.

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RELATED PARTY TRANSACTIONS

Other than compensation agreements and other arrangements, which are described as required in “Management,” and the transactions described below, since January 1, 2000, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party; in which the amount involved exceeded or will exceed $60,000; and in which any director, executive officer, holder of 5% or more of any class of our voting stock or any member of their immediate family had or will have a direct or indirect material interest.

Investors Rights Agreement

We have entered into an agreement with the holders of our preferred stock, including entities with which certain of our directors are affiliated, that provides the holders of the preferred stock certain rights relating to the registration of their shares of common stock issuable upon conversion of the preferred stock. These rights will survive this offering and will terminate at such time as all holders’ securities can be sold within a six month period without compliance with the registration requirements of the Securities Act pursuant to Rule 144, but in any event no later than July 2, 2007.

Indemnification Agreements

We expect to enter into an indemnification agreement with each of our directors and officers prior to completing this offering. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.

Recent Option Grants

Since January 1, 2000, we have granted stock options to the following executive officers and directors:

Name	Date of grant	Shares underlying options	Exercise price	Term of option
Raul Diaz	1/10/00	88,000	0.57	10 years
Henry Shaw	7/1/00	17,600	4.55	10 years
Steve Ro	10/1/00	88,000	5.00	5 years
Randall Bambrough	3/21/01	132,000	4.55	10 years
George Haber	6/15/01	22,000	4.55	10 years
Joseph Liu	6/15/01	22,000	4.55	10 years
Henry Shaw	6/15/01	4,400	4.55	10 years
Chinn Chin	1/10/02	22,000	6.82	10 years
Raul Diaz	1/10/02	22,000	6.82	10 years
Steve Ro	1/10/02	66,000	7.50	5 years
Randall Bambrough	1/10/02	22,000	6.82	10 years
Honda Shing	1/10/02	22,000	7.50	5 years
Mike Ling	3/5/02	19,360	9.09	10 years
Mike Ling	11/8/02	10,000	11.93	10 years

Options for employees generally vest over four years. Options for directors generally vest immediately as to 50% of the shares with the remainder vesting over four years.

Private Placement Financings

In April 2000, a trust for the benefit of Eli Sternheim, a former director, purchased shares of our Series D Preferred Stock convertible into 71,000 shares of common stock at an effective price of $9.09 per share in connection with our Series D financing. These prices were the same as those paid by unaffiliated investors.

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Indebtedness of Management

In March 2001, in connection with the purchase by Randall Bambrough, our Chief Financial Officer, of 132,000 shares of our common stock, we loaned Mr. Bambrough $600,000 at an interest rate of 5.07%. This note is secured by the shares purchased and is full recourse. Principal and interest on the note become due and payable on the earlier of March 22, 2006 or the first anniversary of the termination of his employment.

In December 2001, in connection with the purchase by each of George Haber and Joe Liu, two of our directors, of 22,000 shares of our common stock, we loaned each of Mr. Haber and Mr. Liu $100,000 at an interest rate of 5.07%. These notes are secured by the shares purchased and are full recourse. Principal and interest on the notes become due and payable on December 11, 2006 or the first anniversary of the termination of their service.

Miscellaneous

During 2001, we provided services to Fundwatch Global Financial Ltd. for approximately $51,000. In addition, during 2001 we sold equipment to Fundwatch Global Financial for approximately $80,000. The Chief Executive Officer of Fundwatch Global Financial Ltd. is the brother of Steve Ro, our Chief Executive Officer.

It is our current policy that all transactions between us and our officers, directors, 5% stockholders and their affiliates will be entered into only if these transactions are approved by a majority of the disinterested directors, are on terms no less favorable to us than could be obtained from unaffiliated parties and are reasonably expected to benefit us.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial ownership of our common stock as of September 30, 2002, as adjusted to reflect the sale of                  additional shares of our common stock in this offering and the automatic conversion of all shares of our preferred stock to shares of our common stock prior to the completion of this offering, for each of the following persons:

• all named executive officers;

• all directors; and

• each person who is known by us to own beneficially five percent or more of our common stock assuming conversion of our preferred stock prior to this offering.

Unless otherwise indicated, the address of each beneficial owner listed below is InterVideo, Inc., 47350 Fremont Boulevard, Fremont, CA 94538.

Name of Beneficial Owner	Number of shares beneficially owned	Percentage of shares beneficially owned(1)
		Before offering		After offering
Executive Officers and Directors
Steve Ro(2)	528,000	6.6	%	%
Randall Bambrough(3)	132,000	1.7
Honda Shing(4)	924,000	11.8
Chinn Chin(5)	836,000	9.8
Raul Diaz(6)	87,266	1.1
Henry Shaw(7)	28,645	*
George Haber(8)	22,000	*
Joe Liu(9)	22,000	*
All directors and executive officers as a group (9 persons)(10)	2,609,244	29.4
Other 5% Stockholders
Spot Master Investment Limited(11) 6F, #16 Mucha St. Alley 9, Section 4 Mucha Wenshan District Taipei, Taiwan ROC	1,694,000	21.7

  (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or become exercisable within 60 days of September 30, 2002 are considered to be beneficially owned by such person. Those shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Each stockholder’s percentage ownership in the following table is based upon 7,798,815 shares of common stock outstanding as of September 30, 2002 and                 shares of common stock outstanding immediately after the offering, in each case assuming conversion of all outstanding shares of preferred stock into common stock. Unless otherwise indicated in the table, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name. The (*) indicates less than one percent ownership. 

  (2) Includes 176,000 shares of our common stock issuable under options exercisable within 60 days of September 30, 2002.

  (3) Includes 82,500 shares of our common stock subject to our right of repurchase as of September 30, 2002.

  (4) Includes 44,000 shares of our common stock issuable under options exercisable within 60 days of September 30, 2002.

  (5) Includes 748,000 shares of our common stock issuable under options exercisable within 60 days of September 30, 2002.

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  (6) Represents 87,266 shares of our common stock issuable under options exercisable within 60 days of September 30, 2002.

  (7) Includes 4,537 shares of our common stock issuable under options exercisable within 60 days of September 30, 2002.

  (8) Includes 7,563 shares of our common stock subject to our right of repurchase as of September 30, 2002.

  (9) Includes 7,563 shares of our common stock subject to our right of repurchase as of September 30, 2002.

(10) Includes 1,067,136 shares of our common stock issuable under options exercisable within 60 days of September 30, 2002 and 97,626 shares subject to our right of repurchase as of September 30, 2002.

(11) Li-Chun Lo, Steve Ro’s brother, has the sole voting and dispositive powers over the shares held of record by Spot Master Investment Limited.

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DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, our authorized capital stock will consist of 150,000,000 shares of common stock, $0.001 par value and 5,000,000 shares of preferred stock, $0.001 par value. Prior to this offering, there were 7,798,815 shares of our common stock outstanding, as adjusted to reflect the conversion of all outstanding shares of our preferred stock into common stock on the closing of this offering, that were held of record by approximately 196 stockholders, and options to purchase 2,579,837 shares of common stock were outstanding. We will have a total of                  shares of common stock outstanding following this offering.

The following description assumes the filing of an amended and restated certificate of incorporation and the conversion of all our preferred stock into common stock upon the closing of this offering. This description is only a summary. You should also refer to our certificate of incorporation and bylaws, both of which have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part.

Common Stock

Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefor at the times and in the amounts as our board of directors may from time to time determine. All dividends are non-cumulative. In the event of the liquidation, dissolution or winding up of our company, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the prior distribution rights of preferred stock, if any, then outstanding. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. Our board of directors is divided into three classes, with each director serving a three-year term and one class being elected at each year’s annual meeting of stockholders. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. There are no sinking fund provisions applicable to our common stock. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

Pursuant to our certificate of incorporation, our board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights as well as the qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Our board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of our common stock, and may adversely affect the voting and other rights of the holders of common stock. At present, we have no plans to issue any preferred stock following this offering.

Registration Rights

Holders of 5,649,050 shares of our common stock are entitled to certain rights with respect to the registration of their shares under the Securities Act. Specifically, at any time that we plan to register our securities, these holders have a right to require that we include their securities in the registration at our expense, subject to specified limitations. Furthermore, under the terms of the agreement between us and these stockholders, to the extent that we are qualified under applicable SEC rules to register our shares for public resale on Form S-3 or a similar short form registration, if holders of at least 2% of our common stock request that their

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securities be registered, and provided that that the value of the securities requested to be registered is at least $500,000, we have agreed to use our best efforts to register such securities on Form S-3, subject to specified limitations. All fees, costs and expenses of the registrations mentioned above will be borne by us and all selling expenses, including underwriting discounts, selling commissions and stock transfer taxes, will be borne by the holders of the securities being registered. These registration rights terminate at such time as all such holders’ securities can be sold within a six-month period without compliance with the registration requirements of the Securities Act pursuant to Rule 144 or on July 2, 2007.

Delaware Anti-takeover Law and Charter and Bylaw Provisions

Delaware Statute.    We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, this 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 that the person became an interested stockholder unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation’s voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of us without further action by our stockholders.

Charter Provisions.    Our amended and restated certificate of incorporation and bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control of our company, including changes a stockholder might consider favorable. These could have the effect of decreasing the market price of our common stock. In particular, our amended and restated certificate of incorporation and bylaws, as applicable, among other things, will:

• divide our board of directors into three separate classes serving staggered three-year terms;

• provide that special meetings of stockholders can only be called by our board of directors, chairman of the board, chief executive officer or president (in the absence of a chief executive officer). In addition, the business permitted to be conducted at any special meeting of stockholders is limited to the business specified in the notice of such meeting to the stockholders;

• provide for an advance notice procedure with regard to business to be brought before a meeting of stockholders;

• eliminate the right of stockholders to act by written consent;

• provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum; and

• allow our board of directors to issue shares of preferred stock with rights senior to those of the common stock and that otherwise could adversely affect the rights and powers, including voting rights, of the holders of common stock, without any further vote or action by the stockholders.

These provisions may have the effect of discouraging a third party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

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Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.

Nasdaq National Market Quotation

Our common stock has been approved for quotation on the Nasdaq National Market under the symbol “IVII,” subject to official notice of issuance.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices.

Upon completion of this offering, we will have outstanding                    shares of our common stock. Of these shares, the                    shares sold in the offering (plus any shares issued upon exercise of the underwriters’ over-allotment option) will be freely tradable without restriction under the Securities Act, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act (generally, our officers, directors and 10% stockholders). Shares purchased by affiliates may generally only be sold pursuant to an effective registration statement under the Securities Act or in compliance with limitations of Rule 144 as described below.

The remaining 7,798,815 shares outstanding are “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. All of these shares are subject to lock-up agreements pursuant to which the stockholder has agreed not to offer, sell, contract to sell or grant any option to purchase or otherwise dispose of our common stock or any securities exercisable for or convertible into our common stock owned by them for a period of 180 days after the date of the underwriting agreement related to this offering without the prior written consent of SG Cowen Securities Corporation. As a result of these contractual restrictions, notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold until such agreements expire or are waived by SG Cowen Securities Corporation. Taking into account the lock-up agreements, and assuming SG Cowen Securities Corporation does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times:

• beginning on the effective date of the offering, only the shares sold in this offering will be immediately available for sale in the public market;

• an additional 7,584,315 shares will become eligible for sale pursuant to Rule 144 beginning on             , 2002, 180 days after the date of the underwriting agreement related to this offering. Shares eligible to be sold by affiliates pursuant to Rule 144 are subject to volume restrictions as described below; and

• an additional 214,500 shares will become eligible for sale in the public market pursuant to Rule 144 at various dates in the future.

Of the above 7,798,815 shares of restricted securities, 286,000 shares held by Dell are subject to a two-year lock-up period. Of these shares, 71,500 shares shall be released from the lock-up agreement 180 days from the date of this prospectus and an additional 35,750 shares shall be released each 90 days thereafter, such that all of the shares shall be released from the lock-up agreement two years following the date of this prospectus.

Immediately after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for future issuance under our stock option plans and our stock purchase plan. Based upon the number of shares subject to outstanding options as of September 30, 2002 and currently reserved for issuance under our stock plans, this registration statement would cover approximately 3,552,086 shares in addition to annual increases in the number of shares available under the stock option plans and stock purchase plan pursuant to the terms of such plans. Shares registered under the registration statement will generally be available for sale in the open market immediately after the 180-day lock-up agreements expire or earlier in SG Cowen Securities Corporation’s sole discretion.

Holders of 5,649,050 shares of our common stock will be entitled to rights with respect to registration of these shares for sale in the public market. See “Description of Capital Stock—Registration Rights.” Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of the registration.

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Rule 144

In general, under Rule 144 as currently in effect, and beginning after the expiration of the lock-up agreements, a person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: one percent of the number of shares of common stock then outstanding (which will equal approximately                shares immediately after the offering) or the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been an affiliate of us at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

Rule 701

Beginning 90 days after the effective date, any employee, officer or director of or consultant to us who purchased shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144.

74

UNDERWRITING

We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to the terms and conditions of the underwriting agreement, the underwriters named below have severally agreed to purchase from us the number of shares of our common stock set forth opposite their names on the table below at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus. SG Cowen Securities Corporation and SoundView Technology Corporation are acting as the underwriters as follows:

Name	Number of Shares
SG Cowen Securities Corporation
SoundView Technology Corporation
Total

The underwriting agreement provides that the obligations of the underwriters to purchase the shares of common stock offered hereby are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets. The obligations of the underwriters may also be terminated upon the occurrence of other events specified in the underwriting agreement. The underwriters are severally committed to purchase all of the shares of common stock being offered by us if any shares are purchased.

The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriters may offer the common stock to securities dealers at the price to the public less a concession not in excess of $             per share. Securities dealers may reallow a concession not in excess of $             per share to other dealers. After the shares of common stock are released for sale to the public, the underwriters may vary the offering price and other selling terms from time to time.

We have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to an aggregate of                 additional shares of common stock at the public offering price set forth on the cover page of this prospectus less the underwriting discounts and commissions. The underwriters may exercise this option only to cover over-allotments, if any, made in connection with the sale of common stock offered hereby.

The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming no exercise and full exercise of the underwriters’ option to purchase additional shares of common stock.

	Payable by InterVideo, Inc.
	No Exercise		Full Exercise
Per share	$	—	$	—
Total	$	—	$	—

We estimate that the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $1,850,000.

We have agreed to indemnify the underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933 and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, and to contribute to payments the underwriters may be required to make in respect of any such liabilities.

Our directors, executive officers, stockholders and optionholders have agreed with the underwriters that for a period of 180 days following the date of this prospectus, they will not offer, sell, assign, transfer, pledge,

75

contract to sell or otherwise dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for shares of common stock. SG Cowen Securities Corporation may, in its sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreement. We have entered into a similar agreement with SG Cowen Securities Corporation provided we may, without the consent of SG Cowen Securities Corporation, grant options and sell shares pursuant to our stock plans, and issue up to a number of shares equal to five percent of our outstanding share capital in connection with the acquisition of, or merger with, another company or its assets, provided the recipient of those shares enters into a lock-up agreement substantially similar to those signed by our other stockholders in connection with this offering. There are no agreements between SG Cowen Securities Corporation and any of our stockholders, optionholders or affiliates releasing them from these lock-up agreements prior to the expiration of the 180-day period.

In addition, Dell, which holds 286,000 shares of common stock, has entered into a lock-up agreement with us pursuant to which 71,500 shares become eligible for sale 180 days from the date of this prospectus and an additional 35,750 shares become eligible for sale each 90 days thereafter, such that all of the shares held by Dell become eligible for sale two years following the date of this prospectus.

At our request, the underwriters have reserved for sale, at the initial public offering price, up to              shares of our common stock being offered for sale to our customers and business partners. At the discretion of our management, other parties, including our employees, may participate in this reserved shares program. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.

The underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Securities Exchange Act of 1934. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Covered short sales are sales made in an amount not greater than the number of shares available for purchase by the underwriters under the over-allotment option. SG Cowen Securities Corporation may close out a covered short sale by exercising its over-allotment option or purchasing shares in the open market. Naked short sales are sales made in an amount in excess of the number of shares available under the over-allotment option. The underwriters must close out any naked short sale by purchasing shares in the open market. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of the shares of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the shares of common stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. Penalty bids may have the effect of deterring syndicate members from selling to people who have a history of quickly selling their shares. In passive market making, market makers in the shares of common stock who are underwriters or prospective underwriters may, subject to certain limitations, make bids for or purchases of the shares of common stock until the time, if any, at which a stabilizing bid is made. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the shares of common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

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In addition, a prospectus in electronic format is being made available on a website maintained by E*TRADE Securities, Inc. SoundView Technology Corporation, pursuant to a Relationship Agreement with E*TRADE, may offer shares that it underwrites to customers of E*TRADE. The underwriters may allocate a number of shares to SoundView Technology Corporation for sale to online brokerage account holders of E*TRADE Securities, Inc. These online brokerage account holders will have the opportunity to purchase shares using the Internet in accordance with procedures established by E*TRADE Securities, Inc.

Prior to this offering, there has been no public market for shares of our common stock. Consequently, the initial public offering price has been determined by negotiations between us and the underwriters. The various factors considered in these negotiations included prevailing market conditions, the market capitalizations and the states of development of other companies that we and the underwriters believed to be comparable to us, estimates of our business potential, our results of operations in recent periods, the present state of our development and other factors deemed relevant.

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LEGAL MATTERS

Wilson Sonsini Goodrich & Rosati, a professional corporation, Palo Alto, California, will pass for us on the validity of the common stock offered hereby. Brobeck, Phleger & Harrison LLP, East Palo Alto, California, is acting as counsel for the underwriters in connection with selected legal matters relating to the shares of common stock offered by this prospectus.

EXPERTS

The consolidated balance sheets of InterVideo, Inc. as of December 31, 2000 and 2001 and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2001 included in this prospectus in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. KPMG LLP’s audit report refers to a restatement of the consolidated financial statements as of December 30, 2000 and 2001, and for each of the years in the three-year period ended December 31, 2001, which consolidated financial statements were previously audited by other auditors who have ceased operations.

The balance sheets of Audio/Video Products Division of Formosoft International Inc. as of December 31, 1998 and 1999, and the related statements of operations and comprehensive loss, and cash flows for the period from April 14, 1998 (date of incorporation) to December 31, 1998 and for the year ended December 31, 1999 included in this prospectus have been audited by TN Soong & Co., an Associate Member Firm of Deloitte Touche Tohmatsu effective April 22, 2002 (formerly a Member Firm of Andersen Worldwide, S.C.), independent auditors, as stated in their report appearing herein, and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We filed a registration statement on Form S-1 under the Securities Act with the SEC to register the shares of our common stock offered by this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits to the registration statement. You should refer to the registration statement and the exhibits to the registration statement for more information about us and our common stock. Our statements in this prospectus concerning the contents of any document are not necessarily complete, and in each instance, we refer you to the copy of the document filed as an exhibit to the registration statement. Each statement about those documents is qualified in its entirety by this reference.

Following the offering, we will become subject to the reporting requirements of the Securities Exchange Act of 1934. In accordance with that law, we will be required to file reports and other information with the SEC. The registration statement and exhibits, as well as those reports and other information when we file them, may be inspected without charge at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Copies of all or any part of the registration statement may be obtained from the SEC’s offices upon payment of fees prescribed by the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of the site is http://www.sec.gov.

78

INTERVIDEO, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of InterVideo, Inc. as of December 31, 2000 and 2001 and for each of the years in the three-year period ended December 31, 2001 have been restated to reflect the effects of the corrections described in Note 2 to the consolidated financial statements.

The following financial statements are filed as part of this report:

CONSOLIDATED FINANCIAL STATEMENTS OF INTERVIDEO, INC.
Independent Auditors’ Report	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations	F-4
Consolidated Statements of Redeemable Preferred Stock, Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7
FINANCIAL STATEMENTS OF AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
Report of Independent Public Accountants	F-35
Balance Sheets	F-36
Statements of Operations and Comprehensive Loss	F-37
Statements of Cash Flows	F-38
Notes to Financial Statements	F-39

F-1

INTERVIDEO, INC.

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders of InterVideo, Inc.

We have audited the accompanying consolidated balance sheets of InterVideo, Inc. and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, redeemable preferred stock, stockholders’ equity (deficit) and comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InterVideo, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements as of December 31, 2000 and 2001 and for each of the years in the three-year period ended December 31, 2001, which consolidated financial statements were previously audited by other auditors who have ceased operations.

/s/    KPMG LLP

Mountain View, California

January 28, 2003

F-2

INTERVIDEO, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	As of December 31,						As of  September 30, 2002
	2000			2001			Actual			Pro Forma
	Restated			Restated			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,668		$	14,348		$	18,511		$	18,511
Short-term investment		—			—			600			600
Accounts receivable, net of allowance for doubtful accounts of $152, $319, $312 and $312, respectively		2,413			2,753			3,831			3,831
Deferred tax assets		—			—			1,776			1,776
Prepaid expenses and other current assets		283			540			731			731
Total current assets		17,364			17,641			25,449			25,449
Property and equipment, net		1,991			1,725			1,452			1,452
Goodwill and purchased intangible assets, net		2,199			1,701			1,551			1,551
Deferred tax assets		—			—			3,411			3,411
Other assets		580			1,086			314			314
Total assets	$	22,134		$	22,153		$	32,177		$	32,177
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	484		$	595		$	599		$	599
Accrued liabilities		5,051			12,732			8,606			8,606
Income taxes payable		177			52			1,147			1,147
Deferred revenue		108			307			887			887
Total liabilities		5,820			13,686			11,239			11,239
Redeemable preferred stock, $0.001 par value: 25,000, no shares, no shares and no shares issued and outstanding, respectively		1,000			—			—			—
Stockholders’ equity:
Convertible preferred stock, $0.001 par value: aggregate liquidation preference of $21,255, $21,255, $23,855 and $0, respectively; 13,000,000 shares authorized; 12,188,750, 12,188,750, 12,838,750 and no shares issued and outstanding, respectively		12			12			13			—
Common stock, $0.001 par value: 25,000,000 shares authorized; 1,629,050, 1,973,924, 2,149,765 and 7,798,815 shares issued and outstanding, respectively		2			2			2			8
Additional paid-in capital		26,285			28,924			35,271			35,278
Notes receivable from stockholders		—			(824	)		(854	)		(854	)
Deferred stock compensation		(1,742	)		(1,616	)		(1,961	)		(1,961	)
Accumulated other comprehensive loss		(84	)		(188	)		(170	)		(170	)
Accumulated deficit		(9,159	)		(17,843	)		(11,363	)		(11,363	)
Total stockholders’ equity		15,314			8,467			20,938			20,938
Total liabilities and stockholders’ equity	$	22,134		$	22,153		$	32,177		$	32,177

The accompanying notes are an integral part of these consolidated financial statements.

F-3

INTERVIDEO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Year ended December 31,									Nine months ended September 30,
	1999			2000			2001			2001			2002
	Restated			Restated			Restated			Restated
										(unaudited)
Revenue	$	3,036		$	15,426		$	33,763		$	23,266		$	34,145
Product costs		1,118			5,133			16,895			8,756			12,103
Amortization of software license agreement		—			—			1,000			987			23
Cost of revenue		1,118			5,133			17,895			9,743			12,126
Gross profit		1,918			10,293			15,868			13,523			22,019
Operating expenses:
Research and development		1,300			6,581			9,035			6,931			5,629
Sales and marketing		1,165			4,916			7,878			6,233			5,725
General and administrative		766			2,667			2,990			2,225			2,845
Stock compensation(1)		339			2,909			1,854			1,379			2,195
Amortization of goodwill		—			174			298			223			—
Cost of delayed public offering		—			—			710			710			1,728
Impairment of promotional agreement		—			—			550			550			—
Restructuring costs		—			—			850			850			(20	)
Total operating expenses		3,570			17,247			24,165			19,101			18,102
Income (loss) from operations		(1,652	)		(6,954	)		(8,297	)		(5,578	)		3,917
Other income (expenses), net		32			555			537			430			(97	)
Income (loss) before provision (benefit) for income taxes		(1,620	)		(6,399	)		(7,760	)		(5,148	)		3,820
Provision (benefit) for income taxes		63			552			924			468			(2,660	)
Net income (loss)	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	(5,616	)	$	6,480
Net income (loss) per common share, basic	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	3.28
Net income (loss) per common share, diluted	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	0.67
Weighted average common shares outstanding, basic		246			1,155			1,532			1,493			1,977
Weighted average common shares outstanding, diluted		246			1,155			1,532			1,493			9,644
(1)    Stock compensation is allocated among the operating expense classifications as follows (in thousands):
	Year ended December 31,									Nine months ended September 30,
	1999			2000			2001			2001			2002
	Restated			Restated			Restated			Restated
										(unaudited)
Research and development	$	25		$	745		$	581		$	497		$	824
Sales and marketing		133			1,523			605			416			753
General and administrative		181			641			668			466			618
	$	339		$	2,909		$	1,854		$	1,379		$	2,195

The accompanying notes are an integral part of these consolidated financial statements.

F-4

INTERVIDEO, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share amounts)

	Redeemable Preferred Stock					Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Notes Receivable from Stockholders			Deferred Stock Compen- sation			Accum- ulated Other Compre- hensive Loss			Accum- ulated Deficit			Total Stock- holders’ Equity (Deficit)			Compre- hensive Income (Loss)
	Shares		Amount			Shares	Amount		Shares	Amount
							Restated			Restated		Restated		Restated			Restated			Restated			Restated			Restated			Restated
BALANCE, December 31, 1998	—		$	—		6,000,000	$	6	880,000	$	1	$	482	$	—		$	—		$	—		$	(525	)	$	(36	)
Issuance of Series C convertible preferred stock, net of issuance cost of $12	—			—		2,000,000		2	—		—		3,986		—			—			—			—			3,988
Exercise of common stock options	—			—		—		—	240,540		—		25		—			—			—			—			25
Stock compensation to consultant and other non-employees	—			—		—		—	—		—		150		—			—			—			—			150
Deferred stock compensation	—			—		—		—	—		—		272		—			(272	)		—			—			—
Amortization of deferred stock compensation expense	—			—		—		—	—		—		—		—			189			—			—			189
Net loss	—			—		—		—	—		—		—		—			—			—			(1,683	)		(1,683	)	$	(1,683	)
BALANCE, December 31, 1999 (Restated)	—			—		8,000,000		8	1,120,540		1		4,915		—			(83	)		—			(2,208	)		2,633		$	(1,683	)
Issuance of Series D convertible preferred stock, net of issuance cost of $45	—			—		4,188,750		4	—		—		16,706		—			—			—			—			16,710
Issuance of Series D redeemable preferred for acquisition of AVPD	25,000			1,000		—		—	—		—		—		—			—			—			—			—
Exercise of common stock options	—			—		—		—	508,510		1		96		—			—			—			—			97
Stock compensation to consultants and other non-employees	—			—		—		—	—		—		983		—			—			—			—			983
Deferred stock compensation	—			—		—			—		—		3,585		—			(3,585	)		—			—			—
Amortization of deferred stock compensation expense	—			—		—		—	—		—		—		—			1,926			—			—			1,926
Foreign currency translation adjustment	—			—		—		—	—		—		—		—			—			(84	)		—			(84	)	$	(84	)
Net loss	—			—		—		—	—		—		—		—			—			—			(6,951	)		(6,951	)		(6,951	)
BALANCE, December 31, 2000 (Restated)	25,000			1,000		12,188,750		12	1,629,050		2		26,285		—			(1,742	)		(84	)		(9,159	)		15,314		$	(7,035	)
Exercise of common stock options	—			—		—		—	168,874		—		111		—			—			—			—			111
Notes receivable from stockholders from exercised options	—			—		—		—	176,000		—		800		(800	)		—			—			—			—
Redemption of Series D from sellers of AVPD	(25,000	)		(1,000	)	—		—	—		—		—		—			—			—			—			—
Stock compensation to consultant and other non-employees	—			—		—		—	—		—		130		—			—			—			—			130
Interest income on notes receivable from stockholders	—			—		—		—	—		—		—		(24	)		—			—			—			(24	)
Deferred stock compensation	—			—		—		—	—		—		1,598		—			(1,598	)		—			—			—
Amortization of deferred stock compensation expense	—			—		—		—	—		—		—		—			1,724			—			—			1,724
Foreign currency translation adjustment	—			—		—		—	—		—		—		—			—			(104	)		—			(104	)	$	(104	)
Net loss	—			—		—		—	—		—		—		—			—			—			(8,684	)		(8,684	)		(8,684	)
BALANCE, December 31, 2001 (Restated)	—			—		12,188,750		12	1,973,924		2		28,924		(824	)		(1,616	)		(188	)		(17,843	)		8,467		$	(8,788	)
Exercise of common stock options	—			—		—		—	175,841		—		90		—			—			—			—			90
Issuance of Series D convertible preferred stock	—			—		650,000		1	—		—		3,717		—			—			—			—			3,718
Stock compensation to consultants and other non-employees	—			—		—		—	—		—		157		—			—			—			—			157
Interest income on notes receivable from stockholders	—			—		—		—	—		—		—		(30	)		—			—			—			(30	)
Deferred stock compensation	—			—		—		—	—		—		2,383		—			(2,383	)		—			—			—
Amortization of deferred stock compensation expense	—			—		—		—	—		—		—		—			2,038			—			—			2,038
Foreign currency translation adjustment	—			—		—		—	—		—		—		—			—			18			—			18		$	18
Net income	—			—		—		—	—		—		—		—			—			—			6,480			6,480			6,480
BALANCE, September 30, 2002 (unaudited)	—		$	—		12,838,750	$	13	2,149,765	$	2	$	35,271	$	(854	)	$	(1,961	)	$	(170	)	$	(11,363	)	$	20,938		$	6,498

The accompanying notes are an integral part of these consolidated financial statements.

F-5

INTERVIDEO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year ended December 31,									Nine months ended September 30,
	1999			2000			2001			2001			2002
	Restated			Restated			Restated			Restated
										(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	(5,616	)	$	6,480
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		89			746			1,220			918			687
Deferred taxes		—			—			—			—			(5,187	)
Cost of settlement of intellectual property matters settled in preferred stock		—			—			3,718			—			—
Write-down of long term investments		—			—			100			100			200
Write-off of in-process research and development		—			700			—			—			—
Amortization of software license agreement		—			—			1,000			987			23
Stock compensation		339			2,909			1,854			1,379			2,195
Provision for doubtful accounts		42			110			185			95			101
Loss from disposal of property, plant and equipment		16			112			235			172			103
Interest income on Notes Receivable from officers		0			0			(24	)		(15	)		(30	)
Changes in operating assets and liabilities:
Accounts receivable		(425	)		(2,149	)		(522	)		(31	)		(1,084	)
Prepaid expenses and other current assets		(66	)		(204	)		(1,251	)		(1,342	)		(216	)
Other assets		(21	)		(252	)		(612	)		(921	)		575
Accounts payable		123			353			115			(259	)		6
Accrued liabilities, taxes payable and deferred revenue		1,013			4,297			4,050			3,046			1,272
Net cash provided by (used in) operating activities		(573	)		(329	)		1,384			(1,487	)		5,125
Cash flows from investing activities:
Purchase of property and equipment		(557	)		(1,976	)		(712	)		(607	)		(360	)
Purchase of Audio/Video Products Division (“AVPD”)		—			(2,200	)		(1,000	)		(1,000	)		—
Purchase of long-term investments		(100	)		(200	)		—			—			—
Purchase of short-term investment		—			—			—			—			(600	)
Net cash used in investing activities		(657	)		(4,376	)		(1,712	)		(1,607	)		(960	)
Cash flows from financing activities:
Proceeds from issuance of Series C preferred stock, net		3,638			—			—			—			—
Proceeds from issuance of Series D preferred stock, net		—			16,710			—			—			—
Proceeds from exercise of common stock options		25			96			111			80			90
Net cash provided by financing activities		3,663			16,806			111			80			90
Effect of change in exchange rates on cash		—			(61	)		(103	)		(58	)		(92	)
Net increase (decrease) in cash and cash equivalents		2,433			12,040			(320	)		(3,072	)		4,163
Cash and cash equivalents, beginning of period		195			2,628			14,668			14,668			14,348
Cash and cash equivalents, end of period	$	2,628		$	14,668		$	14,348		$	11,596		$	18,511
Supplementary disclosures of noncash investing and financing activities:
Conversion of deposit to Series C convertible preferred stock	$	350		$	—		$	—		$	—		$	—
Issuance of Series D redeemable preferred stock		—			1,000			—			—			—
Issuance of Series D convertible preferred stock		—			—			—			—			3,718
Notes receivable from stockholders pursuant to exercised options		—			—			800			—			—
Deferred stock compensation		272			3,585			1,598			1,606			2,383

The accompanying notes are an integral part of these consolidated financial statements.

F-6

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

1.    Organization and Business:

The Company is a provider of DVD software. The Company has developed a technology platform from which it has created a broad suite of integrated multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. The Company has historically derived nearly all of its revenue from sales of its WinDVD product, a software DVD player for PCs. Other products include WinDVD Creator, a video editing, DVD authoring and burning application, WinDVD Recorder, a software product with the functionality of a DVD recorder/player, WinDVR, a digital video recorder (DVR) with the functionality of a set-top box DVR, WinProducer, a higher-end video capturing and editing software application, WinRip, a digital music recorder and player, and versions of the Company’s multimedia software designed for consumer electronics (CE) devices.

The Company’s software is bundled with products sold by PC original equipment manufacturers (OEMs). The Company sells its products to PC OEMs, CE manufacturers and PC peripherals manufacturers worldwide. In addition, the Company sells products directly to consumers through retail channels and its websites.

During the first quarter of 2000, the Company created wholly-owned subsidiaries to market its products in Japan and Taiwan. The Taiwan subsidiary includes the business and assets acquired in June 2000 from Audio/Video Products Division (AVPD) of Formosoft International Inc., as discussed in Note 13. During the fourth quarter of 2001, the Company created a wholly-owned subsidiary to market its products in China.

The Company is subject to a number of risks associated with technology companies, including, but not limited to, a history of net losses; limited operating history; fluctuating operating results; declining selling prices; third-party intellectual property claims; potential competition from larger more established companies; and dependence on key employees.

In April 2002, the Board of Directors approved the Company’s reincorporation in Delaware, which was completed in May 2002.

2.     Restatement:

The Company has restated the consolidated financial statements to reflect the following adjustments for the years ended December 31, 1999, 2000 and 2001:

• An increase of stock compensation expense of $112,000, $917,000 and $109,000 for the years ended December 31, 1999, 2000 and 2001, respectively, as a result of remeasuring the fair value of options issued to non-employees at each accounting period, over the service period through the vesting date.

• An increase of stock compensation expense of $136,000 and $357,000 for the years ended December 31, 1999 and 2000, respectively, and a decrease of stock compensation expense of $356,000 for the year ended December 31, 2001 as a result of amortizing deferred stock compensation for certain employee awards over the appropriate vesting periods.

• An increase of stock compensation expense of $96,000 for the year ended December 31, 2001 as a result of remeasuring stock options exercised with the issuance of notes receivable with below market rates of interest. In addition, deferred stock compensation increased by $136,000 at December 31, 2001 for this remeasurement.

• An increase of stock compensation expense of $158,000 for the year ended December 31, 2000 and a decrease of stock compensation expense and research and development expense of $80,000 and $78,000, respectively, for the year ended December 31, 2001 as a result of recognizing compensation expense in the period in which a performance based stock option issued to an employee became probable of vesting.

F-7

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

• A decrease of unlicensed royalty expense of $226,000 and $68,000 for the years ended December 31, 2000 and 2001, respectively, as a result of recording certain unlicensed royalty accruals in the period in which the liability became probable and reasonably estimable.

• A decrease of licensed royalty expense of $136,000 for the year ended December 31, 2001 as a result of the reduction in an overaccrual.

• A decrease in accrued liabilities and convertible preferred stock of $900,000 and $100,000, respectively, and an increase of $1.0 million in redeemable preferred stock as of December 31, 2000, to reflect the stockholders’ redemption rights as discussed in Note 13.

The following tables present the impact of the restatements on a condensed basis (in thousands except per share amounts):

	As of December 31, 2000						As of December 31, 2001
	As previously reported			Restated			As previously reported			Restated
Consolidated Balance Sheet
Accrued liabilities	$	6,176		$	5,051		$	13,241		$	12,732
Total liabilities		6,945			5,820			14,194			13,686
Redeemable preferred stock		—			1,000			—			—
Preferred stock, common stock and additional paid-in capital		25,183			26,299			27,765			28,938
Notes receivable from stockholders		—			—			(667	)		(824	)
Deferred stock compensation		(2,206	)		(1,742	)		(2,070	)		(1,616	)
Accumulated deficit		(7,704	)		(9,159	)		(16,881	)		(17,843	)
Total stockholders’ equity		15,189			15,314			7,959			8,467

	Year ended December 31,
	1999						2000						2001
	As previously reported			Restated			As previously reported			Restated			As previously reported			Restated
Consolidated Statements of Operations
Cost of revenue	$	1,118		$	1,118		$	5,361		$	5,133		$	18,099		$	17,895
Stock compensation		53			339			1,411			2,909			2,063			1,854
Total operating expenses		3,320			3,570			15,815			17,247			24,474			24,165
Loss before provision (benefit) for income taxes		(1,370	)		(1,620	)		(5,193	)		(6,399	)		(8,253	)		(7,760	)
Net loss	$	(1,434	)	$	(1,683	)	$	(5,745	)	$	(6,951	)	$	(9,177	)	$	(8,684	)
Net loss per common share, basic and diluted	$	(5.83	)	$	(6.85	)	$	(4.97	)	$	(6.02	)	$	(5.99	)	$	(5.67	)
Consolidated Statements of Cash Flows
Net loss	$	(1,434	)	$	(1,683	)	$	(5,745	)	$	(6,951	)	$	(9,177	)	$	(8,684	)
Stock compensation		53			339			1,411			2,909			2,063			1,854
Change in accrued liabilities, taxes payable and deferred revenue		1,012			1,012			4,519			4,291			4,331			4,048
Net cash provided by (used in) operating activities		(573	)		(573	)		(330	)		(330	)		1,384			1,384

F-8

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

3.    Summary of Significant Accounting Policies:

Unaudited interim financial statements

The accompanying consolidated balance sheet as of September 30, 2002, the consolidated statements of operations and cash flows for the nine-month periods ended September 30, 2001 and 2002, and the consolidated statement of redeemable preferred stock, stockholders’ equity and comprehensive income for the nine months ended September 30, 2002 are unaudited. In the opinion of management, such information includes all adjustments consisting of normal recurring adjustments necessary for a fair presentation of this interim information when read in conjunction with the audited consolidated financial statements and notes hereto. Results for the nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Foreign currency translation

The functional currency of the Company’s subsidiaries is the local currency. Accordingly, all assets and liabilities are translated into U.S. dollars at the current exchange rate at the applicable balance sheet date. Revenue and expenses are translated at the average exchange rate prevailing during the period. The effects of these translation adjustments are recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity. Exchange gains or losses arising from transactions denominated in a currency other than the functional currency of an entity are included in other income (expenses), net and have not been significant to the Company’s operating results in any periods presented.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management in preparing the consolidated financial statements relate to the accrual for unlicensed royalty and settlement agreements, the valuation allowance on deferred tax assets, the allowance for doubtful accounts and sublease assumptions in accrued restructuring. Actual results could materially differ from these estimates.

Reverse stock split

In April 2002, the Board of Directors approved a 0.44-for-one reverse stock split for the holders of common stock. This stock split has been retroactively reflected in the accompanying consolidated financial statements for all years presented. The conversion ratio of the convertible preferred stock was revised by the reverse stock split such that, upon conversion, each share of convertible preferred stock will be converted into 0.44 shares of common stock.

Fair value of financial instruments

The fair value of the Company’s cash, cash equivalents, short-term investments, accounts receivable and accounts payable approximate their respective carrying amounts due to their relatively short-term maturities.

F-9

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, at the date of purchase, to be cash equivalents. Cash equivalents consist of money market accounts and commercial paper.

Short-term investments

Short-term investments as of September 30, 2002 comprise a certificate of deposit with an original maturity of greater then three months.

Significant concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company generally does not require its customers to provide collateral or other security to support accounts receivable. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition and maintains allowances for estimated potential bad debt losses. Two customers’ accounts receivable balances were individually greater than 10% of total accounts receivable at December 31, 2000 and together comprised 29% of total accounts receivable. Three customers’ accounts receivable balances were individually greater than 10% of total accounts receivable at December 31, 2001 and together comprised 56% of total accounts receivable.

The following individual customers accounted for greater than 10% of revenue:

	For the year ended December 31,						Nine months ended September 30,
	1999		2000		2001		2001		2002
							(unaudited)
Customer A	22	%	—		—		—		—
Customer B	12	%	—		—		—		—
Customer C	12	%	—		—		—		—
Customer D	—		21	%	29	%	31	%	15	%
Customer E	—		—		12	%	12	%	10	%
Customer F	—		—		14	%	14	%	18	%

Valuation accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional allowance may be required. Below is a summary of the changes in the Company’s allowance for doubtful accounts for the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002 (in thousands).

Allowance for Doubtful Accounts	Balance at beginning of the Period		Additions		Write-off		Balance at end of the Period
December 31, 1999	$	—	$	42	$	—	$	42
December 31, 2000		42		110		—		152
December 31, 2001		152		185		18		319
September 30, 2002 (unaudited)		319		101		108		312

F-10

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation or amortization. Depreciation is calculated using the straight-line method based on estimated useful lives of between three and seven years. Leasehold improvements are amortized over the lesser of the lease terms or the estimated useful lives of the improvements. Expenditures for maintenance and repairs are charged to expense as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts, and the gain or loss is reflected in the statement of operations.

Intangible assets and goodwill

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) in July 2001. SFAS 142 requires that intangible assets with an indefinite life should not be amortized until their life is determined to be finite, and all other identifiable intangible assets must be amortized over their useful life. SFAS 142 also requires that goodwill not be amortized but instead tested for impairment at least annually and more frequently upon the occurrence of certain events (see “Impairment of Long-Lived Assets” below).

The Company adopted SFAS 142 effective January 1, 2002. SFAS 142 required the Company to perform the following as of January 1, 2002: (i) review goodwill and intangible assets for possible reclassifications; (ii) reassess the lives of intangible assets; and (iii) perform a transitional goodwill impairment test. The Company has reviewed the balances of goodwill and identifiable intangibles and determined that assembled workforce is required to be reclassified from identifiable intangibles to goodwill. The Company has also reviewed the useful lives of the purchased development technology and determined that the original estimated lives of five years remain appropriate. The Company has completed the transitional goodwill impairment test and has determined that the Company did not have a transitional impairment of goodwill.

As required by SFAS 142, the Company ceased amortization of goodwill and intangible assets with an indefinite life associated with the acquisition of AVPD effective January 1, 2002. Prior to January 1, 2002, the Company amortized goodwill, assembled workforce and developed technology associated with the AVPD acquisition over five years using the straight-line method.

F-11

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The following is a summary of adjusted net income (loss) without amortization of goodwill and intangible assets with an indefinite life (in thousands, except per share amount):

	Year ended December 31,									Nine months ended September 30,
	1999			2000			2001			2001			2002
Net income (loss), as reported	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	(5,616	)	$	6,480
Add back: amortization of goodwill and assembled workforce		—			174			298			223			—
Adjusted net income (loss)	$	(1,683	)	$	(6,777	)	$	(8,386	)	$	(5,393	)	$	6,480
Net income (loss) per share, basic, as reported	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	3.28
Add back: amortization of goodwill and assembled workforce		—			0.15			0.20			0.15			—
Adjusted net income (loss) per share, basic	$	(6.85	)	$	(5.87	)	$	(5.47	)	$	(3.61	)	$	3.28
Net income (loss) per share, diluted, as reported	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	0.67
Add back: amortization of goodwill and assembled workforce		—			0.15			0.20			0.15			—
Adjusted net income (loss) per share, diluted	$	(6.85	)	$	(5.87	)	$	(5.47	)	$	(3.61	)	$	0.67

Impairment of long-lived assets

The Company tests goodwill for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. Consistent with the Company’s determination that it has only one operating segment, the Company has determined that it has only one reporting unit. Goodwill is tested for impairment annually, in the fourth quarter, in a two-step process. First, the Company determines if the carrying amount of its reporting unit exceeds the “fair value” of the reporting unit, which would indicate that goodwill may be impaired. If the Company determines that goodwill may be impaired, the Company compares the “implied fair value” of the goodwill, as defined by SFAS 142, to its carrying amount to determine if there is an impairment loss.

Prior to January 1, 2002, the Company reviewed long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“SFAS 121”). An asset is considered impaired under SFAS 121 if its carrying amount exceeds the future net cash flow the asset was expected to generate. If such asset was considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. The Company assessed the recoverability of its long-lived and intangible assets by determining whether the unamortized balances could be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on the difference between the carrying amount and fair value.

In August 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121, and the accounting and reporting provisions of Accounting Principles Board

F-12

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Opinion No. 30. SFAS 144 was adopted by the Company on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the consolidated financial position or results of operations.

Long-term investments

The Company has long-term minority investments in non-public companies that are carried initially at cost. Long-term investments are included in other assets in the consolidated financial statements. The Company monitors these investments for declines in fair value that are considered to be other than temporary and records appropriate reductions in carrying values when necessary. In the third quarter of 2002, as a result of a periodic review of the value of an investment in a private company, management determined that the carrying amount was not recoverable and, accordingly, wrote off its investment in this private company, totaling $200,000.

Revenue recognition

The Company’s revenue is derived from fees paid under software licenses granted primarily to OEMs, distributors and directly to end users. The Company records revenue generated from these sales in accordance with SOP 97-2, “Software Revenue Recognition,” as amended, under which revenue is recognized when evidence of an arrangement exists, delivery of the software has occurred, the fee is fixed and determinable, and collectibility is probable.

Under the terms of the Company’s license agreements with the OEMs, the OEMs are entitled only to unspecified upgrades on a when and if available basis prior to sell through to end users. Under the terms of the Company’s revenue recognition policy, the Company recognizes revenue based on evidence of products being sold by the OEMs. The Company does not have any obligation to provide upgrades to the OEMs’ customers. Accordingly, the Company does not defer any revenue as the Company no longer has any obligations once the OEM’s product has been shipped and revenue has been recorded.

Under the terms of each OEM license agreement, the OEM will “qualify” the software on its then current platform. (The OEM will have the right to return the software prior to being qualified.) Once the software has been qualified, the OEM will begin to ship product and report sales to the Company at which point revenue will be recorded. Once it has been shipped, the OEM does not have a right of return. Therefore, the Company does not maintain a returns reserve related to OEM sales.

Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. OEMs pay these fees on a per-unit basis, and the Company records associated revenue when it receives notification of the OEMs’ sales of the licensed software to the end users. The terms of the license agreements generally require the OEMs to notify the Company of sales of their products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, the Company generally recognizes revenue in the month or quarter following the sale of the product to the OEMs’ customers.

Under the terms of the Company’s OEM license agreements, the OEMs have certain inspection and acceptance rights. These rights lapse once the product has been qualified and the shipment has been reported to the Company by the OEM. Therefore, these acceptance rights do not impact the amount or timing of revenue recognition.

A small number of OEMs that sell primarily PC components place orders with the Company for a fixed quantity of units at a fixed price. Qualification of the Company’s product is not necessary, and these OEMs have no rights to upgrades or returns. The Company generally recognizes revenue upon shipment to these OEMs.

F-13

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Sales to end users are primarily made directly through the Company’s websites. There are no unspecified upgrade rights related to these sales. The Company recognizes revenue from sales through its websites upon delivery of product and the receipt of payment by means of an authorized credit card. The Company does not offer specified upgrade rights to any class of customer. The end users who purchase software from websites do not have rights of return.

Certain distributors and retailers, primarily in Japan, have limited rights to return product that was purchased in the previous six-months. These distributors have no rights to product upgrades. The Company generally recognizes revenue, net of estimated returns, upon shipment to these distributors and retailers. Other distributors and retailers, primarily in the United States, have unlimited rights of return. The Company generally recognizes revenue upon receipt of evidence that the distributors and retailers have sold the Company’s products.

Cost of revenue

Cost of revenue is comprised of product costs and amortization of a software license agreement.

Product costs consist primarily of licensed and unlicensed royalties and settlements paid or accrued for payment to third parties for technologies incorporated into the Company’s products, expenses incurred to manufacture, package and distribute the Company’s software products, the amortization of developed technology and costs associated with post-contract customer support (“PCS”). Cost of settlement of intellectual property matters consists of amounts that the Company has agreed to pay to third parties in settlement of alleged infringement of certain patents used in the Company’s and its customers’ products, and accruals for royalties related to the Company’s usage of technologies under patent where no agreement exists.

PCS costs include the costs associated with answering customer inquires and providing telephone assistance to end users of the Company’s products. The Company does not defer the recognition of any revenue associated with sales to end users, because no updates are provided to end users and PCS is provided within 90 days after the associated revenue is recognized.

Amortization of software license agreement consists of royalty payments for a license royalty agreement. In December 2000, the Company entered into a software license agreement providing for an aggregate of $1.1 million of minimum royalty payments through October 2002. The associated expense was recognized on a straight-line basis over the agreement term. In September 2001, the Company determined that a large portion of the minimum royalty payment would be unrealizable and was impaired. Accordingly, during the year ended December 31, 2001, $987,000 was charged to amortization of software license agreement, of which $724,000 represents a write down of the previously capitalized costs to their net realizable value. The amount remaining of $50,000 as of December 31, 2001 will be recorded as cost of revenue over the remaining agreement term.

Software development costs

Under SFAS 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” costs incurred in the research and development of software are expensed as incurred until technological feasibility has been established. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general marketability of the products are capitalized. The Company defines establishment of technological feasibility as the completion of a working model. The establishment of technological feasibility and the ongoing assessment of recoverability of these costs require considerable judgment by management with respect to certain external factors, including, but not limited

F-14

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

to, anticipated future gross product revenues, estimated economic life and changes in software and hardware technologies. Amounts that were capitalizable under SFAS 86 were insignificant, and therefore no costs have been capitalized to date.

Net income (loss) per share

Basic net income (loss) per common share is calculated by dividing net income (loss) for the period by the weighted average common shares outstanding during the period, less shares subject to repurchase. Diluted income (loss) per share is calculated by dividing the net income (loss) for the period by the weighted average common shares outstanding, adjusted for all dilutive potential common shares, which includes shares issuable upon the exercise of outstanding common stock options, convertible preferred stock and other contingent issuances of common stock to the extent these shares are dilutive. The Company has losses for the years ended December 31, 1999, 2000 and 2001 and, accordingly, has excluded all convertible preferred stock, shares issuable upon exercise of common stock options and shares subject to repurchase from the calculation of diluted net loss per common share because all such securities are antidilutive. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share is as follows (in thousands, except for share and per share amounts):

	Year ended December 31,									Nine months ended September 30,
	1999			2000			2001			2001			2002
	Restated			Restated			Restated			Restated
										(unaudited)
Numerator
Net income (loss)	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	(5,616	)	$	6,480
Denominator
Basic:
Weighted average common shares outstanding		948,424			1,575,730			1,839,423			1,813,614			2,114,207
Less: Weighted average shares subject to repurchase		(702,644	)		(420,666	)		(307,204	)		(320,901	)		(137,303	)
Denominator on basic calculation		245,780			1,155,064			1,532,219			1,492,713			1,976,904
Basic net income (loss) per share	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	3.28
Shares used above to compute basic net income (loss) per share		245,780			1,155,064			1,532,218			1,492,713			1,976,905
Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock (unaudited)								5,363,050						5,528,574
Shares used in computing pro forma basic net income (loss) per common share (unaudited)								6,895,268						7,505,479
Pro forma basic net income (loss) per common share (unaudited)							$	(1.26	)				$	0.86
Diluted:
Weighted average common shares outstanding		948,424			1,575,730			1,839,423			1,813,614			2,114,207
Less: Weighted average unvested shares subject to repurchase		(702,644	)		(420,666	)		(307,204	)		(320,901	)		—
Weighted average dilutive effect of convertible preferred stock		—			—			—			—			5,528,574
Weighted average dilutive effect of common stock options		—			—			—			—			2,001,712
Denominator on diluted calculation		245,780			1,155,064			1,532,219			1,492,713			9,644,493
Diluted net income (loss) per share	$	(6.85	)	$	(6.02	)	$	(5.67	)	$	(3.76	)	$	0.67
Shares used above to compute diluted net income (loss) per share								1,532,219						9,644,493
Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock (unaudited)								5,363,050						—
Shares used in computing pro forma diluted net income (loss) per common share (unaudited)								6,895,268						9,644,493
Pro forma diluted net income (loss) per share (unaudited)							$	(1.26	)				$	0.67

F-15

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The following table summarizes shares of potential common shares that are not included in the denominator used in the diluted net loss per share calculation because to do so would be antidilutive for the periods presented:

	Year ended December 31,			Nine months ended September 30,
Effect of Common Stock Equivalents	1999	2000	2001	2001
Common stock subject to repurchase	531,667	311,667	218,167	262,167
Options to purchase common stock	2,342,414	2,750,825	2,361,788	2,471,139
Series A convertible preferred stock	2,200,000	2,200,000	2,200,000	2,200,000
Series B convertible preferred stock	440,000	440,000	440,000	440,000
Series C convertible preferred stock	880,000	880,000	880,000	880,000
Series D convertible preferred stock	—	1,854,050	1,843,050	1,843,050
Total	6,394,081	8,436,542	7,943,005	8,096,356

Unaudited pro forma net income (loss) per share

The unaudited pro forma basic and diluted net income (loss) per common share and pro forma basic and diluted weighted average common shares outstanding reflect the automatic conversion of all outstanding shares of convertible preferred stock upon the completion of the Company’s proposed initial public offering (using the as if-converted method).

Unaudited pro forma stockholders’ equity presentation

The unaudited pro forma stockholders’ equity information in the accompanying consolidated balance sheet assumes the conversion of the outstanding shares of convertible preferred stock into 5,649,050 shares of common stock as though the completion of the initial public offering had occurred on September 30, 2002. Common shares issued in such initial public offering and any related estimated net proceeds are excluded from such pro forma information.

Stock-based compensation

The Company accounts for its stock-based employee compensation plans using the intrinsic-value method. Deferred stock-based compensation expense is recorded if, on the date of grant, the current market value of the underlying stock exceeds the exercise price. The expense associated with stock-based compensation is being amortized over the vesting period of the individual award using an accelerated method of amortization consistent with the method described in FASB Interpretation No. 28. The Company discloses the pro forma effect of using the fair value method of accounting for all employee stock-based compensation arrangements in accordance with SFAS 123. The Company accounts for equity instruments issued to non-employees in accordance with EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.”

F-16

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Other income (expenses), net

Other income (expenses), net consists of the following (in thousands):

	Year ended December 31,									Nine months ended September 30,
	1999			2000			2001			2001		2002
										(unaudited)
Interest income	$	54		$	652		$	460		$	392	$	186
Loss on disposal of assets		—			(134	)		(1	)		—		(92	)
Other		(22	)		37			78			38		(191	)
	$	32		$	555		$	537		$	430	$	(97	)

Income taxes

The Company accounts for income taxes using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

Comprehensive income (loss)

Comprehensive income (loss) is the total of net income (loss) and all other non-owner changes in stockholders’ equity. The Company’s only component of other comprehensive income (loss) is foreign currency translation adjustments. Such amounts are excluded from net income (loss) and are reported in accumulated other comprehensive loss in the accompanying consolidated financial statements.

Recent accounting pronouncements

In June 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. As used in SFAS 143, a legal obligation results from existing law, statute, ordinance, written or oral contract, or by legal construction of a contract under the doctrine of promissory estoppel. SFAS 143 is effective for fiscal years beginning after June 15, 2002. We have adopted SFAS 143 as of January 1, 2003. The Company does not expect the adoption of SFAS 143 to have a material impact on the consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Among other provisions, SFAS 145 rescinds SFAS 4, “Reporting Gains and Losses from Extinguishment of Debt.” Accordingly, gains or losses from extinguishment of debt are not reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of APB 30. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The Company has adopted SFAS 145 as of January 1, 2003. The Company does not expect the adoption of SFAS 145 to have a material impact on the consolidated financial position or results of operations.

F-17

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Previous guidance, provided under Emerging Issues Task Force (“EITF”) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring),” required an exit cost liability be recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated by a company after December 31, 2002. The Company adopted SFAS 146 as of January 1, 2003. The Company does not expect the adoption of SFAS 146 to have a material impact on the consolidated financial position or results of operations.

In November 2002, the FASB issued Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and supersedes FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others.” It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted FIN 45 as of January 1, 2003, and does not expect the adoption of FIN 45 to have a material impact on the consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS 148, “Summary of Statement No. 148 Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” This Statement amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Because the Company uses the intrinsic-value method of accounting for stock-based employee compensation, SFAS 148 does not impact the Company’s financial position or results of operations.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities.” This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. It explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. This interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not expect the adoption of FIN 46 to have a material impact on the consolidated financial position or results of operations.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the presentation of the year ended December 31, 2001.

F-18

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

4.    Balance Sheet Components:

Property and Equipment, net

Depreciation expense for property and equipment was $89,000, $431,000 and $721,000 for the years ended December 31, 1999, 2000 and 2001, respectively. Property and equipment, net consists of the following (in thousands):

	As of December 31,
	2000			2001
Equipment	$	1,121		$	1,240
Furniture and fixtures		506			445
Purchased software		682			693
Leasehold improvements		153			173
Construction in process		—			274
Other		46			46
		2,508			2,871
Less: Accumulated depreciation and amortization		(517	)		(1,146	)
Property and equipment, net	$	1,991		$	1,725

Goodwill and purchased intangible assets, net

Goodwill and purchased intangible assets, net, on the balance sheet consist of the following (in thousands):

	As of December 31,
	2000			2001
Intangible assets with a definite life:
Purchased development technology	$	1,000		$	1,000
Intangible assets with an indefinite life:
Goodwill		1,339			1,339
Assembled work force		150			150
		1,489			1,489
Total goodwill and purchased intangible assets		2,489			2,489
Less accumulated amortization		(290	)		(788	)
	$	2,199		$	1,701

F-19

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	As of December 31,				As of September 30, 2002
	2000		2001
					(unaudited)
Accrued payroll and related benefits	$	927	$	1,019	$	1,136
Royalties for signed agreements		2,594		3,586		3,770
Accruals for unlicensed royalty and settlement agreements		820		6,187		2,057
Accrued promotion		—		600		—
Accrued restructuring		—		307		136
Other		710		1,033		1,507
Total	$	5,051	$	12,732	$	8,606

In the nine months ended September 30, 2002, the Company reached agreements for payment of $4.3 million to settle alleged contributory infringement of certain patents allegedly used in the Company’s products or its customers’ products. Within the payments, $3.7 million was a settlement with one customer for claims relating to products sold prior to December 31, 2001 which the Company accrued in 2001. This customer received 650,000 shares of Series D convertible preferred stock in April 2002 in settlement of the $3.7 million liability. The 650,000 shares of Series D convertible preferred stock are convertible into 286,000 shares of common stock. The fair value of the convertible preferred stock issued in April 2002 approximated $3.7 million. There can be no assurance that there will not be additional claims in the future.

During the years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, the Company has recorded an accrual for unlicensed royalties where no signed agreement exists for $820,000, $6.2 million and $2.1 million, respectively. These accruals represent probable and estimable amounts payable based upon (i) the number of units sold under arrangements where the Company believes that a legal obligation exists multiplied by (ii) the royalty unit price that the relevant patent holders have published or settlement cost when there is an agreement reached. It is not known when agreements will ultimately be signed, if ever. Should the final arrangements result in royalty rates significantly different from these assumptions, the Company’s financial position and result of operations could be materially affected.

The Company has received notices of claims, and may receive additional notices of claims in the future, regarding the alleged infringement of third parties’ intellectual property rights that may result in restrictions or prohibitions on the sale of its products and cause it to pay license fees and damages. Some third parties hold patents that such parties claim cover various aspects of DVD technology. Some third parties have claimed that various aspects of DVD technology incorporated into the Company’s and its customers’ products infringe upon patents held by them.

The Company and its customers may be subject to additional third-party claims that it and its customers’ products violate the intellectual property rights of those parties.  In addition to the claims described above, the Company may receive notices of claims of infringement of other parties’ proprietary rights. Many companies aggressively use their patent portfolios to bring infringement claims against competitors and other parties. As a result, the Company may become a party to litigation in the future as a result of an alleged infringement of the intellectual property of others. The Company may be required to pay license fees and damages in the future if it is determined that its products infringe on patents owned by these third parties.

F-20

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The Company may be required to pay substantial damages and may be restricted or prohibited from selling its products if it is proven that it violates the intellectual property rights of others. If a third party proves that the Company’s technology infringes its patents, the Company may be required to pay substantial damages for past infringement and may be required to pay license fees or royalties on future sales of its products. In addition, if it were proven that the Company willfully infringed on a third party’s patents, it may be held liable for three times the amount of damages it would otherwise have to pay. Intellectual property litigation may require the Company to: stop selling, incorporating or using its products that use the infringed intellectual property; obtain a license to make, sell or use the relevant technology from the owner of the infringed intellectual property, which license may not be available on commercially reasonable terms, if at all; and redesign its products so as not to use the infringed intellectual property, which may not be technically or commercially feasible and may cause the Company to expend significant resources.

The defense of infringement claims and lawsuits, regardless of their outcome, would likely be expensive to resolve and could require a significant portion of management’s time. Rather than litigating an infringement matter, the Company may determine that it is in its best interests to settle the matter. Terms of a settlement may include the payment of damages and an agreement to license technology in exchange for a license fee and ongoing royalties. These fees may be substantial. If the Company is forced to take any of the actions described above, defend against any claims from third parties or pay any license fees or damages, its business and could be harmed.

The Company may be liable to some of its customers for damages that they incur in connection with intellectual property claims.  Some of its license agreements, including many of the agreements it has entered into with its large PC OEM customers, contain warranties of non-infringement and commitments to indemnify its customers against liability arising from infringement of third-party intellectual property rights. These commitments may require the Company to indemnify or pay damages to its customers for all or a portion of any license fees or other damages, including attorneys’ fees, its customers are required to pay, or agree to pay, these or other third parties. The Company has received notices from certain of its customers asserting rights under the indemnification provisions and warranty provisions of its license agreements with several customers. If the Company is required to pay damages to its customers or indemnify its customers for damages they incur, its business could be harmed. If customers are required to pay license fees in the amounts that are currently published by claimants, and the Company is required to pay damages to its customers or indemnify its customers for such amounts, such payments would exceed its revenue from such customers. Even if a particular claim falls outside of an indemnity or warranty obligation to its customers, the customers may be entitled to additional contractual remedies against the Company. Furthermore, even if the Company is not liable to its customers, they may attempt to pass on to the Company the cost of any license fees or damages owed to third parties, by reducing the amounts they pay for the Company’s products. These price reductions could harm the Company’s business.

5.    Commitments and Contingencies:

Standby letter of credit

As of December 31, 2001 the Company had an outstanding standby letter of credit for $600,000 issued in connection with a promotional agreement. See Note 14.

F-21

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Lease commitments

As of December 31, 2001, future minimum commitments under operating leases are as follows (in thousands):

Fiscal Year
2002	$	852
2003		607
	$	1,459

Rent expense was $100,000, $469,000 and $841,000 for the years ended December 31, 1999, 2000 and 2001, respectively, and is included in operating expenses in the accompanying consolidated statements of operations.

6.    Preferred Stock:

Redeemable preferred stock

As of December 31, 2000, 25,000 shares of Series D redeemable preferred stock were outstanding. During the year ended December 31, 2001, the 25,000 shares were redeemed for $1.0 million. See Note 13.

Convertible preferred stock

Convertible preferred stock consists of the following, net of issuance costs (in thousands, except share amounts):

	As of December 31,				As of September 30, 2002
	2000		2001
					(unaudited)
Series A:
Authorized—5,000,000 shares; Liquidation preference of $250
Outstanding—5,000,000 shares	$	5	$	5	$	5
Series B:
Authorized—1,000,000 shares; Liquidation preference of $250
Outstanding—1,000,000 shares		1		1		1
Series C:
Authorized—2,000,000 shares; Liquidation preference of $4,000
Outstanding—2,000,000 shares		2		2		2
Series D:
Authorized—5,000,000 shares; Liquidation preference of $16,755, $16,755 and $19,355, respectively
Outstanding—4,188,750 shares at December 31, 2000; 4,188,750 shares at December 31, 2001; 4,838,750 shares at September 30, 2002		4		4		5
	$	12	$	12	$	13

F-22

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The rights, restrictions and preferences of the convertible preferred stock are as follows:

• Pursuant to the Amended and Restated Certificate of Incorporation filed May 3, 2002, each share of convertible preferred stock is convertible, at the option of the holder, into 0.44 shares of common stock.

• Each share of convertible preferred stock will be automatically converted into shares of common stock at the then-effective conversion price on the effective date of a firm commitment to underwrite the public offering of the Company’s common stock.

• The holders of convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which their shares of preferred stock would convert.

• Each preferred stockholder is entitled to receive annual dividends at a rate of $0.005 per Series A share, $0.025 per Series B share, $0.20 per Series C share and $0.32 per Series D share, when and if declared by the Board of Directors, prior to payment of dividends on common stock. Dividends are noncumulative. No dividends have been declared to date.

• In the event of liquidation, dissolution or winding up of the affairs of the Company, the holders of Series A, Series B, Series C and Series D convertible preferred stock are entitled to receive a liquidation preference of $0.05 per Series A share, $0.25 per Series B share, $2.00 per Series C share and $4.00 per Series D share prior to any distribution to the holders of the common stock. After this distribution, all remaining assets of the Company will be distributed to all stockholders on a share for share basis (assuming conversion of all outstanding preferred stock into common stock).

7.    Common Stock:

In May 1998, the Company issued 880,000 shares of common stock to one employee of the Company, all of which were subject to a repurchase right at the option of the Company. The shares are repurchasable at $0.00114 per share in the event of termination of employment for any reason. The repurchase rights began to lapse 12 months after the vesting commencement date (May 15, 1998). Beginning on May 15, 1999, the remaining shares vest ratably each month over the remaining 36 months of the term. At December 31, 1999, 2000 and 2001 and September 30, 2002, 348,333, 568,333, 788,333 and 880,000 shares, respectively, had vested.

In February 1999, the Board of Directors approved a two-for-one stock split of all common and preferred stock. All share and per share information has been retroactively adjusted to reflect the stock split.

As of September 30, 2002, the Company had reserved shares of authorized but unissued common stock for the following (unaudited):

Conversion of Series A preferred stock	2,200,000
Conversion of Series B preferred stock	440,000
Conversion of Series C preferred stock	880,000
Conversion of Series D preferred stock	2,129,050
Stock Options	3,226,486
Total shares reserved	8,875,536

8.    Stock Options:

During 1998, the Company established the 1998 Stock Option Plan covering employees, consultants and directors of the Company. Under the terms of the 1998 Stock Option Plan, as amended, incentive and nonstatutory

F-23

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

stock options may be granted for up to 4,400,000 shares of the Company’s authorized but unissued common stock. Options issued under the 1998 Stock Option Plan generally have a maximum term of 10 years and vest over schedules determined by the Board of Directors. Options issued under the 1998 Stock Option Plan to stockholders owning 10% of the total combined voting power of all classes of stock shall have a maximum term of five years from the date of grant.

Nonstatutory stock options may be granted to employees, consultants and directors at no less than 85% of the fair market value of the common stock as determined by the Board of Directors at the date of grant. Incentive stock options may be granted only to employees at the fair market value of the common stock at the date of the grant. Stock options granted to a person owning more than 10% of the total combined voting power of all classes of stock of the Company must be issued at 110% of the fair market value of the common stock on the day of grant.

2003 Stock Plan

Subject to the Company’s proposed initial public offering, the Company has adopted the 2003 Stock Plan. The 2003 Stock Plan was adopted by the board of directors in January 2002 and the stockholders in April 2002. The 2003 Stock Plan was amended by the board in January 2003.

The Company has reserved a total of 176,000 shares of common stock for issuance pursuant to the 2003 Stock Plan plus (a) any shares which have been reserved but not issued under the 1998 Stock Option Plan as of the effective date of this offering and (b) any shares returned to the 1998 Stock Option Plan on or after the effective date of this offering as a result of termination of options or the repurchase of unvested restricted shares issued under the 1998 Stock Option Plan. In addition, the 2003 Stock Plan provides for annual increases in the number of shares available for issuance under the 2003 Stock Plan on the first day of each fiscal year, beginning with the fiscal year 2004, equal to the lesser of (i) 5% of the Company’s outstanding shares of common stock on the first day of the applicable fiscal year, (ii) 880,000 shares or (iii) another amount as the Board of Directors may determine.

The administrator determines the exercise price of options granted under the 2003 Stock Plan, but with respect to nonstatutory stock options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) and all incentive stock options, the exercise price must be at least equal to the fair market value of the Company’s common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of the Company’s outstanding capital stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator determines the term of all other options. The terms of the 2003 Stock Plan allow the administrator to grant options at exercise prices that are below, equal to or above market.

2003 Employee Stock Purchase Plan

Subject to the Company’s proposed initial public offering, the Company intends to establish an Employee Stock Purchase Plan. The 2003 Employee Stock Purchase Plan was adopted by the board of directors in January 2002 and the stockholders in April 2002. The 2003 Employee Stock Purchase Plan was amended by our board in January 2003.

F-24

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

A total of 176,000 shares of common stock will be made available for sale under the 2003 Employee Stock Purchase Plan. In addition, the plan provides for annual increases in the number of shares available for issuance under the plan on the first day of each fiscal year, beginning with the fiscal year 2004, equal to the lesser of (i) 1 ¹/2% of the outstanding shares of our common stock on the first day of the applicable fiscal year, (ii) 176,000 shares or (iii) another amount as the board may determine.

The Company’s employees and employees of designated subsidiaries are eligible to participate in the 2003 Employee Stock Purchase Plan if they are customarily employed for at least 20 hours per week and more than five months in any calendar year. The plan permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation which includes a participant’s base salary, bonuses and commissions, but excludes all other compensation. A participant may purchase a maximum of 4,400 shares during a six-month purchase period.

Option activity is as follows:

	Shares Available for Grant		Option Activity		Option Activity Outside of the plans		Total Outstanding Options		Weighted Average Exercise Price
December 31, 1998	880,000		—		—		—			—
Authorized	2,640,000		—		—		—			—
Options granted	(2,561,504	)	2,561,504		25,850		2,587,354		$	0.14
Options exercised	—		(227,890	)	(12,650	)	(240,540	)		0.11
Options canceled	4,400		(4,400	)	—		(4,400	)		0.11
December 31, 1999	962,896		2,329,214		13,200		2,342,414			0.14
Authorized	880,000		—		—		—			—
Options granted	(972,664	)	972,664		44,000		1,016,664			3.35
Options exercised	—		(508,510	)	—		(508,510	)		0.19
Options canceled	99,743		(99,743	)	—		(99,743	)		3.36
December 31, 2000	969,975		2,693,625		57,200		2,750,825			1.20
Authorized	—		—		—		—			—
Options granted	(444,928	)	444,928		26,400		471,328			4.30
Options exercised	—		(287,674	)	(57,200	)	(344,874	)		2.60
Options canceled	515,488		(515,488	)	—		(515,488	)		2.21
December 31, 2001	1,040,535		2,335,391		26,400		2,361,791			1.40
Authorized	—		—		—		—			—
Options granted	(446,952	)	446,952		—		446,952			7.70
Options exercised	—		(175,841	)	—		(175,840	)		0.51
Options canceled	53,066		(53,066	)	—		(53,065	)		4.59
September 30, 2002 (unaudited)	646,649		2,553,436		26,400		2,579,837		$	2.48

F-25

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The following table summarizes the stock options outstanding and exercisable as of December 31, 2001:

Range of Exercise Prices	Number of Options Outstanding at December 31, 2001	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Options Exercisable as of December 31, 2001
$0.11–0.13	1,438,929	7.26	$	0.11	1,252,122
0.57–0.63	279,586	7.89		0.59	190,880
4.55–5.00	643,276	8.89		4.61	257,892
$0.11–5.00	2,361,791	7.78	$	1.40	1,700,894

SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes a fair-value-based method of accounting for stock-based compensation plans and requires additional disclosures for those companies that elect not to adopt the new method of accounting. In accordance with the provision of SFAS No. 123, the Company has elected to apply APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Had compensation cost for the plans been determined consistent with SFAS No. 123, pro forma net loss would be as follows:

	Year ended December 31,
	1999			2000			2001
Net loss:
As reported	$	(1,683	)	$	(6,951	)	$	(8,684	)
Pro Forma	$	(1,699	)	$	(7,041	)	$	(9,259	)
Net loss per share—Basic and Diluted:
As reported	$	(6.85	)	$	(6.02	)	$	(5.67	)
Pro Forma	$	(6.91	)	$	(6.10	)	$	(6.04	)

The weighted average fair value of options granted to employees in 1999, 2000 and 2001 was $0.20, $7.43 and $9.49 , respectively. The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Year ended December 31,
	1999	2000	2001
Risk-free interest rate	5.7%–6.6%	6.75%–6.19%	4.84%–5.43%
Expected life of the option	4 years	4 years	4 years
Dividend yield	0%	0%	0%
Volatility	0%	0%	0%

As the Black-Scholes option valuation model requires the input of subjective assumptions, the resulting pro forma compensation cost may not be representative of that to be expected in future periods.

F-26

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The Company also issued options to consultants and other non-employees to purchase 359,194, 129,800 and 1,320 shares of common stock during the years ended December 31, 1999, 2000 and 2001, respectively. Stock options issued to non-employees are accounted for based on the fair value of the stock options issued. The fair value of each option granted was initially estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Year ended December 31,
	1999	2000	2001
Risk-free interest rate	5.7%–6.6%	6.75%–6.19%	4.84%–5.43%
Dividend yield	0%	0%	0%
Volatility	75%	95%	70–90%

The expected life used in the Black-Scholes model for issuances to non-employees was the contractual term of the equity instrument, typically ten years for stock option issuances. The unvested stock options are remeasured at each reporting period end until performance under the service arrangement is completed and the option is vested. Because the Black-Scholes option valuation model requires the input of subjective assumptions, the resulting compensation cost may not be representative of that to be expected in future periods. The compensation expense related to these options was $150,000, $983,000 and $130,000 for the years ended December 31, 1999, 2000 and 2001, respectively, and is included in operating expenses in the accompanying statements of operations.

Deferred stock compensation

In connection with the grant of certain stock options to employees for the years ended December 31, 1999, 2000 and 2001, the Company recorded deferred stock compensation within stockholders’ equity of $272,000, $3.6 million and $1.6 million, respectively, representing the difference between the deemed fair market value of the common stock and the option exercise price of those options at the date of grant. Such amount is presented as a reduction of stockholders’ equity and will be amortized over the vesting period of the applicable options using an accelerated method of amortization under FASB Interpretation No 28. The Company recorded amortization of deferred stock compensation expense in the consolidated statement of operations of $189,000, $1.9 million, $1.7 million and $2.0 million (unaudited) for the years ended December 31, 1999, 2000 and 2001 and the nine months ended September 30, 2002, respectively.

Stock options granted subsequent to December 31, 2001 (unaudited)

Subsequent to December 31, 2001, the Company had the following stock option issuances:

• In January 2002, the Company granted to employees options to purchase 234,036 and 88,000 shares of common stock at an exercise price of $6.82 and $7.50 per share, respectively. In connection with these options, deferred stock compensation of $2.1 million has been recorded based on a deemed fair market value of common stock of $13.55 per share.

• In January 2002, the Company granted to consultants options to purchase 14,960 shares of common stock at an exercise price of $6.82 per share. These options were valued using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 3.25%, dividend yield of 0%, term of ten years and volatility of 70%. In connection with these options, compensation expense $121,000 was recorded, based on a deemed fair market value of common stock of $13.55 per share.

F-27

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

• In March 2002, the Company granted to employees options to purchase 79,816 shares of common stock at an exercise price of $9.09 per share. In connection with these options, deferred stock compensation of $355,000 has been recorded, based on a deemed fair market value of common stock of $13.55 per share.

• In April 2002, the Company granted to employees options to purchase 21,340 and 8,800 shares of common stock at an exercise price of $11.36 and $11.93 per share, respectively. In connection with these options, deferred stock compensation of $44,000 has been recorded, based on a deemed fair market value of common stock of $13.00 per share.

• In November 2002, the Company granted to employees options to purchase 49,588 shares of common stock at an exercise price of $11.93 per share. In connection with these options, deferred stock compensation of $169,000 has been recorded based on a deemed fair market value of common stock of $15.34 per share.

Notes receivable from stockholders

In March 2001, the Company granted a senior executive an option to purchase 132,000 shares of common stock. These options were early exercised with a promissory note at the time of grant and the Company recorded a note receivable and a reduction in stockholder’s equity. The note bears interest at 5.07% per annum and is due on the earlier of March 22, 2006 or the first anniversary of the termination of services. The note is secured by the underlying stock and is with full recourse. The Company records interest income as interest accrues on the promissory note. All interest is due upon maturity of the note. The shares issued are subject to a repurchase right at the option of the Company. The repurchase right lapses over a four-year period in accordance with the vesting terms of the original option. As of December 31, 2001 and September 30, 2002, 107,250 shares and 82,500 shares, respectively, were still subject to repurchase by the Company.

In June 2001, the Company granted to each of two directors of the Company options to purchase 22,000 shares of common stock. These options were early exercised with promissory notes in December 2001. The notes bear interest at 5.07% per annum and become payable in full upon the earlier of December 11, 2006 or the first anniversary of the termination of services with the Company. The notes are secured by the underlying stock and are full recourse. The Company records interest income as interest accrues on the promissory notes. The shares issued are subject to a repurchase right at the option of the Company. The repurchase right lapses in accordance with the vesting terms of the original options. As of December 31, 2001 and September 30, 2002, 22,000 shares and 15,126 shares, respectively, were still subject to repurchase by the Company.

9.    401(k) Plan:

The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan provides for tax-deferred salary deductions and after-tax employee contributions. There have been no contributions made by the Company to date.

F-28

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

10.    Income Taxes:

Deferred income taxes reflect the net tax effect of temporary timing differences between the carrying amount of assets and liabilities for financial reporting purposes, and the amount used for income tax purposes. Net deferred income tax assets consist of the following (in thousands):

	December 31,
	2000			2001
Deferred income tax assets:
Federal net operating loss carryforwards	$	1,367		$	1,030
State net operating loss carryforwards		355			276
Start-up costs capitalized for tax		118			80
Research and development credit		441			1,185
Depreciation and amortization		1,302			1,211
Other temporary differences		934			3,307
Other tax credits		88			1,025
		4,605			8,114
Valuation allowance		(4,653	)		(7,365	)
Total deferred income tax assets	$	(48	)	$	749
Deferred income tax liability—property, plant and equipment		48			(749	)
Net deferred tax asset	$	—		$	—

Federal and state net operating loss carryforwards at December 31, 2001 were $3.0 million and $3.1 million, respectively. The federal net operating loss carryforwards expire on various dates through 2021, while the state net operating loss carryforwards expire through 2013. The Company has federal and state research and development tax credit carryforwards of $585,000 and $600,000, respectively. The federal tax credit carryforwards expire on various dates through 2021, while the state tax credits carry forward indefinitely. The Company also has foreign carryforwards at December 31, 2001 of $985,000 that expire through 2006. SFAS 109, “Accounting for Income Taxes” requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all positive and negative evidence needs to be considered, including the Company’s current and past performance, the market environment in which the Company operates, the utilization of past tax credits, length of carryback and carryforward periods and existing contracts that will result in future profits. The Internal Revenue Code contains provisions that may limit the net operating losses and tax credit carryforwards that may be utilized in any given year based on the occurrence of certain events, including a significant change in ownership interest.

Until the third quarter of 2002, the Company had determined that it was more likely than not that all of the deferred tax asset would not be realized. Accordingly, a full valuation allowance was recorded against the deferred tax asset. In the third quarter of 2002, management reviewed the available evidence that included estimates of net income in 2002, the expected full utilization of federal net operating loss carryforwards in 2002, the short-term nature of temporary timing differences and expectations of future performance from existing contracts. Based on management’s assessment of these positive factors, notwithstanding the losses in previous fiscal years, management determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Based on this determination, approximately $5.7 million (unaudited) of valuation allowance brought forward from earlier years has been reversed and recorded as a benefit for income taxes in the third quarter of 2002. The effect of this reduction in the valuation allowance, offset by the provision for income taxes for the nine months ended September 30, 2002, resulted in a net benefit for income taxes of $2.7 million (unaudited) for the nine months ended September 30, 2002.

F-29

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

The provision for income taxes differs from the expected tax benefit amount computed by applying the statutory federal income tax rate to loss before taxes as follows:

	Year ended December 31,
	1999		2000		2001
Federal statutory rate	34.0	%	34.0	%	34.0	%
State taxes, net of federal benefit	—		—		—
Foreign tax rates	(3.8	)	(8.7	)	12.1
Non-deductible expenses	(7.6	)	(11.0	)	(13.1	)
Net operating losses not benefited	(26.4	)	(23.0	)	(20.9	)
Effective tax rate	(3.8	)%	(8.7	)%	(12.1	)%

The significant components of income tax expense for 1999 are as follows (in thousands):

	Current		Deferred		Total
Federal	$	—	$	—	$	—
State		1		—		1
Foreign		62		—		62
Valuation allowance		—		—		—
Total income tax expense	$	63	$	—	$	63

The significant components of income tax expense for 2000 are as follows (in thousands):

	Current		Deferred		Total
Federal	$	—	$	—	$	—
State		1		—		1
Foreign		551		—		551
Total income tax expense	$	552	$	—	$	552

The significant components of income tax expense for 2001 are as follows (in thousands):

	Current		Deferred		Total
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		924		—		924
Valuation allowance		—		—		—
Total income tax expense	$	924	$	—	$	924

11.    Related-party Transactions:

Prior to November 1999, the Company received limited administrative and accounting services from an affiliated company in which the Company’s chief executive officer and his spouse (who was also a member of the Company’s Board of Directors at the time the service was performed) are significant stockholders. No amounts were charged to the Company by the affiliate for the services provided during the period from April

F-30

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

1998 to November 1999, and the Company has not recorded a charge for the fair value of the services received. The fair value of these services is insignificant to the accompanying consolidated financial statements.

The Company provided services to Fundwatch Global Financial Ltd. that amounted to approximately $40,000 and $33,000 in 2000 and 2001, respectively, and sold equipment to Fundwatch Global Financial for approximately $80,000 in 2001. Fundwatch Global Financial’s chief executive officer is the brother of the Company’s chief executive officer.

12.    Segment and Geographic Information:

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer of the Company.

The Company has one operating segment: multimedia software. Sales of licenses to this software occur in three geographic locations, namely the Americas, Europe and Asia. International revenues are based on the country in which the end user is located. The following is a summary of financial information by geographic region (in thousands):

	Year ended December 31,						Nine months ended September 30,
	1999		2000		2001		2001		2002
							(unaudited)
Revenues:
Americas:
United States	$	1,384	$	6,907	$	18,587	$	13,231	$	16,908
Other Americas		14		52		11		11		—
Europe		265		2,388		3,823		2,971		2,179
Asia:
Japan		543		2,931		8,579		5,269		11,286
Other Asia		830		3,148		2,763		1,784		3,772
Total	$	3,036	$	15,426	$	33,763	$	23,266	$	34,145

	As of December 31,				As of September 30,
	2000		2001		2002
					(unaudited)
Tangible long-lived assets:
Americas:
United States		2,060		2,482		1,383
Europe		—		—		—
Asia:
Japan		25		104		107
Other Asia		486		225		276
Total	$	2,571	$	2,811	$	1,766

F-31

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

13.    Acquisition of AVPD:

On June 7, 2000, the Company completed the acquisition of AVPD, a developer of audio and video software products. AVPD was founded in 1998 and released its first product, GAMUT98, in August 1998. Its second-generation product, GAMUT2000, was released in February 2000. This purchase is intended to result in the combination of GAMUT technological assets that will accelerate the Company’s development and introduction of next generation multimedia software products. The results of operations of AVPD are included in the consolidated statements of operations for the period from the date of acquisition.

The purchase cost of the acquisition was $3.2 million, including legal, valuation and accounting fees of $200,000, and was accounted for as a purchase. The Company paid $2.2 million in cash during 2000, issued 25,000 shares of Series D redeemable preferred stock. In accordance with the purchase agreement, if the Company did not complete an initial public offering of its common stock by December 31, 2000, the seller had the right to sell the 25,000 shares of Series D convertible preferred stock back to the Company. Accordingly, in January 2001 and at the sellers request, the Company repurchased the shares for $1,000,000. This return was treated as a redemption of shares in the accompanying consolidated balance sheet.

The purchase price was allocated as follows: $700,000 to in-process research and development, $1.3 million to goodwill, $150,000 to assembled work force and $1 million to developed technology. In performing this allocation, the Company considered, among other factors, AVPD’s technology research and development projects in process at the date of acquisition. With regard to the in-process research and development projects, the Company considered factors such as the overall objectives of the project, progress towards the objectives at the time of acquisition, the uniqueness of the development projects and contributions from existing technology and projects.

The income approach was the primary technique utilized in valuing the purchased in-process research and development. Each of the in-process research and development projects was identified and valued through detailed interviews and analysis of product development data provided by management concerning developmental projects, their respective stages of development, the time and resources needed to complete the projects, their expected income-generating ability and associated risks.

Revenue projections used to value the developed technology and in-process research and development were based on estimates of relevant market sizes and growth factors, expected trends in technology and the nature and expected timing of new product introductions by AVPD. The discount rate selected for developed and in-process technology was 30% and 35%, respectively.

The analysis of the assembled work force primarily considered the replacement cost associated with recruiting and training a work force with comparable experience and qualifications.

All of the in-process technology projects acquired from AVPD were completed by the end of 2000 and incorporated into the Company’s WinRip product, which began shipping in February 2001.

F-32

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

Following is unaudited pro forma combined consolidated financial information, as though the acquisition had occurred at the beginning of each period (amounts in thousands, except per share data):

	Year ended December 31,
	1999			2000
Net revenues	$	3,218		$	15,575
Net loss	$	(2,501	)	$	(7,267	)
Basic and diluted net loss per share	$	(10.17	)	$	(6.29	)

The pro forma net losses include amortization of goodwill and purchased intangibles totaling approximately $500,000 and $208,000 for the years ended December 31, 1999 and 2000, respectively. This unaudited pro forma combined consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations in future periods or the results that actually would have been realized.

14.    Impairment of Promotional Agreement:

In March 2001, the Company entered into a promotional agreement with an online music provider for exclusive marketing and promotion space. In accordance with the agreement, the Company was required to pay $1.1 million over 12 months and provide a $600,000 standby letter of credit. During the period from March 2001 to August 2001, the Company recognized $550,000 for promotional costs under the agreement, which have been recorded in sales and marketing expense. Based on the results of the promotion, the Company determined that there was minimal future promotional benefit to be derived from this agreement, even though the payments had been made or were still due. The Company therefore recorded in the third quarter of 2001 the remaining $550,000 of promotional expense separately as an impairment of a promotional agreement. In March 2002, this promotion agreement was completed and the $600,000 (unaudited) standby letter of credit was released.

15.    Restructuring costs:

During the second quarter of 2001, the Company approved a restructuring plan to reduce its workforce and consolidate offices to align its cost structure with the Company’s projected revenue growth and economic and industry conditions at the time. A one-time charge of $850,000 related to this plan was recorded in operating expenses in the second quarter of 2001. This charge included $257,000 related to employee terminations and $593,000 related to office closures. In 2002, the Company entered into a sub-lease for certain office space that was vacated as part of the restructuring. The Company reduced its restructuring accrual in the third quarter of 2002 by $20,000, being the full amount expected to be received under the the sub-lease.

This restructuring eliminated approximately 25% of the Company’s worldwide employee workforce, including employees in research and development, sales and marketing and general and administrative.

F-33

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the nine months ended September 30, 2001 and 2002 is unaudited)

A roll forward of the accrued restructuring expenses from June 30, 2001 to December 31, 2001 and September 30, 2002 is as follow (in thousands):

	Office Closures			Severance			Total
Accrued Restructuring as of June 30, 2001	$	593		$	257		$	850
Payments in 2001		(288	)		(255	)		(543	)
Balance as of December 31, 2001		305			2			307
Payments for the nine months of 2002 (unaudited)		(149	)		(2	)		(151	)
Adjustment for sub-lease (unaudited)		(20	)		0			(20	)
Balance as of September 30, 2002 (unaudited)	$	136		$	0		$	136

16.    Subsequent Events:

Approval to file registration statement

In January 2002, the Board of Directors of the Company approved the filing of a registration statement by the Company under the Securities Act of 1933 relating to an initial public offering of the Company’s common stock. In January 2003, the Board of Directors of the Company approved the withdrawal of such registration statement and the filing of another registration statement relating to an initial public offering.

F-34

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL, INC.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Formosoft International Inc.:

We have audited the accompanying balance sheets of the Audio/Video Products Division of Formosoft International Inc. as of December 31, 1998 and 1999, and the related statements of operations and comprehensive loss and cash flows for the period from April 14, 1998 (date of incorporation), to December 31, 1998, and for the year ended December 31, 1999. These financial statements are the responsibility of the Formosoft International Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Audio/Video Products Division of Formosoft International Inc. as of December 31, 1998 and 1999, and the results of its operations and comprehensive loss and its cash flows for the period from April 14, 1998 (date of incorporation), to December 31, 1998, and for the year ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.

TN SOONG & CO.

A Member Firm of Andersen Worldwide, SC

Taipei, Taiwan, the Republic of China,

March 19, 2001

F-35

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

BALANCE SHEETS

(in thousands of U.S. dollars)

	December 31,						June 7, 2000
	1998			1999
							(unaudited)
ASSETS
Current Assets:
Accounts receivable	$	24		$	—		$	20
Related-party receivable: Formosa		—			47			26
Inventory		15			4			3
Total current assets		39			51			49
Computer equipment, net		15			17			19
Other Assets: Deferred pension cost		3			—			—
Total assets	$	57		$	68		$	68
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Notes and accounts payable	$	7		$	22		$	10
Accrued expenses and other current liabilities		34			68			59
Total current liabilities		41			90			69
Accrued pension cost		3			6			10
Parent’s equity in division		174			464			600
Total liabilities		218			560			679
Shareholders’ Equity:
Foreign currency translation adjustments		(6	)		(19	)		(30	)
Accumulated deficit		(155	)		(473	)		(581	)
Total shareholders’ equity		(161	)		(492	)		(611	)
Total liabilities and shareholders’ equity	$	57		$	68		$	68

The accompanying notes are an integral part of these statements.

F-36

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands of U.S. dollars)

	For the period from April 14, 1998 to December 31, 1998			For the year ended December 31, 1999			For the period from January 1, 2000 to June 7, 2000
							(unaudited)
Sales	$	27		$	182		$	149
Cost of sales		—			(13	)		(1	)
Gross profit		27			169			148
Operating Expenses:
Research and development		102			275			138
Selling, general, and administrative		114			211			116
Total operating expenses		216			486			254
Loss from operations		(189	)		(317	)		(106	)
Non-operating Income (Loss):
Foreign currency exchange loss		—			(1	)		(2	)
Subsidy income		34			—			—
Total non-operating income (loss), net		34			(1	)		(2	)
Net loss		(155	)		(318	)		(108	)
Other Comprehensive Loss: Foreign currency translation adjustments		(6	)		(13	)		(11	)
Comprehensive loss	$	(161	)	$	(331	)	$	(119	)

The accompanying notes are an integral part of these statements.

F-37

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

	For the period from April 14, 1998 to December 31, 1998			For the year ended December 31, 1999			For the period from January 1, 2000 to June 7, 2000
							(unaudited)
Operating Activities:
Net loss	$	(155	)	$	(318	)	$	(108	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3			8			9
Accrued pension cost		—			6			4
Changes in Operating Assets and Liabilities:
Accounts receivable		(24	)		24			(20	)
Accounts receivable: related parties		—			(47	)		21
Inventories		(15	)		11			1
Notes and accounts payable		7			15			(12	)
Accrued expenses and other current liabilities		34			34			(9	)
Net cash used in operating activities		(150	)		(267	)		(114	)
Investing and Financing Activities:
Working capital from owner		174			290			136
Acquisitions of computer equipment		(17	)		(12	)		(10	)
Net cash provided by investing and financing activities		157			278			126
Effects of change in exchange rate on cash	$	(7	)	$	(11	)	$	(12	)
Net change in cash	$	—		$	—		$	—

The accompanying notes are an integral part of these statements.

F-38

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS

1.    General:

Business

On June 7, 2000, InterVideo, Inc. acquired the Audio/Video Products Division (AVPD) of Formosoft International Inc. (Formosoft) in Taiwan in exchange for a cash payment of $3.2 million. The acquisition consisted of AVPD’s business, including information equipment, intellectual property rights and products, and customers. AVPD’s business was integrated with the businesses of Formosoft; consequently, the financial statements have been derived from the financial statements and accounting records of Formosoft and reflect significant assumptions and allocations. Moreover, AVPD relied on Formosoft and its other businesses for administrative, management, research and other services. Accordingly, the financial statements do not necessarily reflect the financial position, results of operations and cash flows of AVPD had it been a stand-alone company.

AVPD is a developer of audio and video coding and decoding technologies. It develops and sells software that encodes, transcodes and decodes digital audio and video data on a real-time basis. AVPD was established at the same time when Formosoft was incorporated on April 14, 1998, and released its first software, GAMUT98, in August 1998, then its second-generation product, GAMUT2000, in February 2000.

2.    Basis of Presentation:

AVPD’s financial statements were “carved out” from the financial statements and accounting records of Formosoft using the historical results of operations and historical basis of assets and liabilities of AVPD’s business activities. Management believes that the assumptions underlying the financial statements are reasonable. However, the financial statements included herein may not necessarily reflect what AVPD’s results of operations, financial position and cash flows would have been had AVPD been a stand-alone company during the periods presented. Because a direct ownership relationship did not exist among all the various divisions comprising Formosoft, Formosoft’s net investment in AVPD is shown as “working capital from owner” in lieu of shareholders’ equity in the financial statements.

The financial statements include allocations of certain Formosoft expenses, assets and liabilities, including the items described below.

Costs of centralized general expenses

Centralized general expenses are allocated based on headcounts for the respective periods and are reflected in selling, general and administrative, and research and development expenses. The general corporate expense allocation is primarily for cash management, rent, utilities, accounting, insurance, public relations, advertising, human resources and data services. Management believes that the costs of these services charged to AVPD are a reasonable representation of the costs that would have been incurred if AVPD had performed these functions as a stand-alone company.

Basic research

Research and development expenses were allocated based on the number of individuals conducting the research and development for AVPD. Management believes that the costs of this research charged to AVPD are a reasonable representation of the costs that would have been incurred if AVPD had performed this research as a stand-alone company. AVPD is satisfying its basic research requirements using its own resources or through purchased services.

F-39

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Sales and cost of sales

Sales and costs of sales are clearly identifiable as applicable to AVPD’s business.

Income tax

Income taxes are calculated as if AVPD was a stand-alone legal entity.

Pension costs

These costs are allocated based on AVPD’s active employee population for each of the years presented.

Cash and accounts receivable and payable

Formosoft uses a centralized approach to cash management. As a result, Formosoft’s cash, cash equivalents or short-term investments have not been allocated in AVPD’s financial statements. Receivables and payables in the financial statements are directly related to sales and purchases made by AVPD. No allowance for doubtful accounts was recorded in any period presented. Changes in investing and financing activities represent any funding required from Formosoft for working capital and acquisition or capital expenditure requirements.

3.    Accounting Policies:

Unaudited interim financial statements

The interim financial information contained herein for the period from January 1, 2000, to June 7, 2000, is unaudited but, in the opinion of management, reflects all adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the period presented. All adjustments are of a normal, recurring nature. Results of operations for interim periods presented herein are not necessarily indicative of results of operations for the entire year.

Use of estimates

Formosoft maintains its accounting books and records in conformity with accounting principles generally accepted in the Republic of China (ROC). The accompanying financial statements of AVPD have been “carved out” from the financial statements and accounting records of Formosoft and were then prepared to reflect its financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Concentration of credit risk

Financial instruments that potentially subject AVPD to a concentration of credit risk consist primarily of accounts receivable. To mitigate this risk, AVPD performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for doubtful accounts receivable based upon review of the expected collectibility of individual accounts receivable.

Fair value of financial instruments

AVPD’s financial instruments, including accounts receivable and notes and accounts payable, are carried at cost, which approximates fair value because of the short-term maturity of these instruments.

F-40

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

Inventories

Inventories consist solely of finished goods and are stated at the lower of weighted-average cost or market value. Market value represents net realizable value.

Computer equipment

Computer equipment is stated at cost less accumulated depreciation. The equipment is depreciated using the straight-line method based on estimated useful lives of over three years.

Asset impairment

Statement of Financial Accounting Standards (SFAS) No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,” requires recognition of impairment of long-lived assets in the event the net book value of these assets exceeds the future undiscounted cash flows attributable in use to these assets. Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. No impairment losses have been recorded in any period presented.

Revenue recognition

AVPD generates software revenues mainly from product licensing fees. Revenue from products licensed to original equipment manufacturers (OEMs) based on the number of sales by the OEMs is recorded when the OEMs ship the licensed products. Revenue from periodic software licenses, under which fees are paid on a recurring, periodic basis, is generally recognized ratably over the respective license periods. Revenue from packaged product sales to and through distributors and resellers is recorded when related products are shipped, provided that the license agreement has been signed, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable.

In December 1999, the United States Securities Exchange Commission (U.S. SEC) issued Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition in Financial Statements.” SAB No. 101 provides additional guidance on revenue recognition, as well as criteria for when revenue is generally realized and earned. AVPD’s revenue recognition policies are fully compliant with SAB No. 101 for all periods presented.

Research and development

Research and development costs are expensed as incurred. In accordance with SFAS No. 86, AVPD has evaluated the establishment of technological feasibility of its various products during the development phase. Due to dynamic changes in the market, AVPD has concluded that it cannot determine, with any reasonable degree of accuracy, technological feasibility until the development phase of the project is nearly complete. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is generally very short, and consequently, the amount that could be capitalized pursuant to SFAS No. 86 is not material to AVPD’s financial position or results of operations. Therefore, AVPD charges all research and development expenses to operations in the period incurred.

Pension costs

Employees of AVPD are included in the Formosoft defined benefit pension plan. The plan covers all regular employees and provides benefits based on length of service and salary levels upon retirement. Pension costs,

F-41

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

including services costs, interest costs, projected return on plan assets and amortization, are recorded on the basis of actuarial calculations in accordance with SFAS No. 87, “Employers’ Accounting for Pension.” Under SFAS No. 87, Formosoft recognizes a minimum pension liability equivalent to the unfunded accumulated benefit obligation. AVPD has been allocated its share of this pension liability based upon its employee population.

Advertising costs

Advertising costs are expensed as incurred. Advertising expense was $8,000 in 1998, $15,000 in 1999, and $160 (unaudited) for the period ended June 7, 2000.

Income tax

Formosoft is subject to income tax in the ROC. Therefore, the income tax of AVPD was calculated based on a separate tax return basis subject to income tax in the ROC. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance was provided for these deferred income tax assets because of the uncertainty surrounding the realizability of such amounts.

Subsidy income

AVPD received subsidy income from the Institute for Information Industry (III), a bureau of the ROC government, for qualified software development projects upon review and approval by III. The subsidy contract period was from July 1, 1998, to November 30, 1998. AVPD recognized subsidy income ratably over the term of the agreement. All related income was received in 1998.

Foreign currency translations

The functional currency of AVPD is the local currency, the New Taiwan dollar. Thus, foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Gains or losses, resulting from the application of different foreign exchange rates when cash in a foreign currency is converted into New Taiwan dollars or when foreign currency receivables and payables are settled, are credited or charged to income in the year of conversion or settlement. At year-end, the balances of foreign currency assets and liabilities are restated based on prevailing exchange rates, and any resulting gains or losses are credited or charged to income.

The financial statements of AVPD are translated into U.S. dollars at the following exchange rates: (a) assets and liabilities—current rate and (b) income and expenses—weighted-average rate during the year. The resulting translation adjustment is recorded as a separate component of shareholders’ equity.

Comprehensive loss

AVPD adopted the provisions of SFAS No. 130, “Reporting Comprehensive Income.” Comprehensive income, as defined, includes all changes in equity during a period from nonowner sources. To date, a foreign currency translation adjustment is the only income component required to be reported in other comprehensive loss for AVPD.

F-42

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

4.    Computer Equipment, Net (amounts in thousands of U.S. dollars):

	As of December 31,				As of June 7, 2000
	1998		1999
					(unaudited)
Computer equipment
Cost	$	18	$	28	$	36
Accumulated depreciation		3		11		17
	$	15	$	17	$	19

5.    Accrued Expenses and Other Current Liabilities (amounts in thousands of U.S. dollars):

	As of December 31,				As of June 7, 2000
	1998		1999
					(unaudited)
Salaries and bonus	$	34	$	65	$	58
Others		—		3		1
	$	34	$	68	$	59

6.    Retirement Plan:

Employees of AVPD are included in the Formosoft defined benefit pension plan. The plan covers substantially all of the employees in AVPD. Future retirement payments are based on the employee’s salary level upon retirement and length of service with Formosoft. At the end of each year, an actuarial calculation is prepared in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.” Based on this calculation, Formosoft transferred funds to the Central Trust of China, a government institution, equal to the projected benefit obligation. The plan was not funded at June 7, 2000. Accordingly, pension costs of $6,000 and $4,000 (unaudited) attributable to AVPD were recorded for the year ended 1999 and for the period ended June 7, 2000, respectively.

7.    Income Tax:

No provision for income taxes has been recorded for any period presented, as AVPD has incurred net operating losses for tax purposes.

Deferred tax assets and liabilities consist of the following (amounts in thousands of U.S. dollars):

	As of December 31,						As of June 7, 2000
	1998			1999
							(unaudited)
Net operating loss carryforwards	$	31		$	95		$	116
Valuation allowance		(31	)		(95	)		(116	)
	$	—		$	—		$	—

AVPD provides a valuation allowance for deferred tax assets when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Based on a number of factors (a lack of a history

F-43

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

of profits; the market in which AVPD competes is intensely competitive; the industry is characterized by rapidly changing technology), management believes that there is sufficient uncertainty regarding the realization of deferred tax assets that a full valuation allowance is appropriate.

These operating loss carryforwards are available to offset future taxable income and expire from 2003 to 2005 as if AVPD was a stand-alone legal entity.

8.    Related-party Transactions:

Sales made by AVPD to Formosa Industrial Computing, Inc. (Formosa), a shareholder and director of Formosoft, for the year ended December 31, 1999, and for the period ended June 7, 2000, amounted to $117,000 and $49,000 (unaudited), respectively. Since no other bundle contracts were signed by AVPD other than Formosa, market prices are not available for comparison.

9.    Segment Information:

AVPD is engaged in a single industry segment—the development and marketing of audio and video coding and decoding software products. AVPD’s revenues are all from ROC. Major customers that accounted for more than 10 percent of total revenues are as follows (amounts in thousands of U.S. dollars):

	Year ended December 31,								Period ended June 7, 2000
	1998				1999
	Amount		Percent		Amount		Percent		Amount		Percent
									(unaudited)
Customers:
Softchina	$	22	81	%	$	22	12	%	$	20	13	%
Formosa		—	—			117	64			49	33
Hsing-Tech		—	—			30	16			78	52

F-44

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Unless otherwise defined, all capitalized terms contained in this Part II shall have the meanings ascribed to them in the prospectus which forms a part of this registration statement. InterVideo is sometimes referred to in this Part II as the “registrant.”

Item 13.    Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.

Securities and Exchange Commission registration fees	$	5,185
NASD filing fee		6,135
Printing and engraving expenses		200,000
Legal fees and costs		450,000
Accounting fees and costs		800,000
Nasdaq National Market listing fees		100,000
Transfer agent and registrar fees and expenses		15,000
Road show expenses		250,000
Miscellaneous expenses		23,680
Total		1,850,000

Item 14.    Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law provides for the indemnification of officers, directors and other corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the “Act”). Article IX of the registrant’s Amended and Restated Certificate of Incorporation (Exhibit 3.2 hereto) and Article IX of the registrant’s Amended and Restated Bylaws (Exhibit 3.4 hereto) provide for indemnification of the registrant’s directors, officers, employees and other agents to the extent and under the circumstances permitted by the Delaware General Corporation Law. The registrant has entered into agreements with its directors and certain officers that require the registrant, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as director for officers to the fullest extent not prohibited by law. The underwriting Agreement (Exhibit 1.1) provides for indemnification by the underwriters of the registrant, its directors and officers, and by the registrant of the underwriters, for certain liabilities, including liabilities arising under the Act and affords certain rights of contribution with respect thereto.

Item 15.    Recent Sales of Unregistered Securities.

In April 2002, the registrant declared, and in May 2002 effected, a stock split in the amount of 0.44 shares for every share of common stock outstanding, carried out on a certificate-by-certificate basis. All references to shares of common stock in this Registration Statement reflect this stock split.

Since January 1, 2000, we have sold and issued the following unregistered securities:

(1)  From January 2000 to December 2002, we have granted stock options to purchase an aggregate of 1,914,132 shares of common stock at exercise prices ranging from $0.57 to $11.93 per share to employees, consultants and directors pursuant to our 1998 Plan. In addition, we have granted stock options to purchase an aggregate of 96,250 shares of common stock outside of the 1998 Plan. The options issued outside of the 1998 Plan were issued at exercise prices ranging from $0.11 to $0.56 per share to consultants and other service providers (including the registrant’s former legal counsel and financial advisors).

II-1

(2)  From April 2000 to June 2000, we sold an aggregate of 4,213,750 shares of Series D preferred stock, convertible into 1,854,050 shares of common stock, to 68 investors, 54 of which are non-U.S. persons, at a price of $4.00 per share for an aggregate purchase price of $16,855,000. All shares of the preferred stock are convertible into shares of common stock at the rate of one share of common stock for each share of preferred stock outstanding.

(3)  In April 2002, we issued shares of Series D Preferred Stock, convertible into 286,000 shares of common stock, to Dell Products, L.P., pursuant to a settlement and release agreement between the registrant and Dell Products, L.P.

Of the securities described in paragraph (1) above, 69,850 shares were exempt from registration under Section 4(2) of the Securities Act and 1,940,532 shares were exempt by virtue of Rule 701 in that they were offered and sold either pursuant to a written compensatory benefit plan or pursuant to a written contract relating to compensation. The sale and issuance of securities described in paragraphs (2), (3) and (4) above were sold to accredited or sophisticated persons and were exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act, Regulation D and Regulation S.

Item 16.    Exhibits and Financial Statements Schedules.

(a)  Exhibits

Exhibit Number	Description
1.1*	Form of Underwriting Agreement.
3.1	Amended and Restated Certificate of Incorporation, as currently in effect.
3.2	Amended and Restated Certificate of Incorporation, to be effective upon consummation of this offering.
3.3	Amended and Restated Bylaws, as currently in effect.
3.4	Amended and Restated Bylaws, to be effective upon consummation of this offering.
5.1*	Opinion of Wilson Sonsini Goodrich & Rosati.
10.1	Registrant’s 1998 Stock Option Plan and form of option agreement.
10.2*	Registrant’s 2003 Stock Plan and form of option agreement.
10.3	Registrant’s 2003 Employee Stock Purchase Plan and form of subscription agreement.
10.4	Form of Directors and Officers’ Indemnification Agreement.
10.5	Investor Rights Agreement dated July 2, 1999, as amended, by and among the registrant and the parties who are signatories thereto.
10.6†	Digital Audio System License Agreement between the Registrant and Dolby Laboratories Licensing Corporation dated March 4, 1999.
10.7†	CSS License Agreement between the registrant and DVD Copy Control Association dated December 22, 2000.
10.8	Lease Agreement between the registrant and ProLogis Limited Partnership-1 dated December 7, 2000.
10.9	Employment offer letter with Randall Bambrough.
10.10	Form of Nonstatutory Stock Option Agreement for grants to Joe Liu and George Haber.
10.11	Nonstatutory Stock Option Agreement for Henry Shaw.

II-2

Exhibit Number	Description
10.12	Form of Promissory Notes issued by George Haber, Joe Liu and Randall Bambrough.
10.13	Common Stock Purchase Agreement with Honda Shing dated May 15, 1998.
10.14†	Software License Agreement between the registrant and Dell Products, L.P. dated August 4, 1999, as amended.
10.15	Settlement Agreement and Release between the registrant and Dell Products, L.P. dated April 26, 2002.
10.16*	Form of Change of Control Agreement with Steve Ro, Chinn Chin and Raul Diaz.
21.1	Subsidiaries of the registrant.
23.1	Consent of Independent Public Accountants.
23.2	Consent of TN Soong & Co.
23.3*	Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1	Power of Attorney (see page II-4).

* To be filed by amendment.

†   Confidential treatment requested for a portion of this agreement.

(b)  Financial Statement Schedules

Schedules other than those referred to above have been omitted because they are not applicable or not required or because the information is included elsewhere in the Financial Statements or the notes thereto.

Item 17.    Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned hereby undertakes that:

(1)  For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2)  For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on January 30, 2003.

INTERVIDEO, INC.
By:	/s/    RANDALL BAMBROUGH
	Randall Bambrough Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Steve Ro and Randall Bambrough, or either of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on January 30, 2003 in the capacities indicated.

Signature	Title
/s/    STEVE RO         Steve Ro	President, Chief Executive Officer and Director     (Principal Executive Officer)
/s/    RANDALL BAMBROUGH          Randall Bambrough	Chief Financial Officer (Principal Financial and Accounting Officer)
/s/    HENRY SHAW         Henry Shaw	Director
/s/    GEORGE HABER         George Haber	Director
/s/    JOSEPH LIU         Joseph Liu	Director

II-4

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement.
3.1	Amended and Restated Certificate of Incorporation, as currently in effect.
3.2	Amended and Restated Certificate of Incorporation, to be effective upon consummation of this offering.
3.3	Bylaws, as currently in effect.
3.4	Amended and Restated Bylaws, to be effective upon consummation of this offering.
5.1*	Opinion of Wilson Sonsini Goodrich & Rosati.
10.1	Registrant’s 1998 Stock Option Plan and form of option agreement.
10.2*	Registrant’s 2003 Stock Plan and form of option agreement.
10.3	Registrant’s 2003 Employee Stock Purchase Plan and form of subscription agreement.
10.4	Form of Directors and Officers’ Indemnification Agreement.
10.5	Investor Rights Agreement dated July 2, 1999, as amended, by and among the registrant and the parties who are signatories thereto.
10.6†	Digital Audio System License Agreement between the Registrant and Dolby Laboratories Licensing Corporation dated March 4, 1999.
10.7†	CSS License Agreement between the registrant and DVD Copy Control Association dated December 22, 2000.
10.8	Lease Agreement between the registrant and ProLogis Limited Partnership-1 dated December 7, 2000.
10.9	Employment offer letter with Randall Bambrough.
10.10	Form of Nonstatutory Stock Option Agreement for grants to Joe Liu and George Haber.
10.11	Nonstatutory Stock Option Agreement for Henry Shaw.
10.12	Form of Promissory Notes issued by George Haber, Joe Liu and Randall Bambrough.
10.13	Common Stock Purchase Agreement with Honda Shing dated May 15, 1998.
10.14†	Software License Agreement between the registrant and Dell Products, L.P. dated August 4, 1999, as amended.
10.15	Settlement Agreement and Release between the registrant and Dell Products, L.P. dated April 26, 2002.
10.16*	Form of Change of Control Agreement with Steve Ro, Chinn Chin and Raul Diaz.
21.1	Subsidiaries of the registrant.
23.1	Consent of Independent Public Accountants.
23.2	Consent of TN Soong & Co.
23.3*	Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1	Power of Attorney (see page II-4).

* To be filed by amendment.

†   Confidential treatment requested for a portion of this agreement.

EX-3.1

                                                                     EXHIBIT 3.1

                      RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                                INTERVIDEO, INC.
                            (a Delaware corporation)


                                    ARTICLE I

     The name of the corporation is InterVideo, Inc.


                                   ARTICLE II

     The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.


                                   ARTICLE III

     The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.


                                   ARTICLE IV

          (a)  (i) This corporation is authorized to issue two classes of shares
to be designated respectively Preferred Stock, par value $0.001 per share
("Preferred") and Common Stock, par value $0.001 per share ("Common"). The total
number of shares of Preferred this corporation shall have authority to issue is
13,000,000 and the total number of shares of Common the corporation shall have
authority to issue is 25,000,000.

               (ii) The Preferred authorized by this Certificate of
Incorporation shall be issued in one or more series. The first series of
Preferred shall be designated Series A Preferred Stock (the "Series A
Preferred") and shall consist of Five Million (5,000,000) shares. The second
series of Preferred shall be designated Series B Preferred Stock (the "Series B
Preferred") and shall consist of One Million (1,000,000) shares and the third
series of Preferred shall be designated Series C Preferred Stock (the "Series C
Preferred") shall consist of Two Million (2,000,000) shares, and the fourth
series of Preferred shall be designated Series D Preferred Stock (the "Series D
Preferred") and shall consist of Five Million (5,000,000) shares. The shares of
each series of Preferred have the rights, preferences, privileges and
restrictions set forth in paragraph (b) below. The Board of Directors is
authorized to fix the number of shares of any other series, and to determine the
designation of any such series. The Board of Directors is also authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any such series of Preferred, and, within the limitations and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any such series, to increase
or



decrease (but not below the number of shares of such series then outstanding)
the number of shares in any such series subsequent to the issue of shares of
that series.

          (b)  The relative rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes and series of the shares of
capital stock or the holders thereof are as follows:

     Section 1. General Definitions. For purposes of this Article, the
     ---------  -------------------
following definitions shall apply:

     A. "Junior Shares" shall mean all Common and any other shares of this
        ---------------
corporation other than the Preferred.

     B. "Subsidiary" shall mean any corporation at least 50% of whose
         -----------
outstanding voting shares shall at the time be owned by the corporation and/or
one or more of such subsidiaries.

     Section 2. Dividend Rights of Preferred. The holders of the Preferred shall
     ---------  ----------------------------
be entitled to receive, out of any funds legally available therefor, cash
dividends in the amount of (i) $.005 per share on each outstanding share of
Series A Preferred, (ii) $.025 per share on each outstanding share of Series B
Preferred, (iii) $.20 per share on each outstanding share of Series C Preferred
and (iv) $0.32 per share on each outstanding share of Series D Preferred payable
in preference and priority to any payment of any dividend on Junior Shares,
when, if and as declared by the Board of Directors. The right to such dividends
on the Preferred shall not be cumulative, and no right shall accrue to holders
of Preferred by reason of the fact that dividends on such shares are not
declared or paid in any prior year.

     In the event that the corporation shall have declared and unpaid dividends
outstanding immediately prior to, and in the event of, a conversion of Preferred
(as provided in Section 5 hereof), the corporation shall pay in cash to the
holder(s) of the Preferred subject to such conversion, the full amount of any
such dividends.

     Section 3. Liquidation Preference.
     ---------  ----------------------

          (a)  In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of the Preferred shall
be entitled to receive, prior and in preference to any distribution of any of
the assets or surplus funds of the corporation to the holders of the Junior
Shares by reason of their ownership thereof, (i) the amount of $.05 per share
for each share of Series A Preferred then held by them, (ii) the amount of $0.25
per share for each share of Series B Preferred then held by them, (iii) the
amount of $2.00 per share for each share of Series C Preferred then held by them
and (iv) the amount of $4.00 per share for each share of Series D Preferred then
held by them and, in addition, an amount equal to all declared but unpaid
dividends on each of the respective series of Preferred. If, upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Preferred shall be insufficient to permit the payment of the full preferential
amount to such holders, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Preferred in

                                      -2-



proportion to the respective preferential amounts fixed for such series upon a
liquidation, dissolution or winding up of the corporation. After full payment
has been made to the holders of the Preferred of the foregoing amounts to which
they shall be entitled, the holders of Junior Shares and the Preferred shall
share pro rata in all remaining assets of the corporation on a share for share
basis.

          (b)  For purposes of this Section 3, a liquidation, dissolution or
winding up of the corporation shall be deemed to be occasioned by, or to
include, the corporation's sale of all or substantially all of its assets, or
the acquisition of the corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of the
corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary.

          (c)  For purposes of this Section 3, if the distributions or
consideration received by the shareholders of the Corporation is other than
cash, its value will be deemed to be its fair market value as determined in good
faith by the Board of Directors of the Corporation. In the case of publicly
traded securities listed on an exchange, fair market value shall mean the
average last closing sale price as reported by such exchange or by a
consolidated transaction reporting system for the five-day period immediately
preceding the date of such distribution. In the case of publicly traded
securities not listed on an exchange, fair market value shall mean the average
last closing bid price as reported by the National Association of Securities
Dealers Automatic Quotation System, Inc. or such successor or similar
organization, for the five-day period immediately preceding the date of such
distribution.

     Section 4. Redemption.
     ---------  ----------

     The shares of Preferred are not redeemable in whole or in part.

     Section 5. Conversion. The holders of Preferred shall have conversion
     ---------  ----------
rights as follows (the "Conversion Rights"):

          (a)  Right to Convert. Each share of Preferred, at the option of its
               ----------------
holder, at the office of the corporation or any transfer agent for the
Preferred, at any time after the date of issuance of such share, shall be
convertible into such number of fully paid and nonassessable shares of Common as
is determined by dividing (i) $.05 for each share of Series A Preferred, (ii)
$0.25 for each share of Series B Preferred, (iii) $2.00 for each share of Series
C Preferred, and (iv) $4.00 for each share of Series D Preferred, by the
Conversion Price in effect at the time of the conversion. The initial Conversion
Price shall be (i) .1136 for each share of Series A Preferred per share of
Common, (ii) .5682 for each share of Series B Preferred per share of Common,
(iii) 4.545 for each share of Series C Preferred per share of Common, and (iv)
9.091 for each share of Series D Preferred per share of Common. Such initial
Conversion Price shall be subject to adjustment as hereinafter provided.

          (b)  Automatic Conversion. Each share of Preferred automatically shall
               --------------------
be converted into shares of Common at the then effective Conversion Price on the
effective date of a firm commitment underwritten public offering pursuant to an
effective registration statement under

                                      -3-



the Securities Act of 1933, as amended, covering the offer and sale of Common
for the account of the corporation to the public, provided that the aggregate
gross proceeds to the Company are $5,000,000 or more.

          (c)  Mechanics of Conversion. No fractional shares of Common shall be
               -----------------------
issued upon conversion of any share of Preferred. In lieu of any fractional
share to which the holder would otherwise be entitled (after aggregating all
shares into which shares of Series A Preferred held by such holder could be
converted), the corporation shall pay cash equal to such fraction multiplied by
the then fair market value of the Common, as determined by the Board of
Directors. Before any holder of Preferred shall be entitled to convert the same
into full shares of Common, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the corporation or of any
transfer agent for the Preferred, and shall give written notice to the
corporation at such office that he elects to convert the same. The corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred, a certificate or certificates for the number of shares
of Common to which he shall be entitled, together with a check payable to the
holder in the amount of any cash amounts payable as the result of a conversion
into fractional shares of Common. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Preferred to be converted, or in the case of automatic conversion,
on the effective date of the offering as provided in Section 5(b) above, and the
person or persons entitled to receive the shares of Common issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common on such date.

          (d)  Adjustment for Stock Splits and Combinations. If the corporation
               --------------------------------------------
at any time or from time to time effects a subdivision of the outstanding
Common, the Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased, and conversely, if the corporation at any
time or from time to time combines the outstanding shares of Common, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 5(d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective. Notwithstanding the foregoing, the Conversion Price shall
undergo no further adjustment in connection with the reverse stock split
effected pursuant to the Agreement and Plan of Merger of InterVideo, Inc. a
Delaware corporation and InterVideo, Inc., a California corporation, dated
_______, 2002.

          (e)  Adjustment for Certain Dividends and Distributions. In the event
               --------------------------------------------------
the corporation at any time or from time to time makes, or fixes a record date
for the determination of holders of Common entitled to receive, a dividend or
other distribution payable in additional shares of Common, then and in each such
event the Conversion Price then in effect shall be decreased as of the time of
such issuance or, in the event such a record date is fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in effect
by a fraction (1) the numerator of which is the total number of shares of Common
issued and outstanding immediately prior to the time of such issuance on the
close of business on such record date, and (2) the denominator of which shall be
the total number of shares of Common issued and outstanding immediately prior to
the time of such issuance on the close of business on such record date, plus the
number of shares of Common issuable in payment of such dividend or distribution;
provided, however, that if such record date is fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed

                                      -4-



therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this Section 5(e) as of the time of actual payment of such
dividends or distributions.

          (f)  Adjustments for Other Dividends and Distributions. In the event
               -------------------------------------------------
the corporation at any time or from time to time makes, or fixes a record date
for the determination of holders of Common entitled to receive, a dividend or
other distribution payable in securities of the corporation other than shares of
Common, then and in each such event provision shall be made so that the holders
of the Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common receivable thereupon, the amount of securities of the
corporation which they would have received had their Preferred been converted
into Common on the date of such event and had they thereafter, during the period
from the date of such event to and including the date of conversion, retained
such securities receivable by them as aforesaid during such period, subject to
all other adjustments called for during such period, under this Section 5(f)
with respect to the rights of the holders of Preferred.

          (g)  Adjustments for Reclassification, Exchange and Substitution. If
               -----------------------------------------------------------
the Common issuable upon the conversion of the Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or a stock dividend or a reorganization, merger,
consolidation or sale of assets, as provided for elsewhere in this Section 5),
then and in any such event each holder of Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the number of shares of Common into which such
shares of Preferred might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.

          (h)  Certificate as to Adjustments. Upon the occurrence of each
               -----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the corporation at its expense promptly shall compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The corporation shall, upon the written request at any time of any holder of
Preferred, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
at the time in effect, and (iii) the number of shares of Common and the amount,
if any, of other property which at the time would be received upon the
conversion of Series A Preferred.

          (i)  Notices of Record Date. In the event that the corporation shall
               ----------------------
propose at any time:

               (1) to declare any dividend or distribution upon its Common,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;

                                      -5-



               (2) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;

               (3) to effect any reclassification or recapitalization of its
outstanding Common involving a change in the Common; or

               (4) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;

               then, in connection with each such event, the corporation shall
send to the holders of the Preferred:

               (1) at least ten (10) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights and a description thereof (and specifying the date on which the holders
of Common shall be entitled thereto) or for determining rights to vote in
respect of the matters referred to in (3) and (4) above; and

               (2) in the case of the matters referred to in (3) and (4) above,
at least ten (10) days' prior written notice of the date when the same shall
take place (and specifying the date on which the holders of Common shall be
entitled to exchange their Common for securities or other property deliverable
upon the occurrence of such event).

          Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred at the address for each such
holder as shown on the books of the corporation.

     Section 6. Voting Rights.
     ---------  -------------

          (a)  General. Except as otherwise required by law on this Section 6,
               -------
each share of Common issued and outstanding shall have one vote and each share
of Preferred issued and outstanding shall have the number of votes equal to the
number of whole Common shares into which the Preferred is convertible (after
aggregating all shares of Preferred held by a holder), as adjusted from time to
time pursuant to Section 5 hereof.

          (b)  Voting for the Election of Directors. Voting together as a
               ------------------------------------
separate class, the holders of the shares of Series C Preferred shall be
entitled to elect one (1) director of the corporation, and the holders of the
shares of Common, Series A Preferred, Series B Preferred, and Series D
Preferred, voting together, shall be entitled to elect the balance of the
directors of the corporation at each election of directors. In the case of any
vacancy in the office of a director occurring among the directors elected by the
holders of either the Series C Preferred or by the holders of the Common, Series
A Preferred, Series B Preferred and Series D Preferred (for purposes of this
Section 6(b)), the vacancy shall be filled by the vote of the holders of a
majority of the shares of such class or classes of stock. Any director who shall
have been elected by the holders of either the Series C Preferred, or the
Common, Series A Preferred, Series B Preferred, and the Series D Preferred, may
be removed during the term of office, either with or without cause by, and only
by,

                                      -6-



the affirmative vote of the holders of the shares of such class or classes of
stock who elected such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of such class or classes of stock represented at such meeting (provided
a quorum of such holders is present) or pursuant to such written consent.

     Section 7. Covenants. In addition to any other rights provided by law, so
     ---------  ---------
long as any shares of Preferred shall be outstanding, this corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of such outstanding shares of Preferred
voting as a class (except in the case of Sections 7(a), (b) and (d) below, of
the holders of not less than a majority of such outstanding shares of the series
affected):

          (a)  amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws, if such action would
adversely alter or change the rights, preferences, privileges or powers of, or
the restrictions provided for the benefit of, such series of Preferred;

          (b)  authorize or issue shares of any class or series having any
preference or priority as to dividends or assets superior to or on a parity with
the existing series of Preferred;

          (c)  pay or declare any dividend on any Junior Shares (except
dividends payable solely in shares of Common Stock) while the Preferred remains
outstanding;

          (d)  reclassify any securities into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of any series of Preferred;

          (e)  merge, consolidate or reorganize with any other corporation
(except for a merger or consolidation after the consummation of which the
shareholders of the Corporation own in excess of 51% of the voting securities of
the surviving corporation or its parent corporation);

          (f)  liquidate or sell or convey or otherwise dispose of all or
substantially all of the property or business of this Corporation or any
subsidiary of this Corporation (other than pursuant to a banking transaction in
the ordinary course of business); or

          (g)  effect any recapitalization.

     Section 8. Consent for Certain Repurchases of Common Stock Deemed to
     ---------  ---------------------------------------------------------
Distributions. Each holder of an outstanding share of Preferred shall be deemed
- -------------
to have consented, for purposes of Section 502, 503 and 506 of the General
Corporation Law, to distributions made by the corporation in connection with the
repurchase of shares of Common issued to or held by employees or consultants
upon termination of their employment or services pursuant to agreements
providing for the right of said repurchase between the corporation and such
persons.

                                      -7-



     Section 9. Residual Rights. All rights accruing to the outstanding shares
     ---------  ----------------
of the corporation not expressly provided for to the contrary herein shall be
vested in the Common.


                                    ARTICLE V

     The number of directors that constitutes the entire Board of Directors of
the corporation shall be determined in the manner set forth in the Bylaws of the
corporation. Vacancies occurring on the Board of Directors for any reason and
newly created directorships resulting from an increase in the authorized number
of directors may be filled by vote of a majority of the remaining members of the
Board of Directors, although less than a quorum, or by a sole remaining
director.


                                   ARTICLE VI

     In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the corporation is expressly authorized to adopt,
amend or repeal the Bylaws of the corporation.


                                   ARTICLE VII

     The election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.


                                  ARTICLE VIII

          (a)  Limitation of Director's Liability. To the fullest extent
permitted by the General Corporation Law of Delaware as the same exists or may
hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.

          (b)  Indemnification of Directors and Officers. To the fullest extent
permitted by applicable law, the corporation is authorized to provide
indemnification of, and advancement of expenses to, directors, officers,
employees, other agents of the corporation and any other persons to which the
General Corporation Law of Delaware permits the corporation to provide
indemnification.

          (c)  Repeal or Modification. Any repeal or modification of this
Article VIII, by amendment of such section or by operation of law, shall not
adversely affect any right or protection of a director, officer, employee or
other agent of the corporation existing at the time of, or increase the
liability of any such person with respect to any acts or omissions in their
capacity as a director, officer, employee, or other agent of the corporation
occurring prior to such repeal or modification.


                                   ARTICLE IX

     The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.

                                      -8-



     IN WITNESS WHEREOF, InterVideo, Inc. has caused this Restated Certificate
of Incorporation to be signed by the President and Chief Executive Officer of
the corporation on this 3rd day of May 2002.


                                       By:  /s/ Steve Ro
                                           -----------------------------------
                                           Steve Ro
                                           President and Chief Executive Officer

                                      -9-

EX-3.2

                                                                     EXHIBIT 3.2

                AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

                                INTERVIDEO, INC.

         InterVideo, Inc. a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

         A. The corporation was originally incorporated under the name of
InterVideo, Inc. and the original Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware on
January 15, 2002.

         B. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware (the "DGCL"), this Amended and Restated Certificate of
Incorporation restates and amends the provisions of the Amended and Restated
Certificate of Incorporation of the corporation.

         C. This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of the corporation in accordance with
Sections 242 and 245 of the DGCL.

         D. This Amended and Restated Certificate of Incorporation has been duly
approved by the written consent of the stockholders of the corporation in
accordance with Sections 228, 242 and 245 of the DGCL.

         E. The Certificate of Incorporation of the corporation is hereby
amended and restated in its entirety to read as follows:

                                    ARTICLE I

         The name of the corporation is InterVideo, Inc.

                                   ARTICLE II

         The address of the corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.

                                   ARTICLE III

         The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.

                                   ARTICLE IV

         The corporation shall have authority to issue shares as follows:



         150,000,000 shares of Common Stock, par value $0.001 per share. Each
share of Common Stock shall entitle the holder thereof to one (1) vote on each
matter submitted to a vote at a meeting of stockholders.

         5,000,000 shares of Preferred Stock, par value $0.001 per share, which
may be issued from time to time in one or more series pursuant to a resolution
or resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board of Directors).
The Board of Directors is further authorized, subject to limitations prescribed
by law, to fix by resolution or resolutions the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of any wholly unissued series of Preferred Stock, including without
limitation authority to fix by resolution or resolutions the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and liquidation
preferences of any such series, and the number of shares constituting any such
series and the designation thereof, or any of the foregoing.

         The Board of Directors is further authorized to increase (but not above
the total number of authorized shares of the class) or decrease (but not below
the number of shares of any such series then outstanding) the number of shares
of any series, the number of which was fixed by it, subsequent to the issuance
of shares of such series then outstanding, subject to the powers, preferences
and rights, and the qualifications, limitations and restrictions thereof stated
in the Certificate of Incorporation or the resolution of the Board of Directors
originally fixing the number of shares of such series. If the number of shares
of any series is so decreased, then the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

                                    ARTICLE V

         The number of directors that constitutes the entire Board of Directors
of the corporation shall be determined in the manner set forth in the Bylaws of
the corporation. At each annual meeting of stockholders, directors of the
corporation shall be elected to hold office until the expiration of the term for
which they are elected and until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the DGCL.

         The directors of the corporation shall be divided into three classes as
nearly equal in size as is practicable, hereby designated Class I, Class II and
Class III. The term of office of the initial Class I directors shall expire at
the first annual meeting of the stockholders following the effective date of
this corporation's initial public offering (the "Effective Date"), the term of
office of the initial Class II directors shall expire at the second annual
meeting of the stockholders following the Effective Date and the term of office
of the initial Class III directors shall expire at the third annual meeting of
the stockholders following the Effective Date. At each annual meeting of
stockholders, commencing with the first annual meeting of stockholders following
the Effective Date, each of the successors elected to replace the directors of a
Class whose term shall have expired at such annual meeting shall be elected to
hold office until the third annual meeting next succeeding his or her election
and until his or her respective successor shall have been duly elected and
qualified.

                                      -2-



         Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. If the number of directors is
hereafter changed, any newly created directorships or decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly equal
in number as is practicable, provided that no decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.

         Any director may be removed from office by the stockholders of the
corporation only for cause. Vacancies occurring on the Board of Directors for
any reason and newly created directorships resulting from an increase in the
authorized number of directors may be filled by vote of a majority of the
remaining members of the Board of Directors, although less than a quorum, or by
a sole remaining director. A person so elected by the Board of Directors to fill
a vacancy or newly created directorship shall hold office until the next
election of the Class for which such director shall have been chosen and until
his or her successor shall have been duly elected and qualified.

                                   ARTICLE VI

         In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the corporation.

                                   ARTICLE VII

         The election of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.

                                  ARTICLE VIII

         No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws, and no action shall be taken by the stockholders by written consent.

                                   ARTICLE IX

         To the fullest extent permitted by the General Corporation Law of
Delaware or any other applicable law as the same exists or may hereafter be
amended, a director of the corporation shall not be personally liable to the
corporation or its stockholders and shall otherwise be indemnified by the
corporation for monetary damages for any action taken, or any failure to take
any action, as a director.

             The corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he or she or his or her testator or intestate is or was a director or
officer of the corporation or any predecessor of the corporation or serves or
served at any other enterprise as a director, officer, employee or agent at the
request of the corporation or any predecessor to the corporation. To the fullest
extent permitted by applicable law, the corporation is authorized to provide
indemnification of, and advancement of expenses to, directors, officers,

                                      -3-



employees, other agents of the corporation and any other persons to which the
General Corporation Law of Delaware permits the corporation to provide
indemnification.

         Neither any amendment nor repeal of this Article IX, nor the adoption
of any provision of this corporation's Certificate of Incorporation inconsistent
with this Article IX, shall eliminate or reduce the effect of this Article IX in
respect of any matter occurring, or any cause of action, suit or claim accruing
or arising or that, but for this Article IX, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.

                                    ARTICLE X

         Except as provided in Article IX above, the corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.

                                      -4-



         IN WITNESS WHEREOF, InterVideo, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and Chief
Executive Officer of the corporation on this ____ day of _________, 2002.


                               By:
                                       -----------------------------------------
                                       Steve Ro
                                       President and Chief Executive Officer

                                      -5-

EX-3.3

                                                                     EXHIBIT 3.3



                                    BYLAWS OF

                                INTERVIDEO, INC.




                                TABLE OF CONTENTS



                                                                            Page
                                                                            ----
                                                                         
ARTICLE I - CORPORATE OFFICES ............................................     1

   1.1   REGISTERED OFFICE ...............................................     1
   1.2   OTHER OFFICES ...................................................     1

ARTICLE II - MEETINGS OF STOCKHOLDERS ....................................     1

   2.1   PLACE OF MEETINGS ...............................................     1
   2.2   ANNUAL MEETING ..................................................     1
   2.3   SPECIAL MEETING .................................................     1
   2.4   NOTICE OF STOCKHOLDERS' MEETINGS ................................     2
   2.5   MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE ....................     2
   2.6   QUORUM ..........................................................     2
   2.7   ADJOURNED MEETING; NOTICE........................................     2
   2.8   CONDUCT OF BUSINESS .............................................     3
   2.9   VOTING ..........................................................     3
   2.10  STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .........     3
   2.11  RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS .....     3
   2.12  PROXIES..........................................................     4
   2.13  LIST OF STOCKHOLDERS ENTITLED TO VOTE ...........................     4

ARTICLE III - DIRECTORS ..................................................     5

   3.1   POWERS ..........................................................     5
   3.2   NUMBER OF DIRECTORS .............................................     5
   3.3   ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS .........     5
   3.4   RESIGNATION AND VACANCIES........................................     5
   3.5   PLACE OF MEETINGS; MEETINGS BY TELEPHONE ........................     6
   3.6   REGULAR MEETINGS.................................................     6
   3.7   SPECIAL MEETINGS; NOTICE ........................................     6
   3.8   QUORUM ..........................................................     7
   3.9   BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ...............     7
   3.10  FEES AND COMPENSATION OF DIRECTORS...............................     7
   3.11  APPROVAL OF LOANS TO OFFICERS ...................................     7
   3.12  REMOVAL OF DIRECTORS ............................................     8

ARTICLE IV - COMMITTEES ..................................................     8

   4.1   COMMITTEES OF DIRECTORS .........................................     8
   4.2   COMMITTEE MINUTES ...............................................     8
   4.3   MEETINGS AND ACTION OF COMMITTEES................................     8

ARTICLE V - OFFICERS .....................................................     9

   5.1   OFFICERS ........................................................     9
   5.2   APPOINTMENT OF OFFICERS .........................................     9
   5.3   SUBORDINATE OFFICERS ............................................     9
   5.4   REMOVAL AND RESIGNATION OF OFFICERS .............................     9


                                      -i-



                                TABLE OF CONTENTS
                                  (continued)




                                                                            Page
                                                                            ----
                                                                         
   5.5     VACANCIES IN OFFICES ...........................................   10
   5.6     CHAIRPERSON OF THE BOARD .......................................   10
   5.7     CHIEF EXECUTIVE OFFICER ........................................   10
   5.8     PRESIDENT ......................................................   10
   5.9     VICE PRESIDENTS ................................................   10
   5.10    SECRETARY ......................................................   11
   5.11    CHIEF FINANCIAL OFFICER ........................................   11
   5.12    ASSISTANT SECRETARY ............................................   12
   5.13    ASSISTANT TREASURER ............................................   12
   5.14    REPRESENTATION OF SHARES OF OTHER CORPORATIONS .................   12
   5.15    AUTHORITY AND DUTIES OF OFFICERS ...............................   12

ARTICLE VI - RECORDS AND REPORTS ..........................................   12

   6.1     MAINTENANCE AND INSPECTION OF RECORDS ..........................   12
   6.2     INSPECTION BY DIRECTORS ........................................   13

ARTICLE VII - GENERAL MATTERS .............................................   13

   7.1     CHECKS .........................................................   13
   7.2     EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ...............   13
   7.3     STOCK CERTIFICATES; PARTLY PAID SHARES .........................   13
   7.4     SPECIAL DESIGNATION ON CERTIFICATES ............................   14
   7.5     LOST CERTIFICATES ..............................................   14
   7.6     CONSTRUCTION; DEFINITIONS ......................................   14
   7.7     DIVIDENDS ......................................................   14
   7.8     FISCAL YEAR ....................................................   15
   7.9     SEAL ...........................................................   15
   7.10    TRANSFER OF STOCK ..............................................   15
   7.11    STOCK TRANSFER AGREEMENTS ......................................   15
   7.12    REGISTERED STOCKHOLDERS ........................................   15
   7.13    WAIVER OF NOTICE ...............................................   15

ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION ..........................   16

   8.1     NOTICE BY ELECTRONIC TRANSMISSION ..............................   16
   8.2     DEFINITION OF ELECTRONIC TRANSMISSION ..........................   17
   8.3     INAPPLICABILITY ................................................   17

ARTICLE IX - INDEMNIFICATION ..............................................   17

   9.1     INDEMNIFICATION OF DIRECTORS AND OFFICERS ......................   17
   9.2     INDEMNIFICATION OF OTHERS ......................................   17
   9.3     PREPAYMENT OF EXPENSES .........................................   17
   9.4     DETERMINATION; CLAIM ...........................................   18
   9.5     NON-EXCLUSIVITY OF RIGHTS ......................................   18
   9.6     INSURANCE ......................................................   18


                                      -ii-



                                TABLE OF CONTENTS
                                  (continued)



                                                                            Page
                                                                            ----
                                                                         
  9.7     OTHER INDEMNIFICATION .........................................     18
  9.8     AMENDMENT OR REPEAL ...........................................     18

ARTICLE X - AMENDMENTS ..................................................     18


                                      -iii-



                           BYLAWS OF INTERVIDEO, INC.

                           ==========================

                          ARTICLE I - CORPORATE OFFICES

     1.1 REGISTERED OFFICE.

     The registered office of InterVideo, Inc. shall be fixed in the
corporation's certificate of incorporation, as the same may be amended from time
to time.

     1.2 OTHER OFFICES.

     The corporation's Board of Directors (the "Board") may at any time
establish other offices at any place or places where the corporation is
qualified to do business.

                     ARTICLE II - MEETINGS OF STOCKHOLDERS

     2.1 PLACE OF MEETINGS.

     Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the Board. The Board may, in its sole
discretion, determine that a meeting of stockholders shall not be held at any
place, but may instead be held solely by means of remote communication as
authorized by Section 211(a)(2) of the Delaware General Corporation Law (the
"DGCL"). In the absence of any such designation or determination, stockholders'
meetings shall be held at the corporation's principal executive office.

     2.2 ANNUAL MEETING.

     The annual meeting of stockholders shall be held each year. The Board shall
designate the date and time of the annual meeting. At the annual meeting,
directors shall be elected and any other proper business may be transacted.

     2.3 SPECIAL MEETING.

     A special meeting of the stockholders may be called at any time by the
Board, chairperson of the Board, chief executive officer or president (in the
absence of a chief executive officer) or by one or more stockholders holding
shares in the aggregate entitled to cast not less than 10% of the votes at that
meeting.

     If any person(s) other than the Board calls a special meeting, the request
shall:

         (i)   be in writing;

         (ii)  specify the time of such meeting and the general nature of the
business proposed to be transacted; and




         (iii)  be delivered personally or sent by registered mail or by
facsimile transmission to the chairperson of the Board, the chief executive
officer, the president (in the absence of a chief executive officer) or the
secretary of the corporation.

     The officer(s) receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote at such meeting, in accordance with
the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be
held at the time requested by the person or persons calling the meeting. No
business may be transacted at such special meeting other than the business
specified in such notice to stockholders. Nothing contained in this paragraph of
this Section 2.3 shall be construed as limiting, fixing, or affecting the time
when a meeting of stockholders called by action of the Board may be held.

     2.4 NOTICE OF STOCKHOLDERS' MEETINGS.

     All notices of meetings of stockholders shall be sent or otherwise given in
accordance with either Section 2.5 or Section 8.1 of these bylaws not less than
10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, if any,
date and hour of the meeting, the means of remote communication, if any, by
which stockholders and proxy holders may be deemed to be present in person and
vote at such meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.

     2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

     Notice of any meeting of stockholders shall be given:

           (i)  if mailed, when deposited in the United States mail, postage
prepaid, directed to the stockholder at his or her address as it appears on the
corporation's records; or

           (ii) if electronically transmitted as provided in Section 8.1 of
these bylaws.

     An affidavit of the secretary or an assistant secretary of the corporation
or of the transfer agent or any other agent of the corporation that the notice
has been given by mail or by a form of electronic transmission, as applicable,
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.

     2.6 QUORUM.

     The holders of a majority of the stock issued and outstanding and entitled
to vote, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. If,
however, such quorum is not present or represented at any meeting of the
stockholders, then either: (i) the chairperson of the meeting; or (ii) the
stockholders entitled to vote at the meeting, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.

     2.7 ADJOURNED MEETING; NOTICE.

     When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the
time, place if any thereof, and the means of remote communications if

                                        2



any by which stockholders and proxy holders may be deemed to be present in
person and vote at such adjourned meeting are announced at the meeting at which
the adjournment is taken. At the continuation of the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.

     2.8  CONDUCT OF BUSINESS.

     The chairperson of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.

     2.9  VOTING.

     The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to Section 217 (relating to voting rights of fiduciaries, pledgors and
joint owners of stock) and Section 218 (relating to voting trusts and other
voting agreements) of the DGCL.

     Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.

     2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

     Unless otherwise provided in the certificate of incorporation, any action
required by the DGCL to be taken at any annual or special meeting of
stockholders of a corporation, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.

     Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing and who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting if the record date
for such meeting had been the date that written consents signed by a sufficient
number of holders to take the action were delivered to the corporation as
provided in Section 228 of the DGCL. In the event that the action which is
consented to is such as would have required the filing of a certificate under
any provision of the DGCL, if such action had been voted on by stockholders at a
meeting thereof, the certificate filed under such provision shall state, in lieu
of any statement required by such provision concerning any vote of stockholders,
that written consent has been given in accordance with Section 228 of the DGCL.

     2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.

     In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock

                                        3



or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other such action.

     If the Board does not so fix a record date:

         (i)   the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.

         (ii)  the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board is necessary, shall be the day on which the first written consent
is expressed.

         (iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.

     A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
- --------  -------
meeting.

     2.12 PROXIES.

     Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section 212
of the DGCL.

     2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.

     The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. The corporation shall not
be required to include electronic mail addresses or other electronic contact
information on such list. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting for a period of at least 10
days prior to the meeting: (i) on a reasonably accessible electronic network,
provided that the information required to gain access to such list is provided
with the notice of the meeting; or (ii) during ordinary business hours, at the
corporation's principal executive office. In the event that the corporation
determines to make the list available on an electronic network, the corporation
may take reasonable steps to ensure that such information is available only to
stockholders of the corporation. If the meeting is to be held at a place, then
the list shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
If the meeting is to be held solely by means of remote communication, then the
list shall also be open to the examination of any stockholder during the whole
time of the meeting on a reasonably accessible electronic network, and the
information required

                                        4



to access such list shall be provided with the notice of the meeting. Such list
shall presumptively determine the identity of the stockholders entitled to vote
at the meeting and the number of shares held by each of them.

                            ARTICLE III - DIRECTORS

     3.1 POWERS.

     Subject to the provisions of the DGCL and any limitations in the
certificate of incorporation or these bylaws relating to action required to be
approved by the stockholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board.

     3.2 NUMBER OF DIRECTORS.

     The authorized number of directors shall be determined from time to time by
resolution of the Board, provided the Board shall consist of at least 1 member.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.

     3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

     Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws. The certificate of incorporation
or these bylaws may prescribe other qualifications for directors. Each director,
including a director elected to fill a vacancy, shall hold office until such
director's successor is elected and qualified or until such director's earlier
death, resignation or removal.

     All elections of directors shall be by written ballot unless otherwise
provided in the certificate of incorporation; if authorized by the Board, such
requirement of a written ballot shall be satisfied by a ballot submitted by
electronic transmission, provided that any such electronic transmission must be
either set forth or be submitted with information from which it can be
determined that the electronic transmission was authorized by the stockholder or
proxy holder.

     3.4 RESIGNATION AND VACANCIES.

     Any director may resign at any time upon notice given in writing or by
electronic transmission to the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.

     Unless otherwise provided in the certificate of incorporation or these
bylaws:

         (i)   vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.

                                       5



             (ii) whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.

        If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the DGCL.

        If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the DGCL as far
as applicable.

        3.5  PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

        The Board may hold meetings, both regular and special, either within or
outside the State of Delaware.

        Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the Board, or any committee designated by the Board, may
participate in a meeting of the Board, or any committee, by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.

        3.6  REGULAR MEETINGS.

        Regular meetings of the Board may be held without notice at such time
and at such place as shall from time to time be determined by the Board.

        3.7  SPECIAL MEETINGS; NOTICE.

        Special meetings of the Board for any purpose or purposes may be called
at any time by the chairperson of the Board, the chief executive officer, the
president, the secretary or any two directors.

        Notice of the time and place of special meetings shall be:

             (i)   delivered personally by hand, by courier or by telephone;

             (ii)  sent by United States first-class mail, postage prepaid;

             (iii) sent by facsimile; or

                                       6



             (iv) sent by electronic mail,

directed to each director at that director's address, telephone number,
facsimile number or electronic mail address, as the case may be, as shown on the
corporation's records.

        If the notice is: (i) delivered personally by hand, by courier or by
telephone; (ii) sent by facsimile; or (iii) sent by electronic mail, it shall be
delivered or sent at least 24 hours before the time of the holding of the
meeting. If the notice is sent by United States mail, it shall be deposited in
the United States mail at least 4 days before the time of the holding of the
meeting. Any oral notice may be communicated to the director. The notice need
not specify the place of the meeting (if the meeting is to be held at the
corporation's principal executive office) nor the purpose of the meeting.

        3.8  QUORUM.

        At all meetings of the Board, a majority of the authorized number of
directors shall constitute a quorum for the transaction of business. The vote of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board, except as may be otherwise specifically provided
by statute, the certificate of incorporation or these bylaws. If a quorum is not
present at any meeting of the Board, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.

        A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.

        3.9  BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

        Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the
Board, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing or by electronic transmission and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board or committee. Such filing shall be in paper form if the minutes are
maintained in paper form and shall be in electronic form if the minutes are
maintained in electronic form.

        3.10 FEES AND COMPENSATION OF DIRECTORS.

        Unless otherwise restricted by the certificate of incorporation or these
bylaws, the Board shall have the authority to fix the compensation of directors.

        3.11 APPROVAL OF LOANS TO OFFICERS.

        The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the Board, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board shall
approve, including, without limitation, a pledge of shares of stock of the
corporation.

                                        7



    3.12  REMOVAL OF DIRECTORS.

    Unless otherwise restricted by statute, the certificate of incorporation or
these bylaws, any director or the entire Board may be removed, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors.

    No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.

                            ARTICLE IV - COMMITTEES

    4.1   COMMITTEES OF DIRECTORS.

    The Board may designate one or more committees, each committee to consist of
one or more of the directors of the corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board or in these bylaws, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to: (i) approve or adopt, or recommend to the stockholders, any action
or matter expressly required by the DGCL to be submitted to stockholders for
approval; or (ii) adopt, amend or repeal any bylaw of the corporation.

    4.2   COMMITTEE MINUTES.

    Each committee shall keep regular minutes of its meetings and report the
same to the Board when required.

    4.3   MEETINGS AND ACTION OF COMMITTEES.

    Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of:

           (i)    Section 3.5 (place of meetings and meetings by telephone);

           (ii)   Section 3.6 (regular meetings);

           (iii)  Section 3.7 (special meetings and notice);

           (iv)   Section 3.8 (quorum);

           (v)    Section 7.13 (waiver of notice); and

                                        8



           (vi)   Section 3.9 (action without a meeting)

with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the Board and its members. However:
                                                             --------

           (i)    the time of regular meetings of committees may be determined
either by resolution of the Board or by resolution of the committee;

           (ii)   special meetings of committees may also be called by
resolution of the Board; and

           (iii)  notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.

                              ARTICLE V - OFFICERS

    5.1 OFFICERS.

    The officers of the corporation shall be a president and a secretary. The
corporation may also have, at the discretion of the Board, a chairperson of the
Board, a vice chairperson of the Board, a chief executive officer, a chief
financial officer or treasurer, one or more vice presidents, one or more
assistant vice presidents, one or more assistant treasurers, one or more
assistant secretaries, and any such other officers as may be appointed in
accordance with the provisions of these bylaws. Any number of offices may be
held by the same person.

    5.2 APPOINTMENT OF OFFICERS.

The Board shall appoint the officers of the corporation, except such officers as
may be appointed in accordance with the provisions of Sections 5.3 and 5.5 of
these bylaws, subject to the rights, if any, of an officer under any contract of
employment.

    5.3 SUBORDINATE OFFICERS.

    The Board may appoint, or empower the chief executive officer or, in the
absence of a chief executive officer, the president, to appoint, such other
officers and agents as the business of the corporation may require. Each of such
officers and agents shall hold office for such period, have such authority, and
perform such duties as are provided in these bylaws or as the Board may from
time to time determine.

    5.4 REMOVAL AND RESIGNATION OF OFFICERS.

    Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board at any regular or special meeting
of the Board or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board.

    Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice. Unless otherwise

                                        9



specified in the notice of resignation, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.

    5.5 VACANCIES IN OFFICES.

Any vacancy occurring in any office of the corporation shall be filled by the
Board or as provided in Section 5.2.

    5.6 CHAIRPERSON OF THE BOARD.

    The chairperson of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board and exercise and perform such other
powers and duties as may from time to time be assigned to him by the Board or as
may be prescribed by these bylaws. If there is no chief executive officer or
president, then the chairperson of the Board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.

    5.7 CHIEF EXECUTIVE OFFICER.

    Subject to such supervisory powers, if any, as the Board may give to the
chairperson of the Board, the chief executive officer, if any, shall, subject to
the control of the Board, have general supervision, direction, and control of
the business and affairs of the corporation and shall report directly to the
Board. All other officers, officials, employees and agents shall report directly
or indirectly to the chief executive officer. The chief executive officer shall
see that all orders and resolutions of the Board are carried into effect. The
chief executive officer shall serve as chairperson of and preside at all
meetings of the stockholders. In the absence of a chairperson of the Board, the
chief executive officer shall preside at all meetings of the Board.

    5.8 PRESIDENT.

    In the absence or disability of the chief executive officer, the president
shall perform all the duties of the chief executive officer. When acting as the
chief executive officer, the president shall have all the powers of, and be
subject to all the restrictions upon, the chief executive officer. The president
shall have such other powers and perform such other duties as from time to time
may be prescribed for him by the Board, these bylaws, the chief executive
officer or the chairperson of the Board.

    5.9 VICE PRESIDENTS.

    In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the Board or, if not ranked, a vice president
designated by the Board, shall perform all the duties of the president. When
acting as the president, the appropriate vice president shall have all the
powers of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board, these bylaws,
the chairperson of the Board, the chief executive officer or, in the absence of
a chief executive officer, the president.

                                       10



     5.10 SECRETARY.

     The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board may direct, a book of
minutes of all meetings and actions of directors, committees of directors, and
stockholders. The minutes shall show:

          (i)   the time and place of each meeting;

          (ii)  whether regular or special (and, if special, how authorized and
the notice given);

          (iii) the names of those present at directors' meetings or committee
meetings;

          (iv)  the number of shares present or represented at stockholders'
meetings;

          (v)   and the proceedings thereof.

     The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the Board, a share register, or a
duplicate share register showing:

          (i)   the names of all stockholders and their addresses;

          (ii)  the number and classes of shares held by each;

          (iii) the number and date of certificates evidencing such shares; and

          (iv)  the number and date of cancellation of every certificate
surrendered for cancellation.

     The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board required to be given by law or by these
bylaws. The secretary shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the Board or by these bylaws.

     5.11 CHIEF FINANCIAL OFFICER.

     The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.

     The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as the
Board may designate. The chief financial officer shall disburse the funds of the
corporation as may be ordered by the Board, shall render to the chief executive
officer or, in the absence of a chief executive officer, the president and
directors, whenever they request it, an account of all his or her transactions
as chief financial officer and of the financial condition of the corporation,
and shall have other powers and perform such other duties as may be prescribed
by the Board or these bylaws.

                                       11



          The chief financial officer shall be the treasurer of the corporation.

          5.12 ASSISTANT SECRETARY.

          The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or Board (or if there be
no such determination, then in the order of their election) shall, in the
absence of the secretary or in the event of the secretary's inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as may be prescribed by the
Board or these bylaws.

          5.13 ASSISTANT TREASURER.

          The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or Board (or if there be
no such determination, then in the order of their election), shall, in the
absence of the chief financial officer or in the event of the chief financial
officer's inability or refusal to act, perform the duties and exercise the
powers of the chief financial officer and shall perform such other duties and
have such other powers as may be prescribed by the Board or these bylaws.

          5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

          The chairperson of the Board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the Board or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.

          5.15 AUTHORITY AND DUTIES OF OFFICERS.

          In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the Board or the stockholders.

                        ARTICLE VI - RECORDS AND REPORTS

          6.1 MAINTENANCE AND INSPECTION OF RECORDS.

          The corporation shall, either at its principal executive office or at
such place or places as designated by the Board, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.

          Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand

                                       12



under oath shall be accompanied by a power of attorney or such other writing
that authorizes the attorney or other agent so to act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in Delaware or at its principal executive office.

          6.2 INSPECTION BY DIRECTORS.

          Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.

                          ARTICLE VII - GENERAL MATTERS

          7.1 CHECKS.

          From time to time, the Board shall determine by resolution which
person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.

          7.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

          The Board, except as otherwise provided in these bylaws, may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the corporation; such
authority may be general or confined to specific instances. Unless so authorized
or ratified by the Board or within the agency power of an officer, no officer,
agent or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or for any amount.

          7.3 STOCK CERTIFICATES; PARTLY PAID SHARES.

          The shares of the corporation shall be represented by certificates,
provided that the Board may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the corporation. Notwithstanding the adoption
of such a resolution by the Board, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairperson or vice-chairperson of the Board, or the president or
vice-president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such

                                       13



certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.

     The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.

     7.4 SPECIAL DESIGNATION ON CERTIFICATES.

     If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
                                                  --------  -------
except as otherwise provided in Section 202 of the DGCL, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, the designations, the preferences, and
the relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.

     7.5 LOST CERTIFICATES.

     Except as provided in this Section 7.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.

     7.6 CONSTRUCTION; DEFINITIONS.

     Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the DGCL shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.

     7.7 DIVIDENDS.

     The Board, subject to any restrictions contained in either: (i) the DGCL;
or (ii) the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock. Dividends may be paid in cash, in property, or in
shares of the corporation's capital stock.

                                       14



     The Board may set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and may
abolish any such reserve. Such purposes shall include but not be limited to
equalizing dividends, repairing or maintaining any property of the corporation,
and meeting contingencies.

     7.8  FISCAL YEAR.

     The fiscal year of the corporation shall be fixed by resolution of the
Board and may be changed by the Board.

     7.9  SEAL.

     The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the Board. The corporation may use the corporate seal by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.

     7.10 TRANSFER OF STOCK.

     Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.

     7.11 STOCK TRANSFER AGREEMENTS.

     The corporation shall have the power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL.

     7.12 REGISTERED STOCKHOLDERS.

     The corporation:

           (i)   shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and to vote
as such owner;

           (ii)  shall be entitled to hold liable for calls and assessments the
person registered on its books as the owner of shares; and

           (iii) shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of another person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.

     7.13 WAIVER OF NOTICE.

     Whenever notice is required to be given under any provision of the DGCL,
the certificate of incorporation or these bylaws, a written waiver, signed by
the person entitled to notice, or a waiver by electronic transmission by the
person entitled to notice, whether before or after the time of the event for
which notice is to be given, shall

                                       15



be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice or any waiver by electronic transmission unless so required by
the certificate of incorporation or these bylaws.

                ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION

     8.1 NOTICE BY ELECTRONIC TRANSMISSION.

     Without limiting the manner by which notice otherwise may be given
effectively to stockholders pursuant to the DGCL, the certificate of
incorporation or these bylaws, any notice to stockholders given by the
corporation under any provision of the DGCL, the certificate of incorporation or
these bylaws shall be effective if given by a form of electronic transmission
consented to by the stockholder to whom the notice is given. Any such consent
shall be revocable by the stockholder by written notice to the corporation. Any
such consent shall be deemed revoked if:

          (i)   the corporation is unable to deliver by electronic transmission
two consecutive notices given by the corporation in accordance with such
consent; and

          (ii)  such inability becomes known to the secretary or an assistant
secretary of the corporation or to the transfer agent, or other person
responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall
not invalidate any meeting or other action.

Any notice given pursuant to the preceding paragraph shall be deemed given:

          (i)   if by facsimile telecommunication, when directed to a number at
                which the stockholder has consented to receive notice;

          (ii)  if by electronic mail, when directed to an electronic mail
                address at which the stockholder has consented to receive
                notice;

          (iii) if by a posting on an electronic network together with separate
                notice to the stockholder of such specific posting, upon the
                later of (A) such posting and (B) the giving of such separate
                notice; and

          (iv)  if by any other form of electronic transmission, when directed
                to the stockholder.

     An affidavit of the secretary or an assistant secretary or of the transfer
agent or other agent of the corporation that the notice has been given by a form
of electronic transmission shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.

                                       16



     8.2 DEFINITION OF ELECTRONIC TRANSMISSION.

     An "electronic transmission" means any form of communication, not directly
involving the physical transmission of paper, that creates a record that may be
retained, retrieved, and reviewed by a recipient thereof, and that may be
directly reproduced in paper form by such a recipient through an automated
process.

     8.3 INAPPLICABILITY.

     Notice by a form of electronic transmission shall not apply to Sections
164, 296, 311, 312 or 324 of the DGCL.

                          ARTICLE IX - INDEMNIFICATION

     9.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     The corporation shall indemnify and hold harmless, to the fullest extent
permitted by DGCL as it presently exists or may hereafter be amended, any
director or officer of the corporation who was or is made or is threatened to be
made a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding") by reason of
the fact that he or she, or a person for whom he or she is the legal
representative, is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, enterprise or non-profit entity, including service with
respect to employee benefit plans, against all liability and loss suffered and
expenses reasonably incurred by such person in connection with any such action,
suit, or proceeding. The corporation shall be required to indemnify a person in
connection with a proceeding initiated by such person only if the proceeding was
authorized by the Board.

     9.2 INDEMNIFICATION OF OTHERS.

     The corporation shall have the power to indemnify and hold harmless, to the
extent permitted by applicable law as it presently exists or may hereafter be
amended, any employee or agent of the corporation who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding by reason of the fact that he or she, or a person for whom he or she
is the legal representative, is or was an employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person in connection with any such action, suit, or
proceeding.

     9.3 PREPAYMENT OF EXPENSES.

     The corporation shall pay the expenses incurred by any officer or director
of the corporation, and may pay the expenses incurred by any employee or agent
of the corporation, in defending any proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
person in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the person to repay all amounts advanced if it
should be ultimately determined that the person is not entitled to be
indemnified under this Article 9 or otherwise.

                                       17



     9.4 DETERMINATION; CLAIM.

     If a claim for indemnification or payment of expenses under this Article 9
is not paid in full within 60 days after a written claim therefor has been
received by the corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.

     9.5 NON-EXCLUSIVITY OF RIGHTS.

     The rights conferred on any person by this Article 9 shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, these bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.

     9.6 INSURANCE.

     The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the DGCL.

     9.7 OTHER INDEMNIFICATION.

     The corporation's obligation, if any, to indemnify any person who was or is
serving at its request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, enterprise or non-profit entity
shall be reduced by any amount such person may collect as indemnification from
such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.

     9.8 AMENDMENT OR REPEAL.

     Any repeal or modification of the foregoing provisions of this Article 9
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification."

                             ARTICLE X - AMENDMENTS

     These bylaws may be adopted, amended or repealed by the stockholders
entitled to vote. However, the corporation may, in its certificate of
incorporation, confer the power to adopt, amend or repeal bylaws upon the
directors. The fact that such power has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal bylaws.

                                       18

EX-3.4

                                                                     EXHIBIT 3.4


                         AMENDED AND RESTATED BYLAWS OF

                                INTERVIDEO, INC.

                (amended and restated as of [____________], 2002)

 (to be effective upon the closing of the corporation's initial public offering)



                                TABLE OF CONTENTS



                                                                                Page
                                                                                ----
                                                                             
ARTICLE I - CORPORATE OFFICES ..................................................   1

      1.1    REGISTERED OFFICE .................................................   1
      1.2    OTHER OFFICES .....................................................   1

ARTICLE II - MEETINGS OF STOCKHOLDERS ..........................................   1

      2.1    PLACE OF MEETINGS .................................................   1
      2.2    ANNUAL MEETING ....................................................   1
      2.3    SPECIAL MEETING ...................................................   1
      2.4    ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS' MEETINGS .......   2
      2.5    MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE ......................   3
      2.6    QUORUM ............................................................   4
      2.7    ADJOURNED MEETING; NOTICE .........................................   4
      2.8    CONDUCT OF BUSINESS ...............................................   4
      2.9    VOTING ............................................................   4
      2.10   STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ...........   4
      2.11   RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS .......   5
      2.12   PROXIES ...........................................................   5
      2.13   LIST OF STOCKHOLDERS ENTITLED TO VOTE .............................   5
      2.14   INSPECTORS OF ELECTION ............................................   6

ARTICLE III - DIRECTORS ........................................................   6

      3.1    POWERS ............................................................   6
      3.2    NUMBER OF DIRECTORS ...............................................   7
      3.3    ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS ...........   7
      3.4    RESIGNATION AND VACANCIES .........................................   7
      3.5    PLACE OF MEETINGS; MEETINGS BY TELEPHONE ..........................   8
      3.6    REGULAR MEETINGS ..................................................   8
      3.7    SPECIAL MEETINGS; NOTICE ..........................................   8
      3.8    QUORUM ............................................................   9
      3.9    BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING .................   9
      3.10   FEES AND COMPENSATION OF DIRECTORS ................................   9
      3.11   APPROVAL OF LOANS TO OFFICERS .....................................   9
      3.12   REMOVAL OF DIRECTORS ..............................................   9

ARTICLE IV - COMMITTEES ........................................................  10

      4.1    COMMITTEES OF DIRECTORS ...........................................  10
      4.2    COMMITTEE MINUTES .................................................  10
      4.3    MEETINGS AND ACTION OF COMMITTEES .................................  10

ARTICLE V - OFFICERS ...........................................................  11

      5.1    OFFICERS ..........................................................  11


                                      -i-



                                                                               
      5.2    APPOINTMENT OF OFFICERS ...........................................  11
      5.3    SUBORDINATE OFFICERS ..............................................  11
      5.4    REMOVAL AND RESIGNATION OF OFFICERS ...............................  11
      5.5    VACANCIES IN OFFICES ..............................................  11
      5.6    REPRESENTATION OF SHARES OF OTHER CORPORATIONS ....................  12
      5.7    AUTHORITY AND DUTIES OF OFFICERS ..................................  12

ARTICLE VI - RECORDS AND REPORTS ...............................................  12

      6.1    MAINTENANCE AND INSPECTION OF RECORDS .............................  12
      6.2    INSPECTION BY DIRECTORS ...........................................  12

ARTICLE VII - GENERAL MATTERS ..................................................  13

      7.1    EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ..................  13
      7.2    STOCK CERTIFICATES; PARTLY PAID SHARES ............................  13
      7.3    SPECIAL DESIGNATION ON CERTIFICATES ...............................  13
      7.4    LOST CERTIFICATES .................................................  14
      7.5    CONSTRUCTION; DEFINITIONS .........................................  14
      7.6    DIVIDENDS .........................................................  14
      7.7    FISCAL YEAR .......................................................  14
      7.8    SEAL ..............................................................  14
      7.9    TRANSFER OF STOCK .................................................  14
      7.10   STOCK TRANSFER AGREEMENTS .........................................  15
      7.11   REGISTERED STOCKHOLDERS ...........................................  15
      7.12   WAIVER OF NOTICE ..................................................  15

ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION ...............................  15

      8.1    NOTICE BY ELECTRONIC TRANSMISSION .................................  15
      8.2    DEFINITION OF ELECTRONIC TRANSMISSION .............................  16
      8.3    INAPPLICABILITY ...................................................  16

ARTICLE IX - INDEMNIFICATION ...................................................  16

      9.1    RIGHT TO INDEMNIFICATION ..........................................  16
      9.2    AUTHORITY TO ADVANCE EXPENSES .....................................  17
      9.3    PROCEDURE .........................................................  18
      9.4    RIGHT OF CLAIMANT TO BRING SUIT ...................................  18
      9.5    PROVISIONS NONEXCLUSIVE ...........................................  19
      9.6    SEVERABILITY ......................................................  19
      9.7    AUTHORITY TO INSURE ...............................................  19
      9.8    SURVIVAL OF RIGHTS ................................................  19
      9.9    SETTLEMENT OF CLAIMS ..............................................  19
      9.10   EFFECT OF AMENDMENT ...............................................  19
      9.11   SUBROGATION .......................................................  19
      9.12   NO DUPLICATION OF PAYMENTS ........................................  20
      9.13   NOTICE ............................................................  20
      9.14   CHANGE OF CONTROL .................................................  20
      9.15   CERTAIN OTHER DEFINITIONS .........................................  21

ARTICLE X - AMENDMENTS .........................................................  21



                                      -ii-




                           BYLAWS OF INTERVIDEO, INC.

                           ==========================

                          ARTICLE I - CORPORATE OFFICES

     1.1  REGISTERED OFFICE.

     The registered office of InterVideo, Inc. shall be fixed in the
corporation's certificate of incorporation, as the same may be amended from time
to time.

     1.2  OTHER OFFICES.

     The corporation's Board of directors (the "Board") may at any time
                                                -----
establish other offices at any place or places where the corporation is
qualified to do business.

                     ARTICLE II - MEETINGS OF STOCKHOLDERS

     2.1  PLACE OF MEETINGS.

     Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the Board. The Board may, in its sole
discretion, determine that a meeting of stockholders shall not be held at any
place, but may instead be held solely by means of remote communication as
authorized by Section 211(a)(2) of the Delaware General Corporation Law (the
"DGCL"). In the absence of any such designation or determination, stockholders'
 ----
meetings shall be held at the corporation's principal executive office.

     2.2  ANNUAL MEETING.

     The annual meeting of stockholders shall be held each year. The Board shall
designate the date and time of the annual meeting. At the annual meeting,
directors shall be elected and any other proper business may be transacted.

     2.3  SPECIAL MEETING.

     A special meeting of the stockholders may be called at any time by the
Board, chairperson of the Board, chief executive officer or president (in the
absence of a chief executive officer), but such special meetings may not be
called by any other person or persons. If any person(s) other than the Board
call a special meeting, the request shall:

          (i)   be in writing;

          (ii)  specify the time of such meeting and the general nature of the
business proposed to be transacted; and






         (iii) be delivered personally or sent by registered mail or by
facsimile transmission to the chairperson of the Board, the chief executive
officer, the president (in the absence of a chief executive officer) or the
secretary of the corporation.

     The officer(s) receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote at such meeting, in accordance with
the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be
held at the time requested by the person or persons calling the meeting. No
business may be transacted at such special meeting other than the business
specified in such notice to stockholders. Nothing contained in this paragraph of
this Section 2.3 shall be construed as limiting, fixing, or affecting the time
when a meeting of stockholders called by action of the Board may be held.

     2.4  ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS' MEETINGS.

          (i)  At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (B) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than ninety (90) nor
more than one hundred and twenty (120) calendar days before the one year
anniversary of the date on which the corporation first mailed its proxy
statement to stockholders in connection with the previous year's annual meeting
of stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date of the prior year's meeting, notice by
the stockholder to be timely must be so received not later than the close of
business on the later of ninety (90) calendar days in advance of such annual
meeting and ten (10) calendar days following the date on which public
announcement of the date of the meeting is first made. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the corporation that are beneficially owned by the
stockholder, (d) any material interest of the stockholder in such business, and
(e) any other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
      --------
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (i). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (i), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.

          (ii) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (ii) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of

                                       -2-



directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (ii). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the secretary of the corporation in accordance with the provisions
of paragraph (i) of this Section 2.4. Such stockholder's notice shall set forth
(a) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation that are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a director if elected); and (b) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (i) of
this Section 2.4. At the request of the board of directors, any person nominated
by a stockholder for election as a director shall furnish to the secretary of
the corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (ii). The chairman of the
meeting shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.

     These provisions shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the board of directors, but in connection therewith no new
business shall be acted upon at any such meeting unless stated, filed and
received as herein provided. Notwithstanding anything in these bylaws to the
contrary, no business brought before a meeting by a stockholder shall be
conducted at an annual meeting except in accordance with procedures set forth in
this Section 2.4.

     All notices of meetings of stockholders shall be sent or otherwise given in
accordance with either Section 2.5 or Section 8.1 of these bylaws not less than
10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, if any,
date and hour of the meeting, the means of remote communication, if any, by
which stockholders and proxy holders may be deemed to be present in person and
vote at such meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.

     2.5  MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

     Notice of any meeting of stockholders shall be given:

          (i)  If mailed, when deposited in the United States mail, postage
prepaid, directed to the stockholder at his or her address as it appears on the
corporation's records; or

          (ii) if electronically transmitted as provided in Section 8.1 of these
bylaws.

     An affidavit of the secretary or an assistant secretary of the corporation
or of the transfer agent or any other agent of the corporation that the notice
has been given by mail or by a form of electronic transmission, as applicable,
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.

                                       -3-



     2.6  QUORUM.

     The holders of a majority of the stock issued and outstanding and entitled
to vote, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. If,
however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the chairperson of the meeting, or (ii) the
stockholders entitled to vote at the meeting, present in person or represented
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.

     2.7  ADJOURNED MEETING; NOTICE.

     When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the
time, place if any thereof, and the means of remote communications if any by
which stockholders and proxy holders may be deemed to be present in person and
vote at such adjourned meeting are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting.

     2.8  CONDUCT OF BUSINESS.

     The chairperson of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.

     2.9  VOTING.

     The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to Section 217 (relating to voting rights of fiduciaries, pledgors and
joint owners of stock) and Section 218 (relating to voting trusts and other
voting agreements) of the DGCL.

     Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.

     At all meetings of stockholders for the election of directors a plurality
of the votes cast shall be sufficient to elect. All other elections and
questions shall, unless otherwise provided by law, the certificate of
incorporation or these bylaws, be decided by the vote of the holders of shares
of stock having a majority of the votes which could be cast by the holders of
all shares of stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.

     2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

     Subject to the rights of the holders of the shares of any series of
Preferred Stock or any other class of stock or series thereof having a
preference over the Common Stock as dividend or upon liquidation, any action
required or permitted to be taken by the stockholders of the corporation must be
effected at a duly called annual or

                                       -4-



special meeting of stockholders of the corporation and may not be effected by
any consent in writing by such stockholders.

     2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.

     In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which record date shall
not precede the date on which the resolution fixing the record date is adopted
and which shall not be more than 60 nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other such action.

     If the Board does not so fix a record date:

          (i)  The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.

          (ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.

     A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.

     2.12 PROXIES.

     Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of Section
212 of the DGCL.

     2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE.

     The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. The corporation shall not
be required to include electronic mail addresses or other electronic contact
information on such list. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting for a period of at least 10
days prior to the meeting: (i) on a reasonably accessible electronic network,
provided that the information required to gain access to such list is provided
with the notice of the meeting, or (ii) during ordinary business hours, at the
corporation's principal executive office. In the event that the corporation
determines to make the list available on an electronic network, the corporation
may take reasonable steps to ensure that such information is available only to
stockholders of the corporation. If the meeting is to be held at a place, then
the list shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
If the meeting is to be held

                                       -5-



solely by means of remote communication, then the list shall also be open to the
examination of any stockholder during the whole time of the meeting on a
reasonably accessible electronic network, and the information required to access
such list shall be provided with the notice of the meeting. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.

     2.14 INSPECTORS OF ELECTION

     A written proxy may be in the form of a telegram, cablegram, or other means
of electronic transmission which sets forth or is submitted with information
from which it can be determined that the telegram, cablegram, or other means of
electronic transmission was authorized by the person.

     Before any meeting of stockholders, the board of directors shall appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
The number of inspectors shall be either one (1) or three (3). If any person
appointed as inspector fails to appear or fails or refuses to act, then the
chairperson of the meeting may, and upon the request of any stockholder or a
stockholder's proxy shall, appoint a person to fill that vacancy.

     Such inspectors shall:

           (i)  determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;

          (ii)  receive votes, ballots or consents;

         (iii)  hear and determine all challenges and questions in any way
arising in connection with the right to vote;

          (iv)  count and tabulate all votes or consents;

           (v)  determine when the polls shall close;

          (vi)  determine the result; and

         (vii)  do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.

     The inspectors of election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three (3) inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.

                             ARTICLE III - DIRECTORS

     3.1  POWERS.

     Subject to the provisions of the DGCL and any limitations in the
certificate of incorporation or these bylaws relating to action required to be
approved by the stockholders or by the outstanding shares, the business

                                       -6-



and affairs of the corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the Board.

     3.2 NUMBER OF DIRECTORS.

     The authorized number of directors shall be determined from time to time by
resolution of the Board, provided the Board shall consist of at least one
member. No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.

     3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

     Except as provided in Section 3.4 of these bylaws, each director, including
a director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until such director's successor is elected and
qualified or until such director's earlier death, resignation or removal.
Directors need not be stockholders unless so required by the certificate of
incorporation or these bylaws. The certificate of incorporation or these bylaws
may prescribe other qualifications for directors.

     The directors of the corporation shall be divided into three classes as
nearly equal in size as is practicable, hereby designated Class I, Class II and
Class III. The term of office of the initial Class I directors shall expire at
the first annual meeting of the stockholders following the effective date of
this corporation's initial public offering (the "Effective Date"), the term of
                                                 --------------
office of the initial Class II directors shall expire at the second annual
meeting of the stockholders following the Effective Date and the term of office
of the initial Class III directors shall expire at the third annual meeting of
the stockholders following the Effective Date. For the purposes hereof, the
initial Class I, Class II and Class III directors shall be those directors so
designated by the board of directors prior to the Effective Date. At each annual
meeting of stockholders, commencing with the first annual meeting of
stockholders following the Effective Date, each of the successors elected to
replace the directors of a Class whose term shall have expired at such annual
meeting shall be elected to hold office until the third annual meeting next
succeeding his or her election and until his or her respective successor shall
have been duly elected and qualified. If the number of directors is hereafter
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as is practicable, provided that no decrease in the number of directors
constituting the board of directors shall shorten the term of any incumbent
director.

     3.4 RESIGNATION AND VACANCIES.

     Any director may resign at any time upon notice given in writing or by
electronic transmission to the corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.

     Unless otherwise provided in the certificate of incorporation or these
bylaws, vacancies and newly created directorships resulting from any increase in
the authorized number of directors elected by all of the stockholders having the
right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
person so elected by the directors then in office to fill a vacancy or newly
created directorship shall hold office until the next election of the Class for
which such director shall have been chosen and until his or her successor shall
have been duly elected and qualified.

                                       -7-



     If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the DGCL.

     If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole Board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the DGCL as far as applicable.

     3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

     The Board may hold meetings, both regular and special, either within or
outside the State of Delaware.

     Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the Board, or any committee designated by the Board, may
participate in a meeting of the Board, or any committee, by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.

     3.6 REGULAR MEETINGS.

     Regular meetings of the Board may be held without notice at such time and
at such place as shall from time to time be determined by the Board.

     3.7 SPECIAL MEETINGS; NOTICE.

     Special meetings of the Board for any purpose or purposes may be called at
any time by the chairperson of the Board, the chief executive officer, the
president, the secretary or a majority of the board of directors then in office.

     Notice of the time and place of special meetings shall be:

           (i)   delivered personally by hand, by courier or by telephone;

          (ii)   sent by United States first-class mail, postage prepaid;

         (iii)   sent by facsimile; or

          (iv)   sent by electronic mail,

directed to each director at that director's address, telephone number,
facsimile number or electronic mail address, as the case may be, as shown on the
corporation's records.

                                       -8-



     If the notice is (i) delivered personally by hand, by courier or by
telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be
delivered or sent at least 24 hours before the time of the holding of the
meeting. If the notice is sent by United States mail, it shall be deposited in
the United States mail at least four days before the time of the holding of the
meeting. Any oral notice may be communicated to the director. The notice need
not specify the place of the meeting (if the meeting is to be held at the
corporation's principal executive office) nor the purpose of the meeting.

     3.8  QUORUM.

     At all meetings of the Board, a majority of the authorized number of
directors shall constitute a quorum for the transaction of business. The vote of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board, except as may be otherwise specifically provided
by statute, the certificate of incorporation or these bylaws. If a quorum is not
present at any meeting of the Board, then the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.

     A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.

     3.9  BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

     Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the
Board, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing or by electronic transmission and the writing or writings or electronic
transmission or transmissions are filed with the minutes of proceedings of the
Board or committee. Such filing shall be in paper form if the minutes are
maintained in paper form and shall be in electronic form if the minutes are
maintained in electronic form.

     3.10 FEES AND COMPENSATION OF DIRECTORS.

     Unless otherwise restricted by the certificate of incorporation or these
bylaws, the Board shall have the authority to fix the compensation of directors.

     3.11 APPROVAL OF LOANS TO OFFICERS.

     The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the Board, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board shall
approve, including, without limitation, a pledge of shares of stock of the
corporation.

     3.12 REMOVAL OF DIRECTORS.

     Any director may be removed from office by the stockholders of the
corporation only for cause.

                                      -9-



     No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.

                            ARTICLE IV - COMMITTEES

     4.1 COMMITTEES OF DIRECTORS.

     The Board may from time to time designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board or in these bylaws, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority to (i) approve or adopt, or
recommend to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or
repeal any bylaw of the corporation,

     4.2 COMMITTEE MINUTES.

     Each committee shall keep regular minutes of its meetings and report the
same to the Board when required.

     4.3 MEETINGS AND ACTION OF COMMITTEES.

     Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of:


           (i)  Section 3.5 (place of meetings and meetings by telephone);

          (ii)  Section 3.6 (regular meetings);

         (iii)  Section 3.7 (special meetings and notice);

          (iv)  Section 3.8 (quorum);

           (v)  Section 7.12 (waiver of notice); and

          (vi)  Section 3.9 (action without a meeting)

with such changes in the context of those bylaws as are necessary to substitute
the committee and its members for the Board and its members. However:
                                                             -------

           (i)  the time of regular meetings of committees may be determined
either by resolution of the Board or by resolution of the committee;

                                      -10-



          (ii)  special meetings of committees may also be called by resolution
of the Board; and

          (iii) notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The Board may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.

                              ARTICLE V - OFFICERS

     5.1 OFFICERS.

     The officers of the corporation shall be a president and a secretary. The
corporation may also have, at the discretion of the Board, a chairperson of the
Board, a vice chairperson of the Board, a chief executive officer, a chief
financial officer or treasurer, one or more vice presidents, one or more
assistant vice presidents, one or more assistant treasurers, one or more
assistant secretaries, and any such other officers as may be appointed in
accordance with the provisions of these bylaws. Any number of offices may be
held by the same person.

     5.2 APPOINTMENT OF OFFICERS.

     The Board shall appoint the officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Sections 5.3
and 5.5 of these bylaws, subject to the rights, if any, of an officer under any
contract of employment.

     5.3 SUBORDINATE OFFICERS.

     The Board may appoint, or empower the chief executive officer or, in the
absence of a chief executive officer, the president, to appoint, such other
officers and agents as the business of the corporation may require. Each of such
officers and agents shall hold office for such period, have such authority, and
perform such duties as are provided in these bylaws or as the Board may from
time to time determine.

     5.4 REMOVAL AND RESIGNATION OF OFFICERS.

     Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board at any regular or special meeting
of the Board or, except in the case of an officer chosen by the Board, by any
officer upon whom such power of removal may be conferred by the Board.

     Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice. Unless otherwise
specified in the notice of resignation, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.

     5.5 VACANCIES IN OFFICES.

     Any vacancy occurring in any office of the corporation shall be filled by
the Board or as provided in Section 5.2.

                                      -11-



     5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

     The chairperson of the Board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the Board or the president or a vice president, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.

     5.7 AUTHORITY AND DUTIES OF OFFICERS.

All officers of the corporation shall respectively have such authority and
perform such duties in the management of the business of the corporation as may
be designated from time to time by the Board or the stockholders and, to the
extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board.

                        ARTICLE VI - RECORDS AND REPORTS

     6.1 MAINTENANCE AND INSPECTION OF RECORDS.

     The corporation shall, either at its principal executive office or at such
place or places as designated by the Board, keep a record of its stockholders
listing their names and addresses and the number and class of shares held by
each stockholder, a copy of these bylaws as amended to date, accounting books,
and other records.

     Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal executive
office.

     6.2 INSPECTION BY DIRECTORS.

     Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.

                                      -12-



                         ARTICLE VII - GENERAL MATTERS

     7.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

     The Board, except as otherwise provided in these bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances.

     7.2 STOCK CERTIFICATES; PARTLY PAID SHARES.

     The shares of the corporation shall be represented by certificates,
provided that the Board may provide by resolution or resolutions that some or
all of any or all classes or series of its stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the corporation. Notwithstanding the adoption
of such a resolution by the Board, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairperson or vice-chairperson of the Board, or the president or
vice-president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.

     The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.

     7.3 SPECIAL DESIGNATION ON CERTIFICATES.

     If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the DGCL, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, the designations, the preferences, and
the relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.

                                      -13-



     7.4 LOST CERTIFICATES.

     Except as provided in this Section 7.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.

     7.5 CONSTRUCTION; DEFINITIONS.

     Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the DGCL shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.

     7.6 DIVIDENDS.

     The Board, subject to any restrictions contained in either (i) the DGCL, or
(ii) the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock. Dividends may be paid in cash, in property, or in
shares of the corporation's capital stock.

     The Board may set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and may
abolish any such reserve. Such purposes shall include but not be limited to
equalizing dividends, repairing or maintaining any property of the corporation,
and meeting contingencies.

     7.7 FISCAL YEAR.

     The fiscal year of the corporation shall be fixed by resolution of the
Board and may be changed by the Board.

     7.8 SEAL.

     The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the Board. The corporation may use the corporate seal by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.

     7.9 TRANSFER OF STOCK.

     Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.

                                       -14-



     7.10 STOCK TRANSFER AGREEMENTS.

     The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the DGCL.

     7.11 REGISTERED STOCKHOLDERS.

     The corporation:

           (i)  shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and to vote
as such owner;

           (ii) shall be entitled to hold liable for calls and assessments the
person registered on its books as the owner of shares; and (iii) shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of another person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.

     7.12 WAIVER OF NOTICE.

     Whenever notice is required to be given under any provision of the DGCL,
the certificate of incorporation or these bylaws, a written waiver, signed by
the person entitled to notice, or a waiver by electronic transmission by the
person entitled to notice, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice or any waiver by
electronic transmission unless so required by the certificate of incorporation
or these bylaws.

                ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION

     8.1 NOTICE BY ELECTRONIC TRANSMISSION.

     Without limiting the manner by which notice otherwise may be given
effectively to stockholders pursuant to the DGCL, the certificate of
incorporation or these bylaws, any notice to stockholders given by the
corporation under any provision of the DGCL, the certificate of incorporation or
these bylaws shall be effective if given by a form of electronic transmission
consented to by the stockholder to whom the notice is given. Any such consent
shall be revocable by the stockholder by written notice to the corporation. Any
such consent shall be deemed revoked if:

           (i)  the corporation is unable to deliver by electronic transmission
two consecutive notices given by the corporation in accordance with such
consent; and

                                      -15-



          (ii)   such inability becomes known to the secretary or an assistant
secretary of the corporation or to the transfer agent, or other person
responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall
not invalidate any meeting or other action.

     Any notice given pursuant to the preceding paragraph shall be deemed given:

          (i)   if by facsimile telecommunication, when directed to a number at
                which the stockholder has consented to receive notice;

          (ii)  if by electronic mail, when directed to an electronic mail
                address at which the stockholder has consented to receive
                notice;

          (iii) if by a posting on an electronic network together with separate
                notice to the stockholder of such specific posting, upon the
                later of (A) such posting and (B) the giving of such separate
                notice; and

          (iv)  if by any other form of electronic transmission, when directed
                to the stockholder.

     An affidavit of the secretary or an assistant secretary or of the transfer
agent or other agent of the corporation that the notice has been given by a form
of electronic transmission shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.

     8.2  DEFINITION OF ELECTRONIC TRANSMISSION.

     An "electronic transmission" means any form of communication, not directly
involving the physical transmission of paper, that creates a record that may be
retained, retrieved, and reviewed by a recipient thereof, and that may be
directly reproduced in paper form by such a recipient through an automated
process.

     8.3  INAPPLICABILITY.

     Notice by a form of electronic transmission shall not apply to Sections
164, 296, 311, 312 or 324 of the DGCL.

                          ARTICLE IX - INDEMNIFICATION

     9.1  RIGHT TO INDEMNIFICATION.

     Each person who was or is a party or is threatened to be made a party to or
is involved (as a party, witness, or otherwise), in any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (hereinafter a "Proceeding"), by reason of the fact that
                                 ----------
he/she, or a person of whom he/she is the legal representative, is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director or officer of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer (hereafter an "Agent"), shall be
                                                               -----
indemnified and held harmless by the corporation

                                      -16-



to the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended or interpreted (but, in the case of any
such amendment or interpretation, only to the extent that such amendment or
interpretation permits the corporation to provide broader indemnification rights
than were permitted prior thereto) against all expenses, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
and amounts paid or to be paid in settlement, and any interest, assessments, or
other charges imposed thereon, and any federal, state, local, or foreign taxes
imposed on any Agent as a result of the actual or deemed receipt of any payments
under this Article) reasonably incurred or suffered by such person in connection
with investigating, defending, being a witness in, or participating in
(including on appeal), or preparing for any of the foregoing in, any Proceeding
(hereinafter "Expenses"); provided, however, that except as to actions to
              --------
enforce indemnification rights pursuant to Section 9.4 of this Article, the
corporation shall indemnify any Agent seeking indemnification in connection with
a Proceeding (or part thereof) initiated by such person only if the Proceeding
(or part thereof) was authorized by the Board of Directors of the corporation.
The right to indemnification conferred in this Article shall be a contract
between the corporation and each Agent who serves in such capacity at any time
while this bylaw is in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any Proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts.

     The Board of Directors in its discretion shall have the power on behalf of
the corporation to indemnify any person made a party to any Proceeding, by
reason of the fact that he/she, his/her testator or intestate, is or was a
director, officer, employee or agent of the corporation.

     To assure indemnification under this Article of all Agents who are
determined by the corporation or otherwise to be or to have been "fiduciaries"
of any employee benefit plan of the corporation which may exist from time to
time, Section 145 of the Delaware General Corporation Law shall, for the
purposes of this Section 9.1, be interpreted as follows: an "other enterprise"
shall be deemed to include such an employee benefit plan, including without
limitation, any plan of the corporation which is governed by the Act of Congress
entitled "Employee Retirement Income Security Act of 1974," as amended from time
to time; the corporation shall be deemed to have requested a person to serve on
an employee benefit plan where the performance by such person of his/her duties
to the corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines."

     9.2  AUTHORITY TO ADVANCE EXPENSES.

     Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance of
the final disposition of such Proceeding, provided, however, that if required by
the Delaware General Corporation Law, as amended, such Expenses shall be
advanced only upon delivery to the corporation of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article or otherwise. Expenses incurred by other agents of
the corporation (or by the directors or officers not acting in their capacity as
such, including service with respect to employee benefit plans) may be advanced
upon such terms and conditions as the Board of Directors deems appropriate. Any
obligation to reimburse the corporation for Expense advances shall be unsecured
and no interest shall be charged thereon. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an Agent who is a
party to a Proceeding brought by the corporation and approved by a majority of
the Board of Directors of the corporation then in office which alleges willful
misappropriation of corporate assets by such Agent, disclosure of confidential

                                      -17-



information in violation of such Agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
Agent's duty to the corporation or its stockholders.

     9.3  PROCEDURE.

     To obtain indemnification under this Article, a claimant shall submit to
the corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the preceding sentence, a determination, if required
by applicable law, with respect to the claimant's entitlement thereto shall be
made as follows: (1) if requested by the claimant, by Independent Counsel (as
hereinafter defined), or (2) if no request is made by the claimant for a
determination by Independent Counsel, (i) by the Board of Directors by a
majority vote of a quorum consisting of Disinterested Directors (as hereinafter
defined), or (ii) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to the claimant,
or (iii) if a quorum of Disinterested Directors so directs, by the stockholders
of the corporation. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within two years prior to the date of the
commencement of the Proceeding for which indemnification is claimed a "Change of
Control" (as hereinafter defined), in which case the Independent Counsel shall
be selected by the claimant unless the claimant shall request that such
selection be made by the Board of Directors. If it is so determined that the
claimant is entitled to indemnification, payment to the claimant shall be made
within ten (10) days after such determination.

     9.4  RIGHT OF CLAIMANT TO BRING SUIT.

     If a claim under Section 9.1 or 9.2 of this Article is not paid in full by
the corporation within thirty (30) days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
(including attorneys' fees) of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) that the claimant has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed. The burden of proving such a defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, Independent Counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
Independent Counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.

     If a determination shall have been made pursuant to Section 9.3 that the
claimant is entitled to indemnification, the corporation shall be bound by such
determination in any judicial proceeding commenced pursuant to this section. The
corporation shall be precluded from asserting in any judicial proceeding
commenced pursuant this section that the procedures and presumptions of Section
9.3 are not valid, binding and enforceable and shall stipulate in such
proceeding that the corporation is bound by all such procedures and
presumptions.

                                      -18-



     9.5  PROVISIONS NONEXCLUSIVE.

     The rights conferred on any person by this Article shall not be exclusive
of any other rights that such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.

     9.6  SEVERABILITY.

     If any provision or provisions of this Article shall be held to be invalid,
illegal or unenforceable for any reason whatsoever: (1) the validity, legality
and enforceability of the remaining provisions of this bylaw (including, without
limitation, each portion of any paragraph of this Article containing any such
provision held to be invalid, illegal or unenforceable, that is not itself held
to be invalid, illegal or unenforceable) shall not in any way be affected or
impaired thereby; and (2) to the fullest extent possible, the provisions of this
Article (including, without limitation, each such portion of any paragraph of
this Article containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.

     9.7  AUTHORITY TO INSURE.

     The corporation may purchase and maintain insurance to protect itself and
any Agent against any Expense, whether or not the corporation would have the
power to indemnify the Agent against such Expense under applicable law or the
provisions of this Article.

     9.8  SURVIVAL OF RIGHTS.

     The rights provided by this Article shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors,
and administrators of such a person.

     9.9  SETTLEMENT OF CLAIMS.

     The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award if the corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.

     9.10 EFFECT OF AMENDMENT.

     Any amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any Agent existing at the time of such
amendment, repeal, or modification.

     9.11 SUBROGATION.

     In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the corporation effectively to bring suit to enforce such
rights.

                                      -19-



     9.12 NO DUPLICATION OF PAYMENTS.

The corporation shall not be liable under this Article to make any payment in
connection with any claim made against the Agent to the extent the Agent has
otherwise actually received payment (under any insurance policy, agreement,
vote, or otherwise) of the amounts otherwise indemnifiable hereunder.

     9.13 NOTICE.

Any notice, request or other communication required or permitted to be given to
the corporation under this Article shall be in writing and either delivered in
person or sent by telecopy, telex, telegram, overnight mail or courier service,
or certified or registered mail, postage prepaid, return receipt requested, to
the Secretary of the corporation and shall be effective only upon receipt by the
Secretary.

     9.14 CHANGE OF CONTROL.

     For purposes of this Article IX, a "Change in Control" shall mean:

          (a)  The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (a) the then outstanding shares of common
stock of the corporation (the "Outstanding Corporation Common Stock") or (b) the
combined voting power of the then outstanding voting securities of the
corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
                                              --------  -------
purposes of this part (1), the following acquisitions shall not constitute a
Change of Control: (a) any acquisition directly from the corporation or any
acquisition from other stockholders where (i) such acquisition was approved in
advance by the Board of Directors of the corporation and (ii) such acquisition
would not constitute a change of control under part (3) of this definition, (b)
any acquisition by the corporation, (c) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the corporation or any
corporation controlled by the corporation or (d) any acquisition by any
corporation pursuant to a transaction which complies with clauses (a), (b) and
(c) of part (3) of this definition; or

          (b)  Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
                                    --------  -------
becoming a director subsequent to the date hereof whose election, or nomination
for election by the stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors; or

          (c)  Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
corporation (a "Business Combination"), in each case, unless, following such
Business Combination, (a) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the

                                      -20-



corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
corporation or all or substantially all of the corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (b) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (c) at least a
majority of the members of the Board of Directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Combination; or

          (d) Approval by the stockholders of a complete liquidation or
dissolution of the corporation.

     9.15 CERTAIN OTHER DEFINITIONS.

     For purposes of this Article IX:

     "Disinterested Director" means a director of the corporation who is not and
was not a party to the matter in respect of which indemnification is sought by
the claimant.


     "Independent Counsel" means a law firm, a member of a law firm, or an
independent practitioner, that is experienced in matters of corporation law and
shall include any person who, under the applicable standards of professional
conduct then prevailing, would not have a conflict of interest in representing
either the corporation or the claimant in an action to determine the claimant's
rights under this Article.

                             ARTICLE X - AMENDMENTS

     Subject to Section 9.10 hereof, these Bylaws may be amended or repealed (1)
at any annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the voting power of the stock issued and outstanding
and entitled to vote thereat, provided, however, that in the case of any such
stockholder action at a special meeting of stockholders, notice of the proposed
alteration, repeal or adoption of the new Bylaws or portion thereof must be
contained in the notice of such special meeting, or (2) by the affirmative vote
of a majority of the board of directors. The fact that the power to amend these
Bylaws has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
bylaws.

                                      -21-

EX-10.1

                                                                    EXHIBIT 10.1

                                INTERVIDEO, INC.

                             1998 STOCK OPTION PLAN
                             ----------------------

                           Amended as of October, 2000

     1.  Purposes of this Plan. The purposes of this 1998 Stock Option Plan are
         ---------------------
to attract and retain the best available personnel, to provide additional
incentive to the Employees of the Company and its Subsidiaries, to promote the
success of the Company's business and to enable the Employees to share in the
growth and prosperity of the Company by providing them with an opportunity to
purchase stock in the Company.

     Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written stock option agreement.

     2.  Definitions. As used herein, the following definitions shall apply:
         -----------

         (a) "Board" shall mean the Board of Directors of the Company.

         (b) "Code" shall mean the Internal Revenue Code of the 1986, as
amended.

         (c) "Common Stock" shall mean the Common Stock of the Company, without
par value.

         (d) "Company" shall mean InterVideo, Inc. a California corporation.

         (e) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4 of this Plan, if one is appointed.

         (f) "Continuous Employment" or "Continuous Status as an Employee" shall
mean the absence of any interruption or termination of employment or service as
an Employee by or to the Company or any Parent or Subsidiary of the Company
which now exists or is hereafter organized or acquired by or acquires the
Company. Continuous Employment shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Board or in the event of transfers between locations of the Company or between
the Company, its Parent, any of its Subsidiaries or its successors.

         (g) "Employee" shall mean any person, including officers and directors,
employed by the Company, its Parent, any of its Subsidiaries or its successors;
or, for purposes of eligibility for Nonstatutory Stock Options, any person
employed by the Company, including officers and directors, or any consultant to,
or director of, the Company, or any Parent or Subsidiary of the Company, whether
or not such consultant or director is an employee of such entities.

         (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor legislation.

                                       1



         (i) "Non Employee Director" shall mean a director who is a "Non
Employee Director", as such term is defined under Rule 16b 3(b)3(i) promulgated
pursuant to the Exchange Act and any applicable releases and opinions or the
Securities and Exchange Commisions.

         (j) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.

         (k) "Nonstatutory Stock Option" shall mean an Option which is not an
Incentive Stock Option.

         (l) "Option" shall mean a stock option granted pursuant to this Plan.

         (m) "Option Agreement" shall mean a written agreement in such form or
forms as the Board (subject to the terms and conditions of this Plan) may from
time to time approve, evidencing an Option.

         (n) "Optioned Stock" shall mean the Common Stock subject to an Option.

         (o) "Optionee" shall mean an Employee who is granted an Option.

         (p) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Sections 424(e) and (g) of the Code.

         (q) "Plan" shall mean this 1998 Stock Option Plan.

         (r) "Registration Date" shall mean the effective date of the first
registration statement which is filed by the Company and declared effective
pursuant to Section 12(g) of the Exchange Act, with respect to any class of the
Company's securities.

         (s) "Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor legislation.

         (t) "Share" or "Shares" shall mean the Common Stock, as adjusted in
accordance with Section 11 of this Plan.

         (u) "Stock Purchase Agreement" shall mean an agreement in such form or
forms as the Board (subject to the terms and conditions of this Plan) may from
time to time approve, which is to be executed as a condition of purchasing
Optioned Stock upon exercise of an Option.

         (v) "Subsidiary" shall mean a subsidiary corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.

     3.  Stock Subject to this Plan. Subject to the provisions of Section 11 of
         --------------------------
this Plan, the maximum aggregate number of Shares which may be optioned and sold
under this Plan is Ten Million (10,000,000) Shares. The Shares may be
authorized, but unissued or reacquired

                                       2



Shares other than reacquired shares delivered pursuant to Section 7(c)(iv)
hereof as payment of consideration in the exercise of an option.

     If (a) an Option should expire or become unexercisable for any reason
without having been exercised in full or (b) if the Company repurchases Shares
from the Optionee pursuant to the terms of a Stock Purchase Agreement (provided
that the Optionee did not receive benefits of ownership, such as dividends,
which would destroy the exemption from the provisions of Section 16(b) of the
Exchange Act provided by Rule 16b-3 promulgated pursuant to the Exchange Act),
the unpurchased Shares or repurchased Shares, respectively, which were subject
thereto shall, unless this Plan shall have been terminated, return to this Plan
and become available for other Options under this Plan.

     The Company intends that as long as it is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, and is not an
investment company registered or required to be registered under the Investment
Company Act of 1940, as amended, all offers and sales of Options and Common
Stock issuable upon exercise of any Option shall be exempt from registration
under the provisions of Section 5 of the Securities Act, and this Plan shall be
administered in such a manner so as to preserve such exemption. The Company
intends for this Plan to constitute a written compensatory benefit plan within
the meaning of Rule 701(b) of 17 CFR Section 230.701 ("Rule 701") promulgated by
the Securities and Exchange Commission pursuant to the Securities Act. Unless
otherwise designated by the Committee at the time an Option is granted, all
options granted under this Plan by the Company, and the issuance of any Shares
upon exercise thereof, are intended to be granted in reliance on Rule 701.

     4.  Administration of this Plan.
         ---------------------------

         (a) Procedure. This Plan shall be administered by the Board. The Board
             ---------
may appoint a Committee consisting of two (2) or more members of the Board (or
such greater number as is required to qualify for the exemption from the
provisions of Section 16(b) of the Exchange Act provided by Rule 16b-3
promulgated pursuant to the Exchange Act) to administer this Plan on behalf of
the Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the Committee and
appoint additional members of the Board thereto, remove members (with or without
cause) and appoint new members of the Board in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and,
thereafter, directly administer this Plan. Members of the Board or Committee who
are either eligible for Options or have been granted Options may vote on any
matters affecting the administration of this Plan or the grant of Options
pursuant to this Plan, except that no such member shall act upon the granting of
an Option to such person nor shall any such members presence at a meeting of the
Board of Directors establish the existence of a quorum at any meeting of the
Board or the Committee during which action is taken with respect to the granting
of an Option to him.

         (b) Procedure After Registration Date. Notwithstanding the provisions
             ---------------------------------
of Section 4(a) above, after the Registration Date this Plan shall be
administered either by: (i) the full Board, provided that at all times each
member of the Board is a Non-Employee Director; or

                                       3



(ii) a Committee which at all times consists solely of Board members who are Non
Employee Directors. After the Registration Date, the Board shall take all action
necessary to administer this Plan in accordance with the then-effective
provisions of Rule 16b-3 promulgated under the Exchange Act, provided that any
amendment to this Plan required for compliance with such provisions shall be
made in accordance with Section 13 of this Plan.

         (c) Powers of the Board and/or Committee. Subject to the provisions of
             ------------------------------------
this Plan, the Committee or the Board, as appropriate, shall have the authority,
in its discretion: (i) to grant Incentive Stock Options and Nonstatutory Stock
Options; (ii) to determine, upon review of relevant information and in
accordance with Section 7 of this Plan, the fair market value per Share; (iii)
to determine the exercise price of the Options, which exercise price and type of
consideration shall be determined in accordance with Section 7 of this Plan;
(iv) to determine the Employees to whom, and the time or times at which, Options
shall be granted, and the number of Shares to be subject to each Option; (v) to
prescribe, amend and rescind rules and regulations relating to this Plan; (vi)
to determine the terms and provisions of each Option Agreement and each Stock
Purchase Agreement (each of which need not be identical with the terms of other
Option Agreements and Stock Purchase Agreements) and, with the consent of the
holder thereof, to modify or amend each Option Agreement and Stock Purchase
Agreement; (vii) to determine whether a stock repurchase agreement or other
agreement will be required to be executed by any Employee as a condition to the
exercise of an Option, and to determine the terms and provisions of any such
agreement (which need not be identical with the terms of any other such
agreement) and, with the consent of the Optionee, to amend any such agreement;
(viii) to interpret this Plan, the Option Agreements, the Stock Purchase
Agreements or any agreement entered into with respect to the grant or exercise
of Options; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board or to take such other actions as may be necessary or appropriate with
respect to the Company's rights pursuant to Options or agreements relating to
the grant or exercise thereof; and (x) to make such other determinations and
establish such other procedures as it deems necessary or advisable for the
administration of this Plan.

         (d) Effect of the Board's or Committee's Decision. All decisions,
             ---------------------------------------------
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other holders of Options.

     5.  Eligibility.  Options may be granted only to Employees.  An Employee
         -----------
who has been granted an Option may, if such Employee is otherwise eligible, be
granted additional Options.

     6.  Term of Plan. This Plan shall become effective upon the earlier to
         ------------
occur of its adoption by the Board or its approval by vote of a majority of the
outstanding shares of the Company's capital stock entitled to vote on the
adoption of this Plan. This Plan shall continue in effect for a term of ten (10)
years unless sooner terminated in accordance with the terms and provisions of
this Plan.

     7.  Option Price and Consideration.
         ------------------------------

                                       4



         (a) Exercise Price. The exercise price per Share for the Shares to be
             --------------
issued pursuant to the exercise of an Option shall be such price as is
determined by the Board; provided, however, that such price shall in no event be
                         --------  -------
less than eighty-five percent (85%) with respect to Nonstatutory Stock Options,
and one hundred percent (100%) with respect to Incentive Stock Options, of the
fair market value per Share on the date of grant. In the case of an Option
granted to an Employee who, at the time the Option is granted, owns stock (as
determined under Section 424(d) of the Code) constituting more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or its Parent or Subsidiaries, the exercise price per Share shall be no less
than one hundred ten percent (110%) of the fair market value per Share on the
date of grant.

         (b) Fair Market Value. The fair market value per Share on the date of
             -----------------
grant shall be determined by the Board in its sole discretion, exercised in good
faith; provided, however, that where there is a public market for the Common
       --------  -------
Stock, the fair market value per Share shall be the average of the closing bid
and asked prices of the Common Stock on the date of grant, as reported in The
                                                                          ---
Wall Street Journal (or, if not so reported, as otherwise reported by the
- -------------------
National Association of Securities Dealers Automated Quotations ("NASDAQ")
System), or, in the event the Common Stock is listed on a stock exchange or on
the NASDAQ System, the fair market value per Share shall be the closing price on
the exchange or on the NASDAQ System as of the date of grant of the Option, as
reported in The Wall Street Journal.
            -----------------------

         (c) Payment of Consideration. The consideration to be paid for the
             ------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist entirely of cash, check,
promissory notes, Shares held by the Optionee for the requisite period necessary
to avoid a charge to the Company's earnings for financial reporting purposes
which have a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, or any
combination of such methods of payment. Subject to subparagraphs (i) through
(iv) hereto, utilization of Shares as the method of payment may be completed by
either (a) the tender of Shares then held by the Optionee, or (b) the
withholding of Shares which would otherwise be issued pursuant to an Option
pursuant to broker-dealer sale and remittance procedure described in
subparagraph (iii) hereto. In making its determination as to the type of
consideration to accept, the Board shall consider if acceptance of such
consideration is deemed to be such as may be reasonably expected to benefit the
Company.

             (i)  If the consideration for the exercise of an Option is a
promissory note, it shall be a full recourse promissory note executed by the
Optionee, bearing interest at a rate which shall be sufficient to preclude the
imputation of interest under the applicable provisions of the Code. Until such
time as the promissory note has been paid in full, the Company may retain the
Shares purchased upon exercise of the Option in escrow as security for payment
of the promissory note.

             (ii) If the consideration for the exercise of an Option is the
surrender of previously acquired and owned Shares, the Optionee will be required
to make representations and warranties satisfactory to the Company regarding his
title to the Shares used to effect the purchase, including, without limitation,
representations and warranties that the Optionee has

                                       5



good and marketable title to such Shares free and clear of any and all liens,
encumbrances, charges, equities, claims, security interests, options or
restrictions and has full power to deliver such Shares without obtaining the
consent or approval of any person or governmental authority other than those
which have already given consent or approval in a form satisfactory to the
Company. The value of the Shares used to effect the purchase shall be the fair
market value of those Shares as determined by the Board in its sole discretion,
exercised in good faith.

               (iii) If the consideration for the exercise of an Option is to be
paid through a broker-dealer sale and remittance procedure, the Optionee shall
provide (1) irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and to remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased Shares plus all
applicable Federal and State income and employment taxes required to be withheld
by the Company in connection with such purchase and (2) written instructions to
the Company to deliver the certificates for the purchased Shares directly to
such brokerage firm in order to complete the sale transaction.

               (iv)  If an Optionee is permitted to exercise an Option by
delivering shares of the Company's Common Stock, the option agreement covering
such Option may include provisions authorizing the Optionee to exercise the
Option, in whole or in part, by: (1) delivering whole shares of the Company's
Common Stock previously owned by such Optionee (whether or not acquired through
the prior exercise of a stock option) having a fair market value equal to the
option price; and/or (2) directing the Company to withhold from the Shares that
would otherwise be issued upon exercise of the Option that number of whole
Shares having a fair market value equal to the option price. Shares of the
Company's Common Stock so delivered or withheld shall be valued at their fair
market value on the date of exercise of the Option, as determined by the
Committee and/or the Board, as appropriate. Any balance of the exercise price
shall be paid in cash or by check or a promissory note, each in accordance with
the terms of this Section 7. Any Shares delivered or withheld in accordance with
this provision shall again become available for purposes of this Plan and for
Options subsequently granted thereunder to the extent permissible pursuant to
Section 3 of this Plan.

     8.   Options.
          -------

          (a) Terms and Provisions of Options. As provided in Section 4 of this
              -------------------------------
Plan and subject to any limitations specified herein, the Board and/or Committee
shall have the authority to determine the terms and provisions of any Option
granted under this Plan or any agreement required to be executed in connection
with the grant or exercise of an Option. Each Option granted pursuant to this
Plan shall be evidenced by an Option Agreement. Options granted pursuant to this
Plan are conditioned upon the Company obtaining any required permit or order
from appropriate governmental agencies authorizing the Company to issue such
Options and Shares issuable upon exercise thereof.

          (b) Term of Option. The term of each Option may be up to ten (10)
              ---------------------
years from the date of grant thereof as determined by the Board upon the grant
of the Option and specified in the Option Agreement, except that the term of an
Option granted to an Employee

                                       6



who, at the time the Option is granted, owns stock comprising more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or its Parent or Subsidiaries, shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.

          (c)  Exercise of Option.
               ------------------

               (i)    Procedure for Exercise; Rights as a Shareholder. Any
                      -----------------------------------------------
Option shall be exercisable at such times, in such installments and under such
conditions as may be determined by the Board and specified in the Option
Agreement, including performance criteria with respect to the Company and/or the
Optionee, and as shall be permissible under the terms of this Plan.

          An Option may be exercised in accordance with the provisions of this
Plan as to all or any portion of the Shares then exercisable under an Option,
from time to time during the term of the Option. An Option may not be exercised
for a fraction of a Share.

          An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company at its principal business office in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and, except when the broker-dealer sale and remittance
procedure described in Section 7(c)(iii) hereto is used, full payment for the
Shares with respect to which the Option is exercised has been received by the
Company, accompanied by an executed Stock Purchase Agreement and any other
agreements required by the terms of this Plan and/or the Option Agreement. Full
payment may consist of such consideration and method of payment allowable under
Section 7 of this Plan. Until the Option is properly exercised in accordance
with the terms of this paragraph, no right to vote or receive dividends or any
other rights as a stockholder exist with respect to the Optioned Stock. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date the Option is exercised, except as provided in Section 11
of this Plan.

          As soon as practicable after any proper exercise of an Option in
accordance with the provisions of this Plan, the Company shall, without transfer
or issue tax to the Optionee, deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates representing
the Shares for which the Option shall have been exercised. The time of issuance
and delivery of the certificate(s) representing the Shares for which the Option
shall have been exercised may be postponed by the Company for such period as may
be required by the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national or regional securities exchange
or any law or regulation applicable to the issuance or delivery of such Shares.
No Option may be exercised unless this Plan has been duly approved by the
shareholders of the Company in accordance with applicable law. Notwithstanding
anything to the contrary herein, the terms of a Stock Purchase Agreement
required to be executed and delivered in connection with the exercise of an
Option may require the certificate or certificates representing the Shares
purchased upon exercise of an Option to be delivered and deposited with the
Company as security for the Optionee's faithful performance of the terms of his
Stock Purchase Agreement.

                                       7



          Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of this
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

               (ii)   Termination of Status as an Employee. If an Optionee
                      ------------------------------------
ceases to serve as an Employee for any reason other than death or disability and
thereby terminates his Continuous Status as an Employee, such Optionee shall
have the right to exercise the Option at any time within thirty (30) days (or
such other period of time not exceeding three (3) months as is determined by the
Board at the time of granting the Option), following the date such Optionee
ceases his Continuous Status as an Employee of the Company to the extent that
such Optionee was entitled to exercise the Option at the date of such
termination; provided, however, that no Option shall be exercisable after the
             --------  -------
expiration of the term set forth in the Option Agreement. To the extent that
such Optionee was not entitled to exercise the Option at the date of such
termination, or if such Optionee does not exercise such Option (which such
Optionee was entitled to exercise) within the time specified herein, the Option
shall terminate.

               (iii)  Death or Disability of Optionee. If an Optionee ceases to
                      -------------------------------
serve as an Employee due to death or disability and thereby terminates his
Continuous Status as an Employee, the Option may be exercised at any time within
six (6) months following the date of death or termination of employment due to
disability, in the case of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, or, in the
case of disability, by the Optionee, but in any case only to the extent the
Optionee was entitled to exercise the Option at the date of his termination of
employment by death or disability; provided, however, that no Option shall be
                                   --------  -------
exercisable after the expiration of the Option term set forth in the Option
Agreement. To the extent that such Optionee was not entitled to exercise such
Option at the date of his termination of employment by death or disability or if
such Option is not exercised (to the extent it could be exercised) within the
time specified herein, the Option shall terminate.

               (iv)   Extension of Time to Exercise. Notwithstanding anything to
                      -----------------------------
the contrary in this Section 8, the Board may at any time and from time to time
prior to the termination of a Nonstatutory Stock Option, with the consent of the
Optionee, extend the period of time during which the Optionee may exercise his
Nonstatutory Stock Option following the date the Optionee ceases such Optionee's
Continuous Status as an Employee; provided, however, that (1) the maximum period
                                  --------  -------
of time during which a Nonstatutory Stock Option shall be exercisable following
such termination date shall not exceed an aggregate of six (6) months, (2) the
Nonstatutory Stock Option shall not become exercisable after the expiration of
the term of such Option as set forth in the Option Agreement as a result of such
extension, and (3) notwithstanding any extension of time during which the
Nonstatutory Stock Option may be exercised, such Option, unless otherwise
amended by the Board, shall only be exercisable to the extent to which the
Optionee was entitled to exercise it on the date Optionee ceased Continuous
Status as an Employee. To the extent that such Optionee was not entitled to
exercise the Option at the date of such termination, or if such Optionee does
not exercise an Option which Optionee was entitled to exercise within the time
specified herein, the Option shall terminate.

                                       8



     9.   Limit on Value of Optioned Stock. No Incentive Stock Option may be
          --------------------------------
granted to an Employee if, as a result of such grant, the aggregate fair market
value (determined at the time an Incentive Stock Option is granted) of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year under all incentive stock
option plans of the Company, its Parents or its Subsidiaries, if any, exceeds
One Hundred Thousand Dollars ($100,000).

     10.  Nontransferability of Options. Options granted under this Plan may not
          -----------------------------
be sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in
any manner, either voluntarily or involuntarily by operation of law, other than
by will or by the laws of descent or distribution, and may be exercised during
the lifetime of the Optionee only by such Optionee.

     11.  Adjustments Upon Changes in Capitalization or Merger.
          ----------------------------------------------------

          (a) Subject to any required action by the shareholders of the Company,
the number of Shares covered by each outstanding Option, and the number of
Shares which have been authorized for issuance under this Plan but as to which
no Options have yet been granted or which have been returned to this Plan upon
cancellation or expiration of an Option or repurchase of shares from an Optionee
upon termination of employment or service, as well as the exercise or purchase
price per Share covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, combination or
reclassification of the Common Stock, or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company (other than stock bonuses to Employees, including, without limitation,
officers and directors); provided, however, that the conversion of any
                         --------  -------
convertible securities of the Company shall not be deemed to have been effected
without the receipt of consideration. Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to this Plan or an Option.

          (b) In the event of the merger, consolidation or reorganization of the
Company with or into another corporation as a result of which the Company is not
the surviving corporation or as a result of which the outstanding Shares are
exchanged for or converted into cash or property or securities not of the
Company, the Board may (i) make provision for the assumption of all outstanding
Options by the successor corporation or a Parent or a Subsidiary thereof, or
(ii) declare that outstanding Options shall terminate as of a date fixed by the
Board which is at least thirty (30) days after the notice thereof to the
Optionee, unless such thirty (30) day period is waived by the Optionee. In the
event of a dissolution or liquidation of the Company or the sale of all or
substantially all of the assets of the Company, the Company's outstanding
Options shall terminate as to an Optionee upon termination of Continuous Status
as an Employee.

          (c) No fractional shares of Common Stock shall be issuable on account
of any

                                        9



action described in this Section, and the aggregate number of shares into which
Shares then covered by the Option, when changed as the result of such action,
shall be reduced to the largest number of whole shares resulting from such
action, unless the Board, in its sole discretion, shall determine to issue scrip
certificates in respect to any fractional shares, which scrip certificates, in
such event, shall be in a form and have such terms and conditions as the Board
in its discretion shall prescribe.

     12.  Time of Granting Options. The date of grant of an Option shall be the
          ------------------------
date on which the Board makes the determination granting such Option; provided,
                                                                      --------
however, that if the Board determines that such grant shall be as of some future
- -------
date, the date of grant shall be such future date. Notice of the determination
shall be given to each Employee to whom an Option is so granted within a
reasonable time after the date of such grant.

     13.  Amendment and Termination of this Plan.
          --------------------------------------

          (a)  Amendment and Termination. The Board may amend or terminate this
               -------------------------
Plan from time to time in such respects as the Board may deem advisable and
shall make any amendments which may be required so that Options intended to be
Incentive Stock Options shall at all times continue to be Incentive Stock
Options for the purpose of the Code, except that, without approval of the
holders of a majority of the outstanding shares of the Company's capital stock,
no such revision or amendment shall:

               (i)    Increase the number of Shares subject to this Plan, other
than in connection with an adjustment under Section 11 of this Plan;

               (ii)   Materially change the designation of the class of
Employees eligible to be granted Options;

               (iii)  Remove the administration of this Plan from the Board
(other than to the Committee);

               (iv)   Materially increase the benefits accruing to participants
under this Plan; or

               (v)    Extend the term of this Plan.

          (b)  Effect of Amendment or Termination. Except as otherwise provided
               ----------------------------------
in Section 11, any amendment or termination of this Plan shall not affect
Options already granted and such Options shall remain in full force and effect
as if this Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Company, which agreement must be in
writing and signed by the Optionee and the Company.

     14.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall

                                       10



comply with all relevant provisions of law, including, without limitation, the
Securities Act as amended, the Exchange Act, applicable state securities laws,
the rules and regulations promulgated thereunder, and the requirement of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

          (b) As a condition to the exercise of an Option, the Board may require
the person exercising such Option to execute an agreement with, and/or may
require the person exercising such Option to make any representation and
warranty to, the Company as may in the judgment of counsel to the Company be
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
appropriate under any of the aforementioned relevant provisions of law.

     15.  Reservation of Shares. The Company, during the term of this Plan, at
          ---------------------
all times shall reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of this Plan.

     The Company, during the term of this Plan, shall use diligent efforts to
seek to obtain from appropriate regulatory agencies any requisite authorization
in order to issue and sell such number of Shares as shall be sufficient to
satisfy the requirements of this Plan. The inability of the Company to obtain
the requisite authorization(s) deemed by the Company's counsel to be necessary
for the lawful issuance and sale of any Shares hereunder, or the inability of
the Company to confirm to its satisfaction that any issuance and sale of any
Shares hereunder will meet applicable legal requirements, shall relieve the
Company of any liability in respect to the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.

     16.  Stock Option and Stock Purchase Agreements. Options shall be evidenced
          ------------------------------------------
by written stock option agreements in such form or forms as the Board shall
approve from time to time. Upon the exercise of an Option, the Optionee shall
sign and deliver to the Company a Stock Purchase Agreement (if required to be
executed and delivered to the Company by an Optionee as a condition to the
exercise of an Option) in such form or forms as the Board shall approve from
time to time.

     17.  Shareholder Approval. Continuance of this Plan shall be subject to
          --------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date this Plan is adopted by the Board. If such shareholder approval
is obtained at a duly held shareholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company entitled to vote thereon. All Options granted prior to shareholder
approval of this Plan are subject to such approval, and if such approval is not
obtained within twelve (12) months before or after the date this Plan is adopted
by the Board all such Options shall expire and shall be of no further force or
effect.

     18.  Taxes, Fees, Expenses and Withholding of Taxes.
          ----------------------------------------------

                                       11



          (a) The Company shall pay all original issue and transfer taxes (but
not income taxes, if any) with respect to the grant of Options and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will
from time to time use diligent efforts to comply with all laws and regulations
which, in the opinion of counsel for the Company, shall be applicable thereto.

          (b) The grant of Options hereunder and the issuance of Shares pursuant
to the exercise thereof is conditioned upon the Company's reservation of the
right to withhold, in accordance with any applicable law, from any compensation
payable to the Optionee any taxes required to be withheld by federal, state or
local law as a result of the grant or exercise of such Option or the sale of the
Shares issued upon exercise thereof. To the extent that compensation or other
amounts, if any, payable to the Optionee are insufficient to pay any taxes
required to be so withheld, the Company may, in its sole discretion, require the
Optionee, as a condition of the exercise of an Option, to pay in cash to the
Company an amount sufficient to cover such tax liability or otherwise to make
adequate provision for the Company's satisfaction of its withholding obligations
under federal and state law.

          (c) The Board or the Committee may, in its discretion and upon such
terms and conditions as it may deem appropriate (including the applicable
safe-harbor provisions of SEC Rule 16b-3 and interpretations thereof by the
staff of the Securities and Exchange Commission) provide any or all holders of
outstanding option grants under this Plan with the election to have the Company
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such options, one or more of such shares with an aggregate fair market value
equal to the designated percentage (any multiple of 5% specified by the
optionee) of the Federal and State income taxes ("Taxes") incurred in connection
with the acquisition of such Shares. In lieu of such direct withholding, one or
more optionees may also be granted the right to deliver shares of Common Stock
to the Company in satisfaction of such Taxes. The withheld or delivered shares
shall be valued at the Fair Market Value on the applicable determination date
for such Taxes or such other date required by the applicable safe-harbor
provisions of SEC Rule 16b-3.

     19. Liability of Company. The Company, its Parent or any Subsidiary which
         --------------------
is in existence or hereafter comes into existence shall not be liable to an
Optionee or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Options intended to be
Incentive Stock Options granted hereunder do not qualify as incentive stock
options within the meaning of Section 422 of the Code.

     20. Information to Optionee. The Company shall provide without charge at
         -----------------------
least annually to each Optionee during the period his Option is outstanding a
balance sheet and income statement of the Company. In the event that the Company
provides annual reports or periodic reports to its shareholders during the
period in which an Optionee's Option is outstanding, the Company shall provide
to each Optionee a copy of each such report.

     21. Notices. Any notice required or permitted hereunder shall be given in
         -------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States

                                       12



mail, as first class, registered or certified mail, with postage and fees
prepaid and addressed (i) if to the Company, at its principal place of business,
attention: Secretary, or (ii) if to the Optionee at his address as set forth on
the signature page of his Option Agreement, or at such other address as either
party may from time to time designate in writing to other. It shall be the
obligation of each Optionee and each transferee holding Shares purchased upon
exercise of an Option to provide the Secretary of the Company, by letter mailed
as provided hereinabove, with written notice of his direct mailing address.

     22.  No Enlargement of Employee Rights. This Plan is purely voluntary on
          ---------------------------------
the part of the Company, and the continuance of this Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment or service of any Employee.
Nothing contained in this Plan shall be deemed to give any Employee the right to
be retained in the employ or service of the Company, its Parent, Subsidiary or a
successor corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee at any time with or without
cause and with or without notice. No Employee shall have any right to or
interest in Options authorized hereunder prior to the grant thereof to such
Employee, and upon such grant such Employee shall have only such rights and
interests as are expressly provided herein, subject, however, to all applicable
provisions of the Company's Articles of Incorporation, as the same may be
amended from time to time.

     23.  Legends on Certificates.
          -----------------------

          (a) Federal Law. Unless an appropriate registration statement is filed
              -----------
pursuant to the Securities Act as amended, with respect to the Options and
Shares issuable under this Plan, each document or certificate representing such
Options or Shares shall be endorsed thereon with a legend substantially as
follows:

          "THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON
          EXERCISE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
          SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED
          FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
          THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
          DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
          STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY
          TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."

          (b) California Legend. If required by the California Commissioner of
              -----------------
Corporations, each document or certificate representing the Options or Shares
issuable under this Plan shall be endorsed thereon with a legend substantially
as follows:

                                       13



          "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
          OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON
          EXERCISE OF THIS OPTION, OR ANY INTEREST THEREIN, OR TO
          RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
          WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
          STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
          RULES."

          (c) Additional Legends. Each document or certificate representing the
              ------------------
Options or Shares issuable under this Plan shall also contain legends as may be
required under applicable blue sky laws or by any Stock Purchase Agreement or
other agreement the execution of which is a condition to the exercise of an
Option under this Plan.

     24.  Availability of Plan. A copy of this Plan shall be delivered to the
          --------------------
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.

     25.  Compliance with Exchange Act Rule 16b-3. With respect to persons
          ---------------------------------------
subject to Section 16 of the Exchange Act, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3, promulgated
pursuant to the Exchange Act, or its successors. To the extent any provision of
this Plan or action by the Board or any Committee fails so to comply, it shall
be deemed null and void to the extent permitted by law and deemed advisable by
the Board or any Committee.

     26.  Invalid Provisions. In the event that any provision of this Plan is
          ------------------
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.

     27.  Applicable Law. This Plan shall be governed by and construed in
          --------------
accordance with the laws of the State of California.

                                       14





                                INTERVIDEO, INC.

                        INCENTIVE STOCK OPTION AGREEMENT
                        --------------------------------
                                 (Standard Form)

     InterVideo, Inc., a California corporation (the "Company") hereby grants to
__________(the "Optionee") an option to purchase a total of____________ shares
of Common Stock (the "Shares") of the Company, at the price and on the terms set
forth herein, and in all respects subject to the terms and provisions of the
Company's 1998 Stock Option Plan, as amended (the "Plan") applicable to
incentive stock options, which terms and provisions hereby are incorporated by
reference herein. Unless the context herein otherwise requires, the terms
defined in the Plan shall have the same meanings herein.

     1.   Nature of the Option. This Option is intended to be an incentive stock
          --------------------
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").

     2.   Date of Grant; Term of Option. This Option is granted as of the grant
          -----------------------------
date set forth on the signature page of this Agreement, and it may not be
exercised later than ten (10) years from such date.

     3.   Option Exercise Price. The exercise price for this Option is $2.00 per
          ---------------------
Share, which price is not less than one hundred percent (100%) of the fair
market value thereof on the date this Option was granted (or not less than one
hundred ten percent (110%) of the fair market value thereof on the date this
Option was granted, if the Optionee owns stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or its parents or subsidiaries).

     4.   Exercise of Option. This Option shall be exercisable during its term
          ------------------
only in accordance with the terms and provisions of the Plan and this Option as
follows:

          (a)  Right to Exercise. This Option shall vest and be exercisable,
               -----------------
cumulatively, during its term as to one fourth (1/4) of the Shares at the end of
the first full twelve months of Continuous Status as an Employee of the Company
following the Vesting Commencement Date (as set forth on the signature page
hereof) and thereafter as to 1/48 of the Shares at the end of each successive
one-month period of Continuous Status as an Employee of the Company after such
initial twelve month period until the Shares are fully vested.

          (b)  Method of Exercise. This Option shall be exercisable by written
               ------------------
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised and such other
representations and agreements as to Optionee's investment intent with respect
to such Shares as may be required by the Company hereunder or pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of

                                       1



the purchase price and, at the Company's option, either (i) an executed
investment representation statement acceptable to the Company (the "Investment
Representation Statement") or (ii) an executed stock purchase agreement
acceptable to the Company (the "Stock Purchase Agreement"). Payment of the
purchase price shall be made by check or such other consideration and method of
payment authorized by the Board pursuant to the Plan. The certificate or
certificates for the Shares as to which this Option shall be exercised shall be
registered in the name of Optionee and shall carry the legends set forth in the
Plan, the Stock Purchase Agreement or the Investment Representation Statement,
as applicable, and/or as required under applicable law.

          (c)  Restrictions on Exercise. This Option may not be exercised if the
               ------------------------
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.

     5.   Investment Representations. In connection with the acquisition of this
          --------------------------
Option, Optionee represents and warrants as follows:


          (a)  Investment Intent. Optionee is acquiring this Option, and upon
               -----------------
exercise of this Option, Optionee will be acquiring the Shares for investment
for Optionee's own account, not as a nominee or agent, and not with a view to,
or for resale in connection with, any distribution thereof.

          (b)  Protection of Interests. Optionee, by reason of Optionee's
               -----------------------
business or financial experience, has the capacity to evaluate the merits and
risks of purchasing Common Stock of the Company and to make an informed
investment decision with respect thereto and to protect Optionee's interests in
connection with the acquisition of this Option and the Shares.

     6.   Termination of Status as an Employee. If Optionee ceases to serve as
          ------------------------------------
an Employee for any reason other than death or disability and thereby terminates
Optionee's Continuous Status as an Employee, Optionee shall have the right to
exercise this Option at any time within thirty (30) days after the date of such
termination to the extent that Optionee was entitled to exercise this Option at
the date of such termination. If Optionee ceases to serve as an Employee due to
death or disability, this Option may be exercised at any time within six (6)
months after the date of death or termination of employment due to disability,
in the case of death, by Optionee's estate or by a person who acquired the right
to exercise this Option by bequest or inheritance, or, in the case of
disability, by Optionee, but in any case only to the extent Optionee was
entitled to exercise this Option at the date of such termination. To the extent
that Optionee was not entitled to exercise this Option at the date of
termination, or to the extent this Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable after the expiration of the term set forth
in paragraph 2 hereof.

     7.   Withholding Tax Liability. The Company reserves the right to withhold,
          -------------------------
in accordance with any applicable laws, from any compensation or other
consideration payable to the Optionee any taxes required to be withheld by
federal, state or local law as a result of the

                                       2



grant or exercise of this Option or the sale or other disposition of the Shares
issued upon exercise of this Option, and if such compensation or consideration
is insufficient, the Company may require Optionee to pay to the Company an
amount sufficient to cover such withholding tax liability. The Optionee agrees
to notify the Company immediately in the event of any disqualifying disposition
(within the meaning of Section 421(b) of the Code) of the Shares acquired upon
exercise of an incentive stock option.

     8.   Nontransferability of Option. This Option may not be sold, pledged,
          ----------------------------
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.

     9.   Continuation of Employment. Neither this Option or the Plan nor any
          --------------------------
Option granted thereunder shall confer upon any Optionee any right to continue
in the employment of the Company, its Parent, Subsidiary or a successor
corporation or limit in any respect the right of the Company or any such
corporations to discharge the Optionee at any time, with or without cause and
with or without notice.

     10.  Limitations on Transfer. In addition to any other limitation on
          -----------------------
transfer created by applicable securities laws, Optionee will not sell,
transfer, assign, encumber or otherwise dispose of (including, without
limitation by operation of law) any of Optionee's right, title or interest in
and to all or any portion of the Shares except as provided in this Section:

          (a)  Right of First Refusal. In the event Optionee desires (or is
               ----------------------
required) to sell or transfer in any manner all or a portion of the Shares, the
Optionee shall first offer such Shares for sale to the Company (or its assignee)
at the same price, and upon the same terms (or reasonably similar terms) as
those on which the Optionee is disposing of said Shares ("Right of First
Refusal"). Optionee shall offer such Shares to the Company by delivering a
written notice (the "Notice") to the Company stating (i) Optionee's bona fide
intention to sell or otherwise transfer such Shares, (ii) the number of such
Shares to be sold or otherwise transferred, (iii) the price for which Optionee
proposes to sell such Shares and all additional terms and conditions, if any, of
the sale or transfer and (iv) the name of the proposed buyer or transferee.
Optionee shall attach to the Notice a copy of the written offer, if any, of the
sale or transfer. In the event of a transfer not involving a sale of such Shares
for a specific sum of money, or if, in the sole judgment of the Company's Board
of Directors, the proposed transfer does not involve a price for the Shares
negotiated by the Optionee and Optionee's proposed transferee in a bona fide
"arm's length transaction," the price of the Shares shall be determined by the
Company's Board of Directors in the manner specified in Section 10(c) below.

          Within thirty (30) days after the Company's receipt of the Notice (the
"Acceptance Period"), the Company (or its assignee) may elect to purchase all of
the Shares (or, with the consent of the Optionee, a portion thereof) to which
the Notice refers, at the price per share (or at the fair market value of such
Shares determined pursuant to paragraph 10(c) hereof in the case of a transfer
other than a bona fide arms-length transaction) and on the same terms and
conditions (or terms and conditions as similar as reasonably possible) as set
forth in the

                                       3



Notice. If the Company (or its assignee) elects to purchase such Shares
hereunder, it shall notify Optionee either orally or in writing during the
Acceptance Period of its intention to purchase all of such Shares (or, with the
consent of Optionee, a portion thereof) and either (i) set a date and location
for the closing of the transaction on or prior to the last day of the Acceptance
Period, or at such later date as the parties may otherwise agree, at which time
the Company (or its assignee) shall tender payment for the Shares or (ii)
include payment for the Shares with the Company's notice to Optionee, if in
writing, or deliver it to Optionee under separate cover. At such closing, the
certificates representing the Shares so purchased shall be delivered to the
Company and canceled or, in the case of payment by the Company by mail, such
certificates shall be deemed to be canceled upon the date of such mailing of the
Company's payment and, thereafter, shall be promptly returned by Optionee to the
Company by certified or registered mail. Optionee hereby authorizes and directs
the Secretary or Transfer Agent of the Company to transfer the Shares as to
which the Right of First Refusal has been exercised from Optionee to the Company
(or its assignee). Optionee further authorizes the Company to refuse, or to
cause its Transfer Agent to refuse, to transfer or record any Shares to be
transferred in violation of this Agreement. If the Company (or its assignee)
does not elect to purchase the Shares to which the Notice refers, Optionee may
sell or otherwise transfer the Shares to the third party named in the Notice at
the price and on the terms and conditions specified in the Notice or at a higher
price, provided that such sale or transfer is consummated within sixty (60) days
from either (i) the lapse of the Acceptance Period or (ii) the date of the
Company's notice, whether written or oral, advising Optionee that it does not
intend to purchase the Shares hereunder, whichever occurs first in time and
provided, further, that any such sale or transfer is in accordance with all of
the terms and conditions set forth in this Agreement. In the event the Shares
are not disposed of by the Optionee within said 60-day period, such Shares shall
once again be subject to the Right of First Refusal herein provided.

          (b)  Involuntary Transfer. In the event of any transfer by operation
               --------------------
of law or other involuntary transfer (the "Involuntary Transfer"), of all, or a
portion, of the Shares, the Company shall have an option to purchase all of the
Shares transferred (the "Involuntary Transfer Option"). Upon such transfer, the
Optionee and person acquiring the Shares shall promptly notify in writing the
Secretary of the Company of such transfer. The Company (or its assignee) shall
notify Optionee and the person acquiring the Shares as to whether the Company
(or its assignee) wishes to purchase the Shares pursuant to the Involuntary
Transfer Option within thirty (30) days after receipt by the Company of the
written notice of the involuntary transfer of the Shares. If the Company (or its
assignee) elects to purchase said Shares hereunder, it shall set a date for the
closing of the transaction at a place specified by the Company (or its assignee)
not later than thirty (30) days after receipt by the Company of the written
notice of the involuntary transfer of the Shares, or at such later date as the
parties may otherwise agree. At such closing, the Company (or its assignee)
shall tender payment for the Shares and the certificates representing the Shares
so purchased shall be canceled. Optionee hereby authorizes and directs the
Secretary or Transfer Agent of the Company to transfer the Shares as to which
the Involuntary Transfer Option has been exercised from the Optionee to the
Company (or its assignee). Optionee further authorizes the Company to refuse, or
to cause its Transfer Agent to refuse, to transfer or record any Shares to be
transferred in violation of this Agreement.

          (c)  Determination of Price. With respect to Shares to be transferred
               ----------------------
pursuant to the Right of First Refusal where the price is not determined as a
result of a bona fide arms-

                                       4



length transaction by the Optionee under paragraph 10(a) or the Involuntary
Transfer Option, the price per share shall be a price set by the Board of
Directors of the Company that will reflect the then current fair market value of
the Shares, as determined by the Board of Directors in good faith after giving
consideration to the factors set forth in Section 260.140.50 of Title 10 of the
California Code of Regulations or, upon the request of the Optionee, by an
independent appraiser acceptable to both the Company and the Optionee; provided,
that the Optionee shall be required to bear one-half of the cost of such
independent appraiser.

          (d)  Intra-family Transfers. Notwithstanding anything to the contrary
               ----------------------
contained herein, Optionee shall have the right, at any time and from time to
time during Optionee's lifetime or upon Optionee's death, to transfer all or any
portion of Optionee's Shares (the "Transferred Family Shares") to Optionee's
spouse, any of Optionee's issue, ancestors or descendants, or a trust for the
sole benefit of Optionee, Optionee's spouse, any of Optionee's issue, ancestors
or descendants (any such individual or trust is hereinafter referred to as an
"Intra-family Transferee"), provided that the Intra-family Transferee receiving
the Transferred Family Shares executes a consent to be bound by the terms of
this Agreement with respect to the Transferred Family Shares. The Transferred
Family Shares shall be and remain subject to all of the terms and conditions of
this Agreement as were applicable to such Shares immediately prior to their
transfer pursuant to this Section 10(e); without limiting the foregoing, the
obligations hereunder arising out of the possession or ownership of such
Transferred Family Shares shall be binding upon the respective Intra-family
Transferees. For purposes of exercising any rights under this Agreement, the
Company's right to purchase the Shares of Optionee shall extend to any Shares
owned by an Intra-family Transferee.

          (e)  Restriction on Alienation. Any sale, transfer, encumbrance, or
               -------------------------
other disposition or purported sale, transfer, encumbrance or disposition of any
of the Shares by Optionee, whether voluntarily, by operation of law or
otherwise, shall be null and void unless the terms, conditions and provisions of
this Agreement are strictly complied with. Optionee further authorizes the
Company to refuse, or cause its Transfer Agent to refuse, to transfer or record
any Shares to be transferred in violation of this Agreement.

          (f)  Assignment by Company. The Company's Right of First Refusal and
               ---------------------
Involuntary Transfer Option may be assigned in whole or in part to any
shareholder or shareholders of the Company.

          (g)  Obligations Binding Upon Transferees. All transferees of Shares
               ------------------------------------
or any interest therein will receive and hold such Shares or interests subject
to the provisions of this Agreement, including the Company's Right of First
Refusal and Involuntary Transfer Option. Any sale or transfer of the Shares
shall be void unless the provisions of this Agreement are met.

          (h)  Termination of Rights. The Right of First Refusal and Involuntary
               ---------------------
Transfer Option granted the Company by this paragraph 10 shall terminate at such
time as a public market exists for the Company's Common Stock (or any other
stock issued to purchasers in exchange for the Shares purchased under this
Agreement). For the purpose of this Agreement, a "public market" shall be deemed
to exist if the Common Stock is listed on a national securities exchange (as
that term is used in the Securities Exchange Act of 1934, as amended), or the

                                       5



Common Stock is traded on the over-the-counter market and prices are published
on business days in a recognized financial journal.

          (i)  Indebtedness. Any payment by the Company for purchase of shares
               ------------
from Optionee, may be made by cancellation of any indebtedness to Company from
Optionee.

          (j)  Legends. All certificates representing any Shares of the Company
               -------
purchased upon exercise of the Options shall have endorsed thereon the following
legends, or substantially similar legends, in addition to any legends required
by state securities laws, unless in the opinion of counsel such legends are no
longer necessary:

(1)  THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
     OR IN CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH
     SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
     REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
     SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

(2)  THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING A RIGHT OF
     FIRST REFUSAL OF THE COMPANY, AND MAY BE TRANSFERRED ONLY IN ACCORDANCE
     WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
     COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

          (k)  Market Standoff Agreement. The Optionee, if requested by the
               -------------------------
Company and an underwriter of Common Stock (or other securities) of the Company,
agrees not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by Optionee during the period not to
exceed one hundred and eighty (180) days as requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act (as hereafter defined), provided that all
officers and directors of the Company are required to enter into similar
agreements. Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or other securities) subject to the foregoing
restriction until the end of such period.

     11.  The Plan. This Option is subject to, and the Company and Optionee
          --------
agree to be bound by, all of the terms and conditions of the Plan as such Plan
may be amended from time to time in accordance with the terms thereof, provided
that no such amendment shall deprive Optionee, without Optionee's consent, of
this Option or any rights hereunder. Pursuant to the Plan, the Board of
Directors of the Company is authorized to adopt rules and regulations not
inconsistent with the Plan as it shall deem appropriate and proper. A copy of
the Plan in its present form is available for inspection during business hours
by Optionee or the persons entitled to exercise this Option at the Company's
principal office.

                                       6



     12.  Entire Agreement; Amendment. This Agreement contains the entire
          ---------------------------
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous written or oral negotiations and
agreements between them regarding the subject matter hereof. This Agreement may
be amended only in writing signed by each of the parties hereto.

Grant Date: ____________

Vesting
Commencement Date: _____________

                                            INTERVIDEO, INC.

                                            By:    _____________________________

                                            Title: _____________________________

                                       7



     Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that Optionee has read and is familiar with the
terms and provisions thereof, and hereby accepts this Option subject to all of
the terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
or the Committee upon any questions arising under the Plan.

Date:  _______________                    ______________________________________
                                          Signature of Optionee

                                          ______________________________________
                                          Address

                                          ______________________________________
                                          City          State           Zip Code

                                       8



     THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXECUTION OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.

     THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT TO
BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY UPON EXERCISE
OF THIS OPTION, A COPY OF WHICH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE
COMPANY.

                                       9

EX-10.3

                                                                    EXHIBIT 10.3

                                INTERVIDEO, INC.

                        2003 EMPLOYEE STOCK PURCHASE PLAN
                 (as amended and restated on January __, 2003)

         The following constitutes the provisions of the 2003 Employee Stock
Purchase Plan of InterVideo, Inc.

         1. Purpose. The purpose of the Plan is to provide Employees with an
opportunity to purchase Common Stock through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit Plan participation in
a manner that is consistent with the requirements of that section of the Code.

         2. Definitions.
            -----------

            (a) "Administrator" means the Board or any committee thereof
                 -------------
designated by the Board in accordance with Section 14.

            (b) "Board" means the Board of Directors of the Company.
                 -----

            (c) "Change of Control" means the occurrence of any of the following
                 -----------------
events:

                 (i)   Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the total voting power represented
by the Company's then outstanding voting securities; or

                 (ii)  The consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets; or

                 (iii) The consummation of a merger or consolidation of the
Company, with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company, or such surviving entity or its parent outstanding
immediately after such merger or consolidation.

                 (iv)  A change in the composition of the Board, as a result of
which fewer than a majority of the Directors are Incumbent Directors. "Incumbent
Directors" means Directors who either (A) are Directors as of the effective date
of the Plan (pursuant to Section 23), or (B) are elected, or nominated for
election, to the Board with the affirmative votes of at least a majority of
those Directors whose election or nomination was not in connection with any
transaction described in subsections (i), (ii) or (iii) or in connection with an
actual or threatened proxy contest relating to the election of Directors of the
Company.



          (d) "Code" means the Internal Revenue Code of 1986, as amended. Any
               ----
reference to a section of the Code herein shall be a reference to any successor
or amended section of the Code.

          (e) "Common Stock" means the common stock of the Company.
               ------------

          (f) "Company" means InterVideo, Inc., a Delaware corporation.
               -------

          (g) "Compensation" means an Employee's base straight time gross
               ------------
earnings, bonuses and commissions (to the extent such commissions are an
integral, recurring part of compensation), but exclusive of payments for
incentive compensation, overtime, shift premium and other compensation.

          (h) "Designated Subsidiary" means any Subsidiary that has been
               ---------------------
designated by the Administrator from time to time in its sole discretion as
eligible to participate in the Plan.

          (i) "Director" means a member of the Board.
               --------

          (j) "Employee" means any individual who is a common law employee of an
               --------
Employer and is customarily employed for at least twenty (20) hours per week and
more than five (5) months in any calendar year by the Employer. For purposes of
the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Employer. Where the period of leave exceeds ninety (90) days and the
individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.

          (k) "Employer" means any one or all of the Company and its Designated
               --------
Subsidiaries.

          (l) "Enrollment Date" means the first Trading Day of each Offering
               ---------------
Period.

          (m) "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------
amended, including the rules and regulations promulgated thereunder.

          (n) "Exercise Date" means the first Trading Day on or after May 1 and
               -------------
November 1 of each year. The first Exercise Date under the Plan shall be
November 1, 2002.

          (o) "Fair Market Value" means, as of any date, the value of Common
               -----------------
Stock determined as follows:

              (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for the Common Stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable, or;

                                      -2-



              (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable, or;

              (iii) In the absence of an established market for the Common
Stock, its Fair Market Value shall be determined in good faith by the
Administrator, or;

              (iv)  For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus deemed to be included within the
registration statement on Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Common Stock (the
"Registration Statement").

          (p) "Offering Periods" means the periods of approximately twenty-four
               ----------------
(24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the first Trading Day on or after the May 1 and
November 1 Offering Period commencement date approximately twenty-four months
later; provided, however, that the first Offering Period under the Plan shall
commence with the first Trading Day on or after the date on which the Securities
and Exchange Commission declares the Company's Registration Statement effective
and ending on the first Trading Day on or after the earlier of (i) May 1, 2005
or (ii) twenty-seven (27) months from the beginning of the first Offering
Period; and provided, further, that the second Offering Period under the Plan
shall commence on November 1, 2003. The duration and timing of Offering Periods
may be changed pursuant to Section 4 of this Plan.

          (q) "Parent" means a "parent corporation," whether now or hereafter
               ------
existing, as defined in Section 424(e) of the Code.

          (r) "Plan" means this 2003 Employee Stock Purchase Plan.
               ----

          (s) "Purchase Period" means the approximately six (6) month period
               ---------------
commencing on one Exercise Date and ending with the next Exercise Date, except
that the first Purchase Period of any Offering Period shall commence on the
Enrollment Date and end with the next Exercise Date.

          (t) "Purchase Price" means an amount equal to eighty-five percent
               --------------
(85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date
or on the Exercise Date, whichever is lower; provided however, that the Purchase
Price may be adjusted by the Administrator pursuant to Section 20.

          (u) "Subsidiary" means a "subsidiary corporation," whether now or
               ----------
hereafter existing, as defined in Section 424(f) of the Code.

          (v) "Trading Day" means a day on which the U.S. national stock
               -----------
exchanges and the Nasdaq System are open for trading.

                                      -3-



         3.   Eligibility.
              -----------

              (a)  First Offering Period. Any individual who is an Employee
                   ---------------------
immediately prior to the first Offering Period under the Plan shall be
automatically enrolled in the first Offering Period.

              (b)  Subsequent Offering Periods. Any individual who is an
                   ---------------------------
Employee as of the Enrollment Date of any future Offering Period shall be
eligible to participate in such Offering Period, subject to the requirements of
Section 5.

              (c)  Limitations. Any provisions of the Plan to the contrary
                   -----------
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company or any Parent or Subsidiary of
the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Parent or Subsidiary of
the Company, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans (as defined in Section 423 of the Code)
of the Company or any Parent or Subsidiary of the Company accrues at a rate
which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined
at the Fair Market Value of the stock at the time such option is granted) for
each calendar year in which such option is outstanding at any time.

          4.  Offering Periods. The Plan shall be implemented by consecutive,
              ----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 of each year, or on such other date
as the Administrator shall determine, and continuing thereafter until terminated
in accordance with Section 20; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the first Trading Day on or after the earlier
of (i) May 1, 2005 or (ii) twenty-seven (27) months from the beginning of the
first Offering Period; and provided, further, that the second Offering Period
under the Plan shall commence on November 1, 2003. The Administrator shall have
the power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.

          5.  Participation.
              -------------

              (a)  First Offering Period. An Employee who has become a
                   ---------------------
participant in the first Offering Period under the Plan pursuant to Section 3(a)
shall be entitled to continue his or her participation in such Offering Period
only if he or she submits to the Company's payroll office (or its designee) a
properly completed subscription agreement authorizing payroll deductions in the
form provided by the Administrator for such purpose (i) no earlier than the
effective date of the filing of the Company's Registration Statement on Form S-8
with respect to the shares of Common Stock issuable under the Plan (the
"Effective Date") and (ii) no later than five (5) business days from the
Effective Date (the "Enrollment Window"). A participant's failure to submit the
subscription agreement during the Enrollment Window pursuant to this Section
5(a) shall result in the automatic termination of his or her participation in
the first Offering Period under the Plan.

                                      -4-



              (b) Subsequent Offering Periods. An Employee who is eligible to
                  ---------------------------
participate in the Plan pursuant to Section 3(b) may become a participant by (i)
submitting to the Company's payroll office (or its designee), on or before a
date prescribed by the Administrator prior to an applicable Enrollment Date, a
properly completed subscription agreement authorizing payroll deductions in the
form provided by the Administrator for such purpose, or (ii) following an
electronic or other enrollment procedure prescribed by the Administrator.

         6.   Payroll Deductions.
              ------------------

              (a) At the time a participant enrolls in the Plan pursuant to
Section 5, he or she shall elect to have payroll deductions made on each payday
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each such payday.

              (b) Payroll deductions authorized by a participant shall commence
on the first payday following the Enrollment Date and shall end on the last
payday in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10; provided,
however, that for the first Offering Period under the Plan, payroll deductions
shall commence on the first payday on or following the end of the Enrollment
Window.

              (c) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.

              (d) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or may change the rate of his or her payroll
deductions during the Offering Period by (i) properly completing and submitting
to the Company's payroll office (or its designee), on or before a date
prescribed by the Administrator prior to an applicable Exercise Date, a new
subscription agreement authorizing the change in payroll deduction rate in the
form provided by the Administrator for such purpose, or (ii) following an
electronic or other procedure prescribed by the Administrator; provided,
however, that a participant may only make one payroll deduction change during
each Purchase Period. If a participant has not followed such procedures to
change the rate of payroll deductions, the rate of his or her payroll deductions
shall continue at the originally elected rate throughout the Offering Period and
future Offering Periods (unless terminated as provided in Section 10). The
Administrator may, in its sole discretion, limit the nature and/or number of
payroll deduction rate changes that may be made by participants during any
Offering Period. Any change in payroll deduction rate made pursuant to this
Section 6(d) shall be effective as of the first full payroll period following
five (5) business days after the date on which the change is made by the
participant (unless the Administrator, in its sole discretion, elects to process
a given change in payroll deduction rate more quickly).

              (e) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(c), a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate originally
elected by the participant effective as of the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.

                                      -5-



              (f) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to the sale or early disposition of
Common Stock by the Employee.

          7.  Grant of Option. On the Enrollment Date of each Offering Period,
              ---------------
each Employee participating in such Offering Period shall be granted an option
to purchase on each Exercise Date during such Offering Period (at the applicable
Purchase Price) up to a number of shares of Common Stock determined by dividing
such participant's payroll deductions accumulated prior to such Exercise Date
and retained in the participant's account as of the Exercise Date by the
applicable Purchase Price; provided that in no event shall a participant be
permitted to purchase during each Purchase Period more than 4,400 shares of
Common Stock (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(c) and 13. The Employee may accept the grant of such option (i) with
respect to the first Offering Period under the Plan, by submitting a properly
completed subscription agreement in accordance with the requirements of Section
5(a) on or before the last day of the Enrollment Window, and (ii) with respect
to any future Offering Period under the Plan, by electing to participate in the
Plan in accordance with the requirements of Section 5(b). The Administrator may,
for future Offering Periods, increase or decrease, in its absolute discretion,
the maximum number of shares of Common Stock that a participant may purchase
during each Purchase Period of such Offering Period. Exercise of the option
shall occur as provided in Section 8, unless the participant has withdrawn
pursuant to Section 10. The option shall expire on the last day of the Offering
Period.

          8.  Exercise of Option.
              ------------------

              (a) Unless a participant withdraws from the Plan as provided in
Section 10, his or her option for the purchase of shares of Common Stock shall
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares of Common Stock shall be purchased; any payroll
deductions accumulated in a participant's account which are not sufficient to
purchase a full share shall be retained in the participant's account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by
the participant as provided in Section 10. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

              (b) Notwithstanding any contrary Plan provision, if the
Administrator determines that, on a given Exercise Date, the number of shares of
Common Stock with respect to which options are to be exercised may exceed (i)
the number of shares of Common Stock that were available for sale under the Plan
on the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares of Common Stock available for sale under the Plan on such Exercise Date,
the Administrator may in its sole discretion (x) provide that the Company shall
make a pro rata allocation of the shares

                                      -6-



of Common Stock available for purchase on such Enrollment Date or Exercise
Date, as applicable, in as uniform a manner as shall be practicable and as it
shall determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and continue
all Offering Periods then in effect, or (y) provide that the Company shall make
a pro rata allocation of the shares of Common Stock available for purchase on
such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20. The Company may make pro rata allocation of the shares
of Common Stock available on the Enrollment Date of any applicable Offering
Period pursuant to the preceding sentence, notwithstanding any authorization of
additional shares of Common Stock for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.

          9.  Delivery. As soon as administratively practicable after each
              --------
Exercise Date on which a purchase of shares of Common Stock occurs, the Company
shall arrange the delivery to each participant, as appropriate, the shares
purchased upon exercise of his or her option in a form determined by the
Administrator (in its sole discretion) and pursuant to rules established by the
Administrator. No participant shall have any voting, dividend, or other
shareholder rights with respect to shares of Common Stock subject to any option
granted under the Plan until such shares have been purchased and delivered to
the participant as provided in this Section 9.

          10. Withdrawal.
              ----------

              (a) Under procedures established by the Administrator, a
participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the Plan at any time by (i) submitting to the Company's payroll office (or
its designee) a written notice of withdrawal in the form prescribed by the
Administrator for such purpose, or (ii) following an electronic or other
withdrawal procedure prescribed by the Administrator. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant as promptly as practicable after the effective date of his or her
withdrawal and such participant's option for the Offering Period shall be
automatically terminated, and no further payroll deductions for the purchase of
shares shall be made for such Offering Period. If a participant withdraws from
an Offering Period, payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant re-enrolls in the Plan in
accordance with the provisions of Section 5.

              (b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.

          11. Termination of Employment. Upon a participant's ceasing to be an
              -------------------------
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to purchase shares of Common Stock
under the Plan shall be returned to such participant or, in the case of his or
her death, to the person or persons entitled thereto under Section 15, and such
participant's option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who

                                      -7-



receives payment in lieu of notice of termination of employment shall be treated
as continuing to be an Employee for the participant's customary number of hours
per week of employment during the period in which the participant is subject to
such payment in lieu of notice.

          12. Interest. No interest shall accrue on the payroll deductions of a
              --------
participant in the Plan.

          13. Stock.
              -----

              (a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19, the maximum number of shares of Common Stock
which shall be made available for sale under the Plan shall be 176,000 shares
plus an annual increase to be added on the first day of the Company's fiscal
year beginning in fiscal year 2004, equal to the lesser of (i) 176,000 shares,
(ii) 1 1/2% of the outstanding shares on such date or (iii) an amount determined
by the Board.

              (b) Shares of Common Stock to be delivered to a participant under
the Plan shall be registered in the name of the participant or in the name of
the participant and his or her spouse.

          14. Administration. The Plan shall be administered by the Board or a
              --------------
committee of members of the Board who shall be appointed from time to time by,
and shall serve at the pleasure of, the Board. The Administrator shall have full
and exclusive discretionary authority to construe, interpret and apply the terms
of the Plan, to determine eligibility and to adjudicate all disputed claims
filed under the Plan. The Administrator, in its sole discretion and on such
terms and conditions as it may provide, may delegate to one or more individuals
all or any part of its authority and powers under the Plan. Every finding,
decision and determination made by the Administrator (or its designee) shall, to
the full extent permitted by law, be final and binding upon all parties.

          15. Designation of Beneficiary.
              --------------------------

              (a) A participant may designate a beneficiary who is to receive
any shares of Common Stock and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may designate a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the option.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.

              (b) Such designation of beneficiary may be changed by the
participant at any time. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or cash to
the spouse or to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.

              (c) All beneficiary designations under this Section 15 shall be
made in such form and manner as the Administrator may prescribe from time to
time.


                                       -8-



          16. Transferability. Neither payroll deductions credited to a
              ---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares of Common Stock under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution or as provided in Section 15) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw from an Offering Period in accordance with Section 10.

          17. Use of Funds. All payroll deductions received or held by the
              ------------
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions. Until
shares of Common Stock are issued under the Plan (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), a participant shall only have the rights of an unsecured
creditor with respect to such shares.


          18. Reports. Individual accounts shall be maintained for each
              -------
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares of Common Stock
purchased and the remaining cash balance, if any.

          19. Adjustments, Dissolution, Liquidation or Change of Control.
              ----------------------------------------------------------

              (a)  Adjustments. In the event that any dividend or other
                   -----------
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company, or
other change in the corporate structure of the Company affecting the Common
Stock such that an adjustment is determined by the Administrator (in its sole
discretion) to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Administrator shall, in such manner as it may deem equitable, adjust
the number and class of Common Stock which may be delivered under the Plan, the
Purchase Price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised, and the numerical
limits of Sections 7 and 13.

              (b)  Dissolution or Liquidation. In the event of the proposed
                   --------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10.

              (c)  Change of Control. In the event of a Change of Control, each
                   -----------------
outstanding option shall be assumed or an equivalent option substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to

                                      -9-



assume or substitute for the option, any Purchase Periods then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date") and
any Offering Periods then in progress shall end on the New Exercise Date. The
New Exercise Date shall be before the date of the Company's proposed Change of
Control. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10.

          20. Amendment or Termination.
              ------------------------

              (a)  The Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19, no such
termination can affect options previously granted under the Plan, provided that
an Offering Period may be terminated by the Administrator on any Exercise Date
if the Administrator determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
and this Section 20, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or stock exchange rule), the
Company shall obtain stockholder approval in such a manner and to such a degree
as required.

              (b)  Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Administrator shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion advisable which are
consistent with the Plan.

              (c)  In the event the Administrator determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:

                    (i)   altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

                    (ii)  shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and

                    (iii) allocating shares.

Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.

                                      -10-



          21. Notices. All notices or other communications by a participant to
              -------
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.

          22. Conditions Upon Issuance of Shares. Shares of Common Stock shall
              ----------------------------------
not be issued with respect to an option under the Plan unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, including the rules
and regulations promulgated thereunder, the Exchange Act and the requirements of
any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

              As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

          23. Term of Plan. The Plan shall become effective upon the earlier to
              ------------
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect until terminated under Section 20.

          24. Automatic Transfer to Low Price Offering Period. To the extent
              -----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.

                                      -11-



                          SAMPLE SUBSCRIPTION AGREEMENT
                          -----------------------------

                                INTERVIDEO, INC.

                        2003 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

_____ Original Application                             Offering Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)


1.    ____________________ hereby elects to participate in the InterVideo, Inc.
      2003 Employee Stock Purchase Plan (the "Plan") and subscribes to purchase
      shares of the Company's Common Stock in accordance with this Subscription
      Agreement and the Plan.

2.    I hereby authorize payroll deductions from each paycheck in the amount of
      ____% of my Compensation on each payday (from 1 to 15%) during the
      Offering Period in accordance with the Plan. (Please note that no
      fractional percentages are permitted.)

3.    I understand that said payroll deductions shall be accumulated for the
      purchase of shares of Common Stock at the applicable Purchase Price
      determined in accordance with the Plan. I understand that if I do not
      withdraw from an Offering Period, any accumulated payroll deductions will
      be used to automatically exercise my option.

4.    I have received a copy of the complete Plan. I understand that my
      participation in the Plan is in all respects subject to the terms of the
      Plan. I understand that my ability to exercise the option under this
      Subscription Agreement is subject to shareholder approval of the Plan.

5.    Shares of Common Stock purchased for me under the Plan should be issued in
      the name(s) of Employee or Employee and Spouse only.

6.    I understand that if I dispose of any shares received by me pursuant to
      the Plan within 2 years after the Offering Date (the first day of the
      Offering Period during which I purchased such shares) or one year after
      the Exercise Date, I will be treated for federal income tax purposes as
      having received ordinary income at the time of such disposition in an
      amount equal to the excess of the fair market value of the shares at the
      time such shares were purchased by me over the price which I paid for the
      shares. I hereby agree to notify the Company in writing within 30 days
              --------------------------------------------------------------
      after the date of any disposition of my shares and I will make adequate
      -----------------------------------------------------------------------
      provision for Federal, state or other tax withholding obligations, if any,
      --------------------------------------------------------------------------
      which arise upon the disposition of the Common Stock. The Company may, but
      ----------------------------------------------------
      will not be obligated to, withhold from my compensation the amount
      necessary to meet any applicable withholding obligation including any
      withholding necessary to make available to the Company any tax deductions
      or



         benefits attributable to sale or early disposition of Common Stock by
         me. If I dispose of such shares at any time after the expiration of the
         2-year and 1-year holding periods, I understand that I will be treated
         for federal income tax purposes as having received income only at the
         time of such disposition, and that such income will be taxed as
         ordinary income only to the extent of an amount equal to the lesser of
         (1) the excess of the fair market value of the shares at the time of
         such disposition over the purchase price which I paid for the shares,
         or (2) 15% of the fair market value of the shares on the first day of
         the Offering Period. The remainder of the gain, if any, recognized on
         such disposition will be taxed as capital gain.

7.       I hereby agree to be bound by the terms of the Plan. The effectiveness
         of this Subscription Agreement is dependent upon my eligibility to
         participate in the Plan.

8.       In the event of my death, I hereby designate the following as my
         beneficiary(ies) to receive all payments and/or shares due me under the
         Plan:


         NAME: (Please print)___________________________________________________
                                  (First)           (Middle)              (Last)



         _________________________      ________________________________________
         Relationship

         _________________________      ________________________________________
         Percentage Benefit             (Address)

         NAME: (please print)
         -----------------------------------------------------------------------
                                  (First)           (Middle)              (Last)


         _________________________      ________________________________________
         Relationship

         _________________________      ________________________________________
         Percentage of Benefit          (Address)

                                      -2-



         Employee's Social
         Security Number:                   ____________________________________

         Employee's Address:                ____________________________________


                                            ____________________________________

                                            ____________________________________


I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.


Dated:_________________________             ____________________________________
                                            Signature of Employee


                                            ____________________________________
                                            Spouse's Signature (If beneficiary
                                            other than spouse)

                                      -3-



                            SAMPLE WITHDRAWAL NOTICE
                            ------------------------

                                INTERVIDEO, INC.

                        2003 EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

         The undersigned participant in the Offering Period of the InterVideo,
Inc. 2003 Employee Stock Purchase Plan which began on ____________, ______ (the
"Offering Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.

                                            Name and Address of Participant:

                                            ____________________________________

                                            ____________________________________

                                            ____________________________________


                                            Signature:


                                            ____________________________________

                                            Date:_______________________________

EX-10.4

                                                                    EXHIBIT 10.4

                                INTERVIDEO, INC.

            FORM OF DIRECTORS AND OFFICERS' INDEMNIFICATION AGREEMENT

     This Indemnification Agreement ("Agreement") is effective as of
___________, ______ by and between InterVideo, Inc., a Delaware corporation (the
"Company"), and the indemnitee listed on the signature page hereto
("Indemnitee").

     WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;

     WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;

     WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;

     WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and

     WHEREAS, the Company and Indemnitee desire to continue to have in place the
additional protection provided by an indemnification agreement and to provide
indemnification and advancement of expenses to the Indemnitee to the maximum
extent permitted by Delaware law.

     NOW, THEREFORE, in consideration for Indemnitee's services to the Company,
the Company and Indemnitee hereby agree as follows:

     1. Certain Definitions.
        -------------------

        (a) "Change in Control" shall mean:

                   (1) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
                                          --------  -------
of this part (1), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company or any acquisition from
other stockholders where (A) such acquisition was approved in advance by the
Board of Directors of the Company and (B) such acquisition would not constitute
a change of control under



part (3) of this definition, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of part (3) of this definition; or


                    (2) Individuals who, as of the date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of Directors; provided, however, that any
                                            --------  -------
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the stockholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors; or

                    (3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the Company resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the Board of Directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board of Directors, providing for
such Business Combination; or

                    (4) Approval by the stockholders of a complete liquidation
or dissolution of the Company.

        (b) "Claim" shall mean with respect to a Covered Event: any threatened,
pending or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.

                                                                             -2-



          (c) References to the "Company" shall include, in addition to Raining
Data Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which Raining Data
Corporation (or any of its wholly owned subsidiaries) is a party which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.

          (d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.

          (e) "Disinterested Director" shall mean a director of the Company who
is not and was not a party to the matter in respect of which indemnification is
sought by the Indemnitee.


         (f) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld), actually and reasonably incurred,
of any Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.

          (g) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.

          (h) "Independent Legal Counsel" shall mean a law firm, a member of a
law firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable standards
of professional conduct then prevailing, would not have a conflict of interest
in representing either the Company or the Indemnitee in an action to determine
the Indemnitee's rights under Section 2(d) hereof.

          (i) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on,

                                                                             -3-



or involves services by, such director, officer, employee, agent or fiduciary
with respect to an employee benefit plan, its participants or its beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.

          (j) "Reviewing Party" shall have the meanings as set forth in Section
              2(d).

          (k) "Section" refers to a section of this Agreement unless otherwise
              indicated.

    2.    Indemnification.
          ---------------

          (a) Indemnification of Expenses. Subject to the provisions of Section
              ---------------------------
2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest
extent permitted by law if Indemnitee was or is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, any Claim (whether by reason of or arising in part out of
a Covered Event), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses.

          (b) Review of Indemnification Obligations. Notwithstanding the
              -------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.

          (c) Indemnitee Rights on Unfavorable Determination; Binding Effect. If
              --------------------------------------------------------------
any Reviewing Party determines that Indemnitee substantively is not entitled to
be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.

          (d) Reviewing Party; Change in Control. The determination of
              ----------------------------------
Indemnitee's entitlement hereunder shall be made by the Reviewing Party as
follows: (1) if requested by the

                                                                             -4-



Indemnitee, by Independent Legal Counsel, or (2) if no request is made by the
Indemnitee for a determination by Independent Legal Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors,
or (ii) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, such quorum of Disinterested
Directors so directs, by Independent Legal Counsel in a written opinion to the
Board of Directors, a copy of which shall be delivered to the Indemnitee, or
(iii) if a quorum of Disinterested Directors so directs, by the stockholders of
the Company. In the event the determination of entitlement to indemnification is
to be made by Independent Legal Counsel at the request of the Indemnitee, the
Independent Legal Counsel shall be selected by the Board of Directors unless
there shall have occurred within two years prior to the date of the commencement
of the Proceeding for which indemnification is claimed a "Change of Control" (as
defined in Section 1(a)), in which case the Independent Legal Counsel shall be
selected by the Indemnitee unless the Indemnitee shall request that such
selection be made by the Board of Directors. Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be entitled to be indemnified hereunder under
applicable law and the Company agrees to abide by such opinion. The Company
agrees to pay the reasonable fees of the Independent Legal Counsel referred to
above and to indemnify fully such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto. Notwithstanding
any other provision of this Agreement, the Company shall not be required to pay
Expenses of more than one Independent Legal Counsel in connection with all
matters concerning a single Indemnitee, and such Independent Legal Counsel shall
be the Independent Legal Counsel for any or all other Indemnitees unless (i) the
Company otherwise determines or (ii) any Indemnitee shall provide a written
statement setting forth in detail a reasonable objection to such Independent
Legal Counsel representing other Indemnitees. If it is so determined that
Indemnitee is entitled to indemnification, payment to the Indemnitee shall be
made within ten (10) days after such determination.

          (e) Mandatory Payment of Expenses. Notwithstanding any other provision
              -----------------------------
of this Agreement other than Section 10 hereof, to the extent that Indemnitee
has been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any Claim,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in
connection therewith.

     3.   Expense Advances.
          ----------------

          (a) Obligation to Make Expense Advances. Upon receipt of a written
              -----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefor by the Company, the Company shall make Expense Advances to Indemnitee.

          (b) Form of Undertaking. Any written undertaking by the Indemnitee to
              -------------------
repay any Expense Advances hereunder shall be unsecured and no interest shall be
charged thereon.

          (c) Determination of Reasonable Expense Advances. The parties agree
              --------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that

                                                                             -5-



are certified by affidavit of Indemnitee's counsel as being reasonable shall be
presumed conclusively to be reasonable.

     4. Procedures for Indemnification and Expense Advances.
        ---------------------------------------------------

        (a) Timing of Payments. All payments of Expenses (including without
            ------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) days after such written demand
by Indemnitee is presented to the Company.


        (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
            --------------------------------
precedent to Indemnitee's right to be indemnified or Indemnitee's right to
receive Expense Advances under this Agreement, give the Company notice in
writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Secretary of the Company at the address shown
on the signature page of this Agreement (or such other address as the Company
shall designate in writing to Indemnitee). In addition, Indemnitee shall give
the Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.

        (c) Right of Indemnitee to Bring Suit. If Indemnitee is not paid in full
            ---------------------------------
by the Company within thirty (30) days after a written notice has been received
by the Company, the Indemnitee may at any time thereafter bring suit against the
Company to recover the unpaid amount of the Claim and, if successful in whole or
in part, the Indemnitee shall be entitled to be paid also the expense (including
attorneys' fees) of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending a Proceeding in advance of its final disposition where the required
undertaking has been tendered to the Company) that the Indemnitee has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the Company to indemnify the Indemnitee for the amount
claimed. The burden of proving such a defense shall be on the Company. Neither
the failure of the Company (including its Board of Directors, Independent Legal
Counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the Indemnitee is proper
under the circumstances because he has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Company (including its Board of Directors, Independent Legal Counsel, or
its stockholders) that the Indemnitee had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct.

        (c) No Presumptions; Burden of Proof. For purposes of this Agreement,
            --------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
                                                         ---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did

                                                                             -6-



not have such belief, prior to the commencement of legal proceedings by
Indemnitee to secure a judicial determination that Indemnitee should be
indemnified under this Agreement or applicable law, shall be a defense to
Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.

        (d) Notice to Insurers. If, at the time of the receipt by the Company of
            ------------------
a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt
notice of the commencement of such Claim to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such Claim in accordance
with the terms of such policies.

        (e) Selection of Counsel. In the event the Company shall be obligated
            --------------------
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently employed by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.

     5. Additional Indemnification Rights; Nonexclusivity.
        -------------------------------------------------

        (a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
            -----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.

                                                                             -7-



            (b) Nonexclusivity. The indemnification and the payment of Expense
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.

        6.  No Duplication of Payments. The Company shall not be liable under
            --------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.

        7.  Partial Indemnification. If Indemnitee is entitled under any
            -----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.

        8.  Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
            ----------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.

        9.  Liability Insurance. To the extent the Company maintains liability
            -------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.

        10. Exceptions. Notwithstanding any other provision of this Agreement,
            ----------
the Company shall not be obligated pursuant to the terms of this Agreement:

            (a) Excluded Action or Omissions. To indemnify Indemnitee for
                ----------------------------
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law.

            (b) Claims Initiated by Indemnitee. To indemnify or make Expense
                ------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or cross-claim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or

                                                                             -8-



insurance policy or under the Company's Certificate of Incorporation or Bylaws
now or hereafter in effect relating to Claims for Covered Events, (ii) in
specific cases if the Board of Directors has approved the initiation or bringing
of such Claim, or (iii) as otherwise required under Section 145 of the Delaware
General Corporation Law, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification or insurance recovery, as the
case may be.

            (c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
                ------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.

            (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
                -------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.

        11. Counterparts. This Agreement may be executed in one or more
            ------------
counterparts, each of which shall constitute an original.

        12. Binding Effect; Successors and Assigns. This Agreement shall be
            --------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.

        13. Expenses Incurred in Action Relating to Enforcement or
            ------------------------------------------------------
Interpretation. In the event that any action is instituted by Indemnitee under
- --------------
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee in defense of such action (including without limitation costs and
expenses incurred with respect to Indemnitee's counterclaims and cross-claims
made in such action), unless as a part of such action a court having
jurisdiction over such action makes a final judicial determination (as to which
all rights of appeal therefrom have been exhausted or lapsed) that each of the
material defenses asserted by Indemnitee in such action was made in bad faith or
was frivolous.
                                                                             -9-



          14. Notice. All notices, requests, demands and other communications
              ------
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.

          15. Consent to Jurisdiction. The Company and Indemnitee each hereby
              -----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.

          16. Severability. The provisions of this Agreement shall be severable
              ------------
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.

          17. Choice of Law. This Agreement, and all rights, remedies,
              -------------
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to principles of conflicts of laws.

          18. Subrogation. In the event of payment under this Agreement, the
              -----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

          19. Amendment and Termination. No amendment, modification, termination
              -------------------------
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.

          20. Integration and Entire Agreement. This Agreement sets forth the
              --------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.

          21. No Construction as Employment Agreement. Nothing contained in this
              ---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.

                                                                            -10-



     IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.

INTERVIDEO, INC.

By:____________________________

Name:__________________________

Title:_________________________

Address:_______________________

        _______________________
                                              AGREED TO AND ACCEPTED

                                              __________________________________
                                              (Signature)

                                              __________________________________
                                              (Print Name)

                                              __________________________________
                                              (Address)

                                              __________________________________

                                                                            -11-

EX-10.5

                                                                    EXHIBIT 10.5


                                INTERVIDEO, INC.




                              AMENDED AND RESTATED

                           INVESTORS RIGHTS AGREEMENT










                                  July 2, 1999



                                INTERVIDEO, INC.

                 AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT

                                TABLE OF CONTENTS



                                                                           
1.      CERTAIN DEFINITIONS ...............................................    1
        1.1      "1934 Act" ...............................................    1
        1.2      "Affiliate" ..............................................    1
        1.3      "Commission" .............................................    2
        1.4      "Common Stock" ...........................................    2
        1.5      "Conversion Shares" ......................................    2
        1.6      "Holder" or "Holders" ....................................    2
        1.7      "Preferred Agreement" ....................................    2
        1.8      "Preferred Stock" ........................................    2
        1.9      "Register", "Registered" and "Registration" ..............    2
        1.10     "Registrable Securities" .................................    2
        1.11     "Registration Expenses" ..................................    2
        1.12     "Restricted Securities" ..................................    2
        1.13     "Securities" .............................................    2
        1.14     "Securities Act" .........................................    2
        1.15     "Selling Expenses" .......................................    3

2.      RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
        COMPLIANCE WITH SECURITIES ACT ....................................    3
        2.1      Restrictions on Transferability ..........................    3
        2.2      Restrictive Legend .......................................    3
        2.3      Notice of Proposed Transfers .............................    3
        2.4      Company Registration .....................................    4
        2.5      S-3 Registrations ........................................    5
        2.6      Expenses of Registration .................................    5
        2.7      Registration Procedures ..................................    6
        2.8      Indemnification ..........................................    6
        2.9      Information by Holder ....................................    7
        2.10     Rule 144 Reporting .......................................    7
        2.11     Assignment of Registration Rights ........................    8
        2.12     Termination of Registration Rights .......................    8
        2.13     "Market Stand-Off" Agreement .............................    8

3.      NEW ISSUANCE RIGHT OF FIRST REFUSAL ...............................    9
        3.1      Right ....................................................    9
        3.2      Notification .............................................    9
        3.3      Waiver ...................................................    9
        3.4      Issuance .................................................   10
        3.5      Excluded Securities ......................................   10
        3.6      Termination ..............................................   10


                                       i



                                                                         
     3.7    Assignment ...................................................  10

4.   FINANCIAL INFORMATION ...............................................  10
     4.1    Financial Information ........................................  10
     4.2    Operating Plan ...............................................  11
     4.3    Visitation Rights ............................................  11
     4.4    Assignment ...................................................  11
     4.5    Termination ..................................................  11

5.   MISCELLANEOUS .......................................................  12
     5.1    Governing Law ................................................  12
     5.2    Survival .....................................................  12
     5.3    Successors and Assigns .......................................  12
     5.4    Entire Agreement; Amendment ..................................  12
     5.5    Notices, Etc .................................................  12
     5.6    Delay or Omissions ...........................................  12
     5.7    Expenses .....................................................  13
     5.8    Counterparts .................................................  13
     5.9    Severability .................................................  13

EXHIBIT A

     PREFERRED INVESTORS .................................................  14



                                       ii



                                INTERVIDEO, INC.

                 AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT

         This Amended and Restated Investors Rights Agreement is made as of
July 2, 1999 (the "Agreement") by and among InterVideo, Inc., a California
corporation (the "Company"), and each of the persons listed on Exhibit A to this
                                                               ---------
Agreement (the "Investors" or the "Holders").

                                    RECITALS
                                    --------

         A. The Company and certain of the Investors (the "Existing Holders")
have previously entered into an Investors Rights Agreement dated as of June 29,
1998 and Amendment No.1 to the Investors Rights Agreement dated July 29, 1998,
providing certain registration and other rights to the Existing Investors (the
"Prior Agreement").

         B. The Company desires to sell and issue to certain Investors (the
"Additional Investors") and the Additional Investors desire to purchase up to an
aggregate of 2,000,000 shares of Series C Preferred Stock (the "Shares") of the
Company pursuant to the Preferred Agreement (as defined herein).

         C. To induce the Additional Investors to purchase shares of Series C
Preferred Stock of the Company pursuant to the Preferred Agreement, the Company
and the Existing Investors desire that the Company grant to the Additional
Investors the registration and other rights set forth herein, and further desire
to amend and restate the Prior Agreement as set forth below.

         D. The Company and all Investors agree that this Agreement will govern
the registration and other rights of all Investors.

         In consideration of the foregoing and the promises and covenants
contained herein, the parties agree as follows:

                                   SECTION 1

                               CERTAIN DEFINITIONS
                               -------------------

         As used in this Agreement the following terms shall have the following
respective meanings:

         1.1 "1934 Act" shall mean the Securities Exchange Act of 1934, as
              --------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

                                       2



         1.2  "Affiliate" shall mean any entity who is controlled by, who
               ---------
controls or who is under common control with a person.

         1.3  "Commission" shall mean the Securities and Exchange Commission or
               ----------
any other federal agency at the time administering the Securities Act.

         1.4  "Common Stock" shall mean the Common Stock of the Company.
               ------------

         1.5  "Conversion Shares" means the Common Stock issued or issuable upon
               -----------------
conversion of the Preferred Stock.

         1.6  "Holder" or "Holders" shall mean any person or persons owning or
               -------------------
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 2 hereof.

         1.7  "Preferred Agreement" shall collectively mean Preferred Stock
               -------------------
Subscription Agreements among the Company and the Investors under such
subscription agreements.

         1.8  "Preferred Stock" shall mean shares of the Company's Preferred
               ---------------
Stock issued pursuant to the Preferred Agreement.

         1.9  "Register", "Registered" and "Registration" refer to a
               --------    ----------       ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

         1.10 "Registrable Securities" shall mean (i) Conversion Shares and (ii)
               ----------------------
any Common Stock issued in respect of, in exchange for or in replacement of the
Conversion Shares or other securities issued pursuant to the conversion of the
Preferred Stock upon any stock split, stock combination, stock dividend,
recapitalization, consolidation or similar event. Securities previously sold to
the public pursuant to a registered public offering or Rule 144 of the
Securities Act shall cease to be Registrable Securities.

         1.11 "Registration Expenses" shall mean all expenses incurred in
               ---------------------
complying with registrations, filings or qualifications under Sections 2.4 and
2.5 hereof, including, without limitation, all registration, qualification and
filing fees, accounting fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and Selling
Expenses).

         1.12 "Restricted Securities" shall mean the securities of the Company
               ---------------------
required to bear the legend set forth in Section 2.2 hereof (or any similar
legend).

         1.13 "Securities" shall mean (i) the Company's equity or debt
               ----------
securities, (ii) rights, options or warrants to subscribe for, purchase or
otherwise acquire any equity or debt security of the Company and (iii) any
agreement or commitment to issue any of the foregoing.

                                       3



         1.14 "Securities Act" shall mean the Securities Act of 1933, as
               --------------
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

         1.15 "Selling Expenses" shall mean all underwriting discounts and
               ----------------
selling commissions applicable to the sale and all fees and disbursements of
counsel for any Holder.

                                   SECTION 2

                 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
                 ----------------------------------------------
                         COMPLIANCE WITH SECURITIES ACT
                         ------------------------------

         2.1  Restrictions on Transferability. The Preferred Stock and the
              -------------------------------
Conversion Shares shall not be transferable except upon the conditions specified
in this Section 2, which conditions are intended to ensure compliance with the
provisions of the Securities Act, or, in the case of Section 2.13 hereof, to
assist in an orderly distribution. Each Investor will cause any proposed
transferee of the Preferred Stock and the Conversion Shares held by such
Investor to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Section 2 (including the "market
stand-off" provisions of Section 2.13).

         2.2  Restrictive Legend. Each certificate representing (i) the
              ------------------
Preferred Stock, (ii) Conversion Shares and (iii) any other securities issued in
respect of the Preferred Stock or Conversion Shares or Common Stock issuable
upon any stock split, stock combination, stock dividend, recapitalization,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 2.3 below) be stamped or otherwise imprinted with a legend
in substantially the following form (in addition to any legend required under
applicable state securities laws):

     THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
     INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
     SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
     REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
     AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
     TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
     OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
     PRINCIPAL EXECUTIVE OFFICE.

         2.3  Notice of Proposed Transfers. The holder of each certificate
              ----------------------------
representing Restricted Securities agrees to comply in all respects with the
provisions of this Section 2.3. Prior to any proposed transfer of any Restricted
Securities (unless there is in effect a registration statement under the
Securities Act covering the proposed transfer), the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer. Each such notice

                                       4



shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and (except in transactions in compliance with Rule 144)
shall be accompanied by either (i) a written opinion of legal counsel who shall
be reasonably satisfactory to the Company addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred
pursuant to the above shall bear the legend set forth in Section 2.2 above,
except that such certificate shall not bear such restrictive legend, if in the
opinion of counsel for the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.

         2.4  Company Registration.
              --------------------

         (a)  Registration. If at any time or from time to time, the Company
              ------------
shall determine to register any of its securities, either for its own account or
the account of a security holder or holders exercising their respective demand
registration rights, other than (i) a registration on Form S-8 (or a similar or
successor form) relating solely to employee stock option, stock purchase or
other benefit plans, or (ii) a registration on Form S-4 (or similar or successor
form) relating solely to a Securities and Exchange Commission Rule 145
transaction, the Company will:

              (i)  promptly give to each Holder written notice thereof; and

              (ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after mailing of written notice by the
Company, by any Holder or Holders, except as set forth in Section 2.4(b) below.

         (b)  Underwriting. If the registration of which the Company gives
              ------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.4(a)(i). In such event the right of any Holder to
registration pursuant to Section 2.4 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.

              All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
2.5, if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may limit

                                       5



the number of Registrable Securities to be included in the registration and
underwriting, on a pro rata basis based on the total number of securities
(including, without limitation, Registrable Securities) entitled to registration
pursuant to registration rights granted to the participating Holders by the
Company; provided, however, that no such reduction may reduce the number of
securities being sold by the Company for its own account. The number of
securities includable by any Holder or other person may, in the discretion of
the underwriters, be rounded to the nearest one hundred (100) shares. No
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.

         If any Holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.

         If the underwriter has not limited the number of shares to be
underwritten for the Company's account and the account of the Holders, the
Company may include securities for the account of employees, officers, directors
and consultants.

         2.5  S-3 Registrations. If the Company is requested (and qualifies
                  -------------
under applicable SEC rules) to undertake a Form S-3 or equivalent short-form
registration, regardless of its designation, and any related qualification or
compliance, of its securities by the Holders of Registrable Securities holding
in aggregate at least 2% of the Company's Common Stock for an offering estimated
to result in aggregate offering proceeds of at least $500,000, net of
allowances, discounts, and underwriting expenses, the Company shall promptly
give notice of such proposed registration to all Holders of Registrable
Securities and the Company shall, as expeditiously as possible, use its best
efforts to effect the registration on Form S-3 of the Registerable Securities
which the Company has been requested to register (i) in each request and (ii) in
any response given within twenty (20) days to a notice from the Company pursuant
to this Section 2.5. Notwithstanding the foregoing, however, such registration
shall be subject to the following:

         (a)  The Company shall not be required to effect more than one such
registration pursuant to this Section 2.5 in any 12 month period.

         (b)  The Company shall not be required to effect a registration
pursuant to this Section 2.5 within one hundred eighty (180) days of the
effective date of any registration referred to in Section 2.4.

         The Company may include in the registration under this Section 2.5 any
other shares of Common Stock (including issued and outstanding shares of Common
Stock as to which the holders thereof have contracted with the Company for
"piggyback" registration rights) so long as the inclusion in such registration
of such shares will not, in the opinion of the managing underwriter (or in the
reasonable opinion of the Company in the event that the offering is not
underwritten), interfere with the successful marketing in accordance with the
intended method of sale or other disposition of all the shares of Registrable
Securities sought to be registered by the Holder or Holders of Registrable
Securities pursuant to this Section 2.5. If it is determined as provided above
that there will be such interference, the other shares of Common Stock sought to

                                       6



be included by the Company shall be excluded to the extent deemed necessary by
the managing underwriter (or the Company if the offering is not underwritten),
and all other shares of Common Stock held by other parties shall be excluded
before the exclusion of any shares of Registrable Securities held by the Holders
who desire to have their shares included in the registration and offering. If,
as contemplated above, and after excluding all other shares of Common Stock held
by other parties, shares of the Common Stock of the Holders are to be excluded,
the number of shares of Common Stock of each participating Holder which are to
be excluded shall be proportionate to the number of shares which such party is
seeking to register.

         2.6  Expenses of Registration. All Registration Expenses incurred in
              ------------------------
connection with any registration, qualification or compliance pursuant to this
Section 2 shall be borne by the Company; and, unless otherwise stated, all
Selling Expenses relating to securities registered by the Holders shall be borne
by the Holders of such securities pro rata on the basis of the number of shares
so registered.

         2.7  Registration Procedures. In the case of each registration,
              -----------------------
qualification or compliance effected by the Company pursuant to this Section 2,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:

         (a)  Keep such registration, qualification or compliance effective for
a period of one hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs; and

         (b)  Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.

         2.8  Indemnification.
              ---------------

         (a)  The Company will, and does hereby undertake to, indemnify and hold
harmless each Holder, each of its officers, directors and partners, and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Section 2, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including settlement of any litigation,
commenced or threatened, to which they may become subject under the Securities
Act, the 1934 Act, or other federal or state law, arising out of or based on
compliance with, any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus (preliminary
or final), offering circular or other document or amendments thereto, or arising
out of or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or arising out of or any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person

                                       7



controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument executed by such Holder or
underwriter expressly for use in connection with such registration.

         (b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify and hold harmless the Company, each of
its directors and officers, agents and employees, each underwriter, if any, of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15 of
the Securities Act, and each other such Holder, each of its officers, directors
and partners and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof to which they may become subject)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or amendments thereto, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
in light of the circumstances in which they were made, or necessary to make the
statements therein, not misleading, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument executed by such Holder expressly for use in connection
with such registration; provided, however, that the obligations of such Holders
hereunder shall be limited to an amount equal to the proceeds to each such
Holder of Registrable Securities from the sale of such Registrable Securities as
contemplated herein.

         (c) Each party entitled to indemnification under this Section 2.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
deliver written notice to the Indemnifying Party of commencement thereof. The
Indemnifying Party, at its sole option, may participate in or assume the defense
of any such claim or any litigation resulting therefrom with counsel reasonably
satisfactory to the Indemnified Party, and the Indemnified Party may participate
in such defense at Indemnified Party's expense. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 2 except to the extent that such failure
to give notice shall materially adversely affect the Indemnifying Party in the
defense of any such litigation. No Indemnifying Party, in the defense of any
such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional

                                       8



term a release from all liability in respect to such claim or litigation by
the claimant or plaintiff to such Indemnified Party.

         2.9   Information by Holder. Each Holder of Registrable Securities
               ---------------------
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
2.

         2.10  Rule 144 Reporting. With a view to making available the benefits
               ------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to:

         (a)   Register its Common Stock under Section 12(g) of the 1934 Act, as
amended, as soon as practicable, but in any event not later than ninety (90)
days after the close of the Company's first fiscal year following the effective
date of the first registration statement filed by the Company, relating to a
public offering other than to employees of the Company under an employee option
plan or employee stock purchase plan;

         (b)   Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;

         (c)   Will file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements);
and

         (d)   Furnish to the Holder, so long as Holder owns any Restricted
Securities, written notice of the Company's qualification as a registrant, as
soon as practicable after the such qualification; the Company further shall
furnish forthwith upon request a written statement as to its compliance with the
reporting requirements of said Rule 144 (at any time after ninety (90) days
after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of its
compliance with the Securities Act and the Securities Exchange Act (at any time
after it has become subject to such reporting requirements); the Company shall
provide forthwith upon written request a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing Purchaser to sell any such securities
without registration.

         2.11  Assignment of Registration Rights. The rights to cause the
               ---------------------------------
Company to register securities and related rights granted each Investor under
Section 2 may not be assigned except: (i) to a purchaser of more than 200,000
shares of the Common Stock (as determined in the manner contemplated by Section
3.1(b) below) purchased by an Investor, (ii) to a successor entity to an
Investor pursuant to a reorganization or recapitalization of an Investor, (iii)
to an Affiliate, (iv) to the partners of an Investor (provided that such holder
owns at least 200,000

                                       9



shares following such distribution) or (v) pursuant to an intervivos
transfer to Investor's ancestors or descendants or spouse or to a trustee for
their benefit; provided, that the Company receives notice within twenty (20)
days following such assignment.

         2.12  Termination of Registration Rights. The registration rights and
               ----------------------------------
related rights granted pursuant to Section 2 shall terminate as to each Holder
(and permitted transferee under Section 2.12 above) upon the occurrence of any
of the following:

         (a)   Following the Company's first registered offering to the public,
at such time as all Restricted Securities held by such Investor or permitted
transferee can be sold within a given six (6) month period without compliance
with the registration requirements of the Securities Act pursuant to Rule 144
(or its successor provision); or

         (b)   Eight (8) years from the date of this Agreement.

         2.13  "Market Stand-Off" Agreement. Any Holder of more than one percent
                ---------------------------
(1%) of the outstanding Common Stock of the Company (determined in the manner of
Section 3.1(b)), if required by the Company and an underwriter of Common Stock
(or other securities) of the Company, shall agree not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Holder during the period not to exceed one hundred and eighty (180)
days as requested by the managing underwriter following the effective date of
the first registration statement of the Company filed under the Securities Act,
provided that all officers, directors of the Company and holders of one percent
(1%) or more of the Company's outstanding shares enter into similar agreements.
Such agreement shall be in writing in the form satisfactory to the Company and
such underwriter. The Company may impose a stop-transfer instruction with
respect to the shares (or other securities) subject to the foregoing restriction
until the end of such period.


                                   SECTION 3

                       NEW ISSUANCE RIGHT OF FIRST REFUSAL
                       -----------------------------------

         3.1   Right.
               -----

         (a)   If, at any time prior to the expiration of the period set forth
in Section 3.6 below, the Company should desire to issue any Securities in a
transaction not registered under the Securities Act, it shall give each Investor
the first right to purchase such Investor's Pro Rata Share (as defined below),
of all of such Securities on the same terms and same price as the Company is
willing to sell such Securities to any other person. Such Investor's "Pro Rata
Share" of the Securities shall be equal to that percentage of the outstanding
Common Stock of the Company held by such Investor, on the date of the Company's
written notification referred to in Section 3.2 below.

         (b)   For purposes of this Section 3.1, the Common Stock of the Company
held by such Investor shall be adjusted for stock dividends, stock splits, stock
combinations, recapitalizations and the like, and shall be deemed to include
shares of Common Stock issued or

                                       10



issuable upon conversion of the Preferred Stock or any other stock of the
Company on an as-converted basis.

         3.2   Notification. Prior to any sale or issuance by the Company of any
               ------------
Securities, the Company shall notify each Investor, in writing, of its intention
to sell and issue such securities, setting forth in reasonable detail the terms,
price and description under which it proposes to make such sale. Within fifteen
(15) days there after, Investor shall notify the Company whether Investor
exercises Investor's option and elects to purchase such Investor's Pro Rata
Share (or any part thereof) of the Securities so offered.

         3.3   Waiver. If, within fifteen (15) days after the Company gives
               ------
notice pursuant to Section 3.2 above, the Investor does not notify the Company
that such Investor desires to purchase all of its Pro Rata Share of the
Securities described in such notice upon the terms and conditions set forth
therein, the Company may, during a period of ninety (90) days following the end
of such fifteen (15) day period, sell and issue such Securities as to which
Investor does not indicate a desire to purchase to another person upon the same
terms and conditions as those set forth in the notice to Investor but at a price
at least as great as the price offered to the Investors; provided, that failure
by the Investor to exercise its option to purchase with respect to one offering,
sale and issuance shall not affect its option to purchase Securities in any
subsequent offering, sale and purchase. In the event the Company has not sold
the Securities, or entered into a binding agreement to sell the Securities,
within such ninety (90) day period, the Company shall not thereafter issue or
sell any Securities without first offering such securities to Investor in the
manner provided above.

         3.4   Issuance. If an Investor gives the Company notice that such
               --------
Investor desires to purchase any of the Securities offered by the Company,
payment for the Securities shall be by check or wire transfer, against delivery
of the Securities at the executive offices of the Company within ten (10) days
after giving the Company such notice, or if later, the closing date for the sale
of such Securities. The Company shall take all such action as may be required by
any regulatory authority in connection with the exercise by Investor of the
right to purchase Securities as set forth in this Section 3, but the right of an
Investor is subject to the Company's reasonable compliance with regulatory
requirements.

         3.5   Excluded Securities. The right of first refusal contained in this
               -------------------
Section 3 shall not apply to the following: (a) the issuance by the Company of
(i) up to 6,000,000 shares of Common Stock to officers, directors, or employees
of, or consultants or contractors to, the Company pursuant to a stock grant,
option plan or purchase plan or other stock incentive program approved by the
Company's Board of Directors of such person, (ii) any shares held by employees
or consultants which were repurchased and reissued by the Company and (iii) any
additional shares unanimously approved by the Board of Directors; (b) the
issuance of Securities in connection with the acquisition of a third party, by
merger, acquisition of more than fifty-one percent (51%) of the outstanding
shares or substantially all of the assets of such third party; (c) the issuance
of Common Stock of the Company upon conversion of the Preferred or upon
conversion or exercise of any security which was not subject to the right of
first refusal set forth in this Section 3 or for which the right of first
refusal was not exercised; or (d) the issuance of Securities pursuant to any
bank financing or leasing arrangements.

                                       11



         3.6   Termination. The right of first refusal contained in this Section
               -----------
3 shall terminate as to an Investor upon the earlier of: (i) the time when such
Investor ceases to own 100,000 shares of Common Stock (determined in the manner
contemplated by Section 3.1(b) above); (ii) the closing of the Company's first
underwritten public offering registered under the Securities Act; or (iii) eight
(8) years after the date of this Agreement.

         3.7   Assignment. The rights specified in this Section 3 may not be
               ----------
assigned except: (i) to a purchaser of more than 200,000 shares of Common Stock
(as determined in the manner contemplated by Section 3.1(b) above); (ii) to an
Affiliate; (iii) to a successor entity to an Investor pursuant to a
reorganization or recapitalization of an Investor; (iv) to the partners of an
Investor (provided that such holder owns at least 200,000 shares following such
distribution) or (v) pursuant to an intervivos transfer to Investor's ancestors
or descendants or spouse or to a trustee for their benefit; provided, that the
Company receives notice within twenty (20) days following such assignment.

                                   SECTION 4

                              FINANCIAL INFORMATION
                              ---------------------

         4.1   Financial Information. The Company will mail the following
               ---------------------
reports to Investor:

         (a)  Within 90 days after the end of each fiscal year, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income and consolidated
statements of changes financial position of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and audited by independent public
accountants selected by the Company; and

         (b)  As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year, and in any event within
forty-fifty (45) days thereafter, consolidated balance sheets of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
period and for the current fiscal year to day, prepared in accordance with
generally accepted accounting principles (without footnotes) together with a
comparison of such statements to the Company's operating plan then in effect to
be prepared under Section 4.2 and to the prior fiscal year, together with
operational and financial highlights.

         4.2   Operating Plan. Within a reasonable time after the commencement
               --------------
of each fiscal year, the Company will furnish Investor with the Company's budget
and operating plan (including projected balance sheets and profit and loss and
cash flow statements) for such fiscal year.

         4.3   Visitation Rights. Investor shall have the right to visit and
               -----------------
inspect any of the properties of the Company of any of its subsidiaries,
including its and their books of account, and to discuss its and their affairs,
finances and accounts with its and their officers, all at such

                                       12



reasonable times and upon reasonable notice and as often as may be
reasonably requested; provided, however, that the Company shall not be required
at any time to disclose (i) any manufacturing or trade secret or secret process,
or any information or data classified by the United States government, or (ii)
other data the disclosure of which the Board of Directors of the Company
reasonably believes may adversely affect the business of the Company. All
confidential information obtained by Investor or its representative shall be
kept confidential, shall not be disclosed to any third party and shall not be
used by Investor for any purpose except for evaluation of Investor's equity
investment in the Company.

         4.4   Assignment. The rights granted pursuant to Section 4.1, 4.2 and
               ----------
4.3 may be assigned by Investor (i) to a third party who acquires at least
200,000 shares of Common Stock of the Company (as adjusted for any stock splits,
consolidations and the like) from Investor and who is not a competitor, or
affiliated in any manner with a competitor, of the Company or (ii) to a
successor entity to Investor pursuant to a reorganization of Investor; provided
that the Company receives notice within twenty (20) days of such assignment.

         4.5   Termination. The covenants set forth in Sections 4.1 through 4.3
               -----------
shall terminate on and be of no further force or effect (i) upon the
consummation of the Company's sale of its Common Stock in an underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act; or (ii) as to any Investor when such Investor no longer holds at
least 100,000 shares of Common Stock of the Company (determined in the amount of
Section 3.1(b)).

                                       13



                                   SECTION 5

                                  MISCELLANEOUS
                                  -------------

         5.1   Governing Law. This Agreement shall be governed in all respects
               -------------
by the laws of the State of California.

         5.2   Survival. The representations, warranties, covenants and
               --------
agreements made herein shall survive any investigation made by any Investor and
the closing of the transactions contemplated hereby.

         5.3   Successors and Assigns. Except as otherwise provided herein, the
               ----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

         5.4   Entire Agreement; Amendment.
               ---------------------------

         (a) This Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. This Agreement may only be
amended or waived by a writing signed by all parties to this Agreement;
provided, however, that holders of a majority of the Preferred Stock and the
- --------  -------
Conversion Shares held by the Investors acting together may waive or amend, on
behalf of all Investors, any provisions hereof benefitting Investors so long as
the effect thereof will be that all such Investors will be treated equally.

         (b) The Company may add additional parties to this Agreement and to
Exhibit A under this Agreement who execute counterparts of, or agree to be bound
by, this Agreement, in connection with future Preferred Agreements, and such
parties shall be treated as Investors in all respects; provided, that the
Company shall provide prompt notice of such change to the Investors.

         5.5   Notices, Etc. All notices and other communications required or
               ------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to an Investor, at such Investor's address set forth on Exhibit
                                                                         -------
A, or at such other address as Investor shall have furnished to the Company in
- -
writing, or (b) if to any other holder of any Restricted Securities, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Restricted Securities who has so furnished an
address to the Company, or (c) if to the Company, one copy should be sent to its
address set forth on the cover page of this Agreement and addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Investors. If notice is provided by mail, notice
shall be deemed to be given upon proper deposit in the mail (and if outside the
United States, sent by airmail).

         5.6   Delay or Omissions. No delay or omission to exercise any right,
               ------------------
power or remedy accruing to any holder of any Restricted Securities upon any
breach or default of the

                                       14



Company under this Agreement, shall impair any such right, power or remedy
of such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing or as provided in Section 4.5 of this
Agreement. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.

          5.7  Expenses. Except as provided in Section 2, the Company and each
               --------
Investor shall bear its own expenses and legal fees incurred on its behalf with
respect to this Agreement and the transactions contemplated hereby.

          5.8  Counterparts. This Agreement may be executed in any number of
               ------------
counterparts, all of which together shall constitute one instrument, and each of
which may be executed by less than all of the parties to this Agreement.

          5.9  Severability. In the event that any provision of this Agreement
               ------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.

     The foregoing agreement is hereby executed as of the date first above
written.

INVESTORS:                               COMPANY:

                                              INTERVIDEO, INC.




By:_______________________                       By:____________________________

                                       15



                                    EXHIBIT A

                               PREFERRED INVESTORS
                               -------------------

Existing Holders:
- ----------------



                                             Number of               Number of              Number of
                                             Shares of               Shares of              Shares of
Name and Address                             Series A  Preferred     Series B Preferred     Series C Preferred
- ----------------                             --------------------    -------------------    ------------------
                                                                                   
Spot Master Investment Limited                    5,000,000
#3 Lane 60, Chiu-Kang ST.
Mucha, Wenshan Dist.
Taipei, Taiwan R.O.C.

Ming-Kai Tsai                                                              800,000
No. 16-3, Chu Chun 2/nd/ Road
Hsin-Chu City, Taiwan R.O.C.

K. N. Chang                                                                200,000
11F, No. 1 Lane
240 Kwon-Fu S. Road
Taipei, Taiwan R.O.C.



Additional Investors:
- ---------------------


Azam Corporation                                                                                    75,000
1333 Lawrence Expressway, #201
Santa Clara, CA  95051

Leadtek Research Inc.                                                                              100,000
18F, No. 166, Chien-Yi Road
Chung-Ho City
Taipei Hsien, Taiwan, ROC
ATTN:  K. S. Lu

Maxson Holdings Limited                                                                            100,000
2170 Century Park East, #704S
Los Angeles, CA  90067

Nichimen America, Inc.                                                                             100,000
222 N. LaSalle Street, Suite 999
Chicago, Illinois  60601
ATTN:  Ryuji Ishikawa

Richmond Holdings Global Limited                                                                   115,000
20C, 60 Tun Hua South Road
Sec.2, Taipei
Taiwan, R.O.C.



                                       16



                                                                                                  
Teraokakosan, Ltd.                                                                                   12,500
1-3-8 Niitaka,
Yodogawa-ku
Osaka, Japan  532-0033
ATTN:  Tatsuhiko Terada

Chieh & Lily Chang Living Trust                                                                      50,000
375 Pepper Avenue
Hillsborough, CA  94010
ATTN:  Chieh Chang

The Sternheim Trust UDT 12/22/98                                                                    400,000
3489 S. Court Street
Palo Alto, CA  94306
ATTN: E. Sternheim

Chen Hwa Chang                                                                                       50,000
6F, #7, Lane 311, Alley 43, Sec. 2
Hoping E. Road
Taipei, Taiwan, R.O.C.
c/o Joe Liu
- -----------
40743 Rainwater Ct.
Fremont, CA  94539

K. S. Chay                                                                                           50,000
203 Wing A.
Henderson Industrial Park
Singapore  15954

Martin Cooper                                                                                        50,000
100 Via De La Valle
Del Mar, CA  92014

Chia Kok Hua                                                                                         25,000
Blk 257 Bishan ST22 #07-323
Singapore,  347780

Ryuzo Kobayashi                                                                                      25,000
9-34 Rokurokuso-cho,
Ashiya-shi
Hyogo, Japan  659-0011

Yoichi Kuga                                                                                          12,500
8-1 Krekawa-cho,
Ahiya-shi
Hyogo, Japan  659-0051

Hideo Magata                                                                                         12,500
3-6-18 Matsuzaki-cho
Abeno-Ku
Osaka, Japan  545-0053

Kenji Niwa                                                                                           12,500
1-22 Manchidani-cho,
Nishinomiya-shi
Hyogo, Japan  659-0011



                                       17



                                                                                                  
Tsutomu Ogishi                                                                                       25,000
1532 San Gabriel Way
San Jose, CA  95125

Kotaro Seto                                                                                          12,500
4-17 Yamate-cho,
Ashiya-shi
Hyogo, Japan  659-0096

Shinji Shiotani                                                                                      12,500
3-22-11 Midorigaoka,
Toyonaka-shi
Osaka, Japan  531-0071

James R. Tomihiro                                                                                    25,000
5984 Gleneagles Circle
San Jose, CA  95138

Doug Tsui                                                                                            50,000
972 Michelangelo Drive
Sunnyvale, CA  94087

Yao Wu                                                                                               35,000
310 Zhang Yang Road
Building #10, Room #501
Pudong, Shanghai
China
c/o Jeffrey Yao
- ---------------
1572 Mallard Way
Sunnyvale, CA  94087

Nichmen Electronic Components Corporation
Hokoku Bldg., 9F, 6-8,
Nakatsu 1-chome
Kita-Ku, Osaka 531-0071
Japan




                                       18



                                INTERVIDEO, INC.

                   AMENDMENT NO. 1 TO THE AMENDED AND RESTATED
                           INVESTORS RIGHTS AGREEMENT

     This Amendment No. 1 (the "Amendment") to the Amended and Restated
Investor's Rights Agreement dated as of July 2, 1999 (the "Agreement"), attached
as Exhibit I, is made as of this ______ day of March 2000 by and among
   ---------
InterVideo, Inc., a California corporation (the "Company"), the persons listed
on Exhibit A to the Agreement under the captions "Existing Holders" and
   ---------
"Additional Investors" (collectively, the "Existing Investors"), and the
additional individuals and/or entities listed on Exhibit II (the "New
                                                 ----------
Investors"). The New Investors and the Existing Investors are collectively
referred to as "Investors" for the purposes of the Agreement, as amended.

                                    RECITALS
                                    --------

     A.  The Company desires for those New Investors listed on Exhibit II under
                                                               ----------
the caption "New Investors" to purchase the Company's Series D Preferred Stock
pursuant to the Series D Preferred Stock Purchase Agreement of even date (as
defined herein).

     B.  As a condition thereof and to induce such investment, the Company and
the Existing Investors are willing to enter into this Agreement.

     In consideration of the foregoing premises and the promises and covenants
contained herein, the parties agree as follows:

     1.  Additional Parties to the Agreement
         -----------------------------------

         The New Investors hereby enter into and become parties to the
Agreement. Exhibit A to the Agreement is amended to include the New Investors on
           ---------
Exhibit II to this Amendment and to add the number of shares of Preferred Stock
- ----------
pursuant to this Amendment for all Investors.

     2.  Waiver
         ------

         With regard to the Series D Preferred Financing in connection with
which this Amendment No. 1 is being executed, the Existing Investors executing
this Amendment No. 1, on behalf of all Existing Investors, hereby waive notice
and compliance by the Company of the provisions under Section 3 of the
Agreement.

     3.  Effect of Amendment
         -------------------

         Section 3.5 of the Agreement is amended by deleting the word "or" which
appears before subsection (d) and adding the following at the end of subsection
(d):

                                       1



         "or (e) the issuance of Securities pursuant to a joint venture,
research, development or product distribution agreement, licensing or a
strategic relationship approved by the Board of Directors."

         Except as amended as set forth above, the Agreement shall continue in
full force and effect.

     4.  Counterparts
         ------------

         This Amendment may be executed in any number of counterparts, all of
which together shall constitute one instrument, and each of which may be
executed by less than all of the Investors, each of which shall be enforceable
against Company and all Investors once this Amendment has been executed by the
Company, the Existing Investors holding a majority of the shares listed on
Exhibit A to the Agreement, and all of the New Investors listed on Exhibit II to
- ---------                                                          ----------
this Amendment.

         This Amendment is hereby executed as of the date first above written.

EXISTING INVESTOR:                  COMPANY:
_______________________________     INTERVIDEO, INC.


By:____________________________     By:______________________________


Title:_________________________     Title:___________________________


_______________________________
Print Investor Name


NEW INVESTOR:


By:____________________________


Title:_________________________


_______________________________
Print Investor Name

                                       2



                                    EXHIBIT I
                                    ---------

                 AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT

                                       3



                                   EXHIBIT II
                                   ----------

                                  NEW INVESTORS

- --------------------------------------------------------------------------------
  Name                                                    Shares
                                                          Issued
================================================================================

  Cardamon Class Ltd.                                    250,000
- --------------------------------------------------------------------------------
  Wei Min Chang                                           10,000
- --------------------------------------------------------------------------------
  Joey Chen                                               20,000
- --------------------------------------------------------------------------------
  Chen Yi-Chen                                            25,000
- --------------------------------------------------------------------------------
  Cheng, Chi Chen                                         25,000
- --------------------------------------------------------------------------------
  Brian Chong                                             20,000
- --------------------------------------------------------------------------------
  Chuang Chien-Chih                                        5,000
- --------------------------------------------------------------------------------
  Concord III Venture Capital                             50,000
- --------------------------------------------------------------------------------
  Concord VI Venture Capital Co., Ltd.                    50,000
- --------------------------------------------------------------------------------
  Concord II Venture Capital Co., Ltd.                    50,000
- --------------------------------------------------------------------------------
  Concord IV Venture Co., Ltd.                            50,000
- --------------------------------------------------------------------------------
  Concord VII Venture Capital Co., Ltd.                   50,000
- --------------------------------------------------------------------------------
  Enrichment Venture Capital Corp.                       150,000
- --------------------------------------------------------------------------------
  Fubon Venture Capital Co., Ltd.                         75,000
- --------------------------------------------------------------------------------
  Goldman Asset Enterprises Ltd.                         150,000
- --------------------------------------------------------------------------------
  Hanbase Technologies, Inc.                             250,000
- --------------------------------------------------------------------------------
  Ho, Ai-Tang                                             25,000
- --------------------------------------------------------------------------------
  Hsaio, Wei-Jung                                         10,000
- --------------------------------------------------------------------------------
  Hsu Shan Ko                                             25,000
- --------------------------------------------------------------------------------
  Huang Tsung Ming                                        25,000
- --------------------------------------------------------------------------------
  Hung, Ruey-Lin                                          25,000
- --------------------------------------------------------------------------------
  Chu Luk Wah Jackson                                     25,000
- --------------------------------------------------------------------------------
  Kan Ming Shiang                                         37,500
- --------------------------------------------------------------------------------

                                       4



- --------------------------------------------------------------------------------
  Name                                                         Shares
                                                               Issued
================================================================================
  Victor Kuan                                                   37,500
- --------------------------------------------------------------------------------
  Kuo Tai-Yuan                                                   5,000
- --------------------------------------------------------------------------------
  Ting-Ching Kuo                                                25,000
- --------------------------------------------------------------------------------
  Lee, Chien-Ho                                                 25,000
- --------------------------------------------------------------------------------
  Mei-Kuei Leng                                                 12,500
- --------------------------------------------------------------------------------
  Alfonse Licata                                                10,000
- --------------------------------------------------------------------------------
  Sharming Lin                                                   2,500
- --------------------------------------------------------------------------------
  Daniel T Y Ling IRA DTD 4/21/97                               25,000
- --------------------------------------------------------------------------------
  Liu, Bi-Lin                                                   25,000
- --------------------------------------------------------------------------------
  Paul Liu                                                      25,000
- --------------------------------------------------------------------------------
  Yu-Ching Liu                                                  10,000
- --------------------------------------------------------------------------------
  Hardy K.C. Lok                                                12,500
- --------------------------------------------------------------------------------
  Cheng-Chong Lu                                                10,000
- --------------------------------------------------------------------------------
  Steven Lucco                                                  62,500
- --------------------------------------------------------------------------------
  Minaji Hashimoto                                              25,000
- --------------------------------------------------------------------------------
  Naluwan Corporation                                           20,000
- --------------------------------------------------------------------------------
  NCTU Spring Venture Capital Co., Ltd.                         75,000
- --------------------------------------------------------------------------------
  Chi-Lei Ni                                                    20,000
- --------------------------------------------------------------------------------
  Nority Investment Limited                                    250,000
- --------------------------------------------------------------------------------
  Pai, Chin-Chih                                                36,250
- --------------------------------------------------------------------------------
  Chun Nan Pai                                                  25,000
- --------------------------------------------------------------------------------
  Ping-Yaw Peng                                                 10,000
- --------------------------------------------------------------------------------
  Phoenix International Management Holdings Limited            125,000
- --------------------------------------------------------------------------------
  Prodeal Investment Co., Ltd.                                  25,000
- --------------------------------------------------------------------------------
  Saiyed Atiq Raza and Noreen Tirmizi Raza, Trustees           250,000
  N & A Raza Revocable Trust UAD 3/22/97
- --------------------------------------------------------------------------------
  Rajvir Singh                                                 250,000
- --------------------------------------------------------------------------------

                                       5



- --------------------------------------------------------------------------------
  Name                                                     Shares
                                                           Issued
================================================================================
  SinoStar Venture Capital Co., Ltd.                         75,000
- --------------------------------------------------------------------------------
  The Sternheim E. Trust, UDT 12/22/98                      162,500
- --------------------------------------------------------------------------------
  Ta Ya Venture Capital Co., Ltd.                            75,000
- --------------------------------------------------------------------------------
  Taiwan Special Opportunities Fund III                     750,000
- --------------------------------------------------------------------------------
  TMO Investment Limited Partnership                         25,000
- --------------------------------------------------------------------------------
  Frank Tseng                                                12,500
- --------------------------------------------------------------------------------
  Tien-Chun Tseng                                            25,000
- --------------------------------------------------------------------------------
  Wu Kwei Hwa                                                10,000
- --------------------------------------------------------------------------------
  Eng Tai Wu                                                 25,000
- --------------------------------------------------------------------------------
  Eric E. Wu                                                 25,000
- --------------------------------------------------------------------------------
  Her-Ching Wu                                               12,500
- --------------------------------------------------------------------------------
  Jeff Y. Wu                                                 25,000
- --------------------------------------------------------------------------------
  TOTAL                                                   4,023,750
- --------------------------------------------------------------------------------

                                       6

EX-10.6

                                                                    EXHIBIT 10.6

CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS. OMITTED INFORMATION HAS BEEN REPLACED BY [*].

                    Dolby Laboratories Licensing Corporation


                     DIGITAL AUDIO SYSTEM LICENSE AGREEMENT

                           AN AGREEMENT BY AND BETWEEN
                           ---------------------------

- --------------------------------------------------------------------------------
Dolby Laboratories Licensing Corporation         InterVideo, Inc.
(hereinafter called "LICENSOR")                  (hereinafter called "LICENSEE")
of 100 Potrero Avenue                            of 440 Mission Court, Suite 260
San Francisco, CA 94103-4813                     Fremont, CA 94539
United Stated of America                         United States of America
- --------------------------------------------------------------------------------


Facisimile telephone number of LICENSOR for transmission of quarterly royalty
reports (Section 4.05): (415) 863-1373

LICENSOR's bank and account number for wire transfer of royalty payments
(Section 4.05)

         Bank: Wells Fargo Bank
         Address: 464 California Street, San Francisco, CA 94104 U.S.A.
         Account Name: Dolby Laboratories Licensing Corporation
         Account Number: [*]
         ABA Number: [*]

Identification of bank with respect to whose prime rate interest is calculated
on overdue royalties (Section 4.05): Wells Fargo Bank

Address of LICENSEE for communications not otherwise specified (Section 8.04):

SIGNATURE:
- ---------

On behalf of LICENSOR                        On behalf of LICENSEE

Signature: /s/ Lun S. Cheung                 Signature: /s/ Joe Monastiero
           ---------------------------                  ------------------------

Name:      Lun S. Cheung                     Name:      Joe Monastiero
           ---------------------------                  ------------------------

Title:     Intellectual Property Manager     Title:     VP
           -----------------------------                ------------------------

Place:     San Francisco, CA 94103           Place:     Fremont, CA
           -----------------------------                ------------------------

Date:      4 March 1999                      Date:      11/2/98
           -----------------------------                ------------------------

Witnessed By:                                Witnessed By:

   /s/ [ILLEGIBLE]                             /s/ [ILLEGIBLE]
- ----------------------------------------     -----------------------------------

Effective Date of Agreement:  4 March 1999          Initial Payment: $[*]
                             -----------------








                                TABLE OF CONTENTS



                                                                                           Page
                                                                                        
ARTICLE I DEFINITIONS.....................................................................  2

     Section 1.01 - "LICENSOR"............................................................  2
     Section 1.02 - "LICENSEE"............................................................  2
     Section 1.03 - "Application".........................................................  2
     Section 1.04 - "Patent"..............................................................  2
     Section 1.05 - "Related Application".................................................  2
     Section 1.06 - "Related Patent"......................................................  2
     Section 1.07 - "Scheduled Patents"...................................................  3
     Section 1.08 - "Dolby Digital AC-3 Audio System Specifications"......................  3
     Section 1.09 - "Licensed Trademark"..................................................  3
     Section 1.10 - "Licensed Device".....................................................  3
     Section 1.11 - "Licensed Product"....................................................  3
     Section 1.12 - "Patent Rights".......................................................  4
     Section 1.13 - "Know-How"............................................................  4
     Section 1.14 - "Confidential Information"............................................  4
     Section 1.15 - "Non-Patent Country"..................................................  4
     Section 1.16 - "LICENSEE's Trade Name and Trademarks"................................  4
     Section 1.17 - "Other-Trademark Purchaser"...........................................  4
     Section 1.18 - "Licensed Copyrighted Works"..........................................  4
     Section 1.19 - "Consumer Price Index"................................................  5
     Section 1.20 - "Effective Date"......................................................  5
     Section 1.21 - "Virtual Dolby Digital"...............................................  5

ARTICLE II LICENSES GRANTED...............................................................  5

     Section 2.01 - Licenses Granted to LICENSEE..........................................  5
     Section 2.02 - Limitation of Licenses Granted........................................  5

ARTICLE III OTHER OBLIGATIONS OF THE LICENSOR AND LICENSEE................................  6

     Section 3.01 - Use of Licensed Trademark.............................................  6
     Section 3.02 - Ownership of the Licensed Trademarks..................................  8
     Section 3.03 - Maintenance of Trademark Rights.......................................  9
     Section 3.04 - Patent, Trademark and Copyright Enforcement...........................  9
     Section 3.05 - Other-Trademark Purchasers............................................  9
     Section 3.06 - Patent Marking........................................................ 10
     Section 3.07 - Copyright Notice...................................................... 10
     Section 3.08 - Furnishing of Licensed Copyrighted Works: Use of Licensed
             Copyrighted Works............................................................ 10
     Section 3.09 - License Notice........................................................ 11
     Section 3.10 - Furnishing of Know-How................................................ 11
     Section 3.11 - Use of Know-How and Confidential Information.......................... 11


                                                                             -i-



                               TABLE OF CONTENTS
                                  (continued)



                                                                                         Page
                                                                                      
ARTICLE IV PAYMENTS..................................................................... 12

     Section 4.01 - Initial Payment..................................................... 12
     Section 4.02 - Royalties........................................................... 12
     Section 4.03 - Section Deleted..................................................... 13
     Section 4.04 - Royalty Applicability............................................... 13
     Section 4.05 - Royalty Payments and Statements..................................... 13
     Section 4.06 - Royalties in Non-Patent Count....................................... 14
     Section 4.07 - Books and Records................................................... 15
     Section 4.08 - Rights of Inspecting Books and Records.............................. 15

ARTICLE V STANDARDS OF MANUFACTURE AND QUALITY.......................................... 15

     Section 5.01 - Standardization and Quality......................................... 15
     Section 5.02 - Right to Inspect Quality............................................ 16

ARTICLE VI TERMINATION AND EFFECT OF TERMINATION........................................ 16

     Section 6.01 - Expiration of Agreement............................................. 16
     Section 6.02 - Termination for Cause............................................... 16
     Section 6.03 - Option to Terminate in a Non-Patent Count........................... 16
     Section 6.04 - Effect of Termination............................................... 17

ARTICLE VII LIMITATIONS OF RIGHTS AND AUTHORITY......................................... 18

     Section 7.01 - Limitation of Rights................................................ 18
     Section 7.02 - Limitation of Authority............................................. 18
     Section 7.03 - Disclaimer of Warranties and Liability: Hold Harmless............... 18
     Section 7.04 - Limitation of Assignment by LICENSEE................................ 19
     Section 7.05 - Compliance with U.S. Export Control Regulations..................... 19

ARTICLE VIII MISCELLANEOUS PROVISIONS................................................... 19

     Section 8.01 - Language of Agreement: Language of Notices.......................... 19
     Section 8.02 - Stability of Agreement.............................................. 20
     Section 8.03 - Public Announcements................................................ 20
     Section 8.04 - Address of LICENSOR and LICENSEE for all Other Communications....... 20
     Section 8.05 - Applicable Law...................................................... 20
     Section 8.06 - Choice of Forum: Attorneys' Fees.................................... 20
     Section 8.07 - Construction of Agreement........................................... 21
     Section 8.08 - Captions............................................................ 21
     Section 8.09 - Singular and Plural................................................. 21
     Section 8.10 - Complete Agreement.................................................. 21
     Section 8.11 - Severability........................................................ 21


                                                                            -ii-



                               TABLE OF CONTENTS
                                  (continued)



                                                                            Page
                                                                         
         Section 8.12 - Company Representation and Warrant................. 21
         Section 8.13 - Execution.......................................... 21


                                                                           -iii-




                     DIGITAL AUDIO SYSTEM LICENSE AGREEMENT

     WHEREAS, LICENSOR is engaged in the field of audio noise reduction and
analog and digital signal processing systems and has developed noise reduction
systems useful for audio tape recording, surround sound systems for home
entertainment and for other applications;

     WHEREAS, LICENSOR's audio processing systems have acquired a reputation for
excellence and LICENSOR's trademarks have acquired valuable goodwill;

     WHEREAS, LICENSOR has licensed over 160 companies to make, use and sell
consumer audio hardware incorporating LICENSOR's audio systems and marked with
LICENSOR's trademarks; and

     WHEREAS, LICENSOR has defined the operating parameters and configuration of
a class of products called, "Virtual" products; and

     WHEREAS, LICENSOR's Virtual product category and its manufacture are the
subject of substantial know-how owned by LICENSOR;

     WHEREAS, LICENSOR's Dolby Digital AC-3 audio system and its manufacture
embody inventive subject matter which are the subject of international patent
and patent applications owned or licensable by LICENSOR,

     WHEREAS, the manufacture and sale of LICENSOR's Dolby Digital AC-3 audio
system requires the reproduction of copyrighted works owned or licensable by
LICENSOR;

     WHEREAS, LICENSOR represents and warrants that it has rights to grant
licenses under such know-how, patents and patent applications and copyrighted
works and under its trademarks;

     WHEREAS, LICENSEE is engaged in the manufacture and sale of products for
the home electronics market; and

     WHEREAS, LICENSEE believes it can develop substantial demand for equipment
to decode audio signals using LICENSOR's Dolby Digital AC-3 audio system;

     WHEREAS, LICENSEE desires a non-exclusive license to manufacture and sell
decoders using LICENSOR's Dolby Digital AC-3 audio system under LICENSOR's
trademarks, know-how, copyrighted works, patents and patent applications; and

     WHEREAS, LICENSOR is willing to grant such a license under the terms and
conditions set forth in this Agreement.

     NOW, THEREFORE, it is agreed by and between LICENSOR and LICENSEE as
follows:



                                   ARTICLE I

                                   DEFINITIONS

     Section 1.01 - "LICENSOR" means Dolby Laboratories Licensing Corporation, a
                     --------
corporation of the State of New York, having a place of business as indicated on
the title page of this Agreement, and its successors and assigns.

     Section 1.02 - "LICENSEE" means the corporation identified on the title
                     --------
page of this Agreement and any subsidiary thereof of whose ordinary voting
shares more than 50% are controlled directly by such corporation, but only so
long as such control exists.

     Section 1.03 - "Application" means an application for the protection of an
                     -----------
invention or an industrial design; references to an "Application" shall be
construed as references to applications for patents for inventions, inventors'
certificates, utility certificates, utility models, patents or certificates of
addition, inventors' certificates of addition, utility certificates of addition,
design patents, and industrial design registrations.

     Section 1.04 - "Patent" means patents for inventions, inventors'
                     ------
certificates, utility certificates, utility models, patents or certificates of
addition, inventors' certificates of addition, utility certificates of addition,
design patents, and industrial design registrations.

     Section 1.05 - "Related Application" means an Application, whether
                     -------------------
international or in the same or another country or region, which

        (1) is substantially the same as (e.g., it does not include any new
matter in the sense of the United States Patent Law) an Application or Patent
listed in Appendix A, entitled "Scheduled Patents," which is attached hereto and
forms an integral part of this Agreement (for example, without limiting the
foregoing, a continuation Application, a corresponding Application, an
Application to reissue, or a refiled Application), or

        (2) is substantially only a portion of (e.g., it contains less than an
Application or Patent listed in Appendix A and, it does not include any new
matter in the sense of the United States Patent Law) an Application or Patent
listed in Appendix A (for example, a divisional Application, or a corresponding
or refiled Application in the nature of a divisional Application).

     Section 1.06 - "Related Patent" means:
                     --------------

        (1)  a Patent granted on an Application listed in Appendix A,

        (2)  a Patent granted on a Related Application,

        (3)  a reissue of a Patent of Sections 1.06(1) or 1.06(2), and

        (4)  a reexamination certificate of a Patent of Sections 1.06 (1),
             1.06(2), or 1.06(3).

                                                                             -2-



     Section 1.07 - "Scheduled Patents" means the Applications and Patents
                     -----------------
listed in Appendix A together with Related Applications and Related Patents.

     Applications and Patents which contain not only common subject matter but
also additional subject matter going beyond the disclosure of Applications and
Patents of this Section (for example, without limiting the foregoing, a
continuation-in-part Application, or a corresponding or refiled Application in
the nature of a continuation-in-part Application) shall be deemed to be
Scheduled Patents only with respect to that portion of their subject matter
common to the Applications and Patents of this Section.

     Section 1.08 - "Dolby Digital AC-3 Audio System Specifications" means the
                     ----------------------------------------------
specifications for the Dolby Digital AC-3 audio system, comprising the claims
and teachings of the Scheduled Patents, the Dolby Digital AC-3 audio system
operating parameters as specified in Appendix B entitled "Dolby Digital AC-3
Audio System," the Dolby Digital LICENSEE Information Manual referred to in
Appendix C, the Licensed Copyrighted Works and the Know-How. Appendices B and C
are attached hereto and form an integral part of this Agreement.

     Section 1.09 - "Licensed Trademark" means one or more of the following: (a)
                     ------------------
the word mark "Dolby", (b) the device mark [logo] which is also referred to as
the `Double-D' symbol and (c) the term "AC-3".

     Section 1.10 - "Licensed Device" means a digital audio circuit having Dolby
                     ---------------
Digital AC-3 Audio System Specifications, whether made in discrete component,
integrated circuit, or other forms, for decoding a digital bitstream into one or
more audio channels. A circuit counts as one "Licensed Device" for each full
frequency range audio channel it provides.

     Section 1.11 - "Licensed Product" means a complete ready to use consumer
                     ----------------
entertainment product, such as a mufti-channel A/V receiver, DVD player, or
personal computer (PC), or a complete, ready-to-install PC audio subsystem
which:

        (1) contains one or more Licensed Devices, and

        (2) is intended or designed for use in decoding an AC-3 digital audio
bitstream.

     Every Licensed Product containing three or more Licensed Devices must also
contain a Dolby Consumer Surround Decoder with Directional Enhancement licensed
under a separate agreement, except that the Licensed Consumer Surround Decoder
and the Directional Enhancement Circuit in such Licensed Product shall be
royalty-free, so long as applicable royalties under Sections 4.01 and 4.02 under
this Agreement are payable.

     The only exception to this provision are outboard decoders without
independent volume controls intended to be used exclusively in conjunction with
audio-visual receivers or amplifiers that already contain said Consumer Surround
Decoder and Directional Enhancement circuits. A Licensed Product is not a
semiconductor chip, a partially assembled product, a product in kit form, or a
knocked-down or semi-knocked-down product.

                                                                             -3-



     Section 1.12 - "Patent Rights" means:
                     -------------

        (1) the Scheduled Patents; and

        (2) such Patents and Applications directed to Licensed Products that
LICENSOR may own or gain rights to license during the term of this Agreement and
which LICENSOR may agree to include in the Patent Rights without payment of
additional compensation by LICENSEE.

     The Patent Rights do not include such other Applications and Patents as
LICENSOR does not agree to include in the Patent Rights without payment of
additional compensation by LICENSEE.

     Section 1.13 - "Know-How" means all proprietary information, trade secrets,
                     --------
skills, experience, recorded or unrecorded, accumulated by LICENSOR, from time
to time prior to and during the term of this Agreement, or licensable by
LICENSOR, relating to the Licensed Devices and the Licensed Products and all
designs, drawings, reports, memoranda, blue-prints, specifications and the like,
prepared by LICENSOR or by others and licensable by LICENSOR, insofar as
LICENSOR deems the same to relate to and be useful for the development, design,
manufacture, sale or use of Licensed Products. Know-How does not include
Licensed Copyrighted Works, whether or not published.

     Section 1.14 - "Confidential Information" means technical and non-technical
                     ------------------------
proprietary information of LICENSOR or LICENSEE, including, without limiting the
foregoing, marketing information, product plans, business plans, royalty, and
sales information so long as such information is disclosed to the other party a)
in written or other tangible form which is clearly marked as being confidential
or proprietary or b) orally or in any other manner and is indicated as
confidential at the time of disclosure and thereafter summarized in writing
within thirty (30) days after such disclosure.

     Section 1.15 - "Non-Patent Country" means a country in which there do not
                     ------------------
exist, with respect to a Licensed Product, any Scheduled Patents including any
pending Application or unexpired Patent, which, but for the licenses herein
granted, are (or in the case of an Application, would be if it were an issued
Patent) infringed by the manufacture, and/or use, lease or sale of such Licensed
Product.

     Section 1.16 - "LICENSEE's Trade Name and Trademarks" means any trade name
                     ------------------------------------
or trademark used and owned by LICENSEE.

     Section 1.17 - "Other-Trademark Purchaser" means any customer of LICENSEE
                     -------------------------
who, with LICENSEE's knowledge, intends to resell, use or lease the Licensed
Products under a trademark other than LICENSEE's Trade Name and Trademarks.

     Section 1.18 - "Licensed Copyrighted Works" means all copyrighted works
                     --------------------------
owned by LICENSOR or owned by others and which LICENSOR has the right to
sublicense, relating to the Dolby Digital AC-3 audio system and the reproduction
of which are required in order for

                                                                             -4-



LICENSEE to make or have made for it Licensed Products, and to use, lease and
sell the same. Licensed Copyrighted Works exclude mask works fixed in a
semiconductor chip product.

     Section 1.19 - The "Consumer Price Index" means the U.S. City Average Index
                         --------------------
(base of 1982-1984 = 100) of the Consumer Price Index for All Urban Consumers as
published by the Department of Labor, Bureau of Labor Statistics of the United
States Government. In the event that said Index ceases to be published under its
present name or form or ceases to be published by the same government entity,
reference shall be made to the most similar index then available.

     Section 1.20 - The "Effective Date" of this Agreement is the date of
                         --------------
execution hereof by the last party to execute the Agreement, or, if this
Agreement requires validation by any governmental or quasi-governmental body,
the "Effective Date" is the date of validation of this Agreement.

     Section 1.21 - "Virtual Dolby Digital" means the configuration,
                     ---------------------
specifications, and operating parameters for the Virtual Dolby Digital audio
system, as specified in the Dolby Digital LICENSEE Information Manual referred
to in Appendix C.

                                   ARTICLE II

                                LICENSES GRANTED

     Section 2.01 - Licenses Granted to LICENSEE
                    ----------------------------

     LICENSOR hereby grants to LICENSEE:

          (1) a personal, non-transferable, indivisible, and non-exclusive
license throughout the world under the Patent Rights, subject to the conditions
set forth and LICENSEE's performance of its obligations, including paying
royalties due, to make or have made for it Licensed Products, and to use, lease,
import and sell the same;

          (2) a personal, non-transferable, indivisible, and non-exclusive
license throughout the world to use the Know-How and to reproduce the Licensed
Copyrighted Works in connection with the design, manufacture, and sale of the
Licensed Products and to use the Licensed Trademarks on the Licensed Products
and in connection with the advertising and offering for sale of Licensed
Products bearing one or more of the Licensed Trademarks subject to the
conditions set forth in this Agreement and LICENSEE's performance of its
obligations, including the payment of royalties; and

          (3) a personal, non-transferable, indivisible, non-exclusive, and
royally-free license throughout the world under the Patent Rights and to use the
Know-How and to reproduce the Licensed Copyrighted Works in connection with the
manufacture, use, lease and sale of spare parts solely for the repair of
Licensed Products manufactured by LICENSEE under this Agreement.

     Section 2.02 - Limitation of Licenses Granted
                    ------------------------------

     Notwithstanding the licenses granted under Section 2.01:

                                                                             -5-



          (1) no license is granted to lease, sell, transfer, or otherwise
dispose of any part of a Licensed Product, including, without limiting the
foregoing, a semiconductor chip specially adapted for use in a Licensed Product,
which part (a) is a material part of an invention which is the subject of a
Scheduled Patent and which part is not a staple article or commodity of commerce
suitable for substantial noninfringing use or (b) is not a spare part solely for
the repair of a Licensed Product manufactured by LICENSEE under this Agreement;

          (2) no license is granted under this Agreement to lease, sell,
transfer, or otherwise dispose of any partially assembled products, products in
kit form, and knocked-down or semi-knocked-down products;

          (3) no license is granted under this Agreement with respect to any of
LICENSOR's other licensed technologies;

          (4) no license is granted under this Agreement to use any Licensed
Trademark in connection with offering for sale or in advertising and/or
informational material relating to any Licensed Product which is not marked with
the mark specified in Section 3.01(1) of this Agreement;

          (5) no license is granted under this Agreement with respect to the use
of any Licensed Trademark on or in connection with products other than Licensed
Products;

          (6) no right is granted with respect to LICENSOR's trade name "Dolby
Laboratories" except with respect to the use of said tradename on and in
connection with Licensed Products for the acknowledgments and notices required
herein;

          (7) no license is granted to copy, prepare, make, or have made
derivative works based on the Licensed Copyrighted Works; and

          (8) no right to grant sublicenses is granted under this Agreement.

                                  ARTICLE III

                 OTHER OBLIGATIONS OF THE LICENSOR AND LICENSEE

     Section 3.01 - Use of Licensed Trademark
                    -------------------------

     The Licensed Trademarks have acquired a reputation for high quality among
professionals and consumers around the world. The performance capability of the
Dolby Digital AC-3 audio system is such that LICENSOR is willing to allow the
use of the Licensed Trademarks on certain Licensed Products and in connection
with their advertising and marketing to indicate that the quality of such
products conforms with the general reputation for high quality associated with
the Licensed Trademarks. LICENSEE's use of the Licensed Trademarks is optional,
however, if LICENSEE opts to use one or more Licensed Trademarks, such use shall
be subject to the obligations of this Agreement as well as detailed regulations
issued from time to time by LICENSOR. Detailed regulations current at the time
of execution of this Agreement and additional to those set forth in this

                                                                             -6-



Agreement are set forth in the Section entitled "Trademark Usage" in the Dolby
Digital LICENSEE Information Manual of Appendix C which is attached hereto and
forms an integral part of this Agreement. LICENSEE shall comply with the
requirements of the body of this Agreement and those of the Dolby Digital
LICENSEE Information Manual of Appendix C and such additional regulations as
LICENSOR may issue and shall ensure that its subsidiaries, agents, distributors,
and dealers throughout the world comply with such requirements:

          (1) LICENSEE shall prominently mark the Licensed Product on an exposed
surface thereof in the following way:

                                     [logo]

     or:

                                    Virtual
                                     [logo]

     Alternatively, if the Licensed Product is a PC or PC subsystem, the mark
may appear as part of an opening screen or in an "about" window of the
application software controlling the Licensed Product.

          (2) The mark specified in subsection (1) of this Section 3.01, may
also be used at least once in a prominent manner in all advertising and
promotions for such Licensed Product; such usages shall be no less prominent and
in the same relative size as the most prominent third party trademark(s)
appearing on such Licensed Product or in the advertising and promotion thereof.

          (3) LICENSEE may not use the Licensed Trademarks in advertising and
promotion of a product not marked in accordance with subsection (1) of this
Section 3.01, even if such product is a Licensed Product.

          (4) In every use of a Licensed Trademark, except on the exposed main
control surface of a Licensed Product, LICENSEE shall give notice to the public
that such Licensed Trademark is a trademark by using the superscript letters
"TM" after the respective trademark, or by use of the trademark registration
symbol "(R)" (the capital letter R enclosed in a circle) as a superscript after
the respective trademark. LICENSOR shall inform LICENSEE as to which notice form
is to be used.

          (5) LICENSEE shall use its best efforts to ensure that the appropriate
trademark notices, as set forth in subsection (4) above, appear in advertising
for such Licensed Products at the retail level.

          (6) LICENSOR's ownership of Licensed Trademarks shall be indicated
whenever used by LICENSEE, whether use is on a product or on descriptive,
instructional, advertising, or promotional material, by the most relevant of the
following acknowledgments: "`Dolby' is a trademark of Dolby Laboratories", "The
`Double-D' symbol is a trademark of Dolby Laboratories",

                                                                             -7-



or "`Dolby' and the `Double-D' symbol are trademarks of Dolby Laboratories" On
Licensed Products such words shall be used on an exposed surface when space
permits. LICENSEE shall use its best efforts to ensure that such an
acknowledgment appears in advertising at the retail level.

          (7)  Licensed Trademarks shall always be used in accordance with
established United States practices for the protection of trademark and service
mark rights, unless the requirements in the country or jurisdiction in which the
product will be sold are more stringent, in which case the practice of such
country or jurisdiction shall be followed. In no event shall any Licensed
Trademark be used in any way that suggests or connotes that it is a common,
descriptive or generic designation. Whenever the word `Dolby' is used, the
letter D shall be upper-case. The word `Dolby' shall be used only as an
adjective referring to a digital audio product, never as a noun or in any other
usage which may contribute to a generic meaning thereof. In descriptive,
instructional, advertising, or promotional material or media relating to
Licensed Products, LICENSEE must use the Licensed Trademarks and expressions
which include the Licensed Trademark `Dolby' with an appropriate generic or
descriptive term (e.g. "Dolby Digital decoder", "Dolby Digital audio circuit",
"Dolby Digital (AC-3) transmission" etc.), with reference to Licensed Products
and their use.

          (8)  All uses of the Licensed Trademarks are subject to approval by
LICENSOR. LICENSOR reserves the right to require LICENSEE to submit proposed
uses to LICENSOR for written approval prior to actual use. Upon request of
LICENSOR, LICENSEE shall submit to LICENSOR samples of its own usage of the
Licensed Trademarks and usage of the Licensed Trademarks by its subsidiaries,
agents, distributors, and dealers.

          (9)  Licensed Trademarks shall be used in a manner that distinguishes
them from other trademarks, service marks, symbols or trade names, including
LICENSEE's Trade Name and Trademarks.

          (10) LICENSEE may not use the Licensed Trademarks on and in connection
with products that do not meet LICENSOR's quality standards.

          (11) LICENSEE may not use the Licensed Trademarks on and in connection
with products other than Licensed Products.

     Section 3.02 - Ownership of the Licensed Trademarks
                    ------------------------------------

     LICENSEE acknowledges the validity and exclusive ownership by LICENSOR of
the Licensed Trademarks.

     LICENSEE further acknowledges that it owns no rights in the Licensed
Trademarks nor in the tradename "Dolby Laboratories." LICENSEE acknowledges and
agrees that all rights that it may accrue in the Licensed Trademarks and in the
tradenames "Dolby Laboratories" will inure to the benefit of the owner thereof,
LICENSOR or LICENSOR's parent Dolby Laboratories, Inc.

     LICENSEE further agrees that R will not file any application for
registration of the Licensed Trademarks or "Dolby Laboratories" in any country,
region, or under any arrangement or treaty.

                                                                             -8-



LICENSEE also agrees that it will not use nor will it file any application to
register in any country, region, or under any arrangement or treaty any mark,
symbol or phrase, in any language, which is confusingly similar to the Licensed
Trademarks or "Dolby Laboratories".

     Section 3.03 - Maintenance of Trademark Rights
                    -------------------------------

     The expense of obtaining and maintaining Licensed Trademark registrations
shall be borne by LICENSOR. LICENSOR, as it deems necessary, will advise
LICENSEE of the grant of registration of such trademarks. Upon request by either
party, LICENSEE and LICENSOR will comply with applicable laws and practices of
the country of registration, including, without limiting the foregoing, the
marking with notice of registration and the recording of LICENSEE as a
registered or licensed user of such trademarks. The expense of registering or
recording LICENSEE as a registered user or otherwise complying with the laws of
any country pertaining to such registration or the recording of trademark
agreements shall be borne by LICENSEE. LICENSEE shall advise LICENSOR of all
countries where Licensed Products are sold, leased or used.

     Section 3.04 - Patent, Trademark and Copyright Enforcement
                    -------------------------------------------

     LICENSEE shall immediately inform LICENSOR of all infringements, potential
or actual, which may come to its attention, of the Patent Rights, Licensed
Trademarks or Licensed Copyrighted Works. It shall be the exclusive
responsibility of LICENSOR, at its own expense, to terminate, compromise, or
otherwise act at its discretion with respect to such infringements. LICENSEE
agrees to cooperate with LICENSOR by furnishing, without charge, except
out-of-pocket expenses, such evidence, documents and testimony as may be
required therein.

     Section 3.05 - Other-Trademark Purchasers
                    --------------------------

     If LICENSEE sells or leases Licensed Products on a mass basis to an
Other-Trademark Purchaser who does not hold a license with terms and conditions
substantially similar to this Agreement, LICENSEE shall inform LICENSOR of the
name, place of business, trademarks, and trade names of the Other Trademark
Purchaser before such Other-Trademark Purchaser sells, leases, or uses Licensed
Products. LICENSEE shall obtain agreement from such Other-Trademark Purchaser
not to modify, install, use, lease, sell, provide written material for or about,
advertise, or promote Licensed Products in any way which is in conflict with any
provision of this Agreement. It shall be the responsibility of LICENSEE to
inform the Other-Trademark Purchaser of the provisions of this Agreement, to
notify such Other Trademark Purchaser that the provisions of this Agreement
shall be applicable, through LICENSEE, in the same way as if the Licensed
Products were sold by LICENSEE under LICENSEE's Trade Names and Trademarks, to
ensure by all reasonable means that such provisions are adhered to and, if
requested by LICENSOR, to provide to LICENSOR copies of such Other-Trademark
Purchaser's advertising, public announcements, literature, instruction manuals,
and the like. It shall be LICENSEE's responsibility to inform said
Other-Trademark Purchaser that any use of any of LICENSOR's trademark(s) on or
in conjunction with the Other-Trademark Purchaser's own products can only be
done under a separate license from LICENSOR.

                                                                             -9-



     Section 3.06 - Patent Marking
                    --------------

     LICENSEE shall mark each Licensed Product in the form, manner and location
specified by LICENSOR, with one or more patent numbers of Patents in such
countries under which a license is granted under this Agreement.

     Section 3.07 - Copyright Notice
                    ----------------

          (1) Where Applied LICENSEE shall apply the copyright notice specified
              -------------
in subsection 3.07(2) of this Section 3.07 to Licensed Products and all media
embodying the Licensed Copyrighted Works.

          (2) Form of Notice LICENSEE shall apply the following copyright notice
              --------------
as required in subsection 3.07(l) of this Section 3.07:

     This product contains one or more programs protected under international
and U.S. copyright laws as unpublished works. They are confidential and
proprietary to Dolby Laboratories. Their reproduction or disclosure, in whole or
in part, or the production of derivative works therefrom without the express
permission of Dolby Laboratories is prohibited. Copyright 1992-1996 by Dolby
Laboratories, Inc. All rights reserved.

     Section 3.08 - Furnishing of Licensed Copyrighted Works: Use of Licensed
                    ---------------------------------------------------------
Copyrighted Works
- -----------------

     Subject to any restrictions under the export control regulations of the
United States or any other applicable restrictions, LICENSOR will promptly after
the Effective Date, furnish to LICENSEE copies of all programs constituting the
Licensed Copyrighted Works in the form of object code (machine readable code).
Alternatively, LICENSEE may obtain such Licensed Copyrighted Works in
conjunction with its purchase of integrated circuits or other Licensed
Implementations. LICENSEE agrees to use such programs only for the purpose of
programming general purpose DSP devices, read only memories (ROMs), random
access memories (RAMs), or the like, forming an integral part of Licensed
Products and constituting spare parts solely for the repair of a Licensed
Products. LICENSEE agrees (1) it will not otherwise reproduce Licensed
Copyrighted Works, in whole or in part, (2) it will not prepare derivative works
from Copyrighted Works, and (3) it will not disclose the Licensed Copyrighted
Works, in whole or in part. LICENSEE further agrees that it will not decompile
or otherwise reverse engineer the object code constituting the Licensed
Copyrighted Works, or any portion thereof.

     Upon termination of this Agreement, LICENSEE shall promptly return to
LICENSOR, at LICENSEE's expense, all documents and things supplied to LICENSEE
as Licensed Copyrighted Works, as well as all copies and reproductions thereof,
except those incorporated into Licensed Products.

                                                                             -10



     Section 3.09 - License Notice
                    --------------

     On all Licensed Products, LICENSEE shall acknowledge that the Licensed
Products are manufactured under license from LICENSOR. Unless otherwise from
time to time agreed between the parties, the following notice shall be used by
LICENSEE on an exposed surface, such as the back or the bottom, of all Licensed
Products: "Manufactured under license from Dolby Laboratories". Such notice
shall also be used in all instruction and servicing manuals unless such
acknowledgment is clearly and unambiguously given in the course of any textual
descriptions or explanations.

     Section 3.10 - Furnishing of Know-How
                    ----------------------

     Subject to any restrictions under the export control regulations of the
United States or any other applicable restrictions, LICENSOR will promptly after
the Effective Date, furnish to LICENSEE:

          (1) copies of all documents and things comprising the Know-How; and

          (2) when requested by LICENSEE, provide, as LICENSOR deems reasonable,
consulting services regarding design considerations and general advice relating
to the Licensed Products and the sale and use thereof, for all of which LICENSEE
will reimburse LICENSOR for travel and reasonable per them expenses.

     Section 3.11 - Use of Know-How and Confidential Information
                    --------------------------------------------

          (1) By LICENSEE
              -----------

     LICENSEE shall use all Know-How and Confidential Information obtained
heretofore or hereafter from LICENSOR solely for the purpose of manufacturing
and selling Licensed Products under this Agreement, shall not use such Know-How
or Confidential Information in an unauthorized way, and shall not divulge such
Know-How or Confidential Information or any portion thereof to third parties,
unless such Know-How or Confidential Information (a) was known to LICENSEE prior
to its obtaining the same from LICENSOR; (b) becomes known to LICENSEE from
sources other than either directly or indirectly from LICENSOR; (c) becomes
public knowledge other than by breach of this Agreement by LICENSEE or by
another licensee of LICENSOR; or (d) is independently developed by LICENSEE.

     Upon termination of this Agreement, with respect to Know-How or
Confidential Information subject to the obligations of this subsection 3.11(1),
LICENSEE shall promptly return to LICENSOR, at LICENSEE's expense, all documents
and things supplied to LICENSEE as Know-How, as well as all copies and
reproductions thereof.

          (2) By LICENSOR
              -----------

     LICENSOR hereby agrees that throughout the term of this Agreement it shall
not divulge to third parties, nor use in any unauthorized way Confidential
Information belonging to LICENSEE,

                                                                            -11-



unless such information (a) was known to LICENSOR prior to its obtaining the
same from LICENSEE; (b) becomes known to LICENSOR from sources other than either
directly or indirectly from LICENSEE, or (c) becomes public knowledge other than
by breach of this Agreement by LICENSOR; or (d) is independently developed by
LICENSOR. The obligations of this subsection 3.11(2) shall cease three (3) years
from the date on which such Know-How or Confidential Information are acquired by
LICENSOR from LICENSEE under this Agreement.

                                   ARTICLE IV

                                    PAYMENTS

     Section 4.01 - Initial Payment
                    ---------------

     LICENSEE shall promptly upon the Effective Date of this Agreement pay
LICENSOR the sum specified on the title page and shall pay all local fees,
taxes, duties, or charges of any kind.

     Section 4.02 - Royalties
     ------------------------

          (1) Subject to the provisions of Section 4.05, LICENSEE shall pay to
LICENSOR royalties on Licensed Devices manufactured by or for LICENSEE and
incorporated in Licensed Products which are used, sold, leased, or otherwise
disposed of by LICENSEE, except for Licensed Devices incorporated in Licensed
Products returned to LICENSEE by customers of LICENSEE, other than in exchange
for an upgraded product, on which a credit has been allowed by LICENSEE to said
customers. The royalty payable shall be based on the number of Licensed Devices,
hereinbefore defined, contained in Licensed Products, which are used, sold,
leased or otherwise disposed of by LICENSEE in successive calendar quarters from
the effective date hereof, according to the amount of royalty specified below:

[*]

          (2) For every Licensed Device incorporated in a Licensed Product that
is used, sold, leased or otherwise disposed of by LICENSEE in a country that is
not a Non-Patent Country LICENSEE shall pay an additional $ [*] per Licensed
Device, up to a maximum of three Licensed Devices per Licensed Product.

          (3) In addition, the following royalty shall apply to Licensed
Products featuring Virtual Dolby Digital: (a) one Licensed Device for each
Licensed Product utilizing more than two channel decoding to create the
virtualized output channels if the Licensed Product provides only two

                                                                            -12-



audio channels; and (b) one Licensed Device for each Licensed Product containing
LICENSOR's "Virtualizer" technology.

     On the Effective Date of this Agreement, and annually thereafter on first
day of each calendar year, the rate at which the total royalties are calculated
shall be adjusted in accordance with the Consumer Price Index. The adjustment
shall be made by multiplying the royalties calculated as specified above by the
ratio between the Consumer Price Index for the last month of the year preceding
the year in which the adjustment takes place and the Consumer Price Index for
the month of December 1993. LICENSOR will, during the first quarter of each
calendar year, or as soon as such information is known, if later, inform
LICENSEE of the adjustment ratio to be applied to royalties due in that year.

     Section 4.03 - Section Deleted
                    ---------------

     Section 4.04 - Royalty Applicability
                    ---------------------

     A Licensed Product shall be considered sold under Section 4.02 when
invoiced, or if not invoiced, delivered to another by LICENSEE or otherwise
disposed of or put into use by LICENSEE, except for consignment shipments, which
will be considered sold when the payment for such shipments is agreed upon
between LICENSEE and customer.

     Section 4.05 - Royalty Payments and Statements
                    -------------------------------

     LICENSEE shall render statements and royalty payments as follows:

          (1) LICENSEE shall deliver to the address shown on the cover sheet of
this Agreement or such place as LICENSOR may from time to time designate,
quarterly reports certified by LICENSEE's chief financial officer or the
officer's designate within 30 days after each calendar quarter ending with the
last day of March, June, September and December. Alternatively, such reports may
be delivered by facsimile by transmitting them to LICENSOR's facsimile telephone
number shown on the cover sheet of this Agreement or such other number as
LICENSOR may from time to time designate. Royalty payments are due for each
quarter at the same time as each quarterly report and shall be made by wire
transfer in United States funds to LICENSOR's bank as identified on the cover
sheet of this Agreement or such other bank as LICENSOR may from time to time
designate. LICENSEE shall pay all local fees, taxes, duties, or charges of any
kind and shall not deduct them from the royalties due unless such deductions may
be offset against LICENSOR's own tax liabilities.

     Each quarterly report shall:

     (a) state the number of each model type of Licensed Products leased, sold,
or otherwise disposed of by LICENSEE during the calendar quarter with respect to
which the report is due;

     (b) state the number of Licensed Devices in each model type of Licensed
Product; and

                                                                            -13-



     (c)  contain such other information and be in such form as LICENSOR or its
outside auditors may prescribe. If LICENSEE claims less than full product
royalty (under Section 4.06) or no royalty due (under Section 6.03), LICENSEE
shall specify the country in which such Licensed Products were made, the country
in which such Licensed Products were sold, and the identity of the purchasers of
such Licensed Products.

          (2) Any remittance in excess of royalties due with respect to the
calendar quarter for which the report is due shall be applied by LICENSOR to the
next payment due.

          (3) LICENSEE's first report shall be for the calendar quarter in which
LICENSEE sells its first Licensed Product.

          (4) LICENSEE shall deliver a final report and payment of royalties to
LICENSOR certified by LICENSEE's chief financial officer or the officer's
designate within 30 days after termination of this Agreement throughout the
world. Such a final report shall include a report of all royalties due with
respect to Licensed Products not previously reported to LICENSOR. Such final
report shall be supplemented at the end of the next and subsequent quarters, in
the same manner as provided for during the Life of the Agreement, in the event
that LICENSEE learns of any additional royalties due.

          (5) LICENSEE shall pay interest to LICENSOR from the due date to the
date payment is made of any overdue royalties or fees, including the Initial
Payment, at the rate of 2% above the prime rate as is in effect from time to
time at the bank identified on the cover page of this Agreement, or another
major bank agreed to by the LICENSOR and LICENSEE in the event that the
identified bank should cease to exist, provided however, that if the interest
rate thus determined is in excess of rates allowable by any applicable law, the
maximum interest rate allowable by such law shall apply.

     Section 4.06 - Royalties in Non-Patent Count
                    -----------------------------

     If a Licensed Product is manufactured in a Non- Patent Country and used,
sold, leased or otherwise disposed of in a Non-Patent Country, be it the same or
a different Non-Patent Country, royalties for the manufacture, use, sale, lease
or other disposal of the Licensed Products in such Non-Patent Country or
Countries under the Know-How, Licensed Copyrighted Works, and the Licensed
Trademarks license shall be payable at the rates specified in Section 4.02;
however, the additional royalty of $ [*] on each Licensed Device of such
Licensed Product specified in Section 4.02 shall be waived. This provision shall
not apply and full royalties shall be payable under Section 4.02:

          (1) when Licensed Products are manufactured in any country which is
not a Non-Patent Country or are used, sold, leased or otherwise disposed of in
any country which is not a Non-Patent Country, be it the same country as the
country of manufacture or a different country; or

          (2) when LICENSEE knows or has reason to know that the Licensed
Products manufactured in a Non-Patent Country and used, sold, leased or
otherwise disposed of in a Non-Patent Country are destined for use by consumers
or for sale, lease or other disposal to consumers in

                                                                            -14-



a country which is not a Non- Patent Country and LICENSOR deems such sale to be
for the purpose of defeating the royalty provisions of this agreement.

     Section 4.07 - Books and Records
                    -----------------

     LICENSEE shall keep complete books and records of all sales, leases, uses,
returns, or other disposals by LICENSEE of Licensed Products for a period of
three (3) years from such sales, leases, uses or other disposals.

     Section 4.08 - Rights of Inspecting Books and Records
                    --------------------------------------

     LICENSOR shall have the right, through a professionally registered
accountant at LICENSOR's expense, to inspect, examine and make abstracts of the
said books and records insofar as may be necessary to verify the accuracy of the
same and of the statements provided for herein but such inspection and
examination shall be made during business hours upon reasonable notice and not
more often than once per calendar year. LICENSOR agrees not to divulge to third
parties any Confidential Information obtained from the books and records of
LICENSEE as a result of such inspection unless such information (a) was known to
LICENSOR prior to its acquisition by LICENSOR as a result of such inspection;
(b) becomes known to LICENSOR from sources other than directly or indirectly
from LICENSEE; or (c) becomes a matter of public knowledge other than by breach
of this Agreement by LICENSOR.

                                   ARTICLE V

                      STANDARDS OF MANUFACTURE AND QUALITY

     Section 5.01 - Standardization and Quality
                    ---------------------------

     LICENSEE shall abide by the Dolby Digital AC-3 Audio System Specifications,
hereto appended in Appendix B and as modified from time to time by LICENSOR.
LICENSEE shall abide by reasonable standards of quality and workmanship. Such
quality standards shall apply to Licensed Devices and to aspects of Licensed
Products not directly relating to the Licensed Devices but which nevertheless
influence or reflect upon the audio quality or performance of the Licensed
Devices as perceived by the end user. LICENSEE shall with respect to all
Licensed Products bearing the Licensed Trademarks conform to any reasonable
quality standards requirements as specified by LICENSOR within a period of
ninety (90) days of such specification in writing.

     Licensed Products shall not be designed, presented or advertised in any way
which contributes to confusion of the Dolby Digital AC-3 audio system with any
of LICENSOR's other digital audio systems, audio noise reduction or headroom
extension systems or LICENSOR's motion picture sound system.

                                                                            -15-



     Section 5.02 - Right to Inspect Quality
                    ------------------------

     LICENSEE shall provide LICENSOR with such non-confidential information
concerning Licensed Products as it may reasonably require in performing its
right to enforce quality standards under this Agreement. LICENSEE will, upon
request, provide on a loan basis to LICENSOR a reasonable number of samples (at
least one from each product family) of Licensed Products for testing, together
with instruction and service manuals. If transmissions necessary to test
Licensed Products under field operating conditions are not receivable at
LICENSOR's San Francisco test facility, LICENSEE shall make available to
LICENSOR, upon receipt of reasonable notice from LICENSOR, reasonable facilities
for testing Licensed Products. In the event that LICENSOR shall complain that
any Licensed Product does not comply with LICENSOR's quality standards,
excepting newly specified standards falling within the ninety (90) day time
limit of Section 5.01, it shall promptly so notify LICENSEE by written
communication whereupon LICENSEE shall within ninety (90) days suspend the
lease, sale or other disposal of the same.

                                   ARTICLE VI

                      TERMINATION AND EFFECT OF TERMINATION

     Section 6.01 - Expiration of Agreement
                    -----------------------

     Unless this Agreement already has been terminated in accordance with the
provisions of Section 6.02, this Agreement shall terminate in all countries of
the world upon the expiration of the last-to-expire Patent under the Scheduled
Patents. The Agreement is not extended by Patents in the Patent Rights that are
not Scheduled Patents.

     Section 6.02 - Termination for Cause
                    ---------------------

     At the option of LICENSOR, in the event that LICENSEE breaches any of its
material obligations under this Agreement, subject to the conditions of Section
6.04, this Agreement shall terminate upon LICENSOR's giving sixty (60) days
advance notice in writing, effective on dispatch of such notice, of such
termination, giving reasons therefore to LICENSEE, provided however, that, if
LICENSEE, within the sixty (60) day period, remedies the failure or default upon
which such notice is based, then such notice shall not become effective and this
Agreement shall continue in full force and effect. Notwithstanding the sixty day
cure period provided under the provisions of this Section 6.02, interest due
under Section 4.05 shall remain payable and shall not waive, diminish, or
otherwise affect any of LICENSOR's rights pursuant to this Section 6.02.

     Section 6.03 - Option to Terminate in a Non-Patent Count
                    -----------------------------------------

     Subject to the provisions of Section 6.04, unless this Agreement already
has been terminated in accordance with the provisions of Section 6.01 or Section
6.02, LICENSEE shall have the option to terminate its license under this
Agreement with respect to a Non-Patent Country at any time after three years
from the Effective Date of this Agreement. Said option to terminate with respect
to such

                                                                            -16-



country shall be effective when LICENSOR receives LICENSEE's written notice of
its exercise of such option and shall be prospective only and not retroactive.

     Section 6.04 - Effect of Termination
                    ---------------------

     Upon termination of the Agreement, as provided in Sections 6.01 or 6.02, or
upon termination of the license under this Agreement with respect to a
Non-Patent Country in accordance with the option set forth in Section 6.03, with
respect to such country only, all licenses granted by LICENSOR to LICENSEE under
this Agreement shall terminate, all rights LICENSOR granted to LICENSEE shall
revest in LICENSOR, and all other rights and obligations of LICENSOR and
LICENSEE under this agreement shall terminate except that the following rights
and obligations of LICENSOR and LICENSEE shall survive to the extent necessary
to permit their complete fulfillment and discharge, with the exception that
subsection (9) shall not apply in case of termination under Section 6.01:

          (1) LICENSEE's obligation to deliver a final royalty report and
supplements thereto as required by Section 4.05;

          (2) LICENSOR's right to receive and LICENSEE's obligation to pay
royalties, under Article IV, including interest on overdue royalties, accrued or
accruable for payment at the time of termination and interest on overdue
royalties accruing subsequent to termination;

          (3) LICENSEE's obligation to maintain books and records and LICENSOR's
right to examine, audit, and copy as provided in Section 4.07-,

          (4) any cause of action or claim of either party accrued or to accrue
because of any breach or default by the other party;

          (5) LICENSEE's obligations with respect to Know-How and Confidential
Information under Section 3.11 (1) and LICENSOR's obligations with respect to
Confidential Information under Sections 3.11(2) and 4.08;

          (6) LICENSEE's obligations to cooperate with LICENSOR with respect to
Patent, Trademark, and Copyright enforcement under Section 3.04, with respect to
matters arising before termination;

          (7) LICENSEE's obligation to return to LICENSOR all documents and
things furnished to LICENSEE, and copies thereof, under the provisions of
Section 3.11;

          (8) LICENSEE's and LICENSOR's obligations regarding public
announcements under Section 8.03; and

          (9) LICENSEE shall be entitled to fill orders for Licensed Products
already received and to make or have made for it and to sell Licensed Products
for which commitments to vendors have been made at the time of such termination,
subject to payment of applicable royalties

                                                                            -17-



thereon and subject to said Licensed Products meeting LICENSOR's quality
standards, provided that LICENSEE promptly advises LICENSOR of such commitments
upon termination; and

            (10) LICENSEE's right to use the Know-How and to reproduce the
Licensed Copyrighted Works in connection with the manufacture, use, lease, and
sale of spare parts solely for the repair of Licensed Products as provided in
 Section 2.01(3).

     The portions of the Agreement specifically identified in the sub-parts of
this Section shall be construed and interpreted in connection with such other
portions of the Agreement as may be required to make them effective.

                                  ARTICLE VII

                       LIMITATIONS OF RIGHTS AND AUTHORITY

     Section 7.01 - Limitation of Rights
                    --------------------

     No right or title whatsoever in the Patent Rights, Know-How, Licensed
Copyrighted Works, or the Licensed Trademarks is granted by LICENSOR to LICENSEE
or shall be taken or assumed by LICENSEE except as is specifically laid down in
this Agreement.

     Section 7.02 - Limitation of Authority
                    -----------------------

     Neither party shall in any respect whatsoever be taken to be the agent or
representative of the other party and neither party shall have any authority to
assume any obligation for or to commit the other party in any way.

     Section 7.03 - Disclaimer of Warranties and Liability: Hold Harmless
                    -----------------------------------------------------

     LICENSOR has provided LICENSEE the rights and privileges contained in this
Agreement in good faith. LICENSOR represents that it has done diligent U.S.
patentability searches in the field of digital audio and that it is unaware of
any patents of third parties which would be infringed by the practice of its
AC-3 digital audio technology which is the subject of this Agreement. LICENSOR
represents that the Licensed Know-How and Licensed Copyrighted Works were either
developed by LICENSOR or by a third party from whom LICENSOR has obtained the
right to license. However, nothing contained in this Agreement shall be
construed as (1) a warranty or representation by LICENSOR as to the validity or
scope of any Patent included in The Patent Rights; (2) a warranty or
representation that the Dolby Digital AC-3 Audio System technology, Patent
Rights, Know-How, Licensed Copyrighted Works, Licensed Trademarks, or any
Licensed Device, Licensed Product, or part thereof embodying any of them will be
free from infringement of Patents, copyrights, trademarks, service marks, or
other proprietary rights of third parties; or (3) an agreement to defend
LICENSEE against actions or suits of any nature brought by any third parties.

     LICENSOR disclaims all liability and responsibility for property damage,
personal injury, and consequential damages, whether or not foreseeable, that may
result from the manufacture, use,

                                                                            -18-



lease, or sale of Licensed Devices, Licensed Products and parts thereof, and
LICENSEE agrees to assume all liability and responsibility for all such damage
and injury, to the extent that such liability and responsibility of LICENSEE
have been finally determined in any court of competent jurisdiction.

     LICENSEE agrees to indemnify, defend, and hold LICENSOR harmless from and
against all claims (including, without limitation, product liability claims),
suits, losses and damages, including reasonable attorneys' fees and any other
expenses incurred in investigation and defense, arising out of LICENSEE's
manufacture, use, lease, or sale of Licensed Devices, Licensed Products, or
parts thereof, or out of any allegedly unauthorized use of any trademark,
service mark, Patent, copyright, process, idea, method, or device (excepting
Licensed Trademarks, Patent Rights, Know-How, Confidential Information, and
Licensed Copyrighted Works) by LICENSEE or those acting under its apparent or
actual authority.

     Section 7.04 - Limitation of Assignment by LICENSEE
                    ------------------------------------

     The rights, duties and privileges of LICENSEE hereunder shall not be
transferred or assigned by it either in part or in whole without prior written
consent of LICENSOR. However, LICENSEE shall have the right to transfer its
rights, duties and privileges under this Agreement in connection with its merger
and consolidation with another firm or the sale of its entire business to
another person or firm, provided that such person or firm shall first have
agreed with LICENSOR to perform the transferring party's obligations and duties
hereunder.

     Section 7.05 - Compliance with U.S. Export Control Regulations
                    -----------------------------------------------

        (1) LICENSEE agrees not to export any technical data acquired from
LICENSOR under this Agreement, nor the direct product thereof, either directly
or indirectly, to any country in contravention of United States law.

        (2) Nothing in this Agreement shall be construed as requiring LICENSOR
to export from the United States, directly or indirectly, any technical data or
any commodities to any country in contravention of United States law.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

     Section 8.01 - Language of Agreement: Language of Notices
                    ------------------------------------------

     The language of this Agreement is English. If translated into another
language, this English version of the Agreement shall be controlling. Except as
may be agreed by LICENSOR and LICENSEE, all notices, reports, consents, and
approvals required or permitted to be given hereunder shall be written in the
English language.

                                                                            -19-



     Section 8.02 - Stability of Agreement
                    ----------------------

     No provision of this Agreement shall be deemed modified by any acts of
LICENSOR, its agents or employees or by failure to object to any acts of
LICENSEE which may be inconsistent herewith, or otherwise, except by a
subsequent agreement in writing signed by LICENSOR and LICENSEE. No waiver of a
breach committed by either party in one instance shall constitute a waiver or a
license to commit or continue breaches in other or like instances.

     Section 8.03 - Public Announcements
                    --------------------

     Neither party shall at any time heretofore or hereafter publicly state or
imply that the terms specified herein or the relationships between LICENSOR and
LICENSEE are in any way different from those specifically laid down in this
Agreement. LICENSEE shall not at any time publicly state or imply that any
unlicensed products use the Dolby Digital AC-3 Audio System Specifications. If
requested by one party, the other party shall promptly supply the first party
with copies of all public statements and of all publicity and promotional
material relating to this Agreement, the Dolby Digital AC-3 Audio System
Specifications, Licensed Devices, Licensed Products, Licensed Trademarks, and
Know-How.

     Section 8.04 - Address of LICENSOR and LICENSEE for all Other
                    ----------------------------------------------
                    Communications
                    --------------

     Except as otherwise specified in this Agreement, all notices, reports,
consents, and approvals required or permitted to be given hereunder shall be in
writing, signed by an officer of LICENSEE or LICENSOR, respectively, and sent
postage or shipping charges prepaid by certified or registered mail, return
receipt requested showing to whom, when and where delivered, or by Express mail,
or by a secure overnight or one-day delivery service that provides proof and
date of delivery, or by facsimile, properly addressed or transmitted to LICENSEE
or LICENSOR, respectively, at the address or facsimile number set forth on the
cover page of this Agreement or to such other address or facsimile number as may
from time to time be designated by either party to the other in writing. Wire
payments from LICENSEE to LICENSOR shall be made to the bank and account of
LICENSOR as set forth on the cover page of this agreement or to such other bank
and account as LICENSOR may from time to time designate in writing to LICENSEE.

     Section 8.05 - Applicable Law
                    --------------

     This Agreement shall be construed in accordance with the substantive laws,
but not the choice of law rules, of the State of California.

     Section 8.06 - Choice of Forum: Attorneys' Fees
                    --------------------------------

     To the full extent permitted by law, LICENSOR and LICENSEE agree that their
choice of forum, in the event that any dispute arising under this agreement is
not resolved by mutual agreement, shall be the United States Courts in the State
of California and the State Courts of the State of California.

                                                                            -20-



     In the event that any action is brought for any breach or default of any of
the terms of this Agreement, or otherwise in connection with this Agreement, the
prevailing party shall be entitled to recover from the other party all costs and
expenses incurred in that action or any appeal therefrom, including without
limitation, all attorneys' fees and costs actually incurred.

     Section 8.07 - Construction of Agreement
                    -------------------------

     This Agreement shall not be construed for or against any party based on any
rule of construction concerning who prepared the Agreement or otherwise.

     Section 8.08 - Captions
                    --------

     Titles and captions in this Agreement are for convenient reference only and
shall not be considered in construing the intent, meaning, or scope of the
Agreement or any portion thereof.

     Section 8.09 - Singular and Plural
                    -------------------

     Throughout this Agreement, words in the singular shall be construed as
including the plural and words in the plural shall be construed as including the
singular.

     Section 8.10 - Complete Agreement
                    ------------------

     This Agreement contains the entire agreement and understanding between
LICENSOR and LICENSEE relating to the subject matter hereof and merges all prior
or contemporaneous oral or written communication between them. Neither LICENSOR
nor LICENSEE now is, or shall hereafter be, in any way bound by any prior,
contemporaneous or subsequent oral or written communication except insofar as
the same is expressly set forth in this Agreement or in a subsequent written
agreement duly executed by both LICENSOR and LICENSEE.

     Section 8.11 - Severability
                    ------------

     Should any portion of this Agreement be declared null and void by operation
of law, or otherwise, the remainder of this Agreement shall remain in full force
and effect.

     Section 8.12 - Company Representation and Warrant
                    ----------------------------------

     LICENSEE represents and warrants to LICENSOR that it is not a party to any
agreement, and is not subject to any statutory or other obligation or
restriction, which might prevent or restrict it from performing all of its
obligations and undertakings under this License Agreement, and that the
execution and delivery of this Agreement and the performance by LICENSEE of its
obligations hereunder have been authorized by all necessary action, corporate or
otherwise.

     Section 8.13 - Execution
                    ---------

     IN WITNESS WHEREOF, the said LICENSOR has caused this Agreement to be
executed on the cover page of this Agreement, in the presence of a witness, by
an officer duly authorized and

                                                                            -21-



the said LICENSEE has caused the same to be executed on the cover page of this
Agreement, in the presence of a witness, by an officer duly authorized, in
duplicate original copies, as of the date set forth on said cover page.

                                                                            -22-



                         APPENDIX A - SCHEDULED PATENTS

The Scheduled Patents shall mean the following patents and patent applications:

                                     PATENTS


                                   Count           Patent Number
                         -------------------   -------------------
                         Australia             631,404
                         Australia             644,170
                         Australia             649,786
                         Australia             653,582
                         Australia             655,053
                         Australia             655,535
                         Australia             674,357
                         Australia             677,688
                         Australia             677,856
                         Austria               0 524 264
                         Austria               0 519 055
                         Austria               0 560 413
                         Austria               0 664 943
                         Austria               0 709 004
                         Austria               0 709 005
                         Austria               0 709 006
                         Austria               0 716 787
                         Austria               0 520 068
                         Austria               0 514 949
                         Belgium               0 208 712
                         Belgium               0 481 374
                         Belgium               0 524 264
                         Belgium               0 519 055
                         Belgium               0 560 413
                         Belgium               0 664 943
                         Belgium               0 709 004
                         Belgium               0 709 005
                         Belgium               0 709 006
                         Belgium               0 716 787
                         Belgium               0 520 068
                         Belgium               0 514 949
                         Canada                1,239,701
                         Canada                1,301,337
                         Canada                2,026,213
                         Denmark               0 208 712
                         Denmark               0 481 374
                         Denmark               0 524 264



                                   Count           Patent Number
                         -------------------   -------------------
                         Denmark                0 519 055
                         Denmark                0 560 413
                         Denmark                0 587 733
                         Denmark                0 664 943
                         Denmark                0 709 004
                         Denmark                0 709 005
                         Denmark                0 709 006
                         Denmark                0 716 787
                         Denmark                0 520 068
                         Denmark                0 514 949
                         France                 0 208 712
                         France                 0 481 374
                         France                 0 455 738
                         France                 0 524 264
                         France                 0 519 055
                         France                 0 560 413
                         France                 0 587 733
                         France                 0 664 943
                         France                 0 709 004
                         France                 0 709 005
                         France                 0 709 006
                         France                 0 716 787
                         France                 0 520 068
                         France                 0 514 949
                         Germany                3587251
                         Germany                69125909
                         Germany                69214523.0
                         Germany                69221616.2
                         Germany                69311569.6
                         Germany                69401512.1
                         Germany                69401514.8
                         Germany                69401959.3
                         Germany                69401517.2
                         Germany                69006011.4
                         Germany                69107841.6
                         Germany                69210689.8
                         Germany                69031737.9
                         Greece                 0 524 264
                         Italy                  0 208 712
                         Italy                  0 481 374
                         Italy                  0 524 264
                         Italy                  0 519 055
                         Italy                  0 664 943

                                                                          -2-



                               Count                 Patent Number
                    -------------------------- ------------------------
                    Italy                              0 709 004
                    Italy                              0 709 005
                    Italy                              0 709 006
                    Italy                              0 716 787
                    Italy                              0 520 068
                    Italy                              0 514 949
                    Netherlands                        0 519 055
                    Netherlands                        0 560 413
                    Netherlands                        0 587 733
                    Netherlands                        0 664 943
                    Netherlands                        0 709 004
                    Netherlands                        0 709 005
                    Netherlands                        0 709 006
                    Netherlands                        0 716 787
                    Netherlands                        0 455 738
                    Netherlands                        0 524 264
                    Netherlands                        0 520 068
                    Netherlands                        0 514 949
                    Singapore                          P9692379-2
                    Singapore                          P9692369-3
                    Spain                              0 524 264
                    Spain                              0 519 055
                    Spain                              0 560 413
                    Spain                              0 664 943
                    Spain                              0 709 004
                    Spain                              0 709 005
                    Spain                              0 709 006
                    Spain                              0 716 787
                    Spain                              0 520 068
                    Spain                              0 514 949
                    Sweden                             0 519 055
                    Sweden                             0 560 413
                    Sweden                             0 664 943
                    Sweden                             0 709 004
                    Sweden                             0 709 005
                    Sweden                             0 709 006
                    Sweden                             0 716 787
                    Sweden                             0 524 264
                    Sweden                             0 520 068
                    Sweden                             0 514 949
                    Switzerland/Liechtenstein          0 524 264
                    Switzerland/Liechtenstein          0 716 787
                    Switzerland/Liechtenstein          0 519 055

                                                                             -3-



                              Count                  Patent Number
                    -------------------------  --------------------------
                    Switzerland/Liechtenstein          0 560 413
                    Switzerland/Liechtenstein          0 664 943
                    Switzerland/Liechtenstein          0 709 004
                    Switzerland/Liechtenstein          0 709 005
                    Switzerland/Liechtenstein          0 709 006
                    Switzerland/Liechtenstein          0 520 068
                    Switzerland/Liechtenstein          0 514 949
                    Taiwan                             52,047
                    Taiwan                             53,726
                    Taiwan                             56,006
                    Taiwan                             60,430
                    United Kingdom                     0 208 712
                    United Kingdom                     0 481 374
                    United Kingdom                     0 455 738
                    United Kingdom                     0 524 264
                    United Kingdom                     0 519 055
                    United Kingdom                     0 560 413
                    United Kingdom                     0 587 733
                    United Kingdom                     0 664 943
                    United Kingdom                     0 709 004
                    United Kingdom                     0 709 005
                    United Kingdom                     0 709 006
                    United Kingdom                     0 716 787
                    United Kingdom                     0 520 068
                    United Kingdom                     0 514 949
                    United States of America           4,790,016
                    United States of America           4,914,701
                    United States of America           5,235,671
                    United States of America           5,109,417
                    United States of America           5,274,740
                    United States of America           5,291,557
                    United States of America           5,297,236
                    United States of America           5,357,594
                    United States of America           5,394,473
                    United States of America           5,479,562
                    United States of America           5,752,225
                    United States of America           5,583,962
                    United States of America           5,581,653
                    United States of America           5,632,003
                    United States of America           5,623,577
                    United States of America           5,633,981

                                                                             -4-




                               PATENT APPLICATIONS
                               -------------------


                         Country             Application Number
                         ------------------  ------------------
                         Australia           73642/94
                         Australia           76765/94
                         Australia           11305/95
                         Austria             94107838.8
                         Belgium             94107838.8
                         Canada              2,053,064-2
                         Canada              2,059,141
                         Canada              2,077,662
                         Canada              2,077,668
                         Canada              2103051
                         Canada              2,140,678
                         Canada              2,142,092
                         Canada              2,164,964
                         Canada              2,165,450
                         Canada              2,166,551
                         Canada              2,167,527
                         China               91 102167.1
                         Denmark             94107838.8
                         France              94107838.8
                         Germany             94107838.8
                         Italy               94107838.8
                         Japan               2-503825
                         Japan               3-508357
                         Japan               4-504474
                         Japan               4-503836
                         Japan               5-500680
                         Japan               6-510170
                         Japan               7-504717
                         Japan               7-508213
                         Japan               7-504753
                         Japan               7-504747
                         Korea               90-702194
                         Korea               92-702394
                         Korea               92-702095
                         Korea               92-702096
                         Korea               95-700769
                         Netherlands         94107838.8
                         Singapore           9608277-1
                         Singapore           9608335-7
                         Singapore           9608307-6




                                  Country                Application Number
                        ---------------------------      ------------------
                        Singapore                      9608275-5
                        Singapore                      9608135-1
                        Singapore                      9603970-6
                        Singapore                      9608577-4
                        Singapore                      9608674-9
                        Singapore                      9608134-4
                        Singapore                      9608676-4
                        Singapore                      9608675-6
                        Singapore                      9608341-5
                        Singapore                      9608307-6
                        Spain                          94107838.8
                        Sweden                         94107838.8
                        Switzerland/Liechtenstein      94107838.8
                        United Kingdom                 94107838.8

                                                                             -2-



                            THE DOLBY VIRTUAL PATENTS
                            -------------------------

                               PATENT APPLICATIONS
                               -------------------

                      Count                Application Number
                -------------------------- --------------------
                PCT*                       98/03882
                United States of America   08/819,582


___________________

   *   Filed in these countries: Australia, Austria, Belgium, Canada, Denmark,
France, Germany, Italy, Japan, Korea, Netherlands, Singapore, Spain, Sweden,
Switzerland/Liechtenstein, United Kingdom



                 APPENDIX B - "DOLBY DIGITAL AC-3 AUDIO SYSTEM"

     Compliance with the algorithm description and operating parameters as
specified in ATSC document A/52, the "Dolby Digital LICENSEE Information
Manual", the "Software Interface Protocol" issued by Dolby and any further
reasonable specifications and requirements as DOLBY may issue from time to time.



             APPENDIX C - DOLBY DIGITAL LICENSEE INFORMATION MANUAL



                                   [Dolby Logo]

                                   Dolby Laboratories Inc.
                                   Dolby Laboratories Licensing Corporation
                                   Signal Processing and Noise Reduction Systems

                                   100 Potrero Avenue
                                   San Francisco, California 94103-4813
                                   Telephone 415-558-0200
                                   Facsimile 415-863-1373
28 March 2000

InterVideo, Inc.
440 Mission Court, Suite 260
Fremont, CA 94539
United States of America

                          Side Letter: Dolby Headphone

Gentlemen:

     Re:  License Agreement entitled "DIGITAL AUDIO SYSTEM LICENSE AGREEMENT"
          (L3D-AC3V) between InterVideo, Inc. and Dolby Laboratories Licensing
          Corporation, effective March 4, 1999.

     We have pleasure in extending the rights granted under the above-mentioned
License Agreement to include, additional patents, know-how, and copyrighted
works that cover our Dolby Headphone audio system. This Dolby Headphone Side
Letter makes the necessary changes to the wording of the License Agreement,
Coupled with the License Agreement, it forms an integral understanding regarding
Dolby Headphone, and is not intended to affect the terms of use for other
technologies. If there is any conflict between the wording of this Dolby
Headphone Side Letter and that of the above-mentioned Agreement (with respect to
the Dolby Headphone audio system), the wording of the Side Letter will be
regarded as controlling.

     1.   Add to the Index page:

     Section 1.22 - "Dolby Headphone System Specifications."

     Appendix D - Table of Contents for the Product Development Kit: Dolby
Headphone.

     2.   Add to the Preamble (Page 1) after the eleventh "WHEREAS," clause:

     WHEREAS, LICENSOR'S approved Dolby Headphone audio system (hereafter,
"Dolby Headphone") and its manufacture embody Inventive subject matter which are
the subject of international patent and patent applications licensable by
LICENSOR;

     WHEREAS, the manufacture and sale of LICENSOR'S Dolby Headphone audio
system requires the reproduction of copyrighted works licensable by LICENSOR;



Intervideo, Inc.                                                   28 March 2000
                                                                          Page 2


     WHEREAS, LICENSOR represents and warrants that it has rights to grant
licenses under such know-how, patents and patent applications and copyrighted
works and under its trademarks;

     WHEREAS, LICENSEE is engaged in the manufacture and sale of products for
the home electronics market; and

     WHEREAS, LICENSEE believes it can develop substantial demand for equipment
to decode audio signals using LICENSOR's Dolby Headphone audio system;

     WHEREAS, LICENSEE desires a non-exclusive license to manufacture and sell
decoders using LICENSOR's Dolby Headphone audio system under LICENSOR's
trademarks, know-how, copyrighted works, patents and patent applications; and

     3.   Add to the end of Section 1.09 - "Licensed Trademark," the following:
"and (d) the word mark "Dolby Headphone," and (e) the device mark [Dolby Logo
with headphones].

     4.   Replace the first sentence of Section 1.10 - "Licensed Device," with
the following: "Licensed Device means a digital audio circuit having (a) Dolby
Digital AC-3 Audio System Specifications, or (b) Dolby Headphone System
Specifications, whether made in discrete component, integrated circuit, or other
forms, for decoding a digital bitstream into one or more audio channels
(hereafter sometimes referred to as a "Dolby Digital Licensed Device," or a
"Dolby Headphone Licensed Device," respectively).

     5.   Modify Section 1.11(2) - "Licensed Product," so that the first
paragraph phrase "intended or designed for use in decoding an AC-3 digital audio
bitstream," reads "intended or designed for use in decoding (a) a Dolby Digital
AC-3 digital audio bitstream, and/or (b) a Dolby Headphone bitstream, (hereafter
sometimes referred to as a "Dolby Digital Licensed Product" or a "Dolby
Headphone Licensed Product," respectively)." In addition, modify the
second-paragraph phrase "Every Licensed Product containing three or more
Licensed Devices must," so that it reads, "Every Licensed Product containing
three or more Dolby Digital Licensed Devices must..."

     6.   Modify Section 1.19 - "Licensed Copyrighted Works," so that the phrase
"relating to the Dolby Digital AC-3 audio system," reads "relating to the Dolby
Digital AC-3 audio system or to the Dolby Headphone audio system."

     7.   Add Section 1.22 - "Dolby Headphone System Specifications."

     Section 1.22 - "Dolby Headphone System Specifications" means the
specifications for the Dolby Headphone audio system, comprising the claims and
teachings of the relevant Scheduled Patents, and the Dolby Headphone system
operating parameters as specified in the Dolby Headphone Product Development Kit
(the table of contents of which is attached hereto at Appendix D, entitled,
"Table of Contents for the Product Development Kit: Dolby Headphone," and which
may be updated from time to time by LICENSOR), and the relevant Licensed
Copyrighted Works and Know-How.

     Appendix D is attached hereto and forms an integral part of this Agreement.



Intervideo, Inc.                                                   28 March 2000
                                                                          Page 3


     8.   Modify Section 2.02 - Limitation of Licenses Granted, to include the
following additional subsection: "(9) no license is granted hereunder to make,
have made for, use in, or import or sell Licensed Products into professional
(non-consumer) market segments."

     9.   Modify Section 3.01 - Use of Licensed Trademarks:

     So that the second sentence phrase, "The performance capability of the
Dolby Digital AC-3 audio system." reads, "The performance capability of the
Dolby Digital AC-3 and Dolby Headphone audio systems;" and so that the end of
Subsection (1) contains additionally: "and/or [Dolby Logo with headphones]"; and
so that the end of the first sentence of Subsection (8) contains additionally:
"Dolby, `the `Double-D' symbol and `[Dolby Logo with headphones]' are trademarks
of Dolby Laboratories."

     10.  Replace Section 3.07(2) - Form of Notice with the following:

     LICENSEE shall apply the following relevant copyright notices as required
in subsection 3.07(1) of this Section 3.07:

          (a)  For Dolby Digital Licensed Products: This product contains one or
               more programs protected under international and U.S. copyright
               laws as unpublished works. They are confidential and proprietary
               to Dolby Laboratories. Their reproduction or disclosure, in whole
               or in part, or the production of derivative works therefrom
               without the express permission of Dolby Laboratories is
               prohibited. Copyright 1992-1997 by Dolby Laboratories, Inc. All
               rights reserved.

          (b)  For Dolby Headphone Licensed Products: This product contains one
               or more programs protected under international and U.S. copyright
               laws as unpublished works. They are confidential and proprietary
               to Dolby Laboratories. Their reproduction or disclosure, in whole
               or in part, or the production of derivative works therefrom
               without the express permission of Dolby Laboratories is
               prohibited. Copyright 1998-1999 by Dolby Laboratories. All rights
               reserved.

          (c)  For Licensed Products which are both Dolby Digital Licensed
               Products and Dolby Headphone Licensed Products: This product
               contains programs protected under international and U.S.
               copyright laws as unpublished works. They are confidential and
               proprietary to Dolby Laboratories. Their reproduction or
               disclosure, in whole or in part, or the production of derivative
               works therefrom without the express permission of Dolby
               Laboratories is prohibited. Copyright 1992-1997 and 1998-1999 by
               Dolby Laboratories. All rights reserved.

     11.  Modify Section 4.02 - Royalties as follows:

     Add the following after the first paragraph: "In addition, a royalty of two
Licensed Devices shall apply to each Dolby Headphone Licensed Product."

     Modify the paragraph which begins: "For every Licensed Device incorporated
in a Licensed Product," as follows: "For every Licensed Device incorporated in a
Licensed Product that is used, sold, leased or otherwise disposed of by LICENSEE
in a country that is not a Non-Patent Country, LICENSEE shall pay an additional
$



Intervideo, Inc.                                                   28 March 2000
                                                                          Page 4


[*] per Licensed Device with respect to Dolby Digital Licensed Devices, a
maximum of three shall apply per Dolby Digital Licensed Product; but Dolby
Headphone Licensed Devices shall not count toward such maximum."

     12.  Add the following after the first sentence of the first paragraph of
Section 4.06 - Royalties in Non-Patent Country:

     "(For the avoidance of doubt, the designation of a particular jurisdiction
as a Non-Patent Country with respect to a particular royalty payable, shall be
determined by the part of the Schedule of Patents relevant to such royalty
payable. For example, the additional Scheduled Patents added by the Dolby
Headphone Side Letter are relevant to the designation of a jurisdiction as a
Non-Patent Country only with respect to Dolby Headphone royalties payable.)"

     13.  Modify Section 6.01 - Standardization and Quality as follows:

     Add to end of the first sentence, of the first paragraph: "...and by the
Dolby Headphone System Specifications."

     Modify the second paragraph to read: "Licensed Products shall not be
designed, presented or advertised in any way which contributes to confusion of
the Dolby Digital AC-3 audio system, or of the Dolby Headphone audio system,
with any of LICENSOR's other digital audio systems, audio noise reduction or
headroom extension systems or LICENSOR's motion picture sound system."

     14.  Modify the second two sentences of Section 8.03 - Public Announcements
so that they read: "LICENSEE shall not at any time publicly state or imply that
any unlicensed products use either the Dolby Digital AC-3 Audio System
Specifications or the Dolby Headphone System Specifications. If requested by one
party, the other party shall promptly supply the first party with copies of all
public statements and of all publicity and promotional material relating to this
Agreement, the Dolby Digital AC-3 Audio System Specifications, Dolby Headphone
System Specifications, Licensed Devices, Licensed Products, Licensed Trademarks,
and Know-How."

     15.  Add to APPENDIX A - SCHEDULE OF PATENTS the following:

                                 DOLBY HEADPHONE

                                     PATENTS
                                     -------

Country                                               Patent Number
- -------                                               -------------

Australia                                             689439
United States of America                              5,502,747



Intervideo, Inc.                                                   28 March 2000
                                                                          Page 5


                               PATENT APPLICATIONS
                               -------------------

Country                                                 Patent Number
- -------                                                 -------------

Canada                                                  2139511
EPO*                                                    93914555.3
Japan                                                   502761/94
PCT**                                                   AU96/00769
PCT***                                                  AU98/00002

     *Designating these countries: Belgium, Denmark, France, Germany, Italy,
Netherlands, Sweden, United Kingdom

     **Designating these countries: Belgium, Denmark, France, Germany, Italy,
Netherlands, Sweden, United Kingdom, Japan, Korea, United States of America

     ***Designating these countries: Australia, Austria, Belgium, Canada, China,
Denmark, France, Germany, India, Italy, Japan, Korea, Netherlands, Singapore,
Spain, Sweden, Switzerland/Liechtenstein, United Kingdom, United States of
America

     16.  Add to the end of the Agreement: "APPENDIX D - TABLE OF CONTENTS FOR
THE PRODUCT DEVELOPMENT KIT: DOLBY HEADPHONE"

     1.   DOLBY HEADPHONE

          1.1.   Dolby Headphone Licensing Manual
                 --------------------------------
                 999/12691, Draft version, Aug. 89
                 This document describes the product specifications and
                 functional requirements for the use of Dolby Headphone
                 technology within a range of typical consumer products as well
                 as trademark usage.

          1.2.   Test Material*
                 -------------

                 1.2.1.  Test signals*
                         ------------
                         Under development
                         Test signals to verify that the Dolby Headphone
                         algorithm has been properly implemented.

                 1.2.2.  Test program*
                         ------------
                         dhcheck.exe
                         Under development
                         This is a Win32 executable for analysis of the measured
                         system responses.



Intervideo, Inc.                                                   28 March 2000
                                                                          Page 6


Yours sincerely,

DOLBY LABORATORIES LICENSING CORPORATION

/s/ D. Mac Leckrone
D. Mac Leckrone
Sr. Manager, Agreements & Contracts

                                   Read and Agreed on behalf of InterVideo, Inc.

                                   Signature: /s/ Joe Monastiero
                                             ----------------------------------
                                   Name:    Joe Monastiero
                                         --------------------------------------
                                   Title:   VP
                                         --------------------------------------
                                   Date:    April 10, 2000
                                         --------------------------------------

EX-10.7

                                                                    Exhibit 10.7

CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS. OMITTED INFORMATION HAS BEEN REPLACED BY [*].

                                   Version 1.1

                              CSS LICENSE AGREEMENT

     This CSS LICENSE AGREEMENT (the "License Agreement"), including the related
CSS PROCEDURAL AND TECHNICAL SPECIFICATIONS (together, the "Specifications") and
the Exhibits and Attachments to the License Agreement and Specifications
(collectively, this "Agreement"), is made and entered into by and between: (i)
the DVD Copy Control Association, Inc., a Delaware nonprofit corporation, having
offices located at 225B Cochrane Circle, Morgan Hill, CA 95037 ("Licensor"); and
(ii) InterVideo, Inc., a California corporation having offices located at 47350
Fremont Blvd., Fremont, CA 94538 ("Licensee"). This Agreement shall be effective
as of the date of the later signature below ("Effective Date").

                                    RECITALS

     A. Matsushita Electric Industrial Co., Ltd. ("MEI") and Toshiba Corporation
("Toshiba") have developed a Content Scramble System (as defined below) to
provide reasonable security for content on DVD Discs and thereby, together with
the terms and conditions of this Agreement, to provide protection for such
copyrighted content against unauthorized consumer copying, and have filed patent
applications with respect to the Content Scramble System.

     B. MEI and Toshiba have licensed the Content Scramble System to Licensor
for purposes of further licensing the system and administering such licenses in
relation to the protection of content utilizing the DVD Video Specification for
content encoded on DVD Discs.

     C. Licensor desires to license the Content Scramble System to Licensee, and
Licensee desires to license the Content Scramble System from Licensor, subject
to the terms and conditions set forth in this Agreement:

                                    AGREEMENT

     1. DEFINITIONS. In addition to the other capitalized terms used in this
Agreement and in addition to the terms defined in the CSS Procedural
Specifications (which terms shall have the same meanings set forth in the
Procedural Specifications), the following terms shall have the following
meanings:

        1.1 "Absolutely Necessary Claim" shall mean any claim(s) of patent(s) or
             --------------------------
patent application(s) which are infringed by the manufacture, import, use or
sale of CSS Compliant Products because: (i) those portions of the CSS
Specifications which are required to implement CSS are read on by such claim(s);
or (ii) such CSS Compliant Products, solely because of the requirement to
implement the portions of the CSS Specifications which are required to implement
CSS, cannot be manufactured, used, distributed, offered to be sold, sold,
imported, or otherwise transferred without infringing such claim(s).



          1.2 "Affiliate" shall mean any corporation, partnership or other
               ---------
entity that, directly or indirectly, owns, is owned by, or is under common
ownership with, Licensee, for so long as such ownership exists. For purposes of
the foregoing, "own" "owned" or "ownership" shall mean holding ownership of, or
the right to vote, more than fifty percent (50%) of the voting stock or
ownership interest entitled to elect a board of directors or a comparable
managing authority.

          1.3 "Associate Licensee" shall mean any third party that enters into
               ------------------
an agreement, containing substantially the same terms as those set out in one or
both of the documents entitled "Assembler Associate License" and "Reseller
Associate License."

          1.4 "Associate Licensee Reseller" shall mean an Associate Licensee
               ---------------------------
entering into a Reseller Associate License for the purpose of being authorized
to purchase and resell Schedule 1 and Schedule 2 Products, subject to the
redistribution requirements of the Reseller Associate License.

          1.5 "By-Laws" shall mean the document, or specified section thereof,
               -------
entitled "By-Laws DVD Copy Control Association, Inc.," as amended from time to
time.

          1.6 "Confidential Information" shall mean Proprietary Information that
               ------------------------
is either marked "confidential," when disclosed in tangible form or designated
as "confidential" when disclosed orally (or otherwise in intangible form) and
confirmed in writing within thirty (30) days after such disclosure.

          1.7 "Controlled Company" shall mean (i) any Affiliate, or (ii) any
               ------------------
other entity that controls, is controlled by, or is under common control with
another entity. For purposes of this Section, "control" means possession, direct
or indirect, of the power to direct or cause the direction of the management and
policies of an entity with respect to the matters set out in this Agreement,
whether through the possession of voting power or by contract encompassing such
matters. In determining whether an entity is included in (ii) above, where (x) a
Licensee's control does not extend to directing the commencement or termination
of legal actions as described herein or (y) where causing such entity to take a
particular action would constitute a breach of Licensee's fiduciary obligations
to such entity, "control" is deemed not to be present.

          1.8 "CSS" or "Content Scramble System" shall mean the Content Scramble
               ----     -----------------------
System developed by MEI and Toshiba which is designed to provide reasonable
protection for content encoded onto DVD Discs using the DVD Video Specification,
as such system has been licensed by MEI and Toshiba to Licensor and as more
fully described in the CSS Specifications, as amended in accordance with
Sections 4.2 and 10.7 of this License Agreement. CSS does not include any
technology referenced by or used with the CSS Specifications such as MPEG
technology, DVD technology (including, but not limited to, DVD disc structure),
data compression and decompression, embedded data technology, watermarking, nor
any other independent technology mandated or permitted in connection with any
amendments to the CSS Specifications.

          1.9 "CSS Complaint Products" shall mean DVD Products which are
               ----------------------
compliant with the CSS Specifications in accordance with Section 4.2 of this
License Agreement.

                                                                             -2-



          1.10 "CSS Interim License Agreement" shall mean an agreement
                -----------------------------
(including all documents incorporated therein by reference) entered into by
either MEI as the licensor of CSS and thereafter assigned to Licensor by MEI or
DVD CCA in its role as interim licensor of CSS.

          1.11 "CSS Agreement" shall mean an agreement between Licensor and
                -------------
another party that contains the same terms as this Agreement (including this
License Agreement and all documents incorporated herein by reference), or terms
that have been modified consistent with Sections 4.2 and 10.7 of this License
Agreement.

          1.12 "CSS Licensee" shall mean any third party that enters into a CSS
                ------------
Agreement with Licensor that is valid and in effect. A third party that has a
CSS Interim License Agreement that is valid and in effect shall be included
within the meaning of "CSS Licensee."

          1.13 "CSS Specifications" shall mean the documentation relating to CSS
                ------------------
entitled "CSS Specifications" (including the Procedural Specifications and the
Technical Specifications) that Licensor makes available to Licensee, as such
documentation may be revised from time to time consistent with Sections 4.2 and
10.7 hereof. Except where otherwise specifically stated, all references to "CSS
Specifications" shall be deemed to include all or any portion of the
documentation referenced in the preceding sentence.

          1.14 "Disc IP" shall mean any copyright, trade secret, or other
                -------
intellectual property inherent in the CSS Specifications pertaining to CSS, or
any patent claim(s) (including but not limited to any Absolutely Necessary
Claims or Relatively Necessary Claims) that are infringed by any implementation
of CSS in any DVD Disc.

          1.15 "DVD Products" shall mean the following products if they
                ------------
incorporate any portion of CSS: DVD Players, DVD Drives, Descramblers,
Authenticators, Scramblers, CSS Decryption Modules (implemented in Hardware as
CSS Decryption Hardware and/or in software as CSS Decryption Software), CSS Disc
Formatters, DVD Discs, Special Purpose DVD Players, Special Purpose DVD Drives,
Verification Products and Integrated Products.

          1.16 "DVD Video Specification" shall mean the DVD Specifications for
                -----------------------
Read-Only Disc, Version 1.0 (August 1996), as that document may be amended from
time to time.

          1.17 "Highly Confidential Information" shall mean Proprietary
                -------------------------------
Information that constitutes or discloses: (i) the algorithms used for
scrambling, descrambling, authentication and key recovery; (ii) master, disc,
title or authentication keys; or (iii) information developed by MEI and/or
Licensor for testing product compliance with CSS where such information makes
use of or reveals information described in (i) or (ii). Such information shall
be marked, if disclosed in written form, or designated, if disclosed in
electronic form, as "Highly Confidential" when disclosed to Licensee.

          1.18 "Licensed Rights" shall mean all Absolutely Necessary Claims, all
                ---------------
Relatively Necessary Claims, copyrights, trade secret rights, and other
proprietary rights in any jurisdiction, and in all applications and
registrations therefor, in and to CSS (including the Proprietary Information),
that Licensor (during the term of this Agreement) owns or has the right to grant
licenses of the scope

                                                                             -3-



granted herein without the agreement of, or requirement for payment (or
provision of other consideration) to any person or entity.

          1.19 "Motion Picture Company" shall mean any person which (a)
                ----------------------
designates itself as a Motion Picture Company on its Membership Application, and
(b) is engaged in the production and distribution of theatrical motion pictures
in the United States on a substantial scale, as evidenced by production, box
office receipts and number of releases annually.

          1.20 "Ombudsman" shall mean that individual designated by Licensor to
                ---------
perform this function.

          1.21 "Proprietary Information" shall mean any and all information
                -----------------------
relating to CSS made available to Licensee directly by MEI, Licensor, or any
other CSS Licensee, or revealed to Licensee pursuant to Section 5.3 prior hereto
or during the term of this Agreement, including, without limitation, CSS
Specifications, Software, Hardware, documentation, designs, flow charts,
technical data, outlines, blueprints, notes, drawings, prototypes, templates,
systems, manuals, know-how, processes, and methods of operation.

          1.22 "Protected" shall mean a configuration in which a data stream or
                ---------
signal is not output except (1) via encrypted, scrambled, or otherwise secure
link or method authorized hereunder either through a device's or component's
authorized output or to the next component or device which in turn has an
authorized output; or (2) directed as uncompressed video data to a graphics
subsystem via an internal computer path in a manner consistent with Section 6.2
the CSS Procedural Specifications. For purposes of this definition, authorized
outputs and methods hereunder are those compliant with the requirements
contained in Section 6.2 of the CSS Procedural Specifications, including any
upgrades or modifications thereto adopted in accordance with Sections 4.2 and
10.7 of this License Agreement. By way of example and not limitation, the
following CSS Compliant Products, if so configured, would be considered to be
Protected:

               (a) CSS Decryption Hardware incorporating MPEG decoding and any
or all of the following outputs:

                   (i)   NTSC with appropriate AGC and Colorstripe;

                   (ii)  Computer Monitor SVGA (or other computer monitor RGB);
or

                   (iii) Uncompressed digital video directed via an internal
computer path to a computer graphic subsystem for display.

               (b) CSS Decryption Software incorporating MPEG decoding and
supporting the output described in subsection (a)(iii).

               (c) A CSS Decryption Module which implements the interrogation or
identification functions referenced in Section 6.2.11.4 of the CSS Procedural
Specifications; and

                                                                             -4-



                    (d) A DVD Player which meets the requirements of Section
6.2.1 of the CSS Procedural Specifications.

               1.23 "Relatively Necessary Claim" shall mean, any claim(s) of
                     --------------------------
patent(s) or patent application(s), that: (i) are not Absolutely Necessary
Claims; and (ii) with respect to which the implementation of all or any portions
of the CSS Specifications pertaining to CSS involves a design-around to such
patent claim(s) which would have a commercially significant effect on
performance, manufacturability or manufacturing cost, although the cost of
designing-around itself shall not be taken into account. Relatively Necessary
Claims shall not include claims which if licensed by Licensor to Licensee or by
Licensee to another CSS Licensee would require a payment of royalties or other
fees by Licensor or Licensee, as appropriate, to unaffiliated third parties.

               1.24 "Reseller" shall mean a CSS Licensee or Associate Licensee
                     --------
Reseller that purchases Schedule 1 or Schedule 2 Products from a CSS Licensee
for the purpose of reselling such products without modification and only to a
CSS Licensee or an Associate Licensee authorized to receive such products.

               1.25 "Restricted Schedule 1 Product" shall mean a CSS Compliant
                     -----------------------------
Product licensed hereunder which is a Verification Product.

               1.26 "Schedule 1 Product" shall mean a CSS Compliant Product
                     ------------------
which:

                    (a) is not a Schedule 2 or 3 Product, or

                    (b) is

                         (i)   an Authenticator, or

                         (ii)  a Descrambler, or

                         (iii) a CSS Decryption Module or partial implementation
thereof, or

                         (iv)  any other device which has an output which is not
permitted in a Schedule 2 or 3 Product, or

                    (c) is a CSS Disc Formatter.

               1.27 "Schedule 2 Product" shall mean a DVD Product that is a CSS
                     --------------------
Compliant Product except that such product is not Protected and which outputs
descrambled CSS Video Data only in decompressed form.

               1.28 "Schedule 3 Product" shall mean (a) a CSS Compliant Product
                      -----------------
which outputs CSS Data only in a Protected manner or (b) a DVD Disc.

                                                                             -5-



     2. LICENSES GRANTED.

          2.1  Nonexclusive License. Subject to the terms and conditions of this
               --------------------
Agreement, Licensor grants to Licensee a worldwide, royalty-free, non-exclusive,
nontransferable right, under the Licensed Rights:

          (a)  to use and implement CSS to develop, design, manufacture and use
DVD Products that are in the Membership Categories selected by Licensee and to
practice any methods necessary for the manufacture or use of such DVD Products;
and

          (b)  according to Licensee's Membership Categories, to receive DVD
Products in accordance with this Agreement and to distribute, offer to sell,
sell, import and otherwise transfer DVD Products made in accordance with this
Agreement, such distribution, offer to sell, sale, importation or other transfer
of CSS Compliant Products to be allowable only as follows:

               (i)   Restricted Schedule 1 Products only to CSS Licensees in the
DVD Disc Replicator Membership category;

               (ii)  Schedule I Products only to CSS Licensees or to Associate
Licensee Resellers;

               (iii) Schedule 2 Products only to CSS Licensees or to Associate
Licensees;

               (iv)  Schedule 3 Products to any person or entity; or

               (v)   Special Purpose DVD Players or Special Purpose DVD Drives
only to purchasers that are required by contract with Licensee (x) to use the
Special Purpose DVD Players or Special Purpose DVD Drives, as the case may be,
for the purpose of the authorized playback of content originally encrypted on
DVD Discs using CSS where such DVD Discs are designated as Region 8 discs and
where such playback is intended to be in the commercial setting in which the
viewer of the movie does not own the Special Purpose DVD Player or Special
Purpose DVD Drive, whether or not such viewing is considered a public
performance, or non-public performance, of the movie (e.g., airline, cruise
ship, hotel or similarl applications); and (y) to sell or otherwise dispose of
or distribute any such Special Purpose DVD Players or Special Purpose DVD Drives
to another party only in circumstances in which such other party is legally
prohibited from using such Special Purpose DVD Players or Special Purpose DVD
Drives, as the case may be, other than in the use described in (x), above.
Licensee further agrees that with respect to any such contract, it will either
provide for third party beneficiary rights for Motion Picture Companies or will
itself take all reasonable efforts necessary to enforce the provisions of such
contracts as described in (x) and (y), above. Records of sales of Special
Purpose DVD Players and Special Purpose DVD Drives must be separately maintained
by Licensee, and the names and addresses of each purchaser of Special Purpose
DVD Players and Special Purpose DVD Drives shall be provided by Licensee to
Licensor upon request by Licensor. Copies of contracts for such sales must be
available for inspection by Licensor, at least with respect to the provisions
relevant to the requirements of this subparagraph. With respect to any sales of
Special Purpose DVD Players or Special Purpose DVD

                                                                             -6-



Drives made prior to the effective date of this Agreement, Licensee agrees (a)
that any such sale will be subject to the recordkeeping and reporting
requirements of this subparagraph, (b) that it will submit to Licensor, within
30 days of the effective date of this Agreement, a specific certification from
Licensee that, to the best of Licensee's knowledge and belief, each purchaser
intends to use the Special Purpose DVD Players and/or Special Purpose DVD Drives
solely for the purpose described in this subparagraph; and (c) that Licensee
will make all commercially reasonable efforts to amend the contract for such
sale(s) to incorporate the restrictions required for such contracts entered
after the effective date of this Agreement; and

               (c)  to provide prototype or sample DVD Products incorporating
CSS to prospective customers or retained test companies in situations that are
not covered by Section 2.1(b), in each case solely for evaluation in
contemplation of a purchase of such products or performance of specified testing
of such products, as applicable, and to provide related technical information
necessary for the evaluation or testing purposes, as applicable, provided,
however, that: (i) Licensee shall not provide to any such customers or test
companies any CSS Highly Confidential Information; and (ii) any disclosure of
CSS Confidential Information shall be made only pursuant to a written agreement
providing at least equivalent protections as are provided in this Agreement; but

               (d)  not to distribute, offer to sell, sell, import or otherwise
transfer any DVD Products that Licensee makes or receives under this Agreement
or that it made or received under an CSS Interim License Agreement that it
entered into, except in accordance with Sections 2.1(b) and (c) above.

          2.2  Copyright License. Subject to the terms and conditions of this
               -----------------
Agreement, including without limitation the confidentiality provisions of
Section 5.2 and the prohibition on copying Highly Confidential Information
contained in Section 5.2(b)(iii), for any copyrightable information included in
the CSS Specifications and other documentation, including Proprietary
Information, provided by Licensor in connection with this Agreement, Licensor
grants Licensee a worldwide, royalty-free, non-exclusive, nontransferable
copyright license to use and reproduce the CSS Specifications and such other
documentation for internal purposes solely in connection with the implementation
of CSS and marketing of CSS Compliant Products as permitted under Section 2.1
hereof.

          2.3  Right to Have Designated or Have Made. Licensee shall have the
               -------------------------------------
right under the licenses granted herein to have third parties design and/or make
CSS Compliant Products or subparts thereof for the sole account of Licensee, but
only if said CSS Compliant Products or subparts thereof:

               (a)  are to be sold, used, leased or otherwise disposed of, by or
for Licensee under the trademark, tradename, or other commercial indicia

                    (i)  of Licensee or

                    (ii) of a person or entity to which Licensee is authorized
by this Agreement to sell

                                                                             -7-



                         (1) the CSS Compliant Product that is the subject of
the "have designed," and/or "have made" agreement or

                         (2) an Integrated Product that is a CSS Compliant
Product made using such CSS Compliant Product, and

               (b)  are designed and/or made by such third parties using design
specifications or manufacturing drawings supplied by or for Licensee.

Such third parties shall be required to be CSS Licensees if such design and/or
manufacture requires disclosure to such third parties of (1) Confidential
Information; or (2) other information or materials from which Confidential
Information could reasonably be derived. Further, such parties shall be required
to be CSS Licensees if such design and/or manufacture requires disclosure to
such third parties of (1) Highly Confidential Information; or (2) other
information or materials from which Highly Confidential Information could
reasonably be derived. Licensee agrees and acknowledges that the fact that it
has contracted with a third party pursuant to this provision does not relieve
Licensee of any of its obligations under this Agreement and that Section 5.5 of
this License Agreement includes obligations applicable to its relationship with
third parties engaged pursuant to this provision. Licensee agrees that, with
respect to third parties that are not CSS Licenses, Licensee will contractually
obligate such third party to adhere to the same reverse engineering prohibitions
and limitations as are contained in Section 5.3 of this Agreement. Such third
parties shall receive no license, sublicense, or implied license with respect to
CSS, and the duration of the "have designed" or "have made" rights granted under
this provision shall not extend beyond the term of this Agreement, including any
termination thereof pursuant to Section 6.2.

          2.4  Sublicenses to Affiliates. Subject to the requirements of the
               -------------------------
following subsections (a) and (b), Licensee shall have the right to sublicense
the rights granted to Licensee hereunder to any of its Affiliates ("Permitted
Sublicensees").

               (a)  Licensee shall have the right to sublicense to any of its
Permitted Sublicensees at Licensee's sole discretion, any of Licensee's rights
under Sections 2.1, 2.2 and 2.3, provided that: (i) Licensee notifies Licensor
of the identity of each Permitted Sublicensee receiving a sublicense and the
type of Confidential Information or Highly Confidential Information provided to
such Permitted Sublicensee; (ii) each such Permitted Sublicensee receiving a
sublicense shall abide by the terms of this Agreement with the same rights (but
without the right to grant any further sublicense) and the same obligations and
prohibitions as Licensee, including without limitation, the non-assertion and
patent license offer provisions of Section 5.1 hereof; (iii) such sublicense
coterminates with this Agreement, or terminates at any time such Permitted
Sublicensee ceases to qualify as an Affiliate or whenever Licensee determines
that an Affiliate is no longer engaged in activities requiring a sublicense,
provided that Licensee shall notify Licensor whenever Licensee terminates any
sublicense previously granted; (iv) such Permitted Sublicensees receiving a
sublicense shall execute and deliver to Licensor a written acknowledgment and
agreement, in the form provided for in Exhibit "A" hereto, that the Permitted
Sublicensee has read and agrees to abide by the terms of this Agreement; and (v)
Licensee may sublicense only those rights for the Membership Categories to which
Licensee currently belongs; provided that in the case of a Permitted Sublicensee
that is an Affiliate that is owned directly or indirectly by Licensee ("Owned

                                                                             -8-



Affiliate"), Licensee agrees that any failure to comply with clause (iv) of this
Section 2.4(a) shall be remedied by either or both of the following: (1)
Licensee shall consent to a judgment for specific performance of the obligation
for each Owned Affiliate to execute and deliver such acknowledgment and
agreement, and (2) Licensee shall cause any Owned Affiliate not to defend
against any enforcement action by Licensor or by an Eligible Licensee pursuant
to Section 9.5 on the ground that this Agreement does not apply to such Owned
Affiliate or that any obligation imposed by the Agreement is not applicable to
Controlled Affiliate, and provided further that Licensor and any CSS Licensee
seeking to enforce the obligation imposed by clause (iv) of this Section 2.4(a)
agree that these will be the sole remedies for any failure to obtain the
executed acknowledgment and agreement from such a Owned Affiliate.

               (b) Licensee shall be responsible for its Permitted Sublicensees'
compliance with the terms and conditions of this Agreement, and Licensee and
each of its Permitted Sublicensees shall be jointly and severally liable for any
noncompliance by such Permitted Sublicensee with the terms and conditions of
this Agreement.

          2.5  No Sublicense or Implied License. Except as set forth in Section
               --------------------------------
2.4, Licensee shall not have any right to sublicense any rights granted
hereunder and no products or services provided by Licensee shall give rise to
any implied licenses to third parties, provided that there shall be no
limitation or restriction on the use, resale or other transfer or distribution
of CSS Compliant Products that are Schedule 3 Products. Licensee acknowledges
and agrees that the licenses granted herein are the only licenses granted to
Licensee, and that no other licenses are granted, expressly, by implication or
by estoppel, now or in the future. As between Licensor and Licensee, all rights
not expressly granted to Licensee under this Agreement in and to CSS and the
Proprietary Information are reserved and retained by Licensor.

     3.   MEMBERSHIP CATEGORIES AND ADMINISTRATION FEE.

          3.1  Selection of Membership Categories. Upon the execution of this
               ----------------------------------
Agreement, and upon each annual renewal of its membership, Licensee shall select
one or more Membership Categories. Licensee may from time to time add or delete
Membership Categories upon providing Licensor prior written notice and payment
of the Administration Fee (as defined below) for each additional Membership
Category in accordance with Section 3.2 hereof.

          3.2  Administration Fee. Concurrent with Licensee's selection of the
               ------------------
Membership Categories pursuant to Section 3.1, Licensee shall pay Licensor a
nonrefundable sum for each Membership Category selected by Licensee (the
"Administration Fee"), which fee shall be used to offset the costs associated
with Licensor's administration of CSS. The amount of the Administration Fee
shall be determined from time to time by Licensor and set forth on a fee
schedule that shall be made available to Licensee at the time of Licensee's
selection of Membership Categories and at the time of Licensee's annual renewal.
Licensee understands and acknowledges that: (1) the Administration Fee is
payable on an annual basis and that failure to make timely payment of such
Administration Fee is a breach of this Agreement, (2) payment of the
Administration Fee shall entitle Licensee to Non-Voting Membership in DVD CCA,
with such rights and privileges as are associated with such membership pursuant
to the By-Laws, and (3) that Licensee shall not be entitled to any refund in
connection with any deletion of Membership Categories during the term of

                                                                             -9-



this Agreement or upon or after termination of this Agreement. Licensee is not
required to accept the Non-Voting Membership referenced in (2), above and may
resign such membership at any time, provided that Licensee shall remain liable
for Administration Fees pursuant to this Section 3.2.

     4.  CSS SPECIFICATIONS.
         ------------------

          4.1  Delivery of CSS Specifications. Upon Licensee's selection of one
               ------------------------------
or more Membership Categories in accordance with Article 3 and the payment of
the appropriate Administration Fee(s), Licensor shall distribute to Licensee the
portions of Proprietary Information and/or CSS Specifications appropriate to its
Membership Category or Categories that Licensee has not previously received from
MEI. In the event Licensee deletes any Membership Categories or does not select
all of the Membership Categories with respect to which it has previously
received proprietary information and/or CSS Specifications from MEI, Licensee
shall within thirty (30) days thereafter return or destroy, providing a written
certification of such destruction, such portions of Proprietary Information
and/or CSS Specifications relevant to the Membership Categories it has deleted
or not selected.

          4.2  Compliance with CSS Specifications.
               ----------------------------------

               4.2.1 General. Licensee shall comply with the CSS Specifications,
                     -------
as may be amended by Licensor from time to time in accordance with the By-Laws.
Each DVD Product shall comply with the version of the CSS Specifications which
is in effect at the time such DVD Product is manufactured, taking into account
specific effective date provisions in amendments to the CSS Specifications.

               4.2.2 Compliance with Changes to CSS Specifications. With respect
                     ---------------------------------------------
to any changes to the CSS Specifications made after the Effective Date of this
Agreement, the following rules shall apply. Changes to the CSS Specifications
shall be made in accordance with procedures set forth in the By-Laws. All
changes shall be notified to all CSS Licensees and shall provide Licensee with
sufficient information to incorporate any necessary changes into the design and
manufacture of DVD Products to ensure that such products continue to be CSS
Compliant Products. All changes shall be applied on a non-discriminatory basis
among all CSS Licensees. Licensor shall specify in its notice either the
specific date by which the changes shall be implemented in affected products or
the specific basis on which Licensee must itself determine that compliance with
a change is required. In general, Licensor will follow the following time
periods in requiring that changes to the CSS Specifications be implemented in
affected products, provided that nothing in the following provisions shall be
interpreted so as to alter any time limitations set forth in the CSS Procedural
Specifications in effect as of the Effective Date of this Agreement.

               4.2.2.1 Licensor may make changes to clarify or amplify elements
of the CSS Specifications in order to preserve essential functions of the CSS
Specifications ("Emergency Changes"). Licensee shall implement an Emergency
Change as soon as reasonably possible, taking into account the danger to Content
Providers being addressed by the Emergency Change. In general, Licensee will be
expected to implement an Emergency Change not later than sixty (60) days from
receipt of the notice of the Emergency Change if such Emergency Change does not
require a material change in product design or manufacturing process.

                                                                            -10-



                    4.2.2.2 In general, unless otherwise specified in relation
to a particular change, Licensee shall implement all changes that are not
Emergency Changes within eighteen (18) months of the date on which Licensor
notifies Licensee of a change in the CSS Specifications. Licensor may request
that Licensee agree to implement a specific change in less time than the
eighteen (18) months normally provided, and Licensee agrees not to unreasonably
withhold consent to such a request. Licensee may request that the normal
eighteen (18) month time period be extended with respect to a specific change in
the CSS Specifications, and Licensor agrees not to unreasonably withhold its
consent to such request.

          4.3  Audio Data Covered by this Agreement. The CSS Specifications
               ------------------------------------
govern audio material only to the extent that such material is CSS Audio Data.
All other audio data are outside the scope of this Agreement.

     5.   ADDITIONAL LICENSEE OBLIGATIONS.

          5.1  Access to Intellectual Property.
               -------------------------------

               (a)  Absolutely Necessary Claim. Licensee shall not, and shall
                    --------------------------
cause each of its Controlled Companies not to, assert any Absolutely Necessary
Claim(s) reading on the portions of the CSS Specifications pertaining to CSS
against Licensor or any CSS Licensee (including its Permitted Sublicensees) or
vendor, distributor, purchaser or other person in the chain of distribution for
the manufacture, use, distribution, offer to sell, sale, import, or other
transfer of a CSS Compliant Product which was made under license from Licensor
or under a CSS Interim License Agreement entered into by Licensee, provided that
this Section 5.1(a) only applies to those aspects of such CSS Compliant Product
which are required and used for compliance with the portion of the CSS
Specifications pertaining to CSS and which cannot be implemented without
infringing (but for this covenant) the Absolutely Necessary Claim(s); and,
further provided, that this covenant shall not apply in favor of any entity and
any of its Controlled Companies, if such entity or any of its Controlled
Companies, is asserting an Absolutely Necessary Claim against Licensee (of any
of its Permitted Sublicensees).

               (b)  Disc Immunity. Licensee shall not, and shall cause each of
                    -------------
its Controlled Companies not to, assert any claim(s) based on Disc IP against
any CSS Licensee which is a Content Provider, Authoring Studio, or DVD Disc
Replicator or vendor, distributor, purchaser or other person in the chain of
distribution for the manufacture, use, distribution, offer to sell, sale,
import, or other transfer of a DVD Disc that: (i) is a CSS Compliant Product;
and (ii) was made under license from Licensor or under a CSS Interim License
Agreement entered into by Licensee, provided that (1) this Section 5.1(b) only
applies to those aspects of such DVD Discs which are present for the purpose of
complying with the portions of the CSS Specifications pertaining to CSS; and (2)
this Section 5.1 shall only apply to DVD Discs, and shall not apply to any
apparatus for the manufacture thereof.

               (c)  Termination of Suits.
                    --------------------

                    (i) If Licensee or any of its Controlled Companies asserts
any Absolutely Necessary Claim(s) or Disc IP claim(s) in violation of Section
5.1(a) or (b), Licensee

                                                                            -11-



shall terminate or cause to be terminated such assertion of claim, provided that
this obligation shall not arise with respect to any assertion by a Controlled
Company alleged to be in violation of such section unless Licensee has received
a written notice of such assertion.

                    (ii)  In the case of an entity which is not a Controlled
Company but in which Licensee or any of its Controlled Companies holds any
voting security or any other ownership interest (a "Partially Owned Company"),
Licensee shall not knowingly vote, and shall cause each Controlled Company not
to knowingly vote, any voting security or ownership interest in any such
Partially Owned Company in favor of asserting any claim which Licensee would be
prohibited from asserting hereunder, provided that this paragraph (ii) shall not
apply where such action conflicts with Licensee's or Such Controlled Company's
fiduciary duty. Licensee agrees to use reasonable efforts to vote, and use
reasonable efforts to cause each Controlled Company to vote, all voting
securities and ownership interests in each Partially Owned Company to terminate
any such claim(s).

     The termination of any such claim(s) under Absolutely Necessary Claim(s) or
Disc IP claim(s), as the case may be, shall relieve Licensee of all liability
for any failure to comply with its obligations pursuant to this Section 5.1(c).

               (d)  Patent License Offer. Upon request by a CSS Licensee,
                    --------------------
Licensee shall offer, and shall cause its Controlled Companies to offer, a
patent license for any of its/their claims for which Relatively Necessary
Claim(s) exist, provided that such license may be limited to Relatively
Necessary Claim(s) that are within the scope of the other CSS Licensee's license
from Licensor. Such license shall be made available on reasonable and
nondiscriminatory terms to any CSS Licensee in good standing and/or its
Permitted Sublicensees with respect to a CSS Compliant Product that is or was
made under license from Licensor or under a CSS Interim License Agreement
entered into by Licensee. To the extent that a Relatively Necessary Claim that
would otherwise be governed by this Section 5.1(d) is subject to the Disc
Immunity governed by Section 5.1(b), such Relatively Necessary Claim shall be
governed by Section 5.1(b) rather than this Section 5.1(d).

               (e)  Applicability.
                    -------------

                    (i)   The provisions of this Section 5.1 regarding
Absolutely Necessary Claims, Disc IP, and Relatively Necessary Claims shall be
limited to CSS as such system was described in the CSS Specifications on the
date this Agreement is entered and does not include any amendments to the CSS
Specification that are made after the date of this Agreement, unless Licensee
has agreed in writing that the provisions of this Section 5.1 shall apply to
such amendment.

                    (ii)  Subject to the terms of Section 6.2 hereof, the
covenant set forth in Section 5.1 shall remain in effect for the life of any
patent issued throughout the world with a first priority date prior to or during
the term of the license granted to Licensee under Article 2.

                    (iii) Any executed patent license entered into pursuant to
Section 5.1(d) shall survive the termination of this Agreement in accordance
with its terms.

                                                                            -12-



                    (iv) Notwithstanding the termination of this Agreement, the
obligation to offer a patent license under Section 5.1(d) shall continue after
such termination with respect to CSS Compliant Products that were made prior to,
or are in production as of, the date of such termination for a license period
ending concurrently with the applicable permitted period of distribution set
forth in Section 6.2(a) or (b), as the case may be.

          5.2  Confidentiality.
               ---------------

               (a)  Residuals. Licensor acknowledges that Licensee may, as a
                    ---------
result of receipt of or exposure to Confidential Information and/or Highly
Confidential Information, increase or enhance the knowledge and experience
retained in the unaided memories of each of its directors or employees.
Notwithstanding anything to the contrary in this Agreement, Licensee and its
directors and employees may use and disclose such knowledge and experience in
their respective businesses, provided that the Licensee, or any of its directors
or employees, has not (a) intentionally memorized the Confidential Information
or Highly Confidential Information so as to reduce it to an intangible form for
the purpose of creating a residual or using the same; (b) avoided its obligation
to maintain the confidentiality of Confidential Information or Highly
Confidential Information merely by having a person commit such information to
memory so as to reduce it to an intangible form; or (c) deliberately and
knowingly utilized Confidential Information or Highly Confidential Information
in its business, provided further that Licensee shall not use Confidential
Information or Highly Confidential Information or any mentally-retained
recollections thereof to circumvent or copy the methods disclosed in Proprietary
Information, Confidential Information, or Highly Confidential Information or to
circumvent any obligations under this Agreement. Licensor shall have neither any
rights in any business endeavors of Licensee that may use such knowledge and
experience nor any right to compensation, other than as may be provided for
breach of this Agreement, related to any such use of such knowledge and
experience.

               (b)  Highly Confidential Information. Licensee and its Permitted
                    -------------------------------
Sublicensees shall maintain the confidentiality of Highly Confidential
Information in the following manner:

                    (i)  Licensee and its Permitted Sublicensees shall each
employ procedures for safeguarding Highly Confidential Information at least as
rigorous as Licensee and its Permitted Sublicensees, respectively, would employ
for its own most highly confidential information, such procedures to include, at
a minimum:

                         (1)  maintaining on Licensee's and/or Permitted
Sublicensees' premises a secure location in which any and all Highly
Confidential Information shall be stored, where such a location may include
electronic storage provided that any such electronic storage must meet at least
the following minimum security requirements. Such electronic storage must
provide a technical means of providing security that is:

                              (x)  at least equivalent to the security provided
by a common key form of encryption with a key length of at least 40 bits;

                                                                            -13-



                              (y) not subject to known security breaches that
effectively negate its use for secure storage of Highly Confidential
Information; and

                              (z)

                                   (A) proprietary to Licensee and, with respect
to any elements of such technical means used for secure storage of Highly
Confidential Information that must be maintained as confidential in order for
the security to be effective, protected by Licensee at the same level of
protection as required for trade secrets; or

                                   (B) subject, with respect to any elements of
such technical means used for secure storage of Highly Confidential Information
that must be maintained as confidential in order for the security to be
effective, to a legally binding requirement that such element or elements be
maintained as confidential at the time such encryption system is employed to
provide secure storage of Highly Confidential Information.

                         (2)  that any Highly Confidential Information stored in
such a location shall be accessible only by Authorized Employees (as defined
below);

                         (3)  that

                              (x)  where Highly Confidential Information is
stored in a location that is physically secure, Authorized Employees visiting
such location shall sign in and out each time that they visit such location; and


                              (y)  where Highly Confidential Information is
stored securely in an electronic form, Authorized Employees having access to
such Highly Confidential Information in unsecure form shall sign in and out each
time that they have such access; and

                         (4)  when Highly Confidential Information is not in
use, such information shall be stored in a locked safe at such secure location
or shall be stored electronically using technical protection that meets the
requirements of (1), above.

                    (ii) Licensee may disseminate Highly Confidential
Information only to the strictest minimum possible number of full-time employees
of Licensee or its Permitted Sublicensees: (1) who have an absolute need to know
such Highly Confidential Information in order to enable Licensee or its
Permitted Sublicensees to implement CSS in compliance with the CSS
Specifications; (2) who are bound in writing by obligations of confidentiality
sufficient to protect the Highly Confidential Information in accordance with the
terms of this Agreement; and (3) who, prior to the disclosure of such Highly
Confidential Information, have: (x) been identified in writing by Licensee to
Licensor; and (y) read and executed the acknowledgment attached as Exhibit "B"
hereto (a copy of such executed acknowledgment to be sent to Licensor) (each an
"Authorized Employee"). For Authorized Employees who signed an acknowledgement
containing the same terms as Exhibit B pursuant to a CSS Interim License
Agreement entered into by Licensee, such prior acknowledgements are deemed to be
sufficient for purposes of this provision. Licensee and its Permitted
Sublicensees shall at all times cause Authorized Employees to strictly abide by
their obligations hereunder and shall use the same efforts to enforce the
confidentiality obligations of each

                                                                            -14-



Authorized Employee after the termination of his/her employment as Licensee uses
to enforce with respect to Licensee's own similarly confidential information,
provided that Licensee shall not use less than reasonable efforts in such
enforcement. Licensee and its Permitted Sublicensees shall make reasonable
efforts to assist Licensor in relation to any claim, action, suit, proceeding,
or litigation with respect to the access of the former employee to Confidential
Information and Highly Confidential Information provided under this Section 5.2.
Notwithstanding any contrary provision, Licensee shall not disseminate any CSS
Keys to more than three (3) Authorized Employees ("Key Employees") for each
Membership Category to which Licensee is licensed and is entitled to disclosure
of CSS Keys from Licensor, unless Licensee has notified Licensor in advance of
its intention to increase the number of Key Employees to an additional increment
of up to three (3) such employees. Licensee may make such notifications of
additional increments of Key Employees without limit, but in doing so shall
abide by the terms of clauses (1), (2), and (3), above. Licensee may substitute
another employee for a Key Employee only in the event of death, permanent or
long-term disability or resignation or termination of employment of an existing
Key Employee or reassignment of an existing Key Employee to a substantially
different business unit that is not involved in the development, manufacture, or
sale of CSS Compliant Products. Licensee shall inform Licensor in writing prior
to the substitution or addition of any Key Employee. Licensee may also disclose
Highly Confidential Information to an employee of another CSS Licensee where
such other CSS Licensee is authorized to possess such Highly Confidential
Information and where the employee to whom disclosure is made is an Authorized
Employee and, where CSS Keys are to be disclosed, a Key Employee, for such other
CSS Licensee. Prior to any disclosure pursuant to the preceding sentence,
Licensee must assure itself that such other CSS Licensee is, in fact, authorized
to possess the Highly Confidential Information to be disclosed, that the
employee to whom such disclosure is to be made is entitled to possess the Highly
Confidential Information to be disclosed, and that the method to be used to
disclose Highly Confidential Information is as secure as the methods used by
Licensor to disclose the same information to CSS Licensees.

                    (iii) Licensee shall not make any copies of any document
containing Highly Confidential Information. Licensee may request Licensor to
provide Licensee with additional copies of such documents. Licensor may, in its
sole discretion, fulfill any such request, provided that Licensor shall not
unreasonably refuse to provide requested additional copies.

               (c)  Confidential Information. Licensee may disclose Confidential
                    ------------------------
Information only to (i) full-time employees and individuals retained as
independent contractors subject to confidentiality obligations equivalent to
those applicable to full-time employees of Licensee and/or its Permitted
Sublicensees, in each case, who have a reasonable need-to-know and are bound in
writing by obligations of confidentiality sufficient to protect the Confidential
Information in accordance with the terms of this Agreement, (ii) other CSS
Licensees provided that Licensee may disclose to such parties only information
that such parties are entitled to receive under their CSS License; or (iii)
Licensee's attorneys, auditors or other agents who owe Licensee a duty of
confidentiality as a result of a fiduciary relationship. Licensee and/or its
Permitted Sublicensees shall use the same degree of care, but no less than a
reasonable degree of care, to avoid unauthorized disclosure or use of
Confidential Information as such party employs with respect to its comparably
important confidential information. Licensee may discuss or disclose
Confidential Information with other CSS Licensees, provided such CSS Licensees
are licensed to receive the same type of Confidential Information and are
obligated in writing to treat the Confidential Information as if

                                                                            -15-



received directly from Licensor. Licensee may disclose to potential customers or
suppliers the fact that Licensee has obtained a license to CSS from Licensor,
and show a certificate to such effect provided by Licensor to Licensee. Upon
Licensee's written request to Licensor, Licensor shall maintain the fact that
such Licensee is a CSS Licensee confidential during the period prior to
Licensee's public announcement of its DVD Product intentions or its actual
marketing of a DVD Product, whichever is earlier. Except as provided in the
immediately preceding sentence, Licensor shall have the right to disclose to
third parties the fact that Licensee has a license to CSS and the Membership
Categories to which such license is applicable.

                    (d) Contact Person and Provision of CSS Information.
                        -----------------------------------------------
Licensee shall designate a single Authorized Employee who shall receive all
Confidential Information and Highly Confidential Information (the "Licensee
Contact") disclosed by Licensor and may designate a single alternative
Authorized Employee ("Alternate Licensee Contact") who shall be entitled to
receive such Confidential or Highly Confidential Information in the event that
Licensee Contact is absent at the time such information is to be provided.
Licensee may also designate additional employees ("Additional Licensee
Contacts") where Licensee has a legitimate business need to have Confidential
Information and/or Highly Confidential Information provided to locations other
than where the Licensee Contact is located. The Licensee Contact and any
Alternate Licensee Contact shall be the same person(s) as designated under a CSS
Interim License Agreement entered into by Licensee or those persons designated
by Licensee on Exhibit "D" hereto. Prior to the provision of any Highly
Confidential Information to the Licensee Contact, Alternate Licensee Contact or
Additional Licensee Contact, such Licensee Contact, Alternate Licensee Contact,
or Additional Licensee Contact shall have complied with all of his/her
obligations under Section 5.2(b) hereof.

                    (e) No Publication. Except as, and only to the extent,
                        --------------
otherwise expressly provided in Sections 2.2 and 5.2, Licensee shall not
publish, disseminate or otherwise disclose or make available Confidential
Information or Highly Confidential Information received hereunder to any person,
firm or corporation without prior written consent of Licensor.

                    (f) Notification of Unauthorized Use or Disclosure. Licensee
                        ----------------------------------------------
shall notify Licensor in writing immediately upon discovery of any unauthorized
use or disclosure of Confidential Information or Highly Confidential
Information, and will cooperate with Licensor in every reasonable way to regain
possession of Confidential Information and Highly Confidential Information and
prevent its further unauthorized use of disclosure.

                    (g) Disclosure Required by Law. In the event Licensee or a
                        --------------------------
Permitted Sublicensee is required by law, regulation or order of a court or
other authority of competent jurisdiction to disclose Confidential Information
or Highly Confidential Information, (1) Licensee shall take reasonable steps to
notify Licensor prior to disclosure, or (2), where notice to Licensor prior to
disclosure is not reasonably possible, Licensee shall take reasonable steps to
challenge or restrict the scope of such required disclosure and notify Licensor
as soon as possible thereafter. In either case, Licensee shall take reasonable
steps to seek to maintain the confidentiality of the information required to be
disclosed and to cooperate with Licensor in any effort undertaken by Licensor to
challenge or restrict the scope of such required disclosure.

                                                                            -16-



                    (h)  Confidentiality Exceptions. Provided that the
                         --------------------------
applicability of any one or more of the following exceptions shall have no
effect on Licensee's other obligations under this Agreement, the confidentiality
restrictions contained in Sections 5.2(a), (b) and (c) herein shall not apply
to, or shall be modified in accordance with the provisions set forth below with
respect to, Confidential Information or Highly Confidential Information that
Licensee can demonstrate:

                         (i)   is Confidential Information which is or becomes
generally known to the public through no breach of Licensee's obligations owed
to Licensor hereunder;

                         (ii)  is Highly Confidential Information which is or
becomes generally known to the public through no breach of Licensee's
obligations owed to Licensor hereunder unless such Highly Confidential
Information is the subject of one or more injunctions prohibiting its public
availability, provided that at least one such injunction has been obtained not
later than one (1) year of the date on which the Highly Confidential Information
became generally known to the public and further provided that at least one
proceeding seeking an injunction was initiated by Licensor not later than one
hundred twenty (120) days following the date on which the Highly Confidential
Information became generally known to the public; further provided, however,
that if such proceeding is not initiated within 120 days, or, in the case where
such proceeding is initiated within 120 days but such injunction has not been
obtained by Licensor within one (1) year, any Highly Confidential Information
that is or becomes generally known to the public shall be treated as
Confidential Information subject to the confidentiality obligations in Sections
5.2(a) and (c) applicable to Confidential Information, and such information
shall no longer be subject to the special obligations applicable to Highly
Confidential Information in Section 5.2(b), beginning (x) in the event no
proceeding is filed within one hundred twenty (120) days and without regard to
whether an injunction is thereafter obtained, on the date that is one hundred
twenty-one (121) days after such Highly Confidential Information has become
generally known to the public, or (y) in the event that a proceeding is filed
within one hundred twenty (120) days but no injunction is obtained within one
(1) year, on the date that is one (1) year after such Highly Confidential
Information has become generally known to the public;

                         (iii) is Highly Confidential Information which is or
becomes generally known to the public through no breach of Licensee's
obligations owed to Licensor hereunder and is used in DVD Products that are
widely sold in significant commercial markets and that make use of the revealed
Highly Confidential Information in such a way that such DVD Products are not
compliant with Section 6.2.4 or Section 6.2.5, as applicable, of the Procedural
Specifications;

                         (iv)  is or has been developed by Licensee's employees
(whether independently or jointly with others) without having access (whether
directly or through any intermediaries) to any such Confidential Information or
Highly Confidential Information (or any translation, derivation or abstractions
of Confidential Information or Highly Confidential Information) and without any
breach of Licensee's obligations to Licensor, provided that the confidentiality
restrictions shall continue to apply to CSS Keys provided to Licensee; or

                         (v)   is or has been disclosed to Licensee by a third
party which had developed (whether independently or jointly with others) such
information without any access

                                                                            -17-



(whether directly or through any intermediaries) to any Confidential Information
or Highly Confidential Information and without any breach of any such third
party's obligations to Licensor, provided that this clause (vii) shall not
excuse Licensee from maintaining as confidential the fact that such information
is CSS-related and, to the extent Licensee uses the information in its CSS
implementation(s), the information itself.

               (i) Confidentiality Period. The confidentiality obligations set
                   ----------------------
forth in this Section 5.2 shall be in effect during the term of this Agreement
and shall continue thereafter until (1) with respect to Confidential
Information, the later of (i) 5 years after the termination of this Agreement
and (ii) the date on which Licensor or any successor licensor of CSS ceases to
license CSS; and (2) with respect to Highly Confidential Information, the later
of (i) three (3) years after the last commercial use of CSS by Licensor or any
CSS Licensee; and (ii) the expiration of the last copyright that protects any
CSS-encrypted scrambled content which then exists in any country adhering to the
Agreement on Trade Related Aspects of Intellectual Property Rights of the World
Trade Organization dated April 15, 1994.

               (j) Prior Agreements. The obligations of this Section 5.2 shall
                   ----------------
apply to any and all disclosures of Confidential Information or Highly
Confidential Information to Licensee prior to the execution of this Agreement.
This Agreement shall supersede any inconsistent provisions contained in any CSS
confidentiality agreement between the parties hereto, including any CSS
nondisclosure agreement between Licensee and either MEI or Licensor and any CSS
Interim License Agreement entered into by Licensee.

               (k) Licensor Confidentiality Obligations. To the extent that
                   ------------------------------------
Licensee provides any information to Licensor that Licensee designates as
confidential or highly confidential, including but not limited to any such
information disclosed in the context of the activities of the Ombudsman,
Licensor shall treat that information with equivalent levels of care as if the
information were Confidential or Highly Confidential Information. Any breach of
such obligation by Licensor shall be subject to monetary damages in the amount
of actual damages proven to the satisfaction of a court of competent
jurisdiction and shall, in any event, not exceed [*] dollars.

               5.3 Reverse Engineering. Licensee shall under no circumstances
                   -------------------
reverse engineer, decompile, disassemble or otherwise determine the operation of
CSS Specifications, including, without limitation, any encryption/decryption or
scrambling/descrambling algorithm or logic of CSS, except that Licensee may, to
the minimum extent necessary for the purposes of testing, debugging, integration
or tuning of Licensee's own CSS Compliant Product to ensure that it works in its
intended operational environment with other CSS Compliant Products (the
"Analysis Purpose"), conduct performance or electrical analyses with respect to
the operation of other CSS Compliant Products that form part of such intended
operational environment ("Analysis"), subject to the following conditions:

                   (a) Licensee shall not perform any Analysis, in whole or in
part, for the purpose of deriving or discovering CSS Specifications that have
not been made available and licensed by Licensor to Licensee hereunder (the
"Derived Information").

                                                                            -18-



          (b) To the extent Licensee obtains Derived Information that is or
should have been identified by Licensee as being part of the CSS Specifications,
whether Licensee's obtaining of such information is inadvertent or otherwise,
Licensee shall immediately notify Licensor, and upon the instruction of
Licensor, Licensee shall within ten (10) days thereafter turn over to Licensor
or destroy any portion of Derived Information that is not solely necessary for
the Analysis Purpose and cease any use of the same for any other purpose.

          (c) Subject to Section 5.3(b) above, the Derived Information: (i)
shall only be used for the Analysis Purpose and for no other purposes; and (ii)
shall be treated as confidential in the manner corresponding to the same type of
information as specified in Section 5.2.

          (d) Nothing herein shall be construed as an inducement for Licensee to
reverse engineer any products of any CSS Licensee or third party.

          (e) For purposes of this Section 5.3: (i) "testing" shall mean a
process of evaluating Licensee's CSS Compliant Product to ensure proper
operation; (ii) "debugging" shall mean a process of finding the cause of an
error in a Licensee's CSS Compliant Product, or another CSS Compliant Product,
to the extent Licensee is seeking to ensure that such other product works with
one or more of Licensee's products, but not analysis for the purpose of exposing
possible design features; (iii) "integration" shall mean a process of evaluating
the performance of Licensee's CSS Compliant Product in combination with other
CSS Compliant Products to ensure that they properly operate together, and (iv)
"tuning" shall mean a process of evaluating and improving Licensee's CSS
Compliant Products to work more efficiently with other CSS Compliant Products.

     5.4  Export. Licensee will comply with all applicable rules and regulations
          ------
of the United States, Japan and other countries and jurisdictions relating to
the export or re-export of commodities, software and technical data insofar as
they relate to the activities under this Agreement, and shall obtain an approval
required under such rules and regulations whenever it is necessary for such
export or re-export. Licensee agrees that commodities, software and technical
data provided under this Agreement may be subject to restrictions under the
export control laws and regulations of the United States, Japan and other
countries and jurisdictions, as applicable, including but not limited to the
U.S. Export Administration Act and the U.S. Export Administration Regulations
and the Japanese Foreign Exchange and Foreign Trade Law, and shall obtain any
approval required under such laws and regulations whenever it is necessary for
such export or re-export.

     5.5  Controls Against Theft. Licensee agrees to maintain reasonable
          ----------------------
controls against theft or misappropriation with respect to Schedule 1 and
Schedule 2 Products. This obligation shall be considered to be fulfilled, for
example, if Licensee utilizes controls at least equivalent to the controls that
it maintains for other of its similarly sensitive products or components.
Licensee understands and acknowledges that the obligation imposed by this
Section 5.5 requires that it maintain such reasonable controls with respect to
any Schedule 1 or Schedule 2 Products provided to a party that it may engage
pursuant to Section 2.3 of this License Agreement.

                                                                            -19-



          5.6  Good Faith.
               ----------

               (a)  Licensee agrees to the extent that future versions of the
By-Laws provide authority for Licensee to vote, object or otherwise express its
views pursuant to the procedures with respect to proposed changes in the
Specifications, it will do so in good faith.

               (b)  Licensee agrees that in the event it is or shall become a
member of a body established as the Content Protection Advisory Committee
("CPAC") of Licensor as that committee or any like or successor committee or
group may be provided for in a future version of the ByLaws, Licensee shall (1)
comply with the requirements of paragraph (a), above, with respect to its
participation on CPAC as well as otherwise; and (2) work intensively and in good
faith, exercising all reasonable and positive efforts, in cooperation with other
CPAC members, in the process by which the technologies described in Section
6.2.13 of the Procedural Specifications are solicited, developed and/or
evaluated and in the process by which related amendments to the CSS
Specifications are drafted to implement such technologies as are agreed to be
adopted.

     6.   TERM/TERMINATION.

          6.1  Termination. This Agreement shall be effective upon the Effective
               -----------
Date and shall continue until terminated in accordance with any of the following
events:


               (a)  Breach Due to Failure to Pay Fees Owed. If Licensee breaches
                    --------------------------------------
this Agreement by failing to pay in a timely fashion the fees owed pursuant to
Section 3.2 of this License Agreement, Licensor may terminate this Agreement,
provided that Licensor may not terminate this Agreement for any such non-payment
until Licensor has provided Licensee with notice and at least ninety (90) days
from the date of such notice to cure the non-payment.

               (b)  Other Breach.
                    ------------

                    (i)  If a party hereto materially defaults on any of its
obligations under this Agreement (the "Defaulting Party"), the other party
hereto (the "Non-Defaulting Party") shall have the right to seek termination or
enforcement of this Agreement, or suspension of any licenses or other rights
granted under this Agreement, as a temporary, preliminary, or final remedy to be
imposed. If such remedy is imposed, the Non-Defaulting Party shall provide for
reasonable cure opportunities, including notice and other procedures, in
accordance with the relevant order of the court.

                    (ii) In addition to seeking termination or suspension of
this Agreement as provided in (i), above, Licensor may, through action by its
Board of Directors, suspend the licenses or other rights provided under this
Agreement in the following circumstances: (x) if Licensee has failed to pay the
fees owed pursuant to Section 3.2 of this License Agreement after having
received notice of its failure to pay such fees and having failed to cure such
nonpayment within ninety (90) days following such notice, or (y) Licensor's
Board of Directors determines that the court enforcement process to obtain
suspension of the licenses or rights provided hereunder will delay such
suspension in a manner that will cause serious harm to the integrity or security
of the protection of content provided by CSS or otherwise pursuant to this
Agreement. Any suspension of

                                                                            -20-



licenses or rights pursuant to (y) shall be permitted only if Licensor has
initiated an enforcement action as provided in paragraph (i) of this Section
6.1(b) or an Eligible Licensee has initiated a Beneficiary Claim as provided in
Section 9 (either Licensor's enforcement action or a Beneficiary Claim hereafter
referred to as "Enforcement Claim" for purposes of this Section 6) and so long
as Licensor or an Eligible Licensee is actively pursuing the imposition of
temporary relief in an Enforcement Claim. Once a ruling issued in such
enforcement action or Beneficiary Claim, the suspension imposed pursuant to this
provision shall be of no further force and effect and the effective date of the
termination if any, of the licenses granted to Licensee hereunder shall be
decided in connection with an enforcement action pursuant to which termination
of the licenses is ordered by the court. If the ruling denies the temporary
relief sought, the suspension imposed pursuant to this provision is void ab
                                                                         --
initio.
- ------

                    (c) Failure to Manufacture or Distribute CSS Compliant
                        --------------------------------------------------
Products. If neither Licensee nor at least one of its Permitted Sublicensees has
- --------
exercised the rights granted under Article 2 to manufacture or commercially
distribute CSS Compliant Products: (i) within the first twelve (12)-month period
commencing on the execution of this Agreement, or (ii) during any consecutive
twelve (12)-month period thereafter during the term of this Agreement, then
Licensee shall, if and when requested to do so by Licensor, elect to (1)
recertify its, or one of its Permitted Sublicensee's, present intention to
manufacture or commercially distribute CSS Compliant Products within a twelve
(12)-month period following such recertification, (2) return all Confidential
Information and Highly Confidential Information provided to it under this
Agreement and request that its license status be put into a dormant state until
such time as it notifies Licensor that it wishes to return to active status
based on a certification of its, or one of its Permitted Sublicensee's,
then-current intention to manufacture or commercially distribute CSS Compliant
Products within twelve (12) months of such certification, or (3) terminate this
Agreement. If Licensee fails to exercise one of these options within sixty (60)
days of Licensor's request that it do so, then Licensor may terminate this
Agreement upon thirty (30) days prior written notice to Licensee. For the
purposes of this provision, Licensee shall be deemed to have failed to exercise
the rights granted under Article 2 to manufacture or commercially distribute CSS
Compliant Products only if neither Licensee nor one of its Permitted
Sublicensees, nor a CSS Licensee for which Licensee has designed or manufactured
a CSS Compliant Product, shall have manufactured or commercially distributed a
CSS Compliant Product during the relevant time period.

                    (d) Termination by Licensee. Licensee shall have the right
                        -----------------------
to terminate this Agreement at any time upon ninety (90) days prior written
notice to Licensor.

                    (e) Termination Upon Termination of the License from MEI and
                        --------------------------------------------------------
Toshiba. This Agreement shall terminate upon the termination of the license from
- -------
MEI and Toshiba to Licensor.

                    (f) Bankruptcy. Either party shall have the right to
                        ----------
terminate this Agreement in the event (i) a petition in bankruptcy or for
reorganization is filed by or against the other party under any bankruptcy laws;
(ii) the other party makes an assignment for the benefit of creditors; or (iii)
a receiver, trustee, liquidator or custodian is appointed for all or a
substantial part of the other party's property, and the order of appointment is
not vacated within thirty (30) days.

                                                                            -21-



          6.2  Effect of Termination.
               ---------------------

               (a) Termination Due to Licensee's Breach or Failure to
                   --------------------------------------------------
Manufacture or Distribute CSS Compliant Products. If this Agreement is
- ------------------------------------------------
terminated pursuant to Section 6.1(a) or (b)(i) as a result of Licensee's breach
or Licensor terminates this Agreement pursuant to Section 6.1(c), all licenses
granted by Licensor to Licensee shall terminate, provided, however, that the
license to distribute, offer to sell, sell, import, and otherwise transfer CSS
Compliant Products, subject to the conditions of Section 2.1(d), shall terminate
ninety (90) days after the effective date of the termination of this Agreement,
or upon such earlier date as may be provided by the remedy imposed pursuant to
an Enforcement Claim. In the event that any of the licenses or other rights
provided under this Agreement are suspended pursuant to Section 6.1(b)(ii) and
such suspension is subsequently converted to a termination, the 90-day period
shall run from the date of the suspension with respect to any products produced
or acquired for which the suspended license or right was necessary for such
production or acquisition. If Licensor terminates this Agreement pursuant to
Section 6.1(a), (b)(i), or (c), the covenant not to sue granted by Licensee
under Section 5.1 shall terminate, provided, however, with respect to CSS
Compliant Products that have been produced or are in production as of the
effective date of Licensor's termination of this Agreement, then CSS Licensees,
and their Permitted Sublicensees, for one (1) year after the effective date of
Licensor's termination, shall have the right, subject to the conditions of
Section 2.1(d), to distribute such CSS Compliant Products. Notwithstanding any
of the foregoing, the covenant not to sue granted in Sections 5.1(b) and Section
5.1(c) with respect to Disc IP shall survive any termination of this Agreement.

               (b) Termination by Licensee or Due to Licensor's Breach. If this
                   ---------------------------------------------------
Agreement is terminated pursuant to Section 6.1(b)(i) as a result of Licensor's
material breach, the covenant not to sue granted by Licensee under Section
5.1(a) shall terminate upon the effective date of such termination with respect
to any CSS Compliant Products not already produced or in production as of such
date and, with respect to products already produced or in production as of the
effective date of such termination, such covenant shall terminate ninety (90)
days after the effective date of the termination. If this Agreement is
terminated by Licensee pursuant to Section 6.l(b)(i), (c), or (d), all licenses
granted by Licensor to Licensee shall terminate, provided, however, that the
license to distribute, offer to sell, sell, import and otherwise transfer CSS
Compliant Products shall terminate upon the final date allowed for distribution
of all CSS Compliant Products set forth in this Section 6.2(b), and the covenant
not to sue granted by Licensee under Section 5.1 shall terminate, provided,
however, that CSS Licensees, and their Permitted Sublicensees, for a period of
one (1) year after such termination, shall have the right, subject to the
conditions of Section 2.1(d), to distribute all CSS Compliant Products that have
been produced or are in production as of the date of such termination.
Notwithstanding the foregoing, the covenant not to sue in Sections 5.1(b) and
5.1(c) with respect to Disc IP shall survive any termination of this Agreement.

               (c) No Refund. If this Agreement is terminated, Licensee shall
                   ---------
have no right to receive a refund of any sums paid as Administration Fees
pursuant to Section 3.2.

          6.3  Return of Materials. Within thirty (30) days after termination of
               -------------------
this Agreement, or such lesser time as may be provided by the remedy imposed
pursuant to an Enforcement Claim, Licensee shall either: (i) return all
Confidential Information and Highly

                                                                            -22-



Confidential Information to Licensor; or (ii) destroy all Confidential
Information and Highly Confidential Information in its possession and certify
such destruction in writing to Licensor.

          6.4 Survival. The terms of Sections 5.1 (subject to Sections 6.2(a)
              --------
and (b)), 5.2, 5.3, 5.4, 6.2, and 6.3, this Section 6.4 and Articles 7, 8, 9 and
10, and so much of Article 1 as may be necessary to define any terms used in
such Sections or Articles, shall survive the termination of this Agreement.

     7.  OWNERSHIP. All Proprietary Information and media containing Proprietary
Information as provided by Licensor to Licensee shall remain the property of
Licensor or its licensors. Except as provided in Article 2, this Agreement does
not give Licensee any license or other right to the Proprietary Information.

     8.   DISCLAIMER AND LIMITATION OF LIABILITY.

          8.1 Disclaimer. ALL PROPRIETARY INFORMATION IS PROVIDED "AS IS."
              ----------
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND EXPRESSLY DISCLAIMS IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, AND ANY EQUIVALENTS UNDER THE LAWS OF ANY
JURISDICTION THAT MIGHT ARISE FROM THE PROPRIETARY INFORMATION OR LICENSEE'S
IMPLEMENTATION, ATTEMPTED IMPLEMENTATION, OR USE OF SUCH INFORMATION OR CSS.
LICENSOR FURTHER DISCLAIMS ANY WARRANTY THAT CSS AND/OR THE CONTENTS OF THE
PROPRIETARY INFORMATION, OR ANY PRODUCT IMPLEMENTING CSS OR SUCH PROPRIETARY
INFORMATION, IN WHOLE OR IN PART, WILL BE FREE FROM INFRINGEMENT OF ANY THIRD
PARTY INTELLECTUAL PROPERTY OR PROPRIETARY RIGHTS.

          8.2 Limitation of Liability. NEITHER MEI, TOSHIBA, OR ANY DIRECTOR,
              -----------------------
OFFICER, OR EMPLOYEE OF MEI, TOSHIBA, NOR, EXCEPT AS PROVIDED IN SECTION 5.2(k)
OF THIS LICENSE AGREEMENT, LICENSOR OR ANY DIRECTOR, OFFICER, OR EMPLOYEE OF
LICENSOR ACTING IN HIS OR HER CAPACITY AS A DIRECTOR, OFFICER, OR EMPLOYEE OF
LICENSOR (COLLECTIVELY, THE "AFFECTED PARTIES") SHALL BE LIABLE TO LICENSEE FOR
ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES
ARISING OUT OF ANY CAUSE OF ACTION RELATING TO THIS AGREEMENT, OR BASED ON
MAKING, USING, SELLING OR IMPORTING ANY PRODUCTS OF LICENSEE THAT IMPLEMENT
PROPRIETARY INFORMATION OR CSS, WHETHER UNDER THEORY OF CONTRACT, TORT,
INDEMNITY, PRODUCT LIABILITY OR OTHERWISE. TO THE EXTENT THAT ANY COURT OF
COMPETENT JURISDICTION RENDERS JUDGMENT AGAINST THE AFFECTED PARTIES,
NOTWITHSTANDING THE ABOVE LIMITATION, THE AFFECTED PARTIES' TOTAL LIABILITY TO
LICENSEE IN CONNECTION WITH THIS AGREEMENT OR CSS SHALL IN NO EVENT EXCEED THE
AMOUNTS OF MONEY RECEIVED BY THE AFFECTED PARTIES FROM LICENSEE UNDER THIS
AGREEMENT DURING THE MOST RECENT FIVE (5)-YEAR PERIOD IMMEDIATELY PRIOR TO THE
DATE OF SUCH JUDGMENT. THIS LIMITATION OF LIABILITY SHALL APPLY TO MEI AND
TOSHIBA

                                                                            -23-



SOLELY IN THEIR CAPACITIES AS CO-DEVELOPERS AND LICENSORS OF CSS TO LICENSOR.

     9.   REMEDIES.

          9.1 Indemnification. Licensee shall indemnify and hold Licensor and
              ---------------
its officers, directors and employees, and, in their roles as developers of CSS
and licensors of CSS to Licensor, MEI and Toshiba and their respective officers,
directors and employees, harmless from and against any and all claims, actions,
suits, proceedings or litigation and any losses, deficiencies, damages,
liabilities, costs and expenses including without limitation, reasonable
attorneys' fees and all related costs and expenses, to be paid or otherwise
incurred in connection with the defense of any claim, action, suit, proceeding
or litigation ("Claims") which result from: (i) any breach of any covenant,
agreement, representation or warranty herein by Licensee, its employees, former
employees who had access to Confidential Information or Highly Confidential
Information pursuant to this Agreement, provided that Licensee's indemnity with
respect to acts of former employees shall be limited to circumstances in which
Licensee has failed to comply with its obligations as to former employees
pursuant to Section 5.2(b)(ii) hereof; (ii) Licensee's manufacture, sale or use
of any DVD Products, provided, that such indemnity shall not extend to: (a) any
Claim that the CSS Specifications infringe the intellectual property rights of
any third parties, or (b) any Claim or any portions thereof that is attributable
to compliance with the CSS Specifications themselves; and/or (iii) Licensee's
activities under Section 5.3.

          9.2 Equitable Relief. Licensee and Licensor recognize and agree that
              ----------------
due to the unique nature of certain provisions hereof and the lasting effect of
and harm from a breach of such provisions, including making available the means
for widespread unauthorized copying of copyrighted content intended to be
protected using CSS, in the event that Licensee breaches its obligations under
Sections 2.1, 2.3, 2.4, 2.5, 4.2, 5, 9.5 or 10 hereof, money damages alone will
not adequately compensate an injured party, including an injured Eligible
Licensee pursuant to Section 9.5, and that injury to such party will be
irreparable. Licensee and Licensor therefore agree that, in addition to all
other remedies available to the injured party at law, in equity, by agreement or
otherwise, the injured party, including an Eligible Licensee pursuant to Section
9.5, upon showing to the relevant court's satisfaction that applicable factors
other than the fact that harm will be irreparable and that monetary damages are
not sufficient to remedy the injury have been fulfilled, will be entitled to
specific performance or other temporary, preliminary, or permanent injunctive
relief including corrective actions appropriate to the circumstances for the
enforcement of any such obligation (whether or not there have been commercial
sales of products subject to the requested relief).

          9.3 Specific Remedies. Licensee acknowledges that, due to the critical
              -----------------
importance of maintaining the integrity of CSS and the inability to calculate
the damage to CSS users, in the event of any material breach of Section 5.2,
Licensor, in addition to any other remedies in equity, but in lieu of any and
all other claims for monetary damages, may recover liquidated damages for each
material breach from Licensee in the amount of [*] U.S. dollars ($[*]),
provided that the parties agree that Licensee may request and the court may
grant such request that this amount be reduced to take account of the fact that
Licensee brought the breach to Licensor's attention in a timely and reasonable
manner. For purposes of the preceding sentence, a breach shall

                                                                            -24-



be "material" only if it has resulted in or would be likely to result in
commercially significant harm to other CSS Licensees or threat to the integrity
or security of CSS. For purposes of this Section 9.3, a series of substantially
related events shall constitute a single material breach. In addition, the
following is a non exclusive list of circumstances in which liquidated damages
pursuant to this Section 9.3 shall not be available for any breach of Section
5.2: (1) if no Confidential Information or Highly Confidential Information was
released to a third party not permitted hereunder to have such information or
could reasonably have been expected to have been released to such third party as
a result of the breach; (2) if Licensee maintains an internal program to assure
compliance with Section 5.2 (including a program to assure maintenance of
confidentiality of information for purposes in addition to compliance with this
Agreement), the breach was inadvertent or otherwise unintentional, and the
breach did not have a material adverse effect on the integrity or security of
CSS; (3) if Licensee brought the breach to Licensor's attention in a timely
manner as required by this Agreement and such breach did not have a material
adverse effect on the integrity or security of CSS; or (4) if Licensor
improperly marked or failed to mark information as Confidential Information or
Highly Confidential Information or failed to otherwise disclose that such
information was Confidential Information or Highly Confidential Information and
such information is the subject of the alleged breach.

          9.4 Damage Limitation. Notwithstanding any other provision of this
              -----------------
Agreement, Licensee's cumulative liability to Licensor (including MEI and
Toshiba) and all other CSS Licensees for any breach, or combination of breaches,
or any of its other obligations under this Agreement shall not exceed [*] U.S.
Dollars ($[*]), unless the revenue derived from Licensee's products, sold by
Licensee, and developed and manufactured using CSS or Confidential Information
or Highly Confidential Information, is less than [*] U.S. dollars ($[*]), in
which case Licensee's liability shall not exceed such lesser amount; provided,
however, that if only a portion of one or more of Licensee's products is
developed and manufactured using CSS or Confidential Information or Highly
Confidential Information, then the proportion of such portion relative to the
entirety of such Licensee products shall be used in calculating the revenue
derived from such products for purposes of this Section 9.4 (e.g., 5K circuits
out of 100K circuits equals 5%); and provided further, however, that such amount
shall in no event, except as provided in Section 9.3, be less than $[*].

          9.5 Third Party Beneficiary Right. The parties hereto acknowledge and
              -----------------------------
agree that the compliance of Licensee, other CSS Licensees, and Associate
Licensees with the terms of the licenses granted by this Agreement or the
Associate License, as applicable, is essential to maintain the integrity and
security of the Content Scramble System and to protect prerecorded motion
pictures contained on DVD Discs. As part of the consideration of the licenses
granted herein, Licensee, for itself and its Permitted Sublicensees, hereby
confers a third-party beneficiary right upon certain CSS Licensees ("Eligible
Licensees") that fall into one of two classes: (i) Motion Picture Companies
("Eligible Content Providers") or (ii) manufacturers of CSS Compliant Products
other than DVD Discs ("Eligible Implementers"), in order to enforce certain of
Licensee's obligations, subject to the following conditions:

              (a) Either an Eligible Content Provider who has commercially
released one or more prerecorded motion pictures on DVD Disc that utilizes CSS
or an Eligible Implementer which has commercially released one or more CSS
Compliant Products other than DVD Discs shall

                                                                            -25-



be entitled to initiate or institute a claim or action ("Beneficiary Claim") to
enforce only those obligations of Licensee specified as follows (collectively,
the "Eligible Obligations"):

                    (i)  for any Beneficiary Claim initiated by Eligible Content
Providers, Licensee's obligations under Section 2.1 [Nonexclusive License], 2.3
[Right to Have Made], 2.4 [Sublicenses], 2.5 [No Sublicense or Implied
Licenses], 4.2 [Compliance with Specifications], 5.1 [Access to Intellectual
Property], 5.2 [Confidentiality], 5.3 [Reverse Engineering], 5.5 [Controls
Against Theft], 9.2 [Equitable Relief], 9.5(d) [Settlement Restrictions] and
Section 10 [Miscellaneous] and including any equivalent provisions contained in
any Associate License; and

                    (ii) for any Beneficiary Claim initiated by Eligible
Implementers, Licensee's obligations under Section 4.2 [Compliance with
Specifications] solely as such obligations pertain to Section 5.4
[Non-alteration of the Secured Disc Key Set] and Section 6.3 [Motion Picture
Scrambling] of the CSS Procedural Specifications, Section 5.1 [Access to
Intellectual Property], Section 5.5 [Controls Against Theft], and Section 9.5(d)
[Settlement Restrictions].

     Each Eligible Licensee which has not initiated the Beneficiary Claim but
which is either an Eligible Content Owner, in the case of Beneficiary Claim
initiated by an Eligible Content Owner, or an Eligible Implementor, in the case
of a Beneficiary Claim initiated by an Eligible Implementor, shall be eligible
to join such Beneficiary Claim.

     Subject to Section 9.6, the remedies available for any Beneficiary Claim
shall not include damages, but shall include: (i) equitable relief provided
under Section 9.2, provided that such relief shall be limited to temporary
and/or preliminary relief until such time as the Eligible Licensee bringing the
Beneficiary Claim has completed a process of seeking to reach a reasonable
settlement of such claim using the efforts of the Ombudsman; and (ii)
reimbursement for actual and reasonable costs mitigation of the harm caused by
Licensee's breach, provided that such reimbursement shall be no more than
$[*] for all Eligible Licensees cumulatively joining in any particular
Beneficiary Claim. In addition, the prevailing party in relation to the
contractual claims in any action brought under this Section shall be entitled to
an award of its reasonable attorney's fees and related costs (including expert's
fees and costs) incurred in relation to such contractual claims in an amount to
be fixed either pursuant to stipulation between the parties involved or by the
court, provided that in fixing the amount of such an award, the court may
determine in its discretion to make no award of attorney's fees in given case
and, in any event, shall be limited to an award of no more than $[*], except
that the court may award up to $[*] in any case in which the court determines
that one of the following circumstances exists: (1) the breach was material and
willful or malicious, and resulted in the exposure of an Eligible Content
Provider's content unauthorized copying, in the case of a Beneficiary Claim
brought by such Eligible Content Provider where such Eligible Content Provider
is the prevailing party as described above, (2) the breach was material and
willful or malicious, and resulted in consumers being unable to use CSS
Compliant Products manufactured or distributed by the Eligible Implementor to
view content that would normally be viewable using such CSS Compliant Products,
in the case of a Beneficiary Claim brought by such Eligible Implementor where
such Eligible Implementor is the prevailing party as described above or (3) the
Beneficiary Claim was frivolous or brought in bad faith, in the event the
Defendant Licensee is the prevailing party as

                                                                            -26-



described above. The amount of any award of attorney's fees and related costs
shall be made part of any judgment or award rendered.

               (b) Prior to initiating or instituting any Beneficiary Claim
against a Licensee ("Defendant Licensee"), an Eligible Licensee ("Plaintiff
Licensee") shall provide Licensor notice and consultation reasonable under the
circumstances regarding a proposed Beneficiary Claim; provided that such
consultation with Licensor shall not affect an Eligible Licensee's complete
discretion in initiating such a Beneficiary Claim. Such Eligible Licensee shall
further provide Licensor with notice of actual filing of a Beneficiary Claim and
upon Licensor's request, any copies of material documents to be filed in
Plaintiff Licensee's initiation or pursuit of such Beneficiary Claim. Licensor
shall cooperate reasonably with such Eligible Licensee in providing appropriate
and necessary information in connection with the Beneficiary Claim to the extent
that such cooperation is consistent with the preservation of the integrity and
security of CSS and to the extent such cooperation does not involve release of
information provided to Licensor by another CSS Licensee that such CSS Licensee
has designated to Licensor to be its confidential and proprietary information.
Documents provided to Licensor under this Section 9.5(b) shall not include any
documents filed or to be filed under seal in connection with such Beneficiary
Claim. The failure to provide such documents shall not, however, be a defense
against any Beneficiary Claim or grounds for a request to delay the granting of
any temporary or preliminary relief sought.

               (c) Licensor shall provide Eligible Content Providers or Eligible
Implementors, as the case may be, with prompt notice of a Plaintiff Licensee's
Beneficiary Claim against a Defendant Licensee ("Claim Notice") in accordance
with Section 10.6. Within sixty (60) days of the date of mailing of a Claim
Notice, all such Eligible Licensees shall elect whether to join in such
Beneficiary Claim, and the failure of any such Eligible Licensee to join in such
Beneficiary Claim within such sixty (60) day period shall be deemed a waiver of
such Eligible Licensee's third party beneficiary right under this Section 9.5
with respect to all Beneficiary Claims against such Defendant Licensee arising
out of the alleged breach by such Defendant Licensee raised in such Beneficiary
Claims. Plaintiff Licensee shall support, and Defendant Licensee shall not
oppose, any motion to intervene by such Eligible Licensees or Licensor electing
to join such Beneficiary Claim within such sixty (60) day period. Neither an
Eligible Licensee's failure to notify or consult with Licensor or provide copies
to Licensor as required by Section 9.5(b), nor Licensor's failure to give notice
under this Section 9.5(c) shall be a defense against any Beneficiary Claim or
grounds for a request to delay the granting of any preliminary relief requested.

               (d) Eligible Licensees shall have no right to, and Licensee
agrees that it will not, enter into any settlement that (i) amends any material
term of this Agreement or of the Associate License; (ii) has a material adverse
effect on the integrity and/or security of CSS; or (iii) impacts any of the
rights in and to CSS held by Licensor, MEI, or Toshiba or to any intellectual
property rights embodied therein unless Licensor, MEI, and/or Toshiba, as the
case may be, shall have provided prior written consent thereto.

               (e) NOTWITHSTANDING SECTION 10.4(b), LICENSEE AGREES THAT ALL
BENEFICIARY CLAIMS INSTITUTED UNDER THIS SECTION 9.5 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, U.S.A.
EXCLUDING THAT BODY OF LAW RELATING TO CONFLICTS

                                                                            -27-



OF LAW PRINCIPLES, AND SHALL BE CONDUCTED IN FEDERAL AND STATE COURTS LOCATED IN
LOS ANGELES, SANTA CLARA OR SAN FRANCISCO COUNTIES IN THE STATE OF CALIFORNIA,
U.S.A. WITH RESPECT TO ANY DISPUTE CONCERNING COMPLIANCE WITH THIS AGREEMENT,
LICENSEE HEREBY IRREVOCABLY CONSENTS TO (i) THE EXCLUSIVE JURISDICTION AND VENUE
IN THE FEDERAL AND STATE COURTS LOCATED IN LOS ANGELES, SANTA CLARA OR SAN
FRANCISCO COUNTIES IN THE STATE OF CALIFORNIA, U.S.A; AND (ii) THE SERVICE OF
PROCESS OF SAID COURTS IN ANY MATTER ARISING OUT OF A DISPUTE OVER COMPLIANCE
WITH THIS AGREEMENT BY PERSONAL DELIVERY OR BY MAILING OF PROCESS BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, AT THE ADDRESSES AS SPECIFIED IN THIS
AGREEMENT OR TO THE AGENT REQUIRED BY SECTION 10.4(d). LICENSEE WAIVES ANY
OBJECTION TO THE JURISDICTION, PROCESS, AND VENUE OF ANY SUCH COURT, AND TO THE
EFFECTIVENESS, EXECUTION, AND ENFORCEMENT OF ANY ORDER OR JUDGMENT (INCLUDING,
BUT NOT LIMITED TO, A DEFAULT JUDGMENT) OF SUCH COURT PERTAINING TO THIS
AGREEMENT, TO THE MAXIMUM EXTENT PERMITTED BY THE LAW OF THE PLACE WHERE
ENFORCEMENT OR EXECUTION OF ANY SUCH ORDER OR JUDGMENT MAY BE SOUGHT AND BY THE
LAW OF ANY PLACE WHOSE LAW MIGHT BE CLAIMED TO BE APPLICABLE REGARDING THE
EFFECTIVENESS, ENFORCEMENT, OR EXECUTION OF SUCH ORDER OR JUDGMENT, INCLUDING
PLACES OUTSIDE OF THE STATE OF CALIFORNIA, THE STATE OF DELAWARE, AND OF THE
UNITED STATES. HOWEVER, IN THE CASE OF LICENSEES THAT ARE DEFENDANTS THAT ARE
INCORPORATED IN THE UNITED STATES AND HAVE SUBSTANTIAL ASSETS IN THE UNITED
STATES, ENFORCEMENT OR EXECUTION OF ANY SUCH ORDER OR JUDGMENT AGAINST SUCH
DEFENDANTS MAY BE SOUGHT ONLY IN COURTS OF THE UNITED STATES.

          9.6  Nothing contained in Section 8.3, Section 9.2 or Section 9.5 is
intended to limit remedies or relief available pursuant to statutory or other
claims that a CSS Licensee may have under separate legal authority not contained
in this Agreement.

     10. MISCELLANEOUS.

          10.1 Entire Agreement. This Agreement, the exhibits hereto constitute
               ----------------
the entire agreement between the parties related to the subject matter of this
Agreement hereto and supersede all oral or written agreements on this subject
matter entered prior to this Agreement. Subject to Section 10.7, this Agreement
may not be modified except by written agreement dated subsequent to the date of
this Agreement and signed by both parties.

          10.2 Assignment. Licensee shall not assign or otherwise transfer any
               ----------
of its rights or obligations under this Agreement without the prior written
consent of Licensor, provided, however, that Licensee may assign this Agreement
in connection with a merger, sale or reorganization pursuant to which Licensee
merges into, or transfers all or substantially all of the assets or stock
(including this Agreement) of Licensee or of the business unit or units that are
utilizing CSS in its business activities to the assignee, provided that the
assignee agrees in writing to be bound by the terms and conditions of this
Agreement and provides all information required by the Licensor of CSS Licensees
pursuant to this agreement. Licensor shall have the right to assign this

                                                                            -28-



License Agreement in connection with a merger into, or transfer of all or
substantially all of Licensor's assets or stock (including this Agreement) to
the assignee, provided that the assignee agrees in writing to assume all of
Licensor's obligations under this Agreement.

          10.3 Presumptions. In construing the terms of this Agreement, no
               ------------
presumption shall operate in either party's favor as a result of its counsel's
role in drafting the terms or provisions hereof.

          10.4 Governing Law; Enforcement; Jurisdiction.
               ----------------------------------------

               (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA, U.S.A. EXCLUDING THAT BODY
OF LAW RELATING TO CONFLICTS OF LAW PRINCIPLES.

               (b) IN CONNECTION WITH ANY DISPUTES BETWEEN THE PARTIES HERETO
ARISING OUT OF OR RELATING TO THIS AGREEMENT, EACH PARTY HERETO IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE IN THE FEDERAL AND STATE COURTS
LOCATED IN THE COUNTY OF SANTA CLARA, CALIFORNIA, AND (ii) THE SERVICE OF
PROCESS OF SAID COURTS IN ANY MATTER RELATING TO THIS AGREEMENT BY PERSONAL
DELIVERY OR BY MAILING OF PROCESS BY CERTIFIED MAIL, POSTAGE PREPAID, AT THE
ADDRESSES SPECIFIED IN THIS AGREEMENT, OR TO THE AGENT TO BE APPOINTED PURSUANT
TO (c), BELOW,

               (c) LICENSEE SHALL APPOINT AN AGENT IN THE STATE OF CALIFORNIA
FOR ACCEPTANCE OF SERVICE OF PROCESS PROVIDED FOR UNDER THIS AGREEMENT AND SHALL
NOTIFY LICENSOR OF THE IDENTITY AND ADDRESS OF SUCH AGENT WITHIN THIRTY (30)
DAYS AFTER THE EFFECTIVE DATE;

               (d) LICENSEE WAIVES ANY OBJECTIONS TO THE JURISDICTION, PROCESS,
AND VENUE OF ANY SUCH COURTS, AND TO THE EFFECTIVENESS EXECUTION, AND
ENFORCEMENT OF ANY ORDER OR JUDGMENT (INCLUDING, BUT NOT LIMITED TO, A DEFAULT
JUDGMENT) OF SUCH COURTS PERTAINING TO THIS AGREEMENT, TO THE MAXIMUM EXTENT
PERMITTED BY THE LAW OF THE PLACE WHERE ENFORCEMENT OR EXECUTION OF ANY SUCH
ORDER, JUDGMENT OR DECISION MAY BE SOUGHT AND BY THE LAW OF ANY PLACE WHOSE LAW
MIGHT BE CLAIMED TO BE APPLICABLE REGARDING THE EFFECTIVENESS, ENFORCEMENT, OR
EXECUTION OF SUCH ORDER, JUDGMENT, OR DECISION, INCLUDING PLACES OUTSIDE OF THE
STATE OF CALIFORNIA, STATE OF DELAWARE, AND THE UNITED STATES. HOWEVER, IN THE
CASE OF LICENSEES THAT ARE INCORPORATE IN THE UNITED STATES AND HAVE SUBSTANTIAL
ASSETS IN THE UNITED STATES, ENFORCEMENT OR EXECUTION OF ANY SUCH ORDER OR
JUDGMENT, AGAINST SUCH DEFENDANT, MAY BE SOUGHT ONLY IN THE COURTS OF THE UNITED
STATES.

          10.5 Severability; Waiver. Subject to Section 10.7, should any clause,
               --------------------
sentence, or paragraph of this Agreement judicially be declared to be invalid,
unenforceable, or void, such

                                                                            -29-



decision shall not have the effect of invalidating or voiding the remainder of
this Agreement. The parties agree that the part or parts of this Agreement so
held to be invalid, unenforceable, or void shall be reformed without further
action by the parties hereto and only to the extent necessary to make such part
or parts valid and enforceable. Subject to Section 10.7, a waiver by either of
the parties hereto of any of the covenants to be performed by the other party or
any breach thereof shall not be effective unless made in writing and signed by
the waiving party and shall not be construed to be a waiver of any succeeding
breach thereof or of any covenant herein contained.

          10.6 Notice. All notices to be provided pursuant to this Agreement
               ------
shall be given in writing and shall be effective when either served by personal
delivery or upon receipt via certified mail, return receipt requested, postage
prepaid, overnight courier service or sent by facsimile transmission with hard
copy confirmation sent by certified mail, as above, in each case to the party at
the addresses listed below or at such other addresses as may be specificd by
notice given in accordance with this section.

                           If to Licensor:

                                    DVD Copy Control Association
                                    225 B Cochrane Circle
                                    Morgan Hill, CA 95037
                                    Attn: John Hoy
                                    Fax: +1-408-779-9291

                           If to Licensee:

                                    InterVideo, Inc.
                                    47350 Fremont Blvd.
                                    Fremont, CA 94538
                                    Attn: General Counsel
                                    Fax: 510-651-8808

          10.7 Amendment. No agreement pertaining to CSS similar to this
               ---------
Agreement or to either of the form Associate Licenses hereto between Licensor
and any CSS Licensee or Associate Licensee may be entered into on terms other
than those contained in this Agreement or the Associate License, as applicable,
to the extent that any modified terms would have a material adverse effect on
the integrity or security of CSS or the protections provided to Eligible
Licensees pursuant to Section 9.5 hereof (including any of the Sections
referenced therein) or in the Associate License, and no agreement between
Licensor and any CSS Licensee or Associate Licensee having terms contained
herein or the Associate License, as applicable may be modified or its terms
waived if such modification or waiver would have a material adverse effect on
the integrity or security of CSS or the protections provided to Eligible
Licensees pursuant to Section 9.5 hereof (including any of the Sections
referenced therein) or in the Associate License.

          10.8 Licensee List. Unless the Licensor's Board of Directors
               -------------
determines otherwise, Licensor will provide Licensee, upon Licensee's request, a
list of all other CSS Licensees, Associate Licensees, and Permitted Sublicensees
of which Licensor has received notice pursuant to

                                                                            -30-



Section 2.4(a), above, except that such list shall not include any CSS Licensee
that (i) has not announced its intention to manufacture or sell, or has not sold
or offered for sale, CSS Compliant Products and (ii) has notified Licensor in
writing that it desires confidentiality until such time as it publicly announces
its intention to manufacture or sell, or has sold or offered for sale, CSS
Compliant Products.

          10.9 Headings and Captions. Section headings and captions are used in
               ---------------------
this Agreement for convenience only, and shall not be deemed to constitute a
part of or to affect the construction of this Agreement.

                                                                            -31-



     IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates written below.

Licensor:                                  Licensee:


     /s/ John Hoy                               /s/ Joe Monastiero
- -----------------------------------        -------------------------------------
Signature                                  Signature


    John Hoy                                    Joe Monastiero
- -----------------------------------        -------------------------------------
Printed Name                               Printed Name

    President                                   VP Worldwide Sales/Marketing
- -----------------------------------        -------------------------------------
Title                                      Title

    12/22/00                                    12/21/00
- -----------------------------------        -------------------------------------
Date                                       Date

                                                                            -32-



                                  Exhibit List

A.   Permitted Sublicensee Acknowledgment and Agreement

B.   Acknowledgment by Authorized Employees

C.   CSS Membership Categories and Fee Schedule

D.   Contact Person and Alternate Contact Person



                                   EXHIBIT "A"
                                       TO
                              CSS LICENSE AGREEMENT
                      PERMITTED SUBLICENSEE ACKNOWLEDGMENT
                                  AND AGREEMENT

______________________________________, a ____________________ corporation
having a place of business at ____________________________________________
("Sublicensee"), hereby acknowledges and agrees that:

          (i)   it is an Affiliate of ____________ ("Licensee"), as "Affiliate"
is defined in Section 1.2 of the CSS License Agreement (the "License Agreement")
executed on ____________ between Licensee and the CSS Entity ("Licensor");

          (ii)  it has received a sublicense from Licensee (the "Sublicense")
pursuant to Section 2.4 of the License Agreement;

          (iii) it has read and understood the License Agreement and agrees to
abide by its terms with the same rights (but without the right to grant a
sublicense) and the same obligations as Licensee, including, without limitation,
the covenant not to sue and patent license offer provisions of Section 5.1
thereof;

          (iv)  the Sublicense coterminates with the License Agreement and also
terminates at such time that Sublicensee ceases to qualify as an "Affiliate";

          (v)   in the event Sublicensee fails to abide by the terms of the
License Agreement, Licensor and/or Eligible Licensees (as third party
beneficiaries) shall, in their respective sole discretion, be entitled to bring
an action at law or in equity against Sublicensee to enforce the terms of the
License Agreement.

     IN WITNESS WHEREOF, Sublicensee has executed this Acknowledgment and
Agreement as of the date written below.


Signed: _____________________________________________


Name: _______________________________________________


Title: ______________________________________________


Date: _______________________________________________



                                   EXHIBIT "B"
                                       TO
                              CSS LICENSE AGREEMENT
                     ACKNOWLEDGMENT BY AUTHORIZED EMPLOYEES

     I, ______________________, a full-time employee of
_____________________________, a ______________________ ("Licensee"),
acknowledge that I have been designated by Licensee as an "Authorized Employee"
to receive on behalf of Licensee access to Confidential Information and Highly
Confidential Information of the CSS Entity ("Licensor") which Licensee is
obligated to maintain strictly confidential under the terms of the CSS License
Agreement between Licensor and Licensee. With respect to Highly Confidential
Information, I acknowledge that the CSS License Agreement requires Licensee to
employ procedures for safeguarding Highly Confidential Information which
procedures include, at a minimum: (i) Licensee and its Permitted Sublicensees
shall each employ procedures for safeguarding Highly Confidential Information at
least as rigorous as Licensee and its Permitted Sublicensees, respectively,
would employ for its own most highly confidential information, such procedures
to include, at a minimum: (1) maintaining on Licensee's and/or Permitted
Sublicensees' premises a secure location in which any and all Highly
Confidential Information shall be stored, where such a location may include
electronic storage that provides at least as much security as the CSS system
itself provides; (2) that any Highly Confidential Information stored in such a
location shall be accessible only by Authorized Employees (as defined below);
(3) that (x) where Highly Confidential Information is stored in a location that
is physically secure, Authorized Employees visiting such location shall sign in
and out each time that they visit such location; and (y) where Highly
Confidential Information is stored securely in an electronic form, Authorized
Employees having access to such Highly Confidential Information in unsecure form
shall sign in and out each time that they have such access; and (4) when Highly
Confidential Information is not in use, such information shall be stored in a
locked safe at such secure location or shall be stored electronically in a form
that provides at least as much security as the CSS system itself provides. I
further acknowledge that the CSS License Agreement defines Highly Confidential
Information to be (i) the algorithms used for scrambling, descrambling,
authentication and key recovery; (ii) master, disc, title or authentication
keys; or (iii) information developed by or for Licensor for testing product
compliance with CSS where such information makes use of or reveals information
described in (i) or (ii).

     I further acknowledge that I have signed a prior written agreement with
Licensee pursuant to which I have agreed to maintain the confidentiality of
third party confidential information received by Licensee. I acknowledge that I
am bound by such agreement to adhere to procedures established by Licensee to
maintain the confidentiality of Confidential Information and Highly Confidential
Information during my employment and after my employment with Licensee.

     By signing below, I attest that I have read and understood this
acknowledgment.

Signed: _____________________________________________

Name: _______________________________________________

Date: _______________________________________________

cc: CSS Entity



                                  EXHIBIT"C" TO
                              CSS LICENSE AGREEMENT

                            CSS MEMBERSHIP CATEGORIES
                                       AND
                                  FEE SCHEDULE

I.       CSS Membership Categories:

The CSS license has annual DVD Copy Control Association administrative fee of
- ------ [*] US dollars ([*] US dollars for Associate License)/1/ for each
Membership Category of license selected.



- ---------------------------------------------------------------------------------------------------------------------------
                                                                                        Requested license categories
                                                                                  
..        "Reseller"                            [Associate License]                                    [_]
..        "Assembler"                           [Associate License]                                    [_]

..        "Content Provider"                                                                           [_]
..        "Authoring Studio"                                                                           [_]
..        DVD Disc Replicator"                                                                         [_]

..        "CSS Disc Formatter Manufacturer"                                                            [_]
..        "DVD Player Manufacturer"                                                                    [_]
..        "DVD Drive Manufacturer"                                                                     [X]
..        "CSS Decryption Module Manufacturer"                                                         [X]
..        "Descrambler Manufacturer"                                                                   [_]
..        "Authenticator Module for DVD Drive"                                                         [X]
..        "Authenticator Module for CSS Decryption Module"                                             [_]
..        "Integrated Products Manufacturer"                                                           [_]
..        "Verification Product Manufacturer"

II.      Technical Specifications Titles:

- ---------------------------------------------------------------------------------------------------------------------------


The cost of each CSS Technical Specification (Confidential Information) is
            ----
[*]US dollars per copy per Technical Specification Title.
                ---      ---

NOTE: To obtain a Specification from DVD CCA, licensee (or potential licensee)
must have a fully executed CSS License and provided its DVD Format Book serial
number to DVD CCA.



                                                                   Specification        Number of Copies
                                                                   Requested
- -----------------------------------------------------------------------------------------------------------
                                                                                  
Specifications of DVD Content Scramble System for:
209. - "CSS Disc Formatter"                                             [_]                    [_]
309. - "DVD Player"                                                     [_]                    [_]
409. - "DVD Drive"                                                      [_]                    [_]
509. - "CSS Decryption Module Manufacturer"                             [_]                    [_]
609. - "Descrambler"                                                    [_]                    [_]
709. - "Authenticator Module for DVD Drive"                             [_]                    [_]
809. - "Authenticator Module for CSS Descryption Module"                [_]                    [_]


- ----------
   /1/   Fee is subject to periodic review and change



                                   EXHIBIT "D"
                                       TO
                              CSS LICENSE AGREEMENT

________________________________________________________________________________
                                 CONTACT PERSON

Name:  ______________________________________________

Title: ______________________________________________

Company:  ___________________________________________

Division:  __________________________________________

Address:  ___________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

Telephone Number:  __________________________________

Facsimile Number:  __________________________________

Email address:  _____________________________________


________________________________________________________________________________
                            ALTERNATE CONTACT PERSON

Name:  ______________________________________________

Title: ______________________________________________

Company:  ___________________________________________

Division:  __________________________________________

Address:  ___________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

Telephone Number:  __________________________________

Facsimile Number:  __________________________________

Email address:  _____________________________________

EX-10.8

                                                                    EXHIBIT 10.8
[California Net Lease]

                                 LEASE AGREEMENT

     THIS LEASE AGREEMENT is made this _______________day of
_________________________, 2000, between ProLogis Limited Partnership-I, a
Delaware limited partnership, ("Landlord"), and the Tenant named below.

Tenant:                   InterVideo Inc., a California Corporation
                          ------------------------------------------------------

Tenant's representative,  Mr. Ken Boschwitz
address, and phone no.:   ------------------------------------------------------
                          47350 Fremont Boulevard
                          ------------------------------------------------------
                          Fremont, CA. 94538
                          ------------------------------------------------------
                          (510)651-0888
                          ------------------------------------------------------
                          ______________________________________________________
                          ______________________________________________________


Premises:                 That portion of the Building, containing approximately
                          19,395 rentable square feet, as determined by
                          ------
                          Landlord and commonly known as 47350 Fremont Boulevard
                                                         -----------------------
                          as shown on Exhibit A.

Project:                  Spinnaker One
                          -----------------------

Building:                 #14301
                          ------

Tenant's Proportionate
Share of Project:         20.2%
                          ----------------------------------

Tenant's Proportionate
Share of Building:        74.6%
                          ----------------------------------

Lease Term:               Beginning on the Commencement Date and ending on the
                          last day of the 36/th/ full calendar month thereafter.

Commencement Date:        November 1, 2000
                          ----------------------------------

Initial Monthly Base
Rent:                     Thirty Two Thousand Nine Hundred Seventy One   $32,971
                          -----------------------------------------------

Initial Estimated
Monthly Operating         1.  Common Area Charges:      $1,008
Expense Payments:                                       ------------
(estimates  only and
subject to adjustment     2.  Taxes:                    $2,502
to actual costs and                                     ------------
expenses according to
the provisions of this    3.  Insurance:                $58
Lease)                                                  -----

                          4.  Management Fee:           $213
                                                        -----


Initial Estimated
Monthly Operating
Expense Payments:                                                         $3,781
                                                                          ======

Initial Monthly Base
Rent and Operating
Expense Payments:                                                        $36,752

Security Deposit:         $38,693

Broker:                   N/A
                          ------------------------------------------------------

Addenda:                  Addendum(s)  I, II, III Exhibit(s) A, B, & C
                          --------------------------------------------


     1. Granting Clause. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, to have and to hold for the Lease Term, subject to the terms,
covenants and conditions of this Lease.

     2. Acceptance of Premises. Tenant shall accept the Premises in its
condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions. Landlord has made no
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and Tenant waives any implied warranty that the Premises
are suitable for Tenant's intended purposes. Except as provided in Paragraph 10,
in no event shall Landlord have any obligation for any defects in the Premises
or any limitation on its use. The taking of possession of the Premises shall be
conclusive evidence that Tenant accepts the Premises and that the Premises were
in good condition at the time possession was taken except for items that are
Landlord's responsibility under Paragraph 10 and any punchlist items agreed to
in writing by Landlord and Tenant.

     3. Use. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (but limited to wholesale or mail order or
web-based retail sales) products, materials and merchandise made and/or
distributed by Tenant and for such other lawful purposes as may be incidental
thereto; provided, however, with Landlord's prior written consent, Tenant may
also use the Premises for light manufacturing. Tenant shall not conduct or give
notice of any auction, liquidation, or going out of business sale on the
Premises. Tenant will use the Premises in a careful, safe and proper manner and
will not commit waste, overload the floor or structure of the Premises or
subject the Premises to use that would damage the Premises. Tenant shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise, or
vibrations to emanate from the Premises, or take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with, or endanger
Landlord or any tenants of the Project. Outside storage,



including without limitation, storage of trucks and other vehicles, is
prohibited without Landlord's prior written consent. Tenant, at its sole
expense, shall use and occupy the Premises in compliance with all laws,
including, without limitation, the Americans With Disabilities Act, orders,
judgments, ordinances, regulations, codes, directives, permits, licenses,
covenants and restrictions now or hereafter applicable to the Premises
(collectively, "Legal Requirements"). The Premises shall not be used as a place
of public accommodation under the Americans With Disabilities Act or similar
state statutes or local ordinances or any regulations promulgated thereunder,
all as may be amended from time to time. Tenant shall, at its expense, make any
alterations or modifications, within or without the Premises, that are required
by Legal Requirements related to Tenant's use or occupation of the Premises.
Tenant will not use or permit the Premises to be used for any purpose or in any
manner that would void Tenant's or Landlord's insurance, increase the insurance
risk, or cause the disallowance of any sprinkler credits. If any increase in the
cost of any insurance on the Premises or the Project is caused by Tenant's use
or occupation of the Premises, or because Tenant vacates the Premises, then
Tenant shall pay the amount of such increase to Landlord. Any occupation of the
Premises by Tenant prior to the Commencement Date shall be subject to all
obligations of Tenant under this Lease.

     4. Base Rent. Tenant shall pay Base Rent in the amount set forth above. The
first month's Base Rent, the Security Deposit, and the first monthly installment
of estimated Operating Expenses (as hereafter defined) shall be due and payable
on the date hereof, and Tenant promises to pay to Landlord in advance, without
demand, deduction or set-off, monthly installments of Base Rent on or before the
first day of each calendar month succeeding the Commencement Date. Payments of
Base Rent for any fractional calendar month shall be prorated. All payments
required to be made by Tenant to Landlord hereunder shall be payable at such
address as Landlord may specify from time to time by written notice delivered in
accordance herewith. The obligation of Tenant to pay Base Rent and other sums to
Landlord and the obligations of Landlord under this Lease are independent
obligations. Tenant shall have no right at any time to abate, reduce, or set-off
any rent due hereunder except as may be expressly provided in this Lease. Tenant
waives and releases all statutory liens and offset rights as to rent. If Tenant
is delinquent in any monthly installment of Base Rent or of estimated Operating
Expenses for more than 5 days, Tenant shall pay to Landlord on demand a late
charge equal to 5 percent of such delinquent sum. The provision for such late
charge shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as a penalty.

     5. Security Deposit. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an Event of Default
(hereinafter defined), Landlord may use all or part of the Security Deposit to
pay delinquent payments due under this Lease, and the cost of any damage,
injury, expense or liability caused by such Event of Default, without prejudice
to any other remedy provided herein or provided by law. Tenant shall pay
Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5.

     6. Operating Expense Payments. During each month of the Lease Term, on the
same date that Base Rent is due, Tenant shall pay Landlord an amount equal to
1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's
Proportionate Share (hereinafter defined) of Operating Expenses for the Project.
Payments thereof for any fractional calendar month shall be prorated. The term
"Operating Expenses" means all costs and expenses incurred by Landlord with
respect to the ownership, maintenance, and operation of the Project including,
but not limited to costs of: Taxes (hereinafter defined) and fees payable to tax
consultants and attorneys for consultation and contesting taxes; insurance;
utilities; maintenance, repair and replacement of all portions of the Project,
including without limitation, paving and parking areas, roads, roofs, alleys,
and driveways, mowing, landscaping, exterior painting, utility lines, heating,
ventilation and air conditioning systems, lighting, electrical systems and other
mechanical and building systems; amounts paid to contractors and subcontractors
for work or services performed in connection with any of the foregoing; charges
or assessments of any association to which the Project is subject; property
management fees payable to a property manager, including any affiliate of
Landlord, or if there is no property manager, an administration fee of 15
percent of Operating Expenses payable to Landlord; security services, if any;
trash collection, sweeping and removal; and additions or alterations made by
Landlord to the Project or the Building in order to comply with Legal
Requirements (other than those expressly required herein to be made by Tenant)
or that are appropriate to the continued operation of the Project or the
Building as a bulk warehouse facility in the market area, provided that the cost
of additions or alterations that are required to be capitalized for federal
income tax purposes shall be amortized on a straight line basis over a period
equal to the lesser of the useful life thereof for federal income tax purposes
or 10 years. Operating Expenses do not include costs, or expenses, depreciation
or amortization for capital repairs and capital replacements required to be made
by Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, or the costs of renovating space for tenants.

        If Tenant's total payments of Operating Expenses for any year are less
than Tenant's Proportionate Share of actual Operating Expenses for such year,
then Tenant shall pay the difference to Landlord within 30 days after demand,
and if more, then Landlord shall retain such excess and credit it against
Tenant's next payments. For purposes of calculating Tenant's Proportionate Share
of Operating Expenses, a year shall mean a calendar year except the first year,
which shall begin on the Commencement Date, and the last year, which shall end
on the expiration of this Lease. With respect to Operating Expenses which
Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall
be the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share of the Project as reasonably adjusted by Landlord in the
future for changes in the physical size of the Premises or the Project; and,
with respect to Operating Expenses which Landlord allocates only to the
Building, Tenant's "Proportionate Share" shall be the percentage set forth on
the first page of this Lease as Tenant's Proportionate Share of the Building as
reasonably adjusted by Landlord in the

                                      -2-



future for changes in the physical size of the Premises or the Building.
Landlord may equitably increase Tenant's Proportionate Share for any item of
expense or cost reimbursable by Tenant that relates to a repair, replacement, or
service that benefits only the Premises or only a portion of the Project or
Building that includes the Premises or that varies with occupancy or use. The
estimated Operating Expenses for the Premises set forth on the first page of
this Lease are only estimates, and Landlord makes no guaranty or warranty that
such estimates will be accurate.

     7.  Utilities. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. Landlord may cause at Tenant's expense any utilities to be separately
metered or charged directly to Tenant by the provider. Tenant shall pay its
share of all charges for jointly metered utilities based upon consumption, as
reasonably determined by Landlord. No interruption or failure of utilities shall
result in the termination of this Lease or the abatement of rent. Tenant agrees
to limit use of water and sewer for normal restroom use.

     8.  Taxes. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating Expenses
charged to Tenant. Landlord may contest by appropriate legal proceedings the
amount, validity, or application of any Taxes or liens thereof. All capital
levies or other taxes assessed or imposed on Landlord upon the rents payable to
Landlord under this Lease and any franchise tax, any excise, transaction, sales
or privilege tax, assessment, levy or charge measured by or based, in whole or
in part, upon such rents from the Premises and/or the Project or any portion
thereof shall be paid by Tenant to Landlord monthly in estimated installments or
upon demand, at the option of Landlord, as additional rent; provided, however,
in no event shall Tenant be liable for any net income taxes imposed on Landlord
unless such net income taxes are in substitution for any Taxes payable
hereunder. If any such tax or excise is levied or assessed directly against
Tenant, then Tenant shall be responsible for and shall pay the same at such
times and in such manner as the taxing authority shall require. Tenant shall be
liable for all taxes levied or assessed against any personal property or
fixtures placed in the Premises, whether levied or assessed against Landlord or
Tenant.

     9.  Insurance. Landlord shall maintain all risk property insurance covering
the full replacement cost of the Building. Landlord may, but is not obligated
to, maintain such other insurance and additional coverages as it may deem
necessary, including, but not limited to, commercial liability insurance and
rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.

         Tenant, at its expense, shall maintain during the Lease Term: all risk
property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days' prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.

         The all risk property insurance obtained by Landlord and Tenant shall
include a waiver of subrogation by the insurers and all rights based upon an
assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.

     10. Landlord's Repairs. Landlord shall maintain, at its expense, the
structural soundness of the roof, foundation, and exterior walls of the Building
in good repair, reasonable wear and tear and uninsured losses and damages caused
by Tenant, its agents and contractors excluded. The term "walls" as used in this
Paragraph 10 shall not include windows, glass or plate glass, doors or overhead
doors, special store fronts, dock bumpers, dock plates or levelers, or office
entries. Tenant shall promptly give Landlord written notice of any repair
required by Landlord pursuant to this Paragraph 10, after which Landlord shall
have a reasonable opportunity to repair.

     11. Tenant's Repairs. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the Building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in Paragraph 10 and subject to

                                      -3-



Paragraphs 9 and 15, Tenant, at its expense, shall repair, replace and maintain
in good condition all portions of the Premises and all areas, improvements and
systems exclusively serving the Premises including, without limitation, dock and
loading areas, truck doors, plumbing, water, and sewer lines up to points of
common connection, fire sprinklers and fire protection systems, entries, doors,
ceilings and roof membrane, windows, interior walls, and the interior side of
demising walls, and heating, ventilation and air conditioning systems. Such
repair and replacements include capital expenditures and repairs whose benefits
may extend beyond the Term. Heating, ventilation and air conditioning systems
and other mechanical and building systems serving the Premises shall be
maintained at Tenant's expense pursuant to maintenance service contracts entered
into by Tenant or, at Landlord's election, by Landlord. The scope of services
and contractors under such maintenance contracts shall be reasonably approved by
Landlord. At Landlord's request, Tenant shall enter into a joint maintenance
agreement with any railroad that services the Premises. If Tenant fails to
perform any repair or replacement for which it is responsible, Landlord may
perform such work and be reimbursed by Tenant within 10 days after demand
therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost of any
repair or replacement to any part of the Building or Project that results from
damage caused by Tenant, its agents, contractors, or invitees and any repair
that benefits only the Premises.

     12. Tenant-Made Alterations and Trade Fixtures. Any alterations, additions,
or improvements made by or on behalf of Tenant to the Premises ("Tenant-Made
Alterations") shall be subject to Landlord's prior written consent. Tenant shall
cause, at its expense, all Tenant-Made Alterations to comply with insurance
requirements and with Legal Requirements and shall construct at its expense any
alteration or modification required by Legal Requirements as a result of any
Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a
good and workmanlike manner by contractors reasonably acceptable to Landlord and
only good grades of materials shall be used. All plans and specifications for
any Tenant-Made Alterations shall be submitted to Landlord for its approval.
Landlord may monitor construction of the Tenant-Made Alterations. Tenant shall
reimburse Landlord for its costs in reviewing plans and specifications and in
monitoring construction. Landlord's right to review plans and specifications and
to monitor construction shall be solely for its own benefit, and Landlord shall
have no duty to see that such plans and specifications or construction comply
with applicable laws, codes, rules and regulations. Tenant shall provide
Landlord with the identities and mailing addresses of all persons performing
work or supplying materials, prior to beginning such construction, and Landlord
may post on and about the Premises notices of non-responsibility pursuant to
applicable law. Tenant shall furnish security or make other arrangements
satisfactory to Landlord to assure payment for the completion of all work free
and clear of liens and shall provide certificates of insurance for worker's
compensation and other coverage in amounts and from an insurance company
satisfactory to Landlord protecting Landlord against liability for personal
injury or property damage during construction. Upon completion of any
Tenant-Made Alterations, Tenant shall deliver to Landlord sworn statements
setting forth the names of all contractors and subcontractors who did work on
the Tenant-Made Alterations and final lien waivers from all such contractors and
subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations and
any leasehold improvements constructed by Landlord or Tenant shall remain on the
Premises as Landlord's property, except to the extent Landlord requires removal
at Tenant's expense of any such items or Landlord and Tenant have otherwise
agreed in writing in connection with Landlord's consent to any Tenant-Made
Alterations. Tenant shall repair any damage caused by such removal.

         Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.

     13. Signs. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent. Upon
surrender or vacation of the Premises, Tenant shall have removed all signs and
repair, paint, and/or replace the building facia surface to which its signs are
attached. Tenant shall obtain all applicable governmental permits and approvals
for sign and exterior treatments. All signs, decorations, advertising media,
blinds, draperies and other window treatment or bars or other security
installations visible from outside the Premises shall be subject to Landlord's
approval and conform in all respects to Landlord's requirements.

     14. Parking. Tenant shall be entitled to park in common with other tenants
of the Project in those areas designated for nonreserved parking. Landlord may
allocate parking spaces among Tenant and other tenants in the Project if
Landlord determines that such parking facilities are becoming crowded. Landlord
shall not be responsible for enforcing Tenant's parking rights against any third
parties.

     15. Restoration. If at any time during the Lease Term the Premises are
damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days
after such damage as to the amount of time Landlord reasonably estimates it will
take to restore the Premises. If the restoration time is estimated to exceed 6
months, either Landlord or Tenant may elect to terminate this Lease upon notice
to the other party given no later than 30 days after Landlord's notice. If
neither party elects to terminate this Lease or if Landlord estimates that
restoration will take 6 months or less, then, subject to receipt of sufficient
insurance proceeds, Landlord shall promptly restore the Premises excluding the
improvements installed by Tenant or by Landlord and paid by Tenant, subject to
delays arising from the collection of insurance proceeds or from Force Majeure
events. Tenant at Tenant's expense shall promptly perform, subject to delays
arising from the collection of insurance proceeds, or from Force Majeure events,
all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business in accordance with
this Lease. Notwithstanding the foregoing, either party may terminate this Lease
if the Premises are damaged during the last year of the Lease Term and Landlord
reasonably estimates that it will take more than one month to repair such
damage. Tenant shall pay to Landlord with respect to any damage to the Premises
the amount of the commercially reasonable

                                      -4-



deductible under Landlord's insurance policy within 10 days after presentment of
Landlord's invoice. If the damage involves the premises of other tenants, Tenant
shall pay the portion of the deductible that the cost of the restoration of the
Premises bears to the total cost of restoration, as determined by Landlord. Base
Rent and Operating Expenses shall be abated for the period of repair and
restoration in the proportion which the area of the Premises, if any, which is
not usable by Tenant bears to the total area of the Premises. Such abatement
shall be the sole remedy of Tenant, and except as provided herein, Tenant waives
any right to terminate the Lease by reason of damage or casualty loss.

     16. Condemnation. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord this Lease shall terminate and Base Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent payable
hereunder during the unexpired Lease Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. In the event of any such Taking,
Landlord shall be entitled to receive the entire price or award from any such
Taking without any payment to Tenant, and Tenant hereby assigns to Landlord
Tenant's interest, if any, in such award. Tenant shall have the right, to the
extent that same shall not diminish Landlord's award, to make a separate claim
against the condemning authority (but not Landlord) for such compensation as may
be separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.

     17. Assignment and Subletting. Without Landlord's prior written consent,
which Landlord shall not unreasonably withhold, Tenant shall not assign this
Lease or sublease the Premises or any part thereof or mortgage, pledge, or
hypothecate its leasehold interest or grant any concession or license within the
Premises and any attempt to do any of the foregoing shall be void and of no
effect. For purposes of this paragraph, a transfer of the ownership interests
controlling Tenant shall be deemed an assignment of this Lease unless such
ownership interests are publicly traded. Notwithstanding the above, Tenant may
assign or sublet the Premises, or any part thereof, to any entity controlling
Tenant, controlled by Tenant or under common control with Tenant (a "Tenant
Affiliate"), without the prior written consent of Landlord. Tenant shall
reimburse Landlord for all of Landlord's reasonable out-of-pocket expenses in
connection with any assignment or sublease. Upon Landlord's receipt of Tenant's
written notice of a desire to assign or sublet the Premises, or any part thereof
(other than to a Tenant Affiliate), Landlord may, by giving written notice to
Tenant within 30 days after receipt of Tenant's notice, terminate this Lease
with respect to the space described in Tenant's notice, as of the date specified
in Tenant's notice for the commencement of the proposed assignment or sublease.
If Landlord so terminates the Lease, Landlord may enter into a lease directly
with the proposed sublessee or assignee. Tenant may withdraw its notice to
sublease or assign by notifying Landlord within 10 days after Landlord has given
Tenant notice of such termination, in which case the Lease shall not terminate
but shall continue.

         It shall be reasonable for the Landlord to withhold its consent to any
assignment or sublease in any of the following instances: (i) an Event of
Default has occurred and is continuing that would not be cured upon the proposed
sublease or assignment; (ii) the assignee or sublessee does not have a net worth
calculated according to generally accepted accounting principles at least equal
to the greater of the net worth of Tenant immediately prior to such assignment
or sublease or the net worth of the Tenant at the time it executed the Lease;
(iii) the intended use of the Premises by the assignee or sublessee is not
reasonably satisfactory to Landlord; (iv) the intended use of the Premises by
the assignee or sublessee would materially increase the pedestrian or vehicular
traffic to the Premises or the Project; (v) occupancy of the Premises by the
assignee or sublessee would, in Landlord's opinion, violate an agreement binding
upon Landlord or the Project with regard to the identity of tenants, usage in
the Project, or similar matters; (vi) the identity or business reputation of the
assignee or sublessee will, in the good faith judgment of Landlord, tend to
damage the goodwill or reputation of the Project; (vii) the assignment or sublet
is to another tenant in the Project and is at rates which are below those
charged by Landlord for comparable space in the Project; (viii) in the case of a
sublease, the subtenant has not acknowledged that the Lease controls over any
inconsistent provision in the sublease; (ix) the proposed assignee or sublessee
is a governmental agency; or Tenant and Landlord acknowledge that each of the
foregoing criteria are reasonable as of the date of execution of this Lease. The
foregoing criteria shall not exclude any other reasonable basis for Landlord to
refuse its consent to such assignment or sublease. Any approved assignment or
sublease shall be expressly subject to the terms and conditions of this Lease.
Tenant shall provide to Landlord all information concerning the assignee or
sublessee as Landlord may request.

         Notwithstanding any assignment or subletting, Tenant and any guarantor
or surety of Tenant's obligations under this Lease shall at all times remain
fully responsible and liable for the payment of the rent and for compliance with
all of Tenant's other obligations under this Lease (regardless of whether
Landlord's approval has been obtained for any such assignments or sublettings).
In the event that the rent due and payable by a sublessee or assignee (or a
combination of the rental payable under such sublease or assignment plus any
bonus or other consideration therefor or incident thereto) exceeds the rental
payable under this Lease, then Tenant shall be bound and obligated to pay
Landlord as additional rent hereunder 50% of all such excess rental and other
excess consideration within 10 days following receipt thereof by Tenant.

         If this Lease be assigned or if the Premises be subleased (whether in
whole or in part) or in the event of the mortgage, pledge, or hypothecation of
Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent from
the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected by
Tenant shall be held in trust for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or

                                      -5-



application thereof by Landlord, however, shall be deemed a waiver of these
provisions or a release of Tenant from the further performance by Tenant of its
covenants, duties, or obligations hereunder.

     18. Indemnification. Except for the negligence of Landlord, its agents,
employees or contractors, and to the extent permitted by law, Tenant agrees to
indemnify, defend and hold harmless Landlord, and Landlord's agents, employees
and contractors, from and against any and all losses, liabilities, damages,
costs and expenses (including attorneys' fees) resulting from claims by third
parties for injuries to any person and damage to or theft or misappropriation or
loss of property occurring in or about the Project and arising from the use and
occupancy of the Premises or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises or due to any other act or
omission of Tenant, its subtenants, assignees, invitees, employees, contractors
and agents. The furnishing of insurance required hereunder shall not be deemed
to limit Tenant's obligations under this Paragraph 18.

     19. Inspection and Access. Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time to inspect the
Premises and to make such repairs as may be required or permitted pursuant to
this Lease and for any other business purpose. Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose of
showing the Premises to prospective purchasers and, during the last year of the
Lease Term, to prospective tenants. Landlord may erect a suitable sign on the
Premises stating the Premises are available to let or that the Project is
available for sale. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.

     20. Quiet Enjoyment. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject to
the terms of this Lease, at all times during the Lease Term, have peaceful and
quiet enjoyment of the Premises against any person claiming by, through or under
Landlord.

     21. Surrender. Upon termination of the Lease Term or earlier termination of
Tenant's right of possession, Tenant shall surrender the Premises to Landlord in
the same condition as received, broom clean, ordinary wear and tear and casualty
loss and condemnation covered by Paragraphs 15 and 16 excepted. Any Trade
Fixtures, Tenant-Made Alterations and property not so removed by Tenant as
permitted or required herein shall be deemed abandoned and may be stored,
removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all
claims against Landlord for any damages resulting from Landlord's retention and
disposition of such property. All obligations of Tenant hereunder not fully
performed as of the termination of the Lease Term shall survive the termination
of the Lease Term, including without limitation, indemnity obligations, payment
obligations with respect to Operating Expenses and obligations concerning the
condition and repair of the Premises.

     22. Holding Over. If Tenant retains possession of the Premises after the
termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to 150% the
Base Rent in effect on the termination date, computed on a monthly basis for
each month or part thereof during such holding over. All other payments shall
continue under the terms of this Lease. In addition, Tenant shall be liable for
all damages incurred by Landlord as a result of such holding over. No holding
over by Tenant, whether with or without consent of Landlord, shall operate to
extend this Lease except as otherwise expressly provided, and this Paragraph 22
shall not be construed as consent for Tenant to retain possession of the
Premises.

     23.  Events of Default. Each of the following events shall be an event of
default ("Event of Default") by Tenant under this Lease:

          (i)    Tenant shall fail to pay any installment of Base Rent or any
     other payment required herein when due, and such failure shall continue for
     a period of 5 days from the date such payment was due.

          (ii)   Tenant or any guarantor or surety of Tenant's obligations
     hereunder shall (A) make a general assignment for the benefit of creditors;
     (B) commence any case, proceeding or other action seeking to have an order
     for relief entered on its behalf as a debtor or to adjudicate it a bankrupt
     or insolvent, or seeking reorganization, arrangement, adjustment,
     liquidation, dissolution or composition of it or its debts or seeking
     appointment of a receiver, trustee, custodian or other similar official for
     it or for all or of any substantial part of its property (collectively a
     "proceeding for relief"); (C) become the subject of any proceeding for
     relief which is not dismissed within 60 days of its filing or entry; or (D)
     die or suffer a legal disability (if Tenant, guarantor, or surety is an
     individual) or be dissolved or otherwise fail to maintain its legal
     existence (if Tenant, guarantor or surety is a corporation, partnership or
     other entity).

          (iii)  Any insurance required to be maintained by Tenant pursuant to
     this Lease shall be cancelled or terminated or shall expire or shall be
     reduced or materially changed, except, in each case, as permitted in this
     Lease.

          (iv)   Tenant shall not occupy or shall vacate the Premises or shall
     fail to continuously operate its business at the Premises for the permitted
     use set forth herein, whether or not Tenant is in monetary or other default
     under this Lease.

          (v)    Tenant shall attempt or there shall occur any assignment,
     subleasing or other transfer of Tenant's interest in or with respect to
     this Lease except as otherwise permitted in this Lease.

                                      -6-



          (vi)  Tenant shall fail to discharge any lien placed upon the Premises
     in violation of this Lease within 30 days after any such lien or
     encumbrance is filed against the Premises.

          (vii) Tenant shall fail to comply with any provision of this Lease
     other than those specifically referred to in this Paragraph 23, and except
     as otherwise expressly provided herein, such default shall continue for
     more than 30 days after Landlord shall have given Tenant written notice of
     such default.

     24.  Landlord's Remedies. Upon each occurrence of an Event of Default and
so long as such Event of Default shall be continuing, Landlord may at any time
thereafter at its election: terminate this Lease or Tenant's right of possession
(but Tenant shall remain liable as hereinafter provided), and/or pursue any
other remedies at law or in equity. Upon the termination of this Lease or
termination of Tenant's right of possession, it shall be lawful for Landlord,
without formal demand or notice of any kind, to re-enter the Premises by summary
dispossession proceedings or any other action or proceeding authorized by law
and to remove Tenant and all persons and property therefrom. If Landlord
re-enters the Premises, Landlord shall have the right to keep in place and use,
or remove and store, all of the furniture, fixtures and equipment at the
Premises.

          Except as otherwise provided in the next paragraph, if Tenant breaches
this Lease and abandons the Premises prior to the end of the term hereof, or if
Tenant's right to possession is terminated by Landlord because of an Event of
Default by Tenant under this Lease, this Lease shall terminate. Upon such
termination, Landlord may recover from Tenant the following, as provided in
Section 1951.2 of the Civil Code of California: (i) the worth at the time of
award of the unpaid Base Rent and other charges under this Lease that had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the reasonable value of the unpaid Base Rent and other charges
under this Lease which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; (iii) the worth at the time of award by which the
reasonable value of the unpaid Base Rent and other charges under this Lease for
the balance of the term of this Lease after the time of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or that in the ordinary course of things would be likely to result
therefrom. As used herein, the following terms are defined: (a) The "worth at
the time of award" of the amounts referred to in Sections (i) and (ii) is
computed by allowing interest at the lesser of 18 percent per annum or the
maximum lawful rate. The "worth at the time of award" of the amount referred to
in Section (iii) is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent;
(b) The "time of award" as used in clauses (i), (ii), and (iii) above is the
date on which judgment is entered by a court of competent jurisdiction; (c) The
"reasonable value" of the amount referred to in clause (ii) above is computed by
determining the mathematical product of (1) the "reasonable annual rental value"
(as defined herein) and (2) the number of years, including fractional parts
thereof, between the date of termination and the time of award. The "reasonable
value" of the amount referred to in clause (iii) is computed by determining the
mathematical product of (1) the annual Base Rent and other charges under this
Lease and (2) the number of years including fractional parts thereof remaining
in the balance of the term of this Lease after the time of award.

          Even though Tenant has breached this Lease and abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession, and Landlord may enforce all its rights and
remedies under this Lease, including the right to recover rent as it becomes
due. This remedy is intended to be the remedy described in California Civil Code
Section 1951.4, and the following provision from such Civil Code Section is
hereby repeated: "The Lessor has the remedy described in California Civil Code
Section 1951.4 (lessor may continue lease in effect after lessee's breach and
abandonment and recover rent as it becomes due, if lessee has right to sublet or
assign, subject only to reasonable limitations)." Any such payments due Landlord
shall be made upon demand therefor from time to time and Tenant agrees that
Landlord may file suit to recover any sums falling due from time to time.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect in writing to terminate this Lease for such previous breach.

          Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises and/or a termination of this Lease by Landlord, whether by agreement or
by operation of law, it being understood that such surrender and/or termination
can be effected only by the written agreement of Landlord and Tenant. Any law,
usage, or custom to the contrary notwithstanding, Landlord shall have the right
at all times to enforce the provisions of this Lease in strict accordance with
the terms hereof; and the failure of Landlord at any time to enforce its rights
under this Lease strictly in accordance with same shall not be construed as
having created a custom in any way or manner contrary to the specific terms,
provisions, and covenants of this Lease or as having modified the same. Tenant
and Landlord further agree that forbearance or waiver by Landlord to enforce its
rights pursuant to this Lease or at law or in equity, shall not be a waiver of
Landlord's right to enforce one or more of its rights in connection with any
subsequent default. A receipt by Landlord of rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. To
the greatest extent permitted by law, Tenant waives the service of notice of
Landlord's intention to re-enter as provided for in any statute, or to institute
legal proceedings to that end, and also waives all right of redemption in case
Tenant shall be dispossessed by a judgment or by warrant of any court or judge.
The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are
not restricted to their technical legal meanings. Any reletting of the Premises
shall be on such terms and conditions as Landlord in its sole discretion may
determine (including without limitation a term different than the remaining
Lease Term, rental concessions, alterations and repair of the Premises, lease of
less than the entire Premises to any tenant and leasing any or all other
portions of the Project before reletting the Premises). Landlord shall not be
liable, nor shall Tenant's obligations hereunder be diminished, because of
Landlord's failure to relet the Premises or collect rent due in respect of such
reletting.

                                      -7-



     25  Tenant's Remedies/Limitation of Liability. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Lease Term upon each
new owner for the duration of such owner's ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Project, and in
no event shall any personal liability be asserted against Landlord in connection
with this Lease nor shall any recourse be had to any other property or assets of
Landlord.

     26  Waiver of Jury Trial. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY
JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.

     27  Subordination. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any first
mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Tenant hereby appoints Landlord attorney
in fact for Tenant irrevocably (such power of attorney being coupled with an
interest) to execute, acknowledge and deliver any such instrument and
instruments for and in the name of the Tenant and to cause any such instrument
to be recorded. Notwithstanding the foregoing, any such holder may at any time
subordinate its mortgage to this Lease, without Tenant's consent, by notice in
writing to Tenant, and thereupon this Lease shall be deemed prior to such
mortgage without regard to their respective dates of execution, delivery or
recording and in that event such holder shall have the same rights with respect
to this Lease as though this Lease had been executed prior to the execution,
delivery and recording of such mortgage and had been assigned to such holder.
The term "mortgage" whenever used in this Lease shall be deemed to include deeds
of trust, security assignments and any other encumbrances, and any reference to
the "holder" of a mortgage shall be deemed to include the beneficiary under a
deed of trust.

     28  Mechanic's Liens. Tenant has no express or implied authority to create
or place any lien or encumbrance of any kind upon, or in any manner to bind the
interest of Landlord or Tenant in, the Premises or to charge the rentals payable
hereunder for any claim in favor of any person dealing with Tenant, including
those who may furnish materials or perform labor for any construction or
repairs. Tenant covenants and agrees that it will pay or cause to be paid all
sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the Premises and
that it will save and hold Landlord harmless from all loss, cost or expense
based on or arising out of asserted claims or liens against the leasehold estate
or against the interest of Landlord in the Premises or under this Lease. Tenant
shall give Landlord immediate written notice of the placing of any lien or
encumbrance against the Premises and cause such lien or encumbrance to be
discharged within 30 days of the filing or recording thereof; provided, however,
Tenant may contest such liens or encumbrances as long as such contest prevents
foreclosure of the lien or encumbrance and Tenant causes such lien or
encumbrance to be bonded or insured over in a manner satisfactory to Landlord
within such 30 day period.

     29  Estoppel Certificates. Tenant agrees, from time to time, within 10 days
after request of Landlord, to execute and deliver to Landlord, or Landlord's
designee, any estoppel certificate requested by Landlord, stating that this
Lease is in full force and effect, the date to which rent has been paid, that
Landlord is not in default hereunder (or specifying in detail the nature of
Landlord's default), the termination date of this Lease and such other matters
pertaining to this Lease as may be requested by Landlord. Tenant's obligation to
furnish each estoppel certificate in a timely fashion is a material inducement
for Landlord's execution of this Lease. No cure or grace period provided in this
Lease shall apply to Tenant's obligations to timely deliver an estoppel
certificate. Tenant hereby irrevocably appoints Landlord as its attorney in fact
to execute on its behalf and in its name any such estoppel certificate if Tenant
fails to execute and deliver the estoppel certificate within 10 days after
Landlord's written request thereof.

     30  Environmental Requirements. Except for Hazardous Material contained in
products used by Tenant in de minimis quantities for ordinary cleaning and
office purposes, Tenant shall not permit or cause any party to bring any
Hazardous Material upon the Premises or transport, store, use, generate,
manufacture or release any Hazardous Material in or about the Premises without
Landlord's prior written consent. Tenant, at its sole cost and expense, shall
operate its business in the Premises in strict compliance with all Environmental
Requirements and shall remediate in manner satisfactory to Landlord any
Hazardous Materials released on or from the Project by Tenant, its agents,
employees, contractors, subtenants or invitees. Tenant shall complete and
certify to disclosure statements as requested by Landlord from time to time
relating to Tenant's transportation, storage, use, generation, manufacture, or
release of Hazardous Materials on the Premises. The term "Environmental
Requirements" means all applicable present and future statutes, regulations,
ordinances, rules, codes, judgments, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following: the Comprehensive Environmental
Response, Compensation

                                       -8-



and Liability Act; the Resource Conservation and Recovery Act; and all state and
local counterparts thereto, and any regulations or policies promulgated or
issued thereunder. The term "Hazardous Materials" means and includes any
substance, material, waste, pollutant, or contaminant listed or defined as
hazardous or toxic, under any Environmental Requirements, asbestos and
petroleum, including crude oil or any fraction thereof, natural gas, or
synthetic gas usable for fuel (or mixtures of natural gas and such synthetic
gas). As defined in Environmental Requirements, Tenant is and shall be deemed to
be the "operator" of Tenant's "facility" and the "owner" of all Hazardous
Materials brought on the Premises by Tenant, its agents, employees, contractors
or invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.

          Tenant shall indemnify, defend, and hold Landlord harmless from and
against any and all losses (including, without limitation, diminution in value
of the Premises or the Project and loss of rental income from the Project),
claims, demands, actions, suits, damages (including, without limitation,
punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including,
without limitation, actual attorneys' fees, consultant fees or expert fees and
including, without limitation, removal or management of any asbestos brought
into the Premises or disturbed in breach of the requirements of this Paragraph
30, regardless of whether such removal or management is required by law) which
are brought or recoverable against, or suffered or incurred by Landlord as a
result of any release of Hazardous Materials for which Tenant is obligated to
remediate as provided above or any other breach of the requirements under this
Paragraph 30 by Tenant, its agents, employees, contractors, subtenants,
assignees or invitees, regardless of whether Tenant had knowledge of such
noncompliance. The obligations of Tenant under this Paragraph 30 shall survive
any termination of this Lease.

         Landlord shall have access to, and a right to perform inspections and
tests of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 30, or the environmental
condition of the Premises. Access shall be granted to Landlord upon Landlord's
prior notice to Tenant and at such times so as to minimize, so far as may be
reasonable under the circumstances, any disturbance to Tenant's operations. Such
inspections and tests shall be conducted at Landlord's expense, unless such
inspections or tests reveal that Tenant has not complied with any Environmental
Requirement, in which case Tenant shall reimburse Landlord for the reasonable
cost of such inspection and tests. Landlord's receipt of or satisfaction with
any environmental assessment in no way waives any rights that Landlord holds
against Tenant.

     31  Rules and Regulations. Tenant shall, at all times during the Lease Term
and any extension thereof, comply with all reasonable rules and regulations at
any time or from time to time established by Landlord covering use of the
Premises and the Project. The current rules and regulations are attached hereto.
In the event of any conflict between said rules and regulations and other
provisions of this Lease, the other terms and provisions of this Lease shall
control. Landlord shall not have any liability or obligation for the breach of
any rules or regulations by other tenants in the Project.

     32  Security Service. Tenant acknowledges and agrees that, while Landlord
may patrol the Project, Landlord is not providing any security services with
respect to the Premises and that Landlord shall not be liable to Tenant for, and
Tenant waives any claim against Landlord with respect to, any loss by theft or
any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises.

     33  Force Majeure. Except for monetary obligations, Neither Landlord nor
Tenant shall be held responsible for delays in the performance of its
obligations hereunder when caused by strikes, lockouts, labor disputes, acts of
God, inability to obtain labor or materials or reasonable substitutes therefor,
governmental restrictions, governmental regulations, governmental controls,
delay in issuance of permits, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of Landlord or Tenant ("Force Majeure").

     34  Entire Agreement. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.

     35  Severability. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.

     36  Brokers. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and that no
broker, agent or other person brought about this transaction, other than the
broker, if any, set forth on the first page of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction.

     37  Miscellaneous. (a) Any payments or charges due from Tenant to Landlord
hereunder shall be considered rent for all purposes of this Lease.

     (b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.

                                      -9-



     (c)  All notices required or permitted to be given under this Lease shall
be in writing and shall be sent by registered or certified mail, return receipt
requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 East 35th Place, Aurora, Colorado
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.

     (d)  Except as otherwise expressly provided in this Lease or as otherwise
required by law, Landlord retains the absolute right to withhold any consent or
approval.

     (e)  At Landlord's request from time to time Tenant shall furnish Landlord
with true and complete copies of its most recent annual and quarterly financial
statements prepared by Tenant or Tenant's accountants and any other financial
information or summaries that Tenant typically provides to its lenders or
shareholders.

     (f)  Neither this Lease nor a memorandum of lease shall be filed by or on
behalf of Tenant in any public record. Landlord may prepare and file, and upon
request by Landlord Tenant will execute, a memorandum of lease.

     (g)  The normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any exhibits or amendments hereto.

     (h)  The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of the
Premises, nor confer any right or impose any obligations upon either party until
execution of this Lease by both parties.

     (i)  Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.

     (j)  Any amount not paid by Tenant within 5 days after its due date in
accordance with the terms of this Lease shall bear interest from such due date
until paid in full at the lesser of the highest rate permitted by applicable law
or 15 percent per year. It is expressly the intent of Landlord and Tenant at all
times to comply with applicable law governing the maximum rate or amount of any
interest payable on or in connection with this Lease. If applicable law is ever
judicially interpreted so as to render usurious any interest called for under
this Lease, or contracted for, charged, taken , reserved, or received with
respect to this Lease, then it is Landlord's and Tenant's express intent that
all excess amounts theretofore collected by Landlord be credited on the
applicable obligation (or, if the obligation has been or would thereby be paid
in full, refunded to Tenant), and the provisions of this Lease immediately shall
be deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.

     (k)  Construction and interpretation of this Lease shall be governed by the
laws of the state in which the Project is located, excluding any principles of
conflicts of laws.

     (l)  Time is of the essence as to the performance of Tenant's obligations
under this Lease.

     (m)  All exhibits and addenda attached hereto are hereby incorporated into
this Lease and made a part hereof. In the event of any conflict between such
exhibits or addenda and the terms of this Lease, such exhibits or addenda shall
control.

     38  Landlord's Lien/Security Interest. Tenant hereby grants Landlord a
security interest, and this Lease constitutes a security agreement, within the
meaning of and pursuant to the Uniform Commercial Code of the state in which the
Premises are situated as to all of Tenant's property situate in, or upon, or
used in connection with the Premises (except merchandise sold in the ordinary
course of business) as security for all of Tenant's obligations hereunder,
including, without limitation, the obligation to pay rent. Such personalty thus
encumbered includes specifically all trade and other fixtures for the purpose of
this Paragraph and inventory, equipment, contract rights, accounts receivable
and the proceeds thereof. In order to perfect such security interest, Tenant
shall execute such financing statements and file the same at Tenant's expense at
the state and county Uniform Commercial Code filing offices as often as Landlord
in its discretion shall require; and Tenant hereby irrevocably appoints Landlord
its agent for the purpose of executing and filing such financing statements on
Tenant's behalf as Landlord shall deem necessary.

     39  Limitation of Liability of Trustees, Shareholders, and Officers of
ProLogis Trust. Any obligation or liability whatsoever of ProLogis Trust, a
Maryland real estate investment trust, which may arise at any time under this
Lease or any obligation or liability which may be incurred by it pursuant to any
other instrument, transaction, or undertaking contemplated hereby shall not be
personally binding upon, nor shall resort for the enforcement thereof be had to
the property of, its trustees, directors, shareholders, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort, or otherwise.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.

                                      -10-



TENANT:                             LANDLORD:

InterVideo, Inc., a California      ProLogis Limited Partnership-I, a Delaware
Corporation                         limited partnership
- --------------------------------

                                    By: ProLogis Trust, a  Maryland real estate
                                    investment trust, General Partner

By:_____________________________
Name:___________________________
Title:__________________________    By:_________________________________________
                                        Ned K. Anderson
                                    Title: Managing Director



Address:                            Address:

47350 Fremont Boulevard             47775 Fremont Boulevard

Fremont, Ca. 94538                  Fremont, CA 94538

                                      -11-



                              Rules and Regulations
                              ---------------------

1    The sidewalk, entries, and driveways of the Project shall not be obstructed
     by Tenant, or its agents, or used by them for any purpose other than
     ingress and egress to and from the Premises.

2.   Tenant shall not place any objects, including antennas, outdoor furniture,
     etc., in the parking areas, landscaped areas or other areas outside of its
     Premises, or on the roof of the Project.

3.   Except for seeing-eye dogs, no animals shall be allowed in the offices,
     halls, or corridors in the Project.

4.   Tenant shall not disturb the occupants of the Project or adjoining
     buildings by the use of any radio or musical instrument or by the making of
     loud or improper noises.

5.   If Tenant desires telegraphic, telephonic or other electric connections in
     the Premises, Landlord or its agent will direct the electrician as to where
     and how the wires may be introduced; and, without such direction, no boring
     or cutting of wires will be permitted. Any such installation or connection
     shall be made at Tenant's expense.

6.   Tenant shall not install or operate any steam or gas engine or boiler, or
     other mechanical apparatus in the Premises, except as specifically approved
     in the Lease. The use of oil, gas or inflammable liquids for heating,
     lighting or any other purpose is expressly prohibited. Explosives or other
     articles deemed extra hazardous shall not be brought into the Project.

7.   Parking any type of recreational vehicles is specifically prohibited on or
     about the Project. Except for the overnight parking of operative vehicles,
     no vehicle of any type shall be stored in the parking areas at any time. In
     the event that a vehicle is disabled, it shall be removed within 48 hours.
     There shall be no "For Sale" or other advertising signs on or about any
     parked vehicle. All vehicles shall be parked in the designated parking
     areas in conformity with all signs and other markings. All parking will be
     open parking, and no reserved parking, numbering or lettering of individual
     spaces will be permitted except as specified by Landlord.

8.   Tenant shall maintain the Premises free from rodents, insects and other
     pests.

9.   Landlord reserves the right to exclude or expel from the Project any person
     who, in the judgment of Landlord, is intoxicated or under the influence of
     liquor or drugs or who shall in any manner do any act in violation of the
     Rules and Regulations of the Project.

10   Tenant shall not cause any unnecessary labor by reason of Tenant's
     carelessness or indifference in the preservation of good order and
     cleanliness. Landlord shall not be responsible to Tenant for any loss of
     property on the Premises, however occurring, or for any damage done to the
     effects of Tenant by the janitors or any other employee or person.

11   Tenant shall give Landlord prompt notice of any defects in the water, lawn
     sprinkler, sewage, gas pipes, electrical lights and fixtures, heating
     apparatus, or any other service equipment affecting the Premises.

12   Tenant shall not permit storage outside the Premises, including without
     limitation, outside storage of trucks and other vehicles, or dumping of
     waste or refuse or permit any harmful materials to be placed in any
     drainage system or sanitary system in or about the Premises.

13   All moveable trash receptacles provided by the trash disposal firm for the
     Premises must be kept in the trash enclosure areas, if any, provided for
     that purpose.

14   No auction, public or private, will be permitted on the Premises or the
     Project.

15   No awnings shall be placed over the windows in the Premises except with the
     prior written consent of Landlord.

16   The Premises shall not be used for lodging, sleeping or cooking or for any
     immoral or illegal purposes or for any purpose other than that specified in
     the Lease. No gaming devices shall be operated in the Premises.

17   Tenant shall ascertain from Landlord the maximum amount of electrical
     current which can safely be used in the Premises, taking into account the
     capacity of the electrical wiring in the Project and the Premises and the
     needs of other tenants, and shall not use more than such safe capacity.
     Landlord's consent to the installation of electric equipment shall not
     relieve Tenant from the obligation not to use more electricity than such
     safe capacity.

18   Tenant assumes full responsibility for protecting the Premises from theft,
     robbery and pilferage.

19   Tenant shall not install or operate on the Premises any machinery or
     mechanical devices of a nature not directly related to Tenant's ordinary
     use of the Premises and shall keep all such machinery free of vibration,
     noise and air waves which may be transmitted beyond the Premises.

                                      -12-



                 HVAC Maintenance/Service Contract Requirements
                 ----------------------------------------------

A service contract with a Landlord approved HVAC contractor must become
effective within thirty (30) days of occupancy and service visits should be
performed on a quarterly basis. The following are the approved HVAC contractors:

             Thermoscape                                 510/445-0700
             Phoenix Heating and Air Conditioning        408/487-0390
             Cal-Air Conditioning                        408/947-0155

We suggest that you send the following list to one of the above HVAC contractors
to be assured that these items are included in the maintenance contract:

1.    Adjust belt tension;

2.    Lubricate all moving parts, as necessary;

3.    Inspect and adjust all temperature and safety controls;

4.    Check refrigeration system for leaks and operation;

5.    Check refrigeration system for moisture;

6.    Inspect compressor oil level and crank case heaters;

7.    Check head pressure, suction pressure and oil pressure;

8.    Inspect air filters and replace when necessary;

9.    Check space conditions;

10.   Check condensate drains and drain pans and clean, if necessary;

11.   Inspect and adjust all valves;

12.   Check and adjust dampers;

13.   Run machine through complete cycle.

Note: A certificate must be provided for our files not later than thirty (30)
      days after mutual execution hereof. Failure to provide such certificate or
      perform said services, when required, shall constitute material default of
      this lease.

                                      -13-



                                   ADDENDUM I

                              BASE RENT ADJUSTMENTS
                              ---------------------

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                     DATED _______________________, BETWEEN

                         ProLogis Limited Partnership-I
                                       and
                                InterVideo, Inc.

         Base Rent shall equal the following amounts for the respective periods
set forth below:

                   Period                             Monthly Base Rent
                   ------                             -----------------
             11/01/00 - 10/31/01                          $32,971
             11/01/01 - 10/31/02                          $33,941
             11/01/02 - 10/30/03                          $34,911








                                  ADDENDUM II

                                      -14-



                                  CONSTRUCTION
                                  ------------
                                    (TURNKEY)

                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                        DATED _________________, BETWEEN

                         ProLogis Limited Partnership-I

                                       and

                                InterVideo, Inc.


                  (a) Landlord agrees to furnish or perform at Landlord's sole
cost and expense those items of construction and those improvements (the "Tenant
                                                                          ------
Improvements") specified below:
- ------------

                      Landlord shall insure that the HVAC systems are working
properly throughout the space.

                  (b) If Tenant shall desire any changes, Tenant shall so advise
Landlord in writing and Landlord shall determine whether such changes can be
made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Tenant
Improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.

                  (c) Landlord shall proceed with and complete the construction
of the Tenant Improvements. As soon as such improvements have been Substantially
Completed, Landlord shall notify Tenant in writing of the date that the Tenant
Improvements were Substantially Completed. Such date, unless an earlier date is
specified as the Commencement Date in this Lease or otherwise agreed to in
writing between Landlord and Tenant, shall be the "Commencement Date," unless
                                                   -----------------
the completion of such improvements was delayed due to any act or omission of,
or delay caused by, Tenant including, without limitation, Tenant's failure to
approve plans, complete submittals or obtain permits within the time periods
agreed to by the parties or as reasonably required by Landlord, in which case
the Commencement Date shall be the date such improvements would have been
completed but for the delays caused by Tenant. The Tenant Improvements shall be
deemed substantially completed ("Substantially Completed") when, in the opinion
of the construction manager (whether an employee or agent of Landlord or a third
party construction manager), the Premises are substantially completed except for
punch list items which do not prevent in any material way the use of the
Premises for the purposes for which they were intended. After the Commencement
Date Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises.

                  (d) The failure of Tenant to take possession of or to occupy
the Premises shall not serve to relieve Tenant of obligations arising on the
Commencement Date or delay the payment of rent by Tenant. Subject to applicable
ordinances and building codes governing Tenant's right to occupy or perform in
the Premises, Tenant shall be allowed to install its tenant improvements,
machinery, equipment, fixtures, or other property on the Premises during the
final stages of completion of construction provided that Tenant does not thereby
interfere with the completion of construction or cause any labor dispute as a
result of such installations, and provided further that Tenant does hereby agree
to indemnify, defend, and hold Landlord harmless from any loss or damage to such
property, and all liability, loss, or damage arising from any injury to the
Project or the property of Landlord, its contractors, subcontractors, or
materialmen, and any death or personal injury to any person or persons arising
out of such installations, whether or not any such loss, damage, liability,
death, or personal injury was caused by Landlord's negligence. Any such
occupancy or performance in the Premises shall be in accordance with the
provisions governing Tenant-Made Alterations and Trade Fixtures in the Lease,
and shall be subject to Tenant providing to Landlord satisfactory evidence of
insurance for personal injury and property damage related to such installations
and satisfactory payment arrangements with respect to installations permitted
hereunder. Delay in putting Tenant in possession of the Premises shall not serve
to extend the term of this Lease or to make Landlord liable for any damages
arising therefrom.

                  (e) Except for incomplete punch list items, Tenant upon the
Commencement Date shall have and hold the Premises as the same shall then be
without any liability or obligation on the part of Landlord for making any
further alterations or improvements of any kind in or about the Premises.





                                  ADDENDUM III

                                LETTER OF CREDIT
                                ----------------

                                      -15-



                  ATTACHED TO AND A PART OF THE LEASE AGREEMENT
                  DATED __________________, 20_______, BETWEEN

         ProLogis Limited Partnership-I, a Delaware Limited Partnership
                                       and
                                InterVideo, Inc.


     Upon execution of the Lease, Tenant shall provide Landlord a Letter of
Credit in the amount of $116,000 which may be in the form of an unconditional,
irrevocable letter of credit from a bank reasonably acceptable to Landlord. The
primary purpose of the Letter of Credit is to reimburse Landlord for Leasing
costs including but not limited to tenant improvements and additional security
in the event of default. The letter of credit shall either provide that it does
not expire until 60 days after the end of the Lease term or, if it is for less
than the full term of the Lease, shall be renewed by Tenant at least 30 days
prior to its expiration during the term of the Lease. The letter of credit shall
provide that it may be drawn down upon by Landlord at any time Landlord delivers
its site draft to the bank. If Landlord sells or conveys the Premises, Tenant
shall, at Landlord's request, cooperate in having the letter of credit
transferred to the purchaser. If the letter of credit is ever drawn upon by
Landlord pursuant to the terms of the Lease and this Addendum, tenant shall
within ten (10) days thereafter cause the letter of credit to be restored to its
original amount.

                                      -16-



                            FORM OF LETTER OF CREDIT

                      [LETTERHEAD OF LETTER OF CREDIT BANK]

                                                     [DATE]

ProLogis Trust


Attention:  _______________

     Re:    Irrevocable Transferrable Letter of Credit
            No. ___________________________________

Beneficiary:

     By order of our client, ______________ (the "Applicant"), we hereby
                                                  ---------
establish this Irrevocable Transferrable Letter of Credit No. _______ in your
favor for an amount up to but not exceeding the aggregate sum of
___________________ and No/100 Dollars ($_________) (as reduced from time to
time in accordance with the terms hereof, the "Letter of Credit Amount"),
                                               -----------------------
effective immediately, and expiring on the close of business at our office at
the address set forth above one year from the date hereof unless renewed as
hereinafter provided.

     Funds under this Letter of Credit are available to you on or prior to the
expiry date against presentation by you of your (i) sight drafts drawn on us in
the form of Annex 1 hereto, indicating this Letter of Credit number and (ii)
request in the form of Annex 2 hereto (such sight draft and request, together
referred to as a "Drawing Request"), sight draft(s), completed and signed by one
                  ---------------
of your officers. Presentation of your Drawing Requests may be made by you to us
at the address set forth above or may be made by facsimile transmission, to the
following facsimile number _____________. You may present to us one or more
Drawing Requests from time to time prior to the expiry date in an aggregate
amount not to exceed the Letter of Credit Amount then in effect (it being
understood that the honoring by us of each Drawing Request shall reduce the
Letter of Credit Amount then in effect).

     This Letter of Credit will be automatically renewed for a one-year period
upon the expiration date set forth above and upon each anniversary of such date,
unless at least sixty (60) days prior to such expiration date, or prior to any
anniversary of such date, we notify both you and the Applicant in writing by
certified mail that we elect not to so renew the Letter of Credit.

     This Letter of Credit sets forth in full the terms of our undertaking and
such undertaking shall not in any way be modified, amended or amplified by
reference to any document or instrument referred to herein or in which this
Letter of Credit is referred to or to which this Letter of Credit relates, and
no such reference shall be deemed to incorporate herein by reference any
document or instrument.

     All bank charges and commissions incurred in this transaction are for the
Applicant's account.

     This Letter of Credit is transferrable by you and your successors and
assigns any number of times in its entirety and not in part, but only by
delivery to us of a Notice of Assignment in the form of Annex 3 hereto.

     We hereby agree with the drawers, endorsers, and bona fide holders of
drafts drawn under and in compliance with the terms of this Letter of Credit
that such drafts will be duly honored upon presentation to the drawee from our
own funds and not the funds of the Applicant and shall be available to such
drawers, endorsers, and bona fide holders, as the case may be, on or before
noon, New York time, on the Business Day (defined below) next following the date
on which such drafts are received by us. "Business Day" shall mean any day which
is not a Saturday, Sunday or day on

                                      -17-



which we are required or authorized by law to be closed in New York, New York.

     To the extent not inconsistent with the express terms hereof, this Letter
of Credit shall be governed by, and construed in accordance with, the terms of
the Uniform Customs and Practice for Commercial Documentary Credits (1993
Revision), I.C.C. Publication No. 500 (the "UCP 500") and as to matters not
                                            -------
governed by the UCP 500, this Letter of Credit shall be governed by and
construed in accordance with the laws of the State of New York.

                                     Very truly yours,

                                     [NAME OF LETTER OF CREDIT BANK]




                                     By:________________________________________
                                        Name:
                                        Title:

                                      -18-



                                                                         ANNEX 1



                                   SIGHT DRAFT


                                                 _______, 2000



         For value received, at sight pay to the order of PROLOGIS TRUST, the
sum of [Amount in words] [Amount in Figures] United States Dollars drawn under
[Name of Letter of Credit Bank] Irrevocable Transferrable Letter of Credit No.
________ dated _________________, 2000.




                                 PROLOGIS TRUST


                                 By:______________________________________
                                       Ned K. Anderson
                                 Title: Managing Director

                                      -19-



                                                                         ANNEX 2


                                 DRAWING REQUEST


                                                 _____________, 2000

[NAME AND ADDRESS OF LETTER
OF CREDIT BANK]

             Re: Irrevocable Transferrable Letter of Credit No. ______ (the
"Letter of Credit")
 ----------------

     The undersigned (the "Beneficiary"), hereby certifies to [Name of Letter of
                           -----------
Credit Bank] (the "Issuer") that:
                   ------

     (a) The Beneficiary is making a request for payment in lawful currency of
the United States of America under Irrevocable Transferrable Letter of Credit
No. _________ (the "Letter of Credit") in the amount of $ ______.

     (b) The Letter of Credit Amount (as defined in the Letter of Credit) as of
the date hereof and prior to payment of the amount demanded in this Drawing
Request is $_____. The amount requested by this Drawing Request does not exceed
the Letter of Credit Amount.

     [(c) Demand is made for payment under the Letter of Credit as a result of
the occurrence and continuation of an Event of Default (as defined in the Lease
Agreement).]

     Please wire transfer the proceeds of the drawing to the following account
of the Beneficiary at the financial institution indicated below:




     Unless otherwise defined, all capitalized terms used herein have the
meanings provided in, or by reference in, the Letter of Credit.

     IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Drawing Request as of the ___ day of _______________, 2000.

                              PROLOGIS TRUST


                              By:
                                 Name:  Ned K. Anderson
                                 Title: Managing Director

                                      -20-



                                     ANNEX 3

                              NOTICE OF ASSIGNMENT


                                                              ____________, 2000


[NAME AND ADDRESS OF
LETTER OF CREDIT BANK]

             Re: Irrevocable Transferable Letter of Credit No.

     The undersigned (the "Beneficiary"), hereby notifies [Name of Letter of
                           -----------
Credit Bank] (the "Issuer") that it has irrevocably assigned the
                   ------
above-referenced Letter of Credit to ________ (the "Assignee") with an address
                                                    --------
at ________________ effective as of the date the Issuer receives this Notice of
Assignment. The Assignee acknowledges and agrees that the Letter of Credit
Amount may have been reduced pursuant to the terms thereof, and that the
Assignee is bound by any such reduction.

     IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Notice of Assignment as of this _____ day of _______, 2000.

                                     PROLOGIS TRUST




                                     By:
                                                 Ned K. Anderson
                                     Title:       Managing Director

Agreed:

[Assignee]

                                      -21-

EX-10.9

                                                                    EXHIBIT 10.9


                                                                   Feb. 27, 2001

Mr. Randall Bambrough
1868 Nakoma Court
Fremont, CA 94539

Dear Mr. Bambrough:

I am delighted to confirm our offer to you of employment with InterVideo Inc., a
California corporation ("Company"), on the following terms:

1. Position. You will become a full-time employee of the Company, serving
   --------
initially in the position of Chief Financial Officer, reporting to Steve Ro,
President. You understand that your responsibilities and duties may evolve over
time.

2. Compensation. Your salary will be $15,000 per month ($180,000 per year on an
   ------------
annualized basis), payable in accordance with the Company's payroll practices.
You will be eligible to receive a bonus equal to 20% of your base salary if the
Company achieves certain financial and personal performance goals.

3. Benefits Policies. During your employment, you will be entitled to the
   -----------------
benefits generally available to employees under the Company's medical, dental
and 401K savings programs, in accordance with their terms. You will also benefit
from benefit policies adopted by the Company from time to time, such as sick
leave, vacation, and disability policies.

4. Option Grant. Following commencement of employment, the grant of an
   ------------
immediately exercisable option to purchase up to 300,000 shares of Common Stock
under the Company's stock option plan will be recommended to the Company's Board
of Directors on your behalf. The Company will allow you to exercise your options
with a five (5) year full recourse promissory note secured by your stock,
subject to the Company's right to repurchase any unvested shares in the event
that your employment is terminated. These and other terms associated with the
option will be documented in a stock option agreement to be signed by you and
the Company. All option grants are subject to approval by the Company's Board of
Directors. The option exercise price will be equal to the fair market value of
the shares at the date of grant. Under the plan, the option will vest as to
one-eighth (1/8th) of the shares at the end of six (6) months of full-time
employment, and vest as to one forty-eighth (1/48th) of such shares at the end
of each full month during the following forty-two (42) month period. If your
employment with the Company terminates for any reason prior to full vesting, the
unvested portion shall terminate and you will have the right to exercise your
option, to the extent vested, at any dine within thirty (30) days after the date
of such termination at the exercise price set forth in your stock option
agreement. The exercise of any options will be subject in all respects to the
terms of your stock option agreement and the stock option plan. The



stock option agreement will contain certain rights of first refusal by the
Company in the event of any proposed transfer of shares you purchase to third
parties.

5. General Policies. You agree that to the best of your ability and experience
   ----------------
you will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you will devote all of your business time and attention to the
business of the Company and the Company will be entitled to all of the benefits
and profits arising from or incident to all such work, services and advice.
During the term of your employment, you will not, whether directly or
indirectly, render any services of a commercial or professional nature to any
person or organization, whether for compensation or otherwise, without the prior
written consent of the Board of Directors of the Company.

6. Proprietary Information Agreement. Upon commencement of your employment, you
   ---------------------------------
will be required to sign the Company's standard employee proprietary information
agreement relating to confidential information and the assignment of proprietary
developments to the Company.

7. Proof of Right to Work. For purposes of federal immigration law, you will be
   ----------------------
required to provide to the Company documentary evidence of your identity and
eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.

8. Status. You must go through an introductory period" lasting ninety (90)
   ------
consecutive days, commencing on the date of your employment (the "Introductory
Period"). The company will use this period to see if you are able to meet
Company's standards. Successful completion of your Introductory Period is not a
guarantee of continued employment. You also understand that your employment will
be voluntary and at-wilL You are free to resign at any time, just as the Company
is free to terminate your employment at any time with or without cause. However,
if the Company terminates your employment for a reason other than "Cause" after
the Introductory Period or if you leave the employment of the Company for "Good
Reason" after the Introductory Period, the Company shall provide you with the
following severance benefits: (i) continuation of your base salary for a period
of twelve (12) months; (ii) payment of benefits available under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") for a period of twelve (12) months,
after which you may be eligible for continued benefits at your own expense under
COBRA; and (iii) if the termination occurs before a "Change of Control", you
will be credited with additional vesting of the options granted to you in
connection with your employment equal to fifty percent (50%) of all unvested
shares. After the Introductory Period, if there is a Change of Control and the
successor corporation terminates your employment within twelve (12) months of
such Change in Control, all shares received pursuant to the option grant in
Section 4 shall immediately vest.

For the purposes of this employment letter agreement, the following terms have
the following meanings:

"Cause" shall mean: (i) indictment or conviction of any felony or of any crime
involving dishonesty; (ii) participation in any fraud against the Company or any
successor of the Company; (iii) breach of your duties to the Company or such
successor, including willful misconduct, gross negligence, or

                                                                             -2-



employee's continued substantial violations of his or her employment duties
after employee has received a written demand for performance from the Company
which specifically sets forth the factual basis for the Company's belief that
employee has not substantially performed his or her duties; (iv) intentional
damage to any property of the Company or such successor; or (v) your material
breach of any element of the InterVideo's Proprietary Information and Inventions
Agreement, including theft or other misappropriation of the Company's
proprietary information.

"Change of Control" shall mean (a) a sale of substantially all of the assets of
the Company; (b) a merger or consolidation in which the Company is not the
surviving corporation (other than a merger or consolidation in which
stockholders immediately before the merger or consolidation have, immediately
after the merger or consolidation, have 50% or more of the voting power); (c) a
reverse merger in which the company is the surviving corporation but the shares
of the Company's common stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise (other than a reverse merger in which stockholders
immediately before the merger have, immediately after the merger, have 50% or
more of the voting power); or (d) any transaction or series of related
transactions in which in excess of 50% of the Company's voting power is
transferred.

"Good Reason" shall mean any one of the following events: (i) material reduction
of employee's rate of compensation; (ii) material reduction in employee's
responsibilities', authority, title or duties; or (iii) material breach by the
Company or any successor to the Company of any of the material provisions of
this agreement.

Please confirm your acceptance of this offer by signing the enclosed copy of
this letter in the space provided below, and returning the signed copy to me
within ten (10) days from the date of this letter. If there are any aspects of
this offer that you would like clarified, please let me know.

We are very pleased to make this offer to you and look forward to a mutually
rewarding relationship.

Very truly yours,


/s/ Steve Ro
- ---------------------------------
Steve Ro
President/CEO


ACCEPTED:


Name: /s/ Randy Bambrough
     ----------------------------
Date:
     ----------------------------
Start Date:
           ----------------------
                                                                             -3-

EX-10.10

                                                                   EXHIBIT 10.10

                                INTERVIDEO, INC.

                   FORM OF NONSTATUTORY STOCK OPTION AGREEMENT
                   -------------------------------------------

      (Immediate Exercise; 50% Vested; Acceleration upon Change in Control)



Optionee:
          Joseph Liu                   Grant Date: June 15, 2001
          -----------------------                  -----------------------------

                                           Vesting
                                      Commencement
                                             Date: June 15, 2001
                                                   ----------------

                                           Shares: 50,000
                                                   -----------

                                   Exercise Price: $2.00
                                                   -----------

     InterVideo, Inc., a California corporation (the "Company"), hereby grants
to the optionee named above (the "Optionee") an option to purchase the amount of
shares of Common Stock set forth above (the "Shares") of the Company, at the
Exercise Price set forth above and on the terms set forth herein, and in all
respects subject to the terms and provisions of the Company's 1998 Stock Option
Plan, as amended, (the "Plan") applicable to non-statutory stock options, which
terms and provisions hereby are incorporated by reference herein. Unless the
context herein otherwise requires, the terms defined in the Plan shall have the
same meanings herein.

     1.   Nature of the Option. This Option is intended to be a non-statutory
          --------------------
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or otherwise to qualify for any special tax benefits to Optionee.

     2.   Date of Grant; Term of Option. This Option is granted as of the Grant
          -----------------------------
Date set forth above, and it may not be exercised later than ten (10) years from
such date.

     3.   Option Exercise Price. The exercise price for this Option is the
          ----------------------
Exercise Price per Share set forth above, which price is not less than
eighty-five percent (85%) of the fair market value thereof on the date this
Option was granted (or not less than one hundred ten percent (110%) of the fair
market value thereof on the date this Option was granted, if the Optionee owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or its parents or subsidiaries).

     4.   Exercise of Option. This Option shall be exercisable during its term
          ------------------
only in accordance with the terms and provisions of the Plan and this Option as
follows:



          (a)  Right to Exercise. This Option shall be exercisable in full or in
               -----------------
part immediately upon the Grant Date, provided, however, that Shares which have
not vested under Section 4(d) below shall be subject to the Repurchase Option
set forth in Section 10(a) below, and all Shares shall be subject to all other
transfer restrictions set forth in Section 10 below.

          (b)  Method of Exercise. This Option shall be exercisable by written
               ------------------
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised and such other
representations and agreements as to Optionee's investment intent with respect
to such Shares as may be required by the Company hereunder or pursuant to the
provisions of the Plan. Such written notice shall be signed by Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company or such other person as may be designated by the Company. The written
notice shall be accompanied by payment of the purchase price and an executed
stock purchase agreement in the form attached as Exhibit A (the "Stock Purchase
                                                 ----------
Agreement"). Payment of the purchase price shall be made by check or promissory
note in the form as attached to the Stock Purchase Agreement. The certificate or
certificates for the Shares as to which this Option shall be exercised shall be
registered in the name of Optionee and shall carry the legends set forth in the
Plan, the Stock Purchase Agreement and as required under applicable law.

          (c)  Restrictions on Exercise. This Option may not be exercised if the
               -------------------------
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.

          (d)  Vesting. The Shares shall vest ("Vested Shares") as to one-half
               -------
(1/2) of such Shares as of the Vesting Commencement Date and thereafter as to
1/96 of the Shares at the end of each successive one-month period of Continuous
Status as an Employee of the Company until the Shares are fully vested. The
vesting shall occur regardless of whether or not this Option has been exercised
in whole or in part. Until the Shares have vested, Optionee shall have no right
to transfer or to convey such Shares.

          (e)  Vesting Acceleration. Notwithstanding the vesting provisions of
               --------------------
Section 4(d), on the occurrence of the merger or consolidation of the Company
into, or the sale of all or substantially all of the Company's assets or stock
to, another corporation, all the Shares shall vest unless at least fifty-one
percent (51%) of the capital stock of the successor corporation is owned by
persons who are holders of shares of capital stock of the Company immediately
before such merger, consolidation or sale.

     5.   Investment Representations. In connection with the acquisition of this
          --------------------------
Option, Optionee represents and warrants as follows:

          (a)  Investment Intent. Optionee is acquiring this Option, and upon
               -----------------
exercise of this Option, Optionee will be acquiring the Shares for investment
for Optionee's own account, not as a nominee or agent, and not with a view to,
or for resale in connection with, any distribution thereof.

2



          (b)  Protection of Interests. Optionee, by reason of Optionee's
               -----------------------
business or financial experience, has the capacity to evaluate the merits and
risks of purchasing Common Stock of the Company and to make an informed
investment decision with respect thereto and to protect Optionee's interests in
connection with the acquisition of this Option and the Shares.

     6.   Termination of Status as an Employee. If Optionee ceases to serve as
          ------------------------------------
an Employee for any reason other than death or disability and thereby terminates
Optionee's Continuous Status as an Employee, Optionee shall have the right to
exercise this Option at any time within thirty (30) days after the date of such
termination to the extent that Optionee was entitled to exercise this Option at
the date of such termination. If Optionee ceases to serve as an Employee due to
death or disability, this Option may be exercised at any time within six (6)
months after the date of death or termination of employment due to disability,
in the case of death, by Optionee's estate or by a person who acquired the right
to exercise this Option by bequest or inheritance, or, in the case of
disability, by Optionee, but in any case only to the extent Optionee was
entitled to exercise this Option at the date of such termination. To the extent
that Optionee was not entitled to exercise this Option at the date of
termination, or to the extent this Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable after the expiration of the term set forth
in Section 2 hereof.

     7.   Withholding Tax Liability. The Company reserves the right to withhold,
          -------------------------
in accordance with any applicable laws, from any compensation or other
consideration payable to the Optionee any taxes required to be withheld by
federal, state or local law as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon exercise of this
Option, and if such compensation or consideration is insufficient, the Company
may require Optionee to pay to the Company an amount sufficient to cover such
withholding tax liability. The Optionee agrees to notify the Company immediately
in the event of any disqualifying disposition (within the meaning of Section
421(b) of the Code) of the Shares acquired upon exercise of an incentive stock
option.

     8.   Nontransferability of Option. This Option may not be sold, pledged,
          ----------------------------
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.

     9.   Continuation of Employment. Neither this Option or the Plan nor any
          --------------------------
Option granted thereunder shall confer upon any Optionee any right to continue
in the employment of the Company, its Parent, Subsidiary or a successor
corporation or limit in any respect the right of the Company or any such
corporations to discharge the Optionee at any time, with or without cause and
with or without notice.

     10.  Limitations on Transfer. In addition to any other limitation on
          -----------------------
transfer created by applicable securities laws, Optionee will not sell,
transfer, assign, encumber or otherwise dispose

3



of (including, without limitation by operation of law) any of Optionee's right,
title or interest in and to all or any portion of the Shares except as provided
in this Section:

          (a)  Repurchase Option. In the event of termination of the Optionee's
               -----------------
full time employment with the Company for any reason, with or without cause,
whether voluntarily or involuntarily, including by reason of death or disability
(herein referred to as the "Termination"), upon the date of such Termination the
Company shall have an irrevocable and exclusive option (the "Repurchase Option")
to repurchase that number of Shares by which the aggregate number of Shares
purchased by Optionee pursuant to this Option exceeds the number of Vested
Shares, as determined upon the date of such Termination ("Unvested Shares"). The
Company shall pay to Optionee the Original Issuance Price per Share multiplied
by the number of Unvested Shares as to which the Company exercises the
Repurchase Option (as adjusted for stock splits, stock dividends, combinations
and the like) (the "Repurchase Price").

          Within sixty (60) days following the last day upon which Optionee may
purchase Shares pursuant to this Option, the Company shall notify Optionee as to
whether it (or its assignee) wishes to purchase all or a portion of the Shares
subject to the Repurchase Option. The Company shall obtain the consent of
Optionee for the repurchase of a portion but not all of Optionee's Shares
subject to the Repurchase Option. If the Company (or its assignee) elects to
purchase such Shares, it shall notify Optionee in writing of its (or its
assignee's) intention to purchase all or a portion of such Shares) at the
Repurchase Price, and either (i) set a date and location for the closing of the
transaction not later than thirty (30) days from the date of such notice, at
which time the Company (or its assignee) shall tender payment for such Shares,
or (ii) close the transaction by mail by including payment for such Shares with
the Company's notice to Optionee. Payment for the Shares may be in the form of
cash, check, cancellation of all or a portion of Optionee's indebtedness to the
Company or any combination thereof. At such closing, the certificates
representing the Shares so purchased shall be delivered to the Company and
canceled (or the Shares transferred to the Company's assignee, if applicable)
or, in the case of payment by the Company (or its assignee) by mail, such
certificates shall be deemed canceled (or the Shares transferred to the
Company's assignee, if applicable) as of the date of the mailing of the
Company's notice and, thereafter, shall be promptly returned by Optionee to the
Company by certified or registered mail. Shares subject to the Repurchase Option
as to which the Company (or its assignee) has not exercised the Repurchase
Option within sixty (60) days following the last day upon which Optionee may
purchase Shares pursuant to this Option shall be released from the Repurchase
Option.

          (b)  Right of First Refusal. In the event Optionee desires (or is
               ----------------------
ptionee shall first offer such Shares for sale to the Company (or its assignee)
at the same price, and upon the same terms (or reasonably similar terms) as
those on which the Optionee is disposing of said Shares ("Right of First
Refusal"). Optionee shall offer such Shares to the Company by delivering a
written notice (the "Notice") to the Company stating (i) Optionee's bona fide
intention to sell or otherwise transfer such Shares, (ii) the number of such
Shares to be sold or otherwise transferred, (iii) the price for which Optionee
proposes to sell such Shares and all additional terms and conditions, if any, of
the sale or transfer and (iv) the name of the proposed buyer or transferee.
Optionee shall

4



attach to the Notice a copy of the written offer, if any, of the sale or
transfer. In the event of a transfer not involving a sale of such Shares for a
specific sum of money, or if, in the sole judgment of the Company's Board of
Directors, the proposed transfer does not involve a price for the Shares
negotiated by the Optionee and Optionee's proposed transferee in a bona fide
"arm's length transaction," the price of the Shares shall be determined by the
Company's Board of Directors in the manner specified in Section 10(d) below.

          Within thirty (30) days after the Company's receipt of the Notice (the
"Acceptance Period"), the Company (or its assignee) may elect to purchase all of
the Shares (or, with the consent of the Optionee, a portion thereof) to which
the Notice refers, at the price per share (or at the fair market value of such
Shares determined pursuant to Section 10(d) hereof in the case of a transfer
other than a bona fide arms-length transaction) and on the same terms and
conditions (or terms and conditions as similar as reasonably possible) as set
forth in the Notice. If the Company (or its assignee) elects to purchase such
Shares hereunder, it shall notify Optionee either orally or in writing during
the Acceptance Period of its intention to purchase all of such Shares (or, with
the consent of Optionee, a portion thereof) and either (i) set a date and
location for the closing of the transaction on or prior to the last day of the
Acceptance Period, or at such later date as the parties may otherwise agree, at
which time the Company (or its assignee) shall tender payment for the Shares or
(ii) include payment for the Shares with the Company's notice to Optionee, if in
writing, or deliver it to Optionee under separate cover. At such closing, the
certificates representing the Shares so purchased shall be delivered to the
Company and canceled or, in the case of payment by the Company by mail, such
certificates shall be deemed to be canceled upon the date of such mailing of the
Company's payment and, thereafter, shall be promptly returned by Optionee to the
Company by certified or registered mail. Optionee hereby authorizes and directs
the Secretary or Transfer Agent of the Company to transfer the Shares as to
which the Right of First Refusal has been exercised from Optionee to the Company
(or its assignee).

          Optionee further authorizes the Company to refuse, or to cause its
Transfer Agent to refuse, to transfer or record any Shares to be transferred in
violation of this Agreement. If the Company (or its assignee) does not elect to
purchase the Shares to which the Notice refers, Optionee may sell or otherwise
transfer the Shares to the third party named in the Notice at the price and on
the terms and conditions specified in the Notice or at a higher price, provided
that such sale or transfer is consummated within sixty (60) days from either (i)
the lapse of the Acceptance Period or (ii) the date of the Company's notice,
whether written or oral, advising Optionee that it does not intend to purchase
the Shares hereunder, whichever occurs first in time and provided, further, that
any such sale or transfer is in accordance with all of the terms and conditions
set forth in this Agreement. In the event the Shares are not disposed of by the
Optionee within said 60-day period, such Shares shall once again be subject to
the Right of First Refusal herein provided.

          (c)  Involuntary Transfer. In the event of any transfer by operation
               --------------------
of law or other involuntary transfer (the "Involuntary Transfer"), of all, or a
portion, of the Shares, the Company shall have an option to purchase all of the
Shares transferred (the "Involuntary Transfer Option"). Upon such transfer, the
Optionee and person acquiring the Shares shall

5



promptly notify in writing the Secretary of the Company of such transfer. The
Company (or its assignee) shall notify Optionee and the person acquiring the
Shares as to whether the Company (or its assignee) wishes to purchase the Shares
pursuant to the Involuntary Transfer Option within thirty (30) days after
receipt by the Company of the written notice of the involuntary transfer of the
Shares. If the Company (or its assignee) elects to purchase said Shares
hereunder, it shall set a date for the closing of the transaction at a place
specified by the Company (or its assignee) not later than thirty (30) days after
receipt by the Company of the written notice of the involuntary transfer of the
Shares, or at such later date as the parties may otherwise agree. At such
closing, the Company (or its assignee) shall tender payment for the Shares and
the certificates representing the Shares so purchased shall be canceled.
Optionee hereby authorizes and directs the Secretary or Transfer Agent of the
Company to transfer the Shares as to which the Involuntary Transfer Option has
been exercised from the Optionee to the Company (or its assignee). Optionee
further authorizes the Company to refuse, or to cause its Transfer Agent to
refuse, to transfer or record any Shares to be transferred in violation of this
Agreement.

                  (d) Determination of Price. With respect to Shares to be
                      ----------------------
transferred pursuant to the Right of First Refusal where the price is not
determined as a result of a bona fide arms-length transaction by the Optionee
under Section 10(b) or the Involuntary Transfer Option under Section 10(c), the
price per share shall be a price set by the Board of Directors of the Company
that will reflect the then current fair market value of the Shares, as
determined by the Board of Directors in good faith after giving consideration to
the factors set forth in Section 260.140.50 of Title 10 of the California Code
of Regulations.

                  (e) Intra-family Transfers. Optionee shall have the right,
                      ----------------------
at any time and from time to time during Optionee's lifetime or upon Optionee's
death, to transfer all or any portion of the Vested Shares (the "Transferred
Family Shares") to Optionee's spouse, any of Optionee's or Optionee's spouse's
issue, ancestors or descendants, or a trust for the sole benefit of Optionee,
Optionee's spouse, any of Optionee's issue, ancestors or descendants (any such
individual or trust is hereinafter referred to as an "Intra-family Transferee"),
provided that the Intra-family Transferee receiving the Transferred Family
Shares executes a consent to be bound by the terms of this Agreement with
respect to the Transferred Family Shares. The Transferred Family Shares shall be
and remain subject to all of the terms and conditions of this Agreement as were
applicable to such Shares immediately prior to their transfer pursuant to this
Section 10(e); without limiting the foregoing, the obligations hereunder arising
out of the possession or ownership of such Transferred Family Shares shall be
binding upon the respective Intra-family Transferees. For purposes of exercising
any rights under this Agreement, the Company's right to purchase the Shares of
Optionee shall extend to any Shares owned by an Intra-family Transferee.

                  (f) Restriction on Alienation. Any sale, transfer,
                      -------------------------
encumbrance, or other disposition or purported sale, transfer, encumbrance or
disposition of any of the Shares by Optionee, whether voluntarily, by operation
of law or otherwise, shall be null and void unless the terms, conditions and
provisions of this Agreement are strictly complied with. Optionee further
authorizes the Company to refuse, or cause its Transfer Agent to refuse, to
transfer or record any Shares to be transferred in violation of this Agreement.

6






                  (g) Assignment by Company. The Company's Repurchase Option,
                      ---------------------
Right of First Refusal and Involuntary Transfer Option may be assigned in whole
or in part to any shareholder or shareholders of the Company.

                  (h) Obligations Binding Upon Transferees. All transferees of
                      ------------------------------------
Shares or any interest therein will receive and hold such Shares or interests
subject to the provisions of this Agreement, including the Company's Repurchase
Option, Right of First Refusal and Involuntary Transfer Option. Any sale or
transfer of the Shares shall be void unless the provisions of this Agreement are
met.

                  (i) Termination of Rights. The Right of First Refusal and
                      ---------------------
Involuntary Transfer Option granted the Company by this Section 10 shall
terminate at such time as a public market exists for the Company's Common Stock
(or any other stock issued to purchasers in exchange for the Shares purchased
under this Agreement). For the purpose of this Agreement, a "public market"
shall be deemed to exist if the Common Stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934, as
amended), or the Common Stock is traded on the over-the-counter market and
prices are published on business days in a recognized financial journal.

                  (j) Indebtedness.  Any payment by the Company for purchase of
                      -----------
shares from Optionee, may be made by cancellation of any indebtedness to Company
from Optionee.

                  (k) Legends. All certificates representing any Shares of the
                      -------
Company purchased upon exercise of the Options shall have endorsed thereon the
following legends, or substantially similar legends, in addition to any legends
required by state securities laws, unless in the opinion of counsel such legends
are no longer necessary:

              (1) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR
                  INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
                  SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER
                  OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
                  REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF
                  COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
                  NOT REQUIRED.

              (2) THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS,
                  INCLUDING A RIGHT OF FIRST REFUSAL OF THE COMPANY, AND MAY BE
                  TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
                  BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON
                  FILE WITH THE SECRETARY OF THE COMPANY.

                  (l) Market Standoff Agreement. The Optionee, if requested by
                      -------------------------
the Company

7



and an underwriter of Common Stock (or other securities) of the Company, agrees
not to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Optionee during the period not to exceed one
hundred and eighty (180) days as requested by the managing underwriter following
the effective date of a registration statement of the Company filed under the
Securities Act (as hereafter defined), provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.

     11.  The Plan. This Option is subject to, and the Company and Optionee
          --------
agree to be bound by, all of the terms and conditions of the Plan as such Plan
may be amended from time to time in accordance with the terms thereof, provided
that no such amendment shall deprive Optionee, without Optionee's consent, of
this Option or any rights hereunder. Pursuant to the Plan, the Board of
Directors of the Company is authorized to adopt rules and regulations not
inconsistent with the Plan as it shall deem appropriate and proper. A copy of
the Plan in its present form is available for inspection during business hours
by Optionee or the persons entitled to exercise this Option at the Company's
principal office.

8



     12.  Entire Agreement; Amendment. This Agreement contains the entire
          ---------------------------
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous written or oral negotiations and
agreements between them regarding the subject matter hereof. This Agreement may
be amended only in writing signed by each of the parties hereto.



InterVideo, Inc.


By   ________________________________
     Name:
     Title:

9





          Optionee acknowledges receipt of a copy of the Plan, a copy of which
is attached hereto, and represents that Optionee has read and is familiar with
the terms and provisions thereof, and hereby accepts this Option subject to all
of the terms and provisions thereof. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors or the Committee upon any questions arising under the Plan.


Date:  ____________________________


OPTIONEE


By   ______________________________
     Joseph Liu

     Address:

10




                                    Exhibit A
                                    ---------

                            Stock Purchase Agreement

                                      -11-

EX-10.11

                                                                   EXHIBIT 10.11

                                INTERVIDEO, INC.

                       NONSTATUTORY STOCK OPTION AGREEMENT
                       -----------------------------------

          (50% immediately vested; acceleration upon change in control)


     InterVideo, Inc., a California corporation (the "Company") hereby grants to
Henry Shaw (the "Optionee") an option to purchase a total of Ten Thousand
(10,000) shares of Common Stock (the "Shares") of the Company, at the price and
on the terms set forth herein, and in all respects subject to the terms and
provisions of the Company's 1998 Stock Option Plan (the "Plan") applicable to
incentive stock options, which terms and provisions hereby are incorporated by
reference herein. Unless the context herein otherwise requires, the terms
defined in the Plan shall have the same meanings herein.

     1.   Nature of the Option. This Option is intended to be an nonstatutory
          --------------------
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or otherwise to qualify for any special tax benefits to Optionee.

     2.   Date of Grant; Term of Option. This Option is granted as of the grant
          -----------------------------
date set forth on the signature page of this Agreement, and it may not be
exercised later than ten (10) years from such date.

     3.   Option Exercise Price. The exercise price for this Option is $2.00 per
          ---------------------
Share, which price is not less than eighty-five percent (85%) of the fair market
value thereof on the date this Option was granted (or not less than one hundred
ten percent (110%) of the fair market value thereof on the date this Option was
granted, if the Optionee owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or its
parents or subsidiaries).

     4.   Exercise of Option. This Option shall be exercisable during its term
          ------------------
only in accordance with the terms and provisions of the Plan and this Option as
follows:

          (a)  Right to Exercise. This Option shall vest and be exercisable,
               -----------------
cumulatively, during its term as to one half (1/2) of the Shares as of the
Vesting Commencement Date (as set forth on the signature page hereof) and
thereafter as to 1/96 of the Shares at the end of each successive one-month
period of Continuous Status as an Employee of the Company until the Shares are
fully vested.

          (b)  Method of Exercise. This Option shall be exercisable by written
               ------------------
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised and such other
representations and agreements as to Optionee's investment intent with respect
to such Shares as may be required by the Company hereunder or


                                       -1-



pursuant to the provisions of the Plan. Such written notice shall be signed by
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase price and, at the
Company's option, either (i) an executed investment representation statement
acceptable to the Company (the "Investment Representation Statement") or (ii) an
executed stock purchase agreement acceptable to the Company (the "Stock Purchase
Agreement"). Payment of the purchase price shall be made by check or such other
consideration and method of payment authorized by the Board pursuant to the
Plan. The certificate or certificates for the Shares as to which this Option
shall be exercised shall be registered in the name of Optionee and shall carry
the legends set forth in the Plan, the Stock Purchase Agreement or the
Investment Representation Statement, as applicable, and/or as required under
applicable law.

          (c)  Restrictions on Exercise. This Option may not be exercised if the
               ------------------------
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by any
applicable law or regulation.

          (d)  Vesting Acceleration. Notwithstanding the vesting provisions of
               --------------------
Section 4(a), on the occurrence of the merger or consolidation of the Company
into, or the sale of all or substantially all of the Company's assets or stock
to, another corporation, all the Shares shall vest and be immediately
exercisable unless at least fifty-one percent (51%) of the capital stock of the
successor corporation is owned by persons who are holders of shares of capital
stock of the Company immediately before such merger, consolidation or sale.

     5.   Investment Representations. In connection with the acquisition of this
          --------------------------
Option, Optionee represents and warrants as follows:

          (a)  Investment Intent. Optionee is acquiring this Option, and upon
               -----------------
exercise of this Option, Optionee will be acquiring the Shares for investment
for Optionee's own account, not as a nominee or agent, and not with a view to,
or for resale in connection with, any distribution thereof.

          (b)  Protection of Interests. Optionee, by reason of Optionee's
               -----------------------
business or financial experience, has the capacity to evaluate the merits and
risks of purchasing Common Stock of the Company and to make an informed
investment decision with respect thereto and to protect Optionee's interests in
connection with the acquisition of this Option and the Shares.

     6.   Termination of Status as a Consultant. If Optionee ceases to serve as
          -------------------------------------
a Consultant for any reason other than death or disability and thereby
terminates Optionee's Continuous Status as a Consultant, Optionee shall have the
right to exercise this Option at any time within thirty (30) days after the date
of such termination to the extent that Optionee was entitled to exercise this
Option at the date of such termination. If Optionee ceases to serve as a
Consultant due to death or disability, this Option may be exercised at any time
within six (6)


                                       -2-



months after the date of death or termination of consulting relationship due to
disability, in the case of death, by Optionee's estate or by a person who
acquired the right to exercise this Option by bequest or inheritance, or, in the
case of disability, by Optionee, but in any case only to the extent Optionee was
entitled to exercise this Option at the date of such termination. To the extent
that Optionee was not entitled to exercise this Option at the date of
termination, or to the extent this Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable after the expiration of the term set forth
in paragraph 2 hereof.

     7.   Withholding Tax Liability. The Company reserves the right to withhold,
          -------------------------
in accordance with any applicable laws, from any compensation or other
consideration payable to the Optionee any taxes required to be withheld by
federal, state or local law as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon exercise of this
Option, and if such compensation or consideration is insufficient, the Company
may require Optionee to pay to the Company an amount sufficient to cover such
withholding tax liability. The Optionee agrees to notify the Company immediately
in the event of any disqualifying disposition (within the meaning of Section
421(b) of the Code) of the Shares acquired upon exercise of an incentive stock
option.

     8.   Nontransferability of Option. This Option may not be sold, pledged,
          ----------------------------
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law or otherwise, other than by
will or by the laws of descent or distribution, and may be exercised during the
lifetime of Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.

     9.   Continuation of Consulting Relationship. Neither this Option or the
          ---------------------------------------
Plan nor any Option granted thereunder shall confer upon any Optionee any right
to continue in the consulting relationship of the Company, its Parent,
Subsidiary or a successor corporation or limit in any respect the right of the
Company or any such corporations to discharge the Optionee at any time, with or
without cause and with or without notice.

     10.  Limitations on Transfer. In addition to any other limitation on
          -----------------------
transfer created by applicable securities laws, Optionee will not sell,
transfer, assign, encumber or otherwise dispose of (including, without
limitation by operation of law) any of Optionee's right, title or interest in
and to all or any portion of the Shares except as provided in this Section:

          (a)  Right of First Refusal. In the event Optionee desires (or is
               ----------------------
required) to sell or transfer in any manner all or a portion of the Shares, the
Optionee shall first offer such Shares for sale to the Company (or its assignee)
at the same price, and upon the same terms (or reasonably similar terms) as
those on which the Optionee is disposing of said Shares ("Right of First
Refusal"). Optionee shall offer such Shares to the Company by delivering a
written notice (the "Notice") to the Company stating (i) Optionee's bona fide
intention to sell or otherwise transfer such Shares, (ii) the number of such
Shares to be sold or otherwise transferred, (iii) the price for which Optionee
proposes to sell such Shares and all additional terms and conditions, if


                                       -3-



any, of the sale or transfer and (iv) the name of the proposed buyer or
transferee. Optionee shall attach to the Notice a copy of the written offer, if
any, of the sale or transfer. In the event of a transfer not involving a sale of
such Shares for a specific sum of money, or if, in the sole judgment of the
Company's Board of Directors, the proposed transfer does not involve a price for
the Shares negotiated by the Optionee and Optionee's proposed transferee in a
bona fide "arm's length transaction," the price of the Shares shall be
determined by the Company's Board of Directors in the manner specified in
Section 10(c) below.

          Within thirty (30) days after the Company's receipt of the Notice (the
"Acceptance Period"), the Company (or its assignee) may elect to purchase all of
the Shares (or, with the consent of the Optionee, a portion thereof) to which
the Notice refers, at the price per share (or at the fair market value of such
Shares determined pursuant to paragraph 10(c) hereof in the case of a transfer
other than a bona fide arms-length transaction) and on the same terms and
conditions (or terms and conditions as similar as reasonably possible) as set
forth in the Notice. If the Company (or its assignee) elects to purchase such
Shares hereunder, it shall notify Optionee either orally or in writing during
the Acceptance Period of its intention to purchase all of such Shares (or, with
the consent of Optionee, a portion thereof) and either (i) set a date and
location for the closing of the transaction on or prior to the last day of the
Acceptance Period, or at such later date as the parties may otherwise agree, at
which time the Company (or its assignee) shall tender payment for the Shares or
(ii) include payment for the Shares with the Company's notice to Optionee, if in
writing, or deliver it to Optionee under separate cover. At such closing, the
certificates representing the Shares so purchased shall be delivered to the
Company and canceled or, in the case of payment by the Company by mail, such
certificates shall be deemed to be canceled upon the date of such mailing of the
Company's payment and, thereafter, shall be promptly returned by Optionee to the
Company by certified or registered mail. Optionee hereby authorizes and directs
the Secretary or Transfer Agent of the Company to transfer the Shares as to
which the Right of First Refusal has been exercised from Optionee to the Company
(or its assignee). Optionee further authorizes the Company to refuse, or to
cause its Transfer Agent to refuse, to transfer or record any Shares to be
transferred in violation of this Agreement. If the Company (or its assignee)
does not elect to purchase the Shares to which the Notice refers, Optionee may
sell or otherwise transfer the Shares to the third party named in the Notice at
the price and on the terms and conditions specified in the Notice or at a higher
price, provided that such sale or transfer is consummated within sixty (60) days
from either (i) the lapse of the Acceptance Period or (ii) the date of the
Company's notice, whether written or oral, advising Optionee that it does not
intend to purchase the Shares hereunder, whichever occurs first in time and
provided, further, that any such sale or transfer is in accordance with all of
the terms and conditions set forth in this Agreement. In the event the Shares
are not disposed of by the Optionee within said 60-day period, such Shares shall
once again be subject to the Right of First Refusal herein provided.

          (b)  Involuntary Transfer. In the event of any transfer by operation
               --------------------
of law or other involuntary transfer (the "Involuntary Transfer"), of all, or a
portion, of the Shares, the Company shall have an option to purchase all of the
Shares transferred (the "Involuntary Transfer Option"). Upon such transfer, the
Optionee and person acquiring the Shares shall promptly notify in writing the
Secretary of the Company of such transfer. The Company (or its


                                       -4-



assignee) shall notify Optionee and the person acquiring the Shares as to
whether the Company (or its assignee) wishes to purchase the Shares pursuant to
the Involuntary Transfer Option within thirty (30) days after receipt by the
Company of the written notice of the involuntary transfer of the Shares. If the
Company (or its assignee) elects to purchase said Shares hereunder, it shall set
a date for the closing of the transaction at a place specified by the Company
(or its assignee) not later than thirty (30) days after receipt by the Company
of the written notice of the involuntary transfer of the Shares, or at such
later date as the parties may otherwise agree. At such closing, the Company (or
its assignee) shall tender payment for the Shares and the certificates
representing the Shares so purchased shall be canceled. Optionee hereby
authorizes and directs the Secretary or Transfer Agent of the Company to
transfer the Shares as to which the Involuntary Transfer Option has been
exercised from the Optionee to the Company (or its assignee). Optionee further
authorizes the Company to refuse, or to cause its Transfer Agent to refuse, to
transfer or record any Shares to be transferred in violation of this Agreement.

          (c)  Determination of Price. With respect to Shares to be transferred
               ----------------------
pursuant to the Right of First Refusal where the price is not determined as a
result of a bona fide arms-length transaction by the Optionee under paragraph
10(a) or the Involuntary Transfer Option, the price per share shall be a price
set by the Board of Directors of the Company that will reflect the then current
fair market value of the Shares, as determined by the Board of Directors in good
faith after giving consideration to the factors set forth in Section 260.140.50
of Title 10 of the California Code of Regulations or, upon the request of the
Optionee, by an independent appraiser acceptable to both the Company and the
Optionee; provided, that the Optionee shall be required to bear one-half of the
cost of such independent appraiser.

          (d)  Intra-family Transfers. Notwithstanding anything to the contrary
               ----------------------
contained herein, Optionee shall have the right, at any time and from time to
time during Optionee's lifetime or upon Optionee's death, to transfer all or any
portion of Optionee's Shares (the "Transferred Family Shares") to Optionee's
spouse, any of Optionee's issue, ancestors or descendants, or a trust for the
sole benefit of Optionee, Optionee's spouse, any of Optionee's issue, ancestors
or descendants (any such individual or trust is hereinafter referred to as an
"Intra-family Transferee"), provided that the Intra-family Transferee receiving
the Transferred Family Shares executes a consent to be bound by the terms of
this Agreement with respect to the Transferred Family Shares. The Transferred
Family Shares shall be and remain subject to all of the terms and conditions of
this Agreement as were applicable to such Shares immediately prior to their
transfer pursuant to this Section 10(e); without limiting the foregoing, the
obligations hereunder arising out of the possession or ownership of such
Transferred Family Shares shall be binding upon the respective Intra-family
Transferees. For purposes of exercising any rights under this Agreement, the
Company's right to purchase the Shares of Optionee shall extend to any Shares
owned by an Intra-family Transferee.

          (e)  Restriction on Alienation. Any sale, transfer, encumbrance, or
               -------------------------
other disposition or purported sale, transfer, encumbrance or disposition of any
of the Shares by Optionee, whether voluntarily, by operation of law or
otherwise, shall be null and void unless the terms, conditions and provisions of
this Agreement are strictly complied with. Optionee further authorizes the
Company to refuse, or cause its Transfer Agent to refuse, to transfer or record
any


                                       -5-



Shares to be transferred in violation of this Agreement.

          (f)  Assignment by Company. The Company's Right of First Refusal and
               ---------------------
Involuntary Transfer Option may be assigned in whole or in part to any
shareholder or shareholders of the Company.

          (g)  Obligations Binding Upon Transferees. All transferees of Shares
               ------------------------------------
or any interest therein will receive and hold such Shares or interests subject
to the provisions of this Agreement, including the Company's Right of First
Refusal and Involuntary Transfer Option. Any sale or transfer of the Shares
shall be void unless the provisions of this Agreement are met.

          (h)  Termination of Rights. The Right of First Refusal and Involuntary
               ---------------------
Transfer Option granted the Company by this paragraph 10 shall terminate at such
time as a public market exists for the Company's Common Stock (or any other
stock issued to purchasers in exchange for the Shares purchased under this
Agreement). For the purpose of this Agreement, a "public market" shall be deemed
to exist if the Common Stock is listed on a national securities exchange (as
that term is used in the Securities Exchange Act of 1934, as amended), or the
Common Stock is traded on the over-the-counter market and prices are published
on business days in a recognized financial journal.

          (i)  Indebtedness. Any payment by the Company for purchase of shares
               ------------
from Optionee, may be made by cancellation of any indebtedness to Company from
Optionee.

          (j)  Legends. All certificates representing any Shares of the Company
               -------
purchased upon exercise of the Options shall have endorsed thereon the following
legends, or substantially similar legends, in addition to any legends required
by state securities laws, unless in the opinion of counsel such legends are no
longer necessary:

(1)  THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
     OR IN CONNECTION WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH
     SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
     REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
     SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

(2)  THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS, INCLUDING A RIGHT OF
     FIRST REFUSAL OF THE COMPANY, AND MAY BE TRANSFERRED ONLY IN ACCORDANCE
     WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A
     COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

          (k)  Market Standoff Agreement. The Optionee, if requested by the
               -------------------------
Company and an underwriter of Common Stock (or other securities) of the Company,
agrees not


                                       -6-



to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Optionee during the period not to exceed one
hundred and eighty (180) days as requested by the managing underwriter following
the effective date of a registration statement of the Company filed under the
Securities Act (as hereafter defined), provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.

     11.  The Plan. This Option is subject to, and the Company and Optionee
          --------
agree to be bound by, all of the terms and conditions of the Plan as such Plan
may be amended from time to time in accordance with the terms thereof, provided
that no such amendment shall deprive Optionee, without Optionee's consent, of
this Option or any rights hereunder. Pursuant to the Plan, the Board of
Directors of the Company is authorized to adopt rules and regulations not
inconsistent with the Plan as it shall deem appropriate and proper. A copy of
the Plan in its present form is available for inspection during business hours
by Optionee or the persons entitled to exercise this Option at the Company's
principal office.

     12.  Entire Agreement; Amendment. This Agreement contains the entire
          ---------------------------
understanding between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous written or oral negotiations and
agreements between them regarding the subject matter hereof. This Agreement may
be amended only in writing signed by each of the parties hereto.


Grant Date: June 15, 2001
            -------------

Vesting
Commencement Date: June 15, 2001
                   -------------

                                                InterVideo, Inc.

                                                By:    _________________________

                                                Title: _________________________


                                       -7-



     Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that Optionee has read and is familiar with the
terms and provisions thereof, and hereby accepts this Option subject to all of
the terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
or the Committee upon any questions arising under the Plan.




Date:                                             /s/ Henry Shaw
      -----------------                           ------------------------------
                                                  Signature of Optionee

                                                  ------------------------------
                                                  Address

                                                  ------------------------------
                                                  City       State      Zip Code


                                       -8-

EX-10.12

                                                                   EXHIBIT 10.12

                             FORM OF PROMISSORY NOTE
                                 ---------------

[__________]                                                 Fremont, California
                                                           Effective [_________]

     For value received, the undersigned promises to pay to INTERVIDEO, INC., a
California corporation (the "Company"), or order, at its principal office, the
principal sum of [______] with interest thereon at the applicable federal rate
in effect for the month of [_____] under (S)1274(d) of the Internal Revenue
Code (to be later inserted at the bottom of this Note), compounded annually, on
the unpaid balance of the principal sum. All principal and accrued interest
shall be due and payable on or before five (5) years after the date of this Note
and shall be initially paid through a payroll deduction program instituted by
the Company.

     (a) Note Payment. The principal and interest are payable in lawful money of
         ------------
the United States of America. The undersigned may prepay in full the amount of
any principal installment or accrued interest under the Note. The Note shall
become payable in full upon the earlier of the following: (1) the term set forth
in the Note, (2) default under the Note or (3) upon the first anniversary of the
termination of the undersigned's employment with the Company.

     (b) Stock Pledge. Purchaser shall deliver to the Secretary of the Company
         ------------
or his designee (the "Escrow Agent") all certificates representing the Shares
and an executed blank stock assignment (in the form of Exhibit A to this
                                                       ---------
Agreement) for use in transferring all or a portion of such Shares to the
Company if, as and when required under this security agreement.

     (c) Security Grant. As security for the payment of the Note and any
         --------------
renewal, extension or modification thereof, Purchaser hereby grants to the
Company a security interest in and assigns, transfers, pledges and delivers to
the Company Purchaser's Shares (the "Collateral").

     (d) Foreclosure. In the event of any foreclosure of the Company's security
         -----------
interest in the Collateral, the Company may sell the Shares at a private sale or
may repurchase the Shares itself. The parties agree that, prior to the
establishment of a public market for the Shares of Company, the securities laws
affecting the sale of the Shares make a public sale of the Shares in the event
of foreclosure of the Company's security interest commercially unreasonable. The
parties further agree that the repurchasing of the Shares by the Company, or by
any person to whom the Company may have assigned its rights hereunder, is
commercially reasonable if made at a price determined by the Board of Directors
in its discretion, fairly exercised, representing what would be the fair market
value of the Shares reduced by any limitation on transferability, whether due to
the size of the block of Shares, the restrictions of applicable securities laws
or other restrictions imposed pursuant to this Agreement.

     (e) Remedies. In the event of default in payment when due of any
         --------
indebtedness under Purchaser's Note, the Company may elect then, or at any time
thereafter, to exercise all rights available to a secured party under the
California Commercial Code including the right to sell the



Collateral at a private or public sale or repurchase the Shares as provided
above. The proceeds of any sale shall be applied in the following order:

          (i)    To pay all reasonable expenses of the Company in enforcing this
                 Agreement, including without limitation reasonable attorneys'
                 fees and legal expenses incurred by the Company.

          (ii)   In satisfaction of the remaining indebtedness under this
                 Promissory Note.

          (iii)  To undersigned, any remaining proceeds.

     (f)  Share Release. Upon payment by Purchaser of any principal amount
          -------------
pursuant to the terms of the Note, Escrow Agent shall upon Purchaser's request
issue to Purchaser (but not more often than once during any six-calendar month
period) a certificate representing the number of Shares in Escrow Agent's
possession which were fully paid based upon the number of Shares which were
purchasable at the per Share price in Section 1 for the amount of the Note
principal paid, and such Shares shall be released from the Collateral and as
security for the Note under this security agreement. Escrow Agent shall then be
discharged of all further obligations relating to such Shares under this
security agreement; notwithstanding the foregoing, Escrow Agent shall retain the
Shares if at the time of full payment by Purchaser of such Shares, the Shares
are still subject to the escrow provisions contained in Section 4 of the Common
Stock Purchase Agreement. Unless Purchaser instructs otherwise, such released
Shares shall remain as Collateral under this security agreement to further
secure the balance of the Note remaining unpaid.

     (g)  Default. Should default be made in the payment of any installment when
          -------
due, then the whole sum of principal and accrued interest shall become
immediately due and payable at the option of the holder of this Note. Should
suit be commenced to collect this Note or any portion thereof, such sum as the
Court may deem reasonable shall be added hereto as attorneys' fees. The maker
waives presentment for payment, protest, notice of protest, and notice of
non-payment of this Note.

     (h)  Full Recourse. The holder of this Note shall have full recourse
          -------------
against the maker, and shall not be required to proceed against the collateral
securing this Note in the event of default.

                                                  _____________________________
                                                  Printed Name:

Interest Rate:  [____]

                                      -2-

EX-10.13

                                                                   EXHIBIT 10.13

                                INTERVIDEO, INC.

                         COMMON STOCK PURCHASE AGREEMENT
                         -------------------------------

                                   (Employee)

     This Common Stock Purchase Agreement (the "Agreement") is made as of the
15th day of May, 1998, by and among InterVideo, Inc., a California corporation
(the "Company"), Honda Shing, ("Purchaser") and the Secretary of the Company (as
                 -----------
Escrow Agent under Section 4 of this Agreement).

     The parties agree as follows:

     1.   Common Stock Purchase.
          ---------------------

          1.1  Purchase. Subject to the terms and conditions of this Agreement,
               --------
the Company hereby agrees to sell to Purchaser, and Purchaser hereby agrees to
purchase from the Company, on the Closing Date (as defined herein) 1,000,000
                                                                   ---------
shares of the Company's Common Stock (the "Shares"), at a price of $.001 per
                                                                   -----
share ("Original Issuance Price") and an aggregate purchase price of $1,000.00.
                                                                     ---------
The term "Shares" refers to the purchased Shares, all securities or property
received in replacement of Shares and all securities or property distributed
with respect to Shares, in any case by way of stock dividends, splits or
consolidations or pursuant to any recapitalization, consolidation, merger,
reorganization or the like.

          1.2  Payment. The aggregate purchase price shall be payable in cash.
               -------

     2.   Closing; Delivery.
          -----------------

          2.1  Closing. The purchase and sale of the Shares shall occur at a
               -------
closing (the "Closing") to be held at the principal office of the Company
simultaneously with the execution of this Agreement by the parties or on such
other date as they may agree (the "Closing Date").

          2.2  Deliver. At the Closing, the Company will deliver to Purchaser a
               -------
certificate representing the Shares to be purchased by him (which shall be
issued in Purchaser's name) against payment of the purchase price therefor. The
purchase price for the Shares shall be paid on the Closing Date by delivery of
the consideration referenced in Section 1.2 above.

     3.   Limitations on Transfer.
          -----------------------

     In addition to any other limitation on transfer created by applicable
securities laws, Purchaser shall not assign, encumber or dispose of any interest
in the Shares except as provided in this Section 3.



          3.1  Repurchase Option.
               -----------------

               (a) In the event of termination of Purchaser's employment
arrangement with the Company (the "Employment Arrangement") for any reason, with
or without cause (whether voluntary or involuntary, including death or
disability) (collectively referred to as the "Termination"), the Company shall
upon the date of such Termination have an irrevocable and exclusive option (the
"Repurchase Option") to repurchase up to the total number of the Shares
specified in Section 3.1(b) at the Original Issuance Price per Share, as
adjusted for stock splits, stock dividends, consolidations and the like.

               (b) All of the Shares purchased by Purchaser shall initially be
subject to the Repurchase Option. Thereafter, the Shares initially subject to
the Repurchase Option shall be released from the Repurchase Option,
cumulatively, as to one fourth (1/4) of such shares after twelve (12) months
following such Vesting Commencement Date and as to one forty-eighth (1/48) of
such Shares after each month following such twelve (12) month period during the
Employment Arrangement.

               (c) Within sixty (60) days following Purchaser's Termination, the
Company shall notify Purchaser as to whether it (or its assignee) wishes to
purchase all or a portion of the Shares pursuant to the exercise of the
Repurchase Option. If the Company (or its assignee) elects to purchase such
Shares hereunder, it shall notify Purchaser in writing of its (or its
assignee's) intention to purchase such Shares hereunder at the repurchase price
per share set pursuant to Section 3.1(a) and either (i) set a date and location
for the closing of the transaction not later than thirty (30) days from the date
of such notice at which time the Company (or its assignee) shall tender payment
for the Shares or (ii) close the transaction by mail by including payment for
the Shares with the Company's notice to Purchaser. Payment for the Shares may be
in the form of cash, the Company's check or cancellation of all or a portion of
Purchaser's indebtedness to the Company or any combination thereof. At such
closing, the certificate(s) representing the Shares so purchased shall be
delivered to the Company and cancelled (or the Shares transferred to the
Company's assignee, if applicable) or, in the case of payment by the Company (or
its assignee) by mail, such certificate(s) shall be deemed cancelled (or the
Shares transferred to the Company's assignee, if applicable) as of the date of
the mailing of the Company's notice and, thereafter, shall be promptly returned
by Purchaser to the Company by certified or registered mail. Shares subject to
the Repurchase Option as to which the Company (or its assignee) has not
exercised its Repurchase Option within ninety (90) days following Purchaser's
Termination shall be released from the Repurchase Option.

          3.2  Right of First Refusal.
               ----------------------

               (a) In the event Purchaser or his transferee desires (or is
required) to sell or transfer in any manner any of the Shares that are not
subject to the Repurchase option, Purchaser shall first offer such Shares for
sale to the Company upon the terms and conditions specified herein ("Right of
First Refusal") by delivering a notice (the "Notice") to the Company stating (1)
his bona fide intention to sell or otherwise transfer such Shares, (2) the
number of such Shares to be sold or otherwise transferred, (3) the price for
which Purchaser proposes to sell such Shares, (4) the name of the proposed buyer
or transferee and (5) all additional terms and conditions, if any, of the
proposed

                                      -2-



sale or transfer. Purchaser shall attach to the Notice a copy of the written
offer, if any, reflecting the terms and conditions of the proposed sale or
transfer of the Shares to the third party. In the event of a transfer not
involving a sale of the Shares for a specific sum of money, or if, in the sole
judgment of the Company's Board of Directors, the proposed transfer does not
involve a price for the Shares negotiated by Purchaser and its proposed buyer or
transferee in a bona fide "arm's length transaction," the price of the Shares
shall be determined by the Company's Board of Directors in the manner specified
in Section 3.4 below.

               (b) Within forty-five (45) days following receipt by the Company
of the Notice ("Acceptance Period"), the Company (or its assignee) may elect to
purchase all or a portion of the Shares to which the Notice refers, at the price
per Share and on the same terms and conditions (or terms and conditions as
reasonably similar as possible) as set forth in the Notice or at the price per
Share determined pursuant to Section 3.4 in the event that the price of the
Shares is to be determined by the Company's Board of Directors under Section 3.2
(a).

               (c) If the Company (or its assignee) elects to purchase such
Shares hereunder, it shall notify Purchaser in writing of its intention to
purchase such Shares hereunder and either (1) set a date for the closing of the
transaction at a place specified by the Company not later than thirty (30) days
from the date of such notice at which time the Company (or its assignee) shall
tender payment for the Shares or (2) include payment for the Shares with the
Company's notice to Purchaser. At such closing, the certificate(s) representing
the Shares so purchased shall be delivered to the Company and canceled (and the
Shares transferred to the Company's assignee, if applicable) or, in the case of
payment by the Company (or its assignee) by mail, such certificate(s) shall be
deemed canceled (and the Shares transferred to the Company's assignee, if
applicable) as of the date of the mailing of the Company's notice and,
thereafter, shall be promptly returned by Purchaser to the Company by certified
or registered mail.

               (d) If the Company (or its assignee) does not elect to purchase
all of the Shares to which the Notice refers, Purchaser may sell or otherwise
transfer the Shares not purchased to the third party named in the Notice at the
price and on the terms and conditions specified in the Notice or at a higher
price; provided, that such sale or transfer is consummated within sixty (60)
days from the earlier of (1) the lapse of the Acceptance Period or (2) the date
of the Company's notice, whether written or oral, advising Purchaser that the
Company does not intend to purchase the Shares hereunder; provided, further,
that any such sale or transfer is made in accordance with all of the terms and
conditions set forth in this Agreement. In the event the Shares are not disposed
of by Purchaser within such sixty (60) day period, such Shares shall once again
be subject to the Right of First Refusal.

          3.3  Involuntary Transfer.
               --------------------

               (a) In the event of any transfer by operation of law or other
involuntary transfer, of all, or a portion, of the Shares, the Company shall
have an option to purchase all of the Shares transferred (the "Involuntary
Transfer Option") at a price (i) set pursuant to Section 3.4 for those Shares
that are not subject to the Repurchase Option and (ii) equal to the Original
Issuance Price, as adjusted for stock splits, stock dividends, consolidations
and the like for those Shares that

                                      -3-



are subject to the Repurchase Option. Upon such a transfer, the person
acquiring the Shares shall promptly notify the Secretary of the Company of such
transfer.

              (b) The Company (or its assignee) shall notify Purchaser and the
person acquiring the Shares as to whether the Company (or its assignee) wishes
to purchase the Shares pursuant to the Involuntary Transfer Option within
forty-five (45) days following the date on which the Company was notified of the
transfer. If the Company (or its assignee) elects to purchase such Shares
hereunder, it shall set a date for the closing of the transaction at a place
specified by the Company not later than thirty (30) days from the date of the
Company's notice to Purchaser and the person acquiring the Shares. At such
closing, the Company (or its assignee) shall tender payment for the Shares in
the form of a check, cancellation of Purchaser's indebtedness to the Company or
some combination thereof and the certificate(s) representing the Shares so
purchased shall be canceled.

          3.4 Determination of Price by Board. With respect to the Shares to be
              -------------------------------
transferred pursuant to the Right of First Refusal or the Involuntary Transfer
Option where the price per Share is to be determined pursuant to this Section
3.4, the price per Share shall be a price set by the Board of Directors of the
Company that will reflect the then current value of such Shares. The Company
shall notify Purchaser, his representative or the person acquiring the Shares
under Section 3.3 of the price so determined within forty-five (45) days after
receipt by the Company of written notice of the transfer or proposed transfer of
the Shares.

          3.5 Restriction on Alienation. Purchaser agrees that Purchaser will
              -------------------------
not sell, transfer, pledge, encumber, assign or otherwise dispose of any of the
Shares subject to the Repurchase Option, or any right or interest therein,
whether voluntarily, by operation of law or otherwise, without the prior written
consent of the Company. Any sale, transfer or disposition or purported sale,
transfer or disposition of any of the Shares by Purchaser shall be null and void
unless the terms, conditions and provisions of this Agreement are strictly
complied with. Purchaser hereby authorizes and directs the Escrow Agent or the
Transfer Agent of the Company, as applicable, to transfer the Shares as to which
the Repurchase Option, Right of First Refusal or Involuntary Transfer Option has
been exercised from Purchaser to the Company (or its assignee). Purchaser
further authorizes the Company to refuse, or to cause the Escrow Agent or its
Transfer Agent to refuse, to transfer or record any Shares to be transferred in
violation of this Agreement.

          3.6 Assignment By Company. The Company's Repurchase Option, Right of
              ---------------------
First Refusal and Involuntary Transfer Option may be assigned in whole or in
part to any shareholder or shareholders of the Company.

          3.7 Obligations Binding Upon Transferees. All transferees of Shares or
              ------------------------------------
any interest therein will receive and hold such Shares or interests subject to
the provisions of this Agreement, including, insofar as applicable, the
Company's Repurchase Option, Right of First Refusal and Involuntary Transfer
Option under this Section 4. Any sale or transfer of the Shares shall be void
unless the provisions of this Agreement are met.

          3.8 Termination of Rights. The Repurchase Option, Right of First
              ---------------------
Refusal and the Involuntary Transfer Option granted by this Section 3 shall
terminate on the occurrence of the merger or consolidation of the Company into,
or the sale of all or substantially all of the Company's

                                      -4-



assets to, another corporation, except that these restrictions on transfer
shall not terminate if immediately after such merger, consolidation or sale of
assets, at least fifty-one percent (51%) of the capital stock of such other
corporation is owned by persons who are holders of shares of capital stock of
the Company immediately before such merger, consolidation or sale. The Right of
First Refusal and Involuntary Transfer Option granted by this Section 3 shall
terminate at such time as a public market exists for the Company's Common Stock
(or any other stock issued to purchasers in exchange for the Shares purchased
under this Agreement). For the purpose of this Agreement, a "public market"
shall be deemed to exist if the Common Stock is listed on a national securities
exchange (as that term is used in the Securities Exchange Act of 1934), or the
Common Stock is traded on the over-the-counter market and prices are published
daily on business days in a recognized financial journal.

          3.9  Replacement Certificate. In the event the restrictions imposed by
               -----------------------
this Agreement shall be terminated as provided in this Section 3 a new
certificate or certificates representing the Shares shall be issued, on request,
without the legend referred to in Section 6.1(b) herein.

          3.10 Excluded Transfers. The restrictions on transfer of this Section
               ------------------
3 shall not apply to an inter-vivos transfer to Purchaser's ancestors or
descendants or spouse or to a Trustee for their benefit, provided that such
transferee shall take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.

          3.11 Indebtedness. Notwithstanding any provision to the contrary in
               ------------
this Agreement, any payment by the Company for purchase of Shares from Purchaser
may be made by cancellation of any indebtedness to Company from Purchaser.

          3.12 Market Standoff Agreement. Purchaser, if requested by the Company
               -------------------------
and an underwriter of Common Stock (or other securities) of the Company, agrees
not to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Purchaser during the period not to exceed one
hundred and eighty (180) days as requested by the managing underwriter following
the effective date of a registration statement of the Company filed under the
Securities Act (as hereafter defined), provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in the form satisfactory to the Company and such
underwriter. The Company may impose stop transfer instructions with respect to
the shares (or other securities) subject to the foregoing restriction until the
end of such period.

     4.   Escrow; Escrow Instructions.
          ---------------------------

     As security for Purchaser's faithful performance of the terms and
provisions of this Agreement and to insure the availability for delivery of the
Shares upon the Company's (or its assignee's) exercise of the Repurchase Option,
Right of First Refusal or Involuntary Transfer Option, Purchaser shall, at the
Closing Date, deliver and deposit with the Secretary of the Company, or such
other person designated by the Company as Escrow Agent in this transaction, the
share certificate(s) representing the Shares, together with a stock assignment
duly endorsed in blank (in the form of Exhibit A to this Agreement). The Escrow
                                       ---------
Agent is hereby authorized and directed to hold the

                                      -5-



documents delivered to the Escrow Agent pursuant to the terms of this Agreement
including the stock certificate(s) evidencing the Shares and the stock
assignment in accordance with the following terms of this Section 4.

          4.1 Rights Exercise. In the event the Company (or its assignee) shall
              ---------------
elect to exercise the Repurchase Option, Right of First Refusal or Involuntary
Transfer Option set forth in Section 3 of this Agreement (collectively the
"Rights") in whole or in part, the Company (or its assignee) shall give to
Purchaser and to Escrow Agent a written notice specifying a time, place and/or
manner for a closing hereunder.

          4.2 Closing Instructions. Purchaser and the Company hereby irrevocably
              --------------------
authorize and direct Escrow Agent to take all such actions as may be necessary
or proper to close the transaction contemplated by such notice in accordance
with the terms of such notice. At the closing, Escrow Agent is directed to (i)
date such stock assignment as shall be necessary for the specific transfer, (ii)
fill in the number of Shares being transferred, and (iii) deliver the same,
together with the certificate(s) evidencing the Shares to be transferred, to the
Company (or its assignee) as provided in this Agreement against the simultaneous
delivery to Escrow Agent of the purchase price for the number of Shares being
purchased pursuant to this Agreement.

          4.3 Additional Share Deposit. Purchaser irrevocably authorizes the
              ------------------------
Company to deposit with Escrow Agent any securities (including additional shares
of the Company's Common Stock) or other property (including cash) which
Purchaser would be entitled to receive on account of any Shares held by Escrow
Agent hereunder. To facilitate the performance of this Agreement, Purchaser
irrevocably constitutes and appoints Escrow Agent as his attorney-in-fact and
agent for the term of the escrow to execute with respect to such Shares all
stock certificates, stock assignments, or other instruments, which shall be
necessary or appropriate to make such securities negotiable and to complete any
transaction contemplated under this Agreement, including but not limited to any
filings to comply with state or federal securities laws.

          4.4 Share Release. Upon written request from the Company and
              -------------
Purchaser, Escrow Agent is authorized to release from escrow the number of
Shares indicated in that written request pursuant to this Agreement.

          4.5 Escrow Termination. The escrow shall terminate upon the
              ------------------
termination of the Company's Rights under Section 3 of this Agreement. Upon
termination of this escrow, Escrow Agent shall delivery to Purchaser all
documents, securities, or other property belonging to Purchaser that are still
in Escrow Agent's possession, and Escrow Agent shall be discharged of all
further obligations under Section 4.

          4.6 Escrow Amendment. Escrow Agent's duties hereunder may be altered,
              ----------------
amended, modified, or revoked only by a writing signed by all of the parties to
this Agreement and approved by Escrow Agent.

          4.7 Escrow Agent Liability. Escrow Agent shall not be personally
              ----------------------
liable for any act Escrow Agent may do or omit to do hereunder as Escrow Agent
or attorney-in-fact for Purchaser while acting in good faith and in the exercise
of Escrow Agent's own good judgment and any act

                                      -6-



done or omitted by Escrow Agent pursuant to the advice of Escrow Agent's own
attorneys shall be conclusive evidence of such good faith. Escrow Agent shall
not be liable in any respect on account of the identities, authorities or rights
of the parties executing or delivering or purporting to execute or deliver this
Agreement or any documents or papers deposited or called for hereunder. Escrow
Agent shall not be liable for the termination of any rights under any applicable
statute of limitations with respect to the provisions of this Section 4 or any
documents deposited with Escrow Agent.

          4.8  Court Orders. Escrow Agent is hereby expressly authorized to
               ------------
disregard any and all warnings given by any of the parties hereto or by any
other person or corporation, excepting only orders or process of courts of law,
and is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case Escrow Agent obeys or complies with any such
order, judgment or decree of any court, Escrow Agent shall not be liable to any
of the parties hereto or to any other person, firm, or corporation by reason of
such compliance, notwithstanding that any such order, judgment or decree shall
be subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.

          4.9  Execution Effect. By signing this Agreement, the Escrow Agent
               ----------------
becomes a party hereto only for the purpose of Section 4 and for no other
provisions of this Agreement.

          4.10 Escrow Agent Successors. If, prior to the termination of this
               -----------------------
Escrow, Escrow Agent shall die or shall cease to be Secretary of the Company,
any other officer of the Company may, from time to time, at the request of the
Company's Board of Directors, discharge any of the duties and perform any of the
acts to be performed by Escrow Agent as Escrow Agent.

     5.   Investment Representations.
          --------------------------

     In connection with the acquisition of the Shares, Purchaser represents to
the Company the following:

          5.1  Investment. Purchaser is acquiring the Shares to be issued to
               ----------
Purchaser for investment for Purchaser's own account and not with the view to,
or for resale in connection with, any distribution, assignment or resale within
the meaning of the Securities Act of 1933 (the "Securities Act") or the
California Corporate Securities Law of 1968, as amended ("California Securities
Law") to others and no other person has a direct or indirect beneficial
interest, in whole or in part, in such Shares. Purchaser understands that the
Shares to be issued to Purchaser have not been and will not be registered under
the Securities Act or qualified under the California Securities Law or under the
laws of any other state of the United States in reliance upon specific
exemptions therefrom which depend upon, among other things, the bona fide nature
of the investment intent as expressed herein and in any other representations,
warranties or information provided by Purchaser to the Company under this
Agreement.

          5.2  Restrictions on Transfer. Purchaser acknowledges that the Shares
               ------------------------
to be issued to Purchaser must be held indefinitely unless subsequently
registered and qualified under the Securities Act or unless an exemption from
registration and qualification is otherwise available. Purchaser further
understands that the Company is under no obligation to register or qualify the
Shares.

                                      -7-



          5.3 Rule 144. Purchaser is aware of the provisions of Rule 144,
              --------
promulgated under the Securities Act, which permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.

          5.4 Exemption from Registration. Purchaser further acknowledges that,
              ---------------------------
in the event all of the applicable requirements of Rule 144 are not satisfied,
registration under the Securities Act, compliance with Regulation A, or some
other registration exemption will be required.

          5.5 Relationship to Company; Experience. Purchaser either has a
              -----------------------------------
preexisting business or personal relationship with the Company or any of its
officers, directors or controlling persons or, by reason of Purchaser's business
or financial experience has the capacity to protect Purchaser's own interests in
connection with Purchaser's acquisition of the Shares to be issued to Purchaser
hereunder. Purchaser has such knowledge and experience in financial, tax and
business matters to enable Purchaser to utilize the information made available
to Purchaser in connection with the acquisition of the Shares to evaluate the
merits and risks of the prospective investment and to make an informed
investment decision with respect thereto.

          5.6 Purchaser's Liquidity. In reaching the decision to invest in the
              ---------------------
Shares, Purchaser has carefully evaluated Purchaser's financial resources and
investment position and the risks associated with this investment, and Purchaser
acknowledges that Purchaser is able to bear the economic risks of the
investment. Purchaser (i) has adequate means of providing for Purchaser's
current needs and possible personal contingencies, (ii) has no need for
liquidity in Purchaser's investment, (iii) is able to bear the substantial
economic risks of an investment in the Shares for an indefinite period and (iv)
at the present time, can afford a complete loss of such investment. Purchaser's
commitment to investments which are not readily marketable is not
disproportionate to Purchaser's net worth and Purchaser's investment in the
Shares will not cause Purchaser's overall commitment to become excessive.

          5.7 Offer and Sale. Purchaser understands that the offer and sale of
              --------------
the Shares have not been registered under the Securities Act in reliance upon
exemption therefrom. Purchaser was not offered or sold the Shares, directly or
indirectly, by means of any form of general solicitation or general
advertisement, including the following: (i) any advertisement, article, notice
or other communication published in any newspaper, magazine or similar medium or
broadcast over television or radio; or (ii) any seminar or meeting whose
attendees had been invited by general solicitation or general advertising.

          5.8 Access to Data. Purchaser is aware of the Company's business
              --------------
affairs and financial condition, and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision to acquire the
Shares. Purchaser acknowledges that during the course of this transaction and
before deciding to acquire the Shares, Purchaser has been provided with
financial and other written information about the Company. Purchaser has been
given the opportunity by the Company to obtain any information and ask questions
concerning the Company, the Shares, and Purchaser's investment that Purchaser
felt necessary; and to the extent Purchaser availed himself of that opportunity,
Purchaser has received satisfactory information and answers.

                                      -8-



          5.9  Risks. Purchaser acknowledges and understands that (i) an
               -----
investment in the Company constitutes a high risk, (ii) the Shares are highly
speculative, and (iii) there can be no assurance as to what return, if any,
there may be. Purchaser is aware that the Company may issue additional
securities in the future which could result in the dilution of Purchaser's
ownership interest in the Company.

          5.10 Valid Agreement. This Agreement when executed and delivered by
               ---------------
Purchaser shall constitute a valid and legally binding obligation of Purchaser
which is enforceable in accordance with its terms.

          5.11 Residence. The address set forth on the signature page of this
               ---------
Agreement is Purchaser's current address and accurately sets forth Purchaser's
place of residence.

     6.   Securities Compliance.
          ---------------------

          6.1  Legends. The certificate or certificates representing the Shares
               -------
shall bear legends in substantially the following form (in addition to any other
legend imposed by applicable blue sky laws):

               (a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.

               (b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
TRANSFER RESTRICTIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.

          6.2  No Qualification. THE SALE OF THE SECURITIES WHICH ARE THE
               ----------------
SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA CORPORATIONS
COMMISSIONER, IS SUBJECT TO SUCH QUALIFICATION OR AN EXEMPTION BEING AVAILABLE,
AND THE ISSUANCE OF SUCH SECURITIES, OR THE RECEIPT OF ANY PART OF THE
CONSIDERATION PRIOR TO SUCH QUALIFICATION IS UNLAWFUL. THE RIGHTS OF THE PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED OR AN EXEMPTION BEING AVAILABLE.

          6.3  Transfers. In addition to the restrictions imposed under Section
               ---------
3, all transfers of Shares or any interest in any such Shares shall be made in
strict compliance with applicable state and federal securities laws.

                                      -9-



     7.   Tax Considerations.
          ------------------

          7.1 Tax Effects. Purchaser understands that the tax consequences to
              -----------
Purchaser as a result of this transaction depend on Purchaser's individual
circumstances and the characterization of this transaction. Further, Purchaser
will be responsible for any personal tax liability, whether federal, state or
local, as a result of this transaction and Purchaser's ownership of the Shares.
Purchaser has consulted with Purchaser's own advisor(s) with respect to this
transaction and has not relied on any advice from the Company or any of its
officers, directors, agents or representatives.

          7.2 Tax Election. Purchaser shall notify the Company in writing if
              ------------
Purchaser files an election pursuant to Section 83(b) of the Internal Revenue
Code of 1986 within thirty (30) days from the date of the sale of the Shares
hereunder. The Company intends, in the event it does not receive from Purchaser
evidence of such filing, to claim a tax deduction for any amount which would be
taxable to Purchaser in the absence of such an election.

     8.   Miscellaneous.
          -------------

          8.1 Amendment. This Agreement may only be amended by written agreement
              ---------
between Company and Purchaser (or with respect to Section 4, by written
agreement among the Company, Purchaser and the Escrow Agent).

          8.2 Notices. Any notice, demand, request or other communications
              -------
hereunder shall be in writing and shall be deemed sufficient when delivered
personally or sent by courier or upon deposit in the U.S. mail, as certified,
registered or first class mail, with postage prepaid, and addressed, if to the
Company, at its principal place of business, Attention: the President, if to
Purchaser, at his address as shown on the stock records of the Company or if to
Escrow Agent, at the Company's principal place of business, Attention: the
Secretary. The address to which notice is to be given hereunder may be changed
from time to time by the parties entitled to notice by notice given to all other
parties as provided herein.

          8.3 Successors and Assigns. The rights and benefits of this Agreement
              ----------------------
shall inure to the benefit of, and be enforceable by, the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.

          8.4 Further Actions. Both parties agree to execute any additional
              ---------------
documents and take such further action as may be reasonably necessary to carry
out the purposes of this Agreement.

          8.5 Shareholder Rights. Subject to the provisions of this Agreement,
              ------------------
Purchaser shall during the term of this Agreement exercise all rights and
privileges of a shareholder of the Company with respect to the Shares.

          8.6 Injunctive Relief. Purchaser agrees that the Company and/or other
              -----------------
shareholders shall be entitled to a decree of specific performance of the terms
hereof or an injunction restraining violations of this Agreement, such right to
be in addition to any of the remedies of the Company. No remedy provided herein
is intended to be exclusive of any other remedy, and each

                                      -10-



and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity.

          8.7  Governing Law. This Agreement shall be governed by and construed
               -------------
in accordance with the laws of the State of California.

          8.8  Severability. If any provision of this Agreement is held by a
               ------------
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way and shall be construed in
accordance with the purposes, tenor and effect of this Agreement.

          8.9  No Employment Effect. Nothing contained herein shall confer upon
               --------------------
Purchaser any right to continue in the employ of the Company, and the Company
reserves all rights to discharge Purchaser for any reason whatsoever, with or
without cause.

          8.10 Expenses. Each party hereto shall pay his own expenses incurred
               --------
(including, without limitation, the fees of counsel) on his behalf in connection
with this Agreement or any transactions contemplated by this Agreement.

          8.11 Entire Agreement. This Agreement embodies the entire agreement
               ----------------
and understanding of the parties hereto in respect of the subject matter hereof
and supersedes all prior and contemporaneous written or oral communications or
agreements between the Company and Purchaser regarding the subject matter hereof
and no amendment or addition hereto shall be deemed effective unless agreed to
in writing by the parties hereto.

          8.12 Waivers. No waiver of any provision of this Agreement or any
               -------
rights or obligations of any party hereunder shall be effective, except pursuant
to a written instrument signed by the party or parties waiving compliance, and
any such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.

          8.13 Counterparts. This Agreement may be executed in one or more
               ------------
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.

          8.14 Attorneys' Fees. If any legal action or any arbitration or other
               ---------------
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
provision of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled.

                                      -11-



     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.

INTERVIDEO, INC.                                 PURCHASER

By:/s/ Wen fang Ro                               By:/s/ Honda Shing
_________________________________               ________________________________

Title:  President                                Name: Honda Shing
      ----------------------------                    -------------------------


For purposes of Section 4 only:                  Address: 3650 Buckley St. #404
                                                         ----------------------

                                                 Santa Clara, CA 95051
                                                 ------------------------------

                                                 ______________________________


ESCROW AGENT

By:/s/ Wen fang Ro
_________________________________


Vesting Commencement Date
(for purpose of Section 4.1):

       Upon employment
- ----------------------------------

                                      -12-



                                SPOUSE'S CONSENT

     I acknowledge that I have read the foregoing Common Stock Purchase
Agreement and that I know its content. I am aware that by its provisions my
spouse agrees to sell all his Shares, including any community property interest
I may have, on the occurrence of certain events. I hereby consent to the sale,
approve the provisions of the Agreement and agree that these Shares and any
interest I may have in them are subject to the provisions of the Common Stock
Purchase Agreement and that I will take no action at any time to hinder the
operation of the Common Stock Purchase Agreement on these Shares or any interest
I may have in them.

                                                   Spouse of Purchaser

                                                   ____________________________

                                     Spouse's Name:____________________________

                                      -13-

EX-10.14

CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS OMITTED INFORMATION HAS BEEN REPLACED BY [*].


                                                                   EXHIBIT 10.14

                          SOFTWARE LICENSING AGREEMENT

THIS SOFTWARE LICENSE AGREEMENT is entered into as of this 4th day of August
1999 (hereinafter "Effective Date") by and between Dell Products L.P.
(hereinafter "Dell") with its principal place of business at One Dell Way, Round
Rock, Texas 78682, and Intervideo, Inc., a California corporation having a
principal place of business at 47350 Fremont Blvd., Fremont, CA 94538
(hereinafter "Licensor").

1.0      DEFINITIONS

1.1      Agreement shall mean this Software License Agreement and its
         Supplement.

1.2      Licensed Product(s) shall mean: (i) the software and documentation
         listed in the Supplement to this Software License Agreement and (ii)
         all improvements, corrections, modifications, alterations, revisions,
         extensions, upgrades, national language versions and/or enhancements to
         the software and/or documentation made during the term of this
         Agreement (hereinafter "Updates").

1.3      Supplement shall mean the supplement executed under this Software
         License Agreement. The supplement shall describe the Licensed
         Product(s) and may include additional terms and conditions such as
         compensation, delivery schedules, technical contacts and other
         information related to the Licensed Product(s). The terms and
         conditions of this Software License Agreement shall apply to the
         Supplement.

2.0      OBJECT CODE LICENSE WITH SOURCE CODE ESCROW PROVISIONS

2.1      Licensor hereby grants to Dell a non-exclusive, worldwide, irrevocable
         right and license, under all copyrights, patents, patent applications,
         trade secrets and other necessary intellectual property rights, to: (i)
         use, make, execute, reproduce, display, perform and prepare derivative
         works of, the Licensed Product(s), in object code form, (ii)
         distribute, license, sublicense, sell, lease or otherwise transfer the
         Licensed Product(s), in object code form, as part of, in conjunction
         with, or for use with, Dell systems and (iii) authorize, license and
         sublicense third parties to do any, some or all of the foregoing. Dell
         shall have the option to distribute the Licensed Product(s) to end
         users pursuant to Dell's or Licensor's end user license agreement or
         the like, as updated from time to time.

2.2      The above grant includes, without limitation, the right and license to:
         (i) use Licensor's trade names, product names and trademarks in
         connection with the marketing and distribution of Licensed Product(s)
         and (ii) all pictorial, graphic and audio visual works including icons,
         screens and characters created as a result of execution of the Licensed
         Product(s).

2.3      Upon Dell's request, Licensor agrees to place into escrow the Licensed
         Product(s), in source code form, and all build tools and other
         materials necessary to enable Dell to maintain and service the Licensed
         Product(s) in object code from ("hereinafter Escrow Materials"). Dell
         shall be responsible for paying the escrow agent's fees. Dell agrees
         not to exercise its license to the Escrow Materials set forth below
         unless and until the Escrow Materials are released to



         Dell by the escrow agent. The escrow agent may only release the Escrow
         Materials to Dell under the following circumstances: (i) Licensor
         becomes insolvent, (ii) a claim of bankruptcy if filed by or on behalf
         of Licensor, (iii) Licensor makes an assignment for the benefit of a
         creditor or (iv) Licensor ceases to do business in the normal course.
         Under all circumstances, ownership of the Licensed Product shall remain
         with IVI.

2.4      Licensor hereby grants to Dell a non-exclusive, worldwide, irrevocable
         right and license, under all copyrights, patents, patent applications,
         trade secrets and other necessary intellectual property rights, to
         internally: (i) use, execute, reproduce, display, perform, prepare
         derivative works of, the Licensed Product(s), in source code form, for
         the purposes of enabling Dell to maintain, service and manufacture the
         Licensed Product(s) and (ii) authorize, license and sublicense third
         parties to do any, some or all of the foregoing on Dell's behalf.

3.0      COMPENSATION; PER COPY ROYALTIES

3.1      Dell will pay Licensor a per copy royalty as set forth in the
         Supplement for each copy of the Licensed Product(s) distributed by Dell
         for revenue. No per copy royalties shall be due for copies of the
         Licensed Product(s): (i) [*], (ii) used or distributed for
         demonstration, marketing or training purposes, (iii) distributed to a
         customer as a replacement for a defective copy or to fix an error, (iv)
         used to repair or maintain a customer's system, (v) used for backup or
         archival purposes, (vi) returned by a customer, (vii) used for
         manufacturing or testing purposes or (viii) distributed to an existing
         customers as an upgrade to their existing copy of the Licensed
         Product(s).

3.2      The per copy royalties set forth in the Supplement represents Dell's
         only financial obligations under this Agreement and includes all costs
         and fees. All payments shall be made in United States currency.
         Licensor acknowledges that there [*] royalty due under this Agreement
         and that any royalties received will be based solely on the criteria
         set forth above. Licensor acknowledges and agrees that Dell has the
         right to withhold any applicable taxes from any royalties due under
         this Agreement if required by any government agency.

3.3      Upon request, Dell shall submit royalty reports within [*] days after
         [*]. For the purposes of royalty reporting, as an example, Dell's
         fiscal quarters may be: Quarter 1 - February 1-April 30, Quarter 2-May
         1-July 31, Quarter 3-August 1-October 31, and Quarter 4-November
         1-January 31.

3.4      A nationally recognized accounting organization retained by Licensor
         and acceptable to Dell may have access to those records maintained by
         Dell that are necessary to determine whether Dell has paid the
         appropriate royalties based on net shipments by Licensed Product. Dell
         must receive at least sixty (60) or more days of advance written notice
         of Licensor's intent to audit. Such audit may only take place upon
         sixty (60) days written notice, during regular business hours and no
         more than once per calendar year. Only two (2) years of Dell records
         may be accessed from the date of audit, unless there is a substantial
         discrepancy which may affect additional year records. All records
         accessed during the audit shall be deemed Dell

                                      -2-



         confidential information and will be treated as such in accordance with
         the confidentiality agreement in place between the parties. If no such
         agreement is in place, the parties will negotiate in good faith the
         terms of such an agreement.

3.5      If the parties discover and agree that Dell has overpaid Licensor,
         Licensor shall refund the amount of the overpayment to Dell within
         forty-five (45) days after receipt of an invoice. If the parties
         discover and agree that Dell has underpaid Licensor, Dell will pay
         Licensor the amount of the underpayment within forty-five (45) days
         after receipt of an invoice.

4.0      PRE-DELIVERY TESTING, DELIVERY AND ACCEPTANCE

4.1      Prior to delivery, Licensor shall perform all testing necessary to
         ensure that the Licensed Product(s) comply with its written
         specifications and are compatibility with Dell systems. Licensor shall
         appoint a designated systems engineer who shall be available on a [*]
         basis to support Dell in all areas relating to the Licensed
         Product(s). Such [*] systems engineer will work with Dell on any
         modifications to the Licensed Product(s) necessary to fully support
         Dell's systems and their features.

4.2      Licensor shall, at its expense, deliver a master copy of the Licensed
         Product(s) to Dell in accordance with the schedule set forth in the
         Supplement. Licensor also shall, at its expense, deliver to Dell,
         within [*] days of Dell's request, all Updates to the Licensed
         Product(s) made during the term of this Agreement, Licensor shall
         inform Dell of the existence of a major Update at least [*] days prior
         to making such an Update generally available or within [*] days for a
         minor Update. Upon Dell's request, Licensor shall provide Dell with a
         pre-release copy of any Update. Licensor shall deliver a master copy of
         its standard end user license agreement and a copy of the Licensed
         Product's written specifications at the same time Licensor delivers the
         Licensed Product(s).

4.3      Upon Dell's receipt of a Licensed Product, Dell shall have [*] days to
         conduct those tests that Dell deems appropriate to determine whether
         the Licensed Product: (i) complies with its written specifications,
         (ii) contains any defects and (iii) is compatible with Dell's systems.
         If Dell discovers a problem, Dell will notify Licensor and Licensor
         will have [*] days [*] to fix the problem and deliver a corrected
         version of the Licensed Product to Dell. Upon receipt of the corrected
         version, Dell will have [*] days to test the corrected version of the
         Licensed Product. If Dell determines that there is still a problem,
         Dell will have the option of rejecting the Licensed Product or
         agreeing upon a fix strategy with Licensor. If Dell rejects the
         Licensed Product, any payments previously made by Dell to Licensor
         relating to the Licensed Product, if any, shall be refunded in their
         entirety within [*] days of Dell's rejection. If Dell decides to agree
         on a fix strategy, such decision shall not be deemed an acceptance of
         the Licensed Product. In fact, each version of the Licensed Product
         delivered to Dell, in accordance with the fix strategy, will go through
         the acceptance process set forth above.

                                      -3-



5.0      SUPPORT, TRAINING AND MAINTENANCE

5.1      Licensor shall, [*], train Dell personnel to set up, install, configure
         and operate the Licensed Product(s) and provide such other training to
         assist and enable Dell to fully perform and exercise its rights under
         this Agreement. Such training shall be completed [*] days prior to
         Dell's commercial introduction of the Licensed Product(s). Additional
         training periods for Updates shall also be provided [*] and within a
         mutually agreed upon time period.

5.2      During the term of this Agreement, Licensor shall, [*], provide to Dell
         ongoing technical support, maintenance and services for the Licensed
         Product(s). Should Licensor become aware of any reproducible errors or
         be notified by Dell or any errors in the Licensed Product(s), Licensor
         shall promptly take appropriate measures to correct such errors and
         provide such corrections in accordance with the time frames set forth
         below. Licensor shall provide, [*], assistance in correcting
         difficulties caused by errors, including, but not limited to, phone
         for Dell customer service staff. Licensor agrees to provide any other
         appropriate service to ensure the proper installation, operation, and
         functioning of the Licensed Product(s).

5.3      Dell will notify Licensor of any problems discovered with the Licensed
         Product(s). Such notification may be in writing or oral. Timely
         turnaround to software problem reports will be required. Problems must
         be fixed within the following timeframes:

         Major Defect                                Correction
         ------------                                ----------

         Licensor acknowledgment and description     Work-around or patch within
         of course of action within [*] of           [*].
         notification by Dell.

         Minor Defect                                Correction
         ------------                                ----------
         Licensor acknowledgement and description    Work around or patch
         of course of action within [*] of           within [*].
         notification by Dell.

         Major Defect is any problem with the use of Licensed Product(s) that
         either fully or partially impairs the use or operation of the Licensed
         Product by Dell or Dell's customers or licensees. Minor Defect is any
         problem that is outside of the Major Defect definition.

6.0      REPRESENTATIONS AND WARRANTIES

         On an ongoing basis, Licensor represents and warrants that:

          (a) the Licensed Product(s) will operate in accordance with its
              written specifications;

          (b) Licensor has [*] in the Licensed Product(s) to grant Dell the
              rights and licenses contained in this Agreement;

                                       -4-





          (c) the Licensed Product(s) [*] of any third party;

          (d) the Licensed Product(s) does not contain any known viruses,
              expiration, time-sensitive devices or other harmful code that
              would inhibit the end user's use of the Licensed Product(s) or
              Dell system;

          (e) if applicable, the Licensed Product(s) shall be able to accurately
              process date data (including, but not limited to, displaying,
              calculating, comparing, and sequencing) between the twentieth and
              twenty-first centuries;

          (f) if applicable, the Licensed Product(s) is certified by Microsoft
              as PC 9X compliant or Windows Logo certified;

          (g) Licensor and the Licensed Product(s) comply with all governmental
              laws, statutes, ordinances, administrative orders, rules and
              regulations and that Licensor has procured all necessary licensees
              and paid all fees and other charges required so that Dell can
              exercise the rights and license granted under this Agreement;

          (h) Licensor has obtained a waiver or agreement not to assert any
              moral rights from any person or entity having any moral rights
              with respect to the Licensed Product(s) and Licensor shall not
              assert any moral rights Licensor or its employees may have in the
              Licensed Product(s);

          (i) the Licensed Product(s) are not encrypted, nor do they contain
              encryption capability;

          (j) there is no restriction of any relevant governmental authority
              which prohibits the export of the Licensed Product(s) to countries
              outside the United States and Canada, other than those laws of the
              United States which prohibit exports generally to specified
              countries, currently: Libya, Cuba, Montenegro, North Korea,
              Serbia, Syria, Sudan, Iran and Iraq, as amended from time to time
              by the United States Government; and

          (k) Licensor has and will continue to comply with all applicable
              governmental laws, statutes, rules and regulations including, but
              not limited to, those related to export of product and technical
              data, and Licensor agrees that for any updates, upgrades and new
              products which are licensed to Dell pursuant to the terms of this
              Agreement. Licensor shall provide prior written notice of any
              facts which would make the foregoing representations untrue.

          In the event that Dell chooses to use Licensor's end user license
          agreement, Licensor hereby makes the following additional ongoing
          representations and warranties:

          (l) Licensor will warrant the Licensed Product(s) directly to the
              end-user in accordance with the terms and conditions set forth in
              Licensor's end-user license agreement; and

          (m) Licensor has agreed to honor all replacement requests received
              from Dell or end users under the terms of the end user license
              agreement pertaining to defective Licensed Product(s).

7.0       INDEMNIFICATION

7.1       Licensor shall indemnify, defend and hold harmless Dell, Dell Computer
          Corporation, Dell Computer Corporation's subsidiaries and affiliates
          and all of the foregoing entities' officers, directors, employees,
          agents, customers and licensees, and their successors and assigns,
          from

                                      -5-



      and against any and all claims, actions, suits, legal proceedings,
      demands, liabilities, damages, losses, judgments, settlements, costs and
      expenses, beyond the liability limitations listed in section 9.2,
      including attorney's fees, arising out of or in connection with any
      alleged or actual:

          (i)   infringement by Licensor and/or the Licensed Product(s) of any
          copyright, patent, trade secret or other intellectual property rights
          or similar rights of any third party, except those listed in 7.4;

          (ii)  breach by Licensor and/or the Licensed Product(s) of any other
          representation and/or warranties contained in this Agreement; and

          (iii) damage to any property, personal injury, death or any other
          damages or losses sustained by whomever suffered, resulting, or
          claimed to result, in whole or in part from any alleged or actual
          defect in the Licensed Product(s) whether latent or patent, including
          any alleged or actual improper construction or design or the failure
          of the Licensed Product(s) to comply with its written specifications
          or any express or implied warranties.

7.2   In the event that Dell becomes aware of any such claim, Dell shall: (i)
      notify Licensor of such claim, (ii) cooperate with Licensor in the defense
      thereof and (iii) obtain Licensor's approval prior to settling any such
      claim, provided such consent is not unreasonably withheld.

7.3.1 In addition to Licensor's obligations under Subsection 7.1 above, in the
      event that a claim of infringement is made with regard to the Licensed
      Product(s), Licensor shall, at its own expense, procure for Dell the right
      to exercise the rights and licenses granted to Dell under this Agreement
      or modify the Licensed Product(s) such that it is no longer infringing.

8.0   TERM AND TERMINATION OF AGREEMENT

8.1   Unless earlier terminated as provided below, the term of this Agreement
      shall be for three (3) years from the Effective Date and, unless either
      party gives thirty (30) days notice of non-renewal prior to the end of the
      initial term, this Agreement shall automatically renew for successive one
      (1) year periods.

8.2   If either party hereto materially breaches any of the terms and conditions
      of this Agreement, the other party may give written notice to the
      defaulting party specifying the actions or omissions which constitute a
      material breach of this Agreement, and in the event that any material
      breach so indicated shall not be remedied by the defaulting party within
      thirty (30) days after such notice, the party not in default may by
      further written notice to the defaulting party terminate this Agreement,
      and, except as expressly provided otherwise in this Agreement, this
      Agreement and all the rights and obligations contained herein shall
      terminate five (5) days after the defaulting party's receipt of such
      notice of termination. Failure of either party to so terminate this
      Agreement due to a material breach on the part of the other party shall
      not prejudice its rights to terminate for a subsequent material breach by
      the other.

                                       -6-



8.3  All licenses and sublicenses granted to customers and other licensees under
     this Agreement, and all provisions of Sections 6.0, 7.0, 8.0, 9.0, 10.0 and
     11.0, shall survive any expiration or termination of this Agreement and
     shall bind the parties and their successors, heirs, assigns and legal
     representatives. In addition, Licensor's obligations under Section 4 and 5
     shall survive for [*] after any expiration or termination of this Agreement
     in order for Dell to satisfy its then existing contractual obligations to
     its customers and licensees. Dell shall retain a limited license in
     accordance with Section 2 to use the Licensed Product(s) in order to
     satisfy such obligations and to exhaust its inventory of Licensed
     Product(s) existing at expiration or termination, provided that Dell's
     right to exhaust any such inventory shall not extend beyond [*] after
     expiration or termination. Thereafter, Dell agrees to return or destroy all
     additional copies of the Licensed Product(s) in its possession.

9.0   LIMITATION OF LIABILITIES

9.1   EXCEPT AS SET FORTH BELOW, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT,
      INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES UNDER ANY PART OF THIS
      AGREEMENT EVEN IF ADVISED OR AWARE OF THE POSSIBILITY OF SUCH DAMAGES.

9.2   THE LIMITATIONS OF LIABILITY SET FORTH ABOVE, SHALL NOT APPLY TO ANY OF
      LICENSOR'S OBLIGATIONS OR LIABILITIES UNDER SECTION 6 "REPRESENTATIONS AND
      WARRANTIES" AND SECTION 7 "INDEMNIFICATION". LICENSEE'S SOLE AND TOTAL
      LIABILITY FOR ANY CAUSE OF ACTION SHALL BE LIMITED TO A MAXIMUM OF FIFTY
      PERCENT (50%) OF THE PAYMENTS PREVIOUSLY MADE OR DUE BY LICENSEE TO
      LICENSOR UNDER THIS AGREEMENT.

10.0  CONFIDENTIAL INFORMATION

10.1  The parties agree that information exchanged under this Agreement that is
      considered by either party to be confidential information will be subject
      to the terms and conditions of the non-disclosure agreement in place
      between the parties. If the parties have not executed a non-disclosure
      agreement, the parties will negotiate in good faith the terms of such an
      agreement. Licensor shall not provide to Dell any information that is
      considered confidential information of any third party.

11.0  MISCELLANEOUS

11.1  This Agreement shall in no way preclude Dell from independently
      developing, having developed or acquiring or marketing any products or
      services nor shall it in any way preclude Dell from entering into any
      similar agreement with any other party.

11.2  Dell shall have full freedom and flexibility in its decisions concerning
      the distribution and marketing of the Licensed Product(s) including,
      without limitation, the decision of whether or not to distribute or
      discontinue distribution of the Licensed Product(s). Dell does not
      guarantee that its marketing, of the Licensed Product(s) will be
      successful.

                                       -7-



11.3  Neither this Agreement or any rights or obligations contained therein, may
      be assigned or delegated by Licensor without the prior written consent of
      Dell. Such consent shall not be unreasonably be withheld.

11.4  Licensor is an independent contractor. Licensor is not a legal
      representative or agent of Dell, nor shall Licensor have the right or
      authority to create or incur any liability or any obligation of any kind,
      express or implied, against, or in the name of, or on behalf of Dell.

11.5  [*]

11.6  Licensor shall not publicize the existence of this Agreement with Dell nor
      refer to Dell in connection with any promotion or publication without the
      prior written approval of Dell. Further, Licensor shall not disclose the
      terms and conditions of this Agreement to any third party, including, but
      not limited to, any financial terms, except as required by law or with
      Dell's prior written consent.

11.7  Licensor shall comply with all applicable governmental laws, statutes,
      ordinances, administrative orders, rules and regulations including,
      without limitation, those related to the export of technical materials.
      Licensor shall provide Dell with prompt written notice of any export
      restrictions related to the Licensed Product(s).

11.8  Any and all written notices, communications and deliveries between
      Licensor and Dell with reference to this Agreement shall be deemed made on
      the date of mailing if sent by registered or certified mail to the
      respective address of the other party as follows:

           In the case of Dell:            Dell Products L.P.
                                           One Dell Way
                                           BBP, Box 4
                                           Round Rock, TX 78682
                                           Attn: Strategic Commodity Manager
                                                 Software Procurement

           In the case of Licensor:        Intervideo
                                           47350 Fremont Blvd.
                                           Fremont, CA 94538
                                           Attn: Joe Monastiero
                                                 VP of Marketing & Sales

11.9  This Agreement shall be governed by and interpreted in accordance with the
      laws of the State of Texas, U.S.A. without regards for its rules of
      conflict of laws, as if this Agreement was executed in and fully performed
      within the State of Texas. Both parties hereby waive any

                                       -8-



      right to a trial by jury relating to any dispute arising under or in
      connection with this Agreement.

11.10 Should any provision herein be held by a court of competent jurisdiction
      to be illegal, invalid or unenforceable, such provision shall be modified
      to reflect the intentions of the parties. All other terms and conditions
      shall remain in full force and effect.

11.11 No amendment, modification or waiver of any provision of this Agreement
      shall be effective unless set forth in a writing executed by an authorized
      representative of each party. No failure or delay by either party in
      exercising any right, power or remedy will operate as a waiver of any such
      right, power or remedy. No waiver of any provision of this Agreement shall
      constitute a continuing waiver or a waiver of any similar provision unless
      expressly set forth in a writing signed by an authorized representative of
      each party.

11.12 Since Dell transacts business with the United States government, Licensor
      must comply with the applicable federal laws and Federal Acquisition
      Regulations ("FARs") including the following:

          It is Dell's policy to take affirmative action to provide equal
          employment opportunity without regard to race, religion, color,
          national origin, age, sex, disability, veterans status or any other
          legally protected status. As a condition of doing business, Dell
          requires Licensor to practice equal opportunity employment and to
          comply with Executive Order 11246, as amended, Section 503 of the
          Rehabilitation Act of 1973, and Section 4212 of the Vietnam Era
          Veteran's Readjustment Assistance Act of 1974, all as amended, and the
          relevant Regulations and Orders of the U.S. Secretary of Labor.
          Additionally, to the extent required by applicable law, the following
          sections of Chapter 60 of Title 41 of the Code of Federal Regulations
          are incorporated by reference in this Agreement and each Order: 41 CFR
          60-1.4(a); 41 CFR 60-1.8; 41 CFR 60-741; 41 CFR 60-250; 41 CFR 60-1.7;
          41 CFR 60-1.40.

          It is the policy of the United States (FAR 52.219-8) that small
          business concerns, small business concerns owned and controlled by
          socially and economically disadvantaged individuals and small business
          concerns owned and controlled by women shall have the maximum
          practicable opportunity to participate in performing contracts for any
          Federal agency. Licensor agrees to comply with this policy and to
          provide reporting of data as requested to the Small Business Liaison
          Officer, Dell Computer Corporation, One Dell Way, Round Rock, Texas,
          78682.

11.13 This Agreement sets forth the entire agreement and understanding of the
      parties relating to the subject matter contained herein, and merges all
      prior discussions and agreements, both oral and written, between the
      parties. Nothing in any purchase order, invoice, order acknowledgment, or
      other document of Licensor shall be of any effect whatsoever and may not
      affect, alter, or modify the terms and conditions of this Agreement. If
      the terms and

                                       -9-



          conditions of this Agreement conflict with any terms of a Dell
          purchase order relating to the Licensed Product(s), the terms and
          conditions of this Agreement shall govern. The terms and conditions
          set forth in Supplements are hereby incorporated into this Software
          License Agreement by reference. If the terms and conditions of this
          Software License Agreement conflict with any terms and conditions
          contained in a Supplement, the terms and conditions of the Supplement
          shall govern.

IN WITNESS WHEREOF, the parties hereto have duly executed this Software License
Agreement by their respective duly authorized officers to be effective as of the
Effective Date as first written above.

DELL PRODUCTS L.P.                          INTERVIDEO, INC.

By:     /s/ Sharon Peterson                 By:     /s/ Joe Monastiero
    ---------------------------------           --------------------------------

Title:  Dir, WWSP                           Title:  V.P.
       ------------------------------              -----------------------------

Date:   8/13/1999                           Date:   August 4th, 1999
      -------------------------------             ------------------------------
                                      -10-



                          SOFTWARE LICENSING AGREEMENT

THIS SUPPLEMENT is entered into as of this 4th day of August 1999 by and between
Dell Products L.P. (hereinafter "Dell") with its principal place of business at
One Dell Way, Round Rock, Texas 78682, and Intervideo, Inc., a California
corporation having a principal place of business at 47350 Fremont Blvd.,
Fremont, CA 94538 (hereinafter "Licensor").

This Supplement provides additional terms and conditions to the above referenced
Software License Agreement. All terms and conditions of the Software License
Agreement apply to this Supplement and the terms and conditions of this
Supplement are hereby incorporated by reference into the Software License
Agreement.

1.0  DESCRIPTION OF LICENSED PRODUCT(S)

I.   Licensed Software:

A.   WinDVD(TM)

          Software is personal computer application software object code
          including modules for MPEG-2 video decode, Dolby Digital/MPEG audio
          decode, an audio/video synchronization engine, a DVD Navigator, Copy
          Protection Software, and a Graphical User Interface. Version delivered
          is to be used as a software bundle with Licensee's hardware products.

B.   Technical specifications:

     1.   Video Decoding Support

               A.   Input Supported

                         - MPEG-1 Video Decoding (ISO/IEC 11172)
                         - MPEG-2 Video Decoding (ISO/IEC 13818)

               B.   Video Output Supported

                         - Up to 720 X 480 (NTSC)
                         - Up to 720 X 576 (PAL)

               C.   VGA Output Requirements For Licensee System

                         - Direct Draw Support for HW video window
                         - Color space conversion
                         - Color key support

               D.   Licensee System Requirements

                         - Intel MMX processor (PII preferred) or compatible
                           processor



     2.   Audio Decoding Support

               A.   Dolby Digital AC-3

                         Input
                         - 48 kHz sampling rate
                         - 2 channel AC-3 encoded
                         - 5.1 channel AC-3 encoded

                         Output
                         - 2 channel stereo decoded stream
                         - 2 channel Pro-Logic encoded stream
                         - 16 bit Class "C" Dolby Certification

               B.   MPEG-1 Audio
                         - MPEG 1 Audio Decoding (ISO/IEC 11172)

     3.   Decoder Licensed Software Configuration

               -    MPEG 1 & 2 Video Decoding
               -    Dolby Digital AC-3 audio decoding
               -    MPEG-1 2 channel audio decoding
               -    Video/Audio Synchronization
               -    MP3 audio decoding
               -    VCD 1.0/1.1/2.0 title playback

     4.   Navigation

               - Conforms substantially to the "DVD Specifications for read-only
                 Disc Version 1.0 Part 3 Video Specifications."

     5.   Graphical User Interface

               A.   Playback Control
                      - Fast Forward           - Volume Control
                      - Fast Backward          - Select drive
                      - Next Chapter           - Eject
                      - Previous Chapter       - Repeat
                      - Stop                   - Smooth Slow Motion
                      - Pause                  - Smooth Fast Forward
                      - Help                   - Play
                      - Time Line Search       - Brightness Control
                      - Keypad Input           - Title/Chapter Loop

               B.   Navigator Functions
                         - Audio language selection
                         - Parental control

                                       -2-



                              - Viewing angle selection
                              - Subtitle selection
                              - Select Titles/Menus
                                      - Title
                                      - Root
                                      - Audio
                                      - Subtitle
                                      - Menu
                                      - Chapter

     6.   Copy Protection (Navigator use only)

               A.   Regionalization
                         - Supports DVD regionalization code

               B.   Decryption
                         - Substantially supports CSS de-scambling and tamper
                           resistance requirements

               C.   Macrovision Requirements
                         - Required if NTSC encoder is used (Navigator
                           implementation only)

     7.   Localization
               -    IVI will provide support for English, Dutch, French,
                    Spanish, German, Italian, Traditional Chinese and Japanese
                    languages in our installation procedure and help files.

2.0  COMPENSATION

OEM Bundled Pricing:

 ---------------------------------------------------------------------------
       Monthly Units                  Quarterly Units
 ---------------------------------------------------------------------------
     [*]    -    [*]              [*]          -     [*]             $[*]
 ---------------------------------------------------------------------------
     [*]    -    [*]              [*]          -     [*]             $[*]
 ---------------------------------------------------------------------------
     [*]    -    +                [*]          -     +               $[*]
 ---------------------------------------------------------------------------

If InterVideo is to pass through the Dolby royalty to Dolby, please add $[*] for
2 channels.

DellPlus Pricing:

$[*] per unit. Dell will be responsible for all replication costs and cost of
materials.

3.0  DELIVERY SCHEDULE

Within 5 days of final qualification by Dell.

                                      -3-



4.0  TECHNICAL CONTACTS

     David Silva, Applications Engineer
     Chinn Chin, VP of Engineering
     Chris Grell, Program Manager

IN WITNESS WHEREOF, the parties hereto have duly executed this Supplement to the
above referenced Software License Agreement by their respective duly authorized
officers.

DELL PRODUCTS L.P.                          INTERVIDEO, INC.

By:     Sharon Peterson                    By:      Joe Monastiero
    --------------------------------            --------------------------------

Title:  Dir, WWSP                          Title:   V.P.
       -----------------------------               -----------------------------

Date:   8/13/1999                           Date:   August 4th, 1999
      ------------------------------              ------------------------------

                                      -4-



                          SOFTWARE LICENSING AGREEMENT
                                 Supplement Two

THIS AMENDED AND RESTATED SUPPLEMENT Two is entered into as of this 31st day of
July 2000 (the "Supplement") by and between Dell Products L.P. (hereinafter
"Dell") with its principal place of business at One Dell Way, Round Rock, Texas
78682, and Intervideo, Inc., a California corporation having a principal place
of business at 47350 Fremont Blvd., Fremont CA 94538 (hereinafter "Licensor").

Dell and Licensor are parties to a Software License Agreement entered into as of
the 4th day of August 1999 (the "Software License Agreement") and a Supplement
entered into as of the same date (the "First Supplement"). As of the date
hereof, this Supplement Two will supercede the First Supplement.

This Supplement provides additional terms and conditions to the above referenced
Software License Agreement. All terms and conditions of the Software License
Agreement apply to this Supplement and the terms and conditions of this
Supplement are hereby incorporated by reference into the Software License
Agreement.

1.0  DESCRIPTION OF LICENSED PRODUCT(S)

I.   Licensed Software:

A.   WinDVD(TM)

          Software is personal computer application software object code
          including modules for MPEG-2 video decode, Dolby Digital/MPEG audio
          decode, an audio/video synchronization engine, a DVD Navigator, Copy
          Protection Software, and a Graphic User Interface. Version delivered
          is to be used as a software bundle with Licensee's hardware products.

B.   Technical specifications:

     1.   Video Decoding Support

           A.  Input Supported

                    - MPEG-1 Video Decoding (ISO/IEC 11172)
                    - MPEG-2 Video Decoding (ISO/IEC 13818)

           B.  Video Output Supported

                    - Up to 720 X 480 (NTSC)
                    - Up to 720 X 576 (PAL)



         C.    VGA Output Requirements For Licensee System

                  - Direct Draw Support for HW video window
                  - Color space conversion
                  - Color key support

         D.    Licensee System Requirements

                  - Intel MMX processor (PII preferred) or compatible processor

    2.   Audio Decoding Support

         A.    Dolby Digital AC-3

                  Input
                  - 48kH sampling rate
                  - 2 channel AC-3 encoded
                  - 5.1 channel AC-3 encoded

                  Output
                  - 2 channel stereo decoded stream
                  - 2 channel Pro-Logic encoded stream
                  - 16 bit Class "C" Dolby Certification

         B.    MPEG-1 Audio

                  - MPEG-1 Audio Decoding (ISO/IEC 11172)

    3.   Decoder Licensed Software Configuration

                  -  MPEG 1 & 2 Video Decoding
                  -  Dolby Digital AC-3 audio decoding
                  -  MPEG-1 2 channel audio decoding
                  -  Video/Audio Synchronization
                  -  MP3 audio decoding
                  -  VCD 1.0/1.1/2.0 title playback

    4.   Navigation

                  - Conforms substantially to the "DVD Specifications for read-
                    only Disc Version 1.0 Part 3 Video Specifications".

    5.   Graphical User Interface

         A.   Playback Control

                  - Fast Forward                        - Volume Control
                  - Fast Backward                       - Select drive

                                       -2-



                           - Next Chapter                - Eject
                           - Previous Chapter            - Repeat
                           - Stop                        - Smooth Slow Motion
                           - Pause                       - Smooth Fast Forward
                           - Help                        - Play
                           - Time Line Search            - Brightness Control
                           - Keypad Input                - Title/Chapter Loop

                B.   Navigator Functions

                           - Audio language selection
                           - Parental control
                           - Viewing angle selection
                           - Subtitle selection
                           - Select Titles/Menus
                                    - Title
                                    - Root
                                    - Audio
                                    - Subtitle
                                    - Menu
                                    - Chapter

        6.      Copy Protection (Navigator use only)


                A.   Regionalization
                           - Supports DVD regionalization code

                B.   Decryption
                           - Substantially supports CSS de-scrambling and tamper
                             resistance requirements

                C.   Macrovision Requirement

                           - Required if NTSC encoded is used (Navigator
                             implementation only)
        7.      Localization

                -  IVI will provide support for English, Dutch, French, Spanish,
                   German, Italian, Traditional Chinese, Simplified Chinese,
                   Brazilian Portuguese, Korean, Thai and Japanese languages in
                   our installation procedure and help files.

II.     Licensed Software:

A.      WinDVD(TM) with Dolby Headphone

                Software is personal computer application software object code
                including modules for MPEG-2 video decode, Dolby Digital/MPEG
                audio decode, an audio/video synchronization engine, a DVD
                Navigator, Copy Protection Software, and a

                                      -3-



                  Graphical User Interface. Version delivered is to be used as a
                  software bundle with Licensee's hardware products.

B.       Technical specifications:

         1.       Video Decoding Support

                  A.    Input Supported

                              - MPEG-1 Video Decoding (ISO/IEC 11172)
                              - MPEG-2 Video Decoding (ISO/IEC 13818)

                  B.    Video Output Supported

                              - Up to 720 X 480 (NTSC)
                              - Up to 720 X 576 (PAL)

                  C.    VGA Output Requirements For Licensee System

                              - Direct Draw Support for HW video window
                              - Color space conversion
                              - Color key support

                  D.    Licensee System Requirements

                              - Intel MMX processor (PII preferred) or
                                compatible processor

         2.       Audio Decoding Support

                  A.    Dolby Digital AC-3
                              Input
                              - 48kH sampling rate
                              - 2 channel AC-3 encoded
                              - 5.1 channel AC-3 encoded

                              Output
                              - 2 channel stereo decoded stream
                              - 2 channel Pro-Logic encoded stream
                              - 16 bit Class "C" Dolby Certification
                              - 5.1 channel AC-3 decoded stream
                              - Dolby Headphone decoded stream

                  B.    MPEG-1 Audio
                              - MPEG-1 Audio Decoding (ISO/IEC 11172)

         4.       Decoder Licensed Software Configuration

                        -        MPEG 1 & 2 Video Decoding

                                      -4-



                         -        Dolby Digital AC-3 audio decoding
                         -        MPEG-1 2 channel audio decoding
                         -        Video/Audio Synchronization
                         -        MP3 audio decoding
                         -        VCD 1.0/1.1/2.0 title playback
                         -        Dolby Headphone audio decoding
         4.     Navigation

                         - Conforms substantially to the "DVD Specifications
                           for read-only Disc Version 1.0 Part 3 Video
                           Specifications".

         5.     Graphical User Interface

                         A.       Playback Control

                                   - Fast Forward          - Volume Control
                                   - Fast Backward         - Select drive
                                   - Next Chapter          - Eject
                                   - Previous Chapter      - Repeat
                                   - Stop                  - Smooth Slow Motion
                                   - Pause                 - Smooth Fast Forward
                                   - Help                  - Play
                                   - Time Line Search      - Brightness Control
                                   - Keypad Input          - Title/Chapter Loop

                         B.       Navigator Functions
                                          - Audio language selection
                                          - Parental control
                                          - Viewing angle selection
                                          - Subtitle selection
                                          - Select Titles/Menus
                                          - Title
                                          - Root
                                          - Audio
                                          - Subtitle - Menu - Chapter


                6.       Copy Protection (Navigator use only)

                         A.       Regionalization
                                          - Supports DVD regionalization code

                         B.       Decryption
                                          - Substantially supports CSS
                                            de-scrambling and tamper resistance
                                            requirements

                                      -5-



                           C.       Macrovision Requirement

                                            - Required if NTSC encoder is used
                                              (Navigator implementation only)
                  7.       Localization

                                    -       IVI will provide support for
                                            English, Dutch, French, Spanish,
                                            German, Italian, Traditional
                                            Chinese, Simplified Chinese,
                                            Brazilian Portuguese, Korean, Thai
                                            and Japanese languages in our
                                            installation procedure and help
                                            files.

         C.       Exclusion from Source Code Escrow Provisions

                  The definition of Licensed Product(s) in section 1.2 of the
                  Software Licensing Agreement shall not include the Dolby
                  Headphone processing software licensed to Licensor by Lake
                  Technology Limited for purposes of section 2.3 and 2.4 of
                  Software Licensing Agreement.

2.0      COMPENSATION
OEM Bundled Pricing:

Win DVD(TM) and WinDVD(TM)with Dolby Headphone

- --------------------------------------------
         Quarterly Units
- --------------------------------------------
     [*]         -         [*]      $[*]
- --------------------------------------------
     [*]         -         [*]      $[*]
- --------------------------------------------
     [*]         -          +       $[*]
- --------------------------------------------

The quantities for all Licensed Products shall be cumulative for the purpose of
calculating royalties and shall be calculated on a quarterly basis.

A Dolby
royalty of $[*] per unit (for two channels) will be added to each WinDVD product
which includes the applicable Dolby technology.

An additional Dolby royalty of $[*] per unit will be added to each
WinDVD(TM)with Dolby Headphone product which includes the applicable Dolby
technology. The total Dolby royalty for WinDVD(TM)with Dolby Headphone product
will be $[*].

DellPlus Pricing:

Notwithstanding anything to the contrary in the Software License Agreement or
this Supplement:

The DellPlus price for the WinDVD(TM) products shall be $[*] per unit which
includes the $[*] Dolby royalty.

                                      -6-



The DellPlus price for the WinDVD(TM) with Dolby Headphone product shall be
$[*] per unit which includes both the $[*] and $[*] Dolby royalties.]

Dell will be responsible for all replication costs and cost of materials.

Replacement Project:

During the period of [*], Dell shall be able to (i) offer the Licensed Product
as a no charge Upgrade for up to a maximum of [*] existing Dell Customers who
previously purchased products from Dell incorporating DvD software from a
supplier other than Licensor; and (ii) offer the Licensed Product as a no charge
Upgrade to Dell Customers that accept Dell's offer to Upgrade their operating
systems from Windows 98 to Windows Millennium Edition. Dell agrees that it will
be responsible for Dolby royalties, if any, associated with such Upgrades.

3.0      DELIVERY SCHEDULE

Within 5 days of final qualification by Dell.

4.0      TECHNICAL CONTACTS

         David Silva, Applications Engineer
         Chinn Chin, VP of Engineering
         Chris Grell, Program Manager

5.0      ADDITIONAL SUPPORT

During the term of this Agreement, Licensor shall appoint a designated Program
Manager who shall be available on a dedicated basis to support Dell in all areas
relating to the Licensed Product(s). Dell acknowledges and agrees that Licensor
shall have a reasonable period of time to [*] a Program Manager into the Dell
account. Licensor will use its reasonable efforts to hire a Program Manager in
one month and integrate the Program Manager hired into the Dell account within
[*] months from the date hereof.

During the term of this Agreement, Licensor shall, [*], purchase sufficient
     quantities of Rev A versions of Dell computer systems and peripherals for
     all existing and newly released Dell computer systems and peripherals to
     provide timely ongoing technical support, development, maintenance and
     services for the Licensed Product(s). At a minimum, Licensor shall [*]
     [*] systems of each Dell platform. Notwithstanding anything herein to the
     contrary, in no event will Licensor be required to [*] more than $[*] of
     Dell equipment per year for the foregoing purposes.

6.0      OBJECT AND SOURCE CODE LICENSE

Licensor and Dell acknowledge and agree that for purposes of Section 2 of the
Software License Agreement, the phrase "Dell systems" includes add-on DVD drives
so that Dell may sell the Licensed Product(s) with DVD drives as Customer kits.

                                      -7-



7.0      SOFTWARE TESTING

During the term of this Agreement, Licensor shall adhere to the following
Doublebyte Testing for all Licensed Products. In the event Dell changes third
party vendors for testing purposes, Dell will provide Licensor reasonable of
said charge.

                  Requirements For Doublebyte Testing at XXCAL
                                     7/16/99

Dell is implementing a new requirement for all Doublebyte language testing prior
to submission to Dell development. The scope of this testing is limited, at this
time, to all Multimedia devices. Dell has selected XXCAL, Inc. as the 3/rd/
party vendor to conduct this testing. All MM suppliers that sell product to Dell
will now be required to submit and pay for testing at XXCAL. This testing will
encompass all Doublebyte languages required in the business award. Below is a
breakdown of those requirements:

1.       All suppliers submitting to XXCAL will be given a discounted rate on
         hourly testing.
2.       A generic test plan for each commodity will be provided by Dell and
         will be updated periodically to reflect changes in testing methodology
         and to enhance test coverage.
3.       Japanese language testing will include functional and translational
         testing. All other languages will be tested for translation only.
4.       All HTML testing will be limited to text translation only, testing for
         format and links will be done by Dell's Information Development.
5.       All costs for initial and regression testing will be incurred by the
         supplier.
6.       All regression testing will be done at XXCAL unless capacity restraints
         at XXCAL adversely impact Dell's overall schedule.
7.       Suppliers will provide XXCAL with their schedule for test submission as
         early in the process as possible to ensure proper scheduling and
         resource loading.
8.       XXCAL will send results of testing to the supplier and to the
         appropriate Dell parties upon test completion.
9.       Final signoff for acceptance into Dell will require approval signature
         from the appropriate Dell parties.
10.      Suppliers will notify Dell procurement immediately if XXCAL is unable
         to commit to required schedule.
11.      Current Doublebyte languages include but are not limited to Japanese,
         Traditional Chinese, Simplified Chinese, Thai and Korean. Those
         requirements will vary by product and will be defined in the business
         contract.

The contact at XXCAL for testing is:

    [*]
1500 W. Olympic Blvd.
Suite 325
Los Angeles, CA 90064
    [*]
    [*]

                                      -8-



IN WITNESS WHEREOF, the parties hereto have duly executed this Supplement to the
above referenced Software License Agreement by their respective duly authorized
officers.

DELL PRODUCTS L.P.                           INTERVIDEO, INC.

By: /s/ Illegible                            By: /s/ Kenneth Boschwitz
   ------------------------------               -----------------------------

Title: VP WW Processing                      Title: VP & General Counsel
      ---------------------------                  --------------------------

Date: 8-31-00                                Date: 30 August 2000
     ----------------------------                 ---------------------------

                                      -9-



                                  AMENDMENT ONE

                                       to

                          SOFTWARE LICENSING AGREEMENT

THIS AMENDMENT ONE is entered into as of this 5th day of May, 2001 ("Effective
Date") by and between Dell Products L.P. (hereinafter "Dell") with its principal
place of business at One Dell Way, Round Rock, Texas 78682, and Intervideo,
Inc., a California corporation having a principal place of business at 47350
Fremont Blvd., Fremont, CA 94538 (hereinafter "Licensor").

Dell and Licensor are parties to a Software License Agreement entered into as of
the 4/th/ day of August, 1999 and a Supplement Two to the Software License
Agreement entered into as of the 31st day of July, 2000 (collectively the
"Agreement").

This Amendment One ("Amendment") provides additional terms and conditions to the
above referenced Software License Agreement. All terms and conditions of the
Software License Agreement apply to this Amendment and the terms and conditions
of this Amendment are hereby incorporated by reference into the Software License
Agreement. In the event of a disagreement between the terms and conditions of
the Amendment and the Agreement, the terms and conditions of this Amendment
shall control.

1.0      DESCRIPTION OF LICENSED PRODUCT(S)

Licensed Software: WinDVD and WinDVD with Dolby Headphone

2.0      COMPENSATION

OEM Bundled Pricing:

WinDVD(R) and WinDVD(R) with Dolby Headphone royalties will be as follows:



                                                   Additional                        Total Royalty
                                                  Royalty with       Additional        for both 2
                                    Licensed         Dolby 2       Dolby royalty      Channel and
                     Volume in       Product       Channel if      for Headphone       Headphone
     Time Period       units         Royalty       supported          channel          technology
     -----------     ---------      --------      ------------     -------------     -------------
                                                                        
        [*]             [*]         $[*] per copy    $[*] per copy      $[*]              $[*]

        [*]             [*]         $[*] per copy    $[*] per copy      $[*]              $[*]

        [*]             [*]         $[*] per copy    $[*] per copy      $[*]              $[*]
   and thereafter




     Notwithstanding, if Dell ships [*] or more units in [*] or [*], the Royalty
for the Licensed Product will immediately decrease to $[*] per copy for that
quarter and for subsequent quarters. For, example, if Dell ships [*] units in
Q2, Dell's royalty shall be $[*] for the units shipped in Q2 and subsequent
quarters.

5.0      ADDITIONAL SUPPORT

During the term of this Agreement, Licensor shall provide Program Manager
services to support Dell in all areas relating to the Licensed Product(s).
Licensor will provide a "Lead Program Manager" who will involve as many people
as necessary in order to quickly and effectively resolve current or future
issues. Licensor is not required to appoint a Program Manager dedicated to Dell.

During the term of this Agreement, Licensor shall, [*] of Dell computer systems
and peripherals for all existing and newly released Dell computer systems and
peripherals to provide timely ongoing technical support, development,
maintenance and services for the Licensed Product(s). At a minimum, Licensor
shall [*] systems of each Dell platform. Notwithstanding anything
herein to the contrary, in no event will Licensor be required to [*] more
than $[*] of Dell equipment per year for the foregoing purposes.

This Amendment sets forth the entire agreement and understanding of the parties
relating to the subject matter contained herein, and merges all prior
and discussions and agreements, both oral and written, between the parties.

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment One to
the above referenced Software License Agreement by their respective duly
authorized officers.

DELL PRODUCTS L.P.                         INTERVIDEO, INC.


By:                                        By:   /s/ Jesse Lechuga
    ------------------------------------       ---------------------------------

Title:                                     Title:   V.P. Sales
       ---------------------------------          ------------------------------

Date:                                      Date:    6/25/01
      ----------------------------------         -------------------------------
                                      -2-



                SECOND AMENDMENT TO SOFTWARE LICENSING AGREEMENT

     THIS SECOND AMENDMENT TO THE SOFTWARE LICENSE AGREEMENT (the "Second
Amendment") is entered into as of the 29th day of April, 2002 (the "Effective
- ---------                                                           ---------
Date") by and between Dell Products, L.P. ("Dell") with its principal place of
- ----                                        ----
business at One Dell Way, Round Rock, Texas 78682 and InterVideo, Inc., a
Delaware corporation having its principal place of business at 47350 Fremont
Blvd., Fremont, California 94538 ("Licensor"), collectively (the "Parties").
                                   --------                       -------

     WHEREAS, the Parties entered into a Software Licensing Agreement on August
4, 1999, as modified by the Supplement entered into on August 4, 1999, by
Supplement Two, entered into on July 31, 2000, and by Amendment One, entered
into on May 5, 2001, and as further amended by mutual agreement (the foregoing,
collectively, the "Original License Agreement");
                   --------------------------

     WHEREAS, the Parties desire to further amend the Original License Agreement
as set forth below;

     THEREFORE, in consideration of the promises and mutual promises contained
in this Second Amendment, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:

1.   Section 2.0 of the most recent Supplement to the Original License Agreement
     ---------------------------------------------------------------------------
shall be replaced in its entirety by:
- -------------------------------------

2.0  COMPENSATION

OEM Bundled Pricing:

Royalties for (i) WinDVD(R), (ii) WinDVD(R) with Dolby 2 Channel, (iii)
WinDVD(R) with Dolby Headphone, and (iv) WinDVD(R) with Dolby 2 Channel and
Dolby Headphone:



Time Period      Volume in   Licensed           Additional        Additional Dolby   Total Additional
                 units       Product Royalty    Royalty with      royalty for        Royalty for both
                                                Dolby 2 Channel   Headphone          Dolby 2 Channel and
                                                if supported                         Headphone
                                                                      
[*]              [*]         $[*] per copy      $[*]per copy      $[*] per copy      $[*] per copy

[*]              [*]         $[*] per copy      $[*]per copy      $[*] per copy      $[*] per copy

[*]              [*]         $[*] per copy      $[*]per copy      $[*] per copy      $[*] per copy

[*]              [*]         $[*] per copy      $[*]per copy      $[*] per copy      $[*] per copy




   Quantities of Licensed Products are cumulative for the purpose of calculating
royalties and must be calculated on a quarterly basis (based on Dell's fiscal
quarters, as set forth in the Original License Agreement).

   Dell will be responsible for all replication costs and cost of materials.

2. The following Section 12.0 is hereby added to the Original License Agreement:
   -----------------------------------------------------------------------------

12.0 Right to Make a Bid

Dell shall use commercially reasonable efforts to inform Licensor, in writing,
if at any time it is undertaking or planning to undertake product development or
modifications related to video or audio playback, or that otherwise might
incorporate or use any technology, product, or software created by Licensor
("Potential Project"). With respect to the information that Dell provides
  -----------------
regarding a Potential Project, Dell will use commercially reasonable efforts to
include sufficient detail to enable Licensor to determine whether its
technology, products or software are appropriate for the Potential Project.
Licensor may bid on Potential Projects. While Dell is not obligated to accept
any bid by Licensor, Dell agrees to consider Licensor's proposal in a good
faith.

3. Except as otherwise specified, all terms used in this Second Amendment have
the same meaning as such terms have in the Original Agreement. Except as
specifically set forth in this Second Amendment, the relationship between the
parties with respect to the subject matter of the Original Agreement continues
to be governed by the terms of the Original Agreement, the provisions of which
remain in full force and effect. In the event of a conflict between the terms of
the Original Agreement and the terms of this Second Amendment, the terms of this
Second Amendment control.

IN WITNESS WHEREOF, the Parties hereto have duly executed this Second Amendment
to the Software Licensing Agreement by their respective duly authorized
officers.

DELL PRODUCTS, L.P.                                  INTERVIDEO, INC.

By: /s/ Scott Crawley                                By: /s/ Steve Ro
    ---------------------                                -----------------------

Title:  Director                                     Title:  CEO
       ------------------                                   --------------------

Date:   April 29, 2002                               Date:   April 29, 2002
      -------------------                                  ---------------------
                                       -2-

EX-10.15

                                                                   EXHIBIT 10.15

                         SETTLEMENT AGREEMENT & RELEASE

     This Settlement Agreement & Release is effective April 26, 2002 (the
"Effective Date") between Dell Products, L.P. ("Dell") with its principal place
 --------------                                 ----
of business at One Dell Way, Round Rock, Texas 78682 and InterVideo, Inc.,
("InterVideo") a Delaware corporation having its principal place of business at
  ----------
47350 Fremont Blvd., Fremont, California 94538. Hereinafter, Dell and InterVideo
shall be referred to collectively as the "Parties."
                                          -------

                                    RECITALS

     WHEREAS, on August 4, 1999, Dell and InterVideo entered into a Software
Licensing Agreement, as modified by the Supplement entered into on August 4,
1999, by Supplement Two, entered into on July 31, 2000, and by Amendment One,
entered into May 5, 2001 (the foregoing, collectively, the "Original License
                                                            ----------------
Agreement"); and
- ---------

     WHEREAS, pursuant to the Original License Agreement, InterVideo made
certain representations and warranties to Dell regarding the Products, and
agreed to indemnify Dell against certain losses;

     WHEREAS, Dell has entered into certain agreements with the Claiming Parties
(as defined below) to settle and release certain claims of infringement the
Claiming Parties (as defined below) may have against Dell; WHEREAS, concurrently
with the execution of this Settlement Agreement & Release, the Parties are
entering into a Series D Preferred Stock Subscription Agreement, in the form
attached hereto; and WHEREAS, the Parties desire to settle all claims Dell may
have against InterVideo relating to Infringement (as defined below), pursuant to
the terms and conditions set forth in this Agreement.

                                    AGREEMENT

     NOW THEREFORE, in consideration of the promises and mutual promises
referred to in the Recitals and contained herein, and of other consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties agree
as follows:

     1.   Definitions.
          -----------

          1.1 "Claiming Parties" means (i) Nissim Corporation, a Florida
               ----------------
corporation, (ii) Mr. Max Abecassis, an individual associated with Nissim
Corporation, (iii) MPEG LA, L.L.C., a limited liability company organized and
existing under the laws of Delaware, (iv) any past, present or future
signatories to an agreement with MPEG LA, L.L.C. regarding intellectual property
rights, to the extent that signatory licenses those rights to MPEG LA, L.L.C.,
or authorizes MPEG LA, L.L.C. to act on its behalf with respect to those rights,
(v) any entities on behalf of which MPEG LA,



L.L.C. threatens, alleges, or brings an Action (defined below) for any
infringement of intellectual property rights, or has the right to do so, to the
extent of the alleged infringement, and (vi) any affiliates, successors or
assigns or any of the foregoing.

          1.2  "Infringement" means any actual or alleged infringement, direct
                ------------
or indirect, by any Party or any third party, including without limitation (i)
any infringement, direct or indirect, by Products (as defined below), alone or
in combination with any Dell product or any other product, and (ii) any
infringement, direct or indirect, by InterVideo or the other Released Parties
(as defined below), Dell or the other Releasing Parties (as defined below), or
any of Dell's customers or distributors.

          1.4  "MPEG - 2 Patent Portfolio" means (a) the "MPEG-2 Essential
Patent(s)" in the "MPEG-2 Patent Portfolio" as those terms are defined in that
certain MPEG-2 Patent Portfolio License between Dell and MPEG LA, L.L.C. entered
into December 31, 2001, which include those patents set forth at www.mpegla.com
                                                                 --------------
as of April 1, 2002 and attached to this Agreement as Schedule A, (b) any other
patents of MPEG-LA that, as of the Effective Date, have been asserted against
Dell or under which Dell is licensed.

          1.5  "Nissim Patent Portfolio" means (a) United States Patents Number
5,434,678; 5,589,945; 5,634,849; 5,913,013; 6,151,444; and 6,208,805, (b) any
other patents of Nissim or Mr. Max Abecassis that, as of the Effective Date,
have been asserted against Dell or under which Dell is licensed.

          1.6  "Products" means any software products licensed under the
                --------
Original License Agreement, or any of InterVideo's products distributed by Dell.

     2.   Attorneys' Fees. Each of the Parties hereby agrees to bear its own
          ---------------
attorneys' fees and expenses incurred in connection with the dispute concerning
the Infringement.

     3.   Release of All Claims.
          ---------------------

          3.1  By this Agreement, Dell, on behalf of itself, and its present and
former directors, officers, employees, attorneys, agents, customers,
subsidiaries, licensees, representatives, and insurers, and its respective
successors affiliates and assigns ("Releasing Parties"), hereby fully and
                                    -----------------
unconditionally releases and forever discharges InterVideo, and its present and
former directors, officers, employees, attorneys, agents, representatives, and
insurers, and its respective successors affiliates and assigns ("Released
                                                                 --------
Parties") from and against any and all indemnity obligations, claims,
- -------
contentions, debts, liabilities, demands, promises, agreements, costs, expenses
(including but not limited to attorneys' fees), damages, suits, legal
proceedings, mediations, arbitrations, losses, judgments, settlements, actions
or causes of action, or the like (collectively "Actions") of whatever kind or
                                                -------
nature, whether now known or unknown, and whether based on contract, breach of
warranty, indemnity, tort, statutory or other legal, equitable theory of
recovery, which Releasing Parties have, had, or may ever claim to have against
the Released Parties, which relate to, arise from, or are connected with
Infringement of the Nissim Patent Portfolio and the MPEG -2 Patent Portfolio,
including, without limitation, the following (all of the foregoing and the
following collectively the

                                      -2-



"Released Matters"): (a) warranty claims under Section 6.0 of the Original
 ----------------
License Agreement that are related to Infringement of the MPEG-2 Patent
Portfolio or Nissim Patent Portfolio, or (b) any rights or indemnity
obligations, and related claims, under Section 7 of the Original License
Agreement that are related to Infringement of the MPEG-2 Patent Portfolio or
Nissim Patent Portfolio.

          3.2 Dell represents and warrants that, as of the Effective Date, it
has no knowledge or any actual or threatened claims of Infringement by any of
the Claiming Parties other than those claims released hereunder.

          3.3 In connection with the above, Dell acknowledges that it is aware
that, after executing this Settlement Agreement & Release, it or its attorneys
or agents may discover claims or facts in addition to or different from those
which they now know or believe to exist with respect to the subject matter of
this Settlement Agreement & Release or the Released Matters, but that it is
Dell's intention to fully, finally and forever settle and release all of the
Released Matters, and to finally and forever settle and release any other
Actions, known or unknown, suspected or unsuspected, which now exist, may exist,
or heretofore may have existed against the Released Parties relating to the
Released Matters. In furtherance of this intention, the release herein given
shall be and remain in effect as a full and complete release, notwithstanding
the discovery or existence of any such additional or different claim(s) or
fact(s) that may be asserted with respect to the Released Matters.

     4.   Warranty Against Assignment. The Parties, on behalf of their
          ---------------------------
successors and assigns, hereby warrant and covenant that they have not
transferred or assigned and prior to the Effective Date of this Settlement
Agreement & Release, and will not transfer or assign to any third party (except
under Section 9), any Actions or rights to bring Actions that they have or may
have against any of the Released Parties or Releasing Parties, arising out of,
or in connection with anything whatsoever relating to the Infringement or the
Released Matters.

     5.   Compromise of Disputed Claims. This Settlement Agreement & Release is
          -----------------------------
a compromise of disputed claims and does not in any way constitute an admission
by any Party of any liability or responsibility, past, present or future, for
the Released Matters.

     6.   Entire Agreement; Modification. This Settlement Agreement & Release
          ------------------------------
and Series D Preferred Stock Subscription Agreement contains the entire
agreement between the Parties relating to the subject matter contained herein.
All prior or contemporaneous agreements, written or oral, between the Parties
regarding the subject matter hereof are superseded by this Settlement Agreement
& Release. It is understood that this Settlement Agreement & Release amends the
Original License Agreement to exclude the Released Matters as a basis for any
liability or responsibility under the Original License Agreement (including with
respect to any activities and/or any actual or threatened claims arising either
before or after the Effective Date hereof). This Settlement Agreement & Release
may not be modified except by written document signed by an authorized
representative of each Party.

                                      -3-



     7.  Force Majeure. No Party shall be liable for delays or defaults due to
         -------------
fire, windstorm, riot, act of God, act of the public enemy or other similar
unforeseeable causes beyond the reasonable control and without the fault or
negligence of the Party incurring such delay.

     8.  Waiver. No term of this Settlement Agreement & Release shall be
         ------
considered waived and no breach excused by any Party unless made in writing. No
consent, waiver, or excuse by any Party, express or implied, shall constitute a
subsequent consent, waiver or excuse.

     9.  Assignment. This Settlement Agreement & Release shall inure to the
         ----------
benefit of and shall be binding upon the respective successors and assigns, if
any, of the Parties in its entirety, and may be assigned in connection with a
merger, reorganization, change of control, or sale of all or substantially all
of the assets to which this Settlement Agreement & Release relates; except that
nothing in this section shall be construed to permit any assignment which would
be unauthorized or void pursuant to any other part of this Settlement Agreement
& Release.

     10. Controlling Law. This Settlement Agreement & Release and all
         ---------------
transactions under it shall be governed by the laws of the State of Texas.

     11. Severability. If any provision of this Settlement Agreement & Release
         ------------
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired.

     12. Headings. The headings of the sections of this Settlement Agreement &
         --------
Release are for reference only and do not control the interpretation of any term
or condition of this Settlement Agreement & Release.

     13. Representation by Counsel. Each of the Parties hereto acknowledges that
         -------------------------
they have been represented by independent counsel of their choice throughout all
negotiations that preceded the Settlement Agreement & Release, and this
Settlement Agreement & Release has been executed with the consent and on the
advice of such independent legal counsel.

     14. Implementation of Settlement. The Parties hereby agree to use their
         ----------------------------
best efforts and good faith in carrying out all of the terms of this Settlement
Agreement & Release. Each of the Parties hereby agrees and authorizes its
respective counsel to execute any additional documents and take any similar
procedural actions which reasonably may be required in order to consummate this
Settlement Agreement & Release or otherwise to fulfill the intent of the Parties
hereunder.

     15. Authority to Execute Agreement. The Parties hereto warrant and
         ------------------------------
guarantee that each person whose signature appears hereon has been duly
authorized and has full authority to execute this Settlement Agreement & Release
on behalf of the person, persons or entity for whom such signature is indicated.

     16. Signatories' Understanding. By executing this Settlement Agreement &
         --------------------------
Release, the Parties affirm that they are competent, that they have been
represented by counsel, or had the

                                      -4-



opportunity to be represented by counsel, and that they understand and accept
the nature, terms and scope of this Settlement Agreement & Release.

     17. Counterpart Signature; Facsimile Deliver. This Settlement Agreement &
         ----------------------------------------
Release may be executed in two or more counterparts and delivered by facsimile,
all of which shall be considered one and the same agreement and shall become
effective when two or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.

IN WITNESS WHEREOF, the Parties hereto have duly executed this Settlement
Agreement & Release by their respective duly authorized officers.


DELL PRODUCTS, L.P.                        INTERVIDEO, INC.

By:     /s/ Scott Crawley                 By:     /s/ Steve Ro
    ----------------------------------        ----------------------------------

Title:  Director, Software Procurement    Title:  CEO
       -------------------------------           -------------------------------

Date:   April 25, 2002                    Date:   April 26, 2002
      --------------------------------          --------------------------------


                                      -5-




                                   Schedule A:

This is the list of patents covered by the MPEG-2 Patent Portfolio License as of
April 1, 2002


CANON INC.

US 4,982,270
JP 2,674,059

COLUMBIA UNIVERSITY

US Re 35,093
CA 2,096,431-C
DE 69129595
DE 69130329
FR 0564597
FR 0630157
GB 0564597
GB 0630157
JP 2,746,749

FRANCE TELECOM (CNET)

US 4,796,087
DE 3767919
FI 86241
FR 2599577
GB 0248711
IT 0248711
SE 0248711

FUJITSU

US 5,235,618
CA 2,029,320
DE 69030056.5
FR 0431319
GB 0431319
JP 2,787,599

GE TECHNOLOGY DEVELOPMENT, INC.

US 4,706,260
US 4,813,056
DE 3855203 T2
FR 0395709
GB 0395709
HK 1,004,307
JP 2,790,509
SG 63561
US 5,426,464
US 5,486,864
CN 94105749
DE 69421444
ES 2,140,477
FR 0624983
GB 0624983
IT 0624983
KR 291492
MX 188411
RU 2,115,261
TR 28291
TW NI-092150
US 5,491,516
AT 167015
BR PI 9405710-9
DE 69410781.6
ES 2,117,252
FR 0679316
GB 0679316
IN 183230
IT 50123 BE 98
KR 282981
MX 187475
MY 109889-A
PT 0679316
RU 2,115,258
SE 0679316
TR 27398
TW NI-66422
VN 526
US 5,600,376
IN 181018
US 5,796,743
KR 283710
MX 201309
MY 112121
TW NI-070615

GENERAL INSTRUMENT CORPORATION

US 4,394,774+
US 4,698,672
US 5,068,724
AU 627421-B2
NO 179890-C
TW NI-52990
US 5,091,782
AT 139402-T1
AU 627684-B2
CA 2,038,043-C
DE 69120139-T2
DK 0451545 T3
ES 2088440-T3
FR 0451545
GB 0451545
GR 3020736
IT 0451545
NO 178419-C
NO 178420-C
TW NI-50643
US 5,093,720

+ Expired December 15, 1998

HITACHI, LTD.

JP 2,666,793
JP 2,907,072
JP 3,085,289
JP 3,173,508

KDDI CORPORATION

JP 1,835,550

MATSUSHITA

US Re 35,910
AU 612543-B2
CA 2,016,523-C
CH 0397402
DE 69027710
ES 2091790
FR 0397402
GB 0397402
IT 0397402
JP 1,949,701
JP 2,695,244
KR 63,477
NL 0397402
SE 0397402
US Re 36,015
US Re 36,507
US 5,223,949
US 5,412,430
FR 0526163
GB 0526163
JP 2,699,703
NL 0526163
US 5,784,107
JP 2,684,941
JP 2,524,044
JP 2,794,899
JP 2,828,095
JP 2,899,478

MITSUBISHI

US4,954,892
CA 2,000,156-C
DE 68913508-T2
FR 0382892
GB 0382892
HK 1008133
IT 0382892
JP 2,100,607
KR 58,957
SE 0382892
US 5,072,295
AU 625476-B2
CA 2,023,543-C
DE 69027820-T2
FI 98421-B
FR 0414193
GB 0414193
HK 1008129
IT 0414193
JP 2,128,624
KR 77,808
NL 0414193
NO 306749
SE 0414193
SG 45452
US 5,949,489
CA 2,234,391
JP 2,924,431
JP 3,127,956
US 5,963,258
CA 2,234,387
SG 65597
US 5,970,175
NO 310,849
US 5,990,960
US 6,002,439
US 6,097,759
CA 2,327,489
NO 310,850
US 6,188,794



JP 1,869,940
JP 2,510,456
JP 2,577,745
JP 2,814,819
JP 2,924,430
CA 2,065,803
NO 307200
SG 64870
JP 3,019,827

NIPPON TELEGRAPH AND TELEPHONE CORPORATION (NTT)

JP 1,939,084
JP 2,562,499

PHILIPS
US 4,849,812
CN 1013425-B
DE 3871998-T2
FR 0282135-B
GB 0282135-B
IT 0282135-B
JP 2,534,534-B2
KR 9700364-B1
TW 29492-B
US 4,901,075
AT 260748-B
CN 1011459B
DE 3750206-C0
FR 0260748-B
GB 0260748-B
IT 0260748-B
JP 2,711,665
KR 118698
NL 0260748-B
SE 0260748-B
TW 35350-B
US 5,021,879
DE 3855114-B
FR 0290085-B
GB 0290085-B
JP 2,630,809-B
US 5,027,206
AT E 131335
AU 634173-B
BE 0359334-B
CH 0359334-B
CN 1018695-B
DE 68925011-B
ES 0359334-B
FI 92127
FR 0359334
GB 0359334-B
GR 0359334-B
HK 96-1695-B
IT 0359334-B
JP 2,961,131
KR 153275
LU 0359334
NL 0359334
SE 0359334
SG 9692026
US 5,128,758
CA 2,018,031
JP 2,791,822
MX 172405-B
US 5,179,442
CA 2,304,917
US 5,333,135
DE 69415698
FR 0609936
GB 0609936
KR 290326
MX 185421
US 5,606,539
AT E157830-B
BE 0460751-B
DE 69127504-B
DK 0460751-B
FR 0460751-B
GB 0460751-B
IT 0460751-B
KR 239837 NL
0460751-B
SE 0460751-B
US 5,608,697
US 5,699,476
AU 641726
CA 2,036,585
DE 69109346.6
DK 0443676
FI 101442
FR 0443676
GB 0443676
HK 96-615
IT 0443676
NL 0443676
SE 0443676
SG 9690467.7
US 5,740,310
CA 2,043,670
US 5,844,867

ROBERT BOSCH GMBH

DE 3769306
FR 0279053
GB 0279053
IT 0279053
NL 0279053

SAMSUNG ELECTRONICS CO., LTD.

US 5,461,421
JP 3,159,853
KR 0166722
US 5,467,086
JP 2,665,127
KR 166716
US 5,654,706
DE 69321781
FR 0580454
GB 0580454
HK 1008711
KR 95,631
KR 132895

SANYO ELECTRIC CO., LTD.

JP 2,812,446

SCIENTIFIC ATLANTA

US 5,418,782
AU 683134
CA 2,180,363
JP 2,940,638
MX 190,776
US 5,420,866
AU 687844
CA 2,186,368
JP 2,940,639
US 5,457,701
AU 680680
CA 2,180,342
JP 2,937,301

SHARP KABUSHIKI KAISHA

JP 2,951,861

SONY

US Re 37,222
DE 69031107
DE 69033782
FR 0424026
FR 0713340
GB 0424026
GB 0713340
JP 3,159,310
US 4,864,393
DE 3854171-T2
GB 2205710-B2
US 5,191,436
DE 69127224
FR 0456433
GB 0456433
HK 1,014,415
JP 2,874,745
JP 2,877,225
JP 2,969,782
US 5,291,486
GB 2289194-B2
GB 2289195-B2
US 5,298,991
DE 69229153
FR 0527011
GB 0527011
US 5,343,248
JP 2,977,104
US 5,428,396
US 5,461,420
AU 672812
CN 45,549
US 5,481,553
AT 185663
AU 673244-B2
BE 0638218
BR 9404321-1
CH 0638218
DE 69421135
DK 0638218
EG 20330
ES 2,137,358
FR 0638218
GB 0638218
GR 3,032,133
HK 1,013,575
HU 217744
IE 0638218
IL 108787
IT 0638218
KR 287490
LU 0638218
MC 0638218
MX 197,778
MY 110794
NL 0638218
NZ 261907-B
PL 173287
PT 0638218
RU 2,119,727
SE 0638218
TR 28436-B
TW 66605-B
US 5,510,840
AT 0573665
DE 69227185
FR 0573665
GB 0573665
IT 0573665
NL 0573665



US 5,539,466
AT 0598904
AU 662548-B2
DE 69229229
FR 0598904
GB 0598904
IT 0598904
US 5,543,847
US 5,559,557
AU 669209-B2
CN 58,202
HK 1,013,573
US 5,663,763
AU 667970
CN 56,083
US 5,666,461
AU 670288
CN 55,336
MY 109,945
TW 70,497
US 5,701,164
US 5,946,042
US 5,982,437
US 6,040,863
US 6,160,849
JP 2,712,645

TOSHIBA CORPORATION

US 5,317,397
JP 2,883,585
US 5,424,779
JP 2,755,851
US 5,467,136
JP 2,758,378
US 5,742,344
JP 2,883,592
US 5,986,713

VICTOR COMPANY OF JAPAN, LIMITED (JVC)

US Re 34,965
DE 69024235
DE 690308191
FR 0379217-B
FR 0572046-B
GB 0379217-B
GB 0572046-B
JP 2,072,546
JP 2,530,217
US Re 35,158
DE 69031045
FR 0584840-B
GB 0584840-B
JP 2,137,325
NL 0584840-B
US Re 36,822
JP 2,962,012
US 5,175,618
DE 69123705
DE 69131257
FR 0484140-B
FR 0683615
GB 0484140-B
GB 0683615
JP 2,830,881
JP 2,921,755
KR 94554

GENERAL INSTRUMENT

DE P3789373.8 removed as of October 1, 1999
FR 0266049 removed as of October 1, 1999
GB 0266049 removed as of October 1, 1999
IT 0266049 removed as of October 1, 1999

SONY

GB 2289196 removed as of October 1, 1999
GB 2259229 removed as of October 1, 1999

VICTOR COMPANY OF JAPAN, LIMITED (JVC)

DE 69012405 removed as of October 1, 1999
FR 0395440-B removed as of October 1, 1999
GB 0395440-B removed as of October 1, 1999
NL 0395440-B removed as of October 1, 1999

EX-21.1

Exhibit 21.1

Subsidiaries

InterVideo Digital Technology Corp., incorporated in accordance with the Company Law of the Republic of China.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the use of our report dated January 28, 2003 with respect to the consolidated balance sheets of InterVideo, Inc. and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, redeemable preferred stock, stockholders’ equity (deficit) and comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2001, included herein and the reference to our firm under the heading “Experts” in the prospectus.

Our report dated January 28, 2003 refers to a restatement of the consolidated financial statements as of December 30, 2000 and 2001, and for each of the years in the three-year period ended December 31, 2001, which consolidated financial statements were previously audited by other auditors who have ceased operations.

/s/    KPMG LLP

Mountain View, California

January 30, 2003

EX-23.2

Exhibit 23.2

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in this Registration Statement of InterVideo, Inc. on Form S-1 of our report dated March 19, 2001, related to the Audio/Video Products Division of Formosoft International Inc. (AVPD), appearing in the Prospectus, which is part of this registration statement. We also consent to the reference to us under the heading “Experts” in such Prospectus.

/s/    TN Soong & Co.

An Associate Member Firm of Deloitte Touche Tohmatsu effective April 22, 2002

(Formerly a Member Firm of Andersen Worldwide, S.C.)

Taipei, Taiwan, the Republic of China

January 30, 2003