S-1/A

As filed with the Securities and Exchange Commission on June 25, 2003

Registration No. 333-102851

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2

TO

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. Christine S. Wong, 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. Brian Covotta, Esq. O’Melveny & Myers LLP 990 Marsh Road Menlo Park, CA 94025 (650) 473-2600

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.  ¨

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.

SUBJECT TO COMPLETION, DATED JUNE 25, 2003

PRELIMINARY PROSPECTUS

2,300,000 Shares

Common Stock

We are selling 2,300,000 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 $11.00 and $13.00 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 345,000 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

                        , 2003

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,” “Author,” “Burn,” “Distribute” and “Watch” are listed around the arrow. Images of InterVideo’s DVD Copy, WinDVD Creator and WinDVD Platinum 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	21
Use of Proceeds	22
Dividend Policy	22
Capitalization	23
Dilution	24
Selected Consolidated Financial Data	25
Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Business	46
Management	61
Related Party Transactions	70
Principal Stockholders	72
Description of Capital Stock	74
Shares Eligible for Future Sale	77
Underwriting	79
Legal Matters	81
Experts	81
Where You Can Find More Information	82
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.

As of March 31, 2003, we had sold more than 50 million copies of our WinDVD product, a software DVD player for PCs. Our strategy for growth is to sell multiple products, for multiple platforms, through multiple channels. We have historically derived nearly all of our revenue from sales of WinDVD to PC original equipment manufacturers, or OEMs. In the future, we expect to derive an increasing percentage of our revenue from sales of other products, including WinCreator, a video editing and DVD authoring and burning application; InterVideo Home Theater, a media center suite for the viewing and managing of digital media content; Linux-based software designed for CE devices and Linux-based PCs; and products sold through our retail and web-based sales channels.

Our software is bundled with products sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. Our PC 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 have recently begun to sell our products to CE manufacturers, such as Sony. We also sell our products to PC peripherals manufacturers worldwide and through leading retailers, including over 1,000 U.S. retail stores, and our websites.

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. 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 37%.

All PC multimedia hardware components require software to operate. As a result, we believe that multimedia software has become a standard PC feature and has 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.

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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.

• Core technology that operates on a variety of platforms.    A significant portion of the software code in each of our products is platform independent which allows us to quickly port our existing products to new operating systems or hardware platforms, including CE devices. We have developed versions of our key products for the Linux operating system, a primary operating system used in next-generation CE devices.

• 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. We plan to leverage our strong market position and broad, integrated product suite to encourage our current OEM customers to license additional software products.

• Grow our established retail channel.    We intend to increase the sales of our products through retail channels and our websites. Our products are sold in more than 1,000 U.S. retail stores, including Best Buy, CompUSA, Fry’s and Microcenter. 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 three CE manufacturers to incorporate our software in their DVR devices. We believe we can adapt our technology for use in a variety of emerging technologies.

• 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.

• Maintain and enhance strategic relationships and acquire companies and technologies.    We have established strategic relationships with Microsoft and Intel Corporation and intend to pursue additional strategic relationships. We also intend to pursue acquisitions of complementary products, technologies and companies.

Company Information

We incorporated in California in April 1998 and reincorporated in Delaware in May 2002. Our headquarters 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 2,300,000 shares

Common stock to be outstanding after this offering 11,897,139 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 March 31, 2003, excluding:

— 3,192,142 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $2.24 per share;

— 988,266 shares of common stock available for issuance under our existing stock option plan and our stock option plan adopted in connection with this offering;

— an additional 216,480 shares of common stock reserved for issuance under our 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 and a 1.23-for-one forward stock split of our common stock effected in June 2003;

• 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 March 31, 2003; and

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

InterVideo and WinDVD are registered trademarks and WinDVD Creator, WinDVD Recorder, LinDVD, LinDVR, 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, March 2003, 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 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 2,300,000 shares of our common stock in this offering at an assumed initial public offering price of $12.00 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 two-year period ended December 31, 2001.

	Year ended December 31,								Three months ended       March 31,
	2000(1)			2001			2002		2002		2003
	Restated(2)			Restated(2)					Restated(2)
(in thousands, except per share data)									(unaudited)
Consolidated Statement of Operations Data
Revenue	$	15,426		$	33,763		$	45,494	$	11,167	$	13,373
Product costs		5,133			16,895			16,850		3,956		5,430
Amortization of software license agreement		—			1,000			29		13		5
Gross profit		10,293			15,868			28,615		7,198		7,938
Operating expenses:
Research and development		6,581			9,035			7,185		2,022		1,714
Sales and marketing		4,916			7,878			8,179		1,759		2,275
General and administrative		2,667			2,990			3,778		896		951
Stock compensation(3)		2,909			1,854			2,469		921		333
Other operating expenses(4)		174			2,408			1,708
Total operating expenses		17,247			24,165			23,319		5,598		5,273
Income (loss) from operations	$	(6,954	)	$	(8,297	)	$	5,296	$	1,600	$	2,665
Net income (loss)	$	(6,951	)	$	(8,684	)	$	7,729	$	1,080	$	1,608
Net income (loss) per common share, basic	$	(4.89	)	$	(4.61	)	$	3.15	$	0.47	$	0.63
Net income (loss) per common share, diluted	$	(4.89	)	$	(4.61	)	$	0.65	$	0.09	$	0.13
Pro forma net income per common share, basic (unaudited)							$	0.83			$	0.17
Pro forma net income per common share, diluted (unaudited)							$	0.65			$	0.13

	As of March 31, 2003
	Actual		As adjusted
(in thousands)	(unaudited)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	18,518	$	42,536
Working capital		17,741		41,759
Total assets		38,428		62,446
Total stockholders’ equity		24,386		48,404

(1) Excludes the results of operations of the Audio/Video Products Division of Formosoft International Inc., or 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 notes to consolidated financial statements.

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

	Year ended December 31,						Three months ended March 31,
	2000		2001		2002		2002		2003
	Restated(2)		Restated(2)				Restated(2)
(in thousands)							(unaudited)
Research and development	$	745	$	581	$	969	$	268	$	111
Sales and marketing		1,523		605		761		377		115
General and administrative		641		668		739		276		107
	$	2,909	$	1,854	$	2,469	$	921	$	333

(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 on a quarterly or annual basis.

We have incurred losses since our inception and have only achieved profitability in our fiscal year ended December 31, 2002 and the three months ended March 31, 2003. As of March 31, 2003, we had an accumulated deficit of $8.5 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 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 it difficult to forecast our future results.

We were incorporated in April 1998 and began selling 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. The market for software-based digital video and audio solutions for incorporation in products in the PC and consumer electronics industries is rapidly evolving, and it is difficult to forecast the future growth rate, if any, or size of the market for our products. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. 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 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 on 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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• DVD 6C.    Another group of companies has formed a consortium known as “DVD 6C” to enforce the proprietary rights of holders of patents covering some aspects of DVD technology. DVD 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, DVD 6C or its members 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 patents of the member companies.

• 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 DVD 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, DVD 6C and 3C, to enforce their proprietary rights and these consortia may seek to enforce their patent rights against us and our customers. Some of our products can be used in connection with the copying of video content, which may include content protected by copyright. Though we believe these products do not contribute to copyright infringement and do not defeat encryption in violation of the Digital Millennium Copyright Act, some content owners have shown a willingness to instigate litigation against producers of products that could be used to copy copyrighted content. Defending such suits could be costly and could cause a serious disruption in our business regardless of the outcome.

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 DVD 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, DVD 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, or 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

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litigating an infringement matter, we may determine that it is in our best interests to settle the matter. Terms of a settlement may include restrictions or prohibitions on our ability to sell products incorporating the other party’s technology, 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.

We may be liable to some of our customers for damages that they incur in connection with intellectual property claims.    Our license agreements, including the agreements we have entered into with our large PC OEM customers, generally 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, DVD 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 some 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, among others, Micron Electronics and MPC LLC (formerly known as Micron PC LLC), as well as other customers with which we have settled. 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 MPEG LA licensees. Notwithstanding 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 351,780 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 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 June 2003, we agreed to a cash settlement with Hewlett-Packard (including the former Compaq) concerning certain amounts that Hewlett-Packard alleged that we owed it as a result of Hewlett-Packard’s prior settlement with Nissim of certain infringement claims brought against Hewlett-Packard by Nissim. Without admitting any liability to Hewlett-Packard, we settled all past and future claims that Hewlett-Packard might have against us based on the alleged infringement of certain patents held by Nissim. Notwithstanding these settlement agreements with Dell, Gateway and Hewlett-Packard, we may be liable to these parties for additional damages that fall outside the scope of the settlement agreements. We expect to make additional cash payments to settle similar claims in the future.

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As of March 31, 2003, we had accrued $2.1 million for liabilities relating to unlicensed royalty and related intellectual property claims, which included the amounts to be paid in the settlement with Hewlett-Packard, and may continue to accrue for such liabilities in the future. In some cases, our actual liability exceeded amounts that we had accrued. Likewise, 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 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 reduce our revenue and gross profit or otherwise 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, 2002, our five largest customers accounted for a majority of our revenue, with Hewlett-Packard (including the former Compaq) accounting for 17% and Dell accounting for 14% of our revenue during that period. For the three months ended March 31, 2003, Hewlett-Packard (including the former Compaq) accounted for 21% of our revenue and Dell accounted for 11% of our revenue. In addition, two customers accounted for 39% of our accounts receivables balance as of December 31, 2002 and 26% of our accounts receivables balance as of March 31, 2003. While a substantial portion of these accounts receivables has been paid, we expect that a small number of customers will continue to account for a majority of our revenue, gross profit and accounts receivables for the foreseeable future because of the concentrated nature of our client base. If our customers dispute the accounts receivables or are otherwise unable to pay the balance, our income from operations could decline. 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 reduce our gross profit or otherwise 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, could harm our operating results.

As a result of our concentrated customer base, problems that our PC OEM customers experience could harm our operating results. 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;

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• 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 revenue could decline.

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 89% of our revenue for the year ended December 31, 2002 and 84% of our revenue for the three months ended March 31, 2003 from sales of our WinDVD product, primarily to PC OEMs. We expect that revenue from sales of our WinDVD product to PC OEMs will continue to account for a substantial majority 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 reduce demand for our products and reduce our gross profit.

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 reduce our gross profit.

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.

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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. Most of our PC OEM customers require Microsoft’s Windows Hardware Qualifications Labs, or 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 result in price reductions, decreased customer orders, reduced product margins and loss of market share, any of 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.

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Our primary competitors are Adobe Systems Incorporated, Cyberlink Corporation, Pinnacle Systems, Inc., Roxio, Inc., Sonic Solutions, 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 products could lose market share.

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.

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 effectively manage 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%. Since June 2001, we have increased our headcount by approximately 36%. 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 in the future. To manage the growth of our operations and personnel, we will need to improve our operational and financial systems, procedures and controls as well as hire additional qualified personnel. Our current and planned systems,

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procedures and controls may not be adequate to support our future operations and expected growth. Delays or problems associated with any improvement or expansion of our operational systems and controls could harm our relationships with customers, reputation and brand.

We may lack the ability to record, process, summarize and report financial data in compliance with our public company reporting requirements if we fail to improve our internal controls and procedures for financial reporting.

Our independent auditors have indicated that they consider there to be the following significant deficiencies in our internal controls and procedures for financial reporting and have made the following recommendations:

• The nature and number of last-minute adjustments in our year and quarter-end close processes may indicate a lack of accounting resources necessary to devote sufficient attention to all established period-end financial reporting requirements within the timeline required by public companies to meet their filing deadlines.    Our independent auditors have recommended that we perform a thorough review of our financial reporting process to identify problem areas and implement corrective actions immediately. If we do not undertake this review and take corrective actions, there is an increased risk that undetected errors may occur in our financial reporting process and that relatively minor problems may be compounded and magnified when time is of the essence and a filing deadline has to be met.

• We should hire an accounting manager with sufficient experience in the area of software revenue recognition and create a manager-level position that is responsible for meeting our SEC reporting requirements.    Our independent auditors have recommended that we expand our finance and accounting staff by hiring a manager with sufficient knowledge of revenue recognition and related technical accounting literature. Our independent auditors further recommend that we create a manager-level position whose job responsibilities would include overseeing our SEC reporting requirements, researching new and existing technical literature, and assisting us to appropriately apply US GAAP. Failure to address these areas in a timely manner might increase the risk of future financial reporting misstatements and may prevent us from being able to meet our filing deadlines.

In addition, our independent auditors have made other recommendations during their audit, which they did not consider to be significant deficiencies in our internal accounting controls. Specifically, they have advised us that:

• We should establish a process to facilitate management’s assessment of the design and operating effectiveness of our internal controls and procedures for financial reporting to enable us to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which will be in effect for our fiscal year ending December 31, 2004.

• Our management should review, on a monthly basis, the investments held with our investment advisors to verify that our investments conform to our investment policy.

We are considering the recommendations of our independent auditors and are taking steps to address their concerns, including reorganizing our finance department and recently hiring a new controller. However, there can be no assurance that these actions and any other actions we may take will be successful. Our failure to implement these recommendations could adversely affect our ability to record, process, summarize and report financial data in compliance with our public company reporting obligations.

We license technology from third parties for use in our WinDVD and other standards-based products, and we might not be able to ship our products in their present forms 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

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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 revenue could decline.

The loss of any of our strategic relationships would make it more difficult to design competitive products and keep pace with evolving industry standards, which could reduce demand for our products and 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, particularly Microsoft and Intel, 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 reduce demand for our products and 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 this seasonality to have a positive effect on our revenue and operating income in the first quarter of each calendar year and a negative effect on our 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 this would also result in greater seasonality in our results of operations.

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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 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 consumer electronics markets, 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 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 future opportunities. We currently have one issued U.S. patent and two patents issued in Taiwan, and we have 45 pending patent applications, comprised of 35 U.S. patent applications and 10 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;

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• 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 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 disrupt our operations or otherwise 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 disrupt our operations or otherwise 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 our under-reporting or over-reporting revenue for the associated period and recording an adjustment 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 accounted for 50% of our revenue for the year ended December 31, 2002 and 41% of our revenue for the three months ended March 31, 2003, which may expose us to political, regulatory, economic, foreign exchange 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 50% of our revenue for the

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year ended December 31, 2002 and 41% of our revenue for the three months ended March 31, 2003, 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;

• 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 could harm our operating results . The recent outbreak of SARS in China, Taiwan and other markets could harm business conditions and slow economic growth in those markets. The expected level of economic growth for this year in markets affected by SARS has declined, and slower growth could result in less demand for our products in these markets. Moreover, if the SARS outbreak leads to quarantines and closures that disrupt our operations or distribution channels or those of our customers, our business could suffer. Further, we may be 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 geopolitical developments in the Middle East and North Korea.

Our business and operating results are subject to uncertainties arising out of geopolitical developments in the Middle East and North Korea, including the recent war in Iraq and the escalation of political tension between the United States and North Korea. These uncertainties include the potential worsening or extension of the current global economic slowdown and the economic consequences of additional military actions. Any similar geopolitical uncertainty in the future could harm our operating results and stock price.

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We may not be successful in addressing problems encountered in connection with any acquisitions we may undertake, which could disrupt our operations or otherwise 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;

• 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, to enter into license agreements for existing technology or to settle intellectual property matters;

• 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.

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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;

• 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. Our 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.”

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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 25% 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 general corporate purposes, including working capital and capital expenditures. We currently anticipate spending a portion of the net proceeds on sales and marketing activities, research and development activities, general and administrative matters and on 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. We have not reserved or allocated specific amounts for these purposes, 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.

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 March 31, 2003, upon completion of this offering, we will have 11,897,139 shares of common stock outstanding. Of these shares, the 2,300,000 shares sold in this offering will be freely tradable. Another 9,069,469 shares will be eligible for sale in the public market 180 days from the date of this prospectus, over 99% of which are subject to lock-up agreements with SG Cowen Securities Corporation. 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 prior to the expiration of such 180-day period. The remaining 527,670 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 $24.0 million, or $27.9 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 $12.00 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 currently anticipate spending a portion of the net proceeds on sales and marketing activities, research and development activities, general and administrative matters and on capital expenditures. We have not yet allocated 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 principal purposes of this offering are to obtain additional capital, to enhance our ability to acquire other businesses, products or technologies, to create a public market for our common stock, to facilitate our future access to public equity markets, to provide liquidity for our existing stockholders, to improve the effectiveness of our stock option plans in attracting and retaining key employees, to increase the visibility of our company in a marketplace in which several of our competitors are publicly-held companies and to provide our OEM customers greater assurances as to our long-term viability, which is enhanced by being subject to the financial reporting and disclosure obligations of a public company. 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 March 31, 2003 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 $12.00 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 March 31, 2003
	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; no shares issued and outstanding, pro forma and pro forma as adjusted	$	13		$	—		$	—
Common stock, $0.001 par value: 25,000,000 shares authorized, 2,648,810 shares issued and outstanding, actual; 9,597,139 shares issued and outstanding, pro forma; 11,897,139 shares issued and outstanding, pro forma as adjusted		3			10			12
Additional paid-in capital		35,198			35,204			59,220
Notes receivable from stockholders		(874	)		(874	)		(874	)
Deferred stock compensation		(1,280	)		(1,280	)		(1,280	)
Accumulated other comprehensive loss		(168	)		(168	)		(168	)
Accumulated deficit		(8,506	)		(8,506	)		(8,506	)
Total stockholders’ equity		24,386			24,386			48,404
Total capitalization	$	38,428		$	38,428		$	62,446

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DILUTION

Our pro forma net tangible book value as of March 31, 2003 was approximately $2.39 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 March 31, 2003. After giving effect to our sale in this offering of shares of our common stock at an assumed initial public offering price of $12.00 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of March 31, 2003 would have been $3.95 per share of our common stock. This represents an immediate increase in net tangible book value of $1.56 per share to our existing stockholders and an immediate dilution of $8.05 per share to you. The following table illustrates this per share dilution:

Assumed initial public offering price per share			$	12.00
Pro forma net tangible book value per share before this offering	$	2.39
Increase per share attributable to investors in this offering		1.56
Pro forma net tangible book value per share after this offering				3.95
Dilution per share to investors in this offering			$	8.05

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 March 31, 2003 before underwriters’ discount and offering expenses in the following table. The following table does not include 3,192,142 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $2.24 per share as of March 31, 2003. 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	9,597,139	80.7	%	$	25,303,170	47.8	%	$	2.64
New investors	2,300,000	19.3			27,600,000	52.2			12.00
Total	11,897,139	100.0	%	$	52,903,170	100.0	%	$	4.45

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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 balance sheet data as of December 31, 2001 and 2002 and March 31, 2003 and the selected consolidated statement of operations data for the three-year period ended December 31, 2002 and each of the three-month periods ended March 31, 2002 and 2003 are derived from our audited and unaudited financial statements included in this prospectus. As described in Note 2 of the consolidated financial statements, we have restated our financial statements as of December 31, 1999, 2000 and 2001, for each of the years in the three-year period ended December 31, 2001 and for the three-month period ended March 31, 2002. The selected consolidated balance sheet data as of December 31, 1998, 1999 and 2000, and the selected consolidated statement of operations data for the period from April 28, 1998 (inception) through December 31, 1998 and for the year ended December 31, 1999 are derived from audited financial statements not included in this prospectus. 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 March 31, 2002 and 2003. The pro forma data and the pro forma share and income per share data for the year ended December 31, 2002 and the three months ended March 31, 2003 gives effect to the conversion of all outstanding shares of preferred stock into common stock.

	Year ended December 31,															Three months ended March 31,
	1998(1)			1999			2000(2)			2001			2002			2002		2003
(in thousands, except per share data)				Restated(3)			Restated(3)			Restated(3)						Restated(3)
																(unaudited)
Consolidated Statement of Operations Data
Revenue	$	—		$	3,036		$	15,426		$	33,763		$	45,494		$	11,167	$	13,373
Product costs		—			1,118			5,133			16,895			16,850			3,956		5,430
Amortization of software license agreement		—			—			—			1,000			29			13		5
Cost of revenue		—			1,118			5,133			17,895			16,879			3,969		5,435
Gross profit		—			1,918			10,293			15,868			28,615			7,198		7,938
Operating expenses:
Research and development		328			1,300			6,581			9,035			7,185			2,022		1,714
Sales and marketing		—			1,165			4,916			7,878			8,179			1,759		2,275
General and administrative		199			766			2,667			2,990			3,778			896		951
Stock compensation(4)		—			339			2,909			1,854			2,469			921		333
Amortization of goodwill		—			—			174			298			—			—		—
Cost of delayed public offering		—			—			—			710			1,728			—		—
Impairment of promotional agreement		—			—			—			550			—			—		—
Restructuring costs		—			—			—			850			(20	)		—		—
Total operating expenses		527			3,570			17,247			24,165			23,319			5,598		5,273
Income (loss) from operations		(527	)		(1,652	)		(6,954	)		(8,297	)		5,296			1,600		2,665
Other income (expenses), net		2			32			555			537			24			76		86
Income (loss) before provision (benefit) for income taxes		(525	)		(1,620	)		(6,399	)		(7,760	)		5,320			1,676		2,751
Provision (benefit) for income taxes		—			63			552			924			(2,409	)		596		1,143
Net income (loss)	$	(525	)	$	(1,683	)	$	(6,951	)	$	(8,684	)	$	7,729		$	1,080	$	1,608
Net income (loss) per common share, basic	$	—		$	(5.57	)	$	(4.89	)	$	(4.61	)	$	3.15		$	0.47	$	0.63
Net income (loss) per common share, diluted	$	—		$	(5.57	)	$	(4.89	)	$	(4.61	)	$	0.65		$	0.09	$	0.13
Pro forma net income per common share, basic (unaudited)													$	0.83				$	0.17
Pro forma net income per common share, diluted (unaudited)													$	0.65				$	0.13
Weighted average common shares outstanding, basic		—			302			1,421			1,885			2,456			2,290		2,541
Weighted average common shares outstanding, diluted		—			302			1,421			1,885			11,945			11,524		12,112
Pro forma weighted average common shares outstanding, basic (unaudited)														9,293					9,490
Pro forma weighted average common shares outstanding, diluted (unaudited)														11,945					12,112

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	As of December 31,											As of March 31, 2003
	1998			1999		2000		2001		2002
(in thousands)				Restated(3)		Restated(3)		Restated(3)				(unaudited)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	195		$	2,628	$	14,668	$	14,348	$	17,137	$	18,518
Working capital		(190	)		1,906		11,544		3,955		15,684		17,741
Total assets		362			3,817		22,134		22,153		34,716		38,428
Convertible preferred stock		6			8		12		12		13		13
Total stockholders’ equity		(36	)		2,634		15,314		8,467		22,441		24,386

(1) Represents period from April 28, 1998 (inception) through December 31, 1998.

(2) 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.

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

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

	Year ended December 31,										Three months ended March 31,
	1998(1)		1999		2000		2001		2002		2002		2003
(in thousands)			Restated(3)		Restated(3)		Restated(3)				Restated(3)
											(unaudited)
Research and development	$	—	$	25	$	745	$	581	$	969	$	268	$	111
Sales and marketing		—		133		1,523		605		761		377		115
General and administrative		—		181		641		668		739		276		107
	$	—	$	339	$	2,909	$	1,854	$	2,469	$	921	$	333

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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, 2001 and for each of the years in the two-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, to PC OEMs. In the future, we expect to derive an increasing percentage of our revenue from sales of other products, including WinDVD Creator, InterVideo Home Theater, InterVideo DVD Copy and Linux-based versions of our DVD and DVR software designed for Linux-based PCs and CE devices, and products sold through our retail and web-based sales channels.

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 through retail channels and directly to consumers through our websites.

Revenue

We derive revenue primarily from the sale of software licenses to OEMs, which install our software onto PCs prior to delivery to consumers. In addition, we 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. We also sell our software through retail channels and directly to end users through our websites. 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, each OEM will qualify our software on their hardware and software configurations. 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 qualification. 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 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 end users. 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. In such cases, qualification of our products is not required, and these OEMs have no rights to upgrades or returns. We generally recognize revenue upon shipment to these OEMs.

In addition to the per unit license fees discussed above, certain OEM agreements also include non-recurring engineering, or NRE, service fees primarily for porting our software to the OEMs’ hardware and software configurations. The NRE service fees are recognized using the percentage-of-completion method. However, some OEM agreements also provide the OEM with rights to free post contract support, or PCS, including unspecified future software upgrades. PCS is not available to the OEMs’ end users. We have not established vendor specific objective evidence of fair value for PCS and accordingly, if a contract includes both PCS and NRE services, the NRE service fees are deferred until software product acceptance and then recognized as revenue over the PCS period.

End-user sales are made directly through our websites. We do not offer specified upgrade rights to any class of customer, and there are no unspecified upgrade rights associated with end-user sales. We recognize revenue from sales through our websites upon delivery of product and the receipt of payment by means of an authorized credit card. 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.

Certain customer agreements call for the payment by us of marketing development funds, co-operative advertising fees, rebates or similar charges. We account for such fees as a reduction in revenue. Commissions paid to third-party sales representatives are included in sales and marketing expenses.

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 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, CE manufacturers, PC peripherals manufacturers, smaller PC OEMs and 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 prior 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, 2002, our five largest customers accounted for a majority of our revenue, with Hewlett-Packard (including the former Compaq) accounting for 17% and Dell accounting for 14% of our revenue during that period. For the three months ended March 31, 2003, Hewlett-Packard (including the former Compaq) accounted for 21% of our revenue and Dell accounted for 11% of our revenue.

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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 although the identity of those customers may change from period to period.

We derived 89% of our revenue for the year ended December 31, 2002 and 84% of our revenue for the three months ended March 31, 2003 from sales of our WinDVD product, primarily to PC OEMs. We expect that revenue from sales of our WinDVD product to PC OEMs will continue to account for a substantial majority of our revenue.

Sales outside of the United States accounted for 50% of our revenue for the year ended December 31, 2002 and 41% of our revenue for the three months ended March 31, 2003. 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 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. We also continue to expand our retail channels. For the year ended December 31, 2002 and the three months ended March 31, 2003, we derived 15% and 17%, respectively, of our revenue from web and retail sales. To increase our web and retail sales in the future, we intend to increase investments in associated selling and marketing, capital equipment and research and development. The gross margins in connection with our products sold through our websites are generally higher than those in connection with our OEM sales. Accordingly, fluctuations in our web and retail revenue as a percentage of total revenue will impact our gross margins.

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 this seasonality to have a positive effect on our revenue and operating income in the first quarter of each calendar year and a negative effect on our 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 this could also result in greater seasonality in our results of operations.

Cost of revenue and gross profit

Cost of revenue consists of two components: product costs and amortization of software license agreement. Product costs consist primarily of:

• licensed and unlicensed royalties;

• cost of settlement of intellectual property matters;

• expenses incurred to manufacture, package and distribute our software products;

• the amortization of developed technology; and

• costs associated with end-user post contract support.

Licensed and unlicensed royalties consist of royalties paid or accrued for payment to third parties for technologies incorporated into our products. In general, the amount of royalties depends on the number of our product units sold and the royalty rates associated with the third-party technology incorporated into those products.

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 patented technology 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 Dell concerning certain amounts that Dell alleged we owed it as a

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result of certain intellectual property infringement claims brought against Dell. In connection with this settlement, we issued shares of preferred stock having a total value at the date of issuance of $3.7 million. These shares are convertible into 351,780 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, although the timing and amount of such payments can not be determined at this time. 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.”

End-user post contract 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. Certain product costs associated with sales through retailers are deferred until the corresponding revenue has been recognized.

Amortization of software license agreement consists of royalty payments pursuant to a software license agreement that we entered into in December 2000. The license agreement provided for an aggregate of $1.1 million of minimum royalty payments. 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 payments would be unrealizable and was impaired. Accordingly, during the year ended December 31, 2001, $1.0 million was charged to amortization of software license agreement of which $724,000 represents a charge for impairment. The remaining $50,000 as of December 31, 2001 will be recorded as cost of revenue over the remaining agreement term.

Our gross profit is affected by many factors, including competitive pricing pressures, fluctuations in unit volumes, changes in royalty amounts and changes in the mix of products sold and in our mix of distribution channels. In addition, our gross profit may be impacted by costs associated with the settlement of intellectual property matters.

Operating expenses

Research and development expenses consist primarily of personnel and related costs, consulting expenses associated with the development of new products, technology license fees, professional 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.

Deferred stock compensation

For the years ended December 31, 2000, 2001 and 2002 and the three months ended March 31, 2003, we recorded deferred stock compensation of $3.6 million, $1.6 million, $2.3 million and ($1,000), respectively. Deferred stock compensation represents the difference between the deemed fair market value of our common

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stock at the time of option grants during these periods and the exercise prices of these options. We amortize deferred stock compensation 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 March 31, 2003 totals $710,000 for the final three quarters of 2003, $444,000 in 2004, $120,000 in 2005, $6,000 in 2006.

Acquisition and amortization of goodwill

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 $200,000, $200,000 and $50,000 for the years ended December 31, 2001 and 2002 and the three months ended March 31, 2003, respectively. Goodwill and assembled workforce amortization was $298,000, $0 and $0 for the years ended December 31, 2001 and 2002 and the three months ended March 31, 2003, 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 as of December 31, 2002 and March 31, 2003, 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.

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 of 2002 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.

As a result of a reaudit performed by KPMG LLP, we have restated our consolidated financial statements as of December 31, 2001 and for each of the years in the two-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,						Three months ended March 31,
	2000		2001		2002		2002		2003
	Restated		Restated				Restated
							(unaudited)
As a percentage of revenue:
Revenue	100	%	100	%	100	%	100	%	100	%
Product costs	33		50		37		36		41
Amortization of software license agreement	—		3		—		—		—
Cost of revenue	33		53		37		36		41
Gross margin	67		47		63		64		59
Operating expenses:
Research and development	43		27		16		18		13
Sales and marketing	32		23		18		16		17
General and administrative	17		9		8		8		7
Stock compensation	19		5		5		8		2
Amortization of goodwill	1		1		—		—		—
Cost of delayed public offering	—		2		4		—		—
Impairment of promotional agreement	—		2		—		—		—
Restructuring costs	—		3		—		—		—
Total operating expenses	112		72		51		50		39
Income (loss) from operations	(45	)	(25	)	12		14		20
Other income, net	4		2		—		1		1
Income (loss) before provision for income taxes	(41	)	(23	)	12		15		21
Provision (benefit) for income taxes	4		3		(5	)	5		9
Net income (loss)	(45	)%	(26	)%	17	%	10	%	12	%

Comparison of Three Months Ended March 31, 2003 and 2002

Revenue

Revenue increased 20% to $13.4 million for the three months ended March 31, 2003 from $11.2 million for the three months ended March 31, 2002. The growth in revenue resulted primarily from increased sales of our WinDVD product in North America, which increased 36%. This increase in sales resulted from increased unit shipments of PCs by our North American OEM customers that bundle our WinDVD product.

Cost of revenue

Cost of revenue increased to $5.4 million, or 41% of revenue, for the three months ended March 31, 2003 from $4.0 million, or 36% of revenue, for the three months ended March 31, 2002. The increase in absolute dollars is due primarily to higher unlicensed third-party royalties as a result of higher unit shipments. Included in cost of revenue for the three months ended March 31, 2002 was a settlement of intellectual property matters of $103,000.

Gross margin

Gross margin decreased to 59% of revenue for the three months ended March 31, 2003 from 64% for the three months ended March 31, 2002. The decrease resulted primarily from lower average selling prices of our WinDVD product to our major OEM customers during the quarter.

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Research and development expenses

Research and development expenses decreased to $1.7 million, or 13% of revenue, for the three months ended March 31, 2003 from $2.0 million, or 18% of revenue, for the three months ended March 31, 2002. The decrease resulted primarily from a reduction in payroll and consulting spending by $170,000 and a reduction in legal spending by $127,000. The reduction in payroll and consulting spending resulted primarily from a shift in personnel resources to overseas locations with lower cost structures. We believe that a significant level of research and development expenses will be required to remain competitive, and, as a result, we expect these expenses to increase in absolute dollars in the future.

Sales and marketing expenses

Sales and marketing expenses increased to $2.3 million, or 17% of revenue, for the three months ended March 31, 2003 from $1.8 million, or 16% of revenue, for the three months ended March 31, 2002. The increase was primarily attributable to higher payroll expenses of $315,000 due to increased sales and marketing headcount and higher promotional expenses of $100,000 and higher tradeshow expenses of $93,000. These increased expenses were partially offset by lower commissions paid to outside sales representatives of $267,000. We intend to actively market, sell and promote our products and take actions to further develop our brand name and retail presence. Therefore, we expect sales and marketing expenses to increase in absolute dollars in the future.

General and administrative expenses

General and administrative expenses increased slightly to $951,000, or 7% of revenue, for the three months ended March 31, 2003 from $896,000, or 8% of revenue, for the three months ended March 31, 2002. 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 compensation expenses

Stock compensation expenses decreased to $333,000 for the three months ended March 31, 2003 from $921,000 for the three months ended March 31, 2002. Stock compensation expenses related to the issuance of stock options are amortized on an accelerated basis over the four-year vesting period of the options. Also, expenses are primarily incurred when options are granted with exercise prices less than the deemed fair market value of the underlying common stock, which we do not anticipate occurring after the offering. Accordingly, we expect stock compensation expenses to decrease in future periods.

Other income, net

Other income, net consists primarily of interest earned on our cash and cash equivalent balances, offset by other expenses. Other income, net increased to $86,000 for the three months ended March 31, 2003 from $76,000 for the three months ended March 31, 2002.

Provision (benefit) for income taxes

We recorded a provision for income taxes of $1.1 million for the three months ended March 31, 2003 and a provision for income taxes of $596,000 for the three months ended March 31, 2002. In the first quarter of 2002, the only income tax expense or benefit we recognized was related to foreign withholding taxes, as all tax benefits were fully reserved. In the third quarter of 2002, we recorded a benefit for income taxes as a result of our reassessment of the recoverability of our deferred tax assets as being more likely than not, resulting in the release of a significant portion of our valuation allowance. As such, in the first quarter of 2003, we recorded tax expense on profits at the federal and state statutory rates, with adjustments for permanent book and tax differences. Realization of our deferred tax assets of $5.5 million is dependent on our generating sufficient taxable income in the future. Although realization is not assured, we believe it is more likely than not that the deferred tax assets

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will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the future if estimates of future taxable income are reduced.

Comparison of Years Ended December 31, 2002 and 2001

Revenue

Revenue increased 35% to $45.5 million for the year ended December 31, 2002 from $33.8 million for the year ended December 31, 2001. The growth in revenue resulted primarily from increased sales of our WinDVD product in Asia and to a lesser extent in North America, which increased 65% and 16%, respectively. This increase in sales resulted from increased unit shipments of PCs by our Asian and North American OEM customers that bundle our WinDVD product.

Cost of revenue

Cost of revenue decreased to $16.9 million, or 37% of revenue, for the year ended December 31, 2002 from $17.9 million, or 53% of revenue, for the year ended December 31, 2001. The decrease in absolute dollars is due primarily to lower costs of unlicensed third-party royalties, lower costs of settlement of intellectual property matters and lower amortization of software license agreement. This decrease was offset somewhat by higher royalties as a result of higher unit shipments. Unlicensed royalties and costs of settlement of intellectual property matters decreased to $620,000 in 2002 from $5.4 million, or 16% of revenue, in 2001. This decrease was offset by a reduction in accrued unlicensed royalties of $363,000 resulting from one of the settlements incurred during the year ended December 31, 2002. For the year ended December 31, 2002, we concluded intellectual property settlements with, and paid in cash or stock $4.4 million to, certain OEM customers and patent holders.

In December 2000, we entered into a software license agreement providing for an aggregate of $1.1 million of minimum royalty payments. 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 was charged to amortization of software license agreement of which $724,000 represents a charge for impairment. The remaining $50,000 as of December 31, 2001 is being recorded as cost of revenue over the remaining agreement term.

Gross margin

Gross margin increased to 63% of revenue for the year ended December 31, 2002 from 47% for the year ended December 31, 2001. The increase resulted primarily from lower costs of settlement of intellectual property matters and lower amortization of software license agreement as noted above partially offset by lower average selling prices of our WinDVD product.

Research and development expenses

Research and development expenses decreased to $7.2 million, or 16% of revenue, for the year ended December 31, 2002 from $9.0 million, or 27% of revenue, for the year ended December 31, 2001. The decrease resulted primarily from a reduction in payroll spending of $1.1 million due to the restructuring we implemented in June 2001, the shift in personnel resources overseas to locations with lower cost structures and lower license fees of $359,000.

Sales and marketing expenses

Sales and marketing expenses increased slightly to $8.2 million, or 18% of revenue, for the year ended December 31, 2002 from $7.9 million, or 23% of revenue, for the year ended December 31, 2001. The increase was primarily attributable to higher payroll expenses of $607,000 and higher communication expenses of

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$120,000 due to increased sales and marketing headcount in the year ended December 31, 2002 offset somewhat by lower promotional expenses of $442,000.

General and administrative expenses

General and administrative expenses increased to $3.8 million, or 8% of revenue, for the year ended December 31, 2002 from $3.0 million, or 9% of revenue, for the year ended December 31, 2001. The increase in absolute dollars was primarily attributable to increased professional services of $619,000, primarily related to our initial public offering and reaudit, and increased payroll costs of $114,000.

Stock compensation expenses

Stock compensation expenses increased to $2.5 million for the year ended December 31, 2002 from $1.9 million for the year ended December 31, 2001. The increase was due to additional stock option grants and a full year of amortization expense associated with the prior year’s stock option grants.

Amortization of goodwill

Amortization of goodwill decreased to $0 for the year ended December 31, 2002 from $298,000 for the year ended December 31, 2001 as a result of implementing SFAS No. 142. If at any time we determine 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 years ended December 31, 2002 and 2001, we incurred $1.7 million and $710,000, respectively, of professional costs in connection with the preparation of our initial public offering. In September 2002 and also in September 2001, 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 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 were recorded in sales and marketing expenses. In September 2001, based on the results of the promotion, we determined that the remaining $550,000 of committed promotional expense under the contract was unrealizable. There were no charges recorded during the year ended December 31, 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 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 December 31, 2002, the remaining accrual of $101,000 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.

Other income, net

Other income, net decreased to $24,000 for the year ended December 31, 2002 from $537,000 for the year ended December 31, 2001. The decrease related primarily to a write-down of $200,000 in the carrying value of an investment in a private company that management determined was no longer recoverable, a loss of

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$143,000 resulting from the disposal of property and equipment and a reduction of $202,000 in interest income due to lower interest rates recorded for the year ended December 31, 2002.

Provision (benefit) for income taxes

We recorded a benefit for income taxes of $2.4 million for the year ended December 31, 2002 and a provision for income taxes of $924,000 for the year ended December 31, 2001. In the third quarter of 2002, we recorded a benefit for income taxes as a result of our reassessment of the recoverability of our deferred tax assets as being more likely than not and the resulting release of a significant portion of our valuation allowance. The amount of the valuation allowance that existed at December 31, 2001 and that was reversed in the third quarter of 2002 was $7.4 million. Excluding the effects of this reversal, the current provision for income taxes increased to $3.0 million for the year ended December 31, 2002 from $924,000 for the year ended December 31, 2001 due to higher foreign sales in countries subject to withholding taxes, increased non-deductible expenses 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.

Cost of revenue

Cost of revenue increased to $17.9 million, or 53% 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 increase in absolute dollars is due primarily to higher unlicensed third-party royalties, cost of settlement of intellectual property matters and amortization of software license agreement as well as higher revenue and unit shipments compared to 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 increase was primarily due to higher unlicensed third-party royalties and higher costs of settlement of intellectual property matters 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. In addition, $1.0 million was included in cost of revenue in 2001 that was charged to amortization of software license agreement as described above.

Gross margin

Gross margin decreased to 47% of revenue for the year ended December 31, 2001 from 67% for the year ended December 31, 2000. The decrease resulted primarily from higher costs of settlement and amortization of software license agreement as noted above.

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 an 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

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increase in absolute dollars was primarily attributable to supporting our higher level of sales, which included higher personnel costs, commissions 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 payroll costs and professional services.

Stock compensation expenses

Stock 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 a reduction in the number of stock options granted to non-employees during 2001 and the accelerated method of amortizing employee deferred stock compensation 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 difference is due to the fact that 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.

Impairment of promotional agreement

In March 2001, we entered into a promotional agreement with an online music provider 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 were recorded in sales and marketing expenses. In September 2001, based on the results of the promotion, we determined 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 of 2001. 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.

Other income, net

Other income, 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

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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 and lower yields in 2001. In 2000, we also recorded a $134,000 loss on fixed assets that were disposed of 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 our restructuring.

Provision 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.

Quarterly Results of Operations

The following table sets forth unaudited consolidated statements of operations data for the nine quarters ended March 31, 2003. 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 for 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			Dec. 31, 2002		March 31, 2003
(in thousands)	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		$	11,349	$	13,373
Product costs		2,797			2,847			3,016			8,235			3,956		4,172			3,976			4,746		5,430
Amortization of software license agreement		131			131			725			13			13		5			5			6		5
Cost of revenue		2,928			2,978			3,741			8,248			3,969		4,177			3,981			4,752		5,435
Gross profit		4,794			4,381			4,444			2,249			7,198		7,625			7,195			6,597		7,938
Operating expenses:
Research and development		2,468			2,367			2,096			2,104			2,022		1,905			1,702			1,556		1,714
Sales and marketing		2,004			2,154			2,075			1,645			1,759		1,922			2,045			2,453		2,275
General and administrative		675			777			773			765			896		1,006			943			933		951
Stock compensation		526			378			475			475			921		813			461			274		333
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			5,598		5,626			6,879			5,216		5,273
Income (loss) from operations		(953	)		(2,219	)		(2,310	)		(2,815	)		1,600		1,999			316			1,381		2,665
Other income (expenses), net		178			122			130			107			76		(107	)		(65	)		120		86
Income (loss) before provision (benefit) for income taxes		(775	)		(2,097	)		(2,180	)		(2,708	)		1,676		1,892			251			1,501		2,751
Provision (benefit) for income taxes		151			232			85			456			596		1,063			(4,319	)		251		1,143
Net income (loss)	$	(926	)	$	(2,329	)	$	(2,265	)	$	(3,164	)	$	1,080	$	829		$	4,570		$	1,250	$	1,608

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

• A decrease in revenue of $366,000 and $41,000 for the quarters ended June 30 and September 30, 2001, respectively, and an increase in revenue of $407,000 for the quarter ended December 31, 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 June 30 and September 30, 2001, and an increase of $126,000 in such expense during the quarter ended December 31, 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.

Revenue

Over the nine quarters presented, our quarterly revenue grew to $13.4 million for the quarter ended March 31, 2003 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.

Gross margin

Our gross margin has fluctuated over the nine quarters presented in the table above. Gross margin generally increased from 62% 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, and has subsequently decreased to 58% and 59% in the quarters ended December 31, 2002 and March 31, 2003, respectively. This recent decrease primarily resulted from declining average selling prices charged to our major OEM customers partially offset by higher margin Web sales. Gross margin for the quarter ended September 30, 2001 was 54%, 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 21%, with the decrease primarily resulting from a charge of $4.2 million relating to the settlement of intellectual property matters.

Operating expenses

Our total operating expenses have fluctuated over the nine 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 first quarter of 2003 was primarily due to decreased payroll and consulting spending due to the restructuring we implemented in June 2001 and the shift in personnel resources overseas to locations with lower cost structures. 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 first quarter of 2003 was due to an increase in personnel and associated costs as we grew

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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 $951,000 in the first quarter of 2003 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.

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. In addition, the market for the PCs into which our products are incorporated is highly cyclical, which may cause our operating results to fluctuate. 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 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 have generated gross proceeds of $21.2 million, and the sale of our products. As of March 31, 2003, we had cash and cash equivalents of $18.5 million.

Net cash provided by operating activities was $2.3 million for the three months ended March 31, 2003, $6.9 million for the year ended December 31, 2002, and $1.4 million for the year ended December 31, 2001. This increase primarily resulted from sales of our WinDVD product. Net cash used in operating activities was $330,000 in 2000 and resulted primarily from net losses from operations in that period.

Net cash used in investing activities was $871,000 for the three months ended March 31, 2003 and $4.2 million for the year ended December 31, 2002. Cash used in investing activities in the three months ended March 31, 2003 was due to purchases of property and equipment and short-term investments. Of the $4.2 million expended in 2002, $3.5 million resulted from the purchase of short-term investments and the remainder was property and equipment purchases. Net cash used in investing activities was $1.7 million in 2001 and $4.4 million in 2000. 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. Of the $4.4 million expended in 2000, $2.2 million was due to a partial payment for the purchase of AVPD and $2.2 million was purchases of property and equipment and long-term investments.

Cash provided by financing activities was $2,000, $90,000 and $111,000 for the three months ended March 31, 2003 and the years ended December 31, 2002 and December 31, 2001, respectively, due to the issuance of common stock upon the exercise of stock options. Cash provided by financing activities was $16.8 million in 2000 primarily resulting from 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

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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. 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 or respond to competitive pressures or unanticipated industry changes. Additional financing may not be available when needed and, even if such financing is available, it may not be available on terms acceptable to us. 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.

Disclosures About Contractual Obligations and Commercial Commitments

As of December 31, 2002, future minimum commitments under operating leases are as follows (in thousands):

Fiscal Year	Lease
2003	$	730
2004		3
	$	733

As of December 31, 2002, the Company had an outstanding standby letter of credit for $116,000 issued in connection with a building lease. 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.

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

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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 products have been shipped and we have recorded revenue.

Under the terms of the OEM license agreements, each OEM will qualify the Company’s software on their hardware and software configurations. 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 qualification. 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.

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 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.

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

In addition to the per unit license fees discussed above, certain OEM agreements also include NRE service fees primarily for porting our software to the OEM’s hardware and software configurations. The NRE service fees are recognized using the percentage-of-completion method. However, some OEM agreements also provide the OEM with rights to free PCS, including unspecified future software upgrades. PCS is not available to the OEM’s end users. We have not established vendor specific objective evidence of fair value for PCS and accordingly, if a contract includes both PCS and NRE services, the NRE service fees are deferred until software product acceptance and then recognized as revenue over the PCS period.

End-user sales are made directly through our websites. We do not offer specified upgrade rights to any class of customer, and there are no unspecified upgrade rights associated with end-user sales. We recognize revenue from sales through our websites upon delivery of product and the receipt of payment by means of an authorized credit card. 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.

Certain customer agreements call for the payment by us of marketing development funds, co-operative advertising fees, rebates or similar charges. We account for such fees as a reduction in revenue. Commissions paid to third-party sales representatives are included in sales and marketing expenses.

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Valuation of accounts receivable

We make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not specifically reviewed. In determining the provision for invoices not specifically reviewed, we analyze historical collection experience, customer concentrations, customer credit-worthiness and current economic trends. If the historical data used to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables or if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an increase in the provision for doubtful accounts may be required.

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.

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, $620,000 and $0 for the years ended December 31, 2000, 2001 and 2002 and the three months ended March 31, 2003, respectively. We also entered into settlement agreements and paid $4.4 million in stock and cash in the year ended December 31, 2002 and $0 in the three months ended March 31, 2003. As of March 31, 2003, accruals for unsigned agreements were $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 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 deferred stock compensation of $3.6 million, $1.6 million, $2.3 million and ($1,000) and amortization of such expense of $1.9 million, $1.7 million, $2.3 million and $333,000 in the years ended December 31, 2000, 2001 and 2002 and the three months ended

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March 31, 2003, respectively. Had different assumptions or criteria been used to determine the deemed fair value of the stock options, materially different amounts of stock compensation expenses 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 liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefits from our deferred tax assets.

During 2002, we determined that it was more likely than not that we would realize a significant portion of our deferred tax assets 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.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB, 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, 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 adopted SFAS No. 143 effective January 1, 2003. The adoption of SFAS 143 did not 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 adopted SFAS No. 145 effective January 1, 2003. The adoption of SFAS No. 145 did not 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.

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The provisions of this statement are effective for exit or disposal activities that are initiated by a company after December 31, 2002. We adopted SFAS 146 effective January 1, 2003. The adoption of SFAS 146 did not have a material impact on our financial position or results of operations.

In November, 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance or modification of a guarantee after December 31, 2002. In addition, FIN 45 requires disclosure about guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The Company adopted FIN 45 as of January 1, 2003. The Company’s software license agreements typically provide for indemnification of customers for intellectual property infringement claims. The Company has received notices of such claims in the past and may receive additional notices of claims in the future. The Company also warrants to customers that its software products operate substantially in accordance with specifications. Historically, minimal costs have been incurred related to product warranties. Additionally, from time to time the Company posts letters of credit to secure specific obligations to third parties and may guarantee specified obligations to third parties. The maximum potential future payments under letters of credit and other guarantees is not considered material as of March 31, 2003. The Company had no liability associated with any of its outstanding letters of credit or guarantees on its balance sheet as of March 31, 2003.

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 our financial position or results of operations.

In January 2003, the FASB issued Interpretation 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 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. FIN 46 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. We do not expect the adoption of FIN 46 to have a material impact on our consolidated 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.

As of March 31, 2003, we had sold more than 50 million copies of our flagship product, WinDVD, a software DVD player for PCs. Our strategy for growth is to sell multiple products, for multiple platforms, through multiple channels. We have historically derived nearly all of our revenue from sales of WinDVD to PC OEMs. In the future, we expect to derive an increasing percentage of our revenue from retail and web sales and from sales of products other than WinDVD, including:

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

• InterVideo Home Theater, a media center suite for the viewing and management of digital media content; and

• Linux-based versions of our DVD and DVR software designed for Linux-based PCs and 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 PC OEM customers include Dell, Fujitsu, Fujitsu Siemens, Hewlett-Packard (including the former Compaq), IBM, Sony and Toshiba. In addition to PC OEMs, we have recently begun to sell our products to CE manufacturers, such as Sony. We also sell our products to PC peripherals manufacturers worldwide and offer our software in up to 27 languages. We also sell our products through retail channels, including over 1,000 U.S. retail stores, and directly to consumers through 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 has enabled us to quickly integrate our products on new platforms and with other technologies.

Single vendor:    With our broad product offerings and capabilities, 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 have demonstrated that we are able to develop the core technologies and products that enable rapid migration of our products to CE devices in addition to multiple 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. During 2002 and 2003, we introduced WinProducer 3, WinDVR 3, WinDVD Creator, WinDVD Recorder, InterVideo Home Theater and InterVideo DVD Copy, 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. Based on the number of new PCs that included DVD-ROM or DVD-recordable drives or other multimedia functionality, we believe consumers have increasingly required that multimedia hardware and software be included as components of the PCs they purchase. 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 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 microprocessor technology and developments in multimedia applications. In the mid-1980s, consumer

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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 are a cost-effective means of storing and playing professional broadcast-quality video and audio content.

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 functionality has also grown 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 believe 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. These devices, as well as the PC, can act as home digital multimedia entertainment centers, 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 has become a standard PC feature and also serves as an opportunity for OEMs to add value to their products, improve their margins and differentiate their products from those of their competitors.

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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. 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;

• 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

A significant portion of the software code in each of our products 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.

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 we believe 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

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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 portion of code in order to develop a new product, we have been able to more efficiently meet OEM demand for a variety of new products.

Our product 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 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 PC and peripherals OEM relationships. We plan to continue to leverage our strong market position and broad, integrated product suite to encourage our current OEM customers to license additional software products and to encourage prospective 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. We have also implemented this strategy with IBM and Fujitsu, which initially bundled WinDVD and now ship WinDVD Creator as well. 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 increase sales of our products through retail channels and our websites. Our products are sold in more than 1,000 U.S. retail stores, including Best Buy, CompUSA, Fry’s and Microcenter. We are currently in negotiations with several additional national retailers that sell software for PCs. As part of our retail channel growth strategy, we intend to continue to increase our retail presence at several of the larger U.S. retailers that sell PC software.

In addition to increasing our revenues from our retail channel, we believe an expanded retail presence would increase our brand awareness. Increased brand awareness may 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

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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. For example, Sony has recently begun shipping DVR and DVD recorder devices that incorporate our Linux-based software products, LinDVD and LinDVR. In addition, we have agreements with two other CE manufacturers to incorporate our Linux-based software in their DVR devices.

We believe that we can adapt our technology 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 have developed InterVideo Home Theater, a media center suite for viewing and managing digital media content, such as photos, music and video. This product allows the PC to be used as the central multimedia entertainment device 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 Microsoft and Intel. 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. PC OEMs can also use our WinDVD technology to power the new Windows Media Center. In addition, our products such as WinDVD Recorder and versions of our WinDVR product are bundled with a range of Intel platforms.

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, to produce interoperable products and to 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	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
InterVideo Home Theater	A media center suite for digital media content	Windows 98, ME, 2000, XP	Feb 2003
InterVideo DVD Copy	DVD copy and backup software	Windows XP	May 2003
Linux-based products	Linux-based versions of our WinDVD and WinDVR software	Linux	LinDVD: Feb 2002 LinDVR: Apr 2003

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.

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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.

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

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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.

Home Theater

Our InterVideo Home Theater product is a media center suite for viewing and managing digital media content. This product enables users to watch high-quality video with surround sound, record favorite broadcast or cable programs, watch DVDs, manage and listen to CDs and digital audio files, and manage and view digital photograph libraries. All of the functions are unified under a user-friendly software interface. The product is designed to be incorporated on PCs used as home digital multimedia entertainment platforms that may be connected to a television to provide a living room style entertainment environment.

DVD Copy

Our InterVideo DVD Copy software allows users to copy and backup DVDs and VideoCDs. With the rapid growth of DVD recordable devices, users increasingly want to duplicate DVDs and other video discs and to store and backup their discs. InterVideo DVD Copy does not allow the copy of copy-protected DVDs.

Linux-based products

Linux is a primary operating platform used by CE manufacturers in their latest generation of intelligent CE devices. In addition, PC OEMs and manufacturers of cable, Internet and satellite set-top boxes have increasingly used Linux as the operating system for their PCs and intelligent devices. We offer embedded Linux versions of our DVD and DVR PC software, including LinDVD and LinDVR. These products are designed to enable next-generation CE devices and Linux-based PCs, Internet appliances and set-top boxes to provide DVD playback and recording capabilities. LinDVD and LinDVR are based on our Windows-based software engines, which reduced our time to market with these products and which contributes to a level of performance similar to our WinDVD and WinDVR products.

InterVideo Technology Platform

Our technology platform incorporates the following design principles:

• Modular and layered design for greater expandability and reusability;

• Device-independent 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 quickly and efficiently add new features to a product by plugging in new components into appropriate layers. For example, we incorporated the TV and video recording feature into our WinDVD product to create WinDVD Recorder with the addition of new components. Similarly, we enhanced the capabilities of WinDVD Recorder by reusing the Direct Recording feature from WinDVD Creator to enable direct recording from TV or camera to DVD. Because of component reusability, our new products were developed with fewer resources and in less time than would have been required to design them using entirely new components. As new functionality becomes necessary or available for a specific platform, we intend to develop the appropriate modules that expand our products to deliver more and more technology under a single product or as specialized products for that platform.

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. A significant portion of the software code that is used to implement our products is platform independent. Each software module contains a platform-independent core that is surrounded by a platform-dependent software wrapper that interacts with the

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devices of a given platform. 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. An example of this type of platform portability is the development of LinDVD from WinDVD. Although the platform dependent interfaces are very different, both products share the same DVD navigation and video and audio engines which comprise the large majority of the software code contained in these products.

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 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, 2002, our five largest customers accounted for a majority of our revenue. During that period, Hewlett-Packard (including the former Compaq) accounted for 17% of our revenue and Dell accounted for 14% of our revenue. For the three months ended March 31, 2003, Hewlett-Packard (including the former Compaq) accounted for 21% of our revenue and Dell accounted for 11% 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.

We have adapted our technology for use in CE devices. We have agreements with Sony and two other CE manufacturers to incorporate our Linux-based software in their DVR and DVD devices.

Consumers may purchase products and product upgrades directly through our Internet commerce sites. We also use distributors to sell our products to consumers through retail distribution channels. Our products are sold in more than 1,000 U.S. retail stores, including Best Buy, CompUSA, Fry’s and Microcenter. Our products are also sold by leading online retailers, including Amazon.com, Buy.com, CDW Computer Centers, Inc., Dell and J&R Electronics, Inc. Revenue derived from our websites and retail channel accounted for 15% of our revenue in 2002 and 17% of our revenue for the three months ended March 31, 2003.

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 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 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.

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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 March 31, 2003, we had 68 sales, marketing and technical support personnel residing in our offices in Fremont, California; Taipei, Taiwan; Shenzhen, Beijing 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, Beijing 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 emerging customer 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 who provide details about upcoming products and 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 March 31, 2003, we employed 110 research and development personnel in three offices. For the three months ended March 31, 2003, our research and development expenditures totaled $1.7 million. Of the 84 research and development personnel who are engineers, 15 hold PhDs. We intend to recruit, hire and retain highly qualified engineers and technicians to support our further research and development efforts. To improve 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.

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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 products could lose market share.

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;

• 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.

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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 issued U.S. patent and two patents issued in Taiwan, and we have 45 pending patent applications in various jurisdictions, comprised of 35 U.S. patent applications and 10 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 “DVD 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.

We may receive notices of claims of infringement of other parties’ proprietary rights, including Nissim, DVD 6C 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 DVD 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, DVD 6C and 3C, to enforce their proprietary rights and these consortia may seek to enforce their patent rights against us and our customers. If DVD 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, DVD 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 PC OEM 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 the 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.

Our license agreements, including the agreements we have entered into with our large PC OEM customers, generally 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

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rights include the patents held by Nissim and by members of MPEG LA, DVD 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. 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 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 351,780 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. In June 2002, we agreed to a cash settlement with Gateway concerning certain amounts that Gateway alleged that we owed 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 June 2003, we agreed to a cash settlement with Hewlett-Packard (including the former Compaq) concerning certain amounts that Hewlett-Packard alleged that we owed it as a result of Hewlett-Packard’s prior settlement with Nissim of certain infringement claims brought against Hewlett-Packard by Nissim. Without admitting any liability to Hewlett-Packard, we settled all past and future claims that Hewlett-Packard might have against us based on the alleged infringement of certain patents held by Nissim. Notwithstanding these settlement agreements with Dell, Gateway and Hewlett-Packard, we may be liable to these parties for additional damages that fall outside the scope of the settlement agreements. We expect to make additional cash payments to settle similar claims in the future, although the timing and amount of such claims cannot be determined at this time. 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 designed to 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.

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

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Employees

As of March 31, 2003, we employed 218 people, of whom 83 worked in the United States and 135 worked in our various international locations. Of the U.S. employees, 29 were in sales and marketing, 34 were in research and development and 20 were in general and administration. Of the international employees, 39 were in sales and marketing, 76 were in research and development and 20 were in general and administration.

Facilities

We currently lease the following properties:

Location	Primary Use	Square Feet	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 30, 2003
Tokyo, Japan	Sales and Marketing	2,428	September 30, 2003
Shenzhen, China	Research and Development/Sales and Marketing	6,058	November 30, 2003
Beijing, China	Sales and Marketing	1,561	December 31, 2003
Hanzhou, China	Research and Development	3,066	March 25, 2004
Taipei, Taiwan	Research and Development/Sales and Marketing	4,625	July 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 March 31, 2003.

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	47	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 and from October 2002 to the present. Mr. Liu also served as Chairman of the Board of Oplink Communications from 1995 to May 2000 and from November 2001 to August 2002. 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. We anticipate that three of these directors, Messrs. Liu, Haber and Shaw, will qualify as “independent” pursuant to the amended rules that have been

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proposed by the Nasdaq Stock Market. Following this offering, the directors will be divided into three classes, each 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. The audit committee has the sole authority to approve the hiring and firing of the independent auditors.

• 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 and for administering our incentive compensation and benefit plans.

Our board of directors may establish other committees from time to time 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 20,295 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 an option to purchase 5,412 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 of our common stock on the date of grant. Each initial option becomes exercisable as to 6,765 of the shares subject to the option on the first anniversary of the date of grant and becomes exercisable as to 564 of the shares each full month thereafter for a period of 24 months, 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	$	100,000 —	81,180 —	$	3,305 3,234
Randall Bambrough Chief Financial Officer	2002 2001		180,000 139,846		45,000 27,968	27,060 162,360		7,908 2,076
Honda Shing Chief Technology Officer	2002 2001		150,000 150,000		40,000 3,000	27,060 —		3,542 1,430
Raul Diaz Vice President of Sales	2002 2001		140,000 140,000		41,000 25,000	27,060 —		1,539 1,497
Chinn Chin Vice President of Engineering	2002 2001		150,000 150,000		40,000 —	27,060 —		3,020 2,914

(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	81,180	13.6	%	$	6.10	1/10/07	$	748,104	$	1,073,696
Randall Bambrough	27,060	4.5			5.54	1/10/12		379,022		692,328
Honda Shing	27,060	4.5			6.10	1/10/07		249,368		357,899
Raul Diaz	27,060	4.5			5.54	1/10/12		379,022		692,328
Chinn Chin	27,060	4.5			5.54	1/10/12		379,022		692,328

(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 thereafter.

(2) The percentage of total options granted is based on an aggregate of 597,713 options 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 do not take into account the payment of taxes associated with exercise. The 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 $12.00 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 with us.

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	—	$	—	216,480	81,180	$	2,102,021	$	478,962
Randall Bambrough	—		—	—	27,060		—		174,808
Honda Shing	—		—	54,120	27,060		644,028		159,654
Raul Diaz	—		—	109,593	47,355		1,272,713		305,913
Chinn Chin	27,060		147,500	920,040	27,060		10,957,676		174,808

(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 $12.00 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 March 31, 2003, options to purchase 3,159,670 shares of common stock were outstanding and 771,786 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 216,480 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) 1,082,400 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 1,082,400 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 541,200 shares, which shall not be counted against the 1,082,400 shares limit.

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 20,295 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 5,412 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 6,765 of the shares subject to the option on the first anniversary of the date of grant and becomes exercisable as to 564 of the shares each full month thereafter for a period of 24 months, 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, subject to stockholder approval requirements under applicable laws and regulations, 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 216,480 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) 216,480 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 5,412 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, subject to stockholder approval requirements under applicable laws and regulations, 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 of the company. A change of control is defined as the merger or consolidation of our company, or the sale of all or substantially all of our assets or stock, following which 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 of the company, 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 is defined as a sale of substantially all of 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 that 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 of the company. A change of control is defined as 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, employment and change in control arrangements, which are described above 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 have entered into an indemnification agreement with each of our directors and officers. 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	108,240	$	0.46	10 years
Henry Shaw	7/1/00	21,648		3.70	10 years
Steve Ro	10/1/00	108,240		4.07	5 years
Randall Bambrough	3/21/01	162,360		3.70	10 years
George Haber	6/15/01	27,060		3.70	10 years
Joseph Liu	6/15/01	27,060		3.70	10 years
Henry Shaw	6/15/01	5,412		3.70	10 years
Chinn Chin	1/10/02	27,060		5.54	10 years
Raul Diaz	1/10/02	27,060		5.54	10 years
Steve Ro	1/10/02	81,180		6.10	5 years
Randall Bambrough	1/10/02	27,060		5.54	10 years
Honda Shing	1/10/02	27,060		6.10	5 years
Mike Ling	3/5/02	54,120		7.39	10 years
Mike Ling	11/8/02	12,300		9.70	10 years

Options for executive officers and other 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 87,945 shares of common stock at an effective price of $7.39 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 162,360 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. As of March 31, 2003, the amount outstanding was $661,000. 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 Mr. Bambrough’s employment.

In December 2001, in connection with the purchase by each of George Haber and Joe Liu, two of our directors, of 27,060 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. As of March 31, 2003, the amount outstanding under each of these notes was $107,000. 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 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 our audit committee, 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 March 31, 2003, as adjusted to reflect the sale of 2,300,000 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)	676,500	6.9	%	5.6	%
Randall Bambrough(3)	171,380	1.8		1.4
Honda Shing(4)	1,145,540	11.9		9.6
Chinn Chin(5)	1,037,300	9.9		8.1
Raul Diaz(6)	129,887	1.3		1.1
Henry Shaw(7)	38,277	*		*
George Haber(8)	27,060	*		*
Joe Liu(9)	27,060	*		*
All directors and executive officers as a group (9 persons)(10)	3,262,023	29.7		24.5
Other 5% Stockholders
Spot Master Investment Limited(11) 6F, #16 Mucha St. Alley 9, Section 4 Mucha Wenshan District Taipei, Taiwan ROC	2,083,620	21.7		17.5

  (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 March 31, 2003 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 9,597,139 shares of common stock outstanding as of March 31, 2003 and 11,897,139 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 243,540 shares of our common stock issuable under options exercisable within 60 days of March 31, 2003.

  (3) Includes 9,020 shares of our of our common stock issuable under options exercisable within 60 days of March 31, 2003 and 40,590 shares of our common stock subject to our right of repurchase as of March 31, 2003.

  (4) Includes 63,140 shares of our common stock issuable under options exercisable within 60 days of March 31, 2003.

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  (5) Includes 929,060 shares of our common stock issuable under options exercisable within 60 days of March 31, 2003.

  (6) Represents 129,887 shares of our common stock issuable under options exercisable within 60 days of March 31, 2003.

  (7) Includes 8,625 shares of our common stock issuable under options exercisable within 60 days of March 31, 2003.

  (8) Includes 7,611 shares of our common stock subject to our right of repurchase as of March 31, 2003.

  (9) Includes 7,611 shares of our common stock subject to our right of repurchase as of March 31, 2003.

(10) Includes 1,392,290 shares of our common stock issuable under options exercisable within 60 days of March 31, 2003 and 55,813 shares subject to our right of repurchase as of March 31, 2003.

(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 and assuming the filing of an amended and restated certificate of incorporation, 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 9,597,139 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 3,192,142 shares of common stock were outstanding. We will have a total of 11,897,139 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 amended and restated 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 amended and restated 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 6,948,329 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,

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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 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,

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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.

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 11,897,139 shares of our common stock. Of these shares, the 2,300,000 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 9,597,139 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. Over 99% 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. SG Cowen Securities Corporation has indicated to us that it has no present intention of shortening the lock-up period or waiving the lock-up agreements. 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 9,333,304 shares will become eligible for sale pursuant to Rule 144 beginning on             , 2003, 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 263,835 shares will become eligible for sale in the public market pursuant to Rule 144 at various dates in the future.

Of the above 9,597,139 shares of restricted securities, 351,780 shares held by Dell are subject to a two-year lock-up period. Of these shares, 87,945 shares shall be released from the lock-up agreement 180 days from the date of this prospectus and an additional 43,972 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 March 31, 2003 and currently reserved for issuance under our stock plans, this registration statement would cover approximately 4,364,416 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 6,948,329 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 118,971 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.

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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	2,300,000

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 345,000 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 $1,650,000.

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 holding over 99% of our outstanding shares and shares issuable upon exercise of outstanding stock options 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,

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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 351,780 shares of common stock, has entered into a lock-up agreement with us pursuant to which 87,945 shares become eligible for sale 180 days from the date of this prospectus and an additional 43,972 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 115,000 shares of our common stock being offered for sale to our employees, customers, business partners and other parties at the discretion of our management. 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.

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. O’Melveny & Myers LLP, Menlo Park, 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. and subsidiaries (the Company) as of December 31, 2001 and 2002 and the related consolidated statements of operations, redeemable preferred stock, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2002 have been 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 contains an explanatory paragraph that refers to a restatement of the consolidated financial statements as of December 30, 2001, and for each of the years in the two-year period ended December 31, 2001, which consolidated financial statements were previously audited by other auditors who have ceased operations and to the Company’s adoption of Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” effective January 1, 2002.

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., 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. TN Soong & Co. was previously a member firm of Andersen Worldwide, SC. On April 7, 2002, TN Soong & Co. served notice to terminate its relationship with Andersen Worldwide, SC. From April 22, 2002, TN Soong & Co. is an associate member firm of Deloitte Touche Tohmatsu. On June 1, 2003, TN Soong & Co. and Deloitte & Touche Taiwan combined to establish Deloitte & Touche.

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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.

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INTERVIDEO, INC.

INDEX TO 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 and Comprehensive Income (Loss)	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

The consolidated financial statements of InterVideo, Inc. as of December 31, 2001 and for each of the years in the two-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.

FINANCIAL STATEMENTS OF AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
Report of Independent Public Accountants	F-37
Balance Sheets	F-38
Statements of Operations and Comprehensive Loss	F-39
Statements of Cash Flows	F-40
Notes to Financial Statements	F-41

F-1

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 (the Company) as of December 31, 2001 and 2002, and the related consolidated statements of operations, redeemable preferred stock, stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31, 2002. 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, 2001 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, 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, 2001 and for each of the years in the two-year period ended December 31, 2001, which consolidated financial statements were previously audited by other auditors who have ceased operations. As discussed in note 3 to the consolidated financial statements, effective January 1, 2002, InterVideo, Inc. and subsidiaries adopted the provisions of Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”.

/s/    KPMG LLP

Mountain View, California

May 30, 2003

F-2

INTERVIDEO, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	As of December 31,						As of  March 31, 2003
	2001			2002			Actual			Pro Forma
	Restated						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	14,348		$	17,137		$	18,518		$	18,518
Short-term investments		—			4,104			4,881			4,881
Accounts receivable, net of allowance for doubtful accounts of $319, $205, $143 and $143, respectively		2,753			3,902			4,595			4,595
Deferred tax assets		—			2,122			2,128			2,128
Prepaid expenses and other current assets		540			694			1,661			1,661
Total current assets		17,641			27,959			31,783			31,783
Property and equipment, net		1,725			1,566			1,492			1,492
Goodwill		1,018			1,018			1,018			1,018
Other purchased intangible assets		683			483			433			433
Deferred tax assets		—			3,335			3,335			3,335
Other assets		1,086			355			367			367
Total assets	$	22,153		$	34,716		$	38,428		$	38,428
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	595		$	413		$	691		$	691
Accrued liabilities		12,732			9,639			10,632			10,632
Income taxes payable		52			1,111			1,197			1,197
Deferred revenue		307			1,112			1,522			1,522
Total current liabilities		13,686			12,275			14,042			14,042
Stockholders’ equity:
Convertible preferred stock, $0.001 par value: aggregate liquidation preference of $21,255, $23,855, $23,855 and $0, respectively; 13,000 shares authorized; 12,189, 12,839, 12,839 and no shares issued and outstanding, respectively		12			13			13			—
Common stock, $0.001 par value: 25,000 shares authorized; 2,428, 2,644, 2,649 and 9,597 shares issued and outstanding, respectively		2			3			3			10
Additional paid-in capital		28,924			35,197			35,198			35,204
Notes receivable from stockholders		(824	)		(864	)		(874	)		(874	)
Deferred stock compensation		(1,616	)		(1,614	)		(1,280	)		(1,280	)
Accumulated other comprehensive loss		(188	)		(180	)		(168	)		(168	)
Accumulated deficit		(17,843	)		(10,114	)		(8,506	)		(8,506	)
Total stockholders’ equity		8,467			22,441			24,386			24,386
Total liabilities and stockholders’ equity	$	22,153		$	34,716		$	38,428		$	38,428

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,									Three months ended  March 31,
	2000			2001			2002			2002		2003
	Restated			Restated						Restated
										(unaudited)
Revenue	$	15,426		$	33,763		$	45,494		$	11,167	$	13,373
Product costs		5,133			16,895			16,850			3,956		5,430
Amortization of software license agreement		—			1,000			29			13		5
Cost of revenue		5,133			17,895			16,879			3,969		5,435
Gross profit		10,293			15,868			28,615			7,198		7,938
Operating expenses:
Research and development		6,581			9,035			7,185			2,022		1,714
Sales and marketing		4,916			7,878			8,179			1,759		2,275
General and administrative		2,667			2,990			3,778			896		951
Stock compensation(1)		2,909			1,854			2,469			921		333
Amortization of goodwill		174			298			—			—		—
Cost of delayed public offering		—			710			1,728			—		—
Impairment of promotional agreement		—			550			—			—		—
Restructuring costs		—			850			(20	)		—		—
Total operating expenses		17,247			24,165			23,319			5,598		5,273
Income (loss) from operations		(6,954	)		(8,297	)		5,296			1,600		2,665
Other income, net		555			537			24			76		86
Income (loss) before provision (benefit) for income taxes		(6,399	)		(7,760	)		5,320			1,676		2,751
Provision (benefit) for income taxes		552			924			(2,409	)		596		1,143
Net income (loss)	$	(6,951	)	$	(8,684	)	$	7,729		$	1,080	$	1,608
Net income (loss) per common share, basic	$	(4.89	)	$	(4.61	)	$	3.15		$	0.47	$	0.63
Net income (loss) per common share, diluted	$	(4.89	)	$	(4.61	)	$	0.65		$	0.09	$	0.13
Weighted average common shares outstanding, basic		1,421			1,885			2,456			2,290		2,541
Weighted average common shares outstanding, diluted		1,421			1,885			11,945			11,524		12,112
(1)    Stock compensation is allocated among the operating expense classifications as follows (in thousands):
	Year ended December 31,									Three months ended March 31,
	2000			2001			2002			2002		2003
	Restated			Restated						Restated
										(unaudited)
Research and development	$	745		$	581		$	969		$	268	$	111
Sales and marketing		1,523			605			761			377		115
General and administrative		641			668			739			276		107
	$	2,909		$	1,854		$	2,469		$	921	$	333

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

F-4

INTERVIDEO, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (LOSS)

(in thousands)

	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			Compre- hensive Income (Loss)
	Shares		Amount			Shares	Amount		Shares	Amount
BALANCE, December 31, 1999 (Restated)	—		$	—		8,000	$	8	1,379	$	1	$	4,915		$	—		$	(83	)	$	—		$	(2,208	)	$	2,633
Issuance of Series D convertible preferred stock, net of issuance cost of $45	—			—		4,189		4	—		—		16,706			—			—			—			—			16,710
Issuance of Series D redeemable preferred for acquisition of AVPD	25			1,000		—		—	—		—		—			—			—			—			—			—
Exercise of common stock options	—			—		—		—	625		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			1,000		12,189		12	2,004		2		26,285			—			(1,742	)		(84	)		(9,159	)		15,314		$	(7,035	)
Exercise of common stock options	—			—		—		—	208		—		111			—			—			—			—			111
Notes receivable from stockholders from exercised options	—			—		—		—	216		—		800			(800	)		—			—			—			—
Redemption of Series D from sellers of AVPD	(25	)		(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)	—			—		12,189		12	2,428		2		28,924			(824	)		(1,616	)		(188	)		(17,843	)		8,467		$	(8,788	)
Exercise of common stock options	—			—		—		—	216		1		89			—			—			—			—			90
Issuance of Series D convertible preferred stock	—			—		650		1	—		—		3,717			—			—			—			—			3,718
Stock compensation to consultants and other non-employees	—			—		—		—	—		—		157			—			—			—			—			157
Interest income on notes receivable from stockholders	—			—		—		—	—		—		—			(40	)		—			—			—			(40	)
Deferred stock compensation	—			—		—		—	—		—		2,310			—			(2,310	)		—			—			—
Amortization of deferred stock compensation expense	—			—		—		—	—		—		—			—			2,312			—			—			2,312
Foreign currency translation adjustment	—			—		—		—	—		—		—			—			—			26			—			26		$	26
Unrealized loss on available-for-sale investments	—			—		—		—	—		—		—			—			—			(18	)		—			(18	)		(18	)
Net income	—			—		—		—	—		—		—			—			—			—			7,729			7,729			7,729
BALANCE, December 31, 2002	—			—		12,839		13	2,644		3		35,197			(864	)		(1,614	)		(180	)		(10,114	)		22,441		$	7,737
Exercise of common stock options	—			—		—		—	5		—		2			—			—			—			—			2
Interest income on notes receivable from stockholders	—			—		—		—	—		—		—			(10	)		—			—			—			(10	)
Deferred stock compensation	—			—		—		—	—		—		(1	)		—			1			—			—			—
Amortization of deferred stock compensation expense	—			—		—		—	—		—		—			—			333			—			—			333
Foreign currency translation adjustment	—			—		—		—	—		—		—			—			—			—			—			—		$	—
Unrealized gain on available-for-sale investments	—			—		—		—	—		—		—			—			—			12			—			12			12
Net income	—			—		—		—	—		—		—			—			—			—			1,608			1,608			1,608
BALANCE, March 31, 2003 (unaudited)	—		$	—		12,839	$	13	2,649	$	3	$	35,198		$	(874	)	$	(1,280	)	$	(168	)	$	(8,506	)	$	24,386		$	1,620

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,									Three months ended March 31,
	2000			2001			2002			2002			2003
	Restated			Restated						Restated
										(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(6,951	)	$	(8,684	)	$	7,729		$	1,080		$	1,608
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		746			1,220			922			228			227
Deferred taxes		—			—			(5,457	)		—			(6	)
Cost of settlement of intellectual property matters settled in preferred stock		—			3,718			—			—			—
Write-down of long term investments		—			100			200			—			—
Write-off of in-process research and development		700			—			—			—			—
Amortization of software license agreement		—			1,000			29			13			5
Stock compensation		2,909			1,854			2,469			921			333
Provision for doubtful accounts		110			185			105			—			(48	)
Loss from disposal of property and equipment		112			235			143			—			2
Interest income on Notes Receivable from officers		—			(24	)		(40	)		(10	)		(10	)
Changes in operating assets and liabilities:
Accounts receivable		(2,149	)		(522	)		(1,254	)		709			(654	)
Prepaid expenses and other current assets		(204	)		(1,251	)		(766	)		(1,039	)		(957	)
Other assets		(253	)		(612	)		536			23			(12	)
Accounts payable		353			115			(182	)		74			279
Accrued liabilities, taxes payable and deferred revenue		4,297			4,050			2,490			959			1,495
Net cash provided by (used in) operating activities		(330	)		1,384			6,924			2,958			2,262
Cash flows from investing activities:
Purchase of property and equipment		(1,976	)		(712	)		(700	)		(19	)		(106	)
Purchase of Audio/Video Products Division (“AVPD”)		(2,200	)		(1,000	)		—			—			—
Purchase of long-term investments		(200	)		—			—			—			—
Purchase of short-term investment, net		—			—			(3,522	)		—			(765	)
Net cash used in investing activities		(4,376	)		(1,712	)		(4,222	)		(19	)		(871	)
Cash flows from financing activities:
Proceeds from issuance of Series D preferred stock, net		16,710			—			—			—			—
Proceeds from exercise of common stock options		97			111			90			77			2
Net cash provided by financing activities		16,807			111			90			77			2
Effect of change in exchange rates on cash and cash equivalents		(61	)		(103	)		(3	)		(1	)		(12	)
Net increase (decrease) in cash and cash equivalents		12,040			(320	)		2,789			3,015			1,381
Cash and cash equivalents, beginning of period		2,628			14,668			14,348			14,348			17,137
Cash and cash equivalents, end of period	$	14,668		$	14,348		$	17,137		$	17,363		$	18,518
Supplementary disclosures of noncash investing and financing activities:
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		3,585			1,598			2,310			2,351			(1	)
Unrealized gain (loss) on available-for-sale investments		—			—			(18	)		—			12
Supplementary disclosure:
Income tax payment		—			—			—			—			650

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 three months ended March 31, 2002 and 2003 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 to PC original equipment manufacturers (“OEMs”). Other products include WinDVD Creator, InterVideo Home Theater, InterVideo DVD Copy and Linux-based versions of our DVD and DVR software designed for Linux-based PCs and CE devices.

The Company’s software is bundled with products sold by PC OEMs. The Company sells its products to PC OEMs, CE manufacturers and PC peripherals manufacturers worldwide. In addition, the Company sells products through retail channels and directly to consumers through 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 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 three months ended March 31, 2002 and 2003 is unaudited)

• A decrease of unlicensed royalty expense of $228,000 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 accrual.

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

	As of December 31, 2001
	As previously reported			Restated
Consolidated Balance Sheet
Accrued liabilities	$	13,241		$	12,732
Total liabilities		14,194			13,686
Preferred stock, common stock and additional paid-in capital		27,765			28,938
Notes receivable from stockholders		(667	)		(824	)
Deferred stock compensation		(2,070	)		(1,616	)
Accumulated deficit		(16,881	)		(17,843	)
Total stockholders’ equity		7,959			8,467

	Year ended December 31,
	2000						2001
	As previously reported			Restated			As previously reported			Restated
Consolidated Statements of Operations
Cost of revenue	$	5,361		$	5,133		$	18,099		$	17,895
Stock compensation		1,411			2,909			2,063			1,854
Total operating expenses		15,815			17,247			24,474			24,165
Loss before provision (benefit) for income taxes		(5,193	)		(6,399	)		(8,253	)		(7,760	)
Net loss	$	(5,745	)	$	(6,951	)	$	(9,177	)	$	(8,684	)
Net loss per common share, basic and diluted	$	(4.04	)	$	(4.89	)	$	(4.87	)	$	(4.61	)
Consolidated Statements of Cash Flows
Net loss	$	(5,745	)	$	(6,951	)	$	(9,177	)	$	(8,684	)
Stock compensation		1,411			2,909			2,063			1,854
Change in accrued liabilities, taxes payable and deferred revenue		4,519			4,297			4,331			4,050
Net cash provided by (used in) operating activities		(330	)		(330	)		1,384			1,384

The Company has restated the condensed consolidated financial statements for the quarter ended March 31, 2002 to reflect the following;

• An increase in revenue of $307,000 to recognize revenue in accordance with the Company’s policy as described in Note 3;

• An increase in stock compensation expense of $196,000 primarily as a result of remeasuring the fair value of options issued to non-employees over the service period.

F-8

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

3.    Summary of Significant Accounting Policies:

Basis of presentation

All share amounts have been rounded to the nearest thousand.

Unaudited interim financial statements

The accompanying consolidated balance sheet as of March 31, 2002, the consolidated statements of operations and cash flows for the three-month periods ended March 31, 2002 and 2003, and the consolidated statement of redeemable preferred stock, stockholders’ equity and comprehensive income (loss) for the three months ended March 31, 2003 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 three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

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. Beginning with the quarter ended March 31, 2003, all international subsidiaries of the Company established a month end cut-off of three working days prior to the end of any given month. This change did not have a material impact on the results of operations of the Company.

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 income (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, 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.

Stock splits

In April 2002, the Board of Directors approved a 0.44-for-one reverse stock split for the holders of common stock which was effected in May 2002. In May 2003, the Board of Directors approved a 1.23-for-one forward

F-9

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

stock split for the holders of common stock. These stock splits have been retroactively reflected in the accompanying consolidated financial statements for all years presented. The conversion ratio of the convertible preferred stock was adjusted by the stock splits such that, upon conversion, each share of convertible preferred stock will be converted into 0.54 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.

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 consist principally of corporate bonds and certificates of deposit. The Company currently classifies all investment securities as available-for-sale. Securities classified as available-for-sale are required to be reported at fair value with unrealized gains and losses excluded from earnings and included in other comprehensive income (loss).

Short-term investments consist of (in thousands):

	As of December 31, 2002
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair market value
Corporate bonds	$	3,055	$	—	$	(16	)	$	3,039
Certificates of deposit		1,067		—		(2	)		1,065
Total	$	4,122	$	—	$	(18	)	$	4,104
	As of March 31, 2003 (unaudited)
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair market value
Corporate bonds	$	2,610	$	2	$	(4	)	$	2,608
Certificates of deposit		2,277		—		(4	)		2,273
Total	$	4,887	$	2	$	(8	)	$	4,881

The contractual maturities of available-for-sale securities at March 31, 2003 were all less than one year.

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

F-10

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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. 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. Two customers’ accounts receivable balances were individually greater than 10% of total accounts receivable at December 31, 2002 and together comprised 39% of total accounts receivable. Two customers’ accounts receivable balances were individually greater than 10% of total accounts receivable at March 31, 2003 and together comprised 26% (unaudited) of total accounts receivable.

The following individual customers accounted for greater than 10% of revenue in any one of the years or periods:

	For the year ended December 31,						Three months ended March 31,
	2000		2001		2002		2002		2003
							(unaudited)
Customer A	21	%	29	%	14	%	16	%	11	%
Customer B	9	%	12	%	9	%	15	%	5	%
Customer C	5	%	14	%	17	%	23	%	21	%

Valuation accounts

The Company makes judgments as to its ability to collect outstanding receivables and provides allowances for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices not specifically reviewed. In determining the provision for invoices not specifically reviewed, the Company analyzes historical collection experience, customer concentrations, customer credit-worthiness and current economic trends. If the historical data used to calculate the allowance provided for doubtful accounts does not reflect the Company’s future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, an increase in the provision for doubtful accounts may be required. Below is a summary of the changes in the Company’s allowance for doubtful accounts for the years ended December 31, 2000, 2001 and 2002 and the three months ended March 31, 2003 (in thousands).

Allowance for Doubtful Accounts	Balance at beginning of the Period		Additions/ (subtractions)			Write-off		Balance at end of the Period
December 31, 2000	$	42	$	110		$	—	$	152
December 31, 2001		152		185			18		319
December 31, 2002		319		105			219		205
March 31, 2003 (unaudited)		205		(48	)		14		143

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.

F-11

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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.

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,								Three months ended March 31,
	2000			2001			2002		2002		2003
	Restated			Restated					Restated
									(unaudited)
Net income (loss), as reported	$	(6,951	)	$	(8,684	)	$	7,729	$	1,080	$	1,608
Add back: amortization of goodwill and assembled workforce		174			298			—		—		—
Adjusted net income (loss)	$	(6,777	)	$	(8,386	)	$	7,729	$	1,080	$	1,608
Net income (loss) per share, basic, as reported	$	(4.89	)	$	(4.61	)	$	3.15	$	0.47	$	0.63
Add back: amortization of goodwill and assembled workforce		0.12			0.16			—		—		—
Adjusted net income (loss) per share, basic	$	(4.77	)	$	(4.45	)	$	3.15	$	0.47	$	0.63
Net income (loss) per share, diluted, as reported	$	(4.89	)	$	(4.61	)	$	0.65	$	0.09	$	0.13
Add back: amortization of goodwill and assembled workforce		0.12			0.16			—		—		—
Adjusted net income (loss) per share, diluted	$	(4.77	)	$	(4.45	)	$	0.65	$	0.09	$	0.13

F-12

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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.

Impairment of long-lived assets

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 Opinion No. 30. SFAS 144 was adopted by the Company on January 1, 2002. In accordance with SFAS 144, when events and circumstances warrant a review, the Company evaluates 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.

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.

The Company sells to OEMs and directly to end-users. 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 an OEM’s products have been shipped and revenue has been recorded.

F-13

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

Under the terms of the OEM license agreements, the OEM will qualify the Company’s software on their hardware and software configurations. Once the software has been qualified, the OEM will begin to ship products and report sales to the Company, at which point revenue will be recorded. The OEM will have the right to return the software prior to qualification. 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. Under the terms of the Company’s 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 amounts or timing of revenue recognition.

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 the Company records associated revenue when it receives notification of the OEMs’ sales of the licensed software to 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.

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. In such cases, qualification of the Company’s product is not required, and these OEMs have no rights to upgrades or returns. The Company generally recognizes revenue upon shipment to these OEMs.

In addition to the per unit license fees discussed above, certain OEM agreements also include non-recurring engineering (“NRE”) service fees primarily for porting the Company’s software to the OEMs’ hardware and software configurations. The NRE service fees are recognized using the percentage-of-completion method. However, some OEM agreements also provide the OEM with rights to free post contract support (“PCS”), including unspecified future software upgrades. PCS is not available to the OEMs’ end users. The Company has not established vendor specific objective evidence of fair value for PCS and accordingly, if a contract includes both PCS and NRE services, the NRE service fees are deferred until software product acceptance and then recognized as revenue over the PCS period.

End-user sales are made directly through the Company’s websites. The Company does not offer specified upgrade rights to any class of customer, and there are no unspecified upgrade rights associated with end-user 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. 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.

Certain customer agreements call for the payment by the Company of marketing development funds, co-operative advertising fees, rebates or similar charges. The Company accounts for such fees as a reduction in revenue. Commissions paid to third-party sales representatives are included in sales and marketing expenses.

F-14

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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, cost of settlement of intellectual property matters, expenses incurred to manufacture, package and distribute the Company’s software products, the amortization of developed technology and costs associated with end-user PCS. Licensed and unlicensed royalties consist of royalties paid or accrued for payment to third parties for technology incorporated into the Company’s products. In general, the amount of royalties depends on the number of the Company’s product units sold and the royalty rates associated with the third-party technology incorporated into those products. 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 patented technology 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.

End-user PCS costs include the costs associated with answering end-user 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 and PCS is provided within 90 days after the associated revenue is recognized. Certain product costs associated with sales through retailers are deferred until the corresponding revenue has been recognized.

Amortization of software license agreement consists of royalty payments pursuant to a software license agreement that we entered into in December 2000. The license agreement provided for an aggregate of $1.1 million of minimum royalty payments. 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 is being 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 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.

F-15

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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, 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 per share amounts):

	Year ended December 31,									Three months ended March 31,
	2000			2001			2002			2002			2003
	Restated			Restated						Restated
										(unaudited)
Numerator
Net income (loss)	$	(6,951	)	$	(8,684	)	$	7,729		$	1,080		$	1,608
Denominator
Basic:
Weighted average common shares outstanding		1,938			2,262			2,611			2,518			2,644
Less: Weighted average shares subject to repurchase		(517	)		(377	)		(155	)		(228	)		(103	)
Denominator on basic calculation		1,421			1,885			2,456			2,290			2,541
Basic net income (loss) per share	$	(4.89	)	$	(4.61	)	$	3.15		$	0.47		$	0.63
Shares used above to compute basic net income (loss) per share		1,421			1,885			2,456			2,290			2,541
Pro forma adjustment to reflect weighted average effect of assumed conversion of convertible preferred stock (unaudited)								6,837						6,949
Shares used in computing pro forma basic net income per common share (unaudited)								9,293						9,490
Pro forma basic net income per common share (unaudited)							$	0.83					$	0.17
Diluted:
Weighted average common shares outstanding		1,938			2,262			2,611			2,518			2,644
Less: Weighted average unvested shares subject to repurchase		(517	)		(377	)		—			—			—
Weighted average dilutive effect of convertible preferred stock		—			—			6,837			6,597			6,949
Weighted average dilutive effect of common stock options		—			—			2,497			2,409			2,519
Denominator on diluted calculation		1,421			1,885			11,945			11,524			12,112
Diluted net income (loss) per share	$	(4.89	)	$	(4.61	)	$	0.65		$	0.09		$	0.13
Shares used above to compute diluted net income per share								11,945						12,112
Shares used in computing pro forma diluted net income per common share (unaudited)								11,945						12,112
Pro forma diluted net income per share (unaudited)							$	0.65					$	0.13

F-16

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

The following table summarizes potential common shares that are not included in 2000 and 2001 in the denominator used in the diluted net loss per share calculation because to do so would be antidilutive for the periods presented (in thousands):

	Year ended December 31,
Effect of Common Stock Equivalents	2000	2001
Common stock subject to repurchase	517	377
Options to purchase common stock	2,544	2,227
Series A convertible preferred stock	2,706	2,706
Series B convertible preferred stock	541	541
Series C convertible preferred stock	1,082	1,082
Series D convertible preferred stock	1,532	2,268
Total	8,922	9,201

In fiscal year 2002 and the three months ended March 31, 2003, the Company generated positive net income, and therefore all potential common shares are included in the denominator used in the diluted net income per share calculation.

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 6,949,000 shares of common stock as though the completion of the initial public offering had occurred on March 31, 2003. Common shares issued in such initial public offering and any related estimated net proceeds are excluded from such pro forma information.

Stock compensation expenses

The Company accounts for its employee compensation plans using the intrinsic-value method. Stock 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 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 compensation arrangements in accordance with SFAS 123.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” The statement amends SFAS No. 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 No. 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. The

F-17

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

transition guidance and annual disclosure provisions of SFAS No. 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 in the fourth quarter of the year ended December 31, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods after December 15, 2002. The Company adopted the interim disclosure provisions in the quarter ended March 31, 2003.

The Company accounts for its stock option awards to employees under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. No stock compensation expense is recorded for options granted in which the exercise price equals or exceeds the market price of the underlying stock on the date of grant in accordance with the provisions of APB Opinion No. 25. The following table illustrates the effect on net income and earnings per share had the Company applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share amounts).

	Year ended December 31,									Three months ended March 31,
	2000			2001			2002			2002			2003
	Restated			Restated						Restated
										(unaudited)
Net income (loss):
As reported	$	(6,951	)	$	(8,684	)	$	7,729		$	1,080		$	1,608
Employee stock compensation expenses based on APB No. 25		1,926			1,724			2,312			763			333
Employee stock compensation expenses based on FAS 123		(2,016	)		(1,930	)		(3,382	)		(817	)		(675	)
Pro Forma	$	(7,041	)	$	(8,890	)	$	6,659		$	1,026		$	1,266
Net income (loss) per common share—Basic:
As reported	$	(4.89	)	$	(4.61	)	$	3.15		$	0.47		$	0.63
Employee stock compensation expenses based on APB No. 25		1.36			0.91			0.94			0.33			0.13
Employee stock compensation expenses based on FAS 123		(1.42	)		(1.02	)		(1.38	)		(0.36	)		(0.27	)
Pro Forma	$	(4.95	)	$	(4.72	)	$	2.71		$	0.44		$	0.49
Net income (loss) per common share—Diluted:
As reported	$	(4.89	)	$	(4.61	)	$	0.65		$	0.09		$	0.13
Employee stock compensation expenses based on APB No. 25		1.36			0.91			0.19			0.07			0.03
Employee stock compensation expenses based on FAS 123		(1.42	)		(1.02	)		(0.28	)		(0.07	)		(0.06	)
Pro Forma	$	(4.95	)	$	(4.72	)	$	0.56		$	0.09		$	0.10

F-18

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

The weighted average fair value of options granted to employees in 2000, 2001, 2002 and three months ended March 31, 2002 and 2003 was $4.11, $5.04, $9.21, $9.22 and $9.77, 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,			Three months ended
	2000	2001	2002	March 31, 2002	March 31, 2003
Risk-free interest rate	6.75%–6.19%	5.43%–4.84%	4.14%–2.23%	4.14%–3.55%	2.18%–1.98%
Expected life of the option	4 years	4 years	4 years	4 years	4 years
Dividend yield	0%	0%	0%	0%	0%
Volatility	0%	0%	90%	90%	90%

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. The Company has used the minimum value method to determine the fair value of options granted prior to its initial filing in January 2002 of a registration statement under the Securities Act of 1933 relating to an initial public offering of the Company’s common stock. This method does not consider the expected volatility of the underlying stock, and is only available to non-public entities. Accordingly, the Company has used an estimated volatility factor of 90% for grants issued subsequent to the initial filing date of the registration statement.

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 or Services.”

For performance based stock option awards issued to employees, the Company records an expense equal to the intrinsic value on the date that the milestone becomes probable of being met. The Company measures the award at each reporting period until the performance has been met and the option is vested.

Other income, net

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

	Year ended December 31,									Three months ended March 31,
	2000			2001			2002			2002		2003
										(unaudited)
Interest income	$	652		$	460		$	258		$	59	$	60
Loss on disposal of property and equipment		(134	)		(1	)		(143	)		—		(2	)
Write-off long term investment		—			(100	)		(200	)		—		—
Other		37			178			109			17		28
	$	555		$	537		$	24		$	76	$	86

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.

F-19

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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 components of other comprehensive income (loss) are foreign currency translation adjustments and unrealized gain or loss on available-for-sale investments. Such amounts are excluded from net income (loss) and are reported in accumulated other comprehensive income (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. The Company has adopted SFAS 143 as of January 1, 2003. The adoption of SFAS 143 did not 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 adoption of SFAS 145 did not have a material impact on the consolidated financial position or results of operations.

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 adoption of SFAS 146 did not have a material impact on the consolidated financial position or results of operations.

In November, 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance or modification of a guarantee after December 31, 2002. In addition, FIN 45 requires disclosure about guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The Company adopted FIN 45 as of January 1, 2003. The Company’s software license agreements typically provide for indemnification of customers for intellectual property infringement claims. The Company has received notices of such claims in the past and may receive additional notices of claims in the future (See Note 4 of these Notes to Consolidated Financial Statements). The Company also warrants to customers that its software products operate substantially in accordance with specifications. Historically, minimal costs have been incurred related to product warranties.

F-20

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

Additionally, from time to time the Company posts letters of credit to secure specific obligations to third parties and may guarantee specified obligations to third parties. The maximum potential future payments under letters of credit and other guarantees is not considered material as of March 31, 2003. The Company had no liability associated with any of its outstanding letters of credit or guarantees on its balance sheet as of March 31, 2003.

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. 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, 2002.

4.    Balance Sheet Components:

Property and Equipment, net

Depreciation expense for property and equipment was $431,000, $721,000, 722,000, 178,000 (unaudited) and 177,000 (unaudited) for the years ended December 31, 2000, 2001, 2002 and three months ended March 31, 2002 and 2003, respectively. Property and equipment, net consists of the following (in thousands):

	As of December 31,						As of March 31, 2003
	2001			2002
							(unaudited)
Equipment	$	1,240		$	1,231		$	1,348
Furniture and fixtures		445			369			373
Purchased software		693			730			739
Leasehold improvements		173			202			202
Construction in process		274			572			544
Other		46			80			80
		2,871			3,184			3,286
Less: Accumulated depreciation and amortization		(1,146	)		(1,618	)		(1,794	)
Property and equipment, net	$	1,725		$	1,566		$	1,492

F-21

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

Goodwill and other purchased intangible assets, net

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

	As of December 31,						As of March 31, 2003
	2001			2002
							(unaudited)
Goodwill:
Goodwill	$	1,339		$	1,339		$	1,339
Less: Accumulated amortization		(424	)		(424	)		(424	)
		915			915			915
Assembled workforce		150			150			150
Less: Accumulated amortization		(47	)		(47	)		(47	)
		103			103			103
Total Goodwill		1,018			1,018			1,018
Other purchased intangible assets:
Purchased development technology		1,000			1,000			1,000
Less: Accumulated amortization		(317	)		(517	)		(567	)
Total other purchased intangible assets		683			483			433

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	As of December 31,				As of March 31, 2003
	2001		2002
	Restated				(unaudited)
Accrued payroll and related benefits	$	1,019	$	1,363	$	1,339
Royalties for signed agreements		3,586		4,292		5,441
Accruals for unlicensed royalty settlements		6,187		2,078		2,078
Accrued promotion expense		600		—		—
Accrued restructuring cost		307		101		62
Other		1,033		1,805		1,712
Total	$	12,732	$	9,639	$	10,632

In 2002, the Company reached agreements for payment of $4.3 million to settle claims based upon alleged contributory infringement of certain patents allegedly used in the Company’s products or its customers’ products. Of these payments, $3.7 million involved 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 352,000 shares of common stock. The fair value of the convertible preferred stock issued in April 2002 approximated $3.7 million. Additionally, the Company agreed to settle an intellectual property matter with another large customer, which is included in accrued liabilities as of March 31, 2003. There can be no assurance that there will not be additional claims in the future.

F-22

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

As of December 31, 2001 and 2002 and March 31, 2003, the Company had accruals for unlicensed royalties where no signed agreement exists of $6.2 million, $2.1 million and $2.1 million (unaudited), 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 incorporated into the Company’s and its customer’s products. 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.

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, or 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. In addition, 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 restrictions or prohibitions on our ability to sell products incorporating the other party’s technology, 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 could be harmed.

The Company may be liable to some of its customers for damages that they incur in connection with intellectual property claims.  The Company’s license agreements, including the agreements it has entered into with its large PC OEM customers, generally contain warranties of non-infringement and commitments to

F-23

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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 some of its customers asserting that the Company is required to indemnify them under its agreements with them, or providing notice that they have received from third party infringement claims that are related to the Company’s products. 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 the Company’s 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 its indemnity or warranty obligations 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, the customers 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, 2002 the Company had an outstanding standby letter of credit for $116,000 issued in connection with a building lease.

Lease commitments

As of December 31, 2002, future minimum commitments under operating leases are as follows (in thousands):

Fiscal Year
2003	$	730
2004		3
	$	733

Rent expense was $469,000, $841,000, $802,000, 196,000 (unaudited) and $214,000 (unaudited) for the years ended December 31, 2000, 2001 and 2002, and three months ended March 31, 2002 and 2003, 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 preferred stock that were subject to a contractual right of redemption were outstanding. During the year ended December 31, 2001, 25,000 shares were redeemed for $1.0 million. See Note 13 for further discussion.

F-24

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

Convertible preferred stock

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

	As of December 31,				As of March 31, 2003
	2001		2002
					(unaudited)
Series A:
Authorized—5,000 shares; Liquidation preference of $250
Outstanding—5,000 shares	$	5	$	5	$	5
Series B:
Authorized—1,000 shares; Liquidation preference of $250
Outstanding—1,000 shares		1		1		1
Series C:
Authorized—2,000 shares; Liquidation preference of $4,000
Outstanding—2,000 shares		2		2		2
Series D:
Authorized—5,000 shares; Liquidation preference of $16,755, $19,355 and $19,355, respectively
Outstanding—4,189 shares at December 31, 2001; 4,839 shares at December 31, 2002 and March 31, 2003		4		5		5
	$	12	$	13	$	13

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

• Pursuant to the Amended and Restated Certificate of Incorporation filed June 17, 2003, each share of convertible preferred stock is convertible, at the option of the holder, into 0.54 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).

F-25

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

7.    Common Stock:

In May 1998, the Company issued 1,082,000 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 $0.0009 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, 2001, 2002 and March 31, 2003, 970,000, 1,082,000 and 1,082,000 (unaudited) shares, respectively, had vested.

In May 2002, the Company effected a 0.44-for-one reverse stock split of all common stock. In June 2003, the Company effected a 1.23-for-one forward stock split of all common stock. The conversion ratio of the convertible preferred stock was adjusted by the stock splits, such that, upon conversion, each share of convertible preferred stock will be converted into 0.54 shares of common stock. All share and per share information has been retroactively adjusted to reflect the stock splits.

As of December 31, 2002 and March 31, 2003, the Company had reserved shares of authorized but unissued common stock for the following (in thousands):

	December 31, 2002	March 31, 2003
		(unaudited)
Conversion of Series A preferred stock	2,706	2,706
Conversion of Series B preferred stock	541	541
Conversion of Series C preferred stock	1,082	1,082
Conversion of Series D preferred stock	2,619	2,619
Stock Options	3,969	3,964
Total shares reserved	10,917	10,912

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 stock options may be granted for up to 5,412,000 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 granted with exercise prices equal to at least 110% of the fair market value of the common stock on the day of grant.

F-26

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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 216,000 shares of common stock for issuance pursuant to the 2003 Stock Plan plus (a) any shares that 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) 1,082,000 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.

A total of 216,000 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) 216,000 shares or (iii) another amount as the Board of Directors 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 5,000 shares during a six-month purchase period.

F-27

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

Summary of stock option activities (in thousands, except per share amounts):

	Shares Available for Grant		Option Activity		Option Activity Outside of the Plans		Total Outstanding Options		Weighted Average Exercise Price
December 31, 1999	1,184		2,865		16		2,881		$	0.11
Authorized	1,082		—		—		—			—
Options Granted	(1,196	)	1,196		54		1,250		$	2.72
Options Exercised	—		(625	)	—		(625	)	$	0.15
Options Cancelled	123		(123	)	—		(123	)	$	2.73
December 31, 2000	1,193		3,313		70		3,383		$	0.98
Authorized	—		—		—		—			—
Options Granted	(547	)	547		32		579		$	3.50
Options Exercised	—		(354	)	(70	)	(424	)	$	2.11
Options Cancelled	634		(634	)	—		(634	)	$	1.80
December 31, 2001	1,280		2,872		32		2,904		$	1.14
Authorized	—		—		—		—			—
Options Granted	(611	)	611		—		611		$	6.61
Options Exercised	—		(216	)	—		(216	)	$	0.41
Options Cancelled	138		(138	)	—		(138	)	$	4.23
December 31, 2002	807		3,129		32		3,161		$	2.11
Authorized	—		—		—		—			—
Options Granted	(46	)	46		—		46		$	12.20
Options Exercised	—		(5	)	—		(5	)	$	0.46
Options Cancelled	10		(10	)	—		(10	)	$	4.87
March 31, 2003 (unaudited)	771		3,160		32		3,192		$	2.24

The following table summarizes the stock options outstanding and exercisable as of December 31, 2002 (in thousands, except per share amounts):

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options Outstanding at December 31, 2002	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number of Options Exercisable as of December 31, 2002	Weighted Average Exercise Price
$0.09–0.11	1,581	6.26	$	0.09	1,561	$	0.09
0.46–0.51	327	6.88		0.48	280		0.48
3.70–7.39	1,161	8.37		4.72	475		4.02
9.24–9.70	92	9.65		9.59	3		9.40
$0.09–9.70	3,161	7.20	$	2.11	2,319	$	0.95

F-28

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

The following table summarizes the stock options outstanding and exercisable as of March 31, 2003 (unaudited) (in thousands, except per share amounts):

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options Outstanding at March 31, 2003	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number of Options Exercisable as of March 31, 2003	Weighted Average Exercise Price
$0.09–0.11	1,581	6.01	$	0.09	1,579	$	0.09
0.46–0.51	321	6.63		0.48	290		0.48
3.70–7.39	1,153	8.12		4.72	616		4.33
9.24–12.20	137	9.55		10.45	9		9.46
$0.09–12.20	3,192	6.99	$	2.24	2,494	$	1.21

The Company also granted options to consultants and other non-employees to purchase 160,000, 2,000 and 13,000 shares of common stock during the years ended December 31, 2000, 2001 and 2002, respectively. No options were granted to consultants or non-employees during the three months ended March 31, 2003. Stock options granted to non-employees are accounted for based on the fair value of the stock options granted. 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,
	2000	2001	2002
Risk-free interest rate	6.75%–6.19%	5.43%–4.84%	5.43%
Dividend yield	0%	0%	0%
Volatility	95%	70–90%	90%

The expected life used in the Black-Scholes model for grants to non-employees was the contractual term of the equity instrument, typically ten years for stock option grants. 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 $983,000, $130,000 and $157,000 for the years ended December 31, 2000, 2001 and 2002, respectively, and is included in operating expenses in the accompanying statements of operations.

As of December 31, 2002, no unvested options to consultants and other non-employees were outstanding.

Deferred stock compensation

In connection with the grant of certain stock options to employees for the years ended December 31, 2000, 2001 and 2002, the Company recorded deferred stock compensation within stockholders’ equity of $3.6 million, $1.6 million and $2.3 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 in the consolidated statement of operations of $1.9 million, $1.7 million, $2.3 million and $333,000 (unaudited) for the years ended December 31, 2000, 2001 and 2002 and the three months ended March 31, 2003, respectively.

F-29

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

Stock options granted subsequent to December 31, 2002 (unaudited)

Subsequent to December 31, 2002, the Company made the following stock option grants:

• In January 2003, the Company granted to employees options to purchase 46,000 shares of common stock at an exercise price of $12.20 per share. In connection with this option grant, deferred stock compensation of ($1,000) has been recorded based on a deemed fair market value of common stock of $12.79 per share.

• In April 2003, the Company granted to employees options to purchase 30,000 shares of common stock at an exercise price of $12.20 per share. In connection with this option grant, no deferred stock compensation will be recorded based on a deemed fair market value of common stock of $12.20 per share.

Notes receivable from stockholders

In March 2001, the Company granted a senior executive an option to purchase 162,000 shares of common stock. This option was 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, 2002 and March 31, 2003, 91,000 and 81,000 (unaudited) 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 27,000 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, 2002 and March 31, 2003, 17,000 and 15,000 (unaudited) 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-30

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 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,
	2001			2002
Deferred income tax assets:
Federal net operating loss carryforwards	$	1,030		$	—
State net operating loss carryforwards		276			276
Start-up costs capitalized for tax		80			43
Research and development credit		1,185			1,038
Depreciation and amortization		1,211			201
Other temporary differences		3,307			2,690
Other tax credits		1,025			3,010
		8,114			7,258
Valuation allowance		(7,365	)		(1,690	)
Total deferred income tax assets		749			5,568
Deferred income tax liability—property, plant and equipment		(749	)		(111	)
Net deferred tax asset	$	—		$	5,457

Federal and state net operating loss carryforwards at December 31, 2001 were $3.0 million and $3.1 million, respectively. As of December 31, 2002, there were no federal net operating loss carryforwards. State net operating loss carryforwards expire through 2013. As of December 31, 2002, the Company has federal and state research and development tax credit carryforwards of $726,000 and $312,000, respectively. The federal tax credit carryforwards expire on various dates through 2022, while the state tax credits carry forward indefinitely. The Company also has foreign tax credit carryforwards at December 31, 2002 of $3.0 million 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 of valuation allowance brought forward from earlier years was 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

F-31

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

provision for income taxes for the year ended December 31, 2002, resulted in a net benefit for income taxes of $2.4 million for the year ended December 31, 2002.

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

	Year ended December 31,
	2000		2001		2002
Federal statutory rate	34.0	%	34.0	%	35.0	%
State taxes, net of federal benefit	—		—		10.3
Foreign tax rates	(8.7	)	(12.1	)	50.0
Non-deductible expenses	(11.0	)	(13.1	)	26.6
Net operating losses not benefited	(23.0	)	(20.9	)	—
Change in beginning of year valuation allowance	—		—		(106.6	)
Foreign tax credits	—		—		(48.7	)
Research and experimentation credits	—		—		(10.4	)
Other	—		—		(1.5	)
Effective tax rate	(8.7	)%	(12.1	)%	(45.3	)%

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
Total income tax expense	$	924	$	—	$	924

The significant components of income tax expense for 2002 are as follows (in thousands):

	Current		Deferred			Total
Federal	$	386	$	(4,527	)	$	(4,141	)
State		1		(930	)		(929	)
Foreign		2,661		—			2,661
Total income tax expense	$	3,048	$	(5,457	)	$	(2,409	)

F-32

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

For the period ended March 31, 2003, the company calculated its projected effective tax rate for the year ending December 31, 2003 to be 41% (unaudited). This rate differs from the statutory federal rate of 35% primarily due to state taxes, net of federal benefit and differences between federal and foreign tax rates.

11.    Related-party Transactions:

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. The Company sells its products primarily through OEMs and to end-users through the Company’s web sites. 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 sales channel and geographic region (in thousands):

	Year ended December 31,						Three months ended March 31,
	2000		2001		2002		2002		2003
							(unaudited)
Revenues by Sales Channel:
OEMs	$	14,198	$	31,019	$	38,798	$	10,183	$	11,149
Web sales and retail		1,228		2,744		6,696		984		2,224
Total	$	15,426	$	33,763	$	45,494	$	11,167	$	13,373
Revenues by Geographic Region:
Americas:
United States	$	6,907	$	18,587	$	22,693	$	5,921	$	7,850
Other Americas		52		11		—		—		—
Europe		2,388		3,823		3,194		608		982
Asia:
Japan		2,931		8,579		14,377		3,615		3,106
Other Asia		3,148		2,763		5,230		1,023		1,435
Total	$	15,426	$	33,763	$	45,494	$	11,167	$	13,373

F-33

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

	As of December 31,				As of March 31,
	2001		2002		2003
(in thousands)					(unaudited)
Tangible long-lived assets:
Americas:
United States	$	2,482	$	1,470	$	1,377
Other Americas		—		—		—
Europe		—		—		—
Asia:
Japan		104		120		141
Other Asia		225		331		341
Total	$	2,811	$	1,921	$	1,859

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 and 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 seller’s 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

F-34

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

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.

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, 2000
Net revenues	$	15,575
Net loss	$	(7,267	)
Basic and diluted net loss per share	$	(5.11	)

The pro forma net losses include amortization of goodwill and purchased intangibles totaling approximately $208,000 for the year ended December 31, 2000. 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 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-35

INTERVIDEO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Information as of and for the three months ended March 31, 2002 and 2003 is unaudited)

A roll forward of the accrued restructuring expenses from June 30, 2001 to December 31, 2001, 2002 and March 2003 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 in 2002, net		(184	)		(2	)		(186	)
Adjustment		(20	)		—			(20	)
Balance as of December 31, 2002		101			—			101
Payments for the three months of 2003, net (unaudited)		(39	)		—			(39	)
Balance as of March 31, 2003 (unaudited)	$	62		$	—		$	62

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-36

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-37

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-38

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-39

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-40

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-41

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-42

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, including services costs, interest costs, projected return on plan assets and amortization, are recorded on the basis

F-43

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

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-44

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-45

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-46

2,300,000 Shares

Common Stock

PRELIMINARY PROSPECTUS

SG COWEN

SOUNDVIEW TECHNOLOGY GROUP

                     , 2003

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	$	2,782
NASD filing fee		5,635
Printing and engraving expenses		250,000
Legal fees and costs		450,000
Accounting fees and costs		550,000
Nasdaq National Market listing fees		100,000
Transfer agent and registrar fees and expenses		15,000
Road show expenses		250,000
Miscellaneous expenses		26,583
Total	$	1,650,000

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 February 1999, the registrant effected a two-for-one forward stock split of all outstanding common stock and preferred stock. In April 2002, the registrant declared, and in May 2002 effected, a 0.44-for-one reverse stock split of all outstanding shares of common stock. In June 2003, the registrant effected a 1.23-for-one forward stock split of all outstanding shares of common. All references to shares of common stock in this Registration Statement reflect these stock splits.

Since January 1, 2000, we have sold and issued the following unregistered securities:

(1)  We have granted stock options to purchase an aggregate of 2,430,543 shares of common stock at exercise prices ranging from $0.46 to $12.20 per share to employees, consultants and directors pursuant to our 1998 Plan. In addition, we have granted stock options to purchase an aggregate of 86,592 shares of common

II-1

stock outside of the 1998 Plan. The options granted outside of the 1998 Plan were granted at exercise prices ranging from $0.09 to $0.46 per share to consultants and other service providers (including the registrant’s former legal counsel and financial advisors).

(2)  From April 2000 to June 2000, we sold an aggregate of 4,213,750 shares of Series D preferred stock, convertible into 2,280,482 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 0.54 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 351,780 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, 54,120 shares were exempt from registration under Section 4(2) of the Securities Act and 2,463,015 shares were exempt by virtue of Rule 701 of the Securities Act. The sale and issuance of securities described in paragraphs (2) and (3) above were sold to accredited or sophisticated persons and were exempt from registration under the Securities Act by virtue of Section 4(2), Regulation D and Regulation S of the Securities Act.

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**	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 with Steve Ro, Randall Bambrough, Honda Shing, Chinn Chin, Raul Diaz, Mike Ling, George Haber, Joe Liu and Henry Shaw.
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.

II-2

Exhibit Number	Description
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.
10.17†**	Software License Agreement between the registrant and Hewlett-Packard Company, dated February 25, 2000, as amended.
21.1**	Subsidiaries of the registrant.
23.1	Consent of Independent Auditors.
23.2	Consent of Deloitte & Touche
23.3	Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1**	Power of Attorney.

** Previously filed.

†   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 Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on June 25, 2003.

INTERVIDEO, INC.
By:	/s/    RANDALL BAMBROUGH
	Randall Bambrough Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on June 25, 2003 in the capacities indicated.

Signature	Title
* Steve Ro	President, Chief Executive Officer and Director     (Principal Executive Officer)
/s/    RANDALL BAMBROUGH         Randall Bambrough	Chief Financial Officer (Principal Financial and Accounting Officer)
* Henry Shaw	Director
* George Haber	Director
* Joseph Liu	Director

*By:	/s/    RANDALL BAMBROUGH
	Randall Bambrough Attorney-In-Fact

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 with Steve Ro, Randall Bambrough, Honda Shing, Chinn Chin, Raul Diaz, Mike Ling, George Haber, Joe Liu and Henry Shaw.
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.
10.17†**	Software License Agreement between the registrant and Hewlett-Packard Company, dated February 25, 2000, as amended.
21.1**	Subsidiaries of the registrant.
23.1	Consent of Independent Auditors.
23.2	Consent of Deloitte & Touche
23.3	Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1**	Power of Attorney.

** Previously filed.

†   Confidential treatment requested for a portion of this agreement.

EX-1.1

EXHIBIT 1.1

2,300,000 Shares

Common Stock

($0.001 Par Value)

UNDERWRITING AGREEMENT

__________, 2003

UNDERWRITING AGREEMENT

__________ ___, 2003

SG Cowen Securities Corporation

SoundView Technology Corporation

As representatives of the several underwriters

named in Schedule A hereto

c/o SG Cowen Securities Corporation

1221 Avenue of the Americas

New York, New York 10020

Ladies and Gentlemen:

InterVideo, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the underwriters named in Schedule A annexed hereto (the “Underwriters”) an aggregate of 2,300,000 shares (the “Firm Shares”) of Common Stock, $0.001 par value (the “Common Stock”), of the Company. In addition, solely for the purpose of covering over-allotments, the Company proposes to grant to the Underwriters the option to purchase from the Company up to an additional 345,000 shares of Common Stock (the “Additional Shares”). The Firm Shares and the Additional Shares are hereinafter collectively sometimes referred to as the “Shares.” The Shares are described in the Prospectus which is referred to below. As part of the offering contemplated by this Agreement, SG Cowen Securities Corporation (the “Designated Underwriter”) has agreed to reserve out of the Firm Shares purchased by it under this Agreement, up to __________ shares, for sale to the Company’s customers and business partners, including its employees, (collectively, “Participants”) as set forth in the Prospectus (as defined herein) under the heading “Underwriting” (the “Directed Share Program”). The Firm Shares to be sold by the Designated Underwriter pursuant to the Directed Share Program (the “Directed Shares”) will be sold by the Designated Underwriter pursuant to this Agreement at the public offering price. Any Directed Shares not subscribed for by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.

The Company has filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively called the “Act”), with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1, (File No. 333-102851) including a prospectus, relating to the Shares. The Company has furnished to you, for use by the Underwriters and by dealers, copies of one or more preliminary prospectuses (each thereof being herein called a “Preliminary Prospectus”) relating to the Shares. Except where the context otherwise requires, the registration statement, as amended when it becomes effective, including all documents filed as a part thereof, and including any information contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be part of the registration statement at the time of effectiveness pursuant

to Rule 430(A) under the Act and also including any registration statement filed pursuant to Rule 462(b) under the Act, is herein called the Registration Statement, and the prospectus, in the form filed by the Company with the Commission pursuant to Rule 424(b) under the Act on or before the second business day after the date hereof (or such earlier time as may be required under the Act) or, if no such filing is required, the form of final prospectus included in the Registration Statement at the time it became effective, is herein called the Prospectus.

The Company and the Underwriters agree as follows:

1.    Sale and Purchase.    Upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Company agrees to sell to the respective Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase from the Company the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule A annexed hereto, in each case at a purchase price of $[__________] per Share. The Company is advised by you that the Underwriters intend (i) to make a public offering of their respective portions of the Firm Shares as soon after the effective date of the Registration Statement as in your judgment is advisable and (ii) initially to offer the Firm Shares upon the terms set forth in the Prospectus. You may from time to time increase or decrease the public offering price after the initial public offering to such extent as you may determine.

In addition, the Company hereby grants to the several Underwriters the option to purchase, and upon the basis of the warranties and representations and subject to the terms and conditions herein set forth, the Underwriters shall have the right to purchase, severally and not jointly, from the Company, ratably in accordance with the number of Firm Shares to be purchased by each of them (subject to such adjustment as you shall determine to avoid fractional shares), all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Firm Shares, at the same purchase price per share to be paid by the Underwriters to the Company for the Firm Shares. This option may be exercised by you on behalf of the several Underwriters at any time on or before the thirtieth day following the date hereof, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the option is being exercised, and the date and time when the Additional Shares are to be delivered (such date and time being herein referred to as the “Additional Time of Purchase”); provided, however, that the Additional Time of Purchase shall not be earlier than the Time of Purchase (as defined below) nor earlier than the second business day¹ after the date on which the option shall have been exercised nor later than the tenth business day after the date on which the option shall have been exercised. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule A hereto bears to the total number of Firm Shares (subject, in each case, to such adjustment as you may determine to eliminate fractional shares).

¹ As used herein “business day” shall mean a day on which the New York Stock Exchange is open for trading.

2

2.    Payment and Delivery.    Payment of the purchase price for the Firm Shares shall be made to the Company by Federal (same-day) funds wire transfer, against delivery of the Firm Shares to you through the facilities of the Depository Trust Company (“DTC”) for the respective accounts of the Underwriters. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition to the obligations of each Underwriter hereunder. Such payment and delivery shall be made at 10:00 A.M., New York City time, on [__________ ___], 2003 (unless another time shall be agreed to by you and the Company or unless postponed in accordance with the provisions of Section 8 hereof). The time at which such payment and delivery are actually made is hereinafter sometimes called the “Time of Purchase.” Certificates for the Firm Shares shall be delivered to you in definitive form in such names and in such denominations as you shall specify no later than the second business day preceding the Time of Purchase. For the purpose of expediting the checking of the certificates for the Firm Shares by you, the Company agrees to make such certificates available to you for such purpose at least two full business days preceding the Time of Purchase.

Payment of the purchase price for the Additional Shares shall be made at the Additional Time of Purchase in the same manner and at the same office as the payment for the Firm Shares. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition to the obligations of each Underwriter hereunder. Certificates for the Additional Shares shall be delivered to you in definitive form in such names and in such denominations as you shall specify no later than the business day preceding the Additional Time of Purchase. For the purpose of expediting the checking of the certificates for the Additional Shares by you, the Company agrees to make such certificates available to you for such purpose at least one full business day preceding the Additional Time of Purchase.

3.    Representations and Warranties of the Company.    The Company represents and warrants to each of the Underwriters that:

(a)  there is no and the Company has not received, and has no notice of, any order of the Commission preventing or suspending the use of any Preliminary Prospectus, or instituting or threatening proceedings for that purpose, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and when the Registration Statement became effective, the Registration Statement and the Prospectus complied in all material respects with the provisions of the Act, and the Registration Statement does not and, as amended or supplemented, if applicable, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, and any amendments or supplements thereto, if applicable, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; any statutes, regulations, legal or governmental proceedings, contracts, leases or other documents

3

that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been so described or filed, and any such descriptions are accurate and complete in all material respects; provided, however, that the Company makes no warranty or representation with respect to any statement contained in the Registration Statement, any Preliminary Prospectus or the Prospectus in reliance upon and in conformity with information concerning the Underwriters and furnished in writing by or on behalf of any Underwriter through you to the Company expressly for use in the Registration Statement, a Preliminary Prospectus or the Prospectus; and the Company has not distributed any offering material in connection with the offering or sale of the Shares other than the Registration Statement, the Preliminary Prospectuses or the Prospectus;

(b)    as of the date of this Agreement (except for shares issued upon the exercise of stock options after __________ ___, 2003), the Company has the authorized and outstanding capitalization as set forth in the section of the Prospectus entitled “Capitalization” under the “Actual” column and, as of the Time of Purchase and the Additional Time of Purchase, as the case may be (following the filing of an amended and restated certificate of incorporation, as contemplated by the Prospectus), the Company shall have the authorized capitalization as set forth under the heading entitled “Pro Forma As Adjusted” in the section of the Prospectus entitled “Capitalization;” other than as described in the Prospectus, and, except for stock options granted under the Company’s 1998 Stock Option Plan, no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligation into shares of capital stock or ownership interests in the Company are outstanding; all of the issued and outstanding shares of capital stock including Common Stock and Preferred Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable, have been issued in compliance with all federal and state securities laws and were not issued in violation of any preemptive right, co-sale right, right of first refusal or similar right;

(c)    the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus;

(d)    the Company is duly qualified to do business as a foreign corporation in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, properties, financial condition or results of operations of the Company and its Subsidiaries (as hereinafter defined) taken as a whole (a “Material Adverse Effect”). The Company has no subsidiaries (as defined in Rule 405 of the rules and regulations under the Act) other than InterVideo Digital Technology Corp. (the “Significant Subsidiary”), InterVideo Japan, KK, InterVideo Digital Technology (Europe) b.v., InterVideo (BVI) Holding, Ltd. and InterVideo Digital Technology (Shenzhen) Co. Ltd. (collectively, including the Significant Subsidiary, the “Subsidiaries”); the Company owns 100% of the outstanding capital stock of each of the Subsidiaries other than a de minimis number of shares held by directors, employees or former employees of the Subsidiaries for the purposes of qualifying under local laws and other than the outstanding capital stock of InterVideo Digital Technology (Shenzhen)

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Co. Ltd. which is 100% owned by InterVideo (BVI) Holding, Ltd.; other than the Subsidiaries and the Company’s ownership of shares of Streaming 21, Inc. and Ambow Corporation, the Company does not own, directly or indirectly, any shares of stock or any other equity or long-term debt securities of any corporation or have any equity interest in any firm, partnership, joint venture, association or other entity; complete and correct copies of the charter documents, certificates or articles of incorporation and of the bylaws of the Company and each Subsidiary and all amendments thereto have been delivered to you, and except as set forth in the exhibits to the Registration Statement no changes therein will be made subsequent to the date hereof and prior to the Time of Purchase or, if later, the Additional Time of Purchase; each Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; each Subsidiary is duly qualified to do business as a foreign corporation in good standing in each jurisdiction where the ownership or leasing of the properties or the conduct of its business requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect; all of the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and (except as otherwise described in this Section 3(d)) are owned by the Company subject to no security interest, other encumbrance or adverse claims; no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligation into shares of capital stock or ownership interests in the Subsidiaries are outstanding;

(e)    the Company and each of its Subsidiaries are in compliance in all material respects with the laws, orders, rules, regulations and directives issued or administered by each jurisdiction applicable to it, except where non-compliance will not singly or in the aggregate result in a Material Adverse Effect;

(f)    the agreement and plan of merger dated as of May 3, 2002 (the “Reincorporation Agreement”) entered into by the Company in connection with the merger of InterVideo, Inc., a California corporation (the “California Corporation”), with and into the Company (the “Reincorporation”) was duly and validly authorized, executed and delivered by the Company, and at the time of execution and filing constituted a valid and binding obligation of each of the Company and the California Corporation, enforceable in accordance with its terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors’ rights generally, or by general equitable principles. The Reincorporation has been validly effected in accordance with the laws of the states of California and Delaware;

(g)    neither the Company nor any of its Subsidiaries is in breach of, or in default under (nor has any event occurred which with notice, lapse of time, or both would result in any breach of, or constitute a default under), (i) its respective charter or bylaws or (ii) any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any lease, contract or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them

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or any of their properties is bound, except in the case of (ii) above for breaches and defaults that would not have a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated hereby will not conflict with, violate, or result in any breach of or constitute a default under (nor constitute any event which with notice, lapse of time, or both would result in any breach of, or constitute a default under), (A) any provisions of the charter or bylaws, of the Company or any Subsidiary or (B) any provision of any license, indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any lease, contract or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or (C) any federal, state, local or foreign law, regulation or rule or any decree, judgment or order applicable to the Company or any of its Subsidiaries, except in the case of (B) and (C) for breaches and defaults that would not have a Material Adverse Effect;

(h)    this Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable in accordance with its terms, except as rights to indemnity may be limited by applicable federal or state securities laws and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors’ rights generally, or by general equitable principles;

(i)    the capital stock of the Company, including the Shares, conforms in all material respects to the description thereof contained in the Prospectus and the certificates for the Shares are in due and proper form and the holders of the Shares will not be subject to personal liability solely by reason of being such holders;

(j)    the Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable;

(k)    no approval, authorization, consent or order of or filing with any national, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the Shares or the consummation by the Company of the transaction as contemplated hereby other than registration of the Shares under the Act and any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters or under the rules and regulations of the National Association of Securities Dealers, Inc. (“NASD”). No approval, authorization, consent or order of or filing with any foreign governmental or regulatory commission, board, body, authority or agency is required in connection with the issuance and sale of the portion of the Shares that are being sold pursuant to the directed share program other than filings which have been made or will be made in the applicable time period;

(l)    no person has any right, contractual or otherwise, to cause the Company to issue to it, or register pursuant to the Act, any shares of capital stock of the Company that is triggered by the issue and sale of the Shares to the Underwriters hereunder, nor does any person have

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preemptive rights, co-sale rights, rights of first refusal or other rights to purchase any of the Shares other than those that have been expressly waived prior to the date hereof;

(m)    KPMG LLP, whose report on the consolidated financial statements of the Company and its subsidiaries is filed with the Commission as part of the Registration Statement and Prospectus, are independent public accountants as required by the Act; and TN Soong & Co., an Associate Member Firm of Deloitte Touche Tohmatsu effective April 22, 2002 (formerly a Member Firm of Andersen Worldwide, S.C.) (“TN Soong & Co.”), whose report on the financial statements of the Audio/Video Products Division of Formosoft International Inc. is filed with the Commission as part of the Registration Statement and Prospectus, are independent public accountants as required by the Act;

(n)    each of the Company and its Subsidiaries has all necessary licenses, authorizations, permits, consents and approvals and has made all necessary filings required under any federal, state, local or foreign law, regulation or rule, and has obtained all necessary authorizations, consents and approvals from other persons, in order to conduct its respective business, except for such licenses, authorizations, permits, consents, approvals or filings that, if not obtained or made, would not have a Material Adverse Effect; neither the Company nor any of its Subsidiaries is in violation of, or in default under, any such license, authorization, permit, consent or approval or any federal, state, local or foreign law, regulation or rule or any decree, order or judgment applicable to the Company or any of its Subsidiaries the effect of which could have a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received notification of any revocation or modification of any such license, authorization, permit, consent or approval and has no reason to believe that any such license, authorization, permit, consent or approval will not be renewed, which revocation, modification or non-renewal would have a Material Adverse Effect;

(o)    except in each case as described in the Prospectus, there are no actions, suits, claims, investigations or proceedings pending or, to the Company’s knowledge, threatened to which the Company or any of its Subsidiaries or any of their respective officers is a party or of which any of their respective properties or assets is subject at law or in equity, or before or by any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency which would result in a judgment, decree or order having a Material Adverse Effect or prevent or adversely affect the ability of the Company to consummate the transactions contemplated hereby;

(p)    the audited financial statements and summary consolidated financial data included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of operations and cash flows of the Company and the Subsidiaries for the periods specified; the financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved; the audited financial statements and summary consolidated financial data included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Audio/Video Products

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Division of Formosoft International Inc. as of the dates indicated and the consolidated results of operations and cash flows of the Audio/Video Products Division of Formosoft International Inc. for the periods specified; the financial statements of the Audio/Video Products Division of Formosoft International Inc. have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved;

(q)    subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been (i) any material adverse change, or any development which is likely to cause a material adverse change, in the business, general affairs, management, stockholders’ equity, results of operations, properties or assets described or referred to in the Registration Statement and the Prospectus, or the results of operations, condition (financial or otherwise), business or operations of the Company and its Subsidiaries taken as a whole, (ii) any material loss or material interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, (iii) any transaction which is material to the Company or its Subsidiaries taken as a whole and is required to be described, disclosed or referred to in the Registration Statement or the Prospectus, (iv) any obligation, direct or contingent, which is material to the Company and its Subsidiaries taken as a whole, incurred by the Company or its Subsidiaries and is required to be described, disclosed or referred to in the Registration Statement or the Prospectus, (v) any change in the capital stock (other than upon the issuance of stock options under the Company’s 1998 Stock Option Plan or exercise of outstanding stock options) or outstanding indebtedness of the Company or its Subsidiaries, except the incurrence or discharge of short-term indebtedness or trade payables in the ordinary course of business consistent with past practices or (vi) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company;

(r)    during the six months prior to the date hereof, neither the Company nor any person acting on behalf of the Company has offered or sold to any person any capital stock of the Company, other than (i) the Shares, (ii) options to purchase shares of Common Stock or Common Stock issued upon the exercise of outstanding stock options, or (iii) under restrictions and other circumstances so as to ensure that such offers or sales do not become integrated into the offer and sale of the Shares;

(s)    the Company has obtained the agreement (in the form approved by you) (the “Lock-Up Agreements”) of each of its directors, officers, optionholders and holders of at least [___]% of its outstanding Common Stock and Preferred Stock (on an as converted basis) not to sell, offer to sell, contract to sell, hypothecate, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable for Common Stock or warrants or other rights to purchase Common Stock for a period of 180 days after the date of the Prospectus. Any remaining shares not subject to the Lock-Up Agreements are subject to embedded lock-ups substantially similar to the Lock-up Agreements and the Company has imposed stop transfer instructions with respect to such shares and will not cancel such stop transfer instructions prior to the end of the 180 day period without the prior written consent of SG Cowen Securities Corporation;

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(t)    neither the Company nor any of its Subsidiaries is and, after giving effect to the offering and sale of the Shares, will be an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended (the “Investment Company Act”);

(u)    the Company and its Subsidiaries have good and marketable title to all property (real and personal) described in the Prospectus as being owned by them, free and clear of all liens, claims, security interests or other encumbrances or defects except such as are described in the Prospectus and except as would not individually or in the aggregate have a Material Adverse Effect. All the property being held under lease by the Company and its Subsidiaries is held thereby under valid, subsisting and enforceable leases, except where the failure to so hold such lease would not have a Material Adverse Effect;

(v)    the Company and its Subsidiaries, taken as a whole, are insured by insurers of recognized financial responsibility against such losses and risks and in such amount as are customary in the business in which they are engaged. All policies of insurance insuring the Company, the Subsidiaries or any of their businesses, material assets, employees, officers and directors are in full force and effect, and each of the Company and each of its Subsidiaries is in compliance with the terms of such policies, except where the failure to be in compliance would not have a Material Adverse Effect. There are no material claims by the Company or any of its Subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause;

(w)    the Company has received the written consent to the use of all statistical and market-related data included in the Prospectus from appropriate sources to the extent required;

(x)    except as described in the Prospectus, the Company owns or has obtained licenses (which licenses are enforceable against the Company and, to the Company’s knowledge, the other parties thereto) for the patents, patent applications, inventions, technology, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information systems or procedures), trademarks, trademark registrations, service marks, service mark registrations, mask work rights, trade names, copyrights, and other rights (collectively, the “Intellectual Property”) described in the Prospectus as being owned or used by or licensed to the Company or its Subsidiaries. Except for matters relating to third parties expressly identified and named under the captions in the Prospectus entitled “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” or “Business—Intellectual Property” (together, the “Intellectual Property Sections”), the Company and its Subsidiaries own or have obtained licenses, or can acquire licenses on reasonable terms that will not have a Material Adverse Effect, all Intellectual Property necessary for the conduct of their respective businesses as currently conducted or proposed to be conducted as described in the Prospectus. Each employee of and consultant to the Company and its Subsidiaries has entered into a confidentiality and invention assignment

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agreement in favor of the Company or the related Subsidiary as a condition of his or her employment or retention in service, except where failure to enter into such an agreement will not have a Material Adverse Effect. Except for matters relating to third parties expressly identified and named under the Intellectual Property Sections of the Prospectus: (i) to the Company’s knowledge, there are no rights of third parties to any Intellectual Property owned by or licensed to the Company or its Subsidiaries that conflict with the rights of the Company or its Subsidiaries related to such Intellectual Property that would have a Material Adverse Effect; (ii) there is no infringement by third parties of any Intellectual Property owned by or exclusively licensed to the Company or its Subsidiaries that would have a Material Adverse Effect; (iii) other than in connection with assertions or inquiries made by patent office examiners in the ordinary course of the prosecution of the Company’s patent applications, to the knowledge of the Company, there is no pending or threatened action, suit, proceeding or claim by others challenging the Company’s or any of its Subsidiaries’ rights in or to any Intellectual Property that would have a Material Adverse Effect, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (iv) other than in connection with assertions or inquiries made by patent office examiners in the ordinary course of the prosecution of the Company’s patent applications, to the knowledge of the Company, there is no pending or threatened action, suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property owned by or licensed to the Company or its Subsidiaries that would have a Material Adverse Effect, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (v) to the knowledge of the Company, there is no pending or threatened action, suit, proceeding or claim by others that the Company or any of its Subsidiaries infringes or otherwise violates, or would infringe or otherwise violate upon commercialization of its products and product candidates described in the Prospectus, any patent, trademark, copyright, trade secret or other proprietary rights of others, and there are no facts which would form a reasonable basis for any action, suit, proceeding or claim by others that the Company or any of its Subsidiaries infringes or otherwise violates, or would infringe or otherwise violate upon commercialization of its products and product candidates described in the Prospectus, any patent, trademark, copyright, trade secret or other proprietary rights of others that would have a Material Adverse Effect; and (vi) to the Company’s knowledge there is no patent or patent application which contains claims that interfere with any Intellectual Property described in the Prospectus as being owned by or licensed to the Company or any of its Subsidiaries or that is necessary for the conduct of their respective businesses as currently or contemplated to be conducted that would have a Material Adverse Effect;

(y)    neither the Company nor any of its Subsidiaries has violated any foreign, federal, state or local law or regulation relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants, nor any federal or state law relating to discrimination in the hiring, promotion or pay of employees nor any applicable federal or state wages and hours laws, nor any provisions of the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder, which violation individually or in the aggregate could reasonably be expected to result in a Material Adverse Effect;

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(z)    the Company and the Subsidiaries, taken as a whole, maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) records (including sales contracts) are kept in accordance with management’s general or specific authorization and true and accurate copies are provided to the Company’s independent auditors; (iii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iv) access to assets is permitted only in accordance with management’s general or specific authorization; and (v) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences;

(aa)    each of the Company and its Subsidiaries has filed all federal, state, local and foreign tax returns and tax forms required to be filed, except where failure to so file would not have a Material Adverse Effect. Such returns and forms are complete and correct in all material respects, and all taxes shown by such returns or otherwise assessed that are due or payable have been paid, except such taxes as are being contested in good faith and as to which adequate reserves have been provided. All payroll withholdings required to be made by the Company and each of its Subsidiaries with respect to employees have been made, except where failure to make such withholdings would not have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and each of its Subsidiaries in respect of any tax liability for any year not finally determined are, in management’s determination, adequate to meet any assessments or reassessments for additional taxes. There have been no tax deficiencies asserted and, to the knowledge of the Company, no tax deficiency might be reasonably asserted or threatened against the Company or any of its Subsidiaries which individually or in the aggregate could have a Material Adverse Effect;

(bb)    no labor disturbance by the employees of the Company or any of its Subsidiaries exists or, to the Company’s knowledge, is imminent which would have a Material Adverse Effect; the Company is not aware that any key employee or significant group of employees of the Company or any of its Subsidiaries plans to terminate employment with the Company or any such Subsidiary;

(cc)    no “prohibited transaction” (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (“ERISA”), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the “Code”)) or “accumulated funding deficiency” (as defined in Section 302 of ERISA) or any of the events set forth in Section 403(b) of ERISA (other than events with respect to which the 30-day notice requirements under Section 4043 of ERISA has been waived) has occurred with respect to any employee benefit plan which could have a Material Adverse Effect; each employee benefit plan is in compliance in all material respects with applicable law, including ERISA and the Code; the Company has not incurred and does not expect to incur liability under Title IV of ERISA with respect to the termination of, or withdrawal from, any “pension plan”; and each “pension plan” (as defined in ERISA) for which the Company would have any liability that is intended to be qualified under Section 401(a) of the

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Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which could cause the loss of such qualification;

(dd)    the minute books of the Company and each of its Subsidiaries have been made available to the Underwriters and counsel for the Underwriters, and such books (i) contain a complete summary of all meetings and actions of the directors and shareholders of the Company and each of its Subsidiaries since the time of their respective incorporations through the date of the latest meeting or action, and (ii) accurately in all material respects reflect all transactions referred to in such minutes;

(ee)    no relationship, direct or indirect, exists between or among the Company or any of its Subsidiaries on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company on the other hand, which is required to be described in the Prospectus and which is not so described;

(ff)    neither the Company nor any of its Subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares;

(gg)    no forward-looking statement (within the meaning of Section 27A of the Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) contained in the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith;

(hh)    immediately after the Time of Purchase, no shares of preferred stock of the Company shall be issued and outstanding, and no holder of any shares of capital stock, securities convertible into or exchangeable or exercisable for capital stock or options, warrants or other rights to purchase capital stock or any other securities of the Company shall have any existing or future right to acquire any shares of preferred stock of the Company;

(ii)    the Company is in compliance with the currently-effective provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof as if such act currently applied to the Company; and the Company will be at the Time of Purchase and any Additional Time of Purchase in compliance with the then effective provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof; and

(jj)    the Company has not offered, or caused the Underwriters to offer, any Firm Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or business partner of the Company to alter the customer’s or business partner’s level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.

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In addition, any certificate signed by any executive officer of the Company delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Company, as to matters covered thereby, to each Underwriter.

4.    Certain Covenants of the Company.    The Company hereby agrees:

(a)    to furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offering and sale under the securities or blue sky laws of such states as you may designate and to maintain such qualifications in effect so long as required for the distribution of the Shares; provided that the Company shall not be required to qualify as a foreign corporation (unless it is already so qualified) or to consent to the service of process under the laws of any such state (except service of process with respect to the offering and sale of the Shares); and to promptly advise you of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;

(b)    to make available to the Underwriters in New York City, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time to furnish to the Underwriters, as many copies of the Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendments or supplements thereto after the effective date of the Registration Statement) as the Underwriters may request for the purposes contemplated by the Act; in case any Underwriter is required to deliver a prospectus within the nine-month period referred to in Section 10(a)(3) of the Act in connection with the sale of the Shares, the Company will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and such prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act;

(c)    to advise you promptly and (if requested by you) to confirm such advice in writing, (i) if Rule 430A under the Act is not used, when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective and (ii) if Rule 430A under the Act is used, when the Prospectus is filed with the Commission pursuant to Rule 424(b) under the Act (which the Company agrees to file in a timely manner under such Rules);

(d)    to advise you promptly, and (if requested by you) to confirm such advice in writing, of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information with respect thereto, or of notice of institution of proceedings for, or the entry of a stop order suspending the effectiveness of the Registration Statement and, if the Commission should enter a stop order suspending the effectiveness of the Registration Statement, to make every reasonable effort to obtain the lifting or removal of such order as soon as possible; to advise you promptly of any proposal to amend or supplement the Registration Statement or Prospectus and to file no such amendment or supplement to which you shall object in writing;

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(e)    to file promptly all reports and any definitive proxy or information statement required to be filed by the Company with the Commission and otherwise take all actions in order to comply with the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the shares;

(f)    if necessary or appropriate, to file a registration statement pursuant to Rule 462(b) under the Act;

(g)    to furnish to you and, upon request, to each of the other Underwriters for a period of five years from the date of this Agreement (i) copies of any reports or other communications which the Company shall send to its stockholders or shall from time to time publish or publicly disseminate, (ii) copies of all annual, quarterly and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be designated by the Commission, (iii) copies of documents or reports filed with any national securities exchange or authorized quotation system on which any class of securities of the Company is listed, and (iv) such other information as you may reasonably request regarding the Company or any of its Subsidiaries, in each case as soon as such communications, documents or information becomes available;

(h)    to advise the Underwriters promptly of the happening of any event known to the Company prior to the expiration of nine months after the effective date of the Registration Statement when a prospectus relating to the Shares is required to be delivered under the Act which, in the judgment of the Company, would require the making of any change in the Prospectus then being used so that the Prospectus would not include an untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading and, during such time, to prepare and furnish, at the Company’s expense, to the Underwriters promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change and to furnish you a copy of such proposed amendment or supplement before filing any such amendment or supplement with the Commission;

(i)    to make generally available to its security holders, and to deliver to you, an earnings statement of the Company (which will satisfy the provisions of Section 11(a) of the Act) covering a period of twelve months beginning after the effective date of the Registration Statement (as defined in Rule 158(c) of the Act) as soon as is reasonably practicable after the termination of such twelve-month period but not later than eighteen months after such effective date;

(j)    to furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, shareholders’ equity and of cash flow of the Company for such fiscal year), accompanied by a copy of the certificate or report thereon of nationally recognized independent certified public accountants;

(k)    to furnish to you three (3) signed copies of the Registration Statement, as initially filed with the Commission, and of all amendments thereto (including all exhibits thereto) and

14

sufficient conformed copies of the foregoing (other than exhibits) for distribution of a copy to each of the other Underwriters;

(l)    to furnish to you as early as practicable prior to the Time of Purchase and the Additional Time of Purchase, as the case may be, but not later than two business days prior thereto, a copy of the latest available unaudited interim consolidated financial statements, if any, of the Company and its Subsidiaries which have been reviewed by the Company’s independent certified public accountants, as stated in their letter to be furnished pursuant to Section 6(d) hereof;

(m)    to apply the net proceeds from the sale of the Shares in the manner set forth under the caption “Use of Proceeds” in the Prospectus;

(n)    to furnish to you, before filing with the Commission subsequent to the effective date of the Registration Statement and during the period referred to in paragraph (e) above, a copy of any document proposed to be filed pursuant to Section 13, 14 or 15(d) of the Exchange Act;

(o)    not to issue, sell, offer or agree to sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of capital stock or securities convertible into or exchangeable or exercisable for capital stock or warrants or other rights to purchase capital stock or any other securities of the Company that are substantially similar to capital stock or permit the registration under the Act of any shares of capital stock, without the prior written consent of SG Cowen Securities Corporation, except (i) for the registration of the Shares and the sales to the Underwriters pursuant to this Agreement, (ii) except for issuances of Common Stock or options to purchase Common Stock pursuant to employee benefit plans described in the Prospectus for a period of 180 days after the date hereof and (iii) in connection with any acquisition of, or merger with, another company or the acquisition of any assets of another company; provided, however, that with respect to (iii), any such acquisition or merger involves an amount of the Company’s securities that is less than or equal to five percent (5%) of the Company’s outstanding share capital, which shall be measured at the time a definitive agreement is signed in connection with such acquisition, merger or strategic transaction; and provided, further, that it shall be a condition to the closing of any such transaction that any person or entity who becomes a holder of the Company’s Common Stock or any securities substantially similar to the Common Stock, including but not limited to any securities convertible into or exchangeable for, or that represents the right to receive Common Stock or any such securities, shall execute a Lock-Up Agreement;

(p)    to use its best efforts to cause the Common Stock to be included for quotation on the Nasdaq National Market;

(q)    to pay all costs, expenses, fees and taxes (other than any transfer taxes and fees and disbursements of counsel for the Underwriters except as set forth under Section 5 hereof and (iii), (iv) and (vi) below) in connection with (i) the preparation and filing of the Registration Statement, each Preliminary Prospectus, the Prospectus, and any amendments or supplements

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thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (ii) the registration, issuance, sale and delivery of the Shares, (iii) the word processing and/or printing of this Agreement, any Agreement Among Underwriters, any dealer agreements, any Statements of Information, any Powers of Attorney and any closing documents (including compilations thereof) and the reproduction and/or printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (iv) the qualification of the Shares for offering and sale under state laws and the determination of their eligibility for investment under state law as aforesaid (including the reasonable legal fees and filing fees and other disbursements of counsel to the Underwriters) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, (v) any listing of the Shares on any securities exchange or qualification of the Shares for quotation on the Nasdaq Stock Market and any registration thereof under the Exchange Act, (vi) the filing for review of the public offering of the Shares by the NASD, including reasonable attorneys’ fees related thereto, and (vii) the performance of the Company’s other obligations hereunder;

(r)    prior to each of the Closing Dates, the Company will not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Representatives of the Underwriters are notified), without the prior written consent of SG Cowen Securities Corporation, unless in the judgment of the Company and its counsel, and after notification to the Representatives, such press release or communication is required by law;

(s)    not to waive any lock-up provisions in any agreements it has with Dell without the prior written consent of SG Cowen Securities Corporation;

(t)    the Company shall at all times comply in all material respects with the requirements of the Sarbanes-Oxley Act of 2002 in effect from time to time, and all rules and regulations promulgated thereunder or implementing the provisions thereof; and

(u)    in connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three (3) months following the date of the effectiveness of the Registration Statement; the Designated Underwriter will notify the Company as to which Participants will need to be so restricted, and the Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time.

5.    Reimbursement of Underwriters’ Expenses.    If the Shares are not delivered for any reason other than the default by one or more of the Underwriters in its or their respective obligations hereunder, the Company shall, in addition to paying the amounts described in Section 4(q) hereof, reimburse the Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of their counsel.

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6.    Conditions of Underwriters’ Obligations.    The several obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof and at the Time of Purchase (and the several obligations of the Underwriters at the Additional Time of Purchase are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof and at the Time of Purchase (unless previously waived) and at the Additional Time of Purchase, as the case may be), the performance by the Company of its obligations hereunder and to the following additional conditions precedent:

(a)    The Company shall furnish to you at the Time of Purchase and at the Additional Time of Purchase, as the case may be, a written opinion of Wilson Sonsini Goodrich & Rosati, P.C., counsel for the Company, addressed to the Underwriters, and dated the Time of Purchase or the Additional Time of Purchase, as the case may be, with reproduced copies for each of the other Underwriters and in form satisfactory to O’Melveny & Myers LLP, counsel for the Underwriters, stating that:

(i)    the Company is duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus (and any supplement thereto), to execute and deliver the Underwriting Agreement and to issue, sell and deliver the Shares as therein contemplated;

(ii)    the Company is duly qualified to transact business in the states of Delaware and California;

(iii)    the Underwriting Agreement has been duly authorized, executed and delivered by the Company and the Company has corporate power and authority to enter into the Underwriting Agreement and authorize, issue and sell the Shares as contemplated by the Underwriting Agreement;

(iv)    the authorized, issued and outstanding capital stock as of March 31, 2003 was as set forth under the “Actual” column under heading “Capitalization” in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and to our knowledge are fully paid and non-assessable, and conform to the description thereof contained in the Prospectus;

(v)    to our knowledge, except as described in the Prospectus, there are no outstanding securities of the Company convertible or exchangeable into, or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of a similar character in writing obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into, or evidencing the right to purchase or subscribe for, any shares of such stock. The stockholders of the Company have no preemptive rights

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pursuant to the Company’s charter or bylaws. All shares of capital stock of the Company issued since December 31, 2001 have been issued in compliance with federal securities laws;

(vi)    the Shares to be sold by the Company have been duly authorized, and, when issued and delivered in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and non-assessable;

(vii)    the Shares, when issued, will, to our knowledge, be free of contractual preemptive rights, rights of first refusal and similar rights; the certificates for the Shares are in due and proper form and conform in all material respects to the requirements of the Delaware General Corporation Law;

(viii)    we do not know of any legal or governmental proceedings pending or overtly threatened in writing against the Company, or to which the Company is a party or of which any property of the Company is the subject which are required to be described in the Prospectus that are not so described;

(ix)    the statements set forth under the caption “Description of capital stock” in the Prospectus, insofar as such statements purport to summarize certain provisions of the capital stock of the Company, provide a fair summary of such provisions in all material respects; the statements set forth under the captions “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” (solely with respect to statements relating to the license agreement with MPEG LA and the settlement agreement with Dell); “Risk Factors—Risks Relating to this Offering—We have implemented anti-takeover provisions that could discourage a third party from acquiring us and consequently decrease the market value of your investment;” “Business—Intellectual Property” (solely with respect to statements relating to the license agreement with MPEG LA and the settlement agreement with Dell); “—Legal Proceedings;” “Management—Executive Compensation—1998 Stock Option Plan;” “—2003 Stock Option Plan;” “—2003 Employee Stock Purchase Plan;” “Related Party Transactions;” “Shares eligible for future sale” and “Underwriting” (to the extent it is a description of this Agreement) in the Prospectus, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, have been reviewed by us, are correct in all material respects and fairly summarize the matters referred to therein to the extent required by the Act;

(x)    other than as set forth in the Prospectus or expressly waived in writing, there are no contracts, agreements or understandings known to us between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned

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or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement;

(xi)    the Registration Statement and all post-effective amendments, if any, were declared effective under the Act and the Prospectus was filed with the Commission pursuant to Rule 424(b) under the Act; to our knowledge, no stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued, and no proceedings for that purpose have been instituted or are pending or, to our knowledge, are contemplated under the Act;

(xii)    no approval, authorization, consent or order of or filing with any governmental or regulatory commission, board, body, authority, agency or court is required in connection with the issuance and sale of the Shares and consummation by the Company of the transactions contemplated hereby other than registration of the Shares under the Act (except such counsel need express no opinion as to any necessary qualification under the state securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters);

(xiii)    the execution, delivery and performance of the Underwriting Agreement by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not result in any breach or violation of, or constitute a default under (nor constitute any event which with notice, lapse of time, or both, would result in any breach of or constitute a default under), any provisions of the charter or bylaws of the Company or under any agreement or instrument filed as an exhibit to the Registration Statement pursuant to Item 601 of Regulation S-K to which the Company is a party or by which the Company is bound, or under any statute, regulation or rule or any decree, judgment or order known to us to be customarily applicable to the Company and transactions of this nature;

(xiv)    we do not know of any contracts, licenses, agreements, leases or documents of a character required to be filed as exhibits to the Registration Statement which are not described or filed as required;

(xv)    the Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be an “investment company” as defined in the Investment Company Act of 1940, as amended;

(xvi)    the Shares have been approved for quotation on the Nasdaq National Market upon issuance as contemplated by the Underwriting Agreement;

(xvii)    the execution and delivery of the Agreement and Plan of Merger (the “Merger Agreement”), dated May 3, 2002 between the Company and InterVideo, Inc., a California corporation (the “California Corporation”), effecting the reincorporation

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of the California Corporation under the laws of the State of Delaware, was duly authorized by all necessary corporate action on the part of each of the California Corporation and the Company; and

(xviii)    each of the California Corporation and the Company had all corporate power and authority necessary to execute and file the Certificate of Ownership and Merger with the Secretary of State of the State of California and the Secretary of State of the State of Delaware and to consummate the merger of the California Corporation with and into the Company contemplated by the Merger Agreement, and the Merger Agreement at the time of execution and immediately prior to the effectiveness of the Merger constituted a valid and binding obligation of each of the California Corporation and the Company, subject to the effect of (x) bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent transfer or other similar federal or state laws affecting the rights of creditors and (y) general principles of equity.

In addition, such counsel shall state that it has participated in conferences with certain officers and other representatives of the Company, its intellectual property counsel, the Representatives, counsel for the Underwriters and the independent certified public accountants of the Company, at which conferences the contents of the Registration Statement and Prospectus and related matters were discussed. Such counsel shall state that, although it does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectus except for those referred to in paragraph (x) above, no facts have come to its attention that have caused it to believe that, (i) as of its effective date and as of the date hereof, the Registration Statement or any amendment thereto (other than the financial statements and related schedules and the financial and statistical data derived from such financial statements or schedules, as to which such counsel need express no belief) contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (ii) as of its issue date or as of the date hereof, the Prospectus or any amendment or supplement thereto (other than the financial statements and related schedules and the financial and statistical data derived from such financial statements or schedules, as to which such counsel need express no belief) contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In addition, such counsel shall confirm that each of the Registration Statement and the Prospectus, and each amendment or supplement thereto (other than the financial statements and related schedules and the financial and statistical data derived from such financial statements or schedules, as to which it need express no belief) as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations.

In rendering such opinion, such counsel may state that their opinion is limited to the federal laws of the United States, the Delaware General Corporation Law and the laws of the State of California.

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(b)    The Company shall furnish to you at the Time of Purchase and at the Additional Time of Purchase, as the case may be, (i) an opinion of Coudert Brothers LLP in the form set forth in Annex A attached hereto, (ii) an opinion of Knobbe Martens, Olson and Bear in the form set forth in Annex B attached hereto and (iii) an opinion of Reed Smith Crosby & Heafey in the form set forth in Annex C attached hereto, each special counsel for the Company on certain intellectual property matters, addressed to the Underwriters, and dated the Time of Purchase or the Additional Time of Purchase, as the case may be, with reproduced copies for each of the other Underwriters.

(c)    The Company shall furnish to you at the Time of Purchase and at the Additional Time of Purchase, as the case may be, a written opinion of Lee and Li, counsel for the Significant Subsidiary, addressed to the Underwriters, and dated the Time of Purchase or the Additional Time of Purchase, as the case may be, with reproduced copies for each of the other Underwriters and in form satisfactory to O’Melveny & Myers LLP, counsel for the Underwriters, stating that:

(i)    the Significant Subsidiary is duly incorporated and is validly existing as a corporation under the law of the Republic of China (“ROC”), with corporate power and authority to own, lease and operate its properties and conduct its business in accordance with its Articles of Incorporation;

(ii)    the Significant Subsidiary is duly qualified to transact business in the ROC to the extent permissible under its Articles of Incorporation;

(iii)    we do not know of any legal or governmental proceedings pending or threatened against the Significant Subsidiary, or to which the Significant Subsidiary is a party or of which any property of the Significant Subsidiary is the subject which are required to be described in the Prospectus that are not so described;

(iv)    the paid-in capital of the Significant Subsidiary is NT$62,000,000; all of the shares of the Significant Subsidiary are owned by the Company and the Significant Subsidiary has never issued share certificates to its shareholders; according to the written confirmation of the shareholder, there is no security interest, encumbrance or adverse claim on its shareholding of the Significant Subsidiary; to our knowledge, no options, warrants or other rights to purchase, no agreements or other obligations to issue or other rights to convert any obligation into shares of capital stock or ownership interests in the Significant Subsidiary are outstanding; and

(v)    the execution, delivery and performance of the Underwriting Agreement by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not result in any breach or violation of, or constitute a default under (nor constitute any event which with notice, lapse of time, or both, would result in any breach of or constitute a default under), any provisions of the Articles of Incorporation of the Significant Subsidiary or under any material agreement or

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instrument to which the Significant Subsidiary is a party or by which the Significant Subsidiary is bound, or under any statute, regulation or rule or any decree, judgment or order known to us and applicable to the Significant Subsidiary or any of its properties.

(d)    You shall have received from KPMG LLP, letters dated, respectively, the date of this Agreement and the Time of Purchase and Additional Time of Purchase, as the case may be, and addressed to the Underwriters (with reproduced copies for each of the Underwriters) in the forms heretofore approved by SG Cowen Securities Corporation; and you shall have received from TN Soong & Co., letters dated, respectively, the date of this Agreement and the Time of Purchase and Additional Time of Purchase, as the case may be, and addressed to the Underwriters (with reproduced copies for each of the Underwriters) in the forms heretofore approved by SG Cowen Securities Corporation.

(e)    The Company shall have complied with the provisions of Section 4(b) hereof with respect to the furnishing of copies of the Prospectus as soon as practicable after the Registration Statement becomes effective.

(f)    You shall have received at the Time of Purchase and at the Additional Time of Purchase, as the case may be, the favorable opinion of O’Melveny & Myers LLP, counsel for the Underwriters, dated the Time of Purchase or the Additional Time of Purchase, as the case may be, as to the matters referred to in subparagraphs (iii), (vi), and (xii) of paragraph (a) of this Section 6.

In addition, such counsel shall state that such counsel have participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent public accountants of the Company and representatives of the Underwriters at which the contents of the Registration Statement and Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, on the basis of the foregoing (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company), no facts have come to the attention of such counsel which lead them to believe that the Registration Statement or any amendment thereto at the time such Registration Statement or amendment became effective contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date or any supplement thereto as of its date contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no comment with respect to the financial statements and schedules and other financial and statistical data derived therefrom included in the Registration Statement or Prospectus).

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(g)    No amendment or supplement to the Registration Statement or Prospectus shall have been filed prior to the time the Registration Statement becomes effective to which you had objected in writing.

(h)    The Registration Statement shall have become effective, or if Rule 430A under the Act is used, the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act, at or before 5:00 P.M., New York City time, on the second full business day after the date of this Agreement); provided, however, that the Company and you and any group of Underwriters, including you, who have agreed hereunder to purchase in the aggregate at least 50% of the Firm Shares may from time to time agree on a later date.

(i)    Prior to the Time of Purchase or the Additional Time of Purchase, as the case may be, (i) no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the Act or proceedings initiated or threatened under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement and all amendments thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (iii) the Prospectus and all amendments or supplements thereto, or modifications thereof, if any, shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading.

(j)    Since the date of the latest audited financial statements included in the Prospectus (i) no material adverse change, financial or otherwise (other than as referred to in the Registration Statement and Prospectus), in the business or condition of the Company and its Subsidiaries taken as a whole shall occur or become known, (ii) no transaction which is material and adverse to the Company shall have been entered into by the Company or any of its Subsidiaries and (iii) neither the Company nor any Subsidiary shall have sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and there shall not have been any change in the capital stock or long-term debt of the Company or any Subsidiary or any change, or any development involving a prospective change, in or affecting the business, general affairs, management, condition (financial or otherwise), stockholders’ equity or results of operations of the Company and its Subsidiaries, except as set forth in the Prospectus, the effect of which makes it, in the judgment of SG Cowen, impracticable or inadvisable to proceed with the sale or delivery of the Shares on the terms and in the manner contemplated in the Prospectus.

(k)    The Company will, at the Time of Purchase or Additional Time of Purchase, as the case may be, deliver to you a certificate of two of its executive officers to the effect that (i) the representations and warranties of the Company as set forth in this Agreement are true and correct as of each such date, (ii) the Company shall have performed such of its obligations under this Agreement as are to be performed at or before the Time of Purchase and at or before the Additional Time of Purchase, as the case may be, (iii) the conditions set forth in

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paragraphs (h) and (i) of this Section 6 have been met, (iv) that subsequent to the date of the Company’s most recent financial statements included in the Prospectus, there has been no material adverse change in the financial position or results of operations of the Company and its Subsidiaries, or any change, or any development including a prospective change, in or affecting the business, general affairs, management, condition (financial or otherwise), stockholders’ equity or results of operations of the Company and its Subsidiaries taken as a whole, except as set forth in the Prospectus, and (v) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement or the Prospectus.

(l)    You shall have received the Lock-Up Agreements, dated the date of this Agreement, from each of the directors, officers, optionholders and holders of at least 98.86% of the Company’s outstanding Common Stock and Preferred Stock (on an as converted basis) to the effect that such persons shall not sell, offer or agree to sell, contract to sell, grant any option to sell or otherwise dispose of, directly or indirectly, any shares of Common Stock of the Company or securities convertible into or exchangeable or exercisable for Common Stock or warrants or other rights to purchase Common Stock for a period of 180 days after the date of the Prospectus without the prior written consent of SG Cowen Securities Corporation. Any remaining shares will have stop transfer instructions imposed on them until the end of the 180-day period which stop transfer instructions may not be canceled without the prior written consent of SG Cowen Securities Corporation.

(m)    The Company shall have furnished to you such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement and the Prospectus as of the Time of Purchase and the Additional Time of Purchase, as the case may be, as you may reasonably request.

(n)    The Shares shall have been approved for quotation on the Nasdaq National Market, subject only to notice of issuance at or prior to the Time of Purchase or the Additional Time of Purchase, as the case may be.

(o)    No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Shares; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Shares.

(p)    Between the time of execution of this Agreement and the Time of Purchase or Additional Time of Purchase, as the case may be, there shall not have occurred any downgrading, nor shall any notice or announcement have been given or made of (i) any intended or potential downgrading or (ii) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company or any of its Subsidiaries by any “nationally recognized statistical rating organization” as that term is defined in Rule 436(g)(2) under the Act.

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7.    Effective Date of Agreement; Termination.    This Agreement shall become effective (i) if Rule 430A under the Act is not used, when you shall have received notification of the effectiveness of the Registration Statement, or (ii) if Rule 430A under the Act is used, when the parties hereto have executed and delivered this Agreement.

The obligations of the several Underwriters hereunder shall be subject to termination in the absolute discretion of you or any group of Underwriters (which may include you) which has agreed to purchase in the aggregate at least 50% of the Firm Shares, if, since the time of execution of this Agreement or the respective dates as of which information is given in the Registration Statement and Prospectus, (i) there has been any material adverse change, financial or otherwise (other than as referred to in the Registration Statement and Prospectus), in the operations, business or condition of the Company and its Subsidiaries taken as a whole, which would, in your judgment or in the judgment of such group of Underwriters, make it impracticable to market the Shares; or (ii) there shall have occurred any downgrading, or any notice shall have been given of (x) any intended or potential downgrading or (y) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company or any of its Subsidiaries by any “nationally recognized statistical rating organization” as that term is defined in Rule 436(g)(2) under the Act; or (iii) if, at any time prior to the Time of Purchase or, with respect to the purchase of any Additional Shares, the Additional Time of Purchase, as the case may be, trading in securities on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market shall have been suspended or limitations or minimum prices shall have been established on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market, or if a banking moratorium shall have been declared either by U. S. Federal or state authorities or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States; or (iv) if the United States shall have declared war in accordance with its constitutional processes, or if the United States shall have declared a state of national emergency or there shall have occurred any material outbreak or escalation of hostilities involving the United States; or (v) if such other national or international calamity or crisis or material adverse change in general economic, political or financial conditions shall have occurred (or the effect of international conditions on the financial markets in the United States shall be such) or if the United States shall have become subject to an act of terrorism, that makes it, in your judgment or in the judgment of such group of Underwriters, impracticable or inadvisable to proceed with the sale or delivery of the Shares on the terms and in the manner contemplated in the Prospectus.

If you or any group of Underwriters elects to terminate this Agreement as provided in this Section 7, the Company and each other Underwriter shall be notified promptly by letter, facsimile or email.

If the sale to the Underwriters of the Shares, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement with any of the terms of this Agreement, the Company shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 4(q), 5 and 9 hereof), and the Underwriters

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shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 9 hereof) or to one another hereunder.

8.    Increase in Underwriters’ Commitments.    Subject to Sections 6 and 7, if any Underwriter shall default in its obligation to take up and pay for the Firm Shares to be purchased by it hereunder (otherwise than for reasons sufficient to justify the termination of this Agreement under the provisions of Section 7 hereof) and if the number of Firm Shares which all Underwriters so defaulting shall have agreed but failed to take up and pay for does not exceed 10% of the total number of Firm Shares, the non-defaulting Underwriters shall take up and pay for (in addition to the number of Firm Shares they are obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares agreed to be purchased by all such defaulting Underwriters, as hereinafter provided. Such Shares shall be taken up and paid for by such non-defaulting Underwriter or Underwriters in such amount or amounts as you may designate with the consent of each Underwriter so designated or, in the event no such designation is made, such Shares shall be taken up and paid for by all non-defaulting Underwriters pro rata in proportion to the aggregate number of Firm Shares set opposite the names of such non-defaulting Underwriters in Schedule A.

Without relieving any defaulting Underwriter from its obligations hereunder, the Company agrees with the non-defaulting Underwriters that the Company will not sell any Firm Shares hereunder unless all of the Firm Shares are purchased by the Underwriters (or by substituted Underwriters selected by you with the approval of the Company or selected by the Company with your approval).

If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for a defaulting Underwriter or Underwriters in accordance with the foregoing provision, the Company or you shall have the right to postpone the Time of Purchase for a period not exceeding seven business days in order that any necessary changes in the Registration Statement and Prospectus and other documents may be effected.

The term Underwriter as used in this Agreement shall refer to and include any Underwriter substituted under this Section 8 with like effect as if such substituted Underwriter had originally been named in Schedule A.

If the aggregate number of Shares which the defaulting Underwriter or Underwriters agreed to purchase exceeds 10% of the total number of Shares which all Underwriters agreed to purchase hereunder, and if neither the non-defaulting Underwriters nor the Company shall make arrangements within the seven business day period stated above for the purchase of all the Shares which the defaulting Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall be terminated without further act or deed and without any liability on the part of the Company to any non-defaulting Underwriter except for the expenses to be borne by the Company pursuant to Section 4 (q) above and without any liability on the part of any non-defaulting Underwriter to the Company. Nothing in this paragraph, and no action taken

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hereunder, shall relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

9.    Indemnity and Contribution.

(a)    The Company agrees to indemnify, defend and hold harmless each Underwriter, its partners, directors and officers, and any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or any such person may incur under the Act, the Exchange Act, common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus (the term Prospectus for the purpose of this Section 9 being deemed to include any Preliminary Prospectus, the Prospectus and the Prospectus as amended or supplemented by the Company), or (ii) arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or Prospectus or necessary to make the statements made therein not misleading, except, in each case, insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by or on behalf of any Underwriter through you to the Company expressly for use with reference to such Underwriter in such Registration Statement or such Prospectus (which information the parties hereto agree is limited to the Underwriters’ Information as defined in Section 16) or arises out of or is based upon any omission or alleged omission to state a material fact in connection with the Underwriters’ Information required to be stated in such Registration Statement or such Prospectus or necessary to make the Underwriters’ Information not misleading; provided, however, that the foregoing indemnity agreement with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, damage, expense, liability or claim purchased Shares, or any person controlling such Underwriter, if a copy of the Prospectus (as then amended or supplemented) was timely furnished by the Company to such Underwriter and the Prospectus (as then amended or supplemented) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, damage, expense, liability or claim.

The Company shall indemnify and hold harmless the Designated Underwriter and its officers, employees, representatives and agents and each person, if any, who controls any Underwriter within the meaning of the Securities Act (collectively the “Designated Underwriter Indemnified Parties” and each a “Designated Underwriter Indemnified Party”) against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) to which, jointly or severally, that Designated Underwriter Indemnified Party may become subject, under

27

the Act, the Exchange Act, common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program, (ii) the omission or alleged omission to state in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iii) the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iv) any other loss, damage, expense, liability or claim in respect of, related to, arising out of, or in connection with the Directed Share Program, other than such losses, damages, expenses, liabilities or claims that are finally judicially determined to have resulted from the willful misconduct or gross negligence of the Designated Underwriter.

This indemnity agreement is not exclusive and will be in addition to any liability which the Company might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Underwriter or other indemnified party under this Section 9(a).

If any action, suit or proceeding (together, a “Proceeding”) is brought against an Underwriter or any such person in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, such Underwriter or such person shall promptly notify the Company in writing of the institution of such Proceeding and the Company shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses; provided, however, that the omission to so notify the Company shall not relieve the Company from any liability which the Company may have to any Underwriter or any such person or otherwise unless the Company is materially prejudiced thereby but only to the extent of such prejudice. Such Underwriter or such controlling person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter or of such person unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such Proceeding or the Company shall not have, within a reasonable period of time in light of the circumstances, employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from, additional to or in conflict with those available to the Company (in which case if the indemnified party or parties notify the Company in writing that it (or they) elects to employ separate counsel at the expense of the Company, the Company shall not have the right to assume or direct the defense of such action on behalf of such indemnified party or parties), in any of which events such fees and expenses shall be borne by the Company and paid as incurred (it being understood, however, that the Company shall not be liable for the expenses of more than one separate counsel (which shall be chosen by SG Cowen Securities Corporation if the Underwriters are the indemnified parties) (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified

28

parties who are parties to such Proceeding). The Company shall not be liable for any settlement of any such Proceeding effected without its written consent, but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless any Underwriter and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault, culpability or a failure to act, by or on behalf of such indemnified party.

Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the second paragraph of this Section 9(a), then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for the Designated Underwriter for the defense of any losses, damages, liabilities or claims arising out of the Directed Share Program, and all persons, if any, who control the Designated Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act.

(b)    Each Underwriter, severally and not jointly, agrees to indemnify, defend and hold harmless the Company, its directors and officers, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, the Company or any such person may incur under the Act, the Exchange Act, common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact made in reliance on, contained in and in conformity with information furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use with reference to such Underwriter in the Registration Statement (or in the Registration Statement as amended by or on behalf of any post-effective amendment thereof by the Company) or in the Prospectus (which information the parties hereto agree is limited to the Underwriter’s Information), or arises out of or is based upon any omission or alleged omission to state a material fact in connection with the Underwriters’ Information required to be stated in such Registration Statement or Prospectus or necessary to make the Underwriters’ Information not misleading. This indemnity agreement is not exclusive and will be in addition to any liability which any Underwriter might otherwise

29

have and shall not limit any rights or remedies which may otherwise be available at law or in equity to the Company or other indemnified party under this Section 9(b).

If any Proceeding is brought against the Company or any such person in respect of which indemnity may be sought against any Underwriter pursuant to the foregoing paragraph, the Company or such person shall promptly notify such Underwriter in writing of the institution of such Proceeding and such Underwriter shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such indemnified party and payment of all fees and expenses, provided, however, that the omission to so notify such Underwriter shall not relieve such Underwriter, from any liability which such Underwriter may have to the Company or any such person or otherwise unless such Underwriter is materially prejudiced thereby but only to the extent of such prejudice. The Company or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company or such person unless the employment of such counsel shall have been authorized in writing by such Underwriter in connection with the defense of such Proceeding or such Underwriter shall not have employed counsel to have charge of the defense of such Proceeding or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to or in conflict with those available to such Underwriter (in which case if the indemnified party or parties notify such Underwriter in writing that it (or they) elects to employ separate counsel at the expense of such Underwriter, such Underwriter shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties, but such Underwriter may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such Underwriter), in any of which events such fees and expenses shall be borne by such Underwriter and paid as incurred (it being understood, however, that such Underwriter shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). No Underwriter shall be liable for any settlement of any such Proceeding effected without the written consent of such Underwriter, but if settled with the written consent of such Underwriter, such Underwriter agrees to indemnify and hold harmless the Company and any such person from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this paragraph, then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 30 days’ prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement

30

includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such Proceeding.

(c)    If the indemnification provided for in this Section 9 is unavailable to an indemnified party under subsections (a) and (b) of this Section 9 or insufficient in respect of any losses, damage, expenses, liabilities or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, damages, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same respective proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, bear to the aggregate public offering price of the shares. The relative fault of the Company on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company or by the Underwriters (which information supplied by the Underwriters the parties hereto agree is limited to the Underwriter’s Information) and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to in this subsection shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating, preparing to defend or defending any claim or Proceeding.

(d)    The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (c) above. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by such Underwriter and distributed to the public were offered to the public exceeds the amount of any damage which such Underwriter has otherwise been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and not joint.

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(e)    The indemnity and contribution agreements contained in this Section 9 and the covenants, warranties and representations of the Company contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, its partners, directors or officers or any person (including each partner, officer or director of such person) who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of the Company, its directors or officers or any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the issuance and delivery of the Shares. The Company and each Underwriter agree promptly to notify each other commencement of any Proceeding against it and, in the case of the Company, against any of the Company’s officers or directors in connection with the issuance and sale of the Shares, or in connection with the Registration Statement or Prospectus.

10.    Notices.    Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to SG Cowen Securities, 1221 Avenue of the Americas, New York, N.Y. 10020, Attention: General Counsel and, if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at 47350 Fremont Blvd., Fremont, CA 94538, Attention: Chief Financial Officer.

11.    Governing Law; Construction.    This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement (“Claim”), directly or indirectly, shall be governed by, and construed in accordance with, the laws of the State of New York. The Section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement.

12.    Submission to Jurisdiction.    Except as set forth below, no Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and the Company consents to the jurisdiction of such courts and personal service with respect thereto. The Company hereby consents to personal jurisdiction, service and venue in any court in which any Claim arising out of or in any way relating to this Agreement is brought by any third party against SG Cowen Securities Corporation or any indemnified party. Each of SG Cowen Securities Corporation and the Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) waives all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. The Company agrees that a final judgment in any such action, proceeding or counterclaim brought in any such court shall be conclusive and binding upon the Company and may be enforced in any other courts in the jurisdiction of which the Company is or may be subject, by suit upon such judgment.

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13.    Parties at Interest.    The Agreement herein set forth has been and is made solely for the benefit of the Underwriters and the Company and to the extent provided in Section 9 hereof the controlling persons, directors and officers referred to in such section, and their respective successors, assigns, heirs, pursuant representatives and executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement.

14.    Counterparts.    This Agreement may be signed by the parties in one or more counterparts which together shall constitute one and the same agreement among the parties.

15.    Successors and Assigns.    This Agreement shall be binding upon the Underwriters and the Company and their successors and assigns and any successor or assign of any substantial portion of the Company’s and any of the Underwriters’ respective businesses and/or assets.

16.    Underwriter’s Information.    The parties hereto acknowledge and agree that, for all purposes of this Agreement, the Underwriter’s Information consists solely of the following information in the Prospectus: (i) the last paragraph on the front cover page concerning the terms of the offering by the Underwriters; and (ii) the statements concerning the Underwriters contained in the table under the first paragraph, the last sentence of paragraph 8, and in paragraphs 3, 12 and 13 in the Prospectus under “Underwriting”.

17.    Partial Unenforceability.    The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

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If the foregoing correctly sets forth the understanding among the Company and the Underwriters, please so indicate in the space provided below for the purpose, whereupon this letter and your acceptance shall constitute a binding agreement among the Company and the Underwriters, severally.

Very truly yours,

INTERVIDEO, INC.

By:

Name:

Title:

Accepted and agreed to as of the date first above written:

SG COWEN SECURITIES CORPORATION

SOUNDVIEW TECHNOLOGY CORPORATION

Acting on their own behalf and

as Representatives of the other

several Underwriters named in Schedule A

By:   SG COWEN SECURITIES CORPORATION

By:
	Name: [William B. Buchanan, Jr.]
	Title: [Head of Equity Capital Markets]

By:   SOUNDVIEW TECHNOLOGY CORPORATION

By:
	Name:
	Title:

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SCHEDULE A

Underwriter	Number of Firm Shares
SG COWEN SECURITIES CORPORATION	[	]
SOUNDVIEW TECHNOLOGY CORPORATION	[	]
Total	[	]

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ANNEX A

Opinion of Patent Counsel

Coudert Brothers LLP shall state that they served as special counsel to the Company with respect to patents and proprietary rights, and shall opine that:

On behalf of the Company, we have prepared and filed ten patent applications in the United States and twelve patent applications internationally, each of which is listed on Exhibit A hereto (the “Coudert-filed Patents”).

1.    To the best of our knowledge, all of the inventors’ rights in the Coudert-filed Patents have been assigned to the Company. Nothing has come to our attention that there is any claim of any party other than the Company to any ownership interest or lien with respect to any of the Coudert-filed Patents.

2.    To the best of our knowledge, (a) there are no governmental proceedings pending relating to patent rights, trade secrets, trademarks, service marks or other proprietary information or materials of the Company and (b) no such proceedings are threatened by governmental authorities.

3.    We have no knowledge of any facts which would preclude the Company from having clear title to the Coudert-filed Patent.

4.    We are not aware of any material fact with respect to the Coudert-filed Patents that (a) would preclude the issuance of patents with respect to such applications or (b) would lead us to conclude that such patents, when issued, would not be valid and enforceable in accordance with applicable regulations.

5.    Nothing has come to our attention that causes us to believe that the statements in the Registration Statement and the Prospectus under the captions “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” (other than the last paragraph thereof, for which we provide no confirmation) and in the third and fourth paragraphs of “Business—INTELLECTUAL PROPERTY”, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the above-identified portions of the Prospectus or any supplement thereto, at the date of such Prospectus or supplement contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make therein, in light of the circumstances under which they were made, not misleading.

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ANNEX B

Opinion of Patent Counsel

Knobbe Martens, Olson and Bear, LLP shall state that they served as special counsel to the Company with respect to patents and proprietary rights, and shall opine that:

1.    The patent applications listed on listed in Exhibit A hereto (the “Applications”), have been filed on behalf of the Company by Counsel and Counsel has not represented the Company with respect to any other patents or patent applications. To Counsel’s actual knowledge and belief, there is no claim of any party other than the Company to any ownership interest or lien with respect to the Applications.

2.    To Counsel’s actual knowledge and belief, (a) there are no legal or governmental proceedings pending relating to patent rights, trade secrets, trademarks, service marks or other proprietary information or materials of the Company and (b) no such proceedings are threatened or contemplated by governmental authorities.

3.    Counsel does not know of any contracts or other documents, relating to the Applications of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus, that are not filed or described as required.

4.    Counsel has no actual knowledge of any facts which would preclude the Company from having clear title to the Applications.

5.    In rendering this opinion, Counsel has relied on certain factual representations of the Company and Counsel has not independently verified the accuracy and completeness of such representations. As Counsel’s representation of the Company has been limited to the filing of the Applications, Counsel cannot opine on the accuracy or completeness of the statements in the Registration Statement and the Prospectus; however, nothing has come to such Counsel’s attention that causes them to believe that the statements in the Registration Statement and the Prospectus under the captions “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” (other than the last paragraph thereof, for which we provide no confirmation) and in the third and fourth paragraphs of “Business—INTELLECTUAL PROPERTY”, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the above-identified portions of the Prospectus, at the date of such Prospectus contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make therein, in light of the circumstances under

37

which they were made, not misleading. Counsel has not been requested to nor has Counsel performed any clearance searches for the Company. Counsel has not been requested to nor has Counsel performed any investigation into any ownership issues with relation to the Applications for the Company.

In rendering this opinion, Counsel has relied on certain factual representations of the Company and Counsel has not independently verified the accuracy and completeness of such representations. As Counsel’s representation of the Company has been limited to the filing of the Applications, Counsel cannot opine on the accuracy or completeness of the statements in the Registration Statement and the Prospectus. Counsel has not been requested to nor has Counsel performed any clearance searches for the Company. Counsel has not been requested to nor has Counsel performed any investigation into any ownership issues with relation to the Applications for the Company.

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ANNEX C

Opinion of Patent Counsel

Reed, Smith, Crosby & Heafey shall state that they served as special counsel to the Company with respect to patents and proprietary rights, and shall opine that:

1.    We have filed on behalf and in the name of the Company with the United States Patent and Trademark Office (“USPTO”) the patent applications listed on the attached Exhibit A to this letter (the “Applications”) and we have not represented the Company with respect to any other patents or patent applications. To the best of our knowledge, written assignments to the Applications have been executed and delivered by all named inventors, and the assignments have been recorded as noted in Exhibit A with the USPTO. To the best of our knowledge, there are no claims of third parties to any ownership interest in or lien on any of the Applications.

2.    We have acted as special counsel to the Company for the matters listed in Exhibits A and B only. To the best of our knowledge, the statements in the Registration Statement and the Prospectus under the captions “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” (other than the last two paragraphs thereof, for which we provide no confirmation) and in the third and fourth paragraphs of “Business—INTELLECTUAL PROPERTY”, taken together with the statements in attached Exhibit B, are accurate and complete summaries of the matters described in such sections.

3.    Nothing has come to our attention that causes us to believe that the above-identified portions of the Registration Statement at the time such Registration Statement became effective, taken together with the statements in attached Exhibit B, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the above-identified portions of the Prospectus, at the date of such Prospectus, taken together with the statements in attached Exhibit B contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make therein, in light of the circumstances under which they were made, not misleading.

4.    To the best of our knowledge, there are no legal or governmental proceedings pending relating to patent rights, trade secrets, trademarks, service marks or other proprietary information or materials of the Company. Except as noted in the Registration Statement, the Prospectus, and the attached Exhibit B, to the best of our knowledge, there are no other threatened or contemplated proceedings.

5.    We are not aware of any infringement by third-parties of any of the Company’s patents, trade secrets, trademarks, service marks or other proprietary information or materials.

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6.    We are not aware of any reason that would preclude the Applications from issuing as patents, or any reason that any patents, if and when issued by the USPTO, would not be valid and enforceable.

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EX-5.1

Exhibit 5.1

[Letterhead of Wilson, Sonsini, Goodrich & Rosati]

June 25, 2003

InterVideo, Inc.

47350 Fremont Boulevard

Fremont, California 94358

Re: Registration Statement on Form S-1 (File No. 333-102851)

Ladies and Gentlemen:

We have examined the Registration Statement on Form S-1 (File No. 333-102851), as amended (the “Registration Statement”), filed by InterVideo, Inc., a Delaware corporation (the “Company”), with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of 2,645,000 shares of the Company’s Common Stock (subject to an over-allotment option of up to 345,000 shares of the Company’s Common Stock granted to the underwriters) (the “Shares”). The Shares are to be sold to the underwriters for resale to the public as described in the Registration Statement and pursuant to the Underwriting Agreement filed as an exhibit thereto. As legal counsel to the Company, we have examined the proceedings proposed to be taken in connection with said sale and issuance of the Shares.

Based upon the foregoing, we are of the opinion that the Shares, when issued in the manner described in the Registration Statement, will be duly authorized, validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto.

Very truly yours,

WILSON SONSINI GOODRICH & ROSATI

Professional Corporation

/s/    WILSON SONSINI GOODRICH & ROSATI

EX-10.2

Exhibit 10.2

INTERVIDEO, INC.

2003 STOCK PLAN

(as amended and restated on January 23, 2003)

(updated to reflect the 1.23-for-one forward stock split effected in June 2003)

SECTION 1

BACKGROUND AND PURPOSE OF THE PLAN

1.1 Background. The Plan permits the grant of Incentive Stock Option, Nonstatutory Stock Options, Stock Purchase Rights, Restricted Stock, Stock Appreciation Rights, Performance Units and Performance Shares.

1.2 Purpose. The purposes of this 2003 Stock Plan are (a) to attract and retain the best available personnel for positions of substantial responsibility, (b) to provide additional incentive to Employees, Directors and Consultants, and (c) to promote the success of the Company’s business.

SECTION 2

DEFINITIONS

As used herein, the following definitions shall apply:

2.1 “Administrator” means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

2.2 “Affiliated SAR” means an SAR that is granted in connection with a related Option, and which automatically will be deemed to be exercised at the same time that the related Option is exercised.

2.3 “Applicable Laws” means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

2.4 “Award” means, individually or collectively, a grant under the Plan of Options, SARs, Stock Purchase Rights, Restricted Stock, Performance Units or Performance Shares.

2.5 “Award Agreement” means the written agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.

2.7 “Board” means the Board of Directors of the Company.

2.8 “Change in Control” means the occurrence of any of the following events:

2.8.1 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;

2.8.2 The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

2.8.3 A change in the composition of the Board occurring within a two-year period, 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, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

2.8.4 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.

2.9 “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.

2.10 “Committee” means a committee appointed by the Board in accordance with Section 4 of the Plan.

2.11 “Common Stock” means the common stock of the Company.

2.12 “Company” means InterVideo, Inc., a Delaware corporation, or any successor thereto.

2.13 “Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

2.14 “Director” means a member of the Board.

2.15 “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.

2.16 “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

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2.17 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

2.18 “Exchange Program” means a program under which (a) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, and/or (b) the exercise price of an outstanding Award is reduced. The terms and conditions of any Exchange Program shall be determined by the Administrator in its sole discretion.

2.19 “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

2.19.1 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 such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

2.19.2 If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

2.19.3 In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator.

2.20 “Fiscal Year” means the fiscal year of the Company.

2.22 “Freestanding SAR” means a SAR that is granted independently of any Option.

2.24 “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

2.25 “Inside Director” means a Director who is an Employee.

2.26 “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

2.27 “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

2.28 “Option” means a stock option granted pursuant to the Plan.

2.29 “Optioned Stock” means the Common Stock subject to an Award.

2.30 “Outside Director” means a Director who is not an Employee.

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2.31 “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

2.32 “Participant” means the holder of an outstanding Award granted under the Plan.

2.33 “Performance Share” means an Award granted to a Participant pursuant to Section 9.

2.34 “Performance Unit” means an Award granted to a Participant pursuant to Section 9.

2.33 “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator, in its discretion.

2.35 “Plan” means this 2003 Stock Plan.

2.36 “Registration Date” means 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.

2.37 “Restricted Stock” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 6 of the Plan or issued pursuant to Section 7 of the Plan.

2.38 “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

2.39 “Section 16(b) “ means Section 16(b) of the Exchange Act.

2.40 “Service Provider” means an Employee, Director or Consultant.

2.41 “Share” means a share of the Common Stock, as adjusted in accordance with Section 3 of the Plan.

2.42 “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with a related Option, that pursuant to Section 8 is designated as an SAR.

2.43 “Stock Purchase Right” means the right to purchase Common Stock pursuant to Section 6 of the Plan.

2.44 “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

2.45 “Tandem SAR” means an SAR that is granted in connection with a related Option, the exercise of which shall require forfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share is purchased under the Option, the SAR shall be canceled to the same extent).

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SECTION 3

SHARES SUBJECT TO THE PLAN

3.1 Stock Subject to the Plan. The maximum aggregate number of Shares that may be optioned and sold under the Plan consists of (a) 216,480 Shares initially reserved for issuance under the Plan, (b) any Shares which have been reserved but not issued under the Company’s 1998 Stock Option Plan (the “1998 Plan”), as of the Registration Date, (c) any Shares returned to the 1998 Plan as a result of the termination of options or the repurchase of unvested Shares issued under the 1998 Plan, on or after the Registration Date, and (d) an annual increase to be added on the first day of the 2004 Fiscal Year, equal to the lesser of (i) 1,082,400 shares, (ii) 5% of the outstanding shares on such date or (iii) an amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. Subject to the following paragraph, the maximum aggregate number of Shares that may be optioned and sold under the Plan pursuant to subsections (a), (b) and (c) shall not exceed the sum of subsections (a), (b) and (c).

3.2 Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise or grant of an Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are forfeited or repurchased by the Company at their original purchase price or, if less than their original purchase price, their fair market value, such Shares shall become available for future grant under the Plan.

3.3 Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares 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 Shares which may be delivered under the Plan, the number, class, and price of Shares covered by each outstanding Option and Stock Purchase Right, and the numerical Share limits of Section 5.

3.4 Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

SECTION 4

ADMINISTRATION OF THE PLAN

4.1 Procedure.

4.1.1 Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.

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4.1.2 Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

4.1.3 Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

4.1.4 Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws.

4.2 Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (a) to determine the Fair Market Value; (b) to select the Service Providers to whom Awards may be granted hereunder; (c) to determine the number of shares of Common Stock to be covered by each Award granted hereunder; (d) to approve forms of agreement for use under the Plan; (e) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (f) to institute an Exchange Program; (g) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (h) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws; (i) to modify or amend each Award (subject to Section 17.3 of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (j) to allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld (the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined and all elections by a Participant to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable); (k) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator; (l) allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award, and (m) to make all other determinations deemed necessary or advisable for administering the Plan.

4.3 Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations shall be final and binding on all Participants and any other holders of Awards.

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SECTION 5

STOCK OPTIONS

5.1 Limitations.

5.1.1 Incentive Stock Options may be granted only to Employees.

5.1.2 Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.1.2, Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

5.1.3 The following limitations shall apply to grants of Options:

(a) No Service Provider shall be granted, in any Fiscal Year, Options to purchase more than 1,082,400 Shares.

(b) In connection with his or her initial service as an Employee, a Service Provider may be granted Options to purchase up to an additional 541,200 Shares, which shall not count against the limit set forth in subsection (a) above.

(c) The foregoing limitations shall be adjusted proportionately in connection with any change described in Section 3.3.

(d) If an Option is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (a) and (b) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.

5.2 Term of Option. The term of each Option shall be stated in the Award Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

5.3 Option Exercise Price and Consideration.

5.3.1 Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

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(a) In the case of an Incentive Stock Option

(i) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(ii) granted to any Employee other than an Employee described in paragraph (i) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(b) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(c) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

5.3.2 Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised.

5.3.3 Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which, in the case of Shares acquired from the Company, (A) have been owned by the Participant for more than six (6) months on the date of surrender, and (B) 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; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

5.4 Exercise of Option.

5.4.1 Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled

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to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 3.3 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

5.4.2 Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for three (3) months following the Participant’s termination. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

5.4.3 Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following the Participant’s termination. If, on the date of termination, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

5.4.4 Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is

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transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option shall remain exercisable for twelve (12) months following Participant’s death. If, at the time of death, Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

SECTION 6

STOCK PURCHASE RIGHTS

6.1 Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of an Award Agreement in the form determined by the Administrator.

6.2 Repurchase Option. Unless the Administrator determines otherwise, the Award Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Award Agreement shall be determined by the Administrator and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

6.3 Other Provisions. The Award Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

6.4 Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 3.3 of the Plan.

SECTION 7

RESTRICTED STOCK

7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, shall determine. The Administrator, in its sole discretion, shall determine the number of Shares to be granted to each Service Provider.

7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Period of Restriction, the number of Shares granted, and

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such other terms and conditions as the Administrator, in its sole discretion, shall determine. Unless the Administrator determines otherwise, Shares of Restricted Stock shall be held by the Company as escrow agent until the restrictions on such Shares have lapsed.

7.3 Transferability. Except as provided in this Section 7, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.

7.4 Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

7.5 Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall be released from escrow as soon as practicable after the last day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any restrictions shall lapse or be removed. After the restrictions have lapsed, the Service Provider shall be entitled to have any legend or legends under Section 7.4.3 removed from his or her Share certificate, and the Shares shall be freely transferable by the Service Provider.

7.6 Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.

7.7 Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

7.8 Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed shall revert to the Company and again shall become available for grant under the Plan.

SECTION 8

STOCK APPRECIATION RIGHTS

8.1 Grant of SARs. Subject to the terms and conditions of the Plan, an SAR may be granted to Service Providers at any time and from time to time as shall be determined by the Administrator, in its sole discretion. The Administrator may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof.

8.1.1 Number of Shares. The Administrator shall have complete discretion to determine the number of SARs granted to any Service Provider.

8.1.2 Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, shall have complete discretion to determine the terms and conditions of SARs granted

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under the Plan. However, the exercise price of Tandem or Affiliated SARs shall equal the Exercise Price of the related Option.

8.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR shall expire no later than the expiration of the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR shall be for no more than one hundred percent (100%) of the difference between the Exercise Price of the underlying Incentive Stock Option and the Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the Tandem SAR shall be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock Option exceeds the Exercise Price of the Incentive Stock Option.

8.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be exercised upon the exercise of the related Option. The deemed exercise of an Affiliated SAR shall not necessitate a reduction in the number of Shares subject to the related Option.

8.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on such terms and conditions as the Administrator, in its sole discretion, shall determine.

8.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, shall determine.

8.6 Expiration of SARs. An SAR granted under the Plan shall expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also shall apply to SARs.

8.7 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

(b) The number of Shares with respect to which the SAR is exercised.

At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

SECTION 9

PERFORMANCE UNITS AND PERFORMANCE SHARES

9.1 Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as shall be determined by the Administrator, in its sole discretion. The Administrator shall have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.

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9.2 Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant.

9.3 Performance Objectives and Other Terms. The Administrator shall set performance objectives in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives must be met shall be called the “Performance Period.” Each Award of Performance Units/Shares shall be evidenced by an Award Agreement that shall specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, shall determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.

9.4 Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives for such Performance Unit/Share.

9.5 Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares shall be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.

9.6 Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares shall be forfeited to the Company, and again shall be available for grant under the Plan.

SECTION 10

FORMULA OPTION GRANTS TO OUTSIDE DIRECTORS

All grants of Options to Outside Directors pursuant to this Section shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions:

10.1 Type of Option. All Options granted pursuant to this Section shall be Nonstatutory Stock Options and, except as otherwise provided herein, shall be subject to the other terms and conditions of the Plan.

10.2 No Discretion. No person shall have any discretion to select which Outside Directors shall be granted Options under this Section or to determine the number of Shares to be covered by such Options.

10.3 First Option. Each person who first becomes an Outside Director following the Registration Date shall be automatically granted an Option to purchase 20,295 Shares (the “First

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Option”) on or about the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option.

10.4 Subsequent Option. Each Outside Director shall be automatically granted an Option to purchase 5,412 Shares (a “Subsequent Option”) on each date of the annual meeting of the stockholders of the Company beginning in 2004, if as of such date, he or she shall have served on the Board for at least the preceding six (6) months.

10.5 Limitation. Notwithstanding the provisions of Sections 10.3 and 10.4, any exercise of an Option granted before the Company has obtained stockholder approval of the Plan in accordance with Section 20 shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 20.

10.6 Terms. The terms of each Option granted pursuant to this Section shall be as follows:

10.6.1 The term of the Option shall be ten (10) years.

10.6.2 The exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option.

10.6.3 Subject to Section 13, the First Option shall vest and become exercisable as to 33 1/3% of the Shares subject to the Option on the first anniversary of its date of grant, and as to 1/36 of the Shares subject to the Option each full month thereafter, provided that the Participant continues to serve as a Service Provider on such dates.

10.6.4 Subject to Section 13, the Subsequent Option shall vest and become exercisable as to 100% of the Shares subject to the Option on the anniversary of its date of grant, provided that the Participant continues to serve as a Service Provider on such date.

SECTION 11

LEAVE OF ABSENCE

Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91^st day of such leave any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.

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SECTION 12

TRANSFERABILITY OF AWARDS

Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award shall contain such additional terms and conditions as the Administrator deems appropriate.

SECTION 13

DISSOLUTION OR LIQUIDATION OR CHANGE IN CONTROL

13.1 Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

13.2 Change in Control. In the event of a Change in Control, each outstanding Option, and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation.

In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Participant shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a Change in Control, the Administrator shall notify the Participant in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable (subject to the consummation of the Change of Control) for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period.

With respect to Options granted to an Outside Director that are assumed or substituted for, if following such assumption or substitution the Participant’s status as a Director or a director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the Participant, then the Participant shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable.

For the purposes of this subsection (c), the Option or Stock Purchase Right shall be considered assumed if, following the Change in Control, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of

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the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.]

SECTION 14

NO EFFECT ON EMPLOYMENT OR SERVICE

Neither the Plan nor any Award shall confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.

SECTION 15

DATE OF GRANT

The date of grant of an Award shall be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Participant within a reasonable time after the date of such grant.

SECTION 16

TERM OF PLAN

Subject to Section 20 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 17 of the Plan.

SECTION 17

AMENDMENT AND TERMINATION OF THE PLAN

17.1 Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.

17.2 Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

17.3 Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

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SECTION 18

CONDITIONS UPON ISSUANCE OF SHARES

18.1 Legal Compliance. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

18.2 Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award 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.

SECTION 19

INABILITY TO OBTAIN AUTHORITY

The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

SECTION 20

STOCKHOLDER APPROVAL

The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws.

SECTION 21

WITHHOLDING

21.1 Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).

21.2 Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (a) electing to have the Company withhold otherwise deliverable Shares, or (b) delivering to the Company already-owned Shares having a Fair Market Value equal to the amount required to be withheld. The amount of the withholding requirement shall be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date

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that the amount of tax to be withheld is to be determined. The Fair Market Value of the Shares to be withheld or delivered shall be determined as of the date that the taxes are required to be withheld.

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INTERVIDEO, INC.

2003 STOCK PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this stock option agreement (the “Option Agreement”).

I. NOTICE OF STOCK OPTION GRANT

[Optionee’s Name and Address]

You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:

Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share	$
Total Number of Shares Granted
Total Exercise Price	$
Type of Option:	Incentive Stock Option
	Nonstatutory Stock Option
Term/Expiration Date:

Vesting Schedule:

This Option may be exercised, in whole or in part, in accordance with the following schedule:

25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date, subject to the Optionee continuing to be a Service Provider on such dates.

Termination Period:

This Option may be exercised for three months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for twelve months after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above.

II. AGREEMENT

A.    Grant of Option.

The Administrator hereby grants to the individual named in the Notice of Stock Option Grant (the Notice of Grant”) in Part I of this Agreement (the “Optionee”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 17.3 of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

If designated in the Notice of Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option (“NSO”).

B.    Exercise of Option.

(a)    Right to Exercise.    This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.

(b)    Method of Exercise.    This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be properly completed by the Optionee and delivered to the [            ] of the Company (or his or her designee). The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

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C.    Method of Payment.

Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

1. cash; or

2. check; or

3. consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or

4. surrender of other Shares which, in the case of Shares acquired from the Company, (a) have been owned by the Optionee for more than six (6) months on the date of surrender, and (b) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

D.    Non-Transferability of Option.

This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

E.    Term of Option.

This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

F.    Tax Consequences.

Some of the federal tax consequences relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

G.    Exercising the Option.

1.    Nonstatutory Stock Option.    The Optionee may incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

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2.    Incentive Stock Option.    If this Option qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status.

3.    Disposition of Shares.

(a)    NSO.    If the Optionee holds NSO Shares for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

(b)    ISO.    If the Optionee holds ISO Shares for at least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held.

(c)    Notice of Disqualifying Disposition of ISO Shares.    If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee.

H.    Entire Agreement; Governing Law.

The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of the State of California.

I.    NO GUARANTEE OF CONTINUED SERVICE.

OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING

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SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE:	INTERVIDEO, INC.
Signature	By
Print Name	Title
Residence Address

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EXHIBIT A

STOCK OPTION EXERCISE FORM

InterVideo, Inc.

47350 Fremont Blvd.

Fremont, CA 94538

Attention:  Corporate Secretary

Gentlemen:

The undersigned (“Purchaser”) elects to exercise the Option to purchase              shares (the “Shares”) of Common Stock of the Company under and pursuant to the 2003 Stock Plan (the “Plan”) and the option agreement dated,                      (the “Option Agreement”). The purchase price for the Shares shall be $             as required by the Option Agreement.

Purchaser herewith delivers to the Company the full purchase price for the Shares.

My address of record is:

and my social security Number is:                     .

1.    Representations of Purchaser.    Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

2.    Rights as Shareholder.    Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 3 of the Plan.

3.    Tax Consultation.    Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents

that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

4.    Entire Agreement; Governing Law.    The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of the State of California.

Submitted by: PURCHASER:	Accepted by: INTERVIDEO, INC.
Signature	By
Print Name	Its
	Address: INTERVIDEO, INC. 47350 Fremont Blvd. Fremont, CA 94538
	Date Received

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INTERVIDEO, INC.

2003 STOCK PLAN

NOTICE OF GRANT OF STOCK PURCHASE RIGHT

Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant.

[Grantee’s Name and Address]

You have been granted the right to purchase Common Stock of the Company, subject to the Company’s Repurchase Option and your ongoing status as a Service Provider (as described in the Plan and the attached Restricted Stock Purchase Agreement), as follows:

Grant Number
Date of Grant
Price Per Share	$
Total Number of Shares Subject to This Stock Purchase Right
Expiration Date:

YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company’s representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the 2003 Stock Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a part of this document. You further agree to execute the attached Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right.

GRANTEE:	INTERVIDEO, INC.
Signature	By
Print Name	Title

EXHIBIT A-1

INTERVIDEO, INC.

2003 STOCK PLAN

RESTRICTED STOCK PURCHASE AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Purchase Agreement.

WHEREAS the Purchaser named in the Notice of Grant of Stock Purchase Right, (the “Purchaser”) is a Service Provider, and the Purchaser’s continued participation is considered by the Company to be important for the Company’s continued growth; and

WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Administrator has granted to the Purchaser a Stock Purchase Right subject to the terms and conditions of the Plan and the Notice of Grant of Stock Purchase Right (the “Notice of Grant”), which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the “Agreement”).

NOW THEREFORE, the parties agree as follows:

1.    Sale of Stock.    The Company hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to purchase shares of the Company’s Common Stock (the “Shares”), at the per Share purchase price and as otherwise described in the Notice of Grant.

2.    Payment of Purchase Price.    The purchase price for the Shares may be paid by delivery to the Company at the time of execution of this Agreement of cash, a check, or some combination thereof.

3.    Repurchase Option.

(a)    In the event the Purchaser ceases to be a Service Provider for any or no reason (including death or disability) before all of the Shares are released from the Company’s Repurchase Option (see Section 4), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option (the “Repurchase Option”) for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unreleased Shares (as defined in Section 4) at the original purchase price per share (the “Repurchase Price”). The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser’s executor (with a copy to the Escrow Holder) AND, at the Company’s option, (i) by delivering to the Purchaser or the Purchaser’s executor a check in the amount of the aggregate Repurchase Price, or (ii) by canceling an amount of the Purchaser’s

indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company.

(b)    Whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company’s purchase rights under this Agreement and purchase all or a part of such Shares. If the Fair Market Value of the Shares to be repurchased on the date of such designation or assignment (the “Repurchase FMV”) exceeds the aggregate Repurchase Price of such Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of such Shares.

4.    Release of Shares From Repurchase Option.

(a)                 percent (            %) of the Shares shall be released from the Company’s Repurchase Option [one year] after the Date of Grant and              percent (            %) of the Shares [at the end of each month thereafter], provided that the Purchaser does not cease to be a Service Provider prior to the date of any such release.

(b)    Any of the Shares that have not yet been released from the Repurchase Option are referred to herein as “Unreleased Shares.”

(c)    The Shares that have been released from the Repurchase Option shall be delivered to the Purchaser at the Purchaser’s request (see Section 6).

5.    Restriction on Transfer.    Except for the escrow described in Section 6 or the transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until such Shares are released from the Company’s Repurchase Option in accordance with the provisions of this Agreement, other than by will or the laws of descent and distribution.

6.    Escrow of Shares.

(a)    To ensure the availability for delivery of the Purchaser’s Unreleased Shares upon repurchase by the Company pursuant to the Repurchase Option, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the “Escrow Holder”) the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached hereto as Exhibit A-3, until such time as the Company’s Repurchase Option expires.

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(b)    The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow while acting in good faith and in the exercise of its judgment.

(c)    If the Company or any assignee exercises the Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer.

(d)    When the Repurchase Option has been exercised or expires unexercised or a portion of the Shares has been released from the Repurchase Option, upon request the Escrow Holder shall promptly cause a new certificate to be issued for the released Shares and shall deliver the certificate to the Company or the Purchaser, as the case may be.

(e)    Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser’s ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as “Shares” for purposes of this Agreement and the Repurchase Option.

7.    Legends.    The share certificate evidencing the Shares, if any, issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws):

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

8.    Adjustment for Stock Split.    All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares that may be made by the Company after the date of this Agreement.

9.    Tax Consequences.    The Purchaser has reviewed with the Purchaser’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser’s own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the difference between the purchase price for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, “restriction” includes the

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right of the Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit A-4 hereto.

THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER’S BEHALF.

10.    General Provisions.

(a)    This Agreement shall be governed by the internal substantive laws, but not the choice of law rules of the State of California. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of the Shares by the Purchaser. Subject to Section 17 of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement.

(b)    Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing.

Any notice to the Escrow Holder shall be sent to the Company’s address with a copy to the other party hereto.

(c)    The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company.

(d)    Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing any other provision of this Agreement. The rights granted both parties hereunder are cumulative and shall not constitute a waiver of either party’s right to assert any other legal remedy available to it.

(e)    The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.

(f)    PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING

-4-

SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE PURCHASER’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

By Purchaser’s signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant.

DATED:
PURCHASER:	INTERVIDEO, INC.
Signature	By
Print Name	Title

-5-

EXHIBIT A-2

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED I,                     , hereby sell, assign and transfer unto                                           (            ) shares of the Common Stock of InterVideo, Inc., standing in my name of the books of said corporation represented by Certificate No.              herewith and do hereby irrevocably constitute and appoint                      to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.

This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement (the “Agreement”) between                      and the undersigned dated                     ,             .

Dated:                     ,             

Signature:

INSTRUCTIONS:  Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise the Repurchase Option, as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser.

EXHIBIT A-3

JOINT ESCROW INSTRUCTIONS

                    ,             

Corporate Secretary

InterVideo, Inc.

[address]

Dear                     :

As Escrow Agent for both InterVideo, Inc., a Delaware corporation (the “Company”), and the undersigned purchaser of stock of the Company (the “Purchaser”), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (“Agreement”) between the Company and the undersigned, in accordance with the following instructions:

1.    In the event the Company and/or any assignee of the Company (referred to collectively as the “Company”) exercises the Company’s Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice.

2.    At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company’s Repurchase Option.

3.    Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser’s attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you.

4.    Upon written request of the Purchaser, but no more than once per calendar year, unless the Company’s Repurchase Option has been exercised, you shall deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company’s Repurchase Option. Within 90 days after Purchaser ceases to be a Service Provider, you shall deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company’s Repurchase Option.

5.    If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder.

6.    Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.

7.    You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith.

8.    You are 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 are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.

9.    You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder.

10.    You shall not be liable for the outlawing of any rights under the statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you.

11.    You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor.

12.    Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent.

-2-

13.    If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments.

14.    It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings.

15.    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 Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days’ advance written notice to each of the other parties hereto.

COMPANY:	InterVideo, Inc. [address]
PURCHASER:
ESCROW AGENT:	Corporate Secretary InterVideo, Inc. [address]

16.    By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.

17.    This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.

-3-

18.    These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the internal substantive laws, but not the choice of law rules, of the State of California.

	Very truly yours, INTERVIDEO, INC.
	By
	Title
	PURCHASER:
	Signature
	Print Name
ESCROW AGENT:
Corporate Secretary

-4-

EXHIBIT A-4

ELECTION UNDER SECTION 83(b)

OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer’s gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below:

1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows:

NAME:	TAXPAYER:	SPOUSE:
ADDRESS:
IDENTIFICATION NO.:	TAXPAYER:	SPOUSE:
TAXABLE YEAR:

2. The property with respect to which the election is made is described as follows:              shares (the “Shares”) of the Common Stock of InterVideo, Inc. (the “Company”).

3. The date on which the property was transferred is:                     ,             .

4. The property is subject to the following restrictions:

The Shares may be repurchased by the Company, or its assignee, upon certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time.

5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $            .

6. The amount (if any) paid for such property is: $            .

The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.

Dated:
	Taxpayer

The undersigned spouse of taxpayer joins in this election.

Dated:
	Spouse of Taxpayer

EX-10.3

                                                                    EXHIBIT 10.3

                                INTERVIDEO, INC.

                        2003 EMPLOYEE STOCK PURCHASE PLAN
                 (as amended and restated on January 23, 2003)
   (updated to reflect the 1.23-for-one forward split effected in June 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 5,412 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 216,480 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) 216,480 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-10.6

                                                                    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
                                         --------------------------------------

	[LOGO] Dolby® Dolby Laboratories, Inc. Dolby Laboratories Licensing Corporation 100 Potrero Avenue
6 February 2003	San Francisco, CA 94103-4813 Telephone 415-558-0200 Fax 415-863-1373

InterVideo, Inc.

47350 Fremont Blvd.

Fremont, CA 94538

United States

Side Letter: Dolby Digital Consumer Encoder –

PC software DVD authoring

To Whom it may Concern:

Re: License Agreement entitled “DIGITAL AUDIO SYSTEM LICENSE AGREEMENT” (L3D-AC3(V]) between InterVideo, Inc. and Dolby Laboratories Licensing Corporation, effective 4 March 1999.

We have pleasure in extending the rights granted under the above-mentioned License Agreement to include, additional know-how, and copyrighted works that cover our Dolby Digital Consumer Encoder. This 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 Digital Consumer Encoders, and is not intended to affect the terms of use for other technologies. If there is any conflict between the wording of this Dolby Digital Consumer Encoder Side Letter and that of the above-mentioned Agreement (with respect to the Dolby Digital Consumer Encoders), the wording of the Side Letter will be regarded as controlling.

1. Replace “Initial Payment: $[*]” on the Title Page, with “Initial Payment: $[*].” This means that an additional $[*] is due in conjunction with this side letter.

2. Add to the end of the Index page:

Appendix D - Table of Contents for the Product Development Kit: Dolby Digital Consumer Encoder

3. Add to the Preamble (Page 1) after the seventh “WHEREAS,” clause:

WHEREAS, LICENSOR manufactures and sells professional Dolby Digital encoders and decoders for creation and playback of commercial content, which are applications not licensed hereunder, and with which LICENSOR desires to avoid confusion.

WHEREAS, LICENSOR desires to make a limited-functionality subset of this professional technology available for license by LICENSEE; and

4. Replace Section 1.08 - “Dolby Digital Audio System Specifications,” with the following:

Section 1.08 - “Dolby Digital Audio System Specifications” means the specifications for the Dolby Digital audio system, comprising the claims and teachings of the Scheduled Patents, and the Dolby Digital audio system operating parameters as specified in:

· Appendix B entitled, “Dolby Digital Audio System;” and

· Appendix C entitled, “Dolby Digital Licensee Information Manual;” and

· Appendix D entitled, “Table of Contents for the Product Development Kit: Dolby Digital Consumer Encoder;” and

· the Licensed Copyrighted Works and the Know-How.

Appendices B, C and D are attached hereto and form an integral part of this Agreement.

5. Modify Section 1.10 - “Licensed Device,” so that the phrase “decoding a digital bitstream” in line 3, reads “decoding or encoding a digital bitstream.”

6. Modify Section 1.11(2) - “Licensed Product,” so that the phrase “intended or designed for use in decoding a Dolby Digital audio bitstream,” to read “intended or designed for use in decoding a Dolby Digital audio bitstream, or intended or designed for use in encoding no more than two full frequency audio channels into a Dolby Digital audio bitstream.”

7. Add Section 1.11 (3) - “Licensed Product,”

(3) is intended for use in non commercial DVD authoring or other similar encoding applications, and not broadcast or internet streaming applications.

8. Add Section 1.22 - “PC” is not a “consumer electronics” device (for example; television, set-top box, stand-alone digital music player, audio/video receiver, radio, headphone product, personal digital assistant, smart phone, game console, personal video recorder [“PVR”], DVD player, etc.) but it is a multi-functional desktop or notebook personal computer or workstation which has a hard disk drive [“HDD”] and utilizes an alphanumeric keyboard designed for use with two hands as the primary input device.

9. Add Section 1.23 - “Monitoring Decoder” is an optional feature of a Dolby Digital Consumer Encoder PC software DVD authoring Licensed Product, which functionally limits (in accordance with the Dolby Digital Audio System Specifications) and contains only two decoder Licensed Devices whose use is strictly limited to preview and/or monitor decoding of content encoded with a Dolby Digital Consumer Encoder Licensed Product, and must not be able to decode any other audio encoding-technology including but not limited to Dolby Digital Professional, Dolby Digital Non Real Time and/or Dolby Digital Interactive Content encoded bit streams. Monitoring Decoders must not be accessible to or useable by any product other than the PC Licensed Product containing such Monitoring Decoder; including but not limited to third party products such as interface products like Windows Media Player that allow the sharing or presentation of Dolby-licensed functionality with a separate product.

10. Modify Section 2.02 - Limitation of Licenses Granted, to include the following additional subsections:

(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;

(10) no license is granted hereunder to use the Licensed Trademarks on or in association with encoded bitstreams or program material created with Licensed Products; and

11. Modify Section 4.02 - Royalties, by including the following additional subsections

(4) In addition, for Licensed Products containing an encoder and two or more decoder Licensed Devices, each encoder Licensed Device shall be [*], (For example, a Licensed Product which encodes and decodes in stereo may be [*].)

(5) Alternatively to Sections (2) and (4) above and until 31 DEC 2003, for a PC software DVD authoring Licensed Product that is used, sold, leased or otherwise distributed in a

2

product that contains a fully functional (i.e. not a monitoring Decoder) but not a trial version, Dolby Digital Consumer Decoder Licensed Product; then:

(a) for the two Dolby Digital Consumer Encoder Licensed Devices used, sold, leased or otherwise distributed therein:

· the royalty due is $[*] (or $[*] in Non-Patent Countries); and

· [*].

(b) [*]; and

(c) [*] the maximum of 3 Licensed Devices per Licensed Product as detailed in 4.02 (2) above.

(6) Alternatively to Sections (2) and (4) above and until 31 DEC 2005, for a PC software DVD authoring Licensed Product that is used, sold, leased or otherwise distributed in a PC, if such Licensed Product contains a fully functional (i.e. not a monitoring Decoder) but not a trial version, Dolby Digital Consumer Decoder and a Dolby Digital Consumer Encoder, then for the two Dolby Digital Consumer Encoder Licensed Devices used, sold, leased or otherwise distributed therein:

(a) the royalty due is $[*] (or $[*] in Non-Patent Countries); and

(b) [*].

12. Modify Section 4.06 - Royalties in Non-Patent County, so that the phrase “; however the additional royalty of $[*] on each Licensed Device of such Licensed Product specified in Section 4.02 shall be waived.” becomes “; however the additional royalty of $[*] on each Licensed Device of such Licensed Product specified in Section 4.02 or as alternatively expressed in 4.02 (5) and 4.02 (6) as applicable, shall be waived.”

13. Modify Section 4.05 - Royalty Payments and Statements. At the end of the first sentence of sub section 4.05 (1) (c) delete the period and add:

“, such as any information required to substantiate the discounts available in Sections 4.02 (5) and 4.02 (6) as applicable.”

14. Add the attached APPENDIX D - TABLE OF CONTENTS FOR THE PRODUCT DEVELOPMENT KIT to the end of the Agreement.

AGREED
On behalf of LICENSOR	On behalf of LICENSEE
Signature:     /s/    GRETCHEN LIKANDER	Signature:      /s/    MIKE LING
Name: Gretchen Likander	Name: Mike Ling
Title: Manager, Intellectual Property Licensing	Title:  V.P.
Place: ______________________________________	Place: ______________________________________
Date: _______________________________________	Date: _______________________________________

3

APPENDIX B

TABLE OF CONTENTS

PRODUCT DEVELOPMENT KIT - DOLBY DIGITAL CONSUMER ENCODER

		Licensee Information Manuals
x	1.	Licensee Information Manual: Dolby Digital Consumer Encoder* This Licensee Information Manual contains all the documentation for making a product based on the Dolby Digital Consumer Encoder.
x	2.	Licensee Information Manual: General Information* This manual contains information pertaining to all licensed Dolby technologies, including technology overviews, product approval procedures, and trademark/logo use.
		Responsibilities & Schedules
x	3.	Schedule of Qualified Implementors This list includes the Licensees who are cleared to sell quantities of Dolby approved implementations.
		Documentation
x	4.	Digital Audio Compression Standard (AC-3). Errata Sheet This document corrects several mistakes/ambiguities that were part of the original ATSC document A/52.
x	5.	A Guide To Dolby Technologies and Trademarks This document provides general explanations of the various Dolby technologies and examples of the proper trademark usage.
x	6.	Dolby Digital Consumer Encoder System Licensing Information* This document is provided as an introduction to the licensing process for the Dolby Digital Consumer System. It describes the licensing fees, royalty rates, and provides an overview of the product development cycle, and the certification process.
x	7.	Digital Audio Compression Standard (AC-3) ATSC document A/52 is a description of the Dolby Digital (AC-3) algorithm in the format required by the ATSC (Advanced Television Systems Committee).
		Logos
x	8.	Dolby Logo Fonts and Character Map This material includes current logos used on licensed hardware and software. The appropriate fonts may be used in all printed materials (i.e., manuals, marketing literature). An .eps (encapsulated postscript) format is included for artwork purposes (i.e., equipment face panels). The enclosed Dolby Digital logo character map offers easy keyboard reference for Dolby fonts.
		Testing materials
x	9.	DVD Player/Recorder Addendum Performance Data* Dolby Digital Consumer Encoder Test Results and performance criteria for evaluation of DVD Recorder products.

4

x	10.	DVD Recorder Test Procedure Addendum** Found on the CD ROM: Licensee Information Manual: Dolby Digital Consumer Encoder. Addendum to DVD Player Test Procedure for testing Dolby Digital Encoder Functions.
x	11.	Test templates for the Audio Precision System Two. Open Loop tests and Closed Loop tests are included, for testing either home DVD Recorders, or PC DVD creation software.* Test templates for the Audio Precision System Two for testing home DVD Recorders, and PC software for DVD creation.

* Confidential Information

5

EX-10.16

Exhibit 10.16

INTERVIDEO, INC.

CHANGE OF CONTROL AGREEMENT

This Change of Control Agreement (the “Agreement”) is made and entered into effective as of                     , 2003 (the “Effective Date”), by and between                              (the “Employee”) and InterVideo, Inc., a Delaware corporation (the “Company”). Certain capitalized terms used in this Agreement are defined in Section 1 below.

R E C I T A L S

A. It is expected that the Company from time to time will consider the possibility of a Change of Control. The Board of Directors of the Company (the “Board”) recognizes that such consideration can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities.

B. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employee with an incentive to continue his employment and to maximize the value of the Company upon a Change of Control for the benefit of its stockholders.

C. In order to provide the Employee with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change of Control, the Board believes that it is imperative to provide the Employee with certain benefits upon the Employee’s termination of employment following a Change of Control.

AGREEMENT

In consideration of the mutual covenants herein contained and the continued employment of Employee by the Company, the parties agree as follows:

1. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

(a) Cause. “Cause” shall mean (i) any act of dishonesty, fraud or mispresentation taken by the Employee in connection with his responsibilities as an employee, (ii) Employee’s conviction of, or entering a plea of nolo contendere to, a felony which the Board reasonably believes has had or will have a detrimental effect on the Company’s reputation or business, (iii) Employee’s breach of any confidentiality agreement or invention assignment agreement between the Employee and the Company, (iv) a willful act or gross negligence by the Employee which constitutes misconduct and is injurious to the Company, and (v) continued violations by the Employee of the Employee’s obligations to the Company after there has been delivered to the Employee a written demand for performance from the Company which describes the basis for the Company’s belief that the Employee has not substantially performed his duties.

(b) Change of Control. “Change of Control” shall mean the occurrence of any of the following events after the date of this Agreement:

(i) the 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) more than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation;

(ii) the sale or disposition by the Company of all or substantially all of the Company’s assets;

(iii) the approval by the stockholders of the Company of a plan of complete liquidation of the Company; or

(iv) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities.

(c) Involuntary Termination. “Involuntary Termination” shall mean (i) without the Employee’s express written consent, a significant reduction of the Employee’s duties or responsibilities relative to the Employee’s duties or responsibilities in effect immediately prior to such reduction, or the removal of the Employee from such duties and responsibilities, unless the Employee is provided with comparable duties and responsibilities; provided, however, that a reduction in title solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when a Vice President of the Company remains as such following a Change of Control but is not made a Vice President of the acquiring corporation) shall not constitute an “Involuntary Termination;” (ii) without the Employee’s express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Employee immediately prior to such reduction; (iii) a reduction by the Company of at least 25% of the Employee’s base salary as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction with the result that the Employee’s overall benefits package is significantly reduced; (v) without the Employee’s express written consent, the relocation of the Employee to a facility or a location more than fifty (50) miles from his current location; (vi) any purported termination of the Employee by the Company which is not effected for Cause or for which the grounds relied upon are not valid; or (vii) the failure of the Company to obtain the assumption of this Agreement by any successors contemplated in Section 6 below.

2. Term of Agreement. This Agreement shall terminate upon the date that all obligations of the parties hereto under this Agreement have been satisfied or, if earlier, on the date, prior to a Change of Control, Employee is no longer employed by the Company.

-2-

3. At-Will Employment. The Company and the Employee acknowledge that the Employee’s employment is and shall continue to be at-will, as defined under applicable law. If the Employee’s employment terminates for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be established under the Company’s then existing employee benefit plans or policies at the time of termination.

4. Stock Options Acceleration.

(a) Termination Following A Change of Control. If the Employee’s employment with the Company terminates as a result of an Involuntary Termination at any time within one (1) month prior to or thirteen (13) months after a Change of Control, all stock options granted by the Company to the Employee prior to the termination shall become fully vested and exercisable as of the date of the termination to the extent such stock options are outstanding and unexercisable at the time of such termination and all stock subject to a right of repurchase by the Company (or its successor) that was purchased prior to the termination shall have such right of repurchase lapse with respect to all of the shares

(b) Termination Apart from a Change of Control. If the Employee’s employment with the Company terminates other than as a result of an Involuntary Termination within the one (1) month prior to or thirteen (13) months following a Change of Control, then the Employee shall not be entitled to receive any benefits hereunder, but may be eligible for those benefits (if any) as may then be established under the Company’s then existing severance and benefits plans and policies at the time of such termination.

(c) Accrued Wages and Vacation; Expenses. Without regard to the reason for, or the timing of, Employee’s termination of employment: (i) the Company shall pay the Employee any unpaid base salary due for periods prior to the termination; (ii) the Company shall pay the Employee all of the Employee’s accrued and unused vacation through the termination; and (iii) following submission of proper expense reports by the Employee, the Company shall reimburse the Employee for all expenses reasonably and necessarily incurred by the Employee in connection with the business of the Company prior to the termination. These payments shall be made promptly upon termination and within the period of time mandated by law.

5. Limitation on Payments. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then Employee’s benefits under this Agreement shall be either

(a) delivered in full, or

(b) delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax,

-3-

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by Employee on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code.

Unless the Company and the Employee otherwise agree in writing, any determination required under this Section shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section.

6. Successors.

(a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

(b) Employee’s Successors. Without the written consent of the Company, Employee shall not assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Employee hereunder shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

7. Notices. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by an overnight courier or the U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

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8. Arbitration.

(a) Any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration to be held in Santa Clara County, California in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the “Rules”). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.

(b) The arbitrator(s) shall apply California law to the merits of any dispute or claim, without reference to conflicts of law rules. The arbitration proceedings shall be governed by federal arbitration law and by the Rules, without reference to state arbitration law. Employee hereby consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

(c) Employee understands that nothing in this Section modifies Employee’s at-will employment status. Either Employee or the Company can terminate the employment relationship at any time, with or without Cause or notice.

(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:

(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION.

(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq;

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(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.

9. Miscellaneous Provisions.

(a) Waiver. No provision of this Agreement may be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(b) Integration. This Agreement and any outstanding stock option agreements referenced herein represent the entire agreement and understanding between the parties as to the subject matter herein and supersede all prior or contemporaneous agreements, whether written or oral, with respect to this Agreement and any stock option agreement.

(c) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of California.

(d) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

(e) Employment Taxes. All payments made pursuant to this Agreement shall be subject to withholding of applicable income and employment taxes.

(f) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY:	INTERVIDEO, INC.
	By:
	Name:
	Title:
EMPLOYEE:
	Signature
	Printed Name

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors

InterVideo, Inc.:

We consent to the use of our report dated May 30, 2003 with respect to the consolidated balance sheets of InterVideo, Inc. and subsidiaries (the Company) as of December 31, 2001 and 2002, and the related consolidated statements of operations, redeemable preferred stock, stockholders’ equity and comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31, 2002, included herein and the references to our firm under the heading “Experts” in the prospectus and summary consolidated financial data.

Our report dated May 30, 2003 contains an explanatory paragraph that refers to a restatement of the consolidated financial statements as of December 30, 2001, and for each of the years in the two-year period ended December 31, 2001, which consolidated financial statements were previously audited by other auditors who have ceased operations, and to the Company’s adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002.

/s/    KPMG LLP

Mountain View, California

June 24, 2003

EX-23.2

Exhibit 23.2

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in this Amendment No. 2 to Registration Statement No. 333-102851 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/    Deloitte & Touche

Deloitte & Touche

TN Soong & Co. and Deloitte & Touche (Taiwan) established Deloitte & Touche effective June 1, 2003

Taipei, Taiwan

The Republic of China

June 24, 2003