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Omneon, Inc. (formerly Omneon Video Networks, Inc.) Index to consolidated financial statements

As filed with the Securities and Exchange Commission on June 9, 2008

Registration No. 333-139748

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

OMNEON, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

3572
(Primary standard industrial
code number)

77-0483655
(I.R.S. employer identification no.)

965 Stewart Drive
Sunnyvale, CA 94085-3913
(408) 585-5000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)

Lawrence R. Kaplan
Interim President and Chief Executive Officer
Omneon, Inc.
965 Stewart Drive Sunnyvale, CA 94085-3913
(408) 585-5000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Gordon K. Davidson, Esq.
Mark A. Leahy, Esq.
Jeffrey R. Vetter, Esq.
Fenwick & West LLP
801 California Street
Mountain View, California 94041
(650) 988-8500

Martin A. Wellington, Esq.
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
(650) 752-2000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

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 of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o		Accelerated filer o
Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o

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 thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this 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 we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated June 9, 2008.

Prospectus

shares

Common stock

This is an initial public offering of shares of common stock by Omneon, Inc. Omneon is selling shares of common stock. The estimated initial offering price is between $ and $ per share.

We expect to apply to list our common stock on the NASDAQ Global Market or NYSE Arca under the symbol .


		Per share		Total

Initial public offering price.	$		$
Underwriting discounts and commissions	$		$
Proceeds to Omneon, before expenses	$		$

We have granted the underwriters an option for a period of 30 days to purchase up to additional shares of common stock.

Investing in our common stock involves a high degree of risk. See "Risk factors" beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.


JPMorgan		Deutsche Bank Securities
Sole bookrunner


Canaccord Adams
Needham & Company, LLC
				JMP Securities

, 2008

Table of contents

		Page
Prospectus summary		1
Risk factors		8
Forward-looking statements and industry data		26
Use of proceeds		27
Dividend policy		27
Capitalization		28
Dilution		30
Selected consolidated financial data		32
Management's discussion and analysis of financial condition and results of operations		34
Business		66
Management		82
Principal stockholders		109
Related party transactions		113
Description of capital stock		116
Material U.S. federal tax consequences to non-U.S. holders		121
Shares eligible for future sale		124
Underwriting		126
Legal matters		130
Experts		130
Where you can find more information		130
Index to consolidated financial statements		F-1

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, 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 or our common stock.

No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.

Until , 2008, all dealers that buy, sell or trade in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Prospectus summary

The following summary should be read together with the more detailed information and consolidated financial statements and related notes thereto appearing elsewhere in this prospectus. This summary highlights what we believe is the most important information about us and this offering. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the risk factors and the consolidated financial statements and related notes included in this prospectus. In this prospectus, unless the context otherwise requires, the terms "Omneon," "we," "us" and "our" refer to Omneon, Inc., a Delaware corporation, and its subsidiaries.

Omneon overview

Omneon is a leading provider of digital content storage and processing systems used by media companies to enable efficient production and distribution of high-quality digital video and audio. We develop, market and sell a range of video servers, active storage systems and related software applications that media companies use to simultaneously ingest, process, store, manage and deliver digital media in a wide range of formats. When used for television production and on-air operations, our products provide both continuous real-time record and playback capabilities as well as file-based access to and delivery of digital media content. As the means by which media distribution to consumers rapidly evolves, our systems also provide a platform for media companies to produce more content for delivery to a wider range of devices.

We are a leading provider of broadcast video servers and are actively extending our leadership by addressing new segments of this market and expanding into the complementary digital media storage and content management markets. Our products include Spectrum video servers, MediaGrid active storage systems and MediaTool software applications. Our products were initially designed for, and have been deployed mostly by, broadcasters that use our products for the transmission of television content. We have enhanced our Spectrum products and introduced new products, such as MediaGrid and ProXchange, to address our customers' needs for content storage and production. With our recent acquisition of Castify Holdings Limited, or Castify, in December 2007, we added a product that enables efficient content distribution over wide-area networks. In designing our products, we combine an understanding of workflows, or the processes by which media companies take raw material, such as video footage, and create finished program content, knowledge of information technologies and advanced system design capabilities to provide high-performance, standards-based solutions that are optimized for the large-capacity and high-bandwidth requirements of digital media. Our products are commonly integrated with complementary technologies and applications, and we encourage a broad ecosystem of partners to ensure interoperability with our platforms by supporting industry-standard interface protocols and offering application programming interfaces, or APIs.

Our flexible and scalable products are designed to meet the needs of media companies worldwide, including multi-national media conglomerates, commercial and public broadcast television networks, content networks, satellite broadcasters, television service providers, local television stations and mobile television providers. To date, our systems have been sold to approximately 500 customers in approximately 60 countries. Our customers include system integrators, such as Ascent Media Group and Netorium GmbH, which were our two largest

system integrators by revenues during the period from January 1, 2006 through March 31, 2008, and end users, such as Turner Broadcasting Systems, Inc., a division of Time Warner, British Sky Broadcasting, Technicolor Network Services and Echostar Corporation, which were our four largest end-user customers by revenues during the same period. For 2007 and the three months ended March 31, 2008, we derived approximately 62% and 74%, respectively, of our total revenues from customers outside of the United States, with approximately 42% and 30% of our total revenues for 2007 and the three months ended March 31, 2008, respectively, attributable to customers in Europe, the Middle East and Africa.

Industry overview

The advent of new technologies and distribution platforms is driving fundamental changes in the way video content is produced, programmed, distributed and consumed. Consumers are increasingly demanding broader access to both existing and new forms of content. This content is being distributed to a growing number of platforms, including high-definition, or HD, televisions, personal computers, mobile devices and portable media players. As a result, the need to produce different types of content in multiple formats is growing rapidly. For example, existing content producers, programmers and distributors are transitioning to HD video and surround sound audio, while emerging mobile and online video services need short program clips at lower bit rates. This diversity requires producers to create more content more efficiently. Raw program material must be shared among production teams creating content for different audiences and distribution channels. Content distributors must expand their operations to support a growing number of channels, as well as new formats intended for multiple distribution platforms.

The transformations occurring across the digital content value chain are changing the way production and distribution facilities are designed and operated. Disk-based storage is rapidly replacing tape-based storage to enable simultaneous access to raw content by multiple individuals and production teams. Disk-based storage also better supports the distribution of different content formats and multiple channels. The use of disk-based storage for both production and distribution coincides with the emergence of applications and systems capable of working with file-based media, rather than legacy video tapes. As a result, production and distribution facilities are upgrading their digital content infrastructure to take advantage of file-based workflows.

Our market opportunity

To address the changes in the industry, media companies must invest in solutions that allow them to better integrate their production and distribution workflows, enabling more collaborative production and efficient repurposing of their media assets. Workflow integration with file-based media can translate into significant reductions in labor costs, improved quality and increased flexibility to quickly deploy new revenue-generating services. As a result, media companies are investing in digital content infrastructure that enables them to reliably deploy best-of-breed production and distribution solutions. According to Frost & Sullivan, the worldwide market for video servers is expected to grow from $583 million in 2006 to $1.2 billion in 2010 and the world entertainment digital media storage market is expected to grow from $5.3 billion in 2006 to $8.6 billion in 2010. Total annual new storage capacity needed for the digital content value chain, excluding storage for long-term archiving and

media preservation, is expected to grow from approximately 196 petabytes in 2006 to approximately 496 petabytes in 2010, according to Coughlin Associates.

Our solutions

Omneon solutions allow our customers to deploy a digital content infrastructure that accommodates both real-time video processing and the transfer of files at rates that are faster than the actual playout duration of the content, which is known as faster-than-real-time, for the production and distribution of digital media content. Our Spectrum servers and MediaGrid storage product lines complement each other to support this mixed operating environment. Additionally, our MediaTools applications, including our ProBrowse media proxy system, our ProXchange media transcoding system and our ProCast content distribution platform, enable customers to manage, process and distribute stored content.

Our Spectrum video servers are optimized for high-reliability, real-time applications such as multi-channel broadcast playout. Broad adoption of Spectrum has established us as a leader in the broadcast video server market. Our MediaGrid active storage system is optimized for high-availability file-based content storage and provides high-bandwidth simultaneous multi-user access to content. MediaGrid is also designed to incorporate grid computing, which is the linking together of multiple servers so that applications can share the combined processing power of the servers rather than having processing jobs performed by a single machine, resulting in faster overall performance. This capability can be used to enable integrated digital media processing functions such as format conversion and technical quality control analysis.

Our systems are typically managed and controlled by third-party applications. The combination of our products and these third-party applications is often part of a larger system designed and installed by independent system integrators. To date, over 140 application developers have licensed our APIs to enhance their level of integration with our systems. We encourage and support these developers by offering open, standards-based platforms to provide an integrated solution to our mutual customers.

Our strengths

We have expertise in developing open, scalable and reliable digital content storage and processing systems for media companies. Working closely with our customers, we develop products and technologies optimized for media workflows and enable them to reduce costs and address new revenue opportunities. Our key strengths include:

•: focus and strong reputation in the digital media market;
•: expertise in integrating digital media and information technologies into cost-effective solutions;
•: extensive knowledge of the technical infrastructure required to support complex workflows within a production and distribution facility;
•: development of platforms designed to interoperate with best-of-breed technologies; and
•: strong relationships and a proven ability to collaborate with global media companies.

Our strategy

We seek to become the leading provider of digital content infrastructure to the media industry. The key elements of our strategy are to:

•: continue to expand our leadership in the broadcast video server market;
•: provide active storage solutions to the digital media industry;
•: expand our portfolio of content management and distribution applications;
•: continue to involve customers in strategic product planning;
•: pursue partnerships and complementary acquisitions; and
•: opportunistically expand into new and adjacent markets.

Corporate information

We were incorporated in Delaware in May 1998, and in December 2007, we changed our name from Omneon Video Networks, Inc. to Omneon, Inc. Our principal offices are located at 965 Stewart Drive, Sunnyvale, CA 94085-3913, and our telephone number is (408) 585-5000. Our website address is www.omneon.com. The information contained in or that can be accessed through our website is not part of this prospectus.

Omneon®, Omneon Video Networks®, MediaGrid, Spectrum, MediaPort, MultiPort, MediaDeck, ProBrowse, ProXchange, Castify and the Omneon logo are our trademarks in the U.S. and in other countries. All other trademarks or service marks appearing in this prospectus are trademarks of the respective companies that use them.

The offering

Common stock offered by Omneon		shares
Over-allotment option		shares
Common stock to be outstanding after this offering		shares
Use of proceeds		We intend to use the net proceeds to us from this offering for working capital and general corporate purposes, which may include possible acquisitions of complementary businesses, technologies or other assets.
Proposed NASDAQ Global Market or NYSE Arca symbol

The share amounts listed here are based on shares outstanding as of March 31, 2008. These amounts exclude:

•: 4,917,940 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2008 under our 1998 stock option plan at a weighted average exercise price of $4.32 per share;
•: 118,700 shares of common stock issuable upon exercise of options granted between April 1, 2008 and April 30, 2008 under our 1998 stock option plan at a weighted average exercise price of $9.29 per share;
•: 179,260 shares of common stock reserved for future issuance under our 1998 stock option plan as of April 30, 2008;
•: shares of common stock reserved for future issuance under our 2008 equity incentive plan and 2008 employee stock purchase plan, which we have adopted to become effective upon the completion of this offering and which contain provisions that automatically increase their share reserve each year, as more fully described in "Management—Employee benefit plans;" and
•: 327,296 shares of common stock underlying shares of Series A-6 preferred stock issuable upon exercise of outstanding warrants as of March 31, 2008 at a weighted average exercise price of $1.10 per share, which will automatically be exercised on a net basis upon completion of this offering, unless earlier exercised.

Unless otherwise noted, the information in this prospectus assumes:

•: the conversion of all outstanding shares of convertible preferred stock into an aggregate of 18,605,288 shares of common stock upon the completion of this offering;
•: the adoption of our restated certificate of incorporation and restated bylaws upon the completion of this offering; and
•: no exercise of the underwriters' over-allotment option.

Summary consolidated financial data

The following summary consolidated financial data should be read with our consolidated financial statements and related notes and "Management's discussion and analysis of financial condition and results of operations," all included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for 2005, 2006 and 2007 from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statement of operations data for the three months ended March 31, 2007 and 2008 and the summary consolidated balance sheet data as of March 31, 2008 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial information on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in these statements. Our historical results are not necessarily indicative of the results to be expected in the future.

		Years ended December 31,							Three months ended March 31,

(in thousands, except per share data)		2005		2006		2007			2007			2008

Consolidated statement of operations data:
Total revenues		$	54,112	$	83,526	$	88,265		$	16,561		$	29,242
Total cost of revenues			21,061		33,054		35,276			7,248			11,282

Gross profit			33,051		50,472		52,989			9,313			17,960
Total operating expenses(1)			28,171		42,860		56,725			13,493			18,150

Income (loss) from operations			4,880		7,612		(3,736	)		(4,180	)		(190	)

Income (loss) before cumulative effect of change in accounting principle			4,698		5,542		(2,100	)		(2,857	)		(208	)
Net income (loss)		$	4,141	$	5,542	$	(2,100	)	$	(2,857	)	$	(208	)


Pro forma net loss per share(2):
	Basic and diluted					$	(0.10	)				$	(0.01	)

Shares used to compute pro forma net loss per share(2):
	Basic and diluted						20,347						21,906

(1): Includes stock-based compensation of $932,000, $1.8 million, $354,000 and $856,000 in 2006, 2007 and the three months ended March 31, 2007 and 2008, respectively.
(2): Pro forma basic and diluted net loss per share have been calculated by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period, net of shares subject to repurchase, giving effect to (a) the assumed conversion of all outstanding shares of our preferred stock into an aggregate of 18,605,288 shares of common stock upon the completion of this offering, and (b) the assumed issuance of 327,296 shares of common stock upon the exercise of outstanding warrants to purchase shares of preferred stock and the automatic conversion of these shares of preferred stock into shares of common stock. See Note 1 to our notes to consolidated financial statements for more information on our calculation of pro forma net loss per share.

The consolidated balance sheet data as of March 31, 2008 is presented:

•: on an actual basis;
•: on a pro forma basis to reflect (1) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,605,288 shares of common stock upon the completion of this offering, (2) the reclassification of the convertible preferred stock warrant liability to additional paid-in capital and (3) the issuance of 327,296 shares of common stock upon the exercise of outstanding warrants to purchase shares of preferred stock and the automatic conversion of these shares of preferred stock into shares of common stock; and
•: on a pro forma as adjusted basis to reflect (1) the adjustments described above and (2) the sale by us of shares of common stock at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

March 31, 2008 (in thousands)	Actual			Pro forma		Pro forma as adjusted(1)


Consolidated balance sheet data:
Cash, cash equivalents and short-term investments	$	35,465		$	35,465	$
Working capital		33,095			33,095
Total assets		84,384			84,384
Convertible preferred stock warrant liability		3,026			—
Total convertible preferred stock		61,307			—
Total stockholders' equity (deficit)		(11,759	)		52,574

(1): Each $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, our pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders' equity by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

Risk factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If any of the following risks occur, our business, financial condition or results of operations could be seriously harmed. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks related to our business

We may not be able to achieve or sustain profitability or revenue growth.

After recording net income in 2005 and 2006, we experienced a $2.1 million net loss in 2007 as a result of lower than anticipated revenues and a 32% increase in our operating expenses between 2006 and 2007 as we added headcount in all areas. We also experienced a $208,000 net loss in the three months ended March 31, 2008 and a 35% increase in our operating expenses between the three months ended March 31, 2007 and 2008 primarily due to the increase in headcount. We had an accumulated deficit of $59.1 million as of March 31, 2008. This accumulated deficit is attributable to net losses incurred from our inception in 1998 until 2004, in 2007 and in the three months ended March 31, 2008. We may not succeed in achieving or sustaining profitability or revenue growth and could incur losses in future periods. We expect to incur additional operating expenses associated with being a public company and entering into a new facilities lease, and we intend to continue to increase our operating expenses, including stock-based compensation, in all areas as we grow our business. If our revenues do not increase to offset these expected increases in costs or operating expenses, our operating results would be negatively affected. You should not consider our historic operating results as indicative of future operating results. Accordingly, we cannot assure you that we will be able to achieve or sustain profitability or revenue growth in the future.

Our quarterly operating results have fluctuated in the past and may continue to fluctuate in the future, which could cause our stock price to decline.

Our quarterly results of operations have fluctuated in the past and may continue to fluctuate as a result of a variety of factors, some of which may be outside of our control. If our quarterly results of operations fall below the expectations of securities analysts or investors, the price of our common stock could decline substantially. Fluctuations in our quarterly results of operations may be due to a number of factors, including:

•: the timing and volume of shipments of our products during a particular quarter;
•: the timing and success of new product introductions by us or our competitors;
•: seasonal variations in the demand for our products;
•: changes in demand due to changing industry standards and technologies;
•: the amount and timing of operating costs related to the maintenance and expansion of our business, operations and infrastructure;
•: our ability to control costs, including third-party manufacturing costs and costs of components;

•: changes in our or our competitors' pricing policies or sales terms;
•: our ability to obtain sufficient supplies of components;
•: our ability to maintain sufficient production volumes for our products;
•: volatility in our stock price, which may lead to higher stock compensation expenses pursuant to Statement of Financial Accounting Standards No. 123(R), Share-Based Payments;
•: the timing of costs related to the development or acquisition of technologies or businesses;
•: general economic, industry and market conditions and those conditions specific to the broadcasting and digital media markets;
•: the purchasing and budgeting cycles of our customers; and
•: geopolitical events, such as war, threat of war or terrorist actions.

We believe our business is subject to seasonal fluctuations. In particular, we have historically experienced lower revenues or lower revenue growth rates during the first quarter than in other quarters in the same year and first quarter revenues may be lower than revenues in the fourth quarter of the preceding year. We anticipate that our revenues will continue to be subject to seasonality and therefore our financial results will vary significantly from period to period.

In addition, our revenues in a given quarter are largely dependent upon sales closed in that quarter. Typically, a large percentage of these sales occurs in the last month of the quarter. Because our operating expenses are largely fixed in the short-term, any reported shortfalls in revenues in a given quarter would have a direct and material adverse effect on our operating results in that quarter. We believe that our quarterly revenues and results of operations may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of one quarter as an indication of future performance.

We face intense competition and if we are unable to compete effectively, we may experience decreased sales or pricing pressure, which would negatively impact our future operating results.

The markets for our products are highly competitive. Our Spectrum products compete with products produced by Avid Technology, Inc., Harris Corporation, SeaChange International, Inc. and Thomson S.A. Our MediaGrid product currently competes with products offered by manufacturers of general purpose storage products. We plan to market our MediaGrid product for use in storage applications outside of the broadcast industry. We may face intense competition in these other markets, which may include companies with greater technical and financial resources than us. Many of our competitors have advantages over us, including the following:

•: greater market presence and greater name recognition;
•: substantially greater financial, technical, research and development, sales and marketing, manufacturing, distribution and other resources;
•: substantially larger patent portfolios;

•: longer operating histories;
•: a broader offering of products and services;
•: more established relationships with industry participants, suppliers and other technology companies; and
•: the ability to acquire technologies or consolidate with other companies in the industry to compete more effectively.

Because our competitors have greater financial strength than we do and are able to offer a more diversified bundle of products and services, they may have the ability to significantly undercut our prices, which could make us less competitive or force us to reduce our average selling prices, negatively impacting our margins. In addition to price, we also compete on the basis of feature set, reliability and scalability. Our competitors may also be able to develop products that are superior to our products in these respects. In addition, if demand for our competitors' products increases relative to our products, our competitive position will be impaired and we may not be able to increase our revenues.

As the industry evolves and as we introduce additional products, we expect to encounter additional competitors, including companies in adjacent technology businesses and other emerging companies that may announce video server or storage product offerings. Moreover, our current and potential competitors, including companies with whom we currently have strategic alliances, may establish cooperative relationships among themselves or with other third-parties. If this occurs, new competitors or alliances may emerge that could negatively affect our competitive position and negatively impact our future operating results.

We have significant international operations and derive a large portion of our revenues from international customers, which exposes us to significant risks.

We derived approximately 62% and 74% of our total revenues in 2007 and the three months ended March 31, 2008, respectively, from international customers. We have employees in international locations such as the United Kingdom, France, Singapore, Hong Kong, Russia and Japan. We intend to expand into other geographic areas. The success of our business will depend, in large part, on our ability to continue to operate successfully worldwide and to further expand our international operations and sales. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. We cannot be sure that further international expansion will be successful. In addition, we face risks in doing business internationally that could expose us to reduced demand for our products, lower prices for our products or other adverse effects on our operating results. Among the risks we believe are most likely to affect us are:

•: difficulties and costs associated with staffing and managing foreign operations;
•: longer and more difficult customer qualification and credit checks;
•: greater difficulty collecting accounts receivable and longer payment cycles;
•: our ability to comply with differing technical and environmental standards and certification requirements outside the United States;

•: unexpected changes in regulatory requirements;
•: reduced protection for intellectual property rights in some countries;
•: adverse tax consequences, including additional tax exposure if we are in the future deemed to have established a permanent establishment outside of the United States;
•: compliance with the Foreign Corrupt Practices Act;
•: fluctuations in currency exchange rates, which could increase the price of our products to customers outside of the United States, increase the expenses of our international operations by reducing the purchasing power of the U.S. dollar and expose us to foreign currency exchange rate risk if, in the future, we denominate our international sales in currencies other than the U.S. dollar;
•: our dependence on third-parties to provide international back-office support;
•: new and different sources of competition; and
•: political and economic instability or terrorism.

Our failure to manage any of these risks successfully could harm our international operations and reduce our international revenues.

We use system integrators to sell our products, and our business could be harmed if these parties do not market and support our systems successfully.

We derived approximately 68% and 74% of our total revenues in 2007 and the three months ended March 31, 2008, respectively, from sales through system integrators. Accordingly, we are dependent on these entities to sell our products. These entities can have a substantial influence on purchase decisions by end users. These entities may not promote or market our products effectively, or could experience financial difficulties or even close operations. These entities are generally not contractually obligated to sell or promote our products, and may also offer competitive products. If our competitors were to offer more favorable terms to these entities for sales of their products, sales of our products through these entities could be adversely affected. If these system integrators do not promote our products effectively, or if we lose the services of a key system integrator, we would have to develop additional relationships with other third parties or devote more resources to directly selling our products, either of which could harm our future operating results.

We derive a substantial majority of our revenues from customers in the broadcast industry that use our products for the transmission of television content. If we fail to generate continued revenues from this market or if there is a downturn in this market, our revenues could decline.

We have derived the substantial majority of our historical revenues from customers in the broadcast industry that use our products for the transmission of television content. Our future success depends upon the continued demand for our products from customers in this industry. This industry is cyclical and reactive to geopolitical and general economic conditions. There have in the past been restructurings, consolidations and reorganizations in this industry. These can cause delays and reductions in capital and operating expenditures by broadcasters, which could reduce demand for the type of equipment we sell. In addition, if this industry were to

widely adopt products of our competitors, our revenues and operating results could be adversely affected.

Our future financial performance depends on growth in the markets for video servers and digital content storage systems. If these markets do not continue to grow at the rate that we forecast, our operating results would be materially and adversely impacted.

Our products are designed to address the markets for video servers and digital content storage systems that enable and enhance the ingest, processing, storage, management and delivery of digital media. Our products were initially designed for, and have been deployed mostly by, broadcasters that use our products for the transmission of television content. We have enhanced our Spectrum products and introduced new products, such as MediaGrid, to address our customers' needs for content storage and production. To date, we have not had a material amount of sales to customers for production uses, such as in news, sports and post-production projects. Our future financial performance will depend in large part on growth in these markets and on our ability to adapt to evolving customer requirements. A reduction in demand for video servers and digital content storage systems, particularly for the applications we are targeting, caused by lack of customer acceptance, weakening economic conditions, competing technologies and products, decreases in corporate spending or otherwise would result in decreased revenues or a lower revenue growth rate.

We depend on sales of our Spectrum video server products. If market demand for these products does not continue, our future operating results could be harmed.

We have derived a substantial majority of our historical revenues from sales of our Spectrum video server products. Because of the relatively modest amount of revenue derived from our MediaGrid product to date, we expect that we will continue to be dependent on Spectrum products for a substantial portion of our future revenues. If our Spectrum products are unable to remain competitive, or if we experience pricing pressure or reduced demand for these products, our future revenues and business would be harmed.

We have not yet derived a material amount of revenues from sales of our MediaGrid product and if this product is not accepted, our future operating results could be harmed.

As part of our strategy to expand our products for applications outside of the transmission of digital video content, we introduced our MediaGrid storage product in April 2006. This product is an important element of our efforts to target storage markets outside the broadcast industry. We began deriving revenues from sales of this product for storage applications during the third quarter of 2006, and to date, sales of MediaGrid have not represented a substantial portion of our total revenues. We have invested, and expect to continue to invest, substantial resources in our MediaGrid product. We cannot assure you that this product will become widely accepted within or outside the broadcast industry or that we will be able to derive substantial revenues from the sale of this product. If this product is not accepted, our future revenue growth could be negatively affected, which would harm our future operating results and future profitability. Even if we are successful in selling MediaGrid to customers outside the broadcast industry, pricing and cost structures in these other markets may be different, and our future gross margins could be adversely affected.

Our sales cycle can be lengthy and unpredictable, which may make it difficult to predict sales in any particular quarter.

The sales cycle for our products can be lengthy, in some cases over 12 months. In addition, we may expend significant resources during the sales cycle and ultimately fail to produce a sale. The success of our product sales process is subject to many factors, some of which we have little or no control over, including:

•: the timing of our end customers' budget cycles and approval processes;
•: customers' or system integrators' willingness to use our products as part of a larger system implementation;
•: our ability to introduce new products, features or functionality in a timely manner;
•: the announcement or introduction of competing products; and
•: established relationships between our competitors and our potential customers.

We expend substantial time, effort and money educating our current and prospective customers as to the value of our products. If we are unsuccessful in closing sales after expending significant resources, our revenues and operating results will be adversely affected.

Our business may be harmed if our contract manufacturers are not able to provide us with adequate supplies of our products.

We outsource the manufacturing of our products. We also rely on third parties to perform quality control testing of our products before they are shipped to customers. We submit purchase orders to these manufacturers that describe, among other things, the type and quantities of our products to be manufactured by the applicable manufacturer and the delivery date and other delivery terms applicable to the products. We do not have other written agreements with these manufacturers. We currently rely on Paramit and Xyratex to manufacture our Spectrum product and Bell Microproducts to manufacture our MediaGrid product. Although we have evaluated the manufacture of our products with these third-party manufacturers and assessed that there are no sole sourced processes, technologies, materials or intellectual property that preclude transfer to alternate third-party manufacturers, we have not qualified alternative manufacturers. Our reliance on outside manufacturers involves a number of potential risks, including the absence of adequate capacity, the unavailability of, or interruptions in access to, necessary manufacturing processes and reduced control over delivery schedules. In addition, our manufacturers do not have any written contractual obligation to accept any purchase order that we submit for the manufacture of any of our products nor do we have any assurance that our manufacturers will agree to manufacture and supply any or all of our requirements for our products. Even if our manufacturers accept and fulfill our orders, it is possible that the products may not meet our specifications. Because we rely on contract manufacturers for the final assembly and quality assurance of our products, there is a chance these products may contain defects or otherwise not meet our quality standards, which could result in warranty claims that could adversely affect our operating results and future sales.

If our manufacturers are unable or unwilling to continue manufacturing our products in required volumes in a timely manner and at a reasonable price or fail to meet our quality specifications, or if they significantly increase their prices, we will have to identify one or more acceptable alternative manufacturers. The process of identifying and qualifying a new

manufacturer can be time consuming. Additionally, transitioning to new manufacturers may cause delays in supply if the new manufacturers have difficulty manufacturing products to our specifications or quality standards.

If we experience delays, shortages or quality issues from our component suppliers, or if our suppliers cease producing key components, our product sales could suffer.

We or our contract manufacturers purchase several key components used in the manufacture of our products from limited or, in some cases, single sources. For example, we rely on Intel as the sole source of microprocessors used in our products. We do not have written agreements with any of these suppliers to guarantee the supply of key components used in our products. Accordingly, we cannot be certain or provide any assurance that we will have at all times a sufficient supply of these key components to meet our needs. If any of these limited or single source component suppliers experience capacity constraints, work stoppages, financial difficulties or other reductions or disruptions in output, they may not be able to meet, or may choose not to meet, our delivery schedules. Also, our component suppliers may:

•: provide us with components that do not meet our quality or performance specifications;
•: stop selling their products or components to us at commercially reasonable prices;
•: cease manufacturing components that are critical to our products;
•: refuse to sell their products or components to us at any price; or
•: be unable to obtain or have difficulty obtaining components for our products from their suppliers.

If the supply of any key component is disrupted, we may be unable to deliver our products to our customers on a timely basis, which could result in lost or delayed revenues, injury to our reputation, increased manufacturing costs or exposure to claims by our customers. Even if alternate suppliers are available, we may have difficulty identifying them in a timely manner, incur significant additional expense in changing suppliers and experience difficulties or delays in the manufacturing of our products. In addition, we must successfully manage the supply of components to our contract manufacturers. Any failure by us to effectively manage our supply chain could adversely affect our supply of finished goods and our ability to fulfill customer demand. We may also be required to expend significant resources to perform "last time" buys of components that have been discontinued by our suppliers. Such buys could significantly increase our inventory and potentially result in future charges related to excess and obsolete inventory and require us to redesign or re-engineer our products, which could be costly and time-consuming.

The average selling price of our products may decrease, which could negatively impact our operating results.

It is possible that the average selling prices of our products will decrease in the future in response to competitive pricing pressures, new product introductions by us or our competitors or other factors. If the average selling prices of our products decline and we are unable to respond in a timely manner by developing and introducing new products and continually reducing our product costs, our revenues and gross margin may decline, which will harm our business and results of operations.

Our end users require a high degree of product reliability. If we are unable to provide high quality products, our relationships with system integrators and end users could be harmed.

Because our end users rely on our products for applications that are critical to their business, any failure to provide high quality and reliable products and services, whether caused by our own failure or failures by our contract manufacturers or suppliers, could damage our reputation and reduce demand for our products. In addition, delays in our ability to fill product orders as a result of quality control issues, such as an increase in failure rates or warranty claims, could negatively affect our relationships with system integrators and end users and harm our revenues, operating results and growth.

If we fail to develop and introduce new products or enhancements to existing products in a timely manner, or if we fail to manage product transitions, we could experience decreased revenues in the future.

Our future growth depends on our ability to develop and introduce new products successfully. Due to the complexity of the type of products we produce, there are significant technical risks that may affect our ability to introduce new products successfully. If we are unable to develop and introduce new products and enhancements to our existing products in a timely manner or in response to changing market conditions or customer requirements, or if these products do not achieve market acceptance, our operating results could be materially and adversely affected.

In addition, components used in our existing products periodically reach end of life which results in our having to change our product designs. We are also periodically required to redesign some of our products in order to remain competitive because of increased functionality or higher performance afforded by new components. If these redesigns are not timely, or if they result in unexpected issues related to quality or performance, sales of these products could be adversely affected.

Product introductions by us may also reduce demand for our existing products. As new or enhanced products are introduced, we must successfully manage the transition from older products, avoid excessive levels of older product inventories and ensure that sufficient supplies of new products can be delivered to meet customer demand. Our failure to do so could adversely affect our operating results.

If we fail to respond to technological changes and evolving industry standards, our products could become obsolete or less competitive in the future.

Our products must respond to technological changes and evolving industry standards. If we are unable to develop enhancements to, and new features for, our existing products or acceptable new products that keep pace with technological developments or industry standards, our products may become obsolete, less marketable and less competitive and our business will be harmed.

Our collaboration with Sony may not result in significantly increased revenues.

In November 2007, we entered into a collaboration agreement with Sony to develop server products. We have started and expect to continue to devote significant resources to this collaboration. Developing and introducing new products is a lengthy process, and therefore, we may not achieve significant revenues from this collaboration in the near future. Sony has

no obligation to develop any specific product with us by any specific time, and is not obligated to promote or sell any products that are developed under this collaboration. In addition, Sony is not prohibited from promoting and selling competitive products of its own or those of our competitors. If we are unable to successfully develop products in this collaboration, or if any products we do develop fail to achieve market acceptance, our future operating results and financial condition could be adversely affected.

If our products do not interoperate with other systems, installations could be delayed or cancelled.

Our products generally must interface with additional end-user equipment, applications or systems, each of which may have different specifications. A lack of interoperability may result in significant support and repair costs and harm relations with our end users. If our products do not interoperate with end-user systems or applications, installations could be delayed or new orders could be cancelled, which would result in loss of revenues that could significantly impair our business and operating results.

Our products are highly complex and may contain undetected software or hardware errors, which could harm our reputation and future product sales.

Our products are highly complex and, when deployed, are critical to our end users' business operations. Our products have in the past contained, and may in the future contain, undetected errors, defects or security vulnerabilities. Some errors in our products may only be discovered after a product has been installed and deployed. For example, in late 2004, we experienced increased failure rates with respect to a third-party component contained in some of our products, but these issues were resolved under the third party's warranty. Any errors, defects or security vulnerabilities discovered in our products after commercial release could result in loss of revenues, loss of customers and increased service and warranty costs, any of which could adversely affect our business. In addition, we could face claims for product liability, tort or breach of warranty. Our purchase orders contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management's attention and adversely affect the market's perception of us and our products. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely affected.

Our future success depends on our ability to attract and retain key personnel, and our failure to do so could harm our ability to grow our business.

Our future success will depend on our ability to attract and retain our key personnel, namely our management team and experienced sales and engineering personnel. We must also attract, assimilate and retain other highly qualified employees, including technology, marketing and support personnel. There is substantial competition for highly skilled employees. Our management and key employees are not bound by agreements that could prevent them from terminating their employment at any time. If we fail to attract and retain key employees, our ability to grow our business could be harmed.

If we fail to manage our growth effectively, our business could be harmed.

We have experienced rapid growth, which has placed, and will continue to place, a significant strain on our management, administrative, operational and financial infrastructure. Our success

will depend in part upon the ability of our senior management to manage this growth effectively. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. If we fail to successfully manage our growth, we will be unable to execute our business plan and our business could be harmed.

Our use of open source software and other third-party technology and intellectual property could impose limitations on our ability to market our products.

We incorporate open source software into our products. Although we monitor our use of open source closely, the terms of many open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to market our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to disclose and offer royalty-free licenses in connection with our own source code, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our business.

We also incorporate certain third-party technologies, including software programs and patented standards, such as MPEG-2, into our products and may need to utilize additional third-party technologies in the future. However, licenses to relevant third-party technology may not continue to be available to us on commercially reasonable terms, or at all. Therefore, we could face delays in product releases until equivalent technology can be identified, licensed or developed, and integrated into our current products. These delays, if they occur, could materially adversely affect our business.

Failure to protect our intellectual property could substantially harm our business.

Our success and ability to compete are substantially dependent upon our intellectual property. We rely on patent, trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, strategic partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. We currently have 13 issued patents and 14 patent applications in the United States. We also have one issued patent and 15 patent applications in foreign countries based on our issued patents and patent applications in the United States. We cannot assure you that any additional patents will be issued. Even if patents are issued, they may not adequately protect our intellectual property rights or our products against competitors, and third parties may challenge the scope, validity and/or enforceability of our issued patents. In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us.

We intend to enforce our intellectual property rights vigorously, and from time to time we may initiate claims against third parties that we believe are infringing our intellectual property rights if we are unable to resolve matters satisfactorily through negotiation. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Our failure to secure, protect and enforce our intellectual property rights could seriously harm our business.

If a third party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm our business.

Third parties have in the past sent us correspondence regarding their intellectual property and in the future we may receive claims that our products infringe or violate their intellectual property rights. For example, in May 2004, we received a letter from Leitch Technology Corporation to the effect that some of the functionality of our Spectrum product fell within the subject matter of three U.S. Patents owned by it. In June 2004, we responded to this letter, stating our belief that the scope of the patents held by Leitch did not extend to our products. Leitch responded in January and April 2005, alleging that it believed it was likely that our products use the subject matter of the three patents. We responded in May 2005, noting that after reviewing the three patents, we continued to believe that none of our products infringe the patents in question. In December 2005, we received a letter from Harris Corporation, which acquired Leitch, alleging that our Spectrum media server product infringes one of the three patents originally referenced by Leitch. In November 2006, we received a letter from Harris reiterating its allegation that our Spectrum product infringes this patent. After reviewing these claims on numerous occasions with our internal technical personnel and with the assistance of outside patent counsel, we continue to believe that our product does not infringe these patents. Further, we believe that at least some claims of the patent are invalid on the basis that prior art discloses or suggests the subject matter of the patent claims. However, we cannot assure you that Harris will not initiate a lawsuit against us. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages and prevent us from selling our products. Even if we were to prevail, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. We may also be obligated to indemnify our customers or business partners in connection with any such litigation, which could further exhaust our resources. Furthermore, as a result of an intellectual property challenge, we may be required to enter into royalty, license or other agreements. We may not be able to obtain these agreements at all or on terms acceptable to us. Litigation over patent rights and other intellectual property rights is not uncommon with respect to digital media technologies and network storage technologies, and sometimes involves patent holding companies or other adverse patent owners who have no relevant product revenues and against whom our own patents may provide little or no deterrence.

We are subject to governmental export controls that could subject us to liability or adversely affect our ability to sell our products in international markets.

Our products are subject to U.S. export controls and may be exported outside the U.S. only with the required level of export license or through an export license exception, because we incorporate encryption technology into our products. Various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute our products or could limit our customers' ability to deploy our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by

such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Failure to comply with these and similar laws on a timely basis, or at all, could have a material adverse effect on our business, operating results and financial condition. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business.

We are subject to environmental and other health and safety regulations that may increase our costs of operations or limit our activities.

We are subject to environmental and other health and safety regulations relating to matters such as reductions in the use of harmful substances, the use of lead-free soldering and the recycling of products and packaging materials. The European Parliament and the Council of the European Union have published directives on waste electrical and electronic equipment and on the restriction of the use of certain hazardous substances in electrical and electronic equipment. These directives generally require electronics producers to bear the cost of collection, treatment, recovery and safe disposal of past and future products from end users and to ensure that new electrical and electronic equipment does not contain specified hazardous substances. Other countries, such as the Republic of Korea and China, are also in the process of adopting similar legislation. The cost of complying with these directives may be substantial and may divert resources, which could detract from our ability to develop new products or operate our business. We may not be able to comply in all cases with applicable environmental and other regulations, and if we do not, we may incur remediation costs or we may not be able to offer our products for sale in certain countries, which could adversely affect our results.

We may expand through acquisitions of, or investments in, other companies, each of which may divert our management's attention, result in additional dilution to stockholders or use resources that are necessary to operate other parts of our business.

As part of our business strategy, we may seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our products, enhance our technical capabilities or otherwise offer growth opportunities. For example, we acquired Castify in December 2007. Acquisitions could create risks for us, including:

•: difficulties in assimilating acquired personnel, operations and technologies;
•: unanticipated costs or liabilities associated with the acquisition;
•: incurrence of acquisition-related costs;
•: diversion of management's attention from other business concerns;
•: use of resources that are needed in other parts of our business; and
•: use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. If our acquisitions do not yield expected returns, we may be required to take charges to our earnings based on this impairment assessment process, which could harm our results of operations.

We may be unable to complete future acquisitions at all or on commercially reasonable terms, which could limit our future growth. Acquisitions could also result in dilutive issuances of

equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results may suffer.

The issuance of new accounting standards or future interpretations of existing accounting standards could adversely affect our operating results.

We prepare our financial statements to conform to accounting principles generally accepted in the United States. A change in those principles could have a significant effect on our reported results and might affect our reporting of transactions completed before a change is announced. Generally accepted accounting principles in the United States are issued by and are subject to interpretation by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, or AICPA, the Securities and Exchange Commission, or SEC, and various other bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. The AICPA continues to issue interpretations and guidance for applying the relevant accounting standards to a wide range of sales practices and business arrangements. The issuance of new accounting standards or future interpretations of existing accounting standards, or changes in our business practices could result in future changes in our revenue recognition or other accounting policies that could have a material adverse effect on our results of operations.

Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management's attention or affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the rules and regulations of The NASDAQ Stock Market or The New York Stock Exchange. We expect these rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly. The Sarbanes-Oxley Act will require, among other things, that we maintain disclosure controls and procedures and internal control over financial reporting. This can be difficult to do. In order to maintain and improve our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight will be required. As a result, management's attention may be diverted from other business concerns, which could harm our business, financial condition and results of operations. These efforts will also involve substantial accounting related costs. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The NASDAQ Global Market or NYSE Arca.

Under the Sarbanes-Oxley Act and the rules and regulations of The NASDAQ Stock Market and The New York Stock Exchange, we are required to maintain a board of directors with a majority of independent directors. As a public company, we may have difficulty recruiting and retaining qualified directors, especially those directors who may be considered independent for purposes of the rules of The NASDAQ Stock Market and The New York Stock Exchange.

We might require additional capital to support business operations, and this capital might not be available on acceptable terms, or at all.

If our cash and cash equivalents balances and any cash generated from operations and from this offering are not sufficient to meet our cash requirements, we will need to seek additional capital, potentially through debt or equity financings, to fund our operations. We cannot assure you that we will be able to raise the needed cash on terms acceptable to us or at all. Financings, if available, may be on terms that are dilutive or potentially dilutive to our stockholders, and the prices at which new investors would be willing to purchase our securities may be lower than the initial public offering price. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of common stock. In addition, if we were to raise cash through a debt financing, such debt may impose conditions or restrictions on our operations, which could adversely affect our business. Recently, the United States debt markets have experienced extreme turbulence. As a result, many companies have found it difficult or impossible to raise debt on acceptable terms. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our operating plans to the extent of available funding, which would harm our ability to grow our business.

Our principal offices and the facilities of our third-party manufacturers are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could damage our facilities or the facilities of our third-party manufacturers, which could cause us to curtail our operations.

Our principal offices and the facilities of our third-party manufacturers are located in California near known earthquake fault zones and, therefore, are vulnerable to damage from earthquakes. We are also vulnerable to damage from other types of disasters, such as power loss, fire, floods and similar events. If any disaster were to occur, our ability to operate our business could be seriously impaired. In addition, we may not have adequate insurance to cover our losses resulting from disasters or other similar significant business interruptions. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.

Risks related to this offering

There has been no prior market for our common stock, our stock price may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us. The initial public offering price may vary from the market price of our common stock following this offering. If you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In addition, the market price of our common stock may fluctuate significantly in response to numerous factors, many of which we cannot control, including:

•: price and volume fluctuations in the overall stock market;

•: changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
•: actual or anticipated fluctuations in our operating results;
•: changes in financial estimates by any securities analysts who follow our company, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our stock;
•: ratings downgrades by securities analysts, if any, who follow our company;
•: the public's response to our press releases or other public announcements, including our filings with the SEC;
•: announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments;
•: introduction of technologies or product enhancements that reduce the need for our products;
•: market conditions or trends in our industry or the economy as a whole;
•: additions or departures of key personnel;
•: lawsuits threatened or filed against us;
•: future sales of our common stock by our executive officers, directors and significant stockholders; and
•: other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies.

Purchasers in this offering will suffer immediate dilution.

If you purchase shares of our common stock in this offering, you will experience dilution of $ per share in the tangible book value of our common stock from the initial public offering price, based on the number of shares outstanding as of March 31, 2008 and assuming an initial public offering price of $ per share. This is due in large part to earlier investors in our company having paid less than the assumed initial public offering price when they purchased their shares. In addition, the exercise of currently outstanding options and warrants to purchase common stock and future equity issuances, including future public or private securities offerings and any additional shares issued in connection with acquisitions, will result in further dilution. Investors purchasing shares of common stock in this offering will contribute approximately % of the total amount we have raised since our inception, but will own only approximately % of our total common stock immediately following the completion of this offering.

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. If there are substantial sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock or if there is a large number of shares of our common stock available for sale. After this offering, we will have outstanding shares of our common stock, or shares if the underwriters exercise their over-allotment option in full, based on the number of shares outstanding as of April 30, 2008. This includes the shares that we are selling in this offering, which may be resold in the public market immediately. The remaining shares, or % of our outstanding shares after this offering are restricted as a result of market standoff and/or lock-up agreements but will be able to be sold in the near future as set forth below:

Number of shares and % of total outstanding		Date available for sale into public market


shares, or %		180 days after the date of this prospectus upon the expiration of the lock-up period, subject in some cases to the provisions of Rule 144 under the Securities Act of 1933.
shares, or %		Various dates thereafter upon the lapse of our right of repurchase with respect to unvested shares.

After this offering, the holders of an aggregate of shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register the issuance of all shares of common stock that we have issued and may issue under our employee equity incentive plans. Effective upon the completion of this offering, an aggregate of shares of our common stock will be reserved for issuance under these plans, and the share reserves under our 2008 equity incentive plan and our 2008 employee stock purchase plan will also be subject to annual increases in accordance with the terms of these plans. Once we register the issuance of these shares, they can be freely sold in the public market upon issuance, subject to certain lock-up agreements.

The market price of the shares of our common stock could decline due to sales of a substantial number of our shares in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

Our directors, executive officers and principal stockholders will continue to have substantial control over Omneon after this offering and could act in a manner with which other stockholders may disagree or that is not necessarily in the interests of other stockholders.

After this offering, based upon beneficial ownership as of April 30, 2008, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, approximately % of our outstanding common stock. As a result, these stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the ability to control the management and affairs of our company. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests. The concentration of ownership could delay or prevent a change in control of our company or otherwise discourage a potential acquirer from attempting to obtain control of our company, which in turn could reduce the price of our common stock. In addition, these stockholders, some of whom have representatives sitting on our board of directors, could use their voting influence to maintain our existing management and directors in office, delay or prevent changes of control of our company, or support or reject other management and board proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We intend to use the net proceeds of this offering for working capital and general corporate purposes. However, we cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering, nor have we performed studies or had preliminary discussions with respect to the best use of the capital resources resulting from this offering. As such, our management will have broad discretion in the application of the net proceeds, including working capital, capital expenditures, possible acquisitions and other general corporate purposes. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Some provisions in our certificate of incorporation and bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our management.

Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors, including the following:

•: only our chairman, our chief executive officer, our president or a majority of our board of directors is authorized to call a special meeting of stockholders;
•: our stockholders may take action only at a meeting of stockholders and not by written consent;

•: vacancies on our board of directors may be filled only by our board of directors and not by stockholders;
•: our certificate of incorporation authorizes undesignated preferred stock, or "blank check" preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; and
•: advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.

These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits "business combinations" between a Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. There are many large, well-established publicly traded companies active in our industry and market, which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

Forward-looking statements and industry data

This prospectus contains forward-looking statements that are based on our management's beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the sections entitled "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and "Business." Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "should," "will," "would" or similar expressions and the negatives of those statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in "Risk factors." Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

This prospectus also contains estimates and other information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications, surveys and forecasts generated by Coughlin Associates and Frost & Sullivan. These publications typically indicate that they have obtained their information from sources they believe to be reliable, but do not guarantee the accuracy and completeness of their information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk factors." These and other factors could cause results to differ materially from those expressed in these publications, surveys and forecasts.

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $ million (or $ million if the underwriters' overallotment option is exercised in full), based upon an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

The principal purposes of this offering are to obtain additional working capital, to create a public market for our common stock and to facilitate our future access to the public equity markets.

We may use a portion of the net proceeds to expand our sales and marketing activities and our international operations and fund the additional costs we will incur as a public company. We also may use a portion of the net proceeds for possible acquisitions of complementary businesses, technologies or other assets. We currently have no specific plans for the use of the net proceeds to us from this offering and we have no ongoing negotiations or current agreements or commitments with respect to any material acquisitions.

We cannot specify with certainty the particular uses of the net proceeds that we will receive, nor have we performed studies or made preliminary decisions with respect to the best use of the capital resources resulting from this offering. Accordingly, our management will have broad discretion in the application of the net proceeds to us, and investors will be relying on the judgment of our management regarding the application of these proceeds.

Pending their use, we plan to invest the net proceeds to us in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

Dividend policy

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.

Capitalization

The following table sets forth our cash, cash equivalents and capitalization as of March 31, 2008:

•: on an actual basis;
•: on a pro forma basis to reflect (1) the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon the completion of this offering, (2) the reclassification of the convertible preferred stock warrant liability to additional paid-in capital and (3) the issuance of 327,296 shares of common stock upon the exercise of outstanding warrants to purchase shares of preferred stock and the automatic conversion of these shares of preferred stock into shares of common stock; and
•: on a pro forma as adjusted basis to reflect the adjustments described above and (1) the sale by us of shares of common stock at the assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (2) the filing of our restated certificate of incorporation to authorize 200,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock.

You should read this table together with our consolidated financial statements and notes thereto and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus.

March 31, 2008 (in thousands, except per share data)				Actual			Pro forma			Pro forma as adjusted(1)


Cash, cash equivalents and short-term investments				$	35,465		$	35,465		$


Convertible preferred stock warrant liability				$	3,026		$	—		$	—

Convertible preferred stock: $0.001 par value per share; 18,998 shares authorized, 18,605 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted					61,307			—			—

Stockholders' equity (deficit):
	Preferred stock: $0.001 par value per share; no shares authorized, issued and outstanding, actual and pro forma; 5,000 shares authorized, no shares issued and outstanding, pro forma as adjusted				—			—			—
	Common stock: $0.001 par value per share; 38,500 shares authorized, 3,007 shares issued and outstanding, actual; 38,500 shares authorized, 21,940 shares issued and outstanding, pro forma; 200,000 shares authorized, shares issued and outstanding, pro forma as adjusted				3			22
	Additional paid-in capital				47,739			112,053
	Deferred stock-based compensation				(412	)		(412	)		(412	)
	Accumulated deficit				(59,085	)		(59,085	)		(59,085	)
	Accumulated other comprehensive loss				(4	)		(4	)		(4	)

		Total stockholders' equity (deficit)			(11,759	)		52,574

			Total capitalization	$	52,574		$	52,574		$

(1): Each $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, the amount of cash and cash equivalents, additional paid-in capital, total stockholders' equity (deficit) and total capitalization by approximately $ million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

The number of shares of common stock outstanding as of March 31, 2008 on the table above does not reflect:

•: 4,917,940 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2008 under our 1998 stock option plan at a weighted average exercise price of $4.32 per share;
•: 118,700 shares of common stock issuable upon exercise of options granted between April 1, 2008 and April 30, 2008 under our 1998 stock option plan at a weighted average exercise price of $9.29 per share;
•: 179,260 shares of common stock reserved for future issuance under our 1998 stock option plan as of April 30, 2008;
•: shares of common stock reserved for future issuance under our 2008 equity incentive plan and 2008 employee stock purchase plan, which we have adopted to become effective upon the completion of this offering and which contain provisions that automatically increase their share reserve each year, as more fully described in "Management—Employee benefit plans;"
•: on an actual basis, 327,296 shares of common stock underlying Series A-6 preferred stock issuable upon exercise of outstanding warrants as of March 31, 2008 at a weighted average exercise price of $1.10 per share; and
•: 23,090 shares of our common stock that are issued and outstanding but that were subject to a right of repurchase by us as of March 31, 2008 and therefore not included in stockholders' equity (deficit) pursuant to U.S. generally accepted accounting principles.

Dilution

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Pro forma net tangible book value per share is determined by dividing the number of shares of common stock outstanding, after giving effect to (1) the conversion of all outstanding shares of preferred stock into 18,605,288 shares of common stock in this offering and (2) the issuance of 327,296 shares of common stock upon the exercise of outstanding warrants to purchase shares of preferred stock and the automatic conversion of these shares of preferred stock into shares of common stock, as of March 31, 2008, into our total tangible assets (total assets less intangible assets) less total liabilities. Our pro forma net tangible book value as of March 31, 2008, would have been approximately $ million, or approximately $ per share.

After giving effect to the sale of common stock offered by us in this offering at an assumed initial public offering price of $ per share, net of estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2008 would have been approximately $ million, or approximately $ per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders, and an immediate dilution of $ per share to investors participating in this offering. The following table illustrates this per share dilution:


Assumed initial public offering price per share		$
Pro forma net tangible book value per share as of March 31, 2008	$
Increase in pro forma net tangible book value per share attributable to new investors

Pro forma as adjusted net tangible book value per share after this offering

Dilution per share to new investors		$

A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, our pro forma as adjusted net tangible book value as of March 31, 2008 by approximately $ million, the pro forma as adjusted net tangible book value per share after this offering by $ and the dilution in pro forma as adjusted net tangible book value to new investors in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

The following table summarizes, on a pro forma as adjusted basis as of March 31, 2008, the differences between the number of shares of common stock purchased from us, the total consideration and the average price per share paid to us by existing stockholders and by investors participating in this offering, before deducting estimated underwriting discounts and

commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $ per share:

	Shares purchased			Total consideration

	Shares purchased			Total consideration			Average price per share
	Number	Percent		Amount	Percent		Average price per share

Existing stockholders before this offering			%	$		%	$
Investors participating in this offering							$

Total		100	%	$	100	%

A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease, as applicable, total consideration paid to us by investors participating in this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

The discussion and tables above assume no exercise of the underwriters' over-allotment option or any outstanding options. If the underwriters' over-allotment option is exercised in full, the number of shares of common stock held by investors participating in this offering will be increased to , or % of the total number of shares of common stock to be outstanding after this offering, and the percentage of the total shares outstanding held by existing stockholders will be reduced to % of the total number of shares of common stock to be outstanding after this offering.

The number of shares outstanding as of March 31, 2008 excludes:

•: 4,917,940 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2008 under our 1998 stock option plan at a weighted average exercise price of $4.32 per share;
•: 118,700 shares of common stock issuable upon exercise of options granted between April 1, 2008 and April 30, 2008 under our 1998 stock option plan at a weighted average exercise price of $9.29 per share;
•: 179,260 shares of common stock reserved for future issuance under our 1998 stock option plan as of April 30, 2008;
•: shares of common stock reserved for future issuance under our 2008 equity incentive plan and 2008 employee stock purchase plan, which we have adopted to become effective upon the completion of this offering and which contain provisions that automatically increase their share reserve each year, as more fully described in "Management—Employee benefit plans."

To the extent that any options are exercised, new options or shares of common stock are issued under our 2008 equity incentive plan or our 2008 employee stock purchase plan or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

Selected consolidated financial data

The following selected consolidated financial data should be read together with our consolidated financial statements and notes and "Management's discussion and analysis of financial condition and results of operations" appearing elsewhere in this prospectus. The selected consolidated statement of operations data for 2005, 2006 and 2007 and the selected consolidated balance sheet data as of December 31, 2006 and 2007 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 2003, 2004 and 2005 and the selected consolidated statements of operations data for 2003 and 2004 are derived from our audited consolidated financial statements, which are not included in this prospectus. The selected consolidated statement of operations data for the three months ended March 31, 2007 and 2008 and the selected consolidated balance sheet data as of March 31, 2008 have been derived from our unaudited consolidated financial statements, which are included elsewhere in this prospectus. We have prepared the unaudited consolidated financial information on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in these statements. The pro forma basic and diluted net loss per share data are unaudited and give effect to the conversion into common stock of all outstanding shares of our preferred stock for the periods indicated.

		Years ended December 31,															Three months ended March 31,

(in thousands, except per share data)		2003			2004			2005			2006			2007			2007			2008

Consolidated statement of operations data:
Revenues:
	Product revenues	$	12,216		$	30,528		$	51,358		$	78,688		$	81,859		$	15,281		$	27,388
	Service revenues		218			900			2,754			4,838			6,406			1,280			1,854

Total revenues			12,434			31,428			54,112			83,526			88,265			16,561			29,242
Cost of revenues:
	Cost of product revenues(1)		6,457			12,240			19,064			28,307			29,231			5,759			9,505
	Cost of service revenues(1)		53			905			1,997			4,747			6,045			1,489			1,777

Total cost of revenues			6,510			13,145			21,061			33,054			35,276			7,248			11,282

Gross profit			5,924			18,283			33,051			50,472			52,989			9,313			17,960
Operating expenses:
	Research and development(1)		4,935			6,385			9,756			17,265			22,733			5,591			7,233
	Sales and marketing(1)		6,435			10,123			15,427			20,414			26,733			6,119			8,232
	General and administrative(1)		1,602			1,795			2,988			5,181			7,259			1,783			2,685

Total operating expenses			12,972			18,303			28,171			42,860			56,725			13,493			18,150

Income (loss) from operations			(7,048	)		(20	)		4,880			7,612			(3,736	)		(4,180	)		(190	)
Interest and other income (expense), net:
	Interest income and other		59			94			282			668			773			213			171
	Foreign currency losses		(14	)		(47	)		(64	)		(43	)		(162	)		(33	)		(40	)
	Accretion of preferred stock warrant liability		—			—			(157	)		(3,597	)		(375	)		(674	)		81
	Loss on disposal of asset		(18	)		—			—			—			—			—			—

Total interest and other income (expense), net			27			47			61			(2,972	)		236			(494	)		212

Income (loss) before income taxes and cumulative effect of change in accounting principle			(7,021	)		27			4,941			4,640			(3,500	)		(4,674	)		22
Income tax (benefit) provision			—			—			243			(902	)		(1,400	)		(1,817	)		230

Income (loss) before cumulative effect of change in accounting principle			(7,021	)		27			4,698			5,542			(2,100	)		(2,857	)		(208	)
Cumulative effect of change in accounting principle			—			—			(557	)		—			—			—			—

Net income (loss)		$	(7,021	)	$	27		$	4,141		$	5,542		$	(2,100	)	$	(2,857	)	$	(208	)

		Years ended December 31,											Three months ended March 31,

(in thousands, except per share data)		2003			2004	2005		2006		2007			2007			2008

Net income (loss) per share allocable to common stockholders(2):
	Basic	$	(22.94	)	—	$	0.07	$	0.31	$	(0.83	)	$	(1.22	)	$	(0.07	)
	Diluted		(22.94	)	—		0.01		0.13		(0.83	)		(1.22	)		(0.07	)
Shares used to compute net income (loss) per share(2):
	Basic		306		314		560		2,163		2,524			2,341			2,974
	Diluted		306		2,333		3,585		5,059		2,524			2,341			2,974
Pro forma net loss per share(3):
	Basic and diluted									$	(0.10	)				$	(0.01	)
Shares used to compute pro forma net loss per share(3):
	Basic and diluted										20,347						21,906

(1): Includes stock-based compensation as follows (in thousands):

Total cost of revenues	—	—	—	$	145	$	228	$	24	$	37
Research and development	—	—	—		344		587		123		287
Sales and marketing	—	—	—		293		644		107		284
General and administrative	—	—	—		150		369		70		210

Total stock-based compensation	—	—	—	$	932	$	1,828	$	354	$	856

(2): Net income (loss) allocable to common stockholders is calculated using the two class method. Basic net income (loss) per share allocable to common stockholders is computed by dividing the net income (loss) allocable to common stockholders for the period by the weighted average number of common shares outstanding during the period as reduced by the weighted average unvested common shares subject to repurchase by us. Diluted net income (loss) per share allocable to common stockholders is computed by dividing the net income (loss) allocable to common stockholders for the period by the weighted average number of common and potential common shares outstanding during the period, if the effect of each class of potential common shares is dilutive. Potential common shares are net of shares subject to repurchase by us and include incremental shares of common stock issuable upon the exercise of outstanding stock options and the assumed conversion of outstanding shares of preferred stock and shares of preferred stock underlying outstanding warrants.
(3): Pro forma basic and diluted net loss per share has been calculated by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period, net of shares subject to repurchase by us, giving effect to (a) the assumed conversion of all outstanding shares of our preferred stock into an aggregate of 18,605,288 shares of common stock upon the completion of this offering and (b) the assumed issuance of 327,296 shares of common stock assuming the exercise of outstanding warrants to purchase shares of preferred stock and the automatic conversion of these shares of preferred stock into shares of common stock.

	December 31,

	December 31,															March 31, 2008
(in thousands)	2003			2004			2005			2006			2007			March 31, 2008

Consolidated balance sheet data:
Cash, cash equivalents and short-term investments	$	3,402		$	11,368		$	16,616		$	18,258		$	35,759		$	35,465
Working capital		4,738			14,624			17,562			20,192			33,418			33,095
Total assets		9,693			23,436			34,971			51,588			76,231			84,384
Convertible preferred stock warrant liability		—			—			729			4,326			3,107			3,026
Convertible preferred stock		29,412			39,798			39,785			39,785			61,251			61,307
Total stockholders' deficit		(23,283	)		(23,232	)		(19,038	)		(12,352	)		(12,376	)		(11,759	)

Management's discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of our operations in conjunction with our consolidated financial statements and the notes to those statements included elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled "Risk factors," and elsewhere in this prospectus.

Omneon overview

We were founded in May 1998, and from inception through 2001, we were focused on designing and developing our Spectrum video server products. Our revenues grew rapidly after we began shipping our Spectrum products in 2001, driven in part by industry trends such as the migration of tape-based to file-based workflows, analog to digital formats, standard-definition to high-definition television and single channel to multi-channel playout. We sell our products indirectly through system integrators and directly to end users. Historically, a substantial portion of our revenues has been derived through indirect sales. Our products are used by media companies worldwide, and we have historically generated a substantial portion of our revenues from international sales. In 2007, 2006 and 2005, our total revenues were $88.3 million, $83.5 million and $54.1 million, respectively. Our revenues increased 6% between 2006 and 2007. We experienced decreased sales of our Spectrum products in the first half of 2007 as compared to the first half of 2006, which we believe was primarily due to delayed purchasing decisions in anticipation of the release of our new high definition Spectrum servers. Product sales increased by approximately 13% during the second half of 2007 compared to the second half of 2006. In 2007, we had a net loss of $2.1 million and in the three months ended March 31, 2008, we had a net loss of $208,000 as compared to a net loss of $2.9 million in the same period of 2007. In 2006 and 2005, our net income was $5.5 million and $4.1 million, respectively. In the three months ended March 31, 2008 we had total revenues of $29.2 million as compared to $16.6 million in the same period in 2007. Our net loss in 2007 was primarily due to a lower than anticipated revenues and a 32% increase in our operating expenses between 2006 and 2007 as we added headcount in all areas. Our gross margin remained relatively constant during these periods.

In December 2007, we acquired Castify, which provides a software-based solution for managing distribution of digital content over the Internet and private intranets for a purchase of up to $6.3 million of Series C-1 convertible preferred stock. We expect that the acquisition of Castify will not have a material impact on our revenues and results of operations in the near term. We expect to record amortization expenses of approximately $252,000 in 2008 related to intangible assets acquired by us. We also expect to record approximately $251,000 in 2008

related to stock-based compensation as a result of the securities issued as part of the Castify transaction.

We have been notified by certain of our component suppliers that they intend to discontinue manufacturing a number of components that we use in some of our products. As a result of these notifications, we have entered into long-term purchase agreements with distributors of these components in order to provide for an alternative supply. Under these agreements, we have committed to purchase approximately $3.8 million and $2.9 million during the remainder of 2008 and 2009, respectively. We plan to redesign or re-engineer the products affected by the discontinuance of these components, and we believe these long-term supply agreements will provide sufficient quantities of these components during this period, which we estimate to be 12 to 24 months, to allow us to continue to sell these products.

Sources of revenues

Our products include Spectrum video servers, MediaGrid active storage systems, and related software applications that media companies use to simultaneously ingest, process, store, manage and deliver digital media in a wide range of formats. Sales of our Spectrum products accounted for most of our product revenues through March 31, 2008. We began recognizing revenues from the sale of our MediaGrid storage systems in the third quarter of 2006, and to date, revenues from sales of these products have not represented a substantial portion of our total revenues. Our service revenues consist of service fees relating to the maintenance contracts on our products, and to a lesser extent technical support fees. Service revenues can experience variability due to the timing of maintenance contract renewals and technical support delivery.

Our future revenues will depend significantly on growth in the markets for video servers and digital content storage systems driven by continued investments in digital content infrastructure by media companies in response to industry trends such as the growing demand for high-definition content and the transition towards file-based workflows and disk-based storage. Our future growth also depends on our ability to develop and introduce new products and enhancements to our existing products in response to market trends and changing customer requirements. For example, we continue to introduce new features and functions to our Spectrum video servers and we developed our MediaGrid active storage system partly in response to the transition towards file-based workflows. As the media markets transition to increasingly file-based workflows, there is a corresponding expected growth in the amount of digital media files that will need to be stored and managed. We believe this trend towards file-based workflows will support the growth of our MediaGrid and Spectrum product lines, although we expect that Spectrum will continue to constitute a significant majority of our revenues in the near term. If the transition to file-based workflows does not proceed as we expect, our future operating results may be adversely affected.

Our business is subject to seasonal fluctuations. In particular, we have historically experienced lower revenues or revenue growth rates during the first quarter than in other quarters in the same year and first quarter revenues may be lower than revenues in the fourth quarter of the preceding year. We anticipate that our revenues will continue to be subject to seasonality and therefore our financial results will vary significantly from period to period.

In the three months ended March 31, 2008 and in 2007, 2006 and 2005, our revenues from customers outside the United States accounted for 74%, 62%, 63% and 61%, respectively, of

our total revenues. We expect revenues from customers outside the United States to increase relative to revenues from domestic customers as emerging international markets accelerate their migration to digital server and storage infrastructures.

In the three months ended March 31, 2008 and in 2007, 2006 and 2005, we derived approximately 74%, 68%, 71% and 65%, respectively, of our total revenues through indirect sales. We expect revenues from indirect sales to continue to constitute a substantial portion of our revenues.

No customer represented greater than 10% of our total revenues in 2007 or 2006. Ascent Media Group, a system integrator, represented 10%, 10% and 14% of our total revenues in 2005 and the three months ended March 31, 2007 and 2008.

Cost of revenues

Cost of product revenues consists of the costs of product hardware, manufacturing, shipping and logistics costs and expenses for estimated warranty obligations and inventory obsolescence. We utilize third parties to manufacture our product hardware, embed our proprietary software and conduct functionality testing. Cost of service revenues is primarily comprised of the cost of personnel providing technical support.

Gross margin

Our gross margin is affected by a variety of factors, including the mix and average selling prices of our products and services, new products and enhancements, the cost of product hardware, the mix of distribution channels through which our products are sold and warranty claim experience. In the three months ended March 31, 2008 and in 2007, 2006 and 2005, our gross margin was 61%, 60%, 60% and 61%, respectively. Because of the relatively difficult and unique nature in which digital media must be properly handled by a computing platform, we believe there are relatively few competitors for our Spectrum product. As a consequence, we have historically not faced significant price pressures in the market. Further, continual demand for new features and functionality by our customers has helped us define and deliver many new capabilities in our products, providing what we believe is a certain level of insulation against the commoditization of our products. We expect that gross margins on our service revenues will be lower than gross margins on our product revenues.

Operating expenses

Operating expenses consist of research and development, sales and marketing and general and administrative expenses. Personnel-related costs are the most significant component of each of these expense categories. Our total workforce grew to 301 employees as of March 31, 2008 from 106 employees as of December 31, 2004. We expect to continue to hire additional personnel. The timing of additional hires could materially affect our operating expenses, both in absolute dollars and as a percentage of total revenues, in any particular period.

In addition, our facilities expenses will increase with the commencement of our new headquarters lease, which was executed in February 2008. Future minimum rental payments under this agreement total $7.2 million, consisting of $583,000, $1.4 million, $1.5 million and $3.7 million for 2008, 2009, 2010 and thereafter, respectively. We also expect to incur a significant amount of costs related to tenant improvements, which will result in additional cash outlays and will be amortized over the term of the lease. As a result of the above trends, we

anticipate that each of the categories of operating expenses listed below will continue to increase in absolute dollars in future periods.

Research and development

Research and development expenses primarily consist of employee compensation costs, including salaries and stock-based compensation, prototype materials, depreciation of equipment used in research and development activities and allocable overhead. Research and development costs, including software development costs, have been expensed as incurred. Our headcount for research and development-related personnel was 127, 121, 90 and 65 as of March 31, 2008, December 31, 2007, 2006 and 2005, respectively. We believe that investments in research and development, including the recruiting and hiring of engineers, are critical to our ability to remain competitive. We expect research and development expenses to increase in 2008 as we continue investment in new product initiatives, including product development activities arising from our collaboration with Sony. We expect to add additional personnel and reassign current research and development personnel in the near term in connection with our development efforts under this collaboration. However, there are no specific spending commitments under the Sony collaboration agreement.

Sales and marketing

Sales and marketing expenses primarily consist of employee compensation costs, including salaries, sales commissions and stock-based compensation, travel costs, trade show and marketing program costs and allocable overhead. Our headcount for sales and marketing personnel was 85, 77, 65 and 49 as of March 31, 2008 and as of December 31, 2007, 2006 and 2005, respectively. We intend to hire additional employees for our sales and marketing staff and to increase our sales and marketing budget in the future.

General and administrative

General and administrative expenses primarily consist of employee compensation costs, including salaries and stock-based compensation, outside professional services and allocable overhead. Our headcount for general and administrative personnel was 23, 20, 17 and 14 as of March 31, 2008 and as of December 31, 2007, 2006 and 2005, respectively. We expect our general and administrative expenses to increase as we incur additional expenses associated with being a public company, including expenses associated with analyzing, documenting, testing and maintaining our system of internal controls and disclosure controls and procedures as a result of the regulatory requirements of the Sarbanes-Oxley Act.

Critical accounting policies and estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements in accordance with U.S. GAAP requires us to use accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during a fiscal period. We consider an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. Although we believe that our judgments and estimates are appropriate and correct, actual

results may differ from those estimates. We believe the following to be our critical accounting policies.

Revenue recognition

For sales of our products where software is incidental to the functionality of the product, we apply the provisions of Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, and SAB No. 104, Revenue Recognition, and all related interpretations. For sales of our products where software is not incidental to the functionality of the product, we account for revenues in accordance with Statement of Position No. 97-2, Software Revenue Recognition, or SOP 97-2, and all related interpretations.

We derive the majority of our revenues from sales of servers and storage systems, with the remaining revenues generated primarily from service fees relating to the maintenance contracts on our products. We generally recognize product revenues at the time of shipment, provided that persuasive evidence of an arrangement exists, title and risk of loss pass to the customer, the price is fixed or determinable and collection of the receivable is reasonably assured.

We generally ship our products ex-works, which requires the buyer to bear the risks for bringing the goods to the buyer's final destination. Title to our products and risk of loss pass upon delivery to the common carrier.

In assessing whether prices or fees are fixed or determinable, we consider the payment terms of the transaction and our collection experience in similar transactions. If a significant portion of the price or fee is due after normal payment terms, revenue is recognized when payment becomes due and payable from the customer, provided that all other revenue recognition criteria are met.

In instances where we are required to obtain customer acceptance, revenues are deferred until the terms of acceptance are satisfied. Arrangements with acceptance provisions generally provide the customer time to integrate the product into their environment and allow specification and performance testing. We determine that acceptance has occurred upon receipt of a signed and dated acceptance document from the customer or lapse of the acceptance period. Arrangements with acceptance provisions occur infrequently and can be made to either indirect or direct customers.

Most of our sales, including those to indirect customers, do not include rights of return. However, in limited cases, we have accepted product returns from customers, and in 2007, we established an allowance for future sales returns based on historical trends in product return rates. The allowance for future sales returns as of December 31, 2007 was $749,000, and was recorded as a reduction to our revenues. As of March 31, 2008, the allowance for sales returns was reduced to $320,000. Our indirect customers generally do not maintain any inventory and only order products from us when their end-user customer has committed to the purchase.

The terms and conditions of sales granted to indirect customers and direct end users are generally the same. Orders received from indirect customers are considered on a standalone basis and the terms and conditions of such orders are independent of the arrangement made with the indirect customer's end user. There are no contractual provisions allowing indirect customers restocking rights. Indirect customers are evaluated for creditworthiness under the same guidelines as direct end-user customers. We do not allow payment from indirect customers to be dependent upon receipt of payment from the end user.

Revenues under maintenance contracts are deferred and recognized ratably over the contractual service period. Our maintenance contracts typically have terms that range from one to two years.

In accordance with Emerging Issues Task Force, or EITF, 00-21, Revenue Arrangements with Multiple Deliverables, where sales arrangements involve multiple elements, the entire revenue is allocated to each respective element based on its relative fair value and recognized when the revenue recognition criteria for each element have been met. If objective and reliable evidence of fair value of one or more undelivered elements does not exist, revenue is deferred for all elements and recognized when delivery of those elements occurs or when fair value can be established.

In accordance with SOP 97-2 and EITF 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software, for the sale of products that contain software that is more than incidental to the sale of the hardware, we recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is reasonably assured. In instances where there are undelivered elements that did not have vendor-specific objective evidence, or VSOE, of fair value, revenues are deferred until VSOE is established or those elements have been delivered. We have established VSOE for post contract support as evidenced by the actual sales price of the renewals, and for other services by the actual sales price of the service when it is sold on a stand-alone basis.

Our total maintenance and support deferred revenues were $4.4 million, $4.6 million, $3.8 million and $3.2 million as of March 31, 2008, December 31, 2007, 2006 and 2005, respectively. Total deferred revenues were $6.6 million, $6.5 million, $4.9 million and $4.6 million as of March 31, 2008, December 31, 2007, 2006 and 2005, respectively.

In accordance with EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor's Products), discounts and rebates given to customers are classified as a reduction of revenue.

Accounting for income taxes

In preparing our financial statements we are required to make estimates and judgments that affect our accounting for income taxes. This process includes estimating current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial accounting purposes. These differences result in deferred tax assets and liabilities. We also assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe recovery to be unlikely, we have established a valuation allowance. Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance against our deferred tax assets. Our financial position and results of operations may be materially affected if actual results significantly differ from these estimates or the estimates are adjusted in future periods.

As of December 31, 2007, we had federal and state net operating loss carryforwards of approximately $40,000 and $1.5 million, respectively. These net operating loss carryforwards will expire in varying amounts between 2012 and 2025. We had federal and state research and development credit carryforwards of $1.1 million and $0.5 million, respectively, as of December 31, 2007. If not utilized, the federal research and development credits will start

expiring in 2023. The state research and development credit may be carried forward indefinitely.

As of December 31, 2007, we determined it was appropriate to maintain a valuation allowance against some of our state research and development credits and all of Castify's net operating losses in France, which we believe, more than likely, will not be utilized.

On January 1, 2007, we adopted the provisions of Financial Accounting Standards Board, FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. As of December 31, 2007, we had $1.3 million of liabilities for unrecognized tax benefits. All of this amount, if realized, would impact net income. The adoption of FIN 48 resulted in a reclassification of certain tax liabilities from current to non-current and had no cumulative impact on accumulated deficit.

Stock-based compensation

How we account for stock-based awards

Prior to January 1, 2006, we accounted for employee stock options using the intrinsic-value method in accordance with the provisions of Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25, and related interpretations and we complied with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure.

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment, or SFAS 123(R), using the prospective transition method, which requires us to apply the provisions of SFAS 123(R) only to awards newly granted, modified, repurchased or cancelled, after the adoption date. Under this transition method, our stock-based compensation expense recognized beginning January 1, 2006 is based on the grant date fair value of stock option awards we grant or modify after January 1, 2006. We recognize this expense on a straight-line basis over the options' expected vesting terms. We estimated the grant date fair value of stock option awards under the provisions of SFAS 123(R) using the Black-Scholes option valuation model with the following assumptions:

	Years ended December 31,				Three months ended March 31,

	2006		2007		2008

Expected life	6.0 years		6.0 years		6.0 years
Interest rate range	4.29% - 5.10	%	3.50% - 4.85	%	2.78% - 3.16	%
Volatility	60	%	45% - 50	%	50	%
Dividend yield	—		—		—
Forfeiture rate	3.35	%	3.93	%	4.13	%

During 2006, 2007 and the three months ended March 31, 2008, we recorded non-cash stock-based compensation expense of $133,000, $1.4 million and $693,000, respectively, under SFAS 123(R). In future periods, stock-based compensation expense is expected to increase as we issue additional equity-based awards to continue to attract and retain key employees. Additionally, SFAS 123(R) requires that we recognize compensation expense only for the

portion of stock options that are expected to vest, assuming an expected forfeiture rate in determining stock-based compensation expense, which could affect the stock-based compensation expense recorded if there is a significant difference between actual and estimated forfeiture rates. As of December 31, 2006 and 2007 and March 31, 2008, there was $3.5 million, $10.9 million and $10.1 million, respectively, of total unrecognized compensation cost related to stock-based awards granted after January 1, 2006, which is expected to be recognized over the remaining weighted-average service period of 3.7 years, 3.3 years and 3.1 years, respectively.

Historical grant practices

Valuation at the time of grant. Given the absence of an active market for our common stock, our board of directors, the members of which we believe had extensive business, financial and investment experience, were required to estimate the fair value of our common stock at the time of each option grant. Our board of directors considered numerous objective and subjective factors in determining the value of our common stock at each option grant date, including the following factors: (1) prices for our preferred stock that we had sold to outside investors in arm's-length transactions, and the rights, preferences and privileges of our preferred stock and our common stock; (2) contemporaneous valuations performed as of March 31, 2006, September 30, 2006, December 1, 2006; January 15, 2007, February 16, 2007, March 13, 2007, April 16, 2007, June 30, 2007, September 30, 2007, October 31, 2007, November 30, 2007, December 31, 2007, February 15, 2008 and March 31, 2008; (3) our actual financial condition and results of operations relative to our operating plan during the relevant period; (4) the development status of our products, technical and regulatory issues encountered and adherence to product completion dates; (5) forecasts of our financial results and market conditions affecting the digital media industry; (6) until 2006, reliance on a single product line; (7) hiring of key personnel; (8) the fact that the option grants involved illiquid securities in a private company; and (9) the likelihood of achieving a liquidity event for the shares of common stock underlying the options, such as an initial public offering or sale of the company, given prevailing market conditions at the time of grant. Based on these factors, our board of directors granted stock options during the three months ended March 31, 2008 and in 2007, 2006 and 2005 at exercise prices ranging from $0.50 to $12.50 per share.

At the date of each option grant, our board of directors determined that the exercise price for each option was equivalent to the then-existing fair value of our common stock. Our board of directors believes it properly valued our common stock in all periods, although we also understand that the judgments required in such efforts necessarily involve an element of subjectivity.

Contemporaneous valuations. Contemporaneous valuations of our common stock were performed at March 31, 2006, September 30, 2006, December 1, 2006, January 15, 2007, February 16, 2007, March 13, 2007, April 16, 2007, June 30, 2007, September 30, 2007, October 31, 2007, November 30, 2007, December 31, 2007, February 15, 2008 and March 31, 2008. The valuations used a weighted combination of the income approach, the similar transactions method, the public company market multiple method and, in the case of the September 30, 2007, October 31, 2007, November 30, 2007 and December 31, 2007 valuations, the indication of value based on the terms of recently-issued Series C-1 preferred stock to estimate the aggregate enterprise value of our company. The income approach involves applying appropriate risk-adjusted discount rates to estimated debt-free cash flows, based on

forecasted revenues and costs. The projections used in connection with this valuation were based on our expected operating performance over the forecast period. The similar transactions method involves applying the valuation multiples associated with recent merger and acquisition activity in related industries. The public company market multiple method focuses on comparing our company to similar publicly traded entities. On September 28, 2007, we sold 1,042,390 shares of Series C-1 preferred stock to Sony. The value of our total invested capital at this date was derived from the value of the shares of Series C-1 preferred stock. The invested capital value reflects the values associated with our different classes of securities, which have varying rights and preferences. There is inherent uncertainty in the estimates used in our valuations. If different discount rates, assumptions or weightings had been used, the valuations would have been different.

For the March 31, 2006 and September 30, 2006 valuations, a 75% weighting was applied to the income approach and a 25% weighting to the similar transactions method. We applied a greater weighting to the income approach because it more appropriately captured company-specific risks, whereas the similar transactions method is primarily based on market data of recently acquired publicly traded companies. The public company market multiple method was not used for these valuations as there were no directly comparable publicly traded companies. The companies used for comparison under the similar transactions method were selected based on a number of factors, including, but not limited to, the similarity of their industry, financial risk, size and number of employees relative to those of our company.

For the December 1, 2006 valuation, a 50% weighting was applied to the income approach, a 15% weighting was applied to the similar transactions method and a 35% weighting was applied to the public company market multiple method. The changes in the weighted values reflect (1) the increased likelihood of achieving a liquidity event for the shares of common stock underlying the options, such as an initial public offering, (2) lack of recent similar transactions and changing market dynamics and (3) the fact that, with our recent introduction of our MediaGrid product, we became more comparable to public companies.

Beginning with the January 15, 2007 valuation, a 50% weighting was applied to the income approach and a 50% weighting was applied to the public company market multiple method. For the September 30, 2007, October 31, 2007, November 30, 2007 and December 31, 2007 valuations, we considered the enterprise value implied by the price paid for the Series C-1 preferred stock and related preferences. In these valuations, we applied a 33.33% weighting to the values derived from each of the income approach, the public company market multiple method and that implied by the Series C-1 preferred stock financing. The changes in weighted values in 2007 were due to the factors described above and, in the case of September 30, 2007 valuation, reflect the recent issuance of preferred stock to Sony.

For the February 15, 2008 and March 31, 2008 valuations, 50% weightings was applied to each of the income approach and the public company market multiple method. A zero weighting was applied to the value indication provided by the Series C-1 preferred stock issuance as management believed that, due to the lapse of time from issuance, the value indication was no longer an appropriately relevant measure.

In determining the estimated fair value of our stock at each option grant date, our board of directors considered the fact that our stockholders cannot freely trade our stock in the public markets. The estimated fair value of our common stock at each stock option grant date reflected the anticipated likelihood and timing of a future liquidity event.

In the valuations of our common stock as of March 31, 2006, September 30, 2006, December 1, 2006, January 15, 2007, February 16, 2007, March 13, 2007, April 16, 2007, June 30, 2007, September 30, 2007, October 31, 2007, November 30, 2007, December 31, 2007, February 15, 2008 and March 31, 2008, the non-marketability discounts used ranged from 20% to 7.5%. The 20% discount applied in March 2006 reflected the expectation that a successful liquidity event was not likely to occur within the 12 months following March 2006. The dates at which we applied a non-marketability discount of 7.5% (January 15, 2007, February 16, 2007, and March 13, 2007) reflected significantly shorter expected periods to a liquidity event at that time. In June 2007, September 2007, October 2007, November 2007, December 2007, February 2008 and March 2008, the non-marketability discount increased to 10% as our initial public offering had been delayed, thereby increasing the expected time to a liquidity event.

The deemed fair value of our common stock increased from $4.65 to $12.50 during the period from October 17, 2006 through December 26, 2006. The October 17, 2006 option grant was based on a contemporaneous valuation performed as of September 30, 2006. The deemed fair value of the November 14, 2006 option grant was determined to be in an amount equal to the contemporaneous valuation performed as of December 1, 2006. The exercise price for the December 26, 2006 option grant was based upon a determination of fair value in consideration of then anticipated quarterly financial performance, the potential for a private financing and a collaboration agreement with Sony, and the then expected decreased time to a potential liquidity event. As described below, the options granted on December 26, 2006 were repriced in October 2007.

The increase in the estimated fair value of our common stock during the period from October 17, 2006 to December 26, 2006 was driven by the following:

•: for the three months ended December 31, 2006, total revenues increased approximately 8% over the immediately preceding quarter, and approximately 31% from the same quarter of the prior year;
•: the execution of a term sheet for an investment by Sony on December 14, 2006 for a private placement of $15.0 million and a collaboration agreement;
•: selection of underwriters to begin the initial public offering process; and
•: the initiation of the process for an initial public offering of our common stock and preparation for the filing of the registration statement, which occurred on December 29, 2006, reducing the then expected time to liquidity.

We made option grants on January 18, February 27, March 20, April 24 and May 15, 2007 at an exercise price of $12.50, which was the deemed fair value determined by the board of directors at these dates. We performed contemporaneous valuations as of January 15, February 16, March 13 and April 16, 2007, which estimated the fair value of our common stock at $9.45, $12.04, $12.15 and $11.55 per share, respectively.

We made further option grants on July 24, August 28, October 23, November 27, November 28, December 14, 2007, January 16, 2008 and March 4, 2008, at exercise prices of $9.14, $9.14, $9.43, $9.53, $9.53, $9.84, $9.48 and $9.54, respectively, which we determined to be the fair value of our common stock on the grant dates. We performed contemporaneous valuations as of June 30, September 30, October 31, November 30, and December 31, 2007 and February 15, and March 31, 2008, which estimated the fair value of our common stock at $9.14, $9.43, $9.53, $9.84, $9.48, $9.54 and $9.29, respectively.

On October 23, 2007, our board of directors repriced options to purchase 299,200 shares of our common stock with an exercise price of $12.50 per share to $9.43 per share, which was the then-current fair value of our common stock, based on our most recent valuation. We repriced these stock options to align stock option exercise prices to the fair market value of the common stock at that time. As a result we recorded a charge of $4,000 in our consolidated statement of operations related to this repricing in the fourth quarter of 2007. The incremental expense of the unvested portion of these shares resulting from the repricing, approximately $236,000, is being accounted for as compensation expense and will be amortized over the remaining vesting period through May 31, 2011.

Reassessment of fair value. The exercise prices per share of common stock underlying our option grants were historically determined by our board of directors with input from management. Prior to March 31, 2006, contemporaneous valuations of our common stock were not performed because we believed that our board of directors had considerable experience in the valuation of emerging companies and could make a reasonable determination of fair value.

In connection with the preparation of the consolidated financial statements necessary for this prospectus and solely for the purposes of accounting for stock-based compensation for financial statement purposes, we performed retrospective reassessments of our common stock to determine whether there was a compensatory element in our historical option grants. We undertook the retrospective reassessments of the values of our common stock as of April 14, 2004, the date of the last sale of our Series B-1 convertible preferred stock, and as of 13 additional dates from May 2004 through November 2005. We do not believe that there was any compensatory element to our option grants prior to April 2004 based on our early stage of development through that date.

We utilized the value attributed to our common stock at the time of the April 2004 Series B-1 preferred stock financing and the first contemporaneous valuation of March 31, 2006 as the basis for determining the value of our common stock per share for each of the reassessed grant dates. We applied a range of revenue multiples to the trailing 12 month revenues at each of the intervening reassessed grant dates. To further support the application of the multiple at each of the intervening reassessed grant dates, we performed an income approach valuation as of October 14, 2004. We believe utilizing the per share price attributable to the common stock calculated based upon an arm's length cash sale of our preferred stock and the valuation approach utilized in the first contemporaneous valuation were the most directly relevant measures of value for the reassessed grant dates. We did not utilize the public company market multiple valuation method due to the lack of comparable public companies in our industry at our stage of development.

Value attributable to the common stock as of the Series B-1 preferred stock financing in April 2004. Our implied equity value as of April 14, 2004 was calculated based on the $2.05 per share price of the Series B-1 preferred stock sold in March and April 2004. A Black-Scholes methodology was utilized to isolate the value related to the Series B-1 preferred stock's liquidation preference and conversion option. The resulting total marketable equity value as of April 14, 2004 was $34.4 million. The resulting value attributable to a share of common stock was $0.60.

Value attributable to a share of common stock as of the contemporaneous valuation of March 31, 2006. The methodology utilized in the first contemporaneous valuation is described above. The resulting value attributable to a share of common stock was $2.27.

Value attributable to a share of common stock at the reassessed grant dates. To determine the enterprise values at the reassessed grant dates, we applied the enterprise value to trailing 12 months revenue multiple derived from the April 2004 financing of 2.03x to the first reassessed grant date on April 14, 2004, and then trended down the multiple to approximate 1.38x, which was the multiple derived from the contemporaneous valuation of March 31, 2006. We applied the trended multiple to the intervening 14 reassessed grant dates based upon trailing 12 months revenues to arrive at the implied enterprise values.

The rate at which the multiple was trended was supported with the income approach assessment as of October 12, 2004. This date was selected as it was the date of a follow-on grant totaling 0.8 million shares to a broad base of employees and new hire grants totaling 0.2 million shares and the time at which we were identifying and investigating the risk associated with a third-party component issue. The income approach involved the application of an appropriate risk-adjusted discount rate to estimated debt-free cash flows, based on forecasted revenues and costs. The projections used in connection with this valuation were based on our expected operating performance over the forecast period. The resultant valuation was used to calculate the appropriate adjustment to the revenue multiple. Trailing 12 months revenues were calculated based on revenues for the 12-month period directly preceding the grant date.

A Black-Scholes methodology was used to calculate the percent of equity attributable to common stockholders. The implied marketability adjustments for each of the grant dates were calculated using put option models, which yielded marketability adjustments ranging from 32% as of April 14, 2004 to 26% as of November 17, 2005, with this discount decreasing due to the reduced time to a liquidity event. We assumed a risk-free interest rate of 4.82%, representing the rate of treasury securities with a term of 1.5 years, volatility of 60% calculated by analyzing the standard deviation of historical stock prices and the implied volatilities of publicly-traded companies with operations similar to ours and a term of 1.5 years encompassing our expectation of the timing of an acquisition or initial public offering.

Key financial metrics

Revenue growth rate. Revenues grew from $12.4 million in 2003 to $31.4 million in 2004, representing a growth rate of 153%. Much of the growth in revenues experienced in 2004 occurred in the first three quarters of the year. The trailing 12 months revenues as of April 14, 2004 were $17.0 million and grew to $24.4 million as of August 10, 2004, representing a growth rate of 44%. During this time, the reassessed value per share increased by 83% from

$0.60 as of April 14, 2004 to $1.10 as of August 10, 2004. Trailing 12 months revenues as of October 12, 2004 were $27.3 million compared to $24.4 million as of August 10, 2004, reflecting a significantly lower revenue growth rate of 12% during this period. The income approach valuation as of October 12, 2004 resulted in a reassessed value per share of $0.79. The reassessed value per share was $0.90 as of December 2, 2004 due to a reduced marketability discount and revenue growth.

Revenues grew at a rate of 72% in 2005, which represented a significant decrease compared to the growth rate experienced in the prior year. A significant portion of this growth was experienced in the third and fourth quarters of 2005 when we generated revenues of $13.9 million and $17.8 million, respectively, compared to $10.2 million and $12.3 million in the first and second quarters of 2005, respectively. This acceleration in the revenue growth rate in the second half of 2005 is consistent with the growth trend in the reassessed fair value per share during 2005. The reassessed fair value per share increased by 47% from $1.28 as of May 24, 2005 to $1.88 as of November 17, 2005, compared to an increase of 27% from $1.01 as of January 20, 2005 to $1.28 as of May 24, 2005.

Income from operations. We generated a loss from operations in 2004 of approximately $20,000, partially due to high operating expenses, which totaled 58% of revenues. We did not generate income from operations until 2005. Despite generating income from operations in 2005, our operating expenses remained relatively high at 52% of revenues and gross product margins remained relatively consistent from 2004 to 2005. A substantial portion of the income from operations in 2005 was generated in the third and fourth quarters of the year. We generated income from operations of $1.1 million and $2.6 million in the third and fourth quarters of 2005, respectively, representing in the aggregate 76% of the income from operations in 2005.

Qualitative analysis of fair value of common stock

As of April 14, 2004, the deemed fair market value of our common stock was determined to be $0.60 per share. This value reflected a 70% discount from the price per share of our $10.5 million sale of Series B-1 preferred stock at $2.05 per share. We believe this discount was appropriate in light of the significant liquidation preferences and other rights attached to the Series B-1 preferred stock and other outstanding series of preferred stock, such as control of our board of directors, a requirement for series approval of any material change in our business and a bring-along right which requires that our investors, founders and executives vote in favor of a sale-of-company transaction. In addition, this valuation reflected the inherent risks associated with our business at the time. We were still in the early stages of development, had incurred significant losses, had not shown the ability to produce sustained profitability, had not introduced certain product features, were dependent upon a single product, had a limited customer base and were in the process of transitioning and hiring key management positions.

Between April 2004 and August 2004, the deemed fair market value of our common stock increased from $0.60 per share as of April 14, 2004 to $1.10 per share as of August 10, 2004, reflecting the improvements in our financial results, such as a significant increase in our revenues during 2004 and the prospect of profitability. In the fourth quarter of 2004, an issue arose with a third-party component that consumed significant management and engineering resources to identify and resolve. In addition, we were falling behind in our product development schedules and were facing increasing competition. At October 12, 2004, the

reassessed fair value per share decreased to $0.79. Later in 2004, we hired two additional members of the management team and expanded our customer base and the reassessed fair value per share increased to $0.90 as of December 2, 2004.

During 2005, the deemed fair market value of our common stock increased 86% from $1.01 per share as of January 20, 2005 to $1.88 per share as of November 17, 2005. During 2005, we grew revenues by approximately 72% compared to 2004 and achieved net income of over $4 million. Nevertheless, we continued to face significant competition from other vendors. In addition, we continued to experience delays in the introduction of new products. We did not release our storage product until the third quarter of 2006.

Throughout the period involved, our preferred stock had an aggregate liquidation preference of $63.9 million.

Conclusions. After making the judgments, assumptions and estimates in the retrospective reassessments described above, we have determined that, for accounting purposes, at the date of each option grant prior to April 2004, the exercise price for each option was equivalent to the then-existing fair value of our common stock. For grants made from April 2004 through December 2005, we recorded deferred stock-based compensation of $1.9 million during 2006, representing the amount by which the reassessed fair value of our common stock at the date of the grant exceeded the exercise price of the equity awards at the time of grant. During 2006, we recognized stock-based compensation of $336,000 as an out of period adjustment and $463,000, representing amortized expense in 2006 for grants for which the adjusted fair value from the retrospective reassessment exceeded the initial grant price. As of March 31, 2008, we had $412,000 of deferred stock-based compensation related to option grants made from April 2004 through December 2005 that will be amortized through 2010.

Information regarding our stock option grants from April 2004 through the date of this prospectus is summarized as follows:

Date of issuance	Number of shares subject to options granted	Original exercise price per share		Deemed fair market value per share		Intrinsic value per share


April 14, 2004	53,000	$	0.30	$	0.60	$	0.30
May 14, 2004	39,250		0.30		0.82		0.52
August 10, 2004	178,500		0.30		1.10		0.80
October 12, 2004	1,016,667		0.30		0.79		0.49
December 2, 2004	106,000		0.30		0.90		0.60
January 20, 2005	137,000		0.50		1.01		0.51
February 15, 2005	14,800		0.50		1.07		0.57
April 26, 2005	80,000		0.50		1.26		0.76
May 24, 2005	315,000		0.50		1.28		0.78
July 19, 2005	59,000		0.50		1.42		0.92
August 23, 2005	250,750		0.50		1.50		1.00
September 29, 2005	50,000		0.50		1.61		1.11
October 18, 2005	464,225		0.85		1.65		0.80
November 17, 2005	69,000		1.00		1.88		0.88
January 18, 2006	137,500		1.50		1.89		0.39
February 14, 2006	33,700		1.50		1.96		0.46
April 18, 2006	77,500		2.27		2.27		—
May 16, 2006	29,000		2.27		2.27		—
July 18, 2006	46,500		2.50		2.50		—
August 22, 2006	19,050		2.50		4.65		2.15
October 17, 2006	32,500		4.65		4.65		—
November 14, 2006	38,500		5.00		7.76		2.76
December 8, 2006	301,653		7.76		12.50		4.74
December 26, 2006(1)	63,500		12.50		12.50		—
January 18, 2007(1)	28,500		12.50		12.50		—
February 27, 2007(1)	74,250		12.50		12.50		—
March 20, 2007(1)	123,950		12.50		12.50		—
April 24, 2007(1)	17,000		12.50		12.50		—
May 15, 2007(1)	7,000		12.50		12.50		—
July 24, 2007	25,400		9.14		9.14		—
August 28, 2007	112,000		9.14		9.14		—
October 23, 2007	39,275		9.43		9.43		—
November 27, 2007	684,667		9.53		9.53		—
November 28, 2007	294,623		9.53		9.53		—
December 14, 2007	153,920		9.84		9.84		—
January 16, 2008	100,500		9.48		9.48		—
March 4, 2008	52,150		9.54		9.54		—
April 22, 2008	118,700		9.29		9.29		—
May 20, 2008	12,300		9.29		9.29		—

(1): In October 2007, we repriced options granted with an exercise price of $12.50 per share to $9.43 per share, based on the fair value of our common stock on the date of repricing.

The intrinsic value of options to purchase 2,444,088 vested shares outstanding as of March 31, 2008 based on an assumed initial public offering price of $ per share was $ . The intrinsic value of options to purchase 2,483,712 unvested shares outstanding as of March 31, 2008 based on an assumed initial public offering price of $ per share was $ .

Estimation of fair value of warrants to purchase convertible preferred stock

In 2005, we adopted FASB Staff Position No. 150-5, Issuer's Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable, or FSP 150-5. FSP 150-5 requires us to classify warrants to purchase shares of our convertible preferred stock as current liabilities and to adjust the value of these warrants to their fair value at the end of each reporting period. At the time of adoption, we recorded an adjustment of $557,000 for the cumulative effect of this change in accounting principle, to reflect the estimated fair value of these warrants as of that date. We recorded $157,000, $3.6 million and $375,000 of additional expense in interest and other income (expense), net, for the remainder of 2005, 2006 and 2007, respectively, to reflect further increases in the estimated fair value of the warrants. The amount recorded in 2007 was net of a benefit of approximately $1.1 million recorded in the second quarter of 2007. We also recorded a benefit of $81,000 during the three months ended March 31, 2008. These benefits resulted from the reduction in value of the warrants as a result of the decrease in value of the underlying stock. We estimated the fair value of these warrants at the respective balance sheet dates using the Black-Scholes option valuation model. This model utilizes the estimated fair value of the underlying convertible preferred stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying convertible preferred stock. On October 29, 2007, warrants to purchase 152,140 shares of Series A-6 preferred stock were net exercised, resulting in issuance of 150,703 shares of Series A-6 preferred stock.

Upon the closing of this offering, if the remaining warrants have not been exercised, they will be exercised on a net exercise basis for shares of our common stock based on the initial public offering price and, as a result, will no longer be subject to FSP 150-5. At that time, the then-current aggregate fair value of these warrants will be reclassified from current liabilities to common stock and additional paid-in capital, and we will cease to record any related periodic fair value adjustments.

Goodwill and other intangible assets

Goodwill represents the excess of cost over the fair value of the assets of businesses acquired. We account for goodwill under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS No. 142. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment whenever there are events that indicate a possible impairment or at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

When performing an impairment test, we are required to determine the carrying value of the existing goodwill and intangible assets. If the carrying amount exceeds the fair value, we would be required to perform the second step of the impairment analysis, as this is an indication that the goodwill and intangible assets may be impaired. In this second step, we would compare the implied fair value of the goodwill and intangible assets with their respective carrying amounts. The implied fair value is determined by allocating the fair value to all of the assets and liabilities in a manner similar to a purchase price allocation, in accordance

with SFAS No. 141, Business Combinations. The residual fair value after this allocation is the implied fair value of the goodwill and intangible assets. To the extent the implied fair value of goodwill and intangible assets is less than the carrying amount, we would be required to recognize an impairment loss.

Build-Out of Our New Headquarters Facility

In February 2008, we entered into a lease for a building in Sunnyvale, California that will replace our current facility as our corporate headquarters. In March 2008, we began a build-out of this facility and expect to incur approximately $3.8 million in construction costs. Under the terms of the lease, the landlord has agreed to reimburse approximately $1.9 million of this amount. Because certain improvements constructed by us were considered structural in nature and we are responsible for any cost overruns, we are considered to be the owner of the construction project for accounting purposes under EITF No. 97-10, The Effect of Lessee Involvement in Asset Construction.

Therefore, in accordance with EITF 97-10, we have capitalized the fair value of the building that we occupy at $5.2 million with a corresponding credit to non-cash obligation for construction in progress. The fair value was determined as of March 31, 2008 using the cost approach which measures the value of an asset as the cost to reconstruct or replace it with another asset of like utility.

Upon completion of construction, we will assess whether or not we qualify for sale-leaseback accounting under FAS No. 98, Accounting for Leases. Should we qualify for sale-leaseback accounting, the building and corresponding liability will be removed from the balance sheet and rental payments due over the term of the lease will be recorded as rental expense.

In the event that we do not qualify for sale-leaseback accounting, the building will be reflected as an asset on our balance sheet throughout the term of the lease. The rental payments will be treated as interest expense recorded on a straight-line basis over the term of the lease and the building will be depreciated on a straight-line basis over a period of 40 years. At the end of the lease term in December 2012, we have an option to renew the lease for an additional 60 months. Should we decide not to renew the lease, we would reverse the net book value of the building and the corresponding financing liability and record the difference as a gain.

Results of operations

The following table presents selected results of operations data as a percentage of total revenues for the periods indicated:

		Years ended December 31,						Three months ended March 31,

		2005		2006		2007		2007		2008

Consolidated statement of operations data:
Revenues:
	Product revenues	95	%	94	%	93	%	92	%	94	%
	Service revenues	5		6		7		8		6

Total revenues		100		100		100		100		100
Cost of revenues:
	Cost of product revenues	35		34		33		35		33
	Cost of service revenues	4		6		7		9		6

Total cost of revenues		39		40		40		44		39

Gross margin		61		60		60		56		61
Operating expenses:
	Research and development	18		21		26		33		25
	Sales and marketing	28		24		30		37		28
	General and administrative	6		6		8		11		9

Total operating expenses		52		51		64		81		62

Income (loss) from operations		9		9		(4	)	(25	)	(1	)
Interest and other income (expense), net		—		(4	)	—		(3	)	1

Income (loss) before income taxes and cumulative effect of change in accounting principle		9		6		(4	)	(28	)	—
Income tax (benefit) provision		—		(1	)	(2	)	(11	)	1

Income (loss) before cumulative effect of change in accounting principle		9		7		(2	)	(17	)	(1	)
Cumulative effect of change in accounting principle		(1	)	—		—		—		—

Net income (loss)		8	%	7	%	(2	)%	(17	)%	(1	)%

Three months ended March 31, 2007 and 2008

Revenues

The following table summarizes and analyzes our revenues for the three months ended March 31, 2007 and 2008:

		Three months ended March 31,						2007 to 2008 change

(in thousands)		2007			2008			$		%

Revenues:
	Product revenues	$	15,281		$	27,388		$	12,107	79	%
	Service revenues		1,280			1,854			574	45	%

		$	16,561		$	29,242		$	12,681	77	%


% of revenues
	Product revenues		92	%		94	%
	Service revenues		8	%		6	%
Revenues by geography:
	Domestic	$	6,686		$	7,538		$	852	13	%
	Americas, excluding United States		507			1,355			848	167	%
	United Kingdom		2,896			4,755			1,859	64	%
	Germany		1,367			1,409			42	3	%
	Europe, Middle East and Africa, excluding United Kingdom and Germany		3,290			8,655			5,365	163	%
	Asia Pacific		1,815			5,530			3,715	205	%

		$	16,561		$	29,242		$	12,681	77	%


% of revenues by geography:
	Domestic		40	%		26	%
	Americas, excluding United States		3	%		4	%
	United Kingdom		18	%		16	%
	Germany		8	%		5	%
	Europe, Middle East and Africa, excluding United Kingdom and Germany		20	%		30	%
	Asia Pacific		11	%		19	%
Revenues by sales channel:
	Direct	$	3,757		$	7,479		$	3,722	99	%
	Indirect		12,804			21,763			8,959	70	%

		$	16,561		$	29,242		$	12,681	77	%


% of revenues by sales channel:
	Direct		23	%		26	%
	Indirect		77	%		74	%

Product revenues. The $12.1 million, or 79%, increase in product revenues in the three months ended March 31, 2008 as compared to the same period in 2007 was largely driven by increased demand for our Spectrum servers. During the first quarter of 2007, we believe customers delayed buying decisions in anticipation of our high definition Spectrum products. We sold products to 125 customers in the three months ended March 31, 2008 compared to 86 customers in the same period in 2007. One customer, a system integrator, represented 14% and 10% of our product revenues in the three months ended March 31, 2007 and 2008.

Service revenues. The $574,000, or 45%, increase in service revenues in the three months ended March 31, 2008 as compared to the same period in 2007 resulted from increased purchases of maintenance contracts in connection with the corresponding increase in product revenues since March 31, 2007. Service revenues as a percentage of total revenues decreased as our product revenues grew at a faster rate than our service revenues.

Gross profit and gross margin

The following table shows gross profit on each of our components of revenues for the three months ended March 31, 2007 and 2008 in absolute dollars and the related gross margin:

			Three months ended March 31,						2007 to 2008 change

(in thousands)			2007			2008			$		%

Gross profit (loss):
	Product		$	9,522		$	17,883		$	8,361	88	%
		Gross margin		62	%		65	%
	Service			(209	)		77			286	*
		Gross margin		(16	)%		4	%
		Total gross profit	$	9,313		$	17,960		$	8,647	93	%
		Total gross margin		56	%		61	%

*: Not meaningful

Product gross margin. Gross margin for product revenues increased 3% from the three months ended March 31, 2007 to the same period in 2008 primarily as a result of unabsorbed overhead due to reduced operating activity occurring in the three months ended March 31, 2007. This increase was partially offset by greater compensation cost of $165,000 as a result of the increase in operations headcount from 17 as of March 31, 2007 to 22 as of March 31, 2008 and a $126,000 increase in corporate allocations.

Service gross margin. Gross margin for service revenues increased 2% from the three months ended March 31, 2007 as compared to to the same period in 2008 as our service revenues grew at a faster rate than our cost of services revenue as we began to leverage our investment in services infrastructure, which was partially offset by greater compensation cost of $325,000 from the increase in services headcount from 30 as of March 31, 2007 to 37 as of March 31, 2008 and the development of our maintenance and service infrastructure.

Operating expenses

The following table summarizes and analyzes our operating expenses for the three months ended March 31, 2007 and 2008:

			Three months ended March 31,						2007 to 2008 change

(in thousands)			2007			2008			$		%

Operating expenses:
	Research and development		$	5,591		$	7,233		$	1,642	29	%
		% of total revenues		34	%		25	%
	Sales and marketing			6,119			8,232			2,113	35	%
		% of total revenues		37	%		28	%
	General and administrative			1,783			2,685			902	51	%
		% of total revenues		11	%		9	%

Total operating expenses			$	13,493		$	18,150		$	4,657	35	%

Research and development. The $1.6 million, or 29%, increase in research and development expense was primarily due to a $1.6 million increase in payroll and benefit costs resulting from an increase in employee headcount from 99 to 127, a $237,000 increase in outsourced engineering services and outside contractor expense primarily related to Quality Assurance and specific tasks on one of our research and development projects and a $164,000 increase in depreciation expenses. This increase was partially offset by a $348,000 decrease in consumable supplies and materials used in development and testing functions as the number of hardware product releases reduced year on year.

Sales and marketing. The $2.1 million, or 35%, increase in sales and marketing expense was primarily due to a $1.3 million increase in payroll and benefit costs resulting from an increase in employee headcount from 74 to 85 and an increase in sales commissions resulting from increased revenues, a $207,000 increase in general outside services, a $198,000 increase in depreciation due to additional capital equipment, a $166,000 increase in employee development, and a $145,000 increase in marketing costs, particularly related to seminars and advertising expenses as we increased the number of customer seminars held in the quarter.

General and administrative. The $902,000, or 51%, increase in general and administrative expense was primarily due to $355,000 increase in payroll and benefit costs resulting from an increase in employee headcount from 17 to 23 and a $598,000 increase in fees paid to third-party service providers, such as for audit and tax services.

Interest and other income (expense), net

Interest and other income (expense), net, consists primarily of warrant revaluation expense, interest income and foreign currency translation adjustments. During the three months ended March 31, 2008 and 2007, we recognized $81,000 of warrant revaluation benefit and $157,000 of warrant revaluation expense, respectively, in accordance with FSP 150-5. Interest income decreased in 2008 compared to 2007 due to significant reductions in interest rates from 2007 to 2008. The impact of the reduction in interest rates was partially offset by higher average cash balances in the three months ended March 31, 2008 primarily resulting from proceeds from the sale of Series C-1 Preferred Stock to Sony in September 2007.

Income tax (benefit) provision

The income tax provision was $230,000 for the three months ended March 31, 2008 compared to a benefit of $1.8 million for the three months ended March 31, 2007. The 2008 effective tax rate for the three months ended March 31, was approximately 1,045% which compares to a rate for the three months ended March 31, 2007 of approximately (38.9)%. The variation in rates is a result of a valuation allowance recorded against operating losses incurred in France, and the elimination of the U.S. Federal Research and Development Credit for 2008. The rates differ from the statutory rate primarily due to the non-deductibility of certain stock compensation and warrant costs, partially offset by State and Federal research and development credit benefits, where applicable.

Years ended December 31, 2006 and 2007

Revenues

The following table summarizes and analyzes our revenues for 2006 and 2007:

		Years ended December 31,						2006 to 2007 change

(in thousands)		2006			2007			$			%

Revenues:
	Product revenues	$	78,688		$	81,859		$	3,171		4	%
	Service revenues		4,838			6,406			1,568		32	%

		$	83,526		$	88,265		$	4,739		6	%


% of revenues
	Product revenues		94	%		93	%
	Service revenues		6	%		7	%
Revenues by geography:
	Domestic	$	30,671		$	33,594		$	2,923		10	%
	Americas, excluding United States		3,329			4,234			905		27	%
	United Kingdom		14,388			10,148			(4,240	)	(29	)%
	Germany		3,798			4,292			494		13	%
	Europe, Middle East and Africa, excluding United Kingdom and Germany		17,321			22,213			4,892		28	%
	Asia Pacific		14,019			13,784			(235	)	(2	)%

		$	83,526		$	88,265		$	4,739		6	%


% of revenues by geography:
	Domestic		37	%		38	%
	Americas, excluding United States		4	%		5	%
	United Kingdom		16	%		11	%
	Germany		5	%		5	%
	Europe, Middle East and Africa, excluding United Kingdom and Germany		21	%		25	%
	Asia Pacific		17	%		16	%
Revenues by sales channel:
	Direct	$	24,128		$	28,559		$	4,431		18	%
	Indirect		59,398			59,706			308		1	%

		$	83,526		$	88,265		$	4,739		6	%


% of revenues by sales channel:
	Direct		29	%		32	%
	Indirect		71	%		68	%

Product revenues. Product revenues increased $3.2 million, or 4% in 2007 compared to 2006. During the first six months of 2007, product revenues declined approximately 6% compared to the same period in 2006. Product revenue increased in the second half of 2007 approximately 13% compared to the same period in 2006. We believe the decline in the first half of 2007 was a result of customers delaying buying decisions in anticipation of the release

of our high definition Spectrum products. We sold products to 231 customers in 2007 compared to 216 customers in 2006. No customer accounted for more than 10% of our total revenues in 2007 or 2006.

Service revenues. The $1.6 million, or 32%, increase in service revenues in 2007 compared to 2006 resulted from increased purchases of service contracts in connection with the installed base of our products.

Gross profit and gross margin

The following table shows gross profit on each of our components of revenues in 2007 and 2006 in absolute dollars and the related gross margin:

			Years ended December 31,						2006 to 2007 change

(in thousands)			2006			2007			$		%

Gross profit:
	Product		$	50,381		$	52,628		$	2,247	4	%
		Gross margin		64	%		64	%
	Service			91			361			270	297	%
		Gross margin		2	%		6	%
		Total gross profit	$	50,472		$	52,989		$	2,517	5	%
		Total gross margin		60	%		60	%

Product gross margin. Gross margin for product revenues remained constant in 2007 compared to 2006.

Service gross margin. Gross margin for service revenues increased in 2007 compared to 2006 as our service revenues grew at a faster rate than our cost of services revenue, and we were better able to leverage the services infrastructure developed in prior periods. Headcount for our service department increased from 27 to 34 between 2006 and 2007.

Operating expenses

The following table summarizes and analyzes our operating expenses for 2006 and 2007:

			Years ended December 31,						2006 to 2007 change

(in thousands)			2006			2007			$		%

Operating expenses:
	Research and development		$	17,265		$	22,733		$	5,468	32	%
		% of total revenues		21	%		26	%
	Sales and marketing			20,414			26,733			6,319	31	%
		% of total revenues		24	%		30	%
	General and administrative			5,181			7,259			2,078	40	%
		% of total revenues		6	%		8	%

Total operating expenses			$	42,860		$	56,725		$	13,865	32	%

Research and development. The $5.5 million, or 32%, increase in research and development expense was primarily due to a $3.9 million increase in payroll and benefit costs resulting from an increase in employee headcount from 84 to 121, a $1.0 million increase in depreciation expense and consumable supplies and materials used in development and testing functions and a $385,000 increase in other engineering expense.

Sales and marketing. The $6.3 million, or 31%, increase in sales and marketing expense was primarily due to a $2.9 million increase in payroll and benefit costs, a $1.3 million increase in travel and entertainment costs and a $435,000 increase for third-party service providers. These increases primarily resulted from an increase in employee headcount from 62 to 77. Additionally, seminars and advertising expenses increased by $774,000, facility expense and corporate allocations increased by $519,000 and expenses such as depreciation, office and other expenses increased by $425,000.

General and administrative. The $2.1 million, or 40%, increase in general and administrative expense was primarily due to a $1.7 million increase in consulting, audit and tax fees and a $573,000 increase in payroll and benefit costs, partially offset by a $160,000 decrease in facilities and other expense.

Interest and other income (expense), net

In 2007, we recognized $375,000 of warrant revaluation expense in accordance with FAS 150-5. The expense recorded in 2007 was net of a benefit of approximately $1.1 million recorded in the second quarter of 2007, which was caused by a reduction in the value of the warrants as a result of the decrease in value of the underlying stock. Foreign currency losses increased slightly in the same periods due to unfavorable exchange rates in our foreign operations.

Income tax (benefit) provision

The income tax benefit was $1.4 million in 2007 and $902,000 in 2006. The 2006 and 2007 annual effective tax rate was approximately (19.4)% and (40.4)%, respectively. These rates differ from the statutory rates primarily due to the release of valuation allowance in 2006 and the non-deductibility of certain stock compensation and warrant costs, partially offset by research and development credit benefits, in 2007.

Quarterly results of operations data

The following table sets forth our unaudited quarterly consolidated statement of operations data for each of the eight quarters in the period ended March 31, 2008. In management's opinion, the data has been prepared on the same basis as the audited consolidated financial statements included in this prospectus, and reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

		For the three months ended

(in thousands)		June 30, 2006			Sept. 30, 2006			Dec. 31, 2006			Mar. 31, 2007			June 30, 2007			Sept. 30, 2007			Dec. 31, 2007			Mar. 31, 2008

Consolidated statement of operations data:
Revenues:
	Product revenues	$	18,851		$	20,232		$	21,908		$	15,281		$	18,953		$	21,686		$	25,939		$	27,388
	Service revenues		1,253			1,219			1,347			1,280			1,548			1,781			1,797			1,854

Total revenues			20,104			21,451			23,255			16,561			20,501			23,467			27,736			29,242
Cost of revenues:
	Cost of product revenues(1)		6,660			7,362			8,151			5,759			6,972			7,408			9,092			9,505
	Cost of service revenues(1)		1,119			1,207			1,243			1,489			1,414			1,469			1,673			1,777

Total cost of revenues			7,779			8,569			9,394			7,248			8,386			8,877			10,765			11,282

Gross profit			12,325			12,882			13,861			9,313			12,115			14,590			16,971			17,960
Operating expenses:
	Research and development(1)		4,113			4,349			4,873			5,591			5,899			5,381			5,862			7,233
	Sales and marketing(1)		5,195			5,421			5,186			6,119			7,751			6,260			6,603			8,232
	General and administrative(1)		1,124			1,039			2,000			1,783			1,729			1,884			1,863			2,685

Total operating expenses			10,432			10,809			12,059			13,493			15,379			13,525			14,328			18,150

Income (loss) from operations			1,893			2,073			1,802			(4,180	)		(3,264	)		1,065			2,643			(190	)
Interest and other income (expense), net			148			191			167			180			130			79			222			131
Accretion of preferred stock warrant liability			(358	)		(340	)		(2,859	)		(674	)		1,104			(780	)		(25	)		81

Income (loss) before income taxes			1,683			1,924			(890	)		(4,674	)		(2,030	)		364			2,840			22
Income tax (benefit) provision			663			808			(103	)		(1,817	)		(847	)		251			1,013			230

Net income (loss)		$	1,020		$	1,116		$	(787	)	$	(2,857	)	$	(1,183	)	$	113		$	1,827		$	(208	)

(1): Includes stock-based compensation as follows (in thousands):

Total cost of revenues	$	17	$	26	$	26	$	54	$	58	$	58	$	58	$	75
Research and development		47		72		70		123		135		132		197		287
Sales and marketing		36		55		53		107		162		167		208		284
General and administrative		15		16		47		70		73		83		143		210

Total stock-based compensation	$	115	$	169	$	196	$	354	$	428	$	440	$	606	$	856

The following table sets forth our unaudited quarterly consolidated statement of operations data as a percentage of total revenues for each of the eight quarters in the period ended March 31, 2008.

		For the three months ended

		June 30, 2006		Sept. 30, 2006		Dec. 31, 2006		Mar. 31, 2007		June 30, 2007		Sept. 30, 2007		Dec. 31, 2007		Mar. 31, 2008

Revenues:
	Product revenues	94	%	94	%	94	%	92	%	92	%	92	%	94	%	94	%
	Service revenues	6		6		6		8		8		8		6		6

Total revenues		100		100		100		100		100		100		100		100
Cost of revenues:
	Cost of product revenues	33		34		35		35		34		32		33		33
	Cost of service revenues	6		6		5		9		7		6		6		6

Total cost of revenues		39		40		40		44		41		38		39		39

Gross profit		61		60		60		56		59		62		61		61
Operating expenses:
	Research and development	20		20		21		33		29		23		21		25
	Sales and marketing	26		25		22		37		38		27		23		28
	General and administrative	6		5		9		11		8		8		7		9

Total operating expenses		52		50		52		81		75		58		51		62

Income (loss) from operations		9		10		8		(25	)	(16	)	4		10		(1	)
Interest and other income (expense), net		(1	)	(1	)	(1	)	1		—		—		1		1
Accretion of preferred stock warrant liability		(2	)	(2	)	(12	)	(4	)	6		(2	)	—		—

Income (loss) before income taxes		8		9		(4	)	(28	)	(10	)	2		11		—
Income tax (benefit) provision		3		4		—		(11	)	(4	)	1		4		1

Net income (loss)		5	%	5	%	(3	)%	(17	)%	(6	)%	1	%	7	%	(1	)%

Revenues increased sequentially in the three quarters ended December 31, 2006 and in the five quarters ended March 31, 2008, due to increases in the number of products sold to new and existing customers, ongoing development of indirect and direct sales channels and international expansion in the second half of 2006 and 2007. Revenues decreased from the prior quarter in the quarter ended March 31, 2007 due to decreased sales of our products to new and existing customers. Cost of service revenues has increased over time due to increased service headcount and the development of our maintenance and service infrastructure to service our installed base. Gross margin declined in the quarter ended March 31, 2007 due to lower product revenues over which to spread fixed costs. Operating expenses have generally increased sequentially due to additional headcount and related costs to accommodate our growing business on a quarterly basis. Our research and development expenses increased in the quarter ended March 31, 2008 as we increased headcount and used outside services to meet increased research and development activities. Our sales and marketing expense increased in

the second quarter of 2007 and first quarter of 2008 due to increased trade show and customer event expenses. Our increase in general and administrative expense in 2007 was primarily due to increased accounting and audit expense.

Liquidity and capital resources

From our inception through 2004, we financed our operations primarily through private sales of convertible preferred stock totaling approximately $95.0 million. In 2007, 2006 and 2005, we generated positive cash flow from operations, whereas in years prior to 2005, our operating activities used cash. As of March 31, 2008, we had cash and cash equivalents and short-term investments of $35.5 million. We believe our cash, cash equivalents and cash flows from operations, if any, will be sufficient to satisfy our financial obligations through at least the next 12 months. In the future, we may acquire complementary businesses or technologies or license complementary technologies from third parties, and we may decide to raise additional capital through future debt or equity financings to the extent we believe necessary to successfully complete these acquisitions or licenses. However, additional financing may not be available to us on favorable terms, if at all, at the time we make such determinations, which could have a material adverse affect on our ability to maintain or improve our liquidity and cash position in the future.

Cash flows

The following table presents our cash flows from operating activities, investing activities and financing activities in 2005, 2006 and 2007 and in the three months ended March 31, 2007 and 2008:

	Years ended December 31,									Three months ended March 31,

(in thousands)	2005			2006			2007			2007			2008

Net cash provided by (used in) operating activities	$	7,035		$	5,121		$	5,879		$	(67	)	$	1,427
Net cash used in investing activities		(1,840	)		(3,745	)		(3,469	)		(1,373	)		(7,692	)
Net cash provided by financing activities		53			266			15,091			35			11

Increase (decrease) in cash and cash equivalents	$	5,248		$	1,642		$	17,501		$	(1,405	)	$	(6,254	)

In the three months ended March 31, 2008, our cash and cash equivalents decreased $6.2 million as compared to a decrease of $1.1 million during the three months ended March 31, 2007. We generated cash flows from operations of $1.4 million as compared to a net use of cash of $67,000 during the three months ended March 31, 2008 and 2007, respectively. We also invested $6.0 million in marketable securities during the three months ended March 31, 2008 contributing to a net use of cash in investing activities of $7.7 million as compared to a net use of $1.4 million in the three months ended March 31, 2007.

Operating activities. Cash provided by operating activities in the three months ended March 31, 2008 primarily reflected $1.8 million increase in accounts payable due to increased purchases of inventory and timing of payments, $1.7 million of depreciation and amortization, $693,000 of stock-based compensation expense and an increase in accrued liabilities of $449,000 principally due to accruals for payroll related expenses and audit fees. Cash from operating activities was partially offset by $208,000 of net loss, a $2.0 million increase in

inventory purchases, which includes $849,000 of inventory capitalized as fixed assets for use as test equipment and demonstration units and $1.1 million increase in prepaid expenses and other current assets, partially attributable to an increase in prepaid tradeshow expenses and in our capitalizable offering costs.

Cash used in operating activities in the three months ended March 31, 2007 primarily reflected $2.9 million of net loss, $1.8 million increase in inventory purchases, which includes $675,000 of inventory capitalized as fixed assets for use as test equipment and demonstration units, $1.4 million decrease in accrued liabilities principally due to payouts of bonuses and commissions and audit fees and $1.3 million increase in deferred tax assets. Cash used in operating activities was partially offset by a decrease in accounts receivable of $5.0 million due to fluctuations in the timing of payments received from customers and $1.1 million of depreciation and amortization.

Cash provided by operating activities in 2007 primarily reflected $5.6 million of depreciation and amortization, a decrease in accounts receivable of $5.0 million due to fluctuations in the timing of payments received from customers, $1.8 million of stock-based compensation expense and a $1.5 million increase in deferred revenue due to timing of payments and sales of product subject to customer acceptance provisions. Cash from operating activities was partially offset by $2.1 million of net loss, a $4.7 million increase in inventory purchases, which includes $3.1 million of inventory capitalized as fixed assets for use as test equipment and demonstration units, and a $2.4 million increase in prepaid expenses and other current assets partially attributable to an increase in our capitalizable offering costs.

Cash provided by operating activities in 2006 primarily reflected $5.5 million of net income adjusted for $3.6 million of depreciation and amortization, $3.6 million of convertible preferred stock warrant accretion and $932,000 of stock-based compensation expense. Additionally, cash provided by operating activities reflects a $3.6 million increase in accounts payable due to increased purchases of inventory and timing of payments and an increase in accrued liabilities of $2.4 million principally due to accruals for income taxes payable was partially offset by a $3.6 million increase in deferred tax assets resulting from the release of our valuation allowance. An increase in accounts receivable of $7.7 million was primarily due to increased revenues for 2006 as compared to the three months ended December 31, 2005 and to fluctuations in the timing of payments received from customers. Although our accounts receivable balance increased, we did not experience any material write-offs of delinquent accounts during 2006.

Cash provided by operating activities in 2005 consisted primarily of $4.1 million of net income, a $3.8 million increase in accrued liabilities and accounts payable reflecting increased vendor purchases and timing of payments, a $2.8 million increase in deferred revenue as a result of sales of product subject to customer acceptance provisions and $2.2 million of depreciation and amortization as a result of capital expenditures, which was partially offset by a $3.5 million increase in accounts receivable as a result of our increase in revenues and a $2.8 million increase in inventory as a result of our increase in revenues. The increase in accrued liabilities and accounts payable in 2005 were primarily due to an increase in sales compensation expense resulting from increased revenue during the period and to increases in professional services and outside consultant expenses as well as increased vendor purchases.

Investing activities. We used $7.7 million in investing activities in the three months ended March 31, 2008 primarily for the purchase of $6.0 million of short-term investments and

$1.8 million of property and equipment to support the growth of our company. We used $1.4 million, $3.5 million, $3.7 million and $1.8 million in investing activities in the three months ended March 31, 2008 and in 2007, 2006 and 2005, respectively, primarily for the purchase of property and equipment. We expect to increase our capital expenditures in future periods as we continue to invest in computer and office equipment, leasehold improvements as we expand our business and increase our inventory of components expected to be discontinued by our suppliers.

Financing activities. During the three months ended March 31, 2008 and 2007 and during 2006 and 2005, cash generated from financing activities related primarily to the exercise of common stock options. During 2007, we generated cash from financing activities, primarily due to net proceeds of $15.0 million from the sale of Series C-1 convertible preferred stock. During 2006 and 2005, cash generated from financing activities related primarily to the exercise of common stock options.

Contractual obligations

Our contractual obligations as of December 31, 2007 were as follows:

(in thousands)	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 years


Contractual obligations:
Operating leases	$	2,049	$	839	$	892	$	318	—
Purchase obligations		6,748		6,748		—		—	—

Total contractual obligations	$	8,797	$	7,587	$	892	$	318	—

Purchase obligations in the above table represent contractual obligations for the purchase of components. In addition to the contracted purchase obligations above, we expect to incur expenditures of $4.8 million and $2.9 million in the remainder of 2008 and 2009, respectively, related to "last buys" of multiple components being discontinued by a number of our component suppliers.

The non-current portion of the unrecognized tax benefits in accordance with FIN 48 at December 31, 2007 was $1.3 million, of which the timing of the resolution is uncertain.

Operating lease

In February 2008, we entered into an agreement to lease a 68,608 square-foot building in Sunnyvale, California that will replace our current facility as our corporate headquarters. Payments under the lease are expected to commence in September 2008. The lease will terminate in December 2012. We have an option to extend the lease for an additional five year term. Future minimum rental payments under this agreement total $7.2 million, consisting of $583,000, $1.4 million, $1.5 million and $3.7 million for 2008, 2009, 2010 and thereafter, respectively. These lease payments will be allocated to our cost of products and services revenues and operating expenses beginning in 2008.

In connection with the build out of these premises, we will incur approximately $1.9 million of unreimbursed construction costs, all of which will be incurred during the remainder of 2008.

Off-balance sheet arrangements

As of March 31, 2008 and December 31, 2007, 2006 and 2005, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often

referred to as structured finance or special-purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recent accounting pronouncements

In September 2006, the FASB finalized SFAS No. 157 which became effective in 2008 except as amended by FSP FAS 157-1 and FSP FAS 157-2 as discussed below. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements; however, it does not require any new fair value measurements. The provisions of SFAS No. 157 will be applied prospectively to fair value measurements and disclosures for financial assets and financial liabilities and nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statements on at least an annual basis beginning in the first quarter of 2008. The adoption of SFAS No. 157 did not have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. This Statement became effective for us in 2008. The adoption of SFAS No. 159 did not have a material impact on our results of operations or financial position.

In June 2007, the FASB ratified a consensus opinion reached by the EITF on EITF Issue 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities, or EITF 07-3. The guidance in EITF 07-3 requires us to defer and capitalize nonrefundable advance payments made for goods or services to be used in research and development activities until the goods have been delivered or the related services have been performed. If the goods are no longer expected to be delivered or the services are no longer expected to be performed, we would be required to expense the related capitalized advance payments. EITF 07-3 became effective for us in 2008. The adoption of EITF 07-3 did not have a material impact on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, or SFAS 141(R).This statement replaces SFAS No. 141, Business Combinations and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest

in addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. SFAS 141(R) also amends SFAS 142, Goodwill and Other Intangible Assets, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently assessing the potential impact that the adoption of SFAS 141(R) could have on our financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, or SFAS 160. SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent's owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect the adoption of the provisions of SFAS No. 160 to have a material effect on our financial condition, results of operations or cash flows.

In December 2007, the FASB issued EITF Issue No. 07-1, Accounting for Collaborative Arrangements, or EITF 07-1. EITF 07-1 defines collaborative agreements as contractual arrangements that involve a joint operating activity. These arrangements involve two (or more) parties who are both active participants in the activity and that are exposed to significant risks and rewards dependent on the commercial success of the activity. EITF 07-1 provides that a company should report the effects of adoption as a change in accounting principle through retrospective application to all periods and requires additional disclosures about a company's collaborative arrangements. EITF 07-1 is effective for annual periods beginning after December 15, 2007. As of January 1, 2008, we adopted EITF 07-1 and the adoption had no material impact on our consolidated financial statements.

In February 2008, the FASB issued FSP Financial Accounting Standard, or FAS, 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, and FSP FAS 157-2, Effective Date of FASB Statement No. 157. FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, Fair Value Measurements. FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We do not

expect the adoption of the standard to have any other material impact on our financial position, results of operations and cash flows.

Quantitative and qualitative disclosures about market risk

Interest rate sensitivity

We account for our investment instruments in accordance with SFAS No. 115, Accounting for Investments in Debt and Equity Securities. We place our cash investments in instruments that meet high credit quality standards, as specified in our investment policy guidelines.

As of March 31, 2008, we had cash and cash equivalents of $29.5 million, which consisted of highly liquid U.S. government obligations with original maturities of three months or less, money market funds which are invested exclusively in U.S. government obligations and nominal balances in depository checking accounts. We also had marketable securities of $6.0 million, which consisted of U.S. government obligations with original maturities of greater than three months. Because of the short-term nature of these instruments, a sudden change in market interest rates would not be expected to have a material effect on our financial condition or results of operations. However, as the yield curve of debt instruments may return to a standard profile, we may begin investing in longer-term debt instruments. Should we begin to invest in longer-term debt instruments, such fluctuations could reduce future interest income.

We review our investments to identify and evaluate investments that have an indication of possible impairment. We do not use derivative financial instruments.

Foreign currency exchange risk

Although a majority of our revenues is derived from customers who reside outside of the United States, all of our revenues are derived from transactions denominated in U.S. dollars. Because of this, increases in the value of the U.S. dollar could require us to reduce our prices to remain competitive in foreign markets, which could have a material adverse effect on our consolidated results of operations or financial position. We have periodically reviewed and revised the pricing of our products available to our customers in foreign countries in response to these transaction-related risks.

Given that the only expenses that we incur in currencies other than U.S. dollars are certain costs which historically have not been a significant percentage of our revenues, we do not believe that our foreign currency exchange rate fluctuation risk is significant.

We have not hedged exposures denominated in foreign currencies or used any other derivative financial instruments as we do not believe that we currently have any significant direct foreign currency exchange rate risk. Although we transact our business in U.S. dollars, future fluctuations in the value of the U.S. dollar may affect the competitiveness of our products and results of operations.

Business

Omneon overview

Omneon is a leading provider of digital content storage and processing systems used by media companies to enable efficient production and distribution of high-quality digital video and audio. We develop, market and sell a range of video servers, storage systems and related software applications that media companies use to simultaneously ingest, process, store, manage and deliver digital media in a wide range of formats. When used for television production and on-air operations, our products provide both continuous real-time record and playback capabilities as well as file-based access to and delivery of digital media content. As the means by which media distribution to consumers rapidly evolves, our systems also provide a platform for media companies to produce more content needed for delivery to a wider range of devices.

We leverage our understanding of media workflow requirements, knowledge of information technologies and advanced system design capabilities to provide high performance, standards-based storage and processing solutions optimized for the large-capacity and high-bandwidth requirements of digital media content. Our products include Spectrum video servers, MediaGrid active storage systems and MediaTool software applications. Our Spectrum video servers provide reliable real-time recording and playback of multiple channels of high-quality program content. Our MediaGrid active storage systems enable high-bandwidth simultaneous access to stored content by multiple users, as well as high-performance media processing. Our MediaTool software applications provide basic content management, content distribution, media file processing and system control functionality. Together, these products deliver an integrated solution that enables more efficient digital media production and distribution workflows. Our products are commonly combined with complementary technologies and applications, and we encourage a broad ecosystem of partners to ensure interoperability with our platforms by supporting industry-standard interface protocols and offering application programming interfaces, or APIs.

Our products are used by media companies worldwide including multi-national media conglomerates, commercial and public broadcast television networks, content networks, satellite broadcasters, television service providers, local television stations and mobile television providers. We sell our products both indirectly through system integrators and directly to end users. To date, our systems have been sold to approximately 500 customers in approximately 60 countries. Our customers include system integrators, such as Ascent Media Group and Netorium GmbH, which were our two largest system integrators by revenues during the period from January 1, 2006 through March 31, 2008, and end users, such as Turner Broadcast Systems, Inc., a division of Time Warner, British Sky Broadcasting, Technicolor Network Services, and EchoStar Corporation, which were our four largest end-user customers by revenues during the same period.

Industry overview

The advent of new technologies and distribution platforms is driving fundamental changes in the way video content is produced, programmed, distributed and consumed. These changes are affecting all of the participants in the digital content value chain as shown below:

Content production. Production and post-production facilities create programming, advertisements and promotional content. National broadcasters create syndicated news and other programming, while individual stations produce local-interest content, as well as local and regional news programming. Traditionally, these companies have used analog, tape-based video production equipment to support the creation of content for a limited number of channels in a single format. The proliferation of new channels and platforms is driving the need for different types of content in multiple formats, forcing producers to create more content with greater efficiency. As a result, content producers are increasingly transitioning to digital production tools that take advantage of file-based workflows and disk-based shared storage platforms to improve workflow by enabling more collaborative production. The increasing use of file-based workflows requires high-performance storage systems that can support these new production processes.

Content programming. Broadcasters of all sizes combine and package content from production companies to create television programming. These international, national, regional or local organizations then use a variety of distribution services, such as over-the-air, cable, satellite and telecommunication companies, to deliver their programs to consumers. Historically, programs and interstitials, such as commercials, promotions and other inserted material, were either manually compiled on a single tape or stored on multiple individual tapes. The process of programming a channel required that programs be compiled in advance or that large numbers of tapes had to be managed and sequentially played back. Increasingly, broadcasters are using servers to replace tape-based operations. Servers enable true non-linear access to

shared content to support multi-channel operations and effectively eliminate the need for pre-compiled programs or tape-based workflows. Programs and interstitials can be ingested into a server, sequenced in any order and then played back as the continuous stream of a television channel. Further, once programs reside as files within a server, it becomes easier to repackage and reformat those programs for distribution to new platforms. As the number of channels and platforms continues to increase, broadcasters are using server technology to streamline the creation of new channels and more quickly launch new program services. The increasing need to repurpose content requires scalable storage to hold growing libraries of media files, as well as integration between server and storage platforms.

Content distribution. Over-the-air broadcasters and television service providers, including cable and satellite operators and, increasingly, certain telecommunications companies, distribute television programming to consumers. Most of these service providers must support a large number of channels, often combining content from a number of content programmers. The proliferation of specialty channels and new consumer video platforms is further driving content distributors to expand the number of channels offered, integrating content from a wider range of providers. More recently, new Internet-based content distribution companies have emerged in response to consumer demand for downloadable or Internet Protocol, or IP, streamed content. The use of server technology has been a key enabler of these trends, making it more cost-effective and efficient to operate a complex multi-channel environment and to take advantage of new distribution mediums.

Content consumption. Consumers are demanding broader access to both existing and new forms of content. Driven by advancements in consumer electronics, many consumers now want higher quality content in the form of high-definition, or HD, television. Additionally, consumers are increasingly obtaining content directly, on their own schedule, rather than as part of a pre-packaged program channel delivered on a fixed schedule. The proliferation of video-enabled devices, such as personal video players and mobile phones, is further driving the demand for content to be available anywhere at anytime. These changes in consumer behavior require new ways of formatting and distributing content, forcing producers and distributors to invest in new production and delivery platforms.

Changing environment for media companies

Across the digital content value chain, several key trends are driving changes in how production and distribution facilities are being designed and operated:

Analog to digital conversion. Media companies are embracing digital formats to ingest, process, store, manage and deliver content. The conversion of media into a digital format generally enables higher quality and more efficient production and distribution of content, due to its more accurate reproduction and data compression characteristics. A variety of compression standards now exist that enable more efficient transport and storage of digital video files. The growing demand for content in multiple formats for new platforms will further require advanced compression algorithms and the ability to quickly convert from one format to another.

Tape to disk-based storage. While tape-based systems have been the primary method used for television program production and delivery, these systems are rapidly being converted to disk-based systems as the number of channels of programming continues to grow and new forms of content become more prevalent. Disk-based storage enables simultaneous access to

raw content by multiple individuals and production teams and provides a means to better support the distribution of different content formats across multiple distribution channels. Digital content storage and processing systems have evolved to support the new workflow needs of media companies as they seek to manage the changes in how content is produced and distributed. For example, media server technology has advanced to where it is possible to store hundreds of hours of content and simultaneously play back many channels of continuous programming.

Standard-definition to high-definition content. In order to meet growing viewer demand for HD content, media companies are upgrading their applications and the infrastructure needed to produce and deliver HD programming. HD material is particularly challenging because it requires both larger capacity and higher bandwidth systems to transport, manipulate, archive and access the content. The adoption of HD is driving the need for enhanced servers, storage and software applications capable of ingesting, processing, storing, managing and delivering HD content.

Transition towards file-based workflow and file-based distribution. File-based systems are being used across all aspects of the digital content workflow, from acquisition with the emergence of file-based cameras, to production using video editing platforms, to distribution, which often utilizes file-based delivery services. File-based production allows for more collaborative work, as multiple individuals and production teams can access the same content from a shared storage resource. Once finished, programs are available as digital files, new distribution models become possible, allowing content to pass more efficiently through the value chain and creating greater flexibility in how programs are delivered to consumers.

Our market opportunity

As shown below, the workflow within a media company typically consists of several stages:

•: ingest, where content is either captured in real-time and digitized or copied as a file from an outside source;
•: production, where content is accessed by multiple applications such as video editors, audio workstations or other preparation utilities to create finished programming; and
•: distribution, where content is delivered to a service provider or the consumer either as a real-time television signal or as a digital media file.

Across the workflow, new technologies and processes are being implemented to address the changing requirements of the media industry:

Ingest and production. Media companies are moving from manual dubbing, labeling and tape delivery processes to deployment of real-time server architectures to ingest digital media and make it immediately available for edit and production. The use of server and file-based storage technology enables more collaborative production activities and speeds the time-to-air, which is critical for a fast paced newsroom production environment.

Distribution. Distribution is evolving from a tape-based playout model to a file-based media server infrastructure capable of both multi-channel real-time playout as well as file-based content delivery. The growing need for more HD programming across more distribution channels is continuing to drive the utilization of media servers for playout.

According to Frost & Sullivan, the market for video servers used for ingest, production and distribution activities is expected to grow from $583 million in 2006 to $1.2 billion in 2010, representing a compound annual growth rate of 20%.

Workflow and storage. As digital media workflow migrates to a file-based approach, the need for centralized, high-bandwidth digital media file storage increases. Media storage needs to support simultaneous access by multiple applications, including editing and archiving, as well as a seamless interface between ingest and distribution servers. According to Frost & Sullivan, the world entertainment digital media storage market is expected to grow from $5.3 billion in 2006 to $8.6 billion in 2010, representing a compound annual growth rate of 13%. Total annual new storage capacity needed for the digital content value chain, excluding storage for long-term archiving and media preservation, is expected to grow from approximately 196 petabytes in 2006 to 496 petabytes in 2010, representing a compound annual growth rate of 26%, according to Coughlin Associates.

Digital content management. As more content exists in file format, media companies will need robust content management solutions to address the challenges of indexing and archiving all their digital content files. To enable content management applications to function

efficiently, storage and processing platforms must provide open interfaces, support industry standard protocols and file formats and provide efficient media metadata access. According to Frost & Sullivan, spending on digital asset management solutions is estimated to be $350 million in 2006, and is expected to grow at a compound annual growth rate of 25% to $854 million in 2010.

Content repurposing. To increase the value of their digital assets, content providers are seeking ways to repurpose content across multiple platforms, hoping to reach new audiences viewing content in new forms and on new devices. Each of these new platforms requires content to be reformatted for that platform, a process that takes time and consumes significant processing resources. Digital media files lend themselves to this process since they can be easily broken up and reassembled as needed.

Our solutions

Omneon solutions allow customers to deploy a digital content infrastructure that accommodates both real-time video processing and faster-than-real-time file-based workflows for the production and distribution of digital media content. Our Spectrum servers and MediaGrid storage product lines complement each other to support this mixed operating environment. Additionally, our MediaTools application software, including our ProBrowse media proxy systems, our ProXchange media transcoding systems and our ProCast content distribution platform, enable customers to manage, process and distribute content stored within the overall system.

Our Spectrum video servers are optimized for high-reliability, real-time applications such as multi-channel broadcast playout. Our MediaGrid active storage system is optimized for high-availability file-based content storage and provides high-bandwidth simultaneous multi-user access to content. MediaGrid is designed to incorporate grid computing capabilities, enabling integrated digital media processing functions such as format conversion and quality control. Our ProXchange transcode application is the first application to take advantage of the grid computing capabilities of MediaGrid to perform format conversions on stored content. The recently acquired ProCast content distribution platform provides management and acceleration of content distribution between facilities over wide-area networks.

Together, our products form the basis of a digital content infrastructure that can deliver a high level of workflow integration, linking both real-time and file-based requirements. This is critical to support evolving digital media content management and content repurposing workflows. Our products are designed to provide:

•: data type or format flexibility, supporting many types of audio, video and file metadata;
•: shared storage access, allowing simultaneous access to the same content;
•: storage capacity scalability, creating accessible storage capacity that can scale to large sizes;
•: system bandwidth scalability, supporting growth in both real-time channels and storage user access;
•: access and capability modularity, enabling additional real-time channels, system bandwidth and storage capacity in small, economical increments; and
•: open systems, enabling compatibility with legacy and industry-standard control protocols, interfaces and interchange formats.

Omneon solutions address key elements of the workflow requirements for media companies:

Ingest and production. When used for ingest and production, Spectrum servers can execute frame-accurate video recording from a variety of sources, including video tape recorders, live cameras or microwave and satellite feeds. Our systems are designed to support the protocols and interfaces used in the media industry, such as to control the recording or playing of a program clip with minimal delays, allowing for manual dubbing, crash records and scheduled recording. We are increasingly deploying systems into the production market, where digital media accessibility and processing capabilities are key requirements.

Distribution. Spectrum servers deliver highly scalable, reliable and cost-effective real-time, multi-channel digital video playback. Because the use of our systems for on-air transmission is core to the revenue-generating function of broadcasters, these systems are designed to be redundant and fault-resilient to ensure maximum reliability. To address the industry's transition from standard definition, or SD, to HD, we have designed our servers to support simultaneous SD and HD program playout.

Workflow and storage. The high-performance MediaGrid storage system provides a shared repository for media files, allowing high-bandwidth file access over IP networks. It enables fast access to high-demand digital media content and support for a large number of simultaneous users. We also provide a suite of APIs, giving applications a higher level of control over media file creation, modification and transfers. MediaGrid provides centralized storage for all ingested and archived content, production access by a wide range of applications, including multiple editors and staging platform for all content to be transmitted or distributed.

Digital content management. Our products are used to support the digital content management requirements of customers. Our systems can be used with our own applications, such as ProBrowse or ProCast, or with a wide range of third-party applications to set, manage and change various attributes of their digital media assets, either automatically or manually and either locally or across a widely distributed network. Combining our server and storage systems with related content management applications provides media companies with a comprehensive solution for managing their digital content.

Content repurposing. Our products extend the functionality of basic content storage to provide a media processing platform for the manipulation of content while it is being stored within our system. We are leveraging advancements in grid computing technology and are working closely with customers to extend our active storage platforms to make excess processing power available for applications that are part of the content repurposing workflow. For example, our recently introduced ProXchange transcode application utilizes MediaGrid processing power to enable customers to easily and quickly convert media from television broadcast formats to lower resolution formats suitable for Internet or mobile platforms.

Our strengths

We have expertise in developing open, scalable and reliable digital content storage and processing systems for media companies. Working closely with our customers, we develop

products and technologies optimized for media workflows and enable them to reduce costs and address new revenue opportunities. Our strengths include:

Focus and strong reputation in the digital media market. We are focused on storage and processing solutions for digital media content. Our products are specifically designed to meet the workflow needs of the media industry, including real-time video servers and highly scalable media file storage and grid-based media processing systems.

Expertise in integrating digital media and information technologies into cost-effective solutions. We have extensive technical expertise and development experience with information technologies, or IT, and storage and video technologies. Our engineering, sales and marketing staff has a deep understanding of the market and the workflow needs of customers. As a result, we are able to offer best-of-breed solutions that meet their needs.

Extensive knowledge of the technical infrastructure required to support complex workflows within a production and distribution facility. We have expertise in real-time services, which are required to enable continuous recording and playback of video and audio material, as well as in file-based workflows, which are required for high-bandwidth access to media files and used to support functions such as material preparation, editing, conversion and archiving. Combining this expertise enables us to deliver integrated solutions to customers, providing a digital content platform to support their evolving workflows.

Development of platforms designed to interoperate with best-of-breed technologies. We provide an open platform that supports any digital file format and allows third-party applications to interface with our products. Our APIs have been licensed by over 140 application developers, many of whom are influential in the selection of our products.

Strong relationships and a proven ability to collaborate with global media companies. We have deployed our products at some of the largest media facilities in the world, including British Sky Broadcasting, Discovery Communications and Turner Entertainment. As we develop plans for new products, we often engage some of our key customers in the definition process, which gives us insight into the products that will be most valuable to them.

Our strategy

We seek to become the leading provider of digital content infrastructure to the media industry. The key elements of our strategy are to:

Continue to expand our leadership in the broadcast video server market. We will continue to invest in our Spectrum product line and expand its functionality to address additional market opportunities. Our products were initially designed for, and have been deployed mostly by, broadcasters that use our products for the transmission of programmed television content. We are expanding into new market segments, particularly for content production uses, such as in news, sports and post-production projects, as we believe these areas are also transitioning from tape-based to server-based operations. Through these efforts, we intend to expand our customer base as well as deepen our relationships with existing customers.

Provide active storage solutions to the digital media industry. We are currently focused on selling and deploying MediaGrid to customers in the digital media industry. We designed and developed MediaGrid based on specific input from customers who needed a high-bandwidth

digital content storage platform. When combined with our Spectrum servers and related software applications, MediaGrid provides our customers with an end-to-end digital media infrastructure solution.

Expand our portfolio of content management and distribution applications. We intend to further expand our portfolio of MediaTool software applications to support our customers' needs for system control, media processing, content management and content distribution. For example, we believe that content management capabilities that ease search, retrieval, movement and repurposing of digital media files will be critical to media companies as they transition to file-based workflows.

Continue to involve customers in strategic product planning. We rely on close customer relationships to gain unique insights into evolving market requirements. By developing new features and products in collaboration with our customers, we increase our value to them across a wider range of their workflows.

Pursue partnerships and complementary acquisitions. We intend to continue to foster partner relations to allow customers to leverage our products by interoperating with other best-of-breed solutions. We will continue to partner with application developers, third-party system integrators and technology suppliers to ensure interoperability with other content infrastructure technologies to deliver integrated, value-added solutions to our customers. For example, we recently entered into a collaboration agreement with Sony to develop server products. As opportunities arise, we will consider strategic acquisitions of products, technologies and capabilities that extend our ability to provide solutions that further improve the digital media workflow for customers.

Opportunistically expand into new and adjacent markets. We believe that there is significant opportunity for our products beyond the markets we currently serve. These markets have similar characteristics to those of the media industry in that they also work with digital media content or require high-bandwidth transmission and storage of large files. For example, we may market MediaGrid in markets outside the broadcast industry. We may explore these markets and, where appropriate, begin sales and marketing efforts targeting these new segments.

Our customers

To date our systems have been sold to approximately 500 customers in approximately 60 countries. We sell a substantial portion of our products through indirect sales channels, such as system integrators, which sell systems to end users. Our largest sales channel partners include Ascent Media Group, Television Systems, Ltd., Itochu Cable Systems and Netorium.

The following is a representative list of our largest end users in each end-user category by revenues during the period from January 1, 2006 through March 31, 2008:

Category		End User


Media conglomerates		• Time Warner (U.S.) • Viacom (U.S.)
Broadcast television networks		• Red Bee Media (formerly a subsidiary of British Broadcasting Corporation) (U.K.) • NRK (Norway) • Fox News (U.S.)
Content networks		• Discovery Communications (U.S.) • ESPN Star Sports (Singapore) • Scripps Networks (U.S.)
Satellite broadcasters		• British Sky Broadcasting (U.K.) • SKY Perfect Communications (Japan) • Sky TV (New Zealand) • EchoStar Corporation
Television service providers		• Chellomedia Programming (Netherlands) • Corus Entertainment (Canada) • Technicolor Network Services (U.K.)
Local television stations		• KCBS (Los Angeles, CA) • KYW-TV (Philadelphia, PA) • WBZ-TV

In the three months ended March 31, 2008 and in 2007 and 2006, our revenues from customers outside the United States comprised 74%, 62% and 63%, respectively, of our total revenues. In the three months ended March 31, 2008 and in 2007 and 2006, we derived approximately 74%, 68% and 71%, respectively, of our total revenues through indirect sales. Ascent Media Group accounted for 14% and 10% of our total revenues in the three months ended March 31, 2008 and 2007, respectively. No customer represented greater than 10% of our total revenues in 2006 or 2007.

Products

Our products include video servers, active storage systems and related software applications. Our video server and storage products are based on proprietary system designs that integrate our file system and management software with hardware built using industry-standard components. Our software applications are designed to provide system control and media management functions for digital content stored within our hardware platforms.

Spectrum video servers

Spectrum video servers provide a platform to record, store and play back multiple channels of television content. A Spectrum video server system is typically comprised of modular

components connected by various networking technologies that can be deployed in a wide range of configurations. This flexible architecture allows customers to configure a system to meet precise channel count, storage capacity, system bandwidth and media format requirements and to easily change the system configuration as their needs evolve. We recently introduced a version of our Spectrum product, the Omneon MediaDeck, which is an integrated server platform containing a limited number of channels and storage capacity within a small compact package. We introduced this product for smaller facilities that need robust, yet cost-effective, video server capabilities.

Omneon Spectrum Media Server System

Omneon MediaDeck Media Server

MediaGrid active storage systems

MediaGrid active storage systems combine high-capacity storage, high-bandwidth data access and integrated computing power in a central storage system capable of supporting the demanding performance, scalability and reliability requirements of media companies. MediaGrid performs an active role in the workflow by providing multiple active copies of a file to facilitate simultaneous concurrent client access, file-based management and protection.

MediaGrid was designed to provide storage capacities from as little as a few terabytes to several petabytes of data all within a single file system. Data access bandwidth can scale to many hundreds of gigabits per second of aggregate throughput.

Omneon MediaGrid Active Storage System

MediaTool software applications and systems

We have developed a family of software applications and systems that provide basic content management and system control functionality. These products are designed to address specific aspects of our customers' workflows as they transition to file-based content management. These tools include:

•: ProBrowse – a comprehensive media proxy system that makes content available to networked personal computers in a media facility and provides access to a low-resolution copy of all full resolution material contained on either Spectrum, MediaDeck or MediaGrid systems;
•: ProXchange – a high performance media transcoding system that takes advantage of the grid-processing capabilities of MediaGrid to perform format conversions on media files stored within a MediaGrid system;
•: ProCast – a comprehensive platform for managing and accelerating the distribution of file-based content over wide area networks;
•: ClipTool Pro – controls the recording or playback of a single channel on a Spectrum server;
•: RecordTool – schedules and manages media recordings on a Spectrum or MediaDeck server;
•: DelayTool – manages delayed broadcast transmissions, such as time zone delays, on a Spectrum or MediaDeck server;
•: TransferTool – moves video and audio clips between Omneon systems;
•: MirrorTool – synchronizes content across multiple Omneon systems;
•: DemuxTool – extracts programming material from an MPEG program transport stream on a Spectrum server; and
•: TrackTool – manages the combination of multiple video, audio and data "tracks" within a single program clip.

System management products

For configuration, monitoring and system maintenance functions, we offer comprehensive system management tools that our customers use to manage systems:

•: SystemManager – a management platform for configuring, monitoring, troubleshooting and servicing Spectrum, MediaDeck, MediaGrid, ProXchange and ProBrowse systems; and
•: ContentManager – an application that is used to manage the attributes of data stored within MediaGrid.

Technology

System architecture design

Our modular hardware and software components are interconnected by various standard IT networking technologies, enabling high-performance media processing, high-bandwidth access to media content and resilience to individual component failure.

Industry-standard components. We integrate standard IT components into our systems, allowing us to capitalize on the development and cost economies of the broader IT market.

Modular design. We design our systems around the use of multiple modular components that are interconnected with standard IT networking technologies. Each of the functional elements of our servers and storage systems, such as system controllers, storage devices and codec devices, are discrete components that can be configured to specific and changing customer requirements.

Reliability. We have designed our systems to minimize single points of failure, such that in the event of a component failure, the overall system can continue to operate.

File system technologies

Our server and storage systems are designed to support the workflows of customers using our proprietary file system software.

Spectrum file system. We designed a proprietary distributed file system that allows multiple servers to be connected to the same shared pool of storage, allowing multiple users to read and write operations to storage simultaneously and enabling the high bandwidth needed for multi-channel real-time media operations. Our advanced buffering and caching algorithms are designed to ensure that access to data is highly deterministic, which supports continuous low-latency real-time operations. Our recently-introduced MediaDeck video server uses this same Spectrum file system.

MediaGrid file system. The MediaGrid active storage system is based on our proprietary distributed virtual file system that aggregates multiple independent storage nodes into a single global name space. We developed advanced data replication techniques that are designed to ensure data protection as well as hardware and software fault tolerance and recovery. We designed a grid-style architecture to enable scaling of both capacity and bandwidth as new nodes are added, and to function as a large-scale grid computing platform, allowing applications to spread their computing tasks across the processors in each node. For certain client platforms, we have optimized data access on MediaGrid to enable a direct connection between the client and all nodes of the system. This approach allows each client platform to access data from all nodes in parallel, optimizing access bandwidth across the system.

Media processing

Based on our expertise in real-time media processing, we have optimized our systems for the recording and delivery of continuous media, and have designed specific capabilities for handling digital media files and video streams.

Media management. We have developed proprietary techniques that enable our systems to deliver multiple continuous streams of high-quality video and audio content. These techniques include managing storage subsystem latencies, data retrieval, rapid opening and closing of multiple files and enabling of high performance file creation, deletion and status processes.

Video compression. Our systems are designed to support both compressed and uncompressed digital media. Spectrum and MediaDeck incorporate codec technology that either encodes or decodes media in real-time using one of several compression formats.

Metadata. Our systems are designed to construct and interpret complex metadata for digital media files. We have developed APIs that expose this complex metadata and allow third-party application developers to create, access and modify content within these systems.

Sales and marketing

We sell our products indirectly through system integrators and directly to end users. In 2007 and in the three months ended March 31, 2008, we derived approximately 68% and 74%, respectively, of our total revenues from sales to system integrators.

Our field sales personnel are located throughout the United States, Europe, Japan and Asia Pacific. We have hired regional sales personnel for specific emerging markets such as Russia, India, the Middle East, China and Latin America. Our field sales personnel are responsible for managing our relationships with both system integrator partners and end users. They work closely with system integrators to provide assistance throughout the sales process and they also engage directly with end users to provide education about Omneon solutions and influence them to specify our products.

System integrators. System integrators use our products as a key component of an overall system that they sell to their customers. In most cases, system integrators directly purchase our products based on orders from their customers.

Our customers typically contract with a system integrator to design and install new broadcast facilities, upgrade existing facilities or otherwise expand their operations. In general, these projects involve the integration of different systems and components, such as automation, traffic, master control, graphics, branding and closed captioning systems, in addition to our server and storage systems. In these overall systems, our products are responsible for the ingest, storage and playout of content. The system integrator will design an overall infrastructure and implement and install all of the various systems and components.

Direct sales. For sales of our products made directly to end user customers, our field sales personnel manage the entire sales process.

Marketing. We focus our marketing efforts on generating product awareness, communicating product advantages and generating qualified leads for our sales force. We are also focusing our marketing efforts to target customers and applications in the production and transmission areas. We rely on a variety of marketing vehicles, including our website, trade shows, advertising, public relations, industry research and collaborative relationships with system integrators, application developers and technology vendors to gain wider market access.

Seasonality. Our business is subject to seasonal fluctuations. In particular, we have historically experienced lower revenues or lower revenue growth rates during the first quarter than in other quarters in the same year and our first quarter revenues may be lower than revenues in the fourth quarter of the preceding year. We believe this seasonality is due to customer demand, which is driven by their individual capital expenditure and infrastructure upgrade cycles. We anticipate that our revenues will continue to be subject to seasonality and therefore our financial results will vary significantly from period to period.

Customer support

We believe that our ability to provide consistent, high-quality worldwide customer service and technical support is an important factor in attracting customers. Product support can include Internet access to technical content, as well as telephone access to technical support personnel on a 24-hour-a-day, seven-day-a-week basis from our technical assistance centers located at our headquarters in Sunnyvale, California and in Europe and Asia. We also have regional support

personnel located in Austin, Boston, Denver, Raleigh and Tampa. We have international support centers or support teams in the United Kingdom, Singapore and Japan. As we expand internationally, we will continue to hire additional local technical support personnel and work with local third-party service providers to service our international customer base. We also offer our customers a variety of other education and training programs.

Research and development

We believe our future success depends on our ability to develop new products, features and applications that address the rapidly changing technology and needs of the media industry. Our engineering staff is responsible for the design, development, quality, documentation and release of our products. We have engineering groups located at our headquarters in Sunnyvale, California and in Beaverton, Oregon. Research and development expenses were $7.2 million, $22.7 million, $17.3 million and $9.8 million in the three months ended March 31, 2008 and in 2007, 2006 and 2005, respectively.

Manufacturing

We outsource the manufacturing of our products to third-party manufacturers who purchase components on our approved vendor list, build products per our specifications, install our software and conduct the functionality testing that we have developed. Internally, we are focused on quality control, supply chain management, new product introductions and order fulfillment. We currently do not have written contracts with our third-party manufacturers. We maintain direct relationships with key suppliers in order to manage continuity of supply and pricing.

Competition

The market for our products is highly competitive, rapidly evolving and subject to changing technology, customer needs and new product introductions. Our Spectrum products compete with products from Avid Technology, Inc., Harris Corporation, SeaChange International, Inc. and Thomson S.A. Our MediaGrid product currently competes with products offered by manufacturers of general purpose storage products. We may market our MediaGrid product for use in storage applications outside of the broadcast industry. These other markets are extremely competitive and may include companies with greater technical and financial resources than us. As we introduce additional products or address new market opportunities, we expect to encounter additional competitors, including established and emerging companies in adjacent technology businesses. We currently compete principally on the basis of:

•: product features and performance;
•: pricing;
•: total cost of ownership; and
•: customer service.

We believe we compete favorably in each of these areas.

Intellectual property

Our success and ability to compete are substantially dependent upon our intellectual property. We rely on patent, trademark and copyright law, trade secret protection and confidentiality or

license agreements with our employees, customers, strategic partners and others to protect our intellectual property rights. We have 13 patents issued in the United States, which expire between 2023 and 2026, and have 14 patent applications in the United States. We also have one issued patent and 15 patent applications in foreign countries based on our issued patents and patent applications in the United States. In addition, we have a number of non-exclusive licenses from third-party hardware and software vendors that allow us to resell certain hardware products and incorporate their software in our products.

The steps we have taken to protect our intellectual property rights may not be adequate. Third-parties may infringe or misappropriate our intellectual property rights and may challenge our issued patents. In addition, other parties may independently develop similar or competing technologies designed around any patents that may be issued to us. We intend to enforce our intellectual property rights vigorously, and from time to time, we may initiate claims against third-parties that we believe are infringing our intellectual property rights if we are unable to resolve matters satisfactorily through negotiation. If we fail to protect our intellectual property rights adequately, our competitors could offer similar products, potentially significantly harming our competitive position and decreasing our revenues.

Employees

As of March 31, 2008, we had 301 employees, of which 37 are engaged in service and support, 85 are engaged in sales and marketing, 127 are engaged in research and development, 22 are engaged in manufacturing and operations, 23 are engaged in general and administrative functions and seven are engaged in facilities and information technology functions. None of our employees are represented by a labor union or are covered by a collective bargaining agreement. We have never experienced any employment-related work stoppages, and we consider our employee relations to be good.

Facilities

We lease approximately 41,000 square feet of space for our headquarters in Sunnyvale, California under an agreement that expires in June 2008.

In February 2008, we entered into an agreement to lease a 68,608 square-foot building in Sunnyvale, California consisting of office and research and development space that will replace our current facility as our corporate headquarters. The term of the lease commences in June 2008 and will terminate in December 2012. We have an option to extend the lease for an additional five year term.

We also lease additional offices in Beaverton, Oregon, the United Kingdom, Singapore, Japan, Hong Kong, Russia, France and China. We expect to require additional facilities to accommodate our future growth. We believe that suitable additional space will be available in the future as needed.

Legal proceedings

We are currently not a party to any material legal proceedings.

Management

Executive officers and directors

The following table sets forth information regarding our executive officers and directors as of May 31, 2008:

Name	Age	Position


Lawrence R. Kaplan(1)	57	Interim President, Chief Executive Officer and Director
Donald M. Craig	58	Chief Technology Officer
Laura A. Perrone	50	Vice President of Finance and Chief Financial Officer
Daniel J. Marshall	44	Senior Vice President of Worldwide Sales
Geoffrey G. Stedman	40	Senior Vice President of Products and Markets
Johnathan P. Turk	36	Vice President of Operations
Vincent G. O'Malley	46	Vice President of Video Systems Engineering
Charles F. Morris	47	Vice President of Storage and Applications Engineering
Ronald D. Howe	49	Vice President of Worldwide Services
Matthew R. Adams	49	Vice President of Broadcast Solutions
Jörg Nonnenmacher	36	Vice President and General Manager, Content Delivery Networks
Jon S. Castor(2)(3)	56	Chairman of the Board
Basil H. Alwan(2)	45	Director
Matthew D. Howard	44	Director
Joseph S. Kennedy	61	Director
Esfandiar Lohrasbpour	55	Director
Wes Raffel(1)(2)	52	Director
William J. Schroeder(3)	63	Director
J. Peter Wagner	42	Director

(1): Member of our corporate governance and nominating committee.
(2): Member of our compensation committee.
(3): Member of our audit committee.

Executive officers

Lawrence R. Kaplan is a co-founder of Omneon and in May 2008, he was named our Interim President and Chief Executive Officer. From April 2007 until May 2008, has served as our Vice Chairman and as an employee of Omneon. He has served as a member of our board of directors since our inception. Mr. Kaplan served as our President and Chief Executive Officer from our inception until June 2003 and as our Chairman from June 2003 to April 2007. Prior to co-founding Omneon, Mr. Kaplan served as Senior Vice President—Sony Broadcast at Sony Electronics Inc., a provider of audio, video, communications and information technology products, from June 1995 to May 1998, and the Vice President and General Manager of the Computer Graphics and Television Groups at Tektronix, Inc., a supplier of test, measurement, and monitoring products, solutions and services, from 1989 to 1992. Mr. Kaplan holds an M.B.A. from Rutgers University and a B.S. in Electrical Engineering from the University of Wisconsin. Mr. Kaplan is a Fellow of the Society of Motion Picture and Television Engineers.

Donald M. Craig is a co-founder of Omneon. He served as our Vice President of Engineering from May 1998 until January 2001, when he assumed his present role of Chief Technology Officer. From 1996 until 1997, Mr. Craig was a director of engineering at Sony Electronics Inc. in San Jose, California. From 1984 until 1996, Mr. Craig held a number of engineering positions at Tektronix, Inc. in Beaverton, Oregon, and London, England, attaining the senior technical position of engineering fellow in 1995. His Tektronix engineering teams received Emmy® awards in 1988 for the VM-700 television analyzer, and in 1996 for the Profile video server. Mr. Craig is a Fellow of the Society of Motion Picture and Television Engineers.

Laura A. Perrone has served as our Vice President of Finance and Chief Financial Officer since September 2003. Ms. Perrone was on sabbatical from March 2002 to September 2003. Prior to that, Ms. Perrone served as a consultant to the Chief Executive Officer of Icarian, Inc., a human resources software company, from January 2002 to March 2002, following Icarian's acquisition by Workstream, Inc. She was Vice President and Chief Financial Officer of Icarian from April 1999 through December 2001. From 1998 to March 1999, Ms. Perrone was an employee at Micron Technology, Inc., a provider of semiconductor solutions. From 1995 to 1998, Ms. Perrone was Vice President and Chief Financial Officer of Rendition, Inc., a developer of 3D graphics chipsets, which was acquired by Micron in 1998. Ms. Perrone holds a B.S. in Economics from the University of San Francisco.

Daniel J. Marshall has served as our Senior Vice President of Worldwide Sales since June 2005 and previously served as our Vice President of Worldwide Sales from August 2001 to June 2005. Prior to joining us, Mr. Marshall was a co-founder and served as Vice President of Sales of StorageWay Inc., a storage service provider, from November 1999 to August 2001. Prior to that Mr. Marshall served as Vice President of Sales of MTI Corporation, a manufacturer of storage systems, from March 1998 to October 1999, Vice President of Sales at Mylex Corporation, a provider of input/output devices and storage management products, from April 1994 to March 1998, Director of Sales and Marketing at Kalok Corporation, a hard disk drive manufacturer, from March 1993 to March 1994, and Regional Sales Manager at Storage Dimensions, a manufacturer of optical and disk-based storage systems, from February 1988 to March 1993. Mr. Marshall holds a B.S. in Business Administration and Economics from San Jose State University.

Geoffrey G. Stedman has served as our Senior Vice President of Products and Markets since April 2008, previously serving as our Vice President of Marketing since April 2003. Prior to joining us, Mr. Stedman served as Senior Director of Marketing at SonicWALL, an Internet security company, from October 2001 to April 2003. Prior to that, Mr. Stedman served as Director of Marketing at Preview Systems, a commerce platform and services provider for the secure delivery of digital goods over the Internet, from March 2000 until that company was acquired by Aladdin Knowledge Systems, a supplier of information security solutions for software developers, in May 2001, after which time he served as Vice President of Marketing at Aladdin Knowledge Systems until October 2001. Prior to Preview Systems, Mr. Stedman held a variety of marketing positions with Silicon Graphics, Inc., from 1995 to March 2000. Mr. Stedman holds an M.B.A. from the Wharton School of Business at the University of Pennsylvania and a B.S. in Business Administration from Houghton College.

Johnathan P. Turk has served as our Vice President of Operations since October 2004. Prior to joining us, Mr. Turk served as a Director of Manufacturing at Cisco Systems, Inc., a provider of

networking products, from June 1997 to October 2004. Mr. Turk holds an M.B.A. from the Stanford Graduate School of Business and a B.A. in Economics from Wabash College.

Vincent G. O'Malley has served as our Vice President of Video Systems Engineering since May 2005. Prior to joining us, Mr. O'Malley was on sabbatical from December 2004 to May 2005. Prior to that, Mr. O'Malley held various senior management positions at nCUBE Corporation, a provider of video-on-demand systems, including Vice President of Engineering, Vice President of Integration and Delivery, and Director of Hardware Engineering from 1999 through December 2004. Mr. O'Malley holds a B.S. in Electrical Engineering from California State University, Chico.

Charles F. Morris has served as our Vice President of Storage and Applications Engineering since August 2005. Prior to joining us, Mr. Morris was Vice President of Engineering at Venturi Wireless, a provider of mobile broadband services optimization for mobile and wireless operators, from April 2004 to August 2005, Vice President of Engineering at MobileSmarts Inc., an automotive semiconductor and software company, from November 2001 to April 2004, and Vice President of Engineering at Minerva Networks, Inc., a provider of video networking and management products, from April 2000 to November 2001. Mr. Morris holds an M.S. in Computer Science from the University of Lowell and a B.A. in Business and Economics from Saint Anselm College.

Ronald D. Howe has served as our Vice President of Worldwide Services since May 2005. Prior to joining us, Mr. Howe served as Vice President of Global Services at BlueArc Corporation, a provider of network attached storage systems, from May 2001 to April 2005, Vice President of Professional Services at Minerva Networks, Inc. from April 2000 to April 2001, and Director of Worldwide Systems Engineering & Integration Services (DiviSys) at DiviCom, Inc., a provider of standards-based MPEG-2 encoding products and systems for digital video broadcasting from 1996 to March 2000. Mr. Howe holds an M.B.A. from Golden Gate University and a B.S. in Liberal Arts & Sciences, Business and Russian Language from the University of New York.

Matthew R. Adams has served as our Vice President of Broadcast Solutions since March 2007. Prior to joining us, Mr. Adams served as Director of Technology, Olympics at NBC from December 1997 until March 2007. Additionally, Mr. Adams has served as a consultant to the broadcast industry from January 1981 until December 1997. Mr. Adams has six Emmy® awards relating to NBC's broadcasting of the Olympic games.

Jörg Nonnenmacher has served as our Vice President and General Manager, Content Delivery Networks since December 2007. Prior to joining us, Mr. Nonnenmacher served as the Chief Executive Officer of Castify from December 2006 until we acquired Castify in December 2007. Mr. Nonnenmacher was a founder and director of Castify since 2000. Prior to founding Castify, Mr. Nonnenmacher was an employee of Bell-Labs, Lucent Technologies from 1999 to 2000. Mr. Nonnenmacher holds a Masters degree in Computer Science from the University of Karlsruhe, Germany and a Ph.D. in Computer Science from Ecole Polytechnique Federale in Lausanne, Switzerland.

Directors

Jon S. Castor has served as our Chairman since April 2007 and as a member of our board of directors since December 2006. Since June 2004, Mr. Castor has been a private investor. From January 2004 to June 2004, Mr. Castor served as an Executive Advisor to the Chief Executive

Officer of Zoran Corporation, a provider of digital solutions for applications in the digital entertainment and imaging markets. Prior to that, Mr. Castor served as Senior Vice President of Zoran's DTV Division from August 2003 to December 2003 and Senior Vice President and General Manager of the TeraLogic Group at Oak Technology Inc., a developer of integrated circuits and software for digital televisions and printers, from October 2002 to August 2003, when it was acquired by Zoran. In 1996, Mr. Castor co-founded TeraLogic, Inc., a developer of digital television integrated circuits, software and systems, where he served in several capacities, including as its Chief Executive Officer and director from November 2000 to October 2002, when it was acquired by Oak Technology. In addition to Omneon, Mr. Castor currently serves on the boards of directors of Adaptec, Inc., a provider of storage solutions, Genesis Microchip, Inc., a provider of image processing systems, and a privately-held company. Mr. Castor holds an M.B.A. from the Stanford Graduate School of Business and a B.A. from Northwestern University.

Basil H. Alwan has served as a member of our board of directors since September 2005. Since July 2003, Mr. Alwan has served as President of IP Products at Alcatel, a provider of communications solutions to telecommunication carriers, Internet service providers and enterprises for delivery of voice, data and video applications. Prior to that Mr. Alwan was a founder and President and Chief Executive Officer of TiMetra Networks, a provider of service routing technology, from January 2000 until the acquisition of TiMetra by Alcatel in July 2003. In addition to Omneon, Mr. Alwan currently serves on the boards of directors of several privately-held companies. Mr. Alwan holds a B.S. in Electrical Engineering from the University of Illinois.

Matthew D. Howard has served as a member of our board of directors since November 2002. Since August 2000, Mr. Howard has been with Norwest Venture Partners, a venture capital firm, and is currently a General Partner. In addition to Omneon, Mr. Howard currently serves on the boards of directors of several privately-held companies. Mr. Howard holds a bachelor of business administration with an emphasis in information systems from Chaminade University of Honolulu and an M.S. in telecommunications management from Golden Gate University.

Joseph S. Kennedy served as our President and Chief Executive Officer from June 2003 to May 2008 and has served as a member of our board of directors since June 2003. Mr. Kennedy was on sabbatical from March 2002 until joining us, with the exception of serving as President and Chief Executive Officer of iPolicy Networks, a security appliance company, during February and March 2003. Prior to joining us, Mr. Kennedy served as President, Chief Executive Officer and Chairman of the Board of Directors of Pluris Inc., a developer of scalable Internet routers, from June 1999 to March 2002. Prior to that, Mr. Kennedy was the founder and Chief Executive Officer of Rapid City Communications, a developer of routing switch technologies, from February 1996 until that company was acquired by Bay Networks, Inc., a provider of networking products, in June 1997, after which time he served as President and General Manager of Bay Networks' switching products division until June 1998. In addition to Omneon, Mr. Kennedy currently serves on the boards of directors of Adaptec, Inc., a provider of storage solutions, and several privately-held companies. Mr. Kennedy holds an M.S. in Electrical Engineering and Computer Science, and an A.B. in Computer Science, both from the University of California, Berkeley.

Esfandiar Lohrasbpour has served as a member of our board of directors since March 2004. Since August 1998, Mr. Lohrasbpour has been a General Partner of INVESCO Private Capital, a

venture capital firm. In addition to Omneon, Mr. Lohrasbpour currently serves on the boards of directors of several privately-held companies. Mr. Lohrasbpour holds a Ph.D. in Operations Research from the University of California, Los Angeles, an M.S. in Operations Research from the University of North Carolina and a B.A. in Mathematics from Berea College. Mr. Lohrasbpour intends to resign from our board of directors immediately prior to the completion of this offering.

Wes Raffel has served as a member of our board of directors since November 2002. Since January 2000, Mr. Raffel has been a Managing Director of Advanced Technology Ventures, a venture capital firm. In addition to Omneon, Mr. Raffel currently serves on the boards of directors of several privately-held companies. Mr. Raffel holds an M.B.A. from the University of Chicago and an A.B. in Economics from Harvard College.

William J. Schroeder has served as a member of our board of directors since November 2001 and as our Chairman from November 2001 until June 2003. From February 2002 until his retirement from full-time employment in October 2004, Mr. Schroeder served as President and Chief Executive Officer of Vormetric, Inc., an enterprise data storage security company. Prior to that, Mr. Schroeder served as a consultant to various technology companies from January 2001 to February 2002. In addition to Omneon, Mr. Schroeder currently serves on the boards of directors of Con-way Inc., a provider of transportation and supply chain management services, and several privately-held companies. Mr. Schroeder holds an M.B.A. from the Harvard Business School and an M.S.E.E. and a B.E.E. from Marquette University.

J. Peter Wagner has served as a member of our board of directors since May 1998. Since 1996, Mr. Wagner has been a General Partner of Accel Partners, a venture capital firm. In addition to Omneon, Mr. Wagner currently serves on the boards of directors of several privately-held companies. Mr. Wagner holds an M.B.A. from the Harvard Business School and an A.B. in Physics from Harvard College.

Board composition

We have an authorized board size of 10 directors. Our board currently consists of nine members.

Pursuant to a voting agreement among us and our stockholders, investors affiliated with Norwest Venture Partners, of which Mr. Howard is a General Partner; INVESCO Private Capital, of which Mr. Lohrasbpour is a General Partner; Advanced Technology Ventures, of which Mr. Raffel is a Managing Director; and Accel Partners, of which Mr. Wagner is a General Partner, have the right to designate a representative to our board of directors. Upon the closing of this offering, these board representation rights will terminate and no stockholders will have any contractual rights with respect to board representation, but members previously elected to our board of directors pursuant to this agreement will continue to serve as directors until their resignation or until their successors are duly elected by holders of our common stock.

Board committees

Our board of directors currently has an audit committee, a compensation committee and a corporate governance and nominating committee.

Audit committee. Our audit committee consists of Messrs. Schroeder, who is the committee chair, and Castor, each of whom is a non-employee director of our board of directors. Our board of directors has determined that Mr. Schroeder is a financial expert and has determined that each of the directors serving on our audit committee is independent within the meaning of the listing standards of The NASDAQ Stock Market and The New York Stock Exchange. The functions of this committee include, among other things:

•: reviewing and pre-approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;
•: reviewing our annual and quarterly consolidated financial statements and reports and discussing the statements and reports with our independent auditors and management;
•: reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls; and
•: establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters.

Both our independent auditors and management periodically meet privately with our audit committee.

Compensation committee. Our compensation committee consists of Messrs. Castor, who is the committee chair, Raffel and Alwan, each of whom is a non-employee director of our board of directors. Our board of directors has determined that each of the directors serving on our compensation committee is independent within the meaning of the rules of the SEC and the listing standards of The NASDAQ Stock Market and The New York Stock Exchange. The functions of this committee include, among other things:

•: determining the compensation and other terms of employment of our executive officers and reviewing and approving corporate performance goals and objectives relevant to such compensation;
•: recommending to our board of directors the type and amount of compensation to be paid or awarded to board members;
•: evaluating and recommending to our board of directors the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs;
•: establishing policies with respect to equity compensation arrangements; and
•: reviewing and approving the terms of any employment agreements, severance arrangements, change-in-control protections and any other compensatory arrangements for our executive officers.

Corporate governance and nominating committee. Our corporate governance and nominating committee consists of Messrs. Kaplan, who is the committee chair, and Raffel, who is a non-employee director of our board of directors. We intend to add an additional independent board member within the meaning of the listing standards of The NASDAQ Stock Market and

The New York Stock Exchange to this committee prior to the completion of this offering. The functions of this committee include, among other things:

•: developing and maintaining a current list of the functional needs and qualifications of members of our board of directors;
•: evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate;
•: interviewing, evaluating, nominating and recommending individuals for membership on our board of directors;
•: evaluating nominations by stockholders of candidates for election to our board;
•: developing, reviewing and amending a set of corporate governance policies and principles, including a code of ethics;
•: considering questions of possible conflicts of interest of directors as such questions arise; and
•: recommending to our board of directors the establishment of such special committees as may be desirable or necessary from time to time to address ethical, legal, business or other matters that may arise.

Compensation committee interlocks and insider participation

No member of our compensation committee has ever been an executive officer or employee of ours. None of our executive officers currently serves, or has served during the last completed year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Prior to establishing the compensation committee, our full board of directors made decisions relating to compensation of our executive officers.

Director compensation

Our directors do not receive cash compensation for their services as directors, except for Mr. Castor, who receives a quarterly stipend of $11,250, for a total of $45,000 in 2007. In addition, effective May 1, 2008 and until we hire a new chief executive officer, our board of directors has approved an additional quarterly stipend for Mr. Castor of $11,250. However, all of our directors, including our non-employee directors, are eligible to receive stock options under our 1998 stock option plan. We intend to adopt a compensation policy for our non-employee board members prior to the closing of this offering.

In September 2005, Mr. Alwan received a stock option to purchase 50,000 shares of our common stock in connection with his service as a director at an exercise price of $0.50 per share. In November 2007, Mr. Alwan received a stock option to purchase 33,333 shares in connection with his service as a director at an exercise price of $9.53 per share.

In December 2006, Mr. Castor received a stock option to purchase 50,000 shares of our common stock in connection with his service as a director at an exercise price of $12.50 per share. In October 2007, the exercise price of this option was repriced to $9.43 per share. We repriced this stock option to align the exercise price to the fair market value of our common stock. In November 2007, Mr. Castor received a stock option to purchase 16,667 shares in connection with his service as a director at an exercise price of $9.53 per share.

In April 2003, Mr. Schroeder received a stock option to purchase 30,300 shares of our common stock in connection with his service as a director at an exercise price of $0.10 per share. In October 2005, Mr. Schroeder received an additional stock option to purchase 20,000 shares of our common stock in connection with his service as a director at an exercise price of $0.85 per share. In November 2007, Mr. Schroeder received a stock option to purchase 66,667 shares in connection with his services as a director at an exercise price of $9.53 per share.

The following table provides information for 2007 regarding all plan and non-plan compensation awarded to, earned by or paid to each person who served as a non-employee director for some portion or all of 2007. Other than as set forth in the table and the narrative that follows it, to date we have not paid any fees to or reimbursed any expenses of our directors, made any equity or non-equity awards to directors, or paid any other compensation to directors.

Name	Fees earned or paid in cash		Option awards(1)			Non-equity incentive plan compensation	All other compensation	Total


Basil H. Alwan		—	$	39,234	(2)	—	—	$	39,234
Jon S. Castor	$	45,000		134,330	(3)	—	—		179,330
Joseph S. Kennedy		—		—		—	—		—
Esfandiar Lohrasbpour		—		—		—	—		—
Matthew D. Howard		—		—		—	—		—
Wes Raffel		—		—		—	—		—
William J. Schroeder		—		20,262	(4)	—	—		20,262
J. Peter Wagner		—		—		—	—		—

(1): Amount reflects the total compensation expense for 2007, calculated in accordance with SFAS 123(R). Pursuant to SEC rules, we do not include an estimate of forfeitures related to services-based vesting as one of the assumptions in calculating fair value. See note 1 of the notes to our consolidated financial statements for a discussion of the assumptions we use in the above fair value calculations.
(2): As of December 31, 2007, Mr. Alwan held outstanding stock options to purchase 83,333 shares of our common stock. Each of these stock options vests ratably over 36 months from the date of grant and contains a provision that provides for accelerated vesting in full upon a change in our control. Mr. Alwan was granted a stock option to purchase 33,333 shares of our common stock in November 2007 having a grant date fair value of $152,052, calculated in the manner described in footnote (1) above.
(3): As of December 31, 2007, Mr. Castor held outstanding stock options to purchase 66,667 shares of our common stock. Each of these stock options vests ratably over 36 months from the date of grant and provides for accelerated vesting in full upon a change in control. In December 2006, Mr. Castor received a stock option to purchase 50,000 shares of our common stock in connection with his service as a director at an exercise price of $12.50 per share. In October 2007, the exercise price of this option was repriced to $9.43 per share. The repricing of Mr. Castor's option generated $40,600 of incremental fair value, computed as of October 23, 2007, the date of the repricing, in accordance with SFAS 123(R), which will be amortized over the remaining vesting period of the option grant. Mr. Castor was granted a stock option to purchase 16,667 shares of our common stock in November 2007 having a grant date fair value of $76,028, calculated in the manner described in footnote (1) above.

(4): As of December 31, 2007, Mr. Schroeder held outstanding stock options to purchase 116,967 shares of our common stock. Each of these stock options vests ratably over 36 months from the date of grant and provides for accelerated vesting in full upon a change in control. Mr. Schroeder was granted a stock option to purchase 66,667 shares of our common stock in November 2007 having a grant date fair value of $304,108, calculated in the manner described in footnote (1) above.

Executive compensation

Compensation discussion and analysis

Our executive compensation program is designed to attract, as needed, individuals with the skills necessary for us to achieve our business plan, to reward those individuals fairly over time, to retain those individuals who continue to perform at or above the levels that we expect and to closely align the compensation of those individuals with the performance of our company on both a short-term and long-term basis. To that end, our executive officers' compensation has three primary components—base compensation or salary, annual cash performance bonuses and stock option awards. In addition, we provide our executive officers a variety of benefits that are available generally to all salaried employees.

General. We view the components of compensation as related but distinct. Although our compensation committee reviews total compensation of our executive officers, we do not believe that significant compensation derived from one component of compensation should negate or reduce compensation from other components. We determine the appropriate level for each compensation component based in part, but not exclusively, on competitive benchmarking consistent with our recruiting and retention goals, our view of internal equity and consistency, overall company performance and other considerations we deem relevant. To this end, we review a number of executive compensation surveys of high technology companies located in the Silicon Valley area when making a crucial executive officer hiring decision and annually when we review executive compensation. Except as described below, our compensation committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation or among different forms of non-cash compensation. However, the compensation committee's philosophy is to make a greater percentage of an employee's compensation performance-based and to keep cash compensation to a nominally competitive level while providing the opportunity to be well rewarded through equity if the company performs well over time. We also believe that for technology companies stock-based compensation is the primary motivator in attracting employees, rather than base salary or cash bonuses.

Our compensation committee's current intent is to perform at least annually a strategic review of our executive officers' overall compensation packages to determine whether they provide adequate incentives and motivation and whether they adequately compensate our executive officers relative to comparable officers in other companies with which we compete for executives. Our compensation committee's most recent compensation review occurred in March 2008. The compensation committee typically meets or consults with our chief executive officer and our chief financial officer. For compensation decisions, including decisions regarding the grant of equity compensation, relating to executive officers other than to our chief executive officer, the compensation committee typically considers recommendations from the chief executive officer and/or other members of management.

We account for equity compensation paid to our employees under SFAS 123(R), which requires us to estimate and record an expense over the service period of the award. Our cash compensation is recorded as an expense at the time the obligation is accrued. We currently intend that all cash compensation paid will be tax deductible for us. However, with respect to equity compensation awards, while any gain recognized by employees from nonqualified options granted at fair market value should be deductible, to the extent that an option constitutes an incentive stock option gain recognized by the optionee will not be deductible if there is no disqualifying disposition by the optionee. In addition, if we grant restricted stock or restricted stock unit awards that are not subject to performance vesting, they may not be fully deductible by us at the time the award is otherwise taxable to employees.

Base compensation. We fix executive officer base compensation at a level we believe enables us to hire and retain individuals in a competitive environment and rewards satisfactory individual performance and a satisfactory level of contribution to our overall business goals. We also take into account the base salaries that are payable by companies with which we believe we generally compete for executives.

We generally review the salary of our chief executive officer at the beginning of each year and the salaries of our other executive officers on their respective employment commencement anniversary dates. The salaries of Messrs. Stedman and Ms. Perrone were increased by approximately 8% and 10%, respectively, in 2007. The salaries of Messrs. Kennedy, Kaplan, Marshall and Stedman were increased by approximately 9%, 7%, 7% and 12%, respectively, in 2008. These increases were part of our normal annual salary review process and reflect our compensation committee's view of internal parity and its subjective view of market rates. However, the compensation committee did not perform any formal benchmarking analysis.

Cash bonuses. We utilize cash bonuses to reward performance achievements with a time horizon of one year or less. Annual bonus targets are determined by our compensation committee as a percentage of each executive officer's base salary. Our compensation committee also determines the performance measures and other terms and conditions of these cash bonuses for executive officers. For 2007, the bonus targets for the executive officers, other than those who receive sales commissions, ranged from 20% to 45% of base salary. For 2008, the bonus targets, excluding sales commissions, for Messrs. Kaplan and Stedman and each of our other executive officers are 50%, 30% and 20%, respectively, of their respective base salaries. Bonus targets for our executive officers are established as a pre-determined percentage of base salary or specific dollar amounts, based on performance against a specific plan or specified criteria that are intended to provide a competitive level of compensation when the executive officers achieve their performance objectives as approved by our compensation committee. This specified percentage or dollar amount is fixed in the officer's employment offer letter or subsequently by our compensation committee. There is no pre-established formal policy or target for setting this specified percentage or amount, which is evaluated annually. The general philosophy of our compensation committee is to closely align compensation with performance. Consistent with this philosophy, we believe that we have tied a greater percentage of the compensation of our executives to the achievement performance-based objectives as compared to our peers, while providing total compensation packages that are competitive with our peers. The actual bonus award is determined according to each executive officer's level of achievement against these performance objectives. The bonus target for 2007 for our chief executive officer was based entirely on company performance targets, consisting of annual revenues and operating results. For 2007, the performance objectives for other executive

officers generally included both company performance targets, as well as individual performance objectives determined by our chief executive officer. For 2008, the bonus targets, excluding sales commissions, for our chief executive officer as well as our other executive officers are based entirely on company performance targets, consisting of annual revenues and operating results. For those executives that perform sales functions, the amount of bonus is also determined based on an individualized sales commission plan. The compensation committee chose revenues and operating results because it believed that, as a "growth company," we should reward revenue growth, but only if that revenue growth is achieved cost effectively. Thus, the compensation committee considered the chosen metrics to be the best indicators of financial success and stockholder value creation.

Our compensation committee views cash bonuses as a reward for strong performance. As such, our compensation committee generally sets company performance objectives at levels that would only be achieved if we continued to improve on our past levels of performance. Accordingly, we generally believe that these targets are difficult to achieve and require a high level of execution and performance by our executives. In making the annual determination of these performance objective levels, the compensation committee generally considers the specific circumstances facing us and our expectations regarding company performance during the coming year and our strategic plan.

The following table identifies the target bonuses for 2007 for each of our executive officers named in the executive compensation tables and describes the criteria for payment of the bonuses to our executive officers:

Named executive officer			Criteria for payment


Lawrence R. Kaplan(1)	15,000	(2)	Target bonus is based on achievement of individual performance objectives determined by our chief executive officer.
Laura A. Perrone	45,000		30% of target bonus based on a revenue target in the 2007 operating plan:
			• paid $0 if less than 80% of target
			• paid 80% to 120% if 80% to 120% of target
			• paid 200% if greater than 120% of target
			30% of target bonus based on an operating margin target in the 2007 operating plan:
			• paid $0 if less than 80% of target
			• paid 80% to 120% if 80% to 120% of target
			• paid 200% if greater than 120% of target
			40% of target bonus based on the discretion of our chief executive officer.
Daniel J. Marshall	35,000	(2)	$25,000 of target bonus is based on achievement of individual performance objectives determined by our chief executive officer. $10,000 of target bonus is based on achievement of sales linearity in the second half of 2007.

Geoffrey G. Stedman		38,850	30% of target bonus based on a revenue target in the 2007 operating plan:
			• paid $0 if less than 80% of target
			• paid 80% to 120% if 80% to 120% of target
			• paid 200% if greater than 120% of target
			30% of target bonus based on an operating margin target in the 2007 operating plan:
			• paid $0 if less than 80% of target
			• paid 80% to 120% if 80% to 120% of target
			• paid 200% if greater than 120% of target
			40% of target bonus based on the discretion of our chief executive officer.
Joseph S. Kennedy	$	125,000	50% of target bonus based on a revenue target in the 2007 operating plan:
			• paid $0 if less than 80% of target
			• paid 80% to 120% if 80% to 120% of target
			• paid 200% if greater than 120% of target
			50% of target bonus based on an operating margin target in the 2007 operating plan:
			• paid $0 if less than 80% of target
			• paid 80% to 120% if 80% to 120% of target
			• paid 200% if greater than 120% of target

(1): Commencing in May 2008, Lawrence R. Kaplan has been serving as our Interim President and Chief Executive Officer.
(2): Does not include portion of bonus attributable to sales commissions.

For 2008, none of the target bonuses, excluding sales commissions, to our executive officers will be paid unless we achieve at least 50% of our operating margin target and 80% of our revenue target in our 2008 operating plan. If we achieve at least 50% of our operating margin target and 80% of our revenue target, then our executive officers will receive 5% of their respective target bonuses for each 1% of revenues beyond 80% of our revenue target up to 100% of our revenue target and 1% of their respective target bonuses for each 1% of revenues beyond 100% of our revenue target.

We do not have a formal policy regarding adjustment or recovery of awards or payments if the relevant performance measures upon which they are based are restated or otherwise adjusted in a manner that would reduce the size of the award or payment.

For 2007, Messrs. Kennedy and Stedman and Ms. Perrone received a bonus equal to approximately 0%, 8% and 8%, respectively, of his or her base salary. The bonuses paid to Mr. Stedman and Ms. Perrone in 2007 were paid based on the discretionary component of their bonus, due to the need to continue to retain and motivate these personnel. As our Senior Vice President of Worldwide Sales, Mr. Marshall received a bonus that was largely based upon sales commissions and specific sales targets contained in his sales compensation plan, together with an additional bonus equal to approximately 13% of his base salary, which was due to achievement of specific milestones determined by our chief executive officer. Mr. Kaplan

received a bonus that was largely based upon sales commissions and specific sales targets contained in his sales compensation plan, together with an additional bonus equal to approximately 5% of his base salary.

In conjunction with his role as Interim President and Chief Executive Officer, Mr. Kaplan will receive a bonus of $60,000, $20,000 of which was paid in May 2008 with the remaining $40,000 payable on the earlier of November 1, 2008 or when a new Chief Executive Officer is hired. Additionally, during the period in which he is serving as Interim President and Chief Executive Officer, 100% of Mr. Kaplan's variable compensation will be based on the 2008 company incentive targets discussed above.

Stock options and equity awards. We utilize stock options to ensure that our executive officers have a continuing stake in our long-term success. Because our executive officers are awarded stock options with an exercise price equal to the fair market value of our common stock on the date of grant, the determination of which is discussed below, these options will have value to our executive officers only if the market price of our common stock increases after the date of grant. Typically, our stock options vest at a rate of 25% of the shares subject to the option on the first anniversary of the grant date, and with respect to approximately 2.1% of the shares each month thereafter. The stock options that we have granted under our 1998 stock option plan typically may be exercised by the recipient at any time, however, any shares purchased are subject to a lapsing right of repurchase in our favor. This repurchase right lapses on the same schedule as the vesting of the option.

Authority to make stock option grants to executive officers has historically rested with our board of directors, and we expect our board of directors will delegate that authority to our compensation committee in the future. In determining the size of stock option grants to executive officers, our board of directors considers our performance against the strategic plan, individual performance against the individual's objectives, comparative share ownership data from compensation surveys of high technology companies in our area, the extent to which shares subject to previously granted options are vested and the recommendations of our Chief Executive Officer and other members of management.

In 2007, valuations were performed to determine the fair market value of our common stock as of January 15, 2007, February 16, 2007, March 13, 2007, April 16, 2007, June 30, 2007, September 30, 2007, October 31, 2007, November 30, 2007 and December 31, 2007.

We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates and, because we have not been a public company, we have not made equity grants in connection with the release or withholding of material non-public information.

During 2007, we granted options to purchase 152,000 shares of our common stock to Mr. Kennedy, 55,000 shares to Ms. Perrone, 70,000 shares to Mr. Marshall, 100,000 shares to Mr. Kaplan and 50,000 shares to Mr. Stedman. Each of the grants had an exercise price of $9.53 per share. These grants were made by our board of directors as part of our process of reviewing equity positions of our employees, and the board determined that, in light of the individuals' performance, equity ownership and level of vesting, it was appropriate to provide additional incentive for each of these personnel. In connection with his promotion to Senior Vice President of Products and Markets, Mr. Stedman received a grant of stock option to purchase 50,000 shares of common stock. To date, substantially all of our options have been granted under our 1998 stock option plan, which is described below under "Management—Employee Benefit Plans."

Prior to the completion of this offering, we plan to adopt a new equity incentive plan and a new employee stock purchase plan, both of which are described below under "Management—Employee benefit plans." The 2008 equity incentive plan will replace our existing 1998 stock option plan immediately following this offering and will afford greater flexibility in making a wide variety of equity awards, including stock options, shares of restricted stock and stock appreciation rights, to executive officers and our other employees. The 2008 employee stock purchase plan will enable eligible employees to periodically purchase shares of our common stock at a discount. Participation in the 2008 employee stock purchase plan will be available to all executive officers following this offering on the same basis as our other employees.

Other than the equity plans described above, we do not have any equity security ownership guidelines or requirements for our executive officers.

Severance and change of control payments. Some of our executive officers are entitled to receive severance payments equal to a specified number of months of base salary, as well as accelerated vesting of stock options as to the number of shares that would have vested over that same monthly period in the event that their employment is terminated other than for "cause" or if they terminate their employment for "good reason." Additionally, all of our executive officers are entitled to severance payments equal to six months of base salary and accelerated vesting of stock options as to the number of shares that would have vested over the one year period following the termination if the executive officer's employment was so terminated by the acquiring company within one year following a change of control.

We believe these severance and change of control arrangements mitigate some of the risk that exists for executives working in a smaller company. These arrangements are intended to attract and retain qualified executives that could have other job alternatives that may appear to them to be less risky absent these arrangements. Because of the significant acquisition activity in the high technology industry, there is a possibility that we could be acquired in the future. Accordingly, we believed that the larger severance packages resulting from terminations related to change of control transactions would provide an incentive for these executives to continue to help successfully execute such a transaction from its early stages until closing.

For a description and quantification of these severance and change of control benefits, please see the section entitled "Management—Executive compensation—Employment, severance and change of control arrangements."

Other benefits. Executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life, disability, and accidental death and dismemberment insurance and our 401(k) plan, in each case on the same basis as other employees, subject to applicable law. We also provide vacation and other paid holidays to all employees, including our executive officers, which are comparable to those provided at peer companies.

Executive compensation tables

The following table presents compensation information for 2005, 2006 and 2007 paid to or accrued for those persons serving as our Chief Executive Officer, Chief Financial Officer and each of our three other most highly compensated executive officers whose aggregate salary and bonus was more than $100,000. We refer to these executive officers as our "named executive officers" elsewhere in this prospectus.

Summary compensation table

Name and principal position	Year	Salary		Option awards(1)		Non-equity incentive plan compensation(2)			All Other Compensation(3)		Total


Lawrence R. Kaplan Interim President and Chief Executive Officer	2007 2006 2005	$	210,000 210,000 210,000	$	83,729 24,762 —	$	66,252 108,436 182,445	(7) (8) (9)	$	9,520 16,182 15,969	$	369,501 359,380 408,414
Laura A. Perrone Vice President of Finance and Chief Financial Officer	2007 2006 2005		211,667 195,777 180,000		57,021 12,636 —		18,000 41,984 37,500			5,325 1,022 —		292,013 251,419 217,500
Daniel J. Marshall Senior Vice President of Worldwide Sales	2007 2006 2005		210,000 210,000 210,000		62,208 14,601 —		152,271 202,764 246,697	(4) (5) (6)		13,226 8,352 9,102		437,705 435,717 465,799
Geoffrey G. Stedman Senior Vice President of Products and Markets	2007 2006 2005		205,719 199,199 175,000		62,966 16,136 —		16,800 39,783 29,345			— 3,051 —		285,485 258,169 204,345
Joseph S. Kennedy Former President and Chief Executive Officer	2007 2006 2005		275,000 275,000 250,000		108,444 36,357 —		— 128,751 154,130			5,997 4,148 4,203		389,441 444,256 408,333

(1): For 2007 and 2006, the amount of option awards represents the portion of the grant date fair value of the option awards that we would have expensed in 2007 and 2006, respectively, using the modified prospective transition method under SFAS 123(R). Pursuant to SEC rules, we do not include an estimate of forfeitures related to services-based vesting as one of the assumptions in calculating fair value. Under the SFAS 123(R) modified prospective transition method, we would not have recorded any amounts for 2005 with respect to these awards. We use the prospective transition method under SFAS 123(R) in our consolidated financial statements. See note 1 of the notes to our consolidated financial statements for a discussion of the assumptions we use in the above fair value calculations. All option awards were made under our 1998 stock option plan, which is described below under "Management—Employee benefit plans." Each of these options is immediately exercisable in full and vests as to 1/4 of the shares underlying the option on the first anniversary of the grant date and as to 1/48 of the underlying shares monthly thereafter. These options also contain provisions that provide for accelerated vesting upon the occurrence of certain events following a change of control of our company, as discussed below in "Management—Executive compensation—Employment, severance and change of control arrangements."
(2): The amounts in this column for a particular year includes amounts earned in that year under our non-equity incentive plans, but paid in the following year.
(3): The amounts in this column include payments in respect of accrued vacation, holidays, and sick days.
(4): Includes sales commissions in the amount of $125,271.
(5): Includes sales commissions in the amount of $177,764.
(6): Includes sales commissions in the amount of $205,344.
(7): Includes sales commissions in the amount of $56,252.
(8): Includes sales commissions in the amount of $93,436.
(9): Includes loan forgiveness in the amount of $51,393 and sales commissions in the amount of $116,053.

Grants of plan-based awards in last fiscal year

The following table provides information with regard to each stock option granted to each named executive officer during 2007.

Name	Grant date	Number of securities underlying options(1)	Exercise price of option awards(2)		Grant date fair value of option awards(3)


Lawrence R. Kaplan	11/27/2007	100,000	$	9.53	$	456,160
Laura A. Perrone	11/27/2007	55,000		9.53		250,888
Daniel J. Marshall	11/27/2007	70,000		9.53		319,312
Geoffrey G. Stedman	11/27/2007	50,000		9.53		228,080
Joseph S. Kennedy	11/27/2007	152,000		9.53		693,363

(1): Each of these options is immediately exercisable in full and vests as to 1/4 of the shares underlying the option on the first anniversary of the grant date and as to 1/48 of the underlying shares monthly thereafter. Each of these options expires 10 years from the date of grant. These options also contain provisions that provide for accelerated vesting upon the occurrence of certain events following a change of control of our company, as discussed below in "Management—Executive compensation—Employment, severance and change of control arrangements."
(2): Represents the fair market value of a share of our common stock, as determined by our board of directors, on the option's grant date.
(3): See note 1 of the notes to our consolidated financial statements for a discussion of the assumptions we use in the above fair value calculations.

Outstanding option awards at December 31, 2007

The following table presents the outstanding option awards held as of December 31, 2007 by each named executive officer.

	Number of securities underlying unexercised options(1)

	Number of securities underlying unexercised options(1)			Option exercise price(2)		Option expiration date
Name	Exercisable		Unexercisable	Option exercise price(2)		Option expiration date

Lawrence R. Kaplan	50,000 25,000 15,000 100,000	(10) (4) (5) (6)	— — — —	$	0.30 0.85 7.76 9.53	10/12/2014 10/18/2015 12/8/2016 11/27/2017
Laura A. Perrone	10,000 15,000 55,000	(7) (9) (6)	— — —		0.85 7.76 9.53	10/18/2015 12/8/2016 11/27/2017
Daniel J. Marshall	5,000 24,045 24,167 25,000 15,000 70,000	(8) (8) (9) (4) (5) (6)	— — — — — —		60.00 0.10 0.30 0.85 7.76 9.53	8/29/2011 10/31/2012 10/12/2014 10/18/2015 12/8/2016 11/27/2017
Geoffrey G. Stedman	45,313 10,000 15,000 50,000	(11) (7) (5) (6)	— — — —		0.30 0.85 7.76 9.53	10/12/2014 10/18/2015 12/8/2016 11/27/2017
Joseph S. Kennedy	175,000 25,000 15,000 152,000	(3) (4) (5) (6)	— — — —		0.30 0.85 7.76 9.53	10/12/2014 10/18/2015 12/8/2016 11/27/2017

(1): Each of these options is immediately exercisable in full and vests as to 1/4 of the shares underlying the option on the first anniversary of the grant date and as to 1/48 of the underlying shares monthly thereafter. These options also contain provisions that provide for accelerated vesting upon the occurrence of certain events following a change of control of our company, as discussed below in "Management—Executive compensation—Employment, severance and change of control arrangements."
(2): Represents the fair market value of a share of our common stock, as determined by our board of directors, on the option's grant date.
(3): This option was vested with respect to 156,770 shares as of December 31, 2007.
(4): Each of these options was vested with respect to 13,541 shares as of December 31, 2007.
(5): Each of these options was vested with respect to 3,751 shares as of December 31, 2007.
(6): None of the shares underlying each of these options was vested as of December 31, 2007.
(7): Each of these options was vested with respect to 5,416 shares as of December 31, 2007.
(8): Each of these options was fully vested as of December 31, 2007.
(9): This option was vested with respect to 20,000 shares as of December 31, 2007.
(10): This option was vested with respect to 38,802 shares as of December 31, 2007.
(11): This option was vested with respect to 37,500 shares as of December 31, 2007.

Option exercises in last fiscal year

None of our named executive officers exercised options in 2007.

Employment, severance and change of control arrangements

Laura A. Perrone. We entered into an employment offer letter with Ms. Perrone dated August 29, 2003. The written offer of employment does not provide a specific term for Ms. Perrone's employment; rather, Ms. Perrone's employment with us is "at-will" and may be terminated at any time with or without notice, for any or no reason, at either Ms. Perrone's or our option. Ms. Perrone's current annual base salary is $225,000, and she is eligible to earn a target bonus for 2008 of 20% of her base salary based upon our performance against company performance targets. In December 2005, our compensation committee approved certain amendments to the terms of Ms. Perrone's offer letter relating to the benefits to which Ms. Perrone is entitled upon a change in our control. Pursuant to these amended terms, if we (or our successor) terminate Ms. Perrone for any reason other than as a result of an act of material dishonesty made by Ms. Perrone, her conviction of a felony, her gross misconduct or her continued substantial violations of her employment duties after receiving a written demand for performance from us, or Ms. Perrone terminates her employment with us as a result of a significant reduction in, or removal from, her duties, position or responsibilities, a reduction in her base salary (other than in connection with a company-wide salary reduction applicable to similarly-situated executives), or her relocation to a location more than 50 miles from her current location, in each case without her consent, and she signs and does not revoke a standard release of claims, then she will be entitled to receive her then current base salary and continuing healthcare coverage for a period of two months following termination, or six months following termination if her termination was within one year following a change of control, and her stock options will become vested as to that number of shares that would have vested had she remained employed with us through the two-month period following the date of termination, or the 12-month period following the date of termination if her termination was within one year following a change of control.

Daniel J. Marshall. We entered into an employment offer letter with Mr. Marshall dated August 2, 2001. The written offer of employment does not provide a specific term for Mr. Marshall's employment; rather, Mr. Marshall's employment with us is "at-will" and may be terminated at any time with or without notice, for any or no reason, at either Mr. Marshall's or our option. Mr. Marshall's current annual base salary is $210,000, and he is eligible to earn target sales commissions for 2008 of $200,000 depending on our performance against our revenue plan, plus a target bonus of 20% of his base salary based upon our performance against company performance targets. In December 2005, our compensation committee approved certain amendments to the terms of Mr. Marshall's offer letter relating to the benefits to which Mr. Marshall is entitled upon a change in our control. Pursuant to these amended terms, if we (or our successor) terminate Mr. Marshall for any reason other than as a result of an act of material dishonesty made by Mr. Marshall, his conviction of a felony, his gross misconduct or his continued substantial violations of his employment duties after receiving a written demand for performance from us, or Mr. Marshall terminates his employment with us as a result of a significant reduction in, or removal from, his duties, position or responsibilities, a reduction in his base salary (other than in connection with a company-wide salary reduction applicable to similarly-situated executives), or his relocation to a location more than 50 miles from his current location, in each case without his consent, within

one year following a change in our control, and he signs and does not revoke a standard release of claims, then he will be entitled to receive his then current base salary and continuing healthcare coverage for a period of six months following termination and his stock options will become vested as to that number of shares that would have vested had he remained employed with us through the 12-month period following the date of termination.

Lawrence R. Kaplan. We entered into an amended and restated retention agreement with Mr. Kaplan dated November 1, 2002. The retention agreement does not provide a specific term for Mr. Kaplan's employment; rather, Mr. Kaplan's employment with us is "at-will" and may be terminated at any time with or without notice, for any or no reason, at either Mr. Kaplan's or our option. Mr. Kaplan's current annual base salary is $225,000, and he is eligible to earn target sales commissions for 2008 of up to $90,000 depending on our performance against our revenue plan, plus an additional $22,500 target bonus based upon our performance against company performance targets. The retention agreement also provided for a monthly bonus until October 2005 of $5,000 in the form of forgiveness of a loan from us to Mr. Kaplan, as described below in the section entitled "Transactions with related persons, promoters and certain control persons." If we (or our successor) terminate Mr. Kaplan for any reason other than as a result of an act of material dishonesty made by Mr. Kaplan, his conviction of a felony, his gross misconduct or his continued substantial violations of his employment duties after receiving a written demand for performance from us, or Mr. Kaplan terminates his employment with us as a result of a significant reduction in, or removal from, his duties, position or responsibilities, a reduction in his base salary (other than in connection with a company-wide salary reduction applicable to similarly-situated executives), or his relocation to a location more than 50 miles from his current location, in each case without his consent, then he will be entitled to receive his then current base salary and continuing healthcare coverage for a period of three months following termination, or six months following termination if his termination was within one year following a change of control (as defined in the retention agreement), and his stock options will become vested as to that number of shares that would have vested had he remained employed with us through the three-month period following the date of termination, or the 12-month period following the date of termination if his termination was within one year following a change of control.

Geoffrey G. Stedman. We entered into an employment offer letter with Mr. Stedman dated March 27, 2003. The written offer of employment does not provide a specific term for Mr. Stedman's employment; rather, Mr. Stedman's employment with us is "at-will" and may be terminated at any time with or without notice, for any or no reason, at either Mr. Stedman's or our option. Mr. Stedman's current annual base salary is $235,000 and he is eligible to earn a target bonus for 2008 of 30% of his base salary based upon our performance against company performance targets. In December 2005, our compensation committee approved certain amendments to the terms of Mr. Stedman's offer letter relating to the benefits to which Mr. Stedman is entitled upon a change in our control. Pursuant to these amended terms, if we (or our successor) terminate Mr. Stedman for any reason other than as a result of an act of material dishonesty made by Mr. Stedman, his conviction of a felony, his gross misconduct or his continued substantial violations of his employment duties after receiving a written demand for performance from us, or Mr. Stedman terminates his employment with us as a result of a significant reduction in, or removal from, his duties, position or responsibilities, a reduction in his base salary (other than in connection with a company-wide salary reduction applicable to similarly-situated executives), or his relocation to a location more than 50 miles from his

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current location, in each case without his consent, within one year following a change in our control, and he signs and does not revoke a standard release of claims, then he will be entitled to receive his then current base salary and continuing healthcare coverage for a period of six months following termination and his stock options will become vested as to that number of shares that would have vested had he remained employed with us through the 12-month period following the date of termination.

Vesting acceleration. In addition to the acceleration of vesting provisions described above, all options to purchase common stock issued to our named executive officers may be subject to accelerated vesting upon a change of control as described below in the section entitled "Management—Employee Benefit Plans."

Termination of employment for death or disability. If the employment of any of our named executive officers is terminated as a result of his or her disability, that officer will be entitled to long-term disability insurance benefits under our long-term disability insurance program equal to 60% of his or her monthly salary, up to $10,000 per month. If the employment of any of our named executive officers is terminated as a result of his or her death, the beneficiaries of that officer will be entitled to life insurance benefits under our group life insurance program equal to two times his or her annual base salary up to $500,000.

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The following table summaries the potential payments and benefits payable to each of our named executive officers upon termination of employment or a change in our control under each situation listed below, assuming, in each situation, that our named executive officers were terminated as of December 31, 2007.

				Not within 1 year following a change of control				Within 1 year following a change of control

Executive benefits and payments upon termination:		Voluntary termination or termination for cause		Involuntary termination not for cause		Termination for good reason		Involuntary termination not for cause		Termination for good reason		Death		Disability

Lawrence R. Kaplan:
	Base salary		—		52,500		52,500		105,000		105,000		—		—
	Bonus		—		—		—		—		—		—		—
	Medical continuation		—		5,138		5,138		10,276		10,276		—		—
	Death benefits		—		—		—		—		—		420,000		—
	Monthly disability benefits		—		—		—		—		—		—		10,000
	Value of accelerated stock options(1)		—										—		—
Laura A. Perrone:
	Base salary		—		37,500		37,500		112,500		112,500		—		—
	Bonus		—		—		—		—		—		—		—
	Medical continuation		—		3,505		3,505		10,516		10,516		—		—
	Death benefits		—		—		—		—		—		450,000		—
	Monthly disability benefits		—		—		—		—		—		—		10,000
	Value of accelerated stock options(1)		—										—		—
Daniel J. Marshall:
	Base salary		—		—		—		105,000		105,000		—		—
	Bonus		—		—		—		—		—		—		—
	Medical continuation		—		—		—		6,292		6,292		—		—
	Death benefits		—		—		—		—		—		420,000		—
	Monthly disability benefits		—		—		—		—		—		—		10,000
	Value of accelerated stock options(1)		—		—		—						—		—
Geoffrey G. Stedman:
	Base salary		—		—		—		105,000		105,000		—		—
	Bonus		—		—		—		—		—		—		—
	Medical continuation		—		—		—		7,432		7,432		—		—
	Death benefits		—		—		—		—		—		420,000		—
	Monthly disability benefits		—		—		—		—		—		—		10,000
	Value of accelerated stock options(1)		—		—		—						—		—
Joseph S. Kennedy(2):
	Base salary	$	—	$	68,750	$	68,750	$	—	$	—	$	—	$	—
	Bonus		—		—		—		—		—		—		—
	Medical continuation		—		5,258		5,258		—		—		—		—
	Death benefits		—		—		—		—		—		—		—
	Monthly disability benefits		—		—		—		—		—		—		—
	Value of accelerated stock options(1)		—										—		—

(1): Calculated based on the assumed initial public offering price of $ per share.
(2): Mr. Kennedy ceased to be our President and Chief Executive Officer in May 2008.

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Employee benefit plans

1998 stock option plan

Background. Our board of directors adopted, and our stockholders approved, our 1998 stock option plan, which we refer to as our 1998 plan, in July 1998.

Administration. Our board of directors currently administers our 1998 plan. Our compensation committee will be responsible for administering all of our equity compensation plans upon the closing of this offering. Under our 1998 plan, the plan administrator has the power to determine the terms of the awards, including the service providers who will receive awards, the exercise price, the number of shares subject to each award, the vesting schedule and exercisability of awards and the form of consideration payable upon exercise of an option.

Share reserve. As of December 31, 2007, options to purchase 4,809,747 shares of our common stock at a weighted average exercise price of $4.13 per share were outstanding under our 1998 plan and 411,154 shares of our common stock remained available for issuance upon the exercise of options that may be granted in the future. Following the closing of this offering, all shares of our common stock reserved but not ultimately issued or subject to options that have expired or otherwise terminated under our 1998 plan without having been exercised in full will become available for issuance under our 2008 equity incentive plan, which we refer to as our 2008 plan. We intend to grant all future stock option awards under our 2008 plan upon and after the closing of this offering. However, all stock options outstanding upon the closing of this offering will continue to be governed by the terms and conditions of the 1998 plan.

Eligibility and types of option grants. With respect to stock options, our 1998 plan provides for the grant of both incentive stock options (commonly referred to as ISOs), which qualify for favorable tax treatment under Section 422 of the Internal Revenue Code for their recipients, and nonqualified stock options (commonly referred to as NSOs). ISOs may be granted only to employees. NSOs may be granted to our employees, officers, directors and consultants.

Terms of option grants. The exercise price of options is determined by the plan administrator, subject to applicable statutory requirements. The exercise price of ISOs granted to a person who directly or by attribution owns more than 10% of the total combined voting power of all classes of our stock, or a 10% stockholder, must be at least equal to 110% of the fair market value of our common stock on the date of grant. All other ISOs must be granted with an exercise price at least equal to 100% of the fair market value of our common stock on the date of grant. Stock options become vested and exercisable, as applicable, within such periods, or upon such events, as determined by the plan administrator and as set forth in the related stock option agreement. To date, as a matter of practice, options have generally been subject to a four-year vesting period (25% on the first anniversary of the grant date and ratably monthly thereafter). Our 1998 plan also allows for the early exercise of unvested options, provided that right is permitted in the applicable stock option agreement. All outstanding unvested shares of our common stock acquired through early exercised options are subject to repurchase by us. The maximum permitted term of options granted under our 1998 plan is ten years (and five years for certain persons holding ISOs).

After termination of an optionee, he or she may exercise his or her vested option for the period of time stated in the stock option agreement. Generally, if termination is due to death or disability, the vested option will generally remain exercisable for six months. In all other

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cases, the vested option will generally remain exercisable for three months. However, an option may not be exercised later than its expiration date.

Change in control. In the event of a liquidation, dissolution or change in control transaction, outstanding options under our 1998 plan may be assumed or replaced by the successor company (if any). Outstanding options that are not assumed or replaced by the successor company (if any) will expire on the consummation of the liquidation, dissolution or change in control transaction at such time and on such conditions as our board of directors determines (including the ability to partially or totally accelerate the vesting of stock options granted under our 1998 plan).

Transferability of awards. Generally, a participant may not transfer options other than by will or the laws of descent and distribution. During the lifetime of an optionee, the option is exercisable only by the optionee.

Amendment and Termination. Our board of directors may amend or terminate our 1998 plan at any time, subject to stockholder approval where required. In addition, no amendment that is detrimental to a participant in our 1998 plan may be made to an outstanding option without the consent of the affected participant.

2008 equity incentive plan

Background. Our 2008 plan will serve as the successor equity compensation plan to our 1998 stock option plan. Our board of directors adopted our 2008 plan in 2008 and our stockholders approved the 2008 plan in 2008. Our 2008 plan will become effective on the date of our initial public offering and will terminate in 2018. Our 2008 plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, restricted stock units and stock bonuses.

Administration. Our 2008 plan will be administered by our compensation committee. This committee will act as the plan administrator and will determine which individuals are eligible to receive awards under our 2008 plan, the time or times when such awards are to be made, the number of shares subject to each such award, the status of any granted option as either an ISO or an NSO under United States federal tax laws, the vesting schedule applicable to an award and the maximum term for which any award is to remain outstanding (subject to the limits set forth in our 2008 plan). The committee will also determine the exercise price of options granted, the purchase price for rights to purchase restricted stock and, if applicable, restricted stock units, and the strike price for stock appreciation rights. Unless the committee provides otherwise, our 2008 plan does not allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime.

Share reserve. We have reserved shares of our common stock for issuance under our 2008 plan plus:

•: all shares of our common stock reserved under our 1998 plan that are not issued or subject to outstanding grants as of the completion of this offering;
•: any shares of our common stock issued under our 1998 plan that are forfeited or repurchased by us at the original purchase price; and

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•: any shares of our common stock issuable upon exercise of options granted under our 1998 plan that expire without having been exercised in full.

Additionally, our 2008 plan provides for automatic increases in the number of shares available for issuance under it as follows:

•: on January 1, 2009, the number of shares of our common stock available for issuance under our 2008 plan will be automatically increased by an amount equal to the product of % of the number of shares of our common stock issued and outstanding on December 31, 2008 multiplied by a fraction, the numerator of which is the number of days between the completion of this offering and December 31, 2008 and the denominator of which is 365;
•: on the first day of each January from 2010 through 2018, the number of shares of our common stock available for issuance under our 2008 plan will be increased by % of the number of shares of our common stock issued and outstanding on the preceding December 31st; or
•: a lesser number of shares of our common stock as determined by our board of directors.

Equity awards. Our 2008 plan permits us to grant the following types of awards:

Stock options. Our 2008 plan provides for the grant of ISOs to employees, and NSOs to employees, directors and consultants. Options may be granted with terms determined by the committee, provided that ISOs are subject to statutory limitations. The committee determines the exercise price for a stock option, within the terms and conditions of our 2008 plan and applicable law, provided that the exercise price of an ISO may not be less than 100% (or higher in the case of certain recipients of ISOs) of the fair market value of our common stock on the date of grant. ISOs exercisable for no more than shares may be granted over the life of our 2008 plan. Options granted under our 2008 plan will vest at the rate specified by the committee and such vesting schedule will be set forth in the stock option agreement to which such stock option grant relates. Generally, the committee determines the term of stock options granted under our 2008 plan, up to a term of ten years, except in the case of certain ISOs.

After termination of an optionee, he or she may exercise his or her vested option for the period of time stated in the stock option agreement to which such option relates, up to a maximum of five years from the date of termination. Generally, if termination is due to death or disability, the vested option will remain exercisable for 12 months. In all other cases, the vested option will generally remain exercisable for three months. However, an option may not be exercised later than its expiration date.

Notwithstanding the foregoing, if an optionee is terminated for cause (as defined in our 2008 plan), then the optionee's options shall expire on the optionee's termination date or at such later time and on such conditions as determined by our compensation committee.

Restricted stock. A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions that the committee may impose. These restrictions may be based on completion of a specified period of service with us or upon the completion of performance goals during a performance period. The price of a restricted stock award will be determined by the committee. Unless otherwise determined by the committee at the time of award, vesting ceases on the date the participant no longer provides services to us and unvested shares are forfeited to us or subject to repurchase by us.

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Stock appreciation rights. Stock appreciation rights provide for a payment, or payments, in cash or shares of common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price. Stock appreciation rights may vest based on time or achievement of performance conditions.

Restricted stock units. Restricted stock units represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of such right due to termination of employment or failure to achieve specified performance conditions. If the restricted stock unit has not been forfeited, then on the date specified in the restricted stock unit agreement, we will deliver to the holder of the restricted stock unit whole shares of our common stock, cash or a combination of our common stock and cash.

Stock bonuses. Stock bonuses are granted as additional compensation for performance and therefore are not issued in exchange for cash.

Change in control. In the event of a liquidation, dissolution or corporate transaction (as defined in our 2008 plan), except for options granted to non-employee directors (which vest and become exercisable in full upon a change in control event (as defined in our 2008 plan)), outstanding awards may be assumed or replaced by the successor company (if any). Outstanding awards that are not assumed or replaced by the successor company (if any) will expire on the consummation of the liquidation, dissolution or change in control transaction at such time and on such conditions as our board of directors determines (including, without limitation, full or partial vesting and exercisability of any or all outstanding awards issued under our 2008 plan).

Transferability of awards. Generally, a participant may not transfer an award other than by will or the laws of descent and distribution unless, in the case of awards other than ISOs, the committee permits the transfer of an award to certain authorized transferees (as set forth in our 2008 plan).

Eligibility. The individuals eligible to participate in our 2008 plan include our officers and other employees, our non-employee directors and any consultants.

Payment for purchase of shares of our common stock. Payment for shares of our common stock purchased pursuant to our 2008 plan may be made by any of the following methods (provided such method is permitted in the applicable award agreement to which such shares relate): (1) cash (including by check); (2) cancellation of indebtedness; (3) surrender of shares; (4) waiver of compensation due or accrued for services rendered; (5) through a "same day sale" program or through a "margin" commitment or (6) by any other method approved by our board of directors.

Limit on Awards. Under our 2008 plan, during any calendar year, no person will be eligible to receive more than shares of our common stock, and in the case of new employees during their first fiscal year of employment with us, shares of our common stock.

Amendment and Termination. Our board of directors may amend or terminate our 2008 plan at any time, subject to stockholder approval where required. In addition, no amendment that is detrimental to a participant in our 2008 plan made to an outstanding award without the consent of the affected participant.

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2008 employee stock purchase plan

Background. Our 2008 employee stock purchase plan is designed to enable eligible employees to periodically purchase shares of our common stock at a discount. Purchases are accomplished through participation in discrete offering periods. Our 2008 employee stock purchase plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. Our board of directors adopted our 2008 employee stock purchase plan in 2008 and our stockholders approved the plan in 2008.

Share reserve. We have initially reserved shares of our common stock for issuance under our 2008 employee stock purchase plan. The number of shares reserved for issuance under our 2008 employee stock purchase plan will increase automatically on the first day of each January, starting with January 1, 2008, by the number of shares equal to % of our total outstanding shares as of the immediately preceding December 31st (rounded to the nearest whole share; provided, however, that, for the increase on January 1, 2009, such addition shall equal the product of % of our total outstanding shares as of December 31, 2008, multiplied by a fraction, the numerator of which is the number of days between the effective date of this registration statement and December 31, 2008 and the denominator of which is 365 (rounded to the nearest whole share)). Our board of directors or compensation committee may reduce the amount of the increase in any particular year. No more than shares of our common stock may be issued under our 2008 employee stock purchase plan and no other shares may be added to this plan without the approval of our stockholders.

Administration. Our compensation committee will administer our 2008 employee stock purchase plan. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our 2008 employee stock purchase plan, are ineligible to participate in our 2008 employee stock purchase plan. We may impose additional restrictions on eligibility as well. Under our 2008 employee stock purchase plan, eligible employees may acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible employees may select a rate of payroll deduction between 1% and 15% of their cash compensation. We also have the right to amend or terminate our 2008 employee stock purchase plan, except that, subject to certain exceptions, no such action may adversely affect any outstanding rights to purchase stock under the plan. Our 2008 employee stock purchase plan will terminate on the tenth anniversary of the first offering date, unless it is terminated earlier by our board of directors.

Purchase rights. When an offering period commences, our employees who meet the eligibility requirements for participation in that offering period are automatically granted a non-transferable option to purchase shares in that offering period. Each offering period may run for no more than 19 months and consist of no more than three purchase periods. An employee's participation automatically ends upon termination of employment for any reason.

No participant will have the right to purchase our shares at a rate which, when aggregated with purchase rights under all our employee stock purchase plans that are also outstanding in the same calendar year(s), have a fair market value of more than $ , determined as of the first day of the applicable offering period, for each calendar year in which such right is outstanding. The purchase price for shares of our common stock purchased under our 2008 employee stock purchase plan will be 85% of the lesser of the fair market value of our

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common stock on (1) the first trading day of the applicable offering period and (2) the last trading day of each purchase period in the applicable offering period.

Change in control. In the event of a change in control transaction, our 2008 employee stock purchase plan and any offering periods that commenced prior to the closing of the proposed transaction may terminate on the closing of the proposed transaction and the final purchase of shares will occur on that date, but our compensation committee may instead terminate any such offering period at a different date.

401(k) plan

We offer a 401(k) plan to all employees who meet specified eligibility requirements. Eligible employees may contribute up to 75% of their respective compensation subject to limitations established by the Internal Revenue Code. We presently do not match participant contributions, but have the discretion to do so.

Indemnification of directors and executive officers and limitation of liability

Our certificate of incorporation includes a provision that eliminates, to the fullest extent permitted by law, the personal liability of a director for monetary damages resulting from breach of his fiduciary duty as a director.

Our bylaws provide that:

•: we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;
•: we may indemnify our other employees and agents as provided in indemnification contracts entered into between us and our employees and agents;
•: we are required to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and
•: the rights conferred in the bylaws are not exclusive.

In addition to the indemnification required in our certificate of incorporation and bylaws, we will enter into indemnity agreements with each of our current directors and officers before the completion of this offering. These agreements will provide for the indemnification of our directors and officers for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We have also obtained directors' and officers' insurance to cover our directors, officers and some of our employees for liabilities, including liabilities under securities laws. We believe that these indemnification provisions and agreements and this insurance are necessary to attract and retain qualified directors and officers.

A stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

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Principal stockholders

The following table presents information as to the beneficial ownership of our common stock as of April 30, 2008, and as adjusted to reflect the sale of the common stock in this offering, by:

•: each stockholder known by us to be the beneficial owner of more than 5% of our common stock;
•: each of our directors;
•: each of our named executive officers; and
•: all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options and warrants that are currently exercisable or exercisable within 60 days of April 30, 2008 are deemed to be outstanding and to be beneficially owned by the person holding the options or warrants for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

The number of shares of our common stock outstanding after this offering includes (1) shares of common stock being offered by us, and (2) the assumed issuance of 326,750 shares of common stock upon the exercise of outstanding warrants to purchase shares of preferred stock and the automatic conversion of these shares of preferred stock into shares of common stock, and does not include the shares that are subject to the underwriters' over-allotment option. The percentage of our common stock outstanding before and after the offering is based on 21,636,340 shares of our common stock outstanding on April 30, 2008, assuming the conversion of all outstanding shares of preferred stock into an aggregate of 18,605,776 shares of common stock upon the completion of this offering. Unless otherwise

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indicated, the address of each of the individuals and entities named below is c/o Omneon, Inc., 965 Stewart Drive, Sunnyvale, CA 94085-3913.

			Percentage of shares beneficially owned

		Number of shares beneficially owned	Before offering		After offering

5% Stockholders:
Entities affiliated with Norwest Venture Partners(1)		3,497,459	16.1	%		%
Entities affiliated with Accel Partners(2)		3,496,775	16.1
Entities affiliated with Advanced Technology Ventures(3)		3,496,241	16.1
Entities affiliated with Meritech Capital Partners(4)		1,649,034	7.6
Entities affiliated with INVESCO Private Capital(5)		1,397,561	6.5
Lucent Venture Partners I, L.L.C.(6)		1,187,295	5.5
Directors and Named Executive Officers:
Matthew D. Howard(7)		3,497,459	16.1
J. Peter Wagner(8)		3,496,775	16.1
Wes Raffel(9)		3,496,241	16.1
Esfandiar Lohrasbpour(10)		1,397,561	6.5
Joseph S. Kennedy(11)		1,128,340	5.1
Lawrence R. Kaplan(12)		656,942	3.0
Daniel J. Marshall(13)		443,536	2.0
Geoffrey G. Stedman(14)		315,415	1.4
Laura A. Perrone(15)		282,268	1.3
William J. Schroeder(16)		116,967	*
Basil H. Alwan(17)		83,333	*
Jon S. Castor(18)		66,667	*
	All directors, nominated director and executive officers as a group (19 persons)(19)	16,160,570	67.2

*: Represents beneficial ownership of less than 1%.
(1): Includes 2,803,543 shares held by Norwest Venture Partners VII, L.P. and 606,096 shares held by Norwest Venture Partners VII-A, L.P. Also includes 87,820 shares issuable upon exercise of warrants held by Norwest Venture Partners II, L.P., which warrants will be automatically exercised on a net exercise basis prior to the completion of this offering. Voting and dispositive power of these shares is shared by George Stills and Promod Haque, the managing partners of ITASCA VC Partners VII, LP, which is the general partner of Norwest Venture Partners VII, L.P., and the managing directors of ITASCA VC Partners VII-A, LLC, which is the general partner of Norwest Venture Partners VII-A, L.P. Each of Messrs. Stills and Haque disclaims beneficial ownership of these shares except to the extent of their respective pecuniary interests therein. The address of each of these funds is c/o Norwest Venture Partners, 525 University Avenue, Suite 800, Palo Alto, California 94301.
(2): Includes 2,676,822 shares held by Accel VI-S, L.P., 414,254 shares held by Accel Investors '98-S, L.P., 203,345 shares held by Accel Investors '98, L.P., 59,550 shares held by Accel VI, L.P., 44,278 shares held by Accel Keiretsu VI, L.P. and 7,609 shares held by Accel Internet Fund II, L.P. Also includes 73,021 shares issuable upon exercise of warrants held by Accel VI-S, L.P., 11,300 shares issuable upon exercise of warrants held by Accel Investors '98-S, L.P., 5,411 shares issuable upon exercise of warrants held by Accel Investors '98, L.P. and 1,185 shares issuable upon exercise of warrants held by Accel Keiretsu VI L.P., which warrants will be automatically exercised on a net exercise basis prior to the completion of this offering. Accel VI Associates L.L.C. is the general partner of Accel VI L.P., Accel VI-S L.P. and Accel Investors '98-S L.P., and has the sole voting and investment power. James W. Breyer, Arthur C. Patterson, James R. Swartz, and Mr. Wagner are the managing members of

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Accel VI Associates L.L.C. and share such powers. Accel Internet Fund II Associates L.L.C. is the general partner of Accel Internet Fund II L.P. and has the sole voting and investment power. James W. Breyer, Arthur C. Patterson, James R. Swartz, and Mr. Wagner are the managing members of Accel Internet Fund II Associates L.L.C. and share such powers. Accel Keiretsu VI Associates L.L.C. is the general partner of Accel Keiretsu VI L.P. and has the sole voting and investment power. James W. Breyer, Arthur C. Patterson, James R. Swartz, and Mr. Wagner are the managing members of Accel Keiretsu VI Associates L.L.C. and share such powers. James W. Breyer, Arthur C. Patterson, James R. Swartz, and Mr. Wagner are the general partners of Accel Investors '98 L.P. and share voting and investment power. Mr. Wagner, and each other managing member disclaims beneficial ownership except to the extent of his pecuniary interest therein. The address of each of these funds is c/o Accel Partners, 428 University Avenue, Palo Alto, California 94301.

(3): Includes 3,170,778 shares held by Advanced Technology Ventures VII, L.P., 127,082 shares held by Advanced Technology Ventures VII (B), L.P., 61,079 shares held by Advanced Technology Ventures VII (C), L.P., 18,872 shares held by ATV Entrepreneurs VII, L.P., 16,764 shares held by ATV Alliance 2001, L.P. and 8,382 shares held by ATV Alliance 2002, L.P. Also includes 86,765 shares issuable upon exercise of warrants held by Advanced Technology Ventures VII, L.P., 3,483 shares issuable upon exercise of warrants held by Advanced Technology Ventures VII (B), L.P., 1,675 shares issuable upon exercise of warrants held by Advanced Technology Ventures VII (C), L.P., 561 shares issuable upon exercise of warrants held by ATV Alliance 2001, L.P., 519 shares issuable upon exercise of warrants held by ATV Entrepreneurs VII, L.P. and 281 shares issuable upon exercise of warrants held by ATV Alliance 2002, L.P., which warrants will be automatically exercised on a net exercise basis prior to the completion of this offering. Voting and dispositive power over the shares held by Advanced Technology Ventures VII, L.P., Advanced Technology Ventures VII (B), L.P., Advanced Technology Ventures VII (C), L.P. and ATV Entrepreneurs VII, L.P. (together, the "ATV VII Investing Entities") is held by ATV Associates VII, LLC, the sole general partner of each of the ATV VII Investing Entities. Decisions of ATV Associates VII, LLC are made by a board of six managing directors, of which Mr. Raffel is one. Each of ATV Associates VII, LLC, Mr. Raffel and each of the other managing directors of ATV Associates VII, LLC disclaims beneficial ownership of the shares held by the ATV VII Investing Entities except to the extent of their respective pecuniary interests therein. Voting and dispositive power over the shares held by ATV Alliance 2001, L.P. and ATV Alliance 2002, L.P. (together, the "ATV Alliance Investing Entities") is held by ATV Alliance Associates, LLC, the sole general partner of each of the ATV Alliance Investing Entities. Jean George is the sole manager of ATV Alliance Associates, LLC and ATV Capital Management, Inc., of which Mr. Raffel is a shareholder, is the sole member of ATV Alliance Associates, LLC. Each of ATV Alliance Associates, LLC, Jean George, ATV Capital Management, Inc., Mr. Raffel and each of the other shareholders of ATV Capital Management, Inc. disclaims beneficial ownership of the shares held by the ATV Alliance Investing Entities except to the extent of their respective pecuniary interests therein. The address of each of the ATV VII Investing Entities and ATV Alliance Investing Entities is c/o Advanced Technology Ventures, 485 Ramona Street, Palo Alto, California 94301.
(4): Represents 12,205 shares held by MCP Entrepreneur Partners II, L.P., 41,062 shares held by Meritech Capital Affiliates II, L.P. and 1,595,767 shares held by Meritech Capital Partners II, L.P. Meritech Management Associates II L.L.C., a managing member of Meritech Capital Associates II L.L.C., the general partner of each of these funds, and Paul S. Madera and Michael B. Gordon, the managing members of Meritech Management Associates II L.L.C., may be deemed to share voting and dispositive power over these shares. Each of Meritech Management Associates II, L.L.C., Meritech Capital Associates II, L.L.C. and Messrs. Madera and Gordon disclaims beneficial ownership of these shares except to the extent of their respective pecuniary interests therein. The address of each of these funds is c/o Meritech Capital Partners, 245 Lytton Avenue, Suite 350, Palo Alto, California 94301.
(5): Represents 861,951 shares held by Chancellor V, L.P., 400,976 shares held by Chancellor V-A, L.P. and 134,634 shares held by Citiventure 2000, L.P. INVESCO Private Capital, Inc. is the managing member of IPC Direct Associates V, LLC, which is the general partner of each of Chancellor V, L.P., Chancellor V-A, L.P. and Citiventure 2000, L.P. The address of each of these funds is c/o INVESCO Private Capital, 1166 Avenue of the America, New York, New York 10036.
(6): Includes 54,547 shares issuable upon exercise of warrants, which warrants will be automatically exercised on a net exercise basis prior to the completion of this offering. Lucent Venture Partners I, L.L.C. The address of Lucent Venture Partners I, L.L.C. is c/o Alcatel-Lucent, 600 Mountain Avenue, Murray Hill, New Jersey 07974.

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(7): Represents the shares referred to in footnote (1) above. Mr. Howard is a General Partner of Norwest Venture Partners. Mr. Howard disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in these entities.
(8): Represents the shares referred to in footnote (2) above. Mr. Wagner is a General Partner of Accel Partners. Mr. Wagner disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in these entities.
(9): Represents the shares referred to in footnote (3) above. Mr. Raffel is a Managing Director of Advanced Technology Ventures. Mr. Raffel disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in these entities.
(10): Represents the shares referred to in footnote (4) above. Mr. Lohrasbpour is a General Partner of INVESCO Private Capital. Mr. Lohrasbpour disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in these entities.
(11): Includes 367,000 shares issuable upon exercise of options that are immediately exercisable, of which 175,021 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Mr. Kennedy's cessation of service.
(12): Includes 23,216 shares jointly held by Mr. Kaplan and Barbara Kaplan. Also includes 190,000 shares issuable upon exercise of options that are immediately exercisable, of which 121,615 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Mr. Kaplan's cessation of service.
(13): Includes 163,212 shares issuable upon exercise of options that are immediately exercisable, of which 90,209 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Mr. Marshall's cessation of service.
(14): Includes 170,313 shares issuable upon exercise of options that are immediately exercisable, of which 115,313 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Mr. Stedman's cessation of service.
(15): Includes 4,167 shares that are subject to vesting and a lapsing right of repurchase in our favor upon Ms. Perrone's cessation of service and 80,000 shares issuable upon exercise of options that are immediately exercisable, of which 69,792 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Ms. Perrone's cessation of service.
(16): Includes 5,000 shares that are subject to vesting and a lapsing right of repurchase in our favor upon Mr. Schroeder's cessation of service and 66,667 shares issuable upon exercise of options that are immediately exercisable, of which 60,742 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Mr. Schroeder's cessation of service. Also includes 4,000 shares held by Kimberly J. Schroeder, Mr. Schroeder's daughter.
(17): Represents 83,333 shares issuable upon exercise of options that are immediately exercisable, of which 35,649 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon Mr. Alwan's cessation of service.
(18): Represents 66,667 shares issuable upon exercise of options that are immediately exercisable, of which 42,131 shares if these options are exercised in full, will be subject to a lapsing right of repurchase in our favor upon Mr. Castor's cessation of service.
(19): Includes a total of 18,766 shares held by our executive officers and directors that are subject to vesting and a lapsing right of repurchase in our favor upon our executive officers' and directors' cessation of service and a total of 2,422,086 shares issuable upon exercise of options and warrants held by our executive officers and directors that are immediately exercisable, of which 1,149,568 shares, if these options are exercised in full, will be subject to vesting and a lapsing right of repurchase in our favor upon our executive officers' or directors' cessation of service.

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Related party transactions

In addition to the executive and director compensation arrangements, including the employment, termination of employment and change in control arrangements, discussed above under "Management," the following is a description of transactions since January 1, 2005 to which we have been a party, in which the amount involved in the transaction exceeded or will exceed $120,000, and in which any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.

Exercise of Warrants

Immediately prior to the completion of this offering, warrants exercisable for an aggregate of 326,750 shares of Series A-6 preferred stock with an exercise price of $1.10 per share will automatically be exercised on a net exercise basis pursuant to the terms of the warrants, unless earlier exercised. Each share of Series A-6 preferred stock issued upon exercise of these warrants will convert automatically into one share of our common stock upon the completion of this offering. The following table identifies the number of shares of Series A-6 preferred stock subject to these warrants held by officers, directors and holders of more than 5% of our outstanding capital stock.

Investor	Shares of Series A-6 preferred stock subject to warrants	Exercise price per share of warrants		Percentage of total warrants issued


Entities affiliated with Advanced Technology Ventures(1)	93,284	$	1.10	19.5	%
Entities affiliated with Accel Partners(2)	90,917		1.10	19.0
Norwest Venture Partners VII-A, L.P.	87,820		1.10	18.3
Lucent Venture Partners I L.L.C.	54,547		1.10	11.4

(1): Represents 73,021 shares subject to warrants held by Accel VI-S L.P., 11,300 shares subject to warrants held by Accel Investors '98-S L.P., 5,411 shares subject to warrants held by Accel Investors '98 L.P. and 1,185 shares subject to warrants held by Accel Keiretsu VI, L.P. J. Peter Wager, one of our directors, is a General Partner of Accel Partners.
(2): Represents 86,765 shares subject to warrants held by Advanced Technology Ventures VII, L.P., 3,483 shares subject to warrants held by Advanced Technology Ventures VII (B), L.P., 1,675 shares subject to warrants held by Advanced Technology Ventures VII (C), L.P., 519 shares subject to warrants held by ATV Entrepreneurs VII, L.P., 561 shares subject to warrants held by ATV Alliance 2001, L.P. and 281 shares subject to warrants held by ATV Alliance 2002, L.P. Wes Raffel, one of our directors, is a Managing Director of Advanced Technology Ventures.

In April 2008, Lawrence R. Kaplan, our Interim President and Chief Executive Officer, exercised an outstanding warrant on a net exercise basis pursuant to the terms of the warrant to acquire 488 shares of Series A-6 preferred stock.

Stockholder and other agreements

In connection with the sale of our Series B-1 preferred stock in 2004, we entered into agreements that grant customary preferred stock rights to all of our major preferred stock investors, including holders of more than 5% of our outstanding stock. These rights include registration rights, rights of first refusal, information rights, co-sale rights with respect to stock transfers, a voting agreement providing for the election of investor designees to the board of directors, board observer rights and other similar rights. The Fourth Amended and Restated

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Investor Rights Agreement, which contains the registration rights and many of the other rights described above, is filed as an exhibit to the registration statement of which this prospectus is a part. All of these rights, other than the registration rights, will terminate upon the completion of this offering. For a description of the registration rights, please see Description of Capital Stock—Registration Rights.

Loan to executive officer

On September 24, 1998, we entered into a loan agreement with Lawrence R. Kaplan, our vice chairman and a member of our board of directors who was then our chairman and chief executive officer, which allowed for maximum borrowings by Mr. Kaplan from us of up to a total principal amount of $480,000. On April 1, 2003, we entered into an amendment to this loan agreement which modified the maximum total principal amount to $180,000, the total principal amount and accrued interest then outstanding under the loan. As amended, the loan was subject to interest at the prime rate, compounded quarterly. Mr. Kaplan also entered into a retention agreement with us in November 2002, as amended in April 2003, which provided for, among other things, a bonus in the form of monthly forgiveness of loan principal of $5,000 plus interest. This bonus was paid over a period of three years beginning in November 2002 and ending in October 2005, at which time the loan was forgiven in full.

Indemnification agreements

We will enter into indemnity agreements with each of our current directors and officers before the completion of this offering, in addition to the indemnification provided for in our bylaws. These agreements will require us to indemnify each such person against expenses and liabilities incurred by such person in connection with a proceeding related to such person's services for us, and to advance expenses incurred in connection with such proceeding, all subject to limited exceptions. Please see "Executive Compensation—Indemnification of directors and executive officers and limitation of liability."

Sales to Ascent Media Group

From September 2005 through March 31, 2008, we generated approximately $17.9 million in revenues from sales of our products to Ascent Media Group. Since September 2005, Margaret Craig, the spouse of Donald Craig, our chief technology officer, has served as the chief operating officer of Ascent Media Network Services, a subsidiary of Ascent Media Group.

Acquisition of Castify

In December 2007, we acquired all of the outstanding shares of Castify and issued to the shareholders of Castify, including Jörg Nonnenmacher, who is now our vice president and general manager of content delivery, shares of our Series C-1 convertible preferred stock. In addition, the holders of these shares of Series C-1 convertible preferred stock became parties to existing agreements between us and our other preferred stockholders relating to the granting of registration rights and the election of investor designees to the board of directors. Mr. Nonnenmacher was issued 12,798 shares of our Series C-1 convertible preferred stock in the acquisition and may be issued up to an additional 2,259 shares of our Series C-1 convertible preferred stock or an equivalent number of shares of our common stock on the one-year

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anniversary of the closing of the acquisition, depending on whether we have made any claims for indemnity under the Castify acquisition agreement.

Review, approval or ratification of transactions with related parties

We have adopted a policy requiring that any transaction, subject to limited exceptions and other than one that involves compensation, between us and any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, be consummated only if approved by our audit committee and only if the terms of the transaction are comparable to those that could be obtained in arm's length dealings with an unrelated third-party. The approval of our compensation committee is required to approve any transaction that involves compensation to our directors and executive officers. This approval process does not apply to any transaction that is available to all employees generally.

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Description of capital stock

Immediately following the closing of this offering, our authorized capital stock will consist of:

•: 200,000,000 shares of common stock, $0.001 par value per share; and
•: 5,000,000 shares of preferred stock, $0.001 par value per share.

As of April 30, 2008, and assuming the conversion of all outstanding convertible preferred stock into common stock, there were outstanding:

•: 21,636,340 shares of our common stock held by approximately 194 stockholders, of which 19,803 shares were subject to our right of repurchase;
•: options to purchase 5,021,090 shares of our common stock at a weighted average exercise price of $4.43 per share; and
•: warrants to purchase 326,750 shares of our common stock at an exercise price of $1.10 per share, which will be automatically exercised on a net exercise basis upon completion of this offering, unless earlier exercised.

The following is a summary of the rights of our common stock and preferred stock. This summary is not complete. For more detailed information, please see our restated certificate of incorporation and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.

Common stock

Dividend rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine.

Voting rights. Each holder of common stock 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.

No preemptive or similar rights. Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption.

Right to receive liquidation distributions. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common stock, subject to the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Fully paid and nonassessable. All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

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Preferred stock

Upon the closing of this offering, each outstanding share of convertible preferred stock will be converted into common stock.

Following this offering, our board of directors will have the authority, subject to limitations prescribed by Delaware law, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions. Our board of directors can also increase or decrease the number of shares of any series, but not below the number of shares of that series then outstanding, by the affirmative vote of the holders of a majority of our capital stock entitled to vote, unless a vote of any other holders is required by the certificate of designation establishing the series. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of Omneon and may adversely affect the market price of our common stock and the voting and other rights of the holders of common stock. We have no current plan to issue any shares of preferred stock.

Warrants

As of April 30, 2008, we had warrants outstanding to purchase an aggregate of 326,750 shares of our Series A-6 preferred stock at an exercise price of $1.10 per share. These warrants to purchase preferred stock will be exercised on a net exercise basis in connection with the closing of this offering.

Registration rights

Following this offering, the holders of approximately shares of our common stock issued upon conversion of our convertible preferred stock, as described below.

Demand registration rights

At any time beginning six months after the completion of this offering, the holders of shares having registration rights can request that we file a registration statement covering registrable securities with an anticipated aggregate offering price of greater than $10 million, net of any underwriters' discounts and commissions. The holders of at least 20% of the shares having registration rights can also request that we file a registration statement covering registrable securities regardless of the aggregate offering price. We will only be required to file two registration statements upon exercise of these demand registration rights. We may postpone the filing of a registration statement for up to 120 days once in a 12-month period if we determine that the filing would be seriously detrimental to us or our stockholders.

Piggyback registration rights

After the completion of this offering, if we register any of our securities for public sale, the stockholders with registration rights will have the right to include their shares in the

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registration statement. However, this right does not apply to a registration relating to any of our employee benefit plans or a corporate reorganization. The managing underwriter of any underwritten offering will have the right to limit, due to marketing reasons, the number of shares registered by these holders to 30% of the total shares covered by the registration statement.

Form S-3 registration rights

The holders of at least 20% of the shares having registration rights can request that we register all or a portion of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and the aggregate price to the public of the shares offered is greater than $500,000, net of any underwriters' discounts and commissions. We may postpone the filing of a registration statement on Form S-3 for up to 120 days once in a 12-month period if we determine that the filing would be seriously detrimental to us or our stockholders.

Registration expenses

We will pay all expenses incurred in connection with each of the registrations described above, except for underwriters' and brokers' discounts and commissions. However, we will not pay for any expenses of any demand registration if the request is subsequently withdrawn by a majority of the holders requesting that we file such a registration statement, subject to limited exceptions.

Termination of registration rights

The registration rights described above will terminate five years after this offering is completed. In addition, the registration rights will terminate earlier with respect to a particular stockholder to the extent the shares held by and issuable to such holder may be sold under Rule 144 of the Securities Act in any three month period. Holders of all of our shares with these registration rights have signed agreements with the underwriters prohibiting the exercise of their registration rights for 180 days, subject to a possible extension under certain circumstances, following the date of this prospectus. These agreements are described below in "Underwriting."

Anti-takeover provisions

The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of Omneon.

Delaware law

We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

•: prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

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•: the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•: on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66.67% of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines a business combination to include:

•: any merger or consolidation involving the corporation and the interested stockholder;
•: any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
•: subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
•: subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and
•: the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Restated certificate of incorporation and restated bylaws

Our restated certificate of incorporation and restated bylaws which will become effective upon the completion of this offering provide that:

•: our board of directors may permit the issuance of up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change of control);
•: no action shall be taken by our stockholders except at an annual or special meeting of our stockholders called in accordance with our restated bylaws and our stockholders may not act by written consent;
•: our stockholders may not call special meetings of our stockholders or fill vacancies on our board of directors;
•: there are no cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election); and

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•: we will indemnify directors and officers against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.

These provisions of our restated certificate of incorporation and restated bylaws may have the effect of delaying, deferring or discouraging another person or entity from acquiring control of us. The approval of two-thirds of the shares entitled to vote shall be required to amend any of the provisions of our restated certificate of incorporation or restated bylaws.

Transfer agent and registrar

The transfer agent and registrar for our common stock is Mellon Investor Services LLC.

Listing of our Common Stock

We expect to apply to list our common stock either on the NASDAQ Global Market or the NYSE Arca.

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Material U.S. federal tax
consequences to non-U.S. holders

The following is a general discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a beneficial owner that is a non-U.S. holder. For the purpose of this discussion, a non-U.S. holder is any holder that for U.S. federal income tax purposes is not a U.S. person. For purposes of this discussion, the term U.S. person means:

•: an individual citizen or resident of the U.S.;
•: a corporation or other entity taxable as a corporation or a partnership or entity taxable as a partnership created or organized in the U.S. or under the laws of the U.S. or any political subdivision thereof;
•: an estate whose income is subject to U.S. federal income tax regardless of its source; or
•: a trust (x) whose administration is subject to the primary supervision of a U.S. court and of which one or more U.S. persons have the authority to control all substantial decisions or (y) which has made an election to be treated a U.S. person.

If a partnership holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Accordingly, we urge partnerships that hold our common stock and partners in such partnerships to consult their tax advisors.

This discussion assumes that a non-U.S. holder will hold our common stock issued pursuant to the offering as a capital asset (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant in light of a non-U.S. holder's special tax status or special tax situations. U.S. expatriates, life insurance companies, tax-exempt organizations, dealers in securities or currencies, banks or other financial institutions and investors that hold common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. Accordingly, we urge each non-U.S. holder to consult a tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock.

Dividends

We have not paid any dividends on our common stock and we do not plan to pay any dividends for the foreseeable future. However, if we do make distributions on our common stock, such payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and

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profits, the dividends will constitute a return of capital and will first reduce a holder's basis, but not below zero, and then will be treated as gain from the sale of stock.

Any dividend (out of earnings and profits) paid to a non-U.S. holder of common stock generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. In order to obtain a reduced rate of withholding, a non-U.S. holder will be required to provide an Internal Revenue Service Form W-8BEN certifying its entitlement to benefits under a treaty.

Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder are not subject to from such withholding tax. To avoid withholding, a non-U.S. holder must provide us with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits, subject to any applicable tax treaty providing otherwise. In addition to the graduated tax described above, dividends received by a corporate non-U.S. holder that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty.

A non-U.S. holder of common stock that is eligible for a reduced rate of withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts withheld if an appropriate claim for refund is filed with the IRS.

Gain on disposition of common stock

A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

•: the gain is effectively connected with a U.S. trade or business of the non-U.S. holder (which gain, in the case of a corporate non-U.S. holder, must also be taken into account for branch profits tax purposes), subject to any applicable tax treaty providing otherwise;
•: the non-U.S. holder is an individual who is present in the U.S. for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or
•: our common stock constitutes a U.S. real property interest by reason of our status as a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock. We believe that we are not currently, and that we will not become, a "U.S. real property holding corporation" for U.S. federal income tax purposes.

Backup withholding and information reporting

Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.

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Payments of dividends or of proceeds on the disposition of stock made to a non-U.S. holder may be subject to backup withholding (currently at a rate of 28%) unless the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on a Form W-8BEN or another appropriate version of Form W-8. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person.

Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS.

U.S. federal estate tax

The estates of nonresident alien individuals are generally subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent. The U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent's country of residence.

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Shares eligible for future sale

Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future.

Based on the number of shares of common stock outstanding as of April 30, 2008, upon completion of this offering, shares of common stock will be outstanding, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. All of the shares sold in this offering will be freely tradable unless held by an affiliate of ours. Except as set forth below, the remaining shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements. These remaining shares will generally become available for sale in the public market as follows:

•: no restricted shares will be eligible for immediate sale upon the completion of this offering;
•: up to restricted shares will be eligible for sale upon expiration of lock-up agreements at least 180 days after the date of this offering, subject in some cases to the provisions of Rule 144 under the Securities Act of 1933; and
•: restricted shares will be eligible for sale from time to time thereafter upon the lapse of our right of repurchase with respect to unvested shares.

In addition, up to an additional 64,367 shares issuable in connection with our acquisition of Castify will become available for sale in the public market upon issuance in December 2008.

Rule 144

In general, under Rule 144 under the Securities Act of 1933, as amended, a person who is not, and has not for a period of three months preceding the sale been, an affiliate of us and has beneficially owned shares of our common stock for at least six months would be entitled to freely sell such common stock subject only to the availability of current public information regarding us. An affiliate of us who has beneficially owned shares of our common stock for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•: 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or
•: the average weekly trading volume of our common stock on the NASDAQ Global Market or NYSE Arca during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales by affiliates under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us.

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Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under "Underwriting" and will become eligible for sale at the expiration of those agreements.

Lock-up agreements

We, our directors and executive officers and substantially all of our stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which we and each of these persons or entities, with limited exceptions, for a period of 180 days after the date of the final prospectus, subject to possible extension under certain circumstances as described in "Underwriting," may not, without the prior written consent of J.P. Morgan Securities Inc., (1) offer, pledge, announce the intention to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock (including, without limitation, common stock which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise. These lock-up restrictions may be extended in specified circumstances and are subject to exceptions specified in the lock-up agreements. See "Underwriting."

Registration rights

Upon completion of this offering, the holders of shares of our common stock will have rights with respect to the registration of their shares under the Securities Act, subject to the lock-up arrangement described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. See "Description of capital stock—registration rights."

Equity incentive plans

We intend to file with the SEC a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our 1998 stock option plan, our 2008 equity incentive plan and our 2008 employee stock purchase plan. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up arrangement described above, if applicable.

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Underwriting

We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities Inc. is acting as sole book-running manager. J.P. Morgan Securities Inc., Deutsche Bank Securities Inc., Canaccord Adams Inc., Needham & Company, LLC and JMP Securities LLC are acting as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

Name		Number of shares


J.P. Morgan Securities Inc.
Deutsche Bank Securities Inc.
Canaccord Adams Inc.
Needham & Company, LLC
JMP Securities LLC

Total

The underwriters are committed to purchase all the shares of common stock offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the shares of common stock offered in this offering.

The underwriters have an option to buy up to additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

The underwriting fee is equal to the initial public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

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Underwriting discounts and commissions

	Without over-allotment exercise	With full over-allotment exercise


Per share	$	$
Total	$	$

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ million.

A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of J.P. Morgan Securities Inc. for a period of 180 days after the date of this prospectus. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. These restrictions shall not apply to (a) sales of common stock in this offering, (b) grants of restricted stock and options under our equity incentive plans, (c) issuances of shares of common stock upon the exercise of options granted under our equity incentive plans or upon the exercise or conversion of warrants or preferred stock described in this prospectus where the recipients agree to be bound by the lock-up agreements described below, or (d) issuance of up to shares of common stock, or securities convertible into our common stock, in connection with mergers or acquisitions, joint ventures, commercial relationships or other strategic transactions where the recipients agree to be bound by the restrictions described below.

Our directors and executive officers and substantially all of our stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of the final prospectus, may not, without the prior written consent of J.P. Morgan Securities Inc., (1) offer, pledge, announce the intention to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock (including, without limitation, common stock that may be deemed to be beneficially owned by such persons in accordance with the rules and regulations of the SEC and securities that may be issued upon exercise of a stock option or warrant) or (2) enter

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into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. These restrictions shall not apply to (a) transactions relating to common stock acquired in open market transactions after the completion of this offering, provided that no filing by any party under the Securities Exchange Act of 1934 shall be required or shall be voluntarily made in connection with subsequent sales of common stock or other securities acquired in such open market transactions, (b) exercises of any option or warrant to acquire common stock or conversions of any convertible securities into common stock, provided that any shares of common stock obtained by such exercises or conversion shall remain subject to the terms of the lock-up agreements, (c) transfers of common stock or any security convertible into or exercisable or exchangeable for common stock (i) as a bona fide gift, (ii) as a contribution by a person to any trust for the direct or indirect benefit of that person or the immediate family of that person, (iii) as a distribution by a partnership to its partners or former partners or by a limited liability company to its members or retired members or (iv) to any affiliate, as defined in Rule 405 under the Securities Act of 1933, of the undersigned; provided that in the case of any transfer pursuant to clause (c), (A) each transferee shall sign and deliver a lock-up agreement and (B) the undersigned shall not be required to, and shall not voluntarily, file a report under Section 16(a) of the Securities Exchange Act of 1934, reporting a reduction in beneficial ownership of common stock during the restricted period referred to in the foregoing paragraph.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

We expect to apply to have our common stock approved for listing on the NASDAQ Global Market or NYSE Arca under the symbol .

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' over-allotment option referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there

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may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on The NASDAQ Global Market or NYSE Arca, as the case may be, in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

•: the information set forth in this prospectus and otherwise available to the representatives;
•: our prospects and the history and prospects for the industry in which we compete;
•: an assessment of our management;
•: our prospects for future earnings;
•: the general condition of the securities markets at the time of this offering;
•: the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and
•: other factors deemed relevant by the underwriters and us.

Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares of common stock will trade in the public market at or above the initial public offering price.

Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

J.P. Morgan Partners (BHCA), L.P. holds an aggregate of 87,508 shares of our common stock. J.P. Morgan Partners and J.P. Morgan Securities Inc. are affiliated entities and subsidiaries of J.P. Morgan Chase & Co.

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Legal matters

The validity of the shares of common stock being offered by us in this prospectus will be passed upon for us by Fenwick & West LLP, Mountain View, California. A partner of Fenwick & West LLP may be deemed to beneficially own 51,250 shares of common stock held by his spouse, an employee of Omneon. Davis Polk & Wardwell, Menlo Park, California, is representing the underwriters in this offering.

Experts

The consolidated financial statements as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

Where you can find more information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, you should refer to the registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the Internet at the SEC's website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing or telephoning us at: 965 Stewart Drive, Sunnyvale, CA 94085-3913, (408) 585-5000.

Upon completion of this offering, we will be subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file periodic reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.omneon.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.

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Omneon, Inc.
(formerly Omneon Video Networks, Inc.)
Index to consolidated financial statements

		Page
Report of independent registered public accounting firm		F-2
Consolidated financial statements
Consolidated balance sheets		F-3
Consolidated statements of operations		F-4
Consolidated statements of convertible preferred stock and stockholders' equity (deficit)		F-5
Consolidated statements of cash flows		F-6
Notes to consolidated financial statements		F-7

F-1

Report of independent registered public accounting firm

To the Board of Directors and Stockholders
of Omneon, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of convertible preferred stock and stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Omneon, Inc. (formerly known as Omneon Video Networks, Inc.) and its subsidiaries at December 31, 2007 and December 31, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007, the Company changed the manner in which it accounts for uncertain tax positions.

As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Staff Position 150-5 (FSP 150-5) "Issuer's Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable," in 2005 and changed the manner in which it accounts for share-based compensation in 2006.

/s/ PricewaterhouseCoopers LLP

San Jose, California
March 7, 2008

F-2

Omneon, Inc.
(formerly Omneon Video Networks, Inc.)
Consolidated balance sheets

											Pro forma stockholders' equity as of March 31, 2008 (unaudited)

		December 31,
		December 31,						March 31, 2008 (unaudited)
(in thousands, except share and per share data)		2006			2007			March 31, 2008 (unaudited)

Assets
Current assets:
	Cash and cash equivalents	$	18,258		$	35,759		$	29,505
	Restricted cash		7			76			37
	Short-term investments		—			—			5,960
	Accounts receivable, net (including $0.5 million, $0.3 million and $0.4 million due from related parties at December 31, 2006 and 2007 and March 31, 2008, respectively)		18,039			13,261			13,272
	Inventory, net		3,428			4,258			5,284
	Prepaid expenses and other current assets		1,761			4,318			5,370
	Deferred income taxes		1,669			1,768			1,767

Total current assets			43,162			59,440			61,195
Property and equipment, net			6,235			7,957			14,221
Purchased intangible assets and goodwill, net			—			5,286			5,271
Other assets			223			172			321
Deferred income taxes			1,968			3,376			3,376

Total assets		$	51,588		$	76,231			84,384

Liabilities, convertible preferred stock and stockholders' equity (deficit)
Current liabilities:
	Accounts payable	$	8,079		$	9,079		$	10,864
	Payroll and commissions liabilities		3,024			3,422			3,635
	Accrued and other liabilities		3,831			4,772			5,027
	Deferred revenues (net of associated costs)		3,710			5,642			5,548
	Convertible preferred stock warrant liability		4,326			3,107			3,026

Total current liabilities			22,970			26,022			28,100
Non-cash obligation for construction in progress			—			—			5,230
Deferred revenues (net of associated costs)			1,142			832			1,008
Other long term liabilities			43			502			498

Total liabilities			24,155			27,356			34,836

Convertible preferred stock:
	Series A-1 Convertible Preferred Stock, $0.001 par value; 11,363,661 shares authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$25,000 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		12,265			12,265			12,265			—
	Series A-2.1 Convertible Preferred Stock, $0.001 par value; 512,901 shares authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$2,370 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		2,370			2,370			2,370			—
	Series A-2.2 Convertible Preferred Stock, $0.001 par value; 1 share authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$1,513 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		757			757			757			—
	Series A-3 Convertible Preferred Stock, $0.001 par value; 27,557 shares authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$9,369 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		9,341			9,341			9,341			—
	Series A-4 Convertible Preferred Stock, $0.001 par value; 21,275 shares authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$4,681 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		4,669			4,669			4,669			—
	Series A-5 Convertible Preferred Stock, $0.001 par value; 99 shares authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$10 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		10			10			10			—
	Series A-6 Convertible Preferred Stock, $0.001 par value; 479,436 shares authorized; no shares issued and outstanding at December 31, 2006, 150,703 shares issued and outstanding at December 31, 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—none at December 31, 2006, $166 at December 31, 2007 and March 31, 2008, respectively and none pro forma		—			1,594			1,594			—
	Series B-1 Convertible Preferred Stock, $0.001 par value; 5,121,952 shares authorized, issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—$21,000 at December 31, 2006 and 2007 and March 31, 2008, respectively and none pro forma		10,373			10,373			10,373			—
	Series C-1 Convertible Preferred Stock, $0.001 par value; none authorized, issued and outstanding at December 31, 2006, 1,474,587 shares authorized, 1,407,139 issued and outstanding at December 31, 2007 and March 31, 2008, respectively; no shares issued and outstanding, pro forma (unaudited); liquidation preference—none at December 31, 2006, $40,497 at December 31, 2007 and March 31, 2008, respectively, and none pro forma		—			19,872			19,928			—

Total convertible preferred stock			39,785			61,251			61,307			—

Commitments (See Note 5)
Stockholders' equity (deficit):
	Common stock, $0.001 par value; 38,000,000, 38,500,000 and 38,500,000 shares authorized at December 31, 2006 and 2007 and March 31, 2008, respectively; 2,528,500, 2,976,966 and 3,007,411 shares issued and outstanding at December 31, 2006 and 2007 and March 31, 2008, respectively, and 21,939,995 shares issued and outstanding pro forma (unaudited)		3			3			3			22
	Additional paid-in capital		45,479			47,012			47,739			112,053
	Deferred stock-based compensation		(1,057	)		(514	)		(412	)		(412	)
	Accumulated deficit		(56,777	)		(58,877	)		(59,085	)		(59,085	)
	Accumulated other comprehensive loss		—			—			(4	)		(4	)

Total stockholders' equity (deficit)			(12,352	)		(12,376	)		(11,759	)	$	52,574

Total liabilities, convertible preferred stock and stockholders' equity (deficit)		$	51,588		$	76,231		$	84,384

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

F-3

Omneon, Inc.
(formerly Omneon Video Networks, Inc.)
Consolidated statements of operations

			Years ended December 31,									Three months ended March 31,

(in thousands, except per share data)			2005			2006			2007			2007			2008

Revenues:
	Product revenues (includes $0.6 million, $7.3 million, $4.8 million, $1.5 million and $3.9 million of related party revenue in 2005, 2006 and 2007 and the three months ended March 31, 2007 and 2008, respectively)		$	51,358		$	78,688		$	81,859		$	15,281		$	27,388
	Service revenues (includes $0.1 million, $0.5 million, $0.5 million, $0.1 million and $0.1 million of related party revenue in 2005, 2006 and 2007 and the three months ended March 31, 2007 and 2008, respectively)			2,754			4,838			6,406			1,280			1,854

Total revenues				54,112			83,526			88,265			16,561			29,242

Cost of revenues:
	Cost of product revenues (1) (includes $0.2 million, $2.6 million, $1.7 million, $0.6 million and $1.3 million of related party cost of product revenue in 2005, 2006 and 2007 and the three months ended March 31, 2007 and 2008, respectively)			19,064			28,307			29,231			5,759			9,505
	Cost of service revenues(1) (includes $0.2 million, $0.5 million, $0.5 million, $0.2 million and $0.1 million of related party cost of service revenue in 2005, 2006 and 2007 and the three months ended March 31, 2007 and 2008, respectively)			1,997			4,747			6,045			1,489			1,777

Total cost of revenues				21,061			33,054			35,276			7,248			11,282

Gross profit				33,051			50,472			52,989			9,313			17,960
Operating expenses:
	Research and development(1)			9,756			17,265			22,733			5,591			7,233
	Sales and marketing(1)			15,427			20,414			26,733			6,119			8,232
	General and administrative(1)			2,988			5,181			7,259			1,783			2,685

Total operating expenses				28,171			42,860			56,725			13,493			18,150

Income (loss) from operations before non-operating items, income taxes and cumulative effect of change in accounting principle				4,880			7,612			(3,736	)		(4,180	)		(190	)
Interest and other income (expense), net:
	Interest income and other			282			668			773			213			171
	Foreign currency losses			(64	)		(43	)		(162	)		(33	)		(40	)
	Benefit (accretion) of preferred stock warrant liability			(157	)		(3,597	)		(375	)		(674	)		81

Total interest and other income (expense), net				61			(2,972	)		236			(494	)		212

Income (loss) before income taxes and cumulative effect of change in accounting principle				4,941			4,640			(3,500	)		(4,674	)		22
Income tax (benefit) provision				243			(902	)		(1,400	)		(1,817	)		230

Income (loss) before cumulative effect of change in accounting principle				4,698			5,542			(2,100	)		(2,857	)		(208	)
Cumulative effect of change in accounting principle				(557	)		—			—			—			—

Net income (loss)				4,141			5,542			(2,100	)		(2,857	)		(208	)

Less: Income allocable to preferred stockholders				(4,100	)		(4,881	)		—			—			—

Net income (loss) allocable to common stockholders			$	41		$	661		$	(2,100	)	$	(2,857	)	$	(208	)

Net income (loss) per share allocable to common stockholders:
	Income (loss) per share before cumulative effect of change in accounting principle:
		Basic	$	0.12		$	0.31		$	(0.83	)	$	(1.22	)	$	(0.07	)
		Diluted		0.02			0.13			(0.83	)		(1.22	)		(0.07	)
	Cumulative effect per share of change in accounting principle:
		Basic	$	(0.05	)	$	—		$	—		$	—		$	—
		Diluted		(0.01	)		—			—			—			—
	Net income (loss) per share allocable to common stockholders:
		Basic	$	0.07		$	0.31		$	(0.83	)	$	(1.22	)	$	(0.07	)
		Diluted		0.01			0.13			(0.83	)		(1.22	)		(0.07	)
Shares used to compute basic net income (loss) per share				560			2,163			2,524			2,341			2,974
Shares used to compute diluted net income (loss) per share				3,585			5,059			2,524			2,341			2,974
Pro forma net loss per share:
	Basic and diluted								$	(0.10	)				$	(0.01	)
Shares used to compute pro forma basic and diluted net (loss) per share										20,347						21,906

(1): Includes stock-based compensation as follows (in thousands):

Total cost of revenues	$	—	$	145	$	228	$	54	$	75
Research and development		—		344		587		123		287
Sales and marketing		—		293		644		107		284
General and administrative		—		150		369		70		210

Total stock-based compensation	$	—	$	932	$	1,828	$	354	$	856

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

F-4

Omneon Inc.
(formerly Omneon Video Networks, Inc.)
Consolidated statements of convertible preferred
stock and stockholders' equity (deficit)


								Stockholders' Equity (Deficit)
				Convertible preferred stock				Common stock
												Additional paid-in capital			Deferred stock-based compensation									Total stockholders' equity (deficit)
																		Accumulated deficit			Accumulated other comprehensive loss
(in thousands)				Shares	Amount			Shares		Amount								Accumulated deficit			Accumulated other comprehensive loss

Balance at December 31, 2004				17,047	$	39,798		616		$	1	$	43,227		$	—		$	(66,460	)	$	—		$	(23,232	)
	Issuance of common stock upon exercise of options			—		—		207			—		53			—			—			—			53
	Shares of unvested common stock subject to repurchase			—		—		(112	)		—		—			—			—			—			—
	Vesting of early-exercised stock options			—		—		161			—		—			—			—			—			—
	Reversal of issuance costs relating to Series B-1 Convertible Preferred Stock			—		2		—			—		—			—			—			—			—
	Reclassification of warrants to liabilities			—		(15	)	—			—		—			—			—			—			—
	Net income			—		—		—			—		—			—			4,141			—			4,141

Balance at December 31, 2005				17,047		39,785		872			1		43,280			—			(62,319	)		—			(19,038	)
	Issuance of common stock upon exercise of options			—		—		1,801			2		264			—			—			—			266
	Shares of unvested common stock subject to repurchase			—		—		(256	)		—		(72	)		—			—			—			(72	)
	Vesting of early-exercised stock options			—		—		112			—		18			—			—			—			18
	Employee stock-based compensation expense recognized under SFAS 123(R)			—		—		—			—		133			—			—			—			133
	Deferred stock-based compensation			—		—		—			—		1,856			(1,856	)		—			—			—
	Amortization of deferred stock-based compensation, net of forfeitures			—		—		—			—		—			799			—			—			799
	Net income			—		—		—			—		—			—			5,542			—			5,542

Balance at December 31, 2006				17,047		39,785		2,529			3		45,479			(1,057	)		(56,777	)		—			(12,352	)
	Issuance of common stock upon exercise of options			—		—		191			—		98			—			—			—			98
	Shares of unvested common stock subject to repurchase			—		—		(33	)		—		(23	)		—			—			—			(23	)
	Issuance of restricted common shares			—		—		34			—		84			—			—			—			84
	Amortization of restricted common shares			—		—		—			—		7			—			—			—			7
	Vesting of early-exercised stock options			—		—		256			—		71			—			—			—			71
	Employee stock-based compensation expense recognized under SFAS 123(R)			—		—		—			—		1,380			—			—			—			1,380
	Compensation expense resulting from extension of exercise period for Director's options			—		—		—			—		4			—			—			—			4
	Deferred stock-based compensation			—		—		—			—		(120	)		120			—			—			—
	Amortization of deferred stock-based compensation, net of forfeitures			—		—		—			—		—			423			—			—			423
	Issuance of Series A-6 Convertible Preferred Stock through net exercise of warrants			151		1,594		—			—		—			—			—			—			—
	Issuance of Series C-1 Convertible Preferred Stock to Sony Corporation, net of issuance costs of $14,961			1,042		14,961		—			—		—			—			—			—			—
	Issuance of Series C-1 Convertible Preferred Stock to purchase Castify Holdings Limited, net of issuance costs of $4,897			365		4,897		—			—		—			—			—			—			—
	Amortization of Series C-1 Convertible Preferred Stock			—		14		—			—		—			—			—			—			—
	Tax benefit from stock plan			—		—		—			—		32			—			—			—			32
	Net loss			—		—		—			—		—			—			(2,100	)		—			(2,100	)

Balance at December 31, 2007				18,605		61,251		2,977			3		47,012			(514	)		(58,877	)		—			(12,376	)
	Comprehensive loss:
		Change in unrealized losses on investments in marketable securities		—		—		—			—		—			—			—			(4	)		(4	)
		Net loss		—		—		—			—		—			—			(208	)		—			(208	)

			Total comprehensive loss																						(212	)

	Issuance of common stock upon exercise of options			—		—		21			—		11			—			—			—			11
	Shares of unvested common stock subject to repurchase			—		—		(23	)		—		(18	)		—			—			—			(18	)
	Amortization of restricted common shares			—		—		—			—		21			—			—			—			21
	Vesting of early-exercised stock options			—		—		32			—		23			—			—			—			23
	Employee stock-based compensation expense recognized under SFAS 123(R)			—		—		—			—		693			—			—			—			693
	Deferred stock-based compensation			—		—		—			—		(3	)		3			—			—			—
	Amortization of deferred stock-based compensation, net of forfeitures			—		—		—			—		—			99			—			—			99
	Reversal of issuance costs relating to Series C-1 Convertible Preferred Stock issued to Sony Corporation			—		14		—			—		—			—			—			—			—
	Amortization of Series C-1 Convertible Preferred Stock			—		42		—			—		—			—			—			—			—

Balance at March 31, 2008				18,605	$	61,307		3,007		$	3	$	47,739		$	(412	)	$	(59,085	)	$	(4	)	$	(11,759	)

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

F-5

Omneon, Inc.
(formerly Omneon Video Networks, Inc.)
Consolidated statements of cash flows

			Years ended December 31,									Three months ended March 31,

(in thousands)			2005			2006			2007			2007			2008

Cash flows from operating activities
Net income (loss)			$	4,141		$	5,542		$	(2,100	)	$	(2,857	)	$	(208	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization			2,162			3,567			5,568			1,114			1,727
	Stock-based compensation expense			—			932			1,828			354			856
	Interest income from loan receivable from related party			(1	)		—			—			—			—
	Loss on disposal of fixed assets			1			—			63			—			—
	Forgiveness of loan receivable from related party			35			—			—			—			—
	Accretion (benefit) of preferred stock warrant liability			714			3,597			375			674			(81	)
	Tax benefits from stock plan			—			—			(32	)		—			—
	Changes in operating assets and liabilities:
		Accounts receivable		(3,452	)		(7,674	)		4,952			4,952			(11	)
		Inventory		(2,796	)		(2,387	)		(4,661	)		(1,792	)		(2,011	)
		Prepaid expenses and other current assets		(178	)		(1,045	)		(2,395	)		(952	)		(1,052	)
		Other assets		(217	)		(53	)		31			7			(150	)
		Deferred income taxes		—			(3,637	)		(526	)		(1,304	)		—
		Accounts payable		1,469			3,618			539			381			1,826
		Accrued and other liabilities		2,329			2,378			747			(1,401	)		449
		Deferred revenues (net of associated costs)		2,828			283			1,490			757			82

Net cash provided by (used in) operating activities				7,035			5,121			5,879			(67	)		1,427

Cash flows from investing activities
Purchase of property and equipment				(1,991	)		(3,751	)		(3,437	)		(1,351	)		(1,767	)
Acquisition of Castify Holdings Limited				—			—			37			—			—
Decrease (increase) in restricted cash				151			6			(69	)		(22	)		39
Purchases of short-term investments				—			—			—			—			(5,964	)

Net cash used in investing activities				(1,840	)		(3,745	)		(3,469	)		(1,373	)		(7,692	)

Cash flows from financing activities
Proceeds from exercises of common stock options				53			266			98			35			11
Tax benefits from stock plan				—			—			32			—			—
Proceeds from issuance of Series C-1 Convertible Preferred Stock, net of issuance costs				—			—			14,961			—			—

Net cash provided by financing activities				53			266			15,091			35			11

		Increase (decrease) in cash and cash equivalents		5,248			1,642			17,501			(1,405	)		(6,254	)
Cash and cash equivalents, beginning of period				11,368			16,616			18,258			18,258			35,759

Cash and cash equivalents, end of period			$	16,616		$	18,258		$	35,759		$	16,853		$	29,505

Supplemental cash flow information
Income taxes paid			$	77		$	2,035		$	469		$	48		$	134
Noncash financing activities
Fair value of Series C-1 Convertible Preferred Stock and common stock issued in connection with acquisition			$	—		$	—		$	4,981		$	—		$	—
Net exercise of Series A-6 Convertible Preferred Stock warrants				—			—			1,594			—			—
Reduction of issuance costs related to Series B-1 Preferred Stock				2			—			—			—			—
Reduction of issuance costs related to Series C-1 Preferred Stock				—			—			—			—			14
Non-cash obligation for construction in progress				—			—			—			—			5,230

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

F-6

Omneon, Inc.
(formerly Omneon Video Networks, Inc.)
Notes to consolidated financial statements
(amounts for the three months ended March 31, 2007 and 2008 and
as of March 31, 2008 are unaudited)

1. The Company and summary of its significant accounting policies

The Company

Omneon, Inc. (the "Company") is a leading provider of digital content storage and processing systems used by media companies to enable efficient production and distribution of high-quality digital video and audio. The Company develops, markets and sells a range of video servers, active storage systems and related software applications that media companies use to simultaneously ingest, process, store, manage and deliver digital media content in a wide range of formats.

The Company was founded in May 1998. In December 2007, Omneon Video Networks, Inc. changed its name to Omneon, Inc. The Company sells its products indirectly through system integrators and directly to end user customers domestically, in Europe, in the Middle East and in Asia Pacific.

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. The Company acquired Castify Holdings Limited ("Castify") on December 8, 2007, and it is included in the Company's operations from that date. See Note 4. Intercompany accounts and transactions have been eliminated.

Unaudited pro forma stockholders' equity information

The unaudited pro forma stockholders' equity information as of December 31, 2007 gives effect to the assumed conversion of all outstanding shares of the Company's convertible preferred stock into an aggregate of 18,605,288 shares of common stock based on the shares of convertible preferred stock outstanding and the assumed conversion of the related convertible preferred stock underlying the warrants into an aggregate of 327,296 shares of common stock at March 31, 2008 upon the assumed completion of the Company's initial public offering. Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion of the convertible preferred stock and the related convertible preferred stock underlying the warrants, is set forth on the face of the Company's consolidated balance sheet.

Foreign currency translation

The foreign subsidiaries' functional currency is the U.S. dollar. Gains and losses resulting from transactions denominated in foreign currencies are included within "Interest and other income (expense), net." Such amounts are not significant to any of the periods presented.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates

F-7

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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with a maturity at the date of purchase of three months or less to be cash equivalents. Cash equivalents consist principally of U.S. government obligations, money market funds which are invested exclusively in U.S. government obligations and nominal balances in depository checking accounts that are stated at cost, which approximates fair value.

Short-term investments

The Company accounts for its investments in debt and equity securities under Statement of Financial Accounting Standards, or SFAS, No. 115, Accounting for Certain Investments in Debt and Equity Securities and Financial Accounting Standards Board Staff Position, or FSP, SFAS No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.

Management determines the appropriate classification of such securities at the time of purchase and reevaluates such classification as of each balance sheet date. The investments are carried at fair market value with unrealized gains and losses, net of taxes, reported as a separate component of stockholders' equity (deficit). The Company follows the guidance provided by Emerging Issues Task Force, or EITF, No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, to assess whether its investments with unrealized loss positions are other than temporarily impaired. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific identification method and are reported in the statements of operations.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee and the Company's intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The Company does not use derivative financial instruments. The Company places its cash investments in instruments that meet high credit quality standards, as specified in the Company's investment policy guidelines.

F-8

Restricted cash

The Company maintains a cash balance which amounted to $37,000, $76,000 and $7,000 at March 31, 2008 and December 31, 2007 and 2006, respectively, which is restricted from withdrawal as it relates to employee contributions for a flexible spending medical plan.

Fair value measurements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 became effective for the Company on January 1, 2008. The Company has currently chosen not to elect the fair value option for any items that are not already required to be measured at fair value in accordance with accounting principles generally accepted in the United States. The adoption of SFAS No. 159 did not have a material impact on the Company's consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 was effective for the Company on January 1, 2008. However, in February 2008, the FASB released FASB Staff Position, or FSP FAS 157-2—Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 for the Company's financial assets and liabilities did not have a material impact on its consolidated financial statements. The Company does not believe the adoption of SFAS No. 157 for its non-financial assets and liabilities, effective January 1, 2009, will have a material impact on its consolidated financial statements.

As defined in SFAS No. 157, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

F-9

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in the assessment of fair value.

Financial assets carried at fair value as of March 31, 2008 are classified in the table below in one of the three categories described above (in thousands):

			Level 1		Level 2		Level 3		Total


Assets:
	Cash and cash equivalents (1)		$	29,505	$	—	$	—	$	29,505
	Restricted cash			37		—		—		37
	Short-term investments (2)			5,960		—		—		5,960

		Total assets at fair value	$	35,502	$	—	$	—	$	35,502

1): Consists of cash equivalents with remaining maturities of three months or less at the date of purchase and are composed primarily of US Government and Treasury Obligation money market mutual funds. The fair value of these securities is determined through market, observable and corroborated sources.
2): Consists of marketable securities with remaining maturities of greater than three months at the date of purchase and are composed primarily of US Government and Treasury Obligation money market mutual funds. The fair value of these securities is determined through market, observable and corroborated sources.

Certain risks and concentrations

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents and accounts receivable. Cash and cash equivalents are deposited with financial institutions that management believes are creditworthy. Deposits with financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of its cash and cash equivalents.

The Company's accounts receivable are derived from customers primarily located in the United States of America, Europe and Asia Pacific and are denominated in U.S. dollars. The Company performs ongoing credit evaluations of its customers' financial condition, generally does not require collateral and establishes an allowance for doubtful accounts based upon the expected collectibility of accounts receivable.

F-10

One customer accounted for a significant percentage of the Company's total revenues as follows:

	Years ended December 31,				Three months ended March 31,

	2005		2006	2007	2007		2008

Ascent Media Group	10	%	*	*	10	%	14	%

*: Represents less than 10% of total revenues

No customers accounted for more than 10% of the Company's total accounts receivable at December 31, 2007 or 2006. Netorium accounted for 10% of the Company's total accounts receivable at March 31, 2008.

The Company receives certain of its critical components from sole source suppliers. Additionally, the Company relies on three primary vendors to provide contract manufacturing and assembly services for its products. The inability of these contract manufacturers and assembly service suppliers to fulfill the Company's supply requirements could materially affect future operating results.

Inventory

Inventory includes finished goods, purchased components and spares and is carried at the lower of cost or market, with cost being determined on a first-in, first-out method. The Company records allowances to reduce the carrying value of inventories to their net realizable value when the Company believes that the net realizable value is less than cost. The Company also records allowances for excess and obsolete inventories based on forecasted demand. The recording of these allowances establishes a new and lower cash basis for each specifically identified inventory item, and the Company does not restore the cost basis to its original level regardless of any subsequent changes in facts and circumstances.

Property and equipment

Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, generally two to five years and 40 years for buildings. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to operations. Major additions and improvements are capitalized, while replacements, repairs and maintenance that do not extend the life of the asset are charged to operations.

F-11

Warranty accrual

The Company offers warranties on certain products and records a liability for the estimated future costs associated with warranty claims, which is based upon historical experience and the Company's estimate of the level of future costs. Warranty costs are reflected in the statement of operations as a cost of revenues and are recorded at the time that revenue is recognized. A reconciliation of the changes in the Company's warranty accrual follows:

	December 31,

	December 31,						March 31, 2008
(in thousands)	2006			2007			March 31, 2008

Warranty accrual, beginning of year	$	602		$	1,199		$	1,515
Accruals for warranties issued during the year		786			830			274
Expenses incurred during the year		(189	)		(514	)		(204	)

Warranty accrual, end of year	$	1,199		$	1,515		$	1,584

Revenue recognition

For sales of the Company's products where software is incidental to the functionality of the product, the Company applies the provisions of Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, and SAB No. 104, Revenue Recognition, and all related interpretations. For sales of the Company's products where software is not incidental to the functionality of the product, the Company accounts for revenues in accordance with Statement of Position, or SOP, No. 97-2, Software Revenue Recognition and all related interpretations.

The Company derives the majority of its revenues from sales of servers and storage systems, with the remaining revenues generated primarily from service fees relating to the maintenance contracts on its products. The Company generally recognizes product revenues at the time of shipment, provided that persuasive evidence of an arrangement exists, title and risk of loss pass to the customer, the price is fixed or determinable and collection of the receivable is reasonably assured.

The Company generally ships its products ex-works, which requires the buyer to bear the risks for bringing the goods to the buyer's final destination. Title to the Company's products and risk of loss generally passes upon delivery to the common carrier.

In assessing whether prices or fees are fixed or determinable, the Company considers the payment terms of the transaction and the Company's collection experience in similar transactions. If a significant portion of the price or fee is due after normal payment terms, the revenue term is recognized when payment becomes due and payable from the customer, provided that all other revenue recognition criteria are met.

F-12

In instances where the Company is required to obtain customer acceptance, revenues are deferred until the terms of acceptance are satisfied. Arrangements with acceptance provisions generally provide the customer time to integrate the product into their environment and allow specification and performance testing. The Company determines that acceptance has occurred upon receipt of a signed and dated acceptance document from the customer or lapse of the acceptance period. Arrangements with acceptance provisions occur infrequently and can be made to either indirect or direct customers.

Most of the Company's sales, including those to indirect customers, do not include rights of return. However, in limited cases, the Company has accepted product returns from customers, and in 2007, the Company established an allowance for future sales returns based on historical trends in product return rates. The allowance for future sales returns as of December 31, 2007 was $749,000, and was recorded as a reduction to the Company's revenues. As of March 31, 2008, the allowance for sales returns was reduced to $320,000. The Company's indirect customers generally do not maintain any inventory and only order products from the Company when their end-user customer has committed to the purchase.

The terms and conditions of sales granted to indirect customers and direct end users are generally the same. Orders received from indirect customers are considered on a standalone basis and the terms and conditions of such orders are independent of the arrangement made with the indirect customer's end user. There are no contractual provisions allowing indirect customers restocking rights. Indirect customers are evaluated for creditworthiness under the same guidelines as direct end-user customers. The Company does not allow payment from indirect customers to be dependent upon receipt of payment from the end user.

Revenues from service obligations under maintenance contracts are deferred and recognized ratably over the contractual service period. Service maintenance contracts typically range from one to two years.

In accordance with EITF 00-21, Revenue Arrangements with Multiple Deliverables, where sales arrangements involve multiple elements, the entire revenue is allocated to each respective element based on its relative fair value and recognized when the revenue recognition criteria for each element have been met. The Company uses the residual value method to recognize revenues when an arrangement includes one or more elements to be delivered at a future date and objective and reliable evidence of the fair value of all the undelivered elements exists.

F-13

assured. In instances where there are undelivered elements that did not have vendor-specific objective evidence, or VSOE, of fair value, revenues are deferred until VSOE is established or those elements have been delivered. The Company has established VSOE for post contract support as evidenced by the actual sales price of the renewals, and for other services by the actual sales price of the service when it is sold on a stand-alone basis.

Shipping and handling

The Company classifies amounts billed to customers for shipping and handling as revenues. Costs incurred by the Company for shipping and handling have been classified as cost of revenues.

Advertising costs

The Company expenses advertising costs as incurred. The Company incurred $439,000, $457,000, $231,000, $102,000 and $159,000 of advertising expense during 2007, 2006 and 2005 and the three months ended March 31, 2008 and 2007, respectively.

Income taxes

The Company accounts for income taxes using the asset and liability approach. The asset and liability approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The measurement of current and deferred tax liabilities and assets are based on provisions of the enacted tax law; the effects of future change in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

On January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. Prior to the adoption, the Company's policy was to establish reserves that reflected the probable outcome of known tax contingencies. The effects of the resolution, if any, were recognized as changes to the effective income tax rate in the period of resolution. Under FIN 48 the financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50 percent likely to be realized upon ultimate settlement.

The adoption of FIN 48 resulted in a reclassification of certain tax liabilities from current to non-current and had no cumulative impact to accumulated deficit. As of December 31, 2007,

F-14

the Company had $1.3 million of liabilities for unrecognized tax benefits. All of this amount, if realized, would impact net income.

Research and development costs

Research and development costs are expensed as incurred. With respect to software that is embedded in the Company's servers and storage systems and the Company's related applications, software development costs incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. After technological feasibility is established, material software development costs are capitalized. The capitalized cost is then amortized on a straight-line basis over the estimated product life, or in the ratio of current revenues to total projected product revenues, whichever is greater. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model, which typically occurs when the beta testing commences, and the general availability of such software has been short and software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs.

Net income (loss) per share data

Basic net income (loss) per share allocable to common stockholders is computed by dividing the net income (loss) allocable to common stockholders for the period by the weighted average number of common shares outstanding during the period as reduced by the weighted average unvested common shares subject to repurchase by the Company. Net income (loss) available to common stockholders is calculated using the two class method under EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement 128, which established standards regarding the computation of earnings per share, or EPS, by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company. EITF 03-6 requires earnings for the period, after deduction of preferred stock dividends, to be allocated between the common and preferred stockholders based on their respective rights to receive dividends. Basic net income (loss) per share is then calculated by dividing income (loss) allocable to common stockholders (after the reduction for any undeclared preferred stock dividends assuming current income for the period had been distributed) by the weighted-average number of common shares outstanding, net of shares subject to repurchase by the Company, during the period. EITF 03-6 does not require the presentation of basic and diluted net income (loss) per share for securities other than common stock; therefore, the following net income (loss) per share amounts only pertain to the Company's common stock. The Company calculates diluted net income (loss) per share under the if-converted method unless the conversion of the preferred stock is anti-dilutive to basic net

F-15

income (loss) per share. To the extent preferred stock is anti-dilutive, the Company calculates diluted net income (loss) per share under the two-class method.

Diluted net income per share allocable to common stockholders is computed by dividing the net income allocable to common stockholders for the period by the weighted average number of common and potential common shares outstanding during the period, if the effect of each class of potential common shares is dilutive. Potential common shares are reduced by shares subject to repurchase by the Company and include incremental shares of common stock issuable upon the exercise of stock options and upon conversion of preferred stock.

The following table sets forth the computation of basic and diluted net income (loss) per share allocable to common stockholders:

			Years ended December 31,									Three months ended March 31,

(in thousands, except per share data)			2005			2006			2007			2007			2008

Numerator:
	Net income (loss)		$	4,141		$	5,542		$	(2,100	)	$	(2,857	)	$	(208	)
	Accretion of preferred stock warrant liability, net of tax			714			3,597			—			—			—
	Income allocable to preferred stockholders			(4,814	)		(8,478	)		—			—			—

	Net income (loss) allocable to common stockholders		$	41		$	661		$	(2,100	)	$	(2,857	)	$	(208	)
Denominator:
	Weighted average common shares outstanding (basic)			515			2,126			2,524			2,341			2,974
	Effect of dilutive securities:
		Common equivalent shares from preferred stock warrants		203			356			—			—			—
		Common equivalent shares from options to purchase common stock		2,822			2,541			—			—			—

	Weighted average common shares outstanding (diluted)			3,540			5,023			2,524			2,341			2,974

	Basic net income (loss) per share allocable to common stockholders		$	0.08		$	0.31		$	(0.83	)	$	(1.22	)	$	(0.07	)
	Diluted net income (loss) per share allocable to common stockholders		$	0.01		$	0.13		$	(0.83	)	$	(1.22	)	$	(0.07	)

F-16

Potentially dilutive securities not included in the calculation of diluted net income (loss) per share, calculated under the treasury stock method, because to do so would be anti-dilutive, are as follows (in common equivalent shares):

	Years ended December 31,			Three months ended March 31,

(in thousands)	2005	2006	2007	2007	2008

Options to purchase common stock	228	48	3,511	3,389	4,582
Unvested restricted common stock	—	—	26	—	23
Common equivalent shares from preferred stock warrants	—	—	327	—	327

Total	228	48	3,864	3,389	4,932

Pro forma net loss per share

Pro forma basic net loss per share allocable to common stockholders has been computed to give effect to the assumed conversion of convertible preferred stock and the related convertible preferred stock underlying the warrants at December 31, 2007 and March 31, 2008 into common stock upon the closing of the Company's initial public offering on an if-converted basis as of December 31, 2007 and March 31, 2008.

The following table sets forth the computation of pro forma basic net loss per share:

(in thousands, except per share amounts)			Year ended December 31, 2007			Three months ended March 31, 2008


Numerator:
	Net loss		$	(2,100	)	$	(208	)

Denominator:
	Weighted average common shares outstanding (basic)			2,524			2,974
	Add: Adjustments to reflect the weighted average effect of the assumed conversion of convertible preferred stock and convertible preferred stock warrants from the date of issuance			17,823			18,933

		Denominator for basic and diluted pro forma calculation		20,347			21,906

	Pro forma net loss per share, basic and diluted (unaudited)		$	(0.10	)	$	(0.01	)

F-17

Stock-based compensation

For employee stock options granted prior to December 31, 2005, the Company recorded compensation expense based upon their intrinsic value on the date of grant pursuant to Accounting Principles Board, or APB, No. 25, Accounting for Stock Issued to Employees and related interpretations, and adopted the disclosure-only alternative of SFAS No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock Based Compensation-Transition and Disclosures.

The Company grants options to purchase common stock to employees with exercise prices equal to the fair value of the underlying stock, as determined by the board of directors on the date the equity award was granted. The board of directors determined the fair value of the underlying stock by considering a number of factors, including historical and projected financial results, the risks the Company faced at the time, the preferences of the Company's preferred stockholders and the lack of liquidity of the Company's common stock.

In connection with the preparation of the financial statements for the Company's initial public offering and solely for the purposes of accounting for stock-based compensation for financial statement purposes, the Company's management reassessed the fair value of the Company's common stock for the equity awards granted on or after April 14, 2004 (which coincided with the Company's Series B-1 convertible preferred stock financing) through December 31, 2006. Based upon this reassessment of the fair value of the Company's common stock, the Company recorded deferred stock-based compensation to the extent that the reassessed value of the Company's common stock at the date of the grant exceeded the exercise price of the equity awards. Reassessed values are inherently uncertain and highly subjective. The Company recorded deferred stock-based compensation of $1.9 million during 2006 and none in 2007. For stock options granted prior to April 14, 2004, no expense was recorded as management determined that the estimated fair value of the Company's stock at the date of grant did not exceed the exercise price. Amortization of deferred stock-based compensation is based on a vesting period of generally four years. For stock options granted from April 14, 2004 through December 31, 2005, the Company recognized stock-based compensation expense related to options granted to employees based on the reassessed values of the common stock underlying the stock option awards.

Of the deferred compensation of $1.9 million, the Company determined that $48,000 and $288,000 related to 2004 and 2005, respectively, and concluded that such amounts were immaterial to its results of operations in each of 2004 and 2005. The Company evaluated the effect of recording the cumulative adjustment of $336,000 for the 2004 and 2005 expense on

F-18

the estimated net income for 2006 as an out of period adjustment and concluded the amount was also immaterial. Accordingly, the Company recorded $336,000 in 2006.

The expense associated with the amortization of deferred stock-based compensation related to options granted from April 14, 2004 to December 31, 2005 is classified in the Company's statements of operations as follows:

	Years ended December 31,						Three months ended March 31,

(in thousands)	2005		2006		2007		2007		2008

Total cost of revenues	$	—	$	127	$	63	$	15	$	15
Research and development		—		297		188		43		40
Sales and marketing		—		257		135		34		31
General and administrative		—		118		58		15		14

Total	$	—	$	799	$	444	$	107	$	100

The table below shows the expected amortization of deferred stock-based compensation expense for the remainder of 2008 through 2010 all options granted from April 14, 2004 to December 31, 2005 assuming all employees remain employed by the Company for their remaining vesting periods:

	Periods ending December 31,

(in thousands)	2008		2009		2010

Amortization of deferred stock-based compensation related to options granted to purchase shares of common stock	$	263	$	149	$	—

F-19

The table below summarizes options granted during the period from April 14, 2004 through December 31, 2005, which resulted in the Company recording deferred stock-based compensation of $1.9 million in 2006.

Date of issuance	Number of shares subject to options granted	Exercise price per share		Deemed fair market value per share		Intrinsic value per share


April 14, 2004	53,000	$	0.30	$	0.60	$	0.30
May 14, 2004	39,250		0.30		0.82		0.52
August 10, 2004	178,500		0.30		1.10		0.80
October 12, 2004	1,016,667		0.30		0.79		0.49
December 2, 2004	106,000		0.30		0.90		0.60
January 20, 2005	137,000		0.50		1.01		0.51
February 15, 2005	14,800		0.50		1.07		0.57
April 26, 2005	80,000		0.50		1.26		0.76
May 24, 2005	315,000		0.50		1.28		0.78
July 19, 2005	59,000		0.50		1.42		0.92
August 23, 2005	250,750		0.50		1.50		1.00
September 29, 2005	50,000		0.50		1.61		1.11
October 18, 2005	464,225		0.85		1.65		0.80
November 17, 2005	69,000		1.00		1.88		0.88

Adoption of SFAS 123(R)

In December 2004, the FASB issued SFAS 123(R), which is a revision of SFAS 123. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant date fair values and does not allow the previously permitted pro forma disclosure-only method as an alternative to financial statement recognition. SFAS 123(R) supersedes APB No. 25, and related interpretations and amends SFAS No. 95, Statement of Cash Flows. Effective January 1, 2006, the Company adopted SFAS 123(R). For equity awards granted to employees or modified subsequent to January 1, 2006, the Company recognizes compensation expense based on the grant date fair value of these awards as determined in accordance with SFAS 123(R). The unrecognized compensation cost related to those awards will be recognized in the statement of operations over the requisite service period. As the Company is preparing to transition from a non-public entity to a public entity through an initial public offering and has historically used the minimum value method to measure its share-based payments for pro-forma footnote disclosure purposes only, the Company will apply the prospective method to awards granted through December 31,

F-20

2005. Except for the deferred stock-based compensation discussed above, the Company had no unrecognized compensation cost related to awards granted prior to December 31, 2005. Pursuant to SFAS 123(R), as the Company utilized the minimum value method, the Company will continue to recognize compensation expense related to unvested awards with respect to stock option awards prior to January 1, 2006, using APB No. 25 which is the same accounting principle originally applied to those awards.

The Company's adoption of SFAS 123(R) in 2006 resulted in the recognition of related stock-based compensation expense of $133,000, $1.4 million and $693,000 in 2006, 2007 and the three months ended March 31, 2008, respectively.

In connection with the adoption of SFAS 123(R), the Company reviewed and updated, among other things, its forfeiture rate, expected term and volatility assumptions. In determining the expected term of options, the Company gave consideration to historical exercises, the vesting term of the Company's options, the cancellation history of the Company's options and the options' contractual term of ten years. Estimated volatility for 2006 also reflects the application of SAB No. 107, Share-Based Payment, interpretive guidance and, accordingly, incorporates historical volatility of similar entities whose share prices are publicly available. The fair value of each option is estimated on the date of grant using the Black-Scholes method using the following assumptions:

	Years ended December 31,				Three months ended March 31,

	2006		2007		2008

Expected life (in years)	6.0		6.0		6.0
Interest rate range	4.29% - 5.10	%	3.50% - 4.85	%	2.78% - 3.16	%
Volatility	60	%	45% - 50	%	50	%
Dividend yield	—		—		—
Forfeiture rate	3.35	%	3.93	%	4.13	%

As of December 31, 2006 and 2007 and March 31, 2008, there was $3.5 million, $10.9 million and $10.1 million, respectively, of unrecognized compensation related to stock options granted after January 1, 2006, which is expected to be recognized over the remaining weighted-average service period of 3.7 years, 3.3 years and 3.1 years, respectively.

F-21

The table below summarizes options granted during 2006, 2007 and the three months ended March 31, 2008:

Date of issuance	Number of shares subject to options granted	Original Exercise price per share	Deemed fair market value per share	Intrinsic value per share


January 18, 2006	137,500	$1.50	$1.89	$0.39
February 14, 2006	33,700	1.50	1.96	0.46
April 18, 2006	77,500	2.27	2.27	—
May 16, 2006	29,000	2.27	2.27	—
July 18, 2006	46,500	2.50	2.50	—
August 22, 2006	19,050	2.50	4.65	2.15
October 17, 2006	32,500	4.65	4.65	—
November 14, 2006	38,500	5.00	7.76	2.76
December 8, 2006	301,653	7.76	12.50	4.74
December 26, 2006	63,500	12.50	12.50	—
January 18, 2007	28,500	12.50	12.50	—
February 27, 2007	74,250	12.50	12.50	—
March 20, 2007	123,950	12.50	12.50	—
April 24, 2007	17,000	12.50	12.50	—
May 15, 2007	7,000	12.50	12.50	—
July 24, 2007	25,400	9.14	9.14	—
August 28, 2007	112,000	9.14	9.14	—
October 23, 2007	39,275	9.43	9.43	—
November 27, 2007	684,667	9.53	9.53	—
November 28, 2007	294,623	9.53	9.53	—
December 14, 2007	153,920	9.84	9.84	—
January 16, 2008	100,500	9.48	9.48	—
March 4, 2008	52,150	9.54	9.54	—

The Company's management reassessed the fair value of the Company's common stock for the equity awards granted on August 22, November 14 and December 8, 2006. As a result of this re-evaluation, the Company recorded incremental stock compensation expense of $24,000 in 2006. The incremental fair value arising from this re-evaluation was $1.23 million, which will be recognized through 2010, and which is included in unrecognized compensation expense of $3.5 million, $10.9 million and $10.1 million as of December 31, 2006 and 2007 and March 31, 2008, respectively, as described above.

F-22

The pro forma information regarding net income and net income per share detailed below has been accounted for as if the Company had accounted for stock-based awards granted prior to January 1, 2006 under the fair value method prescribed in SFAS No. 123. The fair value of the Company's options to purchase common stock was estimated at the date of grant using the minimum value pricing model for 2005.

The fair value of stock-based awards was estimated using the following assumptions for 2005:

	Year ended December 31, 2005


Expected life (in years)	6.0
Interest rate range	3.90% - 4.54	%
Volatility	N/A
Dividend yield	—

The following table illustrates the effect on net income and net income per share allocable to common stockholders as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based awards for 2005:

(in thousands, except per share data)		Year ended December 31, 2005


Net income		$	4,141
Deduct: Stock-based compensation expense under the fair value method, net of tax			(61	)

Pro forma net income		$	4,080


Net income allocable to common stockholders		$	41

Pro forma net income allocable to common stockholders		$	—

Basic net income per share allocable to common stockholders
	As reported	$	0.07
	Pro forma	$	—
Diluted net income per share allocable to common stockholders
	As reported	$	0.01
	Pro forma	$	—

F-23

Comprehensive income (loss)

Comprehensive income (loss) generally represents all changes in stockholders' deficit except those resulting from investments or contributions by stockholders. Comprehensive income (loss) was the same as net income (loss) in 2005, 2006, 2007 and the three months ended March 31, 2007. For the three months ended March 31, 2008, comprehensive loss consisted of unrealized losses on marketable securities and net loss.

Segment information

The Company engages in business activities in one reportable operating segment, which provides video servers, active storage systems and related software applications that media companies use to simultaneously ingest, process, store, manage and deliver digital media in a wide range of formats. The Company's products and services are delivered primarily to customers in the U.S., Europe and Asia Pacific, with revenues denominated in U.S. dollars and primarily all long-lived assets located in the U.S.

Goodwill and other intangibles from acquisition

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is reviewed for impairment annually, or more frequently if facts and circumstances warrant a review. The provisions of SFAS No. 142 require that a two-step test be performed to assess goodwill for impairment. First, the fair value of each reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value. The implied fair value of the reporting unit's goodwill must be determined and compared to the carrying value of the goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, an impairment loss equal to the difference will be recorded.

SFAS No. 142 also requires that intangible assets with definite lives be amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

The Company amortizes acquired intangible assets with definite lives, which are generally five to eight years. See Note 3.

Impairment of long-lived assets

The Company reviews long-lived assets for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net cash flows

F-24

that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset. There have been no such impairments as of and for 2005, 2006 and 2007.

Cumulative effect of change in accounting principle

In June 2005, the FASB issued FSP 150-5, Issuer's Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable. FSP 150-5 requires the Company to classify warrants to purchase shares of the Company's convertible preferred stock as liabilities since the convertible preferred stock is classified outside of stockholders' equity, and revalue them to fair value at the end of each reporting period. The Company adopted FSP 150-5 and accounted for the cumulative effect of the change in accounting principle as of July 1, 2005, the beginning of the third quarter of 2005. For 2005, the impact of the change in accounting principle was to decrease net income by $714,000. The impact consisted of a $557,000 cumulative effect adjustment for the change in accounting principle as of July 1, 2005, when the Company adopted FSP 150-5, reflecting the fair value of the warrants as of that date, and $157,000 of expense that was recorded in other income (expense), net to reflect the increase in fair value between July 1, 2005 and December 31, 2005. The Company had previously recorded $15,000 in 2002 related to these warrants.

These warrants will be subject to revaluation at each balance sheet date and any change in fair value will be recognized as a component of other income (expense), net, until the earlier of the exercise of the warrants or the completion of a liquidation event, including the automatic conversion of the convertible preferred stock and related warrants upon consummation of an initial public offering, at which time the warrants will be exercised on a net exercise basis and the warrant liability will be reclassified to common stock and additional paid-in capital in stockholders' equity.

Convertible preferred stock warrant liability

The Company accounts for warrants issued in connection with financing arrangements in accordance with FSP 150-5. Pursuant to FSP 150-5, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required be classified as a liability. The fair value of warrants classified as liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings.

In October 2007, warrants for 152,140 shares of the Company's Series A-6 Convertible Preferred Stock were net exercised, resulting in the issuance of 150,703 shares of the Company's

F-25

Series A-6 Convertible Preferred Stock. As a result of this net exercise, the Company reclassified $1.6 million from Convertible Preferred Stock Warrant Liability to Convertible Series A-6 Preferred Stock on its consolidated balance sheet.

Recent accounting pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. This statement became effective for the Company in 2008. The adoption of SFAS No. 159 did not have a material impact on its results of operations or financial position.

In June 2007, the FASB ratified a consensus opinion reached by the EITF on EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities, or EITF 07-3. The guidance in EITF 07-3 requires the Company to defer and capitalize nonrefundable advance payments made for goods or services to be used in research and development activities until the goods have been delivered or the related services have been performed. If the goods are no longer expected to be delivered or the services are no longer expected to be performed, the Company would be required to expense the related capitalized advance payments. EITF 07-3 became effective for the Company in 2008. The adoption of EITF 07-3 did not have a material impact on the Company's results of operations or financial position.

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In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, or SFAS 141(R). This Statement replaces SFAS No. 141, Business Combinations, and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. SFAS 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer. SFAS 141(R) amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS No. 142, Goodwill and Other Intangible Assets, to, among other things, provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 141(R) could have on its financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, or SFAS 160. SFAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or

F-27

after December 15, 2008. The Company does not expect its adoption of the provisions of SFAS 160 to have a material effect on its financial condition, results of operations or cash flows.

In December 2007, the FASB issued EITF Issue No. 07-1, Accounting for Collaborative Arrangements, or EITF 07-1. EITF 07-1 defines collaborative agreements as contractual arrangements that involve a joint operating activity. These arrangements involve two (or more) parties who are both active participants in the activity and that are exposed to significant risks and rewards dependent on the commercial success of the activity. EITF 07-1 provides that a company should report the effects of adoption as a change in accounting principle through retrospective application to all periods and requires additional disclosures about a company's collaborative arrangements. EITF 07-1 is effective for annual periods beginning after December 15, 2007. As of January 1, 2008, the Company adopted EITF 07-1 and the adoption had no material impact on the Company's consolidated financial statements.

2. Short-term investments

Short-term investments consist of the following:

(In thousands)	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


Balance at March 31, 2008
U.S. government agency securities	$	5,964	$	—	$	(4	)	$	5,960

Total short-term investments	$	5,964	$	—	$	(4	)	$	5,960

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The cost basis and fair value of short-term investments as of March 31, 2008, by contractual maturity, are presented below:

(In thousands)	Cost Basis		Fair Value


One year or less	$	5,964	$	5,960

Total short-term investments	$	5,964	$	5,960

As of March 31, 2008, all of the Company's short-term investments were classified as available-for-sale and all investments had contractual maturities of less than one year. Accordingly, all short-term investments are classified as current assets on the consolidated balance sheets.

The Company invests in securities that are rated investment grade or better. The Company has determined that unrealized losses are temporary as the duration of the decline in value of investments has been short, the extent of the decline, in both dollars and as a percentage of costs, is not significant, and the Company has the ability to hold the investments until recovery, if necessary.

Unrealized gains and losses are recorded as a component of cumulative other comprehensive income (loss) in stockholders' equity. If these investments are sold at a loss or are considered to have other than temporarily declines in value, a charge to operations is recorded. The specific identification method is used to determine the cost of securities disposed of, with realized gains and losses reflected in other income (expense), net. There were no realized gains or losses recorded during the three months ended March 31, 2008.

There were no short-term investments as of December 31, 2006 and 2007.

F-29

3. Balance sheet components

	December 31,

	December 31,						March 31, 2008
(in thousands)	2006			2007			March 31, 2008

Accounts receivable
Accounts receivable, gross	$	18,408		$	14,320		$	13,902
Allowance for doubtful accounts		(369	)		(310	)		(310	)
Accrued returns allowance		—			(749	)		(320	)

Accounts receivable, net	$	18,039		$	13,261		$	13,272

(in thousands)	Balance at beginning of period		Charged to expenses		Write-offs			Balance at end of period


Allowance for doubtful accounts
Year ended December 31, 2005	$	115	$	141	$	—		$	256
Year ended December 31, 2006		256		113		—			369
Year ended December 31, 2007		369		17		(76	)		310
Three months ended March 31, 2008		310		—		—			310

(in thousands)	Balance at beginning of period		Increase in reserve		Write-offs		Balance at end of period


Accrued returns allowance
Year ended December 31, 2005	$	—	$	—	$	—	$	—
Year ended December 31, 2006		—		—		—		—
Year ended December 31, 2007		—		987		238		749
Three months ended March 31, 2008		749		—		429		320

	December 31,

	December 31,				March 31, 2008
(in thousands)	2006		2007		March 31, 2008

Inventory
Finished goods	$	2,207	$	2,954	$	3,834
Purchased components		538		338		309
Spares inventory		683		966		1,141

Inventory, net	$	3,428	$	4,258	$	5,284

F-30

		December 31,

	Estimated useful life (years)
								March 31, 2008
(in thousands)		2006			2007			March 31, 2008

Property and equipment
Computer equipment	2	$	6,215		$	10,524		$	11,534
Building (note 13)	40		—			—			5,230
Engineering and development equipment	3		6,100			7,474			7,523
Software	2		1,429			2,366			2,604
Demonstration units	2		1,590			1,732			2,663
Furniture and office equipment	5		936			1,249			1,239
Leasehold improvements	6		373			585			570
Construction in progress	—		347			12			19

Property and equipment, gross			16,990			23,942			31,382
Less: Accumulated depreciation and amortization			(10,755	)		(15,985	)		(17,161	)

Property and equipment, net		$	6,235		$	7,957		$	14,221

Depreciation and amortization expense was $1.7 million and $1.1 million $5.6 million, $3.6 million and $2.1 million for the three months ended March 31, 2008 and 2007 and the years ended December 31, 2007, 2006 and 2005, respectively.

	December 31,

	December 31,				March 31, 2008
(in thousands)	2006		2007		March 31, 2008

Accrued and other liabilities
Warranty accrual	$	1,199	$	1,515	$	1,584
Accrued taxes payable		1,073		909		993
Other		1,559		2,348		2,450

Accrued liabilities	$	3,831	$	4,772	$	5,027

4. Acquisition and related intangibles

Castify Holdings Limited

On December 8, 2007, the Company acquired 100% of the outstanding shares of Castify, a privately held company incorporated in England and Wales. Castify owns 100% of Castify SA, a company incorporated in France, which provides a software-based solution for managing the distribution of digital content over the Internet and private Intranets. Castify's end-to-end software solution enables enterprises and service providers to build scalable, easy-to-manage,

F-31

and cost-efficient service delivery platforms for content distribution over public and private networks. The Company expects the acquisition to help provide an integrated solution for managing media across its customer's networks, which, the Company believes, will ultimately create greater opportunities for market penetration and revenue generation.

The Company accounted for the acquisition under the purchase method of accounting in accordance with the provisions of SFAS No. 141. Under this accounting method, the Company recorded the assets acquired and liabilities assumed at their estimated fair value, with the excess purchase price reflected as goodwill. Additionally, certain costs directly related to the merger were reflected as additional purchase price in excess of net assets acquired. The results of operations of Castify since December 8, 2007 have been included in the Company's consolidated financial statements for the year ended December 31, 2007.

Purchase price

Under the terms of the agreement to acquire Castify, the Company agreed to issue up to 383,946 shares of Series C-1 Convertible Preferred Stock, or Series C-1, to Castify's investor shareholders, up to 45,171 shares of Series C-1 to Castify's three founding shareholders and up to 34,103 shares of common stock to certain key employees of Castify. The shares issued to the investor shareholders and three founding shareholders are subject to a 15% holdback which is to be held by the Company for a period of one year from the acquisition date in order to cover contingencies arising from certain indemnification obligations of the Castify shareholders. The fair value of approximately $953,000 for these shares is contingent consideration and will be accounted for once the contingencies have been resolved.

The shares issued to the three founding shareholders and the key employees are subject to vesting terms whereby 25% of the shares were fully vested on the date of acquisition and the remaining 75% vest ratably over 36 months. Vesting is contingent upon the continued employment of the individuals, and in the event of termination of employment the unvested shares will be cancelled. Consequently, 33,878 shares of Series C-1 preferred stock and 25,577 shares of common stock are subject to vesting and are contingent upon continuous employment of the individual. The fair value of the unvested portion of these shares, approximately $753,000, is being accounted for as compensation expense and will be amortized over the remaining vesting period.

F-32

The total potential purchase price of the Castify acquisition was $6.3 million. The total potential purchase price includes the following components (in thousands):


Fair value of Castify Series C-1 issued		$	4,897
Fair value of Castify restricted common stock issued			84

	Total preliminary purchase price		4,981
Direct transaction costs			393
Fair value of Castify Series C-1 held for indemnification			953

	Total potential purchase price	$	6,327

The Company incurred $393,000 of transaction fees related to the Castify acquisition.

The fair value of the 429,117 shares of the Company's Series C-1 used to acquire Castify was $14.80 per share, which was the fair value as determined by the Company's board of directors at the measurement date. The fair value of the 34,103 shares of the Company's restricted common stock issued to key employees of Castify was $9.84 per share, which was the fair value as determined by the Company's board of directors at the measurement date.

Purchase price allocation

The preliminary allocation of the purchase price to Castify's tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values at the date of acquisition as determined by the Company's management. The Company is responsible for determining the valuation of the intangible assets acquired, and these estimates and assumptions are subject to change. Any necessary adjustments may result in an adjustment to the preliminary purchase price allocation and will be recorded in the period finalized. As of the acquisition date, Castify had approximately $12.0 million of operating loss carryforwards in France. As a result of Castify's historical loss position, the Company has recorded a valuation allowance of $3.6 million, net of deferred tax liabilities, against the deferred tax asset associated with these carryforwards, which the Company believes will, more than likely, not be utilized.

F-33

The following table allocates the purchase price based on the fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

		As of December 8, 2007			Estimated Useful Life


Tangible assets and liabilities:
Current assets		$	372
Long-term assets			44
Current liabilities			(742	)

	Total net liabilities		(326	)
Amortizable intangible assets:
Developed technology			830		5 years
Customer relationships			600		7 years

	Total amortizable net tangible assets		1,430
Goodwill			3,877

Total		$	4,981

Castify and the Company did not have any transactions during any financial period presented prior to December 8, 2007.

Intangible assets and goodwill

A valuation of the purchased intangibles was undertaken to determine the estimated fair value of such assets. A portion of the purchase price was allocated to developed product technology and customer relationships. These assets were identified and valued through an analysis of data provided by Castify related to their developmental products, stage of development, time and resources needed to complete development, target markets, expected income generating ability and associated risks. The income approach, which is based on the premise that the value of an asset is the present value of its future earning capacity, was the primary valuation technique employed. A discount rate of 17% was applied to the developed product technology and the customer relationships. The $830,000 value assigned to developed technology will be amortized to cost of revenues and the $600,000 value assigned to customer relationships will be amortized to sales and marketing expense over their respective useful lives. These amounts are included in purchased intangible assets and goodwill on the Company's consolidated balance sheet. The Company has recorded amortization expense of approximately $22,000 and $62,000 for the year ended December 31, 2007 and the three months ended March 31, 2008, respectively, related to the developed technology and customer relationships. The Company

F-34

expects to incur amortization expense of approximately $252,000 in each of 2008, 2009, 2010 and 2011 and $238,000 in 2012. Goodwill of $3.9 million was recorded as the excess of the purchase price over the net assets acquired. No goodwill was deemed to be deductible for income tax purposes.

As Castify was not in the process of developing any enhancements related to its technology it was determined that Castify did not have any in-process research and development at the measurement date.

Amortization of compensation

Compensation related to the vesting of the 33,878 restricted shares the Company's Series C-1 and the 25,577 shares of restricted common stock will be amortized ratably to research and development expense over the 36 month vesting period.

Pro forma results

The following pro forma data summarizes the results of operations for the periods indicated as if the Castify acquisition had been completed as of the beginning of each of the periods presented. The pro forma data give effect to actual operating results prior to the acquisition as well as amortization of intangibles acquired in the acquisition. No effect has been given to cost reductions or operating synergies. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future.

The pro forma results are as follows (in thousands, except per share amounts):

	Years ended December 31,

	2006		2007

Revenue	$	84,472	$	88,664
Net income (loss) allocable to common stockholders		4,465		(2,662	)
Basic net income (loss) allocable to common stockholders	$	0.24	$	(1.05	)
Diluted net income (loss) allocable to common stockholders		0.10		(1.05	)

Indemnification

The former shareholders of Castify made certain representations and warranties to the Company and agreed to indemnify the Company against damages which might arise from a breach of those representations and warranties. As security for this indemnification obligation, 64,368 shares of the Series C-1, with a value of approximately $953,000, have been held by the

F-35

Company. If there are no claims for breach of representations and warranties, these shares will be issued on the first anniversary of the acquisition date. This consideration has been included in the purchase consideration in the potential purchase price allocation.

5. Commitments

Operating lease obligations

The Company leases office space under noncancelable operating leases that expire at various dates through November 2010. Some of these arrangements require the Company to pay taxes, insurance and maintenance costs. Rent expense was $726,000, $686,000 and $456,000 in 2007, 2006 and 2005, respectively. As of December 31, 2007, the future minimum rental payments under all noncancelable operating leases were as follows (in thousands):

Year ending December 31,	Minimum rental


2008	$	839
2009		473
2010		419
2011		253
2012		65

Commitments	$	2,049

As of March 31, 2008, the future minimum rental payments under all noncancelable operating leases were as follows (in thousands):

Period ending December 31,	Minimum rental


2008	$	1,277
2009		1,897
2010		1,884
2011		1,763
2012		1,617
Thereafter		655

Commitments	$	9,093

F-36

Indemnification agreements

Generally, the Company's contracts contain standard indemnification provisions. Pursuant to these agreements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, in connection with any patent, or any copyright or other intellectual property infringement or certain other claims by any third party with respect to its products. The term of these indemnification agreements is specified by the respective agreements. The maximum potential amount of future payments it could be required to make under these indemnification agreements is generally capped and the Company has never incurred claims or costs to defend lawsuits or settle claims related to these indemnification agreements and accordingly has made no provision for liability under these agreements.

Legal matters

From time to time, the Company may be subject to claims and proceedings that arise in the ordinary course of its business. While management currently believes that resolving all of these matters, individually or in the aggregate, will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows, management's view of these matters may change in the future due to inherent uncertainties.

Inventory commitments

The Company has outstanding purchase commitments with contract manufacturers and suppliers of $6.7 million and $12.7 million as of December 31, 2007 and March 31, 2008, respectively.

6. Income taxes

The components of the Company's income (loss) before income taxes and cumulative effect of change in accounting principle are as follows:

	Years ended December 31,

(in thousands)	2005		2006		2007

United States	$	4,552	$	2,917	$	(5,733	)
Foreign		389		1,723		2,267

Total	$	4,941	$	4,640	$	(3,466	)

F-37

The provision (benefit) for income taxes comprised the following:

		Years ended December 31,

(in thousands)		2005		2006			2007

Foreign
	Current	$	100	$	487		$	411
Federal
	Current		123		1,903			(231	)
	Deferred		—		(3,011	)		(1,197	)
State
	Current		20		344			(74	)
	Deferred		—		(625	)		(309	)

Provision (benefit) for income taxes		$	243	$	(902	)	$	(1,400	)

The Company's effective tax rate on pretax income (loss) differs from the U.S. Federal statutory regular tax rate as follows:

	Years ended December 31,

	2005		2006		2007

U.S. Federal income tax provision (benefit) as statutory rate	34.00	%	34.00	%	(34.00	)%
State benefit	3.25		3.31		(2.78	)
Foreign earnings taxed at rates different than U.S. rate	(0.62	)	(2.12	)	—
Nondeductible warrant expense	0.85		19.00		2.64
Change in valuation allowance	(32.71	)	(65.08	)	4.76
Research and development credit	—		(14.21	)	(31.54	)
Stock-based compensation	—		6.96		14.60
Change in state tax rate	—		—		1.66
Other	—		(1.30	)	4.26

Effective tax rate	4.77	%	(19.44	)%	(40.40	)%

F-38

Deferred tax assets (liabilities) comprised the following:

	December 31,

(in thousands)	2006			2007

Deferred tax assets
Stock-based compensation	$	13		$	183
Net operating loss carryforwards		39			4,112
Research and development credit carryforwards		430			2,023
Capitalized research and development		258			216
Depreciation and amortization		93			520
Reserves, accrued liabilities and other		3,061			2,492

Gross deferred tax assets		3,894			9,546
Deferred tax liabilities
Depreciation and amortization		—			(469	)

Gross deferred tax liability		—			(469	)
Net deferred tax asset		3,894			9,077
Less: Valuation allowance		(257	)		(3,933	)

Net deferred tax assets after valuation allowance	$	3,637		$	5,144

Historically, the Company recorded a valuation allowance on its deferred tax assets, the majority of which relates to net operating loss and research and development tax credit carryforwards generated before it achieved profitability. During the first quarter of 2006, the Company concluded that it was more likely than not that it would be able to realize the benefit of these deferred tax assets in the future. Consequently, the Company recorded a tax benefit of $3.3 million in the first quarter of 2006 resulting from the release of the deferred tax valuation allowance. The valuation allowance at December 31, 2006, of $257,000, relates to state research and development credits. The valuation allowance at December 31, 2007 is comprised of $377,000 relating to state research and development credits and of $3.5 million relating to Castify's accumulated net French operating losses, which, more than likely, will not be utilized.

As of December 31, 2007, the Company had federal and state net operating loss carryforwards of approximately $40,000 and $1.5 million, respectively. These net operating carryforwards will expire in varying amounts between 2012 and 2025. The Company has federal and California research and development credit carryforwards of $1.1 million and $0.5 million, respectively. The federal research and development credits will start expiring in 2023. The California research and development credit may be carried forward indefinitely.

F-39

The Company conducts business globally and, as a result, files income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, California and the United Kingdom. The Company is not currently under audit or examination by any of these tax authorities. The federal statute of limitations remains open for years 2003 through 2007. The California statute of limitations remains open for years 2003 through 2006. The UK statute of limitations remains open for years 2005 through 2006.

The Company adopted the provisions of FIN 48 on January 1, 2007. The Company did not recognize any change to accumulated deficit as of the adoption date. A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits for the year ended December 31, 2007 is as follows:

(in thousands)


Balance at December 31, 2006	$	505
Tax positions related to current year:
Additions		651
Tax positions related to prior years:
Additions		158

Balance as of December 31, 2007	$	1,314

The resolution of these uncertainties will impact the Company's net income. While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, the Company does not expect this change to have a material impact on its financial statements. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

7. Convertible preferred stock

On December 8, 2007, the Company agreed to issue up to 429,117 shares of its Series C-1 at a value of $14.80 per share in connection with the Company's acquisition of Castify. The shares were subject to a 15% holdback, which is to be held by the Company for a period of one year from the acquisition date. Of the total Series C-1 shares issued, 33,878 shares are subject to vesting. Total fair value of shares vested was approximately $14,000 in 2007. The fair value of the unvested portion of the shares, approximately $487,000, is being accounted for as compensation expense and will be amortized over the remaining vesting period. See Note 3.

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On September 28, 2007, the Company sold 1,042,390 shares of Series C-1 at a price of $14.39 per share in a private placement to Sony Corporation, or Sony, representing less than 5% of the Company's outstanding capital stock on an as converted to common stock basis, receiving proceeds of approximately $15.0 million. Sony is a customer and supplier of the Company. The Series C-1 purchase agreement provides that if a specific competitor, or Competitor, acquires from the Company, greater than $3.0 million of voting stock of the Company, and if Sony holds at least 210,000 shares of Series C-1 (or common stock issuable upon conversion thereof), Sony shall have the option to require the Company to purchase all of Sony's outstanding shares of Series C-1 (or common stock issued on conversion thereof) for cash equal to the greater of (a) $14.39 per share or (b) the same price per share paid by the Competitor. This option expires immediately prior to the earlier of a liquidation of the Company or upon the closing of an underwritten public offering in which (i) the per share price to the public is at least $4.10, and (ii) the aggregate public offering price is at least $25.0 million. In connection with the sale of the Series C-1, the Company and Sony entered into a collaboration agreement. Under the terms of the collaboration agreement, the Company and Sony have agreed to work together in good faith to develop and/or enhance certain of the Company's products. The agreement contains no specific deliverables and each company retains its rights to its own technology. The Company performed a valuation of the Series C-1 contemporaneously with its issuance, which confirmed that the issuance was at fair value; accordingly none of the proceeds was allocated to the collaboration agreement or any other commercial arrangement with Sony.

As of March 31, 2008, the Company's Certificate of Incorporation, as amended, designates and authorizes the Company to issue 18,998,389 shares of Convertible Preferred Stock.

The holders of Preferred Stock have various rights and preferences as follows:

Voting

Each share of Series A-1, Series A-2.1, Series A-2.2, Series A-3, Series A-4, Series A-5, Series A-6, Series B-1 and Series C-1 Convertible Preferred Stock ("Series A-1," "Series A-2.1," "Series A-2.2," "Series A-3," "Series A-4," "Series A-5," "Series A-6," "Series B-1" and "Series C-1," respectively), has voting rights equal to an equivalent number of shares of common stock into which it is convertible and votes together as one class with the common stock, except as indicated below.

The holders of outstanding preferred stock have the right to elect members of the Company's board of directors on the following basis:

•: the outstanding Series A-1 elect three directors so long as at least 2,850,000 shares of Series A-1 remain outstanding;

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•: the outstanding Series B-1 elect one director so long as at least 1,300,000 shares of Series B-1 remain outstanding;
•: the outstanding common stock elect one director; and
•: the outstanding common stock and preferred stock together elect the remaining directors.

Voting for members of the Company's board of directors is cumulative. In an election of directors, each stockholder is entitled to vote a number of shares equal to the product of (i) the total number of shares of common stock held by such stockholder, including common stock issuable upon conversion of preferred stock held by such stockholder, and (ii) the number of directors that such stockholder is entitled to elect, and may vote all of those shares for a single director or distribute them among the candidates.

As long as any shares of preferred stock remain outstanding, the Company must obtain approval from a majority of all shares of preferred stock then outstanding in order to authorize, create or issue any other class of capital stock or securities convertible into capital stock having any preferences or privileges which are superior to or on parity with the Series B-1 or Series C-1; reclassify any common stock into shares having any preference or priority superior to or on a parity with the Series B-1 or Series C-1; pay or declare any dividend on or redeem any shares of common stock or Series A-2.1, Series A-2.2, Series A-3, Series A-4, Series A-5 or Series A-6 (other than in connection with the repurchase of shares of common stock issued to or held by employees, consultants, officers and directors at a price not greater than the amount paid by such persons for such shares upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, provided such repurchase is approved by the board of directors) or repay any loans made by any holder of the outstanding shares of preferred stock or common stock except in connection with the termination of employment of such holder in amounts to be agreed upon by the Company and such terminated holder; amend the certificate of incorporation or the bylaws of the Company; enter into any liquidation event, defined as certain mergers, consolidations and sales of all or substantially all of the assets; or enter into any licensing of the Company's technology that would constitute a sale of all or substantially all of the assets of the Company. The Company must obtain approval from a majority of holders of Series A-1, Series B-1 and Series C-1 voting together as a single class and not as a separate series, on as an converted to common stock basis in order to amend the certificate of incorporation or bylaws of the Company, or increase the size of the Company's board of directors above 11 or below nine.

Dividends

The holders of Series A-1, Series A-2.2, Series A-6, Series B-1 and Series C-1, out of any funds legally available, are entitled to receive non-cumulative dividends at the rate of $0.11, $75,652,

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$0.11, $0.205 and $1.439, respectively, per share per annum, as adjusted for stock splits, combinations and reorganizations, payable in preference and priority to any payment of any dividend on the other series of preferred stock or common stock, when and as declared by the board of directors. The Series A-2.1 preferred stockholders are entitled to receive dividends at the rate of $0.462082 per share per annum, prior and in preference to the payment of any dividends on Series A-3, Series A-4 and Series A-5 and common stock when and as declared by the board of directors, subject to the prior and preferential dividend rights of the holders of Series A-1, Series A-2.2, Series A-6, Series B-1 and Series C-1. Series A-3, Series A-4 and Series A-5 preferred stockholders are entitled to receive dividends at the rate of $34.00, $22.00 and $10.00, respectively, per share prior and in preference to the payment of dividends on the common stock when and as declared by the board of directors, subject to the prior and preferential dividend rights of the holders of Series A-1, Series A-2.1, Series A-2.2, Series A-6, Series B-1, and Series C-1. After payment of any dividends on preferred stock, any additional dividends shall be distributed among all holders of outstanding shares of common stock and all holders of outstanding shares of preferred stock in proportion to the number of shares of common stock which would be held by each such holder if all shares of each series of preferred stock had been converted into common stock, when and as declared by the board of directors. No dividends on preferred stock or common stock have been declared to date.

Liquidation

Upon liquidation, dissolution or winding up of the Company, including (1) a merger or acquisition of the Company in which the stockholders of the Company immediately prior to such event own less than 50% of the Company's voting power immediately after such event, (2) the closing of a transfer by stockholders of the Company to a person or group of affiliated persons, which results in the transfer of 50% or more of the outstanding voting power of the Company, or (3) the sale of all or substantially all of the assets of the Company, the holders of Series A-1, Series A-2.2, Series A-6, Series B-1 and Series C-1 are entitled to receive an amount per share equal to $2.20, $1,513,032, $1.10, $4.10 and $28.78, respectively, as adjusted for stock splits, combinations and reorganizations, plus any declared but unpaid dividends prior and in preference to all other holders of preferred stock or common stock. If the assets and funds distributed among the holders of Series A-1, Series A-2.2, Series A-6, Series B-1 and Series C-1 are insufficient to permit the payment to such holders of the full preferential amounts, then, the entire assets and funds of the Company shall be distributed ratably among the holders of the Series A-1, Series A-2.2, Series A-6, Series B-1 and Series C-1 in proportion to the full preferential amount each such holder is otherwise entitled to receive.

After payment of the Series A-1, Series A-2.2, Series A-6, Series B-1 and Series C-1 preferential amounts, the holders of Series A-2.1 are entitled to receive an amount per share equal to

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$4.62, as adjusted for stock splits, combinations and reorganizations, plus any declared but unpaid dividends prior to and in preference to holders of Series A-3, Series A-4, Series A-5 or common stock. If the assets and funds distributed among the holders of Series A-2.1 are insufficient to permit the payment to such holders of the full preferential amounts, then the entire remaining assets and funds of the Company shall be distributed ratably among the holders of the Series A-2.1 in proportion to the full preferential amount each such holder is otherwise entitled to receive.

After payment of the Series A-1, Series A-2.1, Series A-2.2, Series A-6, Series B-1 and Series C-1 preferential amounts, the holders of Series A-3, Series A-4, and Series A-5 are entitled to receive an amount per share equal to $340.00, $220.00 and $100.00, respectively, as adjusted for stock splits, combinations and reorganizations, plus any declared but unpaid dividends prior and in preference to any distribution to the holders of common stock. Should the Company's legally available assets be insufficient to satisfy the liquidation preferences, then the entire remaining assets and funds will be distributed ratably among the holders of Series A-3, Series A-4 and Series A-5 in proportion to the full preferential amount each such holder is otherwise entitled to receive. The remaining assets and funds of the Company, if any, shall be distributed among the holders of common stock.

The following table shows the respective liquidation preferences per share of the Company's preferred stock:

		Shares

	Initial Date of issuance	Shares		Liquidation Preference
Series	Initial Date of issuance	Authorized	Outstanding	Liquidation Preference

A-1	December 2002	11,363,661	11,363,661	$	25,000,054
A-2.1	December 2002	512,901	512,901		2,370,023
A-2.2	December 2002	1	1		1,513,032
A-3	December 2002	27,557	27,557		9,369,380
A-4	December 2002	21,275	21,275		4,680,500
A-5	December 2002	99	99		9,900
A-6	December 2002	479,436	150,703		165,773
B-1	March 2004	5,121,952	5,121,952		21,000,003
C-1	September 2007	1,471,507	1,407,139		40,497,460

Total		18,998,389	18,605,288	$	104,606,125

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Redemption

The Series A-1, Series A-2.1, Series A-2.2, Series A-3, Series A-4, Series A-5, Series A-6, Series B-1 and Series C-1 are not redeemable, but do require the payment of liquidation preferences upon a change in control as noted above.

Conversion

Each share of preferred stock is convertible at the option of the holder into shares of common stock as is determined by dividing the original purchase price by the conversion price in effect at the time of conversion for such series.

Each share of preferred stock will automatically be converted into shares of common stock at the then effective conversion rate of such shares (i) in the event of the closing of a firm commitment underwritten public offering to offer and sell the common stock of the Company to the public at a price per share of at least $4.10 and an aggregate offering price to the public of not less than $25.0 million or (ii) upon the election of the holders of a majority of the outstanding shares of preferred stock voting together as a single class on an as-converted to common stock basis; provided, however, if the election is conditioned upon or follows consummation of a liquidation event where the holders of Series A-2.2 would receive distributions or consideration valued at $1.5 million absent conversion of Series A-2.2 into common stock, the holders of a majority of Series A-2.2 must agree to the conversion of the Series A-2.2 and holders of all other series of preferred stock would vote together excluding the Series A-2.2.

Anti-dilution protection

Series B-1 and Series C-1 have anti-dilution protection. If the anti-dilution protection for the Series B-1 and Series C-1 is triggered, then each share of Series B-1 and Series C-1 will be convertible into more than one share of common stock. The formula is based on the number of shares of the Company outstanding (on a fully-diluted basis) before the issuance, the number of new shares being issued, and the price being paid for the new shares.

Warrants

In December 2003, the Company granted a warrant to purchase 22,728 shares of Series A-6 to the Company's former law firm in payment for services rendered. These warrants have a five-year life and an exercise price of $0.10 per share. The fair value of the warrants was determined to be $1,288 and was estimated using the Black- Scholes pricing model with the following assumptions: risk free interest rate of 3%; contractual life of 5 years; dividend yield of 0%; and expected volatility of 65%. The Company expensed the value of the warrants to

F-45

operating expenses during 2002. On October 29, 2007, the warrant was net exercised in full, resulting in the issuance of 22,514 shares of Series A-6.

In October 2002, the Company restructured its lease with its landlord and issued warrants to purchase 129,412 shares of Series A-6 to the Company's landlord in connection with that restructuring. These warrants have a five-year life and an exercise price of $0.10 per share. The fair value of the warrants was determined to be $7,351 using the Black-Scholes pricing model with the following assumptions: risk free interest rate of 3%, contractual life of 5 years, dividend yield of 0% and expected volatility of 65%. The amount was recorded in operating expenses during 2002. On October 29, 2007, the warrant was net exercised in full, resulting in the issuance of 128,189 shares of Series A-6.

In anticipation of the Series A-1 financing, the Company entered into a bridge financing arrangement in September 2002, and pursuant to this arrangement, issued warrants to purchase 327,296 shares of Series A-6 at an exercise price of $1.10 per share. All of these warrants remain outstanding as of December 31, 2007. The fair value of the warrants was determined to be immaterial and was estimated using the Black-Scholes pricing model with the following assumptions: risk free interest rate of 3%; contractual life of 7 years; dividend yield of 0%; and expected volatility of 65%. The Company expensed the value of the warrants to interest expense during 2002.

The values ascribed to the warrants follow the guidance of FSP 150-5. The Company evaluated the impact of the Series A-6 Preferred Stock Agreement on the preferred stock and the warrants to purchase preferred stock and determined their effect based on FSP 150-5. In accordance with FSP 150-5, a transaction which includes a potential for net-cash settlement requires that derivative financial instruments, including warrants, initially be recorded at fair value as an asset or liability and subsequent changes in fair value be reflected in the statement of operations. As such, the fair values of the warrants were accounted for as liabilities, and subsequent changes in their fair value are reflected in the Company's Consolidated Statement of Operations.

8. Common stock

The Company's Restated Certificate of Incorporation designates and authorizes the Company to issue 38,500,000 shares of common stock with a par value of $0.001 per share.

Common stock option holders have the right to exercise unvested options, subject to a repurchase right held by the Company at the original exercise price, in the event of voluntary or involuntary termination of employment of the stockholder. As of March 31, 2008, December 31, 2007, December 31, 2006 and December 31, 2005, 23,090, 32,950, 256,143 and

F-46

111,801 shares of common stock were subject to repurchase, respectively. The cash paid to the Company in respect of these early exercises of unvested options is included as employee deposits within accrued liabilities, in accordance with EITF 00-23, Issues Relating to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44.

At March 31, 2008, the Company had reserved shares of common stock for future issuance as follows:



Convertible preferred stock(1)		18,605,288
Warrants		327,296
Stock option plans—outstanding(2)		4,917,940
Options available for grant		282,376
Total		24,132,900

(1): Excludes 64,368 shares of Series C-1 that are not outstanding as of December 31, 2007 but are subject to issuance upon satisfaction of certain indemnification obligations of certain Castify shareholders.
(2): Excludes 23,090 shares subject to repurchase at March 31, 2008 related to early exercise of stock options.

Common stock warrants

In 2000, the Company granted a warrant to purchase 69 shares of its common stock at an exercise price of $35.00 per share to a financial institution in conjunction with the increase in the maximum borrowing on its line of credit facility. The fair value of the warrant was determined to be immaterial and was estimated using the Black-Scholes pricing model with the following assumptions: risk free interest rate of 3%; contractual life of 5 years; dividend yield of 0%; and expected volatility of 65%. The warrant was fully exercisable and expired on January 19, 2007.

9. Stock plans

The Company adopted the 1998 Stock Option Plan, or the Plan under which employees, directors and consultants may be granted incentive stock options or nonstatutory stock options to purchase shares of the Company's common stock. Stock purchase rights may also be granted under the Plan. The options generally vest 25% upon completion of one year of employment, with a minimum vesting period of four years. The term for new grants is ten years.

F-47

A summary of all option activity under the Plan was as follows:

			Options outstanding

	Shares available for grant		Shares		Weighted average price per share		Weighted average remaining contractual term	Aggregate intrinsic value (in thousands)

Balances at December 31, 2004	204,923		3,925,846		$	0.36
Additional shares authorized	1,450,000		—			—
Granted	(1,439,775	)	1,439,775		$	0.64
Exercised	—		(255,644	)	$	0.21
Cancelled	188,171		(188,171	)	$	1.23

Balances at December 31, 2005	403,319		4,921,806		$	0.42
Additional shares authorized	400,000		—			—
Granted	(779,403	)	779,403		$	5.31
Exercised	—		(1,656,911	)	$	0.15
Cancelled	118,391		(118,391	)	$	1.10

Balances at December 31, 2006	142,307		3,925,907		$	1.57	8.1	$	40,502
Additional shares authorized	1,600,000		—			—
Granted	(1,560,585	)	1,560,585		$	9.91
Exercised	—		(414,363	)	$	0.63
Cancelled	229,432		(229,432	)	$	8.04

Balances at December 31, 2007	411,154		4,842,697		$	4.10	8.0	$	28,199

Granted	(152,650	)	152,650		$	9.50
Exercised	—		(30,445	)	$	0.55
Cancelled	23,872		(23,872	)	$	2.50

Balances at March 31, 2008	282,376		4,941,030		$	4.30	7.8	$	26,359

Vested and expected to vest at March 31, 2008			4,773,198		$	4.19	0.7	$	25,977

The options outstanding as of March 31, 2008, December 31, 2007, 2006 and 2005 include 23,090, 32,950, 256,143 and 111,801 options shares, respectively, related to exercised unvested options, whose common stock is subject to repurchase upon exercise.

As of March 31, 2008, all outstanding options were exercisable under the terms of the Plan.

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The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the aggregate difference between the fair value of the Company's common stock on March 31, 2008, December 31, 2007 and 2006 of $9.54, $9.84 and $12.50, respectively, and the exercise price of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the three months ended March 31, 2008 and in 2007 and 2006 was $0.2 million, $1.8 million and $22.3 million, respectively. Total cash received from employees as a result of employee stock option exercises during the three months ended March 31, 2008 and in December 31, 2007 and 2006 was $11,000, $98,000 and $266,000, respectively.

As of March 31, 2008, December 31, 2007 and 2006, there was $10.1 million, $10.9 million and $3.5 million, respectively, net of forfeitures, of unrecognized compensation cost related to unvested stock options granted after January 1, 2006, which is expected to be recognized over the weighted average period of 3.1 years, 3.3 years and 3.7 years, respectively. The Company's current practice is to issue new shares to settle stock option exercises.

The weighted-average estimated per share fair value of options granted during the three months ended March 31, 2008 and in 2007, 2006 and 2005 were $9.50, $9.91, $5.31 and $0.64, respectively.

On October 23, 2007, the Company's board of directors repriced options to purchase 299,200 shares of common stock granted to 40 employees and a non-employee director with an exercise price of $12.50 per share to $9.43 per share. The Company recorded stock-based compensation expense in its consolidated statement of operations of $5,000 related to this repricing in the fourth quarter of 2007. The incremental expense related to the unvested portion of these shares resulting from the repricing, approximately $236,000, is being accounted for as compensation expense and will be amortized over the remaining vesting period through May 31, 2011. The Company repriced these options to align stock option exercise prices to the then fair market value of the Company's common stock.

On October 23, 2007, the Company's board of directors extended the exercise period for 150,300 shares of common stock granted to four members of the Company's board of directors from 30 days to six months following the termination of board service. The Company recorded stock-based compensation expense in its consolidated statement of operations of $4,000 related to this repricing in the fourth quarter of 2007. The incremental expense related to the unvested portion of these shares resulting from the extension, approximately $7,000, is being accounted for as compensation expense and will be amortized over the remaining vesting period through December 31, 2009.

F-49

Restricted stock

In connection with the Company's acquisition of Castify on December 8, 2007, the Company agreed to issue up to 34,103 shares of common stock. The shares are subject to vesting terms over 36 months. Of the 34,103 shares of restricted stock issued, 25,577 shares are subject to vesting. Total fair value of shares vested was approximately $7,000 in 2007. The fair value of the unvested portion of the shares, approximately $245,000, is being accounted for as compensation expense and will be amortized over the remaining vesting period. See Note 3.

10. Employee benefit plans

The Company sponsors a 401(k) defined contribution plan covering all eligible employees. Contributions made by the Company are discretionary and determined annually by the board of directors. There have been no employer contributions under this plan.

11. Segment information

The Company's operations and substantially all of its assets are located primarily in the United States. The Company operates in one reportable segment. The Company's chief operating decision-maker, its chief executive officer, reviews its operating results on an aggregate basis and manages its operations as a single operating segment. Revenues are derived from different geographies as follows:

		Years ended December 31,						Three months ended March 31,

(in thousands)		2005		2006		2007		2007		2008

United States		$	20,947	$	30,671	$	33,594	$	6,686	$	7,538
Americas, excluding United States			3,328		3,329		4,234		507		1,355
United Kingdom			12,673		14,388		10,148		2,896		4,755
Germany			1,937		3,798		4,292		1,367		1,409
Europe, Middle East and Africa, excluding United Kingdom and Germany			7,666		17,321		22,213		3,290		8,655
Asia Pacific			7,561		14,019		13,784		1,815		5,530

	Total	$	54,112	$	83,526	$	88,265	$	16,561	$	29,242

The Company has offices in seven countries, and its products have been distributed to customers in over 50 countries. The Company has historically generated a substantial amount of its revenues from international sales, which have grown to represent an increasingly larger percentage of the Company's total revenues. For the three months ended March 31, 2008 and

F-50

2007 and for 2007, 2006 and 2005, the Company's revenues outside the United States of America comprised 74%, 60%, 62%, 63% and 61%, respectively, of its total revenues.

12. Related party transaction

On September 24, 1998, the Company entered into a loan agreement with an officer and member of the Board of Directors of the Company, or the Officer, that allowed for the borrowings by the Officer. The loan agreement was amended on April 1, 2003 and lowered the maximum available principal amount from $480,000 to the amount already paid out, $180,000. The full recourse loan was secured by the Officer's common stock held in the Company and was forgiven over time charging expense for $35,000, $60,000 and $85,000 in 2005, 2004 and 2003, respectively. As of October 31, 2005, the loan was fully forgiven. Interest was set annually and compounded quarterly at a rate equal to the prime rate as published in the Wall Street Journal on the 2^nd of January, which was 4% during 2005. Interest receivable of $1,000 is included in other receivable at December 31, 2005, and was repaid to the Company by the Officer in March 2006.

From September 2005 through March 31, 2008, the Company recorded approximately $17.9 million in revenues from sales of its products to Ascent Media Group. Since September 2005, the spouse of the Company's chief technology officer, has served as the chief operating officer of Ascent Media Network Services, a subsidiary of Ascent Media Group. Sales to Ascent Media Group totaled $4.0 million in the three months ended March 31, 2008, $5.4 million in 2007, $7.8 million in 2006 and $749,000 during the four months ended December 31, 2005. Accounts receivable from Ascent Media Group included $418,000, $270,000 and $474,000 at March 31, 2008 and December 31, 2007 and 2006, respectively.

13. Non-cash obligation for construction in progress

In February 2008, the Company entered into a lease for a building in Sunnyvale, California that will replace its current facility as its corporate headquarters. In March 2008, the Company began a build-out of this facility and expects to incur approximately $3.8 million in construction costs. Under the terms of the lease, the landlord has agreed to reimburse approximately $1.9 million of this amount. Because certain improvements constructed by the Company were considered structural in nature and the Company is responsible for any cost overruns, the Company is considered to be the owner of the construction project for accounting purposes under EITF No. 97-10, The Effect of Lessee Involvement in Asset Construction.

Therefore, in accordance with EITF 97-10, the Company capitalized the building fair value of $5.2 million with a corresponding credit to a non-cash obligation for construction in progress.

F-51

The fair value was determined as of March 31, 2008 using the cost approach which measures the value of an asset as the cost to reconstruct or replace it with another asset of like utility. Each major construction element will be capitalized and amortized over its useful life.

Upon completion of construction, the Company will assess whether or not it qualifies for sale-leaseback accounting under FAS No. 98, Accounting for Leases. Should the Company qualify for sale-leaseback accounting, the building and corresponding liability will be removed from the balance sheet and rental payments due over the term of the lease will be recorded as rental expense on a straight-line basis.

In the event that the Company does not qualify for sale-leaseback accounting, the building will be reflected as an asset on the balance sheet throughout the term of the lease. The rental payments will be treated as interest expense on the building recorded on a straight-line basis over the term of the lease and the building will be depreciated on a straight-line basis over a period of 40 years. At the end of the lease term in December 2012, the Company has an option to renew the lease for an additional 60 months. Should the Company decide not to renew the lease, it would reverse the net book value of the building and the corresponding financing liability and record the difference as a gain.

14. Subsequent event

In May 2008, Joseph S. Kennedy ceased serving as the Company's President and Chief Executive Officer. The Board of Directors of the Company has appointed Lawrence R. Kaplan to serve as the Company's Interim President and Chief Executive Officer, while conducting a search for a permanent successor.

F-52

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other expenses of issuance and distribution.

The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the SEC registration fee, the FINRA filing fee and stock market filing fee.

	Amount paid or to be paid


SEC registration fee	$	12,305
FINRA fee		12,000
Stock market initial filing fee		5,000
Printing and engraving		*
Legal fees and expenses		*
Accounting fees and expenses		*
Directors and officers liability insurance		*
Blue sky fees and expenses		*
Transfer agent and registrar fees and expenses		*
Miscellaneous		*

Total	$	*

*: To be filed by amendment.

Item 14. Indemnification of directors and officers.

We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933.

As permitted by the Delaware General Corporation Law, the Registrant's certificate of incorporation includes a provision that eliminates, to the fullest extent permitted by law, the personal liability of a director for monetary damages resulting from breach of his fiduciary duty as a director.

As permitted by the Delaware General Corporation Law, the Registrant's bylaws provide that:

•: the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions;
•: the Registrant may indemnify its other employees and agents as provided in indemnification contracts entered into between the Registrant and its our employees and agents;

II-1

•: the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions; and
•: the rights conferred in the Bylaws are not exclusive.

In addition, the Registrant will enter into indemnity agreements with each of its current directors and officers prior to the completion of this offering. These agreements will provide for the indemnification of directors and officers for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of the Registrant.

The Registrant currently carries liability insurance for its directors and officers.

The Underwriting Agreement filed as Exhibit 1.01 to this Registration Statement provides for indemnification by the underwriters of the Registrant and its directors and officers for certain liabilities under the Securities Act of 1933, or otherwise.

Item 15. Recent sales of unregistered securities.

Since January 2004, the Registrant has issued and sold the following securities:

1.: Since January 1, 2004 to May 31, 2008, the Registrant has issued options to a total of 376 employees, consultants and directors to purchase an aggregate of 5,927,633 shares of the Registrant's common stock under its 1998 stock option plan at a weighted average exercise price of $4.49 per share.
2.: Since January 1, 2004 to May 31, 2008, the Registrant has issued 2,369,753 shares of its common stock to a total of 70 employees, directors, consultants and other service providers upon exercise of options granted by the Registrant under its 1998 stock option plan, with exercise prices ranging from $0.10 to $10.00 per share.
3.: In March 2004, the Registrant modified its 2,154,566 shares of Series A-2.1 preferred stock and 687,742 shares of Series A-2.2 preferred stock held by two accredited investors to newly issued 512,901 shares of Series A-2.1 preferred stock and one share of A-2.2 preferred stock to create a 1-to-1 conversion rate to common stock.
4.: In March and April 2004, the Registrant sold an aggregate of 5,121,952 shares of its Series B-1 preferred stock to 26 accredited investors at a purchase price of $2.05 per share for an aggregate purchase price of approximately $10.5 million.
5.: Immediately prior to the completion of this offering, warrants exercisable for an aggregate of 326,750 shares of Series A-6 preferred stock with an exercise price of $1.10 per share held by 14 accredited investors will automatically be exercised on a net exercise basis, pursuant to the terms of the warrants, unless earlier exercised.
6.: In September 2007, the Registrant sold 1,042,390 shares of its Series C-1 preferred stock to a corporate investor at a purchase price of $14.39 per share for an aggregate purchase price of approximately $15.0 million.

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7.: In October 2007 and April 2008, warrants to purchase an aggregate of 152,685 shares of Series A-6 preferred stock were exercised on a net basis, resulting in the issuance of 151,191 shares of Series A-6 preferred stock.
8.: In December 2007, the Registrant issued 364,750 shares of its Series C-1 Preferred Stock and 34,103 shares of its common stock to 21 non-U.S. persons in connection with its acquisition of Castify Holdings Limited.

The issuances described in paragraphs 1 and 2 above were determined to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions under compensation benefit plans and contracts relating to compensation as provided under Rule 701. The transactions described in paragraphs 3, 6 and 7 above were determined to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. The issuances described in paragraphs 4 and 5 above were determined to be exempt from registration under the Securities Act in reliance upon Rule 506 of Regulation D promulgated under the Securities Act as transactions by an issuer not involving any public offering. The issuances described in paragraph 8 above were determined to be exempt from registration under the Securities Act as transactions by an issuer not involving any public offering and/or Regulation S under the Securities Act. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about Registrant.

Item 16. Exhibits and financial statement schedules.

(a): The following exhibits are filed herewith:

Exhibit number		Exhibit title
1.01	†	Form of Underwriting Agreement.
2.01		Share Contribution Agreement dated December 8, 2007 by and among Registrant, Castify Holdings Limited, the shareholders of Castify Holdings Limited and Alta Berkeley LLP.
3.01	†	Registrant's Restated Certificate of Incorporation.
3.02	*	Form of Restated Certificate of Incorporation of Registrant, to be filed with the Delaware Secretary of State after completion of this offering.
3.03	†	By-Laws of the Registrant.
3.04	*	Form of Restated Bylaws of the Registrant, to be effective upon the completion of this offering.
4.01	*	Form of Registrant's Common Stock certificate.
4.02	†	Fourth Amended and Restated Investor Rights Agreement dated March 26, 2004 by and among Registrant and certain of its stockholders.

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4.03	†	Amendment Agreement to Fourth Amended and Restated Investor Rights Agreement dated September 28, 2007 by and among Registrant and certain of its stockholders.
4.04	†	Amendment Agreement to Fourth Amended and Restated Investor Rights Agreement dated December 8, 2007 by and among Registrant and certain of its stockholders.
5.01	*	Opinion of Fenwick & West LLP.
10.01	†	1998 Stock Option Plan and forms of stock option agreement and stock option exercise agreement.
10.02	*	2008 Equity Incentive Plan and forms of stock option agreement and stock option exercise agreement.
10.03	*	2008 Employee Stock Purchase Plan.
10.04	†	Form of Indemnity Agreement to be entered into between Registrant and each of its officers and directors.
10.05	†	Employment offer letter dated June 8, 2003 by and between Registrant and Joseph Kennedy.
10.06	†	Amended and restated retention agreement dated November 1, 2002 by and between Registrant and Lawrence Kaplan.
10.07	†	Employment offer letter dated August 29, 2003 by and between Registrant and with Laura Perrone, as amended by the letter dated September 18, 2006.
10.08	†	Employment offer letter dated August 2, 2001 by and between Registrant and Daniel Marshall, as amended by the letter dated September 18, 2006.
10.09	†	Letter agreement dated September 18, 2006 by and between Registrant and Donald Craig.
10.10	†	Employment offer letter dated March 27, 2003 by and between Registrant and Geoffrey Stedman, as amended by the letter dated September 18, 2006.
10.11	†	Employment offer letter dated August 25, 2004 by and between Registrant and Johnathan Turk.
10.12	†	Employment offer letter dated May 5, 2005 by and between Registrant and Vincent O'Malley.
10.13	†	Employment offer letter dated July 13, 2005 by and between Registrant and Charles Morris.
10.14	†	Employment offer letter dated May 5, 2005 by and between Registrant and Ronald Howe.
10.15	†	Lease dated December 2, 2004 by and between Registrant and Square 24 Associates, L.P.
10.16	†	Systems Integrator Purchasing Agreement dated April 25, 2002 by and between Registrant and A.F. Associates, Inc.
10.17	†	Employment offer letter dated February 26, 2007 by and between Registrant and Matthew Adams.

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10.18	†	Series C-1 Preferred Stock Purchase Agreement dated September 28, 2007 by and between Registrant and Sony Electronics Inc.
10.19	†	R&D Lease dated February 22, 2008 by and between Registrant and Headlands Realty Corporation.
21.01		Subsidiaries of Registrant
23.01	*	Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02		Consent of independent registered public accounting firm.
24.01	†	Power of Attorney.
24.02	†	Power of Attorney of Jon S. Castor.
99.01	†	Consent of Coughlin Associates.
99.02	†	Consent of Frost & Sullivan.
99.03	†	Consent of IDC.

*: To be filed by amendment.
†: Previously filed.
(b): Financial Statement Schedules.

All schedules have been omitted because they are either inapplicable or the required information has been given in the consolidated 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 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities 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 Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon

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Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule 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, 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.

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Signatures

Pursuant to the requirements of the Securities Act, 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 Sunnyvale, State of California, on the 6^th day of June, 2008.

		OMNEON, INC.
		By:	/s/ LAURA A. PERRONE Laura A. Perrone Vice President of Finance and Chief Financial Officer

Pursuant to the requirements of the Securities Act, this Amendment to Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

Name	Title	Date

Principal Executive Officer:
* Lawrence R. Kaplan	Interim President, Chief Executive Officer and Director (Principal Executive Officer)	June 6, 2008
Principal Financial Officer and Principal Accounting Officer:
/s/ LAURA A. PERRONE Laura A. Perrone	Vice President of Finance and Chief Financial Officer (Principal Accounting Officer)	June 6, 2008
Additional Directors:
* Jon S. Castor	Chairman and Director	June 6, 2008
* Basil Alwan	Director	June 6, 2008
* Matthew D. Howard	Director	June 6, 2008
* Joseph S. Kennedy	Director	June 6, 2008

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* Esfandiar Lohrasbpour	Director	June 6, 2008
Wes Raffel	Director
* William J. Schroeder	Director	June 6, 2008
* J. Peter Wagner	Director	June 6, 2008

*By:

/s/ LAURA A. PERRONE

Laura A. Perrone
Attorney-in-Fact

June 6, 2008

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Exhibit index

Exhibit number		Exhibit title
1.01†		Form of Underwriting Agreement.
2.01		Share Contribution Agreement dated December 8, 2007 by and among Registrant, Castify Holdings Limited, the shareholders of Castify Holdings Limited and Alta Berkeley LLP.
3.01†		Registrant's Restated Certificate of Incorporation.
3.02*		Form of Restated Certificate of Incorporation of Registrant, to be filed with the Delaware Secretary of State after completion of this offering.
3.03†		By-Laws of the Registrant.
3.04*		Form of Restated Bylaws of the Registrant, to be effective upon the completion of this offering.
4.01*		Form of Registrant's Common Stock certificate.
4.02†		Fourth Amended and Restated Investor Rights Agreement dated March 26, 2004 by and among Registrant and certain of its stockholders.
4.03†		Amendment Agreement to Fourth Amended and Restated Investor Rights Agreement dated September 28, 2007 by and among Registrant and certain of its stockholders.
4.04†		Amendment Agreement to Fourth Amended and Restated Investor Rights Agreement dated December 8, 2007 by and among Registrant and certain of its stockholders.
5.01*		Opinion of Fenwick & West LLP.
10.01†		1998 Stock Option Plan and forms of stock option agreement and stock option exercise agreement.
10.02*		2008 Equity Incentive Plan and forms of stock option agreement and stock option exercise agreement.
10.03*		2008 Employee Stock Purchase Plan.
10.04†		Form of Indemnity Agreement entered into between Registrant and each of its officers and directors.
10.05†		Employment offer letter dated June 8, 2003 by and between Registrant and Joseph Kennedy.
10.06†		Amended and restated retention agreement dated November 1, 2002 by and between Registrant and Lawrence Kaplan.
10.07†		Employment offer letter dated August 29, 2003 by and between Registrant and with Laura Perrone, as amended by the letter dated September 18, 2006.
10.08†		Employment offer letter dated August 2, 2001 by and between Registrant and Daniel Marshall, as amended by the letter dated September 18, 2006.
10.09†		Letter agreement dated September 18, 2006 by and between Registrant and Donald Craig.

10.10†		Employment offer letter dated March 27, 2003 by and between Registrant and Geoffrey Stedman, as amended by the letter dated September 18, 2006.
10.11†		Employment offer letter dated August 25, 2004 by and between Registrant and Johnathan Turk.
10.12†		Employment offer letter dated May 5, 2005 by and between Registrant and Vincent O'Malley.
10.13†		Employment offer letter dated July 13, 2005 by and between Registrant and Charles Morris.
10.14†		Employment offer letter dated May 5, 2005 by and between Registrant and Ronald Howe.
10.15†		Lease dated December 2, 2004 by and between Registrant and Square 24 Associates, L.P.
10.16†		Systems Integrator Purchasing Agreement dated April 25, 2002 by and between Registrant and A.F. Associates, Inc.
10.17†		Employment offer letter dated February 26, 2007 by and between Registrant and Matthew Adams.
10.18†		Series C-1 Preferred Stock Purchase Agreement dated September 28, 2007 by and between Registrant and Sony Electronics Inc.
10.19†		R&D Lease dated February 22, 2008 by and between Registrant and Headlands Realty Corporation.
21.01		Subsidiaries of Registrant
23.01*		Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02		Consent of independent registered public accounting firm.
24.01†		Power of Attorney.
24.02†		Power of Attorney of Jon S. Castor.
99.01†		Consent of Coughlin Associates.
99.02†		Consent of Frost & Sullivan.
99.03†		Consent of IDC.

*: To be filed by amendment.
†: Previously filed.