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                                                                  Exhibit (a)(2)

                                PIXELWORKS INC.
         OFFER TO EXCHANGE CERTAIN OUTSTANDING PIXELWORKS STOCK OPTIONS
                      ELECTION FORM AND RELEASE AGREEMENT
                      -----------------------------------

Instructions:

   -  Before you complete or return this form, you should read the Offer
      Circular dated October 27, 2006, that accompanies this form. You may
      obtain a copy of the Offer Circular on the Pixelworks intranet website at
      oep.pixelworks.com. The Offer Circular contains important information
      about the terms and risks of the Offer, and explains many of the terms
      used in this form. For purposes of this form, "Eligible Grants" mean all
      outstanding options granted to you under a Pixelworks stock incentive plan
      in force prior to our 2006 Stock Incentive Plan (an "Old Plan") with an
      exercise price equal to or greater than $4.75 per share.

   -  After you have read the Offer Circular, please complete this form and
      return it to Pixelworks. You may return the completed and signed form by
      e-mail (in .pdf form), mail, courier, hand delivery (during normal
      business hours) or fax to the following address:

            Pixelworks, Inc.
            8100 SW Nyberg Road
            Tualatin, Oregon 97062
            fax: 503-454-0621
            e-mail: pixelworksoep@pixelworks.com, subject
            line: "Option Exchange"

   -  DEADLINE: IF YOU WISH TO ACCEPT THE OFFER, WE MUST RECEIVE THE COMPLETED
      AND SIGNED ELECTION FORM AT THE ADDRESS ABOVE NO LATER THAN 11:59 P.M.,
      PACIFIC STANDARD TIME, ON NOVEMBER 28, 2006, UNLESS WE EXTEND THE DEADLINE
      FOR THE OFFER. IF WE DO NOT RECEIVE A COMPLETED AND SIGNED ELECTION FORM
      FROM YOU PRIOR TO THIS DEADLINE, YOU WILL BE DEEMED TO HAVE REJECTED THE
      OFFER.

   -  You must pay all mailing or courier costs to deliver this form to
      Pixelworks. The method by which you deliver the completed and signed
      Election Form to Pixelworks is at your option and risk, and delivery will
      be effective only when the form is actually received by Pixelworks. In all
      cases, you should allow sufficient time to ensure timely delivery.

   -  Pixelworks is not obligated to give you notice of any defects or
      irregularities in your Election Form, nor will anyone incur any liability
      for failure to give any such notice. Pixelworks will determine, in its
      discretion, all questions as to the form and validity, including time of
      receipt, of elections. Pixelworks' determination of these matters will be
      final and binding.

   -  If you need additional information, please read the Offer Circular or
      contact Pixelworks Stock Administration at pixelworksoep@pixelworks.com,
      at the address given above or at (503)454-1745 (during normal U.S.
      business hours).

EXCHANGE OFFER ELECTION. I hereby (check the applicable box - if no election is
checked, you will be deemed to have rejected the Offer):

      [  ]  Accept the Offer with respect to all of my Eligible Grants. I
            further agree to be bound by the terms of the release and other
            terms and conditions in this form. (Sign below and return this form
            to Pixelworks.)

      [  ]  Accept the Offer only with respect to the specific grants of my
            Eligible Grants identified


            below. I further agree to be bound by the terms of the release and
            other terms and conditions in this form. (Fill in the following
            table to indicate the Eligible Option grant(s) that you elect to
            exchange in the Offer. If you elect to exchange any portion of a
            particular option grant, you must exchange all of the unexercised
            options (whether or not vested) that are a part of that grant. If
            you do not list all of your Eligible Grants that you wish to
            exchange, you will be deemed to have rejected the Offer with respect
            to each of your Eligible Grants that you do not list.) (Sign below
            and return this form to Pixelworks.)



                                   
Grant Number:                         Grant Number:
Grant Number:                         Grant Number:
Grant Number:                         Grant Number:
Grant Number:                         Grant Number:
Grant Number:                         Grant Number:


      [  ]  Reject the Offer and withdraw any previous elections. My Eligible
            Grants will remain outstanding as described in the response to
            Question 25 in the Offer Circular. (Sign below and return this form
            to Pixelworks.)

SIGNATURE (ALL PERSONS). I hereby represent and confirm to Pixelworks that:

   -  I have full power and authority to sign and deliver this election and
      release form and to tender any Eligible Grants pursuant to the terms of
      the Offer;

   -  I have received and read, and I understand, the Offer Circular and its
      attachments and this election and release form (collectively referred to
      in this form as the "Offer Documents");

   -  I have had adequate time and opportunity to ask questions of the Company
      about the Offer and the Offer Documents, and to seek advice from my
      independent legal, tax and/or financial advisors concerning the Offer and
      the Offer Documents;

   -  I understand that the Offer Documents contain all of the terms of the
      Offer in their entirety, and that I have not relied on any other documents
      or oral representations from Pixelworks or any of its officers, directors,
      employees, representatives, affiliates or agents in deciding to accept or
      reject the Offer;

   -  Pixelworks has not made any recommendation to me as to whether I should
      accept or reject the Offer, and any election to accept the Offer is wholly
      voluntary; and

   -  my election to accept or reject the Offer is correct.

       I understand that the Offer will expire at 11:59 p.m., Pacific Standard
Time, on November 28, 2006 (the "Expiration Date"), unless Pixelworks
subsequently extends the Expiration Date. I understand that I may not revoke my
election to accept or reject the Offer after the Expiration Date. I understand
that I can withdraw or change my elections on this form at any time prior to the
Expiration Date only by completing and signing a new Election Form and returning
it to Pixelworks prior to the Expiration Date. If I submit a new Election Form
to Pixelworks prior to the Expiration Date, I understand that my previous
election(s) will be cancelled, and that the elections marked on the new Election
Form will be effective for all purposes relating to the Offer.

     I understand and agree that my employment with Pixelworks is and will
continue to be on an



at-will basis, and that my employment status with Pixelworks is not affected in
any way by the Offer or by anything contained in the Offer Documents.

     I also understand that if I alter or modify this form in any way (other
than by checking the box corresponding to my election, completing the table (if
applicable) to identify the Eligible Grants that I want to exchange in the
Offer, and completing the signature block below), my alterations and/or
modifications will not be effective and will not be binding on Pixelworks.

     This form will be deemed to have been executed and delivered within the
State of Oregon, United States of America, and the rights and obligations of the
parties hereunder, and the Offer Documents, will be construed and enforced in
accordance with the laws of the State of Oregon without regard to principles of
conflict of laws. I agree that the application of Oregon law to this form, the
Offer and the Offer Documents is fair and equitable.

     If I have accepted the Offer (as indicated in this form) as to any of my
Eligible Grants, I agree to be bound by the terms of, and acknowledge that I
have read and understand, the release and other terms and conditions set forth
in this form, which are incorporated by this reference.

     This form must be completed and signed in the space below. If the signature
is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or another person acting in a fiduciary or representative
capacity, the signer's full title must be specified, and proper evidence of the
authority of such person to act in such capacity must be submitted with this
form.



                                             
Signature:


Print Name:                                     Date:




RELEASE AND OTHER TERMS AND CONDITIONS (FOR PERSONS ACCEPTING THE OFFER ONLY)

By accepting the Offer (by marking such election in this form), and by my
signature above, I hereby agree with Pixelworks as follows:

   -  Subject to all of the terms and conditions of the Offer, I hereby tender
      all Eligible Grants that I have elected to exchange pursuant to the Offer
      (such exchanged options are referred to in this form as "Cancelled
      Grants"), and I agree that, subject to acceptance by Pixelworks, all of my
      Cancelled Grants will automatically terminate effective as of the date my
      New Grants are granted;

   -  Upon acceptance of the Cancelled Grants by Pixelworks, I, on my own behalf
      and on behalf of my heirs, dependents, executors, administrators and
      assigns, hereby release Pixelworks and its successors, assigns,
      affiliates, representatives, directors, officers and employees, past and
      present (collectively referred to in this form as "Released Persons"),
      with respect to and from any and all claims, damages, agreements,
      obligations, actions, suits, proceedings and liabilities of whatever kind
      and nature, whether now known or unknown, suspected or unsuspected
      (collectively referred to in this form as "Claims"), which I now own or
      hold or at any time previously owned or held against any of the Released
      Persons and that relate to or are in any way connected with the Cancelled
      Grants. I acknowledge that I may later discover claims or facts that are
      in addition to or are different from those which I now know or believe to
      exist with respect to the Cancelled Grants. Nevertheless, I hereby waive
      any Claim relating



      to or connected with the Cancelled Grants that might arise as a result of
      such different or additional claims or facts. I fully understand the
      significance and consequence of this release.

   -  I have not previously assigned or transferred to any person (other than
      Pixelworks) any interest in the Cancelled Grants, and I agree to defend,
      indemnify and hold harmless all Released Persons from and against any
      claim based on or in connection with any purported assignment or transfer.

   -  Pixelworks will be required to issue replacement options in exchange for
      my Cancelled Grants only if I am an eligible employee of Pixelworks on the
      grant date for the replacement options, and otherwise only in accordance
      with the terms set forth in the Offer Circular. If I retire or my
      employment with Pixelworks otherwise terminates for any reason (whether
      voluntary or involuntary, or at my election or Pixelworks' election)
      before Pixelworks issues any replacement options pursuant to the Offer, I
      understand and agree that I will not be entitled to receive any
      replacement options, and that all of my Eligible Grants will be deemed
      withdrawn, and that I may exercise my Eligible Grants only in accordance
      with their terms. Those terms include a requirement that I exercise my
      Eligible Grants within three (3) months of the end of my employment.

   -  If Pixelworks is involved in a merger, change of control or other
      reorganization event prior to the date upon which Pixelworks proposes to
      issue the replacement options pursuant to the Offer, it is possible that I
      will not receive any replacement options, securities of the surviving
      corporation or other consideration in exchange for my Cancelled Grants or
      in exchange for any replacement options that Pixelworks otherwise would
      have granted to me pursuant to the Offer.

   -  Any replacement options issued in exchange for my Cancelled Grants will be
      evidenced by a new instrument of grant to be issued by Pixelworks under
      the 2006 Stock Incentive Plan.

   -  The Offer Documents comprise the entire agreement and final understanding
      concerning the Offer and my Cancelled Grants, and the Offer Documents
      supersede and replace all prior agreements, proposed or otherwise, whether
      written or oral, between Pixelworks and me concerning the same subject
      matter. Pixelworks will not be bound by any representation, promise or
      agreement that is not specifically contained in the Offer Documents.

   -  Pixelworks reserves the right, under the circumstances set forth in the
      Offer Circular, to terminate or amend the offer, or to postpone its
      acceptance and cancellation of any Cancelled Grants.

   -  If any provision of the Offer Documents or this election and release form
      is found to be invalid, such finding will not affect the validity and
      enforceability of the other provisions of such documents, so long as the
      essential economic provisions of this form and the Offer can still be
      given effect.

   -  I agree to cooperate fully and to execute any and all supplementary
      documents and to take all additional actions that may be necessary or
      appropriate to give full force to the basic terms and intent of this form
      and the Offer and which are not inconsistent with their respective terms.

   [End of Document]

                                                                               .
                                                                               .
                                                                               .

                                                                  Exhibit (a)(3)

Pixelworks, Inc.                    Personnel Summary of Stock Options

                                    Options Granted as of Month Date, 2006



                          GRANT                                             EXERCISED/                    OUTSTANDING/  EXERCISABLE/
NAME        ID            NUMBER      GRANT DATE  PLAN/TYPE  SHARES  PRICE   RELEASED    VESTED  UNVESTED  UNRELEASED    RELEASABLE
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                       
Doe, Jane   XXX-XX-XXXX   N0000123    X/X/XXX      1997/NQ
                          I00000123   X/X/XXX      1997/ISO
                          N0000234    X/X/XXX      2001/NQ

            Account: Doe, Jane

                                                                  Exhibit (a)(4)

             HOW TO COMPLETE THE ELECTION FORM AND RELEASE AGREEMENT

1.    If you choose NOT TO PARTICIPATE either because you are not eligible, you
      do not have any eligible grants, or you DO NOT want to exchange any of
      your stock options:

      a.    Do NOTHING. You do not need to complete any form or respond or reply
            in any way.

2.    If you choose TO PARTICIPATE because you are eligible, you have eligible
      grants and you want to exchange one or more of your eligible grants, then
      before 11:59 p.m., Pacific Standard Time, November 28, 2006, DO the
      following:

      a.    Print all 5 pages of the election form located at oep.pixelworks.com
            or use the 5 pages of the election form in the printed Tender Offer
            you received from Pixelworks, AND,

      b.    Check the appropriate box under section A

      c.    List the option grants you wish to exchange in the table in section
            A

      d.    Sign the form on page 4, print your name and date the form

      e.    Send the entire form to the Tualatin office, Attn: Option Exchange
            by:

            i.    Emailing the completed and signed form in a .pdf format to
                  pixelworksoep@pixelworks.com

            ii.   Faxing the form to 503-454-0261

            iii.  Sending mail or courier (you must pay the costs of mail or
                  courier charges)

            iv.   Delivering by hand to the drop box labeled Option Exchange in
                  the Tualatin office

          WHAT TO DO IF YOU WANT TO MAKE CHANGES TO YOUR ELECTION FORM

If you complete an Election Form and then change your mind, to change your
election, you must complete a new Election Form following the same steps listed
under number 2 above.

Your new election form will completely replace the former election form if
timely delivered by one of the four methods listed above before 11:59 p.m.,
Pacific Standard Time, November 28, 2006. It is critical that you properly sign
and date your election form.

                QUESTIONS ON HOW TO COMPLETE YOUR ELECTION FORM?

                       Email pixelworksoep@pixelworks.com

Exhibit (a)(5)

Financial News Release

For Immediate Release

Contact Information:		Investor Inquiries		Media Inquiries
		Michael Yonker		Chris Bright
		Pixelworks, Inc.		Pixelworks, Inc.
		Tel: (503) 454-4515		Tel: (503) 454-1770
		E-mail: myonker@pixelworks.com		E-mail: cbright@pixelworks.com
		Web site: www.pixelworks.com

Pixelworks Shareholders Approve
Voluntary Stock Option Exchange Program for Employees

       

      Tualatin, Ore., October 27, 2006 — Pixelworks, Inc. (NASDAQ:PXLW), a leading provider of system-on-a-chip ICs for the advanced display industry, announced today that at a Special Meeting held yesterday shareholders approved a proposed stock option exchange program.

      The program will offer eligible Pixelworks employees the right to exchange eligible stock option grants at a fixed 4-to-1 ratio for new option grants at an exercise price equal to the fair market value of Pixelworks’ common stock on the date of exchange. The top five most highly compensated executives, including the CEO, COO and CFO, and members of the Board of Directors are not eligible to participate. The new option grants will vest according to an 18-month vesting schedule and will have a term of seven years.

      A complete Tender Offer is being filed today on a Schedule TO with the Securities and Exchange Commission. Interested investors may read the Tender Offer by visiting www.sec.gov or the investor section at www.pixelworks.com and selecting the “SEC Filings” heading on the menu.

About Pixelworks, Inc.

      Pixelworks, headquartered in Tualatin, Oregon, is a leading provider of system-on-chip ICs for the advanced display industry. Pixelworks’ solutions provide the intelligence for advanced televisions, multimedia projectors and flat panel monitors by processing and optimizing video and computer graphics signals to produce high quality images. Many of the world’s leading manufacturers of consumer electronics and computer display products utilize our technology to enhance image quality and ease of use of their products.

      For more information, please visit the company’s Web site at www.pixelworks.com.

#####

 

                                                                  Exhibit (a)(6)

[Email Dated October 27, 2006 Announcing The Commencement Of The Election Period
For The Exchange Program.]

October 27, 2006

Dear Fellow Pixelworks Employee:

I'm delighted to share good news with you today. As you know, it has been our
policy at Pixelworks to distribute stock options to our employees as an
incentive to return value to our shareholders for their investment. As our
employees focus on meeting the needs of our customers, our company prospers, our
shareholders benefit and so will our employees. Pixelworks is an entrepreneurial
company and we want you to have a stake in our future success.

With this in mind, our shareholders at a Special Shareholders meeting held on
October 26, 2006 approved a voluntary stock option exchange offer for our
employees. Under this program, you can exchange all or a portion of the stock
options that you own that were granted by Pixelworks under a stock incentive
plan in force prior to our 2006 Plan and with an exercise price of $4.75 or
more, for new options subject to certain conditions.

As summarized below and detailed in the linked plan documents, in exchange for
your eligible options, you will receive a number of new options based on a
4-to-1 exchange ratio with an exercise price set on the grant date, currently
expected to be December 1, 2006. For example, if you surrendered an option to
buy 1,000 shares, you would receive in return an option to buy 250 shares. The
new option would be subject to a new vesting schedule. That new schedule would
be as follows: 1/3rd will vest at the end of six (6) full calendar months after
the "vesting base date" (the last day of the month in which we award your
grant), and the remaining 2/3rds will vest ratably on a monthly basis over the
next twelve (12) full calendar months (assuming continued employment throughout
the vesting period).

All of the option information you need to complete the election form is
available to you in your E-Trade account at www.etrade.com. Also, we've provided
each of you with an individual statement of your options.

You do not have to accept this offer. This offer involves risks. Before you make
any decisions, you should carefully review the risks and all the terms and
conditions of this offer that are contained in the offer documents that you have
been provided (also available at oep.pixelworks.com).

This stock option program is a legal matter that requires every eligible
employee to receive or have access to detailed information that will help you
make an informed decision. Please take the time to review the documents,
including the Questions and Answers and program summaries. If you still have
questions, you may send them to pixelworksoep@pixelworks.com.

IF YOU WANT TO TAKE ADVANTAGE OF THIS OFFER, YOU MUST COMPLETE AND RETURN THE
ELECTION FORM BY 11:59 P.M. (PACIFIC STANDARD TIME), NOVEMBER 28, 2006. We have
provided you with the election form, including instructions about how to return
the form (also available at oep.pixelworks.com). If you don't want to exchange
your options, you don't need to do anything.

I want to highlight some of the important elements of this offer:

      -     This offer is available only to employees (however, it is not
            available to the top five most highly compensated executives (Allen
            Alley, Hans Olsen, Mike Yonker, John Lau and Richard Tobias) or to
            members of our Board of Directors).



      -     If you are an eligible employee and accept this offer for any of
            your eligible options, you must exchange all of the other eligible
            options (whether or not vested) that are in the same option grant.

      -     Upon the exchange of the options, the options you have exchanged
            will terminate and be cancelled. They will not be reinstated even if
            you later change your mind.

      -     If you resign, quit, die or if your employment with the Company
            terminates for any reason whatsoever between the expiration of the
            offer and the date that we grant the new options, we will not grant
            you any new options and your cancelled options will be reinstated.

      -     Only options that we granted under the 1997 and 2001 Stock Options
            Plans (each an "Old Plan") with an exercise price of at least $4.75
            per share are eligible for exchange.

We will grant new options to you on the "new option date," which we expect to be
December 1, 2006. You must be an eligible employee through the new option date
to receive the new options.

The new options:

      -     Will be for a number of shares based on a 4-to-1 exchange ratio. For
            example, if you surrendered an option to buy 1,000 shares, you would
            receive in return an option to buy 250 shares;

      -     Will have a per share exercise price equal to the closing market
            price of a share of our common stock on the new option date; and

      -     Will be subject to a new eighteen month vesting schedule, with 1/3rd
            vesting at the end of six (6) full calendar months after the
            "vesting base date" (the last day of the month in which we award
            your grant), and the remaining 2/3rds vesting ratably on a monthly
            basis over the next twelve (12) full calendar months (assuming
            continued employment throughout the vesting period).

In addition, we expect that the new options:

      -     Will have a new 7-year term beginning on the new option date
            (subject to earlier termination in connection with the cessation of
            your employment); and

      -     Will have substantially the same other terms and conditions as the
            corresponding cancelled options.

After reading the stock exchange offer documents, you may review the answers to
some commonly asked questions on oep.pixelworks.com, or you may contact us by
e-mail at pixelworksoep@pixelworks.com.

Although our board of directors approved this offer, none of our board, our
management nor any of our affiliates are recommending whether or not you should
accept it.

You are solely responsible for deciding whether to participate and for making
sure that you properly complete your election form and that we receive it before
11:59 P.M. (Pacific Standard Time), November 28, 2006. Make sure that you allow
enough time before the deadline to ensure that we receive your election form. If
we do not receive your election form until after the deadline or you did not
properly complete the election form, your election form will be rejected and you
will not be able to exchange any of your options.



Please go to the following intranet site to access the offer documents:
oep.pixelworks.com

Offering Circular (this explains the terms of the program): [LINK TO OFFER
CIRCULAR]

Election Form and Release Agreement: [LINK TO ELECTION FORM]

We are pleased to offer you the opportunity to participate in this program. I
encourage you to learn all you can about it, consider it carefully, and make a
decision that is right for you.

Sincerely,



Mike Yonker

                                                                  Exhibit (a)(7)

[Questions and Answers Regarding Exchange (located on Pixelworks internal
website)]

                                PIXELWORKS, INC.
                            OFFER TO EXCHANGE CERTAIN
                      OUTSTANDING PIXELWORKS STOCK OPTIONS


               QUESTIONS AND ANSWERS REGARDING THE EXCHANGE OFFER

Pixelworks Inc. ("Pixelworks," "we" or "us") has announced the Pixelworks, Inc.
Offer to Exchange Certain Outstanding Pixelworks Stock Options (the "Offer").

We understand that the decision whether or not to participate in the Offer will
be a challenging one for many employees. The Offer does carry considerable risk,
and there are no guarantees as to our future stock performance. So, the decision
to participate in the Offer must be your personal decision, and it will depend
largely on your assumptions about the future overall economic environment, the
performance of the overall market and companies in our sector and our own
business, performance and stock price.

This document is intended to answer some of the most frequently asked questions
regarding the Offer. These questions and answers have generally been taken from
the Offer Circular that is being distributed in connection with the Offer.
However, these questions and answers do not reflect all of the information
contained in the Offer Circular or in the Election Form and Release Agreement
that is being distributed in connection with the Offer.

It is important that you read the entire Offer Circular and the Election Form
and Release Agreement.



For questions regarding:                                           See:
- ------------------------                                           ----
                                                      

- -   Background and Reasons for the Offer:                Questions 1 through 7

- -   Benefits and Risks of the Offer:                     Questions 8 through 10

- -   The Offer:                                           Questions 11 through 28

- -   Description of Terms and Conditions of New Grants:   Questions 29 through 34

- -   Other Provisions; Administration:                    Questions 35 through 45

- -   Tax and Social Security Consequences:                Questions 46 through 50


Our Board of Directors has approved the Offer. However, you must make your own
decision to accept or reject the Offer. None of our Board of Directors, our
management, or our affiliates makes any recommendation whether you should accept
or reject the Offer.

We have not authorized anyone to make any recommendation on our behalf as to
whether you should accept the Offer. You should rely only on the information
contained in the Offer Circular and the information contained in the documents
expressly referred to in the Offer Circular. If there is any inconsistency
between this document and the Offer Circular, the Offer Circular controls.

We have not authorized anyone to give you any information or to make any
representations in connection with the Offer other than the information and the
representations contained in the Offer



Circular and in the documents expressly referred to in the Offer Circular.

If anyone makes any recommendation or representation to you or gives you any
information that is not contained in the Offer Circular or in the documents
expressly referred to in the Offer Circular, even if that person is an employee
or other representative of Pixelworks or one of our affiliates, you must not
rely upon that recommendation, representation or other information as having
been authorized by us.

If you have any questions about the impact of the Offer on your financial
status, you should consult your financial advisor.

Background and Reasons for the Offer

This section generally describes why we are making the Offer and answers some
questions that you may have regarding the general structure of the Offer.

      1.    What is a stock option grant?

            A stock option grant is a right granted by a corporation to an
            individual or entity to buy a specified number of shares of the
            company's stock at a fixed price during a specified period of time.

      2.    What is an "exercise price"?

            An exercise price, also called the strike price or grant price, is
            the fixed price that you pay to buy your shares when and if you
            exercise your stock option grant in the future.

      3.    Why is Pixelworks making the Offer?

            Under the Old Plans, we granted stock options annually to a
            substantial portion of our employees. When the Compensation
            Committee approves the grant of a stock option, it establishes the
            exercise price that the employee must pay to purchase shares of
            common stock when the option is exercised. The per share exercise
            price is set at the market price of a share of our common stock on
            the date the option is granted. Thus, an employee receives value
            only if he or she exercises an option and sells the purchased shares
            at a price that exceeds the option's exercise price. The granting of
            stock options is intended to align the interests of our employees
            with those of our shareholders in terms of increasing the value of
            our common stock.

            Our stock price has experienced a significant decline and volatility
            during the past year as a result of a number of factors affecting
            our business, including most recently, delays associated with new
            product introductions, relative weakness in the semiconductor
            industry and slower than expected transition of customers from older
            generation products to newer generation products. As a result, many
            of our employees hold grants with exercise prices significantly
            higher than the current market price of our common stock. As of
            August 25, 2006, eligible employees held grants for 4,344,339 shares
            with exercise prices ranging from $4.75 to $39.00, while the closing
            price of our common stock on the NASDAQ Global Market on that date
            was $2.47.

            We believe these "out-of-the-money" grants are no longer effective
            as performance and retention incentives. We believe that to enhance
            long-term shareholder value we need to maintain competitive employee
            compensation, incentive and retention programs. An equity stake in
            the success of the Company is a critical component of these
            programs. We believe the Exchange will provide us with an
            opportunity to restore for eligible



            employees an incentive to remain with us and contribute to the
            future growth and success of our business.

            Moreover, many of the Eligible Grants have been out-of-the-money for
            an extended period of time and, therefore, have not been exercised
            by our employees. Coupled with periodic grants of options to new and
            continuing employees, the number of shares subject to outstanding
            stock options has steadily increased as a percentage of our total
            shares of common stock outstanding, creating a significant equity
            award "overhang". Under the proposed Exchange, participating
            employees will receive significantly fewer shares subject to New
            Grants than the number of shares subject to Eligible Grants
            surrendered. Because participating employees will exchange a greater
            number of options for a lesser number of options, the number of
            shares of stock subject to all outstanding stock options will be
            reduced, thereby reducing the equity award overhang. If all Eligible
            Grants are exchanged in accordance with the 4-to-1 Exchange Ratio,
            Eligible Grants for approximately 4,344,339 shares will be
            surrendered and cancelled, while New Grants for approximately
            1,086,085 shares will be issued, resulting in a net reduction in the
            equity award overhang by approximately 3,258,254 shares or
            approximately 7% of the number of shares of our common stock
            outstanding as of August 25, 2006. All Eligible Grants that are not
            exchanged will remain outstanding and in effect in accordance with
            their existing terms.

      4.    Why is Pixelworks making the Offer at this time?

            Our management and Board of Directors believe that the longer we
            wait to implement the Exchange the more risk there will be to our
            ability to retain employees that we believe are needed to contribute
            to the future growth and success of our business.

      5.    How did you arrive at the minimum exercise price of $4.75 for
            determining Eligible Grants?

            In establishing the minimum price, our Board of Directors
            considered, among other things, current and recent trading prices of
            our common stock and that of other companies similar to ours,
            current economic conditions, prospects for a recovery in the
            national and regional economy, and the levels of intended
            incentives.

      6.    Why can't Pixelworks just re-price my options, as I have seen done
            at other companies?

            The Compensation Committee of our Board of Directors considered a
            variety of alternatives to address the issues of the significant
            number of "out-of-the-money" options and the equity award
            "overhang." Ultimately, the Compensation Committee recommended to
            the Board, and the Board determined, that some option holders may
            benefit from the opportunity to choose between what we believe is
            the relatively more certain benefit associated with a new option at
            a lower strike price and the potentially more valuable, but less
            certain, benefit those holders may realize by retaining their
            current, "out-of-the-money" stock options. Additionally, by
            exchanging stock options according to the terms of the Offer, we
            will reduce the number of shares of our common stock subject to
            equity awards, thereby reducing the equity award "overhang" and the
            potential dilution to our shareholders.

      7.    Why can't I just be granted additional new options?

            Granting additional options will result in the issuance of
            additional shares that would dilute the current ownership of
            shareholders. Our Board of Directors determined that, under the
            circumstances, the Offer was a more effective way to encourage our
            employees



            without unduly diluting our shareholders.

Benefits and Risks of the Offer

This section generally describes some of the potential benefits and risks of the
Offer.

      8.    How does the Offer potentially benefit the Company?

            We believe the Eligible Grants held by our employees do not provide
            the incentives we had intended. We believe that this program
            provides the right incentives for our employees to increase
            shareholder value. Also, any shares with respect to any Eligible
            Grants that are tendered will be permanently "retired," thereby
            reducing the total "overhang" and potential shareholder dilution.

      9.    Are my New Grants guaranteed to be more valuable?

            No. Generally, your New Grants will potentially be more valuable
            than your Cancelled Grants only if they are granted at an exercise
            price that is less than the exercise price of your Cancelled Grants.
            The exercise price of the New Grants will be determined as described
            in the response to Question 30 below. There is no guarantee that
            your New Grants will have an exercise price that is less than the
            exercise price of your Cancelled Grants. Your New Grants will
            increase in value only if the market price of our common stock
            increases. We cannot guarantee stock price performance.

            In addition, because the New Grants are for options for one share
            for every four shares covered by an Eligible Grant, even if the
            value of that one share is higher than the value of one of the
            shares covered in the Eligible Grant, the aggregate value of all
            shares covered by a New Grant may be less than the aggregate value
            of all shares covered by Eligible Grants tendered in the Offer.

            In addition, your New Grants will be subject to a new vesting
            schedule (see Question 31), even if the Cancelled Grants you
            tendered were fully vested. There is no guarantee that you will
            remain an employee for all or any part of the new vesting schedule.

      10.   What are the risks of the Offer?

            The Offer involves risks as described in the "Risk Factors" section
            of this Offer Circular, which include, among others, the risk that
            the New Grants could be less valuable than the Cancelled Grants
            surrendered if the exercise price of the New Grants is greater than
            the exercise price of your Eligible Grants, and the risk that
            because the New Grants have a new vesting schedule, you may not be
            employed by the Company to receive any value on the dates on which
            the New Grants vest. Therefore, it is important that you read all of
            the details, terms and conditions contained in this Offer Circular
            so that you can make an informed decision as to whether to accept
            this Offer.

The Offer

This section describes the terms of the Offer, including the deadline for
accepting the Offer, eligibility rules, how to accept the Offer, which options
may be tendered in the Offer, and other terms and conditions of the Offer. The
terms of the Offer set forth in this Offer Circular control if there is any
inconsistency between this Offer Circular and any other document.

      11.   What is the deadline for the Offer?

            IF YOU WANT TO ACCEPT THE OFFER, THE DEADLINE FOR SUBMITTING YOUR
            ELECTION FORM IS



            11:59 P.M., PACIFIC STANDARD TIME, ON NOVEMBER 28, 2006, unless we,
            in our sole discretion, extend the Offer. If you do not return your
            completed and signed Election Form before that Expiration Date, you
            will not be allowed to participate in the Exchange.

      12.   Who is eligible to participate in the Exchange?

            Generally, you are eligible to participate if you are employed by us
            or one of our subsidiaries (either on active status or on an
            approved leave of absence) on the New Grant Date, the date on which
            we will cancel the tendered Eligible Grants and award the New
            Grants, currently expected to be December 1, 2006. Employees who are
            on approved leaves of absence are eligible to participate. Examples
            of approved leaves generally include workers compensation leave,
            short term disability with pay (including approved maternity or
            paternity leave), long term disability, military leave, and
            birth/adoption/guardianship leave. An employee whose employment
            terminates for any reason on or before the New Grant Date will not
            be an Eligible Employee. Also, members of our Board of Directors and
            our five most highly compensated executive officers (Allen Alley,
            Hans Olsen, Mike Yonker, John Lau and Richard Tobias) are not
            eligible to participate. (See Attachment C for a list of these
            executive officers and members of our Board of Directors.)

            Eligible Employees employed outside the United States who hold
            Eligible Grants may participate in the Offer on the terms as
            described in this document. Please be sure to read the response to
            Question 50, which discusses certain additional terms of the Offer
            specific to Eligible Employees who are residing outside the United
            States.

      13.   What are the conditions to the Offer?

            The Offer is conditioned on your being employed with the Company as
            described in the response to Question 12 above. In addition, the
            Offer is conditioned on your satisfactorily completing, signing and
            returning to us your Election Form by 11:59 p.m. Pacific Standard
            Time on November 28, 2006, as described in the response to Question
            15 below.

      14.   What stock option grants may I tender/exchange in the Offer?

            If you are an Eligible Employee, you may tender in the Offer any
            Pixelworks stock option grant that was originally awarded under any
            Old Plan with a per share exercise price of $4.75 or more (each an
            "Eligible Grant"). If you want to tender any portion of a particular
            Eligible Grant, you must tender all stock options outstanding under
            that grant (whether or not vested). An Old Plan is any Pixelworks
            stock option plan that was in force prior to the 2006 Plan.

      15.   How may I accept the Offer?

            To properly tender your Eligible Grants for exchange, you must
            properly complete, sign, date and deliver to us the Election Form
            and Release Agreement attached as Attachment A (the "Election Form")
            in accordance with that form's instructions. DELIVERY OF THE
            ELECTION FORM MUST BE MADE BY ONE OF THE FOLLOWING METHODS:

            o     regular or overnight mail to Pixelworks, Inc., 8100 SW Nyberg
                  Road, Tualatin, Oregon, U.S.A. 97062, Attn: Option Exchange

            o     by hand to the drop box labeled "Option Exchange" in the HR
                  department at the foregoing address



            o     by fax to: (503) 454-0261, Attn: Option Exchange

            o     by email, scanned as a signed Portable Document Format (PDF)
                  file, to pixelworksoep@pixelworks.com . Subject line of email
                  must be "Option Exchange."

            Individual confirmations of receipt will not be sent. Please keep
            copies of the documents you send.

            If you submitted an Election Form and you want to change that
            election, whether because you decide to exchange additional Eligible
            Grants, withdraw Eligible Grants you previously elected to exchange,
            or substitute certain Eligible Grants for others, you must submit a
            new Election Form listing all of the Eligible Grants you now wish to
            exchange. For example, if you initially submit an Election Form
            indicating you want to exchange your Eligible Grants A and B, and
            then decide that you do not want to exchange Eligible Option B but
            want to exchange Eligible Option C, you must submit a new Election
            Form that lists A and C as the Eligible Grants you want to exchange.
            The latest Election Form received by us in accordance with the
            delivery instructions above will supersede and replace all prior
            elections, so you should be sure to follow the foregoing
            instructions carefully. As discussed in Questions 14 and 16, you may
            exchange Eligible Grants only on a whole grant-by-grant basis.

            Your Eligible Grants will not be considered properly tendered unless
            we receive the completed and signed Election Form prior to the
            Expiration Date. The method of delivery of all documents, including
            the Election Form, is at your choice and risk. Delivery of your
            Election Form will be effective only upon receipt. If delivery is by
            mail, we recommend that you use certified mail with return receipt
            requested. In all cases, you should allow sufficient time to ensure
            we receive your Election Form in time.

            We will determine, in our discretion, all questions as to the number
            of shares subject to Eligible Grants, and the validity, form,
            eligibility (including time of receipt) of submitted Election Forms
            (including any changes of elections) and acceptance of any tender of
            grants. Our determination of these matters will be final and binding
            on all parties. We may reject any submitted Election Forms or any
            grants tendered for exchange to the extent that we determine they
            are not properly completed or to the extent that we determine it is
            unlawful to accept the grants for exchange. We may waive any defect
            or irregularity in a submitted Election Form. No Eligible Grants
            will be properly tendered for exchange until all defects or
            irregularities have been cured by the option holder or waived by us.
            Neither we nor any other person is obligated to give notice of any
            defects or irregularities in any submitted Election Form, and no one
            will be liable for failing to give notice of any defects or
            irregularities.

            If you elect to exchange your Eligible Grants by submitting an
            Election Form in accordance with the procedures described above, you
            will have accepted the terms and conditions of the Offer. If we
            accept the Eligible Grants that you properly tendered for exchange,
            there will be a binding agreement between us and you on the terms
            and subject to the conditions of the Offer. Subject to our rights to
            extend, terminate and amend the Offer, we currently expect that we
            will accept promptly after the Expiration Date of the Offer all
            properly tendered Eligible Grants that have not been validly
            withdrawn or superseded.

      16.   Can I choose which options I want to tender?

            If you have only one Eligible Grant, you must either accept or
            reject the Offer as to that



            entire grant. That is, you cannot accept the Offer as to only a
            portion of your grant. For example, you cannot accept the Offer with
            respect to the unvested portion of your Eligible Grant but reject
            the Offer with respect to the vested portion.

            If you have multiple Eligible Grants, you may choose to tender one
            or more in the Exchange. However, as to any particular Eligible
            Grant, you must either accept or reject the Offer as to that entire
            grant. Although you can specify which of your Eligible Grants you
            want to tender, you cannot tender only a portion of any particular
            grant.

            For example, if you have one Eligible Grant for 100 shares, you
            cannot accept the Offer with respect to only 50 of those shares but
            reject the Offer with respect to the other 50 shares, even if the
            Eligible Grant has already vested as to those 50 other shares. If
            you have two Eligible Grants, one for 100 shares and the other for
            200 shares, you can tender the first grant for 100 shares and keep
            the other for 200 shares (or vice versa), or you can tender neither
            or both of them.

      17.   Can I tender grants that I have already exercised?

            No. The Offer applies only to the portions of your Eligible Grants
            that are unexercised and outstanding as of the expiration time of
            the Offer. It does not apply in any way to shares that you purchased
            by exercising options or to any portion of an Eligible Grant that
            you exercise before the Expiration Date of the Offer.

            If you have exercised an option in its entirety, that option is no
            longer outstanding and is therefore not included in the Offer.
            However, if you have exercised an otherwise Eligible Grant in part,
            the remaining outstanding unexercised portion of the grant is
            included in the Offer and may be tendered.

            For example, if you have an Eligible Grant for 100 shares, but you
            have already exercised it with respect to 50 shares, you may still
            tender the unexercised portion of the Eligible Grant relating to the
            50 remaining shares.

      18.   Do I have to pay money or taxes if I accept the Offer?

            No. Whether or not you accept the Offer, you will not have to make
            any payments to us until you exercise your stock options. There will
            be no U.S. federal income taxes consequences from accepting the
            Offer. See the responses to Questions 46 - 50 below for more detail
            on taxes.

      19.   What if I change my mind?

            If you file an Election Form and want to change or withdraw your
            election, you may do so by filing a new Election Form indicating
            your new acceptance or rejection of the Offer in accordance with the
            procedures described in Question 15 above so that we receive your
            new Election Form before the Expiration Date of the Offer. We will
            rely on the last Election Form that we receive from you before the
            Expiration Date of the Offer.

      20.   What is the release that is included in the Election Form?

            By signing your Election Form and indicating that you accept the
            Offer, you agree to cancel the designated Eligible Grants and agree
            to the provisions of a release set forth in the Election Form. The
            release will operate as an unconditional release by you and your
            trustees, executors, administrators, guardians, attorneys-in-fact or
            others acting in a fiduciary or representative capacity of all
            rights and remedies relating to your Cancelled



            Grants.

            By agreeing to the release, you agree that your exchanged Eligible
            Grants, and all of your rights with respect to your exchanged
            Eligible Grants, automatically terminate at the Expiration Date of
            the Offer. You retain, of course, your conditional right to receive
            New Grants on the terms and conditions described in this Offer
            Circular.

      21.   Can the Offer be modified?

            Yes. Prior to the Expiration Date of the Offer, we may, in our sole
            discretion, extend, modify or revoke the Offer. We will notify you
            if the Offer is revoked. You will also be notified (and given an
            opportunity to change any Election Form that you may have previously
            filed) if we modify the Offer in any material manner. The New Grant
            Date is currently scheduled to be December 1, 2006. If December 1,
            2006 is not a trading day, the New Grant Date will be the first
            trading day after December 1, 2006. If we extend the Offer, we will
            adjust the New Grant Date to correspond to the new expiration date
            of the Offer.

            Subject to our right to modify or revoke the Offer, the only
            condition to participating in the Offer is that you must be eligible
            (as described in the responses to Question 12 above) to participate
            as of the Expiration Date. See the responses to Questions 29 through
            34 below for conditions applicable to New Grants.

            We are not aware of any jurisdiction where the Offer or the grant of
            New Grants would violate applicable law. If we become aware of any
            jurisdiction where the Offer would violate applicable law, we will
            revoke the Offer in cases where applicable law cannot be satisfied.
            We may, where necessary, make New Grants conditional on any required
            legal filings or approvals, modify the terms of the New Grants to
            the extent necessary to satisfy applicable law, and we may delay the
            grant of New Grants in cases where filings or approvals are required
            and have not been obtained.

      22.   What happens if I accept the Offer but my employment terminates
            before the Expiration Date of the Offer?

            If you accept the Offer but you cease to be an employee of the
            Company before the Expiration Date of the Offer or you are not
            otherwise eligible to participate (see the responses to Questions 12
            and 21 above), the release that you gave in accepting the Offer will
            be void and your Eligible Grants will be treated as if they had not
            been tendered.

      23.   What happens if I accept the Offer but my employment terminates
            after the Expiration Date of the Offer and before the New Option
            Grant Date?

            If your employment with the Company is terminated by you or by the
            Company for any reason whatsoever after the Expiration Date of the
            Offer and before the New Option Grant Date, we will deem that you
            have withdrawn your tender of any Eligible Grants. You will not have
            a right to any New Grants that would have otherwise been granted to
            you on the New Grant Date, or any other consideration. Your Eligible
            Grants will not be cancelled, and will continue to be in effect
            according to their terms. Those terms require exercise by you of any
            Eligible Grants after your employment ends within three (3) months
            of your termination date.

            You should carefully consider this issue, particularly if you are
            thinking about retiring or resigning before the New Grant Date. This
            result is the same even if you are terminated by the Company for no
            reason or are laid off or the subject of a workforce reduction.



      24.   What happens if I accept the Offer but I go on approved leave before
            the Expiration Date of the Offer?

            If you take an approved leave of absence, you will be treated as
            being employed by the Company for purposes of the Offer while on
            leave for as long as your leave remains approved. Examples of
            approved leaves generally include workers compensation leave, short
            term disability (including approved maternity or paternity leave),
            long term disability, military leave, and
            birth/adoption/guardianship leave.

            Alternatively, if you are on an unapproved leave of absence at the
            expiration time of the Offer, then you will not be eligible to
            participate in the Offer unless we are required by law to still
            treat you as an employee for this purpose.

      25.   What will happen to my Eligible Grants if I do not accept the Offer?

            Participation in the Offer is entirely voluntary. If you do not
            accept the Offer (or if you do not accept the Offer with respect to
            all of your Eligible Grants), your Eligible Grants that you do not
            elect to tender in the Offer will remain outstanding in accordance
            with their terms.

      26.   Is there any tax consequence to my participation in the Offer?

            For any Eligible Grants for non-qualified stock options that you
            submit in the Exchange, we do not believe that there will be any tax
            consequence to you as a result of that submission, or in your
            obtaining a New Grant. The New Grants will be for non-qualified
            options, and should be treated as all non-qualified options are
            treated by the Internal Revenue Service.

            For any Eligible Grants for incentive stock options that you submit
            in the Exchange, we believe that it is unlikely that the Offer or
            the Exchange will change any of the terms of those incentive stock
            options if you elect not to surrender them. However, there is a
            possibility that the Internal Revenue Service may characterize the
            Offer or the Exchange as a "modification" of those incentive stock
            options, even if you elect not to surrender them. A successful
            assertion by the Internal Revenue Service that the options are
            modified would extend the period of time that you are required to
            hold the shares purchased under those options to qualify for
            favorable tax treatment and could cause a portion of your incentive
            stock options to be treated as non-qualified stock options. However,
            any assertion by the Internal Revenue Service, even if successful,
            would not affect the exercise price or vesting schedule of the
            Eligible Grant that covers those options.

            In addition, because all New Grants that we issue in exchange for
            any Eligible Grants tendered in the Exchange will be for
            non-qualified options, the New Grants will not receive the same tax
            treatment as any tendered Eligible Grants for incentive stock
            options.

            These opinions are based on our review of the Internal Revenue Code.
            You should consult your own personal legal and tax advisors for
            confirmation and to take into account any issues that are personal
            to you. Also, please see the responses to Questions 46 - 50 below.

      27.   What happens if Pixelworks is subject to a change in control, asset
            sale, merger or other reorganization before the New Grants are
            granted?



            If a change of control or certain other reorganization of Pixelworks
            occurs before we grant the New Grants, we expect that the successor
            or purchaser would agree to assume or substitute other outstanding
            options of Pixelworks and would agree to assume the obligation to
            issue New Grants. However, we cannot guarantee that any successor or
            purchaser would agree to assume existing options or any obligation
            to issue New Grants. Therefore, it is possible that you may not
            receive any New Grants, securities of the surviving company or other
            consideration in exchange for your Cancelled Grants if Pixelworks is
            subject to a change of control, sells assets or otherwise
            reorganizes before the New Grants are granted. In addition, the
            announcement of a change of control transaction regarding Pixelworks
            before the New Grant Date could have a substantial effect on our
            stock price, including substantial stock price appreciation, which
            could reduce or eliminate potential benefits provided by the
            Exchange.

            The preceding paragraph describes the general consequences of a
            change of control or other reorganization of Pixelworks generally.
            You may also be affected if Pixelworks or an affiliate sells a
            subsidiary, a division or a part of the Company for which you work.
            In those circumstances, if you were transferred to the acquiring
            company, the acquiring company would likely not have to agree to
            issue New Grants under the Offer. Consequently, if you are employed
            by the subsidiary or in the division or business that is sold and
            you do not continue to be employed by the Company following the
            sale, then the sale will constitute the termination of your
            employment with the Company for purposes of the Offer and the New
            Grants. In those circumstances, you would not be entitled to receive
            options to purchase stock or securities of the acquiring company or
            any other consideration in exchange for your Cancelled Grants.

            We also reserve the right to take any action, including entering
            into a merger, asset purchase or sale or similar transaction, or
            shutting down a business unit, whether or not it adversely affects
            the grant of the New Grants under the Offer or the likelihood that
            the New Grants will be granted.

      28.   What happens if my New Grants again end up "out-of-the-money"?

            There is no guarantee that your New Grants will have an exercise
            price that is less than the exercise price of your Cancelled Grants
            or that the market price of Pixelworks common stock will ever exceed
            the exercise price of your New Grants. We cannot guarantee stock
            price performance. Furthermore, we currently do not expect to make a
            similar stock option exchange offer in the future. Accordingly, we
            make no representation that any New Grants will provide you with any
            economic benefit.

Description of Terms and Conditions of New Grants

This section provides important information regarding the New Grants. The
information in this section is qualified in its entirety by the more detailed
information set forth in the form of Nonqualified Option Agreement that will
evidence each grant of New Grants (the applicable "New Grant Agreement") and by
the more detailed information set forth in our 2006 Stock Incentive Plan (the
"2006 Plan"). You may obtain a copy of our 2006 Plan by request without charge
from Pixelworks or from the SEC (see "Additional Information; Incorporation of
Documents by Reference" section below).

Our 2006 Plan or the applicable New Grant Agreement will control if any
discrepancy exists between the information presented in this Offer Circular with
respect to the New Grants and the terms of our 2006 Plan or the applicable New
Grant Agreement.



      29.   If I accept the Offer, how many New Grants will I be awarded?

            If you timely accept the Offer and you are eligible to participate
            in the Exchange, you will be awarded New Grants with respect to the
            number of shares that results from applying the 4-to-1 Exchange
            Ratio against the number of shares covered by your Cancelled Grants.
            For example, if your Cancelled Grant covers 1000 shares, you would
            receive a New Grant that covers 250 shares. In addition, your New
            Grants will have a new exercise price set on the New Grant Date
            which may differ from your Cancelled Grant exercise price (see
            response to Question 30) and will have a new vesting schedule (see
            response to Question 31).

            We do not guarantee that you will receive any value if you accept
            the Offer. The value you receive will depend on, among other things,
            the exercise price of your Cancelled Grants, the exercise price of
            your New Grants, whether or not you remain employed by the Company
            or the New Grants otherwise vest, and the market price of our common
            stock when you sell the shares that you acquire when you exercise
            your New Grants.

      30.   What will be the exercise price of the New Grants?

            The per share exercise price of the New Grants will be the closing
            market price of our common stock as reported by the NASDAQ Global
            Market on the New Grant Date. The New Grant Date is expected to be
            December 1, 2006 or, if that day is not a trading day, the first
            trading day after December 1, 2006. If we extend the Offer, we will
            adjust the New Grant Date to correspond to the new expiration date
            of the Offer.

      31.   When will the New Grants vest?

            The New Grants will be completely unvested at the time they are
            awarded irrespective of whether the Cancelled Grants were vested at
            such time. The New Grants will vest over eighteen months according
            to the following schedule: one-third (1/3rd) of the shares will vest
            at the end of six (6) full calendar months after the "vesting base
            date" (the last day of the month in which we award your grant), and
            the remaining two-thirds (2/3rd) will vest ratably at the end of
            each of the next twelve (12) full calendar months. Thus, assuming a
            grant date of December 1, 2006, which means a vesting base date of
            December 31, 2006, and continued employment throughout each vesting
            period, one-third (1/3rd) of the shares of a New Grant would vest on
            June 30, 2007, and the remaining two-thirds (2/3rd) would vest at
            the end of each month thereafter until all vesting completes on June
            30, 2008. All New Grants will be subject to this vesting schedule,
            regardless of the fact that all or a portion of your Cancelled
            Grants may have already vested.

      32.   What are the termination provisions of the New Grants?

            New Grants will each be subject to a new seven (7) year term
            beginning on the New Grant Date, subject to earlier termination
            should your employment end. That term has nothing to do with
            vesting, but rather is the time limit within which you must exercise
            the New Grant. Thus, if the New Grant Date is December 1, 2006, you
            must exercise the New Grant (once vested) by December 31, 2013, or
            you will lose the right to exercise even vested portions. The New
            Grants will remain subject to earlier termination upon the end of
            your employment, similar to the terms of your Cancelled Grants.

      33.   What will be the change of control provisions of my New Grants?

            The New Grants awarded in exchange for your Cancelled Grants will be
            subject to the same change of control provisions as your Cancelled
            Grants.



      34.   What will be the other terms and conditions of my New Grants?

            You should refer to our 2006 Plan and your New Grant Agreement for
            further details on the terms and conditions of your New Grant. Other
            than the new exercise price, new option term and new vesting
            schedule, we expect that your New Grants will otherwise be subject
            to substantially the same terms and conditions as the corresponding
            Cancelled Grants. However, we reserve the authority contemplated by
            our 2006 Plan to make adjustments relative to the New Grants, before
            and after they are granted, consistent with the authority that our
            Board of Directors had with respect to the Cancelled Grants. In the
            period before the New Grant Date, such adjustments or termination of
            rights may occur without prior notice to you.

            You will not receive any consideration other than the New Grants for
            your Cancelled Grants.

Other Provisions; Administration

This section describes certain other aspects of the Offer, including the fact
that the Offer does not confer any employment rights, certain administrative
information regarding the Offer and, since Pixelworks is making the Offer,
certain information about Pixelworks.

      35.   Does the Offer give me any rights to continued employment by the
            Company?

            No. The Offer does not have any effect on your employment status or
            give you any right to continued employment with the Company or any
            of its affiliates. You will remain an at-will employee regardless of
            whether you elect to participate in the Offer. That means that you
            are not guaranteed employment for any period of time.

            If you die or if your employment with the Company terminates for any
            reason whatsoever before the New Grant Date, we will deem that you
            have withdrawn your tender of any Eligible Grants and will not grant
            you any New Grants. You will have the right to exercise your
            Eligible Grants as if you had not tendered them, subject to the
            terms of those Eligible Grants. Those terms include a requirement
            that you exercise the Eligible Grants within three (3) months after
            the end of your employment.

      36.   How do I make a claim for payment of other benefits I may be owed?

            If you accept the Offer by submitting a completed and signed
            Election Form prior to the Expiration Date, you generally will not
            have to take any other action to receive your New Grants in exchange
            for your Cancelled Grants. Other than the New Grants, there is no
            other form of consideration or payment from the Company for any
            Cancelled Grants in the Exchange. If, however, you believe that you
            are being denied a benefit to which you are entitled, you should
            file a written request with Pixelworks Stock Administration. The
            request should include the reasons for your claim. Any written claim
            request should be sent to:

            Pixelworks Stock Administration
            Pixelworks, Inc.
            8100 SW Nyberg Road
            Tualatin, OR  97062

            Or by e-mail to pixelworksoep@pixelworks.com, subject "Claim".



      37.   Who will administer and pay the costs of administering the Offer?

            The Company will make all administrative decisions regarding the
            Exchange. Without limiting that authority, we have the authority, in
            our sole discretion, to determine all questions as to form of
            documents and the validity, eligibility, and acceptance of any
            election to participate in the Exchange. Our determination on these
            matters will be final and binding on all persons. We reserve the
            right to waive any condition of the Exchange. We are not obligated
            to give any notice of any defects or irregularities in Election
            Forms, nor will anyone incur any liability if you fail to return a
            valid Election Form.

            We will pay the expenses of administering the Exchange and the
            awarding of New Grants.

            We will not retain, nor will we pay any fees or commissions for, any
            broker, dealer, or other person to solicit elections to accept the
            Offer. Any such solicitation is prohibited.

      38.   What is the price of our common stock?

            Shares of our common stock are traded on the NASDAQ Global Market
            under the symbol "PXLW." The following table presents the high and
            low sales prices per share of Pixelworks common stock for the
            periods indicated, as reported on the NASDAQ Global Market:

            

            

            FISCAL 2006          HIGH       LOW
            -----------          ----       ---
                                     
            Third Quarter       $3.04      $2.00
            Second Quarter      $5.05      $2.40
            First Quarter       $6.18      $4.36
            

            

            

            FISCAL 2005          HIGH        LOW
            -----------          ----        ---
                                      
            Fourth Quarter      $ 6.74      $4.97
            Third Quarter       $11.78      $6.25
            Second Quarter      $ 9.32      $6.90
            First Quarter       $12.44      $7.55
            

            
            
            FISCAL 2004          HIGH        LOW
            -----------          ----        ---
                                      
            Fourth Quarter      $12.80      $10.11
            Third Quarter       $15.32      $ 7.50
            Second Quarter      $20.74      $14.61
            First Quarter       $17.93      $10.95
            

            You should obtain current market quotations for our common stock
            before you decide whether you should accept the Offer. The value of
            our common stock will fluctuate in the future and we cannot and do
            not predict any future values for our common stock.

      39.   What information is available regarding Pixelworks?

            Pixelworks is a leading designer, developer and marketer of
            semiconductors and software for the advanced display industry,
            including advanced televisions, multimedia projectors, and flat
            panel products. Our system-on-chip and discrete semiconductors
            provide the `intelligence' for these types of displays and devices
            by processing and optimizing video



            and computer graphic signals to produce high-quality images.

            We are incorporated under the laws of the State of Oregon and have
            our principal executive offices at 8100 SW Nyberg Road, Tualatin,
            Oregon 97062, telephone number 503-454-1750.

            Attachment B to this Offer Circular summarizes certain of our
            consolidated financial data. Additional information about us,
            including certain more detailed financial statements, is available
            from the documents referred to and incorporated by reference under
            "Additional Information: Incorporation of Documents by Reference"
            below.

      40.   How many shares covered by Eligible Grants are there?

            As of August 25, 2006, options to purchase approximately 8,379,515
            shares of our common stock were outstanding under all Old Plans. Of
            these, options to purchase 4,048,339 shares of common stock, having
            exercise prices ranging from $4.75 to $39.00, are held by Eligible
            Employees and would be eligible for exchange. The Compensation
            Committee will retain the discretion to adjust the minimum threshold
            exercise price of options eligible to participate in the Offer if
            there is a significant change in the market price of our common
            stock preceding the commencement of the Offer in comparison to the
            average market price used in determining the Exchange Ratio.

      41.   What is the Exchange Ratio?

            The "Exchange Ratio" is the ratio of (i) the number of shares
            underlying any Eligible Grants that you tender in the Exchange to
            (ii) the number of shares underlying any New Grants you will receive
            upon tender of your Eligible Grants. The Exchange Ratio will be
            4-to-1.

            Our objective in establishing a 4-to-1 Exchange Ratio is to provide
            that the options underlying the New Grants will have an aggregate
            value no greater than the aggregate value of the options underlying
            the Eligible Grants surrendered. We calculated the aggregate fair
            value of the options underlying the Eligible Grants using the
            Black-Scholes option valuation model. The Black-Scholes model is a
            common method used for estimating the fair value of a stock option,
            and we use this model for determining stock-based compensation in
            our consolidated financial statements. For purposes of determining
            the aggregate fair value of options underlying Eligible Grants in
            connection with the Exchange, the Black-Scholes option valuation
            model was used with the following factors: (a) the Eligible Grants'
            weighted average exercise price; (b) an assumed value of $2.76 per
            share of our common stock, which was the average closing price per
            share on the NASDAQ Global Market over the period from May 1, 2006
            to August 25, 2006; (c) an expected volatility of our common stock
            price of 95%; (d) the remaining weighted average contractual life of
            Eligible Grants; (e) a risk-free interest rate of 4.77%; and (f) no
            expected dividends. For purposes of determining the aggregate fair
            value of options underlying New Grants to be awarded in the
            Exchange, the Black-Scholes option valuation model was used with the
            following factors: (a) an assumed exercise price of $2.76, which was
            the average closing price per share on the NASDAQ Global Market over
            the period from May 1, 2006 to August 25, 2006; (b) an assumed value
            of $2.76 per share of our common stock, which was the average
            closing price per share on the NASDAQ Global Market over the period
            from May 1, 2006 to August 25, 2006; (c) an expected volatility of
            our common stock price of 95%; (d) the remaining contractual life of
            the New Grant; (e) a risk-free interest rate of 4.77%; and (f) no
            expected dividends. According to these calculations, if all of the
            options underlying Eligible Grants are exchanged for options
            underlying New Grants in accordance with the



            4-to-1 exchange ratio, options to purchase approximately 4,344,339
            shares, having an aggregate fair value of approximately $8,479,189,
            will be surrendered in exchange for options to purchase
            approximately 1,086,085 shares having an assumed fair value of
            approximately $2,470,596.

            The total number of stock options a participating employee will
            receive in a New Grant with respect to a surrendered Eligible Grant
            will be determined by dividing the number of shares subject to the
            surrendered option grant by four and rounding to the nearest whole
            share.

            The valuation of the options underlying an Eligible Grant and the
            options underlying a New Grant was made and the Exchange Ratio was
            selected on the basis of our average stock price over the period
            from May 1, 2006 to August 25, 2006. While it is our objective that
            the New Grants have an aggregate value no greater than the aggregate
            value of the Eligible Grants surrendered, use of a fixed exchange
            ratio will result in certain specific Eligible Grants having a
            lesser fair value (based on the Black-Scholes option valuation model
            using the assumptions described above) than the value of the New
            Grants (based on the Black-Scholes option valuation model using the
            assumptions described above). The Compensation Committee will retain
            the discretion to adjust the threshold exercise price of Eligible
            Grants to participate in the Exchange and the Exchange Ratio if
            there is a significant change in the market price of our common
            stock preceding the commencement of the Offer in comparison to the
            average market price used in selecting the 4-to-1 Exchange Ratio.
            However, in no event will we award New Grants in connection with the
            Exchange having an aggregate value (based on the Black-Scholes
            option valuation model using the assumptions described above)
            greater than the aggregate fair value of the stock options
            underlying the Eligible Grants surrendered (based on the
            Black-Scholes option valuation model using the assumptions described
            above).

      42.   How does the Offer relate to Pixelworks' directors and executive
            officers?

            Our five most highly compensated executive officers (Allen Alley,
            Hans Olsen, Mike Yonker, John Lau and Richard Tobias) and members of
            our Board of Directors will not be eligible to participate in the
            Exchange. Please see our proxy statement for our special meeting of
            shareholders held on October 26, 2006 for more information regarding
            the compensation of directors and certain executive officers and the
            amount of Pixelworks securities that our directors and executive
            officers beneficially owned, for periods or as of the dates set
            forth in that statement. This proxy statement is available upon
            request as described below under "Additional Information;
            Incorporation of Documents by Reference."

            There were no stock option or stock transactions involving our
            directors and executive officers within the 60 days before the
            commencement of the Offer.

      43.   What are the general accounting consequences to the Company of the
            Exchange?

            On January 1, 2006, we adopted the provisions of Financial
            Accounting Standards Board Statement of financial Accounting
            Standards No. 123 (revised 2004), Share-Based Payment ("SFAS 123R").
            Under SFAS 123R we expect to recognize the incremental compensation
            cost of the New Grants awarded in the Exchange. The incremental
            compensation cost will be measured as the excess, if any, of the
            fair value of each New Grant awarded to employees in exchange for
            Cancelled Grants, measured as of the date such grants are awarded,
            over the fair value of the Cancelled Option, measured



            immediately before the Exchange. The incremental and remaining
            compensation expense associated with the Exchange will be recognized
            over the service period of such grants. If any portion of the New
            Grant awarded is forfeited prior to the completion of the service
            condition due to termination of employment, the compensation cost
            for the forfeited portion of the New Grant will not be recognized.

      44.   Is Pixelworks contemplating any other transactions?

            We must disclose whether we are contemplating certain types of
            transactions in connection with the Offer. Except as otherwise
            disclosed below and elsewhere in this Offer Circular and in our
            filings with the SEC, and while we reserve the right to contemplate
            and effect any of these transactions from time to time, we currently
            have no plans or proposals that relate to or would result in:

            -     an extraordinary transaction, such as a merger, reorganization
                  or liquidation, involving us or any of our subsidiaries;

            -     any purchase, sale or transfer of a material amount of our
                  assets or the assets of any of our subsidiaries;

            -     any material change in our present dividend rate or policy, or
                  our indebtedness or capitalization;

            -     any change in our present Board of Directors or executive
                  officers, including, but not limited to, any plans or
                  proposals to change the number or the term of directors or to
                  fill any existing vacancies on our Board or to change any
                  material term of the employment contract of any executive
                  officer;

            -     any other material change in the subject company's corporate
                  structure or business;

            -     our common stock being de-listed from a national securities
                  exchange;

            -     our common stock becoming eligible for termination of
                  registration pursuant to Section 12(g)(4) of the Securities
                  Exchange Act of 1934, as amended;

            -     the suspension of our obligation to file reports under Section
                  15(d) of the Securities Exchange Act of 1934, as amended;

            -     the acquisition by any person of any of our securities or the
                  disposition of any of our securities (other than as a result
                  of the exercise of stock options or the payment of other award
                  granted under our incentive compensation plans); or

            -     any changes in our articles of incorporation, bylaws of other
                  governing instruments or any actions that could impede the
                  acquisition of control of Pixelworks.

      45.   Are there any regulatory requirements or other approvals that
            Pixelworks must comply with or obtain?

            We are not aware of any license or regulatory permits that are
            important to our business that might be adversely affected by the
            exchange and cancellation of Eligible Grants or the issuance of New
            Grants as contemplated by the Offer. In addition, we are not aware
            of any approval that is required from any government authority or
            agency for the cancellation of Eligible Grants and the grant of New
            Grants as contemplated by the Offer,



            other than those that we have obtained or that we expect to obtain.

Tax and Social Security Consequences

Questions 46 through 49 below discuss the material United States federal income
tax and Social Security considerations that relate to the Offer and the
Exchange. Question 50 below comments on state, local and foreign tax matters.
The tax consequences below are based on our understanding of applicable tax laws
in effect in 2006. We cannot and do not guarantee any particular tax
consequences. You should consult your own tax advisors.

The Company may withhold any amounts required by law (including U.S. federal,
state or local, or foreign, income, employment or other taxes) to be withheld
with respect to the Exchange and the exercise of New Grants. In the event that
the Company does not elect for any reason to withhold amounts necessary to
satisfy any applicable tax withholding obligations that arise, the Company may
withhold such amounts from compensation otherwise payable to you or you must pay
or provide for the payment of such amounts to the Company. The amount of tax
withheld by the Company may not be sufficient to pay the actual tax liability
due, and you will be responsible for any shortfall.

      46.   What is the tax effect of the Exchange in the U.S.?

            If you accept the Exchange, we believe that there will be no U.S.
            federal income tax consequences with respect to the cancellation of
            your exchanged Eligible Grants or with respect to the award of your
            New Grants.

            We believe that it is unlikely that neither the Offer nor Exchange
            will change any of the terms of your Eligible Grants for incentive
            stock options if you elect not to surrender them. However, there is
            a possibility that the Internal Revenue Service may characterize
            either the Offer or the Exchange as a "modification" of those
            incentive stock options, even if you elect not to surrender them. A
            successful assertion by the Internal Revenue Service that the
            options are modified would extend the period of time that you are
            required to hold the shares purchased under those options to qualify
            for certain tax treatment and could cause a portion of your
            incentive stock options to be treated as non-qualified stock
            options. However, any assertion by the Internal Revenue Service,
            even if successful, would not affect the exercise price or vesting
            schedule of those options.

      47.   What is the income tax effect in the U.S. of the New Grants and
            shares I receive when I exercise my vested New Grants?

            The New Grants are for "non-qualified options." As such, they will
            not be taxed for income tax purposes until the year in which you
            exercise the New Grants. The amount of income that you will
            recognize with respect to the shares distributed will equal the
            excess of the fair market value of a share of our common stock over
            the exercise price paid for the shares (the "spread"). The income
            that you recognize with respect to the exercise of New Grants will
            constitute ordinary income, not capital gain. You will pay U.S.
            federal income tax based on the tax rates in effect for the year in
            which you exercise your New Grants, rather than based on the tax
            rates in effect for the year 2006.

            The fair market value of our common stock that you receive when you
            exercise your New Grants will be the "tax basis" for the stock. If
            you later sell the stock, any gain or loss that you realize from the
            sale (determined based on your tax basis in the stock) will be
            taxable to you either as short-term or long-term capital gain or
            loss, depending on how long you own the shares before you sell them.
            Generally, you must own the shares for more than one year before you
            sell them in order to qualify for long-term capital gain treatment.



      48.   What are the tax withholding requirements in the U.S. with respect
            to the New Grants?

            The Federal Insurance Contributions Act ("FICA") imposes two types
            of taxes - Social Security tax (at 6.2%) and Medicare tax (at 1.45%)
            - on both employers and employees for wages paid to employees. The
            Social Security tax is a percentage of wages up to the Social
            Security wage base limitation, which is $94,200 for the year 2006.
            The Social Security wage base is adjusted annually. Once you have
            paid Social Security tax for a given year on an amount of wages from
            a particular employer equal to the wage base limitation, no further
            Social Security tax is payable on that year's wages from that
            employer. Currently, there is no wage base limitation for Medicare
            tax purposes. Thus, all wages paid to you are subject to Medicare
            tax.

            Income tax withholding is also required on wages paid to employees.
            The Company will withhold U.S. federal income taxes on the "spread"
            upon the exercise of your options at the supplemental wage
            withholding rate (currently 25%). State and local income tax
            withholding also may be required, depending on your state of
            employment. For purposes of the following illustration, the state
            tax withholding rate is assumed to be 6%. (The California
            supplemental wage withholding rate is 6%.)

            The "spread" on the New Grants will be treated as wages received for
            FICA and income tax purposes in the year(s) of exercise. Income
            taxes and FICA taxes will be withheld at the time(s) of exercise.
            The amount of income tax withholding may not be sufficient to cover
            your actual income tax liability.

            For Example: Assume that you accept the Offer and that you are
            awarded a New Grant for options to buy 300 shares at a per share
            exercise price of $3. Further assume that you vest and then exercise
            100 of those options when the fair market value of a share is $8.
            You will recognize $500 of ordinary income in that year. Required
            withholding would be as follows: $38.25 for FICA (assuming the
            Social Security wage base had not been met at the time of payment)
            (7.65% of $500 = $38.25); $125 for federal income taxes (25% of $500
            = $125); and $30 for state income taxes (at an assumed state
            withholding rate of 6%, 6% of $500 = $30). Thus, the total
            withholding obligation would be $193.75 ($38.25 + 125 + $30 =
            $193.75).

            We may make provisions and take whatever steps as we may deem
            necessary or appropriate to withhold all federal, state, local and
            other taxes required by law to be withheld with respect to the
            exercise of any New Grant. For example, we may deduct the amount of
            any required withholding taxes from any other amount then or
            thereafter payable to you or may require you to pay to us in cash
            the amount required to be withheld.

      49.   Could a change in U.S. tax law affect my benefits?

            Yes. Congress may change the relevant tax and Social Security law at
            any time, and these changes may be retroactive to before the date of
            enactment. These changes may have a material effect on the benefit
            you expect to receive by electing to participate in or by not
            electing to participate in the Exchange.

      50.   What are the local and foreign income tax consequences of the New
            Grants?

            We are unaware of any state and local income tax consequences in the
            United States of the Offer and the grant and exercise of New Grants
            that differ from the United States federal income tax consequences
            described and cross-referenced above.



            For employees located in China and Taiwan, we believe that there
            will be no income tax consequences with respect to the cancellation
            of your exchanged Eligible Options or with respect to the grant of
            your New Options.

            Under current tax laws, there will be income tax consequences in
            both China and Taiwan when a New Option is exercised. Both China and
            Taiwan assess a tax on the excess of the fair market value of the
            stock at the time of exercise over the exercise price. For example,
            if an employee in China or Taiwan exercises a vested New Option with
            an exercise price of $3.00 for a single share at a time when
            Pixelworks stock is trading for $10.00, the "excess" that is subject
            to tax would be $7.00 ($10.00 fair market value - $3.00 exercise
            price = $7.00 subject to tax).

            In China, the excess is considered "compensation income" and subject
            to Individual Income Tax or IIT. According to Circular 35 (Caishuifa
            (2005) 35), income tax is calculated in a way that the income is
            essentially spread over the months that the service associated with
            the stock option grant is performed, not to exceed 12 months.
            Pixelworks is required to withhold amounts for this tax. Please see
            the beginning comments to "Tax and Social Security Consequences"
            above on page 21.

            In Taiwan, the excess is considered "other income." Employees in
            Taiwan are responsible for remitting taxes associated with this
            "other income."

            Please be sure to consult with your tax advisor regarding the income
            tax consequences of the Offer, the Exchange and the New Grants,
            irrespective of the country in which you reside.

Exhibit (a)(8)

                                                                  Exhibit (a)(9)

[Form of Reminder E-Mail Message to Employees]

From: Mike Yonker

Subject:    Option Exchange Program Reminder

This email is to remind you that the election period for the exchange program is
scheduled to expire on Tuesday, November 28, 2006 at 11:59 p.m., Pacific
Standard Time. We currently have no plans to extend the expiration date. If you
wish to exchange any of your eligible options, you must complete, sign and date
the form of election and return it to us so that we RECEIVE it in the Tualatin
office before the expiration of the election period. Additional copies of the
form of election are available at oep.pixelworks.com.

All elections must be returned before 11:59 p.m., Pacific Standard Time, on
November 28, 2006. Unless we extend this deadline, there will be no exceptions.
If you do not properly submit an election, none of your eligible options will be
exchanged and your eligible options will remain outstanding at their current
price and terms.

You should carefully review the Offer Circular and the other documents to which
the Offer Circular refers before making a decision on whether to participate in
the exchange program. You can obtain a copy of the Offer Circular at
oep.pixelworks.com. For additional information or assistance, you should send
your request by email to pixelworksoep@pixelworks.com

                                                                  Exhibit (d)(2)

NOTICE OF GRANT OF STOCK OPTIONS         PIXELWORKS, INC.
AND OPTION AGREEMENT                     ID: 91-1761992
                                         8100 SW Nyberg Rd.
                                         Tualatin, OR 97062

NAME                                     OPTION NUMBER:
                                         PLAN:
                                         BASE:



GRANT
Effective DATE, you have been granted a(n) Non-Qualified Stock Option to buy XXX
shares of Pixelworks, Inc. (the Company) stock at $XXX per share.

VESTING SCHEDULE

Shares in each period will become fully vested (for options, exercisable) on the
date shown. Periods begin on the Full Vest date for the previous period (or, for
the first period shown, on the Base Date listed above).

You agree to this vesting Schedule for the Shares. For any increment to vest,
you must hold Continuous Status as an Employee or Consultant through the date or
condition described.

When the "Vest Type" says a calendar interval (e.g., "monthly), the shares shown
will vest at the end of each full calendar interval in the period. If the total
number of shares in a period do not divide evenly by the number of intervals in
the period, leftover shares will be assigned one to each interval, starting with
the first interval in the period, and continuing until used up.



                                                             
Shares               Vest Type                Full Vest               Expiration


By your online acceptance, you and the Company agree that these options are
granted under and governed by the Terms and Conditions of Option Grant (Exhibit
A) and the Company's 2006 Stock Incentive Plan, each of which is included in the
online grant package. You also agree to accept as final and binding all
decisions or interpretations of the Board of Directors of the Company on any
questions arising under the Plan.

Pixelworks, Inc.

By:
                                                        NAME

Title:
                                                        Address:


                                                        SSN:







                                    EXHIBIT A

                      TERMS AND CONDITIONS OF OPTION GRANT
                           AND/OR STOCK PURCHASE UNDER
                                PIXELWORKS, INC.
                            2006 STOCK INCENTIVE PLAN

      These Terms and Conditions apply to an option grant or stock sale made to
you by the Company pursuant to its 2006 Stock Incentive Plan (the "Plan").

1. YOUR REPRESENTATIONS. The Company is relying on your ability to make these
representations, in part in order to remain in compliance with laws governing
sale or transfer of securities. Your ability to make them is a condition of the
Company's ability to sell you shares, or grant you options. Any capitalized
terms not otherwise defined herein, shall have the meanings given in the Plan.
You represent these things:

      1.1 INVESTMENT INTENT; FINANCIAL CAPABILITY. Your good faith intention in
acquiring the Shares is to hold them for your own benefit for an indefinite
period. You don't have any current intention to sell or transfer any of them.
Whatever you are paying for Shares (or if you are getting options, whatever you
ultimately elect to pay) will be an amount you can afford to be without for an
indefinite period, or even to lose completely.

      1.2 INVESTIGATION OF TERMS AND VALUE. You have made whatever investigation
you think you need to feel well informed with your understanding of the terms
under which these securities are issued, and also with the value being placed on
them. You know you can talk to any counselor you wish about it, and confirm you
have had a chance to do that before you accepted the grant.


2. BEING GRANTED OPTIONS. If you are being granted Options, these terms and
conditions apply to you.

      2.1 NATURE OF OPTION. The Option may be either an "INCENTIVE" or a
"NONQUALIFIED" option; it will say which. If it is an "INCENTIVE" stock option,
then it is intended to qualify as an "Incentive Stock Option", as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). If it
is a "NONQUALIFIED" stock option, then it is not intended to qualify as an
Incentive Stock Option.

      2.2 EXERCISE PRICE. The Exercise Price for the Option is not less than the
fair market value per share of Common Stock on the date of grant, as determined
by the Board of Directors of the Company. If the Common Stock is listed on any
established stock exchange or a national market system, including Nasdaq, the
fair market value is the closing sales price for a share of Common Stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the grant date.

      2.3 HOLDING PERIODS. If this is an INCENTIVE Stock Option, then if you
dispose of any Shares you get under it within two years after the date of this
Agreement, or within one year after you get the Shares, you will be treated, for
federal income tax purposes, as if this were a NONQUALIFIED option. That means
you will be treated as having received ordinary income at the

Page 1 -- Terms of Option Grant or Stock Purchase



time you disposed of the Shares, in an amount generally measured by the
difference between the exercise price and the lower of the fair market value of
the Shares at the date of the exercise or the fair market value of the Shares at
the date of disposition. You understand that if you dispose of your shares after
those holding periods end, any gain will be taxed as long-term capital gain.

      2.4 EXERCISE. You may exercise the Option as follows:

            2.4.1 WHEN EXERCISE BECOMES POSSIBLE. Your Option becomes
      exercisable on the dates described in the exercise schedule in the Stock
      Option or Grant Agreement. For INCENTIVE Stock Options, no more option
      rights can become exercisable after you stop being an Employee. For
      NONQUALIFIED Stock Options, no more option rights can become exercisable
      once you are no longer an Employee or Consultant. ("Consultant" here means
      what it means in the Plan. Among other things, that includes members of
      the Board of Directors.)

            2.4.2 WHEN EXERCISE STOPS BEING POSSIBLE. Your right to exercise the
      Option ends when the term of the Option expires. It may end earlier, as
      follows: For INCENTIVE Stock Options, it will end a fixed period of time
      after you stop being an Employee. For NONQUALIFIED Stock Options, it will
      end the same fixed period of time after your service as an Employee or
      Consultant ends. That fixed period of time is three months unless
      otherwise provided for by the Board. It gets extended to twelve months if
      you stop being an Employee because you are permanently and totally
      disabled, or because you die. (If you die, your estate may exercise your
      Option for you.)

            2.4.3 NO FRACTIONAL SHARES. You may not exercise this option for a
      fraction of a Share.

            2.4.4 HOW TO EXERCISE. If you are not a Section 16 reporting person,
      you exercise your option through E-Trade. If you are a Section 16
      reporting person, you exercise your option by sending the Company your
      Notice of Exercise. You can obtain a Notice of Exercise from your broker.

            2.4.5 WHAT TO PAY. You must pay the option exercise price, when you
      exercise your Option. Pay it in cash, cashier's or certified check, or
      collected funds, or any other form of consideration authorized by the
      Plan. If this is a NONQUALIFIED Option when you exercise it, the Company
      is also required to pay the usual payroll deductions on the difference
      between the exercise price and the fair market value on the exercise date,
      so if yours is a NONQUALIFIED Option when you exercise it, you will need
      to include the amount of those deductions with your exercise price as
      well. Note that INCENTIVE Options can become NONQUALIFIED if you don't
      meet the holding periods, or by agreement, or by other failure of the
      necessary conditions for qualification.

            2.4.6 WARNING. The Company cannot issue Shares unless it can do so
      legally, and in a way that complies with the rules of any stock exchange
      (including NASDAQ) upon which the Shares may then be listed. The Company
      may not be able to issue the Shares unless a registration under applicable
      federal and/or state law is in effect at the time of exercise, unless the
      Company's counsel is satisfied an exemption is available.

Page 2 -- Terms of Option Grant or Stock Purchase



      You may need to make additional representations or warranties to qualify
      for exemptions from registration.

            2.4.7 ISSUANCE OF SHARES. Assuming everything has been correctly
      done and all rules and laws complied with, the Shares will be considered
      issued to you on the date your Option is exercised.

            2.4.8 ALTERNATIVE MINIMUM TAX. Generally, in the case of incentive
      stock options, you will not realize taxable income until the sale of
      shares received upon exercise of the option. However, the difference
      between the option exercise price and the fair market value of the stock
      on the date of exercise may be subject to alternative minimum tax. You
      should obtain tax advice when exercising the Option and prior to the
      disposition of Shares.

      2.5 OPTIONS NOT TRANSFERABLE EXCEPT BY WILL. You can't transfer this
option, except through your will or through the laws of intestacy. The terms of
the Option bind your estate, its executors and administrators, and your heirs
and successors.

3. PURCHASING SHARES. If you are purchasing Shares directly, these terms and
conditions apply to you.

      3.1 SUBSCRIPTION. Your acceptance of the grant constitutes your
subscription for the Shares.

            3.1.1 PAYMENT. You agree to pay for the Shares at the Purchase Price
      times the number of shares to be issued.

            3.1.2 TAX DEPOSIT. If the fair market value of the Shares on the
      date you buy them is higher than the price you are paying, you must also
      pay to the Company any deposits required to meet the Company's applicable
      tax withholding obligations or other payroll deduction obligations. That
      is because you are getting the Shares in part because you are performing
      services for the Company, so the IRS considers the difference between fair
      market value and purchase price to be ordinary income which you receive on
      the date you purchase the Shares. Then, when you resell the Shares, any
      difference between the sale price, and the fair market value of the Shares
      on the date of purchase will be treated as capital gain or loss.

      3.2 VESTING CONDITIONS.

            3.2.1 WHERE SHOWN. Any vesting conditions that apply on the date the
      Shares are issued will be shown on the Notice of Grant of Stock Option and
      Option Agreement.

            3.2.2 WARNING FOR UNVESTED SHARES: CONSIDER 83(b) ELECTION. If your
      Shares are subject to vesting conditions, the IRS will delay the official
      "purchase" date for tax purposes, unless you make an election that you
      don't want them to do that. Your election is called an "83(b) Election."
      Filing an "83(b) Election" allows you to be treated as having

Page 3 -- Terms of Option Grant or Stock Purchase



      acquired the Shares on the date they were issued to you, whether or not
      the vesting conditions are satisfied yet. If the Shares increase in value
      before the vesting conditions are satisfied, that will be an advantage to
      you. YOU MUST MAKE A SECTION 83(B) ELECTION NO LATER THAN THIRTY DAYS
      AFTER GRANT DATE, OR LOSE THE OPPORTUNITY TO DO SO. If you are buying
      Stock subject to a vesting schedule, an 83(b) Election Form is attached as
      Exhibit C (Exhibit C will be different if you are getting options and not
      Shares).

4. OTHER ISSUES.

      4.1 TERMS SUPPLEMENT PLAN. The words used here are used in the same sense
as they are used in the Plan. Please refer to it for clarification, if needed.
Also, the Plan controls over any other document, with respect to grants of stock
or options under it.

      4.2 NO FURTHER OBLIGATION. You confirm that the Company has no obligation
to issue or sell any additional securities to you.

      4.3 PROPRIETARY INFORMATION. The Company may provide you from time to time
with information that is proprietary to the Company. The Company and you agree
that these things are "Proprietary Information": all correspondence between you
and the Company, documents, corporate records (including minutes and stock
records), employee lists, financial statements, trade secrets, processes, data,
know-how, improvements, inventions, techniques, marketing plans and strategies,
and information concerning customers or vendors of the Company.

            4.3.1 YOUR OBLIGATION. You will keep all Proprietary Information
      confidential while you hold the Shares (or Options for them), and for
      three years after that. You won't use the Proprietary Information, or
      disclose it to anyone else. (As an Employee or Consultant, you may have
      additional obligations with respect to Proprietary Information you
      receive. Particularly, if you are subject to an Employment Nondisclosure
      and Development Agreement or any other agreement with the Company which
      provides for a longer nondisclosure or confidential period, such agreement
      will control in regards to the length of time that you must maintain the
      confidentiality of Proprietary Information.)

            4.3.2 RESERVATION. The Company does not intend to limit your rights
      under law, as a shareholder, to receive information, or to use it for
      proper shareholder purposes.

      4.4 JURISDICTION AND LAW. These Terms and Conditions are part of the
option grant or stock grant issued by the Company and are considered executed
and entered into in the State of Oregon. It will be governed by and interpreted
under the laws of that state. Any litigation relating to it will be brought only
in the state or federal courts located in Portland, Oregon. You and the Company
each waive whatever rights may exist to a jury trial in any such litigation
(unless that waiver cannot be legally made in advance of trial). The Company and
you both consent to exclusive jurisdiction in Oregon.

Page 4 -- Terms of Option Grant or Stock Purchase




                                    EXHIBIT C

                   ELECTION TO INCLUDE IN GROSS INCOME IN YEAR
                      OF TRANSFER PURSUANT TO SECTION 83(B)
                          OF THE INTERNAL REVENUE CODE

      The undersigned taxpayer hereby makes an election pursuant to Section
83(b) of the Internal Revenue Code with respect to the property described below
(the "Shares") and supplies the following information in accordance with the
regulations promulgated thereunder:

1.    The name, address, and taxpayer identification number of the taxpayer are:

   ____________________________________________________ (Name)
   ____________________________________________________ (Address)
   ____________________________________________________
   ____________________________________________________ (Social Security Number)

2.    The Shares with respect to which the election is being made are ________
      shares of common stock of Pixelworks, Inc., an Oregon corporation (the
      "Company").

3.    The date on which the Shares were transferred to taxpayer was:
      ____________. The taxable year to which this election relates is the
      calendar year __________.

4.    The Shares are subject to the following restrictions:

      If the taxpayer's continuous status as an employee or consultant ends
before the dates shown on the vesting schedule of the option grant, or, if
applicable, other vesting events there described are not timely achieved, then
at the Company's option the taxpayer must sell the unvested Shares back to the
Company or its designee at a purchase price equal to the amount the taxpayer
paid for the Shares as set forth below. As the vesting dates or events are
satisfied, the Shares are released from that restriction.

      No Shares transferred to taxpayer may be transferred, except to certain
related parties who will also be bound by the above-described restrictions,
until the taxpayer is fully vested in the Shares under the vesting schedule.
Once the Shares are fully vested, the Shares may be transferred subject to a
right of first refusal in the Company.

5.    The transferee of the Shares is the person performing the services in
      connection with the transfer of the Shares.

6.    The fair market value at the time of transfer (determined without regard
      to any restrictions other than restrictions which by their terms will
      never lapse) of the Shares with respect to which this election is being
      made is $________ per Share.

7.    The amount paid by taxpayer for the Shares is $_______ per Share.

8.    A copy of this statement has been furnished to Pixelworks, Inc.

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

By:                                      Date:
      __________________________________      __________________________________

Print Name:
            ____________________________________________

Page 5 -- Terms of Option Grant or Stock Purchase