UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.)

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PIXELWORKS, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 2010

     The 2010 Annual Meeting of Shareholders of Pixelworks, Inc. will be held May 18, 2010 at 10:00 a.m. Pacific Daylight Time at our offices at 224 Airport Parkway, Suite 400, San Jose, California 95110, to conduct the following items of business:

	1.		To elect seven Directors to serve one-year terms and until their successors are duly elected and qualified;
	2.		To approve certain amendments to the Pixelworks, Inc. Amended and Restated 2006 Stock Incentive Plan;
	3.		To approve the Pixelworks, Inc. Employee Stock Purchase Plan;
	4.		To ratify the appointment of KPMG LLP as Pixelworks’ independent registered public accounting firm for the current fiscal year; and
	5.		To transact any other business that properly comes before the meeting or any postponement or adjournment of the meeting.

     The foregoing items of business are more fully described in the Proxy Statement which accompanies this Notice of Annual Meeting of Shareholders. None of the proposals requires the approval of any other proposal to become effective. Shareholders who owned shares of our common stock at the close of business on March 19, 2010 are entitled to receive notice of, attend and vote at the meeting or any postponement or adjournment of that meeting.

     Your vote is important. Whether or not you plan to attend the meeting, please cast your vote as promptly as possible.

San Jose, California
April 12, 2010

This proxy statement and accompanying proxy card are first being distributed on or about April 12, 2010.

CONTENTS

THE MEETING			1
PROPOSAL NO. 1: ELECTION OF DIRECTORS			5
PROPOSAL NO. 2: APPROVAL OF AMENDMENTS TO THE 2006 STOCK INCENTIVE PLAN			10
PROPOSAL NO. 3: APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN			19
PROPOSAL NO. 4: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			26
Section 16(a) Beneficial Ownership Reporting Compliance			27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			27
INFORMATION ABOUT OUR BOARD OF DIRECTORS			28
Board Responsibilities			28
Board Structure			28
Board Leadership Structure			28
Director Independence			29
Board Oversight of Risk			29
Board and Committee Meetings			30
Standing Committees of the Board			30
Compensation Committee Interlocks and Insider Participation			32
Qualifications of Directors			32
Director Compensation			33
Communications with the Board			35
Code of Ethics			35
INFORMATION ABOUT OUR EXECUTIVE OFFICERS			36
Compensation Committee Report			38
Compensation Discussion and Analysis			38
Summary Compensation Table			47
Grants of Plan-Based Awards - 2009			49
Outstanding Equity Awards at 2009 Fiscal Year-End			51
Option Exercises and Stock Vested			53
Potential Benefits Upon Termination or Change in Control			53
INFORMATION ABOUT OUR EQUITY COMPENSATION PLANS			56
INFORMATION ABOUT OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			57
Fees Paid to KPMG LLP			57
Pre-Approval of Audit and Permissible Non-Audit Services			58
Audit Committee Report			59
OTHER BUSINESS			60
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS			60
ADDITIONAL INFORMATION			61
APPENDIX A			A-1
APPENDIX B			B-1
APPENDIX C			C-1

PIXELWORKS, INC.
16760 SW Upper Boones Ferry Road, Suite 101
Portland, OR 97224

PROXY STATEMENT

2010 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 2010

THE MEETING

Purpose, Date, Time and Place

     This proxy statement (this “Proxy Statement”) is being provided in connection with the 2010 Annual Meeting of Shareholders (the “Annual Meeting”) of Pixelworks, Inc. (“Pixelworks” or the “Company”), an Oregon corporation, or any postponement or adjournment of that meeting. The related proxy is solicited on behalf of the Board of Directors (the “Board”) of the Company. These proxy materials were first sent to shareholders on or about April 12, 2010.

     The Annual Meeting will be held at 10:00 a.m. Pacific Daylight Time, on May 18, 2010, at our offices at 224 Airport Parkway, Suite 400, San Jose California 95110, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.

Record Date

     Shareholders of Pixelworks common stock at the close of business on March 19, 2010, the record date established by the Board, will be entitled to receive notice of, attend and vote at the Annual Meeting. On the record date, there were approximately 71 registered shareholders of record and a substantially greater number of beneficial owners because a significant portion of our outstanding common stock is held in broker “street name.” On the record date there were 13,450,272 shares of common stock outstanding and each share of common stock is entitled to one vote on each matter.

Voting

Shares Registered in Your Name

     You may vote shares registered in your name in person at the Annual Meeting, or by proxy by using the enclosed proxy card, over the telephone or on the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to vote to ensure your vote is counted. You may still attend the Annual Meeting and vote in person if you have already voted by proxy.

	1.		To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive.
	2.		To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct.
	3.		To vote over the telephone, dial toll-free (800) 690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the Company number and control number from the enclosed proxy card. Your vote must be received by 11:59 p.m., Eastern Time on May 17, 2010 to be counted.

4.

To vote on the Internet, go to www.proxyvote.com to complete an electronic proxy card. You will be asked to provide the Company number and control number from the enclosed proxy card. Your vote must be received by 11:59 p.m., Eastern Time on May 17, 2010 to be counted.

     If shares are registered in your name and you execute a proxy but either (i) indicate when voting on the Internet or by telephone that you wish to vote as recommended by the Board or (ii) sign and return a proxy card without providing specific voting instructions, the shares will be voted:

	1.		“FOR” each of the nominees for Director listed in this Proxy Statement;
	2.		“FOR” approval of the amendments to the 2006 Stock Incentive Plan;
	3.		“FOR” approval of the Employee Stock Purchase Plan; and
	4.		“FOR” the ratification of KPMG LLP as Pixelworks’ independent registered public accounting firm for the year ended December 31, 2010.

Shares Registered in the Name of Broker, Bank or Other Agent

     If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by your broker or bank. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker or bank to request a valid proxy.

     If you are a beneficial owner of shares registered in the name of your broker, bank or other agent and you do not provide specific voting instructions to your brokerage firm, bank, broker-dealer or other nomine, under the rules of certain securities exchanges, including the NASDAQ Marketplace Rules, the brokerage firm, bank, broker-dealer or other nominee holding those shares may generally vote as the nominee determines in its discretion on behalf of the beneficial owner on routine matters, but cannot vote on non-routine matters, the latter of which results in “broker non-votes.” We believe proposals one, two and three involve non-routine matters, and accordingly, broker non-votes are expected. No broker non-votes are expected for proposal four as it involves matters we believe to be routine.

Revocability of Proxy

     You can revoke your proxy at any time before the final vote at the Annual Meeting. You may revoke your proxy in any one of three ways:

1. A duly executed proxy card with a later date or time than the previously submitted proxy;

2. A written notice that you are revoking your proxy to our Secretary, care of Pixelworks, Inc., 16760 SW Upper Boones Ferry Road, Ste. 101, Portland, Oregon 97224; or

3. A later-dated vote by telephone or Internet or a ballot cast in person at the Annual Meeting (simply attending the Meeting will not, by itself, revoke your proxy).

Quorum

     A quorum is required for the shareholders to conduct business at the Annual Meeting. The presence, in person or by proxy, of a majority of the total number of outstanding shares of common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Abstentions, broker non-votes and other proxies received but not marked, if any, will be included in the calculation of the number of shares considered to be present at the Annual Meeting for quorum purposes.

Expenses and Solicitation

     We will bear the expense of soliciting proxies, and we have retained Morrow & Co., LLC to solicit proxies for a fee of less than $10,000 plus a reasonable amount to cover expenses. The cost of soliciting proxies will be borne by the Company. Our directors, officers, and other employees, without additional compensation, may also solicit proxies personally or in writing, by telephone, e-mail, or otherwise. We are required to request that brokers and nominees who hold stock in their names furnish our proxy materials to the beneficial owners of the stock, and we must reimburse these brokers and nominees for the expenses of doing so in accordance with statutory fee schedules.

Electronic Delivery of Proxy Materials

     Any shareholder may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. Choosing to receive future proxy materials by email will save the Company the cost of printing and mailing documents to shareholders and will reduce the impact of annual meetings on the environment. A shareholder who chooses to receive future proxy materials by email will receive an email prior to next year’s annual meeting with instructions containing a link to those materials and a link to the proxy voting website. A shareholder’s election to receive proxy materials by email will remain in effect until the shareholder terminates it. You may request to receive proxy materials by email by entering the control number provided with your proxy materials at www.investordelivery.com.

Householding of Proxy Materials

     We are “householding” our proxy materials pursuant to SEC rules. This procedure allows the Company to reduce its printing costs, mailing costs and fees by delivering one copy of our annual report and proxy statement to multiple shareholders who share the same mailing address unless the Company received contrary instructions from an affected shareholder.

     We will promptly deliver upon written or oral request a separate copy of this Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 to any shareholder at a shared address to which a single copy of any of these documents was delivered. To request a separate copy of any of these documents, shareholders may write or call the Company at our principal executive offices:

Pixelworks, Inc.
Attn: Secretary
16760 SW Upper Bones Ferry Road, Suite 101
Portland, Oregon 97224
(503) 601-4545

     Shareholders who would like to revoke householding consent and receive a separate copy of proxy materials, and shareholders sharing an address and receiving multiple copies of proxy materials who would like to give householding consent and request delivery of a single copy of these documents, should contact Broadridge Financial Solutions, Inc. either by calling toll free at (800) 542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11747. Within 30 days of receipt of revocation of a shareholder’s consent, the shareholder will be removed from the householding program.

PROPOSAL NO. 1: ELECTION OF DIRECTORS

     The Board currently consists of seven members. Our Second Amended and Restated Bylaws provide that the number of members of the Board shall not be less than three nor more than twelve and that, within such limits, the exact number shall be fixed and increased or decreased from time to time by resolution of the Board.

     Each of the following members of the Board has been nominated for reelection at the Annual Meeting. Members of the Board are elected to serve one-year terms expiring at the earlier of the next annual meeting, a successor being elected and qualified or earlier resignation, death or removal. Listed below are the nominees and their current committee assignments:

Name		Age				Committees
Allen H. Alley *			55			None
Mark A. Christensen			51			Audit, Compensation (Chair) and Corporate Governance and Nominating
James R. Fiebiger			68			Compensation and Corporate Governance and Nominating (Chair)
C. Scott Gibson			57			Audit, Compensation and Corporate Governance and Nominating
Daniel J. Heneghan			54			Audit (Chair) and Compensation
Richard L. Sanquini			75			None
Bruce A. Walicek			53			None

     Biographical information about our nominees for Director and the experience, qualifications, attributes and skills considered by our Corporate Governance and Nominating Committee and Board in determining that the nominee should serve as a Director appears below. For additional information about how we identify and evaluate nominees for Director, see “Qualifications of Directors”.

     ALLEN H. ALLEY co-founded Pixelworks and has served as Chairman of the Board of Directors since 1997. He also served as the President and Chief Executive Officer from the Company’s inception until December 2006. Mr. Alley has built an experience base that spans multiple disciplines from engineering to marketing, venture capital, entrepreneurship and most recently, public service. From January 2007 to March 2008, he served as the Deputy Chief of Staff to the Governor of Oregon for Energy, Transportation and Economic Development. In May 2008, Mr. Alley was elected as the Republican candidate for State Treasurer and he is currently running for Governor of Oregon in 2010. From 1992 to 1996, Mr. Alley served as the Engineering and Marketing Vice President for InFocus Corporation. From 1986 to 1992, Mr. Alley was a General Partner of Battery Ventures. Prior to 1986, Mr. Alley held positions with Computervision Corporation, a computer-aided design software developer, Boeing Company and Ford Motor Company. Mr. Alley serves as the Chairman of the Oregon Chapter of TechAmerica, as a member of two Not-for-Profit Boards for Purdue University and on the Board of Directors of Zapproved, an early stage Software as a Service startup company. Within the past five years, Mr. Alley served on the Board of Directors of Applied Films, Inc. (NASDAQ: AFCO). Mr. Alley’s knowledge of the Company’s history and development make him well suited to serve on our Board. During his ten years of service as the Company’s CEO, he gained a detailed knowledge of the Company’s technology and its industry. Additionally, Mr. Alley was instrumental in guiding InFocus Corporation, one of the creators of the projector industry, from a startup through its IPO, and during his tenure, built relationships with projector manufacturers worldwide. Mr. Alley can also draw upon his experience as a venture capitalist concentrating on multimedia

display technologies and computer graphics software and hardware. His prior service on the board of directors of another public company (which included audit committee, compensation committee and nominating and corporate governance committee service) provides him with experience in corporate governance and compensation-related matters. Mr. Alley holds a B.S. in Mechanical Engineering from Purdue University.

     MARK A. CHRISTENSEN has served as a Director of Pixelworks since May 2005. From 1982 to 2005, Mr. Christensen was employed at Intel Corporation in a variety of engineering, management, director and vice president positions, with his last position being Corporate Vice President and Director of Communications Sectors for Intel Capital. In that position, Mr. Christensen was responsible for managing Intel Capital’s investments in Mobile Devices and Communications Infrastructure. In 2005, Mr. Christensen founded Global Capital Management, LLC, a consulting company for technology startup companies. Within the past five years, Mr. Christensen served on the Board of Directors of International Displayworks (NASDAQ: IDWK). Mr. Christensen’s experience at Intel, along with his current consulting work with technology startup companies, provides him with valuable knowledge of technology companies and of companies with a global presence. His engineering background makes him particularly well suited to understanding Pixelworks technology, and allows him to provide valuable perspective to the Board on new product initiatives. Mr. Christensen is a charter member of Oregon State University’s Academy of Distinguished Engineers and has been awarded their Council of Outstanding Early Career Engineers Award. Mr. Christensen holds a B.S. in Industrial Engineering from Oregon State University and an M.B.A. from the University of Oregon.

     JAMES R. FIEBIGER has served as a Director of Pixelworks since April 2006. Dr. Fiebiger is a veteran of the semiconductor industry and currently serves as a member of the Board of Directors of four other publicly traded companies, including: Mentor Graphics Corporation (NASDAQ: MENT), a leading provider of electronic design automation software solutions for IC and all types of electronic systems design and development, Actel Corporation (NASDAQ: ACTL), a fabless semiconductor company producing field programmable gate arrays; QLogic Corporation (NASDAQ: QLGC), a leading provider of storage and communications equipment; and Power Integrations Inc. (NASDAQ: POWI), a fabless semiconductor company supplying high-voltage analog integrated circuits used in power conversion. Dr. Fiebiger has been a consultant to the semiconductor industry since 2004. From 1999 to 2004, he was Chairman and Chief Executive Officer of Lovoltech, a start-up fabless semiconductor company specializing in low-voltage devices. Dr. Fiebiger served as Vice Chairman of GateField Corporation, a fabless semiconductor company, from 1999 until the company was sold to Actel Corporation in 2000. From 1996 to 1999, he held the position of President and Chief Executive Officer with GateField Corporation. From 1993 until 1996, he was Managing Director and Chairman of Thunderbird Technologies Inc., a semiconductor technology licensing company. From 1987 to 1993, he was President and Chief Operating Officer of VLSI Technology, Inc., now part of NXP Semiconductors. Dr. Fiebiger has also held executive positions such as Chief Executive Officer, Senior Corporate Vice President and Vice President with leading semiconductor manufacturers including United Technologies Corporation, Motorola, Inc. and Texas Instruments Incorporated. Dr. Fiebiger has been involved with semiconductor products companies since 1969 and has served on the Board of Directors of a number of public companies since 1994. Dr. Fiebiger’s considerable management experience in the industry includes leading growth initiatives, driving operational efficiencies, fund raising and executing strategic transactions. His experience as a Board member of both hardware and software solutions providers gives him early insight into developments in the semiconductor and electronic systems markets worldwide, and his comprehensive understanding of semiconductor technology provides him with a base of knowledge for assessing our product development efforts. In

addition, he has been active in director continuing education programs and is familiar with establishing compensation and governance practices that comply with current laws and regulations. He received B.S., M.S. and Ph.D. degrees from the University of California at Berkeley.

     C. SCOTT GIBSON has served as a Director of Pixelworks since May 2002 and currently serves on public company boards as his full time professional job. From January 1983 through February 1992, Mr. Gibson co-founded and served as President of Sequent Computer Systems, Inc., a computer systems company. Prior to co-founding Sequent, Mr. Gibson served as General Manager, Memory Components Operation, at Intel Corporation. Since March 1992, Mr. Gibson has been an angel investor and a Director for high technology companies. Mr. Gibson is Chairman of the Board of Radisys Corporation (NASDAQ: RSYS), and serves on the Boards of Northwest Natural Gas Company (NYSE: NWN), TriQuint Semiconductor, Inc. (NASDAQ: TQNT) and as lead director at Verigy Ltd. (NASDAQ: VRGY). Within the past five years Mr. Gibson also served on the board of directors of Electroglas, Inc. (NASDAQ: EGLS). Mr. Gibson’s semiconductor expertise and experience in the high-technology industry provide him with a deep understanding of our business. Mr. Gibson’s significant experience as a director of other public companies provides him with a current working knowledge of business and economic trends that affect our industry. Mr. Gibson’s prior experience co-founding and leading Sequent Computer Systems, along with other senior management positions he has held, provide him with insight into a range of issues that face Pixelworks. Through his board experience, Mr. Gibson has worked extensively with compensation consultants, and has gained a thorough knowledge of executive compensation trends and practices. Mr. Gibson serves as Trustee of the Franklin W. Olin College of Engineering, and the Oregon Community Foundation. Mr. Gibson holds a B.S.E.E. and an M.B.A. from the University of Illinois.

     DANIEL J. HENEGHAN has served as a Director of Pixelworks since April 2006. Mr. Heneghan currently serves as an advisor to the semiconductor industry. From 1999 to 2005, he served as Vice President and Chief Financial Officer of Intersil Corporation, a world leader in the design and manufacture of high performance analog solutions. From 1980 to 1999, Mr. Heneghan worked in various management positions in finance, information technology, purchasing and operations for Harris Corporation, an international communications and information technology company serving government and commercial markets, including the position of Vice President and Controller of Harris Semiconductor Corporation, which he held from 1996 until leaving the company. Since February 2006, Mr. Heneghan has served on the board of directors of NTELOS Holdings Corp. (NASDAQ: NTLS). Mr. Heneghan has also served on the Board of Directors of Micrel, Inc. (NASDAQ: MCRL), since November 2008. Mr. Heneghan’s role as an advisor to the semiconductor industry brings the Company access to relationships with key industry participants and a current working knowledge of practices and developments in the industry. Additionally, Mr. Heneghan has experience directly managing companies that are complementary to, and face similar issues to those faced by, Pixelworks. His leadership experience extends to financial and information technology oversight of large companies, which makes him particularly well suited to work with the Company on risk management and oversight. Mr. Heneghan’s service on the audit committee of two other publicly traded companies provides him with significant experience with financial and accounting developments. He is a graduate of Quincy University with a Bachelor of Science degree in accounting, as well as a CPA. Mr. Heneghan also earned an MBA from Western Illinois University.

     RICHARD L. SANQUINI has served as a Director of Pixelworks since February 2010. Mr. Sanquini currently serves as a consultant to the semiconductor industry, and has served on

the Board of Directors of Synaptics Incorporated (NASDAQ: SYNA), a publicly-held developer and supplier of custom-designed human interface solutions, since 1994 and currently serves as the Lead Director of that Board. Additionally he serves as Chairman of SiPort Corporation and on the Board of Directors of two other private companies, LitePoint Corp. and R2 Semiconductor Inc. Mr. Sanquini also served as the former Chairman of the Board of PortalPlayer, Inc., a publicly-held, fabless chip manufacturer from November 2002 until it was acquired by NVIDIA Corporation in 2007, and served on the Board of Directors of ZiLOG, Inc. (NASDAQ: ZILG), a publicly-held fabless semiconductor supplier of microprocessors and microcontrollers until it was acquired by IXYS Corporation in February 2010. Mr. Sanquini served on the Board of Directors of Silicon Image, Inc. (NASDAQ: SIMG), a publicly-held provider of semiconductor and intellectual property solutions, during 2005. Previously and until his retirement, Mr. Sanquini worked for National Semiconductor Corporation for 20 years, where he managed key business units, including microprocessors and microcontrollers, served as Chief Technology Officer, managed business development and intellectual property protection, and was Chairman of the Board for two China joint ventures. Prior to this, he served in various executive positions at RCA. Mr. Sanquini’s experience in senior management positions and his experience with intellectual property protection and China operations, provide him with specific knowledge that is valuable to the Board’s understanding of our business. His current service on complementary public company boards allows him to draw on experiences and knowledge from across the industry, and enables him to identify best practices and developments. Mr. Sanquini has served as a chairman and member of the audit and compensation committees, and as a member of the nominations and corporate governance committees, of other public company boards, which supports his knowledge of corporate governance trends and regulatory requirements. Mr. Sanquini holds a Bachelor of Science degree in Electrical Engineering from the Milwaukee School of Engineering, Wisconsin, and has completed the Accounting Essentials Program for Corporate Directors at Columbia University.

     BRUCE A. WALICEK has served as a Director of Pixelworks since May 2005 and has served as Chief Executive Officer and President of Pixelworks since January 2008. From 2003 through Mr. Walicek’s election to the Company’s Board of Directors in May 2005, Mr. Walicek served as a consultant to Pixelworks. In 2007, Mr. Walicek was an Executive in Residence at Sevin Rosen Funds. From 2003 through 2006, Mr. Walicek was employed by Worldview Technology Partners, a leading venture capital firm focused on building leading U.S. technology companies. From 1996 to 2003, Mr. Walicek was employed by Deutsche Bank Alex Brown. As part of their Global Investment Banking Group, he led their Semiconductor Investment Banking effort and was involved in raising over $3 billion for companies ranging from venture backed startups to large multinational firms. From 1996 to 1999, he was a Senior Equity Research Analyst covering the Semiconductor and EDA industries. Before entering the financial services industry in 1996, Mr. Walicek held a number of executive positions over a 16 year career in the semiconductor industry at firms such as Texas Instruments Incorporated, VLSI Technology, Inc. and Cirrus Logic, Inc. Mr. Walicek’s leadership and in-depth knowledge of the operations of the Company are crucial to informed decision making at the Board level. Over the past two years, Mr. Walicek has managed the Company through the global economic crisis, and helped to strengthen the Company’s financial condition. In addition, his prior experience as a venture capitalist, investment banker and executive at complementary semiconductor companies provides him with critical analysis and decision making skills, deep relationships within our industry and knowledge of best-practices across the key functions of an organization. Mr. Walicek holds a B.S. in Mathematics from Texas State University and an M.B.A. from Santa Clara University.

Vote Required for Approval

     Unless otherwise instructed, proxy holders will vote the proxies they receive for each of the nominees named above. If any of the nominees for Director at the Annual Meeting becomes unavailable for election for any reason, the proxy holders will have discretionary authority to vote pursuant to the proxy for a substitute or substitutes.

     If a quorum is present, the Company’s Second and Amended Restated Bylaws provide that Directors are elected by a plurality of the votes cast by the shares entitled to vote. Abstentions, broker non-votes and other proxies received but not marked are counted for purposes of determining whether a quorum exists at the Annual Meeting, but are not counted and have no effect on the determination of whether a plurality exists with respect to a given nominee.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS SHAREHOLDERS VOTE FOR THE ELECTION OF EACH OF ITS NOMINEES FOR DIRECTOR.

PROPOSAL NO. 2: APPROVAL OF AMENDMENTS TO THE 2006 STOCK
INCENTIVE PLAN

Overview

     The Board is proposing the amendments to the 2006 Plan in order to provide additional long-term incentives to all of Pixelworks’ employees, executive officers and directors, as well as to maintain competitive compensation packages. The Board believes the number of shares of our common stock currently available under the 2006 Plan does not give us sufficient authority and flexibility to adequately provide for future incentives. This proposal increases the number of shares authorized for issuance under the 2006 Plan to provide shares for future grants to be issued to both new and existing employees, executive officers and directors. Accordingly, the Board has adopted a resolution proposing an amendment to the 2006 Plan that would increase the aggregate number of shares of our common stock that may be issued under the 2006 Plan by 1,000,000 to a total of 4,483,333 shares and has directed that it be submitted for approval at the Annual Meeting. The proposed amendment would also extend the term of the 2006 Plan to May 18, 2020 with respect to the increased share pool.

     The Board also adopted, and shareholders are being asked to approve, amendments to the 2006 Plan that would (1) increase the limit on the number of shares that may be delivered pursuant to “incentive stock options” granted under the 2006 Plan by 1,000,000 to a total of 4,483,333 shares, (2) increase the limit on the number of shares that may be subject to options or stock appreciation rights granted to an employee in any fiscal year from 100,000 shares to 250,000 shares, and (3) increase the limit on the number of additional shares that may be subject to options or stock appreciation rights granted to an employee in connection with his or her initial employment from 100,000 shares to 250,000 shares. For purposes of clarity, any shares that are delivered pursuant to incentive stock options also count against (and are not in addition to) the aggregate 2006 Plan share limit described above.

     As of March 19, 2010, options to purchase 3,261,843 shares of our common stock have been granted pursuant to the 2006 Plan, 750,832 shares have been cancelled and returned to the unissued share pool, and 822,322 shares remain available for grant. For a description of the 2006 Plan, see “2006 Stock Incentive Plan Summary” below.

     If shareholders do not approve this proposal, the current share limits under, and other terms and conditions of, the 2006 Plan will continue in effect.

Summary Description of the 2006 Stock Incentive Plan

     In 2006, the Board adopted, and our shareholders approved, the Pixelworks, Inc. 2006 Stock Incentive Plan (the “2006 Plan”), under which 1,333,333 shares of our common stock were initially reserved for issuance. On May 20, 2008, our shareholders approved an increase to the total number of authorized shares to 2,333,333, and on May 19, 2009, our shareholders approved an increase to the total number of authorized shares to 3,483,333.

     The principal terms of the 2006 Plan are summarized below. The following summary is qualified in its entirety by the full text of the 2006 Plan, which has been filed as Appendix A to this Proxy Statement that was filed electronically with the SEC and can be reviewed on the SEC’s website at www.sec.gov. You may also obtain, free of charge, a copy of the 2006 Plan by writing to our Secretary, care of Pixelworks, Inc. at 16760 SW Upper Boones Ferry Road, Suite 101, Portland, Oregon 97224.

     Eligibility

     All of our employees, directors and consultants are eligible to participate in the 2006 Plan. As of March 19, 2010, we have approximately 219 full-time employees and six non-employee directors.

     Administration

     The 2006 Plan is required to be administered by the Board or a committee appointed by the Board. The 2006 Plan is currently administered by the Compensation Committee of the Board, which is composed of members that are “disinterested persons” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (“Rule 16b-3”). All questions of interpretation or application of the 2006 Plan are determined in the sole discretion of the Board or the Compensation Committee, whose decisions are final, conclusive and binding upon all participants. Members of the Board are permitted to participate in the 2006 Plan.

     Subject to the provisions of the 2006 Plan, the Compensation Committee has the authority to construe and interpret the 2006 Plan, to prescribe, adopt, amend and rescind rules and regulations relating to the administration of the 2006 Plan and to make all other determinations necessary or advisable for its administration. Subject to the limitations of the 2006 Plan, the Compensation Committee also selects from among the eligible persons those individuals who will receive awards under the 2006 Plan, the type(s) of award(s) any such individual will receive and the terms of any such awards.

     No Repricing

     In no case (except due to an adjustment to reflect a stock split or similar event or any repricing that may be approved by shareholders) will any adjustment be made to a stock option or stock appreciation right award under the 2006 Plan (by amendment, cancellation and regrant, exchange or other means) that would constitute a repricing of the per share exercise or base price of the award.

     Shares Subject to the 2006 Plan

     The maximum cumulative aggregate number of shares of our common stock to be issued under the 2006 Plan and currently approved by shareholders is 3,483,333, subject to adjustment as described below. At the Annual Meeting, the shareholders are being asked to approve an amendment of the 2006 Plan to increase the number of shares of common stock reserved for issuance thereunder by 1,000,000 shares and also to approve a corresponding increase in the number of shares that may be delivered pursuant to “incentive stock options” granted under the 2006 Plan.

     Shares issued in respect of any “full-value award” granted under the 2006 Plan will be counted against the share limit described above as 1.33 shares for every one share issued in connection with the award. For example, if the Company granted a stock bonus award covering 100 shares of its common stock under the 2006 Plan, 133 shares would be charged against the share limit with respect to that award. For this purpose, a “full-value award” generally means any award granted under the 2006 Plan other than a stock option or stock appreciation right.

     Shares that are subject to or underlie awards which expire or for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under the

2006 Plan will again be available for subsequent awards under the 2006 Plan. The following types of shares will not be available for future award grant purposes under the 2006 Plan: (1) shares subject to a stock option or stock appreciation right that are not issued or delivered as a result of the net settlement of the award; (2) shares used to pay the exercise price or withholding taxes related to an outstanding award; or (3) shares repurchased on the open market using the proceeds of the exercise of a stock option.

     Currently, no employee may receive options or SARs under the 2006 Plan that cover more than 100,000 shares cumulatively in any fiscal year, except that options or SARs covering up to an additional 100,000 shares may be granted in connection with a person’s initial employment with the Company. If shareholders approve the 2006 Plan proposal, each of these limits would be increased to 250,000 shares.

     Types of Awards

     Under the 2006 Plan we can grant stock options and stock-settled SARs. However, only employees may receive Incentive Stock Options. The 2006 Plan also allows us to grant to our employees and consultants awards of restricted stock, stock bonuses and other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock.

Stock Options: The Compensation Committee may grant stock options to participants subject to the terms and conditions established by the Compensation Committee. A stock option represents a right to purchase a specified number of shares of our common stock during a specified period. A stock option may be in the form of an Incentive Stock Option or a stock option that does not qualify for incentive treatment under the Code (a “Nonqualified Stock Option”). The option award agreement will specify the vesting, exercisability and other terms of the award. The maximum term of an option granted under the 2006 Plan is six years.

SARs: The Compensation Committee may grant SARs to participants subject to the terms and conditions established by the Compensation Committee. The term of a SAR may not exceed six years. When exercised, a SAR entitles the participant to a payment based on the excess of the fair market value of a share of common stock on the exercise date over the fair market value of a share of common stock on the grant date. Payment shall be made solely in shares of our common stock. The SAR award agreement will specify the vesting, exercisability and other terms of the award.

     Exercise or Purchase Price

     The exercise price of each Incentive Stock Option, Non-qualified Stock Option and SAR granted under the 2006 Plan will be determined by the Compensation Committee, but will be not less than 100% of the “Fair Market Value” (as defined in the 2006 Plan) of our common stock on the date of grant (or 110% of Fair Market Value in the case of an Incentive Stock Option granted to an employee who at the time owns more than 10% of the total combined voting power of all classes of the capital stock of the Company). Whether an option granted under the 2006 Plan is intended to be an Incentive Stock Option or a Nonqualified Stock Option will be determined by the Compensation Committee at the time the Compensation Committee acts to grant the option and will be set forth in the related stock option agreement. “Fair Market Value” for purposes of the 2006 Plan means the closing price of a share of common stock on a national exchange on which shares of common stock are then trading, if any, on the last market trading day on or before

the grant date. If there is no listing or trading of common stock either on a national exchange or over-the-counter, the price will be determined by the Compensation Committee in its discretion. On March 19, 2010, the Fair Market Value was $4.77 per share based on the closing price of the common stock as reported on the NASDAQ Global Market.

     In the discretion of the Compensation Committee, the exercise price of any option or SAR granted under the 2006 Plan and the sale price of any shares sold under the 2006 Plan will be payable in full in cash, by check or by the optionee’s promissory note (subject to any limitations of applicable law) delivered at the time of exercise. In the discretion of the Compensation Committee and upon receipt of all regulatory approvals, an optionee may be permitted to deliver as payment in whole or in part of the exercise price certificates for our common stock or other property deemed appropriate by the Compensation Committee. So-called cashless exercises as permitted under applicable rules and regulations of the Securities and Exchange Commission and the Federal Reserve Board also will be permitted in the discretion of the Compensation Committee.

     Irrespective of the manner of payment of the exercise price of an option or the purchase price for shares, the delivery of shares pursuant to the exercise or purchase will be conditioned upon payment by the optionee or purchaser of amounts sufficient to enable us to pay all applicable federal, state and local withholding taxes.

     Transferability of Awards

     An award granted under the 2006 Plan will be nontransferable by the recipient other than by will or the laws of descent and distribution and will be exercisable during the recipient’s lifetime only by the recipient or by his or her guardian or legal representative. More particularly, an award may not be assigned, transferred (except as provided in the preceding sentence), pledged or hypothecated (whether by operation of law or otherwise), and will not be subject to execution, attachment or similar process.

     Conditions to Issuance of Stock Certificates; Legends

     In order to enforce any restrictions imposed upon common stock issued upon exercise of any option or SAR granted under or any shares sold or issued pursuant to the 2006 Plan, the Compensation Committee may cause a legend or legends to be placed on any share certificates representing such common stock.

     Adjustments upon Changes in Capitalization, Merger and Consolidation

     If our outstanding shares of common stock are changed into or exchanged for cash or a different number or kind of shares or securities of Pixelworks or of another corporation through reorganization, recapitalization, reclassification, stock split-up, reverse stock split, stock dividend, stock consolidation, stock combination, stock reclassification or similar transaction, an appropriate adjustment will be made by the Compensation Committee in the number and kind of shares as to which awards may be granted, as well as in the price per share of the common stock covered by each outstanding award. In the event we sell all or substantially all of our assets or merge with or into another company, the Compensation Committee may (a) arrange to have the surviving or successor entity grant replacement options with appropriate adjustments in the number and kind of securities and option prices, or (b) upon 30 days’ written notice, shorten the period during which options are exercisable (provided they remain exercisable for at least 30 days after the notice is given). No fractional shares of common stock will be issued on account of any

of the foregoing adjustments.

     If we are dissolved or liquidated, each outstanding award will terminate immediately prior to the consummation of the dissolution or liquidation unless the Compensation Committee, in its sole discretion, declares that all awards will terminate as of a fixed date and accelerates the vesting schedule of all outstanding awards.

     Amendment and Termination

     The Board may at any time suspend, amend or terminate the 2006 Plan and may, with the consent of an award holder, make such modifications to the terms and conditions of such recipient’s award as it deems advisable; provided, however, that the Company must obtain shareholder approval of any amendment to the extent necessary to comply with Rule 16b-3 or with Section 422 of the Internal Revenue Code or with rules promulgated by NASDAQ. The amendment, suspension or termination of the 2006 Plan will not, however, without the consent of the participant to be affected, alter or impair any rights or obligations under any award.

     Privileges of Stock Ownership

     A participant in the 2006 Plan will not be entitled to the privilege of stock ownership as to any shares of common stock unless and until they are actually issued to the participant.

     Termination

     Unless earlier terminated by the Board or the Compensation Committee, the 2006 Plan will terminate automatically as of the close of business on the day preceding the tenth anniversary date of its adoption by the Board. The termination of the 2006 Plan will not affect the validity of any award agreement outstanding at the date of such termination. However, if the shareholders approve an increase in the number of shares available for issuance under the 2006 Plan, the increased number of shares may be issued for up to ten (10) years from the date of approval of such increase.

Certain United States Federal Income Tax Consequences to Recipients of Awards

     The following is only a summary of certain United States federal income tax consequences to recipients of awards under the 2006 Plan and is for general information purposes only. This summary is based on the United States federal income tax laws now in effect, and as currently interpreted, and does not take into account possible changes in such laws or interpretations. Furthermore, this summary is not intended to be exhaustive and, among other considerations, does not describe the deferred compensation provisions of Section 409A of the U.S. Internal Revenue Code to the extent an award is subject to and does not satisfy the rules promulgated thereunder, nor does it describe state, local or foreign tax consequences. This summary does not consider the United States federal income tax consequences to recipients in light of their individual circumstances or to recipients subject to special treatment under the federal income tax laws. THIS SUMMARY IS NOT INTENDED AS TAX ADVICE TO ANY PERSON AND RECIPIENTS OF AWARDS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR ANY FEDERAL, STATE, LOCAL AND FOREIGN TAX EFFECTS ON THEIR INDIVIDUAL CIRCUMSTANCES.

     To ensure compliance with Treasury Department Circular 230, you are hereby notified that (a) any discussion of U.S. federal income tax issues in this Proxy Statement is not intended or

written to be relied upon, and cannot be relied upon, by you for the purpose of avoiding penalties that may be imposed on you under the Internal Revenue Code; (b) such discussion is included herein by Pixelworks in connection with the promotion or marketing (within the meaning of Circular 230) by Pixelworks of the transactions or matters addressed herein; and (c) you should seek advice based on your particular circumstances from an independent tax advisor.

     Under the Internal Revenue Code, neither the grant nor the exercise of Incentive Stock Options is a taxable event to the optionee (except to the extent an optionee may be subject to alternative minimum tax); rather, the optionee is subject to tax only upon the sale of the common stock acquired upon exercise of the Incentive Stock Option. Upon such a sale, the entire difference between the amount realized upon the sale and the exercise price of the option will be taxable to the optionee. Subject to certain holding period requirements, such difference will be taxed as a capital gain rather than as ordinary income.

     Recipients who receive Nonqualified Stock Options or SARs will be subject to taxation upon exercise of such options or SARs on the spread between the Fair Market Value of the common stock on the date of exercise and the exercise price of such options or SARs. This spread is treated as ordinary income to the recipient, and the Company is permitted to deduct as a compensation expense a corresponding amount. Nonqualified Stock Options and SARs do not give rise to a tax preference item subject to the alternative minimum tax.

     The current federal income tax consequences of other awards authorized under the 2006 Plan generally follow certain basic patterns: nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the Fair Market Value over the price paid (if any) only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant); stock bonuses, stock units and other stock-based awards are generally subject to tax at the time of payment; and compensation otherwise effectively deferred is taxed when paid. In each of the foregoing cases, the Company will generally have a corresponding deduction at the time the participant recognizes income.

     If an award is accelerated under the 2006 Plan in connection with a “change in control” (as this term is used under the U.S. Internal Revenue Code), the Company may not be permitted to deduct the portion of the compensation attributable to the acceleration if it exceeds certain threshold limits under the U.S. Internal Revenue Code (and certain related excise taxes may be triggered). Furthermore, the aggregate compensation in excess of $1,000,000 attributable to awards that are not “performance-based” within the meaning of Section 162(m) of the U.S. Internal Revenue Code may not be permitted to be deducted by the Company in certain circumstances.

     THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE 2006 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A SERVICE PROVIDER’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE SERVICE PROVIDER MAY RESIDE.

Specific Plan Benefits

     The Company has not approved any awards under the 2006 Plan that are conditioned upon shareholder approval of the proposed amendments. If the additional shares that will be

available under the 2006 Plan if shareholders approve the proposed amendments had been available for award purposes in fiscal 2009, the Company expects that its award grants for fiscal 2009 would not have been substantially different from those actually made under the 2006 Plan.

     The grant of additional stock-based awards under the 2006 Plan in the future and the nature of any such awards are subject to the discretion of the Compensation Committee (or, in the case of awards to non-employee directors, the Board). Accordingly, the number, amount and type of awards to be received by or allocated to eligible employees and directors under the 2006 Plan as a result of the proposed amendments in the future cannot be determined.

Other

     Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation over $1 million paid to the Chief Executive Officer and certain other executive officers in any taxable year of the Company. Qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. One requirement is shareholder approval of (i) the performance criteria upon which performance-based awards may be based, (ii) the annual per-participant limits on grants and (iii) the class of employees eligible to receive awards. In the case of performance-based awards, other requirements generally are that objective performance goals and the amounts payable upon achievement of the goals be established by a committee of at least two outside directors and that no discretion be retained to increase the amount payable under the awards. In the case of stock options and SARs, other requirements are that the option or SAR be granted by a committee of at least two outside directors and the exercise price of the stock option or SAR not be less than the fair market value.

     Shareholder approval of the 2006 Plan also constitutes approval of the performance criteria upon which performance-based awards that are intended to be deductible by the Company under Section 162(m) of the Code may be made.

     The 2006 Plan is not a tax-qualified deferred compensation plan under 401(a) of the Code, and is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.

Aggregate Past Grants Under the 2006 Plan

     As of March 19, 2010, awards covering 3,411,843 shares of our common stock had been granted under the 2006 Plan. This number of shares includes shares subject to awards that expired or terminated without having been exercised and which became available for new award grants under the 2006 Plan. The following table shows information regarding the distribution of those awards among the persons and groups identified below.

		Number of				Number of Shares
		Shares Subject				Subject to Past
		to Past				Restricted Stock
Name and Position		Option Grants				Grants
Named Executive Officers:
Bruce A. Walicek President and Chief Executive Officer			406,665				100,000
Steven L. Moore Vice President, Chief Financial Officer, Treasurer and Secretary			251,665				—
Tzoyao (T) Chan Senior Vice President, Engineering			180,000				—
John Y. Lau Vice President, China Liaison and Foundry Management			186,666				—
Hongmin (Bob) Zhang Senior Vice President, Technology and Chief Technology Officer			249,582				—
Current Executive Officer Group (including all of the Named Executive Officers and all other executive officers)			1,710,399				100,000
Non-Employee Director Group:
Allen H. Alley			12,666				—
Mark A. Christensen			15,999				—
James R. Fiebiger			15,999				—
C. Scott Gibson			15,999				—
Daniel J. Heneghan			15,999				—
Richard L. Sanquini			10,000				—
Total for Non-Executive Director Group			86,662				—
Each other person who has received 5% or more of the options, warrants or rights under the 2006 Plan			—				—
All employees, including all current officers who are not executive officers, as a group			1,464,782				50,000
Total			3,261,843				150,000

     Mr. Walicek and each of the non-executive directors identified above is a nominee for re-election as a director at the Annual Meeting.

Equity Compensation Plans

     For more information on our equity compensation plans, please see the section titled “Information About Our Equity Compensation Plans” below.

Vote Required for Approval

     The Board believes that approval of the amendments to the Pixelworks, Inc. 2006 Stock Incentive Plan will promote the Company’s interests and the interests of its shareholders and continue to enable the Company to attract, retain and reward persons important to its success.

     All members of the Board and all of the Company’s executive officers are eligible for awards under the 2006 Plan and thus have a personal interest in the approval of the amendments to the 2006 Plan.

     The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting will be required to approve this proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENTS TO THE PIXELWORKS, INC. 2006 STOCK INCENTIVE PLAN AS DESCRIBED ABOVE AND SET FORTH IN APPENDIX A HERETO.

PROPOSAL NO. 3: APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN

Overview

     At the Annual Meeting, shareholders are being asked to approve the Pixelworks, Inc. Employee Stock Purchase Plan (the “ESPP”), which was adopted, subject to shareholder approval, by the Board on March 26, 2010.

     Under the ESPP, shares of the Company’s common stock will be available for purchase by eligible employees who elect to participate in the ESPP. Eligible employees will be entitled to purchase, by means of payroll deductions, limited amounts of the Company’s common stock during periodic Offering Periods. The ESPP will not be effective without shareholder approval.

     The Board believes that the ESPP will help the Company retain and motivate eligible employees and help further align the interests of eligible employees with those of the Company’s shareholders. The new ESPP will replace our 2000 Employee Stock Purchase Plan, which terminated in February 2010.

Summary Description of the ESPP

     The principal terms of the ESPP are summarized below. The following summary is qualified in its entirety by the full text of the ESPP, which is attached as Appendix B to this Proxy Statement.

     Purpose

     The purpose of the ESPP is to provide eligible employees with an opportunity to purchase shares of the Company’s common stock at a favorable price and upon favorable terms in consideration of the participating employees’ continued services. The ESPP is intended to provide an additional incentive to participating eligible employees to remain in the Company’s employ and to advance the best interests of the Company and its shareholders.

     Operation of the ESPP

     The ESPP will generally operate in overlapping 18-month periods referred to as “Offering Periods.” Each Offering Period will generally consist of three consecutive six-month periods referred to as “Purchase Periods.” The last day of each Purchase Period is referred to as a “Purchase Date.” The determination of the duration of future Offering Periods and Purchase Periods may be changed from time to time. However, an Offering Period may not be shorter than three months and may not be longer than 27 months. Although the ESPP gives us flexibility to change the structure of future Offering Periods and Purchase Periods, at present we expect that the initial Offering Period will commence on August 1, 2010, and that each Offering Period will consist of three consecutive six-month Purchase Periods commencing on each August 1 and February 1. The Company may change, if it so desires, the Offering Periods and Purchase Periods in the future.

     On the first day of each Offering Period (referred to as the “Grant Date”), each eligible employee who has timely filed a valid election to participate in the ESPP for that Offering Period will be granted an option to purchase shares of the Company’s common stock. A participant must designate in his or her election the percentage of his or her compensation to be withheld

from his or her pay during that Offering Period for the purchase of stock under the ESPP. The participant’s contributions under the ESPP will be credited to a bookkeeping account in his or her name. Subject to certain limits, a participant generally may elect to terminate (but may not otherwise increase or decrease) his or her contributions to the ESPP during a Purchase Period. A participant generally may elect to increase, decrease or terminate his or her contributions to the ESPP effective with the first Purchase Period that commences after the election is received. Amounts contributed to the ESPP constitute general corporate assets of the Company and may be used for any corporate purpose.

     Each option granted under the ESPP will automatically be exercised on the last day of each Purchase Period that occurs during the Offering Period with respect to which it was granted (referred to as the “Purchase Date”). The number of shares acquired by a participant upon exercise of his or her option will be determined by dividing the participant’s ESPP account balance as of the applicable Purchase Date by the “Option Price” for that Purchase Period. The determination of the Option Price for a Purchase Period may be changed from time to time, except that in no event may the Option Price for a Purchase Period be lower than the lesser of (i) 85% of the fair market value of a share of the Company’s common stock on the applicable Grant Date, or (ii) 85% of the fair market value of a share of the Company’s common stock on the applicable Purchase Date. Although the ESPP gives us flexibility to change the method for setting the Option Price, we initially expect to set the Option Price under the ESPP using the formula described above. We may change, if we desire, the method for establishing the Option Price in the future provided that any change we make is permitted by the ESPP and will not take effect until the next Purchase Period after the change. A participant’s ESPP account will be reduced upon exercise of his or her option by the amount used to pay the Option Price of the shares acquired by the participant. No interest will be paid to any participant or credited to any account under the ESPP.

     Eligibility

     Only certain employees will be eligible to participate in the ESPP. To be eligible to participate in an Offering Period, on the Grant Date of that period an individual must:

	•		be employed by the Company or one of its subsidiaries that has been designated as a participating subsidiary; and
	•		be customarily employed for more than twenty hours per week.

     As of March 19, 2010, approximately 93 employees of the Company and its subsidiaries, including all of our named executive officers, excluding Mr. Walicek, our CEO, were eligible to participate in the ESPP. Mr. Walicek is currently ineligible to participate due to IRS regulations which prevent the issuance of options under an ESPP plan to an individual who would, immediately after the option is granted, own stock, including options to purchase stock, which would represent 5 percent or more of the total combined voting power or value of all classes of stock.

     Limits on Authorized Shares; Limits on Contributions

     If shareholders approve the ESPP, a maximum of 1,300,000 shares of our common stock may be purchased under the ESPP.

     Participation in the ESPP is also subject to the following limits:

	•		A participant cannot contribute less than 1% or more than 10% of his or her compensation to the purchase of stock under the ESPP in any one payroll period.
	•		A participant cannot purchase more than 3,000 shares of the Company’s common stock under the ESPP with respect to any one Purchase Period.
	•		A participant cannot purchase more than $25,000 of stock (valued at the start of the applicable Offering Period and without giving effect to any discount reflected in the purchase price for the stock) under the ESPP in any one calendar year.
	•		A participant will not be granted an option under the ESPP if it would cause the participant to own stock and/or hold outstanding options to purchase stock representing 5% or more of the total combined voting power or value of all classes of stock of the Company or one of its subsidiaries or to the extent it would exceed certain other limits under the U.S. Internal Revenue Code (the “Code”).

     We have the flexibility to change the 1% and 10% contribution limits and the individual share limit referred to above from time to time without shareholder approval. However, we cannot increase the aggregate-share limit under the ESPP, other than to reflect stock splits and similar adjustments as described below, without shareholder approval. The $25,000 and the 5% ownership limitations referred to above are required under the Code.

     Anti-dilution Adjustments

     As is customary in stock incentive plans of this nature, the number and kind of shares available under the ESPP, as well as ESPP purchase prices and share limits, are subject to adjustment in the case of certain corporate events. These events include reorganizations, mergers, combinations, consolidations, recapitalizations, reclassifications, stock splits, stock dividends, asset sales or other similar unusual or extraordinary corporate events, or extraordinary dividends or distributions of property to our shareholders.

     Termination of Participation

     A participant’s election to participate in the ESPP will generally continue in effect for all Offering Periods until the participant files a new election that takes effect or the participant ceases to participate in the ESPP. A participant’s participation in the ESPP generally will terminate if, prior to the applicable Purchase Date, the participant ceases to be employed by the Company or one of its participating subsidiaries or the participant is no longer scheduled to work more than 20 hours per week.

     If a participant’s ESPP participation terminates during an Offering Period for any of the reasons discussed in the preceding paragraph, he or she will no longer be permitted to make contributions to the ESPP for that Offering Period and, subject to limited exceptions, his or her option for that Offering Period will automatically terminate and his or her ESPP account balance will be paid to him or her in cash without interest. However, a participant’s termination from participation will not have any effect upon his or her ability to participate in any succeeding Offering Period, provided that the applicable eligibility and participation requirements are again then met.

     Transfer Restrictions

     A participant’s rights with respect to options or the purchase of shares under the ESPP, as well as contributions credited to his or her ESPP account, may not be assigned, transferred, pledged or otherwise disposed of in any way except by will or the laws of descent and distribution.

     Administration

     The ESPP is administered by the Board or by a committee appointed by the Board. The Board has appointed the Compensation Committee of the Board as the current administrator of the ESPP. The administrator has full power and discretion to adopt, amend or rescind any rules and regulations for carrying out the ESPP and to construe and interpret the ESPP. Decisions of the ESPP administrator with respect to the ESPP are final and binding on all persons.

     No Limit on Other Plans

     The ESPP does not limit the ability of the Board or any committee of the Board to grant awards or authorize any other compensation, with or without reference to the Company’s common stock, under any other plan or authority.

     Amendments

     The Board generally may amend or terminate the ESPP at any time and in any manner, provided that the then-existing rights of participants are not materially and adversely affected thereby. Shareholder approval for an amendment to the ESPP will only be required to the extent necessary to meet the requirement of Section 423 of the Code or to the extent otherwise required by law or applicable stock exchange rules. The ESPP administrator also may, from time to time, without shareholder approval and without limiting the Board’s amendment authority, designate those subsidiaries of the Company whose employees may participate in the ESPP and, subject only to certain limitations under the Code, change the ESPP’s eligibility rules.

     Termination

     No new Offering Periods will commence under the ESPP on or after May 19, 2020, unless the Board terminates the ESPP earlier. The ESPP will also terminate earlier if all of the shares authorized under the ESPP have been purchased.

Federal Income Tax Consequences of the ESPP

     Following is a general summary of the current federal income tax principles applicable to the ESPP. The following summary is not intended to be exhaustive and, among other considerations, does not describe the deferred compensation provisions of Section 409A of the U.S. Internal Revenue Code to the extent an award is subject to and does not satisfy those rules, nor does it describe state, local or international tax consequences.

     The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the U.S. Internal Revenue Code. Participant contributions to the ESPP are made on an after-tax basis. That is, a participant’s ESPP contributions are deducted from compensation that is taxable to the participant and for which the Company is generally entitled to a tax deduction.

     Generally, no taxable income is recognized by a participant with respect to either the grant or exercise of his or her ESPP option. The Company will have no tax deduction with respect to either of those events. A participant will generally recognize income (or loss) only upon a sale or disposition of any shares that the participant acquires under the ESPP. The particular tax consequences of a sale of shares acquired under the ESPP depend on whether the participant has held the shares for a “Required Holding Period” before selling or disposing of the shares. The Required Holding Period starts on the date that the participant acquires the shares under the ESPP and ends on the later of (1) two years after the Grant Date of the Offering Period in which the participant acquired the shares, or (2) one year after the Purchase Date on which the participant acquired the shares.

     If the participant holds the shares for the Required Holding Period and then sells the shares at a price in excess of the purchase price paid for the shares, the gain on the sale of the shares will be taxed as ordinary income to the participant to the extent of the lesser of (1) the amount by which the fair market value of the shares on the Grant Date of the Offering Period in which the participant acquired the shares exceeded the purchase price of the shares (calculated as though the shares had been purchased on the Grant Date), or (2) the gain on the sale of the shares. Any portion of the participant’s gain on the sale of the shares not taxed as ordinary income will be taxed as long-term capital gain. If the participant holds the shares for the Required Holding Period and then sells the shares at a price less than the purchase price paid for the shares, the loss on the sale will be treated as a long-term capital loss to the participant. The Company will not be entitled to a tax deduction with respect to any shares held by the participant for the Required Holding Period, regardless of whether the shares are eventually sold at a gain or a loss.

     The participant has a “Disqualifying Disposition” if the participant disposes of the shares before the participant has held the shares for the Required Holding Period. If the participant sells the shares in a Disqualifying Disposition, the participant will realize ordinary income in an amount equal to the difference between the purchase price paid for the shares and the fair market value of the shares on the Purchase Date on which the participant acquired the shares, and the Company generally will be entitled to a corresponding tax deduction. In addition, if the participant makes a Disqualifying Disposition of the shares at a price in excess of the fair market value of the shares on the Purchase Date, the participant will realize capital gain in an amount equal to the difference between the selling price of the shares and the fair market value of the shares on the Purchase Date. Alternatively, if the participant makes a Disqualifying Disposition of the shares at a price less than the fair market value of the shares on the Purchase Date, the participant will realize a capital loss in an amount equal to the difference between the fair market value of the shares on the Purchase Date and the selling price of the shares. The Company will not be entitled to a tax deduction with respect to any capital gain realized by a participant.

     Securities Underlying Awards

     The closing price of a share of the Company’s common stock as of March 19, 2010 was $4.77 per share.

Specific Benefits

     The benefits that will be received by or allocated to eligible employees under the ESPP cannot be determined at this time because the amount of contributions set aside to purchase shares of the Company’s common stock under the ESPP (subject to the limitations discussed above) is entirely within the discretion of each participant.

Equity Compensation Plans

     For more information on our equity compensation plans, please see the section titled “Information About Our Equity Compensation Plans” below.

Vote Required for Approval of the Employee Stock Purchase Plan

     The Board believes that approval of the adoption of the ESPP will promote the Company’s interests and the interests of its shareholders and continue to enable the Company to attract, retain and reward persons important to its success.

     Members of the Board who are not employees are not eligible to participate in the ESPP. All of the Company’s executive officers, excluding Mr. Walicek, are eligible to participate in the ESPP and thus have a personal interest in the approval of the ESPP.

     The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting will be required to approve this proposal.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE APPROVAL OF THE PIXELWORKS, INC. EMPLOYEE STOCK PURCHASE
PLAN AS DESCRIBED ABOVE AND SET FORTH IN APPENDIX B HERETO.

PROPOSAL NO. 4: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

     The Audit Committee of the Board (the “Audit Committee”) has appointed KPMG LLP, independent registered public accounting firm, as the auditors of the Company for the year ended December 31, 2010. The submission of this matter for approval by shareholders is not legally required; however, as a matter of good corporate practice, our shareholders are being asked to approve this appointment. Before selecting KPMG LLP, the Audit Committee considered the firm’s qualifications as independent registered public accountants and concluded that based on its prior performance and its reputation for integrity and competence, it is qualified.

     In the event the shareholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the appointment is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the fiscal year if the Audit Committee determines that such a change would be in the best interest of the Company and its shareholders.

     Representatives of KPMG LLP will be at the Annual Meeting and will be available to respond to appropriate questions. They do not plan to make a statement but will have the opportunity to make one if they wish.

Vote Required for Approval

     The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting will be required to ratify this appointment.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP TO SERVE AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2010.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information regarding the beneficial ownership as of March 19, 2010 of our common stock by:

	(i)		Each person known by the Company to be the beneficial owner of more than five percent of the Company’s common stock;
	(ii)		Each Director and each Director nominee of the Company;
	(iii)		Each Named Executive Officer (as defined below) of the Company; and
	(iv)		All executive officers and Directors as a group.

		Number of				Percentage
		Shares				of Common
		Beneficially				Stock
Name and Address of Beneficial Owner(1)		Owned(2)				Outstanding
Renaissance Technologies LLC (3) 800 Third Avenue New York, NY 10022			972,997				7.2	%
Allen H. Alley (4)			724,225				5.3	%
Mark A. Christensen			91,724				*
James R. Fiebiger			57,629				*
C. Scott Gibson			23,795				*
Daniel J. Heneghan			27,362				*
Richard L. Sanquini			20,000				*
Bruce A. Walicek			420,067				3.1	%
Steven L. Moore			144,523				1.0	%
Tzoyoa (T) Chan			200,164				1.5	%
John Y. Lau			181,839				1.3	%
Hongmin (Bob) Zhang			262,116				1.9	%
Directors and Executive Officers as a Group (14 persons)			2,364,473				16.4	%

Section 16(a) Beneficial Ownership Reporting Compliance

     Based solely on our review of Forms 3, 4 and 5, and any amendments thereto, furnished to the Company or written representations that no Form 5 was required, we believe that during 2009, all filing requirements applicable to our executive officers and Directors under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were met in a timely manner, other than the Form 3 that was filed by Mr. Tzoyao Chan that was amended on March 26, 2009 to reflect ownership of 99,331 shares of Pixelworks common stock.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Historically, we have not entered into transactions with related persons. During the year ended December 31, 2009, there were no relationships or transactions involving any of our directors or executive officers for which disclosure is required under the rules of the SEC.

     In accordance with the charter of the Audit Committee of the Board of Directors, the Audit Committee is responsible for reviewing all related party transactions for potential conflicts of interest. The Company will not enter into any related party transactions without prior Audit Committee approval. Related party transactions are those that are required to be disclosed under applicable SEC rules. Currently, this review and approval requirement applies to any transaction in which the amount involved exceeds $120,000, and in which any of the following persons will have a direct or indirect material interest: (a) any of our directors or executive officers, (b) any nominee for election as a director, (c) any security holder who is known to us to own of record or beneficially more than five percent of our common stock, or (d) any member of the immediate family of any of the persons described in the foregoing clauses (a) through (c).

     In the event that management becomes aware of any related person transaction, management will present information regarding the proposed transaction to the Audit Committee for review. In its review, the Audit Committee will take into account any information regarding the transaction or related person that would be material to investors in light of the particular circumstances, which information may include the following:

	•		The related person’s interest in the transaction;
	•		The impact on a Director’s independence;
	•		The approximate dollar value of the amount involved in the transaction;
	•		The approximate dollar value of the amount of the related person’s interest in the transaction;
	•		Whether the transaction was undertaken in the ordinary course of business;
	•		Whether the terms of the transaction are no less favorable to the Company than terms that could have been reached with an unrelated party;
	•		The availability of other sources for comparable products or services; and
	•		The purpose, and potential benefits to the Company, of the transaction.

INFORMATION ABOUT OUR BOARD OF DIRECTORS

Board Responsibilities

     The Board is governed by our Corporate Governance Guidelines, which can be found on our website at www.pixelworks.com. The Board’s primary responsibilities include:

	•		Understanding the factors that determine the Company’s success and the risks and problems that affect it;
	•		Understanding, reviewing, approving and overseeing fundamental business strategies, financial strategies and major corporate actions;
	•		Nominating directors, reviewing the structure and operation of the Board and overseeing effective corporate governance;
	•		Establishing a corporate environment that promotes timely and effective disclosure, financial accountability, high ethical standards and compliance with all applicable laws and regulations;
	•		Understanding the results of operations and financial condition of the Company;
	•		Evaluating the performance of the Company’s senior executives and taking action where appropriate;
	•		Approving the compensation of the Company’s senior executives and overseeing succession planning for these executives; and
	•		Providing advice and assistance to the Company’s senior executives.

Board Structure

     Our Board currently consists of seven directors. The Board believes that there should be a majority of independent directors on the Board. The current Board members include six independent directors and one member of our senior management.

Board Leadership Structure

     Both independent and management directors, including the Chief Executive Officer (“CEO”), are eligible for appointment as Chairman of the Board. Currently, the functions of

Chairman of the Board and CEO are separated. Among the duties of the Chairman is the management of the Board, including prioritizing current matters in front of the Board and setting the agenda for meetings with the input of management. The CEO manages the Company and is accountable for corporate performance. Mr. Alley, our current Chairman, co-founded the Company and served as our President and CEO from inception until December 2006. He has served as Chairman since 1997. Mr. Alley’s knowledge of the Company’s history, development and operations makes him well suited to the position of Chairman. He provides a thorough knowledge of the operations and challenges of the Company and its industry. Mr. Walicek, our current CEO, began his association with the Company as a consultant from 2003 to May 2005 and has served on the Board since May 2005. Mr. Walicek has served as CEO and President of Pixelworks since January 1, 2008.

Director Independence

     The Board affirmatively determines the independence of each Director and nominee for election as a Director in accordance with the elements of independence set forth in applicable NASDAQ and SEC rules. In the beginning of 2010, the Board conducted a review of Director independence. As a result of this review (including a review of all relevant transactions, if any, or relationships between each Director or any of his or her family members and the Company, any member of our senior management or our independent registered public accounting firm, the Board affirmatively determined all of our Directors, except Bruce Walicek, our CEO, are independent as defined by the applicable rules of the SEC and NASDAQ and have no relationship with the Company, except as a Director and shareholder. The independent Directors, namely Allen Alley, Mark Christensen, James Fiebiger, C. Scott Gibson, Daniel Heneghan and Richard L. Sanquini, constitute a majority of the members of the Board.

     As required under applicable NASDAQ listing standards, in the 2009 fiscal year, our independent Directors met four times in regularly scheduled executive sessions at which only independent Directors were present.

Board Oversight of Risk

     Management continually monitors the material risks facing the Company, including financial, strategic, operational, and legal and compliance risks. An overall review of risk is inherent in the Board’s ongoing consideration of the Company’s long-term strategies, transactions and other matters presented to and discussed by the Board. Additionally, the Board formally reviews the Company’s risk management at least annually, after receiving a report from the CEO and Chief Financial Officer (“CFO”). This annual review includes a discussion of the likelihood and potential magnitude of various risks, as well as any actions management has taken to limit, monitor or control the risks. The CEO and CFO also report to the Board, in a timely manner, events that arise that present material risks to the Company or that materially and adversely change previously identified risks. Additionally, although the full Board has responsibility for overall risk oversight, the Audit Committee annually reviews the Company’s investment policy, corporate information technology policy and risks related to currency fluctuations, and the Compensation Committee seeks to avoid creating incentives for employees to take excessive or inappropriate risks when establishing and administering compensation programs. In performing these functions, these committees assess the appropriateness of the Company’s policies relevant to these risks and consider changes to such policies as appropriate.

Board and Committee Meetings

     Our Board holds regularly scheduled quarterly meetings and also holds special meetings and acts by written consent from time to time, as appropriate. At each quarterly Board meeting, time is set aside for the independent directors to meet without management present. Our Board met six times during 2009.

     We have adopted a policy that requires a majority of Directors to attend annual meetings either in person or via telephone conference. Each of our Directors attended the 2009 annual meeting, and each incumbent Director attended 75% or more of the Board meetings and meetings of the committees on which they served during the last fiscal year.

Standing Committees of the Board

     The Board has adopted written charters for each of its three standing committees: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. The charter of the Audit Committee is attached as Appendix C to this Proxy Statement. The charters for all three committees are available on our website at www.pixelworks.com.

     The Board has determined that all members of all committees are independent Directors as defined by the applicable rules of the SEC and NASDAQ and that all members satisfy the relevant SEC requirements for members of such committees.

Audit Committee

     The Audit Committee provides objective oversight of corporate accounting, financial reporting practices and financial statement audits of the Company and has the responsibility to select, evaluate and, where appropriate, replace the independent registered public accounting firm and is directly responsible for the oversight of the work of the independent registered public accounting firm. The Audit Committee reviews and discusses with management and the Company’s independent registered public accounting firm the Company’s audited financial statements and the effectiveness of the accounting and financial controls of the Company.

     The members of the Audit Committee are Directors Daniel Heneghan, who chairs the committee, Mark Christensen and C. Scott Gibson. After reviewing the qualifications of the members of the Audit Committee, the Board has determined that each member meets the financial experience requirements under the rules of the SEC and NASDAQ. In addition, the Board has determined that both Daniel Heneghan and C. Scott Gibson qualify as audit committee financial experts as defined by the SEC rules.

     Mr. Heneghan qualifies as an audit committee financial expert by virtue of his service as chair of our audit committee since 2006, the audit committee of NTELOS Holdings Corp. (NASDAQ: NTLS) since 2006 and the Micrel, Inc. (NASDAQ: MCRL) audit committee since 2008. Mr. Heneghan is also qualified by virtue of his professional experience which includes service as the Chief Financial Officer of Intersil Corporation from 1999 until 2005 and various financial management positions at Harris Corporation from 1980 to 1999, including as Vice President and Controller, Division Controller of the semiconductor business, Director of Planning and Director of Finance. Additionally, Mr. Heneghan holds a Bachelor of Science degree in accounting from Quincy University, an MBA from Western Illinois University and is a Certified

Public Accountant. Mr. Heneghan serves as an advisor to the semiconductor industry as his full time professional job.

     Mr. Gibson qualifies as an audit committee financial expert by virtue of his service on our audit committee since 2002, the Radisys Corporation (NASDAQ: RSYS) audit committee since 1992, the audit committee of Verigy Ltd (NASDAQ: VRGY) since 2005 and the audit committee of TriQuint Semiconductor, Inc. (NASDAQ: TQNT) since 2006 and past service on the audit committees of Inference Corp. (NASDAQ: INFR), and Integrated Measurement Systems (NASDAQ: IMSC). He also chaired the Finance and Audit committee of the Oregon Health and Science University Governing Board from 2000-2009. Additionally, Mr. Gibson received an M.B.A. in Finance from the University of Illinois in 1976 and served as CFO and Senior VP Operations for Sequent Computer Systems (NASDAQ: SQNT) from 1983 to 1984. Further, from 1985 to 1987, the CFO of Sequent Computer Systems reported to Mr. Gibson. Mr. Gibson has significant audit committee educational experience, including speaking at several KPMG audit committee forums, and Board governance forums on audit committee responsibilities. The Board has carefully considered that Mr. Gibson serves on the audit committee of three other public companies and has determined that Mr. Gibson’s full time professional commitment to board service allows us to fully benefit from his significant financial expertise and audit committee experience and has unanimously confirmed his continuing service on our Audit Committee.

Compensation Committee

     The Compensation Committee assists the Board in fulfilling its responsibilities with respect to compensation of the Company’s Directors, executive officers and employees and oversight and administration of the Company’s incentive and stock-based compensation plans. The Compensation Committee’s other responsibilities include evaluating candidates for executive positions, maintaining a CEO succession plan and preparing the annual proxy statement.

     The members of the Compensation Committee are Directors Mark Christensen, who chairs the committee, James Fiebiger, C. Scott Gibson and Daniel Heneghan. The Compensation Committee met six times in 2009.

Corporate Governance and Nominating Committee

     The Corporate Governance and Nominating Committee identifies individuals qualified to become members of the Board, recommends the slate of Directors to be nominated by the Board at the annual meeting of shareholders and recommends any Director to fill a vacancy on the Board. The Corporate Governance and Nominating Committee is also responsible for developing and recommending to the Board a set of applicable corporate governance guidelines and principles, developing policies and procedures relating to the process for identification and evaluation of Director candidate, and minimum qualifications for Directors, and overseeing an evaluation of the Board and recommending Directors to be appointed to committees of the Board (other than to the Corporate Governance and Nominating Committee itself).

     The Corporate Governance and Nominating Committee will consider recommendations for nominees for Director submitted by shareholders. The Company’s Second Amended and Restated Bylaws set fourth procedures that must be followed by shareholders seeking to make nominations for Directors. The Corporate Governance and Nominating Committee considers candidates recommended by shareholders in the same manner in which the Corporate Governance

and Nominating Committee evaluates candidates recommended by other sources, including the Board and individual Directors.

     The members of the Corporate Governance and Nominating Committee are Directors James Fiebiger, who chairs the committee, Mark Christensen and C. Scott Gibson. The Corporate Governance and Nominating Committee met three times in 2009.

Compensation Committee Interlocks and Insider Participation

     No Director who served on the Compensation Committee during 2009 is, or has been, an officer or employee of the Company, nor has any Director had any relationships requiring disclosure under the SEC rules regarding disclosure of certain relationships and related-party transactions.

     None of the Company’s executive officers serve on the board of directors or the compensation committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served on our Board or Compensation Committee.

Qualifications of Directors

     The Corporate Governance and Nominating Committee conducts appropriate inquiries into the backgrounds and qualifications of proposed Director nominees. At a minimum, candidates must possess experience with businesses or organizations of comparable or greater size than the Company. If a candidate’s experience and qualifications are desirable, reference checks are performed before the Corporate Governance and Nominating Committee recommends the candidate for nomination to the Board.

     Factors considered in the selection of Director nominees include the following:

	•		Independence from management;
	•		Whether the candidate has relevant business experience;
	•		Judgment, skill, integrity and reputation;
	•		Existing commitments to other businesses;
	•		Potential conflicts of interest with other pursuits;
	•		Legal considerations such as antitrust issues and involvement by the candidate in specific legal proceedings during the past ten years;
	•		Corporate governance background, including directorships held with public companies or investment companies registered under the Investment Company Act of 1940 at any time during the past five years;
	•		Financial and accounting background, to enable the committee to determine whether the candidate would be suitable for Audit Committee membership;
	•		Executive compensation background, to enable the committee to determine whether the candidate would be suitable for Compensation Committee membership; and
	•		The size and composition of the existing Board.

     The Company is committed to nondiscrimination on the basis of age, gender, ethnic background, religious affiliation or other personal characteristics unrelated to the Company’s purpose and mission. The Board does not have a policy with regard to the consideration of diversity in identifying Director nominees. However, the Board values diversity and considers

qualifications and skills that are complementary to those of existing Board members to be highly desirable.

Director Compensation

Cash Compensation

     Non-employee Directors, except for Mr. Alley, received cash compensation as follows during the first quarter of 2009:

•		$6,750 per quarter for service on the Board;
•		$2,000 per quarter for service on the Audit Committee, with the exception of the Chairman of the Audit Committee, who received $4,000 per quarter;
•		$1,250 per quarter for service on the Compensation Committee, with the exception of the Chairman of the Compensation Committee, who received $2,500 per quarter; and
•		$750 per quarter for service on the Corporate Governance and Nominating Committee, with the exception of the Chairman of the Corporate Governance and Nominating Committee, who received $1,500 per quarter.

     Effective April 1, 2009, non-employee Directors’ cash compensation was reduced by 10%. This reduction was made as part of a Company-wide cost cutting effort in response to the global economic recession which significantly decreased the Company’s revenue and forecasted outlook during the first half of 2009. Accordingly, during the second, third and fourth quarters of 2009, non-employee Directors, except for Mr. Alley, received cash compensation as follows:

•		$6,075 per quarter for service on the Board;
•		$1,800 per quarter for service on the Audit Committee, with the exception of the Chairman of the Audit Committee, who received $3,600 per quarter;
•		$1,125 per quarter for service on the Compensation Committee, with the exception of the Chairman of the Compensation Committee, who received $2,250 per quarter; and
•		$675 per quarter for service on the Corporate Governance and Nominating Committee, with the exception of the Chairman of the Corporate Governance and Nominating Committee, who received $1,350 per quarter.

     Effective January 1, 2010, non-employee Directors’ cash compensation was reinstated to the levels in effect during the first quarter of 2009 due to significant improvements in the Company’s revenue and forecasted outlook.

     Following Mr. Alley’s resignation as President and CEO of the Company effective December 31, 2006, the Company and Mr. Alley entered into a Chair and Board Service Agreement pursuant to which Mr. Alley serves as Chairman of the Board contingent upon his continued status as a member of the Board. For his services, Mr. Alley receives an annual fee of $75,000 (or such higher amount as may be approved by the Board) and is entitled to equity compensation consistent with policies applicable to members of the Board. Mr. Allen’s compensation was also reduced by 10% during the second, third and fourth quarters of 2009 and was reinstated as of January 1, 2010, as described above.

Equity Compensation

     During 2009, any newly elected members of our Board who were not officers or employees of the Company or any of its subsidiaries were entitled to receive an option award to purchase 10,000 shares of our common stock upon election or appointment to the Board, and each non-employee Director who continued to serve on the Board after the annual meeting was entitled to an option to purchase 6,000 shares of our common stock. Each of these options is granted under the Company’s 2006 Stock Incentive Plan (the “2006 Plan”) and has an exercise price equal to the closing price of our common stock on the grant date and a maximum term of six years. Each option vests with respect to 25% of the shares covered by the option on the first anniversary of the grant date, and on a monthly basis thereafter over the next three years.

Director Stock Ownership Requirement

     Board membership includes a requirement that within two years of the date of joining the Board, members shall own at minimum the lower value of 10,000 shares or $15,000 dollars worth of stock, to be held during tenure on the Board.

Director Compensation Table — 2009

     The following table reflects our non-employee Directors’ compensation for 2009. The compensation paid to Mr. Walicek, who is also employed by us, is presented below in the “Summary Compensation Table” and the related explanatory tables. Directors who are also officers or employees of the Company or its subsidiaries receive no additional compensation for their services as directors, therefore Mr. Walicek is excluded below.

		Fees Earned or
Name		Paid in Cash				Option Awards(1)				Total
Allen H. Alley (2)		$	69,375			$	5,430			$	74,805
Mark A. Christensen (3)			44,400				5,430				49,830
James R. Fiebiger (3)			35,150				5,430				40,580
C. Scott Gibson (3)			39,775				5,430				45,205
Daniel J. Heneghan (3)			44,400				5,430				49,830
Hans Olsen (4)			12,825				—				12,825

Communications with the Board

     Shareholders or other interested parties can contact any Director or committee of the Board by writing to them at:

Pixelworks Board of Directors
16760 SW Upper Boones Ferry Road, Ste 101
Portland, OR 97224

     Board members may also be contacted via email at bod@pixelworks.com.

     Communication received will be distributed to the full Board at the next regularly scheduled Board meeting, or sooner, if deemed necessary. Communication that is unduly hostile, threatening, illegal or similarly inappropriate will be discarded and appropriate legal action may be taken.

Code of Ethics

     The Company has a Code of Business Conduct and Ethics that applies to all Directors and employees, including the Chief Executive Officer, Chief Financial Officer and all other executive officers of the Company. The Code of Business Conduct and Ethics is available on our website at www.pixelworks.com. The Company intends to disclose any changes in or waivers from its Code of Business Conduct and Ethics by posting such information on its website at www.pixelworks.com or by filing a Current Report on Form 8-K.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

     The following table sets forth, as of March 19, 2010, information about the executive officers of the Company.

Name		Age				Position
Bruce A. Walicek			53			President and Chief Executive Officer
Steven L. Moore			55			Vice President, Chief Financial Officer, Secretary and Treasurer
Reuben A. Aspacio			49			Vice President, Operations
Anthony G. Bozzini			56			Executive Vice President, Sales and Marketing
Tzoyao (T) Chan			57			Senior Vice President, Engineering
Shelley B. Hilderbrand			34			Vice President, Finance
John Y. Lau			54			Senior Vice President, China General Manager
Hongmin (Bob) Zhang			50			Senior Vice President, Technology and Chief Technology Officer

     The information provided below is biographical information about each of our executive officers as of March 19, 2010.

     BRUCE A. WALICEK — Information concerning Mr. Walicek is set forth under “Proposal No. 1: Election of Directors.”

     STEVEN L. MOORE joined Pixelworks in July 2007 as Vice President, Chief Financial Officer, Secretary and Treasurer. Prior to joining Pixelworks, Mr. Moore served as Vice President of Finance and Chief Financial Officer at Adept Technology Inc., a publicly traded industrial robotics company, from June 2006 to July 2007. From June 2003 to June 2006, he held the position of Chief Financial Officer at SCM Microsystems, Inc., a publicly traded security/access control products company. From March 2000 to September 2002, Mr. Moore was Vice President of Finance at Virata Corporation, a publicly-traded semiconductor company. Prior to his service at Virata, Mr. Moore was Vice President and Chief Financial Officer at Health Systems Design Corporation, a publicly traded managed care information systems software company. Mr. Moore holds a B.A. degree in Economics from the University of Colorado.

     REUBEN A. ASPACIO joined Pixelworks in February 2009 as Vice President, Operations. Prior to joining Pixelworks, Mr. Aspacio was the Vice President of Operations at Legend Silicon Corporation, a fabless semiconductor conductor company, from February 2007 to January 2009. From 2000 to 2007, Mr. Aspacio was the Director of Operations at Ikanos Communications, Inc., a fabless communication chip set company. From November 1998 to 2000, Mr. Aspacio held the position of Senior Engineering Manager with ATI Research Silicon Valley, Inc., a manufacturer of 3D graphics and digital media silicon solutions. Mr. Aspacio served as a Senior Member of the Technical Staff at Chromatic Research, Inc., prior to their acquisition by ATI Research Valley, Inc., in November 1998. From 1987 to 1998, Mr. Aspacio held a variety of engineering positions at Advanced Micro Devices, Inc. Mr. Aspacio holds B.S. and M.S. degrees in Electrical Engineering from San Jose State University.

     ANTHONY G. BOZZINI joined Pixelworks in June 2008 as Vice President, Worldwide Sales. Mr. Bozzini was promoted to Executive Vice President, Sales and Marketing in February 2009. Prior to joining Pixelworks, Mr. Bozzini was the Vice President of Worldwide Sales for

GCT Semiconductor, Inc., from January 2008 to June 2008. From May 2003 to January 2008, he held the position of Vice President of Sales and Marketing at FyreStorm, Inc., a privately held venture-backed start up. From November 2001 to February 2003, Mr. Bozzini was Co-Founder, Chairman and CEO of I-Control Security, Inc., (Atrua Technologies, Inc.) a privately held venture-backed start up. From May 2000 to February 2001, Mr. Bozzini was the Co-Founder and Vice President of Sales and Marketing of DotRocket, Inc., a privately held venture-backed start up. From January 1998 to May 2000, Mr. Bozzini served as the Vice President of Sales for Veridicom International; a privately held venture-backed start up. From July 1993 to November 1997, Mr. Bozzini held various sales management positions at Cirrus Logic, Inc., his last being Vice President of Corporate Sales. Mr. Bozzini holds a B.S. degree in Economics from Santa Clara University.

     TZOYAO (T) CHAN joined Pixelworks in January 2009 as Senior Vice President, Engineering. Prior to joining Pixelworks, Mr. Chan most recently served as the General Manager and Executive Senior Vice President of C2 Microsystems, Inc., and as the Senior Vice President of Engineering at Tzero Technologies, Inc. From 1999 to 2006, Mr. Chan held the position of Vice President and then Senior Vice President of Engineering with Genesis Microchip, Inc.; a provider of solutions for LCD monitor, device interconnect, image enhancement and analog and digital TV systems. From 1997 to 1999 Mr. Chan was the Vice President of Engineering at Paradise Electronics, Inc., which merged with Genesis Microchip, Inc., in 1999. From 1993 to 1997, Mr. Chan held the position of Engineering Director, Multi-Media Products at Cirrus Logic, Inc. Prior to his service at Cirrus Logic, Mr. Chan held various design management positions at S3 Inc., Chips and Technologies, Inc., LSI Logic Corporation, Intel Corporation and Bell Labs Inc. Mr. Chan registered 11 U.S. patents in the areas of computer architecture, mixed-signal design and MPEG technologies. Mr. Chan holds a B.S. degree from National Taiwan University, a M.S. degree from State University of New York at Stony Brook, and a Ph.D from the University of Arizona.

     SHELLEY B. HILDERBRAND joined Pixelworks in 2003 as Internal Controls Manager. Ms. Hilderbrand was promoted to Accounting Manager in December 2003, Corporate Controller in June 2004 and Vice President, Finance in March 2008. Prior to joining Pixelworks, Ms. Hilderbrand worked in audit at KPMG LLP. Ms. Hilderbrand holds a B.A. degree in International Business from Linfield College and a Post-Baccalaureate Accounting Certificate from Portland State University. Ms. Hilderbrand is a CPA.

     JOHN Y. LAU joined Pixelworks in January 1999 as Foundry Manager. Mr. Lau was promoted to Vice President, Operations in January 2001 and during 2006 became Vice President, China Site Management and Manufacturing and was promoted to Senior Vice President, China General Manager in March 2010. From 1991 to 1999, Mr. Lau held various management positions in process and product engineering at Matsushita Semiconductor of America with his last position being Wafer Fab Production Manager. From 1989 to 1991, Mr. Lau held the position of Engineering Manager for the BICMOS product line at National Semiconductor Corporation. From 1979 to 1989, Mr. Lau held various engineering and engineering management positions in memory and bipolar products at Texas Instruments Incorporated. Mr. Lau holds a B.S.E.E. from the University of Arkansas and an M.S.E.E. from Texas Technical University.

     HONGMIN (BOB) ZHANG joined Pixelworks in January 2002 as Vice President, Technology after Pixelworks’ acquisition of nDSP Corporation. In February 2007, Dr. Zhang also became our Chief Technology Officer. Dr. Zhang was promoted to Senior Vice President, Technology and Chief Technology Officer in January 2010. From 1998 to 2001, Dr. Zhang held the position of Chief Technical Officer of nDSP, which he co-founded in 1997. From 1993 to

1997, Dr. Zhang served as President of Aptronix Inc., a pioneer in fuzzy logic, and, from 1989 to 1993, he served as Chief Technical Officer. From 1988 to 1989, Dr. Zhang held the position of Vice President of Research and Development at Apt Instruments, Ltd., which was renamed Aptronix Inc. From 1986 to 1988, Dr. Zhang held the position of Chief Scientist at Machine Intelligence Corp. in Beijing and served as an Editorial Board Member of the Journal of Fuzzy Systems and Mathematics. From 1985 to 1986, Dr. Zhang held the position of Research Scientist at the Air Force Institute of Engineering in Xian. Dr. Zhang registered 12 international patents on fuzzy logic and expert systems technologies and holds a Ph.D. in Mathematics from Beijing Normal University, China.

Compensation Committee Report

     The information contained in the report below does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent the Company specifically incorporates it by reference therein.

     The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be furnished in this Proxy Statement and incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Respectfully submitted,

Mark Christensen, Chairman
James Fiebiger
C. Scott Gibson
Daniel Heneghan

Compensation Discussion and Analysis

Overview

     This Compensation Discussion and Analysis describes the material elements of compensation awarded to, earned by or paid to the following employees:

	•		All individuals who served as the Company’s Chief Executive Officer (“CEO”) at any time during 2009;
	•		All individuals who served as the Company’s Chief Financial Officer (“CFO”) at any time during 2009; and
	•		The Company’s three other most highly compensated executive officers.

     These individuals are listed in the “Summary Compensation Table” below and referred to in this Proxy Statement as the “Named Executive Officers” or the “Executives.”

Role of the Compensation Committee

     The Compensation Committee is responsible for overseeing the Company’s compensation programs. As part of that responsibility, the Compensation Committee determines all compensation for the Company’s Named Executive Officers. For Executives other than the

CEO, the Compensation Committee considers the recommendation of the CEO in making its compensation determinations. In addition, the Compensation Committee may delegate to one or more executive officers of the Company the power to grant options or other stock awards pursuant to the Company’s equity-based plan to individuals who are not Directors or executive officers of the Company. During 2009 the Compensation Committee delegated its limited authority to management to grant new hire equity awards within preapproved ranges.

     The Compensation Committee retained the services of Meyercord & Associates (“Meyercord”) as compensation consultant for 2009 to advise the Compensation Committee on marketplace trends in executive compensation, management proposals for compensation programs, appropriate comparison companies and determination of Named Executive Officer compensation. To maintain the independence of the firm’s advice, Meyercord did not provide any other services for Pixelworks, Inc. and the Compensation Committee must approve any other services performed by the consultant.

Executive Compensation Program Objectives and Principles

     The objectives of the Company’s executive compensation program are as follows:

	1.		Attract the best executives to the Company;
	2.		Induce them to make a long-term commitment to the Company; and
	3.		Reward them for their contributions to the Company’s strategic and financial success and for creating shareholder value.

     The Compensation Committee’s executive compensation decisions are based on the following core principles:

	1.		Link pay to performance. The components of our executive compensation package are linked to individual contribution as well as corporate results. Long-term incentive awards, granted in the form of stock options or restricted stock awards, are designed to reward executive officers for the creation of long-term shareholder value.
	2.		Provide competitive compensation. Our compensation programs are designed to be competitive within the various markets in which we compete for executive talent.
	3.		Establish levels of compensation that are appropriate for the size and financial condition of the Company.

Data Considered in Determining Executive Compensation

     In establishing executive compensation, the Compensation Committee generally reviews the compensation practices of other similarly situated companies as background information for its compensation decisions. However, due to the unusual and significant impact of the global economic recession on the Company during 2009, and to the related decision to temporarily reduce Executive and Board compensation during the year, the Compensation Committee did not consider compensation data from a specific group of peer companies during 2009.

Elements of Our Executive Compensation Program

     Our executive compensation program consists of fixed and variable cash compensation and equity-based compensation. When setting executive compensation, the Compensation

Committee does not target a specific mix of fixed and variable compensation; however, the Compensation Committee does believe that variable cash compensation and equity-based compensation should constitute a significant portion of total compensation and that compensation should vary based on performance.

     Additionally, the Compensation Committee does not target a specific mix of short-term variable compensation and long-term variable compensation. Typically, cash incentives are awarded after consideration of the accomplishment of financial and product and market development goals, and long-term incentives are aimed at aligning the interests of Executives with those of shareholders by focusing on long-term growth and stock performance. The Compensation Committee views all of these objectives as critical.

     The following narrative describes each component of our executive compensation program, explains why each is included in the program and provides details of certain specific compensation arrangements for the Named Executive Officers for 2009.

Base Salaries

     The Compensation Committee believes that it is appropriate for Executives to receive a competitive level of guaranteed compensation in the form of a base salary. Base salaries provide a stable source of fixed income for the Executives and help promote retention.

     With the exception of Mr. Walicek’s Employment Agreement, none of our Executives have employment agreements or other contractual rights to receive fixed base salaries. Instead, base salaries for the Executives are determined by the Compensation Committee based on its annual review. When determining the appropriate base salary for each Executive, the Compensation Committee considers a variety of factors, such as the Executive’s experience, job responsibilities and performance, the base salaries paid for similar positions requiring similar qualifications within the industry, and recommendations from the CEO (as to Executives other than himself). No specific weight is attached to any of these factors in establishing base salaries, and the emphasis placed on each factor may differ from individual to individual.

     Effective April 1, 2009, the Compensation Committee approved an amended and restated employment agreement with Mr. Walicek, which included a reduction in his salary of 15%. Additionally, effective April 1, 2009, the Compensation Committee reduced Mr. Moore’s salary by 15% and implemented a 10% salary reduction for all other Named Executive Officers. These reductions were made to reduce costs in response to the global economic recession which significantly decreased the Company’s revenue and forecasted outlook during the first half of 2009. In December 2009, the Compensation Committee approved the reinstatement of the Executives’ salaries to their prior levels effective January 1, 2010 based on significant improvements in the Company’s revenue and forecasted outlook.

     The base salary earned by each Executive during 2009 is reported in the “Summary Compensation Table” below.

Annual Cash Incentives

     The Named Executive Officers are generally eligible to receive cash bonuses each year as determined by the Compensation Committee. In accordance with our compensation program objectives related to rewarding Executives for their contributions to the Company’s strategic and

financial success, the Compensation Committee’s intent is to set challenging yet attainable financial and operational goals for the Executives to work toward in the coming year.

     In August 2009, the Compensation Committee adopted non-binding performance measures to serve as guidelines for the Compensation Committee’s assessment of the amount of any bonuses to be awarded to our Named Executive Officers in 2009. The committee retained full discretion in determining whether any bonuses would be awarded, regardless of whether any specific performance levels were attained. These performance guidelines were based on the Company’s activities and results during the second half of 2009 and included the following:

	•		Revenue;
	•		Non-GAAP earnings before interest, taxes, depreciation and amortization (“EBITDA”);
	•		Achievement of seven specific operational measures related to sales and marketing of new products; and
	•		Achievement of eight specific operational measures related to new product design and engineering.

     Additionally, the Compensation Committee determined that no bonus would be paid unless the Company’s revenue and EBITDA exceeded $35.0 and $3.0 million, respectively, during the second half of 2009.

     The 2009 target bonus for Mr. Walicek was equal to 100% of his annual base salary during the second half of 2009, and the 2009 target bonus for the other Executives was equal to 50% of their annual base salaries during the second half of 2009. Although target bonus rates were unchanged from their 2008 levels, the Compensation Committee found it appropriate to limit the performance guidelines and applicable base salaries to the second half of 2009 in order to provide a more accurate assessment of management’s performance given the dramatic decrease in the worldwide economy during the first half of 2009.

     Each performance guideline was assigned a weight that represented the maximum percentage of the Executive’s target bonus that could be earned for that performance guideline when all of the goals related to the performance guideline were met. The revenue and EBITDA guidelines were assigned a weighting of 20% each. The seven specific operational measures pertaining to sales and marketing of new products were assigned a total weighting of 30%, and the eight specific operational measures pertaining to new production design and engineering were assigned a total weighting of 30%.

     Achievement of specific operational measures resulted in a 12.5% — 25% recognition of the weight assigned to the associated grouping of operational performance guidelines. Achievement of the financial performance guidelines was calculated based on achievement of the following levels of actual revenue and EBITDA during the second half of 2009:

Measure				Range		Achivement
Revenue				less than $35.0 million			0	%
				$35.0 - $36.0 million			25	%(1)
				$36.0 - $37.0 million			75	%(2)
				greater than $37.0 million			100	%
EBITDA				less than $3.0 million			0	%
				$3.0 - $4.0 million			25	%(3)
				$4.0-$5.0 million			75	%(4)
				greater than $5 million			100	%

     In the second half of 2009, the minimum targets for both the revenue and EBITDA guidelines were achieved. Revenue for the second half of fiscal 2009 was $36.1 million, resulting in achievement of 75.5% of the 20% weight assigned to the revenue guideline. EBITDA for the second half of 2009 was $3.3 million, resulting in achievement of 40% of the 20% weight assigned to the EBITDA guideline. Of the seven specific operational measures pertaining to sales and marketing of new products, two specific measures were achieved in the second half of fiscal 2009, resulting in achievement of 25% of the 30% target weight assigned to the operational guideline related to sales and marketing of new products. Of the eight specific operational measures pertaining to new product design and engineering, two of the specific measures were achieved in the second half of fiscal 2009, resulting in achievement of 25% of the 30% target weight assigned to the new product design and engineering performance guideline. The cumulative weighted average achievement for all performance measures was 38.5%.

     After consideration of the Company’s performance as described above and its subjective assessment of each Executive’s individual performance during the year, the Compensation Committee determined that each of the Named Executive Officers would receive a bonus equal to 38.5% of his target bonus for 2009. The 2009 bonuses are reported in the bonus column of the “Summary Compensation Table” below and were paid during the first quarter of 2010.

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(1)		These columns represent the aggregate grant date fair value of restricted stock and stock option awards granted during the applicable year calculated in accordance with ASC Topic 718. Prior to 2009, SEC rules required that this table disclose the equity compensation expense recognized by the Company during the applicable year for financial statement purposes. The recent changes in the SEC’s disclosure rules require that the stock award and option award amounts in the applicable columns of the table above, with respect to 2008 and 2007, now be presented on a similar basis as the 2009 presentation using the grant date fair value of the awards granted during the corresponding year. Accordingly, the values reported for 2007 and 2008 have been recalculated and are also now reported in the table above based on the aggregate grant date fair value. As a result, each Named Executive Officer’s total compensation amounts for 2008 and 2007 also differ from the amounts previously reported in the Company’s Summary Compensation Table for these years. For additional information on the valuation assumptions used for the grants, see Note 10 to the Company’s consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. For information on the valuation assumptions used for grants made prior to 2009, see the notes to the Company’s consolidated financial statements regarding stock-based compensation in our Annual Report on Form 10-K for the respective year. See the “Grants of Plan Based Awards” table below for information on equity awards granted to the Named Executive Officers in 2009.
(2)		Represents discretionary bonuses approved by the Compensation Committee in recognition of the Executive’s performance during the second half of 2009 as described in the “Compensation Discussion and Analysis” above.
(3)		Mr. Chan joined the Company on January 1, 2009.
(4)		Consists of a $50,000 signing bonus awarded to Mr. Chan to incentivize him to join Pixelworks and a $23,100 discretionary bonus approved by the Compensation Committee in recognition of the Executive’s performance during the second half of 2009.
(5)		Mr. Lau’s other compensation consists of the following expatriate and other benefits for 2009:

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(1)		Represents the grant date for equity-based awards reported in the table.
(2)		Each option reported in the table was granted with a per-share exercise price equal to the fair market value of a share of the Company’s common stock on the grant date.
(3)		Represents the aggregate grant date fair value of restricted stock and stock option awards calculated in accordance with ASC Topic 718. The aggregate grant date fair value is the amount the Company expects to recognize as expense in its consolidated statement of operations over the requisite service period, generally the vesting period. For information on the assumptions made in determining ASC Topic 718 values see Note 10 to the Company’s consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. These amounts reflect the grant date fair value of the award and do not correspond to the actual value that will be realized by the Executives.
(4)		The options have a term of ten years and were granted with monthly vesting on a straight-line basis over a three year period.
(5)		The restricted stock award was granted with monthly vesting on a straight-line basis over a three year period. Prior to the time the shares become vested, Mr. Walicek generally does not have the right to dispose of the restricted shares, but does have voting rights with respect to the shares. Any dividends paid on the restricted shares prior to vesting will be subject to the same vesting requirements as the underlying shares.
(6)		The options have a term of ten years and vest at a rate of 25% on January 1, 2010 and 2.08% per month thereafter, for an additional three years.

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(1)		Options were granted due to Mr. Walicek’s service on the Board of Directors.
(2)		Options were granted due to Mr. Walicek’s service on the Board of Directors. Options vest monthly from January 1, 2010 through May 23, 2010.
(3)		Options were granted due to Mr. Walicek’s service on the Board of Directors. Options vest monthly from January 1, 2010 through May 22, 2011.
(4)		Options vest monthly from January 1, 2010 through December 31, 2011.
(5)		Options vest monthly from January 1, 2010 through March 31, 2012.
(6)		Options vest monthly from January 1, 2010 through July 31, 2011.
(7)		Options vest monthly from January 1, 2010 through February 28, 2011.
(8)		Options vest monthly from January 1, 2010 through March 31, 2011.
(9)		Options vest 30,000 on January 1, 2010, vesting monthly thereafter through January 31, 2013.
(10)		Options vest monthly from January 1, 2010 through February 15, 2010.

(1)		Restricted stock vests monthly from January 1, 2010 through March 31, 2012. The “market value” of the shares shown above is determined by multiplying the number of shares reported in the table by $3.04 (the closing price of the Company’s common stock on the last trading day of 2009).

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(1)		As noted above, the level of Mr. Moore, Mr. Chan, and Mr. Zhang’s severance benefits in the context of a change of control depend on whether the involuntary termination occurs within twelve months after the change in control. For purposes of this table, we have assumed that the involuntary termination occurred within twelve months after the change in control.

(1)		Excludes purchase rights under the 2000 Employee Stock Purchase Plan (the “2000 ESPP”). Under the 2000 ESPP, each eligible employee may purchase shares of the Company’s common stock at semi-annual intervals at a purchase price per share equal to 85% of the

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		lower of (i) the fair market value of the common stock on the offering date or (ii) the fair market value on the semi-annual purchase date.
(2)		Includes 220,735 shares that were available for future issuance under the 2000 ESPP and 1,294,527 shares that were available for future issuance under the 2006 Plan. The shares available for awards under the 2006 Plan are, subject to certain other limits under the plan, generally available for any type of award authorized under that plan, including stock options, stock appreciation rights, restricted and unrestricted stock awards and other stock-based awards. This column does not include the 1,000,000 additional shares that would be available for issuance under the 2006 Plan if shareholders approve the proposed amendments to the 2006 Plan or the 1,300,000 shares that would be available for issuance under the new ESPP if shareholders approve the new ESPP proposal.
(3)		Consists of the Company’s 2006 Stock Incentive Plan, as amended, 1997 Stock Incentive Plan, as amended, and the 2000 ESPP. With the adoption of the 2006 Stock Incentive Plan, the right to issue any awards under the 1997 Stock Incentive Plan was terminated.
(4)		Consists of the Company’s 2001 Nonqualified Stock Option Plan, which allowed for option grants to employees and consultants (not officers and Directors) of the Company; the Equator Technologies, Inc. 1996 Stock Option Plan; and individual stock option plans assumed in connection with our acquisition of Equator Technologies, Inc. With the adoption of the 2006 Plan, the right to issue any awards under these plans was terminated. Each of these plans and arrangements are administered by our Compensation Committee.

(1)		Audit Fees: Consists of fees billed for services rendered for the integrated audit of the Company’s annual financial statements and reviews of the Company’s interim condensed consolidated financial statements. Also includes fees billed for reviews of registration statements.

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(2)		Tax Fees: Consists of fees billed for tax compliance and preparation services related to certain expatriate employee tax returns.

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	BY ORDER OF THE BOARD OF DIRECTORS
	Bruce A. Walicek
	President and Chief Executive Officer

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A-1

A-2

1		The current aggregate share limit for the Plan is 3,483,333 shares. Shareholders are being asked to approve amendments to this Plan that would increase this aggregate Share Limit by an additional 1,000,000 shares (so that the new aggregate share limit for the Plan would be 4,483,333 shares).

A-3

2		Shareholders are being asked to approve an increase in this limit from 3,483,333 shares to 4,483,333 shares.

A-4

A-5

3		The current annual limit on grants of Options and SARs to any one individual under this Plan is 100,000 shares, with an additional 100,000 shares being available for grants of Options and SARs to an individual in connection with his or her initial employment with the Company or a Parent or Subsidiary. Shareholders are being asked to approve an increase in each of these limits from 100,000 shares to 250,000 shares.

A-6

A-7

A-8

A-9

A-10

A-11

A-12

A-13

B-1

B-2

B-3

B-4

B-5

B-6

B-7

B-8

B-9

B-10

B-11

B-12

B-13

B-14

B-15

B-16