AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

PIXELWORKS, INC.

(Exact name of registrant as specified in its charter)

OREGON                         3674                            91-1761992
(State or other jurisdiction        (Primary Standard                  (I.R.S. Employer
of                        Industrial                   Identification Number)
Incorporation or Organization)  Classification Code Number)

7700 SW MOHAWK
TUALATIN, OREGON 97062
(503) 612-6700
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)

ALLEN H. ALLEY
PRESIDENT
PIXELWORKS, INC.
7700 SW MOHAWK
TUALATIN, OREGON 97062
(503) 612-6700
(Name, address, including zip code and telephone number,
including area code, of agent for service)
--------------------------

COPIES TO:

WILLIAM C. CAMPBELL, ESQ.                           ERIC S. HAUETER, ESQ.
STEPHEN M. GOING, ESQ.                           MICHAEL F. TAYLOR, ESQ.
ATER WYNNE LLP                                   BROWN & WOOD LLP
222 S.W. Columbia, Suite 1800                   555 California Street, Suite 5000
Portland, OR 97201                             San Francisco, CA 94104
(503) 226-1191                                    (415) 772-1200

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box: / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 ("Securities Act"), other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: / /

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

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

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED         OFFERING PRICE(1)           AMOUNT OF REGISTRATION FEE

Common Stock, $0.001 par value...................             $75,000,000                      $19,800.00

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.

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

SUBJECT TO COMPLETION, DATED FEBRUARY 25, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS

SHARES

[LOGO]

COMMON STOCK
$   PER SHARE

---------

We are selling       shares of common stock. The underwriters named in this
prospectus may purchase up to       additional shares of common stock from us to
cover over-allotments.

This is an initial public offering of our shares of common stock. We
currently expect the initial public offering price to be between $         and
$         per share. We have applied to have our shares of common stock included
for quotation on the Nasdaq National Market under the symbol "PXLW."

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

INVESTING IN OUR SHARES OF COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.

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

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

PER SHARE                TOTAL
--------------         --------------

Public Offering Price                                         $                      $
Underwriting Discount                                         $                      $
Proceeds to Pixelworks (before expenses)                      $                      $

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2000.

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

Salomon Smith Barney                                   Deutsche Banc Alex. Brown

SG Cowen

E*OFFERING

, 2000

[INSIDE FRONT COVER]

Description of Inside Cover Art

The graphic is entitled "Pixelworks System-on-a-Chip Solutions Enable the
Display of Broadband Content." A paragraph of text reads: "Pixelworks opens up
the "last meter" by interpreting and optimizing video, computer graphics and Web
information for display on a wide variety of devices used in business and
consumer markets. We specialize in cost effective system-on-a-chip and embedded
software solutions for high-speed digital, analog and video signal processing."

The page uses a stylized illustration of a representation of a pipeline with
a representation of an ImageProcessor integrated circuit linked to various
display devices. At the top is a human eye with a representation of a globe
positioned in place of the iris. At the bottom of the illustration are
representations of various forms of visual broadband content, including five
boxes containing illustrations of the following from left to right: a person
speaking as if involved in an online conference; a screen from an e-commerce
shopping site for clothing; a drawing of football players; a screen of financial
data showing a growth chart; and a drawing of two characters in a futuristic
sword fight to represent movie content. The following words are positioned
adjacent to the five boxes: "PC Graphics," "Web Content," and "Video." The pipe
is drawn using perspective with the end at the bottom of the page appearing to
be distant with the pipe labeled "The Broadband Pipe." At the opening at the top
is an illustration of an ImageProcessor IC with a Pixelworks logo on the top of
the chip. Five illustrations of display devices surround the integrated circuit
from left to right as follows: small LCD monitor, rear projection, wide-screen
television, a Web tablet, a plasma display and multimedia projector.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

PAGE
--------

Prospectus Summary..........................................      3
Risk Factors................................................      7
Special Note Regarding Forward-Looking Statements...........     21
Use of Proceeds.............................................     22
Dividend Policy.............................................     22
Capitalization..............................................     23
Dilution....................................................     24
Selected Financial Data.....................................     25
Management's Discussion and Analysis of Financial Condition      26
and Results of Operations.................................
Business....................................................     34
Management..................................................     46
Certain Transactions........................................     54
Principal Shareholders......................................     56
Description of Capital Stock................................     58
Shares Eligible for Future Sale.............................     63
Underwriting................................................     65
Legal Matters...............................................     67
Experts.....................................................     67
Where You Can Find More Information.........................     67
Index to Financial Statements...............................    F-1

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

Until          , 2000, all dealers that buy, sell or trade the shares of
common stock, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
--------------

This prospectus includes trademarks and tradenames of companies other than
Pixelworks, Inc.

PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
SINCE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY AND
CONSIDER THE INFORMATION UNDER "RISK FACTORS" AND IN OUR FINANCIAL STATEMENTS
AND THE NOTES RELATING TO THESE FINANCIAL STATEMENTS, TOGETHER WITH THE
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS, BEFORE DECIDING WHETHER TO
INVEST IN OUR SHARES OF COMMON STOCK. OUR FISCAL YEAR ENDS ON DECEMBER 31.
EXCEPT WHERE OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS IS BASED UPON
INFORMATION AS OF DECEMBER 31, 1999.

OUR COMPANY

We design and develop complete system-on-a-chip solutions that enable the
visual display of broadband content through a wide variety of electronic
devices. Broadband content includes a combination of video and data delivered to
users at high speeds. Enhancing access to broadband information has typically
been associated with increasing bandwidth over the "last mile." We are focused
on the "last meter," where the information is processed and displayed. In the
last meter, there is an increasing requirement to rapidly process large amounts
of data delivered using a multitude of broadcast and Web protocols. Our
system-on-a-chip solutions open up the last meter by interpreting and optimizing
video, computer graphics, and visual Web information for display on a wide
variety of devices.

We design our solutions to combine our highly integrated system-on-a-chip
integrated circuits, or ICs, with easy to use, feature-rich software. We
pioneered our design architecture in technically demanding high-end display
markets such as high-resolution flat panel monitors and multimedia projectors.
In December 1998, we introduced our ImageProcessor IC which we believe to be the
world's first single-chip flat panel display controller. We have developed
additional products that extend our solutions into existing high-volume, mass
markets such as XGA-resolution flat panel monitors. We intend to develop
solutions for emerging mass-market segments such as Internet appliances, where
we can leverage our system-on-a-chip expertise.

Our system-on-a-chip solutions enable the creation of differentiated
products and reduce circuit board size and lower development costs while
enhancing product performance. Our systems-level architecture gives our
customers a high degree of flexibility to optimize and customize their products.
This significantly improves their time to market for an expanding array of
broadband appliances, the electronic devices that process and display broadband
content. We have announced products in production with Compaq, Sony and
ViewSonic, and have more than 45 customers, including seven out of the top 10
monitor brands and 10 out of the top 15 television brands. Currently more than
75 products are in development or production using our ImageProcessor
system-on-a-chip solutions.

Today, the convergence of television and computer applications is creating
new development opportunities for display devices that integrate the ability to
process full motion video and support interactive capabilities. This convergence
results in increased requirements for throughput and a corresponding higher
level of complexity in processing, interpreting and displaying information.
While significant growth is forecasted for display devices, the increasing need
to rapidly process large amounts of data delivered using a multitude of
broadcast and Web protocols could constrain this growth. This bottleneck limits
end users' ability to access the full visual potential of broadband content.

Our highly integrated solution, the ImageProcessor system-on-a-chip, breaks
through this bottleneck. Our system-on-a-chip solutions are capable of
interpreting and optimizing high-speed video, computer graphics and Web
information in real time. Our products can also process analog and digital input
sources ranging from VGA to QXGA computer resolutions and the latest high
definition television standards. We enable our customers to quickly integrate
our products into their own

3

advanced display development programs with our hardware and software solutions.
We provide our customers with a new design approach that lets them address all
of their display solutions within a single architectural platform that is
software compatible across product lines.

We have embraced a systems architecture design process rather than a
discrete component-based design process. Our tested and proven solutions have
the advantage of combining an embedded microprocessor and corresponding
peripherals with embedded memory. This approach enables our customers to
substantially increase functionality, reduce time to market, and lower overall
development costs in highly efficient designs that support miniaturization. Our
highly integrated design enables our customers to significantly reduce the
selection, sourcing, testing, integration, debugging, and design of separate
components by combining as many as 10 separate components into a single chip.

Key benefits of our solution include:

- consistent, scalable architecture across multiple products;

- broad compatibility with a range of input sources and interface standards;

- a large suite of features required for the most demanding applications;
and

- rapid time to market with lower development costs.

Our objective is to be a leading provider of system-on-a-chip solutions
enabling universal access to broadband content through a wide array of targeted
devices in consumer and business markets.

The key elements of this strategy are:

- design and sell increasingly integrated systems-level solutions on single
chips;

- deliver highly flexible, scalable and programmable solutions;

- expand from high-end markets into mass markets;

- support and define industry standards; and

- build strategic relationships.

CORPORATE INFORMATION

We were incorporated in Oregon on January 16, 1997. Our principal executive
office is located at 7700 SW Mohawk, Tualatin, Oregon 97062 and our telephone
number is 503-612-6700. Our World Wide Web address is www.pixelworksinc.com.
Information on our Web site does not constitute part of this prospectus.

4

THE OFFERING

Common stock offered.........................  shares

Common stock to be outstanding after the
offering...................................  shares

Use of proceeds..............................  For working capital and for general corporate
purposes. See "Use of Proceeds."

Proposed Nasdaq National Market symbol.......  PXLW

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

Unless otherwise indicated, all information in this prospectus, including
the outstanding share information above is based on the number of shares
outstanding as of December 31, 1999 and:

- gives effect to the issuance of 2,239,212 shares of Series D preferred
stock issued on February 22, 2000;

- gives effect to the automatic conversion of all outstanding shares of
preferred stock into 13,139,219 shares of common stock immediately prior
to the completion of the offering;

- reflects a       -for-      stock split which will be effected prior to
the offering;

- excludes 1,942,838 shares of common stock issuable upon the exercise of
options outstanding at December 31, 1999 at a weighted average exercise of
$1.49 per share;

- excludes 1,936,494 shares of common stock available for issuance under our
1997 stock incentive plan;

- excludes 1,000,000 shares of common stock available for issuance under our
2000 employee stock purchase plan; and

- assumes no exercise of the underwriters' over-allotment option.

5

SUMMARY FINANCIAL INFORMATION

The following table sets forth our summary financial data. You should read
this information together with our financial statements, the notes to those
statements beginning on page F-1 of this prospectus, the information under
"Selected Financial Data," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

The pro forma numbers in the table give effect to:

- proceeds from the issuance of 2,239,212 shares of Series D preferred stock
on February 22, 2000; and

- the conversion of all outstanding shares of preferred stock into
13,139,219 shares of common stock immediately prior to the completion of
the offering.

The capitalization on a pro forma as adjusted basis reflects the sale of
shares of common stock offered by us at an assumed initial offering price
of $         per share after deducting the underwriting discount and estimated
offering expenses payable by us, and the receipt of net proceeds from this
offering.

PERIOD FROM
JANUARY 16, 1997         YEARS ENDED
(DATE OF INCEPTION)       DECEMBER 31,
TO DECEMBER 31,     --------------------
1997             1998       1999
-------------------   --------   ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Total revenue........................................        $   400         $   978     $12,812
Gross profit.........................................            376             956       4,443
Loss from operations.................................           (429)         (1,804)     (5,293)
Net loss.............................................        $  (376)        $(1,603)    $(4,887)
=======         =======     =======
Net loss per share, basic and diluted................        $ (0.68)        $ (0.91)    $ (2.30)
=======         =======     =======
Weighted average shares of common stock
outstanding........................................            552           1,774       3,981
Pro forma net loss per share, basic and diluted
(unaudited)........................................                                    $ (0.57)
=======
Shares used in computing pro forma net loss per
share, basic and diluted (unaudited)...............                                     16,228

AS OF DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL     PRO FORMA   AS ADJUSTED
---------   ---------   -----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................   $12,199     $38,749
Working capital..........................................    12,770      39,320
Total assets.............................................    18,394      46,944
Long-term obligations, net of current portion............       591         591
Redeemable convertible preferred stock...................    23,701          --
Total shareholders' equity (deficit).....................   $(9,295)    $42,956

6

RISK FACTORS

INVESTING IN OUR SHARES OF COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF
ANY OF THE FOLLOWING RISKS OCCUR, THE MARKET PRICE OF OUR SHARES OF COMMON STOCK
COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.

RISKS RELATED TO OUR OPERATIONS

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS.

We were founded in 1997 and have a limited operating history, which makes an
evaluation of our future prospects difficult. In addition, the revenue and
income potential of our business and markets are unproven. We began shipments of
our first product in December 1998. Accordingly, we face risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets. If we do not successfully address these risks and difficulties, we
would likely not achieve anticipated levels of revenue growth. In this event, we
would be unable to achieve profitability or build a sustainable business.

WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION, AND WE MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY.

We incurred net losses of approximately $376,000, $1.6 million and $4.9
million in 1997, 1998 and 1999, respectively, and had an accumulated deficit of
approximately $6.9 million as of December 31, 1999. In the future we expect our
research and development and selling, general and administrative expenses to
increase. In addition, we will incur substantial non-cash charges relating to
the amortization of deferred stock compensation. Accordingly, we expect to
continue to incur additional operating losses for at least the next 12 months,
and these losses may be substantial. Although we have experienced revenue growth
in recent quarters, this growth is not necessarily indicative of future
operating results, and we cannot assure you that we will be able to sustain the
growth in our revenues. We cannot be certain that we will achieve profitability
or that, if we do, that we can sustain or increase profitability on a quarterly
or annual basis in the future or at all. This may in turn cause the price of our
common stock to decline. In addition, if we do not achieve or sustain
profitability in the future, we may be unable to continue our operations.

FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAKE IT DIFFICULT TO PREDICT OUR
FUTURE PERFORMANCE AND MAY RESULT IN VOLATILITY IN THE MARKET PRICE OF OUR
COMMON STOCK.

Our quarterly operating results are likely to vary significantly in the
future based on a number of factors related to our industry and the markets for
our products, some of which are not in our control and any of which may cause
the price of our common stock to fluctuate. These factors include:

- demand for flat panel monitors, advanced television displays, multimedia
projectors and Internet appliances;

- demand for our products and the timing of orders for our products;

- the deferral of customer orders in anticipation of our new products or
product enhancements or due to a reduction in our customers' end demand;

- the loss of one or more of our key distributors or customers or a
reduction, delay or cancellation of orders from one or more of these
parties;

- changes in the available production capacity at the semiconductor
fabrication foundries that manufacture our products and changes in the
costs of manufacturing;

- our ability to provide adequate supplies of our products to customers and
avoid excess inventory;

7

- announcement or introduction of products and technologies by our
competitors;

- changes in product mix, product costs or pricing, or distribution
channels; and

- general economic conditions and economic conditions specific to the
personal computer, display and semiconductor markets.

These factors are difficult to forecast, and these or other factors could
seriously harm our business. We anticipate the rate of new orders may vary
significantly from quarter to quarter. Our operating expenses and inventory
levels are based on our expectations of future revenues and our operating
expenses are relatively fixed in the short term. Consequently, if anticipated
sales and shipments in any quarter do not occur when expected, operating
expenses and inventory levels could be disproportionately high, and our
operating results for that quarter and, potentially, future quarters may be
negatively impacted. Any shortfall in our revenues would have a direct impact on
our business. In addition, fluctuations in our quarterly results could adversely
affect the price of our common stock in a manner unrelated to our long-term
operating performance. Because our operating results are volatile and difficult
to predict, you should not rely on the results of one quarter as an indication
of our future performance. It is likely that in some future quarter our
operating results will fall below the expectations of securities analysts and
investors. In this event, the price of our common stock may decline
significantly.

IF WE DO NOT ACHIEVE ADDITIONAL DESIGN WINS IN THE FUTURE, OUR ABILITY TO GROW
WOULD BE SERIOUSLY LIMITED.

Our future success will depend on developers of advanced display devices
designing our products into their systems. To achieve design wins we must define
and deliver cost-effective, innovative and integrated solutions. Once a
supplier's products have been designed into a system, the developer may be
reluctant to change its source of components due to the significant costs
associated with qualifying a new supplier. Accordingly, the failure on our part
to obtain additional design wins with leading branded manufacturers or
integrators, and to successfully design, develop and introduce new products and
product enhancements could harm our business, financial condition and results of
operations.

Achieving a design win does not necessarily mean that a developer will order
large volumes of our products. A design win is not a binding commitment by a
developer to purchase our products. Rather, it is a decision by a developer to
use our products in the design process of that developer's products. Developers
can choose at any time to discontinue using our products in their designs or
product development efforts. If our products are chosen to be incorporated into
a developer's products, we may still not realize significant revenues from that
developer, if that developer's products are not commercially successful.

WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCTS OR PRODUCT ENHANCEMENTS IN A TIMELY
MANNER.

Successful development and timely introduction of new or enhanced products
depends on a number of factors, including:

- accurate prediction of market requirements and evolving customer and
industry standards;

- development of advanced technologies and capabilities;

- definition of new products which satisfy customer requirements;

- timely completion and introduction of new product designs;

- use of advanced foundry processes and achievement of high manufacturing
yields; and

- market acceptance of the new products.

As a result of the increased challenges associated with more complex
mixed-signal designs, we have experienced increased development time and delays
in introducing new products. We will not always

8

succeed in developing new products or product enhancements or do so in a timely
manner. If we are not able to successfully develop and introduce our products in
a timely manner, our business and results of operations will be adversely
affected.

INTEGRATION OF SOFTWARE IN OUR PRODUCTS ADDS COMPLEXITY AND COST WHICH MAY
AFFECT OUR ABILITY TO ACHIEVE DESIGN WINS AND MAY AFFECT OUR PROFITABILITY.

Our products incorporate software and software development tools. The
integration of software adds complexity, may extend our internal development
programs and could impact our customers' development schedules. This complexity
requires increased coordination between hardware and software development
schedules and may increase our operating expenses without a corresponding
increase in product revenue. This additional level of complexity lengthens the
sales cycle and may result in customers selecting competitive products requiring
less software integration.

OUR HIGHLY INTEGRATED PRODUCTS ARE DIFFICULT AND COSTLY TO MANUFACTURE.

The manufacture of semiconductors is a complex process and it is often
difficult for semiconductor foundries to achieve acceptable product yields.
Product yields depend on both product design and the manufacturing process
technology unique to the semiconductor foundry. Given the increasing demands to
integrate additional system-level functionality and provide mixed-signal
system-on-a-chip solutions, our products are becoming more complex and
increasingly difficult to design, develop and manufacture. Because our products
are highly integrated and incorporate mixed signal and embedded memory
technology, yields are further reduced. Since lower yields may result from
either design or process difficulties, identifying yield problems may occur only
when our integrated circuits can be analyzed and tested in a system after they
have been manufactured. Failure to achieve expected yields may result in an
increase in our cost and delays in the availability of our products.

A SIGNIFICANT AMOUNT OF OUR REVENUES COMES FROM A FEW CUSTOMERS AND DISTRIBUTORS
AND ANY DECREASE IN REVENUES FROM, OR LOSS OF ANY OF, THESE CUSTOMERS OR
DISTRIBUTORS COULD SIGNIFICANTLY REDUCE OUR TOTAL REVENUES.

We are and will continue for the foreseeable future to be dependent on a
limited number of large customers for a substantial portion of our revenues. In
1999, sales to Tokyo Electron Device Limited, our Japanese distributor,
represented 54.8% of our total revenue and sales to MicroMax International
Corporation, our Taiwanese distributor, represented 23.6% of our total revenue.
In 1999, sales through Tokyo Electron Device to Seiko Epson Corporation and to
Hitachi, Ltd. represented 23.3% and 11.2% of our total revenue, respectively,
and sales through MicroMax to Optoma Corp., formerly known as CTX
Opto-Electronics Corporation, an integrator for Compaq Computer Corporation,
represented 13.4% of our total revenue. As a result of this customer
concentration, any one of the following factors could significantly impact our
revenues:

- a significant reduction, delay or cancellation of orders from one or more
of our key distributors, branded manufacturers or integrators; or

- a decision by one or more significant customers to select products
manufactured by a competitor, or its own internally developed solution,
for inclusion in future product generations.

The display manufacturing market is highly concentrated among relatively few
large manufacturers. We expect our operating results to continue to depend on
sales and revenues from a relatively small number of distributors that sell our
products to display manufacturers and their suppliers.

9

INTERNATIONAL SALES ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND IF WE
DO NOT SUCCESSFULLY ADDRESS THE RISKS ASSOCIATED WITH OUR INTERNATIONAL
OPERATIONS, OUR REVENUES COULD DECREASE.

Sales outside of the U.S. accounted for 0.0%, 51.1% and 92.8% of our total
revenue in 1997, 1998 and 1999, respectively. Most of our customers are located
outside of the U.S., primarily concentrated in Japan, Korea and Taiwan, with
aggregate sales from those three countries accounting for 89.7% of our total
revenue during the year ended December 31, 1999. We anticipate that sales
outside the U.S. will continue to account for a substantial portion of our
revenues in future periods. In addition, customers who incorporate our products
into their products sell them outside of the U.S., thereby exposing us
indirectly to foreign risks. In addition, all of our products are manufactured
outside of the U.S. We are, therefore, subject to many international risks,
including:

- difficulties in managing international distributors and manufacturers of
our products and components;

- foreign currency exchange fluctuations;

- potentially adverse tax consequences;

- difficulties regarding timing and availability of export and import
licenses;

- political and economic instability;

- tariffs and other barriers;

- reduced or limited protection of our intellectual property;

- burden of complying with complex foreign laws and treaties;

- increased transaction costs related to sales transactions conducted
outside of the U.S.;

- difficulties in maintaining sales representatives outside of the U.S. that
are knowledgeable of the display processor industry and our display
processor products;

- changes in the regulatory environment in Japan, Korea and Taiwan that may
significantly impact purchases of our products by our customers;

- difficulties in collecting accounts receivable; and

- difficulties related to design piracy of display processing technology
that may exist outside the U.S.

OUR DEPENDENCE ON SELLING THROUGH DISTRIBUTORS AND INTEGRATORS INCREASES THE
RISKS AND COMPLEXITY OF OUR BUSINESS.

A significant portion of our revenues depends on design wins with branded
manufacturers which rely on integrators or distributors to provide inventory
management and purchasing functions. Selling through distributors reduces our
ability to forecast sales and increases the complexity of our business,
requiring us to manage a more complex supply chain and monitor the financial
condition and credit worthiness of our distributors. Our failure to manage one
or more of these challenges could seriously harm our business.

WE DEPEND ON A LIMITED NUMBER OF CONTRACT MANUFACTURERS FOR OUR PRODUCTS, AND WE
MUST ORDER PRODUCTS FROM THEM BASED ON FORECASTS FROM OUR CUSTOMERS FROM WHICH
WE DO NOT HAVE FIRM PURCHASE ORDERS.

We do not own or operate a semiconductor fabrication facility and we do not
have the resources to manufacture our products internally. We rely on Toshiba
Corporation and Taiwan Semiconductor Manufacturing Company, third party
foundries for wafer fabrication and other contract manufacturers

10

for assembly and electrical testing of our products. We do not have a long-term
supply contract with any of our contract manufacturers, and they are not
obligated to supply us with products for any specific period, in any specific
quantity or at any specific price, except as may be provided in a particular
purchase order. We try not to maintain substantial inventories of products, but
need to order products long before we have firm purchase orders for those
products. None of our products is currently manufactured by more than one
supplier, and we expect that all of our products will continue to be
manufactured by a single third-party manufacturer. There are many risks
associated with our dependence on third-party manufacturing, assembling and
product testing relationships, including:

- delays in delivering products in response to purchase orders due to
increased demand, disruptions in operations or other factors;

- lack of control over pricing and being subject to material increases in
manufacturing costs without advance notice;

- reduced control over quality assurance and manufacturing yields;

- lack of guaranteed production capacity or product supply;

- unavailability or interruption of access to next-generation or key process
technologies necessary to manufacture our products; and

- potential misappropriation of our intellectual property.

Our requirements represent only a small portion of the total production
capacity of our contract manufacturers and they may reallocate capacity to other
customers even during periods of high demand for our products. If we are unable
to obtain our products from manufacturers on schedule, revenues from the sale of
those products may be delayed. If orders for our products are canceled, expected
revenues will not be realized.

BY SUBCONTRACTING SEPARATELY FOR THE PRODUCTION OF WAFERS FOR OUR
NEXT-GENERATION PRODUCTS, WE ARE ASSUMING RISKS THAT WE DO NOT CURRENTLY FACE.

Currently, we purchase packaged, assembled and tested products from contract
manufacturers. We expect that we will assume greater responsibility for this
process for our next-generation of products by subcontracting separately for the
production of wafers and for their assembly and testing. We intend to build some
future products on a customer owned tooling, or COT, basis, where we directly
contract the manufacture of wafers and the assembly and testing of our products.
If we do so, we will become subject to increased risks arising from wafer
manufacturing yields and associated with coordination of the manufacturing,
assembly and testing process. Failure to implement this approach to
manufacturing properly, would reduce our revenues and harm our gross margin and
results of operations.

WE ARE DEPENDENT ON OUR FOUNDRIES TO IMPLEMENT COMPLEX DEEP-SUBMICRON
SEMICONDUCTOR TECHNOLOGIES.

We are continuously developing new products on smaller geometry process
technologies in order to increase performance and functionality and reduce the
size of our products. We are dependent on our foundries to develop and provide
access to deep-submicron processes. We cannot be certain that future
deep-submicron processes will be achieved without difficulties, delays or
increased expenses. Our business, financial condition and results of operations
could be materially and adversely affected if such processes are unavailable,
substantially delayed or inefficiently implemented.

IF WE HAVE TO QUALIFY A NEW CONTRACT MANUFACTURER OR FOUNDRY FOR ANY OF OUR
PRODUCTS, WE MAY EXPERIENCE DELAYS THAT RESULT IN LOST REVENUES AND DAMAGED
CUSTOMER RELATIONSHIPS.

Our products require manufacturing with state-of-the-art fabrication
equipment and techniques. Because the lead time needed to establish a
relationship with a new contract manufacturer is at least

11

six months, and the estimated time for us to adapt a product's design to a
particular contract manufacturer's processes is at least four months, there is
no readily available alternative source of supply for any specific product. This
could cause significant delays in shipping products, which may result in lost
revenues and damaged customer relationships.

WE DEPEND ON KEY PERSONNEL TO DEVELOP OUR PRODUCTS AND TO MANAGE OUR BUSINESS
EFFECTIVELY, AND IF WE ARE UNABLE TO RETAIN OR HIRE ADDITIONAL PERSONNEL, OUR
REVENUES AND PRODUCT DEVELOPMENT EFFORTS COULD BE HARMED.

Our future success depends upon the continued services of our executive
officers, key hardware and software engineers, and sales, marketing and support
personnel, many of whom would be difficult to replace. The loss of one or more
of these employees could seriously harm our business. Particularly, because of
the highly technical nature of our business, the loss of key engineering
personnel could delay product introductions and significantly impair our ability
to successfully create future products. In particular, the loss of the services
of Allen Alley, our President, Chief Executive Officer and Chairman, Michael
West, our Vice President, Technology, or Robert Greenberg, our Vice President,
Product Development and Customer Support, could materially and adversely affect
us. We are currently planning to hire a significant number of additional
employees this year and in future periods, and we believe our success depends,
in large part, upon our ability to identify, attract and retain qualified
hardware and software engineers, and sales, marketing, finance and managerial
personnel. Competition for such personnel is intense and we may not be able to
retain our key personnel or identify, attract or retain other highly qualified
personnel in the future. We have experienced, and may continue to experience,
difficulty in hiring and retaining candidates with appropriate qualifications.
If we do not succeed in hiring and retaining candidates with appropriate
qualifications, our product development efforts, revenues and business could be
seriously harmed.

WE DO NOT HAVE LONG-TERM COMMITMENTS FROM OUR CUSTOMERS, AND WE ALLOCATE
RESOURCES BASED ON OUR ESTIMATES OF CUSTOMER DEMAND WHICH MAY BE INCORRECT.

Our sales are made on the basis of purchase orders rather than long-term
purchase commitments. In addition, our customers may cancel or defer purchase
orders at any time. We contract for the manufacture of our products according to
our estimates of customer demand. This process requires us to make multiple
demand forecast assumptions, each of which may introduce error into our
estimates. If we or our customers overestimate demand, we may allocate resources
to the manufacture of our products which we may not be able to sell. As a
result, we would have excess inventory, which would increase our losses.
Conversely, if we or our customers underestimate demand or if sufficient
manufacturing capacity is unavailable, we would forego revenue opportunities,
lose market share and damage our customer relationships.

DEVELOPMENT ARRANGEMENTS MAY CONSUME OUR RESOURCES FAR IN ADVANCE OF REVENUE.

We have development arrangements with customers such as Compaq and ViewSonic
and other parties such as Intel Corporation that consume large amounts of
engineering resources far in advance of product revenue. Our work under these
arrangements will be technically challenging and may require deliverables on an
accelerated basis. For example, under our arrangement with Intel we are required
to deliver specifications for an integrated circuit shortly after entering into
the arrangement. These arrangements place considerable demands on our limited
resources, particularly on our most senior engineering talent, and may not
result in revenue for twelve to eighteen months, if at all. In addition,
allocating significant resources to these arrangements may detract from or delay
the completion of other important development projects. Any of these development
agreements could be canceled at any time without notice. These factors could
have a material and adverse effect on our long term business and results of
operations.

12

BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS AND SALES CYCLE, WE MAY INCUR
SUBSTANTIAL EXPENSES BEFORE WE EARN ASSOCIATED REVENUES AND MAY NOT ULTIMATELY
SELL AS MANY UNITS OF OUR PRODUCTS AS WE FORECASTED.

We develop products based on anticipated market and customer requirements
and incur substantial product development expenditures prior to generating
associated revenues. Because the development of our products incorporates not
only our complex and evolving technology, but our customers' specific
requirements, a lengthy sales process is often required before potential
customers begin the technical evaluation of our products. Our customers
typically perform numerous tests and extensively evaluate our products before
incorporating them into their systems. The time required for testing, evaluation
and design of our products into a customer's equipment can take up to six months
or more. It can take an additional six months before a customer commences volume
shipments of systems that incorporate our products. However, even when we
achieve a design win, the customer may never ship systems incorporating our
products. Because of our relatively limited history in selling our products, we
cannot assure you that the time required for the testing, evaluation and design
of our products by our customers will not exceed six months. Because of this
lengthy development cycle, we will experience delays between the time we incur
expenditures for research and development, sales and marketing, inventory levels
and the time we generate revenues, if any, from such expenditures.

SHORTAGES OF OTHER KEY COMPONENTS FOR OUR CUSTOMERS' PRODUCTS COULD DELAY OUR
ABILITY TO SELL OUR PRODUCTS.

Shortages of components and other materials that are critical to the design
and manufacture of our customers' products could limit our sales. These
components include but are not limited to, liquid crystal display panels and
other display components, analog-to-digital converters, DVI compliant receivers
and video decoders.

SHORTAGES OF MATERIALS USED IN THE MANUFACTURING OF OUR PRODUCTS MAY INCREASE
OUR COSTS OR LIMIT OUR REVENUES AND IMPAIR OUR ABILITY TO SHIP OUR PRODUCTS ON
TIME.

From time to time, shortages of materials that are used in our board
products may occur. In particular, we may experience shortages of semiconductor
wafers and packages. If material shortages occur, we may incur additional costs
or be unable to ship our products to our customers in a timely fashion, all of
which could harm our business and negatively impact our earnings.

OUR PRODUCTS COULD BECOME OBSOLETE IF NECESSARY LICENSES OF THIRD-PARTY
TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE ONLY AVAILABLE ON TERMS THAT ARE NOT
COMMERCIALLY VIABLE.

We license technology from third parties that is incorporated into our
products or product enhancements. Future products or product enhancements may
require additional third-party licenses that may not be available to us or
available on terms that are commercially reasonable. If we are unable to obtain
any third-party license required to develop new products and product
enhancements, we may have to obtain substitute technology of lower quality or
performance standards or at greater cost, either of which could seriously harm
the competitiveness of our products.

WE MAY NOT BE ABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN THE MARKETS
IN WHICH WE COMPETE, OR WE MAY NOT BE ABLE TO COMPLY WITH INDUSTRY STANDARDS IN
THE FUTURE.

The markets in which we compete or seek to compete are subject to rapid
technological change, frequent new product introductions, changing customer
requirements for new products and features, and evolving industry standards. The
introduction of new technologies and the emergence of new industry standards
could render our products less desirable or obsolete which could harm our
business.

13

OUR SOFTWARE DEVELOPMENT TOOLS MAY BE INCOMPATIBLE WITH INDUSTRY STANDARDS AND
CHALLENGING TO IMPLEMENT.

Our existing products incorporate complex software tools designed to help
customers bring products into production. Software development is a complex
process and we are dependent on software development languages and operating
systems from vendors which may compromise our ability to design software in a
timely manner. Also, software development is a volatile market and new software
languages are introduced to the market that may be incompatible with our
existing systems and tools. New software development languages may not be
compatible with our own requiring significant engineering efforts to migrate our
existing systems in order to be compatible with those new languages. Such
disruptions could slow our product development or cause us to lose customers and
design wins.

OUR INTEGRATED CIRCUITS AND SOFTWARE COULD CONTAIN DEFECTS, WHICH COULD REDUCE
SALES OF THOSE PRODUCTS OR RESULT IN CLAIMS AGAINST US.

Despite testing by us and our customers, errors may be found in existing or
new integrated circuits and software. This could result in a delay in the
recognition or loss of revenues, loss of market share or failure to achieve
market acceptance. These defects may cause us to incur significant warranty,
support and repair costs. They could also divert the attention of our
engineering personnel from our product development efforts and harm our
relationships with our customers. The occurrence of these problems could result
in the delay or loss of market acceptance of our integrated circuits and would
likely harm our business. Defects, integration issues or other performance
problems in our integrated circuits and software could result in financial or
other damages to our customers or could damage market acceptance of our
products. Our customers could also seek damages from us for their losses. A
product liability claim brought against us even if unsuccessful, would likely be
time consuming and costly to defend.

OUR MANUFACTURERS AND CUSTOMERS ARE CONCENTRATED IN THE SAME GEOGRAPHIC REGION
WHICH INCREASES THE RISK THAT A NATURAL DISASTER, LABOR STRIKE OR POLITICAL
UNREST COULD DISRUPT OUR OPERATIONS.

Our current manufacturers and substantially all of our customers are located
in Japan, Korea and Taiwan. The risk of earthquakes in the Pacific Rim region is
significant due to the proximity of major earthquake fault lines in the area. In
September 1999, a current manufacturer's facilities were affected by a
significant earthquake in Taiwan. As a consequence of this earthquake, this
manufacturer suffered power outages and disruption that impaired its production
capacity. Earthquakes, fire, flooding and other natural disasters in the Pacific
Rim region, or political unrest, labor strikes or work stoppages in countries
where our manufacturers' and customers are located likely would result in the
disruption of our foundry partners' assembly capacity. Any disruption resulting
from such events could cause significant delays in shipments of our solutions
until we are able to shift our manufacturing or assembling from the affected
contractor to another third-party vendor. There can be no assurance that such
alternative capacity could be obtained on favorable terms, if at all.

OTHERS MAY BRING INFRINGEMENT ACTIONS AGAINST US WHICH COULD BE TIME-CONSUMING
AND EXPENSIVE TO DEFEND.

In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. While there is
currently no intellectual property rights litigation or claims pending against
us, we may become subject to claims or a party to litigation in the future.
These lawsuits could subject us to significant liability for damages and
invalidate our proprietary rights. In addition, intellectual property lawsuits
may be brought against customers that incorporate our products in the design of
their own products. These lawsuits and claims, regardless of their success or
merit and regardless of whether we are named as defendants, would likely be
time-consuming and expensive to

14

resolve and would divert the time and attention of management and technical
personnel. Any future intellectual property litigation or claims also could
force us to do one or more of the following:

- stop selling products using technology that contain the allegedly
infringing intellectual property;

- attempt to obtain a license to the relevant intellectual property, which
license may not be available on reasonable terms or at all; and

- attempt to redesign those products that contain the allegedly infringing
intellectual property.

If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, which could seriously harm our business. In
addition, we may not be able to develop, license or acquire non-infringing
technology under reasonable terms. These developments could result in an
inability to compete for customers or could adversely affect our ability to
increase our earnings.

We were recently notified by InFocus Systems, Inc. that InFocus believed we
were infringing patents held by InFocus that relate to methods and apparatus for
automatic pixel clock phase and frequency correction. While we do not believe we
are infringing these patents, in order to avoid the business uncertainty and
diversion of management attention associated with contesting this assertion, we
have entered into a license agreement with InFocus granting us the right to use
the technology covered by the InFocus patents in exchange for 156,863 shares of
our Series D preferred stock and $2.4 million in cash payable in four quarterly
installments commencing in March 2000. Under this license agreement, we also
received a release of any claims that InFocus may have against us relating to
these patents. In addition, we have recently been subpoenaed by the plaintiff in
a patent infringement suit against one of our customers to provide information
about our design and development efforts for that customer and other
information.

OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COULD HARM OUR COMPETITIVE POSITION BY ALLOWING OUR COMPETITORS TO ACCESS OUR
PROPRIETARY TECHNOLOGY AND TO INTRODUCE SIMILAR DISPLAY PROCESSOR PRODUCTS.

Our ability to compete effectively with other companies will depend, in
part, on our ability to maintain the proprietary nature of our technology,
including our integrated circuit designs and software. We rely on a combination
of patent, copyright, trademark and trade secret laws, as well as nondisclosure
agreements and other methods to protect our proprietary technologies. We have
three patent applications pending with the U.S. Patent and Trademark Office for
protection of certain of our significant technologies. We cannot assure you that
the degree of protection offered by patents or trade secret laws will be
sufficient. Furthermore, we cannot assure you that any patents will be issued as
a result of any pending applications, or that, if issued, any claims allowed
will be sufficiently broad to protect our technology. In addition, it is
possible that existing or future patents may be challenged, invalidated or
circumvented. We provide source code to our software to selected customers in
connection with their product development efforts, thereby increasing the risk
that customers will misappropriate our proprietary software. Competitors in both
the United States and foreign countries, many of which have substantially
greater resources, may apply for and obtain patents that will prevent, limit or
interfere with our ability to make and sell our products, or develop similar
technology independently or design around our patents. Effective copyright,
trademark and trade secret protection may be unavailable or limited in foreign
countries.

ANY ACQUISITION WE MAKE COULD DISRUPT OUR BUSINESS AND SEVERELY HARM OUR
FINANCIAL CONDITION.

We intend to consider investments in or acquisitions of complementary
businesses, products or technologies. While we have no current agreements to do
so, we may acquire businesses, products or technologies in the future. In the
event of any future acquisitions, we could:

- issue stock that would dilute our current stockholders' percentage
ownership;

- incur debt;

15

- assume liabilities;

- incur amortization expenses related to goodwill and other intangible
assets; or

- incur large and immediate write-offs.

Our operation of any acquired business will also involve numerous risks,
including:

- problems combining the purchased operations, technologies or products;

- unanticipated costs;

- diversion of management's attention from our core business;

- adverse effects on existing business relationships with customers;

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

- potential loss of key employees, particularly those of the acquired
organizations.

We may not be able to successfully integrate businesses, products or
technologies or personnel that we might acquire in the future and any failure to
do so could disrupt our business and seriously harm our financial condition.

FAILURE TO MANAGE OUR EXPANSION EFFECTIVELY COULD ADVERSELY AFFECT OUR ABILITY
TO INCREASE OUR BUSINESS AND RESULTS OF OPERATIONS.

Our ability to successfully market and sell our products in a rapidly
evolving market requires effective planning and management processes. We
continue to increase the scope of our operations domestically and
internationally and have increased our headcount substantially. We grew from 22
employees on January 1, 1999, to 85 employees on February 15, 2000. In addition,
we are currently planning to hire a significant number of additional employees
this year. Our past growth, and our expected future growth, places a significant
strain on our management systems and resources including our financial and
managerial controls, reporting systems and procedures. To manage our growth
effectively, we must implement and improve operational and financial systems,
train and manage our employee base, attract and retain qualified personnel with
relevant experience. We must also manage multiple relationships with customers,
business partners, and other third parties, such as our contract manufacturers.
Moreover, we will spend substantial amounts of time and money in connection with
our rapid growth and may have unexpected costs. Our systems, procedures or
controls may not be adequate to support our operations and we may not be able to
expand quickly enough to exploit potential market opportunities. If we cannot
manage growth effectively, our business would be seriously harmed.

RISKS RELATED TO OUR INDUSTRY

FAILURE OF CONSUMER DEMAND FOR FLAT PANEL DISPLAYS AND OTHER DISPLAY
TECHNOLOGIES TO INCREASE COULD IMPEDE OUR GROWTH.

Our product development strategies anticipate that consumer demand for flat
panel displays and other emerging display products will increase in the future.
The success of our products is dependent on increased demand for these products,
which are at early stages of development. The potential size of the flat panel
display market and the timing of its development are uncertain and will depend
upon a number of factors, all of which are beyond our control. In order for the
market for many of our products to grow, advanced flat panel displays must be
widely available and affordable to consumers. Currently there is a limited
supply of advanced flat panel displays, and increasing the supply of advanced
displays is a costly and lengthy process requiring significant capital
investment. Accordingly, we do not expect the current shortage of advanced flat
panel displays or their high prices to change in the near term. In the past, the
supply of advanced flat panel displays has been cyclical. We expect this

16

pattern to continue. Undercapacity in the advanced flat panel display market may
limit our ability to increase our revenues because our customers may limit their
purchases of our products if they cannot obtain sufficient supplies of advanced
flat panel displays. In addition, advance flat panel display prices may remain
high because of limited supply, and consumer demand may not grow if the supply
of advanced flat panel displays does not increase.

THE FAILURE OF BROADBAND COMMUNICATIONS TO DEVELOP WILL ADVERSELY AFFECT DEMAND
FOR OUR PRODUCTS.

We anticipate deriving significant portions of our future revenues from
products that are dependent on the delivery of information via broadband
communications. Our business would be negatively impacted if there is a
significant slowdown in the development or adoption of broadband communications.
Broadband communications may develop more slowly than we anticipate for reasons
including introduction of new technologies, consumer pricing, cost and time
required to provide broadband infrastructure, lack of industry standards and
government regulation. The emergence of industry standards could make our
products or those of our customers unmarketable or obsolete and may require us
to incur substantial unanticipated development costs to comply with any such new
standards.

IF PRODUCTS INCORPORATING OUR SOLUTIONS ARE NOT COMPATIBLE WITH COMPUTER DISPLAY
PROTOCOLS, VIDEO STANDARDS AND OTHER DEVICES, THE MARKET FOR OUR PRODUCTS WILL
BE REDUCED AND OUR BUSINESS PROSPECTS COULD BE SIGNIFICANTLY LIMITED.

Our products are incorporated into our customers' products which have
different parts and specifications and utilize multiple protocols that allow
them to be compatible with specific computers, video standards and other
devices. If our customers' products are not compatible with the these protocols
and standards, consumers will return these products, or consumers will not
purchase these products, and the markets for our customers' products could be
significantly reduced. As a result, a portion of our market would be eliminated,
and our business would be harmed.

INTENSE COMPETITION IN OUR MARKETS MAY REDUCE SALES OF OUR PRODUCTS, REDUCE OUR
MARKET SHARE, DECREASE OUR GROSS PROFIT AND INCREASE LOSSES.

Rapid technological change, evolving industry standards, compressed product
life cycles and declining average selling prices are characteristics of our
market and could have a material adverse effect on our business, financial
condition and results of operations. As the overall price of advanced flat panel
display screens continues to fall, we may be required to offer our products to
manufacturers at discounted prices due to increased price competition. At the
same time, new, alternative display processing technologies and industry
standards may emerge that directly compete with technologies that we offer. We
may be required to increase our investment in research and development at the
same time that product prices are falling. In addition, even after making this
investment, we cannot assure you that our technologies will be superior to those
of our competitors or that our products will achieve market acceptance, whether
for performance or price reasons. Failure to effectively respond to these trends
could reduce the demand for our products.

We compete with a range of specialized and diversified electronic and
semiconductor companies that offer display processors. In particular, we compete
against Genesis Microchip, Inc., Macronix International Co., Ltd., Sage, Inc.,
Silicon Image, Inc., SmartASIC, Inc., STMicroelectronics NV, Trident
Microsystems, Inc. and other companies. Potential competitors may include
diversified semiconductor manufacturers including Broadcom Corporation, National
Semiconductor Corp., Texas Instruments, Inc. and other diversified semiconductor
companies. We also compete in some instances against in-house processing
solutions designed by our customers. Many of our competitors have longer
operating histories and greater resources to support development and marketing
efforts. Some of our competitors may operate their own fabrication facilities.
These competitors may be able to react faster

17

and devote more resources to efforts that compete directly with our own. In the
future, our current or potential customers may also develop their own
proprietary display processors and become our competitors. In addition, start-up
companies may seek to compete in our markets. Our competitors may develop
advanced technologies enabling them to offer more cost-effective and higher
quality solutions to our customers than those offered by us. Increased
competition could harm our business, financial condition and results of
operations by, for example, increasing pressure on our profit margin or causing
us to lose sales opportunities. We cannot assure you that we can compete
successfully against current or potential competitors.

THE MARKET FOR INTERNET APPLIANCES MAY NOT EVOLVE RAPIDLY ENOUGH TO SUPPORT
EXPANDED MARKET ACCEPTANCE OF OUR PRODUCTS AND INDUSTRY STANDARDS IN THIS MARKET
CONTINUE TO EVOLVE.

If the emerging market for Internet appliances does not develop or does not
evolve fast enough to support rapid market acceptance of our products, our
business, financial condition and results of operations will be materially and
adversely affected. The Internet appliance market includes netTVs, screenphones,
e-mail terminals, Web Terminals and Tablets. Our success will depend on our
ability to achieve design wins with customers developing new products and
enhanced products for the Internet appliance market and their ability to
successfully introduce and promote such products. There can be no assurance that
the Internet appliance market will develop to the extent or in the timeframes
necessary to support expansion of our business. We anticipate that Internet
appliance products will be generally based on industry standards, which are
continually evolving. The emergence of new industry standards could render our
products or our customers products unmarketable or obsolete and we may incur
substantial unanticipated costs to comply with any such new standards. Moreover,
our past sales have resulted, to a significant extent, from our ability to
anticipate changes in technology and industry standards and to develop and
introduce new and enhanced products addressing such changes. Our continued
ability to adapt to such changes and to anticipate future standards, and the
rate of adoption and acceptance of those standards, will be a significant factor
in maintaining or improving our competitive position and our prospects for
growth. There can be no assurance that we will be able to anticipate the
evolving standards in the semiconductor industry and, in particular, the
applications in the Internet appliance market, or that we will be able to
successfully develop and introduce new products into this market.

THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY MAY LEAD TO SIGNIFICANT
VARIANCES IN THE DEMAND FOR OUR PRODUCTS.

In the past, the semiconductor industry has been characterized by
significant downturns and wide fluctuations in supply and demand. Also, during
this time, the industry has experienced significant fluctuations in anticipation
of changes in general economic conditions, including economic conditions in
Asia. The cyclical nature of the semiconductor industry has led to significant
variances in product demand and production capacity. It has also accelerated
erosion of average selling prices per unit. We may experience periodic
fluctuations in our future financial results because of changes in industry-wide
conditions.

RISKS RELATING TO THE OFFERING

THE SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE
COULD CAUSE THE MARKET PRICE OF SHARES OF OUR COMMON STOCK TO DECLINE.

We will have       shares of common stock outstanding immediately after the
offering. The shares of our common stock sold in the offering will be freely
transferable. Additional shares may be sold in the public market to the extent
permitted by Rule 144 or exemptions under the Securities Act of 1933. Lock-up
agreements executed by our officers, directors and existing shareholders limit
the number of shares of our common stock that may be sold in the public market
for periods of up to

18

180 days. However, Salomon Smith Barney may, in its sole discretion and at any
time, release all or some portion of the securities subject to the lock-up
agreements. The market price of shares of our common stock could decline as a
result of sales of a large number of shares of our common stock in the market
after the offering, or the perception that such sales could occur. These factors
also could make it more difficult for us to raise funds through future offerings
of our common stock.

MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE.

Our management will have considerable discretion in the application of the
net proceeds from the offering. The net proceeds may be used for corporate
purposes that do not increase our operating results or our market value.

INVESTORS IN THIS OFFERING WILL EXPERIENCE SUBSTANTIAL AND IMMEDIATE DILUTION IN
THE BOOK VALUE OF THEIR INVESTMENT.

The initial public offering price of shares of our common stock will be
substantially higher than the net tangible book value per share of the
outstanding common stock immediately after this offering. Therefore, based upon
an assumed initial public offering price of $         per share, if you purchase
our common stock in this offering, you will incur substantial and immediate
dilution of approximately $         per share. If additional shares are sold by
the underwriters following the exercise of their over-allotment option, or if
outstanding options to purchase shares of our common stock are exercised, there
will be further dilution of your investment. See "Dilution."

THE ANTI-TAKEOVER PROVISIONS IN OUR ARTICLES OF INCORPORATION COULD ADVERSELY
AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK BY PREVENTING A SALE OR
TAKEOVER OF US AT A PRICE OR PRICES FAVORABLE TO THE HOLDERS OF OUR COMMON
STOCK.

Certain anti-takeover provisions of Oregon law, our articles of
incorporation and our shareholder rights plan may make a change in control of
our business more difficult, even if a change in control would be beneficial to
the shareholders. These provisions may allow the board of directors to prevent
changes in the management and control of our business. Under Oregon law, our
board of directors may adopt additional anti-takeover measures in the future.
One anti-takeover provision that we have is the ability of our board of
directors to determine the terms of preferred stock and issue such preferred
stock without the approval of the holders of the common stock. At the time of
the offering, there are no shares of such preferred stock outstanding. However,
because the rights and preferences of any series of preferred stock may be set
by the board of directors in its sole discretion without approval of the holders
of the common stock, the rights and preferences of this preferred stock may be
superior to those of the common stock. Accordingly, the rights of the holders of
common stock may be adversely affected.

OUR PRINCIPAL SHAREHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY MAKE IT MORE DIFFICULT TO SELL OUR SHARES AT A PREMIUM TO CERTAIN
TAKEOVER CANDIDATES.

Immediately after the offering, our executive officers, directors and other
principal shareholders will, in the aggregate, beneficially own       shares or
approximately    % of our outstanding common stock, assuming the exercise of all
options and warrants held by them. Although these shareholders will not have
majority control, they currently have, and likely will continue to have,
significant influence with respect to the election of our directors and approval
or disapproval of our significant corporate actions. This influence over our
affairs might be adverse to the interest of our shareholders. In addition, the
voting power of these shareholders, under certain circumstances, could have the
effect of delaying or preventing a change in control of our business or
otherwise discouraging

19

a potential acquirer from attempting to obtain control of us, which could
prevent our shareholders from realizing a premium over the market price for
their common stock.

OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED, AND WE EXPECT THAT THE PRICE OF
OUR COMMON STOCK MAY FLUCTUATE SUBSTANTIALLY.

Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
between the underwriters and us, and may not be indicative of the price that
will prevail in the open market after this offering. An active trading market
for our common stock may not develop or be sustained after this offering. You
may not be able to sell your shares of our common stock at or above the initial
public offering price due to a number of factors, including:

- actual or anticipated fluctuations in our operating results;

- changes in expectations as to our future financial performance;

- changes in financial estimates of securities analysts;

- announcements by us or our competitors of technological innovations,
design wins, contracts, standards or acquisitions;

- the operating and stock price performance of other comparable companies;

- changes in market valuations of other technology companies; and

- inconsistent trading volume levels of our common stock.

In particular, the stock prices of technology companies like us have been
highly volatile recently. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies. Market
fluctuations as well as general economic, political and market conditions such
as recessions, interest rate changes or international currency fluctuations, may
negatively impact the market price of our common stock. Therefore, the price of
our common stock may decline, and the value of your investment may be reduced
regardless of our performance.

WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS WHICH WOULD LIMIT OUR
ABILITY TO GROW.

We believe our net proceeds from this offering, together with our existing
cash balances and funds available under our credit facility will be sufficient
to meet our capital requirements for at least the next 12 months. However, we
may need, or could elect, to seek additional funding prior to that time. To the
extent that funds generated by this offering, together with existing resources,
are insufficient to fund our future activities, we may need to raise additional
funds through public or private equity or debt financing. Additional funds may
not be available on terms favorable to us or our shareholders. Further, if we
issue equity securities, our shareholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of our common stock. If we cannot raise funds on acceptable terms, we may
not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.

20

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled "Prospectus Summary," Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" contains forward-looking information. This
forward-looking information is subject to risks and uncertainties including the
factors listed under "Risk Factors," Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue," or the negative of these terms or other comparable terminology.
These statements are only predictions and may be inaccurate. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statement. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.

21

USE OF PROCEEDS

Based on an assumed initial public offering price of $         per share,
our net proceeds from the sale of          shares of common stock that we are
offering will be approximately $         million after deducting the
underwriting discount and estimated expenses payable by us in connection with
this offering. If the underwriters exercise their over-allotment option in full,
our net proceeds will be approximately $         million.

The principal purposes of this offering are to increase our working capital
and other general corporate purposes. See "Management Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
Although we may use a portion of the net proceeds to acquire complementary
technologies or businesses, we have no current plans in this regard. Pending
such uses, we plan to invest the net proceeds in short-term, interest-bearing,
investment grade securities. Management will retain broad discretion in the
allocation of the net proceeds of this offering. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions on how to use the proceeds.

DIVIDEND POLICY

We have never declared or paid cash dividends on shares of our capital
stock. We currently expect to retain any future earnings to fund the operation
and expansion of our business, and therefore we do not currently expect to pay
cash dividends in the foreseeable future.

22

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

- on an actual basis;

- on a pro forma basis after giving effect to:

- the issuance of 2,239,212 shares of Series D preferred stock on
February 22, 2000;

- the automatic conversion of all outstanding shares of preferred stock
into 13,139,219 shares of common stock immediately prior to the
completion of the offering; and

- on a pro forma as adjusted basis, after giving effect to the sale of
shares of common stock offered by us at an assumed initial public
offering price of $         per share after deducting the underwriting
discount and estimated offering expenses payable by us, and the receipt of
net proceeds from this offering.

DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL    PRO FORMA   AS ADJUSTED
--------   ---------   -----------
(IN THOUSANDS, EXCEPT SHARE DATA)

Cash and cash equivalents...................................  $12,199     $38,749
Long-term obligations, net of current portion...............      591         591
Redeemable convertible preferred stock, $.001 par value:
Authorized 10,993,031 shares; issued and outstanding
10,900,007 shares (actual); no shares (pro forma and
as adjusted)............................................   23,701          --
Common stock, $.001 par value:
Authorized 22,000,000 shares; issued and outstanding
6,582,877 shares (actual); 19,722,096 shares (pro
forma);       shares (as adjusted)......................       --      52,251
Deferred stock compensation.................................   (2,230)     (2,230)
Note receivable for common stock............................     (199)       (199)
Accumulated deficit.........................................   (6,866)     (6,866)
-------     -------
Total shareholders' equity (deficit)........................   (9,295)    $42,956
-------     -------
Total capitalization........................................  $14,997      43,547
=======     =======

Common shares exclude:

- 1,942,838 shares of common stock issuable upon the exercise of options
outstanding at December 31, 1999 at a weighted average exercise price of
$1.49 per share;

- 1,936,494 shares of common stock available for issuance under our 1997
stock incentive plan; and

- 1,000,000 shares of common stock available for issuance under our 2000
employee stock purchase plan.

23

DILUTION

Our pro forma net tangible book value as of December 31, 1999 was
approximately $         million or approximately $         per share. Pro forma
net tangible book value per share represents pro forma tangible assets less
total liabilities, divided by our pro forma number of outstanding shares of
common stock after giving effect to, on a pro forma basis:

- the issuance of 2,239,212 shares of Series D preferred stock on
February 22, 2000; and

- the automatic conversion of all outstanding shares of preferred stock into
13,139,219 shares of common stock immediately prior to the completion of
the offering.

Without taking into account any changes in such pro forma net tangible book
value per share after December 31, 1999, other than to give effect to the sale
of the shares of common stock in this offering at an assumed initial public
offering price of $         per share after deducting the underwriting discount
and estimated expenses payable by us and the receipt of the net proceeds of such
sale, the pro forma net tangible book value as of December 31, 1999 would have
been approximately $         million or approximately $         per share. This
represents an immediate increase in pro forma net tangible book value per share
of $         to existing shareholders and an immediate dilution of $         per
share to new investors. The following table sets forth this per share dilution:

Assumed initial public offering price per share.............              $
Pro forma net tangible book value per share at December
31, 1999................................................   $
Increase in pro forma net tangible book value per share
attributable to this offering...........................
------
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution in pro forma net tangible book value per share to
new investors.............................................              $
======

The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
the existing shareholders and by the new investors in this offering, before
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us, at an assumed initial public offering price of
$         per share.

SHARES PURCHASED       TOTAL CONSIDERATION      AVERAGE
---------------------   ----------------------   PRICE PAID
NUMBER     PERCENT      AMOUNT      PERCENT    PER SHARE
----------   --------   -----------   --------   ----------

Existing shareholders......................  19,722,096              $47,257,004                $  2.40
New investors..............................
----------     ---      -----------     ---
Total....................................
==========     ===      ===========     ===

The foregoing discussion and table includes the closing of the sale of
2,239,212 shares of Series D preferred stock and excludes:

- 1,942,838 shares of common stock issuable upon the exercise of options
outstanding at December 31, 1999 at a weighted average exercise price of
$1.49 per share;

- 1,936,494 shares of common stock available for issuance under our 1997
stock incentive plan; and

- 1,000,000 shares of common stock available for issuance under our 2000
employee share purchase plan.

If all options outstanding at December 31, 1999 were exercised, the pro
forma net tangible book value per share immediately after completion of the
offering would be $         , which represents an immediate dilution in net
tangible book value per share of $         to purchasers of shares of common
stock in the offering. See "Management--Employee Benefit Plans" and the notes to
our financial statements for more information on our option plans.

24

SELECTED FINANCIAL DATA

The following selected financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including the related notes found
elsewhere in this prospectus. The statement of operations data for the period
from January 16, 1997 through December 31, 1997 and years ended December 31,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 are
derived from the audited financial statements of Pixelworks included elsewhere
in this prospectus, which have been audited by KPMG LLP, independent auditors.
The audited balance sheet data as of December 31, 1997 is derived from the
audited financial statements not included in this Prospectus.

PERIOD FROM
JANUARY 16, 1997         YEARS ENDED
(DATE OF INCEPTION)      DECEMBER 31,
TO DECEMBER 31,     -------------------
1997             1998       1999
-------------------   --------   --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue, net......................................      $            25   $   105    $12,647
Commissions...............................................                  375       373         65
Licensing and development fees............................                   --       500        100
---------------   -------    -------
Total revenue.............................................      $           400   $   978    $12,812
Cost of revenue.............................................                   24        22      8,369
---------------   -------    -------
Gross profit................................................                  376       956      4,443
---------------   -------    -------
Operating expenses:
Research and development..................................                  215     1,446      4,805
Selling, general and administrative.......................                  590     1,314      4,366
Amortization of deferred stock compensation...............                   --        --        565
---------------   -------    -------
Total operating expenses....................................                  805     2,760      9,736
---------------   -------    -------
Loss from operations........................................                 (429)   (1,804)    (5,293)
Interest and other income, net..............................                   53       215        409
---------------   -------    -------
Loss before income taxes....................................                 (376)   (1,589)    (4,884)
Income taxes................................................                   --       (14)        (3)
---------------   -------    -------
Net loss....................................................                 (376)   (1,603)    (4,887)
Accretion of preferred stock redemption preference..........                   --       (10)    (4,278)
---------------   -------    -------
Net loss attributable to common shareholders................      $          (376)  $(1,613)   $(9,165)
===============   =======    =======
Historical loss per share:
Basic and diluted.........................................      $         (0.68)  $ (0.91)   $ (2.30)
===============   =======    =======
Weighted average shares, basic and diluted................                  552     1,774      3,981
Pro forma loss per share (unaudited):
Basic and diluted.........................................                                   $ (0.57)
Shares used in computing basic and diluted................                                    16,228

AS OF DECEMBER 31,
------------------------------
1997       1998       1999
--------   --------   --------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents...................................   $  367    $ 6,119    $12,199
Working capital.............................................      568      4,427     12,770
Total assets................................................    1,006      7,676     18,394
Long-term obligations, net of current portion...............       --         --        591
Redeemable convertible preferred stock......................    1,216      7,755     23,701
Total shareholders' deficit.................................     (366)    (1,908)    (9,295)

The pro forma statement of operations data presented above reflects the
automatic conversion upon the closing of the offering of all outstanding shares
of preferred stock into 13,139,219 shares of common stock.

25

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. AS USED
BELOW, REFERENCES TO THE YEAR ENDED DECEMBER 31, 1997 REFER TO THE PERIOD FROM
JANUARY 16, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1997.

OVERVIEW

We design and develop complete system-on-a-chip solutions that enable the
visual display of broadband content. Our technology interprets and optimizes
video, computer graphics, and visual Web information for display on a wide
variety of devices. We have announced products in production with Compaq, Sony
and ViewSonic, and have more than 45 customers who are using our solutions in
more than 75 products.

During our first year of operation, we were the sole marketing and sales
agent of plasma display panels for Fujitsu General America, Inc. in the United
States. The relationship began in January 1997 and provided us with operating
revenue through the conclusion of the relationship in March 1999. The revenues
helped finance research and development of our core business of system-on-a-chip
design and the development of our marketing and sales infrastructure.

In December 1998, we began shipping PW364 ImageProcessor ICs, what we
believe to be the world's first single-chip flat panel display controller.
Additional ICs were introduced in 1999: the PW264 ImageProcessor IC in April and
the PW164 ImageProcessor IC in August. These ICs extended the product line into
new markets by providing new features for specific display applications at lower
price points.

We sell our products worldwide through a direct sales force and indirectly
through distributors and manufacturers representatives. Distributors have been
established in Japan and Taiwan. Manufacturers representatives support European
and Korean sales. In February 2000, sales and marketing offices were established
in Japan and Taiwan.

We recognize revenue from product sales to direct customers upon shipment.
We recognize revenue from product sales to distributors upon shipment if the
distributor has a firm sales commitment from an end customer. Reserves for sales
returns and allowances are recorded at the time of shipment.

Historically, significant portions of our product revenue have been from a
relatively small number of customers and distributors. Our top five customers,
including distributors, accounted for 62.3% of product revenue in 1999. See
"Risk Factors--A significant amount of our revenues comes from a few customers
and distributors and any decrease in revenues from, or loss of any of, these few
customers or distributors could significantly reduce our total revenue" and
"Risk Factors--Our dependence on selling through distributors and integrators
increases the risks and complexity of our business."

Significant portions of our products are sold overseas. Sales outside the
U.S. accounted for 92.8% of revenue in 1999. Our end customers, branded
manufacturers and integrators, incorporate our products into systems that are
sold worldwide. All revenue to date has been denominated in U.S. dollars. See
"Risk Factors--Our international sales account for a significant portion of our
revenues, and if we do not successfully address the risks associated with our
international operations, our revenues could decrease."

Product gross profit fluctuated over the past several quarters due to a
change in mix from low volume chip and evaluation board samples to high volume
integrated circuit production. We expect average selling prices to decrease as
we move to higher volume, lower cost solutions. Additionally there will be some
average selling price reductions for our existing products due to the highly
competitive nature of the semiconductor industry. We anticipate that our product
gross profit may fluctuate quarter to quarter due to product mix, competitive
factors and our move from a turnkey Application Specific

26

integrated circuit, or ASIC, business model to a customer owned tooling, or COT,
business model. See "Risk Factors--Intense competition in our markets may reduce
sales of our products, reduce our market share, decrease our gross profit and
increase losses."

Within the semiconductor industry we are known as a "fabless" company,
meaning that we do not fabricate the semiconductors that we design and develop,
but instead rely on third parties to manufacture our products. This business
model enables the company to focus on designing, developing, and marketing our
products and significantly reduces the amount of capital we need to invest in
capital expenditures related to semiconductor manufacturing. See "Risk
Factors--We depend on a limited number of contract manufacturers for our
products, and we must order products from them based on forecasts from our
customers from which we do not have firm purchase orders."

Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. In addition, the sales cycle for our products
is long which may cause us to experience a delay between the time we incur
expenses and the time we generate revenue from these expenditures. We intend to
increase our investment in research and development, selling, general and
administrative functions and inventory as we seek to expand our operations. We
anticipate the rate of new orders may vary significantly from quarter to
quarter. Consequently, if anticipated sales and shipments in any quarter do not
occur when expected, expenses and inventory levels could be disproportionately
high, seriously harming our operating results for that quarter and, potentially,
future quarters. See "Risk Factors--Fluctuations in our quarterly operating
results make it difficult to predict our future performance and may result in
volatility in the market price of our common stock" and "Risk Factors--Because
of our long product development process and sales cycle, we may incur
substantial expenses before we earn associated revenues and may not ultimately
sell as many units of our products as we forecasted."

RESULTS OF OPERATIONS

The following table sets forth statement of operations data expressed as a
percentage of total revenue for the periods indicated.

PERIOD FROM
JANUARY 16, 1997          YEARS ENDED
(DATE OF INCEPTION)        DECEMBER 31,
TO DECEMBER 31,     ----------------------
1997             1998          1999
-------------------   --------      --------

Revenue:
Product revenue, net......................            6.2 %          10.8 %       98.7 %
Commissions...............................           93.8            38.1          0.5
Licensing and development fees............            0.0            51.1          0.8
------          ------        -----
Total revenue...............................          100.0           100.0        100.0
Cost of revenue.............................            6.0             2.2         65.3
------          ------        -----
Gross profit................................           94.0            97.8         34.7
------          ------        -----
Operating expenses:
Research and development..................           53.8           147.8         37.5
Selling, general and administrative.......          147.5           134.4         34.1
Amortization of deferred stock
compensation............................            0.0             0.0          4.4
------          ------        -----
Total operating expense.....................          201.3           282.2         76.0
------          ------        -----
Loss from operations........................         (107.3)         (184.4)       (41.3)
Interest and other income, net..............           13.3            21.9          3.2
------          ------        -----
Loss before income taxes....................          (94.0)         (162.5)       (38.1)
Income taxes................................            0.0            (1.4)         0.0
------          ------        -----
Net loss....................................          (94.0)%        (163.9)%      (38.1)%
======          ======        =====

27

YEAR ENDED DECEMBER 31, 1997, 1998 AND 1999

PRODUCT REVENUE.  Product revenue increased from $25,000 in 1997 to $105,000
in 1998, and increased to $12.6 million in 1999. Revenues in 1997 and 1998 were
primarily from plasma display accessory products sold by us. In December 1998,
we shipped our first ImageProcessor ICs. Two additional, lower cost products
were introduced in April 1999 and August 1999, respectively, to broaden our
addressable market. The increase in revenue from 1998 to 1999 resulted from the
introduction of these ImageProcessor ICs.

COMMISSIONS REVENUE.  Commissions revenue decreased from $375,000 in 1997 to
$373,000 in 1998, and decreased to $65,000 in 1999. Commissions revenue
decreased from 1998 to 1999 as a result of the termination of an agreement with
Fujitsu General America, Inc. to sell their plasma display products in the
United States. We have not recognized commissions revenue since the first
quarter of 1999 and do not expect to recognize such revenue in future periods.

LICENSING AND DEVELOPMENT FEES.  Licensing and development fees were
$500,000 in 1998 and $100,000 in 1999. Licensing and development fees resulted
from a 1998 agreement with a major customer to develop a product for exclusive
use by the customer for front projection applications. We have not recognized
licensing and development fees since the first quarter of 1999 and do not expect
to recognize such revenue in future periods.

GROSS PROFIT.  Gross profit was 94.0% in 1997 and 97.8% in 1998 as a
majority of revenues came from commissions revenue and licensing and development
fees. Gross profit decreased from 97.8% in 1998 to 34.7% in 1999 as a result of
product revenues as a percent of total revenues increasing from 10.8% in 1998 to
98.7% in 1999.

RESEARCH AND DEVELOPMENT.  Research and development expense was $215,000, or
53.8% of total revenue for 1997, $1.4 million, or 147.8% of total revenue in
1998, and $4.8 million, or 37.5% of total revenue for 1999. The increase in
absolute dollars was primarily due to the hiring of additional development
personnel and outside consultants as well as increased prototype expenses.
Although absolute expenses increased from 1998 to 1999, research and development
expenses, as a percentage of total revenue, declined. We believe that continued
investment in research and development is critical to our strategic objectives
and we expect these expenses to increase in the future.

SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expense was $590,000, or 147.5% of total revenue for 1997, $1.3 million, or
134.4% of total revenue for 1998, and $4.4 million or 34.1% for 1999. The year
to year increases in absolute dollars were due primarily to the hiring of
additional personnel, increases in commissions to independent sales
representatives, expanded marketing activities which included our initial
product introductions. We expect selling, general and administrative expenses to
increase in the future as we add personnel, incur additional costs to support
continued growth and implement additional internal systems to support a public
company.

AMORTIZATION OF DEFERRED STOCK COMPENSATION.  Stock compensation expense was
$565,000 or 4.4% of total revenue in 1999. We will incur substantial stock
compensation expense in future periods which represents non-cash charges
incurred as a result of the issuance of stock options to employees and
consultants. At December 31, 1999, the amount of employee unearned compensation
was $2.2 million which will be amortized in future periods. Amortization of the
December 31, 1999 balance of deferred stock compensation for the years ending
December 31, 2000, 2001, 2002 and 2003 is estimated to be $1.1 million,
$640,000, $346,000 and $131,000, respectively. With respect to stock options
granted to employees, such charges are recorded based on the difference between
the deemed fair value of the common stock and the option exercise price of such
options at the date of grant.

28

INTEREST AND OTHER INCOME, NET.  Interest and other income, net consists of
interest income, interest expense and other non-operating expenses. Interest and
other income, net was $53,000, $215,000 and $409,000 in 1997, 1998 and 1999,
respectively. The increases are attributable primarily to interest income from
cash proceeds from financing activities, partially offset by interest expense
related to higher average debt balance.

PROVISION FOR INCOME TAXES.  We recorded no provision for income tax in
1997. We recorded income tax expense of $14,000 and $3,000 for 1998 and 1999,
respectively, related to foreign taxes on license fee revenue. As of
December 31, 1999 we had approximately $5 million of net operating loss
carryforwards to offset against future taxable income. The carryforwards expire
on various dates through 2018, if not used. Utilization of net operating losses
is subject to an annual limitation due to the changes in ownership provisions of
the Internal Revenue Code of 1986 and similar state provisions. We are in a
deferred tax asset position, which has been fully reserved. We will continue to
provide a valuation allowance for our deferred tax assets until it becomes more
likely than not, in our assessment, that our deferred tax assets will be
realized.

QUARTERLY RESULTS OF OPERATIONS

The tables below set forth our quarterly results of operations in dollars
and as a percentage of revenue for our last four quarters. This data has been
derived from unaudited financial statements that have been prepared on the same
basis as our annual audited financial statements and, in our opinion, include
all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation of this information. These unaudited quarterly
results should be read in conjunction with the annual audited financial
statements and notes thereto included elsewhere in this prospectus.

THREE MONTHS ENDED
----------------------------------------------
MAR. 31,    JUNE 30,    SEPT. 30,    DEC. 31,
1999        1999         1999        1999
---------   ---------   ----------   ---------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue, net...................................   $  451      $ 1,849      $ 4,289     $ 6,058
Commissions............................................       65           --           --          --
Licensing and development fees.........................      100           --           --          --
------      -------      -------     -------
Total revenue............................................      616        1,849        4,289       6,058
Cost of revenue..........................................      163        1,318        2,850       4,038
------      -------      -------     -------
Gross profit.............................................      453          531        1,439       2,020
------      -------      -------     -------
Operating expenses:
Research and development...............................      823        1,052        1,342       1,588
Selling, general and administrative....................      604          915        1,270       1,577
Amortization of deferred stock compensation............        4           29          140         392
------      -------      -------     -------
Total operating expenses.................................    1,431        1,996        2,752       3,557
------      -------      -------     -------
Loss from operations.....................................     (978)      (1,465)      (1,313)     (1,537)
Interest and other income, net...........................       36           74          157         142
------      -------      -------     -------
Loss before income taxes.................................     (942)      (1,391)      (1,156)     (1,395)
Income taxes.............................................       (3)          --           --          --
------      -------      -------     -------
Net loss.................................................   $ (945)     $(1,391)     $(1,156)    $(1,395)
======      =======      =======     =======

29

THREE MONTHS ENDED
-------------------------------------------------------
MAR. 31,       JUNE 30,       SEPT. 30,       DEC. 31,
1999           1999            1999           1999
---------      ---------      ----------      ---------

Revenue:
Product revenue, net................................     73.2 %        100.0 %         100.0 %        100.0 %
Commissions.........................................     10.6            0.0             0.0            0.0
Licensing and development fees......................     16.2            0.0             0.0            0.0
------         ------          ------         ------
Total revenue.........................................    100.0          100.0           100.0          100.0
Cost of revenue.......................................     26.5           71.3            66.4           66.7
------         ------          ------         ------
Gross profit..........................................     73.5           28.7            33.6           33.3
------         ------          ------         ------
Operating expenses:
Research and development............................    133.6           56.9            31.3           26.2
Selling, general and administrative.................     98.0           49.5            29.6           26.0
Amortization of deferred stock compensation.........      0.7            1.6             3.3            6.5
------         ------          ------         ------
Total operating expenses..............................    232.3          108.0            64.2           58.7
------         ------          ------         ------
Loss from operations..................................   (158.8)         (79.2)          (30.6)         (25.4)
Interest and other income, net........................      5.9            4.0             3.6            2.4
------         ------          ------         ------
Loss before income taxes..............................   (152.9)         (75.2)          (27.0)         (23.0)
Income taxes..........................................      0.5            0.0             0.0            0.0
------         ------          ------         ------
Net loss..............................................   (153.4)%        (75.2)%         (27.0)%        (23.0)%
======         ======          ======         ======

1999 QUARTERLY RESULTS OF OPERATIONS

TOTAL REVENUE.  Quarterly revenue increased in each quarter of 1999 from
$616,000 in the first quarter ended March 31 to $6.1 million in the fourth
quarter ended December 31. The increase in revenue resulted from increasing unit
shipments of the PW364 which began shipping in December 1998 and the
introduction of two new products, the PW264 and PW164, which began shipping in
April and August, respectively.

GROSS PROFIT.  As a percentage of total revenue, gross profit decreased from
73.5% in the first quarter of 1999 to 28.7% in the second quarter of 1999
primarily as a result of a decrease in commissions revenue and licensing and
development fees, which have higher gross profits than product revenues. As a
percentage of total revenue, gross profit increased from 28.7% in the second
quarter to 33.6% and 33.3% in the third and fourth quarters, respectively. This
increase was a result of a change in product mix which included the introduction
of a new product, the PW164, which began shipping in August.

OPERATING EXPENSES.  Research and development expense increased in absolute
dollars each quarter primarily as a result of an increase in personnel for the
development of new products. Selling, general and administrative expense also
increased in absolute dollars in each quarter primarily as a result of an
increase in sales and marketing personnel to support customer growth.
Amortization of deferred stock compensation increased each quarter as a result
of additional stock options granted in each quarter.

We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. You should not rely on them to predict future
performance. The amount and timing of our operating expenses may fluctuate
significantly in the future as a result of a variety of factors. We face a
number of risks and uncertainties encountered by early stage companies,
particularly those in rapidly evolving markets such as the display device
industry. We may not be able to address these risks and difficulties
successfully. In addition, we may not be able to increase sales to existing
customers or add

30

new customers on a regular basis and our revenue may not grow, and we may not
achieve or maintain profitability in the future.

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future. It is likely that in some
future quarter our operating results will fall below the expectations of
securities analysts and investors. In this event, the market price of our common
share could significantly decline. See "Risk Factors--Fluctuations in our
quarterly operating results make it difficult to predict our future performance
and may result in volatility in the market price of our common stock" for more
information on the factors affecting our quarterly results.

Our sales cycle, which is typically between two and 12 months, contributed
to fluctuations in our quarterly operating results. Most of our operating
expenses are relatively fixed in the near term. In addition, our expense levels
are based, in part, on our expectations regarding future revenues. As a result,
any shortfall in revenues relative to our expectations could cause significant
changes in our operating results from quarter to quarter.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have primarily financed operations through private
placements of our preferred convertible stock. Through December 31, 1999, gross
proceeds from private placements of preferred stock and the exercise common
stock purchase warrants issued to investors totaled approximately
$20.8 million. To a lesser extent, we have financed operations through accounts
receivable and equipment lines of credit, and the exercise of options and
warrants to purchase common stock.

As of December 31, 1999, we had cash and cash equivalents of $12.2 million,
an increase of $6.1 million from cash and cash equivalents held as of
December 31, 1998. The increase was due primarily to the sale of our preferred
stock, which raised $11.7 million, and the exercise of warrants, which raised
$1.3 million, offset by cash used in operating activities and purchases of
property and equipment and other assets.

In July 1998, we entered into an equipment credit facility with Silicon
Valley Bank, which provided for borrowings of up to $1.5 million through
January 1999 followed by a 36 month period of equal payments of principal and
interest, secured by all accounts, inventory, equipment and fixtures. The stated
interest rate under this facility is the bank's prime rate plus .50%, which
equaled 9.0% as of December 31, 1999. On December 31, 1999, we had $1.1 million
outstanding under this credit facility and were in compliance with all credit
facility covenants. In March 1999, we entered into a line of credit agreement
with Silicon Valley Bank, which provides for borrowings of up to $3.0 million
based on 80% of eligible accounts receivable and secured by all accounts,
inventory, equipment, fixtures and general intangibles. Additionally, we have
agreed not to sell, assign, mortgage, transfer, lease, grant a security interest
in or encumber our intellectual property without Silicon Valley Bank's prior
consent and have agreed to maintain a quick ratio (quick assets to current
liabilities) of 1-to-1, a debt/net worth ratio (total liabilities minus
subordinated debt to tangible net worth plus subordinated debt) of not more than
2-to-1 and a tangible net worth of as least $2.9 million. Borrowings accrue
interest at the bank's prime lending rate plus .25%, which equaled 8.75% as of
December 31, 1999. On December 31, 1999, we were in compliance with all line of
credit covenants, had borrowed $0.7 million under this line of credit and an
additional $1.5 million was available for borrowing.

Net cash used in operating activities was $306,000 in 1997, $901,000 in
1998, and $5.0 million in 1999. These net cash outflows resulted from operating
losses as well as increases in accounts receivable due to increased sales and
inventory and were partially offset by increases in accounts payable and accrued
liabilities.

31

Net cash used in investing activities was $553,000 in 1997, $1.3 million in
1998, and $2.2 million in 1999. In 1997, the use of cash was attributable to
purchases of short-term investments and property equipment. In 1998 and 1999,
the use of cash was primarily attributable to purchases of property and
equipment.

Net cash provided by financing activities was $1.2 million in 1997,
$7.9 million in 1998 and $13.3 million in 1999. In 1997, cash provided by
financing activities was primarily attributable to the issuance of convertible
preferred stock. In 1998, cash provided by financing activities was attributable
to proceeds from the financing of equipment and the issuance of convertible
preferred stock. In 1999, cash provided by financing activities was attributable
to proceeds from borrowings against the accounts receivable line of credit and
proceeds from the issuance of common stock, warrants and convertible preferred
stock.

In February 2000, we raised $26.55 million through the issuance of shares of
our Series D preferred stock to strategic investors. The participants include:
Analog Devices, Compaq, Sanyo, Seiko-Epson, Toshiba, ViewSonic and a major
semiconductor company.

As of December 31, 1999, our principal commitment consisted of obligations
outstanding under operating leases. In June 1999, we agreed to lease
approximately 23,400 square feet in a facility located in Tualatin, Oregon, for
a term of 60 months. The first year annual cost of this lease is approximately
$312,000, increasing to an approximate annual cost of $462,000 for the next two
years and an approximate annual cost of $497,000 for the remaining two years.
Although we have no other material commitments, we anticipate a substantial
increase in our capital expenditures consistent with anticipated growth in our
operations, infrastructure and personnel. In the future we may also require a
larger inventory of products in order to support anticipated growth in our
business.

In February of 2000, we licensed rights to two patents from InFocus Systems,
Inc. The terms of the license call for four quarterly payments of $600,000
beginning on March 31, 2000.

From time to time, we may evaluate acquisitions of businesses, products or
technologies that compliment our business. Although we have no current plans in
this regard, any transactions, if consummated, may consume a material portion of
our working capital or require the issuance of equity securities that may result
in further dilution to existing shareholders.

We intend to substantially increase our operating expenses. These operating
expenses will consume a material amount of our cash resources, including a
portion of the net proceeds of this offering. We believe that the net proceeds
from this offering, together with existing cash balances and funds available
under our existing credit facilities, will be sufficient to meet our capital
requirements for at least the next 12 months. After this period, capital
requirements will depend on many factors, including the levels at which we
maintain accounts receivable and inventory. We may need to raise additional
funds, and additional financing may not be available on favorable terms, if at
all. Further, if we issue additional equity securities, shareholders may
experience dilution, and the new equity securities may have rights, preferences
or privileges senior to those of existing holders of our common stock. If we
cannot raise funds, if needed, on acceptable terms, we may not be able to
develop new products or enhance our existing products, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
This may seriously harm our business and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our cash equivalents and short-term investments are exposed to financial
market risk due to fluctuation in interest rates, which may affect our interest
income and the fair market value of our investments. We manage the exposure to
financial market risk by performing ongoing evaluations of our investment
portfolio and investing in short-term investment-grade corporate securities.
These

32

securities are highly liquid and generally mature within 12 months from our
purchase date. Due to the short maturities of our investments, the carrying
value approximates the fair value. In addition, we do not use our investments
for trading or other speculative purposes.

We have performed an analysis to assess the potential effect of reasonably
possible near-term changes in interest and foreign currency exchange rates. The
effect of such rate changes is not expected to be material to our results of
operations, cash flows or financial condition. All transactions to date have
been denominated in United States dollars.

As of December 31, 1999 our cash included money market securities. Due to
the short duration of our investment portfolio, an immediate 10% change in
interest rates would not have a material effect on the fair market value of our
portfolio. Therefore, we would not expect our operating results or cash flows to
be affected to any significant degree by the effect of a sudden change in market
interest rates on our securities portfolio.

FOREIGN CURRENCY EXCHANGE RISK

We are an international company, selling our products globally and, in
particular, in Japan, Taiwan and Korea. Although we transact our business in
U.S. dollars, we cannot assure you that future fluctuations in the value of the
U.S. dollar would not affect the competitiveness of our products, gross profits
realized, and results of operations. Further, we incur expenses in Japan, Korea
and Taiwan and other countries that are denominated in currencies other than
U.S. dollars. We cannot estimate the effect that an immediate 10% change in
foreign currency exchange rates would have on our future operating results or
cash flows as a direct result of changes in exchange rates. However, we do not
believe that we currently have any significant direct foreign currency exchange
rate risk and have not hedged exposures denominated in foreign currencies or any
other derivative financial instruments.

INFLATION

The impact of inflation on our business has not been material since our
inception.

RECENTLY ISSUE ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards, or SFAS, No. 133, Accounting For Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. We do not
expect the adoption of SFAS No. 133 to have a material impact on our results of
operations.

YEAR 2000

No significant Year 2000 problems arose. No significant expenditures related
to the Year 2000 are expected.

33

BUSINESS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."

OVERVIEW

We design and develop complete system-on-a-chip solutions that enable the
visual display of broadband content through a wide variety of electronic
devices. Broadband content includes a combination of video and data delivered to
users at high speeds. Enhancing access to broadband information has typically
been associated with increasing bandwidth over the "last mile." We are focused
on the "last meter," where the information is processed and displayed. In the
last meter, there is an increasing requirement to rapidly process large amounts
of data delivered using a multitude of broadcast and Web protocols. Our
system-on-a-chip solutions open up the last meter by interpreting and optimizing
video, computer graphics, and visual Web information for display on a wide
variety of devices.

We design our solutions to combine our highly integrated system-on-a-chip
ICs with easy to use, feature-rich software. We pioneered our design
architecture in technically demanding high-end display markets such as
high-resolution flat panel monitors and multimedia projectors. We have developed
products that extend our solutions into existing high-volume, mass markets such
as XGA-resolution flat panel monitors. We intend to develop solutions for
emerging mass-market segments such as Internet appliances, where we can leverage
our system-on-a-chip expertise.

Our system-on-a-chip solutions enable the creation of differentiated
products and reduce circuit board size and development costs while enhancing
product performance. Our systems-level architecture gives our customers a high
degree of flexibility to optimize and customize their products. This
significantly improves their time to market for an expanding array of broadband
appliances, the electronic devices that process and display broadband content.
We have announced products in production with Compaq, Sony and ViewSonic, and
have more than 45 customers, including seven out of the top 10 monitor brands
and 10 out of the top 15 television brands. Currently more than 75 products are
in development or production using our ImageProcessor system-on-a-chip
solutions.

INDUSTRY BACKGROUND

The increasing availability of high-speed access to broadband content is
transforming the way we see and use information. The amount of information that
can be transmitted at high speeds over long distances is increasing
dramatically. At the same time, technologies such as digital subscriber lines,
or DSL, cable modems, and fast ethernet are allowing end users to receive data
through significantly increasing bandwidth in the "last mile." According to IDC,
broadband access is expected to grow at a compounded annual growth rate of 185%
from 1999 to 2003. In order to take full advantage of the large amounts of
visual information arriving at the last meter, users are demanding more
sophisticated display devices capable of showing text, graphics and full motion
video simultaneously. These devices include flat panel monitors, high definition
televisions, or HDTVs, multimedia projectors, and Internet appliances.
Independent research firms are projecting significant growth for these devices
over the next several years:

- DisplaySearch estimates that the market for flat panel monitors will grow
from 4.5 million units in 1999 to 23.2 million units in 2004, a compound
annual growth rate of 39%.

- Stanford Resources estimates that the market for HDTVs will grow from 1.5
million units in 1999 to 2.9 million units in 2004, a compound annual
growth rate of 14%.

- Pacific Media Associates estimates that the market for multimedia
projectors will grow from 750,000 units in 1999 to 1.6 million units in
2003, a compound annual growth rate of 21%.

34

- IDC estimates that an emerging category of devices including netTVs,
screenphones and other Internet appliances will grow from 7.9 million
units in 1999 to 29.3 million units in 2004, a compound annual growth rate
of 31%.

Today, the convergence of television and computer applications is creating
new development opportunities for display devices that integrate the ability to
process full motion video and support interactive capabilities. The convergence
results in higher requirements for throughput and a corresponding higher level
of complexity in processing, interpreting and displaying information. While
significant growth is forecasted for display devices, the increasing need to
rapidly process large amounts of data delivered using a multitude of broadcast
and Web protocols could constrain this growth. This bottleneck limits access to
the full visual potential of broadband content.

Developing the technology to cost effectively meet the breadth and
complexity of new display devices poses several technical challenges. First, the
signals delivering content to these devices include analog, digital and video
information that has been encoded using a combination of standard and
non-standard industry protocols. This information must be translated and
optimized at multi-gigabit rates to match the functionality and display
characteristics of the varying devices. Second, these new devices require visual
information to be displayed in a wide variety of resolutions and formats. Each
signal, whether analog or digital, must be manipulated to properly display the
appropriate image in the correct format on the device. Third, all of these
differing signals, protocols and formats need to be processed without
compromising the visual quality of the information displayed.

Another challenge is created by the frequent introduction of higher
resolution display standards designed to meet end users' expectation for higher
quality images. Higher computer resolution formats are emerging such as super
and ultra extended graphics array, or SXGA and UXGA, as are new high definition
television formats. The industry is seeking to address some of this complexity
and to accelerate the acceptance of flat panel displays through the development
of new standards such as the Digital Visual Interface, or DVI, specification.
However, even with development of these standards, today's technology is
reaching its physical limit of transmitting and receiving image data. New
standards are required to increase the available bandwidth in the last meter.
Without new standards, the adoption of advanced high-resolution,
high-performance display products may be impeded.

Furthermore, the traditional design approach of creating "hard-wired"
solutions for discrete problems results in single-purpose solutions that are
difficult to re-configure for new products. The resulting fixed functionality
combined with the lengthy design cycles for new products has made it difficult
for developers to quickly design high-performance, flexible, multi-featured, and
affordable new devices.

PIXELWORKS SOLUTION

Our highly integrated solution, the ImageProcessor system-on-a-chip, breaks
through the bottleneck which has been limiting access to broadband content. Our
system-on-a-chip solutions are capable of interpreting and optimizing high-speed
video, computer graphics and Web information in real time. Our products can also
process analog and digital input sources ranging from VGA to QXGA computer
resolutions and the latest high definition television standards. We enable our
customers to quickly integrate our products into their own advanced display
development programs with our hardware and software solutions. We provide our
customers with a new design approach that lets them address all of their display
solutions within a single architectural platform that is software compatible
across product lines.

We have embraced a systems architecture design process rather than a
discrete component-based design process. Our tested and proven solutions have
the advantage of combining an embedded microprocessor and corresponding
peripherals with embedded memory. This approach enables our customers to
substantially increase functionality, reduce time to market, and lower overall
development costs in highly efficient designs that support miniaturization. Our
highly integrated design enables our

35

customers to significantly reduce the selection, sourcing, testing, integration,
debugging, and design of separate components by combining as many as 10 separate
components into a single chip.

The following diagram illustrates the high level of integration of our
solution which results in reduced complexity, cost and time to market.

Description of graphics on page   :
This graphic is entitled "Pixelworks ImageProcessor System-on-a-Chip
Integration." The subtitle of this graph reads as follows: "Block Diagram
Representation for SXGA-Resolution, Multimedia LCD Monitor." A further subtitle,
positioned just above the graphic, reads: "Pixelworks Integrates Up to 10 Chips
onto a Single Chip." Two discrete diagrams are positioned side by side. The left
diagram shows an arrow pointing downward toward a group of 10 boxes connected by
black lines with a second downward-pointing arrow at the bottom. All components
of the diagram are shaded by black lines with a second downward-pointing arrow
at the bottom. All components of the diagram are shaded gray and are represented
as three-dimensional. Text inside the top arrow reads "Input Source." Reading
from top to bottom, left to right, the individual boxes are labeled as follows:
"Microprocessor," "Scaler," "Video Processor," "Frame Rate Conversion," "Auto
Image Optimization," "Color Compensation," "On-Screen Display," and three
individual boxes labeled "Frame Buffer Memory." Lines connect all of the boxes
with arrowheads pointing at each of the boxes. The bottom downward-pointing
arrow is labeled "Output to Display." The diagram on the right side shows an
arrow pointing downward to a single box comprised of small, sub-sections and
another downward-pointing arrow at the bottom. All components of the diagram are
shaded gray and are represented as three-dimensional. The top arrow is labeled
"Input Source." Within the single box, there is one large box containing smaller
boxes. This large box is shaded in black with white letters reading "Pixelworks
Software." A slightly smaller, gray box is positioned within the larger box and
is labeled "ImageProcessor IC." Within this smaller gray box are eight smaller
boxes which read as follows from top to bottom, left to right: "Microprocessor,"
"Scaler," "Video Processor," "Frame Rate Conversion," "Auto Image Optimization,"
"Color Compensation," "On-Screen Display," and "Frame Buffer Memory." Below the
box is an arrow labeled "Output to Display." Five semi-transparent, gray
trapezoids link the left and right diagrams with the first top trapezoid
connecting the top row of blocks of the left diagram to the top row of smaller
blocks in the right diagram. The second trapezoid connects the second row of
blocks in the left diagram to the second row of smaller blocks in the right
diagram with this pattern continuing for rows three through five in each
diagram.

Key benefits of our solution include:

CONSISTENT, SCALABLE ARCHITECTURE ACROSS MULTIPLE PRODUCTS.  Our
system-on-a-chip solutions, comprised of both hardware and software, can be
easily implemented across multiple device models and display product categories.
Customers can significantly reduce development investments by leveraging a
single effort to create a line of products, a benefit we believe to be unique to
our architecture. Many of our customers are taking advantage of this capability.
For example, Compaq is using our ImageProcessor architecture in both flat panel
display monitors and a multimedia projector, all leveraged from the same
development effort.

BROAD COMPATIBILITY.  Our products work with a broad range of input sources
and interface standards. Our ImageProcessor ICs instantly recognize, interpret,
and optimize video and computer graphics for display on a wide variety of
devices used in the home and office. This allows our customers to use our
system-on-a-chip solutions in products that address multiple market segments and
applications. For example, ViewSonic has used our architecture to design flat
panel monitors that have

36

five data inputs--two analog, two digital, and one video--with resolutions up to
UXGA, or 1600 by 1200 pixels.

FEATURE IMPLEMENTATION.  Our solution gives our customers a large variety of
features required for the most demanding applications. Such features include
picture-in-picture, video rotation, projected image correction, and digital
zoom. Our programmable architecture also allows our customers to develop special
features that differentiate their end products.

RAPID TIME TO MARKET WITH LOWER DEVELOPMENT COSTS.  Our customers leverage
our architecture from one project to the next, lowering their overall
development costs and promoting efficient design processes. We offer our
customers ready-to-implement software modules supporting basic product feature
sets for high volume product segments.

PIXELWORKS STRATEGY

Our objective is to be a leading provider of system-on-a-chip solutions
enabling universal access to broadband content through a wide array of targeted
devices in consumer and business markets. The key elements of this strategy are:

DESIGN AND SELL INCREASINGLY INTEGRATED SYSTEMS-LEVEL SOLUTIONS.  We intend
to continue to combine more and more of the functionality required to open up
the last meter of broadband content delivery. We believe that we have developed
the first mass produced 0.25 micron ICs that include true system-on-a-chip
capability, including an integrated microprocessor and peripherals, 4 megabytes
of ultra high bandwidth dynamic random access memory, or DRAM, and a high
performance digital signal processing, or DSP, core capable of processing high
resolution images. We anticipate that future products may integrate advanced
functionality required for broadband appliances.

DELIVER HIGHLY FLEXIBLE, SCALABLE AND PROGRAMMABLE SOLUTIONS.  Unlike
component IC suppliers, our system-on-a-chip solution includes both silicon
circuitry and software. Our ready-to-implement software modules shorten our
customers' development time by giving them the option to reduce or eliminate
their own custom development. Systems using our design architecture can handle
resolutions as high as QXGA, which requires more than 5 gigabits of bandwidth
per second. Our strategy is to continuously provide our customers with new
software, driving higher levels of performance and functionality.

EXPAND FROM HIGH-END MARKETS INTO MASS MARKETS.  We targeted our initial
products at the most challenging segments of the market: high-resolution
flat-panel monitors and multimedia projectors. These technically demanding
products were and continue to be a proving ground for our core architecture and
product concepts. Our products have been widely accepted in these markets. Our
strategy is to leverage our technology advantage and market acceptance by
offering many of the same capabilities in system-on-a-chip solutions
specifically designed for higher volume markets, such as flat panel monitors. We
also expect these markets to include emerging applications, such as Internet
appliances, screenphones and netTVs.

SUPPORT AND DEFINE INDUSTRY STANDARDS.  Development and broad industry
support of interface standards is critical to the continued adoption of flat
panel displays and future broadband appliances. The current generation of
standards is inadequate for the processing and display of next-generation
broadband content. Future standards will have to address new device requirements
such as higher resolutions, larger formats, multiple displays and bandwidth in
excess of 5 gigabits per second. Our philosophy has been to support accepted
industry standards including the DVI standard developed by the Digital Display
Working Group. Moving forward we expect to be more proactive in the definition
of new standards to drive the adoption of advanced display products.

In support of this strategy, concurrent with the closing of our Series D
preferred stock offering, we began collaborating with Intel Corporation to
develop a new interface specification for next generation digital displays.
Pixelworks intends to develop a new integrated circuit that embodies that new
specification, which we anticipate will incorporate functionality included in
the current DVI standard as well as additional features useful for driving next
generation displays. We have committed to offer the

37

specification to the Digital Display Working Group for inclusion in future
widely available specifications.

BUILD STRATEGIC RELATIONSHIPS.  We intend to continue to work closely with
strategically important partners to develop widely useful solutions as our
next-generation products. Those strategically important partners may be our
customers, our suppliers, or participants in the industry whose own strategic
interests lead them to work with us. In February 2000, we invited a select list
of such strategic investors to participate in our Series D investment round
based on their ability to offer competitive advantages to us as market channels,
or as suppliers, or as technology collaborators, in areas of strategic
importance to us such as monitors and televisions for mass markets,
next-generation high performance displays, and broadband appliances.
Participants in the Series D offering include: Analog Devices, Compaq, Sanyo,
Seiko Epson, Toshiba, ViewSonic and a major semiconductor company.

PRODUCTS

Our design architecture combines our ImageProcessor ICs, embedded software
and software development tools which enable our customers to quickly integrate
our system-on-a-chip solutions into their end products. Designs using our
solutions are portable across different product lines and models. All of our
products are manufactured using state-of-the-art deep-submicron processes.

In December 1998, we began shipping the PW364 ImageProcessor IC, which we
believe to be the world's first single-chip flat panel display controller.
Additional ICs were introduced in 1999; the PW264 ImageProcessor IC in April and
the PW164 ImageProcessor IC in August. These ICs extended the product line into
new markets by providing new features for specific display applications at lower
price points.

In December 1999, the Society for Information Display, or SID, recognized
our PW364 and PW264 ImageProcessor ICs with the "Display Material or Component
of the Year Gold Award," a distinguished technical recognition in the advanced
display industry. The winners of the SID INFORMATION DISPLAY MAGAZINE Display of
the Year Awards are selected by a committee of display technologists and leading
editors who cover the display industry.

All of our ImageProcessor IC solutions include the following features:

- INTELLIGENT IMAGE PROCESSING--interprets and resizes incoming image
signals to match the aspect ratio and fixed resolution of the target
display device

- ADAPTIVE IMAGE OPTIMIZATION--identifies and configures the incoming signal
to produce the best possible image

- ADVANCED VIDEO SUPPORT--recognizes and optimizes incoming video signals,
including HDTV, for a wide variety of display resolutions

- SOFTWARE COMPATIBILITY--allows customers to rapidly create products across
product lines and categories

Modular features of our ImageProcessor IC solutions include:

- MAXIMUM INPUT RESOLUTION--the highest level of incoming signal resolution
supported by a specific ImageProcessor IC

- MAXIMUM OUTPUT RESOLUTION--the highest level of resolution a specific
ImageProcessor IC can provide to the actual display

- PICTURE-IN-PICTURE--the ability to overlay and view one image source
simultaneously with another image source in a resizable and movable window

- KEYSTONE CORRECTION--allows users to adjust the image electronically in
order to project a "squared-up" image from a range of projection angles

38

Our current ImageProcessor ICs are:

MARKET                                      MODULAR FEATURES

MAX.          MAX.
ADVANCED                   BUSINESS     IMINPUTOCESSOR  OUTPUT      PICTURE-IN-    KEYSTONE
TELEVISION   COMPUTING    PRESENTATION   RESOLUTION    RESOLUTION      PICTURE     CORRECTION       APPLICATIONS

------------------------------------------------------------------------------------------------------------------------------------
PW364               X            X                         UXGA          UXGA            X                        Full-featured
SXGA, UXGA
Multimedia
Monitors and TVs
------------------------------------------------------------------------------------------------------------------------------------
PW364D                                         X           UXGA          UXGA            X              X         Full-featured
SXGA, UXGA
Multimedia
Projection
------------------------------------------------------------------------------------------------------------------------------------
PW264               X            X                         SXGA          XGA             X                        Full-featured XGA
Monitors
------------------------------------------------------------------------------------------------------------------------------------
PW264-K             X                          X           SXGA          XGA             X              X         Mainstream XGA
Projection
------------------------------------------------------------------------------------------------------------------------------------
PW164W-20           X                          X           UXGA          SXGA                           X         Low Cost XGA
Projection
Pin Compatible
with PW364/PW264
------------------------------------------------------------------------------------------------------------------------------------
PW164-10R                        X                         SXGA          XGA                                      15 in. XGA
Multimedia
Monitors
------------------------------------------------------------------------------------------------------------------------------------
PW164-20R                        X                         UXGA          SXGA                                     17-18 in. SXGA
Multimedia
Monitors
------------------------------------------------------------------------------------------------------------------------------------
PW164-10RK          X                          X           SXGA          XGA                            X         Cost-sensitive
XGA/SVGA
Projection
------------------------------------------------------------------------------------------------------------------------------------
PW164-20RK          X                          X           UXGA          SXGA                           X         Cost-sensitive
SXGA Projection
------------------------------------------------------------------------------------------------------------------------------------
PWSR-01                          X                         QXGA          QXGA            X                        Super Resolution
Chip Set                                                                                                        Monitors
------------------------------------------------------------------------------------------------------------------------------------

Notes:

Resolution standards
SVGA       800 X 600 pixels                      UXGA        1600 X 1200 pixels
XGA        1024 X 768 pixels                     WUXGA       1900 X 1200 pixels
SXGA       1280 X 1024 pixels                    QXGA        2048 X 1536 pixels

OUR SOFTWARE

We provide a complete software development environment that helps customers
reduce their time to market by providing an embedded operating system, source
code and tools necessary to customize display devices. Our Software Development
Kit enables product differentiation through rapid customization of features,
performance, and device look and feel with fast time to market and reduced
development costs. Our software provides a consistent development platform that
is portable across product lines and product categories.

39

The Software Development Kit includes:

- Embedded "C" language, object-oriented source code and libraries;

- Software that provides automatic image optimization, compatible with a
wide range of analog, digital, and video formats;

- Application programming interfaces that allow the customer to address our
software and hardware functionality at a high level;

- Support for a wide range of hardware devices; and

- Windows-based utilities:

- GUIBuilder--allows the customer to build graphical on-screen user
interfaces

- Display Configurator--allows the customer to configure timing for
particular display panels

- FlashUpgrader--allows the customer to download firmware

- PW Debug--gives the customer the capability for interactive debugging
of the system over a serial interface

FUTURE PRODUCT DEVELOPMENT

We plan to develop new system-on-a-chip solutions which address customer
demand and are logical extensions of our design architecture. Higher levels of
integration may include adding analog to digital converters, video decoders and
DVI compliant digital receivers. These higher levels of integration will further
reduce the number of components on circuit boards and help to lower overall
system costs. Future products may incorporate functionality targeted at Internet
appliance and advanced video applications.

TECHNOLOGY

Our core competency in IC design involves an innovative methodology for
developing complex system-on-a-chip designs. Our designs are based on
self-contained modules that can be reassembled and reused in new development
programs. We extensively simulate and test our designs using the best available
simulation and synthesis tools and internally developed proprietary validation
tools. We work closely with our foundry partners to use state-of-the-art
deep-submicron process technology.

We have used this design methodology to produce first-turn silicon success,
as demonstrated in our development of what we believe to be the world's first
0.25 micron system-level integration application-specific ICs with embedded
DRAM.

IMAGEPROCESSOR IC TECHNOLOGY

UNIQUE ON-CHIP INTEGRATION OF MICROPROCESSOR, MEMORY AND DIGITAL SIGNAL
PROCESSOR. Our system-on-a-chip architecture features an embedded x86-compatible
microprocessor and peripherals, 4 megabytes of ultra high bandwidth DRAM, and a
high performance DSP core. Our proprietary memory system architecture enables up
to 33.2 gigabits per second of bandwidth, and our DSP enables processing of
image resolutions as high as QXGA, which requires more than 5 gigabits of
bandwidth per second. By integrating the microprocessor and peripherals, memory,
and DSP our products provide a complete solution to the core electronics of a
display device.

BROAD INTERFACE FLEXIBILITY. Our ImageProcessor ICs work with analog or
digital input sources, ranging from VGA to QXGA computer graphics resolutions,
and the latest HDTV video.

40

COMPLETE SOFTWARE DEVELOPMENT ENVIRONMENT. We provide an embedded operating
system, source code, and software tools necessary to customize display devices.
Our software development environment includes a proprietary Windows based user
interface creation tool, GUI Builder, that enables customers to create finished
products with a distinct "look and feel." The GUI Builder also allows our
customers to easily create multiple differentiated products. In addition to
controlling the user interface our software forms the heart of the real time
system at the core of any modern display product. Our software provides a
consistent development platform that is portable across product lines and
product categories. For example, a customer that develops a projector product
that uses our software can easily port that software to a monitor. This benefits
the customer by dramatically reducing time to market and providing a unique
"look and feel" that delivers a consistent customer experience across an entire
product portfolio.

INTELLIGENT IMAGE PROCESSING TECHNOLOGY

Our technology supports multi-standard analog and digital video, including
digital television or DTV, HDTV, National Television Standards Committee, or
NTSC, PAL and SECAM. Our intelligent image processing solution simplifies the
use and development of display devices. Features of our technology include the
following:

IMAGE SCALING AND SHAPING Our image processing technology incorporates a
proprietary programmable two-dimensional image scaler capable of resizing images
to fit a wide variety of aspect ratios, the ratio of width to height of display
screens, and resolutions. With our scaler, images can be adapted to aspect
ratios ranging from traditional 4:3 aspect ratios of conventional computer
monitors and televisions to the 16:9 format used in wide screen HDTVs. In
addition, content designed for a certain resolution can be intelligently
stretched or reduced in real time to fit a new resolution for a specific display
without degrading the image. For example low-resolution images are processed by
intelligently adding information, so that when the new image is displayed, it
looks smooth without any jagged image areas. High-resolution content can be
displayed on lower resolution displays by intelligently removing information
without degrading image quality.

Our technology allows the shape of an image to be changed in multiple
dimensions. This is useful in compensating for optical distortions in products
such as front projection systems and rear projection televisions. For example,
standard resolution videotapes designed for conventional television display can
be resized and formatted for display on a high-resolution wide-screen flat panel
television without degrading the image. This capability is increasingly
important as HDTV becomes more prevalent. HDTV content can be delivered in as
many as 18 different combinations of resolutions and aspect ratios. Our
technology is also useful in compensating for optical distortions introduced by
the lenses used in products such as front projection systems and rear projection
TVs.

ADAPTIVE IMAGE OPTIMIZATION. Our products must interface to a broad array of
standard and non-standard protocols. As a result, intelligent methods of
acquiring and identifying a signals format must be used. We use a proprietary
image processing circuit that can automatically determine the key parameters of
an arbitrary input signal and through our software drivers configure the system
to produce the best possible image. Our adaptive image optimization technology
automatically adjusts incoming signals to achieve the highest possible image
quality. The display adjusts itself when it is turned on and continuously
adjusts with every change of the incoming signals to display an optimal image.

ADVANCED VIDEO PROCESSING. Flat panel displays are progressive scan devices.
Images are built and displayed sequentially one row or line at time. Typically,
video signals are interlaced or built using every other row. First the odd rows
are displayed and then the image is updated with the even rows. Our image
processing technology converts the incoming interlaced video signals for display
on flat panels by doubling the incoming signals to match the progressive scan
capabilities of flat panel displays. This is

41

an especially difficult challenge. Simply merging the odd and even fields
results in very jagged image edges. Our intelligent approach uses a
sophisticated video digital signal processing technique to display the best
possible image.

COLOR COMPENSATION TECHNOLOGY. Our sophisticated custom color compensation
technology makes it possible to display consistent color images from video and
computer graphics, which use very different color palettes, on different display
devices. Our color processing technology compensates for variations in the color
performance of a display. Using our unique approach any color can be addressed
independently and adjusted without impacting other colors. Our customers can use
our color compensation technology to compensate for non-uniform color in a
specific display and to provide consistent color performance across multiple
products using different display technologies. It can also be used to compensate
for color variations in display components provided by different vendors.

Our non-linear color compensation technology allows precise color matching
and may enable products which can precisely represent the color of the original
source. The applications of this technology include graphic design where colors
on a display using an ImageProcessor IC can be accurately matched to a print
output. Another application is for improving end-user satisfaction when using
Internet e-commerce shopping sites by enabling exact color representation of
products to be shown on a display.

FULLY CUSTOMIZABLE ON-SCREEN DISPLAY

Our technology couples an integrated on-screen display controller with a
unique Windows-based application that allows customers who are designing
ImageProcessor ICs into their display products to quickly develop and implement
their own unique user interfaces that can incorporate graphics and colorful
icons to support branding in start-up displays and menus.

CUSTOMIZABLE FEATURE SUPPORT FOR SPECIFIC DEVICE FUNCTIONALITY

This allows developers to add unique features for specific devices.
Customizable features currently include:

- Picture-in-picture for products in the consumer multimedia, high-end
desktop monitors and business presentation markets

- Image shaping for keystone correction in business presentation products

- Digital zoom to enlarge images electronically

MIXED SIGNAL SUPPORT

Our ImageProcessor ICs can support as many as four different input sources
to be displayed on a single device through integrated and add-on analog and
digital receivers and connectors. Analog computer graphics, TMDS digital
graphics supporting the DVI standard and video through composite and S-Video
sources can be captured, decoded and optimized.

CUSTOMERS, SALES AND MARKETING

We have achieved design wins with global leaders in the business computing
and consumer electronics markets. We have announced products in production with
Compaq, Sony and ViewSonic and have more than 45 customers who are using our
system-on-a-chip solutions in over 75 products. Our customer list includes seven
out of the top 10 monitor brands and 10 out of the top 15 television brands.

The key elements of our sales and marketing strategy are to achieve design
wins with industry leading branded manufacturers in targeted markets and to
continue building strong customer-supplier

42

relationships. Once a design win has been achieved, sales and marketing efforts
are focused on building long-term mutually beneficial business relationships
with our customers by providing superior technology which complements their
product development objectives and meets their expectations for
price-performance and time to market. Marketing efforts are focused on building
market-leading brand awareness and preference for our system-on-a-chip
solutions.

We sell our products to and support our U.S. customers directly. Our global
distribution channel is multi-tiered and involves:

- Manufacturers Representatives--Independent sales agents who represent us
in local markets and provide pre- and post-sales support and do not carry
inventory

- Distributors--Resellers in local markets who provide pre- and post-sales
support and stock our ImageProcessor ICs in direct relation to specific
manufacturing customer orders

- Integrators--OEM customers who build display devices based on
specifications provided by branded manufacturers

- Branded Manufacturers--Globally recognized manufacturers who develop
display device specifications, manufacture, market and distribute display
devices either directly or through resellers to end-users

In Japan, our products are primarily sold through our distributor, Tokyo
Electron Device who represented 54.8% of our 1999 total revenue. Sales through
Tokyo Electron Device to Seiko Epson and Hitachi represented 23.3% and 11.2% of
our 1999 total revenue, respectively. In Taiwan, we primarily sell through our
distributor MicroMax International who represented 23.6% of our 1999 total
revenue. Sales through MicroMax to Optoma Corp., formerly known as CTX
Opto-Electronics, an integrator for Compaq, represented 13.4% of our 1999 total
revenue. We support our European and Korean customers through direct sales
supported by manufacturer representatives. We sell our products to and support
our U.S. customers directly.

Our sales and marketing team included 36 employees as of February 15, 2000.
The sales and marketing team includes the architecture support team of 21
application engineers who provide technical expertise and assistance to
manufacturing customers on final product development. In February 2000, we
established sales and marketing offices in Japan and Taiwan.

RESEARCH AND DEVELOPMENT

Since our inception, our internal research and development efforts were
focused primarily on the development of our PW364 ImageProcessor IC for the
high-end multimedia projection and flat panel monitor markets. In 1998, our
development efforts for the PW264 were focused on extending our technology into
new markets. In 1999, our development efforts for the PW164 product series were
focused on developing highly efficient designs while maintaining product
performance and features.

We are now pursuing higher levels of integration of new features in order to
extend our system-on-a-chip solutions into new market segments. These higher
levels of integration will further reduce components on circuit boards and help
to lower final systems costs for our customers. Future development efforts
include system-on-a-chip technologies required for Internet appliance and
advanced video applications.

In addition to our 21 applications engineers we have 36 engineers,
technologists and scientists who are organized into the following functional
groups: IC Design, Software engineering, Systems Engineering and Product and
Test Engineering. Software engineers constitute 40% of our engineering resources
and 21% are systems engineers. This concentration of systems and software
engineering reflects our system-on-a-chip focus.

43

We have invested and expect that we will continue to invest significant
resources in research and development activities. Our research and development
expenses were $215,000, $1.4 million and $4.8 million in 1997, 1998 and 1999,
respectively.

MANUFACTURING

Our products require advanced semiconductor processes and packaging
technologies. Within the semiconductor industry we are known as a "fabless"
company, meaning that we do not fabricate the semiconductors that we design and
develop, but instead rely on third parties to manufacture our products. We have
established strategic technology relationships with our fab partners Toshiba and
Taiwan Semiconductor Manufacturing Corporation, or TSMC. This approach allows us
to concentrate our resources on product design and development where we believe
we have greater competitive advantages. All of our current products are
manufactured by Toshiba on an Application Specific Integrated Circuit, or ASIC,
turnkey basis. Toshiba manufactures wafers, performs all assembly and test
operations and is responsible for the quality and reliability testing of our
products.

Our current products are manufactured by Toshiba using a standard 0.25
micron embedded DRAM process. We plan to have our future products manufactured
by Toshiba and TSMC using 0.25 micron and 0.18 micron embedded DRAM and standard
Complementary Metal-Oxide Semiconductor, or CMOS, processes. We intend to build
some future products on a customer owned tooling, or COT, basis, directly
contracting the manufacture of wafers and the assembly and testing of our
products. While this COT manufacturing model adds greater responsibility and
risk for our production, it provides us with the manufacturing flexibility
required for future products and may reduce our manufacturing costs.

INTELLECTUAL PROPERTY

We rely on a combination of nondisclosure agreements and copyright,
trademark and trade secret laws to protect the algorithms, design and
architecture of our system-on-a-chip technology. We currently have three patent
applications pending with the U.S. Patent and Trademark Office for protection of
certain of our significant technologies, which are image scaling with keystone
correction, and our DRAM based scaling engine. We intend to seek patent
protection for other significant technologies that we have already developed and
expect to seek patent protection for future products as necessary. Any future
patents may not be granted and if granted may be invalidated, circumvented,
challenged or licensed to others.

To supplement the technologies that we develop internally, we have licensed
rights to use certain intellectual property held by third parties, and we may
license additional technology rights in the future. We entered into a license
agreement with VAutomation Incorporated pursuant to which, among other things,
we licensed certain rights relating to VAutomation's soft core technology. We
entered into another agreement with VAutomation pursuant to which, among other
things, we sublicensed certain rights related to x86 IC core technology. That
agreement terminates on November 6, 2006. We have also recently obtained a
license from InFocus for the use of its proprietary automatic pixel clock phase
and frequency correction technology specified in two patents held by InFocus. We
acquired this technology in connection with the settlement of a claim by InFocus
that we were infringing on its patents relating to this technology. We obtained
this license to avoid any uncertainty which this claim might create for our
customers and our business. The license gives us the right to use this
technology without payment of royalty in our products. If any of these
agreements terminate, we would be required to exclude the licensed technology
from our existing and future product lines.

The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. We have certain indemnification
obligations with respect to the infringement of third party intellectual
property rights. There is no intellectual property litigation

44

currently pending against us. However, we may from time to time receive
notifications of claims that we may be infringing patents or other intellectual
property rights owned by third parties. If it is necessary or desirable, we may
seek licenses under those patents or intellectual property rights. However, we
cannot be sure that licenses will be offered or that the terms of any offered
licenses will be acceptable to us.

COMPETITION

In general, the market for ICs is intensely competitive. Our market is
characterized by rapid technological change, evolving industry standards,
compressed product life cycles and declining average selling prices. We believe
the principle factors impacting competition in our markets are levels of product
integration, functional versatility provided by software, compliance with
industry standards, time to market, cost, product performance, system design
costs, intellectual property, customer relationships and reputation.

Our current products face competition from specialized display controller
developers and in-house display control solutions designed by our customers and
potential customers. Additionally, new, alternative display processing
technologies and industry standards may emerge that directly compete with
technologies that we offer.

We compete with specialized and diversified electronics and semiconductor
companies that offer display processors or scaler components. Some of these
include Genesis Microchip, Macronix, Sage, Silicon Image, SmartASIC,
STMicroelectronics and Trident Microsystems.

Potential competitors may include diversified semiconductor manufacturers
including Broadcom Corporation, National Semiconductor and Texas Instruments. In
addition, start-up companies may seek to compete in our markets.

EMPLOYEES

As of February 15, 2000, we had a total of 85 employees--36 in engineering,
36 in sales and marketing, 5 in operations and 8 in finance and administration.
Of these employees, 83 are in the United States. None of our employees are
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relationship with our employees to be good. We
depend on the continued service of our key technical, sales and senior
management personnel and our ability to attract and retain additional qualified
personnel. If we are unable to hire and retain qualified personnel in the
future, our business could be seriously harmed.

FACILITIES

Our 23,400 square foot headquarters located in Tualatin, Oregon includes our
engineering, marketing and administrative facilities. We have leased this space
through May 2004.

45

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding our directors
and executive officers, as of February 24, 2000:

NAME                               AGE                                POSITION
----                             --------   ------------------------------------------------------------

Allen H. Alley.................     45      Chairman, President and Chief Executive Officer
Hans H. Olsen..................     51      Vice President, Operations
Michael G. West................     42      Vice President, Technology
Robert Y. Greenberg............     38      Vice President, Product Development and Customer Support
Bradley A. Zenger..............     38      Vice President, Marketing
Michael E. Barton..............     55      Vice President, Sales
Jeffrey B. Bouchard............     38      Vice President, Finance and Chief Financial Officer
Oliver D. Curme................     46      Director
Mark A. Stevens................     39      Director
Frank Gill.....................     56      Director

ALLEN H. ALLEY co-founded our company and has served as our President, Chief
Executive Officer and Chairman since our inception. From 1992 to 1996,
Mr. Alley served as the Vice President, Corporate Development, Engineering and
Product Marketing for In Focus Systems, a leading electronic display company.
While at InFocus, Mr. Alley also was the co-CEO of a joint venture with
Motorola, Inc. called Motif. From 1986 to 1992, Mr. Alley was a General Partner
of Battery Ventures, a venture capital investment firm. From 1983 to 1986,
Mr. Alley was the Director of Mechanical Computer Aided Engineering of
Computervision Corporation, a computer-aided design software developer. From
1979 to 1983, Mr. Alley was a Lead Mechanical Engineer at Boeing Commercial
Airplane Division. From 1976 to 1979, Mr. Alley served as a Product Design
Engineer for the Ford Motor Company. Mr. Alley holds a B.S. in Mechanical
Engineering from Purdue University.

HANS H. OLSEN has served as Vice President, Operations since joining us in
July 1998. From 1997 to 1998, Mr. Olsen held the positions of Vice President,
Graphics Marketing and Vice President, North American Sales at Trident
Microsystems, a graphics controller semiconductor company. From 1996 to 1997,
Mr. Olsen served as Vice President Marketing at Paradigm Technology, Inc. which
acquired IChips Corporation, a personal computer chipset and embedded memory
technology provider, that he founded and was CEO of from 1993 to 1996. From 1982
to 1993, Mr. Olsen held the position of CEO of Electronic Designs, Inc., a
semiconductor memory company he co-founded. From 1973 to 1982, Mr. Olsen held
engineering and management positions at Christian Rovsing A/S in Copenhagen,
Denmark. Mr. Olsen holds a B.S.E.E. from Copenhagen Technical University and a
M.S.E.E. from the University of Copenhagen.

MICHAEL G. WEST co-founded our company and has served as our Vice President,
Technology since our inception. From 1988 to 1996, Mr. West led the integrated
circuit engineering efforts on advanced display products at InFocus Systems
where he served as Chief Scientist and in other senior engineering capacities.
From 1986 to 1987, Mr. West led design for a VLSI design of a full-custom
bipolar integrated circuit and a microsequencer as an Integrated Circuit Design
Engineer for Bipolar Integrated Technology, a semiconductor developer and
manufacturer. From 1982 to 1986, Mr. West held integrated circuit design
positions, including leading system architecture development for a VLIW super
computer at Floating Point Systems, a super-computer company. Mr. West holds a
B.S. in Electronic Engineering and a B.S. in Mathematics from Oregon State
University and a M.S.E.E. from the University of Illinois.

ROBERT Y. GREENBERG co-founded our company and has served as our Vice
President, Product Development and Customer Support since our inception. From
1988 to 1996, Mr. Greenberg designed

46

system architectures, high-speed board-level hardware, integrated circuits and
simulation and embedded system software for InFocus Systems. From 1987 to 1988,
Mr. Greenberg developed a high-speed CMOS application specific integrated
circuit verification system for Integrated Measurement Systems, Inc., a
manufacturer of performance engineering test stations. Mr. Greenberg has also
held electrical engineering positions at Floating Point Systems, Inc. and Sperry
Corporation. Mr. Greenberg holds a B.S.E.E. and a B.S.C.E. from the University
of Michigan.

BRADLEY A. ZENGER co-founded our company and has served as our Vice
President, Marketing since our inception. From 1995 to 1996, Mr. Zenger served
as the Director, Marketing Services at In Focus Systems where he developed and
implemented worldwide demand creation programs. He also held management-level
marketing positions at InFocus Systems from 1992 to 1995. From 1989 to 1992,
Mr. Zenger was a Technical Support Manager (1990 to 1992) and held supervisory
positions (1989 to 1991) at KLA Instruments, a semiconductor manufacturing
equipment manufacturer, where he led installations and product support. From
1984 to 1989, Mr. Zenger served as a decorated officer in the U.S. Navy on-board
a nuclear attack submarine. Mr. Zenger holds a B.S. in Mechanical Engineering
from the University of Notre Dame and an M.B.A. from Santa Clara University.

MICHAEL E. BARTON has served as Vice President, Sales since January 1999.
From 1996 to 1998, Mr. Barton was the Senior Vice President of Sales at
Evergreen Technologies, Inc., a PC processor subsystem manufacturer. From 1991
to 1996, Mr. Barton served as Vice President of Sales, Americas of Cyrix
Corporation, a microprocessor semiconductor company. From 1975 to 1991,
Mr. Barton was employed at Intel Corporation, holding senior sales management
positions including Worldwide Sales Manager, Automotive and Corporate Major
Accounts Manager.

JEFFREY B. BOUCHARD has served as Vice President, Finance and Chief
Financial Officer since December 1999. During 1999, Mr. Bouchard served as Chief
Financial Officer at eVineyard, a start-up online retailer of premium wines.
From 1993 to 1999, Mr. Bouchard held senior financial management positions at
InFocus Systems, including Director of Investor Relations and Treasury (1998 to
1999) and Director of Finance (1995 to 1998) where he was responsible for the
company's financial management and planning. From 1988 to 1992, Mr. Bouchard
held a variety of senior financial positions including Worldwide Operations
Financial Planning and Analysis Manager at Sun Microsystems, an enterprise
network computing company. Prior to joining Sun Microsystems, Mr. Bouchard held
finance and accounting positions at several high-technology companies from 1983
to 1988. Mr. Bouchard holds a B.S. in Business Administration--Finance from San
Jose State University and an M.B.A. from Santa Clara University.

OLIVER D. CURME has served as a director of our company since April 1997.
Since 1988, Mr. Curme has been a General Partner of funds related to Battery
Ventures, a venture capital firm located in Wellesley, Massachusetts. Mr. Curme
sits on the board of directors of Chordiant Software, Inc. and several privately
held companies. Mr. Curme holds a B.S. in Biochemistry from Brown University and
an M.B.A. from Harvard Graduate School of Business Administration.

MARK A. STEVENS has served as a director of our Company since April 1998.
Since 1993, Mr. Stevens has been a General Partner of Sequoia Capital, a venture
capital investment firm. From 1989 to 1993, Mr. Stevens was an Associate with
Sequoia Capital. From 1982 to 1987, Mr. Stevens held technical sales and
marketing positions at Intel Corporation. Mr. Stevens currently serves on the
Board of Directors of NVIDIA, Corp., a 3D graphics processor semiconductor
company, Terayon Communications Systems, Inc., MedicaLogic, Inc., an Internet
healthcare information company, MP3.com, Inc., an online music service provider,
Medibuy.com, a business-to-business exchange for healthcare supplies procurment,
and several privately held companies. Mr. Stevens holds a B.S.E.E. degree, a
B.A. degree in Economics, an M.S. degree in Computer Engineering from the
University of Southern California and an M.B.A. degree from Harvard Business
School.

47

FRANK GILL has served as a director of our company since December 1998. From
1975 to 1998, Mr. Gill was employed at Intel Corporation in a variety of sales,
marketing, product development and manufacturing positions and retired from
Intel as an Executive Vice President. In 1989, he served as the Senior Vice
President in charge of worldwide sales and marketing operations and became
General Manager of the Intel Systems Group in 1990 and the Internet and
Communications Group in 1995. Mr. Gill serves as a director of Inktomi
Corporation, McAfee.com Corporation, Tektronix, Inc., Logitech International
S.A. and Telecom Semi, Inc. Mr. Gill holds a B.S.E.E. degree from the University
of California at Davis.

BOARD OF DIRECTORS

We currently have four directors. Our directors hold office until the next
annual meeting of shareholders or until their successor are duly elected or
appointed. Pursuant to the Company's Fourth Amended and Restated Articles of
Incorporation, one director has been elected by the holders of our shares of
common stock, one director has been elected by the holders of our Series A
preferred shares, one director has been elected by the holders of our Series B
preferred shares and one director has been elected by the holders of our shares
of common stock, Series A preferred shares, Series B preferred shares and
Series C preferred shares, each voting separately. Following the effective date
of our initial public offering, there will no longer be class voting in the
election of directors. Our Fifth Amended and Restated Articles of Incorporation
provide that if the number of directors is fixed at six or more, our directors
will be divided into three classes and, after a transitional period, will serve
for terms of three years, with one class being elected by the shareholders each
year.

BOARD COMMITTEES

The compensation committee currently consists of Messrs. Curme, Stevens and
Gill. The compensation committee reviews and makes recommendations regarding our
compensation policies and all forms of compensation to be provided to our
executive officers and directors, including annual salaries, bonuses, stock
options and other incentive compensation agreements. The compensation committee
also administers our 1997 stock incentive plan and our 2000 employee stock
purchase plan.

The audit committee currently consists of Messrs. Curme, Stevens and Gill.
The audit committee reviews and monitors our corporate financial reporting and
external audits, including our internal control functions, the results and scope
of the annual audit and other services provided by our independent auditors and
our compliance with legal matters that have a significant impact on our
financial reports. The audit committee also consults with our management and our
independent auditors prior to the presentation of financial statements to
shareholders and, as appropriate, initiates inquiries into aspects of our
financial affairs.

DIRECTOR COMPENSATION

Our non-employee directors currently receive no compensation for service on
our board of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the compensation committee is currently, or has been
at any time since the beginning of our last fiscal year, one of our officers or
employees. During the fiscal year ended December 31, 1999, no executive officer
of our company served as a member of the board of directors or compensation
committee of any entity that has one or more officers serving as a member of our
board of directors or compensation committee.

48

EXECUTIVE OFFICERS

Our executive officers are elected by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors or
officers.

COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY COMPENSATION TABLE

The following table sets forth compensation awarded to, earned by, or paid
to our Chief Executive Officer and the other five most highly compensated
executive officers, each of whose total cash compensation exceeded $100,000
during the year ended December 31, 1999 (the "named executives"):

ANNUAL COMPENSATION     STOCK          ALL
-------------------    OPTIONS        OTHER
NAME AND PRINCIPAL POSITION                     YEAR      SALARY     BONUS     GRANTED(#)   COMPENSATION
---------------------------                   --------   --------   --------   ----------   ------------

Allen H. Alley
President and Chief Executive Officer.....    1999     $160,714   $40,000      22,500             --

Hans H. Olsen
Vice President, Operations................    1999      133,429    45,000          --       $134,441(1)

Robert Y. Greenberg
Vice President, Product Development.......    1999      118,899    30,000      10,000             --

Michael G. West
Vice President, Technology................    1999      118,899    30,000      10,000             --

Bradley A. Zenger
Vice President, Marketing.................    1999      118,928    30,000      10,000             --

Michael E. Barton
Vice President, Sales.....................    1999      120,248    40,000          --             --

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

(1) Represents the difference between the fair market value and the purchase
price of 203,958 shares of common stock purchased pursuant to a restricted
stock purchase award under our 1997 stock incentive plan.

49

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to options granted
during the year ended December 31, 1999 to the named executives:

INDIVIDUAL GRANTS                         POTENTIAL
------------------------------------------------     REALIZABLE VALUE
PERCENT OF                              AT ASSUMED ANNUAL
NUMBER OF      TOTAL                               RATES OF STOCK PRICE
SECURITIES    OPTIONS                                APPRECIATION FOR
UNDERLYING   GRANTED TO   EXERCISE                    OPTION TERM(2)
OPTIONS     EMPLOYEES      PRICE     EXPIRATION   ---------------------
NAME                                 GRANTED(1)    IN 1999     PER SHARE      DATE         5%          10%
----                                 ----------   ----------   ---------   ----------   ---------   ---------

Allen H. Alley.....................    22,500         1.5%       $.385      01/20/09     $5,448      $13,806
Hans H. Olsen......................        --          --           --            --         --           --
Robert Y. Greenberg................    10,000          .7          .35      01/20/09      2,201        5,578
Michael G. West....................    10,000          .7          .35      01/20/09      2,201        5,578
Bradley A. Zenger..................    10,000          .7          .35      01/20/09      2,201        5,578
Michael E. Barton..................        --          --           --            --         --           --

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

(1) Options granted in 1999 became exercisable starting 12 months after the
grant date, with one-fourth of the options becoming exercisable at that time
and with an additional 1/36th of the options becoming exercisable on each of
the next thirty-six months thereafter.

(2) In accordance with the rules of the SEC, the above shows the potential
realizable value over the term of the option (the period from the grant date
to the expiration date) based on assumed rates of share price appreciation
of 5% and 10%, compounded annually. These amounts do not represent our
estimate of future share price. Actual gains, if any, on option exercises
will depend on the future performance of our shares of common stock.

OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

The following table sets forth information for our named executives relating
to the number and value of securities underlying exercisable and unexercisable
options held at December 31, 1999.

NUMBER OF
SECURITIES UNDERLYING         VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT         IN-THE-MONEY OPTIONS
DECEMBER 31, 1999          AT DECEMBER 31, 1999(2)
SHARES ACQUIRED      VALUE      ---------------------------   ---------------------------
ON EXERCISE     REALIZED(1)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
---------------   -----------   -----------   -------------   -----------   -------------

Allen H. Alley.........          --               --             0         22,500              --
Hans H. Olsen..........      46,042          $42,359            --             --              --             --
Robert Y. Greenberg....          --               --             0         10,000
Michael G. West........          --               --             0         10,000
Bradley A. Zenger......          --               --             0         10,000
Michael E. Barton......          --               --        42,500        127,500

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

(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.

(2) The value of unexercised in-the-money options represents the difference
between the fair market value of the underlying shares of common stock using
an assumed initial public offering price of $   per share and the exercise
price of the option, multiplied by the number of shares underlying the
option.

50

EMPLOYMENT AGREEMENTS

We entered into an employment agreement with Jeffrey B. Bouchard on
December 12, 1999, the date he became our Vice President, Finance and Chief
Financial Officer. In consideration for his services we agreed to pay
Mr. Bouchard an annual salary of $140,000, plus our standard employee benefits,
and granted him 150,000 options under our incentive stock option plan. If he is
terminated without cause, which is defined as termination for other than
committing a criminal, fraudulent or grossly negligent act, misappropriation of
our assets or willful failure to perform his duties, then he is entitled to
severance pay of three months salary. If we substantially sell all of our assets
or are merged into another company which our shareholders do not control, then
under his stock option grant, Mr. Bouchard is entitled to his options which have
already vested as well as an automatic vesting of the options he would have been
entitled to receive over the twelve months following such merger or sale. As a
condition of his employment, Mr. Bouchard entered into our standard employee
nondisclosure and developments agreement pursuant to which he may not divulge
any of our proprietary information other than as permitted as part of his
employment with us.

EMPLOYEE BENEFIT PLANS

1997 STOCK INCENTIVE PLAN

Our 1997 Stock Incentive Plan, the 1997 Plan, which was approved by our
shareholders on January 16, 1997, provides for grants of both "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and "nonqualified stock options" which are not qualified
for treatment under Section 422 of the Code, and for direct stock grants and
sales to employees or consultants of the Company. The purposes of the 1997 Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentives to our employees
and consultants and to promote the success of our business. The 1997 Plan is
administered by the compensation committee of the board of directors.

The term of each incentive option granted under the 1997 Plan will generally
be ten years from the date of grant, or such shorter period as may be
established at the time of the grant. An option granted under the 1997 Plan may
be exercised at such times and under such conditions as determined by the
compensation committee. If a person who has been granted an incentive stock
option ceases to be employed by or on a consulting basis with us, such person
may exercise that option only during the exercise period established by the
compensation committee at the time the options were granted, which shall not
exceed 90 days after the date of termination, and only to the extent that the
option was exercisable on the date of termination. Nonqualified stock options
may be exercised during a period determined by the compensation committee. If a
person who has been granted an option ceases to be an employee or consultant as
a result of such person's total and permanent disability, such person may
exercise that option at any time within twelve months after the date of
termination, but only to the extent that the option was exercisable on the date
of termination. No option granted under the 1997 Plan is transferable other than
at death, and each option is exercisable during the life of the optionee only by
the optionee. In the event of the death of a person who has received an option,
the option generally may be exercised by a person who acquired the option by
bequest or inheritance during the twelve month period after the date of death to
the extent that such option was exercisable at the date of death.

The exercise price of incentive stock options granted under the 1997 Plan
may not be less than the fair market value of a share of common stock on the
last market trading day prior to the date of grant of the option. Nonqualified
stock options may not be granted for less than 85% of fair market value and
options granted to greater than 10% shareholders may not be granted for less
than 110% of fair market value. The consideration to be paid upon exercise of an
option, including the method of payment, will be determined by the compensation
committee and may consist entirely of cash, check,

51

shares of common stock or any combination of such methods of payment as
permitted by the compensation committee.

The 1997 Plan will continue in effect until January 16, 2007, unless earlier
terminated by the board of directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may amend,
terminate or suspend the 1997 Plan at any time, provided that no amendment
regarding amount, price or timing of the grants may be made more than once every
six months other than to conform with changes in certain Internal Revenue Code
requirements. Amendments that would materially increase the number of shares
that may be issued, materially modify the requirements as to eligibility for
Plan participation, or materially increase the benefits to Plan participants
must be approved by our shareholders.

From the end of the prior year through February 24, 2000, options to
purchase 139,000 shares of common stock were granted to our employees under the
1997 Plan at an exercise price of $6.00 per share. None of our named executives
were granted options under the 1997 Plan since the end of the last fiscal year.

2000 EMPLOYEE STOCK PURCHASE PLAN

Our 2000 Employee Stock Purchase Plan, the 2000 Plan, was adopted by the
board in February 2000 and will be submitted to our shareholders for their
approval prior to the date of this offering, to become effective on the date of
this offering. A total of 1,000,000 of our shares of common stock have been
reserved for issuance under the 2000 Plan. Beginning in 2005 the number of
shares reserved for issuance under the 2000 Plan will be increased annually by
the lesser of the number of shares issued under the plan during the preceding
year, 2% of the outstanding shares of common stock on the first day of our
fiscal year in which the increase is being made or a lesser amount determined by
the board of directors.

The board of directors or a committee appointed by the board of directors
will administer the 2000 Plan and will have full and exclusive authority to
interpret the terms of the plan and determine eligibility.

The 2000 Plan contains 24 month offering periods, with each offering period
being divided into four six-month purchase periods. The offering periods
generally start on the first trading day on or after February 1 and August 1 of
each year, except for the first offering period, which commences on the date of
this offering and ends on the last trading day on or before July 31, 2000.

Employees are eligible to participate in our 2000 Plan if they are
customarily employed by us or any participating subsidiary for at least
20 hours per week and more than five months in any calendar year, although any
employee who could own shares representing 5% or more of the total combined
voting power or value of all classes of our capital shares may not participate
in the plan. In addition, no employee of ours may be granted an option to
purchase shares under the plan if that person's right to purchase shares under
all of our employee stock purchase plans accrues at a rate that exceeds $25,000
worth of shares for each calendar year. Furthermore, no employee is permitted to
purchase more than 2,500 shares during a six month purchase period. The 2000
Plan permits participants to purchase shares of common stock through payroll
deductions in 1% increments not less than 2% or greater than 10% of the
participant's compensation, which includes the participant's base straight time
gross earnings and commissions, but excludes payments for overtime, profit
sharing payments, shift premium payments, incentive compensation, incentive
payments and bonuses.

Amounts deducted and accumulated under the 2000 Plan are used to purchase
shares of common stock at the end of each six-month purchase period. The price
of shares purchased under the plan is 85% of the lower of the fair market value
of the shares of common stock at the beginning of the offering period or after a
purchase period ends. If the offering period commences on the date of this
offering, the price of the shares purchased shall be the lower of 85% the price
to the public of the

52

shares offered in this offering or 85% of the fair market value of the shares of
common stock after the purchase period ends. In the event the fair market value
at the end of a purchase period is less than the fair market value at the
beginning of the offering period, participants will be withdrawn from the
current offering period following their purchase of shares on the purchase date
and will be automatically re-enrolled in a new offering period. In addition, in
the event the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, a participant is
limited to purchasing no more than 200% of the number of shares that the
participant would have purchased at 85% of the fair market value at the
beginning of the offering period. Participants may end their participation at
any time during an offering period and will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.
Rights granted under the 2000 Plan are not transferable by a participant other
than by will, the laws of descent and distribution, or as otherwise provided
under the plan.

The 2000 Plan provides that, in the event that we merge with or into another
corporation or sell substantially all of our assets, each outstanding right to
purchase shares under the plan during the offering period then in progress may
be assumed or substituted for by the successor corporation. If the successor
corporation refuses such assumption or substitution, the offering period then in
progress will be shortened and a new purchase date will be set at or prior to
the closing of that transaction after which time the 2000 Plan will terminate.

The 2000 Plan will terminate in February 2010. The board has the authority
to amend or terminate the plan, except that no such action may adversely affect
any outstanding rights to purchase shares under the plan.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY

As an Oregon corporation, we are subject to the Oregon Business Corporation
Act ("OBCA") and the exculpation from liability and indemnification provisions
contained therein. Pursuant to Section 60.047(2)(d) of the OBCA, Article IV of
our Second Restated Articles of Incorporation (the "Restated Articles")
eliminates the liability of our directors to us or our shareholders, except for
any liability related to breach of the duty of loyalty, actions not in good
faith and certain other liabilities.

Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute. Article IV of the Restated Articles requires us
to indemnify our directors and officers to the fullest extent not prohibited by
law.

The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.

We also have entered into indemnity agreements with each of our executive
officers and each member of our Board of Directors. These indemnity agreements
provide for indemnification of the indemnitee to the fullest extent allowed by
law.

53

CERTAIN TRANSACTIONS

COMPANY FORMATION

On January 16, 1997, in connection with our formation, we issued 1,699,920
shares of common stock to Allen H. Alley, our President and Chief Executive
Officer, 950,040 shares of common stock to Robert Y. Greenberg, our Vice
President, Product Development and Customer Support, 950,040 shares of common
stock to Michael G. West, our Vice President, Technology and 750,000 shares of
common stock to Bradley A. Zenger, our Vice President, Marketing, in each case
at a purchase price of $0.002 per share.

SERIES A PREFERRED FINANCING

On April 25, 1997, we raised approximately $1,250,000 through the sale of
Series A Preferred Stock and Common Stock Purchase Warrants which entitled the
holders to acquire shares of our common stock at $1.012 per share. Battery
Ventures received 2,325,581 Series A preferred shares and warrants to purchase
988,372 common shares and Enterprise Development Fund received 581,395 Series A
preferred shares and warrants to purchase 247,093 common shares. Oliver D.
Curme, one of our directors, is affiliated with Battery Ventures.

SERIES B PREFERRED FINANCING

On April 29, 1998, we raised approximately $6,600,000 through the sale of
5,500,005 shares of our Series B preferred stock. Battery Ventures purchased
1,833,345 shares, Enterprise Development Fund purchased 458,335 shares and
Sequoia Capital purchased 3,095,825 shares. Oliver D. Curme, one of our
directors, is affiliated with Battery Ventures and Mark A. Stevens, another of
our directors, is affiliated with Sequoia Capital.

GILL OPTION

On December 17, 1998, Frank Gill, one of our directors, was awarded an
option to purchase 50,000 shares of our common stock at an exercise price of
$.25 per share. This option vests over four years, with 25% vesting on the first
anniversary of the grant and 1/36th of the remainder vesting at the end of each
of the following 36 months.

EXERCISE OF COMMON STOCK PURCHASE WARRANTS

In April 1999, Battery Ventures and Enterprise Development Fund fully
exercised the Common Stock Purchase Warrants acquired in connection with our
Series A financing. Battery Ventures acquired 988,372 common shares at a price
of $1.012 per share and Enterprise Development Fund acquired 247,093 common
shares at a price of $1.012 per share. Oliver D. Curme, one of our directors, is
affiliated with Battery Ventures.

SERIES C PREFERRED FINANCING

On May 28, 1999, we raised approximately $11,667,000 through the sale of
2,493,026 shares of our Series C Preferred Stock. Battery Ventures purchased
750,000 shares, Enterprise Development Fund purchased 32,000 shares and Sequoia
Capital purchased 1,070,000 shares. Oliver D. Curme, one of our directors, is
affiliated with Battery Ventures and Mark A. Stevens, another of our directors,
is affiliated with Sequoia Capital.

TRANSACTIONS WITH HANS H. OLSEN

On August 31, 1999, Hans H. Olsen, our Vice President of Operations
exercised stock options to acquire 46,042 shares of our common stock at an
aggregate exercise price of $11,511 and agreed to

54

cancel options to acquire 123,958 shares of common stock at $.25 per share,
options to acquire 30,000 shares of common stock at $.49 per share and options
to acquire 50,000 shares of common stock at $1.17 per share. On the same date,
pursuant to restricted stock awards, Mr. Olsen purchased 123,958 shares of
common stock at $.25 per share, 30,000 shares of common stock at $.49 per share
and 50,000 shares of common stock at $1.17 per share. Mr. Olsen paid the
aggregate exercise price for the options exercised and the aggregate purchase
price for the additional shares purchased, $115,700, by delivering to us a
promissory note. In addition, we advanced Mr. Olsen an additional $82,826 under
the note to cover any tax liability arising from his purchase of shares pursuant
to his restricted stock award. The note bears interest at an annual rate of
6.02% payable annually. The principal amount of the note must be repaid on the
earlier of August 31, 2008 or termination of Mr. Olsen's employment voluntary or
for cause. Upon termination of Mr. Olsen's employment we have the right to
re-purchase any of these shares which are unvested for an amount equal to the
price paid. Of the 203,958 restricted shares purchased by Mr. Olsen, 183,748
remain unvested as of January 31, 2000.

55

PRINCIPAL SHAREHOLDERS

The following table sets forth information known to us with respect to the
beneficial ownership of our shares of common stock as of January 31, 2000 and as
adjusted to reflect the sale of shares of common stock offered in this
prospectus by:

- each shareholder known by us to own beneficially more than 5% of our
shares of common stock, as explained below;

- each of named executives;

- each of our directors; and

- all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, the shares of common stock subject to
options held by that person that are currently exercisable or will become
exercisable within 60 days after January 31, 2000, are deemed outstanding, while
the shares are not deemed outstanding for purposes of computing percentage
ownership of any other person.

Unless otherwise indicated below, the address for each shareholder on this
table is c/o Pixelworks, Inc., 7700 SW Mohawk, Tualatin, Oregon 97062. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting or investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.

The percentage of shares beneficially owned are based on:

- 19,736,035 shares of common stock outstanding as of February 24, 2000,
assuming the automatic conversion of all outstanding preferred shares into
shares of common stock immediately prior to the completion of this
offering; and

-       shares of common stock issued in this offering. Assumes no exercise
of underwriters' over-allotment option. Percentage ownership figures after
the offering do not include shares that may be purchased by each person in
the offering.

SHARES             PERCENT          PERCENT
BENEFICIAL OWNERS                                   BENEFICIALLY OWNED   BEFORE OFFERING   AFTER OFFERING
-----------------                                   ------------------   ---------------   --------------

Battery Ventures IV, L.P.(1) .....................       5,897,298             29.9%
20 Williams Street
Wellesley, MA 02181

Sequoia Capital VII(2) ...........................       4,165,825             21.1
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025

Enterprise Development Fund II, Limited                  1,318,823              6.7
Partnership .
425 N. Main Street
Ann Arbor, MI 48104

Oliver D. Curme(3)................................       5,897,298             29.9

Mark A. Stevens(4)................................       4,165,825             21.1

Frank Gill(5).....................................          15,625                *

Allen H. Alley(6).................................       1,706,483              8.6

Hans H. Olsen.....................................         250,000              1.3

56

SHARES             PERCENT          PERCENT
BENEFICIAL OWNERS                                   BENEFICIALLY OWNED   BEFORE OFFERING   AFTER OFFERING
-----------------                                   ------------------   ---------------   --------------

Robert Y. Greenberg(7)............................         952,957              4.8

Michael G. West(8)................................         952,957              4.8

Bradley A. Zenger(9)..............................         752,917              3.8

Michael E. Barton(10).............................          53,125                *

Directors and Executive Officers as a group
(10 persons)....................................      14,791,303             74.5

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

*   Less than one percent (1%).

(1) Includes (a) 5,812,590 shares held by Battery Ventures IV, L.P. and
(b) 84,708 shares held by Battery Investment Partners IV, LLC.

(2) Includes (a) 3,223,713 shares held by Sequoia Capital VII, (b) 546,252
shares held by Sequoia Capital Franchise Fund, (c) 140,928 shares held by
Sequoia Technology Partners VII, (d) 96,398 shares held by Sequoia Capital
Franchise Partners, (e) 65,382 shares held by SQP 1997, (f) 56,371 shares
held Sequoia International Partners and (g) 36,781 shares held by
Sequoia1997 LLC.

(3) Includes (a) 5,812,590 shares held by Battery Ventures IV, L.P. and
(b) 84,708 shares held by Battery Investment Partners IV, LLC. Mr. Curme is
a General Partner of Battery Ventures. Mr. Curme disclaims beneficial
ownership of all such shares except to the extent of his individual
pecuniary interest therein.

(4) Includes (a) 3,223,713 shares held by Sequoia Capital VII, (b) 546,252
shares held by Sequoia Capital Franchise Fund, (c) 140,928 shares held by
Sequoia Technology Partners VII, (d) 96,398 shares held by Sequoia Capital
Franchise Partners, (e) 65,382 shares held by SQP 1997, (f) 56,371 shares
held Sequoia International Partners and (g) 36,781 shares held by
Sequoia1997 LLC. Mr. Stevens is a General Partner of Sequoia Capital.
Mr. Stevens disclaims beneficial ownership of all such shares except to the
extent of his individual pecuniary interest therein.

(5) Represents shares issuable upon the exercise of stock options held by
Mr. Gill.

(6) Includes (a) 1,699,920 outstanding shares and (b) 6,563 shares issuable
upon exercise of stock options held by Mr. Alley.

(7) Includes (a) 950,040 outstanding shares and (b) 2,917 shares issuable upon
exercise of stock options held by Mr. Greenberg.

(8) Includes (a) 950,040 outstanding shares and (b) 2,917 shares issuable upon
exercise of stock options held by Mr. West.

(9) Includes (a) 750,000 outstanding shares and (b) 2,917 shares issuable upon
exercise of stock options held by Mr. Zenger.

(10) Represents shares issuable upon the exercise of stock options held by
Mr. Barton.

57

DESCRIPTION OF CAPITAL STOCK

GENERAL

After this offering, we will be authorized to issue up to 250,000,000 of
Common stock, par value $0.001 per share, and 50,000,000 shares of Preferred
stock, par value, $0.001 per share. Immediately after this offering, we estimate
there will be approximately       shares of common stock outstanding,
shares of common stock issuable on exercise of outstanding options and no
preferred shares. The weighted average exercise price of the outstanding options
is $         . The following description of our capital stock is not complete.
You should carefully read our Fifth Amended and Restated Articles of
Incorporation and First Restated Bylaws, which have been filed as exhibits to
the Registration Statement, of which this Prospectus is a part. Additionally,
certain provisions of Oregon law may impact our capital stock.

COMMON STOCK

Holders of common stock are entitled to receive such dividends as may from
time to time be declared by our board of directors out of funds legally
available for that purpose. See "Dividend Policy." Holders of common stock are
entitled to one vote per share on all matters on which they are entitled to
vote. They do not have any cumulative voting rights. There are no preemptive,
conversion, redemption or sinking fund rights applicable to the common stock. In
the event of a liquidation, dissolution or winding up of Pixelworks, holders of
common stock are entitled to share equally and ratably in all assets remaining
after the payment of all debts and liabilities as well as the liquidation
preference of any outstanding class or series of preferred stock. The
outstanding shares of common stock, including those offered through this
prospectus, are fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to any series of preferred
stock which we may issue in the future as described below.

PREFERRED STOCK

The board of directors has the authority, without action by the
shareholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of such preferred stock. However,
the effects might include restricting dividends on the common stock diluting the
voting power of the common stock, impairing the liquidation rights of the common
stock and delaying or preventing a change in control of Pixelworks without
further action by the shareholders. There are no agreements or understandings
for the issuance of preferred stock, and the board of directors has no present
intention of issuing any shares of preferred stock, except as contemplated by
the shareholder rights plan described below.

REGISTRATION RIGHTS

Certain shareholders holding an aggregate of 18,139,219 shares are entitled
to rights with respect to registration of these shares under the securities act.
The rights are provided under the terms of an agreement between us and the
holders of registrable securities. Beginning six months following the completion
of this offering, certain holders of then outstanding registrable securities may
require on up to two occasions that we register their shares for public resale.
We are obligated to register these shares only if the outstanding registrable
securities have an anticipated public offering price of at least $5,000,000.
Also, holders of registrable securities may require, on one occasion in any
12 month period that shares for public resale on Form S-3 or similar short form
registration if the value of the securities to be registered is at least
$500,000. Furthermore, in the event we determine to register any of our

58

securities under the Securities Act of 1933, either for our own account or for
the account of other security holders exercising their registration rights, the
holder of registrable securities are entitled to include their shares of common
stock in the registration. The registration rights are subject to conditions and
limitations, among them our right to limit the number of shares included in the
registration which may reduce the number of shares proposed to be registered in
view of market conditions. These registration rights are triggered by this
offering, but we have obtained waivers of such rights from all holders of
registrable securities in connection with the offering. All expenses in
connection with any registration, other than underwriting discounts and
commissions, will be borne by us. All registration rights will terminate five
years following the consummation of this offering.

SHAREHOLDER RIGHTS PLAN

Prior to the consummation of the offering, our board of directors intends to
adopt a shareholders rights plan and declare a dividend distribution of one
preferred stock purchase right for each outstanding share of common stock. The
dividend would be payable on a date expected to be approximately 10 days after
the declaration of the dividend which is referred to as the record date. Each
preferred stock purchase right will entitle the registered holder to purchase
from us a fraction of a share of Series A junior participating preferred stock.
The description and terms of the rights are set forth in a rights agreement
between us and a rights agent, a copy of which will be filed as an exhibit to
the registration statement of which this prospectus is a part. The following
summary of the terms of the rights agreement is not complete and is qualified by
reference to the rights agreement.

The rights will not be exercisable and will not trade separately from our
common stock until the earlier of

- 10 days following a public announcement that a person or group of
affiliated or associated persons, referred to individually or collectively
as the acquiring person, has acquired beneficial ownership of 15% or more
of the outstanding shares of our common stock, or

- 10 business days (or such later date as may be determined by the board of
directors) following commencement of or announcement of an intention to
make a tender offer or exchange offer which would result in the beneficial
ownership by a person of 15% or more of the outstanding shares of our
common stock.

The earlier of such dates is referred to as the distribution date.

Until the distribution date or the earlier expiration of the preferred stock
purchase rights, such rights will not be separable from the common stock and
will be transferred along with any transfer of that stock. As soon as
practicable following the distribution date, however, a separate rights
certificate evidencing the preferred stock purchase rights will be mailed to
holders of record of the common stock as of the close of business on the
distribution date, and such separate rights certificate alone will evidence the
preferred stock purchase rights.

The preferred stock purchase rights will not be exercisable until the
distribution date and will expire at the close of business on the date which is
10 years after the date of the rights agreement, unless that date is changed or
the preferred stock purchase rights are earlier redeemed or exchanged by us.

In the event that any person or group of affiliated or associated persons
becomes an acquiring person, proper action will be taken so that each holder of
a preferred stock purchase right who exercises that right will be entitled to
receive a number of shares of common stock equal in value to two times the
exercise price of the right. The preferred stock purchase rights beneficially
owned by the acquiring person, however, will be void and will not be
exercisable. In the event that we are acquired in a merger, other business
combination transaction or 50% or more of our consolidated assets or earning
power is sold, proper action will be taken so that each holder of a preferred
stock purchase right, other

59

than those voided rights held by the acquiring person, will then be entitled to
receive, upon the exercise of the right, the number of shares of common stock of
the acquiring company which at the time of such transaction is equal to a market
value of two times the exercise price of the right.

The purchase price payable and the number of one one-hundredths of a share
of preferred stock or other securities or property issuable upon exercise of the
preferred stock purchase rights will be subject to customary anti-dilution
provisions.

The number of outstanding preferred stock purchase rights will also be
subject to adjustment in the event of a stock dividend on the common stock
payable in shares of common stock or subdivisions, consolidations or
combinations of the common stock occurring prior to the distribution date.

Shares of preferred stock purchasable upon exercise of the rights will not
be redeemable. Each share of preferred stock will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater of
(a) $      per share or (b) an amount equal to 100 times the dividend declared
per share of common stock. In the event of liquidation, dissolution or winding
up of Pixelworks, the holders of the preferred stock will be entitled to a
minimum preferential payment of the greater of (a) $      per share (plus any
accrued but unpaid dividends) or (b) an amount equal of 100 times the payment
made per share of common stock. Each share of preferred stock will have 100
votes when voting together with the common stock. Finally, in the event of any
merger, consolidation or other transactions in which outstanding shares of
common stock are converted or exchanged, each share of preferred stock will be
entitled to receive 100 times the amount received per share of common stock.
These rights will be protected by customary antidilution provisions. Because of
the nature of the preferred stock's dividend, liquidation and voting rights, the
value of the one one-hundredth share of preferred stock purchasable upon
exercise of each right should approximate the value of one share of common
stock.

The rights agreement will provide that at any time after any person or group
becomes an acquiring person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of common stock, our board of directors
may exchange the preferred stock purchase rights (other than rights owned by
such person or group which have become void), in whole or in part, at an
exchange ratio of one share of common stock per right, subject to adjustment.

With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
such purchase price. No fractional shares will be issued. In lieu of a
fractional share an adjustment in cash will be made based on the current market
price of the preferred stock or the common stock.

In general, at any time until ten days after the date a person or group has
become an acquiring person, we may redeem the preferred stock purchase rights in
whole. After the redemption period has expired, our right of redemption may be
reinstated if an acquiring person reduces his beneficial ownership to 10% or
less of the outstanding shares of common stock in a transaction or series of
transactions not involving us, provided there are no other acquiring persons.
Immediately upon the action of the board of directors ordering redemption of the
preferred stock purchase rights, the rights will terminate and the only right of
the holders of rights will be to receive the $.01 redemption price.

The rights agreement may be amended by the board of directors in any way
prior to the distribution date. After the distribution date, the provisions of
the rights agreement may only be amended by the board in order to cure any
ambiguity, defect or inconsistency or to make any other changes which do not
adversely affect the interests of holders of preferred stock purchase rights
(excluding the interests of any acquiring person).

Until a preferred stock purchase right is exercised, the holder has no
rights as a shareholder of Pixelworks, including the right to vote or to receive
dividends.

60

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OREGON LAW, THE RESTATED ARTICLES
AND BYLAWS

Upon completion of the offering, we will become subject to the Oregon
Control Share Act. The Oregon Control Share Act generally provides that a person
who acquires voting stock of an Oregon corporation, in a transaction that
results in the acquiror holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation, cannot vote the shares its acquires in the
acquisition. An acquiror is broadly defined to include companies or persons
acting as a group to acquire the shares of the Oregon corporation. This
restriction does not apply if voting rights are given to the control shares by:

- a majority of each voting group entitled to vote; and

- the holders of a majority of the outstanding voting shares, excluding the
control shares held by the acquiror and shares held by the company's
officers and employee directors.

The acquiror may, but is not required to, submit to the target company a
statement including specific information about the acquiror and its plans for
the company. The statement may also request that the company call a special
meeting of shareholders to determine whether the control shares will be allowed
to have voting rights. If the acquiror does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual or special meeting of shareholders. If the acquiror's control
shares are allowed to have voting rights and represent a majority or more of all
voting power, shareholders who do not vote in favor of voting rights for the
control shares will have the right to receive the appraised fair value for their
shares, which may not be less than the highest price paid per share by the
acquiror for the control shares.

We are also subject to the Oregon Business Combination Act. The Business
Combination Act generally provides that in the event a person or entity acquires
15% or more of the voting stock of an Oregon corporation, thereby becoming an
"interested shareholder," the corporation and the interested shareholder, or any
affiliated entity, may not engage in certain business combination transactions
for a period of three years following the date the person became an interested
shareholder. Business combination transactions for this purpose include:

- a merger or plan of share exchange;

- any sale, lease, mortgage or other disposition of the assets of the
corporation where the assets have an aggregate market value equal to 10%
or more of the aggregate market value of the corporation's assets or
outstanding capital stock; or

- certain transactions that result in the issuance of capital stock of the
corporation to the interested shareholder.

These restrictions are not applicable if:

- as a result of the transaction in which a person became an interested
shareholder, they will own at least 85% of the outstanding voting stock of
the corporation (excluding shares owned by directors who are also
officers, and certain employee benefit plans);

- the board of directors approves the share acquisition or business
combination before the interested shareholder acquires 15% or more of the
corporation's voting stock; or

- the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (excluding shares owned by the
interested shareholder) approve the transaction after the interested
shareholder has acquired 15% or more of the corporation's voting stock.

Our Fifth Amended and Restated Articles provide that (i) if the number of
directors is fixed at six or more, our directors will be divided into three
classes, each of which serves for a three-year term with one class elected each
year, (ii) provide that directors may be removed by shareholders only for cause

61

and only upon the vote of 75% of the outstanding shares of common stock, and
(iii) permit the board of directors to issue preferred stock in one or more
series and to fix the number of shares constituting any such series, the voting
powers and all other rights and preferences of any such series, without any
further vote or action by our shareholders.

The staggered terms for directors, the provisions allowing the removal of
directors only for cause and the availability of preferred stock for issuance
without shareholder approval may have the effect of lengthening the time
required for a person to acquire control of our company through a proxy contest
or the election of a majority of the board of directors and may deter any
potential unfriendly offers or other efforts to obtain control. This could
deprive our shareholders of opportunities to realize a premium for their common
stock and could make removal of incumbent directors more difficult. At the same
time, these provisions may have the effect of inducing any persons seeking
control of our company to negotiate terms acceptable to the board of directors.

NASDAQ NATIONAL MARKET LISTING

We have applied to have our shares of common stock included for quotation on
the Nasdaq National Market under the symbol "PXLW."

TRANSFER AGENT

The transfer agent and registrar for the shares of common stock is
ChaseMellon Shareholder Services, LLC. ChaseMellon's telephone number for
shareholder inquiries is             .

62

SHARES ELIGIBLE FOR FUTURE SALE

We cannot provide any assurance that after this offering has been completed
a significant public market for our shares of common stock will develop or be
sustained. The sale of substantial numbers of our shares of common stock in the
public market, or the possibility of a sale, could adversely affect prevailing
market prices for our shares of common stock. Furthermore, only a limited number
of our shares of common stock currently held by our shareholders will be
available for sale shortly after this offering because of contractual and legal
restrictions on resale described below. Future sales of substantial amounts of
our shares in the public market after these restrictions lapse could adversely
affect the prevailing market price and our ability to raid equity capital in the
future.

Upon completion of this offering and assuming no exercise after that date of
the underwriters' over-allotment option or any outstanding options, we expect to
have       shares of common stock outstanding based on shares outstanding as of
February   , 2000.

Of the shares of common stock, the       shares that we expect to sell in
the offering, and any shares of common stock sold upon exercise of the
underwriters' over-allotment option, will be freely tradable without restriction
under the securities act. However, there will be trading restrictions imposed on
"affiliates" and "control persons" as defined under Rule 144. The remaining
shares of common stock held by existing shareholders are restricted securities
as that term is defined in Rule 144 of the securities act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 promulgated under the securities act,
which rules are summarized below. As a result of the contractual restrictions
described below and the provisions of Rule 144, the restricted securities will
be eligible for sale in the public market immediately following the offering
subject to the expiration of 180-day lock-up agreements with representatives of
the underwriters and to volume limitations and other conditions under Rule 144.
Following this offering, the holders of an aggregate of 18,139,219 of the
outstanding shares of common stock have the right to require us to register
their shares for sale upon meeting requirements to which the parties have
previously agreed. See "Description of Share Capital--Registration Rights" for
additional information regarding registration rights.

The following table indicates approximately when the 19,736,035 of our
shares of common stock, held by existing shareholders, that are not being sold
in the offering but which will be outstanding at the time the offering is
complete will be eligible for sale into the public market:

ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN PUBLIC MARKET
----------------------------------------------------------

At effective date...........................................           0
90 days after effective date................................           0
180 days after effective date...............................  17,496,823
After 180 days post-effective date..........................   2,239,212

The shares eligible for sale includes shares outstanding as of February 24,
2000 and assumes the automatic conversion of all outstanding preferred shares
into shares of common stock upon completion of the offering.

LOCK-UP AGREEMENTS

Our officers, directors and all of our other shareholders have signed
lock-up agreements under which they agree not to dispose of or hedge any shares
of common stock or securities convertible into or exchangeable for shares of
common stock for a period of 180 days from the date of this prospectus.
Dispositions can be made sooner with the prior written consent of Salomon Smith
Barney Inc.

63

OPTIONS AND WARRANTS

As of February 24, 2000,       and 1,000,000 of the shares of common stock
are reserved for future issuance pursuant to our 1997 stock incentive plan and
2000 employee stock purchase plan, respectively. An aggregate of       shares of
common stock issuable upon the exercise of the outstanding options will be
vested 180 days following the date of this prospectus. We intend to file,
shortly after effectiveness of this offering, a registration statement on
Form S-8 under the securities act covering all shares of common stock reserved
for issuance under the share plans. Substantially all of the shares of common
stock issuable upon exercise of outstanding options are subject to 180-day
lock-up agreements with the representatives of the underwriters.

RULE 144

In general, under Rule 144, as in effect on the date of this prospectus, any
person who has beneficially owned restricted securities for at least one year
will be entitled to sell in any three-month period a number of shares that does
not exceed the greater of:

- 1% of the then outstanding shares of common stock which are approximately
shares immediately after the offering; or

- the average weekly trading volume of our shares of common stock on the
Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the SEC.
Sales of restricted securities pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of
current public information about us. Our affiliates must also comply with
the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell shares of common stock which
are not restricted securities.

RULE 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
generally including the holding period of any prior owner other than an
"affiliate," is entitled to sell those shares without complying with the manner
of sale, notice filing, volume limitation or notice provisions of Rule 144(k).
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.

RULE 701

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by employees, directors,
officers, consultants or advisers prior to the date we become subject to the
reporting requirements of the securities exchange act, pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons. In addition, the SEC has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the exchange act, along with the shares acquired upon
exercise of such options. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, such securities may
be sold.

- by persons other than our affiliates, subject only to the manner of sale
provisions of Rule 144; and

- by our affiliates under Rule 144 without compliance with its one-year
minimum holding period requirements.

64

UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each of the underwriters named below has severally agreed
to purchase, and we have agreed to sell to the underwriters, the respective
number of shares of common stock set forth opposite the name of each underwriter
below:

NUMBER OF
NAME                                                          COMMON SHARES
----                                                          -------------

Salomon Smith Barney Inc....................................
Deutsche Bank Securities Inc................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp.............................................
Total.....................................................

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock included in this offering
are subject to the approval of legal matters by counsel and to other conditions.
The underwriters are obligated to purchase all of the shares of common stock
offered hereby other than those covered by the over-allotment option described
below if they purchase any of the shares of common stock.

The underwriters, for whom Salomon Smith Barney Inc., Deutsche Bank
Securities Inc., SG Cowen Securities Corporation and E*OFFERING Corp. are acting
as representatives, initially propose to offer some of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and some of the shares of common stock to various
securities dealers at the public offering price less a concession not exceeding
$         per common share. The underwriters may allow, and these dealers may
reallow, a concession not exceeding $         per common share to certain
brokers and dealers. After the initial offering of the shares of common stock to
the public, the public offering price and other selling terms may from time to
time be varied by the representatives. The representatives have advised us that
the underwriters do not intend to confirm any sales to any accounts over which
they exercise discretionary authority.

We have granted the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of       additional
shares of common stock at the public offering price less the underwriting
discount. The underwriters may exercise this option solely to cover
over-allotments, if any, in connection with this offering. To the extent that
the underwriters exercise this option, each of them will be obligated, subject
to certain conditions, to purchase a number of additional shares approximately
proportionate to the underwriters' initial commitment.

Pixelworks, each of our officers and directors and our other shareholders
have agreed with the representatives that, for a period of 180 days after the
date of this prospectus, they will not, without the prior written consent of
Salomon Smith Barney Inc. dispose of or hedge any shares of common stock or any
of our securities convertible into or exchangeable for shares of common stock
other than, in the case of Pixelworks, shares pursuant to any employee stock
option plan, stock ownership plan or dividend reinvestment plan of Pixelworks in
effect at the time the underwriting agreement is signed and common stock
issuable upon the conversion of securities or the exercise of warrants
outstanding at the time the underwriting agreement is signed, and in the case of
the officers, directors and shareholders, shares of common stock disposed of as
bona fide gifts approved by Salomon Smith Barney Inc. Salomon Smith Barney Inc.
in its sole discretion may release any of the securities subject to the lock-up
agreements at any time without notice. The release of any lock-up is considered
on a case by case basis. Factors in deciding whether to release shares may
include the length of time before the lock-up expires, the trading price of the
common stock and whether the person seeking the release is an officer, director
or affiliate of Pixelworks. Salomon Smith Barney Inc. has no current intention
to release shares subject to the lock-up agreements.

65

The underwriters have reserved for sale, at the initial public offering
price, up to       shares of common stock for customers, directors, employees
and other persons associated with us who have expressed an interest in
purchasing shares of common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent these persons purchase these reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.

Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares of
common stock was determined by negotiations between us and the representatives.
Among the factors considered in determining the initial public offering price
were our record of operations, our current financial condition, our future
prospects, our markets, the economic conditions in and future prospects for the
industry in which we compete, our management, and currently prevailing general
conditions in the equity securities markets, including current market valuations
of publicly traded companies considered comparable to us. We cannot assure you,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the shares of common stock
will develop and continue after the offering.

We have applied to have our shares of common stock included for quotation on
the Nasdaq Stock Market's National Market under the symbol "PXLW."

The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.

PAID BY PIXELWORKS
---------------------------
NO EXERCISE   FULL EXERCISE
-----------   -------------

Per share............................................
Total................................................

The expense of the offering, exclusive of the underwriting discounts and
commissions, are estimated to be $900,000 and are payable entirely by us.

In connection with the offering, Salomon Smith Barney Inc. on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of shares of common stock in excess of the number of shares to be
purchased by the underwriters in the offering, which creates a syndicate short
position. Syndicate covering transactions involve purchases of the shares of
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Stabilizing transactions consist of
certain bids or purchases of shares of common stock made for the purpose of
preventing or retarding a decline in the market price of the shares of common
stock while the offering is in progress. Penalty bids permit the underwriters to
reclaim a selling concession from a syndicate member when Salomon Smith
Barney Inc., in covering syndicate short positions or making stabilizing
purchases, repurchases shares originally sold by that syndicate member. These
activities may cause the price of the shares of common stock to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected on the Nasdaq National Market
or in the over-the-counter market, or otherwise and, if commenced, may be
discontinued at any time.

The prospectus may be used by underwriters and dealers in connection with
offers and sales of the shares of common stock, including shares of common stock
initially sold outside the United States, to persons located in the United
States.

We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the securities act, or to contribute to
payments the underwriters may be required to make with respect to any of those
liabilities.

66

LEGAL MATTERS

The validity of the shares of common stock offered hereby and certain other
legal matters relating to the offering are being passed upon for us by Ater
Wynne LLP, Portland, Oregon. Certain legal matters relating to the offering are
being passed upon for the underwriters by Brown & Wood LLP, San Francisco,
California. Brown & Wood LLP may rely on Ater Wynne LLP as to matters of Oregon
law.

EXPERTS

The financial statements of Pixelworks, Inc. as of December 31, 1998 and
1999, and for the period from January 16, 1997 (date of inception) through
December 31, 1997 and for each of the years in the two-year period ended
December 31, 1999, have been included in this prospectus and elsewhere in the
registration statement in reliance upon the report of KPMG LLP, independent
auditors, appearing elsewhere herein and upon the authority of KPMG LLP as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in this
Prospectus to any of our contracts or other documents, such references are not
necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement, including exhibits and schedules
filed therewith that we have filed at the Securities and Exchange Commission's
public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Securities and Exchange Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may also obtain copies of such
materials from the Public Reference Section of the Securities and Exchange
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Securities and Exchange
Commission maintains a Web site at HTTP://WWW.SEC.GOV.

67

PIXELWORKS, INC.
INDEX TO FINANCIAL STATEMENTS

PAGE
--------

Report of KPMG LLP..........................................    F-2

Balance Sheets..............................................    F-3

Statements of Operations....................................    F-4

Statements of Redeemable Convertible Preferred Stock and
Shareholders' Equity (Deficit)............................    F-5

Statements of Cash Flows....................................    F-6

Notes to Financial Statements...............................    F-7

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Pixelworks, Inc.:

We have audited the accompanying balance sheets of Pixelworks, Inc. as of
December 31, 1998 and 1999, and the related statements of operations, redeemable
convertible preferred stock and shareholders' equity (deficit), and cash flows
for the period from January 16, 1997 (date of inception) through December 31,
1997 and for each of the years in the two-year period ended December 31, 1999.
These financial statements are the responsibility of Pixelworks' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pixelworks, Inc. as of
December 31, 1998 and 1999, and the results of its operations, and its cash
flows for the period from January 16, 1997 (date of inception) through
December 31, 1997 and for each of the years in the two-year period ended
December 31, 1999 in conformity with generally accepted accounting principles.

/s/ KPMG LLP

Portland, Oregon
January 26, 2000

F-2

PIXELWORKS, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
---------------------------------
1998       1999        1999
--------   --------   -----------
(PRO FORMA)
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents.................................   $6,119    $12,199
Accounts receivable, net..................................       83      2,537
Inventories...............................................       43      1,404
Prepaid expenses and other current assets.................       11         21
------    -------
Total current assets....................................    6,256     16,161
Property and equipment, net.................................    1,120      1,730
Other assets, net...........................................      300        503
------    -------
$7,676    $18,394
======    =======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..........................................   $  257    $   712
Accrued liabilities.......................................      241      1,518
Line of credit............................................    1,331        669
Current portion of long-term obligations..................       --        492
------    -------
Total current liabilities...............................    1,829      3,391
Long-term obligations, less current portion.................       --        591
Other long-term liabilities.................................       --          6
------    -------
Total liabilities.......................................    1,829      3,988
------    -------
Redeemable convertible preferred stock, $.001 par value.
Authorized 10,993,031 shares; 8,406,981 shares issued and
outstanding in 1998 and 10,900,007 in 1999 (liquidation
preference of $19,517 at December 31, 1999)...............    7,755     23,701

Commitments and contingencies

Shareholders' equity (deficit):
Common stock, $.001 par value. Authorized 22,000,000
shares; 5,000,000 and 6,582,877 shares issued and
outstanding in 1998 and 1999, respectively, (pro forma
17,482,884).............................................       --         --      $23,701
Warrants..................................................       71         --           --
Deferred stock compensation...............................       --     (2,230)      (2,230)
Note receivable for common stock..........................       --       (199)        (199)
Accumulated deficit.......................................   (1,979)    (6,866)      (6,866)
------    -------      -------
Total shareholders' equity (deficit)....................   (1,908)    (9,295)     $14,406
------    -------      -------
$7,676    $18,394
======    =======

See accompanying notes to financial statements.

F-3

PIXELWORKS, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

PERIOD FROM
JANUARY 16,
1997 (DATE OF
INCEPTION) TO   YEARS ENDED DECEMBER 31,
DECEMBER 31,    -------------------------
1997           1998          1999
-------------   ----------   ------------

Revenue:
Product revenue, net...................................    $       25    $     105    $    12,647
Commissions............................................           375          373             65
Licensing and development fees.........................            --          500            100
----------    ---------    -----------
Total revenue........................................           400          978         12,812
----------    ---------    -----------
Cost of revenue..........................................            24           22          8,369
----------    ---------    -----------
Gross profit.........................................           376          956          4,443
Operating expenses:
Research and development...............................           215        1,446          4,805
Selling, general and administrative....................           590        1,314          4,366
Amortization of deferred stock compensation............            --           --            565
----------    ---------    -----------
Total operating expenses.............................           805        2,760          9,736
----------    ---------    -----------
Loss from operations.................................          (429)      (1,804)        (5,293)
----------    ---------    -----------
Interest and other:
Interest income........................................            14          238            519
Interest expense.......................................            --          (23)          (110)
Miscellaneous income...................................            39           --             --
----------    ---------    -----------
Interest and other income, net.......................            53          215            409
----------    ---------    -----------
Loss before income taxes.............................          (376)      (1,589)        (4,884)
Income taxes.............................................            --          (14)            (3)
----------    ---------    -----------
Net loss.............................................          (376)      (1,603)        (4,887)
Accretion of preferred stock redemption preference.......            --          (10)        (4,278)
----------    ---------    -----------
Net loss attributable to common shareholders.........    $     (376)   $  (1,613)   $    (9,165)
==========    =========    ===========
Historical loss per share:
Basic and diluted......................................    $    (0.68)   $   (0.91)   $     (2.30)
==========    =========    ===========
Weighted average shares--basic and diluted.............       552,175    1,773,551      3,980,523

See accompanying notes to financial statements.

F-4

PIXELWORKS, INC.

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT SHARE DATA)

REDEEMABLE
CONVERTIBLE
PREFERRED STOCK          COMMON STOCK                    DEFERRED
---------------------   --------------------                 STOCK
SHARES      AMOUNT     SHARES      AMOUNT    WARRANTS   COMPENSATION
----------   --------   ---------   --------   --------   ------------

Balances as of January 16, 1997..............          --   $    --           --   $    --      $ --       $    --
Sale of common stock.........................          --        --    5,000,000        10        --            --
Issuance of Series A redeemable convertible
preferred stock and warrants, net..........   2,906,976     1,145           --        --        71            --
Net loss.....................................          --        --           --        --        --            --
----------   -------    ---------   -------      ----       -------
Balances as of December 31, 1997.............   2,906,976     1,145    5,000,000        10        71            --
Issuance of Series B redeemable convertible
preferred stock............................   5,500,005     6,600           --        --        --            --
Accretion of preferred stock redemption
preference.................................          --        10           --       (10)       --            --
Net loss.....................................          --        --           --        --        --            --
----------   -------    ---------   -------      ----       -------
Balances as of December 31, 1998.............   8,406,981     7,755    5,000,000        --        71            --
Issuance of Series C redeemable convertible
preferred stock............................   2,493,026    11,668           --        --        --            --
Exercise of stock options....................          --        --      347,412       162        --            --
Exercise of warrants.........................          --        --    1,235,465     1,321       (71)           --
Deferred compensation related to stock
options....................................          --        --           --     2,795        --        (2,795)
Amortization of deferred stock
compensation...............................          --        --           --        --        --           565
Accretion of preferred stock redemption
preference.................................          --     4,278           --    (4,278)       --            --
Net loss.....................................          --        --           --        --        --            --
----------   -------    ---------   -------      ----       -------
Balances as of December 31, 1999.............  10,900,007   $23,701    6,582,877   $    --      $ --       $(2,230)
==========   =======    =========   =======      ====       =======

NOTE
RECEIVABLE                       TOTAL
FOR        ACCUMULATED    SHAREHOLDERS'
COMMON STOCK     DEFICIT     EQUITY (DEFICIT)
------------   -----------   ----------------

Balances as of January 16, 1997..............     $  --         $    --         $    --
Sale of common stock.........................        --              --              10
Issuance of Series A redeemable convertible
preferred stock and warrants, net..........        --              --              71
Net loss.....................................        --            (376)           (376)
-----         -------         -------
Balances as of December 31, 1997.............        --            (376)           (295)
Issuance of Series B redeemable convertible
preferred stock............................        --              --              --
Accretion of preferred stock redemption
preference.................................        --              --             (10)
Net loss.....................................        --          (1,603)         (1,603)
-----         -------         -------
Balances as of December 31, 1998.............        --          (1,979)         (1,908)
Issuance of Series C redeemable convertible
preferred stock............................        --              --              --
Exercise of stock options....................      (199)             --             (37)
Exercise of warrants.........................        --              --           1,250
Deferred compensation related to stock
options....................................        --              --              --
Amortization of deferred stock
compensation...............................        --              --             565
Accretion of preferred stock redemption
preference.................................        --              --          (4,278)
Net loss.....................................        --          (4,887)         (4,887)
-----         -------         -------
Balances as of December 31, 1999.............     $(199)        $(6,866)        $(9,295)
=====         =======         =======

See accompanying notes to financial statements.

F-5

PIXELWORKS, INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

PERIOD FROM
JANUARY 16,
1997 (DATE OF          YEARS ENDED
INCEPTION) THROUGH      DECEMBER 31,
DECEMBER 31,      -------------------
1997            1998       1999
------------------   --------   --------

Cash flows from operating activities:
Net loss..................................................        $(376)         $(1,603)   $(4,887)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...........................           55              431      1,303
Write-off of property and equipment and other assets....           --               --         74
Provision for doubtful accounts.........................           --               10        160
Amortization of deferred stock compensation.............           --               --        565
Changes in operating assets and liabilities:
Accounts receivable...................................          (58)             (35)    (2,614)
Inventories...........................................           --              (43)    (1,361)
Prepaid expenses and other current assets.............           (8)              (3)       (10)
Accounts payable......................................           77              180        455
Accrued liabilities...................................            4              162      1,277
Other long-term liabilities...........................           --               --          6
-----          -------    -------
Net cash used in operating activities...............         (306)            (901)    (5,032)
-----          -------    -------
Cash flows from investing activities:
Purchase of property and equipment........................         (256)          (1,275)    (1,710)
Other assets..............................................           (5)            (295)      (480)
Purchase of investments...................................         (838)              --         --
Proceeds from maturities of investments...................          546              292         --
-----          -------    -------
Net cash used in investing activities...............         (553)          (1,278)    (2,190)
-----          -------    -------
Cash flows from financing activities:
Proceeds from lines of credit.............................           --            1,331        669
Payments on long-term debt................................           --               --       (248)
Issuance of preferred stock and common stock warrants.....        1,216            6,600     11,668
Issuance of common stock..................................           10               --      1,213
-----          -------    -------
Net cash provided by financing activities...........        1,226            7,931     13,302
-----          -------    -------
Net increase in cash and cash equivalents...........          367            5,752      6,080
Cash and cash equivalents at beginning of period............           --              367      6,119
-----          -------    -------
Cash and cash equivalents at end of period..................        $ 367          $ 6,119    $12,199
=====          =======    =======
Supplemental disclosure of non-cash investing and financing
activities:
Accrued liabilities for the purchase of property and
equipment...............................................        $  75          $    --    $    --
Warrants issued in connection with preferred stock
issuance................................................           71               --         --
Conversion of line of credit to term note.................           --               --      1,331
Accretion of preferred stock redemption preference........           --               10      4,278
Note receivable for issuance of common stock..............           --               --        199
Warrants exercised for common stock.......................           --               --         71
=====          =======    =======

See accompanying notes to financial statements.

F-6

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) NATURE OF BUSINESS

Pixelworks, Inc. (Pixelworks) designs and develops complete system-on-a-chip
solutions that enable the visual display of broadband content. Pixelworks'
technology interprets and optimizes video, computer graphics, and visual Web
information for display on a wide variety of devices.

(b) CASH AND CASH EQUIVALENTS

Pixelworks considers all highly liquid investments having an original
maturity of three months or less to be cash equivalents.

(c) ACCOUNTS RECEIVABLE

Accounts receivable is net of an allowance for doubtful accounts of $10 and
$155 as of December 31, 1998 and 1999, respectively. The following table
presents a rollforward of the allowance for doubtful accounts for the indicated
periods:

DECEMBER 31,
-------------------
1998       1999
--------   --------

Balance as of beginning of period...............    $--        $ 10
Provision.......................................     10         160
Charge offs.....................................     --         (15)
---        ----
Balance as of end of period.....................    $10        $155
===        ====

(d) INVENTORIES

Inventories consist of finished goods and are stated at the lower of
standard cost (approximates actual cost on a first-in, first-out basis) or
market (net realizable value).

(e) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. The cost of repairs and
maintenance is expensed as incurred.

Depreciation on computer equipment and software, tooling and leasehold
improvements is calculated on a straight-line basis over the estimated useful
lives of the assets, two years for computer equipment and software and the
estimated life of the product for tooling, generally two years. Amortization of
leasehold improvements is recognized over the shorter of the life of the
improvement or the remaining life of the lease.

As required by Statement of Financial Accounting Standards No. 121 (SFAS),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, management reviews long-lived assets and the related intangible
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted net cash flows of
the operation to which the assets relate, to the carrying amount including
associated intangible assets of the operation.

F-7

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If the operation is determined to be unable to recover the carrying amount of
its assets, then intangible assets are written down first, followed by the other
long-lived assets of the operation, to fair value. Fair value is determined
based on discounted cash flows or appraised values, depending upon the nature of
the assets.

(f) STOCK-BASED COMPENSATION

SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, defines a fair value
based method of accounting for an employee stock option or similar instrument.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. However, SFAS 123 also allows an entity to
continue to measure compensation cost using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 (Opinion 25), ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES. Under the intrinsic value based method, compensation cost
is the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Entities electing to remain with the accounting in Opinion 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value based method had been applied. Pixelworks has elected to continue
to apply the prescribed accounting in Opinion 25 and make the required
disclosures under SFAS 123.

(g) REVENUE RECOGNITION

Pixelworks recognizes revenue for both product and software sales to direct
customers and commissions on third party sales upon shipment of the underlying
merchandise. Revenue from product sales to distributors is recognized upon
shipment if the distributor has a firm sales commitment from an end customer. A
reserve for sales returns and allowances is recorded at the time of shipment. As
of December 31, 1998 and 1999, the reserve for sales returns and allowances was
$3 and $236, respectively.

Pixelworks accrues a liability for the estimated future repair and
replacement costs to be incurred under the provisions of Pixelworks' warranty
agreements. As of December 31, 1998 and 1999, the reserve for warranty repairs
was $1 and $133, respectively.

Licensing and development fees represent revenue earned for the development
of certain technology and limited license granted to a third party.

(h) RESEARCH AND DEVELOPMENT

Research and development are charged to expense as incurred. However,
software development costs are capitalized beginning when a product's
technological feasibility has been established by completion of a working model
and ending when a product is available for general release to customers.
Completion of a working model and general release has substantially coincided.
As a result, all such costs have been charged to research and development as
incurred.

F-8

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established when necessary to reduce
deferred tax assets to the amount expected to be realized.

(j) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term nature of these
instruments. The carrying amount of amounts due under the line of credit
approximates fair value since the interest rate approximates current rates
available to Pixelworks.

(k) NET LOSS PER SHARE

Pixelworks reports net loss per share in accordance with SFAS 128, EARNINGS
PER SHARE, and SEC Staff Accounting Bulletin No. 98 (SAB 98), which requires the
presentation of both basic and diluted earnings per share. Basic earnings per
share is computed using the weighted average number of common shares outstanding
and diluted earnings per share is computed using the weighted average number of
common shares outstanding and dilutive potential common shares assumed to be
outstanding during the period using the treasury stock method. The following
potential common shares have been excluded from the computation of diluted loss
per share for all periods presented because the effect would have been
anti-dilutive:

YEARS ENDED DECEMBER 31,
----------------------------------
1997        1998         1999
---------   ---------   ----------

Shares issuable under stock options........         --          --    1,130,783
Shares of restricted stock subject to
repurchase...............................  4,459,472   3,235,724    2,062,381
Shares of convertible preferred stock on an
as converted basis.......................  2,072,571   6,636,862   10,008,588

(l) COMPREHENSIVE INCOME

Pixelworks has had no items of comprehensive income.

(m) USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingencies at the date of the financial statements and the

F-9

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates.

(n) CONCENTRATION OF SUPPLIERS

Pixelworks does not own or operate a semiconductor fabrication facility and
does not have the resources to manufacture its products internally. Pixelworks
relies on two, third party foundries to produce all its products. In light of
these dependencies, it is reasonably possible that failure to perform by one of
these suppliers could have a severe impact on Pixelworks growth and results of
operations.

(o) RISK OF TECHNOLOGICAL CHANGE

The markets in which Pixelworks competes or seeks to compete are subject to
rapid technological change, frequent new product introductions, changing
customer requirements for new products and features, and evolving industry
standards. The introduction of new technologies and the emergence of new
industry standards could render Pixelworks' products less desirable or obsolete
which could harm its business.

(p) CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject Pixelworks to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Pixelworks limits its exposure to credit risk associated with cash
and cash equivalents by placing its cash and cash equivalents with various high
credit quality financial institutions. Cash and cash equivalents consist of
deposits and money market funds. As of December 31, 1999, Pixelworks had
accounts receivable from two customers representing approximately 75% of
accounts receivable. Loss or non-performance by these significant customers
could adversely affect Pixelworks financial position or results from operations.

(q) PRO FORMA SHAREHOLDERS EQUITY (UNAUDITED)

Upon consummation of Pixelworks' initial public offering, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into an aggregate of 10,900,007 shares of common
stock based on the shares of convertible preferred stock outstanding as of
December 31, 1999. Unaudited pro forma shareholders' equity as of December 31,
1999, as adjusted for the conversion of the redeemable convertible preferred
stock, is disclosed on the balance sheet.

F-10

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(2) BALANCE SHEET COMPONENTS

(a) PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER 31,
-------------------
1998       1999
--------   --------

Computer equipment and software.............................   $1,179     $2,639
Tooling.....................................................      427        576
Leasehold improvements......................................       --         91
------     ------
1,606      3,306

Less accumulated depreciation and amortization..............      486      1,576
------     ------
$1,120     $1,730
======     ======

(b) ACCRUED LIABILITIES

Accrued liabilities consist of the following:

DECEMBER 31,
-------------------
1998       1999
--------   --------

Payroll and related liabilities.............................    $166      $  751
Reserve for sales returns...................................       3         236
Royalties...................................................      --         197
Other.......................................................      72         334
----      ------
$241      $1,518
====      ======

(3) LINE OF CREDIT

Pixelworks has a line of credit for cash borrowings and letters of credit up
to $3,000. Pixelworks may borrow up to 80% of eligible accounts receivable and
as of December 31, 1999, approximately $1,485 was available for borrowing. The
line of credit bears interest at prime (8.5% at December 31, 1999) plus .25%,
which is payable monthly. The line of credit expires March 2000, when the
principal balance outstanding becomes due and payable. The line of credit is
secured by substantially all assets of Pixelworks.

Under the agreement, Pixelworks is required to maintain certain financial
covenants. Pixelworks was in compliance with the covenants as of December 31,
1999.

(4) LONG-TERM DEBT

Long-term debt consists of a line of credit converted into a term loan after
a six month draw-down period. The loan is payable in monthly principal
installments of approximately $41, plus interest at prime (8.5% as of
December 31, 1999) plus .5%. Scheduled repayments on long-term debt are: 2000--
$492; 2001--$492; 2002--$99. Long-term debt is secured by substantially all
assets of Pixelworks.

F-11

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK

Pixelworks has designated shares of authorized preferred stock as redeemable
convertible preferred stock. The title and number of shares issued and
outstanding are as follows:

SHARES ISSUED AND
OUTSTANDING
----------------------
DECEMBER 31,
DESIGNATED   ----------------------
SHARES       1998         1999
----------   ---------   ----------

Series C redeemable convertible preferred stock, $4.68 per
share liquidation preference............................   2,493,026          --    2,493,026
Series B redeemable convertible preferred stock, $1.20 per
share liquidation preference............................   5,500,005   5,500,005    5,500,005
Series A redeemable convertible preferred stock, $0.43 per
share liquidation preference............................   3,000,000   2,906,976    2,906,976
----------   ---------   ----------
10,993,031   8,406,981   10,900,007
==========   =========   ==========

(a) VOTING

The Series A, Series B and Series C redeemable convertible preferred stock
(Series A, Series B and Series C) vote together with all other classes and
series of stock of Pixelworks as a single class on all actions to be taken by
the shareholders of Pixelworks. The Series A, Series B and Series C, voting as a
separate series, each have the right to elect one member to the Board of
Directors.

(b) LIQUIDATION PREFERENCES

Upon liquidation, dissolution or winding up of Pixelworks, whether voluntary
or involuntary, the holders of the shares of Series C shall be paid an amount
equal to the issue price for that series plus, in the case of each share, an
amount equal to any dividends accrued but unpaid thereon, computed to the date
payments thereof is made available, before any payment shall be made to the
holders of Series B and Series A and common stock.

(c) REDEMPTION

With the approval of the holders of the majority of the then outstanding
shares of preferred stock of a particular series, one or more holders of shares
of Series A, Series B and Series C may, by giving notice to Pixelworks at any
time after March 1, 2002, 2003 and 2004, respectively, require Pixelworks to
redeem all of the outstanding preferred stock of that series in two
installments, with up to one-half of the shares redeemed sixty days after
receipt of notice stating the number of shares of preferred stock of the series
being redeemed. The second installment is due on the first anniversary of the
first installment. The preferred stock to be redeemed shall be redeemed by
paying for each share in cash an amount equal to the greater of (i) the then
fair market value per share or (ii) $0.43 per share, $1.20 per share and $4.68
per share for Series A, Series B and Series C, respectively, plus, in the case
of each share, an amount equal to all dividends accrued and unpaid thereon.

On or after March 1, 2005, 2006 and 2007, Pixelworks may at its option
establish a redemption date as of which Pixelworks shall redeem all, but not
less than all, of the then outstanding Series A,

F-12

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Series B and Series C, respectively. The preferred stock to be redeemed shall be
redeemed by paying for each share in cash an amount equal to the greater of
(i) the then fair market value per share or (ii) $0.43 per share, $1.20 per
share and $4.68 per share for Series A, Series B and Series C, respectively,
plus, in the case of each share, an amount equal to all dividends accrued and
unpaid thereon.

(d) CONVERSION

The holder of any share or shares of preferred stock shall have the right,
at its option at any time, to convert any such shares of preferred stock into
such number of fully paid and nonassessable shares of common stock as is
obtained by (i) multiplying the number of shares of preferred stock of each
series so to be converted by the issue price applicable to that series and
(ii) dividing the result by the conversion price then applicable to that series.
If at any time a majority of the total number of preferred stock has been
converted into common stock, all outstanding shares of preferred stock of a
given series shall likewise automatically convert to shares of common stock. As
of December 31, 1999, Series A, Series B and Series C is convertible into
2,906,976, 5,500,005 and 2,493,026 shares of common stock, respectively.

All outstanding shares of preferred stock shall automatically convert to
shares of common stock if at any time Pixelworks shall effect a firm commitment
underwritten public offering of shares of common stock in which (i) the
aggregate net proceeds from such offering to Pixelworks shall be at least
$10,000 and (ii) the price paid by the public for such shares shall be at least
$7.00 per share (appropriately adjusted to reflect the occurrence of stock
splits, combinations, common stock dividends and distributions).

Pixelworks is required at all times to reserve and keep available out of its
authorized common stock, solely for the purpose of issuance upon the conversion
of the preferred stock, such number of shares of common stock as shall then be
issuable upon the conversion of all outstanding shares of preferred stock.

If Pixelworks effectuates a stock split or reverse stock split of common
stock without a corresponding stock split or reverse stock split of any given
series of preferred stock, the conversion price for that series of preferred
stock in effect immediately preceding the stock split or reverse stock split of
the common stock shall be proportionately decreased or increased respectively.

If Pixelworks at any time subsequent to the effective date of its Third
Amended and Restated Articles of Incorporation issues any additional common
stock without consideration or for a consideration per share less than the
conversion price for any given series of preferred stock then in effect, the
conversion price applicable to each such series shall be adjusted or readjusted
in accordance with Pixelworks' Third Amended and Restated Articles of
Incorporation.

(6) SHAREHOLDERS' EQUITY

(a) SHAREHOLDERS' AGREEMENT

The founding common shareholders (Founders) are subject to an amended
shareholders' agreement which provides, among other things, the restriction of
the transfer of shares.

F-13

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(6) SHAREHOLDERS' EQUITY (CONTINUED)
As provided in the amended shareholders' agreement, Pixelworks has the right
to buy back from the Founders, the share or shares of common stock outstanding
in the event the Founder or Founders terminates employment prior to their fourth
anniversary. This right diminishes ratably over the four-year employment history
of the respective common shareholder. This right lapses upon an initial public
offering.

As of December 31, 1999, there were 1,302,071 common shares subject to the
shareholders' agreement.

(b) WARRANTS

In connection with the Series A redeemable convertible preferred stock
offering, Pixelworks issued warrants, at a nominal value, for the purchase of up
to an aggregate of 1,235,465 shares of Pixelworks' common stock at an exercise
price of $1.012 per share. The warrants were exercised in 1999.

The fair value of the warrants issued of $71 was determined by applying the
Black-Scholes methodology using the issuance date for Series A redeemable
convertible preferred stock as the measurement date. The per share weighted
average fair market value was $0.06 on the date of grant, with the following
weighted average assumptions: Risk-free interest rate of 6%, expected dividend
yield of -0-%, a two-year term and an expected volatility of 100%.

(c) NOTE RECEIVABLE FOR COMMON STOCK

During 1999, 250,000 stock options were exercised for 46,042 and 203,958
shares of common stock and common stock subject to vesting, respectively, in
exchange for a note receivable. The note receivable is due and payable the
earlier of 1) August 31, 2008 or 2) upon termination of the borrower's
employment and bears interest at 6% per year, payable annually. The note
receivable is secured by the shares of common stock issued thereunder. As of
December 31, 1999, there were 189,794 shares of unvested common stock.

(d) STOCK OPTIONS

Pixelworks has a stock option plan under which a total of 4,226,744 stock
options may be granted to key employees. Options granted under the plan must
generally be exercised while the individual is an employee and within ten years
of the date of grant. On the standard vesting schedule, each option shall become
exercisable at a rate of 25% on the first anniversary date of the grant and on
the last day of every month thereafter for a total of thirty-six additional
increments unless otherwise specifically stated at the time of grant. On the
alternative vesting schedule, options become exercisable monthly for a period of
four years, with 10% becoming exercisable in the first year, 20% becoming
exercisable in the second year, 30% becoming exercisable in the third year, and
40% becoming exercisable in the fourth year.

F-14

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(6) SHAREHOLDERS' EQUITY (CONTINUED)

Had Pixelworks accounted for its stock-based compensation plan in accordance
with SFAS 123, Pixelworks' net loss would approximate the pro forma disclosure
as follows:

PERIOD FROM
JANUARY 16,
1997 (DATE OF       YEARS ENDED
INCEPTION) TO      DECEMBER 31,
DECEMBER 31,    -------------------
1997          1998       1999
-------------   --------   --------

Net loss attributable to common shareholders:
As reported.................................     $ (376)      $(1,613)   $ (9,165)
Pro forma...................................       (379)       (1,663)    (10,082)

Basic and diluted net loss per share:
As reported.................................      (0.68)        (0.91)      (2.30)
Pro forma...................................      (0.69)        (0.94)      (2.53)

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts and additional awards are anticipated in future
years.

The fair value of compensation costs reflected in the above pro forma
amounts were determined using the Black-Scholes option pricing model and the
following weighted average assumptions for grants used in the calculation are as
follows:

1997       1998       1999
--------   --------   --------

Risk-free interest rate...........      6.3%       5.0%       5.4%
Expected dividend yield...........        0%         0%         0%
Expected life.....................  7 years    6 years    5 years
Volatility........................      100%       100%       100%

Under the Black-Scholes option pricing model the weighted-average fair value
of options granted during 1997, 1998 and 1999 was approximately $0.21, $0.20 and
$3.27, respectively.

F-15

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(6) SHAREHOLDERS' EQUITY (CONTINUED)
The following is a summary of stock option activity:

WEIGHTED
AVERAGE
NUMBER     EXERCISE
OF SHARES    PRICE
---------   --------

Options outstanding as of January 16, 1997...............         --    $  --
Granted..................................................     70,500      .25
---------
Options outstanding as of December 31, 1997..............     70,500      .25
Granted..................................................    778,000      .25
Canceled.................................................       (500)     .25
---------
Options outstanding as of December 31, 1998..............    848,000      .25
Granted..................................................  1,454,250     1.96
Exercised................................................   (347,412)     .47
Canceled.................................................    (12,000)     .25
---------
Options outstanding as of December 31, 1999..............  1,942,838    $1.49
=========

OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
--------------------------------------------------------   -------------------------
WEIGHTED
NUMBER         AVERAGE     WEIGHTED       NUMBER       WEIGHTED
OUTSTANDING AT    REMAINING    AVERAGE    EXERCISABLE AT   AVERAGE
RANGE OF       DECEMBER 31,    CONTRACTUAL   EXERCISE    DECEMBER 31,    EXERCISE
EXERCISE PRICE        1999           LIFE        PRICE          1999         PRICE
--------------   --------------   -----------   --------   --------------   --------

$.25-.49            741,088          8.8        $ .29         153,557       $ .25
.75-1.45           483,300          9.5         1.23              --          --
2.23-3.64           718,450          9.8         2.89          38,979        3.62
-----------       ---------          ---        -----         -------       -----
$.25-3.64         1,942,838          9.3        $1.49         192,536       $ .93
=========                                   =======

As of December 31, 1999, 1,936,494 shares were available for grant.

Pixelworks has recorded deferred stock compensation of $2,795 through
December 31, 1999. This deferred stock compensation is based on the difference
between the deemed fair market value of common stock and the exercise price of
the option or stock on the grant date. Deferred stock compensation is being
amortized over the vesting period of the options, which is generally four years.
Pixelworks recognized compensation expense of $565 during the year ended
December 31, 1999 related to these grants. Amortization of the December 31, 1999
balance of deferred stock compensation for the years ending December 31, 2000,
2001, 2002 and 2003 would approximate $1,113, $640, $346 and $131, respectively.

(7) INCOME TAXES

Components of the provision for income taxes for the years ended
December 31, 1998 and 1999 is comprised of current foreign taxes in the amount
of $14 and $3, respectively, and none during the period from January 16, 1997
(date of inception) to December 31, 1997.

F-16

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(7) INCOME TAXES (CONTINUED)
The significant differences between the U.S. federal statutory tax rate and
Pixelworks' effective tax rate for financial statement purposes are as follows:

PERIOD FROM
JANUARY 16, 1997         YEARS ENDED
(DATE OF INCEPTION)      DECEMBER 31,
TO DECEMBER 31,     -------------------
1997             1998       1999
-------------------   --------   --------

Computed "expected" income tax benefit........          (34)%           (34)%      (34)%
Increases (decreases) resulting from:
State income taxes, net of federal tax
benefit...................................           (4)             (4)        (4)
Increase in valuation allowance.............           41              42         39
Research and experimentation credit.........           (3)             (3)        (4)
Other.......................................           --              --          3
---             ---        ---
Actual tax expense............................           -- %             1 %       -- %
===             ===        ===

The tax effects of temporary differences and net operating loss
carryforwards which give rise to significant portions of deferred tax assets and
deferred tax liabilities are as follows:

DECEMBER 31,
-------------------
1998       1999
--------   --------

Deferred tax assets:
Net operating loss carryforwards..........................   $ 665     $ 1,920
Research and experimentation credit.......................      63         273
Accrued vacation..........................................      27          54
Allowance for doubtful accounts...........................       4          59
Depreciation and amortization.............................      52         221
Other.....................................................       3         201
-----     -------
Total gross deferred tax assets.........................     814       2,728
Less valuation allowance....................................    (814)     (2,728)
-----     -------
Net deferred tax assets.................................   $  --     $    --
=====     =======

The valuation allowance for the deferred tax assets as of January 16, 1997
(date of inception) was $-0-. The net change in the total valuation allowance
for the period ended December 31, 1997 and the years ended December 31, 1998 and
1999 was an increase of approximately $154, $660 and $1,914, respectively.

A provision of the Tax Reform Act of 1986 requires the utilization of net
operating losses and credits be limited when there is a change of more than 50%
in ownership of Pixelworks. Such changes occurred with the sale of preferred
stock in 1998. Accordingly, the utilization of the net operating loss and credit
carryforwards generated from periods prior to April 28, 1998 is limited; the
federal net operating loss carryforwards subject to the limitation are
approximately $351.

As of December 31, 1999, Pixelworks has net operating loss and research
credit carryforwards of approximately $5,007 and $305, respectively, which will
expire between 2012-2018.

F-17

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(8) SEGMENT INFORMATION

In accordance with SFAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, Pixelworks has identified a single operating segment: the
design and development of integrated circuits for electronic display devices.

(a) SIGNIFICANT CUSTOMERS

Sales to one distributor represented 51% of total revenue for the year ended
December 31, 1998. Sales to two distributors represented 55% and 24%,
separately, of total revenue for the year ended December 31, 1999. No other
customer represented more than 10% of revenue.

(b) GEOGRAPHIC INFORMATION

Revenue by geographic region was as follows:

PERIOD FROM
JANUARY 16, 1997         YEARS ENDED
(DATE OF INCEPTION)      DECEMBER 31,
TO DECEMBER 31,     -------------------
1997             1998       1999
-------------------   --------   --------

Japan........................................          $ --            $500     $ 7,136
Taiwan.......................................            --              --       3,126
Korea........................................            --              --       1,230
United States................................           400             478         923
Other........................................            --              --         397
----            ----     -------
Total revenue........................          $400            $978     $12,812
====            ====     =======

(9) COMMITMENTS AND CONTINGENCIES

(a) ROYALTIES

During 1999, Pixelworks agreed to pay certain suppliers a per unit royalty
based on a certain number of chips sold. Royalties are paid monthly and expire
through November 6, 2006. Royalties are charged to cost of goods sold in the
statement of operations. Pixelworks has recorded $383 in royalty expense for the
year ended December 31, 1999.

(b) 401(k) PLAN

Effective January 1, 1999, Pixelworks implemented a profit-sharing plan for
eligible employees under the provisions of Internal Revenue Code
Section 401(k). Participants may defer a percentage of their annual compensation
on a pre-tax basis, not to exceed the dollar limit which is set by law. A
discretionary matching contribution by Pixelworks is allowed and is equal to a
uniform percentage of the amount of salary reduction elected to be deferred,
which percentage will be determined each year by Pixelworks. Pixelworks made no
contributions to the 401(k) plan during 1999.

F-18

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(c) LEASES

Pixelworks leases office space under various operating leases which expire
at various dates through 2004. Future minimum payments under the leases are as
follows:

YEARS ENDING DECEMBER 31:
-------------------------

2000......................................................  $  448
2001......................................................     498
2002......................................................     514
2003......................................................     509
2004......................................................     212
------
Total...............................................  $2,181
======

Rent expense for the period from January 16, 1997 (date of inception) to
December 31, 1997 and the years ended December 31, 1998 and 1999 was $36, $80
and $243, respectively.

During 1999, Pixelworks entered into a noncancelable sublease agreement
which expires in August 2002. Future minimum payments to be received under the
sublease are as follows: 2000--$33; 2001--$33; and 2002--$21. Sublease income
was $19 during the year ended December 31, 1999, which was included in rent
expense.

(d) CONTINGENCIES

From time to time, Pixelworks may be a party to various lawsuits and claims
incidental to its business. The Company is not currently subject to any lawsuit
or claim which it believes will have a material adverse effect on its financial
position, results of operations or liquidity.

(10) SUBSEQUENT EVENTS (UNAUDITED)

(a) SERIES D OFFERING

On February 23, 2000, Pixelworks issued a total of 2,239,212 at $12.75 per
share shares of Series D preferred stock.

(b) LICENSE PURCHASE

In February of 2000, Pixelworks entered into a license agreement with
InFocus Systems, Inc. for the use of its proprietary automatic pixel clock phase
and frequency correction technology specified in two patents held by InFocus in
exchange for 156,863 shares of Series D preferred stock, valued at $12.75 per
share, and $2.4 million in cash, payable in four equal quarterly installments
beginning March 31, 2000. Pixelworks also received a release of any claims
InFocus may have against Pixelworks relating to these patents.

F-19

PIXELWORKS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(10) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

YEARS ENDING DECEMBER 31:
-------------------------

(c) 2000 EMPLOYEE STOCK PURCHASE PLAN

The 2000 Employee Stock Purchase Plan was adopted by the board in February
2000, subject to shareholder approval. A total of 1,000,000 shares of common
stock has been reserved for issuance under the employee stock purchase plan.

F-20

[INSIDE BACK COVER]

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

SHARES

PIXELWORKS, INC.

COMMON STOCK

[LOGO]

---------

PROSPECTUS

, 2000

---------

SALOMON SMITH BARNEY

DEUTSCHE BANC ALEX. BROWN

SG COWEN

E*OFFERING

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

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses expected to be
incurred by the Registrant in connection with the offering described in this
Registration Statement. All amounts are estimates except the SEC registration
fee.

SEC Registration Fee........................................  $ 19,800
NASD Filing fee.............................................     8,000
Nasdaq National Market listing fee..........................    95,000
Printing Expenses...........................................   200,000*
Accounting Fees and Expenses................................   250,000*
Legal Fees and Expenses.....................................   275,000*
Blue sky qualification fees and expenses....................    10,000*
Transfer Agent and Registrar Fees...........................    15,000*
Miscellaneous Expenses......................................    27,200*
--------
Total...................................................  $900,000
========

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

*   Estimate.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As an Oregon corporation, we are subject to the Oregon Business Corporation
Act ("OBCA") and the exculpation from liability and indemnification provisions
contained therein. Pursuant to Section 60.047(2)(d) of the OBCA, Article IV of
our Fifth Restated Articles of Incorporation (the "Restated Articles")
eliminates the liability of our directors to us or our shareholders, except for
any liability related to breach of the duty of loyalty, actions not in good
faith and certain other liabilities.

Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute. Article IV of the Restated Articles requires us
to indemnify our directors and officers to the fullest extent not prohibited by
law.

The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.

II-1

We also have entered into indemnity agreements with each of our executive
officers and each member of our Board of Directors. These indemnity agreements
provide for indemnification of the indemnitee to the fullest extent allowed by
law.

ITEM 15.  RECENT SALE OF UNREGISTERED SECURITIES.

In the three years prior to the effective date of this Registration
Statement, we have issued and sold the following unregistered securities:

- On April 25, 1997, we issued and sold 2,906,976 shares of Series A
preferred stock to investors for an aggregate consideration of $1,250,000
in cash.

- On April 29, 1998, we issued and sold 5,500,005 shares of Series B
preferred stock to investors for an aggregate consideration of $6,000,006
in cash.

- On May 28, 1999, we issued and sold 2,493,026 shares of Series C preferred
stock to investors for an aggregate consideration of $11,667,360 in cash.

- On August 31, 1999, we granted 250,000 shares of common stock from our
stock incentive plan to an employee for an aggregate consideration of
$115,700.

- On February 23, 2000, we issued and sold 2,239,212 shares of Series D
preferred stock to investors for an aggregate consideration of $26,550,000
in cash and, in the case of one of the investors, rights under a patent
license agreement.

- Since February 24, 1997, we have granted 2,288,750 options for shares of
common stock to our employees, consultants and other service providers. As
of February 24, 2000, 157,393 of those options have been exercised for an
aggregate consideration of $60,948.45 and 216,458 have been canceled,
leaving 1,914,899 options outstanding.

Upon completion of the offering covered by this Registration Statement, all
outstanding shares of Series A, Series B, Series C and Series D preferred stock
will automatically convert into 13,139,219 shares of common stock.

The sale of the above securities was deemed to be exempt from registration
under the Securities Act of 1933 in reliance upon Section 4(2) of the Securities
Act of 1933 and/or Regulation D promulgated thereunder or Rule 701 promulgated
under Section 3(b) of the Securities Act of 1933 as transactions by an issuer
not involving any public offering or transactions pursuant to compensation
benefit plans and contracts relating to compensation as provided under
Rule 701. These sales were made without general solicitation or advertising. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment.

II-2

ITEM 16. EXHIBITS.

(a)  The following exhibits as filed herewith:

NO.__DESCRIPTION

EXHIBIT NO.                                       DOCUMENT
-----------                                       --------

1.1 *          Form of Underwriting Agreement.

3.1 *          Fifth Amended and Restated Articles of Incorporation of
Pixelworks, Inc.

3.2 *          Sixth Amended and Restated Articles of Incorporation of
Pixelworks, Inc.

3.3            First Restated Bylaws of Pixelworks, Inc.

4.1            Reference is made to Exhibit 3.1.

4.2            Third Amended Registration Rights Agreement dated February
22, 2000.

4.3 *          Rights Agreement between Pixelworks, Inc. and
dated            .

5.1 *          Opinion of Ater Wynne LLP as to the legality of the Common
Stock being registered.

10.1            Form of Indemnity Agreement between Pixelworks, Inc. and
each of its Officers and Directors.

10.2            Pixelworks, Inc. 1997 Stock Incentive Plan.

10.3            Loan and Security Agreement dated August 14, 1998 between
Silicon Valley Bank and Pixelworks, Inc.

10.4            Loan Modification Agreement (modification to Exhibit 10.3)
dated April 9, 1999 between Silicon Valley Bank and
Pixelworks, Inc.

10.5            Negative Pledge Agreement dated August 14, 1998 between
Silicon Valley Bank and Pixelworks, Inc.

10.6            Pixelworks, Inc. 2000 Employee Stock Purchase Plan.

10.7            Lease Agreement dated April 14, 1999 between
Southcenter III and IV Investors LLC and Pixelworks, Inc.

10.8 +          VAutomation Incorporated Synthesizable Soft Core Agreement
dated November 4, 1997 between VAutomation Incorporated and
Pixelworks, Inc.

10.9 +          Intellectual Property Sublicense Agreement dated March 30,
1999 between VAutomation Incorporated and Pixelworks, Inc.

10.10           License Agreement dated February 22, 2000 between
Pixelworks, Inc. and InFocus Systems, Inc.

23.1 *          Consent of Ater Wynne LLP. Reference is made to Exhibit 5.1.

23.2            Consent of KPMG LLP.

24.1            Powers of Attorney. Reference is made to the signature page
hereof.

27.1            Financial Data Schedule.

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

*   To be filed by amendment.

+   Confidential treatment requested as to certain portions of this exhibit.

(b)  Schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statement or
related notes.

II-3

ITEM 17. UNDERTAKINGS.

We hereby undertake that, for the purpose of determining any liability under
the Securities Act each filing of our annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by
a director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

We hereby undertake:

(1)    To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.

(2)    That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3)    To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
this offering.

(4)    For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(5)    For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-1 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tualatin, State of Oregon, on February 22, 2000.

PIXELWORKS, INC.

By:             /s/ ALLEN H. ALLEY
------------------------------------
Allen H. Alley
PRESIDENT

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Allen H. Alley and Jeffrey B. Bouchard and each
of them singly, as true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all further amendments to said Registration Statement (including
post-effective amendments and new registration statements pursuant to Rule 462
or otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as full to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.

Witness our hands on the date set forth below. Pursuant to the requirements
of the Securities Act, this Registration Statement has been duly signed by the
following persons in the capacities indicated on February 22, 2000.

SIGNATURE                                            TITLE
---------                                            -----

/s/ ALLEN H. ALLEY
-------------------------------------------         Director, President and Chief Executive
Allen H. Alley                        Officer (Principal Executive Officer)

/s/ JEFFREY B. BOUCHARD                 Vice President, Finance and Chief Financial
-------------------------------------------         Officer (Principal Financial and Accounting
Jeffrey B. Bouchard                     Officer)

/s/ OLIVER D. CURME
-------------------------------------------       Director
Oliver D. Curme

/s/ MARK A. STEVENS
-------------------------------------------       Director
Mark A. Stevens

/s/ FRANK GILL
-------------------------------------------       Director
Frank Gill

II-5

EXHIBIT INDEX

EXHIBIT NO.                                       DOCUMENT
-----------                                       --------

1.1 *          Form of Underwriting Agreement.

3.1 *          Fifth Amended and Restated Articles of Incorporation of
Pixelworks, Inc.

3.2 *          Sixth Amended and Restated Articles of Incorporation of
Pixelworks, Inc.

3.3            First Restated Bylaws of Pixelworks, Inc.

4.1            Reference is made to Exhibit 3.1.

4.2            Third Amended Registration Rights Agreement dated February
22, 2000.

4.3 *          Rights Agreement between Pixelworks, Inc. and
dated       .

5.1 *          Opinion of Ater Wynne LLP as to the legality of the Common
Stock being registered.

10.1            Form of Indemnity Agreement between Pixelworks, Inc. and
each of its Officers and Directors.

10.2            Pixelworks, Inc. 1997 Stock Incentive Plan.

10.3            Loan and Security Agreement dated August 14, 1998 between
Silicon Valley Bank and Pixelworks, Inc.

10.4            Loan Modification Agreement (modification to Exhibit 10.3)
dated April 9, 1999 between Silicon Valley Bank and
Pixelworks, Inc.

10.5            Negative Pledge Agreement dated August 14, 1998 between
Silicon Valley Bank and Pixelworks, Inc.

10.6            Pixelworks, Inc. 2000 Employee Stock Purchase Plan.

10.7            Lease Agreement dated April 14, 1999 between
Southcenter III and IV Investors LLC and Pixelworks, Inc.

10.8 +          VAutomation Incorporated Synthesizable Soft Core Agreement
dated November 4, 1997 between VAutomation Incorporated and
Pixelworks, Inc.

10.9 +          Intellectual Property Sublicense Agreement dated March 30,
1999 between VAutomation Incorporated and Pixelworks, Inc.

10.10           License Agreement dated February 22, 2000 between
Pixelworks, Inc. and InFocus Systems, Inc.

23.1 *          Consent of Ater Wynne LLP. Reference is made to Exhibit 5.1.

23.2            Consent of KPMG LLP.

24.1            Powers of Attorney. Reference is made to the signature page
hereof.

27.1            Financial Data Schedule.

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

*   To be filed by amendment.

+   Confidential treatment requested as to certain portions of this exhibit.

EXHIBIT 3.3

FIRST RESTATED BYLAWS
OF
PIXELWORKS, INC.

ARTICLE I

OFFICES

1.1    PRINCIPAL OFFICE. The principal office of the Corporation shall
be located at 7700 SW Mohawk Street, Tualatin, Oregon 97062. The Corporation may
have such other offices as the Board of Directors may designate or as the
business of the Corporation may from time to time require.

1.2    REGISTERED OFFICE. The registered office of the Corporation
required by the Oregon Business Corporation Act to be maintained in the State of
Oregon may be, but need not be, identical with the principal office in the State
of Oregon, and the address of the registered office may be changed from time to
time by the Board of Directors.

ARTICLE II

SHAREHOLDERS

2.1    ANNUAL MEETING. The annual meeting of the shareholders shall be
held in May or June of each year, unless a different date and time are fixed by
the Board of Directors and stated in the notice of the meeting, beginning with
the year 2000. The failure to hold an annual meeting at the time stated herein
shall not affect the validity of any corporate action.

2.2    SPECIAL MEETING. Special meetings of the shareholders may be
called by the President or by the Board of Directors and shall be called by the
President (or in the event of absence, incapacity, or refusal of the President,
by the Secretary or any other officer) at the request of the holders of not less
than one-tenth of all the outstanding shares of the Corporation entitled to vote
at the meeting. The requesting shareholders shall sign, date, and deliver to the
Secretary a written demand describing the purpose or purposes for holding the
special meeting.

2.3    PLACE OF MEETINGS. Meetings of the shareholders shall be held
at the principal business office of the Corporation or at such other place,
within or without the State of Oregon, as may be determined by the Board of
Directors.

1 - First Restated Bylaws

2.4    NOTICE OF MEETINGS. Written notice stating the date, time, and
place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be mailed to each shareholder
entitled to vote at the meeting at the shareholder's address shown in the
Corporation's current record of shareholders, with postage thereon prepaid, not
less than 10 nor more than 60 days before the date of the meeting.

2.5    WAIVER OF NOTICE. A shareholder may at any time waive any 
notice required by law, the Articles of Incorporation or these First Restated 
Bylaws. The waiver must be in writing, be signed by the shareholder entitled 
to the notice, and be delivered to the Corporation for inclusion in the 
minutes for filing with the corporate records. A shareholder's attendance at 
a meeting waives objection to lack of notice or defective notice of the 
meeting, unless the shareholder at the beginning of the meeting objects to 
holding the meeting or transacting business at the meeting. The shareholder's 
attendance also waives objection to consideration of a particular matter at 
the meeting that is not within the purpose or purposes described in the 
meeting notice, unless the shareholder objects to considering the matter when 
it is presented.

2.6    RECORD DATE

(a) For the purpose of determining shareholders entitled to 
notice of a shareholders' meeting, to demand a special meeting, or to vote or 
to take any other action, the Board of Directors may fix a future date as the 
record date for any such determination of shareholders, such date in any case 
to be not more than 70 days before the meeting or action requiring a 
determination of shareholders. The record date shall be the same for all 
voting groups.

(b) A determination of shareholders entitled to notice of or 
to vote at a shareholders' meeting is effective for any adjournment of the 
meeting unless the Board of Directors fixes a new record date, which it must 
do if the meeting is adjourned to a date more than 120 days after the date 
fixed for the original meeting.

(c) If a court orders a meeting adjourned to a date more than
120 days after the date fixed for the original meeting, it may provide that the
original record date continue in effect or it may fix a new record date.

2.7    SHAREHOLDERS LIST FOR MEETING. After the record date for a
shareholders' meeting is fixed by the Board of Directors, the Secretary of the
Corporation shall prepare an alphabetical list of the names of all its
shareholders entitled to notice of the shareholders' meeting. The list must be
arranged by voting group and within each voting group by class or series of
shares and show the address of and number of shares held by each shareholder.
The shareholders' list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. The Corporation shall make the shareholders'
list available at the meeting, and any shareholder or the shareholder's agent or
attorney is entitled to inspect the list at any time 

2

during the meeting or any adjournment. Refusal or failure to prepare or make 
available the shareholders' list does not affect the validity of action taken 
at the meeting.

2.8    QUORUM; ADJOURNMENT. Shares entitled to vote as a separate 
voting group may take action on a matter at a meeting only if a quorum of 
those shares exists with respect to that matter. A majority of the votes 
entitled to be cast on the matter by the voting group constitutes a quorum of 
that voting group for action in that matter. A majority of shares represented 
at the meeting, although less than a quorum, may adjourn the meeting from 
time to time to a different time and place without further notice to any 
shareholder of any adjournment. At such adjourned meeting at which a quorum 
is present, any business may be transacted that might have been transacted at 
the meeting originally held. Once a share is represented for any purpose at a 
meeting, it shall be deemed present for quorum purposes for the remainder of 
the meeting and for any adjournment of that meeting, unless a new record date 
is set for the adjourned meeting.

2.9    VOTING REQUIREMENTS: ACTION WITHOUT MEETING. Unless 
otherwise provided in the Articles of Incorporation, each outstanding share 
entitled to vote shall be entitled to one vote upon each matter submitted to 
a vote at a meeting of shareholders. If a quorum exists, action on a matter, 
other than the election of directors, is approved if the votes cast by the 
shares entitled to vote favoring the action exceed the votes cast opposing 
the action, unless a greater number of affirmative votes is required by law 
or the Articles of Incorporation. If a quorum exists, directors are elected 
by a plurality of the votes cast by the shares entitled to vote unless 
otherwise provided in the Articles of Incorporation. No cumulative voting for 
directors shall be permitted unless the Articles of Incorporation so provide. 
Action required or permitted by law to be taken at a shareholders' meeting 
may be taken without a meeting if the action is taken by all the shareholders 
entitled to vote on the action. The action must be evidenced by one or more 
written consents describing the action taken, signed by all the shareholders 
entitled to vote on the action and delivered to the Corporation for inclusion 
in the minutes for filing with the corporate records. Action taken under this 
section is effective when the last shareholder signs the consent, unless the 
consent specifies an earlier or later effective date. If the law requires 
that notice of proposed action be given to nonvoting shareholders and the 
action is to be taken by unanimous consent of the voting shareholders, the 
Corporation must give its nonvoting shareholders written notice of the 
proposed action at least 10 days before the action is taken. The notice must 
contain or be accompanied by the same material that, under the Oregon 
Business Corporation Act, would have been required to be sent to nonvoting 
shareholders in a notice of meeting at which the proposed action would have 
been submitted to the shareholders for action.

2.10   PROXIES.

(a) A shareholder may vote shares in person or by proxy by
signing an appointment, either personally or by the shareholder's
attorney-in-fact. An appointment of a proxy shall be effective when received by
the Secretary or other officer of the Corporation authorized to tabulate votes.
An appointment is valid for 11 months unless a longer period is provided in the

3

appointment form. An appointment is revocable by the shareholder unless the 
appointment form conspicuously states that it is irrevocable and the 
appointment is coupled with an interest that has not been extinguished.

(b) The death or incapacity of a shareholder appointing a proxy
shall not affect the right of the Corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the Secretary or other
officer authorized to tabulate votes before the proxy exercises the proxy's
authority under the appointment.

2.11   CORPORATION'S ACCEPTANCE OF VOTES.

(a) If the name signed on a vote, consent, waiver, or proxy 
appointment corresponds to the name of a shareholder, the Corporation, if 
acting in good faith, is entitled to accept the vote, consent, waiver, or 
proxy appointment and give it effect as the act of the shareholder.

(b) If the name signed on a vote, consent, waiver, or proxy 
appointment does not correspond to the name of a shareholder, the 
Corporation, if acting in good faith, is nevertheless entitled to accept the 
vote, consent, waiver, or proxy appointment and give it effect as the act of 
the shareholder if:

(i)    The shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;

(ii)   The name signed purports to be that of an 
administrator, executor, guardian, or conservator representing the 
shareholder and, if the Corporation requests, evidence of fiduciary status 
acceptable to the Corporation has been presented with respect to the vote, 
consent, waiver, or proxy appointment;

(iii)  The name signed purports to be that of a 
receiver or trustee in bankruptcy of the shareholder and, if the Corporation 
requests, evidence of this status acceptable to the Corporation has been 
presented with respect to the vote, consent, waiver, or proxy appointment;

(iv)   The name signed purports to be that of a 
pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the 
Corporation requests, evidence acceptable to the Corporation of the 
signatory's authority to sign for the shareholder has been presented with 
respect to the vote, consent, waiver, or proxy appointment; or

(v)    Two or more persons are the shareholder as
co-tenants or fiduciaries and the name signed purports to be the name of at
least one of the co-owners and the person signing appears to be acting on behalf
of all co-owners.

4

(c) The Corporation is entitled to reject a vote, consent, 
waiver, or proxy appointment if the Secretary or other officer or agent 
authorized to tabulate votes, acting in good faith, has reasonable basis for 
doubt about the validity of the signature on it or about the signatory's 
authority to sign for the shareholder.

(d) The shares of a corporation are not entitled to vote if 
they are owned, directly or indirectly, by a second corporation, and the 
first corporation owns, directly or indirectly, a majority of the shares 
entitled to vote for directors of the second corporation; provided, however, 
a corporation may vote any shares, including its own shares, held by it in a 
fiduciary capacity.

(e) The Corporation and its officer or agent who accepts or 
rejects a vote, consent, waiver, or proxy appointment in good faith and in 
accordance with the standards of this provision shall not be liable in 
damages to the shareholder for the consequences of the acceptance or 
rejection. Corporate action based on the acceptance or rejection of a vote, 
consent, waiver, or proxy appointment under this provision is valid unless a 
court of competent jurisdiction determines otherwise.

2.12   NOTICE OF BUSINESS TO BE CONDUCTED AT MEETING. At an annual 
meeting of the shareholders, only such business shall be conducted as shall 
have been properly brought before the meeting. To be properly brought before 
an annual meeting, business must be (a) specified in the notice of meeting 
(or any supplement thereto) given by or at the direction of the Board of 
Directors, (b) otherwise properly brought before the meeting by or at the 
direction of the Board of Directors, or (c) otherwise properly brought before 
an annual meeting by a shareholder.

For business to be properly brought before an annual meeting by a 
shareholder, the shareholder must have given timely notice thereof in writing 
to the Secretary of the Corporation. To be timely, a shareholder's notice 
must be delivered to or mailed and received at the principal executive 
offices of the Corporation not less than 60 days nor more than 90 days prior 
to the meeting; provided, however, that in the event that less than 60 days' 
notice or prior public disclosure of the date of the meeting is given or made 
to shareholders, notice by the shareholder to be timely must be so received 
not later than the close of business on the 10th day following the day on 
which such notice of the date of the annual meeting was mailed or such public 
disclosure was made.

A shareholder's notice to the Secretary shall set forth as to each 
matter the shareholder proposes to bring before the annual meeting (a) a 
brief description of the business desired to be brought before the annual 
meeting and the reasons for conducting such business at the annual meeting, 
(b) the name and address, as they appear on the Corporation's books, of the 
shareholder proposing such business, (c) the class and number of shares of 
stock of the Corporation which are beneficially owned by the shareholder, and 
(d) any material interest of the shareholder in such business. 
Notwithstanding anything in the Bylaws to the contrary, no business 

5

shall be conducted at any annual meeting except in accordance with the 
procedures set forth in this Section 2.12.

The Chairman of the annual meeting shall, if the facts warrant, 
determine and declare to the meeting that business was not properly brought 
before the meeting and in accordance with the provisions of this Section 2.12 
and if the Chairman should so determine, the Chairman shall so declare to the 
meeting and any such business not properly brought before the meeting shall 
not be transacted.

ARTICLE III

BOARD OF DIRECTORS

3.1    DUTIES.  All corporate powers shall be exercised by or under 
the authority of the Board of Directors and the business and affairs of the 
Corporation shall be managed by or under the direction of the Board of 
Directors.

3.2    NUMBER AND QUALIFICATION.  The number of directors of the 
Corporation shall be not less than three nor more than twelve, and within 
such limits, the exact number shall be fixed and increased or decreased from 
time to time by resolution of the Board of Directors. If the number of 
directors is fixed by the Board of Directors at five or less, the directors 
shall hold office until the next annual meeting of shareholders and until 
their successors have been elected and qualified.  If the number of directors 
is fixed by the Board of Directors at six or more, the directors shall be 
divided into three classes designated Class I, Class II and Class III, each 
class to be as nearly equal in number as possible.  At the next annual 
meeting of shareholders following that designation ("First Meeting"), 
directors of all three classes shall be elected. The term of office of Class 
I directors shall expire at the first annual meeting of shareholders 
following their election.  The terms of Class II directors shall expire at 
the second annual meeting of shareholders following their election. The terms 
of the Class III directors shall expire at the third annual meeting of 
shareholders following their election.  At each annual meeting of 
shareholders after the First Meeting, each class of directors elected to 
succeed those directors whose terms expire shall be elected to serve for 
three-year terms and until their successors are elected and qualified, so 
that the term of one class of directors will expire each year.  When the 
number of directors is changed within the limits provided herein, any newly 
created directorships, or any decrease in directorships, shall be so 
apportioned among the classes as to make all classes as nearly equal as 
possible, provided that no decrease in the number of directors constituting 
the Board of Directors shall shorten the term of any incumbent directors.  
Directors need not be residents of the State of Oregon or shareholders of the 
Corporation.

3.3    CHAIRMAN OF THE BOARD OF DIRECTORS. The directors may elect 
a director to serve as Chairman of the Board of Directors to preside at all 
meetings of the Board of Directors and to fulfill any other responsibilities 
delegated by the Board of Directors.

6

3.4    REGULAR MEETINGS.  A regular meeting of the Board of 
Directors shall be held without other notice than this Section 3.4 
immediately after, and at the same place as, the annual meeting of 
shareholders. The Board of Directors may provide, by resolution, the time and 
place, either within or without the State of Oregon, for the holding of 
additional regular meetings without other notice than the resolution.

3.5    SPECIAL MEETINGS.  Special meetings of the Board of 
Directors may be called by or at the request of the President or any 
director. The person or persons authorized to call special meetings of the 
Board of Directors may fix any place, either within or without the State of 
Oregon, as the place for holding any special meeting of the Board of 
Directors called by them.

3.6     NOTICE.  Notice of the date, time, and place of any special 
meeting of the Board of Directors shall be given at least three days prior to 
the meeting by any means provided by law. If mailed, notice shall be deemed 
to be given upon deposit in the United States mail addressed to the director 
at the director's business address, with postage thereon prepaid. If by 
telegram, notice shall be deemed to be given when the telegram is delivered 
to the telegraph company. Notice by all other means shall be deemed to be 
given when received by the director or a person at the director's business or 
residential address whom the person giving notice reasonably believes will 
deliver or report the notice to the director within 24 hours. The attendance 
of a director at a meeting shall constitute a waiver of notice of such 
meeting, except where a director attends a meeting for the express purpose of 
objecting to the transaction of any business because the meeting is not 
lawfully called or convened. Neither the business to be transacted at, nor 
the purpose of, any regular or special meeting of the Board of Directors need 
be specified in the notice or waiver of notice of such meeting.

3.7    WAIVER OF NOTICE.  A director may at any time waive any 
notice required by law, the Articles of Incorporation, or these First 
Restated Bylaws. Unless a director attends or participates in a meeting, a 
waiver must be in writing, must be signed by the director entitled to notice, 
must specify the meeting for which notice is waived, and must be filed with 
the minutes or corporate records. 

3.8    OUORUM.  A majority of the number of directors fixed by 
Section 3.2 shall constitute a quorum for the transaction of business at any 
meeting of the Board of Directors.

3.9    MANNER OF ACTING.

(a) The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless a different number is provided by law, the Articles of Incorporation, or
these First Restated Bylaws.

(b) Members of the Board of Directors may hold a board meeting
by conference telephone or similar communications equipment by means of which
all persons 

7

participating in the meeting can hear each other. Participation in such a 
meeting shall constitute presence in person at the meeting.

(c) Any action that is required or permitted to be taken by 
the directors at a meeting may be taken without a meeting if a consent in 
writing setting forth the action so taken shall be signed by all of the 
directors entitled to vote on the matter. The action shall be effective on 
the date when the last signature is placed on the consent or at such earlier 
or later time as is set forth therein. Such consent, which shall have the 
same effect as a unanimous vote of the directors, shall be filed with the 
minutes of the Corporation.

3.10   VACANCIES.  Any vacancy, including a vacancy resulting from 
an increase in the number of directors, occurring on the Board of Directors 
may be filled by the shareholders, the Board of Directors, or the affirmative 
vote of a majority of the remaining directors if less than a quorum of the 
Board of Directors, or by a sole remaining director. If the vacant office is 
filled by the shareholders and was held by a director elected by a voting 
group of shareholders, then only the holders of shares of that voting group 
are entitled to vote to fill the vacancy. Any directorship not so filled by 
the directors shall be filled by election at an annual meeting or at a 
special meeting of shareholders called for that purpose. A director elected 
to fill a vacancy shall be elected to serve until the next annual meeting of 
shareholders and until a successor shall be duly elected and qualified. A 
vacancy that will occur at a specific later date, by reason of a resignation 
or otherwise, may be filled before the vacancy occurs, and the new director 
shall take office when the vacancy occurs.

3.11   COMPENSATION.  By resolution of the Board of Directors, the 
directors may be paid their expenses, if any, of attendance at each meeting 
of the Board of Directors and may be paid a fixed sum for attendance at each 
meeting of the Board of Directors or a stated salary as director. No such 
payment shall preclude any director from serving the Corporation in any other 
capacity and receiving compensation therefor.

3.12   PRESUMPTION OF ASSENT.  A director of the Corporation who is 
present at a meeting of the Board of Directors or a committee of the Board of 
Directors shall be presumed to have assented to the action taken (a) unless 
the director's dissent to the action is entered in the minutes of the 
meeting, (b) unless a written dissent to the action is filed with the person 
acting as the secretary of the meeting before the adjournment thereof or 
forwarded by certified or registered mail to the Secretary of the Corporation 
immediately after the adjournment of the meeting or (c) unless the director 
objects at the meeting to the holding of the meeting or transacting business 
at the meeting. The right to dissent shall not apply to a director who voted 
in favor of the action.

3.13   DIRECTOR CONFLICT OF INTEREST.

(a) A transaction in which a director of the Corporation has 
a direct or indirect interest shall be valid notwithstanding the director's 
interest in the transaction if the material facts of the transaction and the 
director's interest are disclosed or known to the Board of 

8

Directors or a committee thereof and it authorizes, approves, or ratifies the 
transaction by a vote or consent sufficient for the purpose without counting 
the votes or consents of directors with a direct or indirect interest in the 
transaction; or the material facts of the transaction and the director's 
interest are disclosed or known to shareholders entitled to vote and they, 
voting as a single group, authorize, approve, or ratify the transaction by a 
majority vote; or the transaction is fair to the Corporation.

(b) A conflict of interest transaction may be authorized, 
approved, or ratified if it receives the affirmative vote of a majority of 
directors on the Board of Directors or a committee thereof who have no direct 
or indirect interest in the transaction. If a majority of such directors vote 
to authorize, approve, or ratify the transaction, a quorum is present for the 
purpose of taking action.

(c) A conflict of interest transaction may be authorized, 
approved, or ratified by a majority vote of shareholders entitled to vote 
thereon. Shares owned by or voted under the control of a director or an 
entity controlled by a director who has a direct or indirect interest in the 
transaction are entitled to vote with respect to a conflict of interest 
transaction. A majority of the shares, whether or not present, that are 
entitled to be counted in a vote on the transaction constitutes a quorum for 
the purpose of authorizing, approving, or ratifying the transactions.

(d) A director has an indirect interest in a transaction if 
(i) another entity in which the director has a material financial interest or 
in which the director is a general partner is a party to the transaction or 
(ii) another entity of which the director is a director, officer, or trustee 
is a party to the transaction and the transaction is or should be considered 
by the Board of Directors.

3.14   REMOVAL.  All or any number of the directors of the 
Corporation may be removed only for cause and at a meeting of shareholders 
called expressly for that purpose, by the vote of 75 percent of the votes 
then entitled to be cast for the election of directors.  Cause for removal 
shall be deemed to exist only if the director whose removal is proposed has 
engaged in criminal conduct or has engaged in fraudulent or dishonest conduct 
or gross abuse of authority or discretion with respect to the Corporation. At 
any meeting of shareholders at which one or more directors are removed, a 
majority of votes then entitled to be cast for the election of directors may 
fill any vacancy created by such removal. If any vacancy created by removal 
of a director is not filled by the shareholders at the meeting at which the 
removal is effected, such vacancy may be filled by a majority vote of the 
remaining directors. 

3.15   RESIGNATION.  Any director may resign by delivering written 
notice to the Board of Directors, its chairperson, or the Corporation. Such 
resignation shall be effective at the earliest of the following, unless the 
notice specifies a later effective date, (a) on receipt, (b) five days after 
its deposit in the United States mails, if mailed postpaid and correctly 
addressed, or (c) on the date shown on the return receipt, if sent by 
registered or certified mail, return receipt 

9

requested, and the receipt is signed by addressee. Once delivered, a notice 
of resignation is irrevocable unless revocation is permitted by the Board of 
Directors.

3.16   NOMINATIONS FOR ELECTION TO BOARD OF DIRECTORS.  Only 
persons who are nominated in accordance with the procedures set forth in this 
Section 3.16 shall be eligible for election as directors. Nominations of 
persons for election to the Board of Directors may be made at a meeting of 
shareholders by or at the direction of the Board of Directors or by any 
shareholder of the Corporation entitled to vote for the election of directors 
at the meeting who complies with the notice procedures set forth in this 
Section 3.16.

Such nominations, other than those made by or at the direction of 
the Board of Directors shall be made pursuant to timely notice in writing to 
the Secretary of the Corporation. To be timely, a shareholder's notice shall 
be delivered to or mailed and received at the principal executive offices of 
the Corporation not less than 60 days nor more than 90 days prior to the 
meeting; provided, however, that in the event that less than 60 days' notice 
or prior public disclosure of the date of the meeting is given or made to 
shareholders, notice by the shareholder to be timely must be so received not 
later than the close of business on the 10th day following the day on which 
such notice of the date of the meeting was mailed or such public disclosure 
was made.

Such shareholder's notice shall set forth (a) as to each person 
whom the shareholder proposes to nominate for election or re-election as a 
director, (i) the name, age, business address and residence address of such 
person, (ii) the principal occupation or employment of such person, (iii) the 
class and number of shares of stock of the Corporation which are beneficially 
owned by such person, and (iv) any other information relating to such person 
that is required to be disclosed in solicitations of proxies for election of 
directors, or is otherwise required, in each case pursuant to Regulation 14A 
under the Securities Exchange Act of 1934, as amended (including, without 
limitation, such person's written consent to being named in the proxy 
statement as a nominee and to serving as a director if elected); and (b) as 
to the shareholder giving the notice, (i) the name and address, as they 
appear on the Corporation's books, of such shareholder, and (ii) the class 
and number of shares of stock of the Corporation which are beneficially owned 
by such shareholder.

At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the Corporation that information required to be set forth in a shareholder's
notice of nomination which pertains to the nominee.

No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.16. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these First Restated Bylaws, and if the 

10

Chairman should so determine, the Chairman shall so declare to the meeting 
and the defective nomination shall be disregarded.

ARTICLE IV

EXECUTIVE COMMITTEE AND OTHER COMMITTEES

4.1    DESIGNATION OF EXECUTIVE COMMITTEE.  The Board of Directors 
may designate two or more directors to constitute an executive committee. The 
designation of an executive committee, and the delegation of authority to it, 
shall not operate to relieve the Board of Directors, or any member thereof, 
of any responsibility imposed by law. No member of the executive committee 
shall continue to be a member thereof after ceasing to be a director of the 
Corporation. The Board of Directors shall have the power at any time to 
increase or decrease the number of members of the executive committee, to 
fill vacancies thereon, to change any member thereof, and to change the 
functions or terminate the existence thereof. The creation of the executive 
committee and the appointment of members to it shall be approved by a 
majority of the directors in office when the action is taken, unless a 
greater number is required by the Articles of Incorporation or these First 
Restated Bylaws.

4.2    POWERS OF EXECUTIVE COMMITTEE.  During the interval between 
meetings of the Board of Directors, and subject to such limitations as may be 
imposed by resolution of the Board of Directors, the executive committee may 
have and may exercise all the authority of the Board of Directors in the 
management of the Corporation, provided that the committee shall not have the 
authority of the Board of Directors with respect to the following matters: 
authorizing distributions; approving or proposing to the shareholders actions 
that are required to be approved by the shareholders under the Articles of 
Incorporation or these First Restated Bylaws or by law; filling vacancies on 
the Board of Directors or any committee thereof; amending the Articles of 
Incorporation; adopting, amending, or repealing bylaws; approving a plan of 
merger not requiring shareholder approval; authorizing or approving a 
reacquisition of shares, except according to a formula or method prescribed 
by the Board of Directors; authorizing or approving the issuance or sale or 
contract for sale of shares or determining the designation and relative 
rights, preferences, and limitations of a class or series of shares except 
within limits specifically prescribed by the Board of Director .

4.3    PROCEDURES; MEETINGS; QUORUM.

(a) The Board of Directors shall appoint a chairperson from 
among the members of the executive committee and shall appoint a secretary 
who may, but need not, be a member of the executive committee. The 
chairperson shall preside at all meetings of the executive committee and the 
secretary of the executive committee shall keep a record of its acts and 
proceedings, which shall be filed with the minutes of the Corporation.

11

(b) Regular meetings of the executive committee, of which no 
notice shall be necessary, shall be held on such days and at such places as 
shall be fixed by resolution adopted by the executive committee. Special 
meetings of the executive committee shall be called at the request of the 
President or of any member of the executive committee, and shall be held upon 
such notice as is required by these First Restated Bylaws for special 
meetings of the Board of Directors.

(c) Attendance of any member of the executive committee at a 
meeting shall constitute a waiver of notice of the meeting. A majority of the 
executive committee, from time to time, shall be necessary to constitute a 
quorum for the transaction of any business, and the act of a majority of the 
members present at a meeting at which a quorum is present shall be the act of 
the executive committee. Members of the executive committee may hold a 
meeting of such committee by conference telephone or similar communications 
equipment by means of which all persons participating in the meeting can hear 
each other, and participation in such meeting shall constitute presence in 
person at the meeting.

(d)    Any action that is required or permitted to be taken 
at a meeting of in the executive committee may be taken without a meeting if 
a consent in writing setting forth the action so taken shall be signed by all 
members of the executive committee entitled to vote on the matter. The action 
shall be effective on the date when the last signature is placed on the 
consent or at such earlier or later time as is set forth therein. Such 
consent, which shall have the same effect as a unanimous vote of the members 
of the executive committee, shall be filed with the minutes of the 
Corporation.

(e)    The Board of Directors may approve a reasonable fee for
the members of the executive committee as compensation for attendance at
meetings of the executive committee.

4.4    OTHER COMMITTEES. By the approval of a majority of the 
directors when the action is taken (unless a greater number is required by 
the Articles of Incorporation), the Board of Directors, by resolution, may 
create one or more additional committees, appoint directors to serve on them, 
and define the duties of such committee or committees. Each such committee 
shall have two or more members, who shall serve at the pleasure of the Board 
of Directors. Such additional committee or committees, shall not have the 
powers proscribed in Section 4.2.

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ARTICLE V

OFFICERS

5.1    NUMBER.  The officers of the Corporation shall be a 
President and a Secretary. Such other officers and assistant officers as are 
deemed necessary or desirable may be appointed by the Board of Directors and 
shall have such powers and duties prescribed by the Board of Directors or the 
officer authorized by the Board of Directors to prescribe the duties of other 
officers. A duly appointed officer may appoint one or more officers or 
assistant officers if such appointment is authorized by the Board of 
Directors. Any two or more offices may be held by the same person.

5.2    APPOINTMENT AND TERM OF OFFICE.  The officers of the 
Corporation shall be appointed annually by the Board of Directors at the 
first meeting of the Board of Directors held after the annual meeting of the 
shareholders. If the officers shall not be appointed at the meeting, a 
meeting shall be held as soon thereafter as is convenient for such 
appointment of officers. Each officer shall hold office until a successor 
shall have been duly appointed and qualified or until the officer's death, 
resignation, or removal.

5.3    QUALIFICATION.  An officer need not be a director, shareholder,
or a resident of the State of Oregon.

5.4    RESIGNATION AND REMOVAL.  An officer may resign at any time 
by delivering notice of such resignation to the Corporation. A resignation is 
effective on receipt unless the notice specifies a later effective date. If 
the Corporation accepts a specified later effective date, the Board of 
Directors may fill the pending vacancy before the effective date, but the 
successor may not take office until the effective date. Once delivered, a 
notice of resignation is irrevocable unless revocation is permitted by the 
Board of Directors. Any officer appointed by the Board of Directors may be 
removed at any time with or without cause. Appointment of an officer shall 
not of itself create contract rights. Removal or resignation of an officer 
shall not affect the contract rights, if any, of the Corporation or the 
officer.

5.5    VACANCIES.  A vacancy in any office because of death, 
resignation, removal, disqualification, or otherwise may be filled by the 
Board of Directors for the unexpired portion of the term.

5.6    PRESIDENT.  The President shall be the chief executive 
officer of the Corporation and shall be in general charge of its business and 
affairs, subject to the control of the Board of Directors. The President 
shall preside at all meetings of shareholders and at all meetings of 
directors (unless there is an acting Chairman of the Board presiding at the 
meeting). The President may execute on behalf of the Corporation all 
contracts, agreements, stock certificates, and other instruments. The 
President shall from time to time report to the Board of Directors all 
matters within the President's knowledge affecting the Corporation that 
should be brought to the 

13

attention of the Board of Directors. The President shall vote all shares of 
stock in other corporations owned by the Corporation and is empowered to 
execute proxies, waivers of notice, consents, and other instruments in the 
name of the Corporation with respect to such stock. The President shall 
perform other duties assigned by the Board of Directors.

5.7    VICE PRESIDENTS.  In the absence of the President or in the 
event of the President's death or inability or refusal to act, the Vice 
President (or, in the event there be more than one Vice President, the Vice 
Presidents in the order designated at the time of their election, or in the 
absence of any designation, then in the order of their election), if any, 
shall perform the duties of the President and, when so acting, shall have all 
the powers of and be subject to all the restrictions upon the President. Any 
Vice President shall perform other duties assigned by the President or by the 
Board of Directors.

5.8    SECRETARY.  The Secretary shall prepare the minutes of all 
meetings of the directors and shareholders, shall have custody of the minute 
books and other records pertaining to the corporate business, and shall be 
responsible for authenticating the records of the Corporation. The Secretary 
shall countersign all instruments requiring the seal of the Corporation and 
shall perform other duties assigned by the Board of Directors. In the event 
no Vice President exists to succeed to the President under the circumstances 
set forth in Section 5.7 above, the Secretary shall make such succession.

5.9    ASSISTANT SECRETARIES.  The Assistant Secretaries, when 
authorized by the Board of Directors or these First Restated Bylaws, may 
sign, with the President or Vice President, certificates for shares of the 
Corporation the issuance of which shall have been authorized by resolution of 
the Board of Directors. The Assistant Secretaries shall, if required by the 
Board of Directors, give bonds for the faithful discharge of their duties in 
such sums and with such sureties as the Board of Directors shall determine. 
The Assistant Secretaries shall, in general, perform such duties as shall be 
specifically assigned to them in writing by the President or the Board of 
Directors.

5.10   SALARIES.  The salaries of the officers shall be fixed from 
time to time by the Board of Directors, and no officer shall be prevented 
from receiving such salary because the officer is also a director of the 
Corporation.

ARTICLE VI

ISSUANCE OF SHARES

6.1    CERTIFICATES FOR SHARES.

(a) Certificates representing shares of the Corporation shall
be in a form determined by the Board of Directors. Such certificates shall be
signed, either manually or in 

14

facsimile, by two officers of the Corporation, at least one of whom shall be 
the President or a Vice President, and may be sealed with the seal of the 
Corporation or a facsimile thereof. All certificates for shares shall be 
consecutively numbered or otherwise identified.

(b) Every certificate for shares of stock that are subject 
to any restriction on transfer pursuant to the Articles of Incorporation, 
these First Restated Bylaws, applicable securities laws, agreements among or 
between shareholders, or any agreement to which the Corporation is a party 
shall have conspicuously noted on the face or back of the certificate either 
(i) the full text of the restriction or (ii) a statement of the existence of 
such restriction and that the Corporation retains a copy of the restriction. 
Every certificate issued when the Corporation is authorized to issue more 
than one class or series of stock shall set forth on its face or back either 
(i) the full text of the designations, relative rights, preferences, and 
limitations of the shares of each class and series authorized to be issued 
and the authority of the Board of Directors to determine variations for 
future series or (ii) a statement of the existence of such designations, 
relative rights, preferences, and limitations and a statement that the 
Corporation will furnish a copy thereof to the holder of such certificate 
upon written request and without charge.

(c) The name and mailing address of the person to whom the 
shares represented thereby are issued, with the number of shares and date of 
issue, shall be entered on the stock transfer books of the Corporation. Each 
shareholder shall have the duty to notify the Corporation of his or her 
mailing address. All certificates surrendered to the Corporation for transfer 
shall be canceled, and no new certificate shall be issued until the former 
certificate for a like number of shares shall have been surrendered and 
canceled, except that in case of a lost, destroyed, or mutilated certificate 
a new one may be issued therefor upon such terms and indemnity to the 
Corporation as the Board of Directors prescribes.

6.2    TRANSFER OF SHARES.  A transfer of shares of the Corporation 
shall be made only on the stock transfer books of the Corporation by the 
holder of record thereof or by the holder's legal representative, who shall 
furnish proper evidence of authority to transfer, or by the holder's attorney 
thereunto authorized by power of attorney duly executed and filed with the 
Secretary of the Corporation. The person in whose name shares stand on the 
books of the Corporation shall be deemed by the Corporation to be the owner 
thereof for all purposes.

6.3    TRANSFER AGENT AND REGISTRAR.  The Board of Directors may 
from time to time appoint one or more transfer agents and one or more 
registrars for the shares of the Corporation, with such powers and duties as 
the Board of Directors determines by resolution. The signatures of officers 
upon a certificate may be facsimiles if the certificate is manually signed on 
behalf of a transfer agent or by a registrar other than the Corporation 
itself or an employee of the Corporation.

6.4    OFFICER CEASING TO ACT.  If the person who signed a share 
certificate, either manually or in facsimile, no longer holds office when the 
certificate is issued, the certificate is nevertheless valid.

15

ARTICLE VII

CONTRACTS, LOANS, CHECKS, AND OTHER INSTRUMENTS

7.1    CONTRACTS.  The Board of Directors may authorize any officer 
or officers and agent or agents to enter into any contract or execute and 
deliver any instrument in the name of and on behalf of the Corporation, and 
such authority may be general or confined to specific instances.

7.2    LOANS.  No loans shall be contracted on behalf of the 
Corporation and no evidence of indebtedness shall be issued in its name 
unless authorized by a resolution of the Board of Directors. Such authority 
may be general or confined to specific instances.

7.3    CHECKS; DRAFTS.  All checks, drafts, or other orders for the 
payment of money and notes or other evidences of indebtedness issued in the 
name of the Corporation shall be signed by such officer or officers and agent 
or agents of the Corporation and in such manner as shall from time to time be 
determined by resolution of the Board of Directors.

7.4    DEPOSITS.  All funds of the Corporation not otherwise 
employed shall be deposited from time to time to the credit of the 
Corporation in such banks, trust companies, or other depositories as the 
Board of Directors may select.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

8.1    SEAL.   The Board of Directors from time to time may provide 
for a seal of the Corporation, which shall be circular in form and shall have 
inscribed thereon the name of the Corporation, the state of incorporation and 
the words "Corporate Seal."

8.2    SEVERABILITY.  Any determination that any provision of these 
First Restated Bylaws is for any reason inapplicable, invalid, illegal, or 
otherwise ineffective shall not affect or invalidate any other provision of 
these First Restated Bylaws.

16

ARTICLE IX

AMENDMENTS

These First Restated Bylaws may be altered, amended, or repealed 
and new bylaws may be adopted by the Board of Directors at any regular or 
special meeting, subject to repeal or change by action of the shareholders of 
the Corporation.

------------------------------------
Bradley A. Zenger, Secretary

Adopted: February __, 2000

17

EXHIBIT 4.2

THIRD AMENDED REGISTRATION RIGHTS AGREEMENT

February 22, 2000

To each of the Investors in the Series A, Series B and Series C
Convertible Preferred Stock of Pixelworks, Inc. listed on
Exhibit A hereto (the "Investors"), the Purchasers of the Series D
Convertible Preferred Stock of Pixelworks, Inc. that execute a
counterpart signature page hereto (the "Purchasers") and to the 
Founders of Pixelworks, Inc.

Dear Sir or Madam:

This will confirm that Pixelworks, Inc., an Oregon corporation (the
"Company") covenants and agrees with each of you as follows:  

1.     CERTAIN DEFINITIONS.  As used in this Agreement, the following
terms shall have the following respective meanings:  

"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.  

"Common Stock" shall mean the Common Stock, $.001 par value, of the
Company, as constituted as of the date of this Agreement.  

"Conversion Shares" shall mean shares of Common Stock issued or issuable
(i) upon conversion of the Preferred Stock, and any shares of capital stock
received in respect thereof and (ii) upon exercise of the Warrants.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.  

"Founders" shall mean Allen H. Alley, Michael G. West, Kenneth Hunkins,
Robert Y. Greenberg and Bradley A. Zenger.

"Preferred Stock" shall mean the shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock held by the Investors listed on Exhibit A hereto and the Series D
Convertible Preferred Stock held by the Purchasers.

"Registration Expenses" shall mean the expenses so described in
Section 8.  

"Restricted Stock" shall mean (1) the Conversion Shares, excluding
Conversion Shares that have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) publicly sold
pursuant to Rule 144 under the Securities Act, and (2) for purposes of Section 5
hereof, up to 5,000,000 shares of

1 - THIRD AMENDED REGISTRATION RIGHTS AGREEMENT

Common Stock held by the Founders, but excluding shares of Common Stock that
have been (a) registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, or (b) publicly sold pursuant to Rule 144
under the Securities Act.  

"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.  

"Selling Expenses" shall mean the expenses so described in Section 8.

"Warrants" shall mean those warrants to purchase Common Stock dated
April 25, 1997 held by certain of the Investors.

2.     RESTRICTIVE LEGEND.  Each certificate representing Preferred
Stock, Conversion Shares or Restricted Stock shall, except as otherwise provided
in this Section 2 or in Section 3, be stamped or otherwise imprinted with a
legend substantially in the following form:  

"The securities represented by this certificate have not
been registered under the Securities Act of 1933 or applicable
state securities laws.  These securities have been acquired for
investment and not with a view to distribution or resale, and may
not be sold mortgaged, pledged, hypothecated or otherwise
transferred without an effective registration statement for such
securities under the Securities Act of 1933 and applicable state
securities laws, or an opinion of counsel regarding the
availability of an exemption from the registration provisions of
the Securities Act of 1933 and applicable state securities laws."

A certificate shall not bear such legend if in the opinion of counsel reasonably
satisfactory to the Company delivered in form reasonably satisfactory to the
Company, the securities being sold thereby may be publicly sold without
registration under the Securities Act.

3.     NOTICE OF PROPOSED TRANSFER.  Prior to any proposed transfer of
any Preferred Stock, Conversion Shares or Restricted Stock (other than under the
circumstances described in Sections 4, 5 or 6), the holder thereof shall give
written notice to the Company of its intention to effect such transfer.  Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, shall be accompanied by an opinion of counsel reasonably
satisfactory to the Company delivered in form reasonably satisfactory to the
Company to the effect that the proposed transfer may be effected without
registration under the Securities Act, whereupon the holder of such stock shall
be entitled to transfer such stock in accordance with the terms of its notice;
provided, however, that no such opinion of counsel shall be required for a
transfer to one or more partners of the transferor (in the case of a transferor
that is a partnership) or to an affiliated corporation (in the case of a
transferor that is a corporation).  Each certificate for Preferred Stock,
Conversion Shares or Restricted Stock transferred as above provided shall bear
the legend set forth in Section 2, except that such certificate shall not bear
such legend if (i) such transfer is in accordance with the provisions of
Rule 144 (or any other rule permitting public sale without registration under
the Securities Act) or (ii) the opinion of counsel referred to above is to the
further effect that the transferee and any subsequent transferee (other than an
affiliate of the Company) would be entitled to transfer such securities in a
public sale without registration under the Securities Act.  The restrictions

2

provided for in this Section 3 shall not apply to securities which are not
required to bear the legend prescribed by Section 2 in accordance with the
provisions of that Section.

4.     REQUIRED REGISTRATION.

a.     The holders of Restricted Stock (excluding the Founders)
constituting at least 36.5 % of the total shares of Restricted Stock (excluding
the Founders) then outstanding may request the Company to register under the
Securities Act all or any portion of the shares of Restricted Stock held by such
requesting holder or holders for sale in the manner specified in such notice,
provided that the shares of Restricted Stock for which registration has been
requested shall constitute at least 18.2% of the total shares of Restricted
Stock originally issued if such holder or holders shall request the registration
of less than all shares of Restricted Stock then held by such holder or holders
(or any lesser percentage if the reasonably anticipated aggregate price to the
public of such public offering would exceed $5,000,000).  For purposes of this
Section 4 and Sections 5, 6, 13(a) and 13(d), the term "Restricted Stock" shall
be deemed to include the number of shares of Restricted Stock that would be
issuable to a holder of Preferred Stock upon conversion of all Preferred Stock
held by such holder at such time, provided, however, that the only securities
that the Company shall be required to register pursuant hereto shall be shares
of Common Stock.

b.     Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock (excluding the
Founders) from whom notice has not been received and such holders shall then be
entitled within 30 days thereafter to request the Company to include in the
requested registration all or any portion of their shares of Restricted Stock. 
The Company shall use its best efforts to register under the Securities Act, for
public sale in accordance with the method of disposition specified in the notice
from requesting holders described in paragraph (a) above, the number of shares
of Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company).  If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed.  The Company shall be obligated to register Restricted
Stock pursuant to this Section 4 on two occasions only, PROVIDED, HOWEVER, that
such obligation shall be deemed satisfied only when a registration statement
covering all shares of Restricted Stock specified in notices received as
aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders, shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.  

c.     The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in accordance
with the method of disposition specified by the requesting holders, shares of
Common Stock to be sold by the Company for its own account, except as and to the
extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Restricted Stock to be sold.  Except for
registration statements on Form S-4, S-8 or any successor thereto, the Company
will not file with the Commission any other registration statement with respect
to its Common Stock, whether for its own account or that of other stockholders,
from the date of receipt of a notice from requesting holders pursuant to this
Section 4 until the completion of the period of distribution of the registration
contemplated thereby.  

3

d.     If in the opinion of the managing underwriter the inclusion
of all of the Restricted Stock requested to be registered under this Section
would adversely affect the marketing of such shares, after any shares to be sold
by the Company have been excluded, shares to be sold by the holders of
Restricted Stock shall be excluded in such manner that the shares to be sold
shall be allocated among the selling holders pro rata based on their ownership
of Restricted Stock.

e.     Notwithstanding the foregoing, (1) the Company shall not be
obligated to effect a registration pursuant to this Section 4 during the period
starting with the date 60 days prior to the Company=s good faith estimated date
of filing of, and ending on the date 180 days following the effective date of, a
registration statement pertaining to an underwritten public offering of
securities for account of the Company, provided the Company is at all times
during such period diligently pursuing such registration; (2) the Company shall
not be obligated to effect a registration pursuant to this Section 4 with
respect to any Restricted Stock that at the time of the request for such
registration, may be publicly sold by such holder of Restricted Stock under the
provisions of Rule 144(k) of the Securities Act and (3) the Company shall have
the right to defer initiation of any offering process for a single period of not
more than ninety (90) days after receipt of the request of the holders of
Restricted Stock requesting registration under this Section 4, if the Company
shall furnish to such holders a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed,
provided that such right to delay a request shall be exercised by the Company no
more than once in any one-year period.

5.     PIGGYBACK REGISTRATION.  If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Restricted Stock), each such time it will give written notice to all holders of
outstanding Restricted Stock of its intention so to do.  Upon the written
request of any such holder, received by the Company within 30 days after the
giving of any such notice by the Company, to register any of its Restricted
Stock, the Company will use its best efforts to cause the Restricted Stock as to
which registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by the
holder (in accordance with its written request) of such Restricted Stock so
registered.  In the event that any registration pursuant to this Section 5 shall
be, in whole or in part, an underwritten public offering of Common Stock, the
number of shares of Restricted Stock to be included in such an underwriting may
be reduced (first pro rata among the Founders based upon the number of shares of
Restricted Stock held by such Founders and next, pro rata among the requesting
holders (excluding the Founders) based upon the number of shares of Restricted
Stock held by such other requesting holders) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein,
provided, however, that such number of shares of Restricted Stock held by the
Founders or such other requesting holders shall not be reduced if any shares are
to be included in such underwriting for the account of any person other than the
Company, the Founders or such other requesting holders of Restricted Stock,
provided, further, that in no event shall the number of shares of Restricted
Stock included in the offering be reduced below twenty percent (20%) of the
total number of shares of Common Stock included in such offering, unless the
offering is the Company's initial public offering of the Company's securities in
which 

4

case the number of shares of Restricted Stock to be included by the holders 
may be reduced or eliminated entirely as set forth above. Notwithstanding the 
foregoing provisions, the Company may withdraw any registration statement 
referred to in this Section 5 without thereby incurring any liability to the 
holders of Restricted Stock.  

6.     REGISTRATION ON FORM S-3.  Subject to the limit of one 
registration hereunder in any 12 month period, if at any time (i) a holder or 
holders of Restricted Stock (excluding the Founders) then outstanding request 
that the Company file a registration statement on Form S-3 or any successor 
thereto for a public offering of all or any portion of the shares of 
Restricted Stock held by such requesting holder or holders, the reasonably 
anticipated aggregate price to the public of which would exceed $500,000, and 
(ii) the Company is a registrant entitled to use Form S-3 or any successor 
thereto to register such shares, then the Company shall use its best efforts 
to register under the Securities Act on Form S-3 or any successor thereto, 
for public sale in accordance with the method of disposition specified in 
such notice, the number of shares of Restricted Stock specified in such 
notice.  Whenever the Company is required by this Section 6 to use its best 
efforts to effect the registration of Restricted Stock, each of the 
procedures and requirements of Section 4 (including but not limited to the 
requirement that the Company notify all holders of Restricted Stock from whom 
notice has not been received and provide them with the opportunity to 
participate in the offering) shall apply to such registration, provided, 
however, that except as provided above there shall be no limitation on the 
number of registrations on Form S-3 that may be requested and obtained under 
this Section 6; and provided further, that the Company shall have the right 
to defer initiation of any filing of such a Form S-3 for a single period of 
not more than ninety (90) days after receipt of the request of the holders of 
Restricted Stock requesting registration under this Section 6, if the Company 
shall furnish to such holders a certificate signed by the President or Chief 
Executive Officer of the Company stating that in the good faith judgment of 
the Board of Directors of the Company, it would be seriously detrimental to 
the Company and its shareholders for such registration statement to be filed, 
provided that such right to delay a request shall be exercised by the Company 
no more than once in any one-year period.

7.     REGISTRATION PROCEDURES.  If and whenever the Company is required
by the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:  

a.     prepare and file with the Commission a registration
statement (which, in the case of an underwritten public offering pursuant to
Section 4, shall be on Form S-1 or other form of general applicability
satisfactory to the managing underwriter selected as therein provided) with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);  

b.     prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;

c.     furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and each such
amendment and supplement thereto (in each case including all exhibits) and the
prospectus included therein (including each preliminary prospectus) as such

5

persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;  

d.     use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Restricted Stock or, in the case of
an underwritten public offering, the managing underwriter reasonably shall
request, provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;  
e.     use its best efforts to list the Restricted Stock covered
by such registration statement with any securities exchange on which the Common
Stock of the Company is then listed; 

f.     immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Restricted Stock, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;

g.     if the offering is underwritten and at the request of any
seller of Restricted Stock, use its best efforts to furnish on the date that
Restricted Stock is delivered to the underwriters for sale pursuant to such
registration:  (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, to such effect as reasonably may be requested by counsel for the
underwriters, and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to such
seller, stating that they are independent public accountants within the meaning
of the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request;

h.     make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, reasonable access to all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement;  

i.     cooperate with the selling holders of Restricted Stock and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Restricted Stock to be sold, such
certificates to be in such denominations and registered in such names as such
holders 

6

or the managing underwriters may request at least two business days prior to 
any sale of Restricted Stock; and

j.     permit any holder of Restricted Stock which holder
reasonably believes, after consultation with its counsel, that it might be
deemed to be a controlling person of the Company, to participate in good faith
in the preparation of such registration or comparable statement and to require
the insertion therein of material, furnished to the Company in writing, which in
the reasonable judgment of such holder after consultation with counsel, should
be included.

For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.  

In connection with each registration hereunder, the sellers of Restricted
Stock will furnish to the Company in writing such information requested by the
Company with respect to themselves and the proposed distribution by them as
reasonably shall be necessary in order to assure compliance with federal and
applicable state securities laws.

In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter(s) selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.  

8.     EXPENSES.  All expenses incurred by the Company in complying with
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of any insurance which might be
obtained, and fees and disbursements of one counsel for the sellers of
Restricted Stock (which fees and disbursements of such counsel shall not exceed
in the aggregate $15,000), but excluding any Selling Expenses, are called
"Registration Expenses".  All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock are called "Selling Expenses".

The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6.  All Selling Expenses in
connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.  

9.     INDEMNIFICATION.

7

a.     In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 4, 5 or 6, the Company will
indemnify and hold harmless each seller of such Restricted Stock thereunder, its
partners, officers and directors, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller, officer,
director, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, but excluding any untrue
statement or alleged untrue statement in any preliminary prospectus which is
effectively cured by a later amendment or supplement thereof (a "Registration
Statement"); (ii) any blue sky application or other document executed by the
Company specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify any or all of the Restricted Stock under the securities laws thereof
(any such application, document or information herein called a "Blue Sky
Application"), (iii) the omission or alleged omission to state in a Registration
Statement or a Blue Sky Application a material fact required to be stated in a
Registration Statement or a Blue Sky Application or necessary to make the
statements in a Registration Statement or a Blue Sky Application not misleading,
(iv) any violation by the Company or its agents of the Securities Act, the
Exchange Act, any state securities laws or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law
applicable to the Company or its agents and relating to action or inaction
required of the Company in connection with such registration, or (v) any failure
to register or qualify the Restricted Stock in any state where the Company or
its agents has affirmatively undertaken or agreed in writing that the Company
(the undertaking of any underwriter chosen by the Company being attributed to
the Company) will undertake such registration or qualification on the seller=s
behalf (provided that in such instance the Company shall not be so liable if it
has undertaken its best efforts to so register or qualify the Restricted Stock)
and will reimburse each such seller, and such officer and director, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such seller, any affiliate of such
seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus.  

b.     In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 4, 5 or 6, each seller of
such Restricted Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Restricted Stock, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
other seller, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or any Blue Sky Application or arise out of or are based upon the
omission or alleged omission to state 

8

therein a material fact required to be stated therein or necessary to make 
the statements therein not misleading, and will reimburse the Company and 
each such officer, director, other seller, underwriter and controlling person 
for any legal or other expenses reasonably incurred by them in connection 
with investigating or defending any such loss, claim, damage, liability or 
action, provided, however, that such seller will be liable hereunder in any 
such case if and only to the extent that any such loss, claim, damage or 
liability arises out of or is based upon an untrue statement or alleged 
untrue statement or omission or alleged omission made in reliance upon and in 
conformity with information pertaining to such seller, as such, furnished in 
writing to the Company by such seller specifically for use in such 
registration statement or prospectus, and provided, further, however, that 
the liability of each seller hereunder shall be limited to the net proceeds 
received by such seller from the sale of Restricted Stock covered by such 
registration statement.  

c.     Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission.  In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that the interests of the indemnified party reasonably may be deemed
to conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.  

d.     The indemnities provided in this Section 9 shall survive
the transfer of any Restricted Stock by such holder.

e.     The obligations of the Company and each seller of
Restricted Stock under this Section 9 shall survive completion of any offering
of Restricted Stock in a registration statement and the termination of this
Agreement.  No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.

10.    CHANGES IN COMMON STOCK OR PREFERRED STOCK.  If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges

9

granted hereby shall continue with respect to the Common Stock or the 
Preferred Stock as so changed.  

11.    RULE 144 REPORTING.  With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Stock to the public without registration, at all
times after 90 days after any registration statement covering a public offering
of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:  

a.     make and keep public information available, as those terms
are understood and defined in Rule 144 or any similar or analogous rule
promulgated under the Securities Act;

b.     use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and

c.     furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.  

12.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company
represents and warrants to you as follows:  

a.     The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other agency of
government, the Fourth Amended and Restated Articles of Incorporation or Bylaws
of the Company or any provision of any indenture, agreement or other instrument
to which it or any or its properties or assets is bound, conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.  

b.     This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent, the
indemnification provisions herein may be deemed not enforceable.  

13.    MISCELLANEOUS.  

a.     All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Stock or Restricted Stock), whether so
expressed or not, provided, however, that registration rights conferred herein
on the holders of Preferred Stock or Restricted Stock shall only inure to the
benefit of a transferee of Preferred Stock or Restricted Stock if (i) there is
transferred to such transferee at least 20% of the total shares of Restricted
Stock originally issued to the holder to the direct or indirect transferor of
such transferee or (ii) such transferee is a partner, shareholder or affiliate
of a party hereto.  

10

b.     All notices, requests, consents and other communications 
hereunder shall be in writing and shall be mailed by certified or registered 
mail, return receipt requested, postage prepaid, or telexed, in the case of 
non-U.S. residents, addressed as follows:  

if to the Company or a Purchaser, at the address of such party set
forth on the signature pages hereto;

if to any other holder of Preferred Stock or Restricted Stock, to
it at such address as may be from time to time reflected in the stock books of
the Company;

or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company in accordance with the provisions of this paragraph.  

c.     This Agreement shall be construed and enforced in
accordance with and governed by the Oregon Business Corporation Act as to
matters within the scope thereof, and as to all other matters shall be governed
by and construed in accordance with the internal laws of the State of Oregon.

d.     This Agreement may not be amended or modified, and no
provision hereof may be waived, except by the written consent of the Company and
the holders of at least a majority of the outstanding shares of Restricted
Stock, which in every event must include the holders of at least 46% of the
outstanding Conversion Shares.  Notwithstanding the foregoing, no such amendment
or modification shall be effective if and to the extent that such amendment or
modification either (a) creates any additional affirmative obligations to be
complied with by any or all of the Purchasers or (b) grants to any one or more
Purchasers any rights more favorable than any rights granted to all other
Purchasers or otherwise treats any one or more Purchasers differently than all
other Purchasers unless the Company shall have received the written consent of
all of the Purchasers. 

e.     This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. 

f.     The obligations of the Company to register shares of
Restricted Stock under Sections 4, 5 or 6 shall terminate five years after
completion of an underwritten public offering of shares of Common Stock in which
the net proceeds received by the Company shall be at least $10 million.

g.     If requested in writing by the underwriters, and only with
respect to the initial underwritten public offering of securities of the
Company, each holder of Restricted Stock who is a party to this Agreement shall
agree not to sell publicly any shares of Restricted Stock or any other shares of
Common Stock (other than shares of Restricted Stock or other shares of Common
Stock being registered in such offering), without the consent of such
underwriters, for a period of not more than 180 days following the effective
date of the registration statement relating to such offering; provided, however,
that all persons entitled to registration rights with respect to shares of
Common Stock who are not parties to this Agreement and all executive officers
and directors of the Company shall also have agreed to enter into similar
agreements.  Without limiting the foregoing, it is expressly agreed that the
provisions of this Section 13(g) shall not apply to any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock acquired by a holder of Restricted Stock (other than a 

11

Founder) directly from the underwriters in a registered public offering of 
the Company's securities or in an established trading market from any party 
other than the Company.

h.     The Company shall not grant to any third party any
registration rights more favorable than any of those contained herein, so long
as any of the registration rights under this Agreement remains in effect unless
such grant is extended on the same terms to all holders of Restricted Stock.  

i.     If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.  This Agreement
amends by superseding in its entirety that certain Second Amended Registration
Rights Agreement dated as of May 28, 1999 by and among the Company, its Founders
and the Investors, and becomes effective when signed by a majority in interest
of the signatories of that agreement.

12

Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.  

Very truly yours,

Pixelworks, Inc. Address:                        PIXELWORKS, INC.

7700 S.W. Mohawk St.
Tualatin, Oregon 97062                           By:    /s/ Allen H. Alley
--------------------------
Name:      Allen H. Alley
------------------------
Title:    President & CEO
-----------------------

AGREED TO AND ACCEPTED as of the date
first above written.

FOUNDERS:

/s/ Allen H. Alley                                 /s/ Michael G. West
-------------------------------                  -----------------------------
Allen H. Alley                                   Michael G. West

/s/ Kenneth Hunkins                                /s/ Robert Y. Greenberg
-------------------------------                  -----------------------------
Kenneth Hunkins                                  Robert Y. Greenberg

/s/ Bradley A. Zenger
------------------------------
Bradley A. Zenger

AGREED TO AND ACCEPTED as of the date
first above written.

ANALOG DEVICES, INC.
Purchaser Name (Print)

By: /s/ William A. Martin
---------------------------------------
Name:   William A. Martin
-------------------------------------
Title:  Treasurer
------------------------------------

Address:  Three Technology Way
Norwood, MA 02082
----------------------------------

SIGNATURE PAGE FOR PIXELWORKS, INC. THIRD AMENDED REGISTRATION RIGHTS 
AGREEMENT

Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.  

Very truly yours,

Pixelworks, Inc. Address:                        PIXELWORKS, INC.

7700 S.W. Mohawk St.
Tualatin, Oregon 97062                           By:    
--------------------------
Name:  
------------------------
Title: 
-----------------------

AGREED TO AND ACCEPTED as of the date
first above written.

FOUNDERS:

-------------------------------                  -----------------------------
Allen H. Alley                                   Michael G. West

-------------------------------                  -----------------------------
Kenneth Hunkins                                  Robert Y. Greenberg

------------------------------
Bradley A. Zenger

AGREED TO AND ACCEPTED as of the date
first above written.

SANYO NORTH AMERICA CORPORATION
Purchaser Name (Print)

By: /s/ Hideki Yamagata
---------------------------------------
Name:   Hideki Yamagata
-------------------------------------
Title:  Senior Vice President
------------------------------------

Address:  2055 Sanyo Avenue,
San Diego, CA 92154
----------------------------------

SIGNATURE PAGE FOR PIXELWORKS, INC. THIRD AMENDED REGISTRATION RIGHTS 
AGREEMENT

Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.  

Very truly yours,

Pixelworks, Inc. Address:                        PIXELWORKS, INC.

7700 S.W. Mohawk St.
Tualatin, Oregon 97062                           By:    /s/ Allen H. Alley
--------------------------
Name:      Allen H. Alley
------------------------
Title:    President & CEO
-----------------------

AGREED TO AND ACCEPTED as of the date
first above written.

FOUNDERS:

/s/ Allen H. Alley                                 /s/ Michael G. West
-------------------------------                  -----------------------------
Allen H. Alley                                   Michael G. West

/s/ Kenneth Hunkins                                /s/ Robert Y. Greenberg
-------------------------------                  -----------------------------
Kenneth Hunkins                                  Robert Y. Greenberg

------------------------------
Bradley A. Zenger

AGREED TO AND ACCEPTED as of the date
first above written.

TOSHIBA AMERICA ELECTRONIC COMPONENTS, INC.
Purchaser Name (Print)

By: /s/ Hideo Ito
---------------------------------------
Name:   Hideo Ito
-------------------------------------
Title:  Chairman & CEO
------------------------------------

Address:  9775 Toledo Way
Irvine, CA 92618
----------------------------------

SIGNATURE PAGE FOR PIXELWORKS, INC. THIRD AMENDED REGISTRATION RIGHTS 
AGREEMENT

Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.  

Very truly yours,

Pixelworks, Inc. Address:                        PIXELWORKS, INC.

7700 S.W. Mohawk St.
Tualatin, Oregon 97062                           By:    /s/ Allen H. Alley
--------------------------
Name:      Allen H. Alley
------------------------
Title:    President & CEO
-----------------------

AGREED TO AND ACCEPTED as of the date
first above written.

FOUNDERS:

/s/ Allen H. Alley                                 /s/ Michael G. West
-------------------------------                  -----------------------------
Allen H. Alley                                   Michael G. West

/s/ Kenneth Hunkins                                /s/ Robert Y. Greenberg
-------------------------------                  -----------------------------
Kenneth Hunkins                                  Robert Y. Greenberg

------------------------------
Bradley A. Zenger

AGREED TO AND ACCEPTED as of the date
first above written.

SEIKO EPSON CORPORATION
Purchaser Name (Print)

By: /s/ Katsuya Imaya
---------------------------------------
Name:   Katsuya Imaya
-------------------------------------
Title:  Managing Director
------------------------------------

Address:  3-5, Onya 3-chome, Suwa-shi,
Nagano-ken, 392-8502 Japan
----------------------------------

SIGNATURE PAGE FOR PIXELWORKS, INC. THIRD AMENDED REGISTRATION RIGHTS 
AGREEMENT

Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.  

Very truly yours,

Pixelworks, Inc. Address:                        PIXELWORKS, INC.

7700 S.W. Mohawk St.
Tualatin, Oregon 97062                           By: 
--------------------------
Name:
------------------------
Title:
-----------------------

AGREED TO AND ACCEPTED as of the date
first above written.

FOUNDERS:

-------------------------------                  -----------------------------
Allen H. Alley                                   Michael G. West

-------------------------------                  -----------------------------
Kenneth Hunkins                                  Robert Y. Greenberg

------------------------------
Bradley A. Zenger

AGREED TO AND ACCEPTED as of the date
first above written.

VIEWSONIC CORPORATION
Purchaser Name (Print)

By: /s/ Jeremiah R. Kanaly
---------------------------------------
Name:   Jeremiah R. Kanaly
-------------------------------------
Title:  Chief Financial Officer
------------------------------------

Address:  381 Brea Canyon Road
Walnut, California 91789
----------------------------------

SIGNATURE PAGE FOR PIXELWORKS, INC. THIRD AMENDED REGISTRATION RIGHTS 
AGREEMENT

Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.  

Very truly yours,

Pixelworks, Inc. Address:                        PIXELWORKS, INC.

7700 S.W. Mohawk St.
Tualatin, Oregon 97062                           By:    /s/ Allen H. Alley
--------------------------
Name:      Allen H. Alley
------------------------
Title:    President & CEO
-----------------------

AGREED TO AND ACCEPTED as of the date
first above written.

FOUNDERS:

/s/ Allen H. Alley                                 /s/ Michael G. West
-------------------------------                  -----------------------------
Allen H. Alley                                   Michael G. West

/s/ Kenneth Hunkins                                /s/ Robert Y. Greenberg
-------------------------------                  -----------------------------
Kenneth Hunkins                                  Robert Y. Greenberg

------------------------------
Bradley A. Zenger

AGREED TO AND ACCEPTED as of the date
first above written.

CPQ Holdings, Inc.
Purchaser Name (Print)

By: /s/ Michael J. Winkler
---------------------------------------
Name:   Michael J. Winkler
-------------------------------------
Title:  Vice President
------------------------------------

Address:  20555 SH 249
Houston, TX 77070-2698
----------------------------------

SIGNATURE PAGE FOR PIXELWORKS, INC. THIRD AMENDED REGISTRATION RIGHTS 
AGREEMENT

EXHIBIT A

Battery Ventures IV, L.P.
Battery Investment Partners IV, LLC
20 William Street
Wellesley, MA 02181
Attn: Oliver D. Curme

Enterprise Development Fund II
425 North Main Street
Ann Arbor, MI 48104
Attn: Mary L. Campbell

Sequoia Capital VII
Sequoia Technology Partners VII
SQP 1997
Sequoia 1997 LLC
Sequoia International Partners
Sequoia Capital Franchise Fund
Sequoia Capital Franchise Partners
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Barbara Russell

Timark L.P.
c/o Frank Marshall
14585 Big Basin Way
Saratoga, CA 95070

Stanford University
2770 Sand Hill Road
Menlo Park, CA 94025
Attn: Carol Gilmer

Charter Growth Capital, L.P.
Charter Growth Capital Co-Investment
Fund, L.P.
CGC Investors, L.P.
525 University Avenue, Suite 1400
Palo Alto, CA  94301
Attn: Kevin McQuillan

EXHIBIT 10.1

INDEMNITY AGREEMENT

This Indemnity Agreement (the "Agreement") is entered into as 
of ___________, 2000 (the "Effective Date") by and between Pixelworks, Inc., 
an Oregon corporation (the "Corporation"), and ___________________________ 
("Indemnitee"), an officer [a director] of the Corporation.

RECITALS

A.     It is essential to the Corporation to retain and attract as 
directors and officers the most capable persons available.  The Corporation, 
however, is aware that the increase in corporate litigation subjects 
directors and officers to expensive litigation risks resulting from their 
service to the Corporation.

B.     It continues to be the express policy of the Corporation to 
indemnify its directors and officers so as to provide them with the maximum 
possible protection permitted by law from the costs and expenses of such 
litigation risks.  Additionally, the Corporation's Fifth Amended and Restated 
Articles of Incorporation and First Restated Bylaws require it to indemnify 
its officers and directors to the fullest extent permitted by the Oregon 
Business Corporation Act (the "Act"), which contemplates that contracts may 
be entered into between the Corporation and its Directors and officers with 
respect to indemnification.

C.     The Corporation desires and has requested the Indemnitee to 
serve or continue to serve as a director or officer free from undue concern 
for claims for damages arising out of or related to such services to the 
Corporation.

THEREFORE, the Corporation and Indemnitee agree as follows:

1.     AGREEMENT TO SERVE.  Indemnitee agrees to serve or continue to 
serve as a director or officer of the Corporation for so long as Indemnitee 
is duly elected or appointed or until Indemnitee tenders a resignation in 
writing.

2.     DEFINITIONS.  As used in this Agreement:

(a)    The term "Proceeding" shall include any threatened, 
pending or completed action, suit or completed action, suit or proceeding, 
whether brought in the right of the Corporation or otherwise and whether of a 
civil, criminal, administrative or investigative nature, in which Indemnitee 
may be or may have been involved as a party or otherwise by reason of the 
fact that Indemnitee is or was a director or officer of the Corporation or is 
or was serving at the request of the Corporation as a director, officer, 
employee or agent of another corporation, 

1 - INDEMNITY AGREEMENT

partnership, joint venture, trust or other enterprise, whether or not serving 
in such capacity at the time any liability or expense is incurred for which 
indemnification or reimbursement can be provided under this Agreement.

(b)    The term "Expenses" includes, without limitation, 
expense of investigations, judicial or administrative proceedings or appeals, 
attorneys' fees and disbursements and any expenses of establishing a right to 
indemnification under Section 11 of this Agreement, but shall not include 
amounts paid in settlement by Indemnitee or the amount of judgments or fines 
against Indemnitee.

(c)    References to "other enterprise" shall include employee 
benefit plans; references to "fines" shall include any excise tax assessed 
with respect to any employee benefit plan; references to "serving at the 
request of the Corporation" shall include any service as a director, officer, 
employee or agent of the Corporation which imposes duties on, or involves 
services by, such director, officer, employee or agent with respect to an 
employee benefit plan, its participants or beneficiaries; and a person who 
acted in good faith and in a manner reasonably believed to be in the interest 
of an employee benefit plan shall be deemed to have acted in a manner "not 
opposed to the best interests of the Corporation" as referred to in this 
Agreement.

3.     INDEMNITY IN THIRD-PARTY PROCEEDINGS.  The Corporation shall 
indemnify Indemnitee in accordance with the provisions of this Section 3 if 
Indemnitee is a party to or threatened to be made a party to any Proceeding 
(other than a Proceeding by or in the right of the Corporation to procure a 
judgment in its favor) against all Expenses, judgments, fines and amounts 
paid in settlement actually and reasonably incurred by Indemnitee in 
connection with such Proceeding, but only if Indemnitee acted in good faith 
and in a manner which Indemnitee reasonably believed to be in or not opposed 
to the best interests of the Corporation and, in the case of a criminal 
proceeding, in addition, had no reasonable cause to believe that Indemnitee's 
conduct was unlawful.

4.     INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. 
The Corporation shall indemnify Indemnitee in accordance with the provisions 
of this Section 4 if Indemnitee is a party to or threatened to be made a 
party to any Proceeding by or in the right of the Corporation to procure a 
judgment in its favor against all Expenses actually and reasonably incurred 
by Indemnitee in connection with the defense or settlement of such 
Proceeding, but only if Indemnitee acted in good faith and in a manner which 
Indemnitee reasonably believed to be in or not opposed to the best interests 
of the Corporation, except that no indemnification for Expenses shall be made 
under this Section 4 in respect of any claim, issue or matter as to which 
such person shall have been finally adjudged by a court to be liable to the 
Corporation, unless and only to the extent that any court in which such 
Proceeding was brought shall determine upon application that, despite the 
adjudication of liability but in view of all the circumstances of the case, 
Indemnitee is fairly and reasonably entitled to indemnity.

2

5.     INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY.  
Notwithstanding any other provisions of this Agreement, to the extent that 
Indemnitee has been successful, on the merits or otherwise, in defense of any 
Proceeding or in defense of any claim, issue or matter therein, including the 
dismissal of an action without prejudice, Indemnitee shall be indemnified 
against all Expenses incurred in connection therewith.

6.     ADDITIONAL INDEMNIFICATION.

(a)    Notwithstanding any limitation in Sections 3, 4 or 5, 
the Corporation shall indemnify Indemnitee to the fullest extent permitted by 
law if Indemnitee is a party to or threatened to be made a party to any 
Proceeding (including a Proceeding by or in the right of the Corporation to 
procure a judgment in its favor) against all Expenses, judgments, fines and 
amounts paid in settlement actually and reasonably incurred by Indemnitee in 
connection with such Proceeding, provided that no indemnity shall be made 
under this Section 6(a) on account of Indemnitee's conduct which constitutes 
a breach of Indemnitee's duty of loyalty to the Corporation or its 
stockholders or is an act or omission not in good faith or which involves 
intentional misconduct or a knowing violation of the law.

(b)    Notwithstanding any limitation in Sections 3, 4 or 5, 
the Corporation shall indemnify Indemnitee to the fullest extent permitted by 
law if Indemnitee is a party to or threatened to be made a party to any 
Proceeding (including a Proceeding by or in the right of the Corporation to 
procure a judgment in its favor) against all Expenses, judgments, fines and 
amounts paid in settlement actually and reasonably incurred by Indemnitee in 
connection with such Proceeding.

(c)    For purposes of Sections 6(a) and Sections 6(b), the 
meaning of the phrase "to the fullest extent permitted by law" shall include, 
but not be limited to:

(i)    to the fullest extent permitted by the provision 
of the Act that authorizes or contemplates additional indemnification by 
agreement, or the corresponding provision of any amendment to or replacement 
of the Act, and

(ii)   to the fullest extent authorized or permitted by 
any amendments to or replacements of the Act adopted after the date of this 
Agreement that increase the extent to which a corporation may indemnify its 
officers and directors.

7.     EXCLUSIONS.  Notwithstanding any provision in this Agreement, 
the Corporation shall not be obligated under this Agreement to make any 
indemnity in connection with any claim made against Indemnitee:

(a)    for which payment has actually been made to or on behalf 
of Indemnitee under any insurance policy or other indemnity provision, except 
with respect to any excess beyond the amount paid under such insurance or 
other indemnity provision;

3

(b)    for any transaction from which Indemnitee derived an 
improper personal benefit;

(c)    for an accounting of profits made from the purchase and 
sale by Indemnitee of securities of the Corporation within the meaning of 
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto 
or similar provisions of any state statutory law or common law;

(d)    if a court having jurisdiction in the matter shall 
finally determine that such indemnification is not lawful under any 
applicable statute or public policy (and, in this respect, both the 
Corporation and Indemnitee have been advised that the Securities and Exchange 
Commission believes that indemnification for liabilities arising under the 
federal securities laws is against public policy and is, therefore, 
unenforceable and that claims for indemnification should be submitted to 
appropriate courts for adjudication); or

(e)    in connection with any Proceeding (or part thereof) 
initiated by Indemnitee, or any Proceeding by Indemnitee against the 
Corporation or its directors, officers, employees or other indemnitees, 
unless (i) such indemnification is expressly required to be made by law, (ii) 
the Proceeding was authorized by the Board of Directors of the Corporation, 
(iii) such indemnification is provided by the Corporation, in its sole 
discretion, pursuant to the powers vested in the Corporation under applicable 
law, or (iv) the Proceeding is initiated pursuant to Section 11 hereof and 
Indemnitee is successful in whole or in part in such Proceeding.

8.     ADVANCES OF EXPENSES.  The Expenses incurred by Indemnitee in 
any Proceeding shall be paid by the Corporation in advance at the written 
request of Indemnitee, if Indemnitee:

(a)    furnishes the Corporation a written affirmation of the 
Indemnitee's good faith belief that Indemnitee is entitled to be indemnified 
by the Corporation under this Agreement; and

(b)    furnishes the Corporation a written undertaking to repay 
such advance to the extent that it is ultimately determined by a court that 
Indemnitee is not entitled to be indemnified by the Corporation.  Such 
advances shall be made without regard to Indemnitee's ability to repay such 
expenses and without regard to Indemnitee's ultimate entitlement to 
indemnification under the other provisions of this Agreement.

9.     NOTIFICATION AND DEFENSE OF CLAIM.  Not later than twenty (20) 
days after receipt by Indemnitee of notice of the commencement of any 
Proceeding, Indemnitee will, if a claim in respect thereof is to be made 
against the Corporation under this Agreement, notify the Corporation of the 
commencement thereof; provided, however, that the omission to notify the 
Corporation will not relieve the Corporation from any liability which it may 
have to Indemnitee 

4

otherwise than under this Agreement.  With respect to any such Proceeding as 
to which Indemnitee notifies the Corporation of the commencement thereof:    

(a)    The Corporation will be entitled to participate therein 
at its own expense.

(b)    Except as otherwise provided below, the Corporation may, 
at its option and jointly with any other indemnifying party similarly 
notified and electing to assume such defense, assume the defense thereof, 
with legal counsel reasonably satisfactory to Indemnitee.  Indemnitee shall 
have the right to employ separate counsel in such Proceeding, but the 
Corporation shall not be liable to Indemnitee under this Agreement, including 
Section 8 hereof, for the fees and expenses of such counsel incurred after 
notice from the Corporation of its assumption of the defense, unless (i) 
Indemnitee reasonably concludes that there may be a conflict of interest 
between the Corporation and Indemnitee in the conduct of the defense of such 
Proceeding or (ii) the Corporation does not employ counsel to assume the 
defense of such Proceeding.  The Corporation shall not be entitled to assume 
the defense of any Proceeding brought by or on behalf of the Corporation or 
as to which Indemnitee shall have made the conclusion provided for in (i) 
above.

(c)    If two or more persons who may be entitled to 
indemnification from the Corporation, including the Indemnitee, are parties 
to any Proceeding, the Corporation may require Indemnitee to engage the same 
legal counsel as the other parties.  Indemnitee shall have the right to 
employ separate legal counsel in such Proceeding, but the Corporation shall 
not be liable to Indemnitee under this Agreement, including Section 8 hereof, 
for the fees and expenses of such counsel incurred after notice from the 
Corporation of the requirement to engage the same counsel as other parties, 
unless the Indemnitee reasonably concludes that there may be a conflict of 
interest between Indemnitee and any of the other parties required by the 
Corporation to be represented by the same legal counsel.

(d)    The Corporation shall not be liable to indemnify 
Indemnitee under this Agreement for any amounts paid in settlement of any 
Proceeding effected without its written consent, which shall not be 
unreasonably withheld. The Corporation shall be permitted to settle any 
Proceeding the defense of which it assumes, except the Corporation shall not 
settle any action or claim in any manner which would impose any penalty or 
limitation on Indemnitee without Indemnitee's written consent, which may be 
given or withheld in Indemnitee's sole discretion.

10.    PROCEDURE UPON APPLICATION FOR INDEMNIFICATION.  Any 
indemnification under Sections 3, 4, 5 or 6 of this Agreement shall be made 
no later than 90 days after receipt of the written request of Indemnitee for 
such indemnification and shall not require that a determination be made in 
accordance with the Act by the persons specified in the Act that 
indemnification is required under this Agreement; provided, however, that, 
unless it is ordered by a court in an enforcement action under Section 11 of 
this Agreement, no such indemnification shall be made if a determination is 
made within such 90-day period by (a) the Board of Directors by a majority 
vote of a quorum consisting of directors who were not parties to such 
Proceeding, or (b) independent

5

legal counsel in a written opinion (which counsel shall be appointed if such 
a quorum is not obtainable), that the Indemnitee is not entitled to 
indemnification under this Agreement.

11.    ENFORCEMENT.  Any right to indemnification or advances granted 
by this Agreement to Indemnitee shall be enforceable by or on behalf of 
Indemnitee in any court of competent jurisdiction if (i) the claim for 
indemnification or advances is denied, in whole or in part, or (ii) no 
disposition of such claim is made within 90 days of a written request 
therefor.  Indemnitee, in such enforcement action, if successful in whole or 
in part, shall be entitled to be paid also the expense of prosecuting the 
claim.  It shall be a defense to any such enforcement action (other than an 
action brought to enforce a claim for advancement of expenses pursuant to 
Section 8 hereof if the required affirmation and undertaking have been 
tendered to the Corporation) that Indemnitee is not entitled to 
indemnification under this Agreement, but the burden of proving such defense 
shall be on the Corporation.  Neither the failure of the Corporation 
(including its Board of Directors or its shareholders) to make a 
determination prior to the commencement of such enforcement action that 
indemnification of Indemnitee is proper in the circumstances, nor an actual 
determination by the Corporation (including its Board of Directors or its 
shareholders) that such indemnification is improper shall be a defense to the 
action or create a presumption that Indemnitee is not entitled to 
indemnification under this Agreement or otherwise.  The termination of any 
Proceeding by judgment, order of court, settlement, conviction or upon a plea 
of nolo contendere, or its equivalent, shall not, of itself, create a 
presumption that Indemnitee is not entitled to indemnification under this 
Agreement or otherwise.

12.    PARTIAL INDEMNIFICATION.  If Indemnitee is entitled under any 
provisions of this Agreement to indemnification by the Corporation for some 
or a portion of the Expenses, judgments, fines and amounts paid in settlement 
actually and reasonably incurred by Indemnitee in the investigation, defense, 
appeal or settlement of any Proceeding but not, however, for the total amount 
thereof, the Corporation shall indemnify Indemnitee for the portion of such 
Expenses, judgments, fines and amounts paid in settlement to which Indemnitee 
is entitled.

13.    NON-EXCLUSIVITY AND CONTINUITY OF RIGHTS.  The indemnification 
provided by this Agreement shall not be deemed exclusive of any other rights 
to which Indemnitee may be entitled under the articles of incorporation, the 
bylaws, any other agreement, any vote of shareholders or directors, the Act, 
or otherwise, both as to action in Indemnitee's official capacity and as to 
action in another capacity while holding such office.  The indemnification 
under this Agreement shall continue as to Indemnitee even though Indemnitee 
ceases to be a director or officer and shall inure to the benefit of the 
heirs and personal representatives of Indemnitee.

14.    SEVERABILITY.  If this Agreement or any portion thereof is 
invalidated on any ground by any court of competent jurisdiction, the 
Corporation shall indemnify Indemnitee as to Expenses, judgments, fines and 
amounts paid in settlement with respect to any Proceeding to the full extent 
permitted by any applicable portion of this Agreement that is not invalidated 
or by any other applicable law.

6

15.    SUBROGATION.  In the event of payment under this Agreement, the 
Corporation shall be subrogated to the extent of such payment to all of the 
rights of recovery of Indemnitee, who shall execute all documents required 
and shall do all acts necessary to secure such rights and to enable the 
Corporation effectively to bring suit to enforce such rights.

16.    MODIFICATION AND WAIVER.  No supplement, modification or 
amendment of this Agreement shall be binding unless executed in writing by 
both of the parties hereto.  No waiver of any of the provisions of this 
Agreement shall constitute a waiver of any other provisions hereof (whether 
or not similar) nor shall such waiver constitute a continuing waiver.

17.    NOTICES.  All notices, requests, demands and other 
communications hereunder shall be in writing and shall be deemed to have been 
duly given (i) if delivered by hand and receipted for by the party to whom 
the notice or other communication was sent, or (ii) if mailed by certified or 
registered mail with postage prepaid on the third business day after deposit 
into the United States mail:

(a)    If to Indemnitee, at the address indicated on the 
signature page hereof.

(b)    If to the Corporation, to:

Pixelworks, Inc.
7700 SW Mohawk       
Tualatin, OR 972
Attn: Chief Executive Officer
Telephone: (503) 612-6700
Facsimile: (503) 612-6713

With a copy to:

William C. Campbell, Esq.
Ater Wynne LLP
222 SW Columbia, Suite 1800
Portland, OR 97201
Telephone: (503) 226-1191
Facsimile: (503) 226-0079

or to such other address as may have been furnished to Indemnitee by the 
Corporation.

18.    COUNTERPARTS.  This Agreement may be executed in any number of 
counterparts, each of which shall constitute the original.

7

19.    APPLICABLE LAW; JURISDICTION.  This Agreement will be governed 
by and construed in accordance with the law of the State of Oregon.  The 
parties agree that the U.S. District Court for the District of Oregon, or the 
Circuit Court of Multnomah County, Oregon will be the exclusive venue and 
shall have exclusive jurisdiction over any action at law relating to the 
subject matter or interpretation of this Agreement.  The parties have 
considered all relevant factors relating to venue and jurisdiction with their 
respective counsel and have concluded that the courts of Oregon are the only 
appropriate choice for any litigation by and between the parties. 

20.    SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon 
the Corporation, its successors and assigns.

INDEMNITEE                                  PIXELWORKS, INC.

By:_______________________________
Title:____________________________

(Print Name)

Address:_______________________

8

EXHIBIT 10.2

PIXELWORKS, INC.

1997 STOCK INCENTIVE PLAN

1.     PURPOSES OF THE PLAN.  The purposes of this Stock Incentive Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees and
Consultants of the Company and to promote the success of the Company's business.

Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"nonqualified stock options," at the discretion of the Board and as reflected in
the terms of the written option agreement.  In addition, shares of the Company's
Common Stock may be Sold hereunder independent of any Option grant.

2.     DEFINITIONS.  As used herein, the following definitions shall
apply:

(a)    "ADMINISTRATOR" shall mean the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4.(a)
of the Plan.

(b)    "BOARD" shall mean the Board of Directors of the Company.

(c)    "CODE" shall mean the Internal Revenue Code of 1986, as
amended.

(d)    "COMMITTEE" shall mean a committee appointed by the Board
in accordance with Section 4.(a) of the Plan.

(e)    "COMMON STOCK" shall mean the Common Stock of the Company.

(f)    "COMPANY" shall mean Pixelworks, Inc. an Oregon
corporation.

(g)    "CONSULTANT" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services and any Director of the Company whether
compensated for such services or not.

(h)    "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption or termination of service as an Employee or
Consultant.  Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) any sick leave, military leave, or
any other leave of absence approved by the Company ; provided, however, that for
purposes of Incentive Stock Options, any such leave is for a period of not more
than ninety days or reemployment upon the expiration of such leave is guaranteed
by contract or statute, provided, further, that on the ninety-first day of such
leave (where re-employment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall automatically convert to a Nonqualified
Stock Option; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.

1

(i)    "DIRECTOR" shall mean a member of the Board.
(j)    "DISABILITY" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code.

(k)    "EMPLOYEE" shall mean any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary.  Neither the
payment of a director's fee by the Company nor service as a Director shall be
sufficient to constitute "employment" by the Company.

(l)    "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.

(m)    "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.

(n)    "NONQUALIFIED STOCK OPTION" shall mean an Option not
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code.  

(o)    "NOTICE OF GRANT" shall mean a written notice evidencing
certain terms and conditions of an individual Option grant.  The Notice of Grant
is part of the Option Agreement.

(p)    "OFFICER" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

(q)    "OPTION" shall mean a stock option granted pursuant to the
Plan.

(r)    "OPTION AGREEMENT" shall mean a written agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant.  The Option Agreement is subject to the terms and conditions of
the Plan.

(s)    "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.

(t)    "OPTIONEE" shall mean an Employee or Consultant who
receives an Option.

(u)    "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

(v)    "PLAN" shall mean this 1997 Stock Incentive Plan.

(w)    "RULE 16b-3"  shall mean Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.

(x)    "SALE" or "SOLD" shall include, with respect to the sale of
Shares under the Plan, the sale of Shares for consideration in the form of cash
or notes, as well as a grant of Shares for consideration in the form of past or
future services.

(y)    "SHARE" shall mean a share of the Common Stock, as adjusted
in accordance with Section 11 of the Plan.

2

(z)    "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.

3.     STOCK SUBJECT TO THE PLAN.  Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and/or Sold under the Plan is 9,226,744 shares of Common Stock.  The
Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
Option grants and/or Sales under the Plan; provided, however, that Shares that
have actually been issued under the Plan shall not be returned to the Plan and
shall not become available for future distribution under the Plan.

4.     ADMINISTRATION OF THE PLAN.

(a)    PROCEDURE.

(i)    MULTIPLE ADMINISTRATIVE BODIES.  If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are neither
Directors nor Officers.

(ii)   ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS SUBJECT TO SECTION 16(b).  With respect to Option grants made to
Employees who are also Officers or Directors subject to Section 16(b) of the
Exchange Act, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3, or (B) a Committee designated
by the Board to administer the Plan, which Committee shall be constituted to
comply with the rules, if any, governing a plan intended to qualify as a
discretionary plan under Rule 16b-3.  Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.  From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the rules, if any, governing a plan intended to qualify as a
discretionary plan under Rule 16b-3.  With respect to persons subject to Section
16 of the Exchange Act, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3.  To the extent any provision of the
Plan or action by the Administrator fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Administrator.

(iii)  ADMINISTRATION WITH RESPECT TO OTHER PERSONS.  With
respect to Option grants made to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall be
constituted to satisfy the legal requirements relating to the administration of
stock option plans under applicable corporate and securities laws and the Code. 
Once appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board.  The Board may increase the size of the
Committee and appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly administer the Plan, all to the
extent permitted by the legal requirements relating to the administration of
stock option plans under state corporate and securities laws and the Code.

3

(b)    POWERS OF THE ADMINISTRATOR.  Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:  

(i)    to grant Incentive Stock Options in accordance with
Section 422 of the Code, or Nonqualified Stock Options; 

(ii)   to authorize Sales of Shares of Common Stock
hereunder; 

(iii)  to determine, upon review of relevant information
and in accordance with Section 8.(b) of the Plan, the fair market value of the
Common Stock; 

(iv)   to determine the exercise/purchase price per Share
of Options to be granted or Shares to be Sold, which exercise/purchase price
shall be determined in accordance with Section 8.(a) of the Plan; 

(v)    to determine the Employees or Consultants to whom,
and the time or times at which, Options shall be granted and the number of
Shares to be represented by each Option; 

(vi)   to determine the Employees or Consultants to whom,
and the time or times at which, Shares shall be Sold and the number of Shares to
be Sold; 

(vii)  to interpret the Plan; 

(viii) to prescribe, amend and rescind rules and
regulations relating to the Plan; 

(ix)   to determine the terms and provisions of each Option
granted (which need not be identical) and, with the consent of the holder
thereof, modify or amend each Option; 

(x)    to determine the terms and provisions of each Sale
of Shares (which need not be identical) and, with the consent of the purchaser
thereof, modify or amend each Sale; 

(xi)   to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; 

(xii)  to accelerate or defer (with the consent of the
Optionee or purchaser of Shares) the vesting restrictions applicable to Shares
Sold under the Plan or pursuant to Options granted under the Plan; 

(xiii) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option or Sale of
Shares previously granted or authorized by the Board; 

(xiv)  to determine the restrictions on transfer, vesting
restrictions, repurchase rights, or other restrictions applicable to Shares
issued under the Plan; 

(xv)   to effect, at any time and from time to time, with
the consent of the affected Optionees, the cancellation of any or all
outstanding Options under the Plan and to grant in substitution 

4

therefor new Options under the Plan covering the same or different numbers of 
Shares, but having an Option price per Share consistent with the provisions 
of Section 8 of this Plan as of the date of the new Option grant; 

(xvi)  to establish, on a case-by-case basis, different
terms and conditions pertaining to exercise or vesting rights upon termination
of employment, whether at the time of an Option grant or Sale of Shares, or
thereafter;

(xvii) to approve forms of agreement for use under the
Plan; 

(xviii) to reduce the exercise price of any Option to the
then current fair market value if the fair market value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; 

(xix)  to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock; and

(xx)   to make all other determinations deemed necessary or
advisable for the administration of the Plan.

(c)    EFFECT OF ADMINISTRATOR'S DECISION.  All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options granted under the
Plan or Shares Sold under the Plan.

5.     ELIGIBILITY.

(a)    PERSONS ELIGIBLE.  Options may be granted and/or Shares
Sold only to Employees and Consultants.  Incentive Stock Options may be granted
only to Employees.  An Employee or Consultant who has been granted an Option or
Sold Shares may, if he or she is otherwise eligible, be granted an additional
Option or Options or Sold additional Shares.

(b)    ISO LIMITATION.  To the extent that the aggregate fair
market value: (i) of Shares subject to an Optionee's Incentive Stock Options
granted by the Company, any Parent or Subsidiary, which (ii) become exercisable
for the first time during any calendar year (under all plans of the Company or
any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated
as Nonqualified Stock Options.  For purposes of this Section 5(b), Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the fair market value of the Shares shall be determined as of the
time of grant.

(c)    SECTION 5.(b) LIMITATIONS.  Section 5.(b) of the Plan shall
apply only to an Incentive Stock Option evidenced by an Option Agreement which
sets forth the intention of the Company and the Optionee that such Option shall
qualify as an Incentive Stock Option.  Section 5.(b) of the Plan shall not apply
to any Option evidenced by a Option Agreement which sets forth the intention of
the Company and the Optionee that such Option shall be a Nonqualified Stock
Option.

(d)    NO RIGHT TO CONTINUED EMPLOYMENT.  The Plan shall not
confer upon any Optionee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate his employment or
consulting relationship at any time, with or without cause.

5

(e)    OTHER LIMITATIONS.  The following limitations shall apply
to grants of Options to Employees:

(i)    No Employee shall be granted, in any fiscal year of
the Company, Options to purchase more than 300,000 Shares.

(ii)   In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 300,000 Shares
which shall not count against the limit set forth in subsection (i) above.

(iii)  The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.

(iv)   If an Option is canceled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option shall be counted against the
limits set forth in subsections (i) and (ii) above.  For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.

6.     TERM OF PLAN.  The Plan shall become effective upon the earlier 
to occur of its adoption by the Board or its approval by the shareholders of 
the Company as described in Section 17 of the Plan.  It shall continue in 
effect for a term of ten (10) years, unless sooner terminated under Section 
13 of the Plan. 

7.     TERM OF OPTION.  The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant.  However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years from
the date of grant thereof or such shorter term as may be provided in the Notice
of Grant.

8.     EXERCISE/PURCHASE PRICE AND CONSIDERATION.

(a)    EXERCISE/PURCHASE PRICE.  The per-Share exercise/purchase
price for the Shares to be issued pursuant to exercise of an Option or a Sale
shall be such price as is determined by the Administrator, but shall be subject
to the following:

(i)    In the case of an Incentive Stock Option

(A)    granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the fair market value per Share on the date of the
grant.

(B)    granted to any other Employee, the per Share
exercise price shall be no less than one hundred percent (100%) of the fair
market value per Share on the date of grant.

6

(ii)  In the case of a Nonqualified Stock Option or Sale,
the per Share exercise/purchase price shall be determined by the Administrator.

(iii)  Any determination to establish an Option exercise
price or effect a Sale of Common Stock at less than fair market value on the
date of the Option grant or authorization of Sale shall be accompanied by an
express finding by the Administrator specifying that the sale is in the best
interest of the Company, and specifying both the fair market value and the
Option exercise price or Sale price of the Common Stock.

(b)    FAIR MARKET VALUE.  The fair market value per Share shall
be determined by the Administrator in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the closing price of the Common Stock (or the closing bid if no
sales were reported) for the last market trading day prior to the date of grant
of the Option or authorization of Sale or other determination, as reported in
THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation (NASDAQ) System)
or, in the event the Common Stock is listed on a stock exchange, the fair market
value per Share shall be the closing price on such exchange for the last market
trading day prior to the date of grant of the Option or authorization of Sale or
other determination, as reported in THE WALL STREET JOURNAL. 

(c)    CONSIDERATION.  The consideration to be paid for the Shares
to be issued upon exercise of an Option or pursuant to a Sale, including the
method of payment, shall be determined by the Administrator.  In the case of an
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant.  Such consideration may consist of:

(i)    cash;

(ii)   check;

(iii)  promissory note;

(iv)   transfer to the Company of Shares which 

(A)  in the case of Shares acquired upon exercise of
an Option, have been owned by the Optionee for more than six months on the date
of surrender, and 

(B)  have a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares to be acquired; 

(v)    delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price;

(vi)   such other consideration and method of payment for
the issuance of Shares to the extent permitted by legal requirements relating to
the administration of stock option plans and issuances of capital stock under
applicable corporate and securities laws and the Code; or

(vii)  any combination of the foregoing methods of payment.

7

If the fair market value of the number of whole Shares transferred or the
number of whole Shares surrendered is less than the total exercise price of the
Option, the shortfall must be made up in cash or by check.  Notwithstanding the
foregoing provisions of this Section 8.(c), the consideration for Shares to be
issued pursuant to a Sale may not include, in whole or in part, the
consideration set forth in subsections (iv) and (v) above.

9.     EXERCISE OF OPTION.

(a)    PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.  Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company.  Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under the Option Agreement and
Section 8.(c) of the Plan.  Each Optionee who exercises an Option shall, upon
notification of the amount due (if any) and prior to or concurrent with delivery
of the certificate representing the Shares, pay to the Company amounts necessary
to satisfy applicable federal, state and local tax withholding requirements.  An
Optionee must also provide a duly executed copy of any stock transfer agreement
then in effect and determined to be applicable by the Administrator.  Until the
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock
represented by such stock certificate, notwithstanding the exercise of the
Option.  No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.

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

(b)    TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.  In
the event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within such period of time as is
determined by the Administrator, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant). 
In the case of an Incentive Stock Option, the Administrator shall determine such
period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted.  If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. 
If, after termination, the Optionee does not exercise his or her Option with the
time specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

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(c)    DISABILITY OF OPTIONEE.  In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant).  If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. 
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

(d)    DEATH OF OPTIONEE.  In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death.  If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. 
If, after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.

(e)    RULE 16b-3.  Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.

(f)    BUYOUT PROVISIONS.  The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.

10.    NONTRANSFERABILITY OF OPTIONS.  Except as otherwise specifically
provided in the Option Agreement, an Option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will, or by
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee only by the Optionee or, if incapacitated, by his or her legal
guardian or legal representative.

11.    ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.  

(a)    CHANGES IN CAPITALIZATION: Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or Sales made or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration."  Such 

9

adjustment shall be made by the Administrator, whose determination in that 
respect shall be final, binding and conclusive.  Except as expressly provided 
herein, no issuance by the Company of shares of stock of any class, or 
securities convertible into shares of stock of any class, shall affect, and 
no adjustment by reason thereof shall be made with respect to, the number or 
price of shares of Common Stock subject to an Option.  

(b)    DISSOLUTION OR LIQUIDATION.  In the event of the proposed
dissolution or liquidation of the Company, each outstanding Option will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator.  The Administrator may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable.  

(c)    MERGER OR ASSET SALE.  In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a Parent or Subsidiary of such successor corporation, unless the
Administrator determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, that the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable.  If the Administrator makes
an Option fully exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee that
the Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice or such shorter period as the Administrator may specify in
the notice, and the Option will terminate upon the expiration of such period. 
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the Option confers the right to
purchase, for each Share of Optioned Stock subject to the Option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
Optionee, provide for the consideration to be received upon the exercise of the
Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

12.    TIME OF GRANTING OPTIONS.  The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the determination
granting such Option.  Notice of the determination shall be given to each
Optionee within a reasonable time after the date of such grant.

13.    AMENDMENT AND TERMINATION OF THE PLAN.

(a)    AMENDMENT AND TERMINATION.  The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable.

(b)    SHAREHOLDER APPROVAL.  The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code 

10

(or any successor rule or statute or other applicable law, rule or 
regulation, including the requirements of any exchange or quotation system on 
which the Common Stock is listed or quoted).  Such shareholder approval, if 
required, shall be obtained in such a manner and to such a degree as is 
required by the applicable law, rule or regulation.

(c)    EFFECT OF AMENDMENT OR TERMINATION.  Any such amendment
or termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been 
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.

14.    CONDITIONS UPON ISSUANCE OF SHARES.  Shares shall not be issued
pursuant to the exercise of an Option or a Sale unless the exercise of such
Option or consummation of the Sale and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, applicable state
securities laws, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange (including NASDAQ) upon
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

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

16.    LIABILITY OF COMPANY.

(a)    INABILITY TO OBTAIN AUTHORITY.  Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

As a condition to the exercise of an Option or a Sale, the Company
may require the person exercising such Option or to whom Shares are being Sold
to represent and warrant at the time of any such exercise or Sale that the
Shares are being purchased only for investment and without any present intention
to sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.

(b)    GRANTS EXCEEDING ALLOTTED SHARES.  If the Optioned Stock
covered by an Option exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional shareholder approval, such
Option shall be void with respect to such excess Optioned Stock, unless
shareholder approval of an amendment sufficiently increasing the number of
Shares subject to the Plan is timely obtained in accordance with Section 13 of
the Plan.

17.    SHAREHOLDER APPROVAL.  Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted.  Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.

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EXHIBIT 10.3

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT dated August 14,1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 with a loan production office located at 11000 SW Stratus, Ste.
170, Beaverton, Oregon 97008-7113 and PIXELWORKS, INC. ("Borrower"), whose
address is 8100 SW Nyberg Road, Suite 100, Tualatin, Oregon 97062, provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:

1.     ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.

2.     LOAN AND TERMS OF PAYMENT

2.1    CREDIT EXTENSIONS.

Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.1.1  EQUIPMENT ADVANCES.

(a)    Through February 15, 1999 (the "Equipment Availability End Date"), Bank
will make advances ("Equipment Advance" and, collectively, "Equipment Advances")
not exceeding the Committed Equipment Line. The Equipment Advances may only be
used to finance Equipment and may not exceed 100% of the equipment invoice
excluding taxes, shipping, warranty charges, freight discounts and installation
expense. Software may constitute up to 100% of the aggregate Equipment Advances.

(b)    Interest accrues from the date of each Equipment Advance at the rate in
Section 2.2(a) and is payable monthly until the Equipment Availability End Date
occurs. Equipment Advances outstanding on the Equipment Availability End Date
are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 15th of each month following the Equipment
Availability End Date and ending on February 15, 2002 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.

(c)    To obtain an Equipment Advance, Borrower must notify Bank (the notice is
irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1 Business Day
before the day on which the Equipment Advance is to be made. The notice in the
form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer
or designee and include a copy of the invoice for the Equipment being financed.

(d)    The Committed Equipment Line terminates on the Equipment Maturity Date,
when all Obligations under this Agreement have been satisfied in full.

2.2    INTEREST RATE, PAYMENTS.

(a)    Interest Rate. Equipment Advances accrue interest on the outstanding
principal balance at a per (a) annum rate of 0.5 percentage points above the
Prime Rate. After an Event of Default Obligations accrue interest at 5 percent
above the rate effective immediately before the Event of Default. The interest
rate increases or decreases when the Prime Rate changes. Interest is computed on
a 360 day year for the actual number of days elapsed.

(b)    Payments. Interest due on the Equipment Advances is payable on the 16th
of each month. Bank may debit any of Borrower's deposit accounts including
Account Number 3300044668 for principal and interest payments or any amounts
Borrower owes Bank. Bank will notify Borrower when it debits Borrowers accounts.
These debits are not a set-off. Payments received after 12:00 noon Pacific time
are considered received at the opening of business on the next Business Day.
When a payment is due on a day that is not a Business Day, the payment is due
the next Business Day and additional fees or interest accrue.

2.3    FEES.

Borrower will pay:

(a)    Facility Fee. A fully earned, non-refundable Facility Fee of $2,500 due
on the Closing Date; and

(b)    Bank Expenses. All Bank Expenses (including reasonable attorneys' fees
and expenses) incurred through and after the date of this Agreement, are payable
when due.

2.4    EARLY TERMINATION.

Borrower may terminate this agreement prior to the Equipment Maturity
Date by giving notice to Bank and by paying in full all Obligations owing under
this Agreement.

3.     CONDITIONS OF LOANS

3.1    CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.

2

Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.

3.2    CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.

Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

(a)    timely receipt of any Payment/Advance Form; and

(b)    the representations and warranties in Section 5 must be materially true 
on the date of the Payment/Advance Form and on the effective date of each 
Credit Extension and no Event of Default may have occurred and be continuing, 
or result from the Credit Extension. Each Credit Extension is Borrower's 
representation and warranty on that date that the representations and 
warranties of Section 5 remain true.

4.     CREATION OF SECURITY INTEREST

4.1    GRANT OF SECURITY INTEREST.

Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. If the Agreement is terminated, Bank's lien and security interest in
the Collateral will continue until Borrower fully satisfies its Obligations, at
which time Bank's security interest in the Collateral shall terminate and Bank
shall file the necessary termination statements.

5.     REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1    DUE ORGANIZATION AND AUTHORIZATION.

Borrower and each Subsidiary is duly existing and in good standing in Its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.

The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.

3

5.2    COLLATERAL.

Borrower has good Ole to the Collateral, free of Liens except Permitted
Liens. All Inventory is in all material respects of good and marketable quality,
free from material defects.

5.3    LITIGATION.

Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.

5.4    NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.

All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.5    SOLVENCY.

The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.6    REGULATORY COMPLIANCE.

Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.

5.7    SUBSIDIARIES.

4

Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

5.8    FULL DISCLOSURE.

No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.

6.     AFFIRMATIVE COVENANTS

Borrower will do all of the following:

6.1    GOVERNMENT COMPLIANCE.

Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.

6.2    FINANCIAL STATEMENTS, REPORTS.

(a)    Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank: (ii) as soon as available, but no later than 90 days after the last day
of Borrower's fiscal year, audited consolidated financial statements prepared
under GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales
projections, operating plans or other financial information Bank requests.

6.3    INVENTORY; RETURNS.

Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must 

5

promptly notify Bank of all returns, recoveries, disputes and claims, that 
involve more than $50,000.

6.4    TAXES.

Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.

6.5    INSURANCE.

Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
Statutory notice regarding insurance:

WARNING

Unless you provide us with evidence of the insurance coverage as required
by our contract or loan agreement, we may purchase insurance at your expense to
protect our interest This insurance may, but need not also protect your
interest. If the collateral becomes damaged, the coverage we purchase may not
pay any claim you make or any claim made against you. You may later cancel this
coverage by providing evidence that you have obtained property coverage
elsewhere.

You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.

This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed by
applicable law.

6.6    PRIMARY ACCOUNTS.

Borrower will maintain its primary depository and operating accounts with
Bank.

6

6.7    FURTHER ASSURANCES.

Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement

7.     NEGATIVE COVENANTS

Borrower will not do any of the following:

7.1    DISPOSITIONS.

Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.

7.2    CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.

Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 50%. Borrower will not without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.

7.3    MERGERS OR ACQUISITIONS.

(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, provided no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement
and result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge
or consolidate a Subsidiary into another Subsidiary or into Borrower.

7.4    INDEBTEDNESS.

Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5    ENCUMBRANCE.

Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so,

7

except for Permitted Liens, or permit any Collateral not to be subject to 
the first priority security interest granted here.

7.6    DISTRIBUTIONS; INVESTMENTS.

Directly or indirectly acquire or own any Person, or make any Investment
In any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.

7.7    TRANSACTIONS WITH AFFILIATES.

Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are In the ordinary course of Borrowers
business, on terms less favorable to Borrower than would be obtained in an arms
length transaction with a non-affiliated Person.

7.8    SUBORDINATED DEBT.

Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.

7.9    COMPLIANCE.

Become an "Investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.

8.     EVENT OF DEFAULT

Any one of the following is an Event of Default:

8.1    PAYMENT DEFAULT.

If Borrower fails to pay any of the Obligations;

8.2    COVENANT DEFAULT.

8

If Borrower violates any covenant in Section 7 or does not perform or
observe any other material term, condition or covenant in this Agreement, any
Loan Documents, or in any agreement between Borrower and Bank and as to any
default under a term, condition or covenant that can be cured, has not cured the
default within 10 days after it occurs, or if the default cannot be cured within
10 days or cannot be cured after Borrower's attempts within 10 day period, and
the default may be cured within a reasonable time, then Borrower has an
additional period (of not more than 30 days) to attempt to cure the default.
During the additional time, the failure to cure the default is not an Event of
Default (but no Credit Extensions will be made during the cure period);

8.3    MATERIAL ADVERSE CHANGE.

(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, Borrower's financial condition has materially deteriorated.

8.4    ATTACHMENT.

If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 20 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 20 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5    INSOLVENCY.

If Borrower becomes Insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6    OTHER AGREEMENTS.

If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;

8.7    JUDGMENT.

9

If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 20 days (but no Advances
will be made before the judgment is stayed or satisfied);or

8.8    MISREPRESENTATIONS.

If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

9.     BANKS RIGHTS AND REMEDIES

9.1    RIGHTS AND REMEDIES.

When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:

(a)    Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);

(b)    Stop advancing money or extending credit for Borrowers benefit under this
Agreement or under any other agreement between Borrower and Bank;

(c)    Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;

(d)    Make any payments and do any acts it considers necessary or reasonable to
protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;

(e)    Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower,

(f)    Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and

(g)    Dispose of the Collateral according to the Code.

10

9.2    POWER OF ATTORNEY.

Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrowers name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or draft against account
debtors, (iii) make, settle, and adjust all claims under Borrowers insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrowers name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Banks obligation to provide Credit Extensions
terminates.

9.3    ACCOUNTS COLLECTION.

When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4    BANK EXPENSES.

If Borrower falls to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.5    BANK'S LIABILITY FOR COLLATERAL.

If Bank complies with reasonable banking practices it is not liable for
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.

9.6    REMEDIES CUMULATIVE.

Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or

11

in equity. Bank's exercise of one right or remedy is not an election, and 
Bank's waiver of any Event of Default is not a continuing waiver. Bank's 
delay is not a waiver, election, or acquiescence. No waiver is effective 
unless signed by Bank and then is only effective for the specific instance 
and purpose for which it was given.

9.7    DEMAND WAIVER.

Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10.     NOTICES

All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.

11.    CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

Oregon law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Washington County, Oregon.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.    GENERAL PROVISIONS

12.1   SUCCESSORS AND ASSIGNS.

This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.

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12.2   INDEMNIFICATION.

Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3   TIME OF ESSENCE.

Time is of the essence for the performance of all obligations in this
Agreement.

12.4   SEVERABILITY OF PROVISION.

Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.

12.5   AMENDMENTS IN WRITING, INTEGRATION.

All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3,1989 CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.

12.6   COUNTERPARTS.

This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7   SURVIVAL.

All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

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12.8   CONFIDENTIALITY.

In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

12.9   ATTORNEYS' FEES, COSTS AND EXPENSES.

In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.

13.    DEFINITIONS

13.1   DEFINITIONS.

In this Agreement:

"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

14

"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrowers assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

"CLOSING DATE" is the date of this Agreement.

"CODE" is the Oregon Uniform Commercial Code.

"COLLATERAL" is the property described on Exhibit A.

"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $1,500,000.

"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

"CREDIT EXTENSION" is each Equipment Advance or any other extension of
credit by Bank for Borrowers benefit.

"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

"EQUIPMENT ADVANCE" is defined in Section 2.1.1.

"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.1.

"EQUIPMENT MATURITY DATE" is defined in Section 2.1.1.

"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations. 

15

"GAAP" is generally accepted accounting principles.

"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization, arrangement
or other relief.

"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.

"PERMITTED INDEBTEDNESS" is:

(a)    Borrowers indebtedness to Bank under this Agreement or any other Loan
Document;

16

(b)    Indebtedness existing on the Closing Date and shown on the Schedule;

(c)    Subordinated Debt;

(d)    Indebtedness to trade creditors incurred in the ordinary course of
business; and

(e)    Indebtedness secured by Permitted Liens.

"PERMITTED INVESTMENTS" are:

(a)    Investments shown on the Schedule and existing on the Closing Date; and

(b)    (i) marketable direct obligations issued or unconditionally guaranteed 
by the United States or its agency or any State maturing within 1 year from 
its acquisition, (ii) commercial paper maturing no more than 1 year after its 
creation and having the highest rating from either Standard & Poor's 
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates 
of deposit issued maturing no more than 1 year after issue.

"PERMITTED LIENS" are:

(a)    Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;

(b)    Liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Borrower
maintains adequate reserves on its Books, if they have no priority over any of
Bank's security interests;

(c)    Purchase money Liens (i) on Equipment acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or (ii)
existing on equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the equipment;

(d)    Leases or subleases and licenses or sublicenses granted in the ordinary
course of Borrower's business and any interest or title of a lessor, licensor or
under any lease or license, if the leases, subleases, licenses and sublicenses
permit granting Bank a security interest;

(e)    Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.

17

"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

"PRIME RATE" is the Prime Rate as published in the Money Rates section of
the WALL STREET JOURNAL, or if such information is not published or unavailable,
shall be Bank's most recently announced prime rate," even if it is not Bank's
lowest rate.

"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.

"SCHEDULE" is any attached schedule of exceptions.

"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).

"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity Interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.

BORROWER:

Pixelworks, Inc.

By: /s/ Allen H. Alley                           
-------------------------------------------
Title:  President and Chief Executive Officer

BANK:

SILICON VALLEY BANK

By: /s/ Bruce Helberg                            
-------------------------------------------
Title:  Vice President

18

EXHIBIT A

The Collateral consists of all of Borrower's right, title and interest in
and to the following:

All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

All Inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies. packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;

All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, servicemarks, trade styles,
trade names, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kind;

All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the,
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower,

All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing: and

All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.

19

EXHIBIT 10.4

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement is entered into as of April 9, 1999, by
and between Pixelworks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").

1.     DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement, dated August 14,1998, as may be
amended from time to time (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Equipment Line in the original principal
amount of One Million Five Hundred Dollars ($1,500,000). Defined terms used but
not otherwise defined herein shall have the same meanings as in the Loan
Agreement

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."

2.     DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness
is secured by the Collateral as described in the Loan Agreement. Additionally,
Borrower has agreed not to mortgage, pledge, hypothecate, or otherwise encumber
any of its Intellectual Property, pursuant to that certain Negative Pledge
Agreement dated August 14, 1998.

Hereinafter, the above-described security documents and guaranties,
together with all other documents securing repayment of the Indebtedness shall
be referred to as the "Security Documents." Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."

3.     DESCRIPTION OF CHANGE IN TERMS.

A.     MODIFICATION(S) TO LOAN AGREEMENT

1.     The following Sections are hereby incorporated into the
Loan Agreement to read as follows:

2.1.2  REVOLVING ADVANCES.

(a)    Bank will make Advances not exceeding (i) the
Committed Revolving Line or the Borrowing Base, whichever is less, minus (ii)
the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), and minus (iii) the Foreign Exchange Reserve.
Amounts borrowed under this Section may be repaid and reborrowed during the term
of this Agreement.

1

(b)    To obtain an Advance, Borrower must notify Bank by
facsimile or telephone by 3:00 p.m. Pacific time on the Business Day the Advance
is to be made. Borrower must promptly confirm the notification by delivering to
Bank the Payment/Advance Form attached as Exhibit B. Bank will credit Advances
to Borrower's deposit account. Bank may make Advances under this Agreement based
on instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to that reliance.

(c)    The Committed Revolving Line terminates on the
Revolving Maturity Date, when all Advances are immediately payable.

2.1.3  LETTERS OF CREDIT

Bank will issue or have issued Letters of Credit for
Borrower's account not exceeding (i) the lesser of the Committed Revolving Line
or the Borrowing Base minus (ii) the outstanding principal balance of the
Advances, but the face amount of outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not
exceed $3,000,000. Each Letter of Credit will expire no later than one hundred
eighty (180) days after the Revolving Maturity Date provided Borrower's Letter
of Credit reimbursement obligation is secured by cash on terms acceptable to
Bank at any time after the Revolving Maturity Date if the term of this Agreement
is not extended by Bank.

2.1.4  FOREIGN EXCHANGE CONTRACT; FOREIGN EXCHANGE
SETTLEMENTS.

Borrower may enter foreign exchange contracts (the
"Exchange Contract") not exceeding an aggregate amount of $3,000,000 (the
"Contract Limit"), under which Bank will sell to or purchase from Borrower
foreign currency on a spot or future basis. Borrower may not request any
Exchange Contracts if it is out of compliance with any provision of this
Agreement. Exchange Contracts must provide for delivery of settlement on or
before Revolving Maturity Date. The amount available under the Committed
Revolving Line is reduced by the following (the "Foreign Exchange Reserve") on
any given day (the "Determination Date"):  (i) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed more than
two business days after the Determination Date, 10% of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed within two business days after
the Determination Date, 100% of the gross amount of the Exchange Contracts.

Bank may terminate the Exchange Contracts if (a) an Event
of Default occurs or (b) there is not sufficient availability under the
Committed Revolving Line and Borrower does not have available funds in its
deposit account for the Foreign Exchange Reserve. 

2

If Bank terminates the Exchange Contracts, Borrower will reimburse Bank for 
all fees, costs and expenses in connection with the Exchange Contracts.

Borrower may not permit the total of all Exchange Contracts
on which delivery is to be effected and settlement allowed in any two business
day period to be more than $3,000,000 (the "Settlement Limit") nor may Borrower
permit the total of all Exchange Contracts outstanding at any one time, to
exceed the Contract Limit. However, the amount which may be settled in any 2
business day period may be increased above the Settlement Limit if:

(i)    there is sufficient availability under the Committed
Revolving Line in the amount of the Foreign Exchange Reserve for each
Determination Date, provided that Bank in advance shall reserve the full amount
of the Foreign Exchange Reserve against the Committed Revolving Line; or

(ii)   there is insufficient availability under the
Committed Revolving Line for settlements within any 2 business day period, but
Bank: (A) verifies good funds overseas before crediting Borrower's deposit
account (in the case of Borrower's sale of foreign currency); or (B) debits
Borrower's deposit account before delivering foreign currency overseas (in the
case of Borrower's purchase of foreign currency).

If Borrower purchases foreign currency, Borrower must in
advance instruct Bank either to treat the settlement as an advance under the
Committed Revolving Line, or to debit Borrower's account for the amount settled.

Borrower will execute all Bank's standard applications and
agreements in connection with the Exchange Contracts and pay all Bank's standard
fees and charges.

Borrower will indemnity Bank and hold it harmless from all
claims, liabilities, demands, obligations, actions, costs and expenses
(including reasonable attorneys' fees) which it incurs arising out of or in any
way relating to any of the Exchange Contracts or any contemplated transactions.

2.1.5  OVERADVANCES.

If Borrower's Obligations under Section 2.1.2, 2.1.3 and
2.1.4 exceed the lesser of either (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower must immediately pay in cash to Bank the excess.

6.8    FINANCIAL COVENANTS.

Borrower will maintain as of the last day of each month:

3

(i)    QUICK RATIO. A ratio of Quick Assets to Current
Liabilities of at least 1.00 to 1.00.

(ii)   DEBT/NET WORTH RATIO. A ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than 2.00 to 1.00.

(iii)  TANGIBLE NET WORTH. A Tangible Net Worth of at least
$3,700,000, decreasing to $2,900,000, beginning with the month ending July 31,
1999.

2.     Sub-Sections (a) and (b) of Section 2.2 entitled "Interest
rate, Payments" is hereby amended in its entirety to read as follows:

(a)    Interest Rate. Advances accrue interest on the
outstanding principal balance at a per annum rate 0.25 percentage points above
the Prime Rate and Equipment Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.5 percentage points above the Prime
Rate. After an Event of Default, Obligations accrue interest at 5 percent above
the rate effective immediately before the Event of Default. The interest rate
increases or decreases when the Prime Rate changes. Interest is computed on a
360 day year for the actual number of days elapsed.

(b)    Payments. Interest due on the Equipment Advances is
payable on the 15th of each month. Interest due on the Committed Revolving Line
is payable the 8th of each month. Bank may debit any of Borrower's deposit
accounts including Account Number 3300044668 for principal and interest payments
or any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payment received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.

3.     Section 6.2 entitled "Financial Statements, Reports" is
hereby amended in its entirety to read as follows:

(a)    Borrower will deliver to Bank: (i) as soon as
available, but no later than 30 days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period, in a form acceptable to Bank and
certified by a Responsible Officer; (ii) as soon as available, but no later than
120 days after the end of Borrower's fiscal year, audited, consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank (if such financial statements are not
audited, then such non-audited financial statements together with copies of tax
returns filed with Internal Revenue Services, for the year ended); (iii) a
prompt report of any legal actions pending or threatened against Borrower or any
Subsidiary that could 

4

result in damages or costs to Borrower or any Subsidiary of $100,000 or more; 
and (iv) budgets, sales projections, operating plans or other financial 
information Bank requests.

(b)    Within 20 days after the last day of each month,
Borrower will deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts
receivable and accounts payable.

(c)    Within 30 days after the last day of each month,
Borrower will deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in the form of Exhibit D.

(d)    Bank has the right to audit Borrower's Collateral at
Borrower's expense, but the audits will be conducted after the initial Advance
and if an Event of Default has occurred and is continuing.

4.     The following definitions are hereby incorporated into
Section 13.1 entitled "Definitions" to read as follows:

"ADVANCE" or "ADVANCES" is a loan advance (or advances)
under the Committed Revolving Line.

"BORROWING BASE" is 80% of Eligible Accounts, as determined
by Bank from Borrower's most recent Borrowing Base Certificate.

"COMMITTED REVOLVING LINE" is a Credit Extension of up to
$3,000,000.

"CREDIT EXTENSION" is each Advance, Equipment Advance,
Letter of Credit, Exchange Contract or any other extension of credit by Bank for
Borrower's benefit.

"CURRENT ASSETS" are amounts that under GAAP should be
included on that date as current assets on Borrower's consolidated balance
sheet.

"CURRENT LIABILITIES" are the aggregate amount of
Borrower's Total Liabilities which mature within one (1) year.

"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of
Borrower's business that meet all Borrower's representations and warranties in
Section 5.2; but Bank may change eligibility standards by giving Borrower
notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not
include:

(a)    Accounts that the account debtor has not paid within
90 days of invoice date;

5

(b)    Accounts for an account debtor, 50% or more of whose
Accounts have not been paid within 90 days of invoice date;

(c)    Credit balances over 90 days from invoice date;

(d)    Accounts for an account debtor, including
Affiliates, whose total obligations to Borrower exceed 25% of all Accounts,
except for Tokyo Electron Devices, for which the percentage may be 50% for the
amounts that exceed that percentage through September 30, 1999, unless Bank
approves in writing;

(e)    Accounts for which the account debtor does not have
its principal place of business in the United States except for Eligible Foreign
Accounts;

(f)    Accounts for which the account debtor is a federal,
state or local government entity or any department, agency, or instrumentality;

(g)    Accounts for which Borrower owes the account debtor,
but only up to the amount owed (sometimes called "contra" accounts, accounts
payable, customer deposits or credit accounts);

(h)    Accounts for demonstration or promotional equipment,
or in which goods are consigned, sales guaranteed, sale or return, sale on
approval, bill and hold, or other terms if account debtor's payment may be
conditional;

(i)    Accounts for which the account debtor is Borrower's
Affiliate, officer, employee, or agent;

(j)    Accounts in which the account debtor disputes
liability or makes any claim and Bank believes there may be a basis for dispute
(but only up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business;

(k)    Accounts for which Bank reasonably determines
collection to be doubtful.

"ELIGIBLE FOREIGN ACCOUNTS" are (i) Phillips, Siemens and
Tokyo Electron Devices, (ii) those Accounts for which the account debtor does
not have its principal place of business in the United States but are supported
by letter(s) of credit acceptable to Bank; or (iii) such other accounts that
Bank approves in writing.

"QUICK ASSETS" is, on any date, the Borrower's
consolidated, unrestricted cash, cash equivalents, net billed accounts
receivable and investments with maturities of less than 12 months determined
according to GAAP.

6

"REVOLVING MATURITY DATE" is April 8, 2000.

"TANGIBLE NOT WORTH" is, on any date, the consolidated
total assets of Borrower and its Subsidiaries minus (i) any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.

4.     CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.

5.     PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
Fifteen Thousand Dollars ($15,000) (the "Loan Fee") plus all out-of-pocket
expenses.

6.     NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.

7.     CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement the terms of the Existing Loan Documents remain
unchanged and in full force and effect. Bank's agreement to modifications to the
existing Indebtedness pursuant to this Loan Modification Agreement in no way
shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.

8.     CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.

This Loan Modification Agreement is executed as of the date first written
above.

BORROWER:                                 BANK:

PIXELWORKS, INC.                          SILICON VALLEY BANK

By: /s/ Allen H. Alley                    By: /s/ Bruce Helberg
------------------------------            --------------------------------

7

Name:  Allen H. Alley                     Name:  Bruce Helberg

Title:  President & CEO                   Title:  Vice President

8

EXHIBIT 10.5

NEGATIVE PLEDGE AGREEMENT

This Negative Pledge Agreement is made as of August 14, 1998 by and
between Pixelworks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").

In connection with, among other documents, the Loan and Security
Agreement (the "Loan Documents") being concurrently executed herewith between
Borrower and Bank, Borrower agrees as follows:

1.     Borrower shall not sell, transfer, assign, mortgage, pledge,
lease, grant a security interest in, or encumber any of Borrower's
intellectual property, including, without limitation, the
following:

a.     Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work
or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing,
created, acquired or held;

b.     All mask works or similar rights available for the
protection of semiconductor chips, now owned or hereafter
acquired;

c.     Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or
held;

d.     Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or
held;

e.     All patents, patent applications and Re protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without
limitation the patents and patent applications;

f.     Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same
and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by such
trademarks, including without limitation;

g.     Any and all claims for damages by way of past, present and
future infringements of any of the rights included above,
with the right, but not

1

the obligation, to sue for and collect such damages for 
said use or infringement of the intellectual property 
rights identified above;

h.     All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by
such license or rights; and

i.     All amendments, extensions, renewals and extensions of any
of the Copyrights, Trademarks, Patents, or Mask Works; and

j.     All proceeds and products of the foregoing, including
without limitation all payments under insurance or any
indemnity or warranty payable in respect of any of the
foregoing;

2.     It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this
Negative Pledge Agreement.

3.     Capitalized terms used but not otherwise defined herein shall have
the same meaning as in the Loan Documents.

BORROWER:

Pixelworks, Inc.

By: /s/ Allen H. Alley                           
----------------------------------
Name:  Allen H. Alley

Title:  President & CEO

BANK:

SILICON VALLEY BANK

By: /s/ Bruce Helberg                            
----------------------------------
Name:  Bruce Helberg

Title:  Vice President

2

EXHIBIT 10.6

PIXELWORKS, INC.

2000 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 2000 Employee Stock Purchase Plan
of Pixelworks, Inc.

1.     PURPOSE.  The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

2.     DEFINITIONS.

(a)    "BOARD" shall mean the Board of Directors of the Company.

(b)    "CODE" shall mean the Internal Revenue Code of 1986, as
amended.

(c)    "COMMON STOCK" shall mean the common stock of the Company.

(d)    "COMPANY" shall mean Pixelworks, Inc., an Oregon
corporation, and any Designated Subsidiary of the Company.

(e)    "COMPENSATION" shall mean all base straight time gross
earnings and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.

(f)    "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

(g)    "EMPLOYEE" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to re-employment is not guaranteed either by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.

(h)    "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.

-1-

(i)    "EXERCISE DATE" shall mean the last Trading Day of each
Purchase Period.

(j)    "FAIR MARKET VALUE" shall mean, as of any date, the value
of Common Stock determined as follows:

(1)    If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on or before the date of such determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable;

(2)     If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock for the last quotation day on or before the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;

(3)    In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board; or

(4)     For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").

(k)    "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after February 1 and
August 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later.

(l)    "PLAN" shall mean this 2000 Employee Stock Purchase Plan.

(m)  "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.

(n)    "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; PROVIDED HOWEVER, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.

(o)    "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.

-2-

(p)    "SUBSIDIARY" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.

(q)    "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.

3.     ELIGIBILITY

(a)    Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.

(b)     Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.

4.     OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.

5.     PARTICIPATION.

(a)    An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll. deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.

(b)     Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.

-3-

6.     PAYROLL DEDUCTIONS.

(a)    At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in one percent (1%) increments of not less than two
percent (2%) or greater than ten percent (10%) of the Compensation which he or
she receives on each pay day during the Offering Period.

(b)    All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.

(c)    A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.

(d)    Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.

(e)    At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.

7.     GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employees payroll deductions accumulated prior
to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
two thousand five hundred (2,500) shares of the Company's Common Stock
(subject to any adjustment pursuant to Section 19), and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b),
8(b) and 12 hereof. The Board may, for future Offering Periods, increase or
decrease, in its absolute discretion, the maximum number of shares of the

-4-

Company's Common Stock an Employee may purchase during each Purchase Period of
such Offering Period. Exercise of the option shall occur as provided in Section
8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof.
The option shall expire on the last day of the Offering Period.

8.     EXERCISE OF OPTION.
(a)    Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account; provided that in no event shall an Employee be permitted to purchase
during each Purchase Period more than two hundred percent (200%) of the number
of shares that the Employee could purchase if the Purchase Price was limited to
eight-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Enrollment Date. No fractional shares shall be purchased; any payroll
deductions accumulated in a participant's account which are not sufficient to
purchase a full share shall be retained in the participant's account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by
the participant as provided in Section l0 hereof. Any other monies leftover in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

(b)    If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.

-5-

9.     DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.

10.    WITHDRAWAL.

(a)    A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participants payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participants option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b)    A participants withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.

11.    TERMINATION OF EMPLOYMENT.

Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.

12.    INTEREST.     No interest shall accrue on the payroll deductions
of a participant in the Plan.

13.    STOCK.

(a)    Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be one million (1,000,000) shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2005 equal to the lesser
of (i) the number of shares of Common Stock issued pursuant to the Plan during
the immediately preceding fiscal year of the Company, (ii) two percent (2%) of
the outstanding shares of Common Stock on the first day of the Company's fiscal
year for which the increase is being made or (iii) a lesser amount determined by
the Board.   

-6-

(b)    The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c)    Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.

14.    ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claim filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall to the full extent
permitted by law, be final and binding upon all parties.

15.    DESIGNATION OF BENEFICIARY.

(a)    A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death 
subsequent to an Exercise Date on which the option is exercised but prior to 
delivery to such participant of such shares and cash. In addition, a 
participant may file a written designation of a beneficiary who is to receive 
any cash from the participant's account under the Plan in the event of such 
participant's death prior to exercise of the option. If a participant is 
married and the designated beneficiary is not the spouse, spousal consent 
shall be required for such designation to be effective.

(b)    Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.

16.    TRANSFERABILITY.  Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

17.    USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.

-7-

18.    REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19.    ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OF ASSET SALE

(a)     CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company, provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration."  Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.

(b)    DISSOLUTION OR LIQUIDATION.  In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.

(c)     MERGER OR ASSET SALE.  In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.

-8-

20.    AMENDMENT OR TERMINATION.

(a)     The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.

(b)    Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.

(c)    In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:

(1)    altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

(2)    shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and

(3)    allocating shares.

Such modifications or amendments shall not require
stockholder approval or the consent of any Plan participants.

21.    NOTICES.      All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form

-9-

specified by the Company at the location, or by the person, designated by the 
Company for the receipt thereof.
22.    CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.

23.    TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof

24.    AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.

-10-

EXHIBIT A

PIXELWORKS, INC.

2000 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

Original Application               Enrollment Date:____________________
Change in Payroll Deduction Rate
Change of Beneficiary(ies)

1.     ____________________________________ hereby elects to participate in the
Pixelworks, Inc. 2000 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee
Stock Purchase Plan.

2.     I hereby authorize payroll deductions from each paycheck in the amount of
_________ % of my Compensation on each payday (from 2% to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)

3.     I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.

4.     I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.

5.     Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):________
________________________________________________________________________.

6.     I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE
DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION
FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH
ARISE UPON THE DISPOSITION OF THE COMMON STOCK.   The Company may, but
will not be

EXHIBIT A-1

obligated to, withhold from my compensation the amount necessary to 
meet any applicable withholding obligation including any withholding 
necessary to make available to the Company any tax deductions or 
benefits attributable to sale or early disposition of Common Stock by 
me. If I dispose of such shares at any time after the expiration of 
the 2-year and 1-year holding periods, I understand that I will be 
treated for federal income tax purposes as having received income only 
at the time of such disposition, and that such income will be taxed as 
ordinary income only to the extent of an amount equal to the lesser of 
(1) the excess of the fair market value of the shares at the time of 
such disposition over the purchase price which I paid for the shares, 
or (2) 15% of the fair market value of the shares on the first day of 
the Offering Period. The remainder of the gain, if any, recognized on 
such disposition will be taxed as capital gain.

7.     I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.

8.     In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:

NAME: (Please print)                                                         
-----------------------------------------------------------
(First)          (Middle)         (Last) 

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

Relationship

---------------------------------------------------------
(Address)

Employee's Social Security Number:        
---------------------------------------------

Employee's Address:                
------------------------------------------------------------

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

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

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:
----------------    -----------------------------------------------------
Signature of Employee

-----------------------------------------------------
Spouse's Signature (If beneficiary other than spouse)

EXHIBIT A-2

EXHIBIT B

PIXELWORKS, INC.

2000 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the Pixelworks,
Inc. 2000 Employee Stock Purchase Plan which began on ________________ _____,
20___ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

Name and Address of Participant:

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

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

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

Signature:

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

Date:
-----------------------------

EXHIBIT 10.7

LEASE AGREEMENT

BY AND BETWEEN

SOUTHCENTER III AND IV INVESTORS LLC.
A DELAWARE LIMITED LIABILITY COMPANY

AS LANDLORD

AND

PIXELWORKS, INC.
AN OREGON CORPORATION

AS TENANT

DATED APRIL 14, 1999

INDEX OF EXHIBITS

A     Diagram of the Premises
B     Tenant Improvements
C     Commencement and Expiration Date
D     Rules and Regulations
E     Form of Estoppel Certificate
F     Form of Subordination, Non-Disturbance
and Attornment Agreement

INDEX OF DEFINED TERMS

Paragraph #

ADA                                                             9

ADDITIONAL RENT                                                 4

ADDITIONAL SPACE                                                58

ALTERATIONS                                                     12

BANK                                                            7

BASE INSURANCE EXPENSES                                         4

BASE OPERATING EXPENSES                                         4

BASE RENT                                                       4

BASE TAXES                                                      4

BASE UTILITY EXPENSES                                           4

BASE YEAR                                                       4

BUILDING                                                        2

CASUALTY DISCOVERY DATE                                         21

COMMENCEMENT DATE                                               3

COMMON AREAS                                                    2

COMPUTATION YEAR                                                4

CONDEMNATION                                                    22

CPA                                                             4

DEFAULT                                                         24

DISH                                                            9

ELECTRIC RATES                                                  5

ELECTRIC SERVICE PROVIDER                                       5

ELECTRICITY CHARGE                                              5

ENVIRONMENTAL LAWS                                              32

EXPIRATION DATE                                                 3

EXTENSION NOTICE                                                56

FORCE MAJEURE                                                   54

GUARANTOR                                                       24

HAZARDOUS MATERIALS                                             32

HOLDER                                                          42

INSURANCE EXPENSES                                              4

LANDLORD PARTIES                                                39

LANDLORD'S AGENTS                                               8

LANDLORD'S INVESTMENT ADVISORS                                  15

LAWS                                                            9

LEASE                                                      INTRODUCTION

LEASE GUARANTOR                                                 7

LETTER OF CREDIT                                                7

NORMAL BUSINESS HOURS                                           5

OFFER                                                           57

OFFER

TERMS                                                     58

OPERATING EXPENSES                                              4

OPTION                                                          56

OPTION PERIOD                                                   56

PARKING AREAS                                                   2

PAYMENT OF ADDITIONAL RENT                                      4

PREMISES                                                        1

PRIVATE RESTRICTIONS                                            9

PROJECT                                                         2

PROPORTIONATE SHARE                                             4

RELATED CORPORATION                                             23

RENT                                                            4

RIGHT OF FIRST REFUSAL                                          57

RIGHT OF FIRST REFUSAL NOTICE                                   57

RULES AND REGULATIONS                                           41

SUCCESSOR LANDLORD                                              31

SUPERIOR LEASE(S)                                               31

SUPERIOR LESSOR                                                 31

SUPERIOR MORTGAGE(S)                                            31

SYSTEMS                                                         4

TAXES                                                           4

TENANT IMPROVEMENTS                                          EXHIBIT B

TENANT'S AGENTS                                                 9

TENANT'S PROPERTY                                               15

TERM                                                            3

TERMINATION NOTICE                                              59

UTILITIES                                                       4

UTILITY EXPENSES                                                4

VISITOR PARKING FEES                                            44

VISITORS                                                        44

YEAR 2000 COMPLIANT                                             4

LEASE AGREEMENT

BASIC LEASE INFORMATION

Lease Date:            April 14, 1999

Landlord:              SOUTHCENTER III & IV INVESTORS LLC, a Delaware
Limited Liability Company

Landlord's Address:    c/o Insignia/ESG, Inc.
7987 SW Mohawk Street
Tualatin, Oregon 97062

All notices sent to Landlord under this Lease shall be 
sent to the above address.

Tenant:                Pixelworks, Inc.
an Oregon corporation

Tenant's Contact
Person:       Allen Alley

Tenant's Address and   7720 SW Mohawk Street
Telephone Number:    Tualatin, Oregon 97062

Premises Square
Footage:               Approximately Twenty Three Thousand Four Hundred
(23,400) rentable square feet

Premises Address:      7720 SW Mohawk Street
Tualatin, Oregon 97062

Project:               SouthCenter Phase III, together with the land on which 
the Project is situated and all Common Areas 
consisting of 112,578 sf.

Building (if not the
same as the Project):  Building H Consisting of 23,400 sf.

Tenant's Proportionate
Share of Project:   20.79%

Tenant's Proportionate
Share of Building:  100%

Length of Term:         Sixty (60) months

Estimated
Commencement Date:   June 1, 1999

Estimated
Expiration Date:     May 31, 2004

Extrapolated Annual                       Sq. Ft.       Annual       Annual       Monthly
Months Base Rent:                                     Base         Base         Base
Rate         Rent         Rent

1-9                  14,735x       $19.75=     $291,016=   $24,252.00
10-12                19,068x       $19.75=     $376,593=   $31,383.00
13-36                23,400x       $19.75=     $462,150=   $38,513.00
37-60                23,400x       $21.25=     $497,250=   $42,413.00

Prepaid Base Rent:   Twenty Four Thousand Two Hundred Fifty Two Dollars
($24,252)
Prepaid Additional
Rent:

Month(s) to which    Prepaid rent will be applied to months 1.
Prepaid Base Rent
and Additional Rent
will be Applied:

Base Year:           Nineteen Hundred Ninety Nine, 1999

Security Deposit:    One hundred sixty one thousand Eight hundred fifty two 
Dollars ($161,852). Landlord will accept a declining 
letter of credit in the amount of One hundred nineteen 
thousand four hundred thirty nine dollars ($119,439) and 
the balance to be received as cash. Letter of credit may 
be reduced at the following intervals: $38,513 after the 
13th month, $38,513 after the 25th month, and $42,413 
after the 37th month.

Guarantor:           None

Permitted Use:       General office use consistent with the standards of a 
"Class A" office building. Also permitted is Research & 
Development, Warehousing and Distribution of Electronics 
parts

Reserved Parking
Spaces:           None (0) exclusive and designated parking spaces

Unreserved Parking
Spaces:           Ninety four (94) non-exclusive and undesignated parking spaces

Broker(s):             Insignia/ESG, Inc.(Landlord's Broker)
Corporate Property Services (Tenant's Broker)

LEASE AGREEMENT

THIS LEASE AGREEMENT is made and entered into by and between Landlord 
and Tenant on the Lease Date. The defined terms used in this Lease which are 
defined in the Basic Lease Information attached to this Lease Agreement 
("Basic Lease Information") shall have the meaning and definition given them 
in the Basic Lease Information. The Basic Lease Information, the exhibits, 
the addendum or addenda described in the Basic Lease Information, and this 
Lease Agreement are and shall be construed as a single instrument and are 
referred to herein as the "Lease".

1.   DEMISE

In consideration for the rents and all other charges and payments 
payable by Tenant, and for the agreements, terms and conditions to be 
performed by Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND 
TENANT DOES HEREBY LEASE FROM LANDLORD, the Premises described below (the 
"Premises"), upon the agreements, terms and conditions of this Lease for the 
Term hereafter stated.

2.   PREMISES

The Premises demised by this Lease are located in that certain building 
(the "Building") specified in the Basic Lease Information, which Building is 
located in that certain real estate development (the "Project") specified in 
the Basic Lease Information. The Premises have the address and contains the 
square footage specified in the Basic Lease Information; provided, however, 
that any statement of square footage set forth in this Lease, or that may 
have been used in calculating any of the economic terms hereof, is an 
approximation which Landlord and Tenant agree is reasonable and, except as 
expressly set forth in Paragraphs 4(c)(3) and 4(c)(5) below, no economic 
terms based thereon shall be subject to revision whether or not the actual 
square footage is more or less. The location and dimensions of the Premises 
are depicted on Exhibit A, which is attached hereto and incorporated herein 
by this reference. Tenant shall have the non-exclusive right (in common with 
the other tenants, Landlord and any other person granted use by Landlord) to 
use the Common Areas (as hereinafter defined), except that with respect to 
the Projects parking areas (the "Parking Areas"), Tenant shall have only the 
rights, if any, set forth in Paragraph 44 below. For purposes of this Lease, 
the term "Common Areas" shall mean all areas and facilities outside the 
Premises and within the exterior boundary line of the Project that are, from 
time to time, provided and designated by Landlord for the non-exclusive use 
of Landlord, Tenant and other tenants of the Project and their respective 
employees, guests and invitees.

Tenant understands and agrees that the Premises shall be leased by Tenant in 
its as-is condition without any improvements or alterations by Landlord 
unless Landlord has expressly agreed to make such improvements; or 
alterations in a tenant improvement work agreement attached hereto, if at 
all, as Exhibit B. If Landlord has agreed to make any such improvements or 
alterations, then the Premises demised by this Lease shall include any Tenant 
Improvements (as that term is defined in the aforesaid tenant improvement 
work agreement) to be constructed by Landlord within the interior 

1

of the Premises. Landlord shall construct any Tenant Improvements on the 
terms and conditions set forth in Exhibit B, if attached hereto. Landlord and 
Tenant agree to and shall be bound by the terms and conditions of Exhibit B, 
if any.

Landlord has the right, in its sole discretion, from time to time, to: 
(a) make changes to the Common Areas, the Building and/or the Project, 
including, without limitation, changes in the location, size, shape and 
number of driveways, entrances, parking spaces, parking areas, ingress, 
egress, direction of driveways, entrances, hallways, corridors, lobby areas 
and walkways; (b) close temporarily any of the Common Areas for maintenance 
purposes so long as reasonable access to the Premises remains available; (c) 
add additional buildings and improvements to the Common Areas or remove 
existing buildings or improvements therefrom; (d) use the Common Areas while 
engaged in making additional improvements, repairs or alterations to the 
Project or any portion thereof, and (e) do and perform any other acts, alter 
or expand, or make any other changes in, to or with respect to the Common 
Areas, the Building and/or the Project as Landlord may, in its sole 
discretion, deem to be appropriate. Without limiting the foregoing, Landlord 
reserves the right from time to time to install, use, maintain, repair, 
relocate and replace pipes, ducts, conduits, wires, and appurtenant meters 
and equipment for service to the Premises or to other parts of the Building 
which are above the ceiling surfaces, below the floor surfaces, within the 
walls and in the central core areas of the Building which are located within 
the Premises or located elsewhere in the Building. In connection with any of 
the foregoing activities of Landlord, Landlord shall use reasonable efforts 
while conducting such activities to minimize any interference with Tenant's 
use of the Premises, however, Tenant's rent shall abate during such 
activities to the extent, if any, Tenant is denied use of the Premises.

No rights to any view or to fight or air over any property, whether 
belonging to Landlord or any other person, are granted to Tenant by this 
Lease. If at any time any windows of the Premises are temporarily darkened or 
the light or view therefrom is obstructed by reason of any repairs, 
improvements, maintenance or cleaning in or about the Building, the same 
shall be without liability to Landlord and without any reduction or 
diminution of Tenant's obligations under this Lease.

3.   TERM

The term of this Lease (the "Term") shall commence on June 1, 1999 (the 
"Commencement Date") and shall terminate on May 31, 2004 (the "Expiration 
Date").

4.   RENT

1.   BASE RENT. Tenant shall pay to Landlord, in advance on the 
first day of each month, without further notice or demand and without 
abatement, offset, rebate, credit or deduction for any reason whatsoever 
except as specifically provided herein, the monthly installments of rent 
specified in the Basic Lease Information (the "Base Rent").

2

Upon execution of this Lease, Tenant shall pay to Landlord the Security 
Deposit, Prepaid Rent, and the first monthly installment of estimated 
Additional Rent (as hereinafter defined) specified in the Basic Lease 
Information to be applied toward Base Rent and Additional Rent for the 
month(s) of the Term specified in the Basic Lease Information.

As used in this Lease, the term "Additional Rent" shall mean all sums of 
money, other than Base Rent, that shall become due from and payable by Tenant 
pursuant to this Lease.

2.   ADDITIONAL RENT.

(1)   During the Term, in addition to the Base Rent, Tenant shall 
pay to Landlord as Additional Rent, in accordance with this Paragraph 4, (i) 
Tenant's Proportionate Share(s) of the total dollar increase, if any, in 
Operating Expenses (as defined below) attributable to each Computation Year 
(as defined below) over Base Operating Expenses (as defined below), (ii) 
Tenant's Proportionate Share(s) of the total dollar increase, if any, in 
Insurance Expenses (as defined below) attributable to each Computation Year 
over Base Insurance Expenses (as defined below), (iii) Tenant's Proportionate 
Share(s) of the total dollar increase, if any, in Utility Expenses (as 
defined below) attributable to each Computation Year over Base Utility 
Expenses (as defined below), and (iv) Tenant's Proportionate Share(s) of the 
total dollar increase, if any, in Taxes (as defined below) attributable to 
each Computation Year over Base Taxes (as defined below).

(2)   As used in this Lease, the following terms shall have the 
meanings specified:

(A) "OPERATING EXPENSES" means the total costs and expenses 
paid or incurred by Landlord in connection with the ownership, operation, 
maintenance, management and repair of the Premises, the Building and/or the 
Project or any part thereof, including, without limitation, all the following 
items:

(i)   COMMON AREA OPERATING EXPENSES. All costs to 
operate, maintain, repair, replace, supervise, insure and administer the 
Common Areas, including, without limitation, any Parking Areas owned by 
Landlord for the use of tenants, and further including, without limitation, 
supplies, materials, labor and equipment used in or related to the operation 
and maintenance of the Common Areas, including Parking Areas (including, 
without limitation, all costs of resurfacing and restriping Parking Areas), 
signs and directories on the Building and/or the Project, landscaping 
(including, without limitation, maintenance contracts and fees payable to 
landscaping consultants), amenities, sprinkler systems, sidewalks, walkways, 
driveways, curbs, lighting systems and security services, if any, provided by 
Landlord for the Common Areas, and any charges, assessments, costs or fees 
levied by any association or entity of which the Project or any part thereof 
is a member or to which the Project or any part thereof is subject.

3

(ii)   PARKING CHARGES; PUBLIC TRANSPORTATION EXPENSES. Any 
parking charges or other costs levied, assessed or imposed by, or at the 
direction of, or resulting from statutes or regulations, or interpretations 
thereof, promulgated by any governmental authority or insurer in connection 
with the use or occupancy of the Building or the Project, and the cost of 
maintaining any public transit system, vanpool, or other public or 
semi-public transportation imposed upon Landlord's ownership and operation of 
the Building and/or the Project.

(iii)   MAINTENANCE AND REPAIR COSTS. Except for costs which 
are the responsibility of Landlord pursuant to Paragraph 13(b) below, all 
costs to maintain, repair, and replace the Premises, the Building and/or the 
Project or any part thereof and the personal property used in conjunction 
therewith, including without limitation, (a) all costs paid under 
maintenance, management and service agreements such as contracts for 
janitorial, security and refuse removal, (b) all costs to maintain, repair 
and replace the roof coverings of the Building or the Project or any part 
thereof, (c) all costs to maintain, repair and replace the heating, 
ventilating, air conditioning, plumbing, sewer, drainage, electrical, fire 
protection, escalator, elevator, life safety and security systems and other 
mechanical, electrical and communications systems and equipment serving the 
Premises, the Building and/or the Project or any part thereof (collectively, 
the "Systems"), (d) the cost of all cleaning and janitorial services and 
supplies, the cost of window glass replacement and repair, and (e) the cost 
of maintenance, depreciation and replacement of machinery, tools and 
equipment (if owned by Landlord) and for rental paid for such machinery, 
tools and equipment (if rented) used in connection with the operation or 
maintenance of the Building, and (f) all costs and expenses incurred in 
causing the Project to be Year 2000 Compliant (as defined below). "Year 2000 
Compliant" shall mean that all Systems containing or using computers or other 
information technology will function without material error or interruption 
resulting from the date change from year 1999 to year 2000, to the extent 
that information technology of third parties properly communicates date/time 
data with the Systems.

(iv)   LIFE SAFETY COSTS. All costs to install, maintain, 
repair and replace all life safety systems, (including the initial cost of 
installation to upgrade system to meet current code requirements) including, 
without limitation, all fire alarm systems, serving the Premises, the 
Building and/or the Project or any part thereof (including all maintenance 
contracts and fees payable to life safety consultants) whether such systems 
are or shall be required by Landlord's insurance carriers, Laws (as 
hereinafter defined) or otherwise.

(v)   MANAGEMENT AND ADMINISTRATION. All costs for 
management and administration of the Premises, the Building and/or the 
Project or any part thereof, including, without limitation, a property 
management fee, accounting, auditing, billing, postage, salaries and benefits 
for all employees and contractors engaged in the management, operation, 
maintenance, repair and protection of the Building and the Project, whether 
located on the Project or off-site, payroll taxes and legal and accounting 
costs, fees for licenses and permits related to the ownership and operation 
of the Project, and office rent for the Building and/or Project management 
office or the rental value of such office if it is located within the 
Building and/or Project.

4

(vi)   CAPITAL IMPROVEMENTS. The cost of capital 
improvements or other costs incurred in connection with the Project (a) which 
are intended to effect economies in the operation or maintenance of the 
Project, or any portion thereof, (b) that are required to comply with present 
or anticipated conservation programs, (c) which are replacements or 
modifications of structural or nonstructural items located in the Common 
Areas required to keep the Common Areas in good order or condition, or (d) 
that are required under any governmental law or regulation. Such costs will 
be passed through to tenant over the useful life of the Improvement using 
general accounting principles (GAP).

Notwithstanding anything in this Paragraph 4(b) to the contrary, 
Insurance Expenses, Utility Expenses and Taxes shall not be deemed to 
constitute "Operating Expenses" for purposes of this Paragraph 4(b)(2)(A).

(B)   "INSURANCE EXPENSES" means the total costs and expenses paid 
or incurred by Landlord in connection with the obtaining of insurance on the 
Premises, the Building and/or the Project or any part thereof or interest 
therein, including, without limitation, premiums for "all risk" fire and 
extended coverage insurance, commercial general liability insurance, rent 
loss or abatement insurance, earthquake insurance, flood or surface water 
coverage, and other insurance as Landlord deems necessary in its sole 
discretion, and any deductibles paid under policies of any such insurance. 
The foregoing shall not be deemed an agreement by Landlord to carry any 
particular insurance relating to the Premises, Building, or Project.

(C)   "UTILITY EXPENSES" means the cost of all electricity, water, 
gas, sewers, oil and other utilities (collectively, "Utilities"), including 
any surcharges imposed, serving the Premises, the Building and the Project or 
any part thereof that are not separately metered to Tenant or any other 
tenant, and any amounts, taxes, charges, surcharges, assessments or 
impositions levied, assessed or imposed upon the Premises, the Building or 
the Project or any part thereof, or upon Tenant's use and occupancy thereof, 
as a result of any rationing of Utility services or restriction on Utility 
use affecting the Premises, the Building and/or the Project, as contemplated 
in Paragraph 5 below. Utility expenses shall not include any systems 
development, hook up charges, or other general charges for any new 
development within the project.

(D)   "TAXES" means all real estate taxes and assessments, which 
shall include any form of tax, assessment (including any special or general 
assessments and any assessments or charges for Utilities or similar purposes 
included within any tax bill for the Building or the Project or any part 
thereof, including, without limitation, entitlement fees, allocation unit 
fees and/or any similar fees or charges), fee, license fee, business license 
fee, levy, penalty (if a result of Tenant's delinquency), sales tax, rent 
tax, occupancy tax or other tax (other than net income, estate, succession, 
inheritance, transfer or franchise taxes), imposed by any authority having 
the direct or indirect power to tax, or by any city, county, state or federal 
government or any improvement or other district or division thereof, whether 
such tax is determined by the area of the Premises, the Building and/or the 
Project or any part thereof, or the Rent and other stuns payable hereunder by 
Tenant or by other tenants, including, but not limited to, (i) any gross 
income or excise tax levied

5

by any of the foregoing authorities, with respect to receipt of Rent and/or 
other sums due under this Lease; (ii) upon any legal or equitable interest of 
Landlord in the Premises, the Building and/or the Project or any part 
thereof, (iii) upon this transaction or any document to which Tenant is a 
party creating or transferring any interest in the Premises, the Building 
and/or the Project; (iv) levied or assessed in lieu of, in substitution for, 
or in addition to, existing or additional taxes against the Premises, the 
Building and/or the Project, whether or not now customary or within the 
contemplation of the parties; or surcharged against the Parking Areas. 
"Taxes" shall also include legal and consultants' fees, costs and 
disbursements incurred in connection with proceedings to contest, determine 
or reduce taxes, Landlord specifically reserving the right, but not the 
obligation, to contest by appropriate legal proceedings the amount or 
validity of any taxes.

(E)   "BASE YEAR" shall mean the calendar year specified in the 
Basic Lease Information.

(F)   "BASE OPERATING EXPENSES" shall mean the amount of Operating 
Expenses for the Base Year.

(G)   "BASE INSURANCE EXPENSES" shall mean the amount of Insurance 
Expenses for the Base Year.

(H)   "BASE TAXES" shall mean the amount of Taxes for the Base Year.

(I)   "BASE UTILITY EXPENSES" shall mean the amount of Utility 
Expenses for the Base Year to be determined by average actual usage for 1996 
and 1997 taking into account inflationary increases.

(J)   "COMPUTATION YEAR" shall mean each twelve (12) consecutive 
month period commencing January 1 of each year during the Term following the 
Base Year, provided that Landlord, upon notice to Tenant, may change the 
Computation Year from time to time to any other twelve (12) consecutive month 
period, and, in the event of any such change, Tenant's Proportionate Share(s) 
of Operating Expenses over Base Operating Expenses, of Insurance Expenses 
over Base Insurance Expenses, of Utility Expenses over Base Utility Expenses, 
and of Taxes over Base Taxes shall be equitably adjusted for the Computation 
Years involved in any such change.

3.   PAYMENT OF ADDITIONAL RENT.

(1)   Within ninety (90) days of the end of the Base Year and each 
Computation Year or as soon thereafter as practicable, Landlord shall give to 
Tenant notice of Landlord's estimate of the total amounts that will be 
payable by Tenant under Paragraph 4(b) for the following Computation Year, 
and Tenant shall pay such estimated Additional Rent on a monthly basis, in 
advance, on the first day of each month. Tenant shall continue to make said 
monthly payments until notified by Landlord of a change therein. If at any 
time or times Landlord determines that the amounts payable under Paragraph 
4(b) for the current Computation Year will vary from Landlord's 

6

estimate given to Tenant, Landlord, by notice to Tenant, may revise the 
estimate for such Computation Year, and subsequent payments by Tenant for 
such Computation Year shall be based upon such revised estimate. By August 1 
of each calendar year following the initial Computation Year, Landlord shall 
provide to Tenant a statement showing the actual Additional Rent due to 
Landlord for the prior Computation Year. If the total of the monthly payments 
of Additional Rent that Tenant has made for the prior Computation Year is 
less than the actual Additional Rent chargeable to Tenant for such prior 
Computation Year, then Tenant shall pay the difference in a lump sum within 
ten (10) days after receipt of such statement from Landlord. Any overpayment 
by Tenant of Additional Rent for the prior Computation Year shall, at 
Landlord's option, be either credited towards the Additional Rent next due or 
returned to Tenant in a lump sum payment within ten (10) days after delivery 
of such statement.

(2)   Landlord's then-current annual operating and capital budgets 
for the Building and the Project or the pertinent part thereof shall be used 
for purposes of calculating Tenants monthly payment of estimated Additional 
Rent for the current year, subject to adjustment as provided above. Landlord 
shall make the final determination of Additional Rent for the year in which 
this Lease terminates as soon as possible after termination of such year. 
Even though the Term has expired and Tenant has vacated the Premises, with 
respect to the year in which this Lease expires or terminates, Tenant shall 
remain liable for payment of any amount due to Landlord in excess of the 
estimated Additional Rent previously paid by Tenant, and, conversely, 
Landlord shall promptly return to Tenant any overpayment. Failure of Landlord 
to submit statements as called for herein shall not be deemed a waiver of 
Tenant's obligation to pay Additional Rent as herein provided.

(3)   With respect to Operating Expenses, Insurance Expenses, 
Utility Expenses or Taxes which Landlord allocates to the Building, Tenant's 
"Proportionate Share" shall be the percentage set forth in the Basic Lease 
Information as Tenant's Proportionate Share of the Building, as adjusted by 
Landlord from time to time for a remeasurement of or changes in the physical 
size of the Premises or the Building, whether such changes in size are due to 
an addition to or a sale or conveyance of a portion of the Building or 
otherwise. With respect to Operating Expenses, Insurance Expenses, Utility 
Expenses or Taxes which Landlord allocates to the Project as a whole or to 
only a portion of the Project, Tenant's "Proportionate Share" shall be, with 
respect to Operating Expenses, Insurance Expenses, Utility Expenses or Taxes 
which Landlord allocates to the Project as a whole, the percentage set forth 
in the Basic Lease Information as Tenant's Proportionate Share of the Project 
and, with respect to Operating Expenses, Insurance Expenses, Utility Expenses 
or Taxes which Landlord allocates to only a portion of the Project, a 
percentage calculated by Landlord from time to time in its sole discretion 
and furnished to Tenant in writing, in either case as adjusted by Landlord 
from time to time for a remeasurement of or changes in the physical size of 
the Premises or the Project, whether such changes in size are due to an 
addition to or a sale or conveyance of a portion of the Project or otherwise. 
Notwithstanding the foregoing, Landlord may equitably adjust Tenant's 
Proportionate Share(s) for all or part of any item of expense or cost 
reimbursable by Tenant that relates to a repair, replacement, or service that 
benefits only the Premises or only a portion of the Building and/or the 
Project or that varies with the occupancy of the Building and/or the Project.

7

(4)   In the event the average, occupancy level of the Building or 
the Project for the Base Year and/or any subsequent Computation Year is not 
ninety five percent (95%) or more of full occupancy, then the Operating 
Expenses for such year shall be apportioned among the tenants by the Landlord 
to reflect those costs which would have occurred had the Building or the 
Project, as applicable, been ninety five percent (95%) occupied during such 
year.

(5)   Without limiting the terms of Paragraph 4(c) above, Landlord 
reserves the right from time to time to remeasure the Premises, the Building 
and/or the Project in accordance with the current or revised standards 
promulgated from time to time by the Building Owners and Managers Association 
(BOMA) or the American National Standards Institute or other generally 
accepted measurement standards utilized by Landlord and to thereafter adjust 
the Proportionate Share(s) of Tenant and any other affected tenants of the 
Building and/or Project. Landlord shall not adjust the Base Rent based on any 
such remeasurement and any remeasurentent shall occur to all the buildings in 
the Project.

4.   GENERAL PAYMENT TERMS. The Base Rent, Additional Rent and all other 
sums payable by Tenant to Landlord hereunder, any late charges assessed 
pursuant to Paragraph 6 below and any interest assessed pursuant to Paragraph 
46 below, are referred to as the "Rent." All Rent shall be paid in lawful 
money of the United States of America. Checks are to be made payable to 
SOUTHCENTER HI & IV INVESTORS LLC and shall be mailed to: SOUTHCENTER III&IV 
INVESTORS LLC, PO BOX 5087, MAIL STOP 96, PORTLAND, OREGON 97208, or to such 
other person or place as Landlord may, from time to time, designate to Tenant 
in writing. The Rent for any fractional part of a calendar month at the 
commencement or termination of the Term shall be a prorated amount of the 
Rent for a full calendar month based upon a thirty (30) day month.

5.   STATEMENTS BINDING. Every statement given by Landlord pursuant to 
paragraph (c) of this Paragraph 4 shall be conclusive and binding upon Tenant 
unless (i) within ninety (90) days after the receipt of such statement Tenant 
shall notify Landlord that it disputes the correctness thereof, specifying 
the particular respects in which the statement is claimed to be incorrect, 
and (ii) if such dispute shall not have been settled by agreement, Tenant 
shall submit the dispute to arbitration within ninety (90) days after receipt 
of the statement. Pending the determination of such dispute by agreement or 
arbitration as aforesaid, Tenant shall, within ten (10) days after receipt of 
such statement, pay Additional Rent in accordance with Landlord's statement 
and such payment shall be without prejudice to Tenant's position. If the 
dispute shall be determined in Tenant's favor, Landlord shall forthwith pay 
Tenant the amount of Tenant's overpayment of Additional Rent resulting from 
compliance with Landlord's statement.

(1)   Arbitration. Whenever arbitration is required under any 
provision of this Lease, such dispute shall be submitted to binding 
arbitration using the rules of the Arbitration Service of Portland, Inc., or 
the American Arbitration Association, at the election of the party initiating 
the arbitration. Unless otherwise agreed, arbitration shall be conducted in 
Portland, Oregon, before a single arbitrator. The parties shall be entitled 
to conduct discovery in accordance with the Federal Rules of Civil Procedure, 
subject to limitation by the arbitrator to secure just and efficient

8

resolution of the dispute. Costs of the arbitration shall be paid by the 
non-prevailing party, and each party shall pay its own attorney fees incurred 
in connection with the arbitration. The award of the arbitrator shall have 
the effect provided in the Oregon statutes governing arbitration.

6.   AUDIT RIGHTS. Provided Tenant notifies Landlord in accordance with 
the terms of paragraph (e) above that Tenant disputes a statement received 
from Landlord, Tenant or its CPA (as defined below) shall have the right, at 
Tenant's sole cost and expense, provided Tenant utilizes a Certified Public 
Accountant (the "CPA") compensated on an hourly basis, upon at least thirty 
(30) days prior notice to Landlord at any time during regular business hours 
to audit, review and photocopy Landlord's records pertaining to Operating 
Expenses for the immediately previous calendar year only. Tenant agrees to 
keep all information thereby obtained by Tenant confidential.

5.   UTILITIES AND SERVICES

1.   From 7:00 a.m. to 6:00 p.m. on weekdays ("NORMAL BUSINESS 
HOURS" (excluding legal holidays)), Landlord shall furnish to the Premises 
electricity for lighting and operation of low power usage office machines, 
water, heat and air conditioning, per the following specifications: provide 
adequate electrical wiring and facilities for connection to Tenant's lighting 
fixtures and incidental use equipment provided that (i) the connected 
electrical load to the incidental use equipment not exceed an average of 3.5 
waits connected load per rentable square foot of the Premises during the 
Normal Business Hours on a monthly basis, and the electricity so furnished 
for incidental use equipment will be a nominal one hundred twenty (120) volts 
and no electrical circuit for the supply of such incidental use equipment 
will require a current capacity exceeding twenty (20) amperes, and (ii) the 
connected electrical load of Tenant's lighting fixtures does not exceed an 
average of 1.0 watt per useable square foot of the Premises during the Normal 
Business hours on a monthly basis, and the electricity of furnished for 
Tenant's lighting will be a nominal one hundred twenty (120) volts, which 
electrical usage shall be subject to applicable laws and regulations. Tenant 
shall bear the cost of replacement of lamps, starters and ballasts for 
non-Building standard lighting fixtures within the Premises, and Landlord 
shall pay such cost for such building-standard fixtures, which cost shall be 
included in Operating Expenses. During all other hours, Landlord shall 
furnish such service except for heat and air conditioning. Landlord shall 
provide janitorial services for the Premises on weekdays (excluding legal 
holidays) as determined reasonably necessary by Landlord. Tenant shall 
separately arrange with, and pay directly to, the applicable local public 
authorities or utilities, as the case may be, for the furnishing, 
installation and maintenance of all telephone services and equipment as may 
be required by Tenant in the use of the Premises. Landlord shall not be 
liable for any damages resulting from interruption of, or Tenant's inability 
to receive such service, unless it was caused by Landlords gross negligence, 
and any such inability shall not relieve Tenant of any of its obligations 
under this Lease.

2.   If requested by Tenant, Landlord shall furnish heat and air 
conditioning at times other than Normal Business Hours and the cost of such 
services as established by Landlord shall be paid by Tenant as Additional 
Rent, payable concurrently with the next installment of Base Rent. During the 
initial Term, the cost of heat or air conditioning supplied during hours 
other than Normal

9

Business Hours shall be the actual cost of such service.

3.   Without limiting the terms of Paragraph 5(a) above, Tenant 
acknowledges that Landlord has contracted with Portland General Electric to 
provide electricity for the Building, and that Landlord reserves the right to 
change the provider of such service at any time and from time to time in 
Landlord's sole discretion (any such provider being referred to herein as the 
"Electric Service Provider"). Tenant shall obtain and accept electrical 
service for the Premises only from and through Landlord, in the manner and to 
the extent expressly provided in this Lease, at all times during the term of 
this Lease, and Tenant shall have no right (and hereby waives any right 
Tenant may otherwise have) (i) to contract with or otherwise obtain any 
electrical service for or with respect to the Premises or Tenant's operations 
therein from any provider of electrical service other than the Electric 
Service Provider, or (ii) to enter into any separate or direct contract or 
other similar arrangement with the Electric Service Provider for the 
provision of electrical service to Tenant at the Premises. Tenant shall 
cooperate with Landlord and the Electric Service Provider at all times to 
facilitate the delivery of electrical service to Tenant at the Premises and 
to the Building, including without limitation allowing Landlord and the 
Electric Service Provider, and their respective agents and contractors, (a) 
to install, repair, replace, improve and remove and any and all electric 
lines, feeders, risers, junction boxes, wiring, and other electrical 
equipment, machinery and facilities now or hereafter located within the 
Building or the Premises for the purpose of providing electrical service to 
or within the Premises or the Building, and (b) reasonable access for the 
purpose of maintaining, repairing, replacing or upgrading such electrical 
service from time to time. Tenant shall provide such information and 
specifications regarding Tenant's use or projected use of electricity at the 
Premises as shall be required from time to time by Landlord or the Electric 
Service Provider to efficiently provide electrical service to the Premises or 
the Building. In no event shall Landlord be liable or responsible for any 
loss, damage, expense or liability, including without limitation loss of 
business or any consequential damages, arising from any failure or inadequacy 
of the electrical service being provided to the Premises or the Building, 
whether resulting from any change, failure, interference, disruption, or 
defect in the supply or character of the electrical service furnished to the 
Premises or the Building, or arising from the partial or total unavailability 
of electrical service to the Premises or the Building, from any cause 
whatsoever, or otherwise, nor shall any such failure, inadequacy, change, 
interference, disruption, defect or unavailability constitute an actual or 
constructive eviction of Tenant, or entitle Tenant to any abatement or 
diminution of Rent or otherwise relieve Tenant from any of its obligations 
under this Lease UNLESS CAUSED BY LANDLORD'S GROSS NEGLIGENCE. 

4.   Tenant acknowledges that the Premises, the Building and/or the 
Project may become subject to the rationing of Utility services or 
restrictions on Utility use as required by a public utility company, 
governmental agency or other similar entity having jurisdiction thereof. 
Tenant acknowledges and agrees that its tenancy and occupancy hereunder shall 
be subject to such rationing or restrictions as may be imposed upon Landlord, 
Tenant, the Premises, the Building and/or the Project, and Tenant shall in no 
event be excused or relieved from any covenant or obligation to be kept or 
performed by Tenant by reason of any such rationing or restrictions. Tenant 
agrees to comply with energy conservation programs implemented by Landlord by 
reason of 

10

rationing, restrictions or Laws. 

5.   Landlord shall not be liable, unless caused by Landlord's gross 
negligence for any loss, injury or damage to property caused by or resulting 
from any variation, interruption, or failure of Utilities due to any cause 
whatsoever, or from failure to make any repairs or perform any maintenance. 
No temporary interruption or failure of such services incident to the making 
of repairs, alterations, improvements, or due to accident, strike, or 
conditions or other events shall be deemed an eviction of Tenant or relieve 
Tenant from any of its obligations hereunder. In no event shall Landlord be 
liable to Tenant for any damage to the Premises or for any loss, damage or 
injury to any property therein or thereon occasioned by bursting, rupture, 
leakage or overflow of any plumbing or other pipes (including, without 
limitation, water, steam, and/or refrigerant lines), sprinklers, tanks, 
drains, drinking fountains or washstands, or other similar cause in, above, 
upon or about the Premises, the Building, or the Project.

6.   Landlord makes no representation with respect to the adequacy or 
fitness of the air-conditioning or ventilation equipment in the Building to 
maintain temperatures which may be required for, or because of, any equipment 
of Tenant, other than normal fractional horsepower office equipment, and 
Landlord shall have no liability for loss or damage in connection therewith. 
Tenant shall not, without Landlord's prior written consent, use, equipment or 
lighting in a quantity or of a type which is not typical for office use and, 
as a result, would materially and adversely the temperature otherwise 
maintained by the air conditioning system or increase the water normally 
furnished for the Premises by Landlord pursuant to the terms of this 
Paragraph 5. If such consent is given, Landlord shall have the right to 
install supplementary air conditioning units or other facilities in the 
Premises, including supplementary or additional metering devices, and the 
cost thereof, including the cost of installation, operation and maintenance, 
increased wear and tear on existing equipment and other similar charges, 
shall be paid by Tenant to Landlord upon billing by Landlord. Tenant shall 
not use water or heat or air conditioning in excess of that normally supplied 
by Landlord. Tenant's consumption of electricity shall not exceed the 
Building's capacity considering all other tenants of the Building. If Tenant 
uses water, or natural gas, heat or air conditioning in excess of the 
supplied by Landlord pursuant to Paragraph 5(a) of this Lease, Tenant shall 
pay, within thirty (30) days after billing, the actual cost, without profit 
or overhead, of such excess consumption, the cost of the installation, 
operation, and maintenance of equipment which is installed in order to supply 
such excess consumption, and the cost of the increased wear and tear on 
existing equipment caused by such excess consumption; and Landlord may 
install devices to separately meter any increased use and in such event 
Tenant shall pay the increased cost directly to Landlord, within thirty (30) 
days after billing, at the rates charged by the public utility company 
furnishing the same, including the cost of such additional metering devices. 
Tenant's use of electricity shall never exceed the capacity of the feeders to 
the Project or the risers or wiring installation

6.   LATE CHARGE

Notwithstanding any other provision of this Lease to the contrary, 
Tenant hereby acknowledges that late payment to Landlord of Rent, or other 
amounts due hereunder will cause Landlord to incur 

11

costs not contemplated by this Lease, the exact amount of which will be 
extremely difficult to ascertain and prove. If any Rent or other sums due 
from Tenant are not received by Landlord or by Landlords designated agent 
within  five (5) days after their due date, then Tenant shall pay to Landlord 
a late charge equal to five percent (5%) of such overdue amount, plus any 
costs and attorneys' fees incurred by Landlord by reason of Tenant's failure 
to pay Rent and/or other charges when due hereunder. Landlord and Tenant 
hereby agree that such late charges represent a fair and reasonable estimate 
of the cost that Landlord will incur by reason of Tenant's late payment that 
it will be neither convenient nor feasible for Landlord to obtain an 
otherwise adequate remedy, and that such late charges shall not be construed 
as a penalty. Landlord's acceptance of such late charges shall not constitute 
a waiver of Tenant's default with respect to such overdue amount or stop 
Landlord from exercising any of the other rights and remedies granted under 
this Lease. In the event that Y2K presents a banking problem, Tenant may hand 
deliver check to Management office prior to the due date and no late charges 
will be applied. They may continue this until such time that the bank has 
corrected any problems.

Initials:   Landlord ______Tenant _______

7.   SECURITY DEPOSIT

Concurrently with Tenant's execution of the Lease, Tenant shall deposit 
with Landlord the Security Deposit specified in the Basic Lease Information 
as security for the full and faithful performance of each and every term, 
covenant and condition of this Lease. Landlord may use, apply or retain the 
whole or any part of the Security Deposit as may be reasonably necessary (a) 
to remedy any Default by Tenant under this Lease, (b) to repair damage to the 
Premises caused by Tenant, (c) to clean the Premises upon termination of this 
Lease, (d) to reimburse Landlord for the payment of any amount which Landlord 
may reasonably spend or be required to spend by reason of Tenant's Default, 
and (e) to compensate Landlord for any other loss or damage which Landlord 
may suffer by reason of Tenant's Default. Should Tenant faithfully and fully 
comply with all of the terms, covenants and conditions of this Lease, within 
thirty (30) days following the expiration of the Term, the Security Deposit 
or any balance thereof shall be returned to Tenant or, at the option of 
Landlord, to the last assignee of Tenant's interest in this Lease. Landlord 
shall not be required to keep the Security Deposit separate from its general 
funds and Tenant shall not be entitled to any interest on such deposit. If 
Landlord so uses or applies all or any portion of said deposit, within five 
(5) days after written demand therefor Tenant shall deposit cash with 
Landlord in an amount sufficient to restore the Security Deposit to the full 
extent of the above amount, and Tenant's failure to do so shall be a default 
under this Lease. In the event Landlord transfers its interest in this Lease, 
Landlord shall transfer the then remaining amount of the Security Deposit to 
Landlord's successor in interest, and thereafter Landlord shall have no 
further liability to Tenant with respect to such Security Deposit.

On or before the date hereof, Tenant shall deposit with Landlord a clean, 
irrevocable and unconditional letter of credit in a form acceptable to 
Landlord in its sole discretion ("Letter of Credit") issued by a bank 
approved by Landlord in its sole judgment (hereinafter referred to as the 
"Bank") in favor of Landlord, in the amount of One hundred nineteen thousand 
four hundred thirty 

12

nine dollars and No/100 Dollars ($119,439) as security for the faithful 
performance and observance by Tenant of the terms, conditions and provisions 
of this Lease, including without limitation the surrender of possession of 
the Premises to Landlord as herein provided. The Letter of Credit shall have 
a term which expires no sooner than the Expiration Date, or Tenant may 
deliver a one (1) year unconditional and irrevocable Letter of Credit which 
by its terms automatically, for the remainder of the Term, renews for 
successive one (1) year periods unless the Bank provides no less than thirty 
(30) days' written notice to Landlord that such Letter of Credit shall not be 
renewed, in which event Landlord shall have the right to draw down the entire 
amount of the Letter of Credit unless Tenant substitutes, prior to the 
expiration of such letter of Credit, a new Letter of Credit which meets the 
requirements of this Paragraph 7. If Tenant defaults in respect of any of the 
terms, conditions or provisions of this Lease including, but not limited to, 
the payment of Rent, and Tenant fails to cure any such default after any 
required notice and within any applicable cure period hereunder (i) Landlord 
shall have the right to require the Bank to make payment to Landlord or its 
designee of the entire proceeds of the Letter of Credit, and (ii) Landlord 
may, at the option of Landlord (but Landlord shall not be required to) apply 
or retain the whole or any part of such sum so paid to it by Tenant or the 
Bank to the extent required for the payment of any Rent or any other sum as 
to which Tenant is in default, and (iii) Landlord or any Superior Mortgagee 
shall hold the remainder of such sum paid to it by the Bank or Tenant, if 
any, for Landlord's benefit, as security for the faithful performance and 
observance by Tenant of the terms, covenants, and conditions of this Lease on 
Tenant's part to be observed and performed, with the same rights as 
hereinabove set forth to apply or retain the same in the event of any further 
default by Tenant under this Lease. If Landlord applies or retains any part 
of the proceeds of the Letter of Credit or the cash amount deposited by 
Tenant, Tenant, within five (5) business days after demand, shall deposit 
with Landlord or its designee the amount so applied or retained so that 
Landlord or its designee shall have the full deposit on hand at all times 
during the Term of this Lease (and any extension). Tenant's failure to do so 
within ten (10) days of receipt of such demand shall constitute a breach of 
this Lease.

Tenant, at any time during the term hereof (including any extension and 
including prior to the Commencement Date), but at least sixty (60) days prior 
to the expiration of the Letter of Credit, may deposit with Landlord the 
equivalent cash amount as security hereunder in lieu of the Letter of Credit. 
Landlord shall have all of the same rights with respect to such cash security 
as Landlord has hereunder with respect to the Letter of Credit, and Tenant 
shall have the same obligations with respect to the deposit of additional 
funds with Landlord if Landlord applies or retains all or any portion of such 
cash security as provided in the previous subsection. Landlord shall not be 
required to deposit such cash in a segregated, interest bearing account. 
Tenant's letter of credit may be declined at the following intervals: $38,513 
after the 13th month, $38,513 after the 25th month, and $42,413 after the 
37th month.

In the event of a transfer, sale or lease of Landlord's interest in the 
Building, Landlord shall transfer or cause to be transferred either the cash 
or Letter of Credit or any sums collected thereunder by Landlord, together 
with any other sums then held by Landlord or its designee as such security, 
to the transferee, vendee or lessee, and Landlord thereupon shall be released 
by Tenant from all liability under this Paragraph. Tenant agrees to look 
solely to the new landlord for the return of the 

13

cash or Letter of Credit or any sums collected thereunder and any other 
security, and it is agreed that the provisions hereof shall apply to every 
transfer or assignment made of the Letter of Credit or any sums collected 
thereunder and any other security to a new landlord. Tenant further covenants 
that it shall not assign or encumber, or attempt to assign or encumber, any 
part of such security and that neither Landlord nor its successors or assigns 
shall be bound by any such assignment, encumbrance, attempted assignment, or 
attempted encumbrance. Landlord shall not be required to exhaust its remedies 
against Tenant before having recourse to the Letter of Credit or such cash 
security held by Landlord. Recourse by Landlord to the Letter of Credit or 
such security shall not affect any remedies of Landlord which are provided in 
this Lease or which are available to Landlord in law or equity.

In the event that Tenant shall fully and faithfully comply with all of 
the terms, provisions, covenants and conditions of this Lease, the Letter of 
Credit and/or cash together with all interest earned thereon, if any, except 
as same may have been applied by Landlord in accordance with this Lease, 
shall be returned to Tenant promptly after the expiration of this Lease.

8.   POSSESSION

1.   TENANT'S RIGHT OF POSSESSION. Subject to Paragraph 8(b), Tenant 
shall be entitled to possession of the Premises as of the Commencement Date.

2.   DELAY IN DELIVERING POSSESSION. If for any reason whatsoever, 
Landlord cannot deliver possession of the Premises to Tenant on or before the 
Estimated Commencement Date, this Lease shall not be void or voidable, nor 
shall Landlord, or Landlords agents, advisors, employees, partners, 
shareholders, directors, invitees, independent contractors or Landlord's 
Investment Advisors (as hereinafter defined) (collectively, "Landlord's 
Agents"), be liable to Tenant for any loss or damage resulting therefrom. 
Tenant shall not be liable for Rent until Landlord delivers possession of the 
Premises to Tenant. The Expiration Date shall be extended by the same number 
of days that Tenant's possession of the Premises was delayed beyond the 
Estimated Commencement Date.

9.   USE OF PREMISES

1.   PERMITTED USE. The use of the Premises by Tenant and Tenant's 
agents, advisors, employees, partners, shareholders, consultants, directors, 
customers, invitees and independent contractors (collectively, "Tenant's 
Agents") shall be solely for the Permitted Use specified in the Basic Lease 
Information and for no other use. Tenant shall not permit any objectionable 
or unpleasant odor, smoke, dust, gas, noise or vibration to emanate from or 
near the Premises. The Premises shall not be used to create any nuisance or 
trespass, for any illegal purpose, for any purpose not permitted by Laws (as 
hereinafter defined), for any purpose that would invalidate the insurance or 
increase the premiums for insurance on the Premises, the Building or the 
Project or for any purpose or in any manner that would interfere with other 
tenants' use or occupancy of the Project. If any of Tenant's office machines 
or equipment disturb any other tenant in the Building, then Tenant shall 
provide adequate insulation or take such other action as may be necessary to 
eliminate the noise or disturbance. Tenant agrees to pay to Landlord, as 
Additional Rent, any increases in premiums on 

14

insurance policies resulting from Tenant's Permitted Use or any other use or 
action by Tenant or Tenant's Agents which increases Landlord's premiums or 
requires additional coverage by Landlord to insure the Premises. Tenant 
agrees not to overload the floor(s) of the Building.

2.   COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND PRIVATE 
RESTRICTIONS. Tenant and Tenant's Agents shall, at Tenant's expense, 
faithfully observe and comply with (1) all municipal, state and federal laws, 
statutes, codes, rules, regulations, ordinances, requirements, and orders 
(collectively, "Laws"), now in force or which may hereafter be in force 
pertaining to the Premises or Tenant's use of the Premises, the Building or 
the Project; (2) all recorded covenants, conditions and restrictions 
affecting the Project ("Private Restrictions") now in force or which may 
hereafter be in force; and (3) the Reasonable Rules and Regulations (as 
defined in Paragraph 41 of this Lease as determined by Landlord). Without 
limiting the generality of the foregoing, to the extent Landlord is required 
by the city or county in which the Building is located to maintain carpooling 
and public transit programs, Tenant shall cooperate, in the implementation 
and use of these programs by and among Tenant's employees. The judgment of 
any court of competent jurisdiction, or the admission of Tenant in any action 
or proceeding against Tenant, whether Landlord be a party thereto or not, 
that Tenant has violated any Laws or Private Restrictions, shall be 
conclusive of that fact as between Landlord and Tenant.

3.   COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord and 
Tenant hereby agree and acknowledge that the Premises, the Building and/or 
the Project may be subject to, among other Laws, the requirements of the 
Americans with Disabilities Act, a federal law codified at 42 U.S.C. 12101 et 
seq., including, but not limited to Title III thereof, and all regulations 
and guidelines related thereto, together with any and all laws, rules, 
regulations, ordinances, codes and statutes now or hereafter enacted by local 
or state agencies having jurisdiction thereof, as the same may be in effect 
on the date of this Lease and may be hereafter modified, amended or 
supplemented (collectively, the "ADA"). Any Tenant Improvements to be 
constructed hereunder shall be in compliance with the requirements of the 
ADA, and all costs incurred for purposes of compliance therewith shall be a 
part of and included in the costs of the Tenant Improvements. Tenant shall be 
solely responsible for conducting its own independent investigation of this 
matter and for ensuring that the design of all Tenant Improvements strictly 
complies with all requirements of the ADA. Subject to reimbursement pursuant 
to Paragraph 4 above, if any barrier removal work or other work is required 
to the Building, the Common Areas or the Project under the ADA, then such 
work shall be the responsibility of Landlord; provided, if such work is 
required under the ADA as a result of Tenant's use of the Premises or any 
work or Alteration (as hereinafter defined) made to the Premises by or on 
behalf of Tenant, then such work shall be performed by Landlord at the sole 
cost and expense of Tenant. Except as otherwise expressly provided in this 
provision, Tenant shall be responsible at its sole cost and expense for fully 
and faithfully complying with all applicable requirements of the ADA. Within 
ten (10) days after receipt, Tenant shall advise Landlord in writing, and 
provide Landlord with copies of (as applicable), any notices alleging 
violation of the ADA relating to any portion of the Premises, the Building or 
the Project; any claims made or threatened orally or in writing regarding 
noncompliance with the ADA and relating to any portion of the Premises, the 
Building, or the Project; or any governmental or regulatory actions or 
investigations 

15

instituted or threatened regarding noncompliance with the ADA and relating to 
any portion of the Premises, the Building or the Project. Tenant shall and 
hereby agrees to protect, defend (with counsel acceptable to Landlord) and 
hold Landlord and Landlord's Agents harmless and indemnify Landlord and 
Landlord's Agents from and against all liabilities, damages, claims, losses, 
penalties, judgments, charges and expenses (including attorneys' fees, costs 
of court and expenses necessary in the prosecution or defense of any 
litigation including the enforcement of this provision) arising from or in 
any way related to, directly or indirectly, Tenants or Tenant's Agents 
violation or alleged violation of the ADA. Tenant agrees that the obligations 
of Tenant herein shall survive the expiration or earlier termination of this 
Lease.

4.   NO ROOF ACCESS. At no time during the Term shall Tenant have 
access to the roof of the Building or have the right to install, operate or 
maintain a satellite-earth communications station (antenna and associated 
equipment), microwave equipment and/or an FM antenna on the Building or the 
Project.

10.   ACCEPTANCE OF PREMISES

By entry hereunder, Tenant accepts the Premises as suitable for Tenant's 
intended use and as being in good and sanitary operating order, condition and 
repair, AS IS, and without representation or warranty by Landlord after the 
first thirty (30) days of occupancy as to the condition, use or occupancy 
which may be made thereof. Any exceptions to the foregoing must be by written 
agreement executed by Landlord and Tenant. To the best of Landlord's 
knowledge, Landlord represents that an system are operable and in good 
repair, that the building complies with all laws, and that there are no known 
hazardous substances located in, on, under, or above the Building and 
Premises.

11.   SURRENDER

Tenant agrees that on the last day of the Tenn, or on the sooner 
termination of this Lease, Tenant shall surrender the premises to Landlord 
(a) in good condition and repair (damage by acts of God, fire, and normal 
wear and tear excepted), but with all interior walls cleaned and repaired, 
any carpets cleaned, and all floors cleaned and waxed, and (b) otherwise in 
accordance with Paragraph 32(e). Normal wear and tear shall not include any 
damage or deterioration that would have been prevented by proper maintenance 
by Tenant or Tenant otherwise performing all of its obligations under this 
Lease. On or before the expiration or sooner termination of this Lease, (i) 
Tenant shall remove all of Tenant's Property (as hereinafter defined) and 
Tenant's signage from the Premises, the Building and the Project and repair 
any damage caused by such removal, and (ii) Landlord may, by notice to Tenant 
given not later than ninety (90) days prior to the Expiration Date (except in 
the event of a termination of this Lease prior to the scheduled Expiration 
Date, in which event no advance notice shall be required), require Tenant at 
Tenants expense to remove any or all Alterations and to repair any damage 
caused by such removal except those installed in the original tenant 
improvement or approved in writing to not remove. Any of Tenant's Property 
not so removed by Tenant as required herein shall be deemed abandoned and may 
be stored, removed, and disposed

16

of by Landlord at Tenant's expense, and Tenant waives all claims against 
Landlord for any damages resulting from Landlord's retention and disposition 
of such property; provided, however, that Tenant shall remain liable to 
Landlord for all costs incurred in storing and disposing of such abandoned 
property of Tenant. All Tenant Improvements and Alterations except those 
which Landlord requires Tenant to remove shall remain in the Premises as the 
property of Landlord.

12.   ALTERATIONS AND ADDITIONS

1.   Tenant shall not make, or permit to be made, any alteration, 
addition or improvement (hereinafter referred to individually as an 
"Alteration" and collectively as the ("Alterations") to the Premises or any 
part thereof without the prior written consent of Landlord, which consent 
shall not be unreasonably withheld, delayed or conditioned; provided, 
however, that Landlord shall have the right in its sole and absolute 
discretion to consent or to withhold its consent to any Alteration which 
affects the structural portions of the Premises, the Building or the Project 
or the Systems serving the Premises, the Building and/or the Project or any 
portion thereof.

2.   Any Alteration to the Premises shall be at Tenant's sole cost 
and expense, in compliance with all applicable Laws and all requirements 
requested by Landlord, including, without limitation, the requirements of any 
insurer providing coverage for the Premises or the Project or any part 
thereof, and in accordance with plans and specifications approved in, writing 
by Landlord, and shall be constructed and installed by a contractor approved 
in writing by Landlord. In connection with any Alteration, Tenant shall 
deliver plans and specifications therefor to Landlord. As a further condition 
to giving consent, Landlord may require Tenant to provide Landlord, at 
Tenant's sole cost and expense, a payment and performance bond in form 
acceptable to Landlord, in a principal amount not less than one and one-half 
times the estimated costs of such Alterations, to ensure Landlord against any 
liability for mechanic's and materialmen's liens and to ensure completion of 
work. Before Alterations may begin, valid building permits or other permits 
or licenses required must be finished to Landlord, and, once the Alterations 
begin, Tenant will diligently and continuously pursue their completion. 
Landlord may monitor construction of the Alterations and Tenant shall 
reimburse Landlord for its costs (including, without limitation, the costs of 
any construction manager retained by Landlord) in reviewing plans and 
documents and in monitoring construction. Tenant shall maintain during the 
course of construction, at its sole cost and expense, builders' risk 
insurance for the amount of the completed value of the Alterations on an 
all-risk non-reporting form covering all improvements under construction, 
including building materials, and other insurance in amounts and against such 
risks as Landlord shall reasonably require in connection with the 
Alterations. In addition to and without limitation on the generality of the 
foregoing, Tenant shall ensure that its contractors procure and maintain in 
full force and effect during the course of construction a "broad form" 
commercial general liability and property damage policy of insurance naming 
Landlord, Tenant, Landlord's Investment Advisors, any property manager 
designated by Landlord and Landlord's lenders as additional insureds. The 
minimum limit of coverage of the aforesaid policy shall be in the amount of 
not less than Two Million Dollars ($2,000,000.00) for injury or death of one 
person in any one accident or occurrence and in the amount of not less than 
Two Million Dollars

17

($2,000,000.00) for injury or death of more than one person in any one 
accident or occurrence, and shall contain a severability of interest clause 
or a cross liability endorsement. Such insurance shall further insure 
Landlord and Tenant against liability for property damage of at least Five 
Hundred Thousand ($500,000.00). 

3. All Alterations, including, but not limited to, heating, lighting, 
electrical, air conditioning, fixed partitioning, drapery, wall covering and 
paneling, built-in cabinet work and carpeting installations made by Tenant, 
together with all property that has become an integral part of the Premises 
or the Building, shall at once be and become the property of Landlord, and 
shall not be deemed trade fixtures or Tenant's Property. None of the Tenant 
Improvements constructed pursuant to Exhibit "B" nor the Schedule to be 
attached as "B-1" (the Final Plans") will have to be removed at the 
expiration of the Lease.

4.   Notwithstanding anything herein to the contrary, before 
installing any equipment or lights which generate an undue amount of heat in 
the Premises, or if Tenant plans to use any high-power usage equipment in the 
Premises, Tenant shall obtain the written permission of Landlord. Landlord 
may refuse to grant such permission unless Tenant agrees to pay the costs to 
Landlord for installation of supplementary air conditioning capacity or 
electrical systems necessitated by such equipment.

5.   Tenant agrees not to proceed to make any Alterations, 
notwithstanding consent from Landlord to do so, until Tenant notifies 
Landlord in writing of the date Tenant desires to commence construction or 
installation of such Alterations and Landlord has approved such date in 
writing, in order that Landlord may post appropriate notices to avoid any 
liability to contractors or material suppliers for payment for Tenant's 
improvements. Tenant will at all times permit such notices to be posted and 
to remain posted until the completion of work..

6.   Tenant shall not, at any time prior to or during the Term, 
directly or indirectly employ, or permit the employment of, any contractor, 
mechanic or laborer in the Premises, whether in connection with any 
Alteration or otherwise, if it is reasonably forseeable that such employment 
will materially interfere or cause any material conflict with other 
contractors, mechanics, or laborers engaged in the construction, maintenance 
or operation of the Project by Landlord, Tenant or others. In the event of 
any such interference or conflict, Tenant, upon demand of Landlord, shall 
cause all contractors, mechanics or laborers causing such interference or 
conflict to leave the Project immediately.

13.  MAINTENANCE AND REPAIRS OF PREMISES

1.   MAINTENANCE BY TENANT. Throughout the Term, Tenant shall, at 
its sole expense, subject to Paragraphs 5(a) and 13(b) hereof, (1) keep and 
maintain in good order and condition the Premises and Tenant's Property, (2) 
keep and maintain in good order and condition, repair and replace all of 
Tenant's security systems in or about or serving the Premises, and (3) 
maintain and replace all specialty lamps, bulbs, starters and ballasts. 
Tenant shall not do nor shall Tenant allow 

18

Tenant's Agents to do anything to cause any damage, deterioration or 
unsightliness to the Premises, the Building or the Project.

2.   MAINTENANCE BY LANDLORD. Subject to the provisions of 
Paragraphs 13(a), 21 and 22, and further subject to Tenant's obligation under 
Paragraph 4 to reimburse Landlord, in the form of Additional Rent, for 
Tenant's Proportionate Share(s) of the cost and expense of the following 
items, Landlord agrees to repair and maintain the following items: the roof 
coverings (provided that Tenant installs no additional air conditioning or 
other equipment on the roof that damages the roof coverings, in which event 
Tenant shall pay all costs resulting from the presence of such additional 
equipment); the Systems serving the Premises and the Building; and the 
Parking Areas, pavement, landscaping, sprinkler systems, sidewalks, 
driveways, curbs, and lighting systems in the Common Areas. Subject to the 
provisions of Paragraphs 13(a), 21 and 22, Landlord, at its own cost and 
expense, agrees to repair and maintain the following items: the structural 
portions of the roof (specifically excluding the roof coverings), the 
foundation, the footings, the floor slab, and the load-bearing walls and 
exterior walls of the Building (excluding any glass and any routine 
maintenance, including, without limitation, any painting, sealing, patching 
and waterproofing of such walls). Notwithstanding anything in this Paragraph 
13 to the contrary, Landlord shall have the right to either repair or require 
Tenant to repair any damage to any portion of the Premises, the Building 
and/or the Project caused by or created due to any act, omission, negligence 
or willful misconduct of Tenant or Tenant's Agents and to restore the 
Premises, the Building and/or the Project, as applicable, to the condition 
existing prior to the occurrence of such damage; provided, however, that in 
the event Landlord elects to perform such repair and restoration work, Tenant 
shall reimburse Landlord upon demand for all costs and expenses incurred by 
Landlord in connection therewith. Landlord's obligation hereunder to repair 
and maintain is subject to the condition precedent that Landlord shall have 
received written notice of the need for such repairs and maintenance and a 
reasonable time to perform such repair and maintenance. Tenant shall promptly 
report in writing to Landlord any defective condition known to it which 
Landlord is required to repair, and failure to so report such defects shall 
make Tenant responsible to Landlord for any liability incurred by Landlord by 
reason of such condition.

14.   LANDLORD'S INSURANCE

Landlord shall purchase and keep in force fire, extended coverage and 
"all risk" insurance covering the Building and the Project. Tenant shall, at 
its sole cost and expense, comply with any and all reasonable requirements 
pertaining to the Premises, the Building and the Project of any insurer 
necessary for the maintenance of reasonable fire and commercial general 
liability insurance, covering the Building and the Project. Landlord may 
maintain "Loss of Rents" insurance, insuring that the Rent will be paid in a 
timely manner to Landlord for a period of at least twelve (12) months if the 
Premises, the Building or the Project or any portion thereof are destroyed or 
rendered unusable or inaccessible by any cause insured against under this 
Lease.

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15.   TENANT'S INSURANCE

1.   COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant shall, at 
Tenant's expense, secure and keep in force a "broad form" commercial general 
liability insurance and property damage policy covering the Premises, 
insuring Tenant, and naming Landlord, Landlord's investment advisors and 
agents from time to time, including, without limitation, Allegis Realty 
Investors LLC (collectively "LANDLORD'S INVESTMENT ADVISORS"), and Landlord's 
lenders as additional insureds, against any liability arising out of the 
ownership, use, occupancy or maintenance of the Premises. The minimum limit 
of coverage of such policy shall be in the amount of not less than Two 
Million Dollars ($2,000,000.00), for injury or death of one person in any one 
accident or occurrence and in the amount of not less than Two Million Dollars 
($2,000,000.00) for injury or death of more than one person in any one 
accident or occurrence, shall include an extended liability endorsement 
providing contractual liability coverage (which shall include coverage for 
Tenant's indemnification obligations in this Lease), and shall contain a 
severability of interest clause or a cross liability endorsement. Such 
insurance shall further insure Landlord and Tenant against liability for 
property damage of at least Two Million Dollars ($2,000,000.00). Landlord may 
from time to time require reasonable increases in any such limits if Landlord 
believes that additional coverage is necessary or desirable. The limit of any 
insurance shall not limit the liability of Tenant hereunder. No policy 
maintained by Tenant under this Paragraph 15(a) shall contain a deductible 
greater than Two Thousand Five Hundred and No/100 Dollars ($2,500.00). No 
policy shall be cancelable or subject to reduction of coverage without thirty 
(30) days' prior written notice to Landlord. Such policies of insurance shall 
be issued as primary policies and not contributing with or in excess of 
coverage that Landlord may carry, by an insurance company authorized to do 
business in the state/commonwealth in which the Premises are located for the 
issuance of such type of insurance coverage and rated B+:XHI or better in 
Best's Key Rating Guide.

2.   PERSONAL PROPERTY INSURANCE. Tenant shall maintain in full 
force and effect on all of its personal property, furniture, furnishings, 
trade or business fixtures and equipment (collectively, "Tenant's Property") 
on the Premises, a policy or policies of fire and extended coverage insurance 
with standard coverage endorsement to the extent of the full replacement cost 
thereof. No such policy shall contain a deductible greater than Two Thousand 
Five Hundred and No/100 Dollars ($2,500.00). During the term of this Lease 
the proceeds from any such policy or policies of insurance shall be used for 
the repair or replacement of the fixtures and equipment so insured. Landlord 
shall have no interest in the insurance upon Tenant's equipment and fixtures 
and will sign all documents reasonably necessary in connection with the 
settlement of any claim or loss by Tenant. Landlord will not carry insurance 
on Tenant's possessions.

3.   WORKER'S COMPENSATION INSURANCE; EMPLOYER'S LIABILITY 
INSURANCE. Tenant shall, at Tenant's expense, maintain in full force and 
effect worker's compensation insurance with not less than the minimum limits 
required by law, and employees liability insurance with a minimum limit of 
coverage of Five Hundred Thousand ($500,000.00)

4.   EVIDENCE OF COVERAGE. Tenant shall deliver to Landlord 
certificates of insurance

20

and true and complete copies of any and all endorsements required herein for 
all insurance required to be maintained by Tenant hereunder at the time of 
execution of this Lease by Tenant. Tenant shall, at least thirty (30) days 
prior to expiration of each policy, furnish Landlord with certificates of 
renewal thereof. Each certificate shall expressly provide that such policies 
shall not be cancelable or otherwise subject to modification except after 
thirty (30) days' prior written notice to Landlord and the other parties 
named as additional insureds as required in this Lease (except for 
cancellation for nonpayment of premium, in which event cancellation shall not 
take effect until at least ten (10) days' notice has been given to Landlord).

16.  INDEMNIFICATION

1.   OF LANDLORD. Tenant shall defend, protect, indemnify and hold 
harmless Landlord and Landlord's Agents against and from any and all claim, 
suits, liabilities, judgments, costs, demands, causes of action and expenses 
(including, without limitation, reasonable attorneys' fees, costs and 
disbursements) arising from (1) the use of the Premises, the Building or the 
Project by Tenant or Tenant's Agents, or from any activity done, permitted or 
suffered by Tenant or Tenant's Agents in or about the Premises, the Building 
or the Project, and (2) any act, neglect, fault, willful misconduct or 
omission of Tenant or Tenant's Agents, or from any breach or default in the 
terms of this Lease by Tenant or Tenant's Agents, and (3) any action or 
proceeding brought on account of any matter in items (1) or (2). If any 
action or proceeding is brought against Landlord by reason of any such claim, 
upon notice from Landlord, Tenant shall defend the same at Tenant's expense 
by counsel reasonably satisfactory to Landlord. As a material part of the 
consideration to Landlord, Tenant hereby releases Landlord and Landlord's 
Agents from responsibility for, waives its entire claim of recovery for and 
assumes all risk of (i) damage to property or injury to persons in or about 
the Premises, the Building or the Project from any cause whatsoever (except 
that which is caused by the sole active gross negligence or willful 
misconduct of Landlord or Landlord's Agents or by the failure of Landlord to 
observe any of the terms and conditions of this Lease, if such failure has 
persisted for an unreasonable period of time after written notice of such 
failure), or (ii) loss resulting from business interruption or loss of income 
at the Premises. The obligations of Tenant under this Paragraph 16 shall 
survive any termination of this Lease.

2.   NO IMPAIRMENT OF INSURANCE. The foregoing indemnity shall not 
relieve any insurance carrier of its obligations under any policies required 
to be carried by either party pursuant to this Lease, to the extent that such 
policies cover the peril or occurrence that results in the claim that is 
subject to the foregoing indemnity.

3.   OF TENANT. Landlord shall indemnify and hold harmless Tenant and 
Tenant's Agents against and from any and, all claims, suits, liabilities, 
judgments, costs, demands, causes of action and expenses (including, without 
limitation, reasonable attorney's fees, costs and disbursements) arising from 
the gross negligence or willfull misconduct of Landlord or Landlord's Agents.

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17.  SUBROGATION

Landlord and Tenant hereby mutually waive any claim against the other 
and its Agents for any loss or damage to any of their property located on or 
about the Premises, the Building or the Project that is caused by or results 
from perils covered by property insurance carried by the respective parties, 
to the extent of the proceeds of such insurance actually received with 
respect to such loss or damage, whether or not due to the negligence of the 
other party or its Agents. Because the foregoing waivers will preclude the 
assignment of any claim by way of subrogation to an insurance company or any 
other person, each party now agrees to immediately give to its insurer 
written notice of the terms of these mutual waivers and shall have their 
insurance policies endorsed to prevent the invalidation of the insurance 
coverage because of these waivers. Nothing in this Paragraph 17 shall relieve 
a party of liability to the other for failure to carry insurance required by 
this Lease.

18.  SIGNS

Tenant shall not place or permit to be placed in, upon, or about the 
Premises, the Building or the Project any exterior lights, decorations, 
balloons, flags, pennants, banners, advertisements or notices, or erect or 
install any signs, windows or door lettering, placards, decorations, or 
advertising media of any type which can be viewed from the exterior the 
Premises without obtaining Landlords prior written consent which may be 
withheld in Landlord's sole and absolute discretion. Tenant shall remove any 
sign, advertisement or notice placed on the Premises, the Building or the 
Project by Tenant upon the expiration of the Term or sooner termination of 
this Lease, and Tenant shall repair any damage or injury to the Premises, the 
Building or the Project caused thereby, all at Tenants expense. If any signs 
are not removed., or necessary repairs not made, Landlord shall have the 
right to remove the signs and repair any damage or injury to the Premises, 
the Building or the Project at Tenant's sole cost and expense. Landlord 
agrees to permit building standard signage at the entrance to Tenant's space 
and in the lobby area subject to permit by the City of Tualatin. Landlord 
will allow Tenant to place signage on the East side of the budding subject to 
review, permit, and approval by Landlord and City of Tualatin.

19.  FREE FROM LIENS

Tenant shall keep the Premises, the Building and the Project free from 
any liens arising out of any work performed, material finished or obligations 
incurred by or for Tenant. In the event that Tenant shall not, within ten 
(10) days following the imposition of any such lien, cause the lien to be 
released of record by payment or posting of a proper bond, Landlord shall 
have in addition to all other remedies provided herein and by law the right 
but not the obligation to cause same to be released by such means as it shall 
deem proper, including payment of the claim giving rise to such lien. All 
such sums paid by Landlord and all expenses incurred by it in connection 
therewith (including, without limitation, attorneys' fees) shall be payable 
to Landlord by Tenant upon demand. Landlord shall have the right at all times 
to post and keep posted on the Premises any notices permitted or required by 
law or that Landlord shall deem proper for the protection of Landlord, the 
Premises, the Building and the Project, from mechanics' and materialmen's 
liens. Tenant shall give 

22

to Landlord at least five (5) business days' prior written notice of 
commencement of any repair or construction on the Premises.

20.  ENTRY BY LANDLORD

Tenant shall permit Landlord and Landlord's Agents to enter into and 
upon the Premises at all reasonable times, for the purpose of inspecting the 
same or showing the Premises to prospective purchasers, lenders or tenants or 
to alter, improve, maintain and repair the Premises or the Building as 
required or permitted of Landlord under the terms hereof, or for any other 
business purpose, without any rebate of Rent and without any liability to 
Tenant for any loss of occupation or quiet enjoyment of the Premises thereby 
occasioned (except for actual damages resulting from the sole active gross 
negligence or willful misconduct of Landlord); and Tenant shall permit 
Landlord to post notices of non-responsibility and ordinary "for sale" or 
"for lease" signs. No such entry shall be construed to be a forcible or 
unlawful entry into, or a detainer of, the Premises, or an eviction or 
constructive eviction of Tenant from the Premises. Landlord may temporarily 
close entrances, doors, corridors, elevators or other facilities without 
liability to Tenant by reason of such closure in the case of an emergency and 
when Landlord otherwise deems such closure necessary. Landlord covenants that 
Landlord and Landlord's Agents will keep confidential any of Tenants business 
secrets, proprietary materials, confidential information or trade secrets 
disclosed after any entry.

21.  DESTRUCTION AND DAMAGE

1.  If the Premises are damaged by fire or other perils covered by 
extended coverage insurance, Tenant shall give Landlord immediate notice 
thereof and Landlord shall, at Landlord's option:

In the event of total destruction (which shall mean 
destruction or damage in excess of twenty-five percent (25%) of the full 
insurable value thereof) of the Premises, elect either to commence promptly 
to repair and restore the Premises and prosecute the same diligently to 
completion, in which event this Lease shall remain in full force and effect; 
or not to repair or restore the Premises, in which event this Lease shall 
terminate. Landlord shall give Tenant written notice of its intention within 
sixty (60) days after the date (the "Casualty Discovery Date") Landlord 
obtains actual knowledge of such destruction. If Landlord elects not to 
restore the Premises, this Lease shall be deemed to have terminated as of the 
date of such total destruction.

(2)  In the event of a partial destruction (which shall mean 
destruction or damage to an extent not exceeding twenty-five percent (25%) of 
the full insurable value thereof) of the Premises for which Landlord will 
receive insurance proceeds sufficient to cover the cost to repair and restore 
such partial destruction and, if the damage thereto is such that the Premises 
may be substantially repaired or restored to its condition existing 
immediately prior to such damage or destruction within one hundred eighty 
days (180) days from the Casualty Discovery Date, Landlord shall commence and 
proceed diligently with the work of repair and restoration, in which event 
the Lease shall continue in full force and effect. If such repair and 
restoration requires longer than one

23

hundred eighty days (180) days or if the insurance proceeds therefor (plus 
any amounts Tenant may elect or is obligated to contribute) are not 
sufficient to cover the cost of such repair and restoration, Landlord may 
elect either to so repair and restore, in which event the Lease shall 
continue in full force and effect, or not to repair or restore, in which 
event the Lease shall terminate. In either case, Landlord shall give written 
notice to Tenant of its intention within sixty (60) days after the casualty 
Discovery Date. If Landlord elects not to restore the Premises, this Lease 
shall be deemed to have terminated as of the date of such partial destruction.

(3)  Notwithstanding anything to the contrary contained in this 
Paragraph, in the event of a total destruction of the premises (as defined in 
subparagraph (a)(1) above) occurring during the last twelve (12) months of 
the Term, Landlord or Tenant may elect to terminate this Lease by written 
notice of such election given to the other party-within thirty (30) days 
after the Casualty Discovery Date.

(b)  If the Premises are damaged by any peril not fully covered 
by insurance proceeds to be received by Landlord, and the cost to repair such 
damage exceeds any amount Tenant may agree to contribute, Landlord may elect 
either to commence promptly to repair and restore the Premises and prosecute 
the same diligently to completion, in which event this Lease shall remain in 
full force and effect; or not to repair or restore the Premises, in which 
event this Lease shall terminate. Landlord shall give Tenant written notice 
of its intention within sixty (60) days after the Casualty Discovery Date. If 
Landlord elects not to restore the Premises, this Lease shall be deemed to 
have terminated as of the date on which Tenant surrenders possession of the 
Premises to Landlord, except that if the damage to the Premises materially 
impairs Tenant's ability to continue its business operations in the Premises, 
then this Lease shall be deemed to have terminated as of the date such damage 
occurred.

(c)  Notwithstanding anything to the contrary in this Paragraph 
21, Landlord shall have the option to terminate this Lease, exercisable by 
notice to Tenant within sixty (60) days after the Casualty Discovery Date, in 
each of the following instances:

(1)  If more than twenty-five percent (25%) of the full 
insurable value of the Building or the Project is damaged or destroyed, 
regardless of whether or not the Premises is destroyed.

(2)  If the Building or the Project or any portion thereof 
is damaged or destroyed and the repair and restoration of such damage 
requires longer than one hundred eighty (180) days from the Casualty 
Discovery Date, regardless of whether or not the Premises is destroyed.

(3)  If the Building or the Project or any portion thereof 
is damaged or destroyed and the insurance proceeds therefor are not 
sufficient to cover the costs of repair and restoration, regardless of 
whether or not the Premises is destroyed.

(4)  If the Building or the Project or any portion thereof 
is damaged or destroyed

24

during the last twelve (12) months of the Term, regardless of whether or not 
the Premises is destroyed.

(d)  In the event of repair and restoration as herein provided, 
the monthly installments of Base Rent shall be abated proportionately in the 
ratio which Tenant's use of the Premises is impaired during the period of 
such repair or restoration, but only to the extent of rental abatement 
insurance proceeds received by Landlord; provided, however, that Tenant shall 
not be entitled to such abatement to the extent that such damage or 
destruction resulted from the acts or inaction of Tenant or Tenant's Agents. 
Except as expressly provided in the immediately preceding sentence with 
respect to abatement of Base Rent, Tenant shall have no claim against 
Landlord for, and hereby releases Landlord and Landlord's Agents from 
responsibility for and waives its entire claim of recovery for any cost, loss 
or expense suffered or incurred by Tenant as a result of any damage to or 
destruction of the Premises, the Building or the Project or the repair or 
restoration thereof, including, without limitation, any cost, loss or expense 
resulting from any loss of use of the whole or any part of the Premises, the 
Building or the Project and/or any inconvenience or annoyance occasioned by 
such damage, repair or restoration.

(e)  If Landlord is obligated to or elects to repair or restore 
as herein provided, Landlord shall repair or restore only the initial tenant 
improvements, if any, constructed by Landlord in the Premises pursuant to the 
terms of this Lease, substantially to their condition existing immediately 
prior to the occurrence of the damage or destruction; and Tenant shall 
promptly repair and restore, at Tenant's expense, Tenant's Alterations which 
were not constructed by Landlord.

22. CONDEMNATION

(a)  If twenty-five percent (25%) or more of either the Premises, 
the Building or the Project or the parking areas for the Building or the 
Project is taken for any public or quasi-public purpose by any lawful 
governmental power or authority, by exercise of the right of appropriation, 
inverse condemnation, condemnation or eminent domain, or sold to prevent such 
taking (each such event being referred to as a "CONDEMNATION"), Landlord may, 
at its option, terminate this Lease as of the date title vests in the 
condemning party. If twenty-five percent (25%) or more of the Premises is 
taken and if the Premises remaining after such Condemnation and any repairs 
by Landlord would be untenantable for the conduct of Tenant's business 
operations, Tenant shall have the right to terminate this Lease as of the 
date title vests in the condemning party. If either party elects to terminate 
this Lease as provided herein, such election shall be made by written notice 
to the other party given within thirty (30) days after the nature and extent 
of such Condemnation have been finally determined. If neither Landlord nor 
Tenant elects to terminate this Lease to the extent permitted above, Landlord 
shall promptly proceed to restore the Premises, to the extent of any 
Condemnation award received by Landlord, to substantially the, same condition 
as existed prior to such Condemnation, allowing for the reasonable effects of 
such Condemnation, and a proportionate abatement shall be made to the Base 
Rent corresponding to the time during which, and to the portion of the floor 
area of the Premises (adjusted for any increase thereto resulting from any 
reconstruction) of which, Tenant is deprived on account of such Condemnation 
and restoration, as reasonably

25

determined by Landlord. Except as expressly provided in the immediately 
preceding sentence with respect to abatement of Base Rent, Tenant shall have 
no claim against Landlord for, and hereby releases Landlord and Landlord's 
Agents from responsibility for and waives its entire claim of recovery for 
any cost, loss or expense suffered or incurred by Tenant as a result of any 
Condemnation or the repair or restoration of the Premises, the Building or 
the Project or the parking areas for the Building or the Project following 
such Condemnation, including, without limitation, any cost, loss or expense 
resulting from any loss of use of the whole or any part of the Premises, the 
Building, the Project or the parking areas and/or any inconvenience or 
annoyance occasioned by such Condemnation, repair or restoration.

(b)  Landlord shall be entitled to any and all compensation, 
damages, income, rent, awards, or any interest therein whatsoever which may 
be paid or made in connection with any Condemnation, and Tenant shall have no 
claim against Landlord for the value of any unexpired term of this Lease or 
otherwise; provided, however, that Tenant shall be entitled to claim and 
recover from the condemning authority a separate award for Tenant's 
relocation, expenses, and the value of Tenant's removable personal property 
and Trade Fixtures and the unamortized cost of leasehold improvements paid 
for by Tenant, excluding any Tenant Improvements made or paid for by 
landlord, provided that such award does not reduce any award otherwise 
allocable or payable to Landlord.

23. ASSIGNMENT AND SUBLETTING

(a)  Tenant shall not voluntarily or by operation of law, (1) 
mortgage, pledge, hypothecate or encumber this Lease or any interest herein, 
(2) assign or transfer this Lease or any interest herein, sublease the 
Premises or any part thereof, or any right or privilege appurtenant thereto, 
or allow any other person (the employees and invitees of Tenant excepted) to 
occupy or use the Premises, or any portion thereof, without first obtaining 
the written consent of Landlord, which consent shall not be withheld 
unreasonably as set forth below in this Section 23, provided that (i) Tenant 
is not then in Default under this Lease nor is any event then occurring which 
with the giving of notice or the passage of time, or both, would constitute a 
Default hereunder, and (ii) Tenant has not previously assigned or transferred 
this Lease or any interest herein or subleased the Premises or any part 
thereof, except for a public offering of stock or a private sale of stock to 
raise capital. A transfer of greater than a fifty percent (50%) interest 
(whether stock, partnership interest, membership interest or otherwise) of 
Tenant, either in one (1) transaction or a series of transactions shall be 
deemed to be an assignment under this Lease. Notwithstanding the foregoing, 
Tenant may assign or sublease part or all of the Premises without Landlord's 
consent to: (i) any corporation or partnership that controls, is controlled 
by, or is under common control with, Tenant (a "Related Corporation"); or 
(ii) any corporation resulting from the merger or consolidation with Tenant 
or any entity that acquires all of Tenant's assets as a going concern of the 
business that is being conducted on the Premises, as long as the assignee or 
sublessee is a bona fide entity and assumes the obligations of Tenant When 
Tenant requests Landlord's consent to such assignment or subletting, it shall 
notify Landlord in writing of the name and address of the proposed assignee 
or subtenant and the nature and character of the business of the proposed 
assignee or subtenant and shall provide current and prior financial 
statements for the proposed assignee or subtenant, which financial

26

statements shall be audited to the extent available and shall in any event be 
prepared in accordance with generally accepted accounting principles. Tenant 
shall also provide Landlord with a copy of the proposed sublease or 
assignment agreement, including all material terms and conditions thereof 
Landlord shall have the option, to be exercised within thirty (30) days of 
receipt of the foregoing, to (1) terminate this Lease as of the commencement 
date stated in the proposed sublease or assignment, (2) sublease or take an 
assignment, as the case may be, from Tenant of the interest, or any portion 
thereof, in this Lease and/or the Premises that Tenant proposes to assign or 
sublease, on the same terms and conditions as stated in the proposed sublet 
or assignment agreement, (3) consent to the proposed assignment or sublease, 
or (4) refuse its consent to the proposed assignment or sublease, providing 
that such consent shall not be unreasonably withheld so long as Tenant is not 
then in Default under this Lease nor is any event then occurring which with 
the giving of notice or the passage of time, or both, would constitute a 
Default hereunder. In the event Landlord elects to terminate this Lease or 
sublease or take an assignment from Tenant of the interest, or portion 
thereof, in the Lease and/or the Premises that Tenant proposes to assign or 
sublease as provided in the foregoing clauses (1) and (2), respectively, then 
Landlord shall have the additional right to negotiate directly with Tenant's 
proposed assignee or subtenant and to enter into a direct lease or occupancy 
agreement with such party on such terms as shall be acceptable to Landlord in 
its sole and absolute discretion, and Tenant hereby waives any claims against 
Landlord related thereto, including, without limitation, any claims for any 
compensation or profit related to such lease or occupancy agreement.

(b)  Without otherwise limiting the criteria upon which Landlord 
may withhold its consent, Landlord shall be entitled to consider all 
reasonable criteria including, but not limited to, the following: (1) whether 
or not the proposed subtenant or assignee is engaged in a business which, and 
the use of the Premises will be in an manner which, is in keeping with the 
then character and nature of all other tenancies in the Project, (2) whether 
the use to be made of the Premises by the proposed subtenant or assignee will 
conflict with any so-called "exclusive" use then in favor of any other tenant 
of the Building or the Project, and whether such use would be prohibited by 
any other portion of this Lease, including, but not limited to, any rules and 
regulations then in effect, or under applicable Laws, and whether such use 
imposes a greater load upon the Premises and the Building and Project 
services than imposed by Tenant, (3) the business reputation of the proposed 
assignee or subtenant who will be managing and operating the business 
operations of the assignee or subtenant, and (4) the creditworthiness and 
financial stability of the proposed assignee in light of the responsibilities 
involved. In any event, Landlord may withhold its consent to any assignment 
or sublease, if (i) the actual use proposed to be conducted in the Premises 
or portion thereof conflicts with the provisions of Paragraph 9(a) or (b) 
above or with any other lease which restricts the use to which any space in 
the Building or the Project may be put, (ii) the proposed assignment or 
sublease requires alterations, improvements or additions to the Premises or 
portions thereof, unless assignee or subtenant agree to remove and restore 
the premises to their original condition (iii) the portion of the Premises 
proposed to be sublet is irregular in shape and/or does not permit safe or 
otherwise appropriate means of ingress and egress, or does, not comply with 
governmental safety and other codes. As a further condition to any rights 
Tenant may have under this Lease to sublet all or any portion of the 
Premises, Tenant shall offer space for sublease at a starting base rental 
rate no lower than Landlord's then current highest asking base rental rate 
for other space in the Project which is

27

then on the market for direct lease. If there is no space in the Project then 
currently on the market for direct lease, Tenant shall offer the space for 
sublease at a starting base rental rate no lower than a rate which is the 
average of the starting rate for Landlord's last two new leases and/or 
renewals in the Project, or if Landlord has not entered into two new leases 
and/or renewals within the immediately preceding six month period, then 
Tenant shall offer the space for sublease at a starting base rental rate no 
lower than the fair market rental rate.

(c)  If Landlord approves an assignment or subletting as herein 
provided, Tenant shall pay to Landlord, as Additional Rent, one hundred 
percent (100%) of the excess, if any, of (1) the rent and any additional rent 
payable by the assignee or sublessee to Tenant, less reasonable and customary 
market-based leasing commissions, tenant improvement and legal expenses, if 
any, incurred by Tenant in connection with such assignment or sublease; minus 
(2) Base Rent plus Additional Rent allocable to that part of the Premises 
affected by such assignment or sublease pursuant to the provisions of this 
Lease, which commissions shall, for purposes of the aforesaid calculation, be 
amortized on a straight-line basis over the term of such assignment or 
sublease. The assignment or sublease agreement, as the case may be, after 
approval by Landlord, shall not be amended without Landlord's prior written 
consent, and shall contain a provision directing the assignee or subtenant to 
pay the rent and other sums due thereunder directly to Landlord upon 
receiving written notice from Landlord that Tenant is in default under this 
Lease with respect to the payment of Rent. In the event that, notwithstanding 
the giving of such notice, Tenant collects any rent or other sums from the 
assignee or subtenant, then Tenant shall hold such sums in trust for the 
benefit of Landlord and shall immediately forward the same to Landlord. 
Landlord's collection of such rent and other sums shall not constitute an 
acceptance by Landlord of attornment by such assignee or subtenant. A consent 
to one assignment, subletting, occupation or use shall not be deemed to be a 
consent to any other or subsequent assignment, subletting, occupation or use, 
and consent to any assignment or subletting shall in no way relieve Tenant of 
any liability under this Lease. Any assignment or subletting without 
Landlord's consent shall be void, and shall, at the option of Landlord, 
constitute a Default under this Lease.

(d)  Notwithstanding any assignment or subletting, Tenant and any 
guarantor or surety of Tenant's obligations under this Lease shall at all 
times remain fully and primarily responsible and liable for the payment of 
the Rent and for compliance with all of Tenant's other obligations under this 
Lease (regardless of whether Landlord's approval has been obtained for any 
such assignment or subletting).

(e)  Tenant shall pay Landlord's reasonable fees (including, 
without limitation, the fees of Landlord's counsel), incurred in connection 
with Landlord's review and processing of documents regarding any proposed 
assignment or sublease.

(g)  If this Lease is assigned, whether or not in violation of 
the provisions of this Lease, Landlord may collect Rent from the assignee. If 
the Premises or any part thereof is sublet or used or occupied by anyone 
other than Tenant, whether or not in violation of this Lease, Landlord may, 
after an Event of Default by Tenant, collect Rent from the subtenant or 
occupant. In either event,

28

Landlord may apply the net amount collected to Rent, but no such assignment, 
subletting, occupancy or collection shall be deemed a waiver of any of the 
provisions of this Paragraph 23, or the acceptance of the assignee, subtenant 
or occupant as tenant, or a release of Tenant from the further performance by 
Tenant of Tenant's obligations under this Lease. The consent by Landlord to 
an assignment, mortgaging, pledging, encumbering, transfer, use, occupancy or 
subletting pursuant to any provision of this Lease shall not, except as 
otherwise provided herein, in any way be considered to relieve Tenant from 
obtaining the express consent of Landlord to any other or further assignment, 
mortgaging, pledging, encumbering, transfer, use, occupancy or subletting. 
References in this Lease to use or occupancy by anyone other than Tenant 
shall not be construed as limited to subtenants and those claiming under or 
through subtenants but as including also licensees or others claiming under 
or through Tenant, immediately or remotely. The listing of any name other 
than that of Tenant on any door of the Premises or on any directory or in any 
elevator in the Building, or otherwise, shall not, except as otherwise 
provided herein, operate to vest in the person so named any right or interest 
in this Lease or in the Premises, or be deemed to constitute, or serve as a 
substitute for, or any waiver of, any prior consent of Landlord required 
under this Paragraph 23.

(h)  Each subletting and/or assignment pursuant to this Paragraph 
shall be subject to all of the covenants, agreements, terms, provision and 
conditions contained in this Lease and each of the covenants, agreements, 
terms, provisions and conditions of this Lease shall be automatically 
incorporated therein. If Landlord shall consent to, or reasonably withhold 
its consent to, any proposed assignment or sublease, Tenant shall indemnify, 
defend and hold harmless Landlord against and from any and all loss, 
liability, damages, costs and expenses (including reasonable counsel fees) 
resulting from any claims that may be made against Landlord by the proposed 
assignee or sublessee or by any brokers or other persons claiming a 
commission or similar in connection with the proposed assignment or sublease.

(i)  Notwithstanding anything to the contrary contained in this 
Section 23, Tenant, upon written notice to Landlord, but without Landlord's 
consent, may sublet or assign all or any part of the Premises to one or more 
corporations or other business entities (each herein called a "Related 
Corporation") which shall control, be controlled by, or be under common 
control with, Tenant. Concurrently with providing notice to Landlord of the 
making of a sublease to a Related Corporation, Tenant shall be required to 
submit reasonably satisfactory evidence that the sublessee is a Related 
Corporation, together with an executed counterpart of the sublease. As used 
herein in defining Related Corporation, control must include over fifty 
percent (50%) of the stock or other voting interest of the controlled 
corporation or other business entity. Similar evidence that such sublessee 
continues to be a Related Corporation shall be furnished by Tenant to 
Landlord within fifteen (15) days after request therefor, provided such 
request is not made more often than annually. Any sublease to a Related 
Corporation shall not relieve Tenant from liability under this Lease.

24. TENANT'S DEFAULT

The occurrence of any one of the following events shall constitute an 
event of default on the part of Tenant ("Default"):

29

(a)  The vacation or abandonment of the Premises by Tenant for a 
period of thirty (30) consecutive days or any vacation or abandonment of the 
Premises by Tenant which would cause any insurance policy to be invalidated 
or otherwise lapse in each of the foregoing cases irrespective of whether or 
not Tenant is then in monetary default under this Lease. Tenant agrees to 
notice and service of notice as provided for in this Lease and waives any 
right to any other or further notice or service of notice which Tenant may 
have under any statute or law now or hereafter in effect;

(b)  Failure to pay any installment of Rent or any other monies 
due and payable hereunder, said failure continuing for a period of three (3) 
five (5) days after written notice the same is due;

(c)  A general assignment by Tenant or any guarantor or surety of 
Tenants obligations hereunder, including, without limitation Lease Guarantor, 
if any, (collectively, "Guarantor") for the benefit of creditors;

(d)  The filing of a voluntary petition in bankruptcy by Tenant 
or any Guarantor, the filing by Tenant or any Guarantor of a voluntary 
petition for an arrangement, the filing by or against Tenant or any Guarantor 
of a petition, voluntary or involuntary, for reorganization, or the filing of 
an involuntary petition by the creditors of Tenant or any Guarantor, said 
involuntary petition remaining undischarged for a period of sixty (60) days;

(e)  Receivership, attachment, or other judicial seizure of 
substantially all of Tenant's assets on the Premises, such attachment or 
other seizure remaining undismissed or undischarged for a period of sixty 
(60) days after the levy thereof;

(f)  Death or disability of Tenant or any Guarantor, if Tenant or 
such Guarantor is a natural person, or the failure by Tenant or any Guarantor 
to maintain its legal existence, if Tenant or such Guarantor is a 
corporation, partnership, limited liability company, trust or other legal 
entity and is not cured within thirty (30) days after written notice;

(g)  Failure of Tenant to execute and deliver to Landlord any 
estoppel certificate, subordination agreement, or lease amendment within the 
time periods and in the manner required by Paragraphs 30 or 31 or 42, and/or 
failure by Tenant to deliver to Landlord any financial statement within the 
time period and in the manner required by Paragraph 40;

(h)  An assignment or sublease, or attempted assignment or 
sublease, of this Lease or the Premises by Tenant contrary to the provision 
of Paragraph 23, unless such assignment or sublease is expressly conditioned 
upon Tenant having received Landlord's consent thereto;

(i)  Failure of Tenant to restore the Security Deposit to the 
amount and within the time period provided in Paragraph 7 above;

30

(j)  Failure in the performance of any of Tenant's covenants, 
agreements or obligations hereunder (except those failures specifically 
identified as events of Default in this Paragraph 24, which failure continues 
for thirty (30) days after written notice thereof from Landlord to Tenant, 
provided that, if Tenant has exercised reasonable diligence to cure such 
failure and such failure cannot be cured within such thirty (30) day period 
despite reasonable diligence, Tenant shall not be in default under this 
subparagraph so long as Tenant thereafter diligently and continuously 
prosecutes the cure to completion and actually completes such cure within 
sixty (60) days after the giving of the aforesaid written notice;

(k)  Chronic overuse by Tenant or Tenants Agents of the number of 
undesignated parking spaces set forth in the Basic Lease Information. 
"Chronic overuse" shall mean use by Tenant or Tenant's Agents of a number of 
parking spaces greater than the number of parking spaces set forth in the 
Basic Lease Information more than three (3) times during the Term after 
written notice by Landlord.

(l)  Any insurance required to be maintained by Tenant pursuant 
to this Lease shall be canceled or terminated or shall expire or be reduced 
or materially changed, except as permitted in this Lease; and

(m)  Any failure by Tenant to discharge any lien or encumbrance 
placed on the Project or any part thereof in violation of this Lease within 
ten (10) days after the date such lien or encumbrance is filed or recorded 
against the Project or any part thereof, provided that Landlord has given 
Tenant written notice of said lien or encumbrance.

25. LANDLORD'S REMEDIES

(a)  TERMINATION. In the event of any Default by Tenant, then in 
addition to any other remedies available to Landlord at law or in equity and 
under this Lease, Landlord shall have the immediate option to terminate this 
Lease and all rights of Tenant hereunder. In the event that Landlord shall 
elect to so terminate this Lease or Tenant's right to possession, then 
Landlord may recover immediately from Tenant without waiting until the due 
date for any future rent or until the date fixed for expiration of the lease 
term.

(1)  All unpaid Rent and other sums due under this Lease as 
of the date of such termination, plus interest accruing on such sums at the 
rate described in Paragraph 25 (a)(7) below; and

(2)  The amount of the loss of Rent and other sums due under 
this Lease from the date of such termination until a new tenant has been 
secured, or with the exercise of reasonable diligence could have been 
secured, plus interest accruing on such sums at the rate described in 
Paragraph 25(a)(7) below; and

(3)  The present value (computed using a discount rate equal 
to the prime loan rate

31

of major Oregon banks in effect at the time of the award to Landlord) at the 
time of such termination of the amount by which the Rent and other 
obligations of Tenant for the balance of the Term of this Lease exceed the 
fair rental value of the Premises for such period; and

(4)  Any other amount necessary to compensate Landlord for 
all the detriment proximately caused by Tenant's failure to perform its 
obligations under this Lease or which in the ordinary course would be likely 
to result therefrom, including, without limitation, (A) any costs or expenses 
incurred by Landlord (1) in retaking possession of the Premises; (2) in 
maintaining, repairing, preserving, restoring, replacing, cleaning, altering, 
remodeling or rehabilitating the Premises or any affected portions of the 
Building or the Project, including such actions undertaken in connection with 
the reletting or attempted reletting of the Premises to a new tenant or 
tenants; (3) for leasing commissions, advertising costs and other expenses of 
reletting the Premises; or (4) in carrying the Premises, including taxes, 
insurance premiums, utilities and security precautions; (B) any unearned 
brokerage commissions paid in connection with this Lease; (C) reimbursement 
of any previously waived or abated Base Rent or Additional Rent or any free 
rent or reduced rental rate granted hereunder; and (D) any concession made or 
paid by Landlord to the benefit of Tenant in consideration of this Lease 
including, but not limited to, any moving allowances, contributions, payments 
or loans by Landlord for tenant improvements or build-out allowances 
(including without limitation, any unamortized portion of the Tenant 
Improvement Allowance, as defined in Exhibit B hereto such Tenant Improvement 
Allowance to be amortized over the Term in the manner reasonably determined 
by Landlord except those monks spent by Landlord for fire life safety 
compliance and the construction of showers for the budding), if any, and any 
outstanding balance (principal and accrued interest) of the Tenant 
Improvement Loan, if any), or assumptions by Landlord of any of Tenant's 
previous lease obligations; plus

(5)  Such reasonable attorneys' fees incurred by Landlord as 
a result of a Default, and costs in the event suit is filed by Landlord to 
enforce such remedy; and

(6)  At Landlord's election, such other amounts in addition 
to or in lieu of the foregoing as may be permitted from time to time by 
applicable law.

(7)  All amounts to which Landlord is entitled pursuant to 
Paragraph 25 (a)(l)(6) above shall bear interest at an annual rate equal to 
ten percent (10%) per annum.

(b)  RE-ENTRY. In the event of any Default by Tenant, Landlord 
shall also have the right, with or without terminating this Lease, in 
compliance with applicable law, to re-enter the Premises, by force if 
necessary, and remove all persons and property from the Premises; such 
property may be removed and stored in a public warehouse or elsewhere at the 
cost of and for the account of Tenant.

(c)  RELETTING. In the event of the abandonment of the Premises 
by Tenant or in the event that Landlord shall elect to re-enter as provided 
in Paragraph 25(b) or shall take possession of the Premises pursuant to legal 
proceeding or pursuant to any notice provided by law, then if

32

Landlord does not elect to terminate this Lease as provided in Paragraph 
25(a), Landlord may from time to time, without terminating this Lease, relet 
the Premises or any part thereof for such term or terms and at such rental or 
rentals and upon such other terms and conditions as Landlord in its sole 
discretion may deem advisable with the right to make alterations and repairs 
to the Premises in Landlord's sole discretion. In the event that Landlord 
shall elect to so relet, then rentals received by Landlord from such 
reletting shall be applied in the following order: (1) to reasonable 
attorneys' fees incurred by Landlord as a result of a Default and costs in 
the event suit is filed by Landlord to enforce such remedies; (2) to the 
payment of any indebtedness other than Rent due hereunder from Tenant to 
Landlord; (3) to the payment of any costs of such reletting; (4) to the 
payment of the costs of any alterations and repairs to the Premises; (5) to 
the payment of Rent due and unpaid hereunder; and (6) the residue, if any, 
shall be held by Landlord and applied in payment of future Rent and other 
sums payable by Tenant hereunder as the same may become due and payable 
hereunder. Should that portion of such rentals received from such reletting 
during any month, which is applied to the payment of Rent hereunder, be less 
than the Rent payable during the month by Tenant hereunder, then Tenant shall 
pay such deficiency to Landlord. Such deficiency shall be calculated and paid 
monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs 
and expenses incurred by Landlord in such reletting or in making such 
alterations and repairs not covered by the rentals received from such 
reletting.

(d)  TERMINATION. No re-entry or taking of possession of the 
Premises by Landlord pursuant to this Paragraph 25 shall be construed as an 
election to terminate this Lease unless a written notice of such intention is 
given to Tenant or unless the termination thereof is decreed by a court of 
competent jurisdiction. Notwithstanding any reletting without termination by 
Landlord because of any Default by Tenant, Landlord may at any time after 
such reletting elect to terminate this Lease for any such Default.

(e)  CUMULATIVE REMEDIES. The remedies herein provided are not 
exclusive and Landlord shall have any and all other remedies provided herein 
or by law or in equity.

(f)  NO SURRENDER. No act or conduct of Landlord, whether 
consisting of the acceptance of the keys to the Premises, or otherwise, shall 
be deemed to be or constitute an acceptance of the surrender of the Premises 
by Tenant prior to the expiration of the Term, and such acceptance by 
Landlord of surrender by Tenant shall only flow from and must be evidenced by 
a written acknowledgment of acceptance of surrender signed by Landlord. The 
surrender of this Lease by Tenant, voluntarily or otherwise, shall not work a 
merger unless Landlord elects in writing that such merger take place, but 
shall operate as an assignment to Landlord of any and all existing subleases, 
or Landlord may, at its option, elect in writing to treat such surrender as a 
merger terminating Tenants estate under this Lease, and thereupon Landlord 
may terminate any or all such subleases by notifying the sublessee of its 
election so to do within five (5) days after such surrender.

26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS

(a)  Without limiting the rights and remedies of Landlord 
contained in Paragraph 25

33

above, if Tenant shall be in Default in the performance of any of the terms, 
provisions, covenants or conditions to be performed or complied with by 
Tenant pursuant to this Lease, then Landlord may at Landlord's option, 
without any obligation to do so, and upon notice to Tenant perform any such 
term, provision, covenant, or condition, or make any such payment and 
Landlord by reason of so doing shall not be liable or 1, responsible for any 
loss or damage thereby sustained by Tenant or anyone holding under or through 
Tenant or any of Tenant's Agents.

(b)  Without limiting the rights of Landlord under Paragraph 
26(a) above, Landlord shall have the right at Landlord's option, without any 
obligation to do so, to perform any of Tenant's covenants or obligations 
under this Lease without notice to Tenant in the case of an emergency, as 
determined by Landlord in its solo and absolute judgment, or if Landlord 
otherwise determines in its sole discretion that such performance is 
necessary or desirable for the proper management and operation of the 
Building or the Project or for the preservation of the rights and interests 
or safety of other tenants of the Building or the Project.

(c)  If Landlord performs any of Tenant's obligations hereunder 
in accordance with this Paragraph 26, the full amount of the cost and expense 
incurred or the payment so made or the amount of the loss so sustained shall 
immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to 
Landlord upon demand, as Additional Rent, the full amount thereof with 
interest thereon from the date of payment by Landlord at the lower of (i) ten 
percent (10%) per annum, or (ii) the highest rate permitted by applicable law.

27. ATTORNEY'S FEES

(a)  If either party hereto fails to perform any of its 
obligations under this Lease or if any dispute arises between the parties 
hereto concerning the meaning or interpretation of any provision of this 
Lease, then the defaulting party or the party not prevailing in such dispute, 
as the case may be, shall pay any and all costs and expenses incurred by the 
other party on account of such default and/or in enforcing or establishing 
its rights hereunder, including, without limitation, court costs and 
reasonable attorneys' fees and disbursements incurred at or prior to trial 
and on any appeal.

(b)  Without limiting the generality of Paragraph 27(a) above, if 
Landlord utilizes the services of an attorney for the purpose of collecting 
any Rent due and unpaid by Tenant, Tenant agrees to pay Landlord actual 
attorneys' fees as determined by Landlord for such services, regardless of 
the fact that no legal action may be commenced or filed by Landlord.

28. TAXES

Tenant shall be liable for and shall pay directly to the taxing 
authority, prior to delinquency, all taxes levied against Tenants Property. 
If any Alteration installed by Tenant pursuant to Paragraph 12 or any of 
Tenant's Property is assessed and taxed with the Project or Building, Tenant 
shall pay such taxes to Landlord within ten (10) business days after delivery 
to Tenant of a statement therefor.

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29.  EFFECT OF CONVEYANCE

The term "Landlord" as used in this Lease means, from time to time, 
the then current owner of the Building or the Project containing the 
Premises, so that, in the event of any sale of the Building or the Project, 
Landlord shall be and hereby is entirely freed and relieved of all covenants 
and obligations of Landlord hereunder, and it shall be deemed and construed, 
without further agreement between the parties and the purchaser at any such 
sale, that the purchaser of the Building or the Project has assumed and 
agreed to carry out any and all covenants and obligations of Landlord 
hereunder.

30.  TENANT'S ESTOPPEL CERTIFICATE

From time to time, upon written request of Landlord, Tenant shall 
execute, acknowledge and deliver to Landlord or its designee, an Estoppel 
Certificate in substantially the form attached hereto as Exhibit E and with 
any other statements reasonably requested by Landlord or its designee. Any 
such Estoppel Certificate delivered pursuant to this Paragraph 30 may be 
relied upon by a prospective purchaser of Landlord's interest or a mortgagee 
of Landlord's interest or assignment of any mortgage upon Landlord's interest 
in the Premises. If Tenant shall fail to provide such certificate within ten 
(10) business days of receipt by Tenant of a written request by Landlord as 
herein provided, such failure shall, at Landlord's election, constitute a 
Default under this Lease, and Tenant shall be deemed to have given such 
certificate as above provided without modification and shall be deemed to 
have admitted the accuracy of any information supplied by Landlord to a 
prospective purchaser or mortgagee.

31. SUBORDINATION

This Lease, and all rights of Tenant hereunder, are and shall be 
subject and subordinate to all ground leases, overriding leases and 
underlying leases affecting the Building or the Project now or hereafter 
existing and each of the terms, covenants and conditions thereto (the 
"SUPERIOR LEASE(S)"), and to all mortgages which may now or hereafter affect 
the Building, the Property or any of such leases and each of the terms, 
covenants and . conditions thereto (the "SUPERIOR MORTGAGE(S)"), whether or 
not such mortgages shall also cover other lands, buildings or leases, to each 
and every advance made or hereafter to be made under such mortgages, and to 
all renewals, modifications, replacements and extensions of such leases and 
such mortgages and spreaders and consolidations of such mortgages. This 
Paragraph shall be self-operative and no further instrument of subordination 
shall be required. Tenant shall promptly execute, acknowledge and deliver any 
reasonable instrument that Landlord, the lessor under any such lease or the 
holder of any such mortgage or any of their respective successors in interest 
may reasonably request to evidence such subordination; if Tenant fails to 
execute, acknowledge or deliver any such instrument within ten (io) business 
days after request therefor, Tenant hereby irrevocably constitutes and 
appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to 
execute and deliver any such instrument for and on behalf of Tenant. As used 
herein the lessor of a Superior Lease or its successor in interest is herein 
called "SUPERIOR LESSOR"; and the holder of a Superior Mortgage is herein 
called "SUPERIOR 

35

MORTGAGEE."

Notwithstanding the foregoing terms of this Paragraph 3 1, if a 
Superior Lease or Superior Mortgage is hereafter placed against or affecting 
any or all of the Building or the Demised Premises or any or all of the 
Building and improvements now or at any time hereafter constituting a part of 
or adjoining the Building, Landlord shall use reasonable efforts to obtain an 
agreement from the holder thereof in recordable form and substantially in the 
form attached hereto as Exhibit F or otherwise in form and substance 
reasonably acceptable to Tenant, whereby the holder of such Superior Lease or 
Superior Mortgage agrees that the Tenant, upon paying the Base Rent and all 
of the Additional Rent and other charges herein provided for, and observing 
and complying with the covenants, agreements and conditions of this Lease on 
its part to be observed and complied with, shall lawfully and quietly hold, 
occupy and enjoy the Premises during the Term of this Lease (including any 
exercised renewal term), without hindrance or interference from anyone 
claiming by or through said Superior Mortgagee or Superior Lessor and that 
said Superior Mortgagee or Superior Lessor shall respect Tenant's rights 
under the Lease and, upon succeeding to Landlord's interest in the Building 
and Lease, shall observe and comply with all of Landlord's duties under the 
Lease.

If any Superior Lessor or Superior Mortgagee shall succeed to the 
rights of Landlord under this Lease, whether through possession or 
foreclosure action or delivery of a new lease or deed (such party so 
succeeding to Landlord's rights herein called "SUCCESSOR LANDLORD"), then 
Tenant shall attorn to and recognize such Successor Landlord as Tenant's 
landlord under this Lease (without the need for further agreement) and shall 
promptly execute and deliver any reasonable instrument that such Successor 
Landlord may reasonably request to evidence such attornment. This Lease shall 
continue in full force and effect as a direct lease between the Successor 
Landlord and Tenant upon all of the terms, conditions and covenants as are 
set forth in this Lease, except that the Successor Landlord shall not (a) be 
liable for any previous act or omission of Landlord under this Lease, except 
to the extent such act or omission shall constitute a continuing Landlord 
default hereunder; (b) be subject to any offset, not expressly provided for 
in this Lease; or (c) be bound by any previous modification of this Lease or 
by any previous prepayment of more than one month's Base Rent, unless such 
modification or prepayment shall have been expressly approved in writing by 
the Successor Landlord (or predecessor in interest).

32. ENVIRONMENTAL COVENANTS

(a)  As used in this Lease, the term "HAZARDOUS MATERIALS" shall 
mean and include any substance that is or contains petroleum, asbestos, 
polychlorinated biphenyls, lead, or any other substance, material or waste 
which is now or is hereafter classified or considered to be hazardous or 
toxic under any federal, state or local law, rule, regulation or ordinance 
relating to pollution or the protection or regulation of human health, 
natural resources or the environment including, without limitation, the 
Comprehensive Environmental Response, Compensation and Liability Act 
(CERCLA), 42 U.S.C. Section 9601, et. seq., or the Hazardous Materials 
Transportation Act, 49 U.S.C. Section 1801, et. seq. or the Resource 
Conservation and Recovery Act, 42 U.S.C. Section 6901, et. seq. (collectively 
"ENVIRONMENTAL LAWS" ) or poses or threatens to pose a hazard to the

36

health or safety of persons on the Premises or any adjacent property.

(b)  Tenant agrees that during its use and occupancy of the 
Premises it will not permit Hazardous Materials to be present on or about the 
Premises except for cleaning supplies and other business supplies customarily 
used and stored in an office and that it will comply with all Environmental 
Laws relating to the use, storage or disposal of any such Hazardous Materials.

(c)  If Tenant's use of Hazardous Materials on or about the 
Premises results in a release, discharge or disposal of Hazardous Materials 
on, in, at, under, or emanating from, the Premises or the property in which 
the Premises are located, Tenant agrees to investigate, clean up, remove or 
remediate such Hazardous Materials in full compliance with (a) the 
requirements of (i) all Environmental Laws and (ii) any governmental agency 
or authority responsible for the enforcement of any Environmental Laws; and 
(b) any additional requirements of Landlord that are necessary, in Landlord's 
sole discretion, to protect the value of the Premises or the property in 
which the Premises are located. Landlord shall also have the right, but not 
the obligation, to take whatever action with respect to any such Hazardous 
Materials that it deems necessary, in Landlord's sole discretion, to protect 
the value of the Premises or the property in which the Premises are located. 
All costs and expenses paid or incurred by Landlord in the exercise of such 
right shall be payable by Tenant upon demand.

(d)  Upon reasonable notice to Tenant, Landlord may inspect the 
Premises for the purpose of determining whether there exists on the Premises 
any Hazardous Materials or other condition or activity that is in violation 
of the requirements of this Lease or of any Environmental Laws. The right 
granted to Landlord herein to perform inspections shall not create a duty on 
Landlord's part to inspect the Premises, or liability on the part of Landlord 
for Tenant's use, storage or disposal of Hazardous Materials, it being 
understood that Tenant shall be solely responsible for all liability in 
connection therewith.

(e)  Tenant shall surrender the Premises to Landlord upon the 
expiration or earlier termination of this Lease free of debris, waste or 
Hazardous Materials placed on or about the Premises by Tenant or its agents, 
employees, contractors or invitees, and in a condition which complies with 
all Environmental Laws.

(f)  Tenant agrees to indemnify and hold harmless Landlord from 
and against any and all claims, damages, fines, judgments, penalties, costs, 
losses (including, without limitation, loss in value of the Premises or the 
property in which the Premises is located, damages due to loss or restriction 
of rentable or usable space, or any damages due to any adverse impact on 
marketing of the space and any and all sums paid for settlement of claims), 
liabilities and expenses (including, without limitation, attorneys' fees, 
consultant and expert fees) sustained by Landlord during or after the term of 
this Lease and attributable to (i) any Hazardous Materials placed on or about 
the Premises, the Building or the Project by Tenant or Tenant's Affiliates, 
or (ii) Tenant's breach of any provision of this Paragraph 32. This 
indemnification includes, without limitation, any and all costs incurred due 
to any investigation of the site or any cleanup, removal or restoration 
mandated by a

37

federal, state or local agency or political subdivision.

(g)  Landlord shall indemnify, defend and hold Tenant harmless 
from and against any and all claims, judgments, damages, penalties, fines, 
costs, liabilities or losses, including without limitation reasonable 
attorneys' fees and costs, arising out of any Hazardous Material in, on or 
about the Project or the Premises as of the Commencement Date of this Lease, 
excluding however, any Hazardous Material whose presence was caused by Tenant 
by Tenant or any agents, employees, contractors, or invitees of Tenant.

(h)  The provisions of this Paragraph 32 shall survive the 
expiration or earlier termination of this Lease.

33. NOTICES

All notices and demands which are required or may be permitted to be 
given to either party by the other hereunder shall be in writing and shall be 
sent by United States mail, postage prepaid, certified, return receipt 
requested or a nationally recognized overnight courier, addressed to the 
addressee at Tenant's Address or Landlord's Address as specified in the Basic 
Lease Information, or to such other place as either party may from time to 
time designate in a notice to the other party given as provided herein. 
Copies of all notices and demands given to Landlord shall additionally be 
sent to Landlord's property manager at the address specified in the Basic 
Lease Information or at such other address as Landlord may specify in writing 
from time to time. Notice shall be deemed given upon actual receipt (or 
attempted delivery if delivery is refused), if personally delivered, or one 
(1) business day following deposit with a reputable overnight courier that 
provides a receipt, or on the third (3rd  day following deposit in the United 
States mail in the manner described above.

34. WAIVER

The waiver of any breach of any term, covenant or condition of this 
Lease shall not be deemed to be a waiver of such term, covenant or condition 
or of any subsequent breach of the same or any other term, covenant or 
condition herein contained. The subsequent acceptance of Rent by Landlord 
shall not be deemed to be a waiver of any preceding breach by Tenant, other 
than the failure of Tenant to pay the particular rental so accepted, 
regardless of Landlord's knowledge of such preceding breach at the time of 
acceptance of such Rent. No delay or omission in the exercise of any right or 
remedy of Landlord in regard to any Default by Tenant shall impair such a 
right or remedy or be construed as a waiver. Any waiver by Landlord of any 
Default must be in writing and shall not be a waiver of any other Default 
concerning the same or any other provisions of this Lease.

35. HOLDING OVER

Any holding over after the expiration of the Term, without the 
express written consent of Landlord, shall constitute a Default and, without 
limiting Landlord's remedies provided in this Lease, such holding over shall 
be construed to be a tenancy at sufferance, at a rental rate equal to the

38

greater of one hundred twenty five percent (125%) of the fair market rental 
value for the Premises as determined by Landlord or one hundred fifty percent 
(150%) of the Base Rent last due in this Lease, plus Additional Rent, and 
shall otherwise be on the terms and conditions herein specified, so far as 
applicable; provided, however, in no event shall any renewal or expansion 
option, option to purchase, or other similar right or option contained in 
this Lease be deemed applicable to any such tenancy at sufferance. If the 
Premises are not surrendered at the end of the Term or sooner termination of 
this Lease, and in accordance with the provisions of Paragraphs 11 and 32(e), 
Tenant shall indemnify, defend and hold Landlord harmless from and against 
and reimburse Landlord for any and all loss or liability resulting from delay 
by Tenant in so surrendering the Premises including, without limitation, any 
loss or liability resulting from any claim against Landlord made by any 
succeeding tenant or prospective tenant founded on or resulting from such 
delay and losses to Landlord due to lost opportunities to lease any portion 
of the Premises to any such succeeding tenant or prospective tenant, together 
with, in each case, actual attorneys' fees and costs.

36. SUCCESSORS AND ASSIGNS

The terms, covenants and conditions of this Lease shall, subject to 
the provisions as to assignment, apply to and bind the heirs, successors, 
executors, administrators and assigns of all of the parties hereto. If Tenant 
shall consist of more am one entity or person, the obligations of Tenant 
under this Lease shall be joint and several.

37. TIME

Time is of the essence of this Lease and each and every term, 
condition and provision herein.

38. BROKERS

Landlord and Tenant each represents and warrants to the other that 
neither it nor its officers or agents nor anyone acting on its behalf has 
dealt with any real estate broker except the Broker(s) specified in the Basic 
Lease Information in the negotiating or making of this Lease, and each party 
agrees to indemnify and hold harmless the other from any claim or claims, and 
costs and expenses, including attorneys' fees, incurred by the indemnified 
party in conjunction with any such claim or claims of any other broker or 
brokers to a commission in connection with this Lease as a result of the 
actions of the indemnifying party.

39. LIMITATION OF LIABILITY

Tenant agrees that, in the event of any default or breach by Landlord 
under this Lease or arising in connection herewith or with Landlord's 
operation, management, leasing, repair, renovation, alteration or any other 
matter relating to the Project or the Premises Tenant's remedies shall be 
limited solely and exclusively to an amount which is equal to the lesser of 
(a) the interest in the Building of the then current Landlord or (b) the 
equity interest Landlord would have in the Building if the Building were 
encumbered by third party debt in an amount equal to eighty percent (80%) of 

39

the value of the Building (as such value is determined by Landlord) provided 
that in no event shall such liability extend to any sales or insurance 
proceeds received by Landlord or the "LANDLORD PARTIES" in connection with 
the Project, Building or Premises. For purposes of this Lease, "Landlord 
Parties" shall mean, collectively Landlord, its partners, shareholders, 
officers, directors, employees, investment advisors, or any successor in 
interest of any of them. Neither Landlord, nor any of the Landlord Parties 
shall have any personal liability therefor, and Tenant hereby expressly 
waives and releases such personal liability on behalf of itself and all 
persons claiming by, through or under Tenant. The limitations of liability 
contained in this Paragraph 39 shall inure to the benefit of Landlord's and 
the Landlord Parties' present and future partners, beneficiaries, officers, 
directors, trustees, shareholders, agents and employees, and their respective 
partners, heirs, successors and assigns. Under no circumstances shall any 
present or future partner of Landlord (if Landlord is a partnership), future 
member in Landlord (if Landlord is a limited liability company) or trustee or 
beneficiary (if Landlord or any partner or member of Landlord is a trust), 
have any liability for the performance of Landlord's obligations under this 
Lease. Notwithstanding any contrary provision herein, neither Landlord nor 
the Landlord Parties shall be liable under any circumstances for injury or 
damage to, or interference with Tenant's business, including but not limited 
to, loss or profits, loss of rents or other revenues, loss of business 
opportunity, loss of goodwill or loss of use, in each case, however 
occurring. The provisions of this section shall apply only to the Landlord 
and the parties herein described, and shall not be for the benefit of any 
insurer nor any other third party.

40. FINANCIAL STATEMENTS

Within ten (10) business days after Landlord's request, Tenant shall 
deliver to Landlord the then most current audited (if available) financial 
statements of Tenant (including interim periods following the end of the last 
fiscal year for which annual statements are available), prepared or compiled 
by a certified public accountant, including a balance sheet and profit and 
loss statement for the most recent prior year, all prepared in accordance 
with generally accepted accounting principles consistently applied.

41. RULES AND REGULATIONS

Tenant agrees to comply with the rules and regulations attached 
hereto as Exhibit D, along with any reasonable modifications, amendments and 
supplements thereto, and such reasonable rules and regulations as Landlord 
may adopt in the future, from time to time, for the orderly and proper 
operation of the Building and the Project (collectively, the "RULES AND 
REGULATIONS"). The Rules and Regulations may include, but shall not be 
limited to, the following: (a) restriction of employee parking to a limited, 
designated area or areas; and (b) regulation of the removal, storage and 
disposal of Tenants refuse and other rubbish. The then current Rules and 
Regulations shall be binding upon Tenant upon delivery of a copy of them to 
Tenant. Landlord shall net be responsible use commercially reasonable efforts 
to enforce the Rules and Regulations te T-e for the failure of any other 
person to observe and abide by any of said Rules and Regulations.

42.  MORTGAGEE PROTECTION

(a)   MODIFICATIONS FOR LENDER. If, in connection with obtaining 
financing for the Project or any portion thereof, Landlord's lender shall 
request reasonable modifications to this Lease as a condition to such 
financing, Tenant shall not unreasonably withhold, delay or defer its consent 
to such modifications, provided such modifications do not material adversely 
affect Tenant's rights or increase Tenant's obligations under this Lease.

(b)   RIGHTS TO CURE. Tenant agrees to give to any trust deed or 
mortgage holder ("HOLDER"), by a method provided for in Paragraph 33 above, 
at the same time as it is given to Landlord, a copy of any notice of default 
given to Landlord, provided that prior to such notice Tenant has been 
notified, in writing, (by way of notice of assignment of rents and leases, or 
otherwise) of the address of such Holder. Tenant further agrees that if 
Landlord shall have failed to cure such default within the time provided for 
in this Lease, then the Holder shall have an additional reasonable period 
within which to cure such default.  If such default cannot be cured without 
Holder pursuing its remedies against Landlord, then such additional time as 
may be necessary to commence and complete a foreclosure proceeding, provided 
Holder commences and thereafter diligently pursues the remedies necessary to 
cure such default (including but not limited to commencement of foreclosure 
proceedings, if necessary to effect such cure), in which event this Lease 
shall not be terminated, but Tenant can offset damages against base rent 
during any period the default remains uncured.

43.   PARKING

(a)  Provided that Tenant shall not then be in Default under the 
terms and conditions of the Lease, and provided further, that Tenant shall 
comply with and abide by Landlord's parking rules and regulations from time 
to time in effect, Tenant shall have a license to use for the parking of 
standard size passenger automobiles the number of exclusive and designated 
and nonexclusive and undesignated parking spaces, if any, set forth in the 
Basic Lease Information in the Parking Areas, provided, however, that 
Landlord shall not be required to enforce Tenant's right to use such parking 
spaces; and, provided further, that the number of parking spaces allocated to 
Tenant hereunder shall be reduced on a proportionate basis in the event any 
of the parking spaces in the Parking Areas are taken or otherwise eliminated 
as a result of any Condemnation (as defined in Paragraph 22) or casualty 
event affecting such Parking Areas or any modifications made by Landlord to 
such Parking Areas. Any act that reduces the available parking ratio less 
than 3.0/1000 usable square feet to the premises, Tenant shall have the one 
time option to terminate this Lease with three (3) months' written notice 
following the actual taking of land. All unreserved spaces will be on a 
first-come, first-served basis in common with other tenants of and visitors 
to the Project in parking spaces provided by Landlord from time to time in 
the Project's Parking Areas. In the event Tenant is granted the use of 
exclusive and designated parking spaces, as indicated in the Basic Lease 
Information, then such spaces shall be located in the area(s) designated by 
Landlord from time to time. Tenant's license to use the parking spaces 
provided for herein shall be subject to such terms, conditions, rules and 
regulations as Landlord or the operator of the Parking Area may impose from 

42

time to time, including, without limitation, the imposition of a parking 
charge, which will only be implemented if required by any governmental agency.

(b)   Each automobile shall, at Landlord's option to be exercised 
from time to time, bear a permanently affixed and visible identification 
sticker to be provided by Landlord. Tenant shall not and shall not permit its 
Agents to park any vehicles in locations other than those specifically 
designated by Landlord as being for Tenant's use. The license granted 
hereunder is for self-service parking only and does not include additional 
rights or services. Neither Landlord nor its Agents shall be liable for: (i) 
loss or damage to any vehicle or other personal property parked or located 
upon or within such parking spaces or any Parking Areas whether pursuant to 
this license or otherwise and whether caused by fire, theft, explosion, 
strikes, riots or any other cause whatsoever; or (ii) injury to or death of 
any person in, about or around such parking spaces or any Parking Areas or 
any vehicles parking therein or in proximity thereto whether caused by fire, 
theft, assault, explosion, riot or any other cause whatsoever and Tenant 
hereby waives any claim for or in respect to the above and against all claims 
or liabilities arising out of loss or damage to property or injury to or 
death of persons, or both, relating to any of the foregoing. Tenant shall not 
assign any of its rights hereunder and in the event an attempted assignment 
is made, it shall be void.

(c)   In the event any tax, surcharge or regulatory fee is at any 
time imposed by any governmental authority upon or with respect to parking or 
vehicles parking in the parking spaces referred to herein, Tenant shall pay 
such tax, surcharge or regulatory fee as Additional Rent under this Lease, 
such payments to be made in advance and from time to time as required by 
Landlord (except that they shall be paid monthly with Base Rent payments if 
permitted by the governmental authority).

44.  ENTIRE AGREEMENT

This Lease, including the Exhibits and any Addenda attached hereto, 
which are hereby incorporated herein by this reference, contains the entire 
agreement of the parties hereto, and no representations, inducements, 
promises or agreements, oral or otherwise, between the parties, not embodied 
herein or therein, shall be of any force and effect. If there is more than 
one Tenant, the obligations hereunder imposed shall be joint and several.

45.   INTEREST

Any installment of Rent and any other sum due from Tenant under this 
Lease which is not received by Landlord within three (3) days from when the 
same is due shall bear interest from the date such payment was originally due 
under this Lease until paid at the greater of (a) an annual rate equal to the 
maximum rate of interest permitted by law, or (b) ten percent (10%) per 
annum. Payment of such interest shall not excuse or cure any Default by 
Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred 
by Landlord in collection of such amounts.

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46.   GOVERNING LAW; CONSTRUCTION

This Lease shall be construed and interpreted in accordance with the laws 
of state in which the Premises are located. The parties acknowledge and agree 
that no rule of construction to the effect that any ambiguities are to be 
resolved against the drafting party shall be employed in the interpretation 
of this Lease, including the Exhibits and any Addenda attached hereto. All 
captions in this Lease are for reference only and shall not be used in the 
interpretation of this Lease. Whenever required by the context of this Lease, 
the singular shall include the plural, the masculine shall include the 
feminine, and vice versa. If any provision of this Lease shall be determined 
to be illegal or unenforceable, such determination shall not affect any other 
provision of this Lease and all such other provisions shall remain in full 
force and effect.

47.   REPRESENTATIONS AND WARRANTIES OF TENANT

Tenant (and, if Tenant is a corporation, partnership, limited liability 
company or other legal entity) hereby makes the following representations and 
warranties, each of which is material and being relied upon by Landlord, is 
true in all respects as of the date of this Lease, and shall survive the 
expiration or termination of the Lease.

2.   If Tenant is an entity, Tenant is duly organized, validly 
existing and in good standing under the laws of the state of its 
organization, and is qualified to do business in the state in which the 
Premises are located, and the persons executing this Lease on behalf of 
Tenant have the full right and authority to execute this Lease on behalf of 
Tenant and to bind Tenant without the consent or approval of any other person 
or entity. Tenant has full power, capacity, authority and legal right to 
execute and deliver this Lease and to perform all of its obligations 
hereunder. This Lease is a legal, valid and binding obligation of Tenant, 
enforceable in accordance with its terms.

3.  Tenant has not (1) made a general assignment for the benefit of 
creditors, (2) filed any voluntary petition in bankruptcy or suffered the 
filing of an involuntary petition by any creditors, (3) suffered the 
appointment of a receiver to take possession of all or substantially all of 
its assets, (4) suffered the attachment or other judicial seizure of all or 
substantially all of its assets, (5) admitted in writing its inability to pay 
its debts as they come due, or (6) made an offer of settlement, extension or 
composition to its creditors, generally.

48.   NAME OF BUILDING

In the event Landlord chooses to change the name or address of the 
Building and/or the Project, Tenant agrees that such change shall not affect 
in any way its obligations under this Lease, and that, except for the name or 
address change, all terms and conditions of this Lease shall remain in full 
force and effect. Tenant agrees further that such name or address change 
shall not require a formal amendment to this Lease, but shall be effective 
upon Tenant's receipt of written notification from Landlord of said change. 
Landlord shall not change address unless required to do so by any postal or 
city authority. 

44

49.   SECURITY

(a)   Tenant acknowledges and agrees that, while Landlord may in 
its sole and absolute discretion engage security personnel to patrol the 
Building or the Project, Landlord is not providing any security services with 
respect to the Premises and that Landlord shall not be liable to Tenant for, 
and Tenant waives any claim against Landlord with respect to, any loss by 
theft or any other damage suffered or incurred by Tenant in connection with 
any unauthorized entry into the Premises or any other breach of security with 
respect to the Premises, the Building or the Project.

(b)   Tenant hereby agrees to the exercise by Landlord and 
Landlord's Agents, within their sole discretion, of such security measures 
as, but not limited to, the evacuation of the Premises, the Building or the 
Project for cause, suspected cause or for drill purposes, the denial of any 
access to the Premises, the Building or the Project and other similarly 
related actions that it deems necessary to prevent any threat of property 
damage or bodily injury. The exercise of such security measures by Landlord 
and Landlord's Agents, and the resulting interruption of service and 
cessation of Tenant's business, if any, shall not be deemed an eviction or 
disturbance of Tenant's use and possession of the Premises, or any part 
thereof, or render Landlord or Landlord's Agents liable to Tenant for any 
resulting damages or relieve Tenant from Tenant's obligations under this 
Lease.

50.   JURY TRIAL WAIVER

Tenant and landlord hereby waives any right to trial by jury with 
respect to any action or proceeding (i) brought by Landlord, Tenant or any 
other party, relating to (A) this Lease and/or any understandings or prior 
dealings between the parties hereto, or (B) the Premises, the Building or the 
Project or any part thereof, or (ii) to which Landlord is a party.

51.   RECORDATION

Neither this Lease, nor any memorandum, affidavit or other writing with 
respect thereto, shall be recorded by Tenant or by any one acting through, 
under or on behalf of Tenant, and the recording thereof in violation of this 
provision shall make this Lease null and void at Landlord's election.

52.   RIGHT TO LEASE

Landlord reserves the absolute right to effect such other tenancies in 
the Project as Landlord in the exercise of its sole business judgment shall 
determine to best promote the interest of the Project. Tenant does not rely 
on the fact, nor does Landlord represent, that any specific tenant or type or 
number of tenants shall, during the Lease Term, occupy any space in the 
Project.

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53.   FORCE MAJEURE

Any prevention, delay or stoppage due to strikes, lockouts, labor 
disputes, acts of God, inability to obtain services, labor, or materials or 
reasonable substitutes therefor, governmental actions, civil commotions, fire 
or other casualty, and other causes beyond the reasonable control of the 
party obligated to perform, except with respect to the obligations imposed 
with regard to Rent and other charges to be paid by Tenant pursuant to this 
Lease (collectively, the "Force Majeure"), notwithstanding anything to the 
contrary contained in this Lease, shall excuse the performance of such party 
for a period equal to any such prevention, delay or stoppage and therefore, 
if this Lease specifies a time period for performance of an obligation of 
either party, that time period shall be extended by the period of any delay 
in such party's performance cause by a Force Majeure.

54.   ACCEPTANCE

This Lease shall only become effective and binding upon full execution 
hereof by Landlord and delivery of a signed copy to Tenant.

55.   RENEWAL OPTION (WITH FMV RENT)

(a)   EXERCISE OF OPTIONS. Provided Tenant is not in default 
(beyond applicable notice and grace periods) pursuant to any of the terms and 
conditions of this Lease, Tenant shall have the option (the "Option") to 
renew this Lease for an additional five (5) year period (the "Option Period") 
for the period commencing on the date following the Expiration Date upon the 
terms and conditions contained in this Lease, except, as provided in this 
Paragraph 56. To exercise the Option, Tenant shall give Landlord notice (the 
Extension Notice) of the intent to exercise said Option not less than twelve 
(12) months or more than fifteen (15) months prior to the date on which the 
Option Period which is the subject of the notice will commence. The notice 
shall be given as provided in Paragraph 33 hereof. In the event Tenant shall 
exercise the Option, this Lease will terminate in its entirety at the end of 
the Option Period and Tenant will have no further Options to renew or extend 
the Term of this Lease.

(b)   DETERMINATION OF BASE RENT. The Base Rent for the Option 
shall be determined as follows:

(i)   Landlord and Tenant will have thirty (30) days after 
Landlord receives the Extension Notice within which to agree on the fair 
market rental value of the Premises as of the commencement date of the Option 
Period, as defined in subsection (ii) below. If they agree on the Base Rent 
within thirty (30) days, they will amend this Lease by stating the Base Rent.

(ii)   If Landlord and Tenant are unable to agree on the Base 
Rent for the Option Period within thirty (30) days, the Base Rent for the 
Option Period will be the greater of (i) the fair market rental value of the 
Premises as of the commencement date of the Option Period as determined in 
accordance with subsection (iii) hereof, and (ii) the last Base Rent set 
forth in the Basic Lease 

46

Information. As used in this Lease, the fair market rental value of the 
Premises" means what a landlord under no compulsion to lease the Premises, 
and a tenant under no compulsion to lease the Premises, would determine as 
Base Rent (including initial monthly rent and rental increases) for the 
Option Period, as of the commencement of the Option Period, taking into 
consideration the uses permitted under this Lease, the quality, size, design 
and location of the Premises, and the rent for comparable buildings located 
in the vicinity of the Project.

(iii)   Within thirty (30) days after the expiration of the thirty 
(30) day period set forth in subparagraph (ii) above, Landlord and Tenant 
shall each appoint one licensed real estate appraiser, and the two appraisers 
so appointed shall jointly attempt to determine and agree upon the then fair 
market rental value of the Premises. If they are unable to agree, then each 
appraiser so appointed shall set one value, and notify the other appraiser, 
of the value set by him or her, concurrently with such appraiser's receipt of 
the value set by the other appraiser. The two appraisers then shall, 
together, select a third licensed appraiser, who shall make a determination 
of the then fair market rental value, after reviewing the reports of the 
first two appraisers appointed by the parties, and after doing such 
independent research as he/she deems appropriate. The value determined by the 
third appraiser shall be the then fair market rental value of the Premises. 
Landlord will pay the fee of the appraiser that it appoints, Tenant will pay 
the fee of the appraiser that it appoints, and Landlord and Tenant will share 
equally the fee of the third appraiser.

56.   RIGHT OF FIRST OPPORTUNITY.

Provided Tenant is not then in default under the terms of this Lease, 
Landlord shall notify Tenant in writing that additional office space 
(approximately 15,500 sf) located at the south end of Buildings J consisting 
of 7,100 square feet and the south end of building K consisting of 8,400 
square feet (the "Additional Space") is to become available in the Building 
together with the terms on which Landlord desires to lease such space (the 
"Offer Terms"). Landlord shall reserve the right to renew current Tenants. If 
current Tenant(s) does not renew, Landlord shall notify Pixelworks prior to 
taking the space to market.

LANDLORD:   SOUTHCENTER III & IV INVESTORS LLC, 
a Limited Liability Company

By: Allegis Realty Investors LLC,
Its Investment Advisor and Agent

By: /s/ Thomas Enger
------------------------------
Senior Vice President

TENANT:    PIXELWORKS, INC.
an Oregon corporation

47

By: /s/ Hans H. Olsen
------------------------------------
Print Name:  Hans H. Olsen
---------------------------
Its: Vice President
----------------------------------

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EXHIBIT A

[GRAPHIC]

This graphic is an architect's drawing of the general layout of the 
leased premises.

49

EXHIBIT B

TENANT IMPROVEMENTS

Lease between
SOUTHCENTER III & IV INVESTORS LLC, AS LANDLORD
and
________________, as Tenant

WORK LETTER

1.   (a) Landlord shall provide Tenant with an allowance (the 
"Allowance") which shall be an amount equal to One Hundred Twenty Five 
Thousand Dollars ($125,000). Landlord at their sole cost and expense will 
also construct shower rooms with lockers in each restroom, pay for any 
required fire/life safety code updates, and provide a used reception counter 
from another Insignia/ESG, Inc. Property.

(b) The Allowance shall be applied (i) toward architectural 
(including architectural services relating to Tenant's furnishings, if any) 
and engineering and related expenses, legal expenses, moving and relocation 
expenses and such other expenses incurred in connection with the relocation 
of Tenant to the Premises from Tenant's current premises, and (ii) toward the 
cost of Tenant's leasehold improvements as specified in Tenant's drawings 
designated in Section 3 (collectively, the "Tenant Improvements") and as 
approved by Tenant as provided in this Work Letter, with any portion unused 
to be forfeited by Tenant and retained by Landlord.

2.   All Tenant Improvements shall be performed and completed by 
Landlord's contractor in accordance with the Final Plans (as hereinafter 
defined) and at the sole cost and expense of Tenant, subject to the 
Allowance. All mechanical, structural, electrical, plumbing and fire 
sprinkler engineering required to furnish the Tenant Improvements requested 
by Tenant subsequent to Tenant's approval of the Drawings (as hereinafter 
defined), shall be done by Landlord's engineers at Tenant's expense subject 
to the Allowance.

3.   Tenant shall produce its basic layout drawings ("Tenant's Plans") 
and submit each to Landlord by no later than _________________, 200_:

Tenant's Plans shall include, without limitation, the following:

(a)  Partition/door location

(b)  Telephone/electric (quantity)

(c)  Finish Specifications (as required by Tenant, including 
selection of paint colors, finish details, and non-standard construction work 
to be performed within the Premises by Landlord's 

50

contractor)

(d)  Telephone/electric (final location)

If Tenant's Plans indicate that Tenant shall be in violation of any floor 
load requirements, Landlord shall so notify Tenant within 15 business days 
after receipt of Tenant's Plans, specifying all such violations, and Tenant 
shall correct such violations and resubmit Tenant's Plans within 5 business 
days thereafter. If Landlord does not notify Tenant within such time period, 
Tenant's Plans shall thereafter be deemed to be in full compliance of all 
floor load requirements as required under the Lease. Landlord shall at its 
expense then cause its architect to produce the construction drawings and its 
mechanical (sprinkler, air conditioning, heating, electric and plumbing) 
drawings covering all mechanical elements of the Tenant Improvements 
(together the "Drawings"). Landlord shall submit the Drawings to Tenant for 
Tenant's approval no later than fifteen (15) business days after Landlord's 
receipt from Tenant of Tenant's Plans, together with an itemized budget (the 
"Budget") for the Tenant Improvements and a statement specifying any "long 
lead time items" included as part of the Tenant Improvements and the 
alternatives which will avoid such delay. Tenant shall approve or disapprove 
the Drawings, Budget and, if included, the statement within five (5) business 
days of their receipt.

4.   (a) If Tenant approves the Budget or approves a Tenant Improvement 
item which Landlord has specified as a cause of delay, then Tenant shall be 
responsible for the cost of the Tenant Improvement as shown in the Budget in 
excess of the Allowance and there shall be no abatement of Rent due to any 
such delay (provided the delay is not caused by the intentional or negligent 
act or omission of Landlord, its agents, employees, or contractors). If the 
cost of the Tenant Improvement as shown in the Budget shall exceed the 
Allowance, then upon completion Tenant shall deposit with Landlord such 
excess together with Tenant's approval of the Budget.

(b) If Tenant fails to either approve or disapprove the Drawings, 
Budget or, if included, the statement, within 5 business days of receipt 
thereof, such item shall be deemed approved. If the Drawings, Budget or 
statement are disapproved, Tenant shall have 5 business days to submit 
revised Tenant's Plans to Landlord and Landlord shall then have 15 business 
days to submit revised Drawings and a revised Budget and, if necessary, a 
revised statement. 
Landlord shall not unreasonably refuse to satisfy any 
objections of Tenant to the Drawings, Budget and statement and Tenant shall 
not unreasonably withhold its approval. The review and revision of the 
Drawings, Budget and statement shall continue until approved by Tenant. The 
approved Drawings, Budget and statement (if any) shall be attached to the 
Lease as Schedule B- I (the "Final Plans").

5.   Upon no less than three (3) weeks' prior written notice to 
Landlord, and provided such early entry will not interfere with Landlord's 
completion of the Tenant Improvements, Landlord shall permit Tenant and 
Tenant's agents and contractors to enter said Premises prior to the 
Commencement Date in order that Tenant may do such other work as may be 
required by Tenant to make said Premises ready for Tenant's use and occupancy 
thereof ("Fit-Up Work"). Any such 

51

entry into and occupation of the Premises by Tenant shall be deemed to be 
under all of the terms, covenants, conditions and provisions of the Lease 
except as to the covenant to pay Rent, and Landlord shall not be liable in 
any way for any injury, loss or damage to any Fit-up Work prior to the 
Commencement Date, unless directly caused by an act or omission of Landlord, 
its agents, employees or contractors. Landlord shall provided reasonable 
security to protect the Fit-up Work.

6.   If the substantial completion of the Tenant Improvements shall be 
delayed due to any act or omission of Tenant or Tenant's Agents (including, 
but not limited to, (i) any delays due to change orders, or (ii) any delays 
by Tenant in the submission of plans, drawings, specifications or other 
information or in approving any working drawings or estimates or in giving 
any authorizations or approvals, or (iii) Tenant's interference with the 
progress of the Tenant improvements during any time that Tenant is given 
access to the Premises), then the Premises shall be deemed substantially 
completed in accordance with the Final Plans on the date when they would have 
been ready but for such delay.

7.   If, prior to the Commencement Date, Tenant shall require 
improvements or changes (individually or collectively, "Change Orders") to 
the Premises in addition to, revision of, or substitution for the Tenant 
Improvements, Tenant shall deliver to landlord for Landlord's approval plans 
and specifications for such Change Orders. If Landlord does not approve of 
the plans for Change Orders, Landlord shall advise Tenant of the revisions 
required. In addition to any other items reasonably required by Landlord, 
I:,andlord's revisions may be based upon whether the plans and 
specifications: (i) affect or ate not consistent with the base structural 
components or systems of the Building, (ii) are visible from outside the 
Premises, (iii) affect safety, (iv) have or could have the effect of 
increasing Operating Expenses, or (v) in Landlord's judgment, are not 
consistent with quality and character of the Project. Tenant shall revise and 
redeliver the plans and specifications to Landlord within five (5) business 
days of Landlord's advice or Tenant shall be deemed to have abandoned its 
request for such Change Orders. Tenant shall pay for all preparations and 
revisions of plans and specifications, and the net costs of the construction 
of all Change Orders, subject to the Allowance.

8.   The Premises shall be conclusively presumed to be in satisfactory 
condition on the Commencement Date except for any minor or insubstantial 
details of construction, mechanical adjustment or decoration which remain to 
be performed, the non-performance of which do not materially interfere with 
Tenant's use of the Premises and of which Tenant gives Landlord notice within 
thirty (30) days after the Commencement Date specifying such details with 
reasonable particularity which details Landlord shall repair within sixty 
(60) days of receipt of such notice.

52

EXHIBIT C

COMMENCEMENT AND EXPIRATION DATE MEMORANDUM

LANDLORD: SOUTHCENTER III & IV INVESTORS LLC

TENANT:____________________________________________

LEASE DATE:_____________________, 200__

PREMISES:   Located at ____________________________________

Tenant hereby accepts the Premises as being in the condition required 
under the Lease, with all Tenant Improvements completed (except for minor, 
punchlist items which Landlord agrees to complete).

The Commencement Date of the Lease is hereby established as 
______________, 200__ and the Expiration Date is ___________________, 200__.

TENANT:________________________________________
a _______________________________________

By:______________________________________

Print Name:_______________________________
Its:______________________________________

Approved and Agreed:

Landlord:

SOUTHCENTER III & IV INVESTORS LLC,
a Delaware Limited Liability Company

By:  Allegis Realty Investors LLC,
Its Investment Advisor and Agent

By:  _________________________________

53

_________________________________
Senior Vice President

54

EXHIBIT D

RULES AND REGULATIONS

This exhibit, entitled "Rules and Regulations," is and shall constitute 
Exhibit D to the Lease Agreement dated as of the Lease Date, by and between 
Landlord and Tenant for the Premises. The terms and conditions of this 
Exhibit D are hereby incorporated into and are made a part of the Lease. 
Capitalized terms used, but not otherwise defined, in this Exhibit D have the 
meanings ascribed to such terms in the Lease.

1.   Tenant shall not use any method of heating or air conditioning 
other than that supplied by Landlord without the consent of Landlord.

2.   All window coverings installed by Tenant and visible from the 
outside of the building require the prior written approval of Landlord.

3.   Tenant shall not use, keep or permit to be used or kept any foul or 
noxious gas or substance or any flammable or combustible materials on or 
around the Premises, except to the extent that Tenant is permitted to use the 
same under the terms of Paragraph 32 of the Lease.

4.   Tenant shall not alter any lock or install any new locks or bolts 
on any door at the Premises without the prior consent of Landlord.

5.   Tenant shall not make any duplicate keys without the prior consent 
of Landlord.

6.   Tenant shall park motor vehicles in parking areas designated by 
Landlord except for loading and unloading. During those periods of loading 
and unloading, Tenant shall not unreasonably interfere with traffic flow 
around the Building or the Project and loading and unloading areas of other 
tenants. Tenant shall not park motor vehicles in designated parking areas 
after the conclusion of normal daily business activity.

7.   Tenant shall. not disturb, solicit or canvas any tenant or other 
occupant of the Building or Project and shall cooperate to prevent same.

8.   No person shall go on the roof without Landlord's permission.

9.   Business machines and mechanical equipment belonging to Tenant 
which cause noise or vibration that may be transmitted to the structure of 
the Building, to such a degree as to be objectionable to Landlord or other 
tenants, shall be placed and maintained by Tenant, at Tenant's expense, on 
vibration eliminators or in noise-dampening housing or other devices 
sufficient to eliminate noise or vibration.

10.   All goods, including material used to store goods, delivered to the 
Premises of Tenant 

55

shall be immediately moved into the Premises and shall not be left in parking 
or receiving areas overnight.

11.   Tractor trailers which must be unhooked or parked with dolly wheels 
beyond the concrete loading areas must use steel plates or wood blocks under 
the dolly wheels to prevent damage to the asphalt paving surfaces. No parking 
or storing of such trailers will be permitted in the auto parking areas of 
the Project or on streets adjacent thereto.

12.   Forklifts which operate on asphalt paving areas shall not have 
solid rubber tires and shall only use tires that do not damage the asphalt.

13.   Tenant is responsible for the storage and removal of all trash and 
refuse in excess of regular janitorial services provided by Landlord. All 
such trash and refuse shall be contained in suitable receptacles stored 
behind screened enclosures at locations approved by Landlord.

14.   Tenant shall not store or permit the storage or placement of goods 
or merchandise in or around the common areas surrounding the Premises. No 
displays or sales of merchandise shall be allowed in the parking lots or 
other common areas.

15.   Tenant shall not permit any animals, including but not limited to, 
any household pets, to be brought or kept in or about the Premises, the 
Building, the Project or shy of the common areas, except for "seeing eye" 
dogs.

INITIALS: _______________________________

TENANT: _______________________________

LANDLORD:_____________________________

56

EXHIBIT E

FORM OF ESTOPPEL CERTIFICATE

_________________________ (herein "Tenant") hereby certifies to 
_________________ and its successors and assigns that Tenant leases from 
__________________________________ ("Landlord") approximately square feet of 
space (the "Premises") in _______________ pursuant to that certain Lease 
Agreement dated _________________ by and between Landlord and Tenant, as 
amended by __________________ (collectively, the "Lease"), a true and correct 
copy of which is attached hereto as Exhibit A. Tenant hereby certifies 
to___________________, that as of the date hereof:

1.   The Lease is in full force and effect and has not been modified, 
supplemented or amended, except as set forth in the introductory paragraph 
hereof.

2.   Tenant is in actual occupancy of the Promises under the Lease and 
Tenant has accepted the same. Landlord has performed all obligations under 
the Lease to be performed by Landlord, including, without limitation, 
completion of: all tenant work required under the Lease and the making of any 
required payments or contributions therefor. Tenant is not entitled to any 
further payment or credit for tenant work.

3.   The initial term of the lease commenced ______________________ and 
shall expire ____________________. Tenant has the following rights to renew 
or extend the term of the Lease or to expand the Premises:

4.   Tenant has not paid any rentals or other payments more than one (1) 
month in advance except as follows:_______________________________.

5.   Base Rent payable under the Lease is _____________________. Base 
Rent and additional Rent have been paid through _________________. There 
currently exists no claims, defenses, rights of set-off or abatement to or 
against the obligations of Tenant to pay Base Rent or Additional Rent or 
relating to any other term, covenant or condition under the Lease.

6.   There are no concessions, bonuses, free months' rent, rebates or 
other matters affecting the rentals except as follows: 
________________________.

7.   No security or other deposit has been paid with respect to the 
Lease except as follows: _______________________________.

8.   Landlord is not currently in default under the Lease and there are 
no events or conditions existing which, with or without notice or the lapse 
of time, or both, could constitute a default of the Landlord under the Lease 
or entitle Tenant to offsets or defenses against the prompt payment of rent 
except as follows:________________________. Tenant is not in default under any

57

of the terms and conditions of the lease nor is there now any fact or 
condition which, with notice or lapse of time or both, will become such a 
default.

9.  Tenant has not assigned, transferred, mortgaged or otherwise 
encumbered its interest under the lease, nor subleased any of the Premises 
nor permitted any person or entity to use the Premises except as follows: 
_________________________.

10.  Tenant has no rights of first refusal or options to purchase the 
property of which the Premises is a part.

11.  The Lease represents the entire agreement between the parties with 
respect to Tenant's right to use and occupy the Premises.

Tenant acknowledges that the parties to whom this certificate is 
addressed will be relying upon the accuracy of this certificate in connection 
with their acquisition and/or financing of the Premises.

IN WITNESS WHEREOF, Tenant has caused this certificate to be executed
this ________day of _________________, 200__.

"TENANT"

___________________________________

By: ________________________________
Name:
Title:

58

EXHIBIT F

FORM OF SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
AGREEMENT

THIS AGREEMENT is dated the ____ day of ______________, 200__, and is made 
between _______________________, a _________________, having a place of 
business and mailing address of 
_______________________________________________________ ("Mortgagee"), and 
______________________, a ___________________, having a place of business and 
mailing address of _________________________________________ ("Tenant").

RECITALS:

I.Tenant has entered into a certain lease ("Lease") dated 
___________________, 200____, with ____________________ as lessor 
("Landlord") covering certain premises known as _______________________ being 
part of a premises commonly known as _____________________ and located in 
__________________________ (the "Premises").

II   Mortgagee has agreed to make a mortgage loan in the amount of 
__________________ ($___________) Dollars (together with all amendments, 
modifications, supplements, renewals, extensions, spreaders and 
consolidations thereto, the "Mortgage") to the Landlord, secured by the 
Premises, and the parties desire to set forth their agreement herein. 

NOW, THEREFORE, in consideration of the Premises, and of the sum of One 
Dollar ($1.00) by each party in hand paid to the other, the receipt of which 
is hereby acknowledged, the parties hereby agree as follows:

A.  Said Lease is and shall be subject and subordinate to the Mortgage 
insofar as it affects the real property of which the Premises form a part to 
the full extent of the amounts secured thereby and interest thereon.

B.  Tenant agrees that it will attorn to and recognize any purchaser at 
a foreclosure sale under the Mortgage, any transferee who acquires the 
Premises by deed in lieu of foreclosure, and the successors and assigns of 
such purchaser(s), as its landlord for the unexpired balance (and any 
extensions, if exercised) of the term of said Lease upon the same terms and 
conditions set forth in said Lease.

C.  If it becomes necessary to foreclose the Mortgage, Mortgagee will 
not terminate said Lease nor join Tenant in summary or! foreclosure 
proceedings (unless such joinder shall be required to protect Mortgagee's 
interest under the Mortgage and in which case Mortgagee shall not seek 
affirmative relief from Tenant in such action or proceeding) so long as 
Tenant is not in default under any of the terms, covenants, or condition of 
said Lease. 

59

D.  If Mortgagee succeeds to the interest of Landlord under the Lease, 
Mortgagee shall not be:

1. liable for any act or omission of any prior landlord (including 
Landlord); or

2. liable for the return of any security deposit; or

3. subject to any offsets or defenses which Tenant might have 
against any prior landlord (including Landlord); or

4. bound by any rent or additional rent which Tenant might have paid 
for more than the current month to any prior landlord (including Landlord); or

5. bound by any amendment, modification, extensions or renewal of 
the Lease made without Lender's consent; or

6. bound by any representation or warranty made by any prior 
landlord (including Landlord).

E.  This Agreement shall be binding upon and shall inure to the benefit 
of the parties hereto and their successors and assigns.

F.  Tenant agrees to give Mortgagee, by registered or certified mail, 
return receipt requested, a copy of any notice of default served upon 
Landlord, provided that prior to such notice Tenant has been notified in 
writing (by way of Notice of Assignment of Rent and Leases, or otherwise) of 
the address of such Mortgagee. Tenant further agrees that Tenant shall not 
terminate the Lease nor abate rents thereunder or claim an offset against 
rents thereunder unless notice has been given to Mortgagee and Mortgagee has 
been given a reasonable period of time (including a period of time to 
commence and complete a foreclosure proceeding) to cure such default.

G.  Tenant acknowledges that it has notice that Landlord's interest 
under the Lease and the rents thereunder have been collaterally assigned to 
Mortgagee as part of the security for the obligations secured by the 
Mortgage. Notice from Mortgagee to Tenant directing payment of rent and all 
other sums due under the Lease shall have the same effect under the Lease as 
a notice to Tenant from Landlord and Tenant agrees to be bound by such 
notice. In the event of any conflict or inconsistency between a notice from 
Landlord and a notice from Mortgagee, thee notice from Mortgagee shall 
control.

H.  This Agreement shall not be modified, amended or terminated except 
by a writing duly executed by the party against whom the same is sought to be 
enforced.

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I.  This Agreement shall be governed by and construed in accordance with 
the internal laws (as opposed to the laws of conflicts) of the state in which 
the Premises are located.

IN WITNESS WHEREOF, the parties hereto have executed these presents as 
of the day and year first above written.

___________________________ Mortgagee:__________________________________
Date

By: ________________________________________
Its:________________________________________
Address:____________________________________
____________________________________
____________________________________

___________________________Tenant:__________________________________
Date

By: ________________________________________
Its:________________________________________
Address:____________________________________
____________________________________
____________________________________

61

EXHIBIT 10.8

CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED 
AND FILED SEPARATELY WITH THE COMISSION. CONFIDENTIAL TREATMENT 
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.

VAUTOMATION INCORPORATED SYNTHESIZABLE SOFT CORE AGREEMENT
NUMBER: 10-24-97-01

This Agreement is entered into on 11-4-97 (Effective Date) between 
VAutomation Incorporated (VAutomation), 20 Trafalgar Sq., Nashua, NH 03063 
and Pixelworks, Incorporated (Customer), 8100 SW Nyberg Road, Tualatin, OR 
97062.

1.     DEFINITIONS

(a)    "Intellectual Property" means all intellectual property related 
to the Soft Cores, including without limitation soft cores, hard cores, 
licensed software, documentation or other proprietary materials and 
information described on the License Key for the Soft Core.

(b)    "Services" means the consulting, hardware or software 
engineering or other services which are described in the statements of work 
for the attachment(s) to this Agreement.

(c)    "Soft Core(s)" means those reusable pre-designed synthesizable 
components for the design of integrated circuits set forth in attachment A.

(d)    "Customer's Products" means any integrated circuits (i) 
designed, manufactured, or marketed by Customer that incorporate all or any 
part of a Soft Core, or (ii) designed using any Intellectual Property.

(e)    "License Key" means one or more documents (in physical or 
electronic form) provided to Customer by VAutomation which list:  (i) the 
version number of the Soft Core licensed to Customer; (ii) the design 
materials and information provided for each Soft Core licensed to Customer 
and/or (iii) the codes which the Customer must input to the installation 
software to complete the installation process. A sample License Key is 
attached as Exhibit A.

(f)    "End User" shall mean a customer of Customer who purchases or 
agrees to purchase from Customer integrated circuits designed by Customer 
using any Intellectual Property or incorporating any of the Soft Core.

(g)    "Maintenance Program" shall mean the software maintenance 
program, consisting of upgrade and new releases of the Soft Core and 
telephone support conducted by VAutomation, as further described in Section 9.

2.     PAYMENT TERMS 

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(a)    License fees for Intellectual Property, fees for Services and 
such other fees as may be agreed to by the parties shall be specified in the 
attachment(s) to this Agreement. Customer shall pay all invoices within 30 
days of date of invoice.

(b)    Any overdue payment shall bear interest at the highest rate 
then permitted by law.

3.     PURCHASE ORDER/DELIVERY TERMS

(a)    In order to obtain Intellectual Property and Services from 
VAutomation, Customer must first submit a purchase order. As part of the 
purchase order, Customer must identify the Intellectual Property and Services 
it wishes to obtain. All purchase orders are subject to acceptance by 
VAutomation, in its sole discretion. Customer's receipt and use of all 
Intellectual Property and documentation shall be governed by the terms and 
conditions of this Agreement and the attachment(s) to this Agreement. Nothing 
contained in any purchase order, purchaser order acknowledgment, or invoice 
shall in any way negate or modify such terms or add any additional terms or 
conditions, all of which are objected to. The above notwithstanding, variable 
terms such as price (but not payment terms), quantity, delivery date, and 
shipping instructions, as well as tax exempt status, if applicable, shall be 
specified on each purchase order or acknowledgment.

(b)    Upon the acceptance of a purchase order by VAutomation and the 
satisfaction of all VAutomation prerequisites to delivery, VAutomation shall 
deliver to Customer the Intellectual Property and Services as specified in 
this Agreement and any attachment(s) to this Agreement.

4.     TERM AND TERMINATION

(a)    The term of this Agreement shall begin upon the Effective Date 
and shall continue until terminated in accordance with the terms of this 
Agreement.

(b)    If either party breaches a material provision and does not cure 
the breach within 30 days after written notice from the other party, the 
non-breaching party shall have the right to:  (i) suspend performance or 
payment until the breach is cured; (ii) terminate this Agreement and/or the 
attachment(s) to this Agreement; or (iii) seek a combination of (a) and (b) 
and all such other remedies as are available at law or equity and are not 
limited by the terms of this Agreement.

(c)    Should either party:  (i) become insolvent; (ii) make an 
assignment for the benefit of creditors; (iii) file or have filed against it 
a petition in bankruptcy or seeking reorganization; (iv) have a receiver 
appointed; or (v) institute any proceedings for liquidation or winding up; 
then the other party may, in addition to other rights and remedies it may 
have, terminate this Agreement immediately by written notice.

(d)    Upon termination of this Agreement or any attachment(s) to this 
Agreement, the licenses, rights and covenants granted under this Agreement or 
the attachment(s) and the 

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obligations imposed by this Agreement or attachment(s) shall cease, except as 
otherwise expressly set forth in this Agreement or the attachment(s). Upon 
termination, Customer shall return to VAutomation or destroy the Intellectual 
Property, including all copies and documentation. Customer shall provide 
written notice of return or destruction to VAutomation within 30 days after 
termination. Such written notice shall include a list of all Intellectual 
Property returned or destroyed and shall be signed by an officer of Customer 
and notarized by a notary public.

5.     INTELLECTUAL PROPERTY TRADE SECRET AND CONFIDENTALITY

(a)    Intellectual Property constitutes or contains trade secrets and 
confidential information of VAutomation or its licensors. Except as otherwise 
provided in this Agreement, Customer shall not make Intellectual Property 
available in any form to any other person or entity.  Customer shall take 
appropriate action to protect the confidentiality of all Intellectual 
Property and insure that any person permitted access to Intellectual Property 
does not disclose Intellectual Property or use Intellectual Property except 
as permitted by this Agreement. Customer shall not reverse assemble, reverse 
compile, or otherwise reverse engineer Intellectual Property, in whole or in 
part.

(b)    It is a condition of this Agreement and the attachment(s) to 
this Agreement, that Customer protect the confidentiality of all Intellectual 
Property received from VAutomation under this Agreement or the attachment(s) 
to this Agreement. To that end, Customer specifically promises to:  (i) 
maintain in confidence all Intellectual Property; (ii) refrain from 
disclosing Intellectual Property to anyone, except Customer's employees and 
consultants who work with the Intellectual Property for Customer's benefit, 
unless VAutomation specifically authorized disclosure in writing and in 
advance of the disclosure; and (iii) not use Intellectual Property in any 
manner which is contrary to the license grants contained in this Agreement or 
the attachment(s) to this Agreement.

(c)    Customer represents that it maintains a reasonable system, 
including written confidentiality agreements with its employees, consistent 
with industry standards, to protect its own confidential business information 
and Intellectual Property will be protected by such system to the same extent.

(d)    The obligations of this Section 5 shall survive termination or 
expiration of this Agreement.

6.     LICENSE GRANT

(a)    VAutomation grants to Customer certain personal, nonexclusive, 
nontransferable licenses to use Intellectual Property. The licenses granted 
to Customer are:  (i) a license to design and simulate Customer's Products; 
(ii) if authorized on the License Key, a license to copy and distribute 
Intellectual Property to End-Users as a part of Customer's cell library, 
subject to all of 

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the requirements of this Agreement; (iii) a license to make and sell or 
otherwise commercially distribute Customer's Projects world-wide to 
End-Users; and (iv) a license to have Customer's Products manufactured and/or 
tested world-wide for Customer by a foundry, provided such manufacture is 
pursuant to designs furnished by Customer, that such integrated circuits so 
manufactured are only for sale by Customer to End-Users and further provided 
that the foundry is subject to a written agreement with Customer which 
requires the foundry to protect the confidentiality of the Intellectual 
Property including but not limited to an obligation to only disclose 
Intellectual Property to those employees of the foundry with a need to know.

(b)    VAutomation will deliver the License key to Customer after 
VAutomation's receipt from Customer of an executed copy of this Agreement, 
all the information required to generate the License Key and a purchase order 
meeting the requirements of this Agreement. VAutomation may include on the 
media with the Intellectual Property additional data or software, including 
one or more Soft Cores not currently licensed to Customer and to which the 
License Key will not permit access. Inclusion of such additional data or 
software in no way implies a license from VAutomation and Customer may not 
decode or use such data or software unless a License Key subsequently 
obtained from VAutomation specifically authorizes such access and use.

(c)    If Customer or any End-User uses the Intellectual Property in 
any manner not specified in the License Key, VAutomation will necessarily 
incur damages which will be difficult to accurately estimate. In the event of 
such a breach, VAutomation shall be entitled to receive from Customer 
liquidated damages in a sum equal to the full list price for the soft Core in 
question. The parties agree that such amount is reasonable in light of the 
anticipated harm that would be caused by such a breach and that such amount 
is not a penalty.

(d)    VAutomation and its licensors retain all title to and ownership 
of the Intellectual Property and all copies of Intellectual Property made by 
Customer regardless of the form or media in or on which the original and 
copies may exist. VAutomation and its licensors retain all title to and 
ownership of modifications and updates of Intellectual Property made by 
VAutomation and its licensors and provided to Customer. VAutomation shall 
also retain all title to and ownership of modifications to Intellectual 
Property made by Customer and revealed to VAutomation by the Customer. 
Customer retains all ownership rights in any modifications to Intellectual 
Property made by the Customer and not revealed to VAutomation.

(e)    The licenses granted to Customer under this Agreement and are 
not a sale of the Intellectual Property or any copy of the Intellectual 
Property or of any ownership interest in the Intellectual Property.

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7.     CONDITIONS TO OBLIGATIONS OF VAUTOMATION

(a)    Customer agrees that VAutomation has no control over the 
specific applications and use Customer will make of Intellectual Property 
which VAutomation licenses to Customer. Customer understands that third 
parties may hold patents in technology which relate to the Intellectual 
Property and/or Customer's Products. Customer acknowledges and agrees 
therefore, that it is Customer's obligation to obtain all necessary licenses 
from third party patent holders, and that Customer's fulfillment of that 
obligation is an express condition to VAutomation granting Customer the 
licenses set forth in this Agreement. Customer warrants and represents that 
it will obtain all such third party patent holder licenses.

(b)    If Customer fails to obtain all necessary licenses from third 
party patent holders, this Agreement may be terminated by VAutomation with 
prior written notice and expiration of a 30 day cure period. In the event of 
such termination, those provisions of this Agreement which by their terms 
survive termination shall continue in force and effect. Customer shall 
indemnify and hold VAutomation, its connection with any claim against 
VAutomation relating to any allegation that Customer's Products infringe the 
patent or other intellectual property rights, or that the Intellectual 
Property infringes the patent rights, of any third party. This obligation to 
indemnify and hold harmless shall survive any termination or expiration of 
this Agreement.

(c)    If a patent infringement claim is made against Customer's 
Products, VAutomation shall, whenever possible, provide Customer with all 
reasonable information and assistance to settle or defend the claim. This 
assistance shall not imply any liability of VAutomation. Any costs and 
expenses incurred by VAutomation in providing such assistance shall be borne 
by or reimbursed by Customer.

8.     MODIFICATIONS AND COPYING

(a)    Customer may modify or translate Intellectual Property for its 
internal use.

(b)    Customer may copy Intellectual Property only to the extent 
necessary for archival and backup purposes, for internal use and for 
furnishing to semiconductor manufacturers (including Customer) in accordance 
with this Agreement. Customer's right to copy and use Intellectual Property, 
in any form or media except semiconductor devices, is at all times and in 
each instance conditioned upon Customer reproducing on each copy all 
copyright notices and proprietary legends of VAutomation and its licensors.

9.     MAINTENANCE PROGRAM

(a)    VAutomation shall provide support and maintenance for a period 
of one year from the date of shipment. This initial year of support and 
maintenance is included in the project license fee.

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(b)    Upon expiration of the initial year of support and maintenance, 
and annually thereafter, the Maintenance program shall automatically renew 
for additional one year terms unless Customer terminates the Maintenance 
Program by written notice to VAutomation given no less than 60 days prior to 
the expiration of the then current year. VAutomation shall invoice Customer 
on an annual basis for the applicable support and maintenance fees.

(c)    VAutomation may change, correct and add to the Soft Cores from 
time to time at its discretion. Changes, corrections and additions shall be 
sent to Customer pursuant to the schedule and method selected by VAutomation 
provided Customer has a paid-up Maintenance Program in place at the time the 
changes, corrections or additions are released.

(d)    A VAutomation representative shall be available by telephone 
during VAutomation's normal business hours at VAutomation's designated 
support center to assist Customer in using Intellectual Property. Customer 
may contact the designated support center to discuss End-Users use of the 
Intellectual Property. If a problem cannot be resolved over the telephone, 
Customer shall provide VAutomation with written documentation of the problem. 
VAutomation shall evaluate the problem and use commercially reasonable 
efforts to provide a temporary work-around solution within ten business days 
of receipt of complete documentation. VAutomation shall endeavor to correct 
the problem within 30 business days.

(e)    The  Maintenance Program excludes, without limitation, repair 
or service resulting from (i) neglect, misuse or damage to the media 
containing the Intellectual Property; (ii) alterations or modifications to 
the Intellectual Property not authorized by and revealed to VAutomation; 
(iii) the failure of Customer to provide and to maintain a suitable 
installation environment and facilities; (iv) the use of the Intellectual 
Property for purposes other than as expressly permitted by this Agreement; or 
(v) distribution of the Intellectual Property excelt in compliance with this 
Agreement. VAutomation shall maintain and provide service for only the 
current release and one prior release of the Soft Core except that 
VAutomation shall maintain and service Customer's Intellectual Property for 
not less than one year from the date of delivery regardless of release.

10.    CONSIDERATION

(a)    In consideration for the rights and licenses granted Customer 
under this Agreement and in consideration for the first year of service under 
the Maintenance Program, Customer shall pay a project license fee in the 
amount set forth in the attachment. Payment of such fee entitles Customer to 
use the Soft Core to create one new production design.

(b)    A Re-Use Fee as set forth in attachment A shall be paid to 
VAutomation by Customer for each new design using a Soft Core. A new design 
is created when a circuit is produced to mask for the first time. A design 
derivative which results in a change to both the circuit and the mask is also 
a new design. A process shrink of an existing design to produce a new 

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mask without a change in the circuit or a design spin to rework errors, where 
1,000 or fewer units of the erred version were produced, is not a new design.

(c)    Customer shall provide VAutomation with an annual report of all 
Re-Use Fees in the form set forth in Exhibit B to this Agreement. VAutomation 
shall invoice Customer for Re-Use Fees based upon the report provided  by 
Customer. Customer shall pay all invoices within 30 days of date of invoice.

(d)    A Maintenance fee as set forth in attachment A shall be paid to 
VAutomation by Customer annually upon completion of the initial year of 
Maintenance as provided in (a) unless terminated as described in section 
9(b). Payment of such fee entitles Customer to the Maintenance Program as 
described in section 9.

11.    AUDIT RIGHTS

(a)    Customer shall keep full, clear and accurate records with 
respect to the number and identity of each different design by Customer for 
which a Re-Use Fee is due. Such records shall be sufficient to enable 
VAutomation to determine the amount of Re-Use Fees to be paid to VAutomation 
pursuant to this Agreement. In addition to the above information, Customer 
shall also maintain evidence of all necessary licenses from third party 
patent holders.

(b)    VAutomation shall have the right, acting itself or at its 
option or at the request of the Customer, through an independent auditor, to 
examine and audit at all reasonable times all such records and such other 
records and accounts as may, under recognized accounting practices, contain 
information bearing upon Customer's compliance with the terms of this 
Agreement and upon the amount of Re-Use Fees owed to VAutomation. If any such 
audit shall disclose that such Re-Use Fees have been underpaid by more than 
5%, Customer shall bear the cost of that audit. If any such audit shall 
disclose that Customer has failed to obtain necessary licenses from third 
party patent holders, VAutomation shall have the right to immediately 
terminate this Agreement, any or all attachment(s) to this Agreement and all 
licenses granted under either this Agreement or the attachment(s) as provided 
in Section 6 of this Agreement.

(c)    VAutomation or the independent auditor shall keep in confidence 
all information gained as a result of any audit. VAutomation or the 
independent auditor shall only use or disclose such information as shall be 
necessary to enforce VAutomation's rights in accordance with this Soft Core 
Attachment.

12.    INFRINGEMENT INDEMNIFICATION.

(a)    VAutomation represents and warrants that Intellectual Property 
does not infringe any United States, European Community or Japanese 
copyrights or misappropriate any trade secret of any third party. VAutomation 
further represents and warrants that Intellectual Property 

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is the original work of VAutomation and its licensors and was developed 
without access to or knowledge of any third party confidential materials.

(b)    If notified promptly of any such claim or action brought 
against Customer for copyright infringement or trade secret misappropriation, 
VAutomation will defend or cause to be defended such action at its expense 
and will pay any costs or damages awarded against Customer in such action, 
provided that VAutomation has control of the defense and all negotiations for 
settlement and Customer provides VAutomation with prompt notice of the claim 
all reasonable information and assistance to settle or defend the claim.

(c)    If a final injunction is obtained against the Customer's use of 
any Intellectual Property by reason of copyright infringement or trade secret 
misappropriate, VAutomation will, at its option and its expense, either (i) 
procure for Customer the right to continue using such Intellectual Property 
or the infringing portions of Intellectual Property, or (ii) replace or 
modify Intellectual Property or the infringing portions of Intellectual 
Property, so that they become non-infringing, or (iii) if in VAutomation's 
opinion neither of the above is commercial feasible, VAutomation will accept 
return of the infringing Intellectual Property and refund an amount equal to 
the sum paid by the Customer for the infringing Intellectual Property.

(d)    VAutomation will have no liability for any claim of copyright 
infringement arising from (i) the combination of Intellectual Property with 
Customer or third party materials, unless it is determined by a court of 
competent jurisdiction that the Intellectual Property is the infringing 
element of such claim; or (ii) the modification or translation of 
Intellectual Property or any portion of the Intellectual Property.

(e)    To the knowledge of VAutomation, there is no action, suit, 
claim, proceeding or investigation pending or threatened against or affecting 
VAutomation, any of its subsidiaries, officers or directors at law or in 
equity, or by any Federal, state, municipal or other governmental department, 
commission, board, bureau, agency or instrumentality, domestic or foreign 
regarding the Intellectual Property other than those disclosed to the 
Customer in Attachment B. VAutomation has disclosed to the Customer, in 
Attachment B, any and all claims on the Intellectual Property or for the use 
of the Intellectual Property known to VAutomation as of the Effective Date.

(f)    VAUTOMATION MAKES NO WARRANTY, EXPRESS, IMPLIED OR STATUTORY 
THAT THE INTELLECTUAL PROPERTY IS FREE FROM ANY CLAIM OF INFRINGEMENT OF ANY 
THIRD PARTY'S PATENT RIGHTS.

13.    WARRANTY AND DISCLAIMER

Except as specifically set forth in the attachment(s) to this Agreement, the 
Intellectual Property and Services are provided "as is" without warranty of 
any kind, either express, implied or 

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statutory, including without limitation, any warranty with respect to title, 
merchantability or fitness for any particular purpose. VAutomation does not 
warrant that the Intellectual Property will meet Customer's requirements or 
that the Intellectual Property will be error-free. Except as specifically 
provided in this Agreement, VAutomation is not obligated to support any 
Intellectual Property that it provides under this Agreement.

14.    DAMAGE LIMITATION

Except for claims under section 12 above, VAutomation shall not be liable for 
any claims against Customer by any other party. Except for a willful or 
grossly negligent breach by Customer of any of its duties under this 
Agreement or any breach by Customer of section 5 (confidentiality) or section 
6 (license grant), neither party shall be liable for special, incidental or 
consequential damages of any kind resulting from breach of this Agreement. 
Except with respect to claims under section 12 above, VAutomation's aggregate 
liability for all cases or controversies arising out of the subject matter of 
this Agreement shall not exceed the amount paid to VAutomation by Customer 
hereunder.

15.    LIFE ENDANGERING APPLICATIONS

Intellectual Property is not designed, made, or intended for use in any 
application where failure or inaccuracy might cause death or personal injury. 
Customer represents, warrants and covenants that the Intellectual Property 
shall not be used in any pplication where failure or inaccuracy might cause 
death or personal injury. If Customer uses Intellectual Property for such 
applications, Customer will indemnify and hold harmless VAutomation, its 
suppliers and its licensors from any claims, loss, cost, damage, expense, or 
liability, including attorneys' fees, arising out of or in connection with 
the use and performance of Intellectual Property in such applications.

16.    GENERAL

(a)    Severability. If any provision of this Agreement is held to be 
ineffective, unenforceable or illegal for any reason, such decision shall not 
affect the validity or enforceability of any or all of the remaining portions 
thereof.

(b)    Nonassignment. This Agreement may not be transferred or 
assigned by the Customer, by operation of law or otherwise without the prior 
written consent of an authorized representative of VAutomation.

(c)    Taxes. Unless otherwise specifically provided in the 
attachment(s) to this Agreement, the amount of any present or future sales, 
revenue, excise or other tax or duty applicable to Intellectual Property and 
Services covered by this Agreement, or the possession or use of Intellectual 
Property (including but not limited to any withholding taxes imposed on 
royalties by any country), shall be added to the prices and fees otherwise 
due and shall be paid by 

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Customer. In lieu of such payment, Customer shall provide VAutomation with a 
tax exemption certificate acceptable to the appropriate taxing authorities. 
If VAutomation is required to pay any such tax at any time, Customer shall 
reimburse VAutomation within 30 days after receipt of invoice.

(d)    Governing Law. This Agreement shall be governed by the laws of 
the State of New Hampshire, exclusive of any New Hampshire law or principle 
which would apply the law of any other state or country.

(e)    Waiver. No failure or delay on the part of either party in the 
exercise of any power, right or privilege under this Agreement shall operate 
as a waiver of such power, right or privilege, nor shall any single or 
partial exercise of any such power, right or privilege preclude any other or 
further exercise of that or of any other right, power or privilege.

(f)    Notice. Any notice required or permitted to be given will be in 
writing and may be personally served, or sent by facsimile or mail and will 
be deemed to have been given: if personally given when served, if by 
facsimile machine to the proper facsimile number and confirmed by mail, or 
when mailed, by certified mail - return receipt requested on the fifth 
business day after deposit in the United States mail with postage prepaid and 
properly addressed as follows or at such other address that either party 
provides by advance written notice to the other party.

If to Customer:                           If to VAutomation:

Attn:  Allen Alley                        VAutomation Inc.
8100 SW Nyberg Rd., Suite 100             20 Trafalgar Sq., Suite 443
Tualatin, OR 97062                        Nashua, NH 03063
Ph:  503-612-6700
Fax:  503-612-6713                        With a copy to:
E-mail:  allena@pixelworksinc.com
William Contente, Esq.
With a copy to:                           Lucash, Gesmer &
Updegrove, LLP
40 Broad Street
Bill Campbell                             Boston, MA 02109
Ater Wynne LLP                            Ph:  617-350-6800
222 SW Columbia, Suite 1800               Fax:  617-350-6878
Portland, OR 97201-6618                   Ph:  603-882-2282
Ph:  503-226-1191                         Fax:  603-882-1587
Fax:  503-226-0079

(g)    Export Controls. Customer understands that VAutomation is 
subject to regulation by United States government agencies, which prohibit 
export or diversion of Intellectual Property, 

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information about Intellectual Property, and direct products of Intellectual 
Property to certain countries and certain persons. Regardless of any 
disclosure Customer makes to VAutomation of an ultimate destination of 
Intellectual Property or direct products of Intellectual Property, Customer 
warrants that it will not export in any manner, either directly or 
indirectly, any Intellectual Property or direct product of Intellectual 
Property, without first obtaining all necessary approval from appropriate 
United States government agencies. Customer acknowledges that the regulation 
of product export is in continuous modification by the United States Congress 
and administrative agencies. Customer agrees to complete all documents and to 
meet all requirements arising out of such modifications.

(h)    Other Licenses. Nothing contained in this Agreement shall be 
construed as conferring by implication, estoppel or otherwise upon either 
party any license or other right except the licenses and rights expressly 
granted under this Agreement. Without limiting the generality of the 
foregoing, Customer shall have no right to sublicense or to distribute 
Intellectual Property to any third party, except those rights specifically 
granted in this Agreement and then provided such distribution and 
sublicensing is carried out in accordance with all the requirements contained 
in this Agreement.

(i)    Entire Agreement. This Agreement and its attachments contain 
the entire agreement and understanding of the parties with respect to this 
subject matter and supersedes all prior agreements, understandings and 
representations. No addition or modification to this Agreement is valid 
unless made in writing and signed by authorized representatives of the 
parties.

(j)    Construction of Agreement. Customer acknowledges that it was 
given the opportunity to have this Agreement and the attachments to this 
Agreement reviewed by legal counsel. Customer and VAutomation agree that the 
rule of contract construction that interprets ambiguities against the drafter 
is inapplicable to this Agreement and the attachments to this Agreement.

(k)    Status as Independent Contractors. The parties are independent 
contractors. Neither has the authority to bind the other to any third person 
or act in any way as the representative of the other, unless otherwise 
expressly agreed to in writing by authorized representatives of both parties. 
This Agreement in no way prohibits VAutomation from providing Intellectual 
Property to or performing Services for other parties.

(l)    Delay. VAutomation shall not be responsible for failure or 
delay where the failure or delay results from causes beyond its reasonable 
control.

(m)    Survival. The provisions of Sections 2, 4(d), 5, 6(c), 7 and 11-
16 shall survive the termination of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have sealed and executed this 
Agreement as follows.

LICENSOR
VAUTOMATION, INC.

By:/s/ Eric Ryherd                        Date: 11/5/97                 
-----------------------------               -------------------------
Eric Ryherd, President

CUSTOMER 
PIXELWORKS, INC.

By:/s/ Allen H. Alley                     Date: 11/5/97                 
-----------------------------               -------------------------
Allen H. Alley, President
Allen H. Alley, President

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EXHIBIT A

VAUTOMATION INCORPORATED SOFT-CORE LICENSE KEY

This is to certify that CUSTOMER is licensed by VAutomation to use the

V8086 - REVISION 1.7

Each comprising the following files:
VHDL/Verilog Synthesizable Source Code, VHDL/Verilog behavioral Test Bench,
Compilation scripts/Makefile, Synthesis scripts, Release notes, Documentation

For extraction onto CUSTOMER computers per the terms of the
VAutomation Synthesizable Soft Core Agreement

V8086 Software Decoding Key:              [**]

Purchase Order Number:                    10160

License Agreement Number:                 10-24-97-01

/s/ Eric Ryherd                          
------------------------------------------------
Eric Ryherd, President, VAutomation Inc.

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[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

EXHIBIT B

VAUTOMATION SOFT CORE RE-USE FEE ANNUAL REPORT

In accordance with Section 10 (CONSIDERATION) OF THE VAutomation Incorporated 
Synthesizable Soft Core Agreement number 10-24-97-01, this report is 
submitted by ______________________ on ________________ and covers the period 
from ___________ to ______________.

-----------------------------------------------------------------------------------
IC NAME AND/OR      SOFT CORE USED      DATE OF FIRST       REUSE FEE DUE
PART NUMBER                             SILICON
-----------------------------------------------------------------------------------

V8086                                   None, initial project
-----------------------------------------------------------------------------------

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

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

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

This report is hereby certified to be accurate by:

Signature:__________________________   Date:____________
Name, title

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

ATTACHMENT A

Fee Schedule:

----------------------------------------------------------------------------------
CORE NAME           PROJECT FEE         RE-USE FEE          ANNUAL MAINTENANCE
----------------------------------------------------------------------------------

VZ80
----------------------------------------------------------------------------------
V6502
----------------------------------------------------------------------------------
V8086               [**]                [**]
----------------------------------------------------------------------------------
V186
----------------------------------------------------------------------------------
V960
----------------------------------------------------------------------------------
V526
----------------------------------------------------------------------------------
V8-uRISC
----------------------------------------------------------------------------------
VUSB
----------------------------------------------------------------------------------
V1394
----------------------------------------------------------------------------------

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

Payment Terms for Initial Use:
$5,000 At Receipt of Order (ARO), balance Net 90 days from shipment.

Payment Terms for Re-use:
50% At Receipt of Order (ARO), balance Net 30 days from shipment.

Delivery via:
Overnight Carrier, FOB Nashua, NH, USA

Page 15 - SYNTHESIZABLE SOFT CORE AGREEMENT NUMBER: 10-24-97-01

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

ATTACHMENT B

Claims on the Intellectual Property or for the use of the Intellectual 
Property known to VAutomation as of the Effective Date.

None.

Page 16 - SYNTHESIZABLE SOFT CORE AGREEMENT NUMBER: 10-24-97-01

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED
PORTIONS.
EXHIBIT 10.9

INTEL 8086/80186 INTELLECTUAL PROPERTY SUBLICENSE AGREEMENT

This Agreement is entered into on March 30, 1999 ("Effective Date") by and 
between VAutomation Incorporated, having a place of business at 402 Amherst 
Street Nashua NH and Pixelworks, Inc. having a place of business at Tualatin, 
Oregon ("Sublicensee").

The parties agree as follows:

1.0    DEFINITIONS

1.1    "Licensed Product" shall mean a semiconductor device that (1) 
includes an 8086 Core, and 8088 Core, an 80C186 Core or an 80C188 Core, (2) 
is covered by at least one valid claim of a Licensed Intel Patent, (3) 
contains integrated circuits other than the an 8086 Core, a 8088 Core, 80C186 
Core or the 80C188 Core that provide additional functionalities other than 
those performed by the core, (4) is not substantially pin compatible with 
Intel's 80186/80188 family of microprocessors, and (5) is not an Imitation of 
any Intel microprocessors including the 80286, 80386, 80486, Pentium, Pentium 
Pro, and 80960.

1.2    "Licensed Intel Patents" shall mean all Intel patents that 
would be infringed by the manufacture, use or sale of an 8086 Core, 8088 
Core, 80C186 Core or 80C188 Core without an appropriate license from Intel.

1.3    "Imitation" shall mean a product in hardware or software or a 
combination thereof, which can compatibly execute substantially all of the 
instruction set of a specific family of Intel microprocessors to achieve 
substantially the same result as such family of Intel microprocessors, or is 
substantially pin compatible with such family of Intel microprocessors.

1.4    "80C186" shall mean a microprocessor that has all the features, 
properties and characteristics of one of Intel's 80C186 family of 
microprocessors as described in Intel's databook entitled "Embedded 
Microprocessors," 1995 edition.

1.5    "80C186 Core" shall mean an integrated circuit as described in 
Attachment A that (1) is an 80C186, but excluding its pad ring, packaging and 
associated input/output circuits, and (2) can be manufactured from 
VAutomation's V186 HDL model of the 80C186 Core and 80C188 Core.

1.6    "80188" shall mean a microprocessor that has all the features, 
properties and characteristics of one of Intel's 80C188 family of 
microprocessors as described in Intel's databook entitled "Embedded 
Microprocessors," 1995 edition.

1.7    "80C188 Core" is based on the 80C186 Core with an eight (8) bit
external bus versus a sixteen (16) bit bus and shall mean an integrated circuit
that (1) is an 80C188, but excluding the pad ring, packaging and associated
input/output circuits, and (2) can be manufactured from VAutomation's V186 HDL
model of the core.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

1.8    "8086" shall mean a microprocessors that has all the features,
properties and characteristics of one of Intel's 8086 family of microprocessors
as described in Intel's databook.

1.9    "8086 Core" shall mean an integrated circuit as described in
Attachment A that (1) is an 8086, but excluding its pad ring, packaging and
associated input/output circuits, and (2) can be manufactured from VAutomation's
V8086 HDL model of the 8086 Core.

1.10   "8088" shall mean a microprocessor that has all the features,
properties and characteristics of one of Intel's 8088 family of microprocessors
as described in Intel's databook.

1.11   "8088 Core" shall mean an integrated circuit as described in
Attachment A that (1) is an 8086, but excluding its ring, packaging and
associated input/output circuits, and (2) can be manufactured from VAutomation's
V8086 HDL mode of the 8086 Core.

1.12   "Intel" shall mean Intel Corporation, having a place of business
at 5000 West Chandler Blvd. Chandler AZ

2.0    LICENSES

2.1    VAutomation grants Sublicensee a non-exclusive, worldwide, royalty
bearing license, without the right to further sublicense, to use, make, have
made, sell, offer to sell and import Licensed Products for the term o f this
Agreement.

2.2    The license grant of Section 2.1 covers only the products of the
Sublicensee, and is not intended to cover Sublicensee's foundry activities for
third parties.  For purposes of determining whether a product which Sublicensee
develops with or acquires from a third party is, in fact, a Licensed Product,
the parties agree that notwithstanding anything herein to the contrary, Licensed
Products shall only include products which are:

(a)    Sold only under Sublicensee's name; or

(b)    designed and developed by or in association with third
parties or acquired by Sublicensee; provided that at least ninety percent (90%)
of the total number of units of such product which are manufactured by
Sublicensee are sold by Sublicensee under its own name and to customers other
that the party(ies) with which it developed or from which it acquired such
product (directly or indirectly) or on such party s(ies) behalf.

2.3    Sublicensee understands that Intel may, without consultation with
or consent from VAutomation, terminate this Agreement if and when Sublicensee
files a patent infringement suit against Intel where the patent relates to
technology contained within the 8086, 8088, 80C186, or 80C188.

3.     COMPENSATION

3.1    Upon execution of this agreement, Sublicensee shall pay
VAutomation a fee of 25,000.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

3.2    In addition to the fee described in Section 3.1, Sublicensee shall
pay VAutomation a running royalty for each unit of Licensed Product sold by
Sublicensee:

Unit Volume   Per Unit Royalty
-----------   ----------------

1 - 500,000   [**]

500,000 +     [**]

For royalty calculation purposes, if a unit of Licensed Product
incorporates more than one 8086 Core, 8088 Core, 80C186 Core and/or 80C188 Core,
Sublicensee shall pay VAutomation a royalty for each core incorporated in the
Licensed Product.

3.3    Within thirty (30) days following the end of each calendar
quarter, Sublicensee shall wire transfer, in United States Dollars, the full
amount of royalties due for units of Licensed Product sold by Sublicensee with
respect to such quarter to an account specified by VAutomation. Simultaneously
with paying such royalties, Sublicensee shall submit a report, whether or not
any royalties are due, in a form reasonably acceptable to VAutomation, which
shall be certified by an authorized representative of Sublicensee and which
shall state, by individual Licensed Product, the number of each Licensed Product
sold by Sublicensee, the number of Licensed Cores included in each such Licensed
Product and the royalties due to VAutomation thereon. An example of this report
is given in Attachment B.

3.4    All payments shall be made free and clear without deduction for
any and all present and future taxes imposed by any taxing authority. In the
event that Sublicensee is prohibited from making such payments unless such
deductions are made or withheld therefrom, then Sublicensee shall pay such
additional amounts as are necessary in order that the net amounts received by
VAutomation, after such deduction or withholding, equal the amount which would
have been received if such deduction or withholding had not occurred.
Sublicensee shall promptly furnish VAutomation with a copy of an official tax
receipt or other appropriate evidence of any taxes imposed on payments made
under this Agreement, including taxes made on any additional amounts paid. In
cases involving taxes or duties imposed by any taxing authority on or with
respect to this Agreement other than (1) taxes referred to above, and (2) income
taxes imposed on VAutomation for payments received from Sublicensee under this
Agreement, including but not limited to sales and use taxes, stamp taxes, value
added taxes, property taxes, the costs of such taxes or duties shall be borne by
the Sublicensee. In the event that such taxes or duties are legally imposed
initially on VAutomation or VAutomation is later assessed by any taxing
authority, then VAutomation will be promptly reimbursed by Sublicensee for such
taxes or duties plus any interest and penalties suffered by VAutomation.

3.5    Sublicensee agrees that any payments required under the terms of
this Agreement which are not paid when due will accrue interest at the lesser
of: (i) the prime lending rate established by Citibank, New York plus 5%, or
(ii) the highest rate permitted by applicable law; such interest commencing to
accrue fifteen (15) days after the due date as established by this Agreement.
The right to collect interest on such late payments shall be in addition to any
other rights that VAutomation may have.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

4.     AUDIT RIGHTS AND OBLIGATIONS

4.1    Sublicensee agrees to make and maintain for five (5) years after
the last payment under this Agreement is due, sufficient books, records and
accounts regarding Sublicensee's manufacturing activities in order to calculate
and confirm Sublicensee's royalty obligations under Section 3.0

4.2    Each of VAutomation and Intel shall have the right to have its
independent third party accounting firm to audit Sublicensee's compliance with
this Agreement upon reasonable notice. The auditor will notify Intel and/or
VAutomation if the Sublicensee is in compliance with this Agreement, and if not
in compliance, what the correct payment should have been. If such audit
discloses any non-compliance, the parties agree to promptly remedy the situation
and pay/reimburse monies as required and failure to so remedy the non-compliance
will be a ground for Intel and/or VAutomation to terminate the license.
Additionally, if such audit discloses any non-compliance in the form of
underpayment(s) of more than five percent (5%) of the royalties required to be
paid, Sublicensee shall reimburse Intel or VAutomation (as appropriate) for all
costs and expenses related to such audit. In no event shall an audit under this
Section 4.2 be requested more frequently than once by VAutomation, and once by
Intel, every twelve (12) months.

5.     WARRANTY, LIMITATIONS AND INDEMNIFICATION

5.1    VAutomation warrants that the Licensed Cores and the use and
copying of the Licensed Cores as permitted hereunder will not infringe upon or
violate any copyright or trade secret of any third party; and that the use of
the Licensed Cores as permitted hereunder to use, make, have made, sell and
import the Licensed Products shall not infringe upon or violate any of the
Licensed Intel Patents.

5.2    Nothing contained in this Agreement shall be construed as:

(a)    a warranty or representation by Intel as to the validity or
scope of any class or type of Licensed Intel Patents; or

(b)    a warranty or representation that any manufacture, sale,
lease, use or other disposition of Licensed Products hereunder will be free from
infringement of any Intel patents other than those under which licenses have
been granted hereunder; or

(c)    an agreement to prosecute actions or suits against third
parties for infringement or conferring any right to bring or prosecute actions
or suits against third parties for infringement; or

(d)    conferring any right to use in advertising, publicity, or
otherwise, any trademark, trade name or names, or any contraction, abbreviation
or simulation thereof, of either party; or 

(e)    conferring by implication, estoppel or otherwise, upon any
party licensed hereunder, any license or other right under any patent,
copyright, maskwork, trade secret, trademark, or other intellectual property
right except the licenses and rights expressly granted hereunder; or

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

(f)    an obligation to furnish any technical information or 
know-how related to the Licensed Intel Patents.

5.3    VAutomation will defend, at its expense, and will indemnify 
Sublicensee against any  loss, cost, expense or liability arising out of any 
claim by a third party against Sublicensee asserting or involving a breach of 
the representation and warranty made in Section 5.2 above.  VAutomation's 
obligations under this Section shall be contingent on Sublicensee's providing 
to VAutomation (i) prompt written notice of such claim, (ii) sole control and 
authority over the defense and settlement thereof, and (iii) reasonable 
information and assistance to settle and/or defend any such claim or action.

5.4    If an injunction or order is obtained against Sublicensee's use of
any Licensed Core or distribution of Licensed Products, or if VAutomation
determines that any Licensed Core or Licensed Product is likely to become the
subject of a claim of infringement or violation of a patent, copyright or trade
secret of a third party, VAutomation may (but need not), in its sole discretion,
(a) procure for Sublicensee the right to continue using such Licensed Core and
distributing such Licensed Products, or (b) replace or modify the same so that
it becomes noninfringing provided such modification or replacement does not
materially and adversely affect the specifications for or the use or operation
of Licensed Core and/or Licensed Products by Sublicensee, or (c) accept the
return of the Licensed Cores and/or Licensed Products and refund the fees paid
hereunder with respect thereto.

5.5    Notwithstanding anything above to the contrary, VAutomation shall
have no liability or obligation to defend and/or indemnify if the alleged
infringement or violation is based upon: (a) the combination of Licensed Cores
or Licensed Products with any product or technology not furnished by VAutomation
to the extent such combination causes the infringement or violation; (b) the
modification of Licensed Cores and/or Licensed Products other than by
VAutomation to the extent such modification causes the infringement or
violation; or (c) compliance with Sublicensee's specifications, designs or
instructions.

5.6    This Section 5.0 sets forth VAutomation's sole liability, and 
Sublicensee's sole remedy, arising out of any actual or alleged infringement 
or violation of third party intellectual property rights in connection with 
the Licensed Cores and the Licensed Products.  EXCEPT AS EXPRESSLY SET FORTH 
HEREIN, VAUTOMATION DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH 
RESPECT TO THE LICENSED CORES AND THE LICENSED PRODUCTS, INCLUDING WITHOUT 
LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR ANY 
PARTICULAR PURPOSE, NON-INFRINGEMENT AND TITLE.

5.7    Sublicensee agrees to defend or at its option settle any suit or
proceeding brought against VAutomation and/or Intel concerning Sublicensee's
manufacturing or marketing of Licensed Products, except for claims for which
VAutomation is obligated to provide defense and indemnity as provided in
Sections 5.3 and 5.5 above.  Sublicensee's obligations under this Section shall
be contingent on VAutomation providing to Sublicensee (i) prompt written notice
of such claim, (ii) sole control and authority over the defense and settlement
thereof, and (iii) reasonable information and assistance to settle and/or defend
any such claim or action.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

6.     CONFIDENTIALITY

The Licensed Cores contain and constitute valuable, confidential and 
proprietary information of VAutomation.  Sublicensee shall take all 
reasonable steps to protect the value and confidentiality of the Licensed 
Cores, including without limitation limiting disclosure thereof to employees 
who have agreed to protect their value and confidentiality and who need 
access thereto to exercise Sublicensee's rights under this Agreement.  
Sublicensee acknowledges that failure to protect the value and 
confidentiality of the Licensed Cores will give rise to irreparable injury to 
VAutomation, in adequately compensable in damages.

7.     TERM AND TERMINATION

7.1    The term of this Agreement shall commence as of the date first set
forth above and shall continue until November 6, 2006, unless sooner terminated
as provided herein.

7.2    Either party may terminate this Agreement if the other party
commits any material breach or default and fails to provide an acceptable remedy
of such breach or default within ten (10) days (in the event of a failure to pay
amounts due) or thirty (30) days (in all other cases) after written notice of
such breach or default from the non-breaching or non-defaulting party.  Without
limiting the generality of the foregoing, any failure to meet the obligations of
Section 3.0 shall be considered a material breach of this agreement.

7.3    Either party may terminate this Agreement by written notice to the
other upon termination of that certain License Agreement No. 1096TAC004 between
Intel and VAutomation dated November 6, 1996.

7.4    After expiration or termination of this Agreement, all provisions
relating to payment shall survive until completion of required payments,
including without limitation any payments due with respect to Licensed Products
sold after the termination or expiration of this Agreement.  In addition, all
provisions regarding indemnification, warranty, liability and limits thereon,
and confidentiality and/or protection of proprietary rights and trade secrets
shall survive indefinitely.

8.     GOVERNING LAW

This Agreement and matters connected with its performance shall be
governed by, construed, and interpreted in accordance with the laws of the State
of Delaware, without reference to its conflict of laws provisions.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

9.     PUBLICITY

Sublicensee may not use the Intel's name in advertisements or any other
marketing or publicity activities, nor otherwise disclose the existence or
content of this Agreement without the Intel's prior written consent.

10.    THIRD PARTY BENEFICIARY

Sublicensee understands and agrees that Intel Corporation shall be
considered an intended third party beneficiary with the right to enforce the
provisions of this Agreement.

11.    NOTICES

All notices required or permitted to be given hereunder shall be in
writing and shall be delivered by hand, or if dispatched by prepaid air courier
or by registered or certified airmail, postage prepaid, addressed as follows:

If to VAutomation                                If to Sublicensee
-----------------                                -----------------

VAutomation, Incorporated                        Pixelworks, Inc.
402 Amherst Street                               8100 SW Nyberg Road, Suite 100
Nashua, NH 03063                                 Tualatin, OR 97062
Attn: President                                  Attn: President

12.    ASSIGNMENT

Neither this Agreement nor any right or obligation hereunder is
assignable by Sublicensee, whether in conjunction with a change in ownership,
merger, acquisition, the sale or transfer of all, substantially all, or any
portion of Sublicensee's business or assets or otherwise, either voluntarily, by
operation of law, or otherwise, without the prior written consent of
VAutomation, such consent not to be unreasonably withheld.  Any such purported
assignment or transfer shall be deemed a breach of this Agreement and shall be
null and void.

13.    RELATIONSHIP OF THE PARTIES

Nothing in this Agreement shall be construed to make the parties partners
or joint venturers or to make either party liable for the obligations, acts,
omissions or activities of the other.

14.    ENTIRE AGREEMENT AND WAIVER

This Agreement is intended to be the entire agreement between the parties
with respect to matters contained herein, and supersedes all prior or
contemporaneous agreements, discussions and negotiations with respect to those
matters.  No waiver of any breach or default shall constitute a waiver of any
subsequent breach or default.

15.    SEVERABILITY

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

If any provision of this Agreement is held illegal, void or
unenforceable, to any extent, in whole or in part, as to any situation or
person, the balance shall remain in effect and the provision in question shall
remain in effect as to all other persons or situations, as the case may be.

AGREED:
VAutomation, Inc.                                Sublicensee

/s/ Eric Ryherd                                  /s/ Hans H. Olsen
--------------------------                       ---------------------------
Signature                                        Signature

Hans H. Olsen
--------------------------                       ---------------------------
Eric Ryherd                                      Printed Name

Vice President
--------------------------                       ---------------------------
President                                        Title

3-30-1999                                         3-30-1999
--------------------------                       ---------------------------
Date                                             Date

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

ATTACHMENT A

80C186 CORE DEFINITION

Architectural Overview

The 80C186 shares a common base architecture with the 8086, 8088, 80186, 80286,
Intel386-TM- and Intel486-TM- processors.  The 80C186 Core maintains full
object-code compatibility with the 8086/8088 family of 16-bit microprocessors.

The 80C186 Core incorporates two separate processing units: an Execution Unit 
(EU) and a Bus Interface Unit (BIU).  The Execution Unit executes 
instructions; the Bus Interface Unit fetches instructions, reads operands and 
writes results. The two units can operate independently of one another and 
are able, under most circumstances, to overlap instruction fetches and 
execution.  The two units interface via a six-byte prefetch queue.

Execution Unit

The Execution Unit has a 16-bit Arithmetic Logic Unit (ALU) and eight 16-bit 
general purpose registers.  The ALU performs 8-bit or 16-bit arithmetic and 
logical operations.  It provides for data movement between registers, memory 
and I/O space.

The Execution Unit executes all instructions, provides data and address to 
the Bus Interface Unit.  All registers aud data path in the Execution unit 
are 16 bits wide for fast internal transfer.  The Execution Unit does not 
connect directly to the system bus.  It obtains instructions from the 
prefetch queue maintained by the Bus Interface Unit.

Bus Interface Unit

The Bus Interface Unit fetches instruction, reads operands and writes 
results. Tills unit executes all external bus cycles.  The Bus Interface Unit 
consists of the segment registers, the Instruction Pointer, the prefetch 
queue and several miscellaneous registers.  The Bus Interface Unit transfers 
data ato and from the Execution unit on the ALU data bus.

The Bus Interface Unit performs a 20-bit physical address calculation that
allows the Execution Unit to access the full mega-byte of memory space.

Instruction Set

The format of the 80C186 Core instruction set consists of an 8-bit operation
code (opcode) and the variable length operands.  Nearly every instruction can
operate on either byte or word data.  Register, memory, and immediate operands
can be specified interchangeably in most instructions.  Immediate values just
serve as source operands and not destination operands.  Memory variables can be
manipulated (added to, subtracted from, shifted, compared) without being moved
into and out of registers.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

ATTACHMENT A (CONTINUED)

Addressing Modes

The 80C186 Core access instruction operands in several ways.  Operands can be
contained either in registers, in the instruction itself, in memory or at I/O
ports.  Addresses of memory and I/O ports operands can be calculated in many
ways. These addressing modes greatly extend the flexibility and convenience of
the instruction set.

8086 CORE DEFINITION

The 8086 Core is a 16-bit microprocessor with the following features:

Direct Addressing Capability 1 Mbyte of Memory
MULTIBUS System Compatible interface
14 Word, by 16-Bit Register Set with Symmetrical Operations
24 Operand Addressing Modes
Bit, Byte, Word and Block Operations
8 and 16-Bit Signed and Unsigned Arithmetic in Binary or Decimal Including
Multiply and Divide

8088 CORE DEFINITION

The 8088 Core is an 8-bit microprocessor with attributes of both 8-bit and 
16-bit microprocessors and with the following features:

8-Bit Data Bus Interface and 16-Bit Internal Architecture
Direct Addressing Capability to 1 Mbyte of Memory 
Direct Software Compatibility with 8086 CPU
14-Word by 16-Bit Register Set with Symmetrical Operations
24 Operand Addressing Modes
Byte, Word, and Block Operations
8-Bit and 16-Bit Signed and Unsigned Arithmetic in Binary or Decimal, including
Multiply and Divide

[GRAPHIC]

This graphic consists of a simplified functional block diagram of the Intel 
80C186 and the 8086 soft core.

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

ATTACHMENT B

QUARTERLY 8086/80186 INTEL INTELLECTUAL PROPERTY SUBLICENSE REPORT

Sublicensee:

------------------------------------------------------------------------------
Licensed Product    V8086/V186          Units Sold          Comments
IC Name             instances per IC
------------------------------------------------------------------------------

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

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

------------------------------------------------------------------------------
Total instances sold this quarter
------------------------------------------------------------------------------

Total instances sold this quarter:
Total instances sold to date:
Royalty due per instance:
Royalty due:

Certified by:

Signature:_______________________

Name:__________________   Title:________________    Date:______________

[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED 
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED 
WITH RESPECT TO THE OMITTED PORTIONS.

LICENSE AGREEMENT
InFocus Systems, Inc.
Pixelworks, Inc.

February 22, 2000

This License is entered into effective February 22, 2000 (the
"Effective Date") between InFocus Systems, Inc., 27700B SW Parkway Avenue,
Wilsonville, OR 97070-9215 (InFocus), and Pixelworks, Inc., 7700 Mohawk St.,
Tualatin, OR, 97056 (Pixelworks.) Pixelworks includes any majority-owned
subsidiary of Pixelworks, Inc.

InFocus owns U.S. patents 5,805,233 and 5,767,916 (together the
"Patent"), and wishes to grant a license to the Patent to Pixelworks in exchange
for certain Pixelworks stock and cash. The "Patent" also includes any
extensions, continuations, continuations-in-part, divisions, reissues, and
foreign equivalents of U.S. Patents 5,805,233 and 5,767,916.

Accordingly, the parties agree as follows:

1.       LICENSE.

1.1 GRANT. InFocus grants to Pixelworks a worldwide, paid up (excepting
only the payments expressly contemplated under this Agreement), non-exclusive,
nontransferrable, perpetual, royalty free license to make, have made, use, sell,
offer for sale, and import products that would otherwise infringe the Patent
(the "Products"). InFocus understands that the Products execute software
instructions, and that the software instructions can be and are shipped,
installed, sold, licensed, updated, modified, and revised separately from, but
for execution in, the Products. The licensing and sublicensing to any tier of
distribution of such software for development, modification, and revision, and
for commercial exploitation solely on and with the Products, is expressly
licensed under this Grant. Except with respect to software as just stated and as
encompassed in the concept of "have made", this license does not include the
right to grant further licenses or sublicenses.

1.2 TRADE SECRETS. InFocus also grants Pixelworks a worldwide, paid up,
non-exclusive, perpetual, non-transferrable, royalty free license to use trade
secrets related to the problem the Patent solves and financially or functionally
necessary to achieve what Pixelworks in good faith believes to be the optimal
solution to that problem, and that are remembered or in records held by
Pixelworks employees who were formerly employed by InFocus and who are employed
by Pixelworks on the Effective Date. Trade secrets encompassed in this paragraph
are called "Trade Secrets" herein.

1.3 SOFTWARE IMPLEMENTATIONS/COVENANT NOT TO SUE. InFocus covenants not
to sue third parties who run non-Pixelworks software on Products, provided that
this test is met: if the same software were Pixelworks software distributed by
Pixelworks, it would fall within the license grant of paragraph 1.1.

Page 1 - License Agreement

2. DELIVERY. InFocus shall not be required to deliver any technology to
Pixelworks. InFocus shall, however, deliver to Pixelworks copies of the patent
prosecution history file for the Patent, and of all pending and all final issued
patents and patent claims contained therein in any jurisdiction.

3. CONSIDERATION. InFocus shall receive, in consideration for the license thus
granted, 156,863 shares of Pixelworks' Series D Preferred Stock, and four
quarterly payments of $600,000 each.

3.1 TIMING AND TERMS OF CASH PAYMENTS. The first cash payment shall be
due March 31, 2000, and the next three on the last day of each calendar quarter
thereafter, ending December 31, 2000. Failure to make timely payment shall
constitute a material breach of this Agreement in accordance with Section 5
hereof. Interest shall accrue on late payments at the lesser of 18% per year or
the highest interest rate allowed under applicable law.

3.2 TERMS OF STOCK GRANT. Pixelworks shall grant the shares of Series D
Preferred Stock pursuant to the terms and conditions of Pixelworks' Series D
Preferred Stock financing round. InFocus shall execute the same investment
documents as are executed by all other investors in that round generally, and
this Agreement shall be effective contemporaneous with the closing of that
financing round.

4.       INFRINGEMENT AND OTHER LICENSES.

4.1 INFRINGEMENTS. If Pixelworks learns of or suspects any infringement
of the Patent by a third party, Pixelworks shall promptly inform InFocus of such
infringement. If InFocus determines to take action to bar the infringement,
InFocus may do so. As of the Effective Date and within the horizon of InFocus'
reasonably foreseeable business planning process as applicable to such matters,
it is InFocus' intention to take action to prevent future infringement of the
Patent. InFocus makes no representations beyond a three year horizon from the
date hereof. InFocus reserves the privilege of not pursuing infringers when in
its good faith judgment the commercial impact of the suspected or actual
infringement is outweighed by the cost of the pursuit.

4.2 OTHER LICENSES. As of the Effective Date and within the horizon of
InFocus' reasonably foreseeable business planning process as applicable to such
matters, InFocus does not plan or intend to license the Patent for commercial
use (other than for purposes of building products for sale or resale by InFocus)
to any third party for consideration with a total value less than the total
value of the consideration provided by Pixelworks under this Agreement, which
value InFocus regards as commercially reasonable. InFocus makes no
representations beyond a three year horizon from the date hereof. InFocus
reserves the privilege of licensing its technology on terms and for
consideration that in its good faith judgment are commercially reasonable for
the Patent under the circumstances then prevailing for the particular
transaction.

4.3 PATENT MAINTENANCE. InFocus shall maintain each of the constituent
patents in the Patent in all jurisdictions in which they or equivalents have
been filed, for the statutory life of patents in those jurisdictions. The
parties agree to cooperate in connection with the maintenance of the Patent and
to take any and all actions necessary to transfer the necessary documents and
rights required for, and to do such other things as are from time to time
necessary to comply with the requirements of, this Section

Page 2 - License Agreement

4.3. Payment of all fees and costs incurred during the term of this Agreement
relating to the maintenance of the Patent shall be the responsibility of
InFocus.

4.4 COOPERATION. Pixelworks and InFocus shall keep each other promptly
and fully apprised of all material developments in the maintenance of the
Patent. Each party will cooperate as reasonably necessary to secure and maintain
protection applicable to the Patent.

4.5 WARRANTY OF TITLE. InFocus warrants that it has good and marketable
title, and all rights necessary to grant the licenses and rights herein granted,
to the Patent and to the right to exercise the claims it contains.. InFocus'
liability for breach of this warranty shall be limited to return of the
consideration paid.

5.       COVENANT REGARDING FUTURE DISPUTES. The parties commit to meet and to 
discuss any disputes arising under this Agreement, including without limitation
any assertions of material breach. The discussions will take place among people
who from each party collectively have the authority to settle matters under
discussion, in a good faith effort to resolve such matters without formal
proceedings.

6.       CONFIDENTIALITY. Pixelworks acknowledges that any Trade Secrets are 
InFocus' valuable and confidential information. Pixelworks agrees to take all 
reasonable steps to protect the confidentiality of those Trade Secrets, 
including employing the practices and procedures it uses to protect its own 
trade secrets. Disclosure of the Trade Secrets will be limited to Pixelworks' 
agents or employees on a need-to-know basis, and only after such persons have 
been informed of, and are subject to obligations to maintain, the Trade Secrets'
confidentiality.

7.       TERMINATION. Either party may terminate this Agreement by Notice, if
the other commits a material breach of this Agreement which is not cured within
thirty days' following Notice. Any such termination shall end the license rights
granted to Pixelworks under Section 1, provided Pixelworks shall be entitled to
exhaust existing inventories of Products (including as inventories Products
already in production).

8.       PRESS RELEASES AND PUBLICITY.

8.1 LEGALLY REQUIRED DISCLOSURE PERMITTED. Each party shall be
permitted to make such disclosure concerning this Agreement as may be required
for purposes of audit, financing or by any court or government agency, provided
that each party shall take such precautions to secure confidential treatment as
may be reasonably available in the particular forum. Otherwise, subject to the
right to issue press releases under Section 8.2, this Agreement, its terms, and
all matters leading up to it and giving rise to it are confidential, and may not
be disclosed by the Parties to any outside party except those under
nondisclosure obligations who have a need to know.

8.2 PRESS RELEASES. If either party wishes to issue a press release
concerning this Agreement, it shall first provide the other with a copy of the
proposed release for approval. Neither party will issue a press release until
after Pixelworks has completed its "quiet period" following registration,
provided that InFocus may issue an internal release in the following language.
No release shall be issued that describes this agreement without the approval of
both parties. Each party approves a press release

Page 3 - License Agreement

that does no more than announces this agreement in the following terms, and
which may also characterize each party using that party's own usual and
customary press release language to describe itself:

InFocus Systems, Inc. and Pixelworks, Inc. have entered into a license
agreement covering certain InFocus patented technology that helps 
digital display devices more clearly and sharply present video or 
other analog-source images, (party) announced today.

9.       OTHER MATTERS.

9.1 NOTICE. "Notice" means notice given as described here. Notice will
be given to Timothy M. Carlson for InFocus, and to Allen Alley for Pixelworks,
at the address designated at the beginning of this Agreement. Each party can
change its own Notice address and designated Notice recipient, by Notice. Notice
shall be effective when actually received by the designated person, in any form
that leaves a hard copy record of the notice in that person's possession. If
sent certified or registered mail, postage prepaid, return receipt requested,
notice is considered effective on the date on which effective delivery is first
proven, but in no event later than the date the return receipt shows the notice
was accepted, refused, or returned undeliverable.

9.2 SEVERABILITY. Each clause of this agreement is severable. If any
clause is ruled void or unenforceable, the balance of the agreement shall
nonetheless remain in effect.

9.3 NON-WAIVER. A waiver of one or more breaches of any clause of this
agreement shall not act to waive any other breach, whether of the same or
different clauses.

9.4 ASSIGNMENT. This agreement may not be assigned by Pixelworks
without the express written consent of InFocus, which consent will not be
unreasonably withheld.

9.5 GOVERNING LAW, JURISDICTION. This agreement is governed by the laws
of the state of Oregon. Any action brought between the parties may be brought
only in the state or federal courts located in Portland, Oregon, and in no other
place unless the parties expressly agree in writing to waive this requirement.
Each party consents to jurisdiction in that location. Each party consents to
service of process through the method prescribed for Notice in this agreement.

9.6 ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration, or appeal filed or held concerning this agreement shall be entitled
to reasonable attorneys' fees.

9.7 REPRESENTATION. This document is the result of negotiations between
parties, each of whom was represented or had the opportunity to be represented
in the transaction, and has had the opportunity to have had the transactional
documents reviewed by counsel of their own choice.

9.8 INTEGRATION. This agreement is the complete agreement between the
parties as of the date hereof, and supersedes all prior agreements, written or
oral, excepting only the nondisclosure agreement in place between the parties,
and contracts and agreements anticipated under Section 3.2 hereof. This
Agreement resolves and satisfies all claims or disputes between the parties
concerning the Patent, Trade Secrets, or any InFocus patents, issued or pending,
as of the effective date that address the 

Page 4 - License Agreement

same set of problems solved by the Patent, arising at any point prior to the 
effective date hereof, and any dispute that could arise between InFocus and any
Pixelworks customer (direct or indirect) with respect to that Customer's own 
use of Pixelworks' Products to run Customer software in a combination that 
could infringe the Patent. Pixelworks' direct and indirect customers are 
intended third party beneficiaries of this integration and resolution. This 
Agreement may be modified only in writing signed by the original parties 
hereto, or by their successors or superiors in office.

INFOCUS SYSTEMS, INC.                       PIXELWORKS, INC.

By: /s/ Mark Pruitt                         By:  /s/ Allen H. Alley
-------------------------------               ------------------------------

Print:  Mark Pruitt                         Print:   Allen H. Alley
-------------------------------               ------------------------------

Title:  Vice President, R&D                 Title:   President & CEO
-------------------------------               ------------------------------

Date:   2/24/2000                           Date:    2/24/2000
-------------------------------               ------------------------------

Page 5 - License Agreement

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Pixelworks, Inc.:

We consent to the use of our Independent Auditors' Report dated January 26, 2000
relating to the balance sheets of Pixelworks, Inc. as of December 31, 1998 and
1999, and the related statements of operations, redeemable convertible preferred
stock and shareholders' equity (deficit) and cash flows for the period from
January 16, 1997 (date of inception) through December 31, 1997 and for each of
the years in the two-year period ended December 31, 1999 which report is
included in the Registration Statement and Prospectus, dated February 24, 2000,
of Pixelworks, Inc., and to the reference to our firm under the heading
"Experts" in the Prospectus.

/s/ KPMG LLP

Portland, Oregon
February 24, 2000

<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENT OF OPERATIONS AND NOTES TO
FINANCIAL STATEMENTS ON PAGES F-3,F-4,F-7 AND F-11 OF THE COMPANY'S FORM S-1 FOR
THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES 
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JAN-01-1999
<PERIOD-END>                               DEC-31-1999
<CASH>                                          12,199
<SECURITIES>                                         0
<RECEIVABLES>                                    2,537
<ALLOWANCES>                                       155
<INVENTORY>                                      1,404
<CURRENT-ASSETS>                                16,161
<PP                                           3,306
<DEPRECIATION>                                 (1,576)
<TOTAL-ASSETS>                                  18,394
<CURRENT-LIABILITIES>                            3,391
<BONDS>                                              0
<PREFERRED-MANDATORY>                           23,701
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     (9,295)
<TOTAL-LIABILITY-AND-EQUITY>                    18,394
<SALES>                                         12,647
<TOTAL-REVENUES>                                12,812
<CGS>                                            8,369
<TOTAL-COSTS>                                    8,369
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                   160
<INTEREST-EXPENSE>                               (110)
<INCOME-PRETAX>                                (4,884)
<INCOME-TAX>                                       (3)
<INCOME-CONTINUING>                            (4,887)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (4,887)
<EPS-BASIC>                                     (2.30)
<EPS-DILUTED>                                   (2.30)