Exhibit 10.2
PIXELWORKS, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
     This Change of Control Severance Agreement (the “Agreement”) is made and
entered into effective as of                     , 2008 (the “Effective Date”),
by and between Hongmin Zhang (the “Executive”) and Pixelworks, Inc., an Oregon
corporation (the “Company”). Certain capitalized terms used in this Agreement
are defined in Section 1 below.
R E C I T A L S
     The Board believes that it is in the best interests of the Company and its
shareholders to provide the Executive with an incentive to continue Executive’s
employment following, and so to maximize the value of the Company upon, a Change
of Control for the benefit of its shareholders. To do so, the Board believes it
appropriate to provide the Executive with certain severance benefits upon the
Executive’s termination of employment following a Change of Control.
AGREEMENT
     The parties therefore agree as follows:
     1. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
          (a) Cause. “Cause” shall mean Executive engaged in any one or more of
the following:  (i) a material act of dishonesty, fraud, misconduct, or willful
violation of any material law, ethical rule or fiduciary duty that is in
connection with Executive’s responsibilities as an executive of the Company;
(ii)  acts constituting a felony or moral turpitude which the Board reasonably
believes has had or will have a material detrimental effect on the Company’s
reputation or business; or (iii) repeated willful failure to perform Executive’s
duties as an executive of the Company and the failure to effect such cure within
30 days after written notice of such violation or breach is given to Executive;
or (iv) the willful violation of any material Company policy or procedure, or
breach of any material provision of this Agreement or other agreement with the
Company, and if such violation or breach is susceptible of cure, the failure to
effect such cure within 30 days after written notice of such violation or breach
is given to Executive.
          (b) Change of Control. “Change of Control” shall mean the occurrence
of any of the following events:
               (i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, or of a subsidiary of
the Company with any other corporation, other than a merger or consolidation
which would result in effective voting control over the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
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securities of the surviving entity) more than fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
               (ii) the approval by the shareholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets;
               (iii) any “person” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
“beneficial owner” (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company’s then outstanding voting securities; or
               (iv) a change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors. “Incumbent
Directors” shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those directors who are
either identified in (A) or identified as their successors elected under this
clause (B).
          (c) Good Reason Event. A “Good Reason Event” shall be any of the
following: (i) without the Executive’s express written consent, a material
diminution of the Executive’s duties, authority or responsibilities;
(ii) without the Executive’s express written consent, a reduction by the Company
of the Executive’s base salary; (iii) without the Executive’s express written
consent, the imposition of a requirement that Executive’s primary place of
employment be at a facility or a location more than fifty (50) miles from the
Executive’s current work location, provided that such requirement to relocate
materially increases the Executive’s commute; or (iv) the failure of the Company
to obtain the assumption of this Agreement by any successors contemplated in
Section 7 below.
          (d) Involuntary Termination. “Involuntary Termination” shall mean
(i) any termination of the Executive’s employment by the Company which is not
effected for valid Cause; or (ii) any termination by the Executive for Good
Reason.
          (e) Termination Date. “Termination Date” shall mean the effective date
of any notice of termination delivered by one party to the other hereunder.
     2. Term of Agreement. This Agreement shall terminate upon the earlier of
two (2) years after a Change of Control, or (ii) the date that all obligations
of the parties hereto under this Agreement have been satisfied.
     3. At-Will Employment. The Company and the Executive acknowledge that the
Executive’s employment is and shall continue to be at-will, as defined under
applicable law. If the Executive’s employment terminates for any reason, the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company’s then existing employee benefit plans or policies
at the time of termination.
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     4. Severance Benefits.
          (a) Termination Following a Change of Control.
               (i) If Within Twelve Months Following a Change of Control. If the
Executive’s employment with the Company terminates as a result of an Involuntary
Termination at any time within twelve (12) months after a Change of Control, and
the Executive signs the release of claims pursuant to Section 7 hereto,
Executive shall be entitled to the following severance benefits:
                    (1) twelve (12) months of Executive’s base salary as in
effect as of the date of such termination or, if greater, as in effect
immediately prior to the Change of Control, less applicable withholding, payable
in a lump sum within thirty (30) days of the Involuntary Termination;
                    (2) all stock options granted by the Company to the
Executive prior to the Change of Control shall accelerate and become vested and
exercisable as to the number of shares that would have otherwise vested during
the twelve (12) months following such termination as if the Executive had
remained employed by the Company (or its successor) through such date under the
applicable option agreements to the extent such stock options are outstanding
and unexercisable at the time of such termination; and all stock subject to a
right of repurchase by the Company (or its successor) that was purchased prior
to the Change of Control shall have such right of repurchase lapse with respect
to that number of shares which would have had such right of repurchase lapse
under the applicable agreement within twelve (12) months of the date of the
termination as if the Executive had remained employed through such date; and
                    (3) the same level of Company-paid health (i.e., medical,
vision and dental) coverage and benefits for such coverage as in effect for the
Executive (and any eligible dependents) on the day immediately preceding the
Executive’s Termination Date; provided, however, that (i) the Executive
constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of the
Internal Revenue Code of 1986, as amended; and (ii) Executive elects
continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”), within the time period prescribed pursuant to
COBRA. The Company shall continue to provide Executive with such Company-paid
coverage until the earlier of (i) the date Executive (and Executive’s eligible
dependents) is no longer eligible to receive continuation coverage pursuant to
COBRA, or (ii) twelve (12) months from the Termination Date.
               (ii) If Between Twelve Months and Twenty-Four Months Following
Change of Control. If the Executive’s employment with the Company terminates as
a result of an Involuntary Termination at any time during the period that is
from twelve (12) months after a Change of Control to twenty-four (24) months
after a Change of Control (such period being the “Second Year”), and the
Executive signs the release of claims pursuant to Section 7 hereto, Executive
shall be entitled to the following severance benefits:
                    (1) a lump sum cash amount payable within thirty (30) days
of the Involuntary Termination representing a portion of the Executive’s base
salary and any
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applicable allowances, with such amount being the resulting product of: the
number of months remaining in the Second Year as of the Termination Date,
multiplied by the per-month portion of the Executive’s base salary and
allowances as in effect as of the Termination Date or, if greater, as in effect
immediately prior to the Change of Control, less applicable withholding. For
purposes of this subsection (1), only entire months that remain in the Second
Year shall be counted as “remaining,” and any fraction of a month that remains
after the date of the termination shall not be counted hereunder;
                    (2) the health benefits set forth in Section 4(a)(i)(3)
above, provided, however, that the twelve (12) month period shall be pro-rated
to reflect that number of months remaining in the Second Year as of the date of
termination. For purposes of this subsection (2), only entire months that remain
in the Second Year shall be counted as “remaining,” and any fraction of a month
that remains after the date of the termination shall not be counted hereunder;
and
                    (3) the stock option acceleration benefits set forth in
Section 4(a)(i)(2) above, provided, however, that the twelve (12) month period
shall be pro-rated to reflect that number of months remaining in the Second Year
as of the date of termination. For purposes of this subsection (2), only entire
months that remain in the Second Year shall be counted as “remaining,” and any
fraction of a month that remains after the date of the termination shall not be
counted hereunder.
          (b) Termination Apart from a Change of Control. If the Executive’s
employment with the Company terminates other than as a result of an Involuntary
Termination within the twenty-four (24) months following a Change of Control,
then the Executive shall not be entitled to receive severance or other benefits
hereunder, but may be eligible for those benefits (if any) as may then be
established under the Company’s then existing severance and benefits plans and
policies at the time of such termination.
          (c) Accrued Wages and Vacation; Expenses. Without regard to the reason
for, or the timing of, Executive’s termination of employment: (i) the Company
shall pay the Executive any unpaid base salary due for periods prior to the
Termination Date; (ii) the Company shall pay the Executive all of the
Executive’s accrued and unused vacation through the Termination Date; and
(iii) following submission of proper expense reports by the Executive, the
Company shall reimburse the Executive for all expenses reasonably and
necessarily incurred by the Executive in connection with the business of the
Company prior to the Termination Date. These payments shall be made promptly
upon termination and within the period of time mandated by law.
     5. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Executive
(i) constitute “parachute payments” within the meaning of Section 280G of the
United States Internal Revenue Code (the “Code”), and (ii) would be subject to
the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then
Executive’s benefits under this Agreement shall be either
          (a) delivered in full, or
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          (b) delivered as to such lesser extent which would result in no
portion of such benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by
Executive on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code.
     Any determination required under this section shall be made in writing by
the Company’s independent public accountants (the “Accountants”), whose
determination shall be conclusive and binding upon the Executive and the Company
for all purposes. For purposes of making the calculations required by this
section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Sections 280G and 4999 of the
Code. The Company and the Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this section.
     6. Successors.
          (a) Company’s Successors. Any successor to the Company (whether direct
or indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company’s business and/or
assets shall assume the Company’s obligations under this Agreement and agree
expressly to perform the Company’s obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term “Company” shall include any successor to the Company’s
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
          (b) Executive’s Successors. Without the written consent of the
Company, Executive may not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Executive hereunder
shall inure to the benefit of, and be enforceable by, Executive’s personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
     7. Execution of Release Agreement upon Termination. As a condition of
receiving the benefits under Section 4 of this Agreement, the Executive shall
within twenty five days after the Executive’s Termination Date, , execute and
not revoke a general release of claims against the Company in form satisfactory
to the Company.
     8. Litigation/Audit Cooperation. Following the termination of Executive’s
employment for any reason, Executive shall reasonably cooperate with the Company
or any of its subsidiaries or affiliates (the “Company Group”) in connection
with (a) any internal or governmental investigation or administrative,
regulatory, arbitral or judicial proceeding
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involving any member of the Company Group with respect to matters relating to
Executive’s employment with or service as a member of the board of directors of
any member of the Company Group other than a third party proceeding in which
Executive is a named party and Executive and the Company (or the applicable
member(s) of the Company Group) have not entered into a mutually acceptable
joint defense agreement (collectively, “Litigation”) or (b) for a two year
period following the Termination Date, any audit of the financial statements of
any member of the Company Group with respect to the period of time when
Executive was employed by any member of the Company Group (“Audit”). Executive
acknowledges that such cooperation may include, but shall not be limited to,
Executive making himself available to the Company or any other member of the
Company Group (or their respective attorneys or auditors) upon reasonable notice
for: (i) interviews, factual investigations, and providing declarations or
affidavits that provide truthful information in connection with any Litigation
or Audit; (ii) appearing at the request of the Company or any member of the
Company Group to give testimony without requiring service of a subpoena or other
legal process; (iii) volunteering to the Company or any member of the Company
Group pertinent information related to any Litigation or Audit; (iv) providing
information and legal representations to the auditors of the Company or any
member or any member of the Company Group, in a form and within a timeframe
requested by the Board, with respect to the Company’s or any member of the
Company Group’s opening balance sheet valuation of intangibles and financial
statements for the period in which Executive was employed by the Company or any
member of the Company Group; and (v) turning over to the Company or any member
of the Company Group any documents relevant to any Litigation or Audit that are
or may come into Executive’s possession. The Company shall reimburse Executive
for reasonable travel expenses incurred in connection with providing the
services under this Section 9, including lodging and meals, upon Executive’s
submission of receipts. The Company shall also compensate Executive for each
hour that Executive provides cooperation in connection with this Section 9 at an
hourly rate equal to Executive’s base salary as of the Termination Date divided
by 2080. Executive shall submit invoices for any month in which Executive
performs services pursuant to this Section 9 that details the amount of time and
a description of the services rendered for each separate day that Executive
performed such services. The Company shall reimburse Executive for such services
rendered within fifteen (15) days of receiving an invoice from Executive.
     9. 409A Savings Clause. If Executive is a “specified employee” within the
meaning of Section 409A of the Internal Revenue Code of 1986, as amended by the
rules and regulations issued thereunder by the Department of Treasury and the
Internal Revenue Service (“409A”) as of the date of the Executive’s “separation
from service” within the meaning of Section 409A, Executive shall not be
entitled to any payment or benefit pursuant to Section 4 until the earlier of
(i) the date which is six (6) months after his separation from service for any
reason other than death, or (ii) the date of Executive’s death. The provisions
of this Section 10 shall only apply if, and to the extent, required to avoid the
imputation of any tax, penalty or interest pursuant to Section 409A. Any amounts
otherwise payable to Executive upon or in the six (6) month period following the
Executive’s separation from service that are not so paid by reason of this
Section 10 shall be paid (without interest) as soon as practicable (and in all
events within thirty (30) days) after the date that is six (6) months after
Executive’s separation from service (or, if earlier, as soon as practicable, and
in all events within thirty (30) days, after the date of Executive’s death). To
the extent that any benefits pursuant to Section 4 or reimbursements pursuant to
Section 5 are taxable to the Executive, any reimbursement payment due to the
Executive
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pursuant to any such provision shall be paid to the Executive on or before the
last day of the Executive’s taxable year following the taxable year in which the
related expense was incurred. The benefits and reimbursements pursuant to
Section 4 are not subject to liquidation or exchange for another benefit and the
amount of such benefits and reimbursements that the Executive receives in one
taxable year shall not affect the amount of such benefits or reimbursements that
the Executive receives in any other taxable year.
     10. Notices. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Executive, mailed
notices shall be addressed to Executive at the home address which Executive most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
     11. Arbitration.
          (a) Any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be settled by binding
arbitration to be held in Portland, Oregon in accordance with the National Rules
for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the “Rules”). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the arbitrator
shall be final, conclusive and binding on the parties to the arbitration.
Judgment may be entered on the arbitrator’s decision in any court having
jurisdiction.
          (b) The arbitrator(s) shall apply Oregon law to the merits of any
dispute or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. Executive hereby consents to the
personal jurisdiction of the state and federal courts located in Oregon for any
action or proceeding arising from or relating to this Agreement or relating to
any arbitration in which the parties are participants.
          (c) Executive understands that nothing in this Section modifies
Executive’s at-will employment status. Either Executive or the Company can
terminate the employment relationship at any time, with or without Cause.
          (d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF,
RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING
ARBITRATION, CONSTITUTES A WAIVER OF EXECUTIVE’S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EXECUTIVE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWING
CLAIMS:
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                    (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION.
                    (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE
OR MUNICIPAL CONSTITUTION OR STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII
OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF
1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING
ACT, AND THE CALIFORNIA LABOR CODE (except for claims for underlying workers’
compensation benefits); and
                    (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
     12. Proprietary Information and Inventions Assignment Agreement. Executive
shall execute and comply with the terms of the Company’s standard Proprietary
Information and Inventions Assignment Agreement.
     13. Miscellaneous Provisions.
          (a) Effect of Any Statutory Benefits. If any severance benefits are
required to be paid to the Executive upon termination of employment with the
Company as a result of any requirement of law or any governmental entity in any
applicable jurisdiction, the aggregate amount payable pursuant to Section 4
hereof shall be reduced by such amount.
          (b) Effect of Standard Company Policy or Other Agreements. To the
extent that any severance benefits or payments are required to be paid to the
Executive upon termination of employment with the Company as a result of any
standard Company policy or other existing agreement(s), Executive shall be
entitled to the most favorable of any given benefit (e.g., cash, option vesting,
health benefits) available under any one such source, but shall not be entitled
also to cumulate the same kind of benefit from multiple agreements or policies.
          (c) No Duty to Mitigate. The Executive shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Executive may receive from any
other source.
          (d) Waiver. No provision of this Agreement may be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Executive and by an authorized officer of the Company (other
than the Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
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          (e) Integration. This Agreement and any agreements referenced herein
represent the entire agreement and understanding between the parties as to the
subject matter herein and collectively supersede all prior or contemporaneous
agreements, whether written or oral, with respect to the same subject matter,
provided that, for clarification purposes, this Agreement shall not affect any
agreements between the Company and Executive regarding intellectual property
matters or confidential information of the Company.
          (f) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of Oregon.
          (g) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
          (h) Employment Taxes. All payments made pursuant to this Agreement
shall be subject to withholding of applicable income and employment taxes.
          (i) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which together will constitute
one and the same instrument.
     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.

                  Pixelworks, Inc.       Executive    
 
               
By:
               
 
 
 
Bruce Walicek, CEO      
 
Hongmin Zhang    

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