<PAGE>

                                                                     Exhibit 2.1

            AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION

          THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"AGREEMENT") is entered into as of this 19th day of May,  2000 (the
"AGREEMENT  DATE"),  by and among Silicon Image,  Inc., a Delaware
corporation  ("ACQUIRER"),  Video  Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Acquirer ("NEWCO"), and DVDO,  Inc., a
California  corporation  ("TARGET"),  and with the  following shareholders of
Target for the purposes of Sections, 1.1.1, 1.3 and 10: Laurence A.
Thompson,  Dale R.  Adams,  Cheng  Hwee Chee and David  Buuck  (the  "TARGET
SHAREHOLDER FOUNDERS").

                                    RECITALS

         A. The  parties  intend that Newco will merge with and into Target
in a reverse  triangular  merger  (the  "MERGER"),  with  Target to be the
surviving corporation  of the Merger,  all  pursuant to the terms and
conditions  of this Agreement and an Agreement of Merger in a form to be
agreed upon by Acquirer and Target (the "AGREEMENT OF MERGER"), and a
Certificate of Merger substantially in in a form to be agreed upon by
Acquirer and Target (the "CERTIFICATE OF MERGER") and the applicable
provisions of the laws of California and Delaware.  Upon the effectiveness
of the  Merger,  all the  outstanding  capital  stock  of  Target ("TARGET
STOCK") will be converted  into capital  stock of Acquirer  ("ACQUIRER
STOCK"),  and Acquirer will assume all outstanding options to purchase shares
of capital stock of Target, in the manner and on the basis determined herein
and as provided in the Agreement of Merger and Certificate of Merger.

         B.  On March 30, 2000, the parties hereto excuted an Agreement and
Plan of Reorganization (the "PRIOR AGREEMENT") to effect the foregoing and
which Prior Agreement the parties hereto wish to amend and restate in its
entirety as provided herein.

         C.  Concurrently  with  the  execution  of  the Prior  Agreement,
and  as a condition and inducement to Acquirer's willingness to enter into
the Prior Agreement and this Agreement, Target  and  each  of  the
shareholders   of  Target  listed  on  EXHIBIT  C-1 (collectively,  the
"PRINCIPAL SHAREHOLDERS") have executed and delivered a Voting Agreement in
substantially  the form attached hereto as (the "VOTING AGREEMENT") agreeing
to vote in favor of this Agreement and the Merger.

         D.  Concurrently  with  the  execution  of  the Prior  Agreement,
and  as a condition and inducement to Acquirer's willingness to enter into
the Prior Agreement and this Agreement, certain of the  employees of Target
have executed and delivered employment agreements, a consulting  agreement
and non-competition agreement.

         E. The Merger is  intended  to be treated as a tax-free
reorganization pursuant to the provisions of Section  368(a)(1)(A) of the
Internal Revenue Code of 1986,  as  amended  (the  "CODE"),  by virtue of the
 provisions  of  Section 368(a)(2)(E) of the Code.

         NOW, THEREFORE, the parties hereto hereby agree as follows:

         1.       PLAN OF REORGANIZATION

                  1.1      THE MERGER. The Agreementof Merger will be filed with
the Secretary of State of the State of California and the  Certificate of Merger
will be filed with the  Secretary  of State of the State of  Delaware as soon as
practicable after the Closing (as defined in Section

                                       1

<PAGE>

6.1 below).  The  effective  time of the Merger as specified in the Agreement of
Merger (the "EFFECTIVE  TIME") will occur on or before July 31, 2000, or on such
other date as the parties hereto may mutually  agree upon.  Subject to the terms
and conditions of this Agreement, the Agreement of Merger and the Certificate of
Merger, Newco will be merged with and into Target (or, if specified by Acquirer,
Target  will be merged  with and into  Newco in a forward  triangular  merger as
provided in Section  1.1.5) in a statutory  merger  pursuant to the Agreement of
Merger  and  the  Certificate  of  Merger  and  in  accordance  with  applicable
provisions of the laws of the States of Delaware and California as follows:

                           1.1.1        CONVERSION OF SHARES.

                                        (a) TARGET  COMMON  STOCK.  Each   share
of Target Common Stock, no par value per share (the "TARGET COMMON STOCK"), that
is issued and outstanding  immediately  prior to the Effective Time,  other than
shares,  if any,  for which  dissenters  rights have been or may be perfected in
compliance  with  applicable  law,  will,  by  virtue of the  Merger  and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the Common Stock Applicable Number (determined in accordance with
Section  1.1.3(a)  hereof) of fully paid and  nonassessable  shares of  Acquirer
Common Stock,  $0.001 par value per share ("ACQUIRER  COMMON STOCK").  As of the
Closing  Date,  the  Acquirer  Common Stock  received by the Target  Shareholder
Founders shall be subject to the terms and conditions set forth in the Indemnity
Escrow Agreement and the Acquirer Common Stock received by certain of the Target
Shareholder Founders shall be subject to the Retention Escrow Agreement.  Except
as  provided  in  accordance  with  the  foregoing,  all  terms  and  conditions
(including  any vesting  provisions and the  corresponding  rights of repurchase
held by Target)  applicable to Target  Common Stock prior to the Effective  Time
will  continue to be  applicable  to the Acquirer  Common Stock  received by the
holders of such Target Common Stock.

                                        (b) TARGET  SERIES A STOCK.   Each share
of Target Series A Preferred  Stock, no par value (the "TARGET SERIES A STOCK"),
that is issued and outstanding  immediately  prior to the Effective Time,  other
than shares,  if any, for which dissenters  rights have been or may be perfected
in  compliance  with  applicable  law,  will, by virtue of the Merger and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the Series A Applicable  Number  (determined  in accordance  with
Section 1.1.3(b) hereof) of fully paid  nonassessable  shares of Acquirer Common
Stock.

                                        (c) TARGET  SERIES B STOCK.  Each  share
of Target Series B Preferred  Stock, no par value (the "TARGET SERIES B STOCK"),
that is issued and outstanding  immediately  prior to the Effective Time,  other
than shares,  if any, for which dissenters  rights have been or may be perfected
in  compliance  with  applicable  law,  will, by virtue of the Merger and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the Series B Applicable  Number  (determined  in accordance  with
Section 1.1.3(c) hereof) of fully paid  nonassessable  shares of Acquirer Common
Stock.

                           1.1.2        TARGET  OPTIONS.  Prior  to the  Merger,
Target will cause all outstanding  warrants (the  "Warrants") to purchase Target
Series B Stock  to be  exercised.  At the  Effective  Time,  each  holder  of an
outstanding  option  (collectively,  the "TARGET  OPTIONS")  to purchase  Target
Common Stock  granted  under  Target's  1997 Stock Option Plan,  as amended (the
"TARGET PLAN") shall be entitled,  in accordance with the terms of such options,
to purchase  after the Effective  Time that number of shares of Acquirer  Common
Stock, determined by

                                       2

<PAGE>

multiplying  the number of shares of Target  Common Stock subject to such Target
Option at the  Effective  Time by the Common Stock  Applicable  Number,  and the
exercise  price per share for each such Option will equal the exercise  price of
the Target Option  immediately prior to the Effective Time divided by the Common
Stock  Applicable  Number,  such exercise  price being rounded up to the nearest
whole cent.  If the  foregoing  calculation  results in an assumed  option being
exercisable  for a fraction  of a share,  then the number of shares of  Acquirer
Common Stock  subject to such option will be rounded  down to the nearest  whole
number with no cash being payable for such fractional share. Except as otherwise
provided in this Agreement, all of the other terms and conditions (including any
vesting  provisions)  of each  Acquirer  Option will be the same in all material
respects as the corresponding  Target Option. It is the intention of the parties
that the Target Options assumed by Acquirer qualify following the Effective Time
as incentive  stock  options as defined in Section 422 of the Code to the extent
the Target Options qualified as incentive stock options immediately prior to the
Effective Time.

                           1.1.3        APPLICABLE NUMBERS; COLLAR.

                                        (a) COMMON   STOCK   APPLICABLE  NUMBER.
Subject to Section 1.1.4 below, the "COMMON STOCK APPLICABLE NUMBER" shall equal
(a) the Total  Acquirer  Shares to be Issued for Target Common Stock (as defined
below) divided by (b) the sum of (i) the total number of shares of Target Common
Stock issued and  outstanding at the Effective Time and (ii) the total number of
shares of Target  Common  Stock  issuable  upon  exercise of all Target  Options
outstanding  at the  Effective  Time.  "TOTAL  ACQUIRER  SHARES TO BE ISSUED FOR
TARGET COMMON STOCK" will equal three hundred  eighty one thousand three hundred
thirty (381,330) shares of Acquirer Common Stock.

                                        (b) SERIES A APPLICABLE NUMBER.  Subject
to Section  1.1.4 below,  the "SERIES A APPLICABLE  NUMBER"  shall equal (a) the
Total Acquirer  Shares to be Issued for Target Series A Stock (as defined below)
divided by (b) the total  number of shares of Target  Series A Stock  issued and
outstanding  at the  Effective  Time.  "TOTAL  ACQUIRER  SHARES TO BE ISSUED FOR
TARGET  SERIES A STOCK" will equal  seventy-five  thousand  seven  hundred three
(75,703)  shares of Acquirer Common Stock. In the event that the average closing
price as quoted on the Nasdaq National Market and as reported in THE WALL STREET
JOURNAL of one share of Acquirer Common Stock for the five trading days prior to
and  including  the trading day ending fives days prior to the Closing Date (the
"AVERAGE  PRICE PRIOR TO CLOSING") is greater than $113.04,  the Total  Acquirer
Shares to be  Issued  for  Target  Series A Stock  shall be equal to  $8,359,976
divided by the Average Price prior to Closing; and in the event that the Average
Price  prior to Closing is less than  $90.43,  the Total  Acquirer  Shares to be
Issued for Target  Series A Stock  shall be equal to  $6,725,283  divided by the
Average Price prior to Closing.

                                        (c) SERIES B APPLICABLE NUMBER.  Subject
to Section  1.1.4 below,  the "SERIES B APPLICABLE  NUMBER"  shall equal (a) the
Total Acquirer  Shares to be Issued for Target Series B Stock (as defined below)
divided by (b) the total  number of shares of Target  Series B Stock  issued and
outstanding  at the  Effective  Time.  "TOTAL  ACQUIRER  SHARES TO BE ISSUED FOR
TARGET  SERIES B STOCK"  will  equal one  hundred  twenty-eight  thousand  three
hundred five (128,305) of Acquirer Common Stock; provided that for each share of
Target Series B Stock  outstanding  at the Effective Time that has resulted from
the exercise of any of the Warrants for cash,  the Total  Acquirer  Shares to be
Issued for Target  Series B Stock will be increased by the quotient  obtained by
dividing  $0.78 by the Average Price (as defined  below).  In the event that the
Average  Price  prior to Closing is greater  than  $113.04,  the Total  Acquirer
Shares to be issued

                                       3

<PAGE>

for Target Series B Stock shall be equal to  $14,529,438  divided by the Average
Price prior to Closing; and in the event that the Average Price prior to Closing
is less than $90.43,  the Total Acquirer Shares to be issued for Target Series B
Stock  shall be equal to  $11,398,349  divided  by the  Average  Price  prior to
Closing.

                                        (d) For the purposes of this  Agreement,
"TOTAL  ACQUIRER  SHARES" shall mean the sum of the Total Acquirer  Shares to be
Issued for  Target  Common  Stock,  the Total  Acquirer  Shares to be Issued for
Target  Series A Stock and the Total  Acquirer  Shares to be Issued  for  Target
Series B Stock.

                           1.1.4        ADJUSTMENTS  FOR  CAPITAL  CHANGES.   If
prior to the Merger,  Acquirer or Target recapitalizes through a split-up of its
outstanding  shares into a greater  number,  or a combination of its outstanding
shares into a lesser number, reorganizes,  reclassifies or otherwise changes its
outstanding  shares  into the same or a  different  number  of  shares  of other
classes (other than through a split-up or combination of shares  provided for in
the previous clause),  or declares a dividend on its outstanding  shares payable
in shares or securities  convertible  into shares,  the number of Total Acquirer
Shares  will be  adjusted  appropriately  so as to  maintain  the  proportionate
interests  of the  holders of shares of Target  Stock and of shares of  Acquirer
Stock.

                           1.1.5        FORWARD  TRIANGULAR MERGER.  The parties
agree that,  upon Acquirer's  request,  they will amend these documents to cause
Target to merge with and into Newco;  PROVIDED,  HOWEVER, no such amendment will
be made if it would  result in any  material  delay in the  consummation  of the
Merger  as a result  of  additional  third  party  consents  being  required  or
otherwise;  and  PROVIDED,  FURTHER,  that Target will be allowed to restate the
Target  Disclosure  Letter (as  defined in Section 2) to take into  account  any
changes resulting from any such amendment.

                  1.2      FRACTIONAL SHARES.  No fractional  shares of Acquirer
Common Stock will be issued in connection  with the Merger,  but in lieu thereof
each  holder  of Target  Stock who would  otherwise  be  entitled  to  receive a
fraction  of a share of  Acquirer  Common  Stock  will  receive  from  Acquirer,
promptly  after the  Effective  Time,  an amount of cash  equal to the per share
market  value of  Acquirer  Common  Stock  (based on the  closing  sale price of
Acquirer  Common  Stock as quoted on the Nasdaq  National  Market on the Closing
Date (as  defined in Section  6.1),  as  reported  in the WALL  STREET  JOURNAL)
multiplied  by the  fraction of a share of Acquirer  Common  Stock to which such
holder would otherwise be entitled.

                  1.3      ESCROW AGREEMENTS.

                           (a)      INDEMNITY  ESCROW.  At  the  closing of  the
Merger (the  "CLOSING"),  Acquirer  will  withhold  twenty  percent (20%) of the
shares of  Acquirer  Stock to be issued to all Target  Shareholder  Founders  in
accordance  with Section 1.1 (rounded down to the nearest whole number of shares
to be  issued  to  each  Target  Shareholder),  and  deliver  such  shares  (the
"INDEMNITY ESCROW SHARES") to State Street Bank and Trust Company of California,
N.A. (the "ESCROW AGENT"), as escrow agent (or such other independent  financial
institution  as agreed to by the  parties),  to be held by the  Escrow  Agent as
collateral  for  Target's  and  Target  Shareholder  Founders'   indemnification
obligations  under  Sections 10.1 through 10.4 and pursuant to the provisions of
an escrow agreement (the "INDEMNITY ESCROW AGREEMENT") in substantially the form
of  EXHIBIT  1.3(A).  The  Indemnity  Escrow  Shares  will be  represented  by a
certificate or

                                       4

<PAGE>

certificates  issued in the name of the applicable Target  Shareholder  Founder.
The  Indemnity  Escrow  Shares will be held by the Escrow Agent from the Closing
until  twenty-four  (24) months  after the Closing Date (the  "INDEMNITY  ESCROW
PERIOD") subject to any  indemnification  obligations as set forth in Section 10
below or as otherwise agreed to by all the parties herto.

                           (b)      RETENTION  ESCROW.  At the  Closing for  the
purpose of providing  incentive to those Target  Shareholder  Founders listed on
EXHIBIT  1.3(B)-1  attached  hereto to remain as employees of Acquirer after the
Closing (the "RETAINED TARGET  FOUNDERS"),  Acquirer will withhold forty percent
(40%) of the  shares  of  Acquirer  Stock to be issued  to the  Retained  Target
Founders  (rounded  down to the nearest  whole  number of shares to be issued to
each Target  Shareholder),  and  deliver  such  shares  (the  "RETENTION  ESCROW
SHARES") to the Escrow  Agent,  to be held by the Escrow  Agent  pursuant to the
provisions  of  an  escrow  agreement  (the  "RETENTION  ESCROW  AGREEMENT")  in
substantially the form of EXHIBIT 1.3(B)-2.  The Retention Escrow Shares will be
represented  by a  certificate  or  certificates  issued  in  the  name  of  the
applicable Target Shareholder  Founder. The Retention Escrow Shares will be held
by the Escrow Agent from the Closing  until  thirty-three  (33) months after the
Closing  Date  (the  "RETENTION   ESCROW  PERIOD")   subject  to  the  following
conditions: (i) twenty-seven and twenty-seven hundredths percent (27.27%) of the
Retention  Escrow Shares will be released to the Retained Target Founders at the
end of nine months after the Closing and (ii) nine and nine  hundredths  percent
(9.09%) of the Retention  Escrow Shares will be released to the Retained  Target
Founders at the end of each three-month period thereafter;  provided that (A) in
the event that any one of the Retained  Target Founders is terminated with cause
or terminates his employment prior to the end of the initial  nine-month  period
following Closing,  no such amounts shall be released from the Retention Escrow,
(B) in the event that any one of the Retained Target Founders is terminated with
cause or  terminates  his  employment  after the end of the  initial  nine-month
period following Closing,  such amounts released from the Retention Escrow shall
be  reduced  by  one-third  thereafter,  and (C) in the  event  that  two of the
Retained  Target  Founders  have  been  terminated  or  have  terminated   their
employment,  no such  amounts  shall  be  released  from  the  Retention  Escrow
thereafter.  The  termination of any of the Retained  Target  Founders  "without
Cause" or by  "Constructive  Termination"  (as defined in the  Retention  Escrow
Agreement)  shall not reduce the amount of the Retention  Escrow Shares released
pursuant  to  this  Section  and any  such  Retained  Target  Founder  shall  be
considered still employed for purposes of this Section.

                           (c)      By  executing this Agreement, the Target
Shareholder Founders hereby consent to and approve  (i) the indemnification
provisions of Sections 10.1 through 10.4 and the use of the Indemnity Escrow
Shares as collateral for the indemnification obligations under Sections 10.1
through 10.4; (ii) the Indemnity Escrow Agreement;  (iii) the Retention
Escrow Agreement (the Indemnity Escrow Agreement and the Retention Escrow
Agreements being referred to at the "ESCROW AGREEMENTS"); and (iv) the taking
by the representative of the Target Shareholder Founders (the
"REPRESENTATIVE"), who will be appointed in accordance with Section 8.21
hereof and who will act as attorney-in-fact and agent  for and on behalf of
each Target shareholder Founder as provided herein and in the Escrow
Agreements, of any and all actions and the making of any decisions required
or permitted to be taken by the Representative under this Agreement and the
Escrow Agreements, including, without limitation, the exercise of the power
to: (a) authorize delivery to Acquirer of Indemnity

                                       5

<PAGE>

Escrow  Shares in  satisfaction  of  indemnity  claims by  Acquirer or any other
Indemnified  Person  (as  defined  herein)  pursuant  to  Article  10 and/or the
Indemnity Escrow Agreement; (b) agree to, negotiate,  enter into settlements and
compromises  of,  demand  arbitration  of, and comply  with orders of courts and
awards of  arbitrators  with respect to, such claims;  (c)  arbitrate,  resolve,
settle or compromise  any claim for  indemnity  made pursuant to Article 10; and
(d) take all actions  necessary  in the judgment of the  Representative  for the
accomplishment  of the  foregoing.  The  Representative  will have authority and
power to act on behalf of each Target  Shareholder  Founder  with respect to the
Escrow  Agreements  and the  disposition,  settlement  or other  handling of all
claims governed by the Escrow Agreements,  and all rights or obligations arising
under the Escrow  Agreements  so long as all  Target  Shareholder  Founders  are
treated in the same manner. The Target Shareholder Founders will be bound by all
actions taken and documents  executed by the  Representative  in connection with
the Escrow  Agreements,  and Acquirer  will be entitled to rely on any action or
decision of the  Representative.  In performing the functions  specified in this
Agreement and the Escrow Agreements,  the  Representative  will not be liable to
any Target Shareholder  Founder in the absence of willful misconduct on the part
of the Representative.  Any out-of-pocket costs and expenses reasonably incurred
by the  Representative in connection with actions taken pursuant to the terms of
the Escrow  Agreements  will be paid out of the applicable  Escrow Shares to the
extent that any such Escrow Shares shall remain following the applicable  Escrow
Period and  satisfaction  of all claims by Acquirer under the applicable  Escrow
Agreement.  To the extent that such Escrow Shares shall be insufficient for such
purpose,  such fees and expenses will be paid by the Target Shareholder Founders
to the Representative  pro rata in proportion to their respective  contributions
to the applicable Escrow Shares.

                  1.4      EFFECTS OF THE MERGER.  At the  Effective  Time:  (a)
the  separate  existence  of Newco will cease and Newco will be merged  with and
into Target, and Target will be the surviving corporation, pursuant to the terms
of the  Agreement  of Merger,  (b) the Articles of  Incorporation  and Bylaws of
Target will continue unchanged to be the Articles of Incorporation and Bylaws of
the surviving  corporation,  (c) each share of Target  Common Stock  outstanding
immediately  prior  to the  Effective  Time  will  continue  to be an  identical
outstanding  share of the  surviving  corporation,  (d) the  directors  of Newco
immediately  prior to the  Effective  Time  will  become  the  directors  of the
surviving  corporation  and the  officers  of  Newco  immediately  prior  to the
Effective Time will become the officers of the surviving  corporation,  (e) each
share of Target Stock and each Target Option  outstanding  immediately  prior to
the  Effective  Time will be  converted as provided in Sections 1.1 and 1.2; and
(f) the Merger will,  from and after the Effective Time, have all of the effects
provided by applicable law.

                  1.5      FURTHER  ASSURANCES.  Target  agrees that if,  at any
time before or after the Effective Time,  Acquirer  considers or is advised that
any further  deeds,  assignments  or  assurances  are  reasonably  necessary  or
desirable  to vest,  perfect or confirm in  Acquirer  title to any  property  or
rights of Target, Acquirer and its proper officers and directors may execute and
deliver all such  proper  deeds,  assignments  and  assurances  and do all other
things necessary or desirable to vest, perfect or confirm title to such property
or rights in Acquirer and otherwise to carry out the purpose of this  Agreement,
in the name of Target or otherwise, all at the Acquirer's expense.

                  1.6      APPRAISAL RIGHTS.   If  holders of  Target Stock  are
entitled to  appraisal  rights in  connection  with the merger  (such  shares of
Target Stock held by shareholders  exercising the rights of appraisal  described
in this Section 1.6 being  referred to as "DISSENTING  SHARES"),  any Dissenting
Shares shall not be converted into a right to receive  Acquirer Common Stock but
shall

                                       6

<PAGE>

be converted into the right to receive such  consideration  as may be determined
to be due with  respect to such  Dissenting  Shares  pursuant to the laws of the
State of California; provided, however, that if the status of any such shares as
"dissenting  shares"  shall not be  perfected,  or if any such shares shall lose
their status as "dissenting shares," then, as of the later of the Effective date
or  the  time  of  the  failure  to  perfect  such  status,  such  shares  shall
automatically  be converted  into and shall  represent only the right to receive
(upon the surrender of the certificate of certificates representing such shares)
Acquirer  Common  Stock (and any cash in lieu of  fractional  shares of Acquirer
Common Stock) in accordance with Sections 1.1 and 1.2 hereof.  Target shall give
Acquirer  prompt notice of any demand received by Target for appraisal of Target
Stock,  and Acquirer shall have the right to participate in all negotiations and
proceedings  with respect to such demand.  Target  agrees that,  except with the
prior written consent of Acquirer or as required under Chapter 13 of the General
corporation Law of the State of California (the "CGCL"), it will not voluntarily
make any payment with respect to, or settle or offer to settle,  any such demand
for appraisal. Each holder of Dissenting Shares ("DISSENTING  SHAREHOLDER") who,
pursuant to the provisions of the CGCL, becomes entitled to payment of the value
of shares of Target Stock shall receive  payment  therefor from Target (but only
after the value  therefor  shall have been  agreed  upon or  finally  determined
pursuant to such provisions).

                  1.7      TAX FREE REORGANIZATION.  The parties intend to adopt
this Agreement as a tax-free plan of reorganization and to consummate the Merger
in accordance  with the  provisions  of Section  368(a)(1)(A)  of the Code.  The
parties  believe  that the value of the  Acquirer  Stock to be  received  in the
Merger is  equal,  in each  instance,  to the  value of the  Target  Stock to be
surrendered in exchange  therefor.  The Acquirer Stock issued in the Merger will
be issued  solely in exchange  for the Target  Stock,  and no other  transaction
other  than  the  Merger  represents,  provides  for  or  is  intended  to be an
adjustment to, the consideration paid for the Target Stock. Except for cash paid
in lieu of fractional  shares or for Dissenting  Shares,  no consideration  that
could constitute  "other property" within the meaning of Section 356 of the Code
is being paid by Acquirer for the Target Stock in the Merger.  The parties shall
not take a position on any tax returns  inconsistent  with this  Section 1.7. In
addition, Acquirer represents now, and as of the Closing Date, that it presently
intends to continue Target's  historic business or use a significant  portion of
Target's business assets in a business.

                  1.8      PURCHASE ACCOUNTING.   The  parties  intend  that the
Merger be treated as a purchase for accounting purposes.

         2.       REPRESENTATIONS AND WARRANTIES OF TARGET

                  Target  hereby  represents  and warrants  that,  except as set
forth on the  Target  disclosure  letter  dated as of the  Agreement  Date  (the
"TARGET  DISCLOSURE  LETTER")  and  delivered  by Target to  Acquirer  herewith,
including items in the Target  Disclosure Letter below, each of the following is
true and correct as of the Agreement Date and will be true and correct as of the
Closing Date (as defined in Section 6.1):

                  2.1      ORGANIZATION   AND  GOOD  STANDING.    Target  is   a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, has the corporate power and authority to own,
operate and lease its  properties  and to carry on its business as now conducted
and as proposed to be conducted,  and is qualified as a foreign  corporation  in
each  jurisdiction  in which a failure to be so qualified  could  reasonably  be
expected to have a Material  Adverse  Effect (as defined  below) on Target.  For
purposes of this Agreement, the term

                                       7

<PAGE>

"MATERIAL  ADVERSE  EFFECT"  when used in  connection  with an entity  means any
change, event, violation, inaccuracy,  circumstance or effect that is materially
adverse to the business,  assets (including intangible assets),  capitalization,
financial condition,  prospects or results of operations of such entity taken as
a whole with its subsidiaries.

                  2.2      POWER, AUTHORIZATION AND VALIDITY.


                           2.2.1        Target  has  the  right,  power,   legal
capacity  and  authority  to enter into and perform its  obligations  under this
Agreement,  and all  agreements  to which  Target is or will be a party that are
required to be executed  pursuant to this  Agreement and attached as exhibits to
this Agreement (the "TARGET ANCILLARY AGREEMENTS").  The execution, delivery and
performance of this Agreement and the Target Ancillary Agreements have been duly
and validly approved and authorized by Target's Board of Directors.

                           2.2.2        No filing,  authorization  or  approval,
governmental  or otherwise,  is necessary to enable Target to enter into, and to
perform  its  obligations   under,  this  Agreement  and  the  Target  Ancillary
Agreements,  except  for (a) the  filing of the  Agreement  of  Merger  with the
California  Secretary of State and the filing of the  Certificate of Merger with
the Delaware  Secretary of State,  and the filing of appropriate  documents with
the  relevant  authorities  of other  states in which  Target is qualified to do
business, if any, (b) such filings as may be required to comply with federal and
state  securities  laws, and (c) the approval of the Target  Shareholders of the
transactions contemplated hereby.

                           2.2.3        This  Agreement and the Target Ancillary
Agreements  are,  or  when  executed  by  Target  will  be,  valid  and  binding
obligations of Target  enforceable in accordance  with their  respective  terms,
except as to the effect, if any, of (a) applicable  bankruptcy and other similar
laws  affecting  the rights of creditors  generally,  (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and (c) the
enforceability of provisions  requiring  indemnification  in connection with the
offering, issuance or sale of securities;  provided, however, that the Agreement
of Merger will not be  effective  until filed with the  California  Secretary of
State and the  Certificate of Merger will not be effective  until filed with the
Delaware Secretary of State.

                  2.3      CAPITALIZATION.

                           2.3.1        The  authorized  capital stock of Target
is as follows:  13,000,000  shares of Target Common Stock,  of which  11,915,875
shares are issued and  outstanding,  and  7,408,863  shares of Target  Preferred
Stock,  of which  3,193,548  shares are designated as Target Series A Stock,  of
which 3,193,548 shares are issued and outstanding, and of which 4,215,315 shares
are designated  Target Series B Stock, of which 4,215,315  shares are issued and
outstanding.  Each share of Target  Preferred Stock is convertible  into one (1)
share of Target  Common  Stock.  A list of all holders of  Target's  outstanding
capital  stock (the  "TARGET  SHAREHOLDERS"),  and the total number of shares of
Target Common Stock and Target Preferred Stock (and the number of shares of each
series of Target  Preferred  Stock)  owned by each  such  Shareholder  as of the
Agreement Date, a description of any rights of Target to repurchase such shares,
the dates on which  such  repurchase  rights  would  terminate  or lapse,  and a
description  of any  conditions  or events  which  would  result in the lapse or
termination  of any such  repurchase  rights,  is set forth in SCHEDULE 2.3.1 to
Target Disclosure Letter, and as of the Closing Date, there have been no changes
in such holders, the shares held by them, or the existence and terms of such

                                       8

<PAGE>

repurchase  rights  other than  changes  that are  otherwise  permitted  by this
Agreement  that are disclosed in writing to Acquirer  prior to the Closing Date.
Except as disclosed in SCHEDULE 2.3.1, neither the consummation of the Merger or
any other transactions contemplated by this Agreement or any of the other Target
Ancillary  Agreements,  nor any action taken by Target in  connection  with such
agreements or transactions, or the assumption of any Target Options by Acquirer,
will result in any lapse or termination of any repurchase  rights held by Target
with  respect to any  Target  Common  Stock or Target  Preferred  Stock,  or the
inability of Acquirer or Target after the  Effective  Time to exercise any right
or benefit held by Target prior to the Effective Time with respect to any Target
Common  Stock  issued at or before the  Effective  Time.  Except as disclosed on
SCHEDULE  2.3.1,  during  the two  (2)  year  period  immediately  prior  to the
Agreement Date, Target has not redeemed, repurchased or otherwise reacquired any
shares of its  capital  stock from any  stockholder  of  Target.  All issued and
outstanding shares of Target Stock have been duly authorized and validly issued,
are fully paid and  nonassessable,  are not subject to any right of  rescission,
and have been offered,  issued,  sold and delivered by Target in compliance with
all  registration  or  qualification   requirements  (or  applicable  exemptions
therefrom) of applicable federal and state securities laws.

                           2.3.2        There  are  Target  Warrants  issued and
outstanding to purchase an additional 1,901,603 shares of Target Series B Stock.
An  aggregate  of  4,000,000  shares of Target  Common  Stock are  reserved  and
authorized  for  issuance  pursuant  to the  Target  Plan,  of which  options to
purchase a total of 839,500 shares of Target Common Stock are outstanding.

                           2.3.3        A list of  all  holders of Target  Stock
and  Warrants to purchase  Target  Series B Stock,  and the number of shares and
warrants  held by each has been  delivered  by Target to  Acquirer  herewith  as
SCHEDULE 2.3.3 to Target Disclosure Letter. Included in SCHEDULE 2.3.3 to Target
Disclosure  Letter is a true and  complete  list of all  holders  of all  Target
Options that are outstanding on the Agreement Date, the number of Target Options
held by each such  holder  as of such  date,  the  exercise  price  and  vesting
schedule of each Target Option held by each such person,  and any  conditions or
events  which would  accelerate  the  vesting of any such  Target  Option or the
shares purchased  pursuant to such Target Option, or the lapse or termination of
any  repurchase  right on such shares.  The right to exercise any Target Options
granted after the  Agreement  Date will vest over a four year period (or a three
year period beginning on the first  anniversary of the date of the grant of such
option),  on a linear monthly or quarterly  basis, and no Target Options granted
after the Agreement Date provide (or will provide) for (i) any  acceleration  of
vesting in favor of the optionee or any lapse or  termination  of any repurchase
right held by Target with  respect to any shares  issued or  issuable  under any
such Target  Option  (other than by reason of the lapse of time during which the
optionee  is employed by or  provides  services  to Target  consistent  with the
foregoing  provisions of this  sentence);  (ii) any additional  benefits for the
optionee under any such Target Option; (iii) the inability of Acquirer after the
Effective  Time to exercise  (with respect to any Acquirer  Option issued in the
Merger or any shares of Acquirer  Common Stock  issuable upon exercise  thereof)
any right or benefit held by Target prior to the Effective  Time with respect to
any Target Option which was converted into such Acquirer Option in the Merger or
with respect to the shares issuable upon exercise such Target Option, including,
without  limitation,  the right to repurchase an optionee's  unvested  shares on
termination  of the  optionee's or  shareholder's  employment,  service or other
relationship  with Target.  Except as may be expressly  required by the terms of
the Target Plan,  Target has not authorized or provided for, or taken any action
to  authorize  or provide  for,  the  acceleration  of the time during which any
holder of any option, warrant or other right to purchase or acquire any share of
capital stock of Target may exercise such option, warrant or right upon

                                       9

<PAGE>

the  occurrence  of any condition or otherwise or upon which any right of Target
to repurchase shares issued or issuable upon exercise of such option, warrant or
the rights would lapse or  terminate.  Except as  disclosed  in SCHEDULE  2.3.3,
neither the consummation of the Merger or any other transactions contemplated by
this Agreement or any of the other Target Ancillary  Agreements,  nor any action
taken by Target in  connection  with such  agreements  or  transactions,  or the
assumption  of  any  Target  Options  by  Acquirer,   will  result  in  (i)  any
acceleration  of vesting in favor of any optionee under any Target Option or any
lapse or termination of any repurchase  right held by Target with respect to any
shares issued or issuable under any Target Option;  (ii) any additional benefits
for any optionee under any Target Option;  (iii) the inability of Acquirer after
the Effective  Time to exercise any right or benefit held by Target prior to the
Effective  Time with  respect to any Target  Option  assumed by Acquirer or with
respect  to the  shares  issuable  upon  exercise  thereof,  including,  without
limitation, the right to repurchase an optionee's unvested shares on termination
of the optionee's or  shareholder's  employment,  service or other  relationship
with  Target;  or (iv) a breach  of the  Target  Plan or  Target  Option  or any
agreement entered into in connection therewith.  The Target Plan (and any change
in (a) the number of shares  reserved  under the Target Plan or (b) the eligible
participants  under the Target  Option Plan) has been duly and validly  approved
(i) by Target's  Board of Directors  and (ii) by Target  Shareholders,  and with
respect to the Target Plans (or any such change) such  Shareholder  approval was
obtained  within one (1) year of the date on which the Target Plan was  approved
by Target's  Board of  Directors.  Target has not adopted any plan for  granting
options to purchase capital stock of the Target other than the Target Plan.

                           2.3.4        Except  as set  forth  in this  Section,
there are no options,  warrants,  calls,  commitments,  conversion privileges or
preemptive or other rights or agreements outstanding to purchase any of Target's
authorized  but unissued  capital stock or any  securities  convertible  into or
exchangeable for shares of Target Stock or obligating  Target to grant,  extend,
or enter into any such option,  warrant,  call,  right,  commitment,  conversion
privilege or other right or  agreement,  and there is no liability for dividends
accrued but unpaid.

                  2.4      NO VOTING ARRANGEMENTS OR REGISTRATION RIGHTS.  There
are no voting agreements,  voting trusts, proxies,  preemptive rights, rights of
first refusal,  rights of first offer or other  restrictions  (other than normal
restrictions on transfer under  applicable  federal and state  securities  laws)
applicable to any of Target's outstanding securities or to the conversion of any
shares of Target Stock in the Merger  pursuant to any agreement or obligation to
which Target is a party or, to the  knowledge  of Target,  pursuant to any other
agreement or obligation, except for the Voting Agreements referred to in Recital
B above.  Target is not under any  obligation to register under the 1933 Act any
of its presently outstanding shares of stock or other securities or any stock or
other securities that may be subsequently issued.

                  2.5      SUBSIDIARIES. Target does not have  any  subsidiaries
or any interest,  direct or indirect,  in any  corporation,  partnership,  joint
venture or other business entity.

                  2.6      NO  VIOLATION  OF  EXISTING AGREEMENTS.  Neither  the
execution and delivery of this Agreement nor any Target Ancillary Agreement, nor
the consummation of the transactions contemplated hereby, will conflict with, or
(with or  without  notice or lapse of time,  or both)  result in a  termination,
breach,  impairment  or  violation  of (a)  any  provision  of the  Articles  of
Incorporation  or Bylaws of Target,  as  currently  in effect,  (b) any material
instrument,  agreement or contract to which Target is a party or by which Target
is bound,  or (c) to the  knowledge  of Target,  any  federal,  state,  local or
foreign judgment, writ, decree, order, statute, rule or regulation

                                       10

<PAGE>

applicable to Target or its assets or properties. The consummation of the Merger
and the  transfer to  Acquirer of all  material  rights,  licenses,  franchises,
leases and agreements of Target will not require the consent of any third party.

                  2.7      LITIGATION.  Except  as  disclosed on SCHEDULE 2.7 to
Target Disclosure Letter, there is no action, proceeding, claim or investigation
pending against Target (or against any officer,  director,  employee or agent of
Target in their  capacity as such or relating to their  employment,  services or
relationship  with  Target)  before any court or  administrative  agency that if
determined  adversely  to Target may  reasonably  be expected to have a Material
Adverse Effect on Target, nor, to the best of Target's  knowledge,  has any such
action,  proceeding,  claim  or  investigation  been  threatened.  There  is  no
judgment,  decree,  injunction,  rule or order  of any  governmental  entity  or
agency,  court or arbitrator  outstanding  against Target (other than judgments,
decrees,  injunctions,  rules or orders first rendered or entered against Target
after the  Agreement  Date which  could not  reasonably  be  expected  to have a
Material  Adverse  Effect  on Target  and that  could not  prevent,  enjoin,  or
materially  alter  or  delay  the  consummation  of  the  Merger  or  any  other
transaction  contemplated by this Agreement or any Target Ancillary  Agreement).
There  is,  to the best of  Target's  knowledge,  no  reasonable  basis  for any
shareholder  or  former  shareholder  of  Target,  or any  other  person,  firm,
corporation, or entity, to assert a claim against Target or Acquirer based upon:
(a)  ownership or rights to ownership of any shares of Target Stock  (except for
dissenter's  rights with respect to shares of Acquirer  Common Stock issuable by
virtue of the Merger),  (b) any rights as a Target  Shareholder,  including  any
option or preemptive rights or rights to notice or to vote, (c) any rights under
any agreement among Target and its  shareholders  or (d) Target's  entering into
this Agreement or any Target  Ancillary  Agreement or consummating the Merger or
any of the  transactions  contemplated by this Agreement or any Target Ancillary
Agreement.

                  2.8      TAXES.  Target  has timely filed all federal,  state,
local and foreign tax returns  required to be filed, has paid all taxes required
to be paid in respect of all periods  for which  returns  have been  filed,  has
established an adequate  accrual or reserve for the payment of all taxes payable
in respect of the periods  subsequent to the periods  covered by the most recent
applicable tax returns,  has made all necessary estimated tax payments,  and has
no material  liability  for taxes in excess of the amount so paid or accruals or
reserves so  established.  Target is not delinquent in the payment of any tax or
delinquent  in the filing of any tax returns,  and no  deficiencies  for any tax
have been threatened, claimed, proposed or assessed. No tax return of Target has
ever been audited by the Internal  Revenue Service or any state taxing agency or
authority.  Target  has  withheld  with  respect  to each of its  employees  and
independent  contractors  all taxes,  including  but not  limited to federal and
state  income  taxes,  FICA,  Medicare,  FUTA and other  taxes,  required  to be
withheld, and paid such withheld amounts to the appropriate tax authority within
the time  prescribed  by law.  Target has provided to Acquirer true and complete
copies of all tax  returns,  including  foreign,  federal  and  state  income or
franchise tax returns and state sales and use tax returns with respect to Target
or any of its assets or  operations,  for all periods  since (or  beginning  on)
January 1, 1997.  For the purposes of this Section,  the terms "TAX" and "TAXES"
include all federal, state, local and foreign income, gains, franchise,  excise,
property, sales, use, employment, license, payroll, occupation, recording, value
added or transfer  taxes,  governmental  charges,  fees,  levies or  assessments
(whether payable  directly or by withholding),  and, with respect to such taxes,
any  estimated  tax,  interest and penalties or additions to tax and interest on
such  penalties and additions to tax and (b) the term  "RETURNS"  shall mean all
reports, estimates, declarations of estimated tax, information statements and

                                     11

<PAGE>

returns  relating to, or required to be filed with  connection  with, any taxes,
including  information returns or reports with respect to backup withholding and
other payments to third parties.

                  2.9      TARGET  FINANCIAL  STATEMENTS.  Target has  delivered
to Acquirer as SCHEDULE 2.9 to Target  Disclosure  Schedule  Target's  unaudited
balance sheet (the "BALANCE  SHEET") as of December 31, 1999 (the "BALANCE SHEET
DATE") and income statement for the year then ended (collectively the "FINANCIAL
STATEMENTS").  The Financial Statements (a) are in accordance with the books and
records of Target,  (b) fairly present the financial  condition of Target at the
date therein  indicated  and the results of  operations  for the period  therein
specified  and (c) have been  prepared in  accordance  with  generally  accepted
accounting  principles  applied on a  consistent  basis.  Target has no material
debt,  liability  or  obligation  of  any  nature,  whether  accrued,  absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against in the Financial Statements,  except for those that may have
been  incurred  after  the  Balance  Sheet  Date in the  ordinary  course of its
business,  consistent  with past  practice  and that are not  material in amount
either individually or collectively.  All reserves established by Target and set
forth in or reflected in the Balance Sheet were  established in accordance  with
generally accepted accounting  principles  consistently  applied. At the Balance
Sheet Date, there were no material loss  contingencies  (as such term is used in
Statement  of  Financial  Accounting  Standards  No. 5 issued  by the  Financial
Accounting  Standards Board in March 1975) which are not adequately provided for
in the Balance Sheet as required by said Statement No. 5. SCHEDULE 2.9 to Target
Disclosure  Letter  sets  forth  all  liabilities  and  debts to  Target  or any
subsidiary  thereof from any holder of Target  Preferred  Stock,  Target  Common
Stock or Target  Options,  including,  the dollar amount of each such liability,
the date or dates on which  such  amounts  are due and  payable  and the rate of
interest, if any, on such liability or debt.

                  2.10     TITLE TO PROPERTIES. Target  has good and  marketable
title to all of its assets as shown on the Balance Sheet,  free and clear of all
liens,  charges,  restrictions or encumbrances (other than for taxes not yet due
and payable). All machinery and equipment included in such properties is in good
condition and repair,  normal wear and tear excepted,  and all leases of real or
personal  property  to which  Target is a party are fully  effective  and afford
Target peaceful and  undisturbed  possession of the subject matter of the lease.
Target  is  not in  material  violation  of  any  zoning,  building,  safety  or
environmental  ordinance,  regulation or  requirement or other law or regulation
applicable to the operation of owned or leased  properties,  or has received any
notice of violation with which it has not complied. Target does not own any real
property.

                  2.11     ABSENCE OF CERTAIN CHANGES.  Since  the Balance Sheet
Date, there has not occurred with respect to Target :


                           (a)      any  material adverse change,  or occurrence
of any event or  condition  that is  reasonably  likely to result in a  Material
Adverse  Effect on Target,  whether or not  arising  in the  ordinary  course of
business;

                           (b)      any  contingent  liability incurred  thereby
as a guarantor or otherwise with respect to the obligations of others;

                           (c)      any mortgage, encumbrance or  lien placed on
any of the properties thereof;

                                       12

<PAGE>


                           (d)      any   material   obligation   or   liability
incurred  thereby in excess of $50,000 other than  obligations  and  liabilities
incurred in the ordinary course of business;

                           (e)      any  obligation  or  liability  incurred  in
respect of any indebtedness for borrowed money in excess of $50,000;

                           (f)      issuance  or  sale  of  any  debt or  equity
securities  of Target or any  options,  warrants or other rights to acquire from
Target,  directly or indirectly,  any debt or equity securities of Target (other
than grants of Target Options  disclosed in SCHEDULE 2.3.3 to Target  Disclosure
Letter);

                           (g)      any change or  increase in the  compensation
payable or to become payable to any of the officers,  directors, or employees of
Target,  or any  bonus  or  pension,  insurance  or  other  benefit  payment  or
arrangement  (including  without  limitation  stock awards,  stock  appreciation
rights or stock option grants) made to or with any of such  officers,  employees
or agents except changes in compensation not to exceed ten percent in connection
with normal employee salary or performance  reviews or otherwise in the ordinary
course of Target's business;

                           (h)      entering into, amendment of, relinquishment,
termination  or  non-renewal  by Target  of any  contract,  lease,  transaction,
commitment or other right or obligation other than in the ordinary course of its
business,  consistent  with  past  practices,  or the  receipt  by Target of any
written or oral  indication  or assertion by the other party thereto of problems
of a material nature with Target's products,  services or performance under such
contract,  lease,  transaction,  commitment  or other right or obligation or its
desire to amend,  relinquish,  terminate or not renew any such contract,  lease,
transaction, commitment or other right or obligation;

                           (i)      material  change  in  the  manner  in  which
Target  extends  discounts or credits to  customers or otherwise  deals with its
customers;

                           (j)      entering into by Target of any  transaction,
contract  or  agreement  that by its terms  requires or  contemplates  a current
and/or future financial commitment,  expense or obligation on the part of Target
involving  in excess of  $50,000  or that is not  entered  into in the  ordinary
course of Target's business  consistent with its past practices,  or the conduct
of any  business or  operations  other than in the  ordinary  course of Target's
business consistent with its past practices;

                           (k)      any  license,  transfer or grant of a  right
under any Target IP Rights (as defined in Section 2.14 below),  other than those
licensed,  transferred  or granted in the ordinary  course of Target's  business
consistent with its past practices;

                           (l)      any  agreement or arrangement made by Target
to take any action which, if taken prior to the Agreement Date,  would have made
any  representation  or  warranty  of  Target  set  forth in  Article  2 of this
Agreement untrue or incorrect as of the date when made;

                           (m)      any  purchase,  license  or  sale  or  other
disposition,  or any agreement or other arrangement for the purchase, license or
sale or other disposition, of any of the properties or assets thereof other than
sale of inventory in the ordinary course of business;

                           (n)      any damage,  destruction   or loss,  whether
or not covered by insurance,  materially and adversely affecting the properties,
assets or business thereof;

                                       13

<PAGE>


                           (o)      any  declaration, setting  aside or  payment
of any dividend on, or the making of any other  distribution  in respect of, the
capital stock thereof, any split, combination or recapitalization of the capital
stock  thereof  or  any  direct  or  indirect  redemption,   purchase  or  other
acquisition of the capital stock thereof;

                           (p)      any  labor  dispute or claim of unfair labor
practices, any change in the compensation payable or to become payable to any of
its officers,  employees or agents,  or any bonus payment or arrangement made to
or with any of such officers, employees or agents;

                           (q)      any  change  in   the  composition  of   the
management team or supervisory or other key personnel thereof;

                           (r)      any payment or discharge of  a material lien
or liability  thereof  which lien was not either  shown on the Balance  Sheet or
incurred in the ordinary course of business thereafter; or

                           (s)      any obligation or liability incurred thereby
to any of its officers,  directors or shareholders or any loans or advances made
thereby  to  any  of its  officers,  directors  or  shareholders  except  normal
compensation and expense allowances payable to officers.

                  2.12     CONTRACTS  AND COMMITMENTS.  SCHEDULE  2.12 to Target
Disclosure  Letter  sets forth a list of each of the  following  written or oral
contracts,  agreements,  commitments  or other  instruments to which Target is a
party or to which  Target or any of their  respective  assets or  properties  is
bound:

                           (a)      any  distributor,  OEM  (Original  Equipment
Manufacturer),  VAR (Value  Added  Reseller),  sales  representative  or similar
agreement under which any third party is authorized to sell, sublicense,  lease,
distribute,  market or take orders for, any product or  technology  of Target or
marketed by Target;
                           (b)      any   continuing  contract  for  the  future
purchase,  sale,  license,  provision  or  manufacture  of  products,  material,
supplies, equipment or services requiring payment to or from Target in an amount
in excess of $50,000 per annum which is not  terminable  on ninety (90) days' or
less notice without cost or other liability to Target (other than  non-exclusive
licenses  granted by Target in the ordinary  course of business  consistent with
past  practices,  on terms  consistent in all material  respects (other than the
dollar  amount  of  license  fees  and  royalties)  with the  forms  of  license
agreements provided to counsel to Acquirer prior to the Agreement Date);

                           (c)      any contract or  commitment in which  Target
has granted or received  manufacturing  rights,  most favored  customer  pricing
provisions or exclusive marketing rights relating to any product or service, any
group of products or services or any territory;

                           (d)      any  contract  providing for the development
of software,  semiconductor designs or other technology or intellectual property
for  Target,  or the  license  of any  software,  semiconductor  designs,  other
technology or intellectual  property to Target,  which  software,  semiconductor
designs,  other  technology or intellectual  property is used or incorporated in
any product currently sold, licensed,  leased, distributed or marketed by Target
or any service currently provided or marketed by Target or is contemplated to be
used or incorporated in any

                                       14

<PAGE>

products to be sold, licensed, leased, distributed or marketed or services to be
provided or marketed by Target;

                           (e)      any joint venture or partnership contract or
agreement or other  agreement  which has involved or is  reasonably  expected to
involve a sharing of profits or losses with any other party;

                           (f)      any  contract or commitment for or  relating
to the employment of any officer,  employee or consultant of Target or any other
type of contract or  understanding  with any officer,  employee or consultant of
Target that is not immediately terminable by Target (or such subsidiary,  as the
case may be) without cost or other liability,  and any contract or understanding
with any independent  contractor or consultant  providing services in connection
with any Target IP Rights (as defined in Section 2.14) or the development of any
product, or feature or component thereof, by or for Target;

                           (g)      any   indenture,   mortgage,   trust   deed,
promissory  note,  loan  agreement,  security  agreement,   guarantee  or  other
agreement or commitment for the borrowing of money,  for a line of credit or for
a leasing  transaction of a type required to be  capitalized in accordance  with
Statement of Financial  Accounting  Standards No. 13 of the Financial Accounting
Standards Board;

                           (h)      any  lease  or other  agreement  under which
Target is lessee of or holds or operates any items of tangible personal property
or real property owned by any third party and under which payments to such third
party exceed $50,000 per annum;

                           (i)      any agreement or arrangement for the sale of
any assets, properties,  services or rights having a value in excess of $50,000,
other than in the ordinary course of Target's business  consistent with its past
practices;
                           (j)      any  agreement  that  restricts or prohibits
Target from freely engaging in any aspect of its business, from participating or
competing in any line of business or that restricts  Target from engaging in any
business in any geographic area;

                           (k)      any  Target IP  Rights Agreement (as defined
in Section 2.14);

                           (l)      any agreement relating to the sale,issuance,
grant,  exercise,  award,  purchase,  repurchase  or redemption of any shares of
capital stock or other  securities  of Target or any options,  warrants or other
rights to  purchase  or  otherwise  acquire  any such  shares  of  stock,  other
securities or options, warrants or other rights therefor;

                           (m)      consulting or similar  agreement under which
Target  provides  any advice or  services  to a customer of Target for an annual
compensation to Target (or such  subsidiary,  as the case may be) of $50,000 per
year or more;
                           (n)      any contract with or commitment to any labor
union;

                           (o)      any  contract  or  arrangement  under  which
Target has made any  commitment  to develop any new  technology,  to deliver any
software  currently  under  development  or to enhance or customize any software
(other than  agreements to deliver  updates or upgrades on terms and  conditions
described in SCHEDULE 2.12 to Target Disclosure Letter); or

                                       15

<PAGE>


                           (p)      any other  agreement,  contract,  commitment
(whether verbal or in writing) or instrument that is material to the business of
Target or that involves a future commitment by Target in excess of $50,000.

                  A copy of each agreement or document  required by this Section
to be listed on SCHEDULE 2.12 to Target  Disclosure  Letter (such agreements and
documents being  hereinafter  collectively  referred to as the "TARGET  MATERIAL
AGREEMENTS") has been delivered to Acquirer's counsel.

                  2.13     NO  DEFAULT;  NO  CONSENT  REQUIRED; NO RESTRICTIONS.
Target is not in breach or default under any Target Material  Agreement  (except
for  breaches  and defaults  that in the  aggregate  have not had, and would not
reasonably be expected to have, a Material Adverse Effect on Target).  Target is
not a party to any contract,  agreement or arrangement which has had, or, to the
knowledge of Target,  could  reasonably be expected to have, a Material  Adverse
Effect  on  Target.  Target  has no  material  liability  for  renegotiation  of
government  contracts  or  subcontracts,  if any.  No consent or approval of any
third party is required to ensure that, following the Effective Time, any Target
Material  Agreement  will  continue  to be in full force and effect  without any
breach or  violation  thereof  caused  by  virtue of the  Merger or by any other
transaction called for by this Agreement,  the Agreement of Merger or any Target
Ancillary  Agreement.  Neither  Target's  entering  into this  Agreement nor the
consummation of the Merger will give rise to, or trigger the application of, any
material rights of any party to any Target Material  Agreement.  Target is not a
party  to,  and no asset or  property  of Target is bound or  affected  by,  any
judgment, injunction, order, decree, contract, covenant or agreement (noncompete
or otherwise)  that restricts or prohibits (or purports to restrict or prohibit)
Target from freely  engaging in any business now conducted it or from  competing
anywhere in the world (including without limitation any contracts,  covenants or
agreements  restricting the geographic  area in which Target may sell,  license,
market, distribute or support any products or technology or provide services, or
restricting  the  markets,  customers or  industries  that Target may address in
operating its business),  or includes any grants of exclusive licenses. No event
has occurred,  and no  circumstance or condition  exists,  that (with or without
notice or lapse of time) will, or would reasonably be expected to, (a) result in
a violation or breach by Target or, to Target's  knowledge,  any other party, of
any of the provisions of any Target Material Agreement, (b) give any third party
(i) the right to  declare a default  or  exercise  any  remedy  under any Target
Material Agreement, (ii) the right to a rebate, chargeback, penalty or change in
delivery  schedule  under  any  Target  Material  Agreement,  (iii) the right to
accelerate  the maturity or  performance  of any  obligation of Target under any
Target Material Agreement, or (iv) the right to cancel,  terminate or modify any
Target Material  Agreement,  except in each such case for violations,  breaches,
defaults,  acceleration rights,  termination rights and other rights that in the
aggregate have not had, and could not reasonably be expected to have, a Material
Adverse Effect on Target.  Since December 31, 1998 and prior to the date of this
Agreement,  Target has not received any written  communication  or notice or, to
Target's knowledge,  any other  communication,  regarding any actual or possible
material  violation or material breach of, or default under, any Target Material
Agreement.

                  2.14     INTELLECTUAL PROPERTY.

                           2.14.1   Target  owns,  or  has  the  valid  right or
license to use, possess,  sell or license, all Intellectual  Property Rights (as
defined  below)  necessary or required for the conduct of the business of Target
as presently conducted, and such rights to use, possess, sell or

                                       16

<PAGE>

license are sufficient for such conduct of such  business.  As used herein:  (i)
the term  "INTELLECTUAL  PROPERTY  RIGHTS"  means,  collectively,  all worldwide
industrial and intellectual  property  rights,  including,  without  limitation,
patents,  patent  applications,   patent  rights,  trademarks,   service  marks,
trademark and service mark registrations and applications therefor,  trade dress
rights,  trade  names,  copyrights,  copyright  registrations  and  applications
therefor,  mask work rights, mask work registrations and applications  therefor,
franchises,  licenses,  inventions,  trade secrets,  know-how,  customer  lists,
supplier lists,  proprietary processes and formulae,  software source and object
code,  algorithms,  net  lists,  architectures,   structures,  screen  displays,
layouts,  inventions,  development tools, designs,  blueprints,  specifications,
technical  drawings  (or  similar  information  in  electronic  format)  and all
documentation  and media  constituting,  describing  or  relating  to the above,
including,  without  limitation,  manuals,  programmers'  notes,  memoranda  and
records;  and (ii) the term "TARGET IP RIGHTS" means the  Intellectual  Property
Rights  that Target  owns or has the right or license to use,  possess,  sell or
license.

                           2.14.2   The  execution,  delivery  and   performance
of this  Agreement,  the Agreement of Merger and the  consummation of the Merger
and the other  transactions  contemplated  hereby  and/or  by  Target  Ancillary
Agreements  will not  constitute  a  material  breach  of or  default  under any
instrument,  contract,  license or other agreement governing any Target IP Right
to which Target is a party  (collectively,  the "TARGET IP RIGHTS  AGREEMENTS"),
will not  cause the  forfeiture  or  termination  of, or give rise to a right of
forfeiture or termination of, any Target IP Right or materially impair the right
of Target or the  Surviving  Corporation  to use,  possess,  sell or license any
Target IP Right or portion thereof. There are no royalties,  honoraria,  fees or
other payments payable by Target to any third person by reason of the ownership,
use, possession, license, sale or disposition of any Target IP Rights by Target.

                           2.14.3   Except  as  disclosed  in  SCHEDULE  2.14.3,
neither the manufacture,  marketing, licensing, sale, offer for sale, importing,
furnishing or use of any product or service  currently  manufactured,  marketed,
licensed, sold, offered for sale, imported, furnished,  provided, used by Target
or  currently  under  development  by Target  violates  any license or agreement
between  Target  and  any  third  party  or  infringes  or  misappropriates  any
Intellectual  Property Right of any other party.  There is no pending or, to the
knowledge of Target,  threatened  claim or litigation  contesting  the validity,
ownership or right of Target to manufacture,  market,  license,  sell,  offer to
sell,  import,  furnish,  use,  possess or dispose of any Target IP Right or any
other  Intellectual  Property Rights used or embodied in any product marketed or
licensed,  or under development,  by Target, nor, to the knowledge of Target, is
there any basis for any such claim, nor has Target received any notice asserting
that any Target IP Right or the proposed manufacture, use, sale, offer for sale,
import,  license or disposition  thereof, or of any other Intellectual  Property
Rights  used  or  embodied  in  any  product  marketed  or  licensed,  or  under
development,  by Target, conflicts or will conflict with the rights of any other
party,  nor,  to the  knowledge  of  Target,  is there  any  basis  for any such
assertion.

                           2.14.4   [Intentionally omitted.]

                           2.14.5   Target  has  taken  all  measures  customary
and standard in its  industry to protect,  preserve and maintain the secrecy and
confidentiality of Target IP Rights and all Target's proprietary rights therein.
All officers,  employees and  consultants of Target having access to proprietary
information have executed and delivered to Target an agreement regarding

                                       17

<PAGE>

the protection of such proprietary  information and the assignment of inventions
to Target;  and copies of the form of all such agreements have been delivered to
Acquirer's  counsel.  Target has  secured  valid  written  assignments  from all
consultants  and  employees  who were  involved in, or who  contributed  to, the
creation  or  development  of any  Target IP Rights,  or any other  Intellectual
Property Rights used or embodied in any product  marketed or licensed,  or under
development, by Target, of the rights to such contributions that Target does not
already  own by  operation  of law.  No  current  or former  employee,  officer,
director,  consultant or  independent  contractor of Target or any subsidiary of
Target has any right,  license,  claim or interest whatsoever in or with respect
to any Target IP Rights.

                           2.14.6   SCHEDULE  2.14.6    to   Target   Disclosure
Letter  contains a  complete  list of: (i) all  worldwide  registrations  of any
patents,   copyrights,  mask  works,  trademarks  and  service  marks  with  any
governmental authority; (ii) all applications,  registrations, filings and other
formal  actions  made or taken  pursuant to federal,  state and foreign  laws by
Target to  secure,  perfect  or protect  its  interest  in any Target IP Rights,
including without limitation all patent  applications,  copyright  applications,
and applications for registration of trademarks and service marks; and (iii) all
unregistered  copyrights,  trademarks  and  service  marks.  All patents and all
registered  trademarks,  service marks and copyrights  held by Target are valid,
enforceable and subsisting.

                           2.14.7   SCHEDULE  2.14.7   to    Target   Disclosure
Letter  contains a complete  list of: (i) all  licenses,  sublicenses  and other
agreements  as to which  Target is a party and  pursuant  to which any person is
authorized to use any Target IP Rights,  and (ii) all licenses,  sublicenses and
other  agreements  to which  Target is a party and  pursuant to which  Target is
authorized  to use any  third  party  Intellectual  Property  Rights,  including
software  ("THIRD  PARTY IP RIGHTS")  which would be infringed by, embody or are
incorporated  in, or form a part of,  any  product or  service  sold,  licensed,
distributed or marketed by Target.

                           2.14.8   To   Target's   knowledge,   there   is   no
unauthorized use, disclosure,  infringement or misappropriation of any Target IP
Rights  or any  Intellectual  Property  Right  of  Target  by any  third  party,
including  any  employee or former  employee of Target.  Except as  disclosed on
SCHEDULE  2.14.8,  Target  has  not  agreed  to  indemnify  any  person  for any
infringement  of any  Intellectual  Property  Rights of any  third  party by any
product or service that has been purchased,  sold, licensed, leased, supplied or
provided by Target.

                           2.14.9   Neither  Target,  nor, to  the  knowledge of
Target,  any  other  party  acting  on its or their  behalf,  has  disclosed  or
delivered to any party,  or permitted  the  disclosure or delivery to any escrow
agent or other party of any Target Source Code (as defined below).  No event has
occurred,  and no circumstance or condition exists, that (with or without notice
or lapse of time)  will,  or would  reasonably  be  expected  to,  result in the
disclosure or delivery to any party of any Target Source Code.  SCHEDULE  2.14.9
of Target Disclosure  Letter identifies each contract,  agreement and instrument
(written  or oral)  pursuant  to which  Target  has  deposited,  or is or may be
required to deposit,  with an escrowholder or any other party, any Target Source
Code and  further  describes  whether the  execution  of this  Agreement  or the
consummation of the Merger or any of the other transactions contemplated hereby,
in and of itself,  would  reasonably  be expected to result in the release  from
escrow of any Target Source Code. As used in this Section 2.14.8, "TARGET SOURCE
CODE" means, collectively, any source code, or any material portion or aspect of
the source code, or any material proprietary  information or algorithm contained
in or relating to

                                       18

<PAGE>

any  source  code,  of any  Target IP Rights or any other  product  marketed  or
licensed, or under development, by Target.

                           2.14.10  To Target's knowledge, all software licensed
by Target and all other products  manufactured,  used,  sold,  offered for sale,
licensed,  leased,  imported or delivered by Target and all services provided by
Target to customers conform in all material  respects to applicable  contractual
commitments,  express and implied warranties, product specifications and product
documentation and to any  representations  provided to customers  regarding such
software,  products or services and Target does not have any material  liability
(and, to Target's knowledge, there is no basis for any present or future action,
suit, proceeding,  hearing,  investigation,  charge, complaint,  claim or demand
against Target giving rise to any liability  that could have a Material  Adverse
Effect  on  Target)  for  replacement  or repair  thereof  or other  damages  in
connection therewith in excess of any reserves therefor reflected on the Balance
Sheet.  Except as expressly set forth in SCHEDULE  2.14.10 to Target  Disclosure
Letter, no software licensed by Target or any product manufactured, sold, leased
or delivered by Target and no service provided by Target to customers is subject
to any  guaranty,  warranty or other  indemnity or rights of return or exchange.
All sales and  licenses  by Target (or any  subsidiary  thereof)  of software or
products  have been made on the  terms  set forth in the forms of  licenses  and
other  agreements  provided to Acquirer and its counsel  prior to the  Agreement
Date,  and there are no  material  terms of such sale and  licenses  (other than
terms implied by law in all such licenses) that are not set forth in such forms.
Since  January  1,  1998,  Target  has not had  any of its  respective  products
returned by a purchaser  thereof except for normal warranty  returns  consistent
with past  history and those  returns that would not result in a reversal of any
material  amount  of  revenue  recognized  by  Target  on any  of its  financial
statements from such purchases. Target is not under any liability or obligation,
and no such  outstanding  claim has been  made,  with  respect  to the return of
inventory or products in the possession of customers,  licensees,  distributors,
retailers, or end-users, except such liabilities,  obligations and claims as, in
the aggregate, do not exceed $100,000.

                           2.14.11  All of the  software  products  developed by
Target are Year 2000 Compliant (as defined below).  "YEAR 2000 COMPLIANT" means,
as applied to a software  product,  that: (i) such software product will operate
and correctly store, represent and process (including sort) all dates (including
single and multi-century formulas and leap year calculations),  such that errors
will not  occur  when  the date  being  used is in the Year  2000,  or in a year
preceding  or  following  the Year 2000;  (ii) such  software  product  has been
written and tested to support  numeric and date  transitions  from the twentieth
century to the twenty-first  century, and back (including without limitation all
calculations,  aging, reporting,  printing,  displays,  reversals,  disaster and
vital records recoveries) without error,  corruption or impact to current and/or
future  operations;  and (iii) such software product will function without error
or interruption related to any date information,  specifically  including errors
or  interruptions  from functions which may involve date  information  from more
than one  century,  in each case except where the same could not  reasonably  be
expected  to have a  Material  Adverse  Effect  on  Target.  Target  will not be
required to incur any  material  expense to make any one or more of its products
Year 2000 Complaint.

                  2.15     COMPLIANCE WITH LAWS.  Target  has complied and is or
will be at the Closing Date in  compliance,  in all material  respects  with all
applicable laws,  ordinances,  regulations,  and rules,  and all orders,  writs,
injunctions,  awards,  judgments, and decrees applicable to it or to the assets,
properties, and business thereof (the violation of which would

                                       19

<PAGE>

have a Material Adverse Effect on Target),  including,  without limitation:  (a)
all  applicable  federal  and state  securities  laws and  regulations,  (b) all
applicable  federal,  state, and local laws,  ordinances,  regulations,  and all
orders, writs, injunctions, awards, judgments, and decrees pertaining to (i) the
sale,  licensing,  leasing,  ownership,  or management  of its owned,  leased or
licensed real or personal property, products and technical data, (ii) employment
and employment  practices,  terms and  conditions of  employment,  and wages and
hours and (iii) safety, health, fire prevention, environmental protection, toxic
waste  disposal,  building  standards,  zoning and other similar matters (c) the
Export Administration Act and regulations  promulgated  thereunder and all other
laws,  regulations,  rules, orders,  writs,  injunctions,  judgments and decrees
applicable  to the export or re-export of  controlled  commodities  or technical
data and (d) the  Immigration  Reform and Control  Act.  Target has received all
permits and  approvals  from,  and has made all  filings  with,  third  parties,
including government agencies and authorities,  that are necessary in connection
with its present business. To the best of Target's knowledge, there are no legal
or administrative proceedings or investigations pending or threatened,  that, if
enacted or determined  adversely to Target, would result in any Material Adverse
Effect on Target. Target holds all permits, licenses and approvals from, and has
made all filings with,  government agencies and authorities,  that are necessary
in connection with its present  business  ("GOVERNMENTAL  PERMITS") and all such
Governmental  Permits are in full force and effect,  except where the failure to
hold any such  Governmental  Permit or make such  filings has not had, and could
not reasonably be expected to have, a Material Adverse Effect on Target.  Target
has not  received  any  notice  or other  communication  from  any  Governmental
Authority  regarding  (a)  any  actual  or  possible  violation  of  law  or any
Governmental Permit or any failure to comply with any term or requirement of any
Governmental  Permit,  or (b) any  actual or  possible  revocation,  withdrawal,
suspension,  cancellation,  termination  or  modification  of  any  Governmental
Permit.  Neither Target nor any director,  officer,  agent or employee of Target
has, for or on behalf of Target, (i) used any funds for unlawful  contributions,
gifts,  entertainment or other unlawful expenses relating to political activity,
(ii) made any unlawful  payment to foreign or domestic  government  officials or
employees or to foreign or domestic  political  parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii)
made any other unlawful payment.

                  2.16     CERTAIN  TRANSACTIONS  AND  AGREEMENTS.   None of the
officers or directors of Target,  nor, to the knowledge of Target, any member of
their immediate  families,  has any direct or indirect ownership interest in any
firm or  corporation  that  competes  with Target  (except  with  respect to any
interest in less than one percent of the stock of any corporation whose stock is
publicly  traded).  None of said officers or directors,  or, to the knowledge of
Target,  any member of their  immediate  families,  is  directly  or  indirectly
interested  in any  contract or informal  arrangement  with  Target,  except for
normal  compensation for services as an officer,  director or employee  thereof.
None of said  officers  or  directors  or, to the  knowledge  of Target,  family
members has any ownership interest in any property,  real or personal,  tangible
or intangible,  including inventions,  patents, copyrights,  trademarks or trade
names or trade secrets,  used in or pertaining to the business of Target, except
for the normal rights of a shareholder.

                  2.17.    EMPLOYEES, ERISA AND OTHER COMPLIANCE.

                           2.17.1       Except as  set forth in SCHEDULE  2.17.1
to Target Disclosure  Letter,  Target does not have any employment  contracts or
consulting agreements currently in effect that are not terminable at will (other
than  agreements with the sole purpose of providing for the  confidentiality  of
proprietary information or assignment of inventions). All officers,

                                       20

<PAGE>

employees and  consultants  of Target having access to  proprietary  information
have executed and delivered to Target an agreement  regarding the  protection of
such proprietary  information and the assignment of inventions to Target; copies
of the form of all such  agreements  have been delivered to Acquirer's  counsel.
All  independent  contractors  have  been  properly  classified  as  independent
contractors  for the  purposes of federal and  applicable  state tax laws,  laws
applicable to employee benefits and other applicable law.

                           2.17.2       Target  (i) has  not  ever  been  or  is
now subject to a union organizing effort,  (ii) is not subject to any collective
bargaining agreement with respect to any of its employees,  (iii) is not subject
to any  other  contract,  written  or  oral,  with any  trade  or  labor  union,
employees'  association  or similar  organization,  or (iv) has no current labor
disputes.  Target has good labor  relations,  and has no  knowledge of any facts
indicating that the  consummation of the transactions  contemplated  hereby will
have a material  adverse  effect on such labor  relations,  and has no knowledge
that any of its key employees intends to leave its employ.

                           2.17.3       SCHEDULE  2.17.3  to  Target  Disclosure
Letter  identifies (i) each "employee  benefit plan," as defined in Section 3(3)
of the Employee  Retirement  Income Security Act of 1974, as amended  ("ERISA"),
and (ii) all other  written or formal plans or  agreements  involving  direct or
indirect  compensation or benefits (including any employment  agreements entered
into  between  Target  and  any  employee  of  Target,  but  excluding  workers'
compensation,  unemployment compensation and other government-mandated programs)
currently or  previously  maintained,  contributed  to or entered into by Target
under which Target or any ERISA  Affiliate  (as defined  below)  thereof has any
present or future  obligation or liability  (collectively,  the "TARGET EMPLOYEE
Plans").  For purposes of this Section 2.17,  "ERISA  AFFILIATE"  shall mean any
entity which is a member of (A) a "controlled group of corporations," as defined
in Section 414(b) of the Code,  (B) a group of entities under "common  control,"
as defined in Section 414(c) of the Code, or (C) an "affiliated  service group,"
as defined in Section  414(m) of the Code, or treasury  regulations  promulgated
under Section 414(o) of the Code, any of which  includes  Target.  Copies of all
Target  Employee Plans (and, if applicable,  related trust  agreements)  and all
amendments thereto and written  interpretations  thereof (including summary plan
descriptions) have been delivered to Acquirer or its counsel,  together with the
three most recent annual reports (Form 5500, including, if applicable,  Schedule
B thereto) prepared in connection with any such Target Employee Plan. All Target
Employee Plans which  individually or collectively would constitute an "employee
pension  benefit plan," as defined in Section 3(2) of ERISA  (collectively,  the
"TARGET  PENSION  PLANS"),  are  identified  as such  in  SCHEDULE  2.17.3.  All
contributions  due from Target with respect to any of the Target  Employee Plans
have  been  made as  required  under  ERISA or have  been  accrued  on  Target's
financial statements as of December 31, 1999. Each Target Employee Plan has been
maintained  substantially in compliance with its terms and with the requirements
prescribed by any and all statutes,  orders,  rules and regulations,  including,
without  limitation,  ERISA and the Code,  which are  applicable  to such Target
Employee Plans.

                           2.17.4       No Target  Pension  Plan constitutes, or
has since the enactment of ERISA constituted, a "multiemployer plan," as defined
in Section  3(37) of ERISA.  No Target  Pension Plans are subject to Title IV of
ERISA.  No  "prohibited  transaction,"  as defined  in  Section  406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Target  Employee Plan
which is covered by Title I of ERISA which would result in a material  liability
to  Target,   excluding   transactions  effected  pursuant  to  a  statutory  or
administrative exemption.  Nothing done or omitted to be done and no transaction
or holding of any asset under or in

                                       21

<PAGE>

connection  with any Target Employee Plan has or will make Target or any officer
or director of Target subject to any material  liability  under Title I of ERISA
or liable for any material  tax (as defined in Section 2.8) or penalty  pursuant
to Sections 4972, 4975, 4976 or 4979 of the Code or Section 502 of ERISA.

                           2.17.5       Any   Target   Pension  Plan   which  is
intended to be  qualified  under  Section  401(a) of the Code (a "TARGET  401(A)
PLAN") is so  qualified  and has been so  qualified  during the period  from its
adoption  to date,  and the trust  forming  a part  thereof  is exempt  from tax
pursuant to Section 501(a) of the Code.  Target has delivered to Acquirer or its
counsel a complete and correct copy of the most recent Internal  Revenue Service
determination letter with respect to each Target 401(a) Plan.

                           2.17.6       SCHEDULE  2.17.6  to  Target  Disclosure
Letter lists each employment,  severance or other similar contract,  arrangement
or policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements),  workers' benefits, vacation
benefits,    severance   benefits,    disability   benefits,   death   benefits,
hospitalization   benefits,    retirement   benefits,   deferred   compensation,
profit-sharing,  bonuses,  stock options,  stock purchase,  phantom stock, stock
appreciation  or  other  forms  of  incentive  compensation  or  post-retirement
insurance,  compensation  or benefits for  employees,  consultants  or directors
which (A) is not a Target  Employee  Plan,  (B) is entered  into,  maintained or
contributed  to, as the case may be, by Target and (C) covers  any  employee  or
former  employee  of  Target . Such  contracts,  plans and  arrangements  as are
described  in this Section  2.17.6 are herein  referred to  collectively  as the
"TARGET  BENEFIT   ARRANGEMENTS."  Each  Target  Benefit  Arrangement  has  been
maintained in substantial  compliance  with its terms and with the  requirements
prescribed  by any and all statutes,  orders,  rules and  regulations  which are
applicable to such Target Benefit Arrangement.  Target has delivered to Acquirer
or its counsel a complete and correct copy or description of each Target Benefit
Arrangement.

                           2.17.7       There has been no amendment to,  written
interpretation  or announcement  (whether or not written) by Target relating to,
or change in employee  participation or coverage under, any Target Employee Plan
or Target  Benefit  Arrangement  that would  increase  materially the expense of
maintaining  such Target Employee Plan or Target Benefit  Arrangement  above the
level of the  expense  incurred  in respect  thereof  for the fiscal  year ended
December 31, 1999.

                           2.17.8       Target   has   provided,  or  will  have
provided  prior to the Closing,  to  individuals  entitled  thereto all required
notices and coverage  pursuant to Section 4980B of the Code and the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to
any "qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date,  and no material Tax payable on account
of Section  4980B of the Code has been  incurred  with respect to any current or
former employees (or their beneficiaries) of Target.

                           2.17.9       No benefit  payable  or which may become
payable by Target  pursuant to any Target  Employee  Plan or any Target  Benefit
Arrangement or as a result of or arising under this Agreement  shall  constitute
an "excess  parachute  payment" (as defined in Section  280G(b)(1)  of the Code)
which is subject to the  imposition  of an excise Tax under  Section 4999 of the
Code or which would not be deductible by reason of Section 280G of the Code.

                                       22

<PAGE>


                           2.17.10      Target is in  compliance in all material
respects  with  all  applicable  laws,  agreements  and  contracts  relating  to
employment,  employment  practices,  wages,  hours,  and terms and conditions of
employment,  including,  but not limited to, employee  compensation matters, but
not including ERISA.

                           2.17.11      To Target's  knowledge,  no  employee of
Target is in violation of any term of any employment contract, patent disclosure
agreement,  noncompetition agreement, or any other contract or agreement, or any
restrictive  covenant  relating to the right of any such employee to be employed
thereby, or to use trade secrets or proprietary information of others.

                           2.17.12      A  list of  all employees,  officers and
consultants  of Target and their current  compensation  is set forth on SCHEDULE
2.17.12 to Target Disclosure Letter, which has been delivered to Acquirer.

                           2.17.13      Target  is  not  a  party  to  any   (a)
agreement  with any  executive  officer or other key  employee  thereof  (i) the
benefits of which are contingent,  or the terms of which are materially altered,
upon the  occurrence of a transaction  involving  Target in the nature of any of
the  transactions  contemplated  by this  Agreement and the Agreement of Merger,
(ii)  providing  any term of  employment  or  compensation  guarantee,  or (iii)
providing  severance  benefits  or  other  benefits  after  the  termination  of
employment of such employee  regardless  of the reason for such  termination  of
employment, or (b) agreement or plan, including,  without limitation,  any stock
option plan, stock  appreciation  rights plan or stock purchase plan, any of the
benefits of which will be  materially  increased,  or the vesting of benefits of
which  will  be  materially  accelerated,  by  the  occurrence  of  any  of  the
transactions  contemplated  by this Agreement and the Agreement of Merger or the
value of any of the benefits of which will be  calculated on the basis of any of
the transactions contemplated by this Agreement and the Agreement of Merger.

                           2.17.14      To  Target's  knowledge,  no   employee,
consultant or  independent  contractor  of Target has developed any  technology,
software or other copyrightable,  patentable,  or otherwise proprietary work for
Target that is subject to any agreement under which such employee, consultant or
independent  contractor has assigned or otherwise granted to any third party any
rights  (including  without  limitation  Intellectual  Property  Rights) in such
technology, software or other copyrightable, patentable or otherwise proprietary
work.

                           2.17.15      There  are  no  material  pending claims
against Target under any workers'  compensation  plan or policy or for long-term
disability.

                  2.18     CORPORATE  DOCUMENTS.   Target  has  made   available
to Acquirer for examination  all documents and information  listed in the Target
Disclosure  Letter or other Exhibits called for by this Agreement which has been
requested by  Acquirer's  legal  counsel,  including,  without  limitation,  the
following:  (a) copies of Target's  Certificate of  Incorporation  and Bylaws as
currently  in  effect;  (b)  its  Minute  Book  containing  all  records  of all
proceedings,  consents, actions, and meetings of the shareholders,  the board of
directors  and  any  committees  thereof;  (c)  its  stock  ledger  and  journal
reflecting all stock issuances and transfers;  and (d) all permits,  orders, and
consents  issued  by any  regulatory  agency  with  respect  to  Target,  or any
securities  of  Target,  and all  applications  for such  permits,  orders,  and
consents.

                                       23

<PAGE>


                  2.19     NO  BROKERS.  Except  as set  forth on SCHEDULE  2.19
to Target Disclosure Letter,  Target is not obligated for the payment of fees or
expenses  of any  investment  banker,  broker or finder in  connection  with the
origin,  negotiation or execution of this Agreement,  the Agreement of Merger or
the  Certificate of Merger or in connection  with any  transaction  contemplated
hereby or thereby.

                  2.20     DISCLOSURE.  Neither  this  Agreement,  its  exhibits
and  schedules,  nor any of the  certificates  or  documents  to be delivered by
Target to Acquirer under this  Agreement,  taken  together,  contains any untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the  statements  contained  herein  and  therein,  in light of the
circumstances under which such statements were made, not misleading.

                  2.21     INFORMATION  SUPPLIED.    None  of  the   information
supplied or to be supplied by Target for  inclusion in the Notice  Materials and
the Information  Statement  (both as defined in Section 4.6 below),  at the date
such  information  is  supplied  and at the time of the  meeting  of the  Target
Shareholders  (or a written  consent of the Target  Shareholders)  to be held to
approve the Merger,  contains or will contain any untrue statement of a material
fact or omits or will  omit to state any  material  fact  required  to be stated
therein or necessary in order to make the  statements  therein,  in light of the
circumstances under which they are made, not misleading.

                  2.22     BOOKS AND RECORDS.

                           2.22.1       The  books,   records  and  accounts  of
Target (a) are in all material  respects  true,  complete and correct,  (b) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (c) are stated in reasonable  detail and accurately and fairly
reflect  the  transactions  and  dispositions  of the assets of Target,  and (d)
accurately and fairly reflect the basis for the Financial Statements.

                           2.22.2       Target  has  devised  and   maintains  a
system  of  internal   accounting  controls  sufficient  to  provide  reasonable
assurances that (a)  transactions  are executed in accordance with  management's
general or specific  authorization;  (b)  transactions are recorded as necessary
(i) to permit  preparation of financial  statements in conformity with generally
accepted  accounting  principles  or  any  other  criteria  applicable  to  such
statements,  and (ii) to maintain  accountability for assets, and (c) the amount
recorded  for  assets on the books and  records of Target is  compared  with the
existing  assets at reasonable  intervals and  appropriate  action is taken with
respect to any differences.

                  2.23     INSURANCE.  Target  maintains and at all times during
the prior three  years has  maintained  fire and  casualty,  general  liability,
business  interruption,  product  liability,  and  sprinkler  and  water  damage
insurance which it believes to be prudent for its business. There is no material
claim pending under any of such policies or bonds as to which  coverage has been
questioned,  denied or disputed by the  underwriters  of such policies or bonds.
All  premiums due and payable  under all such  policies and bonds have been paid
and Target is otherwise in compliance with the terms of such policies and bonds.
Target has no knowledge of any threatened  termination  of, or material  premium
increase with respect to, any of such policies.

                  2.24     ENVIRONMENTAL MATTERS.

                           2.24.1       To Target's knowledge, during the period
that  Target  has  leased  or owned  its  properties  or owned or  operated  any
facilities, there have been no disposals,

                                       24

<PAGE>

releases or threatened  releases of Hazardous  Materials (as defined  below) on,
from or under such  properties  or  facilities.  Target has no  knowledge of any
presence,  disposals, releases or threatened releases of Hazardous Materials on,
from or under any of such  properties  or  facilities,  which may have  occurred
prior to Target having taken possession of any of such properties or facilities.
For the  purposes  of this  Agreement,  the  terms  "DISPOSAL,"  "release,"  and
"THREATENED  RELEASE"  shall  have  the  definitions  assigned  thereto  by  the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C.  ss.  9601 et seq.,  as  amended  ("CERCLA").  For the  purposes  of this
Agreement  "HAZARDOUS  MATERIALS"  shall mean any hazardous or toxic  substance,
material or waste which is or becomes prior to the Closing  regulated  under, or
defined  as  a  "hazardous   substance,"   "pollutant,"   "contaminant,"  "toxic
chemical,"  "hazardous  materials,"  "toxic  substance" or "hazardous  chemical"
under  (1)  CERCLA;  (2)  any  similar  federal,  state  or  local  law;  or (3)
regulations promulgated under any of the above laws or statutes.

                           2.24.2       To  Target's  knowledge,  none  of   the
properties  or  facilities  of Target is in violation  of any federal,  state or
local law,  ordinance,  regulation or order relating to industrial hygiene or to
the  environmental  conditions on, under or about such properties or facilities,
including, but not limited to, soil and ground water condition.  During the time
that Target have owned or leased its properties and  facilities,  neither Target
nor, to Target's knowledge,  any third party, has used, generated,  manufactured
or stored on, under or about such  properties or facilities or transported to or
from such properties or facilities any Hazardous Materials.

                           2.24.3       During  the time  that Target have owned
or leased its properties and facilities, there has been no litigation brought or
threatened  against  Target by, or any  settlement  reached by Target with,  any
party or parties alleging the presence,  disposal, release or threatened release
of any  Hazardous  Materials  on,  from  or  under  any of  such  properties  or
facilities.

                  2.25     TRADE REGULATION.   Target has  not   terminated  its
relationship  with or refused to ship its  products to any dealer,  distributor,
OEM, third party marketing entity or customer which had theretofore paid or been
obligated  to pay Target in excess of $50,000 over any  consecutive  twelve (12)
month  period.  All of the  prices  charged  by  Target in  connection  with the
marketing or sale of any  products or services  have been in  compliance  in all
material  respects with all applicable laws and  regulations.  No claims against
Target have been communicated or threatened in writing to Target with respect to
wrongful  termination of any dealer,  distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition,  false advertising, or
any other  violation  of any laws or  regulations  relating to  anti-competitive
practices  or unfair trade  practices  of any kind,  and to the best of Target's
knowledge, no specific situation, set of facts, or occurrence provides any basis
for any such claim.

                  2.26     ACCOUNTS RECEIVABLE.  Subject  to  any  reserves  set
forth in the Balance Sheet,  the accounts  receivable shown on the Balance Sheet
represent bona fide claims against debtors for sales and other charges,  and are
not subject to any right of offset or to any discount except for normal cash and
immaterial trade discounts.

                  2.27     VOTING  AGREEMENT;  IRREVOCABLE  PROXIES.  All of the
directors  of Target,  and the  holders of at least (a) a majority of the issued
and outstanding  shares of Target Common Stock, (b) a majority of the issued and
outstanding  shares of Target  Preferred Stock, and (c) a

                                       25

<PAGE>

majority of the issued and outstanding  shares of each series of Target Series A
Stock and Target Series B Stock,  have agreed in writing to vote for approval of
the Merger  pursuant to Voting  Agreements and pursuant to  Irrevocable  Proxies
attached as Exhibit A thereto ("IRREVOCABLE PROXIES").

                  2.28     VOTE REQUIRED.  The affirmative  votes of the holders
of: (a) a  majority  of the  shares of Target  Common  Stock that are issued and
outstanding  on the Record Date (as defined  below),  plus (b) a majority of the
shares of Target  Preferred  Stock that are issued and outstanding on the Record
Date,  plus (c) a  majority  of the  shares of Target  Series A Stock and Target
Series B Stock that are issued and  outstanding  on the Record  Date,  voting in
each case as a separate series,  are the only votes of the holders of any of the
shares of Target's  capital  stock  necessary  to approve  this  Agreement,  the
Merger, the Agreement of Merger and the other transactions  contemplated by this
Agreement. As used in this Section 2.28, the term "RECORD DATE" means the record
date for  determining  those  shareholders of Target who are entitled to vote at
Target Shareholders' Meeting or at any action taken by written consent of Target
Shareholders without a meeting under applicable law.

                  2.29     BOARD  APPROVAL. A majority of the Board of Directors
of Target has (i) approved this Agreement,  the Agreement of Merger,  all Target
Ancillary  Agreements and the Merger,  and (ii)  determined that such agreements
and the Merger are in the best interests of the Target  Shareholders  and are on
terms that are fair to such Shareholders.

                  2.30     NO EXISTING DISCUSSIONS.   Neither  Target,  nor  any
director or officer of Target,  nor any other person acting on behalf of Target,
as of the date of this Agreement and as of the Effective Time, as applicable, is
engaged,  directly or indirectly,  in any discussions or  negotiations  with any
third  party  relating  to any  Acquisition  Transaction  (as defined in Section
4.8(a).

         3.       REPRESENTATIONS AND WARRANTIES OF ACQUIRER

                  Acquirer  hereby  represents and warrants that,  except as set
forth on the  Acquirer  disclosure  letter dated as of the  Agreement  Date (the
"ACQUIRER  DISCLOSURE  LETTER") and  delivered  by Acquirer to Target  herewith,
including items in the Acquirer  Disclosure  Letter below, each of the following
is true and correct as of the Agreement  Date and will be true and correct as of
the Closing Date:

                  3.1      ORGANIZATION  AND  GOOD  STANDING.    Acquirer  is  a
corporation duly organized, validly existing and in good standing under the laws
of the State of  Delaware,  and has the  corporate  power and  authority to own,
operate and lease its  properties  and to carry on its business as now conducted
and as proposed to be conducted.

                  3.2      POWER, AUTHORIZATION AND VALIDITY.

                           3.2.1        Acquirer  has  the right,  power,  legal
capacity  and  authority  to enter into and perform its  obligations  under this
Agreement,  and all  agreements to which Acquirer is or will be a party that are
required to be executed  pursuant to this  Agreement and attached as exhibits to
this agreement (the "ACQUIRER ANCILLARY  AGREEMENTS").  The execution,  delivery
and  performance of this Agreement and the Acquirer  Ancillary  Agreements  have
been duly and validly approved and authorized by Acquirer's Board of Directors.

                                       26

<PAGE>


                           3.2.2        No filing,  authorization  or  approval,
governmental or otherwise, is necessary to enable Acquirer to enter into, and to
perform  its  obligations  under,  this  Agreement  and the  Acquirer  Ancillary
Agreements,  except  for (a) the  filing of the  Agreement  of  Merger  with the
California  Secretary of State, the filing of the Certificate of Merger with the
Delaware  Secretary of State and the filing of  appropriate  documents  with the
relevant  authorities  of other  states in which  Acquirer  is  qualified  to do
business, if any, and (b) such filings as may be required to comply with federal
and state securities laws and (c) the filings, if any, required by the HSR Act.

                           3.2.3        This   Agreement   and   the    Acquirer
Ancillary  Agreements  are,  or when  executed by  Acquirer  will be,  valid and
binding obligations of Acquirer  enforceable in accordance with their respective
terms,  except as to the effect, if any, of (a) applicable  bankruptcy and other
similar  laws  affecting  the rights of  creditors  generally,  (b) rules of law
governing specific  performance,  injunctive relief and other equitable remedies
and (c) the enforceability of provisions requiring indemnification in connection
with the offering,  issuance or sale of securities;  provided, however, that the
Agreement  of Merger  will not be  effective  until  filed  with the  California
Secretary of State and the  Certificate  of Merger will not be  effective  until
filed with the Delaware Secretary of State.

                  3.3      NO  VIOLATION  OF  EXISTING  AGREEMENTS.  Neither the
execution and delivery of this Agreement nor any Acquirer  Ancillary  Agreement,
nor the  consummation of the  transactions  contemplated  hereby,  will conflict
with,  or (with or  without  notice  or lapse  of  time,  or both)  result  in a
termination,  breach,  impairment  or  violation  of (a)  any  provision  of the
Certificate of Incorporation or Bylaws of Acquirer,  as currently in effect, (b)
in any material respect,  any material  instrument or contract to which Acquirer
is a party or by which Acquirer is bound,  or (c) any federal,  state,  local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
Acquirer or its assets or properties.

                  3.4   DISCLOSURE.   Acquirer  has  made  available  to  Target
Acquirer's registration statement on Form S-1, Form 10-K, all Forms 10-Q and 8-K
filed by Acquirer with the SEC since the Fiscal Year End (as defined  below) and
up to the  date of  this  Agreement  and  all  proxy  materials  distributed  to
Acquirer's  shareholders  since the  Fiscal  Year End and up to the date of this
Agreement  (the  "ACQUIRER  DISCLOSURE  PACKAGE").  The financial  statements of
Acquirer  included  in the  foregoing  documents  filed the SEC (the  "FINANCIAL
STATEMENTS")  comply  as to  form  in  all  material  respects  with  applicable
accounting  requirements and with the published rules and regulations of the SEC
with respect thereto,  have been prepared in accordance with generally  accepted
accounting  principles  consistently  applied  throughout the periods  indicated
(except as may be  indicated  in the notes  thereto or, in the case of unaudited
statements, as permitted by Form 10-Q under the Exchange Act of 1934, as amended
(the "EXCHANGE ACT")), and fairly present the consolidated financial position of
Acquirer and its Subsidiaries at the dates thereof and the consolidated  results
of their  operations  and  consolidated  cash flows for the  periods  then ended
(subject,   in  the  case  of  unaudited   statements,   to  normal,   recurring
adjustments).  There has been no material change in Acquirer accounting policies
or  estimates,  except  as  described  in the  notes to the  Acquirer  Financial
Statements.  The Acquirer Disclosure Package,  this Agreement,  the exhibits and
schedules  hereto,  and any  certificates or documents to be delivered to Target
pursuant  to this  Agreement,  when taken  together,  do not  contain any untrue
statement  of a material  fact or omit to state any material  fact  necessary in
order to make the  statements  contained  herein  and  therein,  in light of the
circumstances under which such statements were made, not misleading.

                                       27


<PAGE>

                  3.5      ABSENCE OF CERTAIN  CHANGES.  Since December 31, 1999
(the "FISCAL  YEAR END"),  there has not been any material  adverse  change,  or
occurrence of any event or condition  that is  reasonably  likely to result in a
material adverse change in the condition  (financial or otherwise),  properties,
assets,  liabilities,   businesses,  operations  or  results  of  operations  of
Acquirer, whether or not arising in the ordinary course of business.

                  3.6      NO  BROKERS.    Except  for  amounts   owed  to  C.E.
Unterberg, Towbin, Acquirer is not obligated for the payment of fees or expenses
of any  investment  banker,  broker  or finder in  connection  with the  origin,
negotiation  or  execution of this  Agreement  or the  Agreement of Merger or in
connection with any transaction contemplated hereby or thereby.

                  3.7      CAPITALIZATION.  As of  the  date of this  Agreement,
the authorized capital stock of Acquirer consists of 25,789,201 shares of Common
Stock,  $0.001 par value per share,  as of December 31,  1999,  according to the
annual report filed on Form 10-K with the SEC on March 30, 2000.

                  3.8      LITIGATION.  Except  as  disclosed  on  SCHEDULE  3.8
to  Acquirer  Disclosure  Letter,  there  is no  action,  proceeding,  claim  or
investigation  pending  against  Acquirer  (or  against any  officer,  director,
employee  or agent of  Acquirer  in their  capacity as such or relating to their
employment,  services  or  relationship  with  Acquirer)  before  any  court  or
administrative agency that if determined adversely to Acquirer may reasonably be
expected  to have a Material  Adverse  Effect on  Acquirer,  nor, to the best of
Acquirer's knowledge,  has any such action,  proceeding,  claim or investigation
been threatened.  There is no judgment, decree, injunction, rule or order of any
governmental entity or agency, court or arbitrator  outstanding against Acquirer
(other than judgments, decrees,  injunctions,  rules or orders first rendered or
entered against  Acquirer after the Agreement Date which could not reasonably be
expected  to have a  Material  Adverse  Effect on  Acquirer  and that  could not
prevent,  enjoin, or materially alter or delay the consummation of the Merger or
any other transaction  contemplated by this Agreement or any Acquirer  Ancillary
Agreement). There is, to the best of Target's knowledge, no reasonable basis for
any shareholder or former  shareholder of Acquirer,  or any other person,  firm,
corporation, or entity, to assert a claim against Target or Acquirer based upon:
(a) ownership or rights to ownership of any shares of Acquirer Common Stock, (b)
any rights as an Acquirer Shareholder, including any option or preemptive rights
or rights  to  notice or to vote,  (c) any  rights  under  any  agreement  among
Acquirer and its shareholders or (d) Acquirer's  entering into this Agreement or
any  Acquirer  Ancillary  Agreement  or  consummating  the  Merger or any of the
transactions contemplated by this Agreement or any Acquirer Ancillary Agreement.

                  3.9      INFORMATION   SUPPLIED.   None  of  the   information
supplied or to be supplied by Acquirer for inclusion in the Notice Materials and
the Information  Statement  (both as defined in Section 4.6 below),  at the date
such  information  is  supplied  and at the time of the  meeting  of the  Target
Shareholders  (or a written  consent of the Target  Shareholders)  to be held to
approve the Merger,  contains or will contain any untrue statement of a material
fact or omits or will  omit to state any  material  fact  required  to be stated
therein or necessary in order to make the  statements  therein,  in light of the
circumstances under which they are made, not misleading.

         4.       TARGET PRECLOSING COVENANTS

                  During the period  from the date of this  Agreement  until the
Effective Time, Target covenants and agrees as follows:

                                       28

<PAGE>


                  4.1      ADVICE  OF  CHANGES.   Target  will  promptly  advise
Acquirer in writing (a) of any event  occurring  subsequent  to the date of this
Agreement that would render any  representation  or warranty of Target contained
in this  Agreement,  if made on or as of the date of such  event or the  Closing
Date,  untrue or  inaccurate  in any  material  respect and (b) of any  Material
Adverse Effect on Target.  To ensure  compliance  with this Section 4.1,  Target
shall deliver to Acquirer within fifteen (15) days after the end of each monthly
accounting period ending after the date of this Agreement and before the Closing
Date, an unaudited  balance sheet and statement of operations,  which  financial
statements  shall be prepared in the ordinary course of business,  in accordance
with Target's books and records and generally accepted accounting principles and
shall fairly  present the  financial  position of Target as of their  respective
dates and the results of Target's operations for the periods then ended.

                  4.2      MAINTENANCE OF BUSINESS. Target will use commercially
reasonable  efforts to carry on and preserve its business and its  relationships
with customers, suppliers, employees and others in substantially the same manner
as it has  prior to the date  hereof.  If  Target  becomes  aware of a  material
deterioration in the relationship  with any material  customer,  supplier or key
employee,  it will promptly bring such  information to the attention of Acquirer
in writing and, if requested by Acquirer, will exert its commercially reasonable
efforts to restore the relationship.

                  4.3      CONDUCT OF BUSINESS.  Target will continue to conduct
its business and maintain its business  relationships  in the ordinary and usual
course and will not,  without the prior written  consent of the Chief  Financial
Officer of Acquirer:

                           (a)      borrow any money;

                           (b)      enter  into  any  transaction  not  in   the
ordinary course of business consistent with past practices;

                           (c)      grant  any  lien  or  security  interest  or
encumber or permit to be encumbered any of its assets;

                           (d)      sell,  license,  transfer  or dispose of any
of its assets  except  sale of  inventory  in the  ordinary  course of  business
consistent with past practice;

                           (e)      enter into any  material  lease or  contract
for the purchase or sale of any property, real or personal, except contracts for
the purchase of personal property in the ordinary course of business  consistent
with past practice (not to exceed $50,000 in the aggregate);

                           (f)      fail  to  maintain  its  equipment and other
assets in good working  condition  and repair  according to the standards it has
maintained  to the date of this  Agreement,  subject  only to ordinary  wear and
tear;

                           (g)      pay any bonus,  increased  salary or special
remuneration  to any officer,  employee or consultant  (except for normal salary
increases  consistent  with past practices not to exceed 10% per year and except
pursuant  to  existing  arrangements  previously  disclosed  to and  approved in
writing by Acquirer) or enter into any new  employment or  consulting  agreement
with any such person;

                           (h)      change accounting methods;

                                       29

<PAGE>


                           (i)      declare,  set aside or pay any cash or stock
dividend  or other  distribution  in  respect  of  capital  stock,  or redeem or
otherwise acquire any of its capital stock;

                           (j)      amend or terminate any  contract,  agreement
or license to which it is a party  except  those  amended or  terminated  in the
ordinary course of business,  consistent  with past practice,  and which are not
material in amount or effect;

                           (k)      lend  any  amount  to  any person or entity,
other than (i)  advances  for  travel and  expenses  which are  incurred  in the
ordinary  course of business  consistent  with past  practice,  not  material in
amount and  documented  by receipts  for the  claimed  amounts or (ii) any loans
pursuant to the Target 401(k) Plan;

                           (l)      guarantee  or  act  as  a  surety  for   any
obligation except for the endorsement of checks and other negotiable instruments
in the ordinary course of business, consistent with past practice, which are not
material in amount;

                           (m)      waive or release any material right or claim
except in the ordinary course of business, consistent with past practice;

                           (n)       issue or  sell  any  shares of  its capital
stock of any class  (except upon the exercise of an option or warrant  currently
outstanding),  or any other of its securities,  or issue or create any warrants,
obligations,   subscriptions,   options,   convertible   securities,   or  other
commitments to issue shares of capital  stock,  or accelerate the vesting of any
outstanding  option or other  security (not including any shares of Target Stock
issued pursuant to the exercise of the Series B Warrants or Target Options);

                           (o)      modify or change the exercise or  conversion
rights or exercise or purchase prices of any capital stock of Target, any Target
stock options,  warrants or other Target securities,  or accelerate or otherwise
modify (i) the right to exercise any option,  warrant or other right to purchase
any capital  stock or other  securities of Target or (ii) the vesting or release
of any shares of capital stock or other securities of Target from any repurchase
options  or rights  of  refusal  held by Target or any other  party or any other
restrictions unless such  accelerations/modifications are expressly required and
mandated  by the terms of a formal  written  agreement  or plan that was entered
into prior to the execution of this Agreement and which is disclosed in SCHEDULE
2.3.3 to Target Disclosure Letter;

                           (p)      split  or  combine  the  outstanding  shares
of its capital stock of any class or enter into any  recapitalization  affecting
the number of outstanding  shares of its capital stock of any class or affecting
any other of its securities;

                           (q)      merge, consolidate  or  reorganize  with, or
acquire any entity;

                           (r)      amend  its  Articles  of  Incorporation   or
Bylaws,  except for that  amendment  to Target's  Articles of  Incorporation  to
reduce the  liquidation  preference of the Target  Preferred Stock or other such
amendments as the Acquirer and Target mutually agree;

                           (s)      license   any    of   its    technology   or
intellectual  property except in the ordinary course of business consistent with
past practice;

                                       30

<PAGE>


                           (t)      agree to any  audit  assessment  by  any tax
authority  or file any federal or state income or  franchise  tax return  unless
copies of such returns  have been  delivered to Acquirer for its review prior to
filing; or

                           (u)      change  any  insurance coverage or issue any
certificates of insurance.


                  4.4      CERTAIN AGREEMENTS. Target will use all  commercially
reasonable  efforts to cause all present employees and consultants of Target who
have not  previously  executed  Target's  forms of  assignments of copyright and
other  intellectual  property rights to Target to execute such forms,  copies of
which are attached hereto as EXHIBIT 4.4.

                  4.5      NECESSARY CONSENTS. Target will use all  commercially
reasonable  efforts to obtain such written  consents and take such other actions
as may be necessary or appropriate for Target, in addition to those set forth in
Section  4.6,  to  facilitate  and allow the  consummation  of the  transactions
provided for herein and to  facilitate  and allow  Acquirer to carry on Target's
business after the Closing Date (as defined in Section 6.1 hereof).

                  4.6      SECURITIES COMPLIANCE.

                           4.6.1    PREPARATION OF PERMIT APPLICATION,   HEARING
REQUEST,  HEARING NOTICE AND INFORMATION  STATEMENT.  As promptly as practicable
after the date  hereof,  Acquirer  and Target  shall  prepare  and file with the
California Commissioner of Corporations the documents required by the California
Corporate  Securities  Law of 1968, as amended (the "CCSL")  including,  but not
limited to, any required "PERMIT  APPLICATION,"  "HEARING REQUEST," and "HEARING
NOTICE",  pursuant to Sections  25121 and 25142 of the CCSL  (collectively,  the
"NOTICE  MATERIALS"),  in  connection  with the Merger,  in order to perfect the
exemption from  registration  provided by Section 3(a)(10) of the Securities Act
of 1933 (the "SECURITIES ACT"). Each of Acquirer and Target shall use reasonable
efforts to have the Permit  Application,  Hearing  Request  and  Hearing  Notice
declared  effective under the CCSL as promptly as practicable after such filing.
In addition,  Target and Acquirer  will  prepare and Target will  distribute  an
information  statement or proxy statement (the  "INFORMATION  STATEMENT")  along
with the Notice Materials, as may be required by California Law, at the earliest
practicable  date to submit this  Agreement,  the Merger and related matters for
the consideration and approval of the Target  Shareholders,  which approval will
be recommended by Target's Board of Directors and management.  Such  Information
Statement will contain  information,  and will be solicited,  in compliance with
applicable  law.  Each  of  Acquirer  and  Target  will  promptly   provide  all
information  relating to their respective business and operations  necessary for
inclusion in the Notice  Materials  to satisfy all  requirements  of  applicable
state and federal  securities  laws. Each of Acquirer and Target shall be solely
responsible for any statement,  information or omission in the Notice  Materials
relating to it or its affiliates based upon written information furnished by it.

                           4.6.2    S-4  REGISTRATION  STATEMENT.   If  (a)  the
California  Department of Corporations  has not scheduled a Hearing by April 30,
2000,  (b) the Hearing has not occurred by May 15, 2000 (or May 31, 2000, if any
Target Shareholders reside outside the United States), or (c) the Permit has not
been issued by May 30, 2000 (or June 15, 2000, if any Target Shareholders reside
outside the United States), then Target will assist Acquirer and cooperate fully
with  Acquirer in  connection  with the  Registration  Statement  on Form S-4 to
register the offer and sale

                                       31

<PAGE>

of securities by Acquirer in connection  with the Merger and to solicit  proxies
for the Target Shareholder  Approval (the "S-4") which Acquirer will prepare and
file with the  Securities  and  Exchange  Commission  (the "SEC") as provided in
Section 5.4. Each of Acquirer and Target shall use  reasonable  efforts to cause
the S-4 to become effective as promptly as practicable.  The S-4,  including the
proxy   statement/properties  used  in  connection  therewith  and  all  related
materials  will  contain  information,  and all related  materials  will contain
information,  and such proxies will be solicited,  in accordance with applicable
law. Each of Acquirer and Target will promptly provide all information  relating
to Acquirer or Target,  as  applicable,  for inclusion in the S-4 and such proxy
statement/prospectus  to satisfy the  requirements  of all applicable  state and
federal securities laws. Each of Acquirer and Target shall be solely responsible
for  any  statement,   information  or  omission  in  the  S-4  and  such  proxy
statement/prospectus  relating  to it  or  its  affiliates  based  upon  written
information furnished by it.

                                    4.6.3  PRIVATE   PLACEMENT.  In  the   event
that a permit is not  obtained  in  accordance  with the  Section  4.6.1 and the
parties  mutually agree in writing not to register the Total Acquirer  Shares on
Form S-4, the parties will use  reasonable  efforts so that such Total  Acquirer
Shares  shall be issued  pursuant to a "private  placement"  under  Regulation D
and/or Section 4(2) of the Securities Act and applicable  state  securities laws
(the "PRIVATE  PLACEMENT  EXEMPTION").  If the Total Acquirer  Shares are issued
pursuant to the Private Placement Exemption:

                                            (A)      RESTRICTED  SECURITIES. The
              Total Acquirer  Shares shall  constitute  "restricted  securities"
              within  the  meaning  of  the  Securities  Act.  The  certificates
              for Total Acquirer Shares to be issued in  the Merger  shall  bear
              appropriate  legends to identify such privately placed  shares  as
              being  restricted  under  the  Securities  Act,  to   comply  with
              applicable state securities laws.

                                            (B)      S-3   REGISTRATION  RIGHTS.
              Promptly after Acquirer  becomes  eligible to use such form  under
              the  Securities  Act,  Acquirer  shall  file with the Commission a
              shelf  registration  statement on  Form  S-3  to  provide for  the
              resale of the Total  Acquirer  Shares.  Acquirer  will  keep  such
              registration  statement  effective  for a period of one year after
              the Effective Time.

                                            (C)      AMENDMENT   OF   AGREEMENT.
              In   addition,  the  parties  hereby   agree  that  if  the  Total
              Acquirer Shares are issued pursuant to a Private Placement to make
              such  amendments to this  Agreement as may be necessary to perfect
              an exemption under Section 4(2) of the Securities Act.

                  4.7      MEETING OF TARGET SHAREHOLDERS.

                           (a)      Target  will take  all action  necessary  in
accordance with the California Law and its Articles of Incorporation  and Bylaws
to call, notice,  convene and hold the Target Shareholders'  Meeting to be held,
or shall  solicit  the  written  consent of its  Shareholders,  as  promptly  as
practicable,  and in any event (to the extent  permissible under applicable law)
no more than ten (10) days after the California Commissioner of Corporations has
issued a permit (the "PERMIT") declaring the Permit Application, Hearing Request
and Hearing  Notice  with  respect to the Merger  effective,  for the purpose of
voting  upon  approval  of this  Agreement  and the  Merger.  Subject to Section
4.7(c),  Target  will  solicit  from its  shareholders  proxies  in favor of the
approval  of this  Agreement  and the  Merger,  and  will  use its  commercially
reasonable efforts

                                       32

<PAGE>

to take all other action necessary or advisable to secure the vote or consent of
its  shareholders  required  by the  rules  of  California  Law to  obtain  such
approvals. Notwithstanding anything to the contrary contained in this Agreement,
Target may adjourn or  postpone  the Target  Shareholders'  Meeting if as of the
time for which Target  Shareholders'  Meeting is originally  scheduled there are
insufficient  shares of Target Common Stock represented  (either in person or by
proxy) to  constitute  a quorum  necessary to conduct the business of the Target
Shareholders' Meeting. Target shall ensure that the Target Shareholders' Meeting
is called, noticed,  convened, held and conducted prior to and separate from any
meeting of the Target Shareholders at which any Acquisition Proposal (as defined
in Section  4.8) or  Acquisition  Transaction  (as  defined  in Section  4.8) is
considered or voted upon.  All proxies and consents  solicited by Target will be
solicited in compliance with the California  Law, its Articles of  Incorporation
and Bylaws, and all other applicable legal requirements.  Target's obligation to
call, give notice of, convene, hold and conduct the Target Shareholders' Meeting
in  accordance  with this  Section  4.7(a)  shall not be limited to or otherwise
affected by the commencement,  disclosure,  announcement or submission to Target
of any  Acquisition  Proposal (as defined in Section 4.8), or by any withdrawal,
amendment or  modification  of the  recommendation  of the Board of Directors of
Target to the Target Shareholders to approve this Agreement and the Merger.

                           (b)      (i)  A  majority of the members of the Board
of Directors of Target shall recommend that Target's  shareholders vote in favor
of and  approve  this  Agreement  and the  Merger  at the  Target  Shareholders'
Meeting;  (ii) the Information Statement shall include a statement to the effect
that at least a majority of the members of the Board of  Directors of the Target
has recommended that the Target  Shareholders  vote in favor of and approve this
Agreement and the Merger at the Target Shareholders'  Meeting; and (iii) neither
the Board of Directors of Target nor any committee thereof shall withdraw, amend
or  modify,  or propose  or  resolve  to  withdraw,  amend or modify in a manner
adverse to Acquirer, the recommendation of the Board of Directors of Target that
Target's  shareholders  vote in  favor of and  approve  this  Agreement  and the
Merger.

                           (c)      Nothing  contained in  this Agreement  shall
prohibit  Target or its Board of  Directors  from taking and  disclosing  to its
shareholders  a position  contemplated  by Rules 14d-9 and 14e-2(a)  promulgated
under the Exchange Act.

                  4.8      NO SOLICITATION.

                           (a)      From and  after the  date of this  Agreement
until the Effective Time or termination of this Agreement pursuant to Section 9,
Target will not, nor will it authorize or permit any of its officers, directors,
affiliates or employees or any investment  banker,  attorney or other advisor or
representative retained by any of them to, directly or indirectly:  (i) solicit,
initiate,  encourage or induce the making,  submission  or  announcement  of any
Acquisition  Proposal (as hereinafter  defined);  (ii) furnish to any person any
non-public   information  with  respect  to  any  Acquisition  Proposal;   (iii)
participate or engage in any  discussions or  negotiations  with any person with
respect to any  Acquisition  Proposal,  except  that  Target  may  inform  third
parties,  in  response  to  unsolicited  inquiries,  of the  existence  of these
provisions;  (iv) approve, endorse or recommend any Acquisition Proposal; or (v)
enter into any letter of intent or similar document or any contract,  agreement,
agreement in principle or commitment  contemplating or otherwise relating to any
Acquisition Transaction (as hereinafter defined).  Target will immediately cease
any and all existing  activities,  discussions or negotiations  with any parties
conducted heretofore with respect to any Acquisition Proposal.  Without limiting
the foregoing, it

                                       33

<PAGE>

is understood that any violation of the  restrictions set forth in the preceding
two sentences by any officer,  director or employee of Target or any  investment
banker, attorney or other advisor or representative of Target shall be deemed to
be a breach of this Section 4.8 by Target.

                           For   purposes   of  this   Agreement,   "ACQUISITION
PROPOSAL"  shall mean any offer or proposal  (other than an offer or proposal by
Acquirer)  relating to any  Acquisition  Transaction.  For the  purposes of this
Agreement,  "ACQUISITION  Transaction"  shall mean any  transaction or series of
related transactions other than the transactions  contemplated by this Agreement
involving:  (A) any acquisition or purchase from Target by any person or "group"
(as  defined  under  Section  13(d)  of the  Exchange  Act  and  the  rules  and
regulations  thereunder)  of more than a 5%  interest  in the total  outstanding
voting  securities of Target or any of its  subsidiaries  or any tender offer or
exchange  offer that if  consummated  would  result in any person or "group" (as
defined under  Section  13(d) of the Exchange Act and the rules and  regulations
thereunder)  beneficially  owning  5% or more of the  total  outstanding  voting
securities of Target,  or any of its subsidiaries or any merger,  consolidation,
business  combination or similar  transaction  involving  Target;  (B) any sale,
lease  (other than in the  ordinary  course of  business),  exchange,  transfer,
license  (other  than  in the  ordinary  course  of  business),  acquisition  or
disposition of more than 5% of the assets of Target;  or (C) any  liquidation or
dissolution of Target.

                           (b)      In addition to the obligations of Target set
forth in paragraph  (a) of this Section 4.8,  Target as promptly as  practicable
shall  advise  Acquirer  orally  and in writing of any  request  for  non-public
information or any other inquiry which Target reasonably  believes could lead to
an Acquisition Proposal or of any Acquisition  Proposal,  the material terms and
conditions of such request, inquiry or Acquisition Proposal, and the identity of
the person or group making any such request,  inquiry or  Acquisition  Proposal.
Target will keep Acquirer  informed as promptly as  practicable  in all material
respects of amendments to any such request, inquiry or Acquisition Proposal.

                  4.9      REGULATORY  APPROVALS.  Target will execute and file,
or join in the execution and filing,  of any  application or other document that
may be  necessary in order to obtain the  authorization,  approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required,  or which  Acquirer may  reasonably  request,  in connection  with the
consummation of the transactions provided for in this Agreement. Target will use
all commercially  reasonable efforts to obtain or assist Acquirer, at Acquirer's
expense  if  requested  by  Acquirer,  in  obtaining  all  such  authorizations,
approvals and consents.

                  4.10     ACCESS  TO  INFORMATION.  Until the  Closing Date (as
defined in Section 6.1 hereof), Target will provide Acquirer and its agents with
reasonable access,  during regular business hours, to the files, books,  records
and offices of Target,  including,  without limitation,  any and all information
relating  to Target  taxes,  commitments,  contracts,  leases,  licenses,  real,
personal and intangible property, and financial condition. Target will cause its
accountants  to cooperate  with Acquirer and its agents in making  available all
financial  information  reasonably  requested,  including without limitation the
right to examine all  working  papers  pertaining  to all  financial  statements
prepared or audited by such accountants.

                  4.11     SATISFACTION OF CONDITIONS PRECEDENT. Target will use
all  reasonable  efforts to satisfy or cause to be satisfied all the  conditions
precedent which are set forth in Section 8, and Target will use all commercially
reasonable efforts to cause the transactions provided for in this

                                       34

<PAGE>

Agreement  to be  consummated,  and,  without  limiting  the  generality  of the
foregoing,  to obtain all consents and  authorizations  of third  parties and to
make all  filings  with,  and give all  notices to,  third  parties  that may be
necessary or reasonably required on its part in order to effect the transactions
provided for herein.

                  4.12     BLUE SKY LAWS. Target shall use reasonable efforts to
assist  Acquirer to the extent  necessary to comply with the securities and Blue
Sky laws of all jurisdictions applicable in connection with the Merger.

                  4.13     NOTIFICATION  OF  EMPLOYEE  PROBLEMS.    Target  will
promptly  notify  Acquirer if any of its key employees  listed in ITEM 2.15.2 to
the Target  Disclosure Letter informs Target that he or she intends to leave its
employ.

                  4.14     [Intentionally Left Blank]


                  4.15     EXERCISE OF TARGET WARRANTS. Target agrees to use all
reasonable  efforts to cause the holders of the Target Warrants to exercise such
Warrants no later than immediately prior to the Effective Time of the Merger.

                  4.16     TARGET DISSENTING SHARES. As promptly as  practicable
after the date the Information  Statement is distributed to Target  Shareholders
and prior to the Closing Date,  Target shall furnish  Acquirer with the name and
address of each Target  Shareholder  who has up to such time  dissented  and the
number of shares owned by such Target Shareholders.

                  4.17     LITIGATION.  Target will notify Acquirer  in  writing
promptly  after   learning  of  any  material   action,   suit,   proceeding  or
investigation by or before any court, board or governmental agency, initiated by
or against Target or threatened against it.

                  4.18     CERTAIN EMPLOYEE  BENEFITS.  As  soon  as practicable
after the execution of this Agreement, Target and Acquirer shall confer and work
together in good faith to agree upon mutually  acceptable  employee  benefit and
compensation arrangements for Target's and its Subsidiaries' employees following
the Merger.  Target shall take such actions as are  necessary to terminate  such
Target  Employee  Plans and Target  Benefit  Arrangements  as are  requested  by
Acquirer to be terminated, provided that those Target employees who are eligible
to  participate in each such Target  Employee Plans and/or Benefit  Arrangements
shall be provided the opportunity to participate in a  substantially  comparable
employee  benefit plan maintained by Acquirer and provided further that Acquirer
requests such termination no later than ten days prior to the Closing Date.

                  4.19     TERMINATION OF REGISTRATION AND VOTING RIGHTS. Target
shall take,  and cause to be taken,  such action as shall be  necessary to cause
all registration  rights agreements,  information rights agreements,  and voting
agreements  and proxies  applicable  to or affecting any  outstanding  shares or
other  securities  of Target  (other than the Voting  Agreement  and the related
Irrevocable Proxies) to be duly terminated and canceled, effective no later than
immediately prior to the Effective Time.

                                       35

<PAGE>


                  4.20     INVENTION  ASSIGNMENT AND CONFIDENTIALITY AGREEMENTS.
Target will use all commercially reasonable efforts to obtain from each employee
and  consultant  of Target who has had  access to any  software,  technology  or
copyrightable,  patentable  or other  proprietary  works owned or  developed  by
Target, or to any other confidential or proprietary information of Target or its
clients,  and who has not executed and  delivered  an invention  assignment  and
confidentiality  agreement  to  Target  prior to the  Agreement  Date that is in
substantially the form provided to counsel to Acquirer,  an invention assignment
and confidentiality  agreement in a form reasonably acceptable to Acquirer, duly
executed by such employee or consultant and delivered to Target.

                  4.21     NOTICES.     Target  will   promptly   give  to   its
shareholders and other  shareholders  all notices  regarding the Merger that are
required under Target's  Articles of Incorporation  or Bylaws,  each as amended,
under any agreement or under any applicable law.

                  4.22     BANK  ACCOUNTS AND  INSURANCE.   At  least  two weeks
before the Effective Time,  Target shall deliver to Acquirer a true and complete
written  list of (a) the names and  locations of all banks,  trusts,  companies,
savings and loan associations,  and other financial institutions at which Target
maintains  accounts of any nature,  the names of all persons then  authorized to
draw  thereon  or make  withdrawals  therefrom  and the  amount of funds then on
deposit therein and amount of debt, if any, owing thereto by Target, and (b) all
policies  of  insurance  held by Target,  together  with the name of the insurer
under each policy,  the policy coverage amount and next renewal date, and Target
shall promptly  advise Acquirer in writing of any changes to the information set
forth therein.

                  4.23     CLOSING OF MERGER.  Target will  not refuse to
effect the Merger if, on or before the Closing Date,  all the  conditions
precedent to Target's  obligations  to effect the  Merger  under  Article 7
hereof  have been satisfied or have been waived by Target.

         5.       ACQUIRER PRECLOSING COVENANTS

                  During the period  from the date of this  Agreement  until the
Effective Time, Acquirer covenants and agrees as follows:

                  5.1      ADVICE  OF  CHANGES.  Acquirer  will  promptly advise
Target in  writing  (a) of any event  occurring  subsequent  to the date of this
Agreement that would render any representation or warranty of Acquirer contained
in this  Agreement,  if made on or as of the date of such  event or the  Closing
Date,  untrue or  inaccurate  in any  material  respect and (b) of any  material
adverse  change in  Acquirer's  business,  results of  operations  or  financial
condition.
                  5.2      REGULATORY APPROVALS. Acquirer will execute and file,
or join in the execution and filing,  of any  application or other document that
may be  necessary in order to obtain the  authorization,  approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required,  or which  Target  may  reasonably  request,  in  connection  with the
consummation of the transactions  contemplated by this Agreement.  Acquirer will
use its best efforts to obtain all such authorizations, approvals and consents.

                                       36

<PAGE>


                  5.3      SATISFACTION OF CONDITIONS  PRECEDENT.  Acquirer will
use  all  reasonable  efforts  to  satisfy  or  cause  to be  satisfied  all the
conditions precedent which are set forth in Section 7, and Acquirer will use all
reasonable  efforts to cause the transactions  contemplated by this Agreement to
be consummated, and, without limiting the generality of the foregoing, to obtain
all consents and  authorizations  of third parties and to make all filings with,
and give all notices to,  third  parties  that may be  necessary  or  reasonably
required on its part in order to effect the transactions contemplated hereby.

                  5.4      SECURITIES LAWS COMPLIANCE.

                           5.4.1    PREPARATION OF PERMIT  APPLICATION,  HEARING
REQUEST AND HEARING  NOTICE.  As promptly as practicable  after the date hereof,
Acquirer, with Target's assistance, shall prepare and file with the Commissioner
the  Permit  Application,  Hearing  Request  and  Hearing  Notice  and any other
documents  required  by the  California  Corporate  Securities  Law of 1968,  as
amended in connection with the Merger. Acquirer, with Target's assistance, shall
use  reasonable  efforts to have the Permit  Application,  Hearing  Request  and
Hearing Notice declared effective under the California  Corporate Securities Law
of 1968, as amended as promptly as practicable after such filing. Acquirer makes
the covenants  applicable to it that are set forth in Section 4.6.1 with respect
to  the  Permit,  Permit  Application,   Hearing  Request,  Hearing  Notice  and
Information Statement, if any.

                           5.4.2    S-4   REGISTRATION  STATEMENT.  If  (a)  the
California  Department of Corporations  has not scheduled a Hearing by April 30,
2000,  (b) the Hearing has not occurred by May 15, 2000 (or May 31, 2000, if any
Target Shareholders reside outside the United States), or (c) the Permit has not
been issued by May 31, 2000 (or June 15, 2000, if any Target Shareholders reside
outside the United States),  then Acquirer shall promptly prepare, with Target's
assistance  and  cooperation,  and  file  with  the SEC the  S-4 and  shall  use
reasonable  efforts  to  cause  the  S-4 to  become  effective  as  promptly  as
practicable.  Each of Acquirer and Target shall use reasonable  efforts to cause
the S-4 to become effective as promptly as practicable.  The S-4,  including the
proxy   statement/properties  used  in  connection  therewith  and  all  related
materials  will  contain  information,  and all related  materials  will contain
information,  and such proxies will be solicited,  in accordance with applicable
law. Each of Acquirer and Target will promptly provide all information  relating
to Acquirer or Target,  as  applicable,  for inclusion in the S-4 and such proxy
statement/prospectus  to satisfy the  requirements  of all applicable  state and
federal securities laws. Each of Acquirer and Target shall be solely responsible
for  any  statement,   information  or  omission  in  the  S-4  and  such  proxy
statement/prospectus  relating  to it  or  its  affiliates  based  upon  written
information furnished by it.

                           5.4.3    PRIVATE    PLACEMENT;    S-3    REGISTRATION
STATEMENT.  In the event that a permit is not  obtained in  accordance  with the
Sections 4.6.1 or 5.4.1 and the parties mutually agree not to register the Total
Acquirer  Shares on Form S-4,  the parties will use  reasonable  efforts so that
such Total Acquirer Shares shall be issued pursuant to a Private  Placement.  If
the  Total  Acquirer  Shares  are  issued  pursuant  to  the  Private  Placement
Exemption,  promptly after Acquirer  becomes eligible to use such form under the
Securities  Act,  Acquirer shall file with the  Commission a shelf  registration
statement  on Form S-3 to provide for the resale of the Total  Acquirer  Shares.
Acquirer  will keep such  registration  statement  effective for a period of one
year after the Effective Time. In addition, the parties hereby agree that if the
Total

                                       37

<PAGE>

Acquirer  Shares  are  issued  pursuant  to a  Private  Placement  to make  such
amendments to this  Agreement as may be necessary to perfect an exemption  under
Section 4(2) of the Securities Act.

                  5.5      BLUE SKY LAWS.  Acquirer shall take such steps as may
be  necessary  to  comply  with  the   securities  and  Blue  Sky  laws  of  all
jurisdictions which are applicable in connection with the Merger.

         6.       CLOSING MATTERS

                  6.1      THE CLOSING. Subject to termination of this Agreement
as  provided in Section 9 below,  the Closing  will take place at the offices of
Fenwick & West, Two Palo Alto Square, Palo Alto,  California 94306 at 1:30 p.m.,
Pacific  Standard Time on the second business day after all of the conditions to
Closing set forth in Sections 7 and 8 hereof have been  satisfied  and/or waived
in accordance  with this  Agreement,  or, if all  conditions to closing have not
been satisfied or waived by such date, such other place, time and date as Target
and Acquirer may mutually  select (the "CLOSING  DATE").  Concurrently  with the
Closing,  the Agreement of Merger will be filed in the office of the  California
Secretary of State and the Certificate of Merger will be filed with the Delaware
Secretary  of State.  The  Agreement  of Merger  provides  that the Merger shall
become  effective upon the filing of the Agreement of Merger with the California
Secretary of State.

                  6.2      EXCHANGE OF CERTIFICATES.

                           6.2.1    As of  the  Effective  Time,  all  shares of
Target Common Stock and Target Preferred Stock that are outstanding  immediately
prior thereto will, by virtue of the Merger and without further action, cease to
exist,  and all such shares  (other than  dissenters'  shares) will be converted
into the right to receive from Acquirer the number of shares of Acquirer  Common
Stock determined as set forth in Section 1.1, subject to Section 1.2 hereof.

                           6.2.2    At  and  after   the  Effective  Time,  each
certificate  representing  outstanding  shares of Target Common Stock and Target
Preferred  Stock will  represent  the right to  receive  the number of shares of
Acquirer  Common Stock into which such shares of Target  Common Stock and Target
Preferred Stock have been converted.  As soon as practicable after the Effective
Time,  the exchange  agent (the  "EXCHANGE  AGENT")  engaged by Acquirer for the
purpose of exchanging the  certificates  representing the shares of Target Stock
(the "TARGET CERTIFICATES") will prepare and mail a letter of transmittal
in a form  reasonably  acceptable to

                                       38

<PAGE>

Target  requesting  each holder of shares of Target Stock to  surrender  (a) the
Target  Certificates to the Exchange Agent for  cancellation or (b) an affidavit
of lost  certificate and a bond in form reasonably  satisfactory to the Exchange
Agent  (a  "BOND")  together  with a  duly  executed  and  completed  letter  of
transmittal  and will  execute  and  deliver  representations  as to such Target
Shareholders'  valid  and  marketable  title to such  holder's  shares of Target
Common   Stock   and   Target   Preferred   Stock   (the   "TARGET   SHAREHOLDER
Representations"). In addition, in the event that a Permit is not obtained or an
S-4  Registration  Statement  filed with the SEC (as set forth in Section 4.6.1,
4.6.2, 5.4.1, and 5.4.2 above, each Target Shareholder shall deliver to Acquirer
a  representation  letter stating that such Target  Shareholder is acquiring the
Acquirer Common Stock exchanged for the Target Stock for investment purposes and
not with a view to any distribution  thereof, and such other matters as Acquirer
may  reasonably  require in order to establish a Private  Placement  exempt from
registration under the Securities Act. Promptly following the Effective Time and
receipt  of  Target   Certificates  and/or  the  Bonds  and  Target  Shareholder
Representations,  the  Exchange  Agent  will issue to such  surrendering  holder
certificate(s)  for the number of shares of Acquirer  Common Stock to which such
holder is entitled  pursuant to Section 1.1, subject to Section 1.2 hereof,  and
Acquirer will  distribute any cash payable under Section 1.2;  provided that the
Target  Shareholder  Founders (who will be parties to the Escrow Agreement) will
receive a  certificates  representing  the number of shares of  Acquirer  Common
Stock to which such Target  Shareholder  Founder is entitled pursuant to Section
1.1,  subject to Section  1.2 hereof,  LESS any such  shares of Acquirer  Common
Stock that are deemed Escrow Shares in accordance with Section 1.3 hereof and in
accordance with the Escrow Agreement.  Notwithstanding the foregoing,  no holder
of shares of Target Common Stock will receive  certificates  representing shares
of Acquirer  Common  Stock in exchange  for such Target  Common Stock until such
holder has executed a Founder Vesting Agreement or Employee Vesting Agreement as
set forth in Sections 4.19 and 4.21, respectively.

                           6.2.3    All shares of Acquirer  Common  Stock  (and,
if applicable,  cash in lieu of fractional  shares) delivered upon the surrender
of Target  Certificates in accordance with the terms hereof will be delivered to
the  registered  holder.  After the  Effective  Time,  there  will be no further
registration  of  transfers  of the  shares of Target  Common  Stock and  Target
Preferred  Stock on the stock transfer books of Target.  If, after the Effective
Time,  Target  Certificates  are presented for transfer or for any other reason,
they will be canceled and exchanged and certificates  therefor will be delivered
as  provided  in  this  Section  6.2.  Notwithstanding  anything  herein  to the
contrary,  except to the extent waived by Acquirer,  any Target Certificate that
is not properly submitted to Acquirer for exchange and cancellation within three
years after the  Effective  Time shall no longer  evidence  ownership  of or any
right to receive shares of Acquirer Common Stock and all rights of the holder of
such Target Certificate, with respect to the shares previously evidenced by such
Target Certificate, shall cease.

                           6.2.4    Until   Target   Certificates   representing
Target Common Stock and Target Preferred Stock  outstanding  prior to the Merger
are  surrendered  pursuant to Section  6.2.2 above,  such  certificates  will be
deemed,  for all  purposes,  to evidence  the right to receive (a) the number of
shares of Acquirer Common Stock into which the shares of Target Common Stock and
Target  Preferred Stock will have been converted and (b) if applicable,  cash in
lieu of fractional shares.

                  6.3      ASSUMPTION OF OPTIONS.  Promptly  after the Effective
Time,  Acquirer  will notify in writing  each  holder of a Target  Option of the
assumption  of such  Target  Option  by  Acquirer,  and the  number of shares of
Acquirer Common Stock that are then subject to such


                                     39
<PAGE>

option and the exercise price of such option, as determined pursuant to Sections
1.1 and 1.3 hereof.

                  6.4      DISSENTING  SHARES.   Notwithstanding   anything   to
the contrary  contained in this  Agreement,  any Dissenting  Shares shall not be
converted  into or  represent  the right to  receive  Acquirer  Common  Stock in
accordance  with  Section  1.1.1  (or  cash  in  lieu of  fractional  shares  in
accordance  with Section 1.2), and the holder or holders of such shares shall be
entitled  only to such  rights as may be  granted  to such  holder or holders in
Chapter 13 of the CGCL; provided, however, that if the status of any such shares
as "dissenting shares," shall not be perfected, or if any such shares lose their
status as  "dissenting  shares," then, as of the latter of the Effective Time or
the time of the failure to perfect such status or the loss of such status,  such
shares shall  automatically be converted into and shall represent only the right
to receive (upon surrender of the certificate or certificates  representing such
shares) Acquirer Common Stock in accordance with Section 1.1.1 (and cash in lieu
of fractional shares in accordance with Section 1.2).

         7.       CONDITIONS TO OBLIGATIONS OF TARGET

                  Target's obligations  hereunder are subject to the fulfillment
or satisfaction,  on and as of the Closing, of each of the following  conditions
(any one or more of which may be waived by Target,  but only in a writing signed
by the Chief Executive Officer or Chief Financial Officer of Target):

                  7.1      ACCURACY OF  REPRESENTATIONS  AND WARRANTIES. Each of
the representations and warranties of Acquirer contained in this Agreement shall
be true and correct in all material respects as of the date hereof and at and as
of the Closing Date as if made at and as of such time, except that to the extent
such  representations  and  warranties  address  matters only as of a particular
date, such  representations  and warranties  shall, to such extent,  be true and
correct in all  material  respects  as of the date  hereof and at and as of such
particular date as if made at and as of such  particular  date; and Target shall
have received a certificate to such effect executed on behalf of Acquirer by its
Chief Executive Officer or Chief Financial Officer.

                  7.2      COVENANTS. Acquirer shall have performed and complied
in all material respects with all of its covenants  contained in Section 5 on or
before the Closing, and Target shall receive a certificate to such effect signed
by Acquirer's President and Chief Financial Officer.

                  7.3      ABSENCE OF MATERIAL  ADVERSE CHANGE.  There shall not
have been any Material Adverse Effect with respect to the Acquirer.

                  7.4      COMPLIANCE WITH LAW. There shall be no order, decree,
or ruling by any court or governmental  agency or threat  thereof,  or any other
fact or  circumstance,  which would prohibit or render illegal the  transactions
contemplated by this Agreement.

                  7.5      GOVERNMENT CONSENTS.  There shall have been  obtained
at or prior to the Closing Date such permits or authorizations,  and there shall
have been taken such other action,  as may be required to consummate  the Merger
by any regulatory authority having jurisdiction over the parties and the actions
herein  proposed to be taken,  including but not limited to  requirements  under
applicable federal and state securities laws.

                                       40

<PAGE>


                  7.6      OPINION  OF  ACQUIRER'S  COUNSEL.  Target  shall have
received from counsel to Acquirer,  Fenwick & West LLP, an opinion substantially
in the form of EXHIBIT 7.6.


                  7.7      PERMIT. The Commissioner shall have issued the Permit
with  respect to the Merger or the  issuance  of the  Acquirer  Common  Stock in
connection  with the  Merger  shall  have  been  registered  pursuant  to an S-4
declared  effective  by the SEC, or an  exemption  from  registration  under the
Securities Act shall be available for such issuance.

                  7.8      SHAREHOLDER  APPROVAL. The principal  terms  of  this
Agreement  and the  Agreement of Merger shall have been  approved and adopted by
Target  Shareholders,  as required by  applicable  law and Target's  Articles of
Incorporation  and  Bylaws,  including  the votes of  Target  Series A Stock and
Target Series B Stock that are issued and outstanding on the Record Date, voting
in each case as a separate series.

                  7.9      CONSENTS.  Target  shall  have received duly executed
copies of all material third-party  consents and approvals  contemplated by this
Agreement or the Target Schedule of Exceptions in form and substance  reasonably
satisfactory  to Target,  except for such consents and approvals as Acquirer and
Target shall have agreed shall not be obtained,  as  contemplated  by the Target
Schedule of Exceptions.

                  7.10     NO  LITIGATION.  No litigation  or  proceeding  shall
be  threatened  or  pending  for the  purpose  or with the  probable  effect  of
enjoining or preventing the consummation of any of the transactions contemplated
by this  Agreement,  or which  could be  reasonably  expected to have a Material
Adverse Effect on Acquirer.

                  7.11     REQUISITE  APPROVALS.  The  principal  terms  of this
Agreement  and the  Agreement of Merger shall have been  approved and adopted by
Acquirer's Board of Directors.

         8.       CONDITIONS TO OBLIGATIONS OF ACQUIRER

                  The  obligations  of  Acquirer  hereunder  are  subject to the
fulfillment or satisfaction on, and as of the Closing,  of each of the following
conditions  (any one or more of which may be waived by  Acquirer,  but only in a
writing  signed by the Chief  Executive  Officer or Chief  Financial  Officer of
Acquirer):

                  8.1      ACCURACY OF  REPRESENTATIONS  AND WARRANTIES. Each of
the  representations  and warranties of Target contained in this Agreement shall
be true and correct in all material respects as of the date hereof and at and as
of the  Closing  Date as if made at and as of such  time,  except  that,  to the
extent  such  representations  and  warranties  address  matters  only  as  of a
particular date, such  representations  and warranties shall, to such extent, be
true and correct in all material  respects at and as of such  particular date as
if made at and as of such  particular  date;  and Acquirer shall have received a
certificate to such effect  executed on behalf of Target by its Chief  Executive
Officer or Chief Financial Officer.

                  8.2      COVENANTS.  Target shall have  performed and complied
in all material respects with all of its covenants  contained in Section 4 on or
before the Closing,  and Acquirer  shall  receive a  certificate  to such effect
signed by Target's President and Chief Financial officer.

                  8.3      ABSENCE OF MATERIAL  ADVERSE  CHANGE. There shall not
have been a Material Adverse Effect with respect to the Target.

                                       41

<PAGE>


                  8.4      COMPLIANCE WITH LAW. There shall be no order, decree,
or ruling by any court or governmental  agency or threat  thereof,  or any other
fact or  circumstance,  which would prohibit or render illegal the  transactions
contemplated by this Agreement.

                  8.5      GOVERNMENT CONSENTS.  There shall have  been obtained
at or prior to the Closing Date such permits or authorizations,  and there shall
have been taken such other action,  as may be required to consummate  the Merger
by any regulatory authority having jurisdiction over the parties and the actions
herein  proposed to be taken,  including but not limited to  requirements  under
applicable federal and state securities laws.

                  8.6      OPINION OF  TARGET'S  COUNSEL.  Acquirer  shall  have
received  from  counsel  to  Target,  Manatt,  Phelps  &  Phillips,  an  opinion
substantially in the form of EXHIBIT 8.6.

                  8.7      CONSENTS.    Acquirer  shall   have   received   duly
executed copies of all material third-party  consents,  approvals,  assignments,
waivers, authorizations or other certificates contemplated by this Agreement and
as indicated in Schedule 2.13 of the Target Disclosure  Schedule,  such consents
to be in form and substance reasonably satisfactory to Acquirer, except for such
thereof as  Acquirer  and  Target  shall  have  agreed in  writing  shall not be
obtained, as set forth in the Target Disclosure Schedule .

                  8.8      NO  LITIGATION.  No  litigation  or  proceeding shall
be  threatened  or  pending  for the  purpose  or with the  probable  effect  of
enjoining or preventing the consummation of any of the transactions contemplated
by this  Agreement,  or which  could be  reasonably  expected to have a Material
Adverse Effect on Target.

                  8.9      REQUISITE APPROVALS.  The  principal  terms  of  this
Agreement  and the  Agreement of Merger shall have been  approved and adopted by
Target  Shareholders,  as required by applicable law and Target's Certificate of
Incorporation and Bylaws, and by Target's Board of Directors.

                  8.10     DISSENTING  SHARES. The  Dissenting  Shares shall not
constitute  more than five  percent (5%) of the total number of shares of Target
Stock outstanding immediately prior to the Effective Time.

                  8.11     ESCROW  AGREEMENTS.  Acquirer shall have received (i)
an Indemnification Escrow Agreement executed by Target and Dale R. Adams, as the
Representative for all Target Shareholder Founders,  providing for the escrow of
the Escrow Shares on the terms and conditions of the Escrow Agreement and (ii) a
Retention Escrow Agreement  executed by Target and the three Target  Shareholder
Founders specified therein.

                  8.12     EXERCISE OF TARGET WARRANTS. All outstanding Warrants
shall have been exercised.


                  8.13     PERMIT. The Commissioner shall have issued the Permit
with  respect to the Merger or the  issuance  of the  Acquirer  Common  Stock in
connection  with the  Merger  shall  have  been  registered  pursuant  to an S-4
declared  effective  by the SEC, or an  exemption  from  registration  under the
Securities Act shall be available for such issuance.

                                       42

<PAGE>


                  8.14     TERMINATION OF RIGHTS.  Except as otherwise  provided
in Section  10.3,  any  registration  rights,  rights of refusal,  rights to any
liquidation  preference,  or redemption  rights of any Target  Shareholder shall
have been terminated or waived as of the Closing.

                  8.15     PRINCIPAL   SHAREHOLDER   LETTERS.   Each   Principal
Shareholder  shall  have  delivered  to  Acquirer  a  representation  letter  in
accordance with Section 4.13.

                  8.16     FIRPTA.  Acquirer,  as agent for the shareholders  of
Target,  shall have received a properly  executed  Foreign  Investment  and Real
Property Tax Act of 1980 ("FIRPTA")  Notification  Letter, in form and substance
satisfactory  to  Acquirer,  which  states  that  shares of Target  Stock do not
constitute  "United States real property  interests" under Section 897(c) of the
Code,  for  purposes  of  satisfying   Acquirer's   obligations  under  Treasury
Regulation Section 1.14452(c)(3).

                  8.17     RESIGNATION OF DIRECTORS.  The directors of Target in
office immediately prior to the Effective Time of the Merger shall have resigned
as directors of the Surviving  Corporation effective as of the Effective Time of
the Merger.
                  8.18     TERMINATION  OF  REGISTRATION, INFORMATION AND VOTING
RIGHTS. All registration  rights  agreements,  information rights agreements and
voting agreements and proxies  applicable to or affecting any outstanding shares
or other  securities of Target (other than the Voting  Agreement and the related
Irrevocable  Proxies) will be duly  terminated and canceled,  effective no later
than  immediately  prior to the  Effective  Time,  and any  rights of any Target
Shareholder  to prior  notice of the Merger or any action of Target or its Board
of Directors  relating to the Merger or this Agreement shall have been satisfied
or duly waived.

                  8.19     CONVERSION OF TARGET PREFERRED STOCK. No more than 4%
of the  shares of the  Target  Preferred  Stock  outstanding  at the time of the
execution of this Agreement will have been converted into Target Common Stock.

                  8.20     DESIGNATION OF REPRESENTATIVE. The Board of Directors
of  Target  shall  have  designated  the  Representative  and not  revoked  such
designation. The Representative shall have accepted such designation in writing.

         9.       TERMINATION OF AGREEMENT

                  9.1      TERMINATION.  This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of the Merger
by the shareholders of Target:

                           (a)      by  the  mutual  written consent of Acquirer
and Target;

                           (b)      unless   otherwise   specifically   provided
herein or agreed in writing by Acquirer and Target, upon notice by either party,
this Agreement will be terminated if all the conditions to Closing have not been
satisfied  or waived on or before June 30,  2000,  or, if on or before such date
Acquirer files a  registration  statement with the SEC to register the shares of
Acquirer  Common Stock to be issued in the Merger due to the  unavailability  of
the Securities

                                       43

<PAGE>

Act Section 3(a)(10) exemption,  on or before July 31, 2000 (as applicable,  the
"FINAL  DATE")  other  than as a result  of a breach  of this  Agreement  by the
terminating  party, or a breach by any of the Target  Principal  Shareholders of
the Voting Agreements;

                           (c)      by  Acquirer  (at  any  time  prior to   the
approval  of  this  Agreement  and  the  Merger  by  the  required  vote  of the
stockholders  of Target) if a  Triggering  Event (as defined  below)  shall have
occurred;
                           (d)      by Target,  if  there  has  been a breach by
Acquirer of any  representation,  warranty,  covenant or agreement  set forth in
this  Agreement on the part of Acquirer,  or if any  representation  of Acquirer
will have  become  untrue,  in either  case to an extent  that  would  cause the
conditions  set  forth  in  Section  7.1 or 7.2 not to be  satisfied  and  which
Acquirer fails to cure within a reasonable time, not to exceed thirty (30) days,
after written notice thereof  (except that no cure period will be provided for a
breach by Acquirer which by its nature cannot be cured);

                           (e)      by  Acquirer,  if there has been a breach by
Target of any representation,  warranty, covenant or agreement set forth in this
Agreement on the part of Target,  or if any  representation  of Target will have
become  untrue,  in either case to an extent that would cause the conditions set
forth in Section 8.1 or 8.2 not to be  satisfied  and which Target fails to cure
within a reasonable  time not to exceed  thirty (30) days after  written  notice
thereof  (except  that no cure period  will be  provided  for a breach by Target
which by its nature cannot be cured);

                           (f)      by either  party, if a  permanent injunction
or other  order by any  Federal  or state  court  which  would  make  illegal or
otherwise  restrain or prohibit  the  consummation  of the Merger will have been
issued and will have become final and  nonappealable.  Any  termination  of this
Agreement  under this  Section 9.1 will be  effective by the delivery of written
notice of the terminating party to the other party hereto; or

                           (g)      by either Target or Acquirer if the required
approval of the Target  Shareholders  contemplated  by this Agreement  shall not
have been  obtained  by reason of the failure to obtain the  required  vote at a
meeting of the Target Shareholders duly convened therefore or at any adjournment
thereof;  provided,  however,  that the right to terminate this Agreement  under
this  Section  9.1(g)  shall not be  available  to a party  where the failure to
obtain the Target  Shareholder  approval shall have been caused by the action or
failure to act of such party and such  action or  failure to act  constitutes  a
material breach of this Agreement; or

                           (h)      by  Acquirer,  in  the  event that after the
Agreement Date and on or prior to the Closing Date and after Target has received
an Acquisition Proposal, the Dissenting Shares constitute more than four percent
(4%) of the total number of shares of Target Stock  outstanding;  provided  that
the  Dissenting  Shares did not  constitute  more than four  percent (4%) of the
total number of shares of Target Stock  outstanding prior to Target's receipt of
any Acquisition Proposal.

                           For the  purposes of this  Agreement,  a  "TRIGGERING
EVENT" shall be deemed to have occurred if: (i) the Board of Directors of Target
or any  committee  thereof  shall for any reason  have  withdrawn  or shall have
amended or modified in a manner adverse to Acquirer its  recommendation in favor
of the approval of this  Agreement or the Merger;  (ii) Target shall have failed
to include  in the  Information  Statement  the  recommendation  of the Board of
Directors of

                                       44

<PAGE>


Target in favor of the  approval of this  Agreement  and the  Merger;  (iii) the
Board of Directors of Target  fails to reaffirm its  recommendation  in favor of
the adoption and approval of this  Agreement  and the Merger  within 10 business
days after Acquirer  requests in writing that such  recommendation be reaffirmed
at any time following the public announcement of an Acquisition  Proposal;  (iv)
the Board of Directors of Target or any committee thereof shall have approved or
publicly  recommended  any Acquisition  Proposal;  (v) Target shall have entered
into any letter of intent of similar  document  or any  agreement,  contract  or
commitment  accepting  any  Acquisition  Proposal;  or (vi) a tender or exchange
offer  relating to securities of Target shall have been commenced by a person or
entity  unaffiliated  with  Acquirer,  and  Target  shall  not have  sent to its
shareholders pursuant to Rule 14e-2 promulgated under the Securities Act, within
10 business days after such tender or exchange offer is first  published sent or
given, a statement disclosing that Target recommends rejection of such tender or
exchange offer.

                  9.2      FEES AND EXPENSES.


                  (a)      GENERAL.  Except   as  otherwise  set forth  in  this
Agreement,  each party  will bear its  respective  expenses  and fees of its own
accountants, attorneys, investment bankers and other professionals incurred with
respect to this Agreement and the transactions contemplated hereby.

                  (b)      ACQUIRER   PAYMENTS.   In   the   event  that  Target
shall terminate this Agreement  pursuant to Section 9.1(d) or Section 9.1(b) (at
a time when Acquirer is in material breach of any of its obligations  under this
Agreement and Target is not in material breach of any of its  obligations  under
this  Agreement),  then Acquirer  shall  immediately  pay to Target  immediately
available  funds an amount equal to $1,000,000 (the  "TERMINATION  FEE") plus an
amount  equal  to  Target's  reasonable   investment  banking,   accounting  and
attorneys' fees and expenses and other fees and expenses incurred by Target with
respect to this Agreement and the transactions  contemplated  hereby  ("TARGET'S
EXPENSES").  Such payment shall be treated as liquidated damages and shall be in
lieu of any other  payments for damages  incurred by Target or its  shareholders
for any non-willful breach of this Agreement by Acquirer.

                  9.3      NOTICE  OF  TERMINATION  AND  EFFECT OF  TERMINATION.
Any  termination  of this  Agreement  under  Section 9.1 above will be effective
immediately upon the delivery of written notice of the terminating  party to the
other  parties  hereto.  In the event of the  termination  of this  Agreement as
provided in Section 9.1, this Agreement  shall be of no further force or effect,
except (i) as set forth in this Section 9.3, Section 9.2 and Article 11, each of
which shall survive the termination of this  Agreement,  and (ii) nothing herein
shall relieve any party from liability for any willful breach of this Agreement.
No  termination of this  Agreement  shall affect the  obligations of the parties
pursuant  to any  agreement  to  maintain  the  confidentiality  of  information
regarding the other party, all of which obligations shall survive termination of
this Agreement in accordance with their terms.

         10.      SURVIVAL  OF  REPRESENTATIONS, INDEMNIFICATION  AND  REMEDIES,
CONTINUING COVENANTS

                  10.1     SURVIVAL  OF   REPRESENTATIONS.  All representations,
warranties  and  covenants  of Target will survive the  Effective  Time and will
continue  regardless of any investigation made by or on behalf of Acquirer until
the earlier of the  termination of this Agreement or two years

                                       45

<PAGE>

after the Closing Date and covenants that by their terms survive thereafter will
continue to survive in accordance with their terms.

                  10.2     AGREEMENT TO INDEMNIFY.  Subject to  the  limitations
set forth in this Section 10, Target  Shareholder  Founders  will  indemnify and
hold harmless Acquirer and its officers,  directors,  agents and employees,  and
each person,  if any, who controls or may control Acquirer within the meaning of
the Securities Act  (hereinafter  referred to  individually  as an  "INDEMNIFIED
PERSON" and collectively as "INDEMNIFIED  PERSONS") from and against any and all
claims, demands, actions, causes of actions, losses, costs, damages, liabilities
and expenses including,  without limitation,  reasonable legal fees (hereinafter
collectively  referred  to  as  "DAMAGES"),  directly  or  indirectly  incurred,
resulting from or arising out of:

                           (a)      any  inaccuracy,  misrepresentation,  breach
of or default in  connection  with any of the  representations,  warranties  and
covenants given or made by Target in this Agreement or any certificate, document
or instrument delivered by or on behalf of Target pursuant hereto;

                           (b)      any failure of any  such Target  Shareholder
Founders to have good,  valid and marketable title to the issued and outstanding
Target  Stock held by such Target  Shareholder  Founders,  free and clear of all
liens, claims, pledges,  options, adverse claims,  assessments or charges of any
nature  whatsoever,  or to have full right,  capacity and authority to vote such
Target Stock in favor of the Merger and the other  transactions  contemplated by
the Agreement of Merger; or

                           (c)      any Excess Transaction Expenses (as  defined
in Section 11.8);  PROVIDED THAT such indemnification  obligations of the Target
Shareholder  Founders shall include  indemnification  for any Damages  resulting
from or  related to the  matters  listed in  SCHEDULES  2.7 AND 2.14.3 to Target
Disclosure  Schedule,  and for purposes of determining  whether any  inaccuracy,
misrepresentation  or breach of any  representation  or warranty in Article 2 of
this Agreement  shall have occurred.  Such  representations  shall not be deemed
qualified by Schedules 2.7 and 2.14.3 to Target Disclosure Schedule.

                           In seeking  indemnification  for  Damages  under this
Section, the Indemnified Persons shall exercise their remedies only with respect
to the Indemnity Escrow Shares and any other assets deposited in escrow pursuant
to the Indemnity Escrow Agreement (collectively,  the "ESCROW PROPERTY"). Except
for intentional fraud or willful  misconduct,  the Target  Shareholder  Founders
shall not have any  liability  to an  Indemnified  Person  under this  Agreement
except to the extent of the value of the shares of the Escrow Property  received
by such Target  Shareholder  Founders under the terms of this Agreement.  In all
such cases the value of the Acquirer  Common  Stock to be so delivered  shall be
determined  by dividing  (a) the  aggregate  dollar  amount of such Damages (the
"AGGREGATE  LIABILITY")  by (b) the Average Price (as adjusted as appropriate to
reflect any stock split,  reverse stock split, stock dividend,  recapitalization
or other similar  transaction  effected by Acquirer between the Closing Date and
the date such liability is satisfied).  The indemnification provided for in this
Section 10.2 shall not apply until the Aggregate Liability for which one or more
Indemnified Persons seeks indemnification exceeds $75,000 (the "THRESHOLD"). The
obligations of the Target  Shareholder  Founders  pursuant to this Section 10.2,
including, without limitation, reasonable attorneys' fees,

                                       46

<PAGE>

other  professionals'  and  experts'  reasonable  fees and court or  arbitration
costs, shall be proportionate to their respective interests in the Escrow Fund.

                           Any claim for indemnity made by an Indemnified Person
under  this  Section  10.2  must  be  raised  in  a  writing  delivered  to  the
Representative  by no later  than the  close of  business  on the date two years
after the Closing  Date,  and if raised by such date,  such claim shall  survive
until final resolution thereof.

                  10.3     LIMITATIONS.  In  seeking indemnification for Damages
under  Section  10.2,  the in which event  Target  Shareholder  Founders  shall,
subject to the foregoing  limitations,  be liable to indemnify  the  Indemnified
Persons for all Damages; PROVIDED,  HOWEVER, that the Threshhold shall not apply
to any  indemnification  claim for  Damages  for  Excess  Transaction  Expenses.
Nothing contained in this Section 10.3 shall be construed to limit any rights of
Acquirer against (a) any person with respect to fraudulent  conduct or omissions
by such  person or (b) any Target  Shareholder,  with  respect to the failure by
such Target  Shareholder to have good,  valid and marketable title to any issued
and outstanding  shares of Target Common Stock or Target  Preferred Stock, or to
any Unexercised Target Option,  held (or asserted in Target Disclosure Letter to
have been held) by such Target Shareholder,  free and clear of all liens, claims
and encumbrances,  or to have the full right, capacity and authority to vote all
of the outstanding shares of Target Common Stock and Target Preferred Stock held
by such  Target  Shareholder  in favor of the Merger  and any other  transaction
contemplated by this Agreement.

                  10.4     PROCEDURE FOR ASSERTING  CLAIMS.  If Acquirer  wishes
to assert a claim against the Escrow Shares for indemnification pursuant to this
Section  10 (a  "CLAIM"),  Acquirer  shall  deliver  to  the  Representative,  a
certificate signed by an officer of Acquirer (a "CLAIM  CERTIFICATE")  providing
notice of such claim and specifying in reasonable detail the individual items of
Damages  included  in the amount so stated,  the date each such item was paid or
incurred, or the basis for such anticipated  liability,  and the specific nature
of the  misrepresentation,  breach of  warranty  or claim to which  such item is
related,  referring in each case to the relevant section of this Agreement which
Acquirer asserts Target has breached.  Acquirer shall act reasonably and in good
faith in preparing  any such Claim  Certificate  and in  specifying  any alleged
Claim. If the  Representative  disputes the Claim,  Representative  shall notify
Acquirer  of such  disagreement  within  thirty  (30) days of the  receipt  from
Acquirer of the Claim  Certificate.  Thereupon,  Acquirer and the Representative
will,  during  the  thirty  (30) day  period  following  delivery  of the  Claim
Certificate,  negotiate in good faith to resolve their  differences with respect
to the Claim. Upon the expiration of such 30-day period,  if the  Representative
does not  object in the  manner set forth  above to the Claim  presented  in the
Claim Certificate, Acquirer shall deduct the amount of the Claim from the Escrow
Shares as provided in the Escrow  Agreement  (with each deducted Escrow Share to
be valued in the manner set forth in the Escrow  Agreement)  or, if Acquirer and
the  Representative  have agreed on a different  amount,  reflected in a written
memorandum signed by both parties,  such different amount. If the Representative
does object and no agreement on the  resolution  of the Claim is reached  within
the  thirty  (30) day  period  referenced  above,  the Claim  shall be  resolved
according to the procedure set forth in Section 11 hereof.

                  10.5     MATTERS INVOLVING THIRD  PARTIES. If any  third party
shall notify  Acquirer or any  Indemnified  Person with respect to any matter (a
"THIRD PARTY CLAIM") which may give rise to a claim for indemnification  against
the Target  Shareholder  Founders,  Acquirer  or the  Indemnified  Person  shall
promptly notify the Representative in writing; PROVIDED, HOWEVER,

                                       47

<PAGE>

that no delay on the part of Acquirer or the Indemnified Person in notifying the
Representative shall relieve the Target Shareholder Founders from any obligation
hereunder  except  to the  extent  that  the  Target  Shareholder  Founders  are
materially  prejudiced by any such failure.  Acquirer or the Indemnified  Person
may defend  against,  and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner Acquirer or such
Indemnified  Person  reasonably deems  appropriate,  and the Target  Shareholder
Founders will remain  responsible  for any damages  suffered by the  Indemnified
Person resulting from,  arising out of, relating to, in the nature of, or caused
by the Third  Party  Claim to the fullest  extent  provided in this  Section 10.
Notwithstanding  the  foregoing,  the amount of any  settlement of a Third Party
Claim shall not be  determinative of the amount of Damages related to such Claim
unless the  Representative  consents in writing to the settlement of such Claim.
Prior to the settlement of any claim for which  Acquirer seeks  indemnity from a
Target Shareholder  Founder,  Acquirer will provide the Representative  with the
terms of the proposed settlement and a reasonable opportunity to comment on such
terms  in  accordance  with  the  Escrow  Agreement.   In  the  event  that  the
Representative  shall have consented to any such settlement,  the Representative
shall  have no power or  authority  to  object  to any  claim  by  Acquirer  for
indemnity for the amount of such settlement.  With respect to the defense of any
Third Party  Claim,  Acquirer or the  Indemnified  Person  shall use  reasonable
efforts to consider  strategy and other  suggestions  of the Target  Shareholder
Founders.  Counsel for the Target  Shareholder  Founders  shall be  permitted to
monitor  Acquirer's or the Indemnified  Persons'  defense of a Third Party Claim
for the purpose of advising  the Target  Shareholder  Founders of the status and
progress of the defense.  Any such activity  shall be at the sole expense of the
Target Shareholder Founders.

                  Notwithstanding the foregoing, if the Acquirer receives notice
of a Third  Party  Claim  which,  if  adversely  determined,  would  entitle the
Indemnified  Person to  indemnity  against any  liability,  damages and expenses
claimed or reasonably likely to be incurred in or as a result of such Proceeding
pursuant  to Section  10.2 and the  reasonably  anticipated  amount of the claim
which is the basis of such Proceeding could not reasonably be expected to exceed
the value of the Escrow  Property  (with the Escrow  Shares  being valued at the
Average Price), less the amount of any other then-pending indemnification claims
against the Escrow Property  pursuant to Section 10.2, then the  Representative,
if it so elects,  shall be  entitled  to assume and  control the defense of such
Proceeding (and shall consult with the Indemnified Person with respect thereto),
including the employment of counsel  reasonably  satisfactory to the Indemnified
Person and the payment of expenses.  If the Representative  elects to assume and
control the defense of a Proceeding,  it will provide  notice  thereof within 30
days  after the  Indemnified  Person  has given  notice  of the  matter  and the
Indemnified  Person shall have the right to employ counsel separate from counsel
employed  by the  Representative  in any such action and to  participate  in the
defense  thereof,  but the fees and  expenses  of such  counsel  employed by the
Indemnified  Person shall be at the expense of the Indemnified Person unless (a)
the employment thereof has been specifically authorized by the Representative in
writing,  (b) the  Representative  shall have  failed to assume the  defense and
retain counsel or (c) the  Indemnified  Person shall have  reasonably  concluded
that  representation  by  counsel  employed  by  the  Representative   would  be
inappropriate as a result of any conflict of interest.

                  10.6     THE REPRESENTATIVE.

                           (a)      AUTHORITY.  For purposes of Section 10, Dale
R.  Adams  shall act as the  Representative  on  behalf  of  Target  Shareholder
Founders,  subject to the provisions hereof.  The Representative  shall keep the
Target Shareholder Founders reasonably informed of his

                                       48

<PAGE>

decisions of a material  nature.  The  Representative  is authorized to take any
action  deemed  by him  appropriate  or  reasonably  necessary  to carry out the
provisions  of  Section  10,  and is  authorized  to act on behalf of the Target
Shareholder Founders for all purposes related to Section 10, with such powers as
are expressly  delegated to  Stockholders'  Representative  by the terms of this
Agreement and the Ancillary  Agreements (as defined herein),  together with such
other   powers  as  are   reasonably   incidental   thereto.   In  addition  the
Representative  is  authorized  to accept  service  of  process  upon the Target
Shareholder   Founders.   The  Representative  shall  not  have  any  duties  or
responsibilities  except those  expressly  set forth in the  Agreement or in any
other Ancillary  Agreements,  be a trustee for any Target Shareholder Founder or
have any fiduciary duty to any Target  Shareholder  Founders.  All decisions and
actions of the  Representative  shall be binding and conclusive  upon the Target
Shareholder Founders and may be relied upon by Acquirer and Target.

                           (b)      STANDARD  OF  CONDUCT.   The  Representative
shall not be liable to any of the Target  Shareholder  Founders for any error of
judgment,  act done or omitted by him,  or mistake of fact or law in  connection
with his services  pursuant to Section 10, unless caused by his or its own gross
negligence or willful misconduct. In taking any action or refraining from taking
any action whatsoever the Representative  shall be protected in relying upon any
notice,  paper or other document  reasonably  believed by him to be genuine,  or
upon any evidence reasonably deemed by him to be sufficient.  The Representative
shall not be required to take any action which is contrary to this  Agreement or
any other Ancillary  Agreement or applicable law. The Representative may consult
with counsel in connection  with his duties and shall be fully  protected in any
act taken,  suffered or  permitted by him in good faith in  accordance  with the
advice of  counsel.  In  connection  with his  services  under  Section  10, the
Representative  shall  not be  responsible  for  determining  or  verifying  the
authority of any person  acting or  purporting  to act on behalf of any party to
this Agreement.

                           (c)      INDEMNIFICATION.   Each  Target  Shareholder
Founder shall indemnify the Representative, ratably in accordance with their pro
rata  share of the  Escrow  Shares,  for any and all  liabilities,  obligations,
losses,  damages,  penalties,  actions,  judgments,  suits,  costs,  expenses or
disbursements of any kind or nature  whatsoever which may at any time be imposed
on, incurred by or asserted against the Representative in any way relating to or
arising out of this  Agreement or any documents  contemplated  by or referred to
herein or  therein  or the  transactions  contemplated  hereby or thereby or the
enforcement  of any  of the  terms  hereof  or  thereof  or of  any  such  other
documents; PROVIDED, HOWEVER, that no Target Shareholder Founder shall be liable
for any of the  foregoing to the extent they arise from  Representative's  gross
negligence or willful misconduct. The Representative shall be fully justified in
refusing  to take or to continue  to take any action  hereunder  unless it shall
first be indemnified to his reasonable  satisfaction  by the Target  Shareholder
Founders  against any and all  liability and expense which may be incurred by it
by reason of taking or continuing to take any such action.

                           (d)      RESIGNATION     OR     REMOVAL     OF    THE
REPRESENTATIVE.  Subject  to  the  appointment  and  acceptance  of a  successor
Representative  as provided below,  Representative  may resign at anytime thirty
(30) days subsequent to giving notice thereof to the Target Shareholder Founders
and the  Representative  may be  removed  at any time with or  without  cause by
action of the Target  Shareholder  Founders  who  represented  a majority of the
rights to the Escrow  Shares.  Upon any such  resignation  or  removal,  the new
Representative  shall be  reasonably  acceptable  to  Acquirer.  If no successor
Representative  shall have been appointed by the Target Shareholder Founders and
accepted such appointment within twenty (20) days after

                                       49

<PAGE>

the  retiring  Representative's  giving of notice of  resignation  or the Target
Shareholder  Founders'  removal  of the  Representative,  then the  retiring  or
removed  Representative  may,  on behalf  of the  Target  Shareholder  Founders,
appoint a successor which shall be reasonably  acceptable to Acquirer.  Upon the
acceptance  of any  appointment  as  Representative  hereunder,  such  successor
Representative shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring or removed Representative, and the
retiring  or  removed  Representative  shall be  discharged  from its duties and
obligations  hereunder.  After  any  retiring  Representative's  resignation  or
removal hereunder as the Representative, the provisions of this Section 10 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Representative.

                           (e)      REPRESENTATIVE IN  ITS INDIVIDUAL  CAPACITY.
Representative,  to the extent it was a Target Shareholder  Founder,  shall have
the same rights and powers under this Agreement as any other Target  Shareholder
Founders and may exercise the same as though it were not the Representative, and
the term  "Target  Shareholder  Founder"  shall  include  Representative  in his
capacity as such.

                  10.7     AGREEMENT NOT TO COMPETE.

                           10.7.1   Each   Target   Shareholder  Founder  hereb
agrees that until  thirty-three  (33) months after the Closing (the  "RESTRICTED
PERIOD") (except that in the case of David Buuck,  such Restricted  Period shall
be eighteen (18) months, such Target Shareholder Founder shall not:

                  (a)      directly  or indirectly  engage in a  business  which
is Directly  Competitive  at the Effective  Date or, to the extent  permitted by
applicable law, at any time during the Restricted Period;

                  (b)      be  or  become  an  officer,  director,  stockholder,
owner, corporate affiliate,  salesperson,  co-owner, partner, trustee, promoter,
founder,   technician,   engineer,  analyst,  employee,  agent,  representative,
investor  or lender,  consultant,  advisor  or  manager  of or to, or  otherwise
acquire or hold any interest in or otherwise engage in the providing of services
to any person or entity that, at the  Effective  Date, or at any time during the
Restricted Period, engages in a business that is Directly Competitive; or

                  (c)      permit Target  Shareholder  Founder's name to be used
in connection with a business that is Directly Competitive;

PROVIDED, HOWEVER, that nothing in this section shall prevent Target Shareholder
Founder  from  owning as a passive  investment  less than 1% of the  outstanding
shares of the capital stock of a publicly-held corporation if Target Shareholder
Founder is not  otherwise  associated  in any manner  described in clause (b) of
this section with such  corporation  or any affiliate of such  corporation.  For
purposes  of this  Agreement,  a business  is  "Directly  Competitive"  if it is
engaged in developing, producing or marketing products or technologies for video
format  conversion,  de-interlacing and  line-doubling,  or provides  consulting
services to the aforementioned business.

                  During the Restricted Period,  each Target Shareholder Founder
hereby  agrees  not  to  directly  or  indirectly   solicit  away  employees  or
consultants  of  Acquirer  for his own  benefit or, for the benefit of any other
person  or entity or  solicit,  induce or  attempt  to induce  any  employee

                                       50

<PAGE>

of Acquirer to  terminate  his or her  employment  with  Acquirer.  In addition,
during the Restricted Period,  Target Shareholder Founder agrees not to directly
or indirectly  solicit or take away customers of Acquirer if the identity of the
customer or information about the customer  relationship is a trade secret or is
otherwise deemed confidential information within the meaning of California law.

                           10.7.2   The  agreements  set forth in  this  Section
10.5 include  within their scope all cities,  counties,  provinces and states of
all  countries  in which  Acquirer  or any of its  Subsidiaries  has  engaged in
manufacturing or sales or otherwise  conducted  business or selling or licensing
efforts at any time  during the two years  prior to the  Closing  Date hereof or
during the Restricted Period. Each Target Shareholder Founder  acknowledges that
the scope and  period of  restrictions  and the  geographical  area to which the
restriction imposed in this Section 10.7 shall apply are fair and reasonable and
are  reasonably  required for the protection of Acquirer and that Section 10.7.1
accurately  describes  the  business to which the  restrictions  are intended to
apply.

                           10.7.3   If  any  provision of  this  Section 10.7 of
this Agreement or any part of any such provision is held under any circumstances
to be invalid or unenforceable in any  jurisdiction,  then (a) such provision or
part thereof shall, with respect to such circumstances and in such jurisdiction,
be  deemed  amended  to  conform  to  applicable  laws  so as to  be  valid  and
enforceable   to  the  fullest   possible   extent,   (b)  the   invalidity   or
unenforceability  or such provision or part thereof under such circumstances and
in such  jurisdiction  shall not affect the validity or  enforceability  of such
provision  or  part  thereof  under  any  other  circumstances  or in any  other
jurisdiction,  and (c) such  invalidity or  enforceability  of such provision or
part thereof shall not affect the validity or enforceability of the remainder of
such provision or the validity or  enforceability of any other provision of this
Agreement is separable from every other part of such provision.

                           10.7.4   Each Target  Shareholder Founder agrees that
in the event of any breach or threatened breach by a Target Shareholder  Founder
of any covenant,  obligation or other provision contained in this Agreement, the
Acquirer  and Target shall be entitled (in addition to any other remedy that may
be available to them) to the extent  permitted by applicable law (a) a decree or
order of specific  performance to enforce the observance and performance of such
covenant,  obligation or other provision, and (b) an injunction restraining such
breach or threatened breach. Each Target Shareholder Founder further agrees that
neither Acquirer nor any other person or entity shall be required to provide any
bond or other security in connection  with any such decree,  order or injunction
or in connection with any related action or proceeding.

         11.      MISCELLANEOUS

         11.1     GOVERNING  LAW.  The  internal laws of the State of California
(irrespective  of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the  parties  hereto.  Any  dispute  pursuant to the
provisions  of  Sections  10.1 to 10.4  hereof  ("DISPUTE")  shall be settled by
arbitration in Sunnyvale, California, and, except as herein specifically stated,
in accordance with the commercial  arbitration rules of the American Arbitration
Association  ("AAA  RULES")  then  in  effect.  However,  in all  events,  these
arbitration  provisions shall govern over any conflicting rules which may now or
hereafter be contained in the AAA Rules. Any judgment upon the award rendered by
the arbitrator may be entered in any court having  jurisdiction over the subject
matter

                                       51

<PAGE>

thereof.  The  arbitrator  shall have the  authority to grant any  equitable and
legal remedies that would be available in any judicial proceeding  instituted to
resolve a Dispute.

                           11.1.1   COMPENSATION   OF   ARBITRATOR.    Any  such
arbitration will be conducted before a single arbitrator who will be compensated
for his or her  services  at a rate to be  determined  by the  parties or by the
American  Arbitration  Association,  but based upon  reasonable  hourly or daily
consulting  rates for the  arbitrator  in the event the  parties are not able to
agree upon his or her rate of compensation.

                           11.1.2   SELECTION  OF   ARBITRATOR.   The   American
Arbitration  Association  will have the authority to select an arbitrator from a
list of  arbitrators  who are lawyers  familiar  with  California  contract law;
PROVIDED,  HOWEVER,  that such  lawyers  cannot work for a firm then  performing
services for either  party,  that each party will have the  opportunity  to make
such  reasonable  objection to any of the  arbitrators  listed as such party may
wish and that the American  Arbitration  Association  will select the arbitrator
from the list of arbitrators as to whom neither party makes any such  objection.
In the event  that the  foregoing  procedure  is not  followed,  each party will
choose  one  person  from  the  list of  arbitrators  provided  by the  American
Arbitration  Association  (provided that such person does not have a conflict of
interest), and the two persons so selected will select from the list provided by
the American Arbitration Association the person who will act as the arbitrator.

                           11.1.3   PAYMENT OF COSTS. Acquirer and Target or the
Target  Shareholders  after the Closing  will bear the  expense of deposits  and
advances required by the arbitrator in equal  proportions,  but either party may
advance such amounts, subject to recovery as an addition or offset to any award.
The  arbitrator  will  award  to the  prevailing  party,  as  determined  by the
arbitrator,  all costs, fees and expenses related to the arbitration,  including
reasonable fees and expenses of attorneys,  accountants and other  professionals
incurred by the prevailing party.

                           11.1.4   BURDEN OF PROOF.  For any Dispute  submitted
to  arbitration,  the  burden of proof  will be as it would be if the claim were
litigated in a judicial proceeding.

                           11.1.5   AWARD.   Upon   the   conclusion   of    any
arbitration  proceedings hereunder,  the arbitrator will render findings of fact
and conclusions of law and a written opinion setting forth the basis and reasons
for any decision  reached and will deliver such  documents to each party to this
Agreement along with a signed copy of the award.

                           11.1.6   TERMS OF ARBITRATION. The arbitrator  chosen
in accordance with these  provisions will not have the power to alter,  amend or
otherwise affect the terms of these arbitration  provisions or the provisions of
this Agreement.
                           11.1.7   EXCLUSIVE REMEDY.   Except  as  specifically
otherwise provided in this Agreement, arbitration will be the sole and exclusive
remedy of the parties for any Dispute arising out of this Agreement.

         11.2     ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. Neither party
hereto may assign any of its rights or obligations  hereunder  without the prior
written  consent of the other party hereto.  This Agreement will be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted assigns.

                                       52


<PAGE>


                  11.3     SEVERABILITY.  If any provision of this Agreement, or
the  application  thereof,  will for any  reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or  unenforceable  provision  of this  Agreement  with a valid  and  enforceable
provision that will achieve, to the extent possible, the economic,  business and
other purposes of the void or unenforceable provision.

                  11.4     COUNTERPARTS.  This Agreement may be executed  in any
number of  counterparts,  each of which will be an original as regards any party
whose  signature  appears  thereon and all of which together will constitute one
and the same  instrument.  This  Agreement  will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
both parties reflected hereon as signatories.

                  11.5     OTHER REMEDIES.  Except as otherwise provided herein,
any and all  remedies  herein  expressly  conferred  upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other.

                  11.6     AMENDMENT AND  WAIVERS. Any term or provision of this
Agreement may be amended,  and the  observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to  constitute  a waiver of any other  default  or any  succeeding
breach or default.  The  Agreement  may be amended by the parties  hereto at any
time  before or after  approval  of the  Target  Shareholders,  but,  after such
approval, no amendment will be made which by applicable law requires the further
approval of the Target Shareholders without obtaining such further approval.

                  11.7     NO WAIVER.  No   waiver  by  any   party  hereto   of
compliance  with any of the agreements or conditions  for its benefit  contained
herein will be effective  unless signed in writing by such party. The failure of
any party to enforce any of the provisions  hereof will not be construed to be a
waiver of the right of such party thereafter to enforce such provisions.

                  11.8     EXPENSES.    Each  party  will   bear its  respective
expenses  and legal  fees  incurred  with  respect  to this  Agreement,  and the
transactions  contemplated  hereby;  provided,  however,  that if the  Merger is
consummated Acquirer will pay the reasonable verified investment banking,  legal
and accounting fees and expenses incurred by Target in this transaction ("TARGET
TRANSACTION  EXPENSES"),  not to exceed in the aggregate  $100,000 plus any such
expenses  related to preparation  for the Fairness  Hearing or filing of the S-4
Registration  Statement;  and Acquirer shall be entitled to indemnification from
the Target  Shareholders  in accordance with Section 10.2 for an amount equal to
the amount (if any) by which Target's  Transaction Expenses exceed $100,000 plus
the expenses  related to preparation  for the Fairness  Hearing or filing of the
S-4  Registration  Statement (such excess being  hereinafter  called the "EXCESS
TRANSACTION  EXPENSES"),  and such  indemnification  shall not be subject to the
Threshold.

                  11.9     ATTORNEYS'  FEES.  Should  suit be brought to enforce
or interpret any part of this Agreement,  the prevailing  party will be entitled
to recover, as an element of the costs of suit

                                       53

<PAGE>

and  not as  damages,  reasonable  attorneys'  fees  to be  fixed  by the  court
(including without limitation, costs, expenses and fees on any appeal).

                  11.10    NOTICES.  Any notice or other communication  required
or  permitted  to be given  under this  Agreement  will be in  writing,  will be
delivered  personally or by registered or certified  mail,  postage  prepaid and
will be deemed given upon delivery, if delivered personally, or three days after
deposit in the mails, if mailed, to the following addresses:

                           (i)      If to Acquirer:

                                    Silicon Image, Inc.
                                    1060 East Arques Avenue
                                    Sunnyvale, CA 94806
                                    Attention:  President

                                    with a copy to:

                                    Fenwick & West, LLP
                                    Two Palo Alto Square, Suite 800
                                    Palo Alto, CA  94306
                                    Attention:  David K. Michaels, Esq.
                                    Fax Number:  (650) 494-1417

                           (ii)     If to Target:

                                    DVDO, Inc.
                                    1129 Dell Avenue
                                    Campbell, CA 95008
                                    Attention:  President
                                    Fax Number:  (408) 364-6736

                                    With copy to:

                                    Manatt Phelps & Phillips LLP
                                    3030 Hansen Way, Suite 100
                                    Palo Alto, California 94304-1006
                                    Attn: Thomas Barton, Esq.
                                    Fax Number:  (650) 213-0260

or to such other  address as a party may have  furnished to the other parties in
writing pursuant to this Section 11.10.

                  11.11    CONSTRUCTION  OF  AGREEMENT. This Agreement  has been
negotiated by the respective parties hereto and their attorneys and the language
hereof will not be  construed  for or against  either  party.  A reference  to a
Section or an exhibit  will mean a Section  in, or exhibit  to,  this  Agreement
unless  otherwise  explicitly set forth.  The titles and headings herein are for
reference  purposes  only and will not in any manner limit the  construction  of
this Agreement which will be considered as a whole.

                                       54

<PAGE>


                  11.12    NO JOINT VENTURE. Nothing contained in this Agreement
will be deemed or construed as creating a joint venture or  partnership  between
any of the parties hereto. No party is by virtue of this Agreement authorized as
an agent,  employee or legal  representative  of any other party.  No party will
have the power to control the  activities  and operations of any other and their
status  is,  and  at  all  times,  will  continue  to be,  that  of  independent
contractors  with  respect  to each  other.  No party  will  have  any  power or
authority  to bind or commit any other.  No party will hold itself out as having
any authority or relationship in contravention of this Section.

                  11.13    FURTHER ASSURANCES.  Each  party  agrees to cooperate
fully with the other parties and to execute such further instruments,  documents
and agreements and to give such further written  assurances as may be reasonably
requested by any other party to evidence and reflect the transactions  described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.

                  11.14    ABSENCE  OF  THIRD  PARTY  BENEFICIARY  RIGHTS.    No
provisions of this Agreement are intended,  nor will be interpreted,  to provide
or create any third party beneficiary  rights or any other rights of any kind in
any client, customer, affiliate, shareholder, partner or any party hereto or any
other person or entity  unless  specifically  provided  otherwise  herein,  and,
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.

                  11.15    PUBLIC ANNOUNCEMENT. Upon execution of this Agreement
Acquirer  and  Target  will  issue  a press  release  approved  by both  parties
announcing the Merger. Thereafter,  Acquirer may issue such press releases, with
the prior  written  consent of Target which  consent  shall not be  unreasonably
withheld or delayed, and make such other disclosures regarding the Merger, as it
determines are required under applicable securities laws or regulatory rules.

                  11.16    CONFIDENTIALITY.  Target and  Acquirer each recognize
that they have received and will receive confidential information concerning the
other  during  the  course  of  the  Merger   negotiations   and   preparations.
Accordingly,  Acquirer  and Target  each agrees (a) to use its  respective  best
efforts to prevent the unauthorized  disclosure of any confidential  information
concerning  the  other  that  was or is  disclosed  during  the  course  of such
negotiations  and  preparations,   and  is  clearly  designated  in  writing  as
confidential at the time of disclosure,  and (b) to not make use of or permit to
be used  any  such  confidential  information  other  than  for the  purpose  of
effectuating  the Merger  and  related  transactions.  The  obligations  of this
section will not apply to information  that (i) is or becomes part of the public
domain,  (ii) is  disclosed by the  disclosing  party to third  parties  without
restrictions  on  disclosure,  (iii) is received by the  receiving  party from a
third party without breach of a  nondisclosure  obligation to the other party or
(iv) is required to be disclosed by law. If this  Agreement is  terminated,  all
copies of documents containing confidential information shall be returned by the
receiving party to the disclosing party.

                  11.17    DISCLOSURE  LETTER. The Target Disclosure Letter  and
the Acquirer Disclosure Letter shall be arranged in separate parts corresponding
to the  numbered  and  lettered  sections  contained  in Article 2 and Article 3
respectively,  and the  information  disclosed in any numbered or lettered  part
shall be deemed to relate to and to qualify only the  particular  representation
or warranty  set forth in the  corresponding  numbered  or  lettered  Section in
Article 2 and Article 3,  respectively,  and shall not be deemed to relate to or
to  qualify  any other  representation  or  warranty  (UNLESS  it is  reasonably
apparent from the information set forth in the

                                       55

<PAGE>

applicable   Disclosure  Schedule,   that  such  information  qualifies  another
representation  or  warranty of Target in Article 2 or Acquirer in Article 3, as
applicable). The information

                                       56

<PAGE>

disclosed in Schedules 2.7 and 2.14.3 to Target  Disclosure  Letter shall not be
deemed to qualify any representation or warranty for purposes of Article 10.

                  11.18    ENTIRE AGREEMENT.  This  Agreement and  the  exhibits
hereto  constitute the entire  understanding and agreement of the parties hereto
with  respect  to  the  subject  matter  hereof  and  supersede  all  prior  and
contemporaneous agreements or understandings, inducements or conditions, express
or implied,  written or oral, between the parties with respect hereto other than
the Non-Disclosure Agreement. The express terms hereof control and supersede any
course of performance or usage of the trade  inconsistent  with any of the terms
hereof.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the date first above written.

"ACQUIRER"                              "TARGET"

SILICON IMAGE, INC.                     DVDO, INC.

By: /s/ DAVID D. LEE                    By: /s/ LAURENCE A. THOMPSON
    ----------------                        ------------------------
Its: CEO                                Its: PRESIDENT
     ---------------                        ------------------------



"NEWCO"

VIDEO ACQUISITION CORP.

By: DANIEL K. ATLER
    ---------------
Its: PRESIDENT
    ---------------
"TARGET SHAREHOLDER FOUNDERS"



/s/ LAURENCE A. THOMPSON
------------------------
LAURENCE A. THOMPSON

/s/ DALE R. ADAMS
-----------------
DALE R. ADAMS

/s/ CHENG-HWEE CHEE
-------------------
CHENG HWEE CHEE

/s/ DAVID BUUCK
----------------
DAVID BUUCK

<PAGE>
                                   EXHIBIT C-1

                             PRINCIPAL SHAREHOLDERS

J. George Janac
Paul D. Wolf
Cheng Hwee Chee
Joe F. Britt
Peck Kiat Chee
The Angels' Forum LLC
Scott Athearn
Jay B. Rickard
Laurence A. Thompson
Dale R. Adams
Siew-Kin Wong
David C. Buuck
Buuck Family Foundation
Robert M. Karr
The 1986 Karr Living Trust

<PAGE>
                                   EXHIBIT C-2

                                VOTING AGREEMENT
<PAGE>
                                VOTING AGREEMENT

         THIS IRREVOCABLE PROXY AND VOTING  AGREEMENT,  dated as of March _____,
2000 (this  "Agreement"),  is entered into by and between Silicon Image, Inc., a
Delaware corporation ("Acquirer"), and __________________ ("Shareholder").

                              W I T N E S S E T H:

         WHEREAS,  concurrently  herewith,  Acquirer,  DVDO,  Inc., a California
corporation  (the  "Target") and Acquirer  Acquisition  Corporation,  a Delaware
corporation   ("Merger  Sub")  have  entered  into  an  Agreement  and  Plan  of
Reorganization,  of even date  herewith  (as such  agreement  may  hereafter  be
amended from time to time, the "Merger  Agreement";  initially  capitalized  and
other terms used but not defined herein shall have the meanings ascribed to them
in the Merger  Agreement),  pursuant to which  Acquirer will merge with and into
Merger Sub (the "Merger");

         WHEREAS,  Shareholder Beneficially Owns (as defined herein) such number
of shares of (i) Target's  Common Stock,  no par value ("Target  Common Stock"),
(ii)  Target's  Series  A  Preferred  Stock,  no par  value  ("Target  Series  A
Preferred"),  and/or  (iii)  Target's  Series B  Preferred  Stock,  no par value
("Target  Series B  Preferred"),  as are  indicated  on the  final  page of this
Agreement (such shares of Target Common Stock,  Target Series A Preferred and/or
Target Series B Preferred Beneficially Owned by Shareholder and set forth on the
signature  page  hereto  being  collectively  hereinafter  referred  to  as  the
"Shares");

         WHEREAS,  as an inducement  and a condition to entering into the Merger
Agreement,  Acquirer has requested that  Shareholder  agree, and Shareholder has
agreed, to enter into this Agreement;

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
premises,  representations,   warranties,  covenants  and  agreements  contained
herein, the parties hereto hereby agree as follows:

         1. VOTING  AGREEMENT.  Shareholder  hereby agrees with  Acquirer  that,
(except as may be otherwise  agreed to in writing by Acquirer) at any meeting of
Target's shareholders, however called, or in connection with any written consent
of Target's shareholders, as to which any of the matters described below in this
Section  1 is put to the  vote or  written  consent  of  Target's  shareholders,
Shareholder shall vote the Shares Beneficially Owned by Shareholder, whether now
owned or hereafter  acquired prior to such vote: (i) in favor of approval of the
Merger  Agreement,  the Merger and any actions  required in  furtherance  of the
transactions  contemplated  thereby;  (ii) against any action or agreement  that
would result in a breach in any material  respect of (A) any  representation  or
warranty of Target under the Merger Agreement that would have a Material Adverse
Effect on Target or (B) any other  agreement,  covenant or  obligation of Target
under the Merger Agreement;  and (iii) against:  (A) any Third Party Acquisition
(as defined below),  (B) any change in a majority of the individuals  who, as of
the date hereof, constitute the Board of Directors of Target, unless such change
results  from an  election  to replace  any such  individual  who ceases to be a
member  of the Board of  Directors  of Target  due to such  individual's  death,
disability or resignation from Target's Board of Directors for reasons


<PAGE>

unrelated to any matter that Shareholder agrees to vote against  hereunder,  (C)
any extraordinary  corporate  transaction,  such as a .merger,  consolidation or
other  business  combination  involving  Target and any Third  Party (as defined
below),  (D) a sale,  lease,  transfer or  disposition of any assets of Target's
business  outside  the  ordinary  course of  business,  or any assets  which are
material to its business whether or not in the ordinary course of business,  (E)
any reorganization,  recapitalization, dissolution or liquidation of Target, (F)
any change in the present  capitalization of Target or any amendment of Target's
Articles of  Incorporation or bylaws not contemplated by the Merger Agreement or
not  consented  to in  writing by  Acquirer,  (G) any other  material  change in
Target's corporate  structure other than the approval of stock options disclosed
in Target's  representations  and  warranties in the Merger  Agreement or in any
Disclosure  Schedule thereto) or any other change materially  affecting Target's
business,  (H) any other action or proposal which is made in opposition to or in
competition  with  consummation  of the Merger,  or which is intended,  or could
reasonably be expected, to impede, interfere with, delay, postpone or materially
adversely affect the Merger or any of the other transactions contemplated by the
Merger Agreement, or any of the transactions  contemplated by this Agreement. If
Shareholder  holds shares of Target  Series A Preferred  and/or  Target Series B
Preferred,  Shareholder  agrees  hereby not to convert any such shares of Target
Series A or Series B Preferred  prior to the Effective Time.  Shareholder  shall
not enter  into any  agreement  or  understanding  with any person the effect of
which would be  inconsistent  or  violative  of the  provisions  and  agreements
contained herein.

         Shareholder  agrees  that any  shares of capital  stock of Target  that
Shareholder  purchases or with respect to which Shareholder  otherwise  acquires
Beneficial  Ownership or over which  Shareholder  exercises  voting power at any
time after the execution of this  Agreement and prior to the date of termination
of this Agreement  pursuant to Section 6 below shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares on
the date hereof; provided, however, nothing in this Agreement shall be construed
to obligate  Shareholder to exercise any options or warrants to purchase  shares
of Target  Common  Stock,  Target  Series A  Preferred  and/or  Target  Series B
Preferred that may be held by Shareholder.

         For purposes of this  Agreement,  "Third Party  Acquisition"  means the
occurrence  of any of the following  events:  (i) the  acquisition  of Target by
merger or  otherwise  by any person  (which  includes a "person" as such term is
defined in Section  13(d)(3)  of the  Exchange  Act) other than  Acquirer or any
affiliate  thereof (a "Third  Party");  (ii) the acquisition by a Third Party of
any  material  portion  (which shall  include ten percent  (10%) or more) of the
assets of Target, other than the sale or license of its products in the ordinary
course of business;  (iii) the acquisition by a Third Party of ten percent (10%)
or more of the outstanding shares of Target's capital stock (other than any such
acquisition resulting from the exercise or conversion of any stock option, stock
warrant,  convertible  debt  instrument  and/or other security of Target that is
outstanding  on the date of this  Agreement);  (iv) the  adoption by Target of a
plan of liquidation or the declaration or payment of an extraordinary  dividend;
(v) the  repurchase by Target of more than ten percent (10%) of the  outstanding
Shares  (other  than  pursuant  to rights of refusal or similar  rights  held by
Target as of the date of this  Agreement or pursuant to repurchase  options held
by Target that are  exercisable in connection with the termination of a person's
employment  or services with or to Target or any of its  subsidiaries);  or (vi)
the acquisition (or any group of acquisitions) by Target by merger,  purchase of
stock or assets,  joint venture or otherwise,  of a direct or indirect ownership
interest or investment in any business (or  businesses)  whose annual


<PAGE>

revenues,  net income or assets is equal to or greater than ten percent (10%) of
the most recent annual revenues, net income or assets of Target, respectively.

         For  purposes  of this  Agreement,  "Beneficially  Own,"  "Beneficially
Owned"  or  "Beneficial  Ownership"  with  respect  to  any  Shares  shall  mean
Shareholder's  having record or  beneficial  ownership of such Shares or having,
through  any  agreement  or  arrangement,  the power to direct the  voting  with
respect to, or otherwise enables  Shareholder to legally act in a binding manner
with respect to, such Shares as contemplated hereby.

         2.       IRREVOCABLE PROXY.

                  (a) Subject to the terms and conditions of this Agreement, and
effective  upon the  issuance  of a permit  by the  California  Commissioner  of
Corporations,  the  declaration  of  effectiveness  by the SEC of a registration
statement  or  the  availability  of an  exemption  under  Section  4(2)  of the
Securities Act of 1933, as amended, or Regulation D promulgated thereunder, with
respect to the  securities to be issued in the Merger,  the  Shareholder  hereby
constitutes and appoints  Acquirer,  which shall act by and through  ___________
and _____________  (each, a "Proxy Holder',  or either of them), with fill power
of substitution,  its true and lawful proxy and  attorney-in-fact to vote at any
meeting (and any adjournment or postponement  thereof) of Target's  shareholders
called for purposes of considering whether to approve the Merger Agreement,  the
Merger or any of the other transactions contemplated by the Merger Agreement, or
any Third Party Acquisition,  or to execute a written consent of shareholders in
lieu of any such meeting, all Shares Beneficially Owned by Shareholder as of the
date of such  meeting or written  consent  (i) in favor of the  approval  of the
Merger  Agreement,  the Merger and the other  transactions  contemplated  by the
Merger Agreement, with such modifications to the Merger Agreement as the parties
thereto  may make,  or (ii)  against any Third  Party  Acquisition  or any other
transaction  or proposal  described in clause (ii) or (iii) of Section 1, as the
case may be.

                  (b) The proxy and power of attorney  granted  herein  shall be
irrevocable  during  the term of this  Agreement,  shall be deemed to be coupled
with an interest  sufficient  in law to support an  irrevocable  proxy and shall
revoke all prior proxies granted by Shareholder. Shareholder shall not grant any
proxy to any person  which  conflicts  with the proxy  granted  herein,  and any
attempt  to do so shall be void.  The  power of  attorney  granted  herein  is a
durable power of attorney and shall survive the insolvency,  liquidation,  death
or incapacity of  Shareholder.  The proxy and power of attorney  granted  herein
shall be  binding  upon the  successors  and  assigns  of the  Shareholder.  The
Shareholder authorizes the Proxy Holders to file this proxy and any substitution
or  revocation  of  substitution  with  the  Secretary  of  Target  and with any
Inspector of Elections at any meeting of the shareholders of Target.

                  (c) If  Shareholder  fails for any reason to vote his,  her or
its Shares in accordance  with the  requirements  of Section 1 hereof,  then the
Proxy  Holder shall have the right to vote the Shares at any meeting of Target's
shareholders  and in any action by written  consent of Target's  shareholders in
accordance  with the  provisions of this Section 2. The vote of the Proxy Holder
shall control in any conflict between the Proxy Holder's vote of such Shares and
a vote by Shareholder of such Shares.

<PAGE>


         4.       WAIVERS.

                  (a)  APPRAISAL  RIGHTS.   Shareholder  hereby  agrees  not  to
exercise any rights of appraisal and any dissenters' rights that Shareholder may
have (whether under  applicable law or otherwise) or could  potentially  have or
acquire in connection with the Merger.

                  (b) OTHER  RIGHTS.  Shareholder  hereby  waives  any rights of
first  refusal,  rights of first  offer,  rights to notice,  rights of  co-sale,
tag-along rights,  information rights,  registration rights,  preemptive rights,
rights of redemption or repurchase,  and similar rights of Shareholder under any
agreement,  arrangement of understanding  applicable to the Shares, in each case
as the same may apply to the execution and delivery of the Merger  Agreement and
the   consummation  of  the  Merger  and  the  other  actions  and  transactions
contemplated by the Merger Agreement.

         5.       DIRECTOR MATTERS EXCLUDED.  Acquirer acknowledges and agrees
that no provision of this Agreement (including without limitation the provisions
of Section 4(d) hereof) shall limit or otherwise  restrict  Shareholder  (or its
representatives)  with respect to any act or omission that  Shareholder  (or its
representatives) may undertake or authorize in his or her capacity as a director
of Target,  including,  without  limitation,  any vote that  Shareholder (or its
representatives)  may make as a director  of Target  with  respect to any matter
presented to the Board of Directors of Target.

         6.       OTHER COVENANTS,  REPRESENTATIONS  AND WARRANTIES. Shareholder
hereby represents and warrants to Acquirer as follows:

                  (a) OWNERSHIP OF SHARES.  Shareholder is the Beneficial  Owner
of all the Shares.  On the date hereof,  the Shares constitute all of the Shares
Beneficially Owned by Shareholder.  Shareholder has voting power with respect to
the  matters  set forth in Section 1 hereof  with  respect to all of the Shares,
with no limitations, qualifications or restrictions on such rights.

                  (b) OTHER RIGHTS. Shareholder is not entitled to any rights of
first  refusal,  rights of first  offer,  rights to notice,  rights of  co-sale,
tag-along rights,  information rights,  registration rights,  preemptive rights,
rights of  redemption  or  repurchase  or similar  rights  under any  agreement,
arrangement of  understanding  applicable to the Shares,  except as disclosed in
the Target Disclosure Schedule (as defined in the Merger Agreement).

                  (c)  POWER  AND   AUTHORITY;   DUE   EXECUTION  AND  DELIVERY.
Shareholder has all requisite legal capacity, power and authority to execute and
deliver this Agreement and to perform Shareholder's  obligations hereunder. This
Agreement has been duly executed and delivered by Shareholder  and constitutes a
legal,  valid  and  binding  obligation  of  Shareholder,   enforceable  against
Shareholder  in  accordance  with its  terms,  subject  to (i)  laws of  general
application  relating to bankruptcy,  insolvency and the relief of debtors,  and
(ii) rules of law governing  specific  performance,  injunctive relief and other
equitable remedies.

                  (d) NO CONFLICT.  The execution and delivery of this Agreement
by Shareholder do not, and the performance of this Agreement by Shareholder will
not: (i) conflict  with or violate any order,  decree or judgment  applicable to
Shareholder or by which Shareholder or any of Shareholder's properties or Shares
is bound or affected; (ii) violate any agreement to


<PAGE>

which Shareholder is a party or is subject including,  without  limitation,  any
voting agreement or voting trust; or (iii) result in any breach of or constitute
a default (with notice or lapse of time,  or both) under,  or give to others any
rights of termination,  amendment, acceleration or cancellation of, or result in
the  creation  of any lien,  restriction,  adverse  claim,  option on,  right to
acquire,  or any  encumbrance  or security  interest in or to, any of the Shares
pursuant to, any written,  oral or other agreement,  contract or legally binding
commitment to which  Stockholder  is a party or by which  Stockholder  or any of
Stockholder's  properties  (including but not limited to the Shares) is bound or
affected.

                  (e)  RESTRICTION  ON TRANSFER,  PROXIES AND  NON-INTERFERENCE.
During the term of this  Agreement,  except as  expressly  contemplated  by this
Agreement  or  the  Merger   Agreement,   Shareholder  shall  not,  directly  or
indirectly: (i) offer for sale, sell, transfer, tender, pledge, encumber, assign
or otherwise dispose of, or enter into any contract, option or other arrangement
or  understanding  with  respect  to, or  consent  to the offer for sale,  sale,
transfer, tender, pledge,  encumbrance,  assignment or other disposition of, any
or all of the Shares or any interest therein unless the transferee shall execute
a signature page to this Irrevocable  Proxy and Voting Agreement and shall agree
to be bound to the  provisions  hereof;  (ii)  grant  any  proxies  or powers of
attorney  or  deposit  any  Shares  into a voting  trust or enter  into a voting
agreement  with respect to any Shares;  or (iii) take any action that would make
any representation or warranty of Shareholder contained in this Section 4 untrue
or incorrect or have the effect of  preventing  or  disabling  Shareholder  from
performing any of Shareholder's obligations under this Agreement.

                       In addition,  Shareholder  acknowledges  that any shares
of Acquirer  Common Stock issued to  Shareholder as a result of the Merger shall
bear legends restricting  transfers (i) to the extent required by Rule 145 under
the  Securities  Act of 1933,  if  applicable  and (ii) to the extent  that such
shares are bound by contractual restrictions on resale or a right of repurchase.

                  (f)  OTHER  POTENTIAL  ACQUIRORS.  Shareholder:  (i) shall
immediately  cease any existing  discussions or  negotiations,  if any, with any
persons  (other than  Acquirer and its  affiliates)  conducted  heretofore  with
respect to any  acquisition of all or any material  portion of the assets of, or
any equity interest in, Target, or any business combination with Target, in his,
her or its  capacity as a  stockholder  of Target;  (ii) from and after the date
hereof  until the  earlier of (A) the  termination  of the Merger  Agreement  in
accordance  with its  terms  and (B) the  Effective  Time,  shall  not,  in such
capacity as a stockholder of Target, directly or indirectly,  initiate,  solicit
or knowingly  encourage  (including,  without  limitation,  by way of furnishing
nonpublic  information  or  assistance),  or take any other action to facilitate
knowingly, any inquiries or the making of any Third Party Acquisition; and (iii)
shall promptly  notify  Acquirer of any proposals for, or inquiries with respect
to, a potential  Third Party  Acquisition  received by  Shareholder  or of which
Shareholder otherwise has knowledge.

                  (g)  ACCURACY; RELIANCE BY ACQUIRER.  The  representations and
warranties  of  Shareholder  contained  in this  Agreement  are  accurate in all
respects as of the date of this  Agreement  and will be accurate in all respects
as of the  date of the  consummation  of the  Merger  as if  made on that  date.
Shareholder  understands  and  acknowledges  that  Acquirer is entering into the
Merger Agreement in reliance upon  Shareholder's  execution and delivery of this
Agreement.

<PAGE>


         5.       STOP TRANSFER.  Shareholder  agrees with, and covenants to,
Acquirer that  Shareholder  shall not request that Target  register the transfer
(book-entry  or  otherwise)  of  any  certificate  or  uncertificated   interest
representing  any  Shares,  unless  such  transfer  is made  pursuant  to and in
compliance  with this  Agreement.  In the event of a dividend or distribution of
capital  stock of Target,  or any change in Target Common Stock by reason of any
stock dividend, split-up,  recapitalization,  combination, exchange of shares or
the like,  the term "Shares"  shall be deemed to refer to and include the Shares
as well as all such  shares of  Target's  capital  stock  issued or  distributed
pursuant to such stock  dividends and  distributions  and any shares of Target's
capital stock into which or for which any or all of the Shares may be so changed
or exchanged.

         6.       TERMINATION.  The proxy  granted  pursuant to Section 2 hereof
and Shareholder's  covenants and agreements contained herein with respect to the
Shares shall terminate upon the earliest to occur of: (a) the termination of the
Merger Agreement or (b) the Effective Time.

         7.       MISCELLANEOUS.

                  (a) ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement,  constitutes the entire agreement between the parties with respect to
the  subject  matter  hereof  and  supersedes  all other  prior  agreements  and
understandings,  both  written and oral,  among the parties  with respect to the
subject matter hereof.

                  (b) ASSIGNMENT.  This  Agreement  shall  not be  assigned  by
operation of law or  otherwise  without the prior  written  consent of the other
party; provided, however, that Acquirer may, in its sole discretion,  assign its
rights and obligations hereunder to any wholly owned subsidiary of Acquirer.

                  (c) AMENDMENTS WAIVERS ETC. This Agreement may not be amended,
changed,  supplemented  or  otherwise  modified or  terminated,  except upon the
execution and delivery of a written agreement executed by the parties hereto. No
waiver  by a party  hereto of any of its  rights  hereunder  shall be  effective
unless and to the extent  such  waiver is set forth in a writing  signed by such
party.

                  (d) NOTICES. All notices,  requests, claims, demands and other
communications  hereunder  shall  be in  writing  and  shall  be  given  by hand
delivery,  telecopy,  or by mail (registered or certified mail, postage prepaid,
return  receipt  requested) or by any  nationally-recognized  overnight  courier
service, such as Federal Express,  providing proof of delivery.  Any such notice
or communication  shall be deemed to have been delivered and received (i) in the
case of  hand  delivery,  on the  date of  such  delivery,  (ii) in the  case of
telecopy,  on the date such  confirmation of receipt is received and such notice
is also  promptly  mailed  by  registered  or  certified  mail  (return  receipt
requested);  (iii)  in the  case of a  nationally-recognized  overnight  courier
service,  in circumstances under which such courier guarantees next business day
delivery,  on the next business day after the date when sent,  and (iv) the case
of mailing,  on the third business day following that on which the piece of mail
containing such communication is posted.  All communications  hereunder shall be
delivered to the respective parties at the following addresses:

If to Shareholder:

<PAGE>

                                                    ----------------------------
                                                    ----------------------------
                                                    Telephone:
                                                    Telecopier:
                                                    Attention:


with a copy to:                                     Target, Inc.




If to Acquirer:                                     Acquirer, Inc.

with a copy to:                                     Fenwick &West, LLP
                                                    Two Palo Alto Square
                                                    Palo Alto, CA  94036
                                                    Telecopier: (650) 494-1417
                                                    Attention: David K. Michaels

or to such  other  address  as the  person  to whom  notice  is  given  may have
previously furnished to the others in writing in the matter set forth above.

                  (e) SEVERABILITY.  Whenever  possible,  each provision of this
Agreement  will be interpreted in such manner as to be effective and valid under
applicable  law but if any  provision  of this  Agreement is held to be invalid,
illegal or  unenforceable in any respect under any applicable law or rule in any
jurisdiction,  such invalidity,  illegality or unenforceability  will not affect
any other provision or portion of any provision in such  jurisdiction,  and this
Agreement will be reformed,  construed and enforced in such  jurisdiction  as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.

                  (f) SPECIFIC   PERFORMANCE.   Each  of  the  parties   hereto
recognizes and  acknowledges  that a breach by it of any covenants or agreements
contained  in this  Agreement  will cause the other party to sustain  damage for
which it  would  not have an  adequate  remedy  at law for  money  damages,  and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved  party shall be entitled to the remedy of specific  performance of
such  covenants and agreements  and  injunctive  and other  equitable  relief in
addition to any other remedy to which it may be entitled, at law or in equity.

                  (g) EXPENSES.  All costs and expenses  incurred in connection
with the transactions  contemplated by this Agreement shall be paid by the party
incurring such costs and expenses.

                  (h) NO WAIVER. The failure of any party hereto to exercise any
right,  power or remedy provided under this Agreement or otherwise  available in
respect  hereof at law or in equity  and shall not  constitute  a waiver by such
party of its right to  exercise  any such or other  right,  power a remedy or to
demand such compliance.

<PAGE>


                  (i) GOVERNING  LAW. This  Agreement  shall be governed and
construed in accordance with the laws of the State of California, without giving
effect to the principles of conflicts of law.

                  (j) Counterparts.   This   Agreement   may  be  executed  in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.

         IN WITNESS WHEREOF, Acquirer and Shareholder have caused this Agreement
to be duly executed as of the day and year first above written.

                                    Acquirer Corporation, a Delaware corporation

                                    By:
                                       -----------------------------------------
                                       Name:
                                       Title:

                                    By:


                                    Shares of Target Common Stock
                                    Beneficially Owned (if any): ____________

                                    Shares of Target Series A Preferred Stock
                                    Beneficially Owned (if any): ____________

                                    Shares of Target Series B Preferred Stock
                                    Beneficially Owned (if any): ____________


<PAGE>


                                 EXHIBIT 1.3(A)

                                ESCROW AGREEMENT


         THIS ESCROW AGREEMENT is made and entered into as of _________, 2000 by
and among  Acquirer  Corporation , a Delaware  corporation  ("ACQUIRER"),  State
Street  Bank and Trust  Company of  California,  N.A.  (the  "ESCROW  AGENT) and
_____________ (the "SHAREHOLDERS'  REPRESENTATIVE") for and on behalf of certain
holders of the Common Stock (the  "INDEMNIFYING  SHAREHOLDERS") of DVDO, Inc., a
California corporation ("TARGET").

                                    RECITALS

         A. Pursuant to that certain Agreement and Plan of Reorganization  dated
as of March _____,  2000,  a copy of which is attached  hereto as EXHIBIT A (the
"PLAN OF REORGANIZATION"),  Acquirer will issue to the Indemnifying Shareholders
shares of Acquirer  Common Stock,  $0.001 par value  ("ACQUIRER  COMMON STOCK"),
pursuant to the merger (the "MERGER") of Acquirer  Acquisition Corp., a Delaware
corporation  and  wholly-owned  subsidiary  of Acquirer  ("SUB"),  with and into
Target;

         B.  Pursuant  to  Section  10  of  the  Plan  of  Reorganization,   the
Indemnifying  Shareholders  have agreed to  indemnify  Acquirer  with respect to
certain matters; and

         C. In accordance with the Plan of Reorganization, the parties desire to
establish an escrow for the purpose of providing  funds against  which  Acquirer
may seek  indemnification  from the Indemnifying  Shareholders under the Plan of
Reorganization.

         NOW,  THEREFORE,  in  consideration  of the foregoing  premises and the
mutual obligations herein, the parties agree as follows:

         1. ESTABLISHMENT OF ESCROW. On the date hereof or as soon thereafter as
practicable,  Acquirer shall deliver to the Escrow Agent for deposit into escrow
(the "ESCROW") certificates representing an aggregate of __________________ [20%
OF THE  ACQUIRER  COMMON  STOCK TO BE ISSUED TO THE  INDEMNIFYING  SHAREHOLDERS]
shares of Acquirer Common Stock (subject to adjustment for changes in Acquirer's
capital  stock  as  provided  in  Section  1.1.4  of the  Agreement  and Plan of
Reorganization)  otherwise distributable to the Indemnifying Shareholders in the
Merger (the "ESCROW SHARES"). The Escrow Shares so delivered to the Escrow Agent
and any other  securities,  cash or other property from time to time held by the
Escrow Agent pursuant to the terms hereof shall be divided  equally  between two
accounts to be maintained by the Escrow Agent (each  referred to as "ESCROW FUND
1" and  "ESCROW  FUND 2",  respectively,  and  referred to  collectively  as the
"ESCROW FUNDS").  The Escrow Agent agrees to accept the Escrow  Shares and to
hold the Escrow Funds in escrow subject to the terms and conditions of this
Escrow Agreement.


<PAGE>


         2. MAINTENANCE OF THE ESCROW.

            (a)   EXHIBIT  B  sets  forth  the  name,   address   and   taxpayer
identification number (when known) of each of the Indemnifying Shareholders, the
number  of  Escrow  Shares  initially   deposited  on  behalf  of  each  of  the
Indemnifying  Shareholders  into each of the Escrow Funds and the  proportionate
interest  of  each  Indemnifying   Shareholder  in  the  Escrow  ("PROPORTIONATE
INTEREST").  Distributions from the Escrow shall be made in accordance with each
Indemnifying Shareholder's  Proportionate Interest as set forth in EXHIBIT B and
Escrow Shares shall be valued at the per share price of $_______ (which is equal
to the  average  closing  price as quoted on the Nasdaq  National  Market and as
reported in the WALL STREET  JOURNAL of one share of Acquirer  Common  Stock for
the five  trading  days prior to and  including  the  trading day ending one day
prior to March ____, 2000, the date of execution of the Plan of  Reorganization)
(the "CLAIM  VALUATION PER SHARE PRICE"),  which Claim Valuation Per Share Price
shall be subject  to  adjustment  for  changes in  Acquirer's  capital  stock as
provided in Section 1.1.4 of the Plan of  Reorganization.  The Escrow Agent need
not distribute  fractional shares.  Accordingly,  in distributing Escrow Shares,
the Escrow  Agent  shall round down the number of shares to be  distributed  and
shall  distribute that number.  Acquirer shall provide to the Escrow Agent,  and
the Escrow Agent shall distribute to each person who would otherwise be entitled
to a fractional  share,  cash-in-lieu of such fractional  interest,  computed in
accordance with the Claim Valuation Per Share Price. Acquirer shall be deemed to
have purchased the shares for which it has provided cash-in-lieu  payments.  The
Escrow Agent is hereby granted the power to effect any transfer of Escrow Shares
required by this  Agreement.  Acquirer shall  cooperate with the Escrow Agent in
promptly  issuing,  or causing its transfer agent to promptly issue,  such stock
certificates  as shall be required to effect such  transfers.  All Escrow Shares
and any other  securities  from time to time held in the Escrow  Funds  shall be
registered in the name of the applicable Indemnifying Shareholder.

            (b) Promptly  after the Effective  Time, but in any event within ten
(10) business days after receipt of the letter of transmittal  from the Exchange
Agent,  each  Indemnifying  Shareholder  will deliver to the Escrow Agent a duly
endorsed  stock power (a "STOCK  POWER")  substantially  in the form attached as
EXHIBIT  C. In the event any  Additional  Escrow  Shares are  issued,  or if the
Escrow  Agent  reasonably  requires  an  additional  Stock  Power(s) to effect a
transfer, each Indemnifying Shareholder will, upon request, promptly execute and
deliver an additional Stock Power to the Escrow Agent.

         3. SHAREHOLDERS' REPRESENTATIVE. From and after the establishment of
the Escrow as provided in Section 1 hereof, the Indemnifying  Shareholders shall
be represented by the Shareholders'  Representative,  or, upon written notice to
the Escrow Agent,  by his successor  appointed in accordance  with Section 10 of
the Plan of Reorganization, who shall have the duties and authority set forth in
said section.  Unless the Escrow Agent shall receive a certificate setting forth
the name of a  successor  Shareholders'  Representative,  the  Escrow  Agent may
assume  without  inquiry that no successor has been  appointed and that the last
Shareholders'  Representative  of which it has actual knowledge  remains in that
capacity.

         4.  DIVIDENDS,  VOTING AND  RIGHTS OF  OWNERSHIP.  Except for  tax-free
dividends paid in stock  declared with respect to the Escrow Shares  pursuant to
Section 305(a) of the Internal


                                       2
<PAGE>

Revenue  Code of 1986,  as amended (the  "CODE"),  which shall be treated in the
manner set forth in Section 1 hereof,  any cash dividends,  dividends payable in
securities  or other  distributions  of any kind made in  respect  of the Escrow
Shares will be distributed by Acquirer to the Indemnifying  Shareholders and, if
distributed to the Escrow Agent, shall promptly be paid over to the Indemnifying
Shareholders. Each Indemnifying Shareholder will have voting rights with respect
to the Escrow Shares  deposited in the Escrow with respect to such  Indemnifying
Shareholder  so long as such Escrow Shares are held in the Escrow,  and Acquirer
shall take all reasonable  steps necessary to allow the exercise of such rights.
The Escrow Agent shall forward to the  Shareholders'  Representative  all voting
materials and proxies received by the Escrow Agent. In the event an Indemnifying
Shareholder  elects to vote,  it shall  direct the Escrow Agent in writing to do
so. In the  absence of such  direction,  the Escrow  Agent shall have no duty or
obligation  to vote with respect to any of the Escrow  Shares.  While the Escrow
Shares  remain  in  the  Escrow  Agent's  possession  pursuant  to  this  Escrow
Agreement,  the  Indemnifying  Shareholders  will retain and will be entitled to
exercise all other  incidents  of  ownership of the Escrow  Shares which are not
inconsistent with the terms and conditions of this Escrow Agreement.  Subject to
the  rights  of  Acquirer  under  the Plan of  Reorganization  and  this  Escrow
Agreement,  all beneficial interest in the Escrow Funds shall be the property of
the  Indemnifying  Shareholders  from and after the Closing,  and Acquirer shall
have no interest  therein.  None of the rights of the Indemnifying  Shareholders
hereunder shall be transferable except as otherwise provided by law. Each of the
Indemnifying  Shareholders  shall be obligated  for all federal,  state or local
taxes applicable to such Indemnifying Shareholder's interest in the Escrow Fund.

         5. PROCEDURE FOR CLAIMS FOR INDEMNIFICATION AND DISPOSITION THEREOF.

            (a) Escrow Agent shall hold and safeguard the Escrow Fund during the
Total Escrow Period (as defined below),  shall treat such Fund as an escrow fund
in accordance  with the terms of this  Agreement and the Plan of  Reorganization
and not as the  property  of  Acquirer  and shall hold and dispose of the Escrow
Fund only in accordance with the terms hereof.

            (b)  If  an   Indemnified   Person  (as   defined  in  the  Plan  of
Reorganization)  wishes to  assert,  prior to  ____________,  2002,  the  second
anniversary  of the  Effective  Time (as defined in the Plan of  Reorganization)
(the   "TOTAL   ESCROW   PERIOD"),   any  Claim  (as  defined  in  the  Plan  of
Reorganization)  for  indemnification  pursuant  to  Section  10 of the  Plan of
Reorganization  ("INDEMNIFICATION  CLAIM"),  such  Indemnitee or Acquirer  shall
assert  such  Claim,  and such Claim  shall be  disposed  of,  according  to the
procedures set forth in Section 10 of the Plan of Reorganization. Acquirer shall
deliver a copy of each Claim Certificate,  and the Shareholders'  Representative
shall  deliver a copy of each  objection to a Claim  Certificate,  to the Escrow
Agent. The parties agree that,  insofar as the Escrow Agent is to be involved in
the  distribution  of a portion or all of the Escrow  following its receipt of a
Claim  Certificate,  the  Shareholders'  Representative  may  object  to a Claim
Certificate  only by  delivering  an objection  thereto which is received by the
Escrow Agent within 30 days after the Shareholders'  Representative has received
the Claim  Certificate  from  Acquirer.  If the Escrow Agent does not receive an
objection  within such 30-day  period,  then the Escrow Agent may assume without
inquiry that the Shareholders'  Representative has no objection to the Claim set
forth in the Claim Certificate.


                                       3
<PAGE>


            (c) In the event that an  Indemnified  Person  asserts any Claim for
indemnification  pursuant to the foregoing on or prior to the first  anniversary
of the Effective Time ("ESCROW  PERIOD 1"), any amounts to be paid in accordance
with the terms of this Escrow  Agreement  to satisfy such Claim shall first come
from  Escrow  Fund 1, and if the  assets in Escrow  Fund 1 are not  adequate  to
satisfy  such Claim,  then from Escrow Fund 2. In the event that an  Indemnified
Person asserts any Claim for indemnification  after the first anniversary of the
Effective  Time but on or before the second  anniversary  of the Effective  Time
("ESCROW PERIOD 2"), then any amounts to be paid in accordance with the terms of
this Escrow  Agreement to satisfy such claim shall come only from Escrow Fund 2.


         6. DISTRIBUTION OF ESCROW FUND TERMINATION OF ESCROW.

            (a) The  portion  of Escrow  Fund 1 not  previously  distributed  in
accordance  with the terms of Section 5 hereof shall be held by the Escrow Agent
until three (3) business  days  following  the end of Escrow  Period 1, at which
time it shall be delivered to the  Indemnifying  Shareholders at their addresses
and in  accordance  with their  Proportionate  Interests set forth in EXHIBIT B.
Notwithstanding  the  foregoing,  there  shall be  retained in Escrow Fund 1 the
lesser of (i) the number of Escrow Shares and other property then held in Escrow
Fund 1  having  an  aggregate  value  equal  to (x)  100% of the  amount  of all
Indemnification  Claims  pending  at the end of  Escrow  Period  1 and  asserted
pursuant  to Section 5 hereof and (y) an amount  set forth in a  certificate  of
Acquirer as being the amount of expenses reasonably  estimated by Acquirer to be
necessary for the disposition of all such  Indemnification  Claims, and (ii) the
entire remaining Escrow Fund 1.

            (b) The  portion  of Escrow  Fund 2 not  previously  distributed  in
accordance  with the terms of Section 5 hereof shall be held by the Escrow Agent
until three (3) business  days  following  the end of Escrow  Period 2, at which
time it shall be delivered to the  Indemnifying  Shareholders at their addresses
and in  accordance  with their  Proportionate  Interests set forth in EXHIBIT B.
Notwithstanding  the  foregoing,  there  shall be  retained in Escrow Fund 2 the
lesser of (i) the number of Escrow Shares and other property then held in Escrow
Fund 2  having  an  aggregate  value  equal  to (x)  100% of the  amount  of all
Indemnification  Claims  pending  at the end of  Escrow  Period  2 and  asserted
pursuant  to Section 5 hereof and (y) an amount  set forth in a  certificate  of
Acquirer as being the amount of expenses reasonably  estimated by Acquirer to be
necessary for the  disposition of all such  Indemnification  Claims less (z) any
amounts being held in Escrow Fund 1 to satisfy any such pending  Indemnification
Claims and Acquirer's expense, and (ii) the entire remaining Escrow Fund 2.

            The Escrow Funds not so distributed  shall be retained by the Escrow
Agent  until  all such  pending  Indemnification  Claims  are  resolved  and the
remaining Escrow Funds deliverable to any Acquirer as a result thereof,  if any,
shall have been delivered to Acquirer.  Thereafter,  the Escrow Agent shall,  as
promptly as practicable, deliver the remaining Escrow


                                       4
<PAGE>

Fund to the Indemnifying  Shareholders at their addresses and in accordance with
their  Proportionate  Interests  set forth in EXHIBIT  B. In no event  shall the
Escrow Agent accept or pay any Claim specified in a Claim Certificate  delivered
after the  termination of the Total Escrow Period,  regardless of when the facts
and circumstances giving rise to such Claim occurred.

         7. TERM OF ESCROW AGREEMENT. This Escrow Agreement shall terminate upon
the distribution by the Escrow Agent of all property held in the Escrow Funds.

         8.  FEES  OF  THE  ESCROW   AGENT.   Acquirer  and  the   Shareholders'
Representative (on behalf of the Indemnifying  Shareholders) agree to pay to the
Escrow Agent a fee  according  to the fee schedule  attached as EXHIBIT C hereto
and all of the expenses of the Escrow Agent,  including  expenses related to the
indemnity  provided in Section 11 hereof.  To the extent such fees and  expenses
are not paid by  Acquirer,  they may paid from the Escrow  Funds  after ten (10)
days'  written  notice from the Escrow Agent to Acquirer  and the  Shareholders'
Representative.   As  between   themselves,   Acquirer  and  the   Shareholders'
Representative (on behalf of the Indemnifying  Shareholders) agree that: (i) all
fees and expenses payable to the Escrow Agent will be paid in the first instance
by  Acquirer  as and when they became  payable,  and (ii) all fees and  expenses
associated with the administration of any  Indemnification  Claim, to the extent
reasonable,  shall  be  borne  by the  Indemnifying  Shareholders  and  shall be
recoverable  by  Acquirer  out of the  Escrow as a part of such  Indemnification
Claim.

         9. LIABILITY OF THE ESCROW AGENT. In performing any of its duties under
this  Escrow  Agreement,  the Escrow  Agent shall not be liable to any party for
damages, losses or expenses,  except in the event of gross negligence or willful
misconduct  on its part.  In no event  shall  the  Escrow  Agent be  liable  for
punitive,  consequential or incidental damages. The Escrow Agent shall not incur
any such  liability  for (i) any act or  failure  to act made or omitted in good
faith,  or (ii) any action  taken or omitted in  reliance  upon any  instrument,
including  any  written  statement  or  affidavit  provided  for in this  Escrow
Agreement  that the Escrow Agent shall in good faith believe to be genuine;  nor
will  the  Escrow  Agent  be  liable  or  responsible   for  forgeries,   fraud,
impersonations,  or determining the scope of any agent's authority. In addition,
the Escrow Agent may consult with legal counsel of its choice in connection with
its duties under this Escrow  Agreement and shall be fully  protected in any act
taken,  suffered, or permitted by it in good faith in accordance with the advice
of counsel.  The Escrow Agent is not  responsible  for determining and verifying
the  authority of any person  acting or purporting to act on behalf of any party
to this Escrow Agreement.  The Escrow Agent undertakes to perform such duties as
are specifically set forth in this Escrow Agreement,  and the Escrow Agent shall
not be liable except for the performance of such duties as are  specifically set
forth in this Escrow  Agreement.  No implied  covenants or obligations  shall be
read into this Escrow Agreement against the Escrow Agent.

         10.  CONTROVERSIES.  If any  controversy  arises between the parties to
this Escrow Agreement, or with any other party, concerning the subject matter of
the Escrow,  its terms or  conditions,  the Escrow Agent will not be required to
determine the  controversy or to take any action  regarding it. The Escrow Agent
may hold all  documents  and  funds  and may  wait  for  settlement  of any such
controversy as provided in the Plan of Reorganization.


                                       5
<PAGE>


         11.  INDEMNIFICATION  OF ESCROW  AGENT.  Acquirer and the  Indemnifying
Shareholders  and their  respective  successors  and assigns  agree  jointly and
severally to indemnify  and hold the Escrow Agent  harmless  against any and all
losses, claims, damages, liabilities and expenses, including reasonable costs of
investigation,  counsel fees, including allocated costs of in-house counsel, and
disbursements  that may be imposed on the Escrow  Agent,  or  incurred  by it in
connection  with the  performance  of its duties  under this  Escrow  Agreement,
including but not limited to any  arbitration  or  litigation  arising from this
Escrow  Agreement or  involving  its subject  matter.  The costs and expenses of
enforcing  this  right  of  indemnification  shall be paid by  Acquirer  and the
Indemnifying  Shareholders,   provided,  however,  that  the  Acquirer  and  the
Indemnifying  Shareholders  shall not pay such costs and  expenses to the extent
that the Escrow Agent is judicially  determined to have been  negligent or acted
with  willfull  misconduct.  This right of  indemnification  shall  survive  the
termination  of this Escrow  Agreement,  and the removal or  resignation  of the
Escrow  Agent.  Nothing  contained in this Section 11 shall impair the rights of
the Indemnifying  Shareholders and Acquirer,  as between  themselves,  including
without  limitation,  their rights to enforce the provisions of Section 8 hereof
with respect to the allocation of the Escrow Agent's fees.

         12.  RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign giving at
least thirty (30) days' written notice to the other parties;  PROVIDED,  HOWEVER
that no such  resignation  shall become  effective  until the  appointment  of a
successor Escrow Agent which shall be accomplished as follows:  Acquirer and the
Shareholders'  Representative  shall  use  their  best  efforts  to  agree  on a
successor  Escrow Agent within thirty (30) days after receiving such notice.  If
the parties  fail to agree on a successor  Escrow  Agent  within such time,  the
Escrow   Agent  may,  at  the  expense  of   Acquirer   and  the   Shareholders'
Representative, petition any court of competent jurisdiction for the appointment
of a successor Escrow Agent authorized to do business in the State of California
and,  in such  event,  shall give  written  notice to the other  parties of such
appointment.  The successor Escrow Agent shall execute and deliver to the Escrow
Agent an instrument  accepting such appointment,  and the successor Escrow Agent
shall,  without further acts, be vested with all the estates,  property  rights,
powers,  and duties of the  predecessor  Escrow Agent as if originally  named as
Escrow Agent herein.  The predecessor Escrow Agent then shall be discharged from
any further duties and liability under this Escrow Agreement.

         13. MISCELLANEOUS.

            (a)  ASSIGNMENT:  BINDING UPON  SUCCESSORS AND ASSIGNS.  None of the
parties hereto may assign any of its rights or obligations hereunder without the
prior  written  consent of the other  parties.  This  Escrow  Agreement  will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

            (b) SEVERABILITY.  If any provision of this Escrow Agreement, or the
application  thereof,  shall  for any  reason  and to any  extent  be held to be
invalid  or  unenforceable,  the  remainder  of this  Escrow  Agreement  and the
application  of such  provision  to  other  persons  or  circumstances  shall be
interpreted  so as best to reasonably  effect the intent of the parties  hereto.
The parties further agree to replace such invalid or unenforceable  provision of
this Escrow Agreement with a valid and enforceable provision which will achieve,
to the extent possible, the economic, business and other purposes of the invalid
or unenforceable provision.


                                       6
<PAGE>


            (c) ENTIRE AGREEMENT.  This Escrow  Agreement,  the Exhibits hereto,
the documents referenced herein, and the exhibits thereto, constitute the entire
understanding  and  agreement of the parties  hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or  understandings,  inducements or conditions,  express or implied,  written or
oral,  between the parties with respect  hereto and thereto.  The express  terms
hereof  control and  supersede any course of  performance  or usage of the trade
inconsistent with any of the terms hereof.

            (d) NOTICES.  No notice or other communication shall be deemed given
unless sent in the manner, and to the persons,  specified in this Section 14(d).
All notices  and other  communications  hereunder  will be in writing and win be
deemed  given  (i)  upon  receipt  if  delivered  personally  (or if  mailed  by
registered or certified mail),  (ii) the day after dispatch if sent by overnight
courier;  or (iii) upon dispatch if transmitted by facsimile (and confirmed by a
copy delivered in accordance with clause (i) or (ii)),  addressed to the parties
at the following addresses:

            To the Escrow Agent:     State Street Bank and Trust Company of
                                     California, N.A.
                                     633 West 5th Street, 12th Floor
                                     Los Angeles, CA  90071
                                     Attention: Corporate Trust Admnistration
                                                (Silicon Image/DVDO 2000 escrow)
                                     Phone:  (213) 362-7373
                                     Fax:  (213) 362-7357

                    To Acquirer:     Silicon Image, Inc.
                                     1060 East Arques Avenue
                                     Sunnyvale, CA 94086
                                     Attn:
                                     Phone:    (408) 616-4000
                                     Fax:      (408) 830-9530

                    with a copy to:  Fenwick & West LLP
                                     Two Palo Alto Square, Suite 800
                                     Palo Alto, California 94306
                                     Attn:  David K. Michaels, Esq.
                                     Phone:  650-494-0600
                                     Fax:  650-494-1417

     To the Shareholder Representative:     _____________________
                                            _____________________
                                            _____________________
                                            _____________________





                                       7
<PAGE>


                                     Phone:    _____________
                                     Fax:      _____________

                    with a copy to:  Manatt Phelphs & Phillips LLP
                                     3030 Hansen Way, Suite 100
                                     Palo Alto, CA 94206-1006
                                     Attn:  Thomas Barton, Esq.
                                     Phone:    (650) 812-1300
                                     Fax:      (650) 213-0260



Any party may  change  its  address  for such  communications  by giving  notice
thereof to the other parties.  Notwithstanding the foregoing,  notices addressed
to the Escrow  Agent shall be effective  only upon receipt  EXCEPT THAT a notice
faxed to Escrow  Agent shall be deemed  received on such day  provided  that (i)
such fax was transmitted  prior to 5:00 P.M.  Pacific Standard Time on such date
and (ii) there exists written  confirmation of such  transmittal.  If any Claim,
objection  thereto or any other document of any kind is required to be delivered
to the Escrow Agent and any other  person,  the Escrow Agent may assume  without
inquiry that such Claim notice, objection or other document was received by such
other person on the date on which it was received by the Escrow Agent.

            (e) OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party shall be deemed cumulative with
and not exclusive of any other remedy  conferred hereby or by law on such party,
and the exercise of any one remedy shall not preclude the exercise of any other.

            (f)  AMENDMENT  AND  WAIVERS.  Any term or  provision of this Escrow
Agreement  may be  amended,  and the  observance  of any  term  of  this  Escrow
Agreement may be waived (either generally or in a particular instance and either
retroactively  or  prospectively)  only by a  writing  signed by the party to be
bound thereby. The waiver by a party of any breach hereof for default in payment
of any amount due  hereunder or default in the  performance  hereof shall not be
deemed to constitute a waiver of any other default or any  succeeding  breach or
default.

            (g) FURTHER  ASSURANCES.  Each party agrees to cooperate  fully with
the other  parties  and to  execute  such  further  instruments,  documents  and
agreements  and to give such further  written  assurances,  as may be reasonably
requested  by any other party to better  evidence  and reflect the  transactions
described  herein and  contemplated  hereby and to carry into effect the intents
and purposes of this Escrow Agreement.

            (h) ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Escrow  Agreement are intended,  nor shall be interpreted,  to provide or create
any  third  party  beneficiary  rights  or any  other  rights of any kind in any
client,  customer,  affiliate,  Shareholder,  partner of any party hereto or any
other person or entity  unless  specifically  provided  otherwise  herein,  and,
except as so provided, all provisions hereof shall be solely between the parties
to this Escrow Agreement.


                                       8
<PAGE>


            (i) GOVERNING  LAW. It is the  intention of the parties  hereto that
the internal laws of the State of California  (irrespective of its choice of law
principles) shall govern the validity of this Escrow Agreement, the construction
of its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto.

            (j)  COUNTERPARTS.  This  Escrow  Agreement  may be  executed in any
number of  counterparts,  each of which shall  constitute an original and all of
which together shall constitute one and the same instrument.

         14.  INVESTMENTS  OF CASH.  The Escrow Agent shall invest cash, if any,
held in the Escrow,  other than amounts immediately  distributable by the Escrow
Agent,  in the SSgA U.S.  Treasury  Money Market  Fund.  For tax  reporting  and
withholding  purposes,  the income on such investments shall be allocated to the
Indemnifying  Shareholders in accordance with their  Proportionate  Interests in
the Escrow Funds set forth in EXHIBIT B.

         15. TAX REPORTING DOCUMENTATION.  The Shareholder Representative agrees
to use best efforts to obtain for the Escrow Agent certified tax  identification
numbers for each of the  Indemnifying  Shareholders  consisting  of  appropriate
Forms W-9 (or Forms W-8,  in the case of non-U.S.  persons)  and other forms and
documents  that the Escrow  Agent may  reasonably  request  (collectively,  "TAX
REPORTING  DOCUMENTATION")  to the Escrow Agent within 30 days after the date of
such  request.  The  parties  hereto  understand  that,  if such  Tax  Reporting
Documentation  is not so certified to the Escrow Agent,  the Escrow Agent may be
required  by the Code,  as it may be amended  from time to time,  to  withhold a
portion of the interest  earned on the  investment  of monies or other  property
held by the Escrow Agent pursuant to this Agreement.



                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       9
<PAGE>


         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
date first set forth above.


ACQUIRER CORPORATION

By:__________________________________

Title:_______________________________




STATE STREET BANK AND TRUST COMPANY
  OF CALIFORNIA, N.A.

By:__________________________________

Title:_______________________________






_____________________________________














                                       10
<PAGE>


                                    EXHIBIT C


                    STOCK POWER AND ASSIGNMENT CERTIFICATE



         In connection  with the merger (the  "MERGER") of Company O Acquisition
Corp.., a wholly owned subsidiary of Silicon Image, Inc. ("SILICON IMAGE"), with
and into DVDO,  Inc. (the  "COMPANY"),  the  undersigned is receiving  shares of
Silicon  Image  common  stock in respect of the shares of the  Company's  common
stock held by the undersigned immediately prior to the Merger.

         FOR VALUE RECEIVED,  and pursuant to that certain Agreement and Plan of
Merger  dated as of March ___,  2000 (the "MERGER  AGREEMENT")  and that certain
Escrow  Agreement  dated as of March __, 2000  executed in  connection  with the
Merger (the "ESCROW  AGREEMENT"),  the undersigned  hereby assigns and transfers
unto State Street Bank and Trust Company of  California.,  N.A., as Escrow Agent
(the "AGENT") pursuant to the Merger Agreement and the Escrow Agreement:


         ____________  shares of the Company's common stock represented by stock
                       certificate No. ____ tendered herewith (the "Shares")


         The   undersigned   hereby   irrevocably   appoints   the   Agent,   as
attorney-in-fact,  with full power of substitution and re-substitution,  to hold
any and all  certificates  for such Shares in escrow and to transfer such Shares
on the books of Broadbase solely to the extent provided in the Escrow Agreement.

         THIS STOCK POWER AND ASSIGNMENT CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF THE ESCROW AGREEMENT AND THE MERGER AGREEMENT AND MAY ONLY BE USED
STRICTLY IN ACCORDANCE THEREWITH.


Dated:  March __, 2000                           _______________________________
                                                 (Signature)

                                                 _______________________________
                                                 (Printed Name)









                                       11
<PAGE>
                                EXHIBIT 1.3(B)-1

                            RETAINED TARGET FOUNDERS

Laurence A. Thompson
Dale R. Adams
Cheng Hwee Chee

<PAGE>



                                EXHIBIT 1.3(B)-2

                           RETENTION ESCROW AGREEMENT

         THIS ESCROW AGREEMENT is made and entered into as of ___________,  2000
by and among Silicon Image,  Inc., a Delaware  corporation  ("ACQUIRER"),  State
Street  Bank and Trust  Company of  California,  N.A.  (the  "ESCROW  AGENT) and
Laurence A. Thompson,  Dale R. Adams, and Cheng Hwee Chee, all shareholders (the
"RETAINED TARGET FOUNDERS") of DVDO, Inc., a California corporation ("TARGET").

                                    RECITALS

         A. Pursuant to that certain Agreement and Plan of Reorganization  dated
as of March 30, 2000, a copy of which is attached hereto as EXHIBIT A (the "PLAN
OF REORGANIZATION"),  Acquirer will issue to the Retained Target Founders shares
of Acquirer Common Stock,  $0.001 par value ("ACQUIRER COMMON STOCK"),  pursuant
to the merger (the  "MERGER") of Company O Acquisition,  a Delaware  corporation
and wholly-owned subsidiary of Acquirer ("SUB"), with and into Target; and

         B.  Pursuant  to  Section  1.3(b)  of the Plan of  Reorganization,  the
Retained  Target  Founders  have agreed that 40% of the  Acquirer  Common  Stock
received  by them  shall be held in an escrow  account to be  released  upon the
terms and conditions set forth herein.

         NOW,  THEREFORE,  in  consideration  of the foregoing  premises and the
mutual obligations herein, the parties agree as follows:

         1. ESTABLISHMENT OF ESCROW. On the date hereof or as soon thereafter as
practicable,  Acquirer shall deliver to the Escrow Agent for deposit into escrow
(the "ESCROW") certificates representing an aggregate of __________________ [40%
OF THE ACQUIRER COMMON STOCK TO BE ISSUED TO THE RETAINED FOUNDER  SHAREHOLDERS]
shares of Acquirer Common Stock (subject to adjustment for changes in Acquirer's
capital  stock  as  provided  in  Section  1.1.4  of the  Agreement  and Plan of
Reorganization)  otherwise  distributable to the Retained Target Founders in the
Merger (the "ESCROW SHARES"). The Escrow Shares so delivered to the Escrow Agent
and any other  securities,  cash or other property from time to time held by the
Escrow  Agent  pursuant  to the terms  hereof  shall be held in an account to be
maintained  by the Escrow Agent (the "ESCROW FUND "). The Escrow Agent agrees to
accept the Escrow  Shares and to hold the Escrow  Fund in escrow  subject to the
terms and conditions of this Escrow Agreement.

                  2.       MAINTENANCE OF THE ESCROW.

                         (a) EXHIBIT B sets forth the name, address and taxpayer
identification number (when known) of each of the Retained Target Founders,  the
number of Escrow Shares  initially  deposited on behalf of each Retained  Target
Founder  into the Escrow Fund and the  proportionate  interest of each  Retained
Target Founder in the Escrow ("PROPORTIONATE INTEREST").  Distributions from the
Escrow pursuant to this Agreement shall be made in accordance with each


<PAGE>

Retained Target Founder's  Proportionate Interest as set forth in Exhibit B. The
Escrow Agent need not distribute fractional shares. Accordingly, in distributing
Escrow  Shares,  the Escrow  Agent  shall  round down the number of shares to be
distributed  and shall  distribute  that number.  Acquirer  shall provide to the
Escrow  Agent,  and the Escrow Agent shall  distribute  to each person who would
otherwise be entitled to a fractional  share,  cash-in-lieu  of such  fractional
interest,  computed in accordance with the Average Price (as defined in the Plan
of  Reorganization).  Acquirer  shall be deemed to have purchased the shares for
which it has provided cash-in-lieu  payments. The Escrow Agent is hereby granted
the power to effect any transfer of Escrow  Shares  required by this  Agreement.
Acquirer shall cooperate with the Escrow Agent in promptly  issuing,  or causing
its  transfer  agent to  promptly  issue,  such stock  certificates  as shall be
required to effect such  transfers.  All Escrow Shares and any other  securities
from time to time held in the Escrow  Funds shall be  registered  in the name of
the applicable Retained Target Founder.

             (b) Promptly after the Effective  Time, but in any event within ten
(10) business days after receipt of the letter of transmittal  from the Exchange
Agent,  each  Retained  Target  Founder  will deliver to the Escrow Agent a duly
endorsed  stock power (a "Stock  Power")  substantially  in the form attached as
EXHIBIT  C. In the event any  Additional  Escrow  Shares are  issued,  or if the
Escrow  Agent  reasonably  requires  an  additional  Stock  Power(s) to effect a
transfer, each Retained Target Founder will, upon request,  promptly execute and
deliver an additional Stock Power to the Escrow Agent.

         3.  DIVIDENDS,  VOTING AND  RIGHTS OF  OWNERSHIP.  Except for  tax-free
dividends paid in stock  declared with respect to the Escrow Shares  pursuant to
Section  305(a) of the Internal  Revenue Code of 1986,  as amended (the "CODE"),
which  shall be treated  in the  manner set forth in Section 1 hereof,  any cash
dividends,  dividends  payable in securities or other  distributions of any kind
made in respect of the Escrow  Shares  will be  distributed  by  Acquirer to the
Retained Target Founders and, if distributed to the Escrow Agent, shall promptly
be paid over to the Retained Target Founders.  Each Retained Target Founder will
have voting  rights with  respect to the Escrow  Shares  deposited in the Escrow
with respect to such Retained  Target  Founder so long as such Escrow Shares are
held in the Escrow,  and Acquirer shall take all reasonable  steps  necessary to
allow the  exercise of such rights.  The Escrow Agent shall  forward to Retained
Target Founders all voting  materials and proxies  received by the Escrow Agent.
While the Escrow Shares remain in the Escrow Agent's possession pursuant to this
Escrow Agreement,  the Retained Target Founders will retain and will be entitled
to exercise all other  incidents of ownership of the Escrow Shares which are not
inconsistent with the terms and conditions of this Escrow Agreement.  Subject to
the  rights  of  Acquirer  under  the Plan of  Reorganization  and  this  Escrow
Agreement,  all beneficial interest in the Escrow Funds shall be the property of
the Retained Target Founders from and after the Closing, and Acquirer shall have
no  interest  therein.  None  of the  rights  of the  Retained  Target  Founders
hereunder shall be transferable except as otherwise provided by law. Each of the
Retained  Target  Founders  shall be obligated  for all federal,  state or local
taxes applicable to such Retained Target Founder's interest in the Escrow Fund.

         4.  DISTRIBUTION OF THE ESCROW FUND; TERMINATION OF ESCROW.

             (a) DEFINITIONS.


                                       2
<PAGE>


                    (i) CAUSE.  For all purposes under this  Agreement,  "Cause"
shall mean:

                         (a)  Any  breach  of  this  Agreement,  the  Employment
                              Agreement,   the   Proprietary   Information   and
                              Inventions   Agreement   between  the   applicable
                              Retained  Target Founder and the Acquirer,  or any
                              other  written   agreement  between  the  Retained
                              Target Founder and Acquirer, if such breach causes
                              material harm to Acquirer;

                         (b)  Any  negligence or willful  misconduct by Retained
                              Target  Founder  in his  performance  of duties to
                              Acquirer  that causes  material  harm to Acquirer,
                              including (without limitation) repeated failure to
                              follow  the  directions  of the person to whom the
                              Retained Target Founder reports;

                         (c)  The  repeated   failure  of  the  Retained  Target
                              Founder to diligently follow the lawful directions
                              of the  Board  of  Directors  of  Acquirer  or the
                              repeated failure of the Retained Target Founder to
                              diligently  perform such Retained Target Founder's
                              duties  in a  reasonable  manner  pursuant  to his
                              Employment Agreement with Acquirer;

                         (d)  Commission  of a  felony  under  the  laws  of the
                              United States or any state thereof;

                         (e)  Commission  of any act of fraud,  embezzlement  or
                              dishonesty;

                         (f)  The abuse of alcohol or controlled substances that
                              has  a  detrimental  effect  upon  the  Employee's
                              performance of his duties under this Agreement; or


                         (g)  Any  material  breach by  Employee of any terms of
                              his Employment Agreement.


                    (ii)  EXCLUDED  FROM  Definition  OF  CAUSE.  The  foregoing
definition  "Cause" shall exclude the termination of any Retained Target for the
following:

                         (a)  Death; or

                         (b)  Disability,    meaning   a   disability,   whether
                              temporary  or  permanent,  partial  or  total,  as
                              determined  by the  Compensation  Committee of the
                              Acquirer's Board of Directors.

                    (iii) CONSTRUCTIVE TERMINATION.  For all purposes under this
Agreement,  "Constructive  Termination"  shall mean the voluntary  resignation a
Retained  Target  Founder  following  (i) a reduction  in such  Retained  Target
Founder's  level or opportunity of compensation  (including base salary,  fringe
benefits and  participation  in  corporate-performance  based bonus or incentive
programs) by more than 15% in the aggregate,  (ii) a relocation of such Retained
Target  Founder's  place of  employment by more than 50 miles from such Retained
Target Founder's place of employment  immediately prior to the Merger,  provided
and only if such  reduction or relocation  is effected by Acquirer  without such
Retained  Target  Founder's  express  written  consent  (iii) a  change  in such
Retained Target Founder's  position,  duties or  responsibilities  from those in
effect  on the  Effective  Date  (as  defined  in the  Plan of  Reorganization);
provided that (A) if such Retained  Target Founder is appointed by Acquirer to a
position equivalent to a senior


                                       3
<PAGE>

management  position of Acquirer  following the Effective Date, such appointment
shall not  constitute a  Constructive  Termination  under the provisions of this
Agreement and (B) any change in such Retained Target Founder's position,  duties
or  responsibilities  from those in effect prior to the Effective Date, will not
be deemed to constitute a Constructive Termination under this Agreement.

                    (iv)  VOLUNTARY  TERMINATION.  For all  purposes  under this
Agreement,  "Voluntary  Termination" shall mean termination of a Retained Target
Founder's  employment with Acquirer by a notice to Acquirer from Retained Target
Founder  stating that such Retained  Target Founder is electing to terminate his
employment with Acquirer.

             (b) RETENTION AND RELEASE OF THE ESCROW  SHARES.  The Escrow Shares
will be held by the Escrow Agent from the Closing until thirty-three (33)
months  after the Closing Date (as defined in the Plan of  Reorganization)  (the
"RETENTION ESCROW PERIOD") subject to the following conditions: (i) twenty-seven
and  twenty-seven  hundredths  percent  (27.27%)  of the Escrow  Shares  will be
released to the  Retained  Target  Founders at the end of nine months  after the
Closing  Date and (ii) nine and nine  hundredths  percent  (9.09%) of the Escrow
Shares  will be  released  to the  Retained  Target  Founders at the end of each
three-month  period  thereafter;  provided that (A) in the event of  termination
with Cause or Voluntarily  Termination  of any Retained  Target Founder prior to
the end of the initial  nine-month  period  following  the Closing Date, no such
Escrow  Shares  shall be released  from the Escrow and all of the Escrow  Shares
shall  be  transferred  and  delivered  to the  Acquirer,  (B) in the  event  of
termination  with Cause or Voluntary  Termination of any Retained Target Founder
after the end of the initial  nine-month  period following the Closing Date, the
amount of  Escrow  Shares  to be  thereafter  released  to the  Retained  Target
Founders from the Escrow at the end of each three-month period ending after such
termination  shall be reduced by one-third  and  one-third of the Escrow  Shares
remaining  in the  Retention  Escrow  at the time of such  termination  shall be
transferred  and delivered to the Company,  and (C) in the event of  termination
with Cause or Voluntary  Termination of any two Retained  Target  Founders after
such initial nine-month period after Closing,  no such amounts shall be released
from the Escrow  thereafter  and all of the Escrow  Shares  that then  remain in
Escrow shall be transferred  and delivered to the Acquirer.  The  termination of
any the Retained  Target Founder  without Cause or by  Constructive  Termination
shall not reduce the amount of the Escrow Shares released to the Retained Target
Founders  pursuant to this Section.  All Escrow Shares  released to the Retained
Target  Founders  will be released to each  Retained  Target  Founder in amounts
individually as appropriate in accordance with his Proportionate Interest.

         5. TERM OF ESCROW AGREEMENT. This Escrow Agreement shall terminate upon
the  distribution by the Escrow Agent of all property held in the Escrow Fund or
as otherwise set forth in Section 4.

         6. FEES OF THE ESCROW AGENT.  Acquirer and the Retained Target Founders
agree, jointly and severally,  to pay to the Escrow Agent a fee according to the
fee schedule  attached as EXHIBIT C hereto and all of the expenses of the Escrow
Agent, including expenses related to the indemnity provided in Section 9 hereof.
To the extent such fees and  expenses  are not paid by  Acquirer,  they may paid
from the Escrow Funds after ten (10) days' written  notice from the Escrow Agent
to Acquirer and the Retained Target Founders. As between themselves, Acquirer


                                       4
<PAGE>

and the Retained Target Founders agree that all fees and expenses payable to the
Escrow  Agent will be paid in the first  instance  by  Acquirer as and when they
became payable.

         7. LIABILITY OF THE ESCROW AGENT. In performing any of its duties under
this  Escrow  Agreement,  the Escrow  Agent shall not be liable to any party for
damages, losses or expenses,  except in the event of gross negligence or willful
misconduct  on its part.  In no event  shall  the  Escrow  Agent be  liable  for
punitive,  consequential or incidental damages. The Escrow Agent shall not incur
any such  liability  for (i) any act or  failure  to act made or omitted in good
faith,  or (ii) any action  taken or omitted in  reliance  upon any  instrument,
including  any  written  statement  or  affidavit  provided  for in this  Escrow
Agreement  that the Escrow Agent shall in good faith believe to be genuine;  nor
will  the  Escrow  Agent  be  liable  or  responsible   for  forgeries,   fraud,
impersonations,  or determining the scope of any agent's authority. In addition,
the Escrow Agent may consult with legal counsel of its choice in connection with
its duties under this Escrow  Agreement and shall be fully  protected in any act
taken,  suffered, or permitted by it in good faith in accordance with the advice
of counsel.  The Escrow Agent is not  responsible  for determining and verifying
the  authority of any person  acting or purporting to act on behalf of any party
to this Escrow Agreement.  The Escrow Agent undertakes to perform such duties as
are specifically set forth in this Escrow Agreement,  and the Escrow Agent shall
not be liable except for the performance of such duties as are  specifically set
forth in this Escrow  Agreement.  No implied  covenants or obligations  shall be
read into this Escrow Agreement against the Escrow Agent.

         8. CONTROVERSIES. If any controversy arises between the parties to this
Escrow Agreement,  or with any other party, concerning the subject matter of the
Escrow,  its terms or  conditions,  the  Escrow  Agent will not be  required  to
determine the  controversy or to take any action  regarding it. The Escrow Agent
may hold all  documents  and  funds  and may  wait  for  settlement  of any such
controversy as provided in the Plan of Reorganization.

         9. INDEMNIFICATION OF ESCROW AGENT. Acquirer and the Retained Target
Founders and their respective successors and assigns agree jointly and severally
to  indemnify  and hold the Escrow  Agent  harmless  against any and all losses,
claims,  damages,  liabilities  and  expenses,  including  reasonable  costs  of
investigation,  counsel fees, including allocated costs of in-house counsel, and
disbursements  that may be imposed on the Escrow  Agent,  or  incurred  by it in
connection  with the  performance  of its duties  under this  Escrow  Agreement,
including but not limited to any  arbitration  or  litigation  arising from this
Escrow  Agreement or  involving  its subject  matter.  The costs and expenses of
enforcing  this  right  of  indemnification  shall be paid by  Acquirer  and the
Retained Target Founders,  provided, however, that the Acquirer and the Retained
Target  Founders  shall not pay such costs and  expenses  to the extent that the
Escrow  Agent is  judicially  determined  to have been  negligent  or acted with
willfull misconduct. This right of indemnification shall survive the termination
of this Escrow  Agreement,  and the removal or  resignation of the Escrow Agent.
Nothing  contained  in this  Section 11 shall  impair the rights of the Retained
Target  Founders  and  Acquirer,   as  between  themselves,   including  without
limitation,  their  rights to enforce  the  provisions  of Section 6 hereof with
respect to the allocation of the Escrow Agent's fees.

         10.  RESIGNATION OF ESCROW AGENT. The Escrow Agent may resign giving at
least thirty (30) days' written notice to the other parties;  PROVIDED,  HOWEVER
that no such resignation shall


                                       5
<PAGE>

become  effective until the appointment of a successor  Escrow Agent which shall
be accomplished as follows:  Acquirer and the Retained Target Founders shall use
their best efforts to agree on a successor  Escrow Agent within thirty (30) days
after receiving such notice.  If the parties fail to agree on a successor Escrow
Agent within such time, the Escrow Agent may, at the expense of Acquirer and the
Retained Target Founders,  petition any court of competent  jurisdiction for the
appointment of a successor  Escrow Agent  authorized to do business in the State
of California and, in such event, shall give written notice to the other parties
of such appointment. The successor Escrow Agent shall execute and deliver to the
Escrow Agent an instrument accepting such appointment,  and the successor Escrow
Agent shall,  without  further  acts,  be vested with all the estates,  property
rights,  powers,  and duties of the  predecessor  Escrow Agent as if  originally
named as Escrow  Agent  herein.  The  predecessor  Escrow  Agent  then  shall be
discharged from any further duties and liability under this Escrow Agreement.

         11. MISCELLANEOUS.

             (a) ASSIGNMENT:  BINDING UPON  SUCCESSORS AND ASSIGNS.  None of the
parties hereto may assign any of its rights or obligations hereunder without the
prior  written  consent of the other  parties.  This  Escrow  Agreement  will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

             (b) SEVERABILITY. If any provision of this Escrow Agreement, or the
application  thereof,  shall  for any  reason  and to any  extent  be held to be
invalid  or  unenforceable,  the  remainder  of this  Escrow  Agreement  and the
application  of such  provision  to  other  persons  or  circumstances  shall be
interpreted  so as best to reasonably  effect the intent of the parties  hereto.
The parties further agree to replace such invalid or unenforceable  provision of
this Escrow Agreement with a valid and enforceable provision which will achieve,
to the extent possible, the economic, business and other purposes of the invalid
or unenforceable provision.

             (c) ENTIRE AGREEMENT.  This Escrow Agreement,  the Exhibits hereto,
the documents referenced herein, and the exhibits thereto, constitute the entire
understanding  and  agreement of the parties  hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or  understandings,  inducements or conditions,  express or implied,  written or
oral,  between the parties with respect  hereto and thereto.  The express  terms
hereof  control and  supersede any course of  performance  or usage of the trade
inconsistent with any of the terms hereof.

             (d) NOTICES. No notice or other communication shall be deemed given
unless sent in the manner, and to the persons,  specified in this Section 11(d).
All notices  and other  communications  hereunder  will be in writing and win be
deemed  given  (i)  upon  receipt  if  delivered  personally  (or if  mailed  by
registered or certified mail),  (ii) the day after dispatch if sent by overnight
courier;  or (iii) upon dispatch if transmitted by facsimile (and confirmed by a
copy delivered in accordance with clause (i) or (ii)),  addressed to the parties
at the following addresses:


                                       6
<PAGE>


             To the Escrow Agent:    State Street Bank and Trust Company of
                                     California, N.A.
                                     633 West 5th Street, 12th Floor
                                     Los Angeles, CA  90071
                                     Attention: Corporate Trust Administration
                                                (Silicon Image/DVDO 2000 escrow)
                                     Phone:  (213) 362-7373
                                     Fax:  (213) 362-7357

                    To Acquirer:     Silicon Image, Inc.
                                     1060 East Arques Ave.
                                     Sunnyvale, CA 94086
                                     Attn:     _____________
                                     Phone:    (408) 616-4000
                                     Fax:      (408) 830-9530

                    with a copy to:  Fenwick & West LLP
                                     Two Palo Alto Square, Suite 800
                                     Palo Alto, California 94306
                                     Attn:  David K. Michaels, Esq.
                                     Phone:  650-494-0600
                                     Fax:  650-494-1417

         To the Retained Target Founders:       Laurence A. Thompson

                                                ____________________
                                                Dale R. Adams

                                                ____________________
                                                Cheng Hwee Chee

                                                ____________________

                    with a copy to:      Manatt Phelps & Phillips, LLP
                                     3030 Hansen Way, Suite 100
                                     Palo Alto, CA 94304
                                     Attention:  Thomas L. Barton, Esq.
                                     Phone:    (650) 812-1300
                                     Fax:      (650) 213-0260



Any party may  change  its  address  for such  communications  by giving  notice
thereof to the other parties.  Notwithstanding the foregoing,  notices addressed
to the Escrow  Agent shall be effective  only upon receipt  EXCEPT THAT a notice
faxed to Escrow  Agent shall be deemed  received on such day  provided  that (i)
such fax was transmitted  prior to 5:00 P.M.  Pacific Standard Time on such date
and (ii) there exists written  confirmation of such  transmittal.  If any Claim,
objection  thereto or any other document of any kind is required to be delivered
to the Escrow Agent and any other  person,  the Escrow Agent may assume  without
inquiry that such Claim notice, objection or other


                                       7
<PAGE>

document  was received by such other person on the date on which it was received
by the Escrow Agent.

             (e) OTHER REMEDIES.  Except as otherwise  provided herein,  any and
all remedies herein expressly  conferred upon a party shall be deemed cumulative
with and not  exclusive of any other remedy  conferred  hereby or by law on such
party, and the exercise of any one remedy shall not preclude the exercise of any
other.

             (f)  AMENDMENT  AND  WAIVERS.  Any term or provision of this Escrow
Agreement  may be  amended,  and the  observance  of any  term  of  this  Escrow
Agreement may be waived (either generally or in a particular instance and either
retroactively  or  prospectively)  only by a  writing  signed by the party to be
bound thereby. The waiver by a party of any breach hereof for default in payment
of any amount due  hereunder or default in the  performance  hereof shall not be
deemed to constitute a waiver of any other default or any  succeeding  breach or
default.

             (g) FURTHER  ASSURANCES.  Each party agrees to cooperate fully with
the other  parties  and to  execute  such  further  instruments,  documents  and
agreements  and to give such further  written  assurances,  as may be reasonably
requested  by any other party to better  evidence  and reflect the  transactions
described  herein and  contemplated  hereby and to carry into effect the intents
and purposes of this Escrow Agreement.

             (h) ABSENCE OF THIRD PARTY  BENEFICIARY  RIGHTS.  No  provisions of
this Escrow  Agreement are  intended,  nor shall be  interpreted,  to provide or
create any third party beneficiary rights or any other rights of any kind in any
client,  customer,  affiliate,  shareholder,  partner of any party hereto or any
other person or entity  unless  specifically  provided  otherwise  herein,  and,
except as so provided, all provisions hereof shall be solely between the parties
to this Escrow Agreement.

             (i) GOVERNING  LAW. It is the intention of the parties  hereto that
the internal laws of the State of California  (irrespective of its choice of law
principles) shall govern the validity of this Escrow Agreement, the construction
of its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto.

             (j)  COUNTERPARTS.  This  Escrow  Agreement  may be executed in any
number of  counterparts,  each of which shall  constitute an original and all of
which together shall constitute one and the same instrument.

         12.  INVESTMENTS  OF CASH.  The Escrow Agent shall invest cash, if any,
held in the Escrow,  other than amounts immediately  distributable by the Escrow
Agent,  in the SSgA U.S.  Treasury  Money Market  Fund.  For tax  reporting  and
withholding  purposes,  the income on such investments shall be allocated to the
Retained Target Founders in accordance with their Proportionate Interests in the
Escrow Funds set forth in EXHIBIT B.

         13. TAX REPORTING DOCUMENTATION.  The Retained Target Founders agree to
provide to the Escrow Agent certified tax  identification  numbers consisting of
appropriate Forms W-9 (or Forms W-8, in the case of non-U.S.  persons) and other
forms and documents that the Escrow


                                       8
<PAGE>

Agent may reasonably request  (collectively,  "TAX REPORTING  DOCUMENTATION") to
the Escrow  Agent  within 30 days after the date of such  request.  The  parties
hereto understand that, if such Tax Reporting  Documentation is not so certified
to the Escrow Agent,  the Escrow Agent may be required by the Code, as it may be
amended from time to time,  to withhold a portion of the interest  earned on the
investment of monies or other property held by the Escrow Agent pursuant to this
Agreement.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]


                                       9
<PAGE>


         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
date first set forth above.

ACQUIRER CORPORATION

By:__________________________________

Title:_______________________________




STATE STREET BANK AND TRUST COMPANY
  OF CALIFORNIA, N.A.

By:__________________________________

Title:_______________________________





_____________________________________
Laurence A. Thompson

_____________________________________
Dale R. Adams

_____________________________________
Cheng Hwee Chee


                                       10
<PAGE>


                                    Exhibit C

                     STOCK POWER AND ASSIGNMENT CERTIFICATE


         In connection  with the merger (the  "Merger") of Company O Acquisition
Corp.., a wholly owned subsidiary of Silicon Image, Inc. ("Silicon Image"), with
and into DVDO,  Inc. (the  "Company"),  the  undersigned is receiving  shares of
Silicon  Image  common  stock in respect of the shares of the  Company's  common
stock held by the undersigned immediately prior to the Merger.

         FOR VALUE RECEIVED,  and pursuant to that certain Agreement and Plan of
Merger  dated as of March ___,  2000 (the "Merger  Agreement")  and that certain
Escrow  Agreement  dated as of March __, 2000  executed in  connection  with the
Merger (the "Escrow  Agreement"),  the undersigned  hereby assigns and transfers
unto State Street Bank and Trust Company of  California.,  N.A., as Escrow Agent
(the "Agent") pursuant to the Merger Agreement and the Escrow Agreement:

                    shares of the Company's  common stock  represented  by stock
                    certificate No. ____ tendered herewith (the "Shares")


         The   undersigned   hereby   irrevocably   appoints   the   Agent,   as
attorney-in-fact,  with full power of substitution and re-substitution,  to hold
any and all  certificates  for such Shares in escrow and to transfer such Shares
on the books of Broadbase solely to the extent provided in the Escrow Agreement.

         THIS STOCK POWER AND ASSIGNMENT CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF THE ESCROW AGREEMENT AND THE MERGER AGREEMENT AND MAY ONLY BE USED
STRICTLY IN ACCORDANCE THEREWITH.


Dated:  March __, 2000
                                                              (Signature)


                                                              (Printed Name)


                                       11
<PAGE>
                                   EXHIBIT 4.4

                                   DVDO, INC.

              NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT

         Effective as of  ________________________,  in exchange for my becoming
employed  by  DVDO,  Inc.,  a  California  corporation,   or  its  subsidiaries,
affiliates, or successors (hereinafter referred to collectively as the "Company"
or "Employer"), I (also referred to as "Employee") hereby agree as follows:

         1. I  understand  that I have been hired by the Company as an employee.
As an obligation of starting as an employee or continuing my employment,  I will
perform for the Company  such duties as may be  designated  by the Company  from
time to time,  including,  but not limited to,  those  described  in any Company
employment offer letter to me. During my period of employment by the Company,  I
will devote my best efforts to the  interests of the Company and will not engage
in other  employment or in any  activities  detrimental to the best interests of
the Company without the prior written consent of the Company.  I understand that
my title, duties and reporting  responsibilities  will initially be as set forth
in any such  employment  letter,  until  changed,  and that same may change from
those  originally set forth in such letter. I understand that there are no other
terms of compensation or benefits except as set forth in the employment  letter.
I further  understand  that I am an at will  employee,  and my employment may be
terminated by the Company in its  discretion  at any time. I further  understand
that I can terminate my employment at any time.

         2. Without further compensation, I hereby agree promptly to disclose to
the  Company,  and I hereby  assign  and agree to assign to the  Company  or its
designee,  my entire right,  title,  and interest in and to all  Inventions  (as
defined in  paragraph  6) which (a) pertain to any line of business  activity of
the Company,  (b) are aided by the use of time,  material or  facilities  of the
Company,  whether or not during working  hours,  or (c) relate to any of my work
during  the  period of my  employment  with the  Company,  whether or not during
working hours.

         3. I agree  to  perform,  at  Company  expense,  during  and  after  my
employment,  all acts deemed necessary or desirable by the Company to permit and
assist Company, in obtaining and enforcing the full benefits,  enjoyment, rights
and title throughout the world in the Inventions  hereby assigned to the Company
as set forth in paragraph 2 above.  Such acts may  include,  but are not limited
to,  execution of documents and assistance or cooperation in legal  proceedings.
If I do not cooperate  reasonably in signing such documents,  I hereby authorize
Company to execute on my behalf as my attorney  in fact for the limited  purpose
of  perfecting  Company's  rights in such  Inventions,  as if I had signed  same
myself,  any and  all  documents  which  are  reasonably  necessary  to  perfect
Company's rights in such Inventions.

         4. I agree to hold in confidence  and not directly or indirectly to use
or  disclose,  either  during or after  termination  of my  employment  with the
Company, any Confidential Information (as defined in paragraph 6 below) I obtain
or create  during the  period of my  employment,  whether or not during  working
hours, except to the extent authorized by the Company or until such Confidential
Information  becomes  generally  known.  I  agree  not to  make


<PAGE>

copies of such  Confidential  Information  except as  authorized by the Company.
Upon  termination of my employment or upon an earlier request of the Company,  I
will return or deliver to the Company all  tangible  forms of such  Confidential
Information  in my  possession  or  control,  including,  but  not  limited  to,
drawings,  specifications,  documents,  records,  devices,  models  or any other
material and copies or reproductions thereof.

         5. I represent  that my  performance of all the terms of this Agreement
and as an employee of the Company does not and will not breach any  agreement to
keep in confidence proprietary information,  knowledge or data acquired by me in
confidence or in trust prior to my employment  with the Company,  and I will not
disclose to the  Company,  or induce the  Company to use,  any  confidential  or
proprietary  information  or  material  belonging  to any  previous  employer or
others.  I agree  not enter  into any  agreement,  either  written  or oral,  in
conflict with this Agreement.

         6. As used in this Agreement,  the term "Inventions"  means trademarks,
processes,  hardware and software creations,  discoveries,  formulae, processes,
techniques,  trade secrets,  inventions,  improvements,  ideas or  copyrightable
works,  including  all rights to obtain,  register,  perfect and  enforce  these
proprietary interests. The term "Confidential Information" means (a) information
pertaining to any aspect of the Company's  business which is not known by actual
or potential  competitors of the Company or (b)  proprietary  information of the
Company  or its  customers  or  suppliers,  whether  of a  technical  nature  or
otherwise,  which the Company (or its  suppliers  or vendors)  takes  reasonable
measures to protect against unauthorized  disclosure to or use by third parties,
including, without limitation, customer or client lists and names, addresses and
phone numbers of Company's customers, clients, and employees.

         7. I agree that,  during the term of my employment  and for a period of
one year thereafter, I will not solicit or encourage any employee of the Company
to terminate his employment  with the Company or to accept  employment  with any
subsequent employer with whom I am affiliated in any way.

         8. This Agreement  shall (a) survive my employment by the Company,  (b)
not in any way  restrict  my right or the right of the Company to  terminate  my
employment,  (c) inure to the benefit of successors  and assigns of the Company,
(d) be binding upon my heirs and legal representatives,  (e) supersede all prior
written and oral agreements and  constitutes  the parties' entire  understanding
with  respect to the  subject  matter  herein,  and (f) not be amended or waived
without the express prior written consent of the parties.

         9. I agree  that for one year after the date my  employment  by Company
ceases,  I will not solicit or attempt to solicit the employment for the benefit
of a third party of any  Company  employee  for a period of one year.  I further
agree that I shall not use at any time any Confidential  Information in a manner
which would be injurious to Company.

        10. I certify that, to the best of my information and belief, I am not a
party to any other  agreement  which will interfere with my full compliance with
this Agreement.

        11.  In the  event  that any of the  terms or  provisions  herein  shall
violate any statutory provision or may be otherwise unlawful or inoperative,  it
is the intent and desire of the parties

                                       2


<PAGE>

that the remainder of this Agreement shall stay in full force and effect insofar
as such terms do not violate any statutory provision or are otherwise lawful and
that this Agreement be enforced to the maximum extent possible.

        12. I  UNDERSTAND  THAT IN  ACCORDANCE  WITH  SECTIONS  2870-2872 OF THE
CALIFORNIA LABOR CODE THAT THIS AGREEMENT DOES NOT REQUIRE ME TO ASSIGN OR OFFER
TO ASSIGN TO THE COMPANY ANY INVENTION THAT I DEVELOPED  ENTIRELY ON MY OWN TIME
WITHOUT  USING THE  COMPANY'S  EQUIPMENT,  SUPPLIES,  FACILITIES OR TRADE SECRET
INFORMATION  EXCEPT FOR THOSE INVENTIONS THAT EITHER:  (A) RELATE AT THE TIME OF
CONCEPTION OR REDUCTION TO PRACTICE OF THE INVENTION TO THE COMPANY'S  BUSINESS,
OR ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE COMPANY; OR
(B)  RESULT  FROM ANY WORK  PERFORMED  BY ME FOR THE  COMPANY.  TO THE  EXTENT A
PROVISION  IN THIS  AGREEMENT  PURPORTS  TO  REQUIRE  ME TO ASSIGN AN  INVENTION
OTHERWISE  EXCLUDED  FROM THIS  PARAGRAPH,  THE  PROVISION IS AGAINST THE PUBLIC
POLICY  OF  THE  STATE  OF  CALIFORNIA  AND  IS  UNENFORCEABLE.  I  CERTIFY  AND
ACKNOWLEDGE  THAT I HAVE  CAREFULLY READ ALL OF THE PROVISIONS OF THIS AGREEMENT
AND THAT I UNDERSTAND AND WILL FULLY AND FAITHFULLY COMPLY WITH SUCH PROVISIONS.

DVDO, INC.                               EMPLOYEE


By:
     ---------------------------         ----------------------------------
     Name:
     Title:

                                       3

<PAGE>
                                  EXHIBIT 7.6

                     FORM OF OPINION OF COUNSEL TO ACQUIRER

                  1. Each of Acquirer and Newco is a corporation duly organized,
validly  existing and in good  standing  under the laws of the State of Delaware
and has the  corporate  power  and  authority  to own,  operate  and  lease  its
properties and to carry on its business as now conducted.

                  2. Each of  Acquirer  and Newco has the  corporate  power and
authority to enter into and perform its obligations  under the Agreement and the
Certificate of Merger.

                  3. The  shares of  Acquirer  Common  Stock to be issued in the
Merger will,  when issued in accordance with the provisions of the Agreement and
the Certificate of Merger,  be duly authorized,  validly issued,  fully paid and
nonassessable.

                  4. All corporate  action on the part of Acquirer's and Newco's
directors  and  stockholders  necessary  for the  authorization,  execution  and
delivery of the Agreement and the  Certificate of Merger and the  performance of
Acquirer's and Newco's  obligations  under the Agreement and the  Certificate of
Merger,  to be authorized as of the date hereof,  has been taken.  The Agreement
and the Certificate of Merger have been duly and validly  executed and delivered
by Acquirer and Newco and constitute  valid and binding  obligations of Acquirer
and Newco,  enforceable  against  Acquirer  and Newco in  accordance  with their
respective terms.

                  5. Neither the execution nor delivery of the Agreement and the
Certificate of Merger,  nor the  consummation of the  transactions  contemplated
thereby,  conflicts  with, or (with or without notice or lapse of time, or both)
results in a violation of, any provision of the Certificate of  Incorporation or
Bylaws of Acquirer or Newco,  as currently in effect or, to our  knowledge,  any
provision of applicable U.S.  federal or California state law rule or regulation
or any provision of the Delaware General Corporation Law.

                  6. To our  knowledge,  no filing,  authorization  or approval,
with any governmental entity, is necessary to enable Acquirer to enter into, and
to perform its obligations  under,  the Agreement and the Certificate of Merger,
except  for (a) the  filing  of the  Certificate  of  Merger  with the  Delaware
Secretary  of State and the filing of  appropriate  documents  with the relevant
authorities  of other states in which  Acquirer is qualified to do business,  if
any,  and (b) such  filings as may be required to comply with  federal and state
securities laws.

                  7.  To  our  knowledge,  there  is no  action,  proceeding  or
investigation  pending or overtly  threatened  against the  Acquirer  before any
court or  administrative  agency that questions the validity of the Agreement or
that might result,  either  individually  or in the  aggregate,  in any material
adverse  change in the assets,  financial  condition or results of operations of
the Acquirer.



                                                                        COMMENTS
                                                                       3/29/2000

                                   EXHIBIT 8.6

                        FORM OF OPINION OF TARGET COUNSEL

                               _____________, 2000

         l.  Target has been duly  incorporated  and  organized,  and is validly
existing in good standing, under the laws of the State of California. Target has
the corporate  power and authority to enter into and perform the Agreement,  the
Agreement of Merger,  Target Ancillary  Agreements and the Certificate of Merger
(collectively,  the "Transaction Agreements"), to own and operate its properties
and assets and to carry on its business as currently conducted.

         2.  Target  does  not,  to our  knowledge,  presently  own or  control,
directly or  indirectly,  any  interest in any other  corporation,  partnership,
trust, joint venture, association or other entity.

         3.  Target is, to our  knowledge,  duly  qualified  to do business as a
foreign  corporation  in good  standing  in all  jurisdictions  in  which  it is
required to be  qualified to carry on  intrastate  business as such is currently
conducted by Target,  except for  jurisdictions  in which  failure to so qualify
could not reasonably be expected to have a Material Adverse Effect on Target.

         4.       The capitalization of Target immediately prior to the Closing
consists of the following:

                  (a)  PREFERRED STOCK: A total of  ________________  authorized
         shares of Preferred Stock, of which  ________________  shares have been
         designated Series A Preferred Stock and ______________ shares have been
         designated  Series B Preferred Stock.  There are issued and outstanding
         3,193,548  shares of Series A Preferred  Stock and 4,215,315  shares of
         Series B Preferred Stock. All of such issued and outstanding shares are
         duly  authorized,   validly  issued,   fully  paid  and  nonassessable.
         Immediately prior to the Closing, the rights,  preferences,  privileges
         and  limitations  of the Series A and Series B  Preferred  Stock are as
         stated in the Articles and applicable law.

                  (b)  COMMON  STOCK.  A total of  _____________  authorized
         shares  of Common  Stock. To our knowledge,  __________  shares of such
         Common  Stock are issued and  outstanding.  All of such issued and
         outstanding shares are duly authorized, validly issued, fully paid and
         nonassessable.

                  (c)  OPTIONS,  ETC.  Other  than as set  forth  in the  Target
         Disclosure  Letter  there  are no  preemptive  rights  or any  options,
         warrants,  conversion privileges or other rights (or agreements for any
         such rights)  outstanding  to acquire any of Target's  securities  from

<PAGE>

         Target,  EXCEPT  FOR (i) the  conversion  privileges  of the  Preferred
         Stock, (ii) outstanding  warrants to purchase  _____________  shares of
         Series B Preferred  Stock,  (iii)  options to purchase an  aggregate of
         4,000,000 shares of Common Stock reserved for issuance  pursuant to the
         Target  Plan (of which,  to our  knowledge,  options to  purchase  ____
         shares of Common Stock are outstanding ).

         5.       Target has all requisite  corporate  power and  authority to
execute and deliver the  Transaction Agreements and to carry out and perform its
obligations under the Transaction Agreements.

         6.       All  corporate  action  on the  part  of  Target's  directors
and stockholders necessary for the authorization,  execution and delivery of the
Transaction  Agreements and the  performance of Target's  obligations  under the
Transaction Agreements,  to be authorized as of the date hereof, has been taken.
The Transaction  Agreements have been duly and validly authorized,  executed and
delivered  by Target and  constitute  valid and binding  obligations  of Target,
enforceable against Target in accordance with their respective terms.

         7.       The execution and delivery of the Transaction  Agreements by
Target and the  performance by Target of its  obligations  under the Transaction
Agreements do not conflict with, or result in a violation of, Target's  Articles
of  Incorporation  or Bylaws or, to our  knowledge,  (i) any provision of United
States  federal or  California  law or any  provision  of the  Delaware  General
Corporation Law or (ii) any judgment, order or decree of any court or arbitrator
to which  Target is a party or is subject and to our  knowledge  do not conflict
with or  constitute a material  breach by Target of, or  constitute a default by
Target under, any of the Target Material Agreements.

         8.       To our  knowledge,  except as  described  in the Target  Dis-
closure Letter, there is no suit, action, proceeding or investigation pending or
overtly threatened against Target before any court or administrative agency that
questions  the  validity  of any of the  Transaction  Agreements  or that  might
result, either individually or in the aggregate,  in any material adverse change
in the assets, financial condition or results of operations of Target.

         9.       To our  knowledge,  all  consents,  approvals, authorizations,
or orders of, and filings, registrations, and qualifications with any regulatory
authority  or   governmental   body  in  the  United  States  required  for  the
consummation  by  Target of the  transactions  contemplated  by the  Transaction
Agreements  have  been  made  or  obtained  except  for (a)  the  filing  of the
Certificate of Merger with the Delaware Secretary of State and the filing of the
Agreement of Merger with the California  Secretary of State and (b) such filings
as may be required to comply with federal and state securities laws.

                                      -2-