<PAGE>
 
                                                                    Exhibit 10.2
 
                             EMPLOYMENT AGREEMENT


     THIS AGREEMENT, by and between David Zucker (the "Executive") and DIVA
Systems Corporation, a Delaware corporation (the "Company"), shall become
effective as of January 16, 1999, (the "Effective Date"). The first date of
employment shall be February 18, 1999 (the "Commencement Date").

     In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:

     1.   Duties and Scope of Employment.
          ------------------------------ 

          (a) Position.  The Company agrees to employ the Executive under the
              --------                                                       
terms of this Agreement in the position of President and Chief Executive
Officer.  Executive will report only to the Board of Directors (or committees
thereof) or the Chairman of the Board and to no other individual executive
officers of the Company.

          (b) Obligations.  During the term of this Agreement, the Executive
              -----------                                                   
shall devote Executive's full business efforts and time to the Company.  The
foregoing, however, shall not preclude the Executive from engaging in civic,
charitable or religious activities or from devoting a reasonable amount of time
to private investments, as long as such activities and service do not materially
interfere or conflict with Executive's responsibilities to the Company and do
not represent business conflicts with the Company's business.

          (c) Company Policies.  Executive shall comply with all of the
              ----------------                                         
Company's rules and regulations applicable to the executives of the Company and
with all of the Company's policies applicable to the executives established by
the Board of Directors.

          (d) Director Position.  Executive shall be appointed to the Board of
              -----------------                                               
Directors of the Company promptly following the Commencement Date and shall be
nominated by the Company for reelection as a director at each meeting of the
stockholders at which directors are elected.  Executive agrees to resign from
the Board of Directors in the event his employment with the Company terminates.

     2.  Base Compensation and Bonuses.
         ----------------------------- 

          (a) Base Compensation.  Beginning on the Effective Date, the Executive
              -----------------                                                 
shall be paid a base salary (the "Base Compensation") of $350,000 annually,
payable semi-monthly.  The Base Compensation shall be subject to review annually
for increases by the Board of Directors in its discretion in connection with the
annual review of salary and benefits for the Company's management.

          (b) Bonus.  Executive shall be entitled to an annual performance bonus
              -----                                                             
based on meeting or exceeding annual goals.  In the last month of each fiscal
year the Board of Directors will determine in its discretion the amount of the
bonus payable to Executive on the basis of performance against a set of criteria
and goals established mutually by Executive and the Board.  The determination
<PAGE>
 
of the achievement of the goals shall be made by the Board of Directors in its
discretion. The maximum bonus as a percentage of Base Compensation shall be
200%. Additionally, from time to time, the Board may in its discretion grant
additional long term incentives to Executive.

          (c) Acceptance Bonus.  The Company will pay to Executive within ten
              ----------------                                               
days from the Commencement Date a one time acceptance bonus of $850,000 (the
"Acceptance Bonus"), which shall be in addition to any other salary or bonus due
to Executive.  Executive agrees to repay the Acceptance Bonus to the Company if
Executive terminates his employment with Company for any reason other than a
Constructive Termination, Disability or death prior to December 31, 1999.  Such
repayment shall be made within thirty (30) days after such termination.

     3.  Definitions.  As used herein, the following definitions shall apply:
         -----------                                                         

          (a) "Cause" shall mean the termination of employment of Executive
               -----                                                       
shall have taken place as a result of (i) Executive's continued material failure
to substantially perform Executive's principal duties and responsibilities
(other than as a result of Disability or death) after thirty (30) days written
notice from the Company specifying the nature of Executive's failure and
demanding that such failure be remedied; (ii) Executive's material and
continuing breach of his obligations to the Company set forth in this Agreement,
the Confidentiality Agreement (as defined herein), or any written policy of the
Company applicable to all officers after thirty (30) days written notice from
the Company specifying the nature of Executive's breach and demanding that such
breach be remedied (unless such breach by its nature cannot be cured, in which
case notice and an opportunity to cure shall not be required); (iii) Executive's
being convicted of a felony; or (iv) act or acts of dishonesty undertaken by
Executive and intended to result in substantial gain or personal enrichment of
Executive at the expense of the Company.

          (b) "Constructive Termination" shall mean a termination of employment
               ------------------------                                        
due to any of the following, unless agreed to by Executive in writing:  (i) a
reduction in Executive's salary or benefits (except in connection with a
decrease to be applied pro rata to all Senior Executives of the Company because
the Company's performance has decreased, and excluding the substitution of
substantially equivalent compensation and benefits); (ii) a material diminution
of Executive's responsibilities (e.g., title, primary duties, resources); (iii)
relocation of Executive by the Company to a location more than 50 miles from
Menlo Park, California; (iv) the failure of Executive to be elected as a
director, or removal of Executive as a director, of the Company at any time when
the Company is obligated to nominate Executive for election as a director under
Section 1(d) of this Agreement;  (v) failure of a successor to assume and
perform under this Agreement; or (vi) a material breach of this Agreement or any
Stock Option Agreement by the Company not cured within fifteen (15) days after
written notice from Executive specifying the nature of the Company's breach and
demanding that such breach be remedied.

          (c) "Disability" shall mean that the Executive, at the time notice is
               ----------                                                      
given, has been unable to perform Executive's material duties under this
Agreement for a period of not less than ninety (90) days consecutively as the
result of Executive's incapacity due to physical or mental illness.  In the
event that the Executive resumes the performance of substantially all of
Executive's duties hereunder

                                      -2-
<PAGE>
 
within ninety (90) days of the commencement of leave before the termination of
employment under Section 6(b)(iii) becomes effective, the notice of termination
shall automatically be deemed to have been revoked. This paragraph will be
enforced in compliance with the Americans with Disabilities Act.

          (d) "Change of Control" shall mean the occurrence of any of the
               -----------------                                         
following events:

               (i)    Any "person" or "group of persons" (as such terms are used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
and the Rules thereunder) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or

               (ii)   A change in the composition of the Board of Directors of
the Company as a result of which fewer than a majority of the directors are
"Incumbent Directors." "INCUMBENT DIRECTORS" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board of Directors with the affirmative votes
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for election as a director without
objection to such nomination) of at least three-quarters of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors of the Company);
or

               (iii)  The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company, such surviving entity or
the entity that controls such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.

     4.  Executive Benefits.
         ------------------ 

         (a) General.  Executive shall be entitled to participate in pension
             -------                                                        
plans, savings or profit-sharing plans, deferred compensation plans,
supplemental retirement or all excess-benefit plans, stock option, incentive or
other bonus plans, life, disability, health, accident and other insurance
programs, paid time off (which will accrue for the Executive at a rate of .833
days per pay period beginning on the effective date of this Agreement), a car
mileage allowance for business mileage and similar plans or programs made
available to executives of the Company, subject in each case to the generally
applicable terms and conditions of the plan or program and the decision of the
Board of Directors or administrators of such plan.

                                      -3-
<PAGE>
 
         (b)  Stock Awards and Put Right.
              -------------------------- 

              (i)   Stock Options. The Executive shall be granted four stock
                    ------------- 
options (collectively the "Options") to purchase shares of Common Stock of the
Company effective as of the Commencement Date, pursuant to Stock Option
Agreements in the form of EXHIBITS A hereto. All such Options shall be non-
qualified options. The first option shall be for 600,000 shares and shall have
an exercise price of $3.35 per share (the "First Option"). The second option
shall be for 600,000 shares and shall have an exercise price of $3.35 per share
(the "Second Option"). The third option shall be for 400,000 shares and shall
have an exercise price of $4.50 per share (the "Third Option"). The fourth
option shall be for 200,000 shares and shall have an exercise price of $8.00 per
share (the "Fourth Option"). Each Option shall be exercisable cumulatively to
the extent of ten percent (10%) of the total number of shares subject to the
Options six (6) months after the Commencement Date, and an additional five
percent (5%) of the total shares subject to the Options at the end of each three
(3) month period thereafter subject to continued employment. The Options shall
have a term of ten (10) years. Executive will be eligible to receive additional
grants in the discretion of the Company's Board of Directors.

              (ii)  Vesting Acceleration After Change of Control. The Options
                    --------------------------------------------
shall become fully exercisable on the earlier of six (6) months from the date of
the Change of Control or the termination of Executive's employment by the
Company after the date of the Change of Control without Cause as provided in the
Stock Option Agreements.

              (iii) Put Right. The Executive shall be entitled to return to the
                    ---------
Company the First Option in exchange for a lump sum payment (the "Lump Sum
Payment") by the Company in the amount as follows:


                    (A) If the Executive makes such election during the one year
period commencing on the one year anniversary of the Commencement Date, the Lump
Sum Payment shall be equal to $960,000. Executive shall be entitled to make the
election in this subsection (iii)(A) during the period specified whether or not
Executive's employment is terminated for any reason during such period.

                    (B) If the Executive makes such election at any time on or
after the second anniversary of the Commencement Date and prior to the fifth
anniversary of the Commencement Date, the Lump Sum Payment shall be equal to
$1,920,000. Executive shall be entitled to make the election in this subsection
(iii)(B) during the period specified whether or not Executive's employment is
terminated for any reason during such period.

                    (C) Except as provided in Section 4(b)(iii)(F), the election
by Executive may not be made prior to the one year anniversary of the
Commencement Date or after the fifth year anniversary of the Commencement Date
and must be exercised within thirty (30) days of termination of employment for
any reason. The Executive may not make an election and the right to receive the
Lump Sum Payment shall terminate if Executive's employment terminates prior to
the one year anniversary of the Commencement Date except as provided in Section
4(b)(iii)(F).

                                      -4-
<PAGE>
 
                    (D) In the event Executive prior to the election exercises
any of the First Option, the amount of the Lump Sum Payment owed to Executive
upon election under (A) or (B) or (F) herein shall be reduced to the amount
determined by multiplying $960,000 or $1,920,000, as applicable, by a fraction,
the numerator of which shall be the number of shares subject to the Option which
have not been exercised by the total number of shares initially subject to First
Option of 600,000. Upon exercise of the election and payment of the Lump Sum
Payment, the First Option shall be canceled.

                    (E) The Company will pay any Lump Sum Payment owed to
Executive within 10 days after receipt of written notice of Executive's
election.

                    (F) In the event that at any time prior to the second
anniversary of the Commencement Date (i) the Company terminates Executive's
employment without Cause, or the Company terminates Executive's employment for
Cause because of any reason other than Section 3(a)(ii) or (iii) or (iv) or, if
and only if Executive's failure to perform is because he refuses or does not
come to work and exercise reasonable efforts to perform his duties and
responsibilities other than because of Disability (i), or Executive terminates
such employment as a result of a Constructive Termination or such employment
terminates as a result of Executive's Disability or (ii) there occurs a Change
of Control (as defined in Section 3(d)), or (iii) the Company completes any sale
of shares of Common Stock or Preferred Stock registered with the Securities and
Exchange Commission (an "Initial Public Offering") then the Lump Sum Payment
will be equal to $1,920,000, and Executive may exercise the right to return the
First Option to the Company without regard to the time limitations in Section
4(b)(iii)(A).

          (c) Relocation Benefits.  (i) The Company will reimburse the Executive
              -------------------                                               
for costs associated with moving from New York to the San Francisco area in
accordance with customary and comparable industry standards, including the cost
of transporting household goods; travel and other expenses associated with
finding a new residence for Executive and his wife (up to four round trips);
brokerage fees, if any, paid by Buyer in renting/acquiring a new residence; and,
reimbursement for temporary housing near the Company's location, following the
Commencement Date, prior to his acquiring/closing on a new residence, subject to
a maximum of 60 days.

              (ii)  Executive owns a co-operative apartment residence, number
19F, at 875 Fifth Avenue in New York, and would intend to sell such residence as
soon as reasonably possible in conjunction with his relocation to the Bay Area.
In the event that the Executive has established residence in the Bay Area, but
has not closed the sale of his residence in New York, the Company agrees to
reimburse Executive for the monthly maintenance charge at his NY residence which
is $2,750 per month, on a monthly basis, until the earlier of the actual close
of sale of the NY residence or the end of calendar year 1999.

     5.  Business Expenses and Travel and Office Space.  During the term of
         ---------------------------------------------                     
Executive's employment under this Agreement, Executive shall be authorized to
incur necessary and reasonable travel, entertainment and other business expenses
in connection with his duties hereunder.  The Company shall reimburse Executive
for such expenses upon presentation of an itemized account and appropriate
supporting documentation, all in accordance with the Company's generally
applicable policies.

                                      -5-
<PAGE>
 
     6.  Term of Employment.
         ------------------ 

         (a) Basic Rule.  The Company agrees to continue Executive's
             ----------                                             
employment, and Executive agrees to remain in the employ of the Company, during
the term of this Agreement pursuant to the provisions of this Agreement,
provided that Executive's employment is expressly at will.

         (b) Termination by the Company.  The Company may terminate Executive's
             --------------------------                                        
employment at any time, for any reason or no reason, with thirty (30) days
advance notice in writing.

             (i)   Termination Without Cause. If the Company terminates
                   ------------------------- 
Executive's employment during the term of this Agreement for any reason
whatsoever, including a Constructive Termination, and other than voluntary
termination of employment or Termination for Cause, the provisions of Section
7(a) shall apply.

             (ii)  Termination for Cause.  If the Company terminates Executive's
                   ---------------------                                        
employment for Cause during the term of this Agreement, the provisions of
Section 7(b) shall apply.

             (iii) Termination on Death or Disability. If Executive's employment
                   ---------------------------------- 
is terminated as a result of Executive's death or the Company terminates
Executive's employment as a result of Disability, the provisions of Section 7(c)
shall apply.

          (c) Voluntary Termination by the Executive. The Executive may
              --------------------------------------
terminate Executive's employment voluntarily by giving the Company thirty (30)
days advance notice in writing, at which time the provisions of Section 7(b)
shall apply. However, if the Executive terminates Executive's employment
pursuant to this Section 6(c) as a result of the occurrence of any of the events
set forth in the definition of a Constructive Termination, the provisions of
Section 7(a) shall apply, provided the Executive has provided written notice to
the Company reasonably specifying the reasons why one of such events in the
definition of a Constructive Termination has occurred and the Company has not
cured such event within thirty (30) days after receipt of such notice.

          (d) Waiver of Notice.  Any waiver of notice shall be valid only if it
              ----------------                                                 
is made in writing and expressly refers to the applicable notice requirement in
this Section 6.

     7.   Payments Upon Termination of Employment.
          --------------------------------------- 

          (a) Payments Upon Termination Pursuant to Section 6(b)(i) and
              ---------------------------------------------------------
Constructive Termination.  If, during the term of this Agreement, the
------------------------                                             
Executive's employment is terminated by the Company pursuant to Section 6(b)(i)
or voluntarily by the Executive under Section 6(c) as a result of a Constructive
Termination, the Executive, in addition to any other amounts specified herein,
shall be entitled to receive the following:

              (i) Severance Payment.  The Company shall pay to the Executive
                  -----------------                                         
the following amount (the "Severance Payment"):

                                      -6-
<PAGE>
 
               (a) If the termination occurs within the first year following the
Commencement Date, 150% of $350,000, multiplied by three years, for a total of
$1,575,000;

               (b) If the termination occurs on or after the first anniversary
of the Commencement Date and prior to the second anniversary of the Commencement
Date, 150% of the total cash compensation earned by Executive in the trailing
twelve months prior to termination, including Base Salary and cash bonuses,
multiplied by two years (for illustrative purposes only, if Executive earned a
total of $375,000 in Base Salary and received a cash bonus of $75,000 during
such trailing twelve month period then the Severance Payment would be equal to
$1,350,000); and

               (c) If the termination occurs on or after the second anniversary
of the Commencement Date, 150% of the total cash compensation earned by
Executive in the trailing twelve months prior to termination, including Base
Salary and cash bonuses.

          (ii) Adjustment Payment.  If the termination of employment subject to
               ------------------                                              
this Section 7(a) occurs prior to a Change of Control, and within six (6) months
after such termination (the "Post Employment Period"), a Change of Control or an
Initial Public Offering occurs, or the Company enters into an agreement
(regardless of any closing conditions or contingencies) for, or the Board of
Directors approves a transaction that would result in, a Change of Control or an
Initial Public Offering, regardless of whether such Change of Control or Initial
Public Offering is completed prior to the end of the Post Employment Period,
then the Executive shall receive at the time the Change of Control or Initial
Public Offering occurs the following additional payment:  the amount, if any, by
which (A) the "Fair Market Value" of the shares of Common Stock subject to the
Options which have not been exercised by Executive (whether or not such Options
were exercisable as of the date of termination), (B) less the exercise price of
such Options and, then (C) multiplied by a fraction consisting of the number of
Options which have not been exercised by Executive divided by 1,800,000 (D)
exceeds $1,920,000.  The Fair Market Value of a share of Common Stock shall be
determined as follows:  For purposes of the above calculation, if the event is
an Initial Public Offering, Fair Market Value of one share of Common Stock shall
be the Initial Public Offering price per share and if the event is a Change of
Control, Fair Market value of one share of Common Stock shall be the value used
by the parties in the transaction; provided, however, that where there exists a
public market for the Company's Common Stock at the time of such determination,
the Fair Market Value per share shall be the average of the last reported sale
price of the Common Stock or the closing price quoted on the National Market
System or on any exchange on which the Common Stock is listed, whichever is
applicable, as published in the Western Edition of The Wall Street Journal for
the five (5) trading days prior to the date of the Change of Control or if the
Company is not public and the Company's stockholders will receive in the
transaction a publicly traded security, then the Fair Market Value per share
shall be the average of the last reported sale price of such security (or
fraction of such security) received for one share of Common Stock or the closing
price quoted on the National Market System or on any exchange on which such
security is listed, whichever is applicable, as published in the Western Edition
of The Wall Street Journal for the five (5) trading days prior to the date of
the Change of Control.

               (iii)  Method of Payment.  The Severance Payment shall be paid in
                      -----------------                                         
a lump sum within ten (10) days after such termination.

                                      -7-
<PAGE>
 
               (iv) Health and Welfare Benefits.  The Company shall continue to
                    ---------------------------                                
provide health and welfare benefits to Executive for twelve (12) months after
termination.  Such benefits will be discontinued to the extent that Executive
receives similar benefits in connection with new employment.

               (v) Payment in Lieu of Contract Damages. The Severance Payment
                   ----------------------------------- 
shall be in lieu of any further payments to the Executive and any further
accrual of benefits with respect to periods subsequent to the date of the
employment termination.

               (vi) No Duty to Mitigate; No Payment Offset. The Executive shall
                    --------------------------------------         
not be required to mitigate the amount of any payment contemplated by this
Section 7(a) (whether by seeking new employment or in any other manner) and the
Severance Payment shall not be reduced by the amount of any other compensation
earned or received by Executive after termination of this Agreement.

          (b) Termination By Company for Cause or Voluntary Termination.  If the
              ---------------------------------------------------------         
Executive's employment is terminated pursuant to Section 6(b)(ii) or voluntarily
(other than a Constructive Termination) pursuant to Section 6(c), no
compensation or payments will be paid or provided to Executive for the periods
following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, Executive's rights under the benefit
plans referred to in Section 4(a) and Option agreements of the Company shall be
determined under the provisions of those plans and agreements, provided
Executive shall be entitled to exercise any stock options only to the extent
such Options are exercisable as of the date of termination and only within the
time period specified in the Option Agreements and Executive's rights under
Section 4(b)(iii) shall be determined pursuant to such section.

          (c) Termination on Death or Disability.  If Executive's employment is
              ----------------------------------                               
terminated because of Executive's death or Disability (as defined in Section
3(c) herein), then no payments shall be owed under this Agreement and Executive
shall receive severance and disability payments as provided in the Company's
standard benefit plans, provided that in the event of Executive's Disability
Executive, and in the event of Executive's death Executive's successors, shall
be entitled to exercise the rights set forth in Section 4(b)(iii) to the extent
Executive could have exercised such rights.  Executive's Options shall be
exercisable as provided in such agreements in each case to the extent such
Options are exercisable as of the date of termination.  Executive shall also be
entitled to amounts and benefits under the Company's other benefit plans
referred to in Section 4(a) in accordance with the terms thereof.

          (d) Adjustment Upon Change of Control For Excise Tax.  Notwithstanding
              ------------------------------------------------                  
any other provision of this Agreement, if a termination of employment occurs and
as a result Executive is subject to any Federal excise tax imposed pursuant to
Section 4996 of the Internal Revenue Code (or any successor provision),
Employee's Severance Payment and acceleration of vesting of Options shall be
reduced to the extent necessary if Employee would receive a greater after tax
benefit as a result of any such excise tax than if Employee receives full
payment of the Severance Payment and full acceleration of all such Options.  Any
such reduction shall be applied first to the Severance Payment, and then to
acceleration of the Fourth Option, then to acceleration of the Third Option,
then to acceleration of the Second Option and then to acceleration of the First
Option.  Employee shall be responsible for payment of any excise tax.

                                      -8-
<PAGE>
 
     8.  Proprietary Information.  The Executive agrees to comply fully with the
         -----------------------                                                
Company's policies relating to non-disclosure of the Company's trade secrets and
proprietary information and processes, as set out in the Confidentiality
Agreement set out as EXHIBIT B hereto (the "Confidentiality Agreement").

     9.  Successors.
         ---------- 

         (a) Company's Successors.  Any successor to the Company (whether
             --------------------                                        
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume this Agreement in writing and agree expressly to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform it in the absence of a succession and provided that
the Company shall remain obligated under this Agreement to the extent such
successor does not perform such Agreement.  For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by this Agreement or by
operation of law.

          (b) Executive's Successors.  This Agreement and all rights of the
              ----------------------                                       
Executive hereunder shall inure to the benefit of, and be enforceable by,
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

     10.  Notice.  Notices and all other communications contemplated by this
          ------                                                            
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five days after being mailed by first class mail, return
receipt requested and postage prepaid.  In the case of the Executive, mailed
notices shall be addressed to Executive at the home address which Executive most
recently communicated to the Company in writing.  In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Chairman of the Board and to its
General Counsel.

     11.  Non-Solicitation.   For a period of twelve (12) months following the
          ----------------                                                    
Effective Date,  Executive shall not intentionally or knowingly allow others
under his direction to, solicit, directly or indirectly, any then current
Company employee to terminate his or her employment with the Company for the
purpose of working as an officer, director, employee, consultant or in any other
capacity for either Executive or any of his employers.  For purposes of the
above, an employer of Executive's will be deemed to include (i) any parent or
subsidiary of such an employer or (ii) any person or company for which Executive
provides consulting services or for which he acts in the capacity of director.
The foregoing shall not prohibit Executive or any employee with which Executive
may be affiliated from hiring an employee or former employee of the Company;
provided that such hiring results from such employee's initiative in contacting
Executive or any employer Executive is affiliated with.  In addition, if
Executive or such employer desires to hire such employee after such contact,
Executive agrees to contact the Company and to work with the Company to find a
reasonable transition to enable the Company to replace such employee or modify
the organization, provided such transition shall not exceed three (3) months.

                                      -9-
<PAGE>
 
     12.  Miscellaneous Provisions.
          ------------------------ 

          (a) Waiver.  No provision of this Agreement shall be modified, waived
              ------                                                           
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and an officer or a director of the Company
authorized by the Board of Directors.  No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.

          (b) Whole Agreement.  No agreements, representations or understandings
              ---------------                                                   
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement and the Stock Option Agreements attached hereto as
Exhibit A and the Confidentiality Agreement attached hereto as Exhibit B have
been made or entered into by either party with respect to the subject matter
hereof. This Agreement supersedes and replaces any and all previous agreements
between the Executive and the Company regarding compensation or terms of
employment.  The Executive hereby represents that the Company has satisfied in
full any compensation or other employment obligations due Executive under any
written or oral employment agreements by and between the Executive and the
Company.

          (c) Choice of Law.  The validity, interpretation, construction and
              -------------                                                 
performance of this Agreement shall be governed by the laws of the State of
California without regard to conflict of laws.

          (d) Severability.  The invalidity or unenforceability of any provision
              ------------                                                      
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.

          (e) Arbitration.  Any dispute or controversy arising under or in
              -----------                                                 
connection with this Agreement shall be settled exclusively by arbitration
before a panel of three arbitrators in San Mateo County, California, in
accordance with the rules of the American Arbitration Association then in
effect.  One arbitrator shall be selected by the Company and one arbitrator
shall be selected by Executive within thirty (30) days notice to the other and
the third arbitrator shall be selected jointly by the other two arbitrators
within thirty (30) days thereafter.  The arbitrators shall be entitled to award
costs in their discretion.  Judgment may be entered on the arbitrator's award in
any court having jurisdiction.

          (f) No Assignment of Benefits.  The rights of any person to payments
              -------------------------                                       
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.

          (g) Limitation of Remedies.  If the Executive's employment terminates
              ----------------------                                           
for any reason, the Executive shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement as a
result of such termination.

          (h) Employment Taxes.  All payments made pursuant to this Agreement
              ----------------                                               
will be subject to withholding of applicable taxes.

                                      -10-
<PAGE>
 
          (i) Counterparts.  This Agreement may be executed in counterparts,
              ------------                                                  
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

          (j) Representation by Counsel.  Executive represents that Executive
              -------------------------                                      
has had the opportunity to seek legal counsel and has been represented by Elias,
Goodman, Shanks & Zizmor, LLP, independent legal counsel, in connection with
entering into the Agreement.

          (k) Press Release.  Executive shall be entitled to approve the
              -------------                                             
contents of any press release announcing Executive's joining or leaving the
Company, such consent not to be unreasonably withheld and subject to any legal
obligation of the Company to make a public announcement.

          (l) Indemnification and Insurance.  The Company shall enter into its
              -----------------------------                                   
standard director and officer indemnification agreement with Executive, which
shall be no less favorable than that provided to any other senior executive.
Executive shall be included in any director and officer liability insurance
policy obtained by the Company during the term of this Agreement.

          (m) Other.  Any amounts which the Company owes Executive hereunder
              -----                                                         
will increase at the rate of 15% per annum as liquidated damages for the failure
to make such payments when due, such increase to accrue from the date such
amounts are due until such amounts are paid in full.  The Company agrees that it
will reimburse Executive for all reasonable attorneys' fees and expenses
Executive may incur in connection with enforcing his rights  under this
Agreement, whether or not suit is actually brought thereon.


          IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.


                                    DIVA SYSTEMS CORPORATION


                                    By: /s/ Paul Cook
______________________                 ------------------------------- 
David Zucker                           Paul Cook, Chairman of the Board

                                      -11-
<PAGE>
 
                                                                       EXHIBIT B

                           DIVA SYSTEMS CORPORATION
          EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT
          -----------------------------------------------------------

     In consideration of, and as a condition of my employment with DIVA Systems 
Corporation, a Delaware Corporation having a principal place of business at 333 
Ravenswood Ave., Bldg. 205, Menlo Park, California 94025, its subsidiaries, 
affiliates, successors or assigns (together the "COMPANY"), and in consideration
of my receipt of the compensation now and hereafter paid to me by Company, I
hereby represent to, and agree with the Company as follows:

1.   PURPOSE OF AGREEMENT. I understand that the Company is engaged in a 
     --------------------
     continuous program of research, development, production and marketing in
     connection with its business and that it is critical for the Company to
     preserve and protect its Proprietary Information (as defined below), its
     rights in Inventions (as defined below) and all related intellectual
     property rights. Accordingly, I am entering into this Agreement as a
     condition of my employment with the Company, whether or not I am expected
     to create inventions for value for the Company.

2.   DISCLOSURE OF INVENTIONS. I will promptly disclose in confidence to the 
     ------------------------
     Company all inventions, improvements, designs, original works of
     authorship, formulas, processes, compositions of matter, computer software
     programs, databases, mask works and trade secrets ("INVENTIONS") that I
     make or conceive or first reduce to practice or create, either alone or
     jointly with others, during the period of my employment, whether or not in
     the course of my employment, and whether or not such Inventions are
     patentable, copyrightable or protectible as trade secrets.

3.   WORK FOR HIRE; ASSIGNMENT OF INVENTIONS. I acknowledge and agree that any 
     ---------------------------------------
     copyrightable works prepared by me within the scope of my employment are
     "works for hire" under the Copyright Act and that the Company will be
     considered the author and owner of such copyrightable works. I agree that
     all inventions that (i) are developed using equipment, supplies, facilities
     or trade secrets of the Company, (ii) result from work performed by me for
     the Company, or (iii) relate to the Company's business or current or
     anticipated research and development (collectively "ASSIGNED INVENTIONS"),
     will be the sole and exclusive property of the Company and are hereby
     irrevocably assigned by me to the Company.

4.   LABOR CODE 2870 NOTICE. I have been notified and understand that the 
     ----------------------
     provisions of paragraphs 3 and 5 of this Agreement do not apply to any
     Assigned Invention that qualifies fully under the provisions of Section
     2870 of the California Labor Code, which states as follows:

          (a)  Any provision in an employment agreement which provides that an
          employee shall assign, or offer to assign, any of his or her rights in
          an invention to his or her employer shall not apply to an invention
          that the employee developed entirely on his or her own time without
          using the employer's equipment, supplies, facilities, or trade secret
          information except for those inventions that either:

                    (1)  Relate at the time of conception or reduction to 
                    practice of the invention to the employer's business, or
                    actual or demonstrably anticipated research or development
                    of the employer; or

                    (2)  Result from any work performed by the employee for the 
                    employer.

          (b)  To the extent a provision in an employment agreement purports to 
          require an employee to assign an invention otherwise excluded from
          being required to be assigned under subdivision (a), the provision is
          against the public policy of this state and is unenforceable.

<PAGE>
 
5.   ASSIGNMENT OF OTHER RIGHTS. In addition to the foregoing assignment of
     --------------------------     
     Assigned Inventions to the Company, I hereby irrevocably transfer and
     assign to the Company: (i) all worldwide patents, patent applications,
     copyrights, mask works, trade secrets and other intellectual property
     rights in any Assigned Invention; and (ii) any and all "Moral Rights" (as
     defined below) that I may have in or with respect to any Assigned
     Invention. I also hereby forever waive and agree never to assert any and
     all Moral Rights I may have in or with respect to any Assigned Invention,
     even after termination of my work on behalf of the Company. "MORAL RIGHTS"
     mean any rights to claim authorship of an Assigned Invention, to object to
     or prevent the modification of any Assigned Invention, or to withdraw from
     circulation or control the publication or distribution of any Assigned
     Invention, and any similar right, existing under judicial or statutory law
     of any country in the world, or under any treaty, regardless of whether or
     not such right is denominated or generally referred to as a "moral right."

6.   ASSISTANCE. I agree to assist the Company or its designee in every proper
     ----------
     way to obtain for the Company or its designee and enforce for the Company
     or its designee patents, copyrights, mask work rights, trade secret rights
     and other legal protections for the Company's Assigned Inventions in any
     and all countries. I will execute any documents that the Company or its
     designee may reasonably request for use in obtaining or enforcing such
     patents, copyrights, mask works, trade secrets and other legal protections.
     My obligations under this paragraph will continue beyond the termination
     of my employment with the Company, provided that the Company or its
     designee will compensate at a reasonable rate after such termination for
     time or expenses actually spent by me at the Company's request on such
     assistance. I appoint the Secretary of the Company as my attorney-in-fact
     to execute documents on my behalf for this purpose.

7.   PROPRIETARY INFORMATION. I understand (that my employment by the Company
     -----------------------
     creates a relationship of confidence and trust with respect to any
     information of a confidential or secret nature that may be disclosed to me
     by the Company that relates to the business of the Company or to the
     business of any parent, subsidiary, affiliate, customer or supplier of the
     Company or to any third party with whom the Company agrees to hold
     information of such party in confidence ("PROPRIETARY INFORMATION"). Such
     Proprietary Information includes but is not limited to Inventions owned by
     the Company (including any Assigned Inventions), marketing plans, product
     plans, business strategies, financial information, personnel information,
     customer lists and subscriber lists. Proprietary Information does not
     include any information which is or becomes part of the public domain,
     unless it becomes such as a result of a breach of this Agreement.

8.   CONFIDENTIALITY. At all times, both during my employment and after its
     ---------------
     termination, I will keep and hold all such Proprietary Information in
     strict confidence and trust, and I will not use or disclose any of such
     Proprietary Information without the prior written consent of the Company,
     except as may be necessary to perform my duties as an employee of the
     Company for the benefit of the Company. Upon termination of my employment
     with the Company, I will promptly deliver to the Company all documents and
     materials of any nature pertaining to my work with the Company and I will
     not take with me any documents or materials or copies thereof containing
     any Proprietary Information.

9.   NO BREACH OF PRIOR AGREEMENT. I represent that my performance of all the
     ----------------------------
     terms of this Agreement and my duties as an employee of the Company will
     not breach any invention assignment, proprietary information or similar
     agreement with any former employer or other party. I represent that I will
     not bring with me to the Company or use in the performance of my duties for
     the Company any documents or materials of a former employer that are not
     generally available to the public or have not been legally transferred to
     the Company.

10.  NOTIFICATION. I hereby authorize the Company to notify my actual or future
     ------------
     employers of the terms of this Agreement and my responsibilities hereunder.

<PAGE>
 
11.  INJUNCTIVE RELIEF.  I understand that in the event of a breach or
     -----------------
     threatened breach of this Agreement by me the Company may suffer
     irreparable harm and will therefore be entitled to injunctive relief to
     enforce this Agreement.

12.  GOVERNING LAW; SEVERABILITY.  This Agreement will be governed and
     ---------------------------
     interpreted in accordance with the internal laws of the State of
     California, without regard to or application of choice of law rules or
     principles and shall be binding upon and inure to the benefit of the
     parties, and their respective heirs, personal representatives, successors
     and assigns. In the event that any provision of this Agreement is found by
     a court, arbitrator or other tribunal to be illegal, invalid or
     unenforceable, then such provision shall not be voided, but shall be
     enforced to the maximum extent permissible under applicable law, and the
     remainder of this Agreement shall remain in full force and effect.

13.  ENTIRE AGREEMENT.  This document, together with that certain employment
     ----------------
     agreement of even date herewith between Company and Employee (the
     "Employment Agreement"), contains the entire agreement of the parties
     concerning the subject matter contained herein, and supersedes all prior
     and contemporaneous negotiations and understandings, both oral and written.
     This Agreement may not be amended or modified except by a separate written
     agreement signed by both parties.

14.  NO DUTY TO EMPLOY.  I understand that this Agreement does not constitute a
     -----------------
     contract of employment or obligate the Company to employ me for any stated
     period of time and that my entire employment relationship is governed by
     the Employment Agreement. This Agreement shall be effective as of January
     16, 1999.


Company:                                Employee:

By:_________________________            __________________________________
                                        Signature

Name:_______________________            __________________________________
                                        Name (Please Print)

Title:______________________