1.          (a) Cause. “Cause” shall mean Executive engaged in any one or more of the following:(i) a material act of dishonesty, fraud, misconduct , or willful violation of any material law,ethical rule or fiduciary duty that is in connection with Executive’s responsibilities as anExecutive of the Company; (ii) acts constituting a felony or moral turpitude which the Boardreasonably believes has had or will have a material detrimental effect on the Company’s reputationor business; or (iii) repeated willful failure to perform Executive’s duties as an employee of theCompany and the failure to effect such cure within thirty (30) days after written notice of suchviolation or breach is given to Executive; or (iv) the willful violation of any material Companypolicy or procedure, or breach of any material provision of this Agreement or other agreement withthe Company, and if such violation or breach is susceptible of cure, the failure to effect suchcure within thirty (30) days after written notice of such violation or breach is given toExecutive.          (b) Change of Control. “Change of Control” shall mean the occurrence of any of thefollowing events:               (i) the approval by shareholders of the Company of a merger or consolidation of the Companywith any other corporation, or of a subsidiary of the Company with any other corporation, otherthan a merger or consolidation which would result in effective voting control over the votingsecurities of the Company outstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of the surviving entity) morethan fifty percent (50%) of the total voting power represented by the voting securities of theCompany or such surviving entity outstanding immediately after such merger or consolidation;               (ii) the approval by the shareholders of the Company of a plan of complete liquidation of theCompany or an agreement for the sale or disposition by the Company of all or substantially all ofthe Company’s assets;               (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the SecuritiesExchange Act of 1934, as amended) becoming the “beneficial owner” (as defined in Rule 13d-3 undersaid Act), directly or indirectly, of securities of the Company representing 50% or more of thetotal voting power represented by the Company’s then outstanding voting securities; or               (iv) a change in the composition of the Board, as a result of which fewer than a majority ofthe directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A)are directors of the Company as of the date hereof, or (B) are elected, or nominated for election,to the Board with the affirmative votes of at least a majority of those directors who are eitheridentified in (A) or identified as their successors elected under this clause (B).          (c) Good Reason Event. A “Good Reason Event” shall be any of the following: (i)without the Executive’s express written consent, a material diminution of the Executive’s duties,authority or responsibilities; (ii) without the Executive’s express writtenPAGE 2 – Employment Agreement
 

 
consent, a reduction by the Company of the Executive’s base salary; (iii) without theExecutive’s express written consent, the imposition of a requirement that Executive’s primary placeof employment be at a facility or a location more than fifty (50) miles from the Executive’scurrent work location, provided that such requirement to relocate materially increases theExecutive’s commute; or (iv) the failure of the Company to obtain the assumption of this Agreementby any successors contemplated in Section 7 below.          (d) Involuntary Termination. “Involuntary Termination” shall mean (i) any terminationof the Executive’s employment by the Company which is not effected for valid Cause; or (ii) anytermination by the Executive for Good Reason.          (e) Termination Date. “Termination Date” shall mean the effective date of any noticeof termination delivered by one party to the other hereunder.     2. Term and Termination of Agreement.          (a) Term. Mr. Walicek’s term in office, and measurement of any seniority-dependentbenefits the Company may from time to time make available, shall be measured from January 1, 2008.This Agreement shall continue until terminated by either party as provided under this Section 3.          (b) Notice of Termination; Effective Date.               (i) By Company. Company may terminate Executive’s employment without Cause on thirty(30) days’ notice or, at its election, may pay Executive in lieu of any required notice. Companymay terminate Executive’s employment immediately for Cause. If the Company claims Cause, theCompany’s notice shall set forth the basis for the “Cause.”               (ii) By Executive With Good Reason. Executive may terminate his employment for GoodReason by providing written notice of good reason termination within thirty (30) days afterExecutive has received Notice, or has actual knowledge, whichever is first, of the initialoccurrence of the alleged Good Reason Event (“Notice of Good Reason Termination”). His Notice ofGood Reason Termination must (x) identify the Good Reason Event and the date of its initialexistence; (y) invite the Company to remedy the Good Reason Event, and (z) state the Executive’sintention to terminate his employment for Good Reason as of a Termination Date no more than ten(10) days following the expiration of the Company’s cure period described in the next sentence.Before a Termination for Good Reason shall be effective, the Company shall have a period of thirty(30) days from the date it receives Executive’s Notice of Good Reason Termination to remedy theconditions claimed to give rise to a Good Reason Event. If the Company fails to remedy theconditions claimed to give rise to a Good Reason Event by the end of the thirty (30) day cureperiod, Executive’s Termination for Good Reason will be effective on the Termination Date stated inthe Notice of Good Reason Termination.               (iii) By Executive, Other than for Good Reason. Executive may voluntarily terminateExecutive’s employment without Good Reason upon notice of termination to Company, which noticeidentifies the Termination Date. A voluntary termination will be effective on the identifiedTermination Date.PAGE 3 – Employment Agreement
 

 
     3. Termination Benefits on Involuntary Termination. If Executive’s employment hasterminated as a result of an Involuntary Termination, and if Executive signs and does not revokethe release of claims with the Company (in a form acceptable to the Company) pursuant to Section 8hereof (the “Release”), Executive shall be entitled to the following Involuntary Terminationbenefits as of the Termination Date:          (a) Equity Acceleration within a Control Change Window. If the Termination Date iswithin a Control Change Window (as defined below), (i) fifty percent (50%) of the shares underlyingthe options that are unvested as of the Termination Date that were granted to Executive shall vestso that Executive will be treated as being vested in and able to exercise, pursuant to the termsthereof, fifty percent (50%) of the shares underlying such unvested options; and (ii) fifty percent(50%) of the restricted stock units that are unvested as of the Termination Date that were grantedto Executive shall vest so that the Company’s right of repurchase shall lapse with respect to fifty(50%) of the shares underlying such unvested restricted stock units, as of the later of theTermination Date or the Change of Control. The particular fifty percent (50%) will be the fifty(50%) that, in the ordinary course absent any termination of Executive’s employment, would firsthave become vested. A “Control Change Window” is defined as the period between (x) the earlier of:(i) a Change of Control itself or (ii) the signing of a definitive agreement for a Change ofControl that leads to the Change of Control contemplated in that agreement within twelve (12)months, and (y) twelve (12) months after the Change of Control. If Executive vests in his equityawards under this paragraph as of a Change of Control that occurs after the Termination Date,Executive shall have three (3) months from the date of the Change of Control to (i) exercise hisnewly-vested options, and (ii) buy back any restricted stock units that the Company repurchased,but otherwise would have vested, at the price the Company purchased them from Executive.          (b) Severance Pay. The Company will pay the termination-base salary and thetermination-base target bonus, each as defined on Exhibit A, and any bonus earned with respect tothe prior year that has not yet then been paid, in a lump sum on or before the first regularlyscheduled pay immediately following the Release Deadline (as defined below) pursuant to Section 8.All payments to Executive shall be reduced by such amounts as are required to be withheld by law.          (c) COBRA Benefits. Provided Executive is eligible and properly elects coverage,the Company will pay all COBRA premiums to extend Executive’s group health insurancecoverage for twelve (12) months following the Termination Date.     4. Accrued Wages and Vacation, Expenses always payable. Without regard to the reasonfor, or the timing of, Executive’s termination of employment: (i) the Company shall pay theExecutive any unpaid base salary due for periods prior to the Termination Date; (ii) the Companyshall pay Executive all of Executive’s accrued and unused vacation through the Termination Date;and (iii) following submission of proper expense reports by Executive, the Company shall reimburseExecutive for all expenses reasonably and necessarily incurred by the Executive in connection withthe business of the Company prior to the Termination Date. These payments shall be made promptlyfollowing termination and within the period of time mandated by law.PAGE 4 – Employment Agreement
 

 
     5. Limitation on Payments. In the event that the severance and other benefitsprovided for in this Agreement or otherwise payable to the Executive (i) constitute “parachutepayments” within the meaning of Section 280G of the United States Internal Revenue Code (the“Code”), and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the“Excise Tax”), then Executive’s benefits under this Agreement shall be either          (a) delivered in full, or          (b) delivered as to such lesser extent which would result in no portion of such benefits beingsubject to the Excise Tax,whichever of the foregoing amounts, taking into account the applicable federal, state andlocal income taxes and the Excise Tax, results in the receipt by Executive on an after-tax basis,of the greatest amount of benefits, notwithstanding that all or some portion of such benefits maybe taxable under Section 4999 of the Code.Any determination required under this section shall be made in writing by the Company’s independentpublic accountants (the “Accountants”), whose determination shall be conclusive and binding uponthe Executive and the Company for all purposes. For purposes of making the calculations requiredby this section, the Accountants may make reasonable assumptions and approximations concerningapplicable taxes and may rely on reasonable, good faith interpretations concerning the applicationof Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to theAccountants such information and documents as the Accountants may reasonably request in order tomake a determination under this section. The Company shall bear all costs the Accountants mayreasonably incur in connection with any calculations contemplated by this section. All paymentsmade under this Agreement shall be subject to reduction for all applicable federal, state, andlocal tax withholdings and any other required withholdings. Any reduction payments and/or benefitsrequired by this Agreement shall occur in the following order: (1) reduction of cash payments; (2)reduction of vesting acceleration of equity awards; and (3) reduction of other benefits paid orprovided to Executive. In the event that acceleration of vesting of equity awards is to bereduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grantfor Executive’s equity awards. If two or more equity awards are granted on the same date, eachaward will be reduced on a pro-rata basis.     6. Successors.          (a) Company’s Successors. Any successor to the Company (whether direct or indirectand whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all orsubstantially all of the Company’s business and/or assets shall assume the Company’s obligationsunder this Agreement and agree expressly to perform the Company’s obligations under this Agreementin the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term“Company” shall include any successor to the Company’s business and/or assets which executes anddelivers the assumption agreement described in this subsection (a) or which becomes bound by theterms of this Agreement by operation of law.PAGE 5 – Employment Agreement
 

 
          (b) Executive’s Successors. Without the written consent of the Company, Executive maynot assign or transfer this Agreement or any right or obligation under this Agreement to any otherperson or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights ofExecutive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal orlegal representatives, executors, administrators, successors, heirs, distributees, devisees andlegatees.     7. Execution of Release Agreement upon Termination. As a condition of receiving thebenefits under Section 4 of this Agreement, Executive must sign and not revoke a Release, so thatthe Release is fully effective no later than sixty (60) days following Executive’s separation fromservice (the “Release Deadline”). No benefits under Section 4 will be paid or provided until theRelease becomes effective. In the event the separation occurs at a time during the calendar yearwhere it would be possible for the Release to become effective in the calendar year following thecalendar year in which Executive’s separation occurs, any benefits that would otherwise beconsidered Deferred Payments (as defined in Section 10) will be paid or commence to be paid, asapplicable, on the first regularly scheduled pay date immediately following the Release Deadline,subject to Section 10 below.     8. Litigation/Audit Cooperation. Following the termination of Executive’s employmentfor any reason, Executive shall reasonably cooperate with the Company or any of its subsidiaries oraffiliates (the “Company Group”) in connection with (a) any internal or governmental investigationor administrative, regulatory, arbitral or judicial proceeding involving any member of the CompanyGroup with respect to matters relating to Executive’s employment with or service as a member of theboard of directors of any member of the Company Group other than a third party proceeding in whichExecutive is a named party and Executive and the Company (or the applicable member(s) of theCompany Group) have not entered into a mutually acceptable joint defense agreement (collectively,“Litigation”) or (b) for a two (2) year period following the Termination Date, any audit of thefinancial statements of any member of the Company Group with respect to the period of time whenExecutive was employed by any member of the Company Group (“Audit”). Executive acknowledges thatsuch cooperation may include, but shall not be limited to, Executive making himself available tothe Company or any other member of the Company Group (or their respective attorneys or auditors)upon reasonable notice for: (i) interviews, factual investigations, and providing declarations oraffidavits that provide truthful information in connection with any Litigation or Audit; (ii)appearing at the request of the Company or any member of the Company Group to give testimonywithout requiring service of a subpoena or other legal process; (iii) volunteering to the Companyor any member of the Company Group pertinent information related to any Litigation or Audit; (iv)providing information and legal representations to the auditors of the Company or any member or anymember of the Company Group, in a form and within a timeframe requested by the Board, with respectto the Company’s or any member of the Company Group’s opening balance sheet valuation ofintangibles and financial statements for the period in which Executive was employed by the Companyor any member of the Company Group; and (v) turning over to the Company or any member of theCompany Group any documents relevant to any Litigation or Audit that are or may come intoExecutive’s possession. The Company shall reimburse Executive for reasonable travel expensesincurred in connection with providing the services under this Section 9, including lodging andmeals, upon Executive’s submission of receipts. The Company shall also compensate Executive foreach hour that Executive provides cooperation inPAGE 6 – Employment Agreement
 

 
connection with this Section 9 at an hourly rate equal to Executive’s termination-base salaryplus his termination-base bonus, each as defined on Exhibit A, divided by 2080. Executive shallsubmit invoices for any month in which Executive performs services pursuant to this Section 9 thatdetails the amount of time and a description of the services rendered for each separate day thatExecutive performed such services. Any reimbursement requests pursuant to this Section 9 must besubmitted within sixty (60) days of the day Executive incurs such expenses. The Company shallreimburse Executive within fifteen (15) days of receiving a reimbursement request from Executive.     9. 409A Savings Clause.          (a) Notwithstanding anything to the contrary in this Agreement, no Deferred Payments (asdefined below) or other severance benefits that otherwise are exempt from Section 409A (as definedbelow) pursuant to Treasury Regulation Section 1.409A-1(b)(9) shall become payable until Executivehas a “separation from service” within the meaning of Section 409A.          (b) Further, if Executive is a “specified employee” within the meaning of Section 409A at thetime of his separation from service (other than due to death), and the severance payments andbenefits payable to him, if any, pursuant to the Agreement, when considered together with any otherseverance payments or separation benefits, are considered deferred compensation under Section 409A(together, the “Deferred Payments”), such Deferred Payments that otherwise are payable within thefirst six (6) months following his separation from service will become payable on the first payrolldate that occurs on or after the date six (6) months and one (1) day following the date of hisseparation from service. All subsequent Deferred Payments, if any, will be payable in accordancewith the payment schedule applicable to each payment or benefit. Notwithstanding anything hereinto the contrary, in the event of Executive’s death following his separation from service but priorto the six (6) month anniversary of Executive’s separation from service (or any later delay date),then any payments delayed in accordance with this paragraph will be payable in a lump sum as soonas administratively practicable after the date of Executive’s death and all other Deferred Paymentswill be payable in accordance with the payment schedule applicable to each payment or benefit.Each payment and benefit payable under the Agreement is intended to constitute a separate paymentfor purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.          (c) Any severance payment that satisfies the requirements of the “short-term deferral” ruleset forth in Section 1.409A-1(b)(4) of the Treasury Regulations shall not constitute DeferredPayments for purposes of the Agreement. Any severance payment that qualifies as a payment made asa result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of theTreasury Regulations that does not exceed the Section 409A Limit shall not constitute DeferredPayments for purposes of the Agreement. For purposes of this Agreement, “Section 409A Limit” meansthe lesser of 2 times: (i) Executive’s annualized compensation based upon the annual rate of paypaid to Executive during Executive’s taxable year preceding Executive’s taxable year of histermination of employment as determined under Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and anyInternal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that maybe taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal RevenueCode for the year in which your employment is terminated.PAGE 7 – Employment Agreement
 

 
          (d) Any reimbursement payments made to Executive pursuant to Section 5 shall be paid to theExecutive on or before the last day of Executive’s taxable year following the taxable year in whichthe related expense was incurred. The reimbursements pursuant to Section 5 are not subject toliquidation or exchange for another benefit, and the amount of such reimbursements that Executivereceives in one taxable year shall not affect the amount of such reimbursements that Executivereceives in any other taxable year.          (e) The foregoing provisions are intended to comply with the requirements of Section 409A sothat none of the severance payments and benefits to be provided under the Agreement will be subjectto the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted toso comply. Executive and the Company agree to work together in good faith to consider amendmentsto the Agreement and to take such reasonable actions which are necessary, appropriate or desirableto avoid imposition of any additional tax or income recognition prior to actual payment to Employeeunder Section 409A.     10. Notices. Notices and all other communications contemplated by this Agreementshall be in writing and shall be deemed to have been duly given when personally delivered or whenmailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In thecase of the Executive, mailed notices shall be addressed to Executive at the home address whichExecutive most recently communicated to the Company in writing. In the case of the Company, mailednotices shall be addressed to its corporate headquarters, and all notices shall be directed to theattention of its Secretary.     11. Arbitration.          (a) Any dispute or controversy arising out of, relating to, or in connection with thisAgreement, or the interpretation, validity, construction, performance, breach, or terminationthereof, shall be settled by binding arbitration to be held in Portland, Oregon in accordance withthe National Rules for the Resolution of Employment Disputes then in effect of the AmericanArbitration Association (the “Rules”). The arbitrator may grant injunctions or other relief insuch dispute or controversy. The decision of the arbitrator shall be final, conclusive and bindingon the parties to the arbitration. Judgment may be entered on the arbitrator’s decision in anycourt having jurisdiction.          (b) The arbitrator(s) shall apply Oregon law to the merits of any dispute or claim, withoutreference to conflicts of law rules. The arbitration proceedings shall be governed by federalarbitration law and by the Rules, without reference to state arbitration law. Executive herebyconsents to the personal jurisdiction of the state and federal courts located in Oregon for anyaction or proceeding arising from or relating to this Agreement or relating to any arbitration inwhich the parties are participants.          (c) Executive understands that nothing in this Section modifies Executive’s at-will employmentstatus. Either Executive or the Company can terminate the employment relationship at any time,with or without Cause.          (d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES ARBITRATION. EXECUTIVEUNDERSTANDS THATPAGE 8 – Employment Agreement
 

 
SUBMITTING ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, ORTHE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDINGARBITRATION, CONSTITUTES A WAIVER OF EXECUTIVE’S RIGHT TO A JURY TRIAL AND RELATES TO THERESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EXECUTIVE RELATIONSHIP,INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:               (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT, BOTH EXPRESSAND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED;NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONALMISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMICADVANTAGE; AND DEFAMATION.               (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL CONSTITUTION ORSTATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE CIVIL RIGHTSACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH DISABILITIES ACTOF 1990, THE FAIR LABOR STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND THECALIFORNIA LABOR CODE (except for claims for underlying workers’ compensation benefits); and               (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO EMPLOYMENTOR EMPLOYMENT DISCRIMINATION.     12. Proprietary Information and Inventions Assignment Agreement. Executive shallexecute and comply with the terms of the Company’s standard Proprietary Information and InventionsAssignment Agreement.     13. Miscellaneous Provisions.          (a) Effect of Any Statutory Benefits. If any severance benefits are required to bepaid to the Executive upon termination of employment with the Company as a result of anyrequirement of law or any governmental entity in any applicable jurisdiction, the aggregate amountpayable pursuant to Section 4 hereof shall be reduced by such amount.          (b) Effect of Standard Company Policy. To the extent that any severance benefits arerequired to be paid to the Executive upon termination of employment with the Company as a result ofany standard Company policy, Executive shall be entitled to the greater of benefits available undersuch policy or under this Agreement, but not both.          (c) Effect of Standing Severance Agreement. To the extent that any cash severancebenefits are provided for the Executive under any agreement between Executive and the Company,those benefits will be paid in addition to the retention benefits payable hereunder.PAGE 9 – Employment Agreement
 

 
          (d) No Duty to Mitigate. Executive shall not be required to mitigate the amount ofany payment contemplated by this Agreement, nor shall any such payment be reduced by any earningsthat Executive may receive from any other source.          (e) Waiver. No provision of this Agreement may be modified, waived or dischargedunless the modification, waiver or discharge is agreed to in writing and signed by Executive and byan authorized officer of the Company (other than Executive). No waiver by either party of anybreach of, or of compliance with, any condition or provision of this Agreement by the other partyshall be considered a waiver of any other condition or provision or of the same condition orprovision at another time.          (f) Integration; Amendment. This Agreement and any agreements referenced hereinrepresent the entire agreement and understanding between the parties as to the subject matterherein and collectively supersede all prior or contemporaneous agreements, whether written or oral,with respect to the same subject matter, including the employment agreement entered into betweenExecutive and the Company, dated March 31, 2008. For clarification purposes and the avoidance ofany doubt, this Agreement shall not affect any agreements between the Company and Executiveregarding intellectual property matters or confidential information of the Company. This Agreementmay be amended only by a written agreement, signed by the parties to be bound by the amendment thatspecifically references this Agreement.          (g) Choice of Law. The validity, interpretation, construction and performance of thisAgreement shall be governed by the internal substantive laws, but not the conflicts of law rules,of the State of Oregon.          (h) Severability. The invalidity or unenforceability of any provision or provisionsof this Agreement shall not affect the validity or enforceability of any other provision hereof,which shall remain in full force and effect.          (i) Employment Taxes. All payments made pursuant to this Agreement shall be subjectto withholding of applicable income and employment taxes.          (j) Counterparts. This Agreement may be executed in counterparts, each of which shallbe deemed an original, but both of which together will constitute one and the same instrument.     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of theCompany by its duly authorized officer, as of the day and year first above written.       **Pixelworks, Inc.**   **Executive**         By: /s/ Daniel Heneghan Daniel Heneghan, Board and Compensation Committee Member, for the Company   /s/ Bruce Walicek Bruce Walicek  PAGE 10 – Employment Agreement
 

 
EXHIBIT A