On May 18, 2017, Pixelworks, Inc. (Pixelworks), entered into an
Arrangement Agreement (the Agreement) to acquire all of the
issued and outstanding common shares of ViXS Systems Inc. (ViXS).
Each of Pixelworks and ViXS is sometimes hereinafter referred to
as a Party and collectively as the Parties.

The holders of ViXS common shares (the ViXS Shareholders) will
receive 0.04836 of a share of common stock of Pixelworks for each
common share of ViXS, representing, in the aggregate,
approximately 3,700,000 shares of common stock of Pixelworks (the
Consideration Shares). Additionally, to the terms of the
Agreement all restricted stock units of ViXS which are unvested
and outstanding, will be exchanged for a number of restricted
share units of Pixelworks authorized under Pixelworks Amended and
Restated 2006 Stock Incentive Plan equal to 0.04836 per unvested
ViXS restricted share unit, which shall entitle the holder of
such restricted share unit to receive one share of common stock
of Pixelworks upon settlement of each such restricted share unit.

ViXS currently has in place convertible debentures in an
aggregate principal amount of approximately $7.6M Canadian
dollars which are convertible at any time at the option of the
holders into common shares of ViXS (the “Convertible
Debentures”). The Convertible Debentures may be redeemed at the
option of ViXS, mature in either September 2019 or January 2020,
depending on the series, and are secured by a second ranking
security interest over the assets of ViXS. Certain of the
Convertible Debentures continue to carry an entitlement to a 10%
premium to principal upon redemption at the option of ViXS until
September 2017, and the debentures include an event of default
clause to which the repayment of the principal sum of, and
accrued and unpaid interest on, the debentures can be accelerated
upon a change of control of ViXS. In connection with the
transaction, holders of the Convertible Debentures who consent to
the transaction and waive the change of control event of default
will have their debentures continue to remain outstanding with
ViXS and continue to be secured by the assets of ViXS, and will
be amended to extend the 10% premium to principal upon redemption
at the option of ViXS to December 31, 2017. In connection with
the Agreement, ViXS and Pixelworks entered into Agreements
Relating to Convertible Debentures with holders representing
approximately 71.3% of the issued and outstanding principal
amount of Convertible Debentures which include waivers of the
change of control event of default provisions of the Convertible
Debentures and certain other amendments thereto (collectively,
the Convertible Debenture Agreements). Each holder of a
Convertible Debenture shall receive upon the subsequent
conversion of such Convertible Debenture in accordance with its
terms, and shall accept in lieu of each ViXS common share to
which such holder was entitled upon such exercise, 0.04836 of a
share of common stock of Pixelworks, subject to adjustment in
accordance with the terms of the Convertible Debenture. The
remaining holders of Convertible Debentures will receive notice
and offers to enter into similar agreements prior to closing of
the transaction. In the event that all holders of Convertible
Debentures consent to the transaction and waive the change of
control event of default, and enter into Convertible Debenture
Agreements, the maximum number of shares of Pixelworks common
stock that may be issued in the event that all Convertible
Debentures convert into common stock of Pixelworks would be
approximately 1.067 million shares as of the date of the
Agreement. Holders of Convertible Debentures who do not enter
into Convertible Debenture Agreements waiving the change of
control event of default will be entitled to receive repayment of
the principal sum and all accrued and unpaid interest to the
extent that they provide ViXS with a notice of acceleration
within 30 days after closing of the transaction.

The acquisition contemplated by the Agreement (the Acquisition)
has been approved by the board of directors of ViXS, and ViXS
shareholders and directors and officers holding approximately 36%
of the outstanding common shares of ViXS have entered into
support and voting agreements in connection with the Agreement
and agreed to vote their common shares in favor of the
transaction. The Acquisition has also been unanimously approved
by the board of directors of the Pixelworks.

The Acquisition is to be implemented by way of a court-approved
plan of arrangement under the Canada Business Corporations Act.
The Acquisition is subject to certain closing conditions,
including the approval by at least 66% of the votes cast at
meeting of shareholders of ViXS, and approval by the Ontario
Superior Court of Justice (Commercial List), as well as other
closing conditions, including the absence of a material adverse
effect with respect to either Pixelworks or ViXS and the delivery
of certain third party consents. The Agreement provides for
certain representations, warranties and covenants, and provides
for the payment of fees upon the termination of the Agreement
under certain circumstances, including ViXS termination of the
Agreement prior to obtaining shareholder approval to accept a
superior proposal.

The Consideration Shares, and the right to receive shares of
common stock of Pixelworks upon conversion of the Convertible
Debentures to the Agreements Relating to Convertible Debentures,
will be issued in reliance upon Section 3(a)(10) of the
Securities Act of 1933, as amended (the Securities Act), which
exempts from the registration requirements under the Securities
Act any securities that are issued in exchange for one or more
bona fide outstanding securities where the terms and conditions
of such issuance and exchange are approved, after a hearing upon
the fairness of such terms and conditions at which all persons to
whom it is proposed to issue securities in such exchange shall
have the right to appear, by any court expressly authorized by
law to grant such approval. Additionally, Pixelworks has agreed
to file by October 31, 2017 a registration statement on Form S-3
registering the shares of common stock to be issued upon
conversion of any Convertible Debentures.

The description above of the Agreement is qualified in its
entirety by reference to the terms of the Agreement, a copy of
which is filed as Exhibit 2.1 hereto and is incorporated herein
by reference. The Agreement has been attached to provide
investors with information regarding its terms. It is not
intended to provide any other factual information about the
Parties. In particular, the assertions embodied in the
representations and warranties contained in the Agreement are
qualified by information in confidential Disclosure Letters
provided by each Party in connection with the signing of the
Agreement. These confidential Disclosure Letters contain
information that modifies, qualifies and creates exceptions to
the representations and warranties set forth in the Agreement.
Moreover, certain representations and warranties in the Agreement
were used for the purpose of allocating risk between the Parties
rather than establishing matters as facts. Accordingly, you
should not rely on the representations and warranties in the
Agreement as characterizations of the actual state of facts about
the Parties.

Item 7.01 Regulation FD Disclosure.

On May 18, 2017, Pixelworks issued a press release announcing
entry into the Agreement. A copy of the press release is being
furnished as Exhibit 99.1 hereto and is incorporated herein by
reference.

The information in this Item 7.01 of this Current Report on Form
8-K shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934 (the Exchange Act) or
incorporated by reference in any filing under the Securities Act
or the Exchange Act, except as shall be expressly set forth by
specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

* Pixelworks hereby undertakes to furnish a copy of any omitted
schedule or exhibit to such agreement to the U.S. Securities and
Exchange Commission upon request.