10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006
Commission file number 000-26887

Silicon Image, Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0396307
(State of incorporation)	(IRS employer identification number)

1060 East Arques Avenue
Sunnyvale, CA 94085
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code
(408) 616-4000

Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o     No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ  Accelerated filer o   Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $877,529,051 as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of common stock held by each officer and director and by each person who owned 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the Registrant’s common stock outstanding as of January 31, 2007 was 86,798,058.

Portions of the Proxy Statement for the 2007 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission in April 2007, pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS

			Page
PART I
	Item 1	Business		3
	Item 1A	Risk Factors		20
	Item 1B	Unresolved Staff Comments		38
	Item 2	Properties		38
	Item 3	Legal Proceedings		38
	Item 4	Submission of Matters to a Vote of Securities Holders		40
PART II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		41
	Item 6	Selected Financial Data		42
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk		56
	Item 8	Financial Statements and Supplementary Data		57
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		57
	Item 9A	Controls and Procedures		57
	Item 9B	Other Information		61
PART III
	Item 10	Directors, Executive Officers and Corporate Governance		61
	Item 11	Executive Compensation		61
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		61
	Item 13	Certain Relationships and Related Transactions, and Director Independence		61
	Item 14	Principal Accountant Fees and Services		61
PART IV
	Item 15	Exhibits and Financial Statement Schedules		62
Signatures				94
Index to Exhibits Filed Together with this Annual Report				95
EXHIBIT 10.04
EXHIBIT 10.19
EXHIBIT 10.20
EXHIBIT 10.23
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 10.34
EXHIBIT 10.35
EXHIBIT 21.01
EXHIBIT 23.01
EXHIBIT 23.02
EXHIBIT 31.01
EXHIBIT 31.02
EXHIBIT 32.01
EXHIBIT 32.02

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This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These forward-looking statements involve a number of risks and uncertainties, including those identified in the section of this Annual Report on Form 10-K entitled “Factors Affecting Future Results,” that may cause actual results to differ materially from those discussed in, or implied by, such forward-looking statements. Forward-looking statements within this Annual Report on Form 10-K are identified by words such as “believes,” “anticipates,” “expects,” “intends,” “may,” “will”, “can”, “should”, “could”, “estimate”, based on”, “intended”, “would”, “projected”, “forecasted” and other similar expressions. However, these words are not the only means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly release the results of any updates or revisions to these forward-looking statements that may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-K with the Securities and Exchange Commission (SEC). Our actual results could differ materially from those anticipated in, or implied by, forward-looking statements as a result of various factors, including the risks outlined elsewhere in this report. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect our business.

PART I

Item 1.   Business

Our vision is to promote the use of digital content everywhere. We are dedicated to the promotion of technologies, standards and products that facilitate the movement of digital content between and among digital devices across the consumer electronics, PC and storage markets.

Our mission is to be the leader in the design, development and implementation of Semiconductors for the secure storage, distribution and presentation of high-definition content in the home and mobile environments.

We place an emphasis on understanding and having strategic relationships within the eco-system of companies that provide the content and products that drive digital content creation and consumption. To that end, we have developed strategic relationships with Hollywood studios such as Universal, Warner Brothers, Disney and Fox and major consumer electronics companies such as Sony, Hitachi, Toshiba, Matsushita, Phillips and Thomson. Through these relationships we have formed a strong understanding of the requirements for storing, distributing and viewing high quality digital video and audio in the home and mobile environments, especially in the area of High Definition (HD) content. We have also developed a substantial intellectual property base for building the standards and products necessary to promote opportunities for our products.

Through the creation and development of the High Definition Multimedia Interface or HDMI^tm standard along with Sony, Hitachi, Toshiba, Matsushita, Phillip and Thomson we helped drive a worldwide standard for digital connectivity that has resulted in an installed base of over 85 million devices by the end of 2006, according to market-research firm In-Stat. In-Stat projects that over 325 million devices will ship in 2010 and this means that the installed base for HDMI devices will reach almost 1 billion units by 2010.

Finally, we believe a world of digital devices requires a robust testing regimen to ensure rock-solid plug and play interoperability. Today we operate several HDMI Authorized testing centers around the world that do this vital testing. However, we saw a need to develop a much more comprehensive test suite in 2005 and launched a new licensing entity called Simplay Labs, LLC (Simplay).

Simplay has created the Simplay HD branding program to offer the industry what we believe to be the most comprehensive method for ensuring product interoperability. It also provides consumers with a way of identifying products that have had rigorous testing and are “best in class” tested for broad plug and play trouble free usage.

Note- Silicon Image and Simplay HD are trademarks, registered trademarks or service marks of Silicon Image, Inc. in the United States and other countries. HDMI^tmand High-Definition Multimedia Interface are trademarks or registered trademarks of HDMI Licensing, LLC in the United States and other countries, and are used under license

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from HDMI Licensing, LLC. All other trademarks and registered trademarks are the property of their respective owners.

Standards Innovation

The rate of innovation within the HDMI standard has been rapid, with 6 revisions of the standard over the last 4 years. These releases have brought greater benefits to the consumer in terms of digital video and audio quality and increased functionality. Silicon Image believes that it can obtain a competitive advantage due to its founding member status and its drive for introducing new innovations in quality and connectivity that get incorporated into the standard.

New Initiatives

At the beginning of 2007 Silicon Image completed two important transactions. These transactions enhance our ability to offer higher levels of integration and greater price/performance value to our customers.

In February 2007, we entered into an intellectual property (“IP”) license from Sunplus Technology Co. The IP licensed to us in this transaction represents approximately 60 blocks of market-tested IP in the area of DTV and DVD system on chip (SOC) implementations. These IP blocks represent fundamental building blocks in the DTV market that are expected to advance our connectivity solutions for the home and mobile environment as well as allow us to offer greater value to our customers. We anticipate that our first generation of products based on this IP will start shipping in the second half of 2007 and will include new integrated front-end TV input processors and fully-integrated system-on-a-chip (SoC) DTV products that we believe will advance a new architecture for premium HD content access throughout the home and mobile environment.

The other transaction, our acquisition of sci-worx GmbH, was completed in January 2007 and provided a combination of additional IP, especially in the areas of multi-format decoders and a highly skilled labor pool of engineers who will increase our capacity to absorb the Sunplus IP and put it to use in new more integrated products over the next several years.

These acquisitions were important steps in our efforts to support the growth we have seen over the last several years. They allow us to complement our digital connectivity innovations with more value as we integrate many of the processing blocks required by our customers.

Future Technology Directions

Our view of tomorrow includes the consumer’s ability to purchase digital content from any source (cable, satellite, terrestrial broadcast or the internet) and the ability to securely store it, move it and display it on any device they own. This will require the advancement of home connectivity in the area of protocols and content protection. These two areas represent key core competencies in Silicon Image. We believe we now have the IP, talent and vision to implement compelling products, technologies and standards that will address our vision of digital content everywhere.

Business Development Background

We have been at the forefront of the development and promotion of several industry-standard, high-speed, digital, secure interfaces, including the Digital Visual Interface specification (DVI), HDMI and the Serial Advanced Technology Attachment specification (SATA).

DVI, a video-only standard pioneered by Silicon Image and designed for PC applications, enables PCs to send video data between a computer and a digital display. By defining a robust, high-speed serial communication link between host systems and displays, DVI enables sharper, crystal-clear images and lower cost designs. Accommodating bandwidth in excess of 165 MHz, DVI provides UXGA support with a single-link interface. In many applications DVI is being replaced by the more feature-rich HDMI.

HDMI is a high-bandwidth, all-digital, interconnect technology used in both CE and PC applications to provide high quality uncompressed video and audio. Based on IP developed by Silicon Image and other HDMI

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Founders (Sony, Matsushita Electric Industrial Co. (MEI or Panasonic), Philips, Thomson, Hitachi and Toshiba), HDMI was first introduced in 2002, and has emerged as the de facto connectivity standard for high definition CE devices. Our Transition Minimized Differential Signaling (TMDS^®) technology that served as the basis for DVI also serves as the basis for HDMI. TMDS enables large amounts of data to be transmitted reliably over a twisted-pair cable. Fully backward-compatible with products incorporating DVI, HDMI offers additional consumer enhancements such as automatic format adjustment to match content to its preferred viewing format and the ability to build in intelligence, so one remote click can configure an entire HDMI-enabled system.

Our HDMI interconnect technology is used in many high-definition products, including both source and receiver devices. Source devices include DVD players, high definition (HD) and Blu-ray DVD recorders, audio/video (A/V) receivers, set-top boxes (STBs), game consoles, digital cameras and high definition camcorders, and receiver devices include digital TVs.

According to the market research firm In-Stat, an estimated over 63 million HDMI-enabled devices were shipped worldwide in 2006, including nearly 61 million CE devices. In-Stat projects that approximately 130 million devices, including approximately 115 million CE devices, will be shipped worldwide in 2007.

The market acceptance and adoption of HDMI has been a significant factor in our growth over the last several years, driving both our product and licensing revenues. As of December 31, 2006, more than 500 companies had licensed HDMI from HDMI Licensing, LLC, our wholly-owned subsidiary and the agent responsible for the licensing of HDMI. HDMI has the support of major Hollywood studios as part of their ongoing efforts in the areas of digital rights management and content protection, since HDMI offers significant advantages over analog A/V interfaces, including the ability to transmit uncompressed, high-definition digital video and multi-channel digital audio over a single cable.

HDMI Licensing, LLC issued its fifth HDMI version (HDMI 1.3) in June 2006 and its sixth version (HDMI 1.3a) in November 2006. We introduced the industry’s first HDMI 1.3 products around the same time, providing a time-to-market advantage to our customers. By the end of December 31, 2006, a number of top-tier CE manufacturers had announced products using our HDMI products, led by Sony (Playstation3) and Samsung Electronics (BD-P1200 Blu-ray Disc player and its new plasma, liquid crystal display (LCD) and Digital Light Processing (DLP) High Definition Televisions (HDTVs)).

We shipped the first HDMI-compliant silicon to the market, and we remain a market leader for HDMI functionality, with more than 97 million units shipped to date. We recently expanded our HDMI product line with the introduction of the industry’s first HDMI 1.3-compliant discrete receiver and transmitter discrete chips, a new switch product family and a new family of integrated input processors designed to help manufacturers offer cutting-edge HDMI 1.3 functionality. We expect to begin sampling an integrated SoC supporting HDMI 1.3 during 2007.

A key element of our growth in CE product sales during the past several years has been our ability to work closely with top-tier CE original equipment manufacturers (OEMs) in developing new capabilities and features to incorporate into the HDMI standard. We also work closely with our customers to develop a broad line of products to meet their various needs for particular market segments (e.g., semiconductors with advanced features for high-end products, and lower-priced semiconductor solutions for mid-range, mass- market products). Our leadership in the HDMI marketplace has been based on our ability to introduce first-to-market semiconductor solutions. As we did with each prior version of HDMI, we introduced the industry’s first HDMI 1.3 products, providing a time-to-market advantage to our customers.

For CE manufacturers, HDMI is a lower-cost, standardized means of interconnecting their devices, which enables these manufacturers to build feature-rich products that deliver a true home theatre entertainment experience. For consumers, HDMI provides a simpler way to connect and use devices which provide the higher-quality entertainment experience available with digital content.

For PC and monitor manufacturers, HDMI enables PCs to connect to digital TVs and monitors DTVs with HD quality video signals. More than 50 HDMI PC products were available at the end of 2006 or expected to come to market in early 2007, including HDMI products available from major original equipment manufacturers (OEMs) for desktop media-center PCs and notebook PCs, as well as add-in graphics cards, motherboards and LCD monitors.

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The introduction of Microsoft’s new operating system in January 2007, Vista, with its digital content rights management requirements, has generated increased interest in HDMI connectivity by PC manufacturers.

In the storage market, we have assumed a leadership role in SATA. SATA, based on serial signaling technology, is a computer bus technology for connecting hard disk drives and other devices that is faster than traditional Parallel Advance Technology Attachment specification (PATA) or USB connectors. SATA is replacing parallel PATA in desktop storage and making inroads in the enterprise arena due to its improved price/performance ratio. The market for external SATA (eSATA) has grown significantly since mid-2005. eSATA connectors enable faster transmission of data than traditional PATA or USB connectors. We are a leading supplier of discrete SATA solutions for motherboard and add-in-card manufacturers.

With the advent of MP3 players and other similar devices, consumers are downloading and storing an increasing array of digital content, including video, photos, and music, which we believe is creating a growing awareness and need for low-cost, simple, secure and reliable CE storage. In late 2006, we introduced our second generation SteelVine^tm storage processor to address this anticipated market demand. Our storage processor solutions are fully SATA-compliant and offer SoC implementations that include a high-speed switch, a custom-designed dual-instruction RISC (reduced instruction set computing) microprocessor, firmware, SATA interface, as well as advanced features and capabilities such as 3 Giga bits per second (Gb/s) support Native Command Queuing, hot plug, port multiplier capability and ATAPI support.

Simplay Labs, LLC (Simplay) (formerly named PanelLink Cinema, LLC), a wholly-owned subsidiary of Silicon Image, is a leading provider of testing services for the high-definition CE industry. Simplay markets and sells its services to CE manufacturers through direct sales and a variety of industry events that focus on the HD marketplace. In 2006, we introduced the Simplay HD^tm Testing Program to address the issue of compliance to industry standards and interoperability across multiple devices, an issue of growing importance to retailers and consumers. The Simplay HD Testing Program is open to all manufacturers of consumer electronics devices implementing HDMI and High-bandwidth Digital Content Protections (HDCP), including HDTVs, STBs, DVD players, A/V receivers and cables. More than 125 products had been Simplay HD-verified, conferring upon those products a higher level of consumer trust that the products are HDMI compliant and fully interoperable with other HDMI-compliant products.

Simplay operates testing centers in China, North America and, beginning in January 2007, Europe. These centers provide manufacturers with advanced compatibility testing facilities to ensure they are delivering industry-compatible high-definition products to consumers. We believe that Simplay has further enhanced our reputation for quality, reliable products and leadership in the HDMI market.

Markets and Customers

We focus our sales and marketing efforts on achieving design wins with leading OEMs of CE, PC and storage products. In many cases, OEMs outsource the manufacturing of their products to third-party, contract manufacturers. In these cases, once our product is designed into an OEM’s product, we typically work with the OEM’s contract manufacturer to facilitate the design for production. After the design is complete, we sell our products to these third-party, contract manufacturers either directly or indirectly through distributors.

Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue. Our top five customers, including distributors, generated 57%, 54%, and 47%, of our revenue in 2006, 2005 and 2004, respectively. The increase in 2006 from 2005 and in 2005 from 2004 can be attributed to the increased level of purchasing activities with these distributors. Additionally, the percentage of revenue generated through distributors tends to be significant, since many OEMs rely upon third-party manufacturers or distributors to provide purchasing and inventory management functions. Our revenue generated through distributors, was 50%, 52% and 45% of our total revenue in 2006, 2005 and 2004, respectively. Microtek Corporation, a distributor, comprised 16%, 11%, and 12% of our revenue in 2006, 2005 and 2004, respectively. Innotech Corporation, a distributor, comprised 16%, 9%, and 5% of our revenue in 2006, 2005 and 2004, respectively. World Peace Industrial, a distributor, comprised 12%, 17% and 15% of our revenue in 2006, 2005 and 2004, respectively. Our licensing revenue is not generated through distributors, and to the extent licensing revenue increases, we would expect a decrease in the percentage of our revenue generated through distributors. A substantial portion of our

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business is conducted outside the United States; therefore, we are subject to foreign business, political and economic risks. Nearly all of our products are manufactured in Asia, and for the years ended December 31, 2006, 2005, and 2004, approximately 79%, 74%, and 72%, of our revenue, respectively, was generated from customers and distributors located outside the United States, primarily in Asia. Please refer to the risk factor section for a discussion about the risks associated with the sell-through arrangement with our distributors.

Products

We market products to the CE, PC/display and storage markets. To ensure that rich digital content is available across devices, consumer electronics, PC and storage devices must be architected for content compatibility and interoperability. Our industry and the markets we serve are characterized by rapid technological advancement and we constantly strive for innovation in our product offerings. We introduce products to address markets or applications that we have not previously addressed, and to replace our existing products with products that are based on more advanced technology that incorporates new or enhanced features.

Consumer Electronics

Our CE semiconductor products are used in a growing number of devices, including DTVs, DVD players, STBs, A/V receivers, game consoles, camcorders and digital still cameras. Our engineering resources are working on developing further enhancements to HDMI to better support mobile devices, such as cameras, phones, and personal media players. We are actively developing advanced, integrated DTV-processor SoCs, which we expect to sample in 2007. Our engineering resources are also focused on broadening HDMI from a point-to-point device connectivity standard to include networking functionality throughout the home.

Silicon Image’s HDMI products are branded under the VastLane^TM product family and have been selected by many of the world’s leading CE companies.

VastLane HDMI Transmitters.  Our VastLane HDMI transmitter products reside in personal computers and consumer electronics products, such as DVD players, DVD recorders, game consoles, STBs, digital camcorders, A/V receivers, and digital video recorders (DVRs). VastLane HDMI transmitters convert digital video and audio into a multi-gigabit per second (Gbps) encrypted serialized stream and transmit the secure content to an HDMI receiver that is built into televisions and A/V receivers.

VastLane HDMI Receivers.  Our VastLane HDMI receiver products reside in display systems, such as HDTVs, plasma TVs, LCD TVs, rear-projection TVs, front projectors, PC monitors as well as A/V receivers. VastLane HDMI receivers convert an incoming encrypted serialized stream to digital video and audio, which is then processed by a television or PC monitor for display.

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Some of our products targeting the CE market are listed below:

		HDMI		Maximum	Maximum	Maximum
Product	Type	Ports		Resolution	Color Depth	Bandwidth	Target Applications
SiI9011	VastLane HDMI Receiver		1	1080p	24 bits/pixel	5 Gbps	LCD TVs, plasma TVs, projection TVs
SiI9023	VastLane HDMI Receiver		2	1080p	24 bits/pixel	5 Gbps	LCD TVs, plasma TVs, projection TVs
SiI9133	VastLane HDMI Receiver		2	1080p	36 bits/pixel	6.75 Gbps	DVD players, STB’s
SiI9993	VastLane HDMI Receiver		1	720p/1080i	24 bits/pixel	2.58 Gbps	LCD TVs, plasma TVs, projection TVs
SiI9030	VastLane HDMI Transmitter		1	1080p	24 bits/pixel	5 Gbps	DVD players/recorders, STBs
SiI9132	VastLane HDMI Transmitter		1	1080p	36 bits/pixel	6.75 Gbps	game consoles
SiI9134	VastLane HDMI Transmitter		1	1080p	36 bits/pixel	6.75 Gbps	DVD players/recorders, STBs

PCs and Displays

Pioneered by Silicon Image and introduced by the Digital Display Working Group (DDWG), DVI is the predominate digital standard for connecting PCs to digital displays. DVI defines a robust, high-speed serial communication link between host systems and displays — enabling sharper, crystal-clear images and lower-cost designs. Accommodating bandwidth in excess of 165 MHz, DVI provides UXGA support with a single-link interface.

Silicon Image continues to be a leader in the DVI market, having shipped over 84 million components to date. Our DVI products are marketed under our VastLane product family. Market researcher In-Stat estimated that 92 million DVI-enabled PC devices were shipped by industry participants in 2006. Although DVI is being replaced by the more feature-rich HDMI in many applications, In-Stat projects that approximately 92 million DVI-enabled PC devices will ship in 2007.

During the past year, we have seen a rapid penetration of HDMI into the PC market with more than 50 HDMI PC products currently, or expected be, available by early 2007 including, nearly two dozen desktop and notebook PCs, families of HDMI PC monitors from major manufacturers, and a broad range of motherboards and graphics cards with HDMI outputs. The introduction of Microsoft’s new Vista operating system in January 2007 is accelerating the adoption of HDMI in the consumer PC market. Vista contains rich multimedia functions and the ability to access and play-back premium high-definition content from a variety of sources including Advanced Television Systems Committee (ATSC) tuners, digital cable tuners, HD-DVD, and Blu-ray Discs.

By the end of 2006, In-Stat estimated that there were approximately 50 million digital TVs that potentially could be connected to PCs with HDMI outputs. In-Stat projects that this number will grow to approximately 105 million digital TVs with HDMI inputs by the end of the 2007, allowing PC users to play games, watch high-definition DVDs and view photos on their monitors or large screen TVs. Because HDMI is backwards compatible with the DVI standard, HDMI-enabled PCs can also connect directly to the enormous installed base of PC monitors with DVI inputs, which In-Stat estimates at approximately 106 million shipped to date since 2002. In addition, major producers of PC monitors are starting to introduce low-cost HDMI monitors to respond to the recent surge of PCs with HDMI outputs.

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Silicon Image offers a broad line of receivers and transmitters for the PC marketplace, including the following:

Product	Type	Target Applications	Other Features
SiI164	VastLane DVI Transmitter	Desktop PCs (motherboards, add-in boards) Notebook PCs	• I2C interface • 3.3V or 1.0-1.8V interface • De-skewing option
SiI1162	VastLane DVI Transmitter	PC motherboards, graphic boards, notebook PCs	• I2C interface • 3.0-3.6V or 1.0-1.9V interface • De-skewing option • BIOS and driver compatible with SiI 164
SiI1169	VastLane DVI Receiver	LCD monitors, video and multimedia projectors, plasma displays	• 3.3V interface • HDCP • Dual-link sync • 12C interface • Programmable Equalization for long cable support • Pin compatible with SiI161B, SiI1161, SiI169 and SiI163B
SiI1362	VastLane DVI Transmitter	Desktop PC motherboards and add-inboards, notebook PCs	VGA-UXGA Transmitter, 48 Pin
SiI1362A	VastLane DVI Transmitter	PC motherboards, notebook PCs	• I2C interface • Supports Intel SDVO technology • Cable distance support greater than 10 meters
SiI1390/2	VastLane DVI Transmitter	Notebook and Desktop PCs (motherboards, add-in boards)	• SDVO interface• HDMI 1.2 output• HDCP
SiI1930/2	VastLane DVI Transmitter	Notebook and Desktop PCs (motherboards, add-in boards)	• TMDS interface • HDMI 1.2 output • HDCP

Storage

In the storage market, we have assumed a leadership role in SATA, a standard that is replacing PATA in desktop storage and making inroads in the enterprise arena due to its improved price/performance ratio. Silicon Image remains focused on continuing to introduce higher levels of SATA integration, driving higher SATA performance and functionality, and delivering a family of SATA SoC solutions and systems for the consumer electronics environment.

SATA offers a number of benefits over PATA interfaces, including higher bandwidth, scalability, lower voltage and narrower cabling. As a result, SATA is expected to become the standard drive interface for desktop and notebook PCs and is expected to establish a significant presence in both enterprise storage and CE applications through external SATA (e-SATA) connections.

External SATA (eSATA) extends the SATA connection outside the device enclosure providing a storage interface that is six times faster than Universal Serial Bus (USB) 2.0 and three times faster than IEEE 1394. The latest generation of digital video recorders (DVRs) from Scientific Atlanta, Motorola and TiVo, as well as PC motherboards from ASUS, MSI, ECS, Foxconn, ASRock and iWill are equipped with eSATA ports.

We introduced our SteelVine architecture in 2004. SteelVine integrates the capabilities of a complex redundant array of independent disks (RAID) controller into a single-chip architecture.

Our storage products fall into three categories: controllers, bridges and storage processors, each of which is branded under the SteelVine^tm product family.

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SteelVine Storage Controllers — We provide a full line of SATA controllers used in PC, DVR, and NAS (network attached storage) applications. The current generation of SteelVine controllers provides the latest SATA Gen II features including eSATA signal levels, 3.0 Gb/s, NCQ, hot-plug, and port multiplier support.

SteelVine Bridges — Our bridge products such as the SiI3811 provide PC OEMs with a solution that connects legacy PATA optical drives to the current generation of motherboard chip sets, and are used primarily in desktop and laptop PC applications.

SteelVine Storage Processors — Our SteelVine storage processors represent a completely new product category that enables a new class of storage solutions for the PC, CE and external storage markets. SteelVine storage processors deliver enterprise-class features such as virtualization, RAID, hot-plug and hot spare, in a single very low cost SoC. These unique SoCs allow system builders to produce appliance-like solutions that are simple, reliable, affordable and scalable without the need for host software. Storage processors are currently shipping in PC motherboard as well as external storage solutions.

We believe that Silicon Image’s multi-layer approach to providing robust, cost-effective, multi-gigabit semiconductor solutions on a single chip for high-bandwidth applications, lends itself well to SATA storage market applications. We intend to continue to introduce higher levels of SATA integration, driving higher SATA performance and functionality, and delivering a family of SATA SoC solutions for the PC and consumer electronics environment.

Our storage products include the following:

Product	Categories	Key Features	Target Applications
SiI5723, 5733, 5743, 5744, 3726 4723, 4726	eSATA Storage Processors.	2-drive SteelVine IC with 3Gb/s Serial ATA and USB 2.0 host link and support for up to 2 SATA devices. Also supports drive cascading, RAID 0, 1 and drive spanning.	Consumer storage applications for PC and CE markets.
SiI3124A	SATA Controllers	Single chip, quad-channel, PCI/PCI-X-to-3Gb/s SATA- Gen II host controller, SATARAIDtm software, 1st Party DMA, hot plug, ATAPI support, port multiplier support with FIS-based switching, variable output strengths for backplane support, Supports up to 3Gb/s per channel.	Server motherboards, server add-in-cards, host bus adapters, RAID subsystems, embedded applications
SiI3112, 3512, 3114	SATA Controllers	Single-chip, PCI-to-1.5Gb/s SATA-Gen I host controller, SATARAIDtm software, hot plug, ATAPI support, variable output strengths for backplane support	PC motherboards, PC add-in-cards, server motherboards, host bus adapters, RAID subsystems, embedded applications

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Product	Categories	Key Features	Target Applications
SiI3132, 3531	SATA Controllers	Single-chip, PCI Express-to-3.0Gb/s SATA Gen-II host controller, SATARAIDtm software, hot plug, ATAPI support, port multiplier with FIS based switching, variable output strengths for backplane support	PC motherboards, PC add-in-cards, server motherboards, host bus adapters, RAID subsystems, embedded applications
SiI3811	SATA Device Bridge	1.5Gb/s SATA-to-PATA device bridge, ATAPI support	Notebook and PC motherboards, ATAPI devices
SiI0680	PATA Controller	Ultra ATA/133 PCI-to-ATA host Controller	PC Motherboards, PC add-in-cards, server motherboards, host bus adapters, embedded applications

Promotion of Industry Standards

A key element of our business strategy is to grow the available market for our products and technologies through the development and promotion of industry standards. In some cases, this involves participation in existing industry standards bodies such as the Consumer Electronics Association. In other cases, this involves forming new industry organizations to create, promote and manage new industry specifications, such as HDMI. Though we are active in existing industry standards bodies, it is our formation of, and participation in new industry organizations that have had the greatest impact on our business. We are currently directly involved in the following standards efforts:

High-Definition Multimedia Interface (HDMI)

Silicon Image, together with Sony, Matsushita Electric Industrial Co. (Panasonic), Philips, Thomson, Hitachi and Toshiba, entered into a Founder’s Agreement under which we formed a working group to develop a specification for a next-generation, uncompressed, digital interface for consumer electronics. In December 2002, the specification for HDMI 1.0 was released. The HDMI specification revision history to date is as follows:

Revision	Date Issued	Key Features
HDMI 1.0	December 2002	Uncompressed digital audio/video interface
HDMI 1.1	May 2004	DVD-Audio support
HDMI 1.2	August 2005	Super Audio CD support removed restrictions on use of PC video format timings
HDMI 1.2a	December 2005	Full definition of CEC functionality and compliance test. Additional cable and connector testing requirements.
HDMI 1.3	June 2006	Single link bandwidth doubled to 10.2 Gb/s (340 MHz) Deep Color xvYCC color gamut Lossless High Bit Rate audio support Mini connector Lip Sync correction
HDMI 1.3a	November 2006	Compliance Testing requirements for HDMI 1.3 features, required testing

The HDMI specification is based on our proven TMDS technology, the same technology underlying HDMI’s predecessor, DVI. Because of the dynamic nature of the CE market and the number of CE devices, we anticipate that the HDMI standard will continue to evolve over time. As an HDMI Founder, we have actively participated in the evolution of the HDMI specification, and we expect our involvement to continue.

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In 2002, Silicon Image established a wholly-owned subsidiary, HDMI Licensing, LLC, to perform the duties of licensing agent for the HDMI specification, a role previously performed by Silicon Image under the terms of the Founders’ Agreement. As of December 31, 2006, there were more than 500 HDMI Adopters (not including the 7 founding members) that have been licensed to implement the HDMI specification in their products.

Under the HDMI Adopter Agreement, a manufacturer implementing HDMI in its products is required to test its first product in each of four categories at an independent HDMI Authorized Testing Center (ATC). The four categories are sinks (display devices), sources, repeaters and cables. Our wholly-owned subsidiary, Simplay, operates HDMI ATCs that test manufacturer products for conformance to the HDMI specification. Two other HDMI Founders (Panasonic and Philips) also operate ATCs.

The adoption of and demand for products incorporating HDMI has been driven, in part, by the actions of other standards setting bodies and, in some cases, government regulation requiring or authorizing the use of HDMI technology.

DVD Copy Control Association.  The DVD Copy Control Association, responsible for licensing CSS (Content Scramble System) to manufacturers of DVD hardware, media and related products, has approved HDMI with HDCP as an authorized digital output of DVD players for CSS protected content.

Federal Communications Commission.  The FCC issued its Plug and Play order in October 2003. In November 2003 and March 2004, these rules, known as the Plug & Play Final Rules (Plug & Play Rules), became effective. According to the Plug & Play Rules, as of July 1, 2005, all high definition set-top boxes acquired by cable operators for distribution to subscribers would need to include either a DVI or HDMI output with HDCP.

Moreover, under the Plug & Play Rules, a unidirectional digital cable television may not be labeled or marketed as digital cable ready unless it includes the following interfaces according to the following schedule:

(i) For 480p grade unidirectional digital cable televisions, either a DVI/HDCP, HDMI/HDCP, or 480p Y, Pb, Pr (analog) interface:

100% of models manufactured or imported in the U.S. with screen sizes 36 inches and above after July 1, 2005; 100% of models manufactured or imported in the U.S. with screen sizes 32 to 35 inches after July 1, 2006.

(ii) For 720p/1080i grade unidirectional digital cable televisions, either a DVI/HDCP or HDMI/HDCP interface:

100% of models manufactured or imported in the U.S. with screen sizes 36 inches and above as of July 1, 2005; 100% of models manufactured or imported in the U.S. with screen sizes 32 to 35 inches as of July 1, 2006; 100% of models manufactured or imported in the U.S. with screen sizes larger than 13 inches after July 1, 2007.

In the past, the FCC has made modifications to its rules and timetable for the DTV transition and it may do so in the future.

EICTA In January 2005, the European Industry Association for Information Systems, Communication Technologies and Consumer Electronics (EICTA) issued its “Conditions for High Definition Labeling of Display Devices”, which requires all HDTVs using the “HD Ready” logo to have either an HDMI or DVI input with HDCP. In August 2005, EICTA issued its “Minimum Requirements for HD Television Receivers”, which requires HD Receivers without an integrated display (e.g. HD STBs) utilizing the “HDTV” logo and intended for use with HD sources (e.g. television broadcasts), some of which require content protection in order to permit HD quality output, to have either a DVI or HDMI output with HDCP.

CASBAA In August 2005, the Cable and Satellite Broadcasting Association of Asia (CASBAA) issued a series of recommendations in its “CASBAA Principles for Content Protection in the Asia-Pacific Pay-TV Industry” for handling digital output from future generations of set-top boxes for video on demand (VOD), Pay-per-view (PPV), Pay-TV and other encrypted digital programming applications. These recommendations include the use of one or more of HDMI with HDCP or DVI with HDCP digital outputs for set-top boxes capable of outputting uncompressed high-definition content.

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CVIA — In July 2006, Silicon Image and China Video Industry Association (CVIA) signed an agreement and agreed to work together to promote HDMI adoption among domestic Chinese electronics manufacturers, co-develop new technology applicable to HDMI, and collaborate on establishing testing and interoperability certification labs that complement the capabilities of the HDMI Authorized Testing Centers established by Silicon Image. In addition, Silicon Image agreed to support the China Digital Interface Industry Alliance (CDIA), an industry alliance consisting of major Chinese electronics manufacturers that CVIA established. CDIA would work to promote the use of HDMI in consumer electronic products, promote communications among manufacturers in China and abroad, and strengthen coordination between hardware manufacturers and content providers.

Digital Visual Interface (DVI)

In 1998, Silicon Image, together with Intel, Compaq, IBM, Hewlett-Packard, NEC and Fujitsu, announced the formation of the Digital Display Working Group (DDWG). Subsequently, members of the DDWG entered into a Promoter’s Agreement in which they agreed to:

•  define, establish and support the DVI specification, an industry specification for sending video data between a computer and a digital display;

•  encourage broad industry adoption of the DVI specification, in part by creating an implementer’s forum that others may join in order to receive information and by providing support for the DVI specification;

•  invite third parties to enter into a Participant’s Agreement in order to consult on the content, feasibility and other aspects of the DVI specification.

In 1999, the DDWG published the DVI 1.0 specification, which defines a high-speed serial data communication link between computers and digital displays. The DVI 1.0 standard remains in effect, and has not changed from its release in 1999. Over 100 companies, including systems manufacturers, graphics semiconductor companies and monitor manufacturers have participated in DDWG activities, and many are developing hardware and software products designed to be compliant with the DVI specification. Market researcher In-Stat estimated that 92 million DVI-enabled PC devices were shipped by industry participants in 2006.

High-bandwidth Digital Content Protection (HDCP)

In 2000, the HDCP specification HDCP 1.0 was published by Intel, with contributions from Silicon Image acknowledged in the specification. The specification was developed to add content protection to DVI in order to prevent unauthorized copying of content when transmitted between source and display over a DVI link. In 2003, the HDCP specification was updated to revision level 1.1 and made available for use with HDMI. This technology has been widely adopted in consumer electronics products, initially in combination with DVI, and more recently and more prevalently in combination with HDMI. In 2006, the HDCP specification was again revised in version 1.2 to clarify certain technical ambiguities and consolidate errata. The HDCP Compliance Test Specification VI.1 was also released in 2006.

Serial ATA Working Group

During 2000, we acquired Zillion Technologies, a developer of high-speed transmission technology for data storage applications. Zillion contributed to the drafting of the preliminary SATA 1.0 specification, eventually published in 2001 and promoted as a successor to PATA bus technology. We were a contributor to the SATA working group, which includes Dell, Intel, Maxtor, Seagate, and Vitesse, among its promoters. In February 2002, we joined the SATA II Working Group, the successor to the SATA working group, as a contributor. The SATA II working group released “Extensions to Serial ATA 1.0 Specifications” in October 2002 and “Extensions to Serial ATA 1.0a rev. 1.1” in November of 2003, to enhance the SATA 1.0 specification for the server and network storage markets. The SATA II working group has also released specifications for SATA port multipliers and SATA port selectors.

In 2004, the SATA II working group released specifications to increase SATA’s speed to 3 Gb/s, as well as defining external cabling for SATA.

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In July 2004, a new organization, the Serial ATA International Organization, (SATA-IO), was formed as the successor to the SATA II working group. This organization provides the industry with guidance and support for implementing the SATA specification. We are a member of SATA-IO, which has a current membership of over 100 companies including its current board members, Dell, Intel, Seagate and Vitesse. Under the SATA-IO committee, a revised 2.5 specification, which integrates all previous SATA specifications into a single document, has been released. Silicon Image continues to be an active member in the SATA-IO group.

Incits T-13 Committee

In 2003, Silicon Image joined the Incits T13 technical committee (T13 Committee) as a contributor. The T13 Committee is responsible for publishing the ATA specification and is currently working to make improvements to the ATA specification, including the incorporation of advanced SATA-IO features into their next revision of the ATA specification, ATA-8. Members of the T13 Committee include Hitachi, Intel, Seagate, Phoenix Technologies, Microsoft, Fujitsu, Western Digital and nVidia among others.

We intend to continue to be involved and actively participate in other standard setting initiatives.

Silicon Image Technology

Multi-Layer Systems Approach to Solving High-Speed Interconnect Problems

We invented the technology upon which the DVI and HDMI specifications are based, and have substantial experience in the design, manufacture and deployment of semiconductor products incorporating this high-speed data communications technology. The advanced nature of our high-speed digital design allows us to integrate significant functionality with multiple high-speed communication channels using industry-standard, low-cost complementary metal oxide semiconductor (CMOS) manufacturing processes. At the core of our innovation is a multi-layered approach to providing multi-gigabit semiconductor solutions.

The three layers of our Multi-layer Serial Link (MSL) architecture include the physical, coding and protocol layers. Serial link technology is the basis for the physical layer, which performs electrical signaling in several data communication protocols, including DVI 1.0, HDMI 1.3 and SATA. This technology converts parallel data into a serial stream that is transmitted sequentially at a constant rate and then reconstituted into its original form. Our high-speed serial link technology includes a number of proprietary elements designed to address the significant challenge of ensuring that data sent to a display or a storage device can be accurately recovered after it has been separated and transmitted in serial streams over multiple channels. In order to enable a display or a storage device to recognize data at the proper time and rate, our digital serial link technology uses a digital phase-locked loop combined with a unique phase detecting and tracking method to monitor the timing of the data.

At the coding layer, we have developed substantial intellectual property in data coding technology for high-speed serial communication. Our TMDS coding technology simplifies the protocol for high-speed serial communication and allows tradeoffs to be made in physical implementation of the link, which in turn reduces the cost of bandwidth and simplifies the overall system design. In addition, we have ensured direct current, balanced transmission and the ability to use TMDS to keep electromagnetic emissions low and to enable connection to fiber optic interconnects without use of additional components.

VastLane HDMI

Our VastLane HDMI technology sends protected high-fidelity digital audio and high-definition video across the HDMI link for use in the consumer electronics market. Combining digital video and multi-channel digital audio transmissions in a single interconnect system simplifies and reduces the cost of the connection between consumer electronics devices, while maintaining high quality and content protection.

From our inception until 1998, our internal research and development efforts focused primarily on the development of our core VastLane (formerly called PanelLink) technology, our initial transmitter and receiver products, and our first intelligent panel controller product. The TMDS technology developed by Silicon Image became the key technology in the DVI standard completed in 1999. During 1999, we introduced the first DVI products using the VastLane architecture. Subsequent improvements to the core VastLane technology enabled

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higher display interface resolutions higher, and helped drive growth in the flat-panel display market. In 2000, we focused our internal research and development efforts on integrating our VastLane technology with additional functionality, such as digital audio and HDCP, for the consumer electronics industry. These developments led to the adoption of DVI-HDCP by major television manufacturers and created new opportunities for us in consumer electronics. We formed the HDMI Working Group with six other major consumer electronics manufacturers, and we developed key new technologies for the HDMI standard. The original VastLane technology was the basis for HDMI, and an improved VastLane architecture is the backbone of the HDMI 1.3 standard.

Research and Development

Our research and development efforts continue to focus on developing innovative technologies and standards, higher-bandwidth, lower-power links, as well as efficient algorithms, architectures, and feature-rich functions for higher-level integrated products or SoCs, for use in CE (including DTV), PC, mobile, and storage applications. By utilizing our patented technologies and optimized architectures, we believe our VastLane, and SteelVine products can scale with advances in semiconductor manufacturing process technology, simplify system design, and provide new innovative solutions for our customers.

We have invested, and expect that we will continue to invest, significant funds for research and development activities. Our research and development expenses were approximately $63.6 million, $44.9 million, and $61.5 million, in 2006, 2005 and 2004, respectively (including stock-based compensation expense (benefit) of $11.1 million, $(3.9) million, and $16.6 million, for 2006, 2005 and 2004, respectively).

We have assembled a team of engineers and technologists with extensive experience in the areas of high-speed interconnect architecture, circuit design, digital A/V processor architecture, storage architecture, logic design/verification, firmware/software, flat panel displays, digital video/audio systems, and storage systems. Our engineering team includes a group of consultants in Asia that focuses primarily on advanced technology development. As of December 31, 2006, our engineering organizations were based in the United States, China, and the U.K. In January 2007, we purchased sci-worx GmbH (sci-worx), from Infineon Technologies AG (Infineon). Sci-worx was Infineon’s wholly-owned subsidiary prior to the acquisition. We purchased all of the outstanding shares of capital stock of sci-worx and paid sci-worx’s intercompany debt to another Infineon subsidiary. The purchase price for the acquisition was $13.6 million in cash for sci-worx’ capital stock and its intercompany debt (net of its cash balances at closing). Sci-worx (now called Silicon Image Germany) is an intellectual property and design service provider specializing in multimedia, communications, and networking applications. Silicon Image Germany has approximately 172 employees. The acquisition brings Silicon Image core competencies in more than 50 IP products in the area of video/image processing, wireline communications, security and bus interfaces.

On February 2007, we entered into a Video Processor Design License Agreement with Sunplus. Under the terms of the license agreement, we will receive a license to use and further develop advanced video processor technology. The license agreement provides for the payment of an aggregate of $40.0 million to Sunplus by Silicon Image, $35.0 million of which is payable in consideration for the licensed technology and related deliverables and $5.0 million of which is payable in consideration for Sunplus support and maintenance obligations. We paid Sunplus $10.0 million of the consideration for the licensed technology and related deliverables in February 2007, and are required to pay the remaining $25.0 million upon delivery and completion of certain milestones. The $5.0 million to be paid for support and maintenance by Sunplus is payable over a two-year period starting upon delivery of the final Sunplus deliverables. The license agreement also provides for the grant to Sunplus of a license to certain of our intellectual property, for which Sunplus has agreed to pay us $5.0 million upon delivery and acceptance of such intellectual property. We believe that the intellectual property licensed from Sunplus, along with the engineering talent and intellectual property recently acquired in the sci-worx acquisition, will enhance and accelerate our ability to develop and offer a broader array of consumer product offerings, ranging from discrete HDMI chips to new integrated front-end DTV input processors and fully-integrated SoC DTV products.

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Sales and Marketing

We sell our products to distributors and OEMs throughout the world directly using a direct sales force with field offices located in North America, Taiwan, Europe, Japan and Korea and indirectly through a network of distributors and manufacturer’s representatives located throughout North America, Asia and Europe.

Our sales strategy for all products is to achieve design wins with key industry leaders in order to grow the markets in which we participate and to promote and accelerate the adoption of industry standards (such as DVI, HDMI and SATA) that we support or are developing. Our sales personnel and applications engineers provide a high-level of technical support to our customers. Our marketing efforts focus primarily on promoting adoption of the DVI, HDMI and SATA standards; participating in industry trade shows and forums; entering into branding relationships such as VastLane for DVI, HDMI and SteelVine for SATA to build awareness of our brands; and bringing new solutions to market.

Manufacturing

Wafer Fabrication

Our semiconductor products are fabricated using standard CMOS processes, which permit us to engage independent wafer foundries to fabricate our semiconductors. By outsourcing the manufacture of our products, we are able to avoid the high-cost of owning and operating a semiconductor wafer fabrication facility and to take advantage of these manufacturers’ high-volume economies of scale. Outsourcing our manufacturing also gives us direct and timely access to various process technologies. This allows us to focus our resources on the innovation or design and quality of our products. Our devices are currently fabricated using 0.35 micron, 0.25 micron and 0.18 micron processes. We have conducted research and development projects for our licensees, which have involved 0.13 micron and 0.90 nm designs. We continuously evaluate the benefits, primarily the improved performance, costs, and feasibility, of migrating our products to smaller geometry process technologies. We rely almost entirely on Taiwan Semiconductor Manufacturing Company (TSMC) to produce all of our CE, PC and SATA products. Because of the cyclical nature of the semiconductor industry, capacity availability can change quickly and significantly. We attempt to optimize wafer availability by continuing to use less advanced wafer geometries, such as 0.5 micron, 0.35 micron, 0.25 micron and 0.18 micron and 0.13 micron for which foundries generally have more available capacity.

Assembly and Test

After wafer fabrication, die (semiconductor devices) are assembled into packages and the finished products are tested. Our products are designed to use low-cost standard packages and to be tested with widely available semiconductor test equipment. We outsource all of our packaging and the majority of our test requirements to Amkor Technology in Korea, Advanced Semiconductor Engineering in Taiwan and Malaysia and Siliconware Product International Limited (SPIL) in Taiwan. This enables us to take advantage of these subcontractors’ high-volume economies of scale and supply flexibility, and gives us direct and timely access to advanced packaging and test technologies. We test a small portion of our products in-house.

The high-speed nature of our products makes it difficult to test our products in a cost-effective manner prior to assembly. Since the fabrication yields of our products have historically been high and the costs of our packaging have historically been low, we test our products after they are assembled. Our operations personnel closely review the process and control and monitor information provided to us by our foundries. To ensure quality, we have established firm guidelines for rejecting wafers that we consider unacceptable. To date, not testing our products prior to assembly has not caused us to experience unacceptable failures or yields. However, lack of testing prior to assembly could have adverse effects if there are significant problems with wafer processing. Additionally, for newer products and products for which yield rates have not stabilized, we may conduct bench testing using our personnel and equipment, which is more expensive than fully automated testing.

In an effort to improve control, increase operational flexibility, and lower costs, we began, in 2006, to reduce our reliance on third party turnkey suppliers, to manage the relationships with our other third party subcontractors who handle our wafer assembly and test process. In addition, during 2006, we purchased and installed several pieces

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of equipment at test houses to ensure we receive priority on such equipment and to obtain lower test prices from these test houses.

Quality Assurance

We focus on product quality through all stages of the design and manufacturing process. Our designs are subjected to in-depth circuit simulation at temperature, voltage and processing extremes before being fabricated. We pre-qualify each of our subcontractors through an audit and analysis of the subcontractor’s quality system and manufacturing capability. We also participate in quality and reliability monitoring through each stage of the production cycle by reviewing data from our wafer foundries and assembly subcontractors. We closely monitor wafer foundry production to ensure consistent overall quality, reliability and yields. Our independent foundries and assembly and test subcontractors have achieved International Standards Organization (ISO) 9001 certification.

Intellectual Property

Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements, licenses and methods to protect our proprietary technologies. As of December 31, 2006, we had been issued over 80 United States patents and had in excess of 70 United States patent applications pending. Our U.S. issued patents expire in 2014 or later, subject to our payment of periodic maintenance fees. We cannot assure you that any valid patent will be issued as a result of any applications; or, if issued, that any claims allowed will be sufficiently broad to protect our technology; or that any patent will be upheld in the event of a dispute. In addition, we do not file patent applications on a worldwide basis, meaning we do not have patent protection in some jurisdictions. We also generally control access to, and distribution of, our documentation and other proprietary information. Despite our precautions, it may be possible for a third-party to copy or otherwise obtain and use our products or technology without authorization; develop similar technology independently; or design around our patents. It is also possible that some of our existing or new licensing relationships will enable other parties to use our intellectual property to compete against us. Legal actions to enforce intellectual property rights tend to be lengthy and expensive, the outcome often is not predictable, and the relief available may not compensate for the harm caused.

Our participation as a founder of the HDMI specification requires that we grant others the right to use specific elements of our intellectual property in implementing the HDMI specification in their products in exchange for a license. This license bears an annual fee and royalties that are payable to HDMI Licensing, LLC, a wholly-owned subsidiary of ours. There can be no assurance that such license fees and royalties will adequately compensate us for having to license our intellectual property. The license, with restrictions, generally covers the patent claims necessary to implement the specification of an interface for CE devices and does not extend to the internal methods by which such performance is created. Although HDMI is an industry standard, we have developed proprietary methods of implementing the HDMI specification. The intellectual property that we have agreed to license defines the logical structure of the interface, such as the number of signal wires, the signaling types and the data encoding method for serial communication. Our implementation of this logical structure in integrated circuits remains proprietary and includes our techniques to convert data to and from a serial stream; our signal recovery algorithms; our implementation of audio and visual data processing; and our circuits to reduce electromagnetic interference (EMI). Third parties may also develop intellectual property relating to HDMI implementations that would prevent us from developing or enhancing our HDMI specification in conflict with those rights. Third parties may also develop equivalent or superior implementations of the HDMI specification, and we cannot guarantee that we will succeed in protecting our intellectual property rights in our proprietary implementation. Third parties may have infringed, or be infringing, our intellectual property rights or may do so in the future, and we may not discover that fact in a timely or cost-effective manner. Moreover, the cost of pursuing an intellectual property infringement action may be greater than any benefit we would realize. In addition, third parties may not pay the prescribed license fees and royalties, in which case we may become involved in infringement or collection actions, or we may determine that the cost of pursuing such matters may be greater than any benefit we would realize. We agreed to grant rights to the HDMI Founders and adopters of the HDMI specification in order to promote the adoption of our technology as an industry standard. We thereby limited our ability to rely on intellectual property law to prevent the HDMI

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Founders and adopters of the HDMI specification from using certain specific elements of our intellectual property for certain purposes in exchange for a portion of the specified royalties.

Our participation in the DDWG requires that we grant others the right to use specific elements of our intellectual property in implementing the DVI specification in their products at no cost in exchange for an identical right to use specific elements of their intellectual property for this purpose. We agreed to grant rights to the DDWG members and other adopters of the DVI specification, in order to promote the adoption of our technology as an industry standard. We thereby limited our ability to rely on intellectual property law to prevent the adopters of the DVI specification from using certain specific elements of our intellectual property for certain purposes for free. This reciprocal free license covers the connection between a computer and a digital display. It does not extend, however, to the internal methods by which such performance is created. Although the DVI specification is an open industry standard, we have developed proprietary methods of implementing the DVI specification. The intellectual property that we have agreed to license defines the logical structure of the interface, such as the number of signal wires, the signaling types, and the data encoding method for serial communication. Our implementation of this logical structure in integrated circuits remains proprietary, and includes our techniques to convert data to and from a serial stream, our signal recovery algorithms and our circuits to reduce EMI. Third parties may develop proprietary intellectual property relating to DVI implementations that would prevent us from developing or enhancing our DVI implementation in conflict with those rights. Third parties may also develop equivalent or superior implementations of the DVI specification, and we cannot guarantee that we will succeed in protecting our intellectual property rights in our proprietary implementation. Third parties may have infringed or be infringing our intellectual property rights or may do so in the future, and we may not discover that fact in a timely or cost-effective manner. Moreover, the cost of pursuing an intellectual property infringement action may be greater than any benefit we would realize.

We entered into a patent cross-license agreement with Intel, in which each of us granted the other a license to use certain of the grantor’s existing and future patents, including certain future patents, with specific exclusions related to the grantor’s current and anticipated future products and network devices. Products excluded include our digital receivers, discrete digital transmitters and discrete display controllers, and Intel’s processors, chipsets, graphics controllers and flash memory products. This cross-license does not require delivery of any masks, designs, software or any other item evidencing or embodying such patent rights, thus making “cloned” products no easier to create. The cross-license agreement expires when the last licensed patent expires, anticipated to be no earlier than 2016, subject to the right of either party to terminate the agreement earlier upon material breach by the other party, or a bankruptcy, insolvency or change of control of the other party. We have forfeited our ability to rely on intellectual property law to prevent Intel from using our patents within the scope of this license. To date, we are not aware of any use by Intel of our patent rights that negatively impacts our business.

Pursuant to the Unified Display Interface (UDI) Promoters Agreement, we agreed, subject to conditions stipulated in the agreement, to license certain specific elements of our TMDS and panel interface logic intellectual property to adopters of the UDI specification on a reciprocal, royalty-free basis. We agreed to grant rights to the UDI Promoters and future adopters of the UDI specification, in order to promote the adoption of our technology as an industry standard. We thereby limited our ability to rely on intellectual property law to prevent the adopters of the UDI specification from using certain specific elements of our intellectual property for certain purposes for free.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which can result in significant, protracted litigation. In December 2006, we settled our longstanding litigation with Genesis Microchip, Inc. (Genesis), and in January 2007, we filed an action against Analogix Semiconductor, Inc (Analogix) alleging copyright infringement, misappropriation of trade secrets, and unlawful, unfair and fraudulent business practices. For a more detailed description of the settlement agreement with Genesis and our lawsuit against Analogix, see Part I, Item 3 — Legal Proceedings.

Competition

The markets in which we participate are intensely competitive and are characterized by rapid technological change, evolving standards, short product life cycles and decreasing prices. We believe that some of the key factors affecting competition in our markets are levels of product integration, compliance with industry standards,

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time-to-market, cost, product capabilities, system design costs, intellectual property, customer support, quality and reputation.

In the consumer electronics market, our digital interface products are used to connect new cable set-top boxes, satellite set-top boxes, and DVD players to DTVs. These products incorporate, HDMI with HDCP or DVI and HDCP support. Companies competing for sales of DVI-HDCP solutions include Analog Devices, Texas Instruments, Thine, Broadcom, Conexant, Mstar, and Genesis. We compete for sales of HDMI products with companies such as Hitachi, Matsushita, Philips, Sony, Thomson and Toshiba. In addition, our video processor products face competition from products sold by AV Science, Broadcom, Focus Enhancements, Genesis, Mediamatics, Micronas Semiconductor, Oplus, Philips Semiconductor, Pixelworks, ATI and Trident. We also compete, in some instances, against in-house processing solutions designed by large consumer electronics OEMs.

In the PC market, our products face competition from a number of sources. We offer a number of HDMI and DVI solutions to the PC market and we compete against several companies such as Analog Devices, Genesis, MRT, ATI Technologies, Broadcom, Chrontel, Conexant, National Semiconductor, nVidia, Pixelworks, SIS, Smart ASIC, ST Microelectronics, Texas Instruments and Thine. DisplayPort is a new digital display interface standard being put forth by the VESA (Video Electronics Standards Association) that defines a digital audio/video interconnect, intended to be used primarily between a computer and its display monitor, or a computer and a home-theater system. Several companies have announced that they expect to introduce products based on the DisplayPort standard including AMD, Genesis, and nVidia, and these products may compete with our DVI and HDMI products.

Our SATA products compete with similar products from Marvell Technology, VIA Technologies, Silicon Integrated Systems, J-Micron, Atmel and Promise Technology. In addition, other companies, such as APT, Intel, LSI Logic, ServerWorks and Vitesse, have developed, or announced intentions to develop, SATA products. We also are likely to compete against Intel, nVidia, VIA Technologies, Silicon Integrated Systems, ATI Technologies, and other motherboard chip-set makers which have, or have announced intentions to integrate SATA functionality into their chipsets.

Many of our competitors have longer operating histories and greater presence in key markets, greater name recognition, access to larger customer bases, and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources, than we do. As a result, they may be able to adapt more quickly to new or emerging technologies and customer requirements, or devote greater resources to the promotion and sale of their products. In particular, well-established semiconductor companies, such as Analog Devices, Intel, National Semiconductor and Texas Instruments, and consumer electronics manufacturers, such as Hitachi, Matsushita, Philips, Sony, Thomson and Toshiba, may compete against us in the future. We cannot assure that we can compete successfully against current or potential competitors, or that competition will not seriously harm our business.

Employees

As of December 31, 2006, we had a total of 442 employees, including 65 located outside of the United States. None of our employees are represented by a collective bargaining agreement, nor have we experienced any work stoppages. We consider our relations with our employees to be good. In January, 2007 we purchased sci-worx GmbH from Infineon Technologies AG, and as a result of the acquisition, we added approximately 172 employees. For a more detailed discussion about the acquisition, please refer to Note 11- Subsequent Events of the notes to our Consolidated Financial Statements. We depend on the continued service of our key technical, sales and senior management personnel, and our ability to attract and retain additional qualified personnel. If we are unable to hire and retain qualified personnel, our business will be seriously harmed.

Available Information

Our Internet website address is www.siliconimage.com. We are not including the information contained on our web site as a part of, or incorporating it by reference into, the Annual Report on Form 10-K. We make available free of charge, through our Internet website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable, after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

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To receive a free copy of this Form 10-K, please forward your written request to Silicon Image, Inc., Attn: Investor Relations, 1060 East Arques Avenue, Sunnyvale, California 94085.

Item 1A.  Risk Factors

A description of the risk factors associated with our business is set forth below. You should carefully consider the following risk factors, together with all other information contained or incorporated by reference in this filing, before you decide to purchase shares of our common stock. These factors could cause our future results to differ materially from those expressed in or implied by forward-looking statements made by us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

We operate in rapidly evolving markets, which makes it difficult to evaluate our future prospects.

The revenue and income potential of our business and the markets we serve are early in their lifecycle and are difficult to predict. The Digital Visual Interface (DVI) specification, which is based on technology developed by us and used in many of our products, was first published in April 1999. We completed our first generation of CE and storage IC products in mid-to-late 2001. The preliminary SATA specification was first published in August 2001. The HDMI specification was first released in December 2002. Our SteelVine^tm storage architecture was first released in September 2004. Moreover, there are standards such as DisplayPort, in or expected to be in the market place which competes with DVI and HDMI. DisplayPort is a new digital display interface standard being put forth by the VESA (Video Electronics Standards Association). It defines a new digital audio/video interconnect, intended to be used primarily between a computer and its display-monitor, or a computer and a home-theater system. Other new standards have been and in the future may be introduced from time to time which could impact our success. Accordingly, we face risks and difficulties frequently encountered by companies in new and rapidly evolving markets. If we do not successfully address these risks and difficulties, our results of operations could be negatively affected.

Our annual and quarterly operating results may fluctuate significantly and are difficult to predict.

Our annual and quarterly operating results are likely to vary significantly in the future based on a number of factors over which we have little or no control. These factors include, but are not limited to:

•  the growth, evolution and rate of adoption of industry standards for our key markets, including consumer electronics, digital-ready PCs and displays, and storage devices and systems;

•  the fact that our licensing revenue is heavily dependent on a few key licensing transactions being completed for any given period, the timing of which is not always predictable and is especially susceptible to delay beyond the period in which completion is expected, and our concentrated dependence on a few licensees in any period for substantial portions of our expected licensing revenue and profits;

•  the fact that our licensing revenue has been uneven and unpredictable over time, and is expected to continue to be uneven and unpredictable for the foreseeable future, resulting in considerable fluctuation in the amount of revenue recognized in a particular quarter;

•  competitive pressures, such as the ability of competitors to successfully introduce products that are more cost-effective or that offer greater functionality than our products, including integration into their products of functionality offered by our products, the prices set by competitors for their products, and the potential for alliances, combinations, mergers and acquisitions among our competitors;

•  average selling prices of our products, which are influenced by competition and technological advancements, among other factors;

•  government regulations regarding the timing and extent to which digital content must be made available to consumers;

•  the availability of other semiconductors or other key components that are required to produce a complete solution for the customer; usually, we supply one of many necessary components; and

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•  the cost of components for our products and prices charged by the third parties who manufacture, assemble and test our products.

Because we have little or no control over these factors and/or their magnitude, our operating results are difficult to predict. Any substantial adverse change in any of these factors could negatively affect our business and results of operations.

Our future annual and quarterly operating results are highly dependent upon how well we manage our business.

Our annual and quarterly operating results may fluctuate based on how well we manage our business. Some of these factors include the following:

•  our ability to manage product introductions and transitions, develop necessary sales and marketing channels, and manage other matters necessary to enter new market segments;

•  our ability to successfully manage our business in multiple markets such as CE, PC, and storage, which may involve additional research and development, marketing or other costs and expenses;

•  our ability to enter into licensing deals when expected and make timely deliverables and milestones on which recognition of revenue often depends;

•  our ability to engineer customer solutions that adhere to industry standards in a timely and cost-effective manner;

•  our ability to achieve acceptable manufacturing yields and develop automated test programs within a reasonable time frame for our new products;

•  our ability to manage joint ventures and projects, design services, and our supply chain partners;

•  our ability to monitor the activities of our licensees to ensure compliance with license restrictions and remittance of royalties;

•  our ability to structure our organization to enable achievement of our operating objectives and to meet the needs of our customers and markets;

•  the success of the distribution and partner channels through which we choose to sell our products and

•  our ability to manage expenses and inventory levels; and

•  our ability to successfully implement our plans to transfer certain of our technology, sales administration and procurement functions offshore to be closer to customers and suppliers, lower our tax liability, and reduce certain costs.

If we fail to effectively manage our business, this could adversely affect our results of operations.

The licensing component of our business strategy increases business risk and volatility.

Part of our business strategy is to license certain of our technology to companies that address markets in which we do not want to directly participate. There can be no assurance that additional companies will be interested in licensing our technology on commercially favorable terms or at all. We also cannot ensure that companies who license our technology will introduce and sell products incorporating our technology, will accurately report royalties owed to us, will pay agreed upon royalties, will honor agreed upon market restrictions, will not infringe upon or misappropriate our intellectual property and will maintain the confidentiality of our proprietary information. Licensing contracts are complex and depend upon many factors including completion of milestones, allocation of values to delivered items, and customer acceptances. Many of these factors require significant judgments. Licensing revenue could fluctuate significantly from period to period because it is heavily dependent on a few key deals being completed in a particular period, the timing of which is difficult to predict and may not match our expectations. Because of its high margin content, licensing revenue can have a disproportionate impact on gross profit and profitability. Also, generating revenue from licensing arrangements is a lengthy and complex process that

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may last beyond the period in which efforts begin, and once an agreement is in place, the timing of revenue recognition may be dependent on customer acceptance of deliverables, achievement of milestones, our ability to track and report progress on contracts, customer commercialization of the licensed technology, and other factors. Licensing that occurs in connection with actual or contemplated litigation is subject to risk that the adversarial nature of the transaction will induce non-compliance or non-payment. The accounting rules associated with recognizing revenue from licensing transactions are increasingly complex and subject to interpretation. Due to these factors, the amount of license revenue recognized in any period may differ significantly from our expectations.

We face intense competition in our markets, which may lead to reduced revenue from sales of our products and increased losses.

The CE, PC and storage markets in which we operate are intensely competitive. These markets are characterized by rapid technological change, evolving standards, short product life cycles and declining selling prices. We expect competition for many of our products to increase, as industry standards become widely adopted and as new competitors enter our markets.

Our products face competition from companies selling similar discrete products, and from companies selling products such as chipsets with integrated functionality. Our competitors include semiconductor companies that focus on the CE, display or storage markets, as well as major diversified semiconductor companies, and we expect that new competitors will enter our markets. Current or potential customers, including our own licensees, may also develop solutions that could compete with us, including solutions that integrate the functionality of our products into their solutions. In addition, potential OEM customers may have internal semiconductor capabilities, and may develop their own solutions for use in their products rather than purchasing them from companies such as us. Some of our competitors have already established supplier or joint development relationships with current or potential customers and may be able to leverage their existing relationships to discourage these customers from purchasing products from us or persuade them to replace our products with theirs. Many of our competitors have longer operating histories, greater presence in key markets, better name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than we do and as a result, they may be able to adapt more quickly to new or emerging technologies and customer requirements, or devote greater resources to the promotion and sale of their products. In particular, well-established semiconductor companies, such as Analog Devices, Intel, National Semiconductor and Texas Instruments, and CE manufacturers, such as Hitachi, Matsushita, Philips, Sony, Thomson and Toshiba, may compete against us in the future. Some of our competitors could merge, which may enhance their market presence. Existing or new competitors may also develop technologies that more effectively address our markets with products that offer enhanced features and functionality, lower power requirements, greater levels of integration or lower cost. Increased competition has resulted in, and is likely to continue to result in price reductions and loss of market share in certain markets. We cannot assure you that we can compete successfully against current or potential competitors, or that competition will not reduce our revenue and gross margins.

Our success depends in part on demand for our new products.

Our future growth depends in part on the success of our ability to develop and market highly integrated Digital TV SoC solutions and HDTV input processors which we have recently introduced into the market and which may or may not contribute significantly to our overall CE revenue. In the storage market, our growth depends in part on market acceptance of our product offerings based on our SteelVine architecture. These products may not achieve the desired level of market acceptance in the anticipated timeframes. These products are subject to significant competition from established companies that have been selling such products for longer periods of time than Silicon Image.

Demand for our consumer electronics products is dependent on continued adoption and widespread implementation of the HDMI specification.

Our success in the CE market is largely dependent upon the continued adoption and widespread implementation of the HDMI specification. Demand for our products may be inhibited by unanticipated unfavorable changes

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in or new regulations that delay or impede the transition to digital broadcast technologies in the U.S. or abroad. Demand for our consumer electronics products may also be inhibited in the event of negative consumer experience with HDMI technology as more consumers put it into service. Transmission of audio and video from “player devices” (such as a DVD player or set-top box) to intermediary devices (such as an audio-video receiver (AVR)) to displays (such as an HDTV) over HDMI with HDCP represents a combination of new technologies working in concert. Complexities with these technologies, the interactions between content protection technologies and HDMI with HDCP, and the variability in HDMI implementations between manufacturers may cause some of these products to work incorrectly, or for the transmissions to not occur correctly, or for certain products not to be interoperable. Such occurrences could negatively impact consumer acceptance of HDMI, which could inhibit demand for our consumer electronics products. In addition, we believe that the rate of HDMI adoption may be accelerated by FCC rules and European Information Communications and Consumer Electronics Technology Industry Associations (EICTA) and Cable & Satellite Broadcasting Association of Asia (CASBAA) recommendations described below.

In the United States, the FCC issued its Plug and Play order in October 2003. In November 2003 and March 2004, these rules, known as the Plug & Play Final Rules (Plug & Play Rules), became effective. The Plug and Play Rules are relevant to DVI and HDMI with respect to high definition set-top boxes and the labeling of digital cable ready televisions. Regarding high-definition set-top boxes, the FCC stated that, as of July 1, 2005, all high definition set-top boxes acquired by cable operators for distribution to subscribers would need to include either a Digital Visual Interface (DVI) or High-Definition Multimedia Interface (HDMI) with HDCP. Regarding digital cable ready televisions, the FCC stated that a 720p or 1080i unidirectional digital cable television may not be labeled or marketed as digital cable ready unless it includes the following interfaces DVI or HDMI with HDCP according to a phase-in timetable. In the past, the FCC has made modifications to its rules and timetable for the DTV transition and it may do so in the future. We cannot predict whether these FCC rules will be amended prior to completion of the phase-in dates or that such phase-in dates will not be delayed. In addition, we cannot guarantee that the FCC will not in the future reverse these rules or adopt rules requiring or supporting different interface technologies, either of which would adversely affect our business.

In January 2005, the European Industry Association for Information Systems, Communication Technologies and Consumer Electronics (EICTA) issued its “Conditions for High Definition Labeling of Display Devices” which requires all HDTVs using the “HD Ready” logo to have either an HDMI or DVI input with HDCP. In August 2005, EICTA issued its “Minimum Requirements for HD Television Receivers” which requires HD Receivers without an integrated display (e.g. HD STBs) utilizing the “HDTV” logo and intended for use with HD sources (e.g. television broadcasts), some of which require content protection in order to permit HD quality output, to have either a DVI or HDMI output with HDCP.

In August 2005, the Cable and Satellite Broadcasting Association of Asia (CASBAA) issued a series of recommendations in its “CASBAA Principles for Content Protection in the Asia-Pacific Pay-TV Industry” for handling digital output from future generations of set-top boxes for VOD, PPV, Pay-TV and other encrypted digital programming applications. These recommendations include the use of one or more HDMI with HDCP or DVI with HDCP digital outputs for set-top boxes capable of outputting uncompressed high-definition content.

With respect to the EICTA and CASBAA recommendations, we cannot predict the rate at which manufacturers will implement the HDMI-related recommendations in their products.

Transmission of audio and video from source devices (such as a DVD player or STB) to sink devices (such as an HDTV) over HDMI with HDCP represents a combination of new technologies working in concert. Cable and satellite system operators are just beginning to require transmissions of digital video with HDCP between source and sink devices in consumer homes, and DVD players incorporating this technology have only recently come to market. Complexities with these technologies and the variability in implementations between manufacturers may cause some of these products to work incorrectly, or for the transmissions to not occur correctly, or for certain products not to be interoperable. Also, the user experience associated with audiovisual transmissions over HDMI with HDCP is unproven, and users may reject products incorporating these technologies or they may require more customer support than expected. Delays or difficulties in integration of these technologies into products or failure of products incorporating this technology to achieve market acceptance could have an adverse effect on our business.

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In addition, the HDMI founders decided to reduce the annual license fee payable by HDMI adopters from $15,000 to $10,000 per year effective on November  1, 2006 for all adopters after that date in order to encourage more widespread adoption of HDMI. The annual fees collected by our subsidiary HDMI Licensing, LLC are recognized as revenues by us. Accordingly, if there are not sufficient new adopters of HDMI to offset the reduction in the annual license fee payable per adopter, our revenues will be negatively impacted.

We will have difficulty selling our products if customers do not design our products into their product offerings or if our customers’ product offerings are not commercially successful.

Our products are generally incorporated into our customers’ products at the design stage. As a result, we rely on equipment manufacturers to select our products to be designed into their products. Without these “design wins,” it becomes difficult to sell our products. We often incur significant expenditures on the development of a new product without any assurance that an equipment manufacturer will select our product for design into its own product. Additionally, in some instances, we are dependent on third parties to obtain or provide information that we need to achieve a design win. Some of these third parties may be our competitors and, accordingly, may not supply this information to us on a timely basis, if at all. Once an equipment manufacturer designs a competitor’s product into its product offering, it becomes significantly more difficult for us to sell our products to that customer because changing suppliers involves significant cost, time, effort and risk for the customer. Furthermore, even if an equipment manufacturer designs one of our products into its product offering, we cannot be assured that its product will be commercially successful or that we will receive any revenue from that product. Sales of our products largely depend on the commercial success of our customers’ products. Our customers generally can choose at any time to stop using our products if their own products are not commercially successful or for any other reason. We cannot assure you that we will continue to achieve design wins or that our customers’ equipment incorporating our products will ever be commercially successful.

Our products typically have lengthy sales cycles. A customer may decide to cancel or change its product plans, which could cause us to lose anticipated sales. In addition, our average product life cycles tend to be short and, as a result, we may hold excess or obsolete inventory that could adversely affect our operating results.

After we have developed and delivered a product to a customer, the customer will usually test and evaluate our product prior to designing its own equipment to incorporate our product. Our customers generally need three months to over six months to test, evaluate and adopt our product and an additional three months to over nine months to begin volume production of equipment that incorporates our product. Due to this lengthy sales cycle, we may experience significant delays from the time we incur operating expenses and make investments in inventory until the time that we generate revenue from these products. It is possible that we may never generate any revenue from these products after incurring such expenditures. Even if a customer selects our product to incorporate into its equipment, we have no assurances that the customer will ultimately market and sell its equipment or that such efforts by our customer will be successful. The delays inherent in our lengthy sales cycle increase the risk that a customer will decide to cancel or change its product plans. Such a cancellation or change in plans by a customer could cause us to lose sales that we had anticipated. In addition, anticipated sales could be materially and adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle or chooses not to release equipment that contains our products.

While our sales cycles are typically long, our average product life cycles tend to be short as a result of the rapidly changing technology environment in which we operate. As a result, the resources devoted to product sales and marketing may not generate material revenue for us, and from time to time, we may need to write off excess and obsolete inventory. If we incur significant marketing expenses and investments in inventory in the future that if we are not able to recover, and we are not able to compensate for those expenses, our operating results could be adversely affected. In addition, if we sell our products at reduced prices in anticipation of cost reductions but still hold higher cost products in inventory, our operating results would be harmed.

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Our customer may not purchase anticipated levels of products, which can result in increased inventory levels

We generally do not obtain firm, long-term purchase commitments from our customers, and, in order to accommodate the requirements of certain customers, we may from time to time build inventory that is specific to that customer in advance of receiving firm purchase orders. The short-term nature of our customers’ commitments and the rapid changes in demand for their products reduce our ability to accurately estimate the future requirements of those customers. Should the customer’s needs shift so that they no longer require such inventory, we may be left with excessive inventories, which could adversely affect our operating results.

We depend on a few key customers and the loss of any of them could significantly reduce our revenue.

Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue. For the year ended December 31, 2006, shipments to Microtek Corporation, a distributor, generated 16% of our revenue, shipments to Innotech Corporation, a distributor, generated 16% of our revenue and shipments to World Peace Industrial, a distributor, generated 12% of our revenue. For the year ended December 31, 2005, shipments to World Peace International generated 17% of our revenue and shipments to Microtek generated 11% of our revenue. In addition, an end-customer may buy through multiple distributors, contract manufacturers, and/or directly, which could create an even greater concentration. We cannot be certain that customers and key distributors that have accounted for significant revenue in past periods, individually or as a group, will continue to sell our products and generate revenue. As a result of this concentration of our customers, our results of operations could be negatively affected if any of the following occurs:

•  one or more of our customers, including distributors, becomes insolvent or goes out of business;

•  one or more of our key customers or distributors significantly reduces, delays or cancels orders; and/or

•  one or more significant customers selects products manufactured by one of our competitors for inclusion in their future product generations.

Due to our participation in multiple markets, our customer base has broadened significantly and we therefore anticipate being less dependent on a relatively small number of customers to generate revenue. However, as product mix fluctuates from quarter to quarter, we may become more dependent on a small number of customers or a single customer for a significant portion of our revenue in a particular quarter, the loss of which could adversely affect our operating results.

We sell our products through distributors, which limits our direct interaction with our customers, therefore reducing our ability to forecast sales and increasing the complexity of our business.

Many original equipment manufacturers rely on third-party manufacturers or distributors to provide inventory management and purchasing functions. Distributors generated 50% of our revenue for the year ended December 31, 2006, 52% of our revenue for the year ended December 31, 2005, and 45% of our revenue for the year ended December 31, 2004. Selling through distributors reduces our ability to forecast sales and increases the complexity of our business, requiring us to:

•  manage a more complex supply chain;

•  monitor and manage the level of inventory of our products at each distributor;

•  estimate the impact of credits, return rights, price protection and unsold inventory at distributors; and

•  monitor the financial condition and credit-worthiness of our distributors, many of which are located outside of the United States, and the majority of which are not publicly traded.

Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be significant build-up of inventories in the retail channel, with the OEM or the OEM’s contract manufacturer. Such a buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out planned shipments. This could adversely impact our revenues and profits.

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Any failure to manage these challenges could disrupt or reduce sales of our products and unfavorably impact our financial results.

Our success depends on the development and introduction of new products, which we may not be able to do in a timely manner because the process of developing high-speed semiconductor products is complex and costly.

The development of new products is highly complex, and we have experienced delays, some of which exceeded one year, in the development and introduction of new products on several occasions in the past. We have recently introduced new storage products for the consumer and small to medium-sized business markets and we expect to introduce new CE, PC and storage products in the future. As our products integrate new, more advanced functions, they become more complex and increasingly difficult to design, manufacture and debug. Successful product development and introduction depends on a number of factors, including, but not limited to:

•  accurate prediction of market requirements and evolving standards, including enhancements or modifications to existing standards such as HDMI, HDCP, DVI, SATA I and SATA II;

•  identification of customer needs where we can apply our innovation and skills to create new standards or areas for product differentiation that improve our overall competitiveness either in an existing market or in a new market;

•  development of advanced technologies and capabilities, and new products that satisfy customer requirements;

•  competitors’ and customers’ integration of the functionality of our products into their products, which puts pressure on us to continue to develop and introduce new products with new functionality;

•  timely completion and introduction of new product designs;

•  management of product life cycles;

•  use of leading-edge foundry processes and achievement of high manufacturing yields and low cost testing;

•  market acceptance of new products; and

•  market acceptance of new architectures like SteelVine.

Accomplishing all of this is extremely challenging, time-consuming and expensive and there is no assurance that we will succeed. Product development delays may result from unanticipated engineering complexities, changing market or competitive product requirements or specifications, difficulties in overcoming resource limitations, the inability to license third-party technology or other factors. Competitors and customers may integrate the functionality of our products into their products that would reduce demand for our products. If we are not able to develop and introduce our products successfully and in a timely manner, our costs could increase or our revenue could decrease, both of which would adversely affect our operating results. In addition, it is possible that we may experience delays in generating revenue from these products or that we may never generate revenue from these products. We must work with a semiconductor foundry and with potential customers to complete new product development and to validate manufacturing methods and processes to support volume production and potential re-work. Each of these steps may involve unanticipated difficulties, which could delay product introduction and reduce market acceptance of the product. In addition, these difficulties and the increasing complexity of our products may result in the introduction of products that contain defects or that do not perform as expected, which would harm our relationships with customers and our ability to achieve market acceptance of our new products. There can be no assurance that we will be able to achieve design wins for our planned new products, that we will be able to complete development of these products when anticipated, or that these products can be manufactured in commercial volumes at acceptable yields, or that any design wins will produce any revenue. Failure to develop and introduce new products, successfully and in a timely manner, may adversely affect our results of operations.

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There are risks to our global strategy

During 2006, we commenced the implementation of a global strategy that we believe will, in the long run, result in certain operational benefits as well as provide us with a lower overall tax rate. There can be no assurances that, when completed, the Company’s efforts will produce the anticipated operational benefits or provide an overall lower tax rate for the Company. The expected benefits will depend on a number of factors, including our future business results and profitability, and the effectiveness and timing of our implementation of our global strategy. The Company may experience continued unbenefited foreign losses and, as a result, higher tax rates until its global strategy is operational. As a result of undertaking these efforts, we anticipate an overall tax rate in 2007 that is materially higher than our combined federal, state and foreign statutory tax rate of approximately 41%. While we expect declines in our annual effective tax rate after 2007, we may continue to experience higher tax rates until our new global strategy is operational. We currently expect our global strategy to be operational by 2008. However, there can be no assurance that the strategy will be operational by that time.

We have made acquisitions in the past and may make acquisitions in the future, if advisable, and these acquisitions involve numerous risks.

Our growth depends upon market growth and our ability to enhance our existing products and introduce new products on a timely basis. Acquisitions of companies or intangible assets is a strategy we may use to develop new products and enter new markets. In January 2007, we completed the acquisition of sci-worx. We may acquire additional companies or technologies in the future. Acquisitions involve numerous risks, including, but not limited to, the following:

•  difficulty and increased costs in assimilating employees, including our possible inability to keep and retain key employees of the acquired business;

•  disruption of our ongoing business;

•  discovery of undisclosed liabilities of the acquired companies and legal disputes with founders or shareholders of acquired companies;

•  inability to successfully incorporate acquired technology and operations into our business and maintain uniform standards, controls, policies and procedures;

•  inability to commercialize acquired technology; and

•  the need to take impairment charges or write-downs with respect to acquired assets.

No assurance can be given that our prior acquisitions or our future acquisitions, if any, will be successful or provide the anticipated benefits, or that they will not adversely affect our business, operating results or financial condition. Failure to manage growth effectively and to successfully integrate acquisitions made by us could materially harm our business and operating results.

Our acquisition of sci-worx GmbH exposes us to a variety of risks.

We acquired sci-worx, a limited liability company based in Germany, in January 2007. In addition to the acquisition-related risks described in the risk factor above, this acquisition may expose us to complexities of operating in Germany, a country in which we have not previously had significant operations and whose regulatory framework with which we are unfamiliar, and of difficulties in managing and integrating approximately 172 employees based in Germany. In addition, the technologies acquired from sci-worx may require significant additional development before it can be marketed and may not generate sufficient revenue to offset expenses associated with the acquisition. Any of these problems or factors with respect to the acquisition of sci-worx could adversely affect our business, financial condition or results of operations.

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Industry cycles may strain our management and resources.

Cycles of growth and contraction in our industry may strain our management and resources. To manage these industry cycles effectively, we must:

•  improve operational and financial systems;

•  train and manage our employee base;

•  successfully integrate operations and employees of businesses we acquire or have acquired;

•  attract, develop, motivate and retain qualified personnel with relevant experience; and

•  adjust spending levels according to prevailing market conditions.

If we cannot manage industry cycles effectively, our business could be seriously harmed.

The cyclical nature of the semiconductor industry may create constrictions in our foundry, test and assembly capacity.

The semiconductor industry is characterized by significant downturns and wide fluctuations in supply and demand. This cyclicality has led to significant fluctuations in product demand and in the foundry, test and assembly capacity of third-party suppliers. Production capacity for fabricated semiconductors is subject to allocation, whereby not all of our production requirements would be met. This may impact our ability to meet demand and could also increase our production costs and inventory levels. Cyclicality has also accelerated decreases in average selling prices per unit. We may experience fluctuations in our future financial results because of changes in industry-wide conditions. Our financial performance has been and may in the future be, negatively impacted by downturns in the semiconductor industry. In a downturn situation, we may incur substantial losses if there is excess production capacity or excess inventory levels in the distribution channel.

We depend on third-party sub-contractors to manufacture, assemble and test nearly all of our products, which reduce our control over the production process.

We do not own or operate a semiconductor fabrication facility. We rely on third party semiconductor manufacturing companies overseas to produce the vast majority of our semiconductor products. We also rely on outside assembly and test services to test all of our semiconductor products. Our reliance on independent foundries, assembly and test facilities involves a number of significant risks, including, but not limited to:

•  reduced control over delivery schedules, quality assurance, manufacturing yields and production costs;

•  lack of guaranteed production capacity or product supply, potentially resulting in higher inventory levels;

•  lack of availability of, or delayed access to, next-generation or key process technologies; and

•  limitations on our ability to transition to alternate sources if services are unavailable from primary suppliers.

In addition, our semiconductor products are assembled and tested by several independent subcontractors. We do not have a long-term supply agreement with all of our subcontractors, and instead obtain production services on a purchase order basis. Our outside sub-contractors have no obligation to supply products to us for any specific period of time, in any specific quantity or at any specific price, except as set forth in a particular purchase order. Our requirements represent a small portion of the total production capacity of our outside foundries, assembly and test facilities and our sub-contractors may reallocate capacity to other customers even during periods of high demand for our products. These foundries may allocate or move production of our products to different foundries under their control, even in different locations, which may be time consuming, costly, and difficult, have an adverse affect on quality, yields, and costs, and require us and/or our customers to re-qualify the products, which could open up design wins to competition and result in the loss of design wins and design-ins. If our subcontractors are unable or unwilling to continue manufacturing our products in the required volumes, at acceptable quality, yields and costs, and in a timely manner, our business will be substantially harmed. As a result, we would have to identify and qualify substitute contractors, which would be time-consuming, costly and difficult. This qualification process may also require significant effort by our customers, and may lead to re-qualification of parts, opening up design wins to

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competition, and loss of design wins and design-ins. Any of these circumstances could substantially harm our business. In addition, if competition for foundry, assembly and test capacity increases, our product costs may increase and we may be required to pay significant amounts or make significant purchase commitments to secure access to production services.

The complex nature of our production process, which can reduce yields and prevent identification of problems until well into the production cycle or, in some cases, after the product has been shipped.

The manufacture of semiconductors is a complex process, and it is often difficult for semiconductor foundries to achieve acceptable product yields. Product yields depend on both our product design and the manufacturing process technology unique to the semiconductor foundry. Since low yields may result from either design or process difficulties, identifying problems can often only occur well into the production cycle, when an actual product exists that can be analyzed and tested.

Further, we only test our products after they are assembled, as their high-speed nature makes earlier testing difficult and expensive. As a result, defects often are not discovered until after assembly. This could result in a substantial number of defective products being assembled and tested or shipped, thus lowering our yields and increasing our costs. These risks could result in product shortages or increased costs of assembling, testing or even replacing our products.

Although we test our products before shipment, they are complex and may contain defects and errors. In the past we have encountered defects and errors in our products. Because our products are sometimes integrated with products from other vendors, it can be difficult to identify the source of any particular problem. Delivery of products with defects or reliability, quality or compatibility problems, may damage our reputation and our ability to retain existing customers and attract new customers. In addition, product defects and errors could result in additional development costs, diversion of technical resources, delayed product shipments, increased product returns, warranty and product liability claims against us that may not be fully covered by insurance. Any of these circumstances could substantially harm our business.

We face foreign business, political and economic risks because a majority of our products and our customers’ products are manufactured and sold outside of the United States.

A substantial portion of our business is conducted outside of the United States. As a result, we are subject to foreign business, political and economic risks. Nearly all of our products are manufactured in Taiwan or elsewhere in Asia. For the years ended December 31, 2006, 2005 and 2004, approximately 79%, 74%, and 72% of our revenue respectively was generated from customers and distributors located outside of the United States, primarily in Asia. We anticipate that sales outside of the United States will continue to account for a substantial portion of our revenue in future periods. In addition, we undertake various sales and marketing activities through regional offices in several other countries and, with our recent acquisition of sci-worx GmbH, we have significantly expanded our research and development operations outside of the United States. We intend to continue to expand our international business activities. Accordingly, we are subject to international risks, including, but not limited to:

•  political, social and economic instability;

•  exposure to different business practices and legal standards, particularly with respect to intellectual property;

•  natural disasters and public health emergencies;

•  nationalization of business and blocking of cash flows;

•  trade and travel restrictions

•  the imposition of governmental controls and restrictions;

•  burdens of complying with a variety of foreign laws;

•  import and export license requirements and restrictions of the United States and each other country in which we operate;

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•  unexpected changes in regulatory requirements;

•  foreign technical standards;

•  changes in taxation and tariffs;

•  difficulties in staffing and managing international operations;

•  fluctuations in currency exchange rates;

•  difficulties in collecting receivables from foreign entities or delayed revenue recognition;

•  expense and difficulties in protecting our intellectual property in foreign jurisdictions;

•  exposure to possible litigation or claims in foreign jurisdictions; and

•  potentially adverse tax consequences.

Any of the factors described above may have a material adverse effect on our ability to increase or maintain our foreign sales. In addition, original equipment manufacturers that design our semiconductors into their products sell them outside of the United States. This exposes us indirectly to foreign risks. Because sales of our products are denominated exclusively in United States dollars, relative increases in the value of the United States dollar will increase the foreign currency price equivalent of our products, which could lead to a change in the competitive nature of these products in the marketplace. This in turn could lead to a reduction in sales and profits.

The success of our business depends upon our ability to adequately protect our intellectual property.

We rely on a combination of patent, copyright, trademark, mask work and trade secret laws, as well as nondisclosure agreements and other methods, to protect our proprietary technologies. We have been issued patents and have a number of pending patent applications. However, we cannot assure you that any patents will be issued as a result of any applications or, if issued, that any claims allowed will protect our technology. In addition, we do not file patent applications on a worldwide basis, meaning we do not have patent protection in some jurisdictions. It may be possible for a third-party, including our licensees, to misappropriate our copyrighted material or trademarks. It is possible that existing or future patents may be challenged, invalidated or circumvented and effective patent, copyright, trademark and trade secret protection may be unavailable or limited in foreign countries. It may be possible for a third-party to copy or otherwise obtain and use our products or technology without authorization, develop similar technology independently or design around our patents in the United States and in other jurisdictions. It is also possible that some of our existing or new licensing relationships will enable other parties to use our intellectual property to compete against us. Legal actions to enforce intellectual property rights tend to be lengthy and expensive, and the outcome often is not predictable. As a result, despite our efforts and expenses, we may be unable to prevent others from infringing upon or misappropriating our intellectual property, which could harm our business. In addition, practicality also limits our assertion of intellectual property rights. Patent litigation is expensive and its results are often unpredictable. Assertion of intellectual property rights often results in counterclaims for perceived violations of the defendant’s intellectual property rights and/or antitrust claims. Certain parties after receipt of an assertion of infringement will cut off all commercial relationships with the party making the assertion, thus making assertions against suppliers, customers, and key business partners risky. If we forgo making such claims, we may run the risk of creating legal and equitable defenses for an infringer.

Our participation in working groups for the development and promotion of industry standards in our target markets, including the Digital Visual Interface, HDMI, and UDI specifications, requires us to license some of our intellectual property for free or under specified terms and conditions, which may make it easier for others to compete with us in such markets.

A key element of our business strategy includes participation in working groups to establish industry standards in our target markets, promote and enhance specifications, and develop and market products based on such specifications and future enhancements. We are a promoter of the Digital Display Working Group (DDWG), which published and promotes the DVI specification, a founder in the working group that develops and promotes the

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HDMI specification, and a promoter in the working group that develops and promotes the UDI specification. In connection with our participation in such working groups:

•  we must license for free specific elements of our intellectual property to others for use in implementing the DVI specification; and we may license additional intellectual property for free as the DDWG promotes enhancements to the DVI specification.

•  we must license specific elements of our intellectual property to others for use in implementing the HDMI specification and we may license additional intellectual property as the HDMI founders group promotes enhancements to the HDMI specification; and

•  we have agreed to license specific elements of our intellectual property to other UDI promoters and third parties who execute an adopters agreement.

Accordingly, certain companies that implement the DVI, HDMI and/or UDI specifications in their products can use specific elements of our intellectual property to compete with us, in certain cases for free. Although in the case of the HDMI specification, there are annual fees and royalties associated with the adopters agreements, there can be no assurance that such annual fees and royalties will adequately compensate us for having to license our intellectual property. Fees and royalties received during the early years of adoption of HDMI will be used to cover costs we incur to promote the HDMI standard and to develop and perform interoperability tests; in addition, after an initial period, the HDMI founders may reallocate the royalties amongst themselves to reflect each founder’s relative contribution of intellectual property to the HDMI specification.

We intend to continue to be involved and actively participate in other standard setting initiatives. Accordingly, we may license additional elements of our intellectual property to others for use in implementing, developing, promoting or adopting standards in our target markets, in certain circumstances at little or no cost, which may make it easier for others to compete with us in such markets. In addition, even if we receive license fees and/or royalties in connection with the licensing of our intellectual property, there can be no assurance that such license fees and/or royalties will adequately compensate us for having to license our intellectual property.

Our success depends in part on our relationships with Sunplus and other strategic partners.

We have entered into strategic partnerships with third parties. In February 2007, the Company entered into a Video Processor Design License Agreement with Sunplus. Under the terms of the license agreement, we will receive a license to use and further develop advanced video processor technology. The license agreement provides for the payment of an aggregate of $40.0 million to Sunplus by Silicon Image, $35.0 million of which is payable in consideration for the licensed technology and related deliverables and $5.0 million of which is payable in consideration for Sunplus support and maintenance obligations. We paid Sunplus $10.0 million of the consideration for the licensed technology and related deliverables in February 2007, and are required to pay the remaining $25.0 million upon delivery and completion of certain milestones. The $5.0 million to be paid for support and maintenance by Sunplus is payable over a two-year period starting upon delivery of the final Sunplus deliverables. The license agreement also provides for the grant to Sunplus of a license to certain of our intellectual property, for which Sunplus has agreed to pay us $5.0 million upon delivery and acceptance of such intellectual property. We believe that the intellectual property licensed under this license agreement will enhance our ability to develop DTV technology and other consumer product offerings. The success of the agreement depends upon our successful integration of the operations of sci-worx, which will be critical to our ability to develop products based on the licensed IP. The success of the agreement also depends upon the continued market acceptance of our HDTV and consumer products. The achievement of milestones upon which the payments to Sunplus are contingent may also not be achieved. We may not succeed in developing successful products based on the Sunplus intellectual property.

While these strategic partnerships are designed to drive revenue growth and adoption of our technologies and industry standards promulgated by us and also reduce our research and development expenses, there is no guarantee that these strategic partnerships will be successful. Negotiating and performing under these strategic partnerships involves significant time and expense; we may not realize anticipated increases in revenue, standards adoption or cost savings; and these strategic partnerships may make it easier for the third parties to compete with us; any of which may have a negative effect our business and results of operations.

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Our success depends on managing our relationship with Intel.

Intel has a dominant role in many of the markets in which we compete, such as PCs and storage, and is a growing presence in the CE market. We have a multi-faceted relationship with Intel that is complex and requires significant management attention, including:

•  Intel and Silicon Image have been parties to business cooperation agreements;

•  Intel and Silicon Image are parties to a patent cross-license;

•  Intel and Silicon Image worked together to develop HDCP;

•  an Intel subsidiary has the exclusive right to license HDCP, of which we are a licensee;

•  Intel and Silicon Image were two of the promoters of the DDWG;

•  Intel and Silicon Image are two of the promoters of the Unified Display Interface Working Group;

•  Intel is a promoter of the SATA working group, of which we are a contributor;

•  Intel is a supplier to us and a customer for our products;

•  we believe that Intel has the market presence to drive adoption of SATA by making it widely available in its chipsets and motherboards, which could affect demand for our products;

•  we believe that Intel has the market presence to affect adoption of HDMI by either endorsing complementary technology or promulgating a competing standard, which could affect demand for our products;

•  Intel may potentially integrate the functionality of our products, including SATA, DVI, or HDMI into its own chips and chipsets, thereby displacing demand for some of our products;

•  Intel may design new technologies that would require us to re-design our products for compatibility, thus increasing our R&D expense and reducing our revenue;

•  Intel’s technology, including its 845G chipset, may lower barriers to entry for other parties who may enter the market and compete with us; and

•  Intel may enter into or continue relationships with our competitors that can put us at a relative disadvantage.

Our cooperation and competition with Intel can lead to positive benefits, if managed effectively. If our relationship with Intel is not managed effectively, it could seriously harm our business, negatively affect our revenue, and increase our operating expenses.

We have granted Intel rights with respect to our intellectual property, which could allow Intel to develop products that compete with ours or otherwise reduce the value of our intellectual property.

We entered into a patent cross-license agreement with Intel in which each of us granted the other a license to use the patents filed by the grantor prior to a specified date, except for identified types of products. We believe that the scope of our license to Intel excludes our current products and anticipated future products. Intel could, however, exercise its rights under this agreement to use our patents to develop and market other products that compete with ours, without payment to us. Additionally, Intel’s rights to our patents could reduce the value of our patents to any third-party who otherwise might be interested in acquiring rights to use our patents in such products. Finally, Intel could endorse competing products, including a competing digital interface, or develop its own proprietary digital interface. Any of these actions could substantially harm our business and results of operations.

We may become engaged in additional intellectual property litigation that could be time-consuming, may be expensive to prosecute or defend, and could adversely affect our ability to sell our product.

In recent years, there has been significant litigation in the United States and in other jurisdictions involving patents and other intellectual property rights. This litigation is particularly prevalent in the semiconductor industry, in which a number of companies aggressively use their patent portfolios to bring infringement claims. In addition, in recent years, there has been an increase in the filing of so-called “nuisance suits,” alleging infringement of

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intellectual property rights. These claims may be asserted as counterclaims in response to claims made by a company alleging infringement of intellectual property rights. These suits pressure defendants into entering settlement arrangements to quickly dispose of such suits, regardless of merit. In addition, as is common in the semiconductor industry, from time to time we have been notified that we may be infringing certain patents or other intellectual property rights of others. Responding to such claims, regardless of their merit, can be time consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses. As each claim is evaluated, we may consider the desirability of entering into settlement or licensing agreements. No assurance can be given that settlements will occur or that licenses can be obtained on acceptable terms or that litigation will not occur. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products, or a successful claim of infringement against us requiring us to pay damages or royalties to a third-party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected.

On January 31, 2007, we filed a lawsuit in the United States District Court for the Northern District of California against Analogix Semiconductor, Inc. (“Analogix”), a semiconductor company based in California. The complaint charges Analogix with copyright infringement, misappropriation of trade secrets, and unlawful, unfair and fraudulent business practices. The lawsuit alleges that Analogix, without authorization and in violation of Silicon Image’s intellectual property rights, copied and used our proprietary register maps and semiconductor configuration software by gaining unauthorized access to Silicon Image’s proprietary and confidential information, illegally copied and modified Silicon Image’s semiconductor configuration software, and knowingly and unlawfully encouraged its existing and prospective customers to modify and use Silicon Image’s semiconductor configuration software with Analogix’s chips, a use that is beyond the scope, and in violation of, the rights granted under Silicon Image’s software license agreements. In addition to seeking monetary damages in an amount to be determined at trial, we are seeking an injunction barring Analogix from infringement of Silicon Image’s intellectual property rights.

Any potential intellectual property litigation against us could also force us to do one or more of the following:

•  stop selling products or using technology that contains the allegedly infringing intellectual property;

•  attempt to obtain a license to the relevant intellectual property, which license may not be available on reasonable terms or at all; and

•  attempt to redesign products that contain the allegedly infringing intellectual property.

If we take any of these actions, we may be unable to manufacture and sell our products. We may be exposed to liability for monetary damages, the extent of which would be very difficult to accurately predict. In addition, we may be exposed to customer claims, for potential indemnity obligations, and to customer dissatisfaction and a discontinuance of purchases of our products while the litigation is pending. Any of these consequences could substantially harm our business and results of operations.

We have entered into, and may again be required to enter into, patent or other intellectual property cross-licenses.

Many companies have significant patent portfolios or key specific patents, or other intellectual property in areas in which we compete. Many of these companies appear to have policies of imposing cross-licenses on other participants in their markets, which may include areas in which we compete. As a result, we have been required, either under pressure of litigation or by significant vendors or customers, to enter into cross licenses or non-assertion agreements relating to patents or other intellectual property. This permits the cross-licensee, or beneficiary of a non-assertion agreement, to use certain or all of our patents and/or certain other intellectual property for free to compete with us.

We indemnify certain of our licensing customers against infringement.

We indemnify certain of our licensing agreements customers for any expenses or liabilities resulting from third-party claims of infringements of patent, trademark, trade secret, or copyright rights by the technology we license. Certain of these indemnification provisions are perpetual from execution of the agreement and, in some

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instances; the maximum amount of potential future indemnification is not limited. To date, we have not paid any such claims or been required to defend any lawsuits with respect to any claim. In the event that we were required to defend any lawsuits with respect to our indemnification obligations, or to pay any claim, our results of operations could be materially adversely affected.

We must attract and retain qualified personnel to be successful, and competition for qualified personnel is increasing in our market.

Our success depends to a significant extent upon the continued contributions of our key management, technical and sales personnel, many of who would be difficult to replace. The loss of one or more of these employees could harm our business. Although we have entered into a limited number of employment contracts with certain executive officers, we generally do not have employment contracts with our key employees. Our success also depends on our ability to identify, attract and retain qualified technical, sales, marketing, finance and managerial personnel. Competition for qualified personnel is particularly intense in our industry and in our location. This makes it difficult to retain our key personnel and to recruit highly qualified personnel. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. To be successful, we need to hire candidates with appropriate qualifications and retain our key executives and employees. Replacing departing executive officers and key employees can involve organizational disruption and uncertain timing.

The volatility of our stock price has had an impact on our ability to offer competitive equity-based incentives to current and prospective employees, thereby affecting our ability to attract and retain highly qualified technical personnel. If these adverse conditions continue, we may not be able to hire or retain highly qualified employees in the future and this could harm our business. In addition, regulations adopted by The NASDAQ National Market requiring shareholder approval for all stock option plans, as well as regulations adopted by the New York Stock Exchange prohibiting NYSE member organizations from giving a proxy to vote on equity compensation plans unless the beneficial owner of the shares has given voting instructions, could make it more difficult for us to grant options to employees in the future. In addition, SFAS No. 123R, Share Based Payment, requires us to record compensation expense for options granted to employees. To the extent that new regulations make it more difficult or expensive to grant options to employees, we may incur increased cash compensation costs or find it difficult to attract, retain and motivate employees, either of which could harm our business.

We have experienced transitions in our management team, our board of directors and our independent registered public accounting firm in the past and may continue to do so in the future.

We have experienced a number of transitions with respect to our board of directors, executive officers, and our independent registered public accounting firm in recent quarters, including the following:

•  In January 2005, Steve Laub (who replaced David Lee in November 2004) resigned from the positions of chief executive officer and president and from the board of directors, Steve Tirado was appointed as chief executive officer and president and to the board as well, and Chris Paisley was appointed chairman of the board of directors.

•  In February 2005, Jaime Garcia-Meza was appointed as vice president of our storage business.

•  In April 2005, Robert C. Gargus retired from the position of chief financial officer and Darrel Slack was appointed as his successor.

•  In April 2005, four of our then independent outside directors, David Courtney (chairman of the audit committee), Keith McAuliffe, Chris Paisley (chairman of the board) and Richard Sanquini, resigned from our board of directors and board committees.

•  In April 2005, Darrel Slack, our then chief financial officer, was elected to our board of directors.

•  In May 2005, Masood Jabbar and Peter Hanelt were elected to our board of directors.

•  In June 2005, David Lee did not stand for re-election as a director at our annual meeting of stockholders, and accordingly, Dr. Lee resigned from our board of directors.

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•  In June 2005, PricewaterhouseCoopers LLP resigned as our independent registered public accounting firm. In July 2005, we appointed Deloitte & Touche LLP as our new independent registered public accounting firm.

•  In August 2005, Darrel Slack began a personal leave of absence.

•  In August 2005, Dale Brown resigned from the positions of chief accounting officer and corporate controller.

•  In August 2005, Robert Freeman was appointed as interim chief financial officer and chief accounting officer.

•  In September 2005, Darrel Slack resigned from the position of chief financial officer and from our board of directors and the board of directors of HDMI Licensing, LLC, our wholly-owned subsidiary.

•  In October 2005, William George was elected to our board of directors.

•  In October 2005, Robert Bagheri resigned from the position of executive vice president of operations.

•  In October 2005, John LeMoncheck, then vice president, consumer electronics and PC/display, left Silicon Image.

•  In October 2005, John Shin was appointed as interim vice president, consumer electronics and PC/display businesses and served in that position until February 2006. Mr. Shin serves as vice president of engineering, and has held that position since October 2003.

•  In November 2005, Robert Freeman’s position changed from interim chief financial officer to chief financial officer.

•  In December 2005, William Raduchel was elected to our board of directors.

•  In January 2006, Dale Zimmerman was appointed as our vice president of worldwide marketing.

•  In February 2006, John Hodge was elected to our board of directors.

•  In September 2006, Patrick Reutens resigned from the position of chief legal officer.

•  In January 2007, Edward Lopez was appointed as our chief legal officer.

•  In February 2007, David Hodges advised our board of directors that he has decided to retire and as such will not stand for reelection to our board of directors when his current term expires at our 2007 Annual Meeting of Stockholders.

Such past and future transitions may continue to result in disruptions in our operations and require additional costs.

We have completed a voluntarily-initiated internal review of our historical stock option compensation practices and the SEC is conducting an informal inquiry into our past option-granting practices. This inquiry may not be resolved favorably and may require a significant amount of management time and attention and accounting and legal resources, which could adversely affect our business, financial condition, results of operations and cash flows.

During 2006, we initiated a voluntary internal review of our historical stock option compensation practices. The Audit Committee of our Board of Directors reviewed and accepted management’s findings and conclusions upon the completion of the internal review. The review did not identify any wrongdoing or misconduct by past or current employees. As a result of the review, we recorded a net stock-based compensation charge in the fourth quarter of 2006 in the amount of $95,000 related to options granted on two dates where we concluded that a different measurement date was appropriate. We concluded that it was not necessary to make any adjustment to any previously issued financial statements. Subsequent to our initiation of this review, we received written notice from the SEC that it is conducting an informal inquiry into the Company’s option-granting practices during the period January 1, 2004 through October 31, 2006. We are cooperating fully with the SEC.

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We cannot predict the outcome of the informal inquiry by the SEC, when it will be completed or whether it will result in accounting adjustments or other negative implications. Responding to the SEC inquiry could require us to incur substantial expenses for legal, accounting and other professional services and divert our management’s attention from our business and could adversely affect our business, financial condition, results of operations and cash flows.

We have been and may continue to become the target of securities class action suits and derivative suits which could result in substantial costs and divert management attention and resources.

Securities class action suits and derivative suits are often brought against companies, particularly technology companies, following periods of volatility in the market price of their securities. Defending against these suits, even if meritless, can result in substantial costs to us and could divert the attention of our management. We and certain of our officers and directors, together with certain investment banks, have been named as defendants in a securities class action suit filed against us on behalf of purchasers of our securities between October 5, 1999 and December 6, 2000. It is alleged that the prospectus related to our initial public offering was misleading because it failed to disclose that the underwriters of our initial public offering had solicited and received excessive commissions from certain investors in exchange for agreements by investors to buy our shares in the aftermarket for predetermined prices. Due to inherent uncertainties in litigation, we cannot accurately predict the outcome of this litigation; however, a proposed settlement has been negotiated and has received preliminary approval by the Court. This settlement will not require Silicon Image to pay any settlement amounts nor issue any securities. In the event that the settlement is not granted final approval, we believe that these claims are without merit and we intend to defend vigorously against them.

We and certain of our officers were named as defendants in a securities class action captioned “Curry v. Silicon Image, Inc., Steve Tirado, and Robert Gargus,” commenced on January 31, 2005. Plaintiffs filed the action on behalf of a putative class of shareholders who purchased Silicon Image stock between October 19, 2004 and January 24, 2005. The lawsuit alleged that Silicon Image and certain of our officers and directors made alleged misstatements of material facts and violated certain provisions of Sections 20(a) and 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. On April 27, 2005, the Court issued an order appointing lead plaintiff and approving the selection of lead counsel. On July  27, 2005 plaintiffs filed a consolidated amended complaint (“CAC”). The CAC no longer named Mr. Gargus as an individual defendant, but added Dr. David Lee as an individual defendant. The CAC also expanded the class period from June 25, 2004 to April 22, 2005. Defendants filed a motion to dismiss the CAC on September 26, 2005. Plaintiffs subsequently received leave to file, and did file, a second consolidated amended complaint (“Second CAC”) on December 8, 2005. The Second CAC extends the end of the class period from April 22, 2005 to October 13, 2005 and adds additional factual allegations under the same causes of action against Silicon Image, Mr. Tirado and Dr. Lee. The complaint also adds a new plaintiff, James D. Smallwood. Defendants filed a motion to dismiss the Second CAC on February 9, 2006. Plaintiffs filed an opposition to defendants’ motion to dismiss on April 10, 2006 and defendants filed a reply to plaintiffs’ opposition on May 19, 2006. On June 21, 2006 the court granted defendants’ motion to dismiss the Second CAC with leave to amend. Plaintiffs subsequently filed a third consolidated amended complaint (“Third CAC”) by the court established deadline of July 21, 2006. Defendants filed a motion to dismiss the Third CAC on September 1, 2006 and plaintiffs filed an opposition to that motion on November 1, 2006. Defendants filed a reply to plaintiffs’ opposition on December 15, 2006, and with leave of Court, plaintiffs filed a surreply on January 16, 2007. The Court vacated the hearing on this motion that was scheduled for February 9, 2007. On February 23, 2007, the Court granted defendants’ motion to dismiss the Third CAC with leave to amend.

Our operations and the operations of our significant customers, third-party wafer foundries and third-party assembly and test subcontractors are located in areas susceptible to natural disasters.

Our operations are headquartered in the San Francisco Bay Area, which is susceptible to earthquakes, and the operations of CMD, which we acquired, are based in the Los Angeles area, which is also susceptible to earthquakes. TSMC, the outside foundry that produces the majority of our semiconductor products, is located in Taiwan. Advanced Semiconductor Engineering, or ASE, one of the subcontractors that assemble and test our semiconductor products, is also located in Taiwan. For the years ended December 31, 2006, 2005 and 2004 customers and

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distributors located in Japan generated 35%, 22%, and 20%, of our revenue respectively and customers and distributors located in Taiwan generated 20%, 25% and 25% of our revenue, respectively. Both Taiwan and Japan are susceptible to earthquakes, typhoons and other natural disasters.

Our business would be negatively affected if any of the following occurred:

•  an earthquake or other disaster in the San Francisco Bay Area or the Los Angeles area damaged our facilities or disrupted the supply of water or electricity to our headquarters or our Irvine facility;

•  an earthquake, typhoon or other disaster in Taiwan or Japan resulted in shortages of water, electricity or transportation, limiting the production capacity of our outside foundries or the ability of ASE to provide assembly and test services;

•  an earthquake, typhoon or other disaster in Taiwan or Japan damaged the facilities or equipment of our customers and distributors, resulting in reduced purchases of our products; or

•  an earthquake, typhoon or other disaster in Taiwan or Japan disrupted the operations of suppliers to our Taiwanese or Japanese customers, outside foundries or ASE, which in turn disrupted the operations of these customers, foundries or ASE and resulted in reduced purchases of our products or shortages in our product supply.

Continued terrorist attacks or war could lead to further economic instability and adversely affect our operations, results of operations and stock price.

The United States has taken, and continues to take, military action against terrorism and currently has troops in Iraq and in Afghanistan. In addition, the current nuclear arms crises in North Korea and Iran could escalate into armed hostilities or war. Acts of terrorism or armed hostilities may disrupt or result in instability in the general economy and financial markets and in consumer demand for the OEM’s products that incorporate our products. Disruptions and instability in the general economy could reduce demand for our products or disrupt the operations of our customers, suppliers, distributors and contractors, many of whom are located in Asia, which would in turn adversely affect our operations and results of operations. Disruptions and instability in financial markets could adversely affect our stock price. Armed hostilities or war in South Korea could disrupt the operations of the research and development contractors we utilize there, which would adversely affect our research and development capabilities and ability to timely develop and introduce new products and product improvements.

Changes in environmental rules and regulations could increase our costs and reduce our revenue.

Several jurisdictions have implemented rules that would require that certain products, including semiconductors, be made lead-free. All of our products are available to customers in a lead-free format. While we believe that we are generally in compliance with existing regulations, such environmental regulations are subject to change and the jurisdictions may impose additional regulations which could require us to incur costs to develop replacement products. These changes will require us to incur cost or may take time or may not always be economically or technically feasible, or may require disposal of non-compliant inventory. In addition, any requirement to dispose or abate previously sold products would require us to incur the costs of setting up and implementing such a program.

Provisions of our charter documents and Delaware law could prevent or delay a change in control, and may reduce the market price of our common stock.

Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include:

•  authorizing the issuance of preferred stock without stockholder approval;

•  providing for a classified board of directors with staggered, three-year terms;

•  requiring advance notice of stockholder nominations for the board of directors;

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•  providing the board of directors the opportunity to expand the number of directors without notice to stockholders;

•  prohibiting cumulative voting in the election of directors;

•  requiring super-majority voting to amend some provisions of our certificate of incorporation and bylaws;

•  limiting the persons who may call special meetings of stockholders; and

•  prohibiting stockholder actions by written consent.

Provisions of Delaware law also may discourage, delay or prevent someone from acquiring or merging with us.

The price of our stock fluctuates substantially and may continue to do so.

The stock market has experienced extreme price and volume fluctuations that have affected the market valuation of many technology companies, including Silicon Image. These factors, as well as general economic and political conditions, may materially and adversely affect the market price of our common stock in the future. The market price of our common stock has fluctuated significantly and may continue to fluctuate in response to a number of factors, including, but not limited to:

•  actual or anticipated changes in our operating results;

•  changes in expectations of our future financial performance;

•  changes in market valuations of comparable companies in our markets;

•  changes in market valuations or expectations of future financial performance of our vendors or customers;

•  changes in our key executives and technical personnel; and

•  announcements by us or our competitors of significant technical innovations, design wins, contracts, standards or acquisitions.

Due to these factors, the price of our stock may decline. In addition, the stock market experiences volatility that is often unrelated to the performance of particular companies. These market fluctuations may cause our stock price to decline regardless of our performance.

Item 1B.   Unresolved Staff Comments

Not applicable.

Item 2.   Properties

Our principal operating facility, consisting of approximately 143,569 square feet of space in Sunnyvale, California, is leased through July 31, 2011. We also have approximately 28,648 square feet of space in Irvine, California, which is leased through November 30, 2008. These facilities house our corporate offices, the majority of our engineering team, as well as a portion of our sales, marketing, operations and corporate services organizations. We also lease sales, marketing and operation support offices in China, Germany, Japan, Korea, Taiwan, Turkey and the United Kingdom. We believe that our facilities are adequate to meet our operational requirements at least through the end of 2007.

Item 3.   Legal Proceedings

In 2001, we filed a suit in the U.S. District Court for the Eastern District of Virginia against Genesis Microchip Corp. and Genesis Microchip, Inc. (collectively, “Genesis”) for patent infringement. In December 2002, the parties entered into a Memorandum of Understanding (MOU), which apparently settled the case. Disputes arose, however, regarding the interpretation of certain terms of the MOU, and after further court proceedings it was held that the MOU constituted a binding settlement agreement, and should be interpreted in accordance with the our position. The legal action is now terminated. On December 21, 2006, the parties entered into a Settlement and License Agreement (the “Settlement Agreement”).

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The Settlement Agreement grants Genesis certain licenses in exchange for payment of various fees and royalties. Pursuant to the Settlement Agreement, we agreed to grant to Genesis a worldwide, nonexclusive license to all of Silicon Image’s patents with a priority date on or before September 1, 2006. We recorded $11.8 million of royalty revenue and $5.4 million of reimbursement of litigation costs from the Settlement Agreement in the fourth quarter of 2006. Genesis has also agreed to pay us accrued and running royalties on all Genesis products compliant with the DVI 1.0 standard or the HDMI 1.0 standard (and/or any minor updates to the HDMI 1.0 standard). The parties have also agreed to mutually release each other from all claims, causes of action and liability arising prior to the date of the Settlement Agreement relating to the MOU, the litigation settled by the MOU and subsequent litigation over the interpretation of the MOU, all claims and counterclaims in such litigations, and claims of infringement of any patent licensed by Silicon Image to Genesis pursuant to the Settlement Agreement by the manufacture, use, offer for sale, sale or importation of a royalty-bearing product. However, such release does not affect Genesis’ right to challenge or assert claims, counterclaims or defenses with respect to the patents Silicon Image asserted in the prior litigation, including non-infringement, invalidity or unenforceability, provided that any such challenge or assertion by Genesis shall only be in response to an assertion or reasonable apprehension of assertion of such patents against Genesis or against the use, manufacture, importation, offering for sale or sale of Genesis products, or products incorporating a Genesis product to the extent such assertion implicates a Genesis product, by Genesis’ suppliers, manufacturers, licensees, distributors, resellers or customers. The Settlement Agreement also provides for a mutual covenant not to sue the other party for a period of three years. Subject to the terms of the Settlement Agreement, Genesis’ covenant not to sue is assignable on a change of control of Silicon Image to an acquiror of Silicon Image, with respect to Silicon Image products that have been commercially produced and sold prior to the change of control date, and shall continue only for the remainder of the term of the covenant and only with respect to patents owned by Genesis existing at the time of the change of control. We are not aware of any current disputes with Genesis. The Settlement Agreement expires on September 30, 2014, unless earlier terminated pursuant to its terms.

We and certain of our officers and directors, together with certain investment banks, have been named as defendants in a securities class action suit filed against us on behalf of purchasers of our securities between October 5, 1999 and December 6, 2000. It is alleged that the prospectus related to our initial public offering was misleading because it failed to disclose that the underwriters of our initial public offering had solicited and received excessive commissions from certain investors in exchange for agreements by investors to buy our shares in the aftermarket for predetermined prices. Due to inherent uncertainties in litigation, we cannot accurately predict the outcome of this litigation; however, a proposed settlement has been negotiated and has received preliminary approval by the Court. This settlement will not require Silicon Image to pay any settlement amounts nor issue any securities. In the event that the settlement is not granted final approval, we believe that these claims are without merit and we intend to defend vigorously against them.

We and certain of our officers were named as defendants in a securities class action captioned “Curry v. Silicon Image, Inc., Steve Tirado, and Robert Gargus,” commenced on January 31, 2005. Plaintiffs filed the action on behalf of a putative class of shareholders who purchased Silicon Image stock between October 19, 2004 and January 24, 2005. The lawsuit alleged that Silicon Image and certain of our officers and directors made alleged misstatements of material facts and violated certain provisions of Sections 20(a) and 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. On April 27, 2005, the Court issued an order appointing lead plaintiff and approving the selection of lead counsel. On July 27, 2005 plaintiffs filed a consolidated amended complaint (“CAC”). The CAC no longer named Mr. Gargus as an individual defendant, but added Dr. David Lee as an individual defendant. The CAC also expanded the class period from June 25, 2004 to April 22, 2005. Defendants filed a motion to dismiss the CAC on September 26, 2005. Plaintiffs subsequently received leave to file, and did file, a second consolidated amended complaint (“Second CAC”) on December 8, 2005. The Second CAC extends the end of the class period from April 22, 2005 to October 13, 2005 and adds additional factual allegations under the same causes of action against Silicon Image, Mr. Tirado and Dr. Lee. The complaint also adds a new plaintiff, James D. Smallwood. Defendants filed a motion to dismiss the Second CAC on February 9, 2006. Plaintiffs filed an opposition to defendants’ motion to dismiss on April 10, 2006 and defendants filed a reply to plaintiffs’ opposition on May 19, 2006. On June 21, 2006 the court granted defendants’ motion to dismiss the Second CAC with leave to amend. Plaintiffs subsequently filed a third consolidated amended complaint (“Third CAC”) by the court established deadline of July 21, 2006. Defendants filed a motion to dismiss the Third

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CAC on September 1, 2006 and plaintiffs filed an opposition to that motion on November 1, 2006. Defendants filed a reply to plaintiffs’ opposition on December 15, 2006, and with leave of Court, plaintiffs filed a surreply on January 16, 2007. The Court vacated the hearing on this motion that was scheduled for February 9, 2007. On February 23, 2007, the court granted defendants’ motion to dismiss the Third CAC with leave to amend.

On January 31, 2007, we filed a lawsuit in the United States District Court for the Northern District of California against Analogix Semiconductor, Inc. (“Analogix”), a semiconductor company based in California. The complaint charges Analogix with copyright infringement, misappropriation of trade secrets, and unlawful, unfair and fraudulent business practices. The lawsuit alleges that Analogix, without authorization and in violation of Silicon Image’s intellectual property rights, copied and used our proprietary register maps by gaining unauthorized access to Silicon Image’s proprietary and confidential information, illegally copied and modified Silicon Image’s semiconductor configuration software and knowingly and unlawfully encouraged its existing and prospective customers to modify and use Silicon Image’s semiconductor configuration software with Analogix’s chips, a use that is beyond the scope, and in violation of, the rights granted under, Silicon Image’s software license agreements. In addition to seeking monetary damages in an amount to be determined at trial, we are seeking an injunction barring Analogix from infringement of Silicon Image’s intellectual property rights.

On January 14, 2005, we received a preliminary notification that the Securities and Exchange Commission had commenced a formal investigation involving trading in our securities. On February 14, 2005, through our legal counsel, we received a formal notification of that investigation and associated subpoenas. We are fully cooperating with the SEC in this matter.

During 2006, we initiated a voluntary internal review of our historical stock option compensation practices. The Audit Committee of our Board of Directors reviewed and accepted management’s findings and conclusions upon the completion of the internal review. The review did not identify any wrongdoing or misconduct by past or current employees. As a result of the review, we recorded a net stock-based compensation charge in the fourth quarter of 2006 in the amount of $95,000 related to options granted on two dates where we concluded that a different measurement date was appropriate. We concluded that it was not necessary to make any adjustment to any previously issued financial statements. Subsequent to our initiation of this review, we received written notice from the SEC that it is conducting an informal inquiry into the Company’s option-granting practices during the period January 1, 2004 through October 31, 2006. We are cooperating fully with the SEC.

In addition, we have been named as defendants in a number of judicial and administrative proceedings incidental to our business and may be named again from time to time.

We intend to defend such matters vigorously, and although adverse decisions or settlements may occur in one or more of such cases, the final resolution of these matters, individually or in the aggregate, is not expected to have a material adverse effect on our results of operations, financial position or cash flows.

Item 4.   Submission of Matters to a Vote of Securities Holders

Not applicable.

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares have been traded on the NASDAQ Stock Market since our initial public offering on October 6, 1999. Our common shares trade under the symbol “SIMG”. Our shares are not listed on any other markets or exchanges. The following table shows the high and low closing prices for our common shares as reported by the NASDAQ Stock Market:

	High		Low
2006
Fourth Quarter	$	14.52	$	10.96
Third Quarter		12.99		8.64
Second Quarter		12.17		8.21
First Quarter		11.87		9.45
2005
Fourth Quarter	$	10.27	$	7.06
Third Quarter		12.25		8.89
Second Quarter		12.40		9.50
First Quarter		16.55		9.26

As January 31, 2007, we had approximately 112 holders of record of our common stock, and the closing price of our common stock was $12.09. Because many of such shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

We have never declared or paid cash dividends on shares of our capital stock. We intend to retain any future earnings to finance growth and do not anticipate paying cash dividends.

In December 2005, we repurchased 143,350 shares of restricted stock at an aggregate price of $573 from a former employee. These shares were originally issued in connection with our acquisition of Transwarp Networks, Inc. in April 2003.

On February 8, 2007, we announced that our Board of Directors authorized a stock repurchase program under which we intend, from time to time, as business conditions warrant, to purchase up to $100 million of common stock, on the open market, or in negotiated or block transactions. Purchases may be increased, decreased or discontinued at any time without prior notice. As of March 1, 2007, no shares had yet been repurchased under this stock repurchase program.

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Item 6.   Selected Financial Data

The following selected financial data should be read in connection with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K. Historical results of operations are not necessarily indicative of future results.

	Year Ended December 31,
	2006			2005			2004			2003			2002
	(In thousands, except employees and per share data)
Statements of Operations Data:
Revenue	$	294,958		$	212,399		$	173,159		$	103,525		$	81,539
Cost of revenue(1)		121,247			83,105			68,614			47,192			39,299
Gross margin		173,711			129,294			104,545			56,333			42,240
% of revenue		58.9	%		60.9	%		60.4	%		54.4	%		51.8	%
Research and development(2)	$	63,598		$	44,860		$	61,459		$	43,386		$	40,205
% of revenue		21.6	%		21.1	%		35.5	%		41.9	%		49.3	%
Selling, general and administrative(3)	$	67,597		$	31,438		$	42,183		$	20,943		$	19,976
% of revenue		22.9	%		14.8	%		24.4	%		20.2	%		24.5	%
Income (loss) from operations	$	47,252		$	51,572		$	(961	)	$	(17,719	)	$	(40,850	)
Net income (loss)	$	42,465		$	49,549		$	(324	)	$	(12,810	)	$	(40,092	)
Net income (loss) per share:
Basic	$	0.51		$	0.63		$	0.00		$	(0.18	)	$	(0.62	)
Diluted	$	0.49		$	0.59		$	0.00		$	(0.18	)	$	(0.62	)
Weighted average shares — basic		82,787			79,254			75,081			69,412			64,283
Weighted average shares — diluted		86,791			83,957			75,081			69,412			64,283
Consolidated Balance Sheet and
Other Data as of Year End:
Cash, cash equivalents and short-term investments	$	250,645		$	151,562		$	93,520		$	37,254		$	35,833
Working capital		262,080			152,204			97,107			37,674			27,787
Total assets		380,231			233,021			154,908			87,742			77,616
Other long-term liabilities		538			6,867			—			—			—
Total stockholders’ equity		305,222			176,546			122,079			62,393			48,170
Regular full-time employees		442			384			337			250			249
(1) Includes stock-based compensation expense (benefit)	$	2,427		$	(1,383	)	$	2,777		$	583		$	1,189
(2) Includes stock-based compensation expense (benefit)		11,108			(3,851	)		16,647			6,863			7,396
(3) Includes stock-based compensation expense (benefit)		13,696			(3,297	)		13,359			2,542			2,522

Note — Effective January 1, 2006, we adopted SFAS 123R “Share-Based Payment”. Stock-based compensation expense (benefit) for years prior to 2006 was calculated based on provisions of APB 25 “Accounting for Stock Issued to Employees”.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Headquartered in Sunnyvale, California., we are a leader in driving the design, development and implementation of semiconductors for the secure storage, distribution and presentation of high-definition content. We create and promote industry standards for digital content delivery such as DVI, HDMI and SATA, leveraging partnerships with global leaders in the consumer electronics and personal computing markets to meet the growing digital content needs of consumers worldwide. We have shipped more than 97 million HDMI/HDCP and DVI/HDCP semiconductor solutions. We are the leading provider of semiconductor intellectual property solutions for high-definition multimedia and data storage applications.

We market products to the CE, PC/display, and storage markets.

Our CE semiconductor products are used in a growing array of devices, including DTV, DVD, STBs, A/V Receivers, game consoles, camcorders, and digital still cameras.

In the PC market, we continue to be a leader in the DVI market. Our DVI products are marketed under our VastLane product family having shipped over 84 million components to date.

In the storage market, we have assumed a leadership role in SATA, a standard that is replacing PATA in desktop storage and making inroads in the enterprise arena due to its improved price/performance ratio.

In addition, we offer one of the most robust and comprehensively tested technology platforms in the consumer electronics industry through our Simplay Labs’ Simplay HD^tm Testing Program. Simplay Labs, LLC, a wholly-owned subsidiary of Silicon Image, is a leading provider of testing technologies, tools and services for high- definition consumer electronics devices such as HDTVs, set-top boxes, A/V receivers and DVD players, helping manufacturers to achieve compatibility and deliver the highest- quality HDTV experience to consumers.

During 2006, we commenced the implementation of a global strategy that the Company believes will, in the long run, result in certain operational benefits as well as provide the Company with a lower annual effective tax rate that is lower than if we did not pursue this strategy. Our strategy involves an increased investment in technology and headcount outside the United States in order to better align asset ownership and business functions with our expectations related to the sources, timing and amounts of future revenues and profits. As a result of undertaking these efforts, the Company anticipates an annual effective tax rate in 2007 to be in the 55% to 60% range which is materially higher than our combined federal, state and foreign statutory tax rate of approximately 41%. Assuming implementation of our global strategy, we expect our annual effective tax rate for 2008 to decline to a range of 39% to 43%. Longer term, we expect that our income tax rate will decline from that level. See “Risk Factors — There are risks to our global strategy”.

On January 3, 2007, we completed our acquisition of sci-worx, an intellectual property and design service provider specializing in multimedia, communications, and networking applications. We purchased sci-worx GmbH, from Infineon. We purchased all of the outstanding shares of capital stock of sci-worx and paid sci-worx’s intercompany debt to another Infineon subsidiary. The purchase price for the acquisition was $13.6 million in cash for sci-worx’ capital stock and its intercompany debt (net of its cash balances at closing). The newly acquired company is now referred to as Silicon Image Germany and has approximately 172 employees, based in Hanover, Germany. As a result of the acquisition, we expect our costs to increase primarily due to growth in acquired headcount and related expenses.

On February 5, 2007, we entered into a Video Processor Design License Agreement with Sunplus. Under the terms of the license agreement, Silicon Image will receive a license to use and further develop advanced video processor technology. The license agreement provides for the payment of an aggregate of $40.0 million to Sunplus by Silicon Image, $35.0 million of which is payable in consideration for the licensed technology and related deliverables and $5.0 million of which is payable in consideration for Sunplus support and maintenance obligations. We paid Sunplus $10.0 million of the consideration for the licensed technology and related deliverables in February 2007, and are required to pay the remaining $25.0 million upon delivery and completion of certain milestones. The $5.0 million to be paid for support and maintenance by Sunplus is payable over a two-year period starting upon delivery of the final Sunplus deliverables. The license agreement also provides for the grant to Sunplus

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of a license to certain of our intellectual property, for which Sunplus has agreed to pay us $5.0 million upon delivery and acceptance of such intellectual property.

We anticipate that the technology licensed from Sunplus, along with the engineering talent and intellectual property recently acquired in the sci-worx transaction, will enhance and accelerate our ability to develop and offer a broader array of consumer product offerings, ranging from discrete HDMI chips to new integrated front-end DTV input processors and fully-integrated SoC DTV products.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and all known facts and circumstances that we believe are relevant. Actual results may differ materially from our estimates. We believe the following accounting policies to be most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain:

Revenue recognition

For products sold directly to end-users, or to distributors that do not receive price concessions and do not have rights of return, we recognize revenue upon shipment and title transfer if we believe collection is reasonably assured. Reserves for sales returns are estimated based primarily on historical experience and are provided at the time of shipment. The amount of sales returns and allowances has not been, and is not expected to be, material.

The majority of our products are sold to distributors with agreements allowing for price concessions and product returns. We recognize revenue based on our best estimate of when the distributor sold the product to its end customer based on point of sales reports received from our distributors. Due to the timing of receipt of these reports, we recognize distributor sell-through using information that lags quarter end by one month. Revenue is not recognized upon shipment since, due to various forms of price concessions; the sales price is not substantially fixed or determinable at that time. Price concessions are recorded when incurred, which is generally at the time the distributor sells the product to an end-user.

Additionally, these distributors have contractual rights to return products, up to a specified amount for a given period of time. Revenue is earned when the distributor sells the product to an end-user, at which time our sales price to the distributor becomes fixed. Our revenue is highly dependent on receiving pertinent and accurate data from our distributors in a timely fashion. Distributors provide us periodic data regarding the product, price, quantity, and end customer shipments as well as the quantities of our products they still have in stock. In determining the appropriate amount of revenue to recognize, we use this data and apply judgment in reconciling differences between their reported inventories and activities. If distributors incorrectly report their inventories or activities, or if our judgment is in error, it could lead to inaccurate reporting of our revenues and income. We have controls in place to minimize the likelihood of this occurrence, but there is no absolute assurance that this will not occur. Pursuant to our distributor agreements, older or end-of-life products are sold with no right of return and are not eligible for price concessions. Certain of our distributor agreements for new products also contain provisions that do not allow for product returns or price concessions. For these products, revenue is recognized upon shipment and title transfer assuming all other revenue recognition criteria are met.

At the time of shipment to distributors, we record a trade receivable for the selling price since there is a legally enforceable right to payment, relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor, and record the gross margin in “Deferred margin on sale to distributors”, a component of current liabilities on our Consolidated Balance Sheet. Deferred margin on the sale to distributor effectively represents the gross margin on the sale to the distributor. However, the amount of gross margin we recognize in future periods will be less than the originally recorded deferred margin on sale to distributor as a result of negotiated price concessions. We sell each item in our product price book to all of our distributors worldwide at a relatively uniform list price. However, distributors resell our products to end customers at a very broad range of individually negotiated price points based on customer, product, quantity, geography, competitive pricing, and other factors. The majority of our

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distributors’ resale are priced at a discount from list price. Often, under these circumstances, we remit back to the distributor a portion of their original purchase price after the resale transaction is completed. Thus, a substantial portion of the “Deferred margin on the sale to distributor and related allowances on sales to distributors” balance represents a portion of distributors’ original purchase price that will be remitted back to the distributor in the future. The wide range and variability of negotiated price concessions granted to distributors does not allow us to accurately estimate the portion of the balance in the Deferred margin on the sale to distributor and related allowances on sales to distributors that will be remitted back to the distributors. We do reduce deferred income by anticipated or determinable future price concessions.

License revenue is recognized when an agreement with a licensee exists, the price is fixed or determinable, delivery or performance has occurred, and collection is reasonably assured. Generally, we expect to meet these criteria and recognize revenue at the time we deliver the agreed-upon items. However, we may defer recognition of revenue until either cash is received if collection is not reasonably assured at the time of delivery or, in the event that the arrangement includes undelivered elements for which the fair value cannot be determined, until the earlier of such time that the fair value can be determined or the elements are delivered. The fair value of undelivered elements is generally based upon the price charged when the elements are sold separately. A number of our license agreements require customer acceptance of deliverables, in which case we would defer recognition of revenue until the licensee has accepted the deliverables and either payment has been received or is expected within 90 days of acceptance. Certain licensing agreements provide for royalty payments based on agreed upon royalty rates. Such rates can be fixed or variable depending on the terms of the agreement. The amount of revenue we recognize is determined based on a time period or on the agreed-upon royalty rate, extended by the number of units shipped by the customer. To determine the number of units shipped, we rely upon actual royalty reports from our customers when available, and rely upon estimates in lieu of actual royalty reports when we have a sufficient history of receiving royalties from a specific customer for us to make an estimate based on available information from the licensee such as quantities held, manufactured and other information. These estimates for royalties necessarily involve the application of management judgment. As a result of our use of estimates, period-to-period numbers are “trued-up” in the following period to reflect actual units shipped. To date, such “true-up” adjustments have not been significant. In cases where royalty reports and other information are not available to allow us to estimate royalty revenue, we recognize revenue only when royalty reports are received. Revenues from such licenses are recognized proportionately as we perform services. On certain arrangements, revenues derived from development services are recognized using the percentage-of-completion method. For all license and service agreements accounted for using the percentage-of-completion method, we determine progress-to-completion using input measures based on labor-hours incurred. Our license revenue recognition depends upon many factors including development project status, completion of milestones, allocation of values to delivered items and customer acceptances.

Cash Equivalents and Short-Term Investments.

Cash equivalents consist of short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase. Short-term investments consist of taxable commercial paper, United States government agency obligations, corporate/municipal notes and bonds with high-credit quality, money market preferred stock and auction rate preferred stock and have maturities greater than three months from the date of purchase. The fair market value, based on quoted market prices, of cash equivalents and short-term investments. Cost of securities sold is based on a specific identification method.

In determining if and when a decline in market value below cost of these investments is other-than-temporary, the Company evaluates the market conditions, offering prices, trends of earnings, price multiples and other key measures. When such a decline in value is deemed to be other-than-temporary, the Company recognizes an impairment loss in the current period operating results to the extent of the decline.

Allowance for Doubtful Accounts

We review collectibility of accounts receivable on an on-going basis and provide an allowance for amounts we estimate will not be collectible. During our review, we consider our historical experience, the age of the receivable balance, the credit-worthiness of the customer, and the reason for the delinquency. Delinquent account balances are

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written-off after management has determined that the likelihood of collection is remote. Write-offs to date have not been material. At December 31, 2006, we had $40.2 million of gross accounts receivable and an allowance for doubtful accounts of $235,000. While we endeavor to accurately estimate the allowance, we may record unanticipated write-offs in the future.

Inventories

We record inventories at the lower of actual cost, determined on a first-in first-out (FIFO) basis, or market. Actual cost approximates standard cost, adjusted for variances between standard and actual. Standard costs are determined based on our estimate of material costs, manufacturing yields, costs to assemble, test and package our products, and allocable indirect costs. We record differences between standard costs and actual costs as variances. These variances are analyzed and are either included on the consolidated balance sheet or the consolidated statement of operations in order to state the inventories at actual costs on a FIFO basis. Standard costs are evaluated at least annually.

Provisions are recorded for excess and obsolete inventory, and are estimated based on a comparison of the quantity and cost of inventory on hand to management’s forecast of customer demand. Customer demand is dependent on many factors and requires us to use significant judgment in our forecasting process. We must also make assumptions regarding the rate at which new products will be accepted in the marketplace and at which customers will transition from older products to newer products. Generally, inventories in excess of six months demand are written down to zero and the related provision is recorded as a cost of revenue. Once a provision is established, it is maintained until the product to which it relates is sold or otherwise disposed of, even if in subsequent periods we forecast demand for the product.

Goodwill and intangible assets

We account for goodwill and other intangibles in accordance with the Statement of Financial Accounting Standard No. 142 (SFAS No. 142), Goodwill and Other Intangible. This standard requires that goodwill be tested for impairment on a periodic basis. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant management judgment to forecast future operating results, projected cash flows and current period market capitalization levels. In estimating the fair value of the business, we make estimates and judgments about the future cash flows. Although our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we are using to manage our business, there is significant judgment in determining such future cash flows. We also consider market capitalization on the date we perform the analysis. Based on our annual impairment test performed for 2006, we concluded that there was no impairment of goodwill. However, there can be no assurance that we will not incur charges for impairment of goodwill in the future, which could adversely affect our earnings.

Income Taxes

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, tax benefits, and deductions such as the tax benefit for export sales and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

Deferred Tax Assets

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements, but have not been reflected in our taxable income. In general, a valuation allowance is established to reduce deferred tax assets to their estimated realizable value, if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Prior to 2006, we had provided a valuation allowance against 100% of our net deferred tax assets. In 2006, we determined that our net deferred tax assets as of December 31, 2006 are more likely than not to be realized. Therefore, in 2006, we released the

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remaining valuation allowance of approximately $52.3 million that had reduced the carrying value of our deferred tax assets as of December 31, 2005. Approximately $14.3 million of the valuation allowance release relates to prior years windfall tax benefits on employee stock transactions that were included in the deferred tax asset for net operating loss carryforwards as of December 31, 2005. This portion of the valuation allowance release was recorded as a direct increase to additional paid-in capital instead of a reduction to the tax provision. At December 31, 2006, we had gross deferred tax assets, related primarily to stock-based compensation, accruals and reserves that are not currently deductible, and tax credit carry forwards of $23.4 million. At December 31, 2005 our gross deferred tax assets of $52.3 million consisted primarily of net operating loss carryforwards, tax credit carryforwards, and stock-based compensation not currently deductible for tax purposes. We evaluate the realizability of the deferred tax assets quarterly and will continue to assess the need for additional valuation allowances, if any.

Accrued Liabilities

Certain of our accrued liabilities are based largely on estimates. For instance, we record a liability on our consolidated balance sheet each period for the estimated cost of goods and services rendered to us, for which we have not received an invoice. Our estimates are based on historical experience, input from sources outside the company, and other relevant facts and circumstances. Actual amounts could differ materially from these estimates.

Certain of our licensing agreements require that we indemnify our customers for expenses or liabilities resulting from claimed infringements of patent, trademark or copyright by third parties related to intellectual property content of our products. Certain of these indemnification provisions are perpetual from execution of the agreement (and, in some instances the maximum amount of potential future indemnification is not limited). To date, we have not paid any such claims or been required to defend any lawsuits with respect to a claim.

Stock-Based Compensation Expense

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R, Share-Based Payment, (SFAS No. 123R), requiring us to recognize expense related to the fair value of our stock-based compensation awards. We elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore have not restated our financial results for prior periods. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, as adjusted for estimated forfeitures. Stock-based compensation expense for all stock-based compensation awards granted subsequent to December 31, 2005 was based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Under SFAS No. 123R, our ESPP is considered a compensatory plan and we are required to recognize compensation cost for grants made under the ESPP. We recognize compensation expense on a straight-line basis for all share-based payment awards over the respective requisite service period of the awards.

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FIN No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN No. 48 requires that management determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the financial statements. We expect to adopt the provisions of FIN No. 48 beginning in the first quarter of 2007. We are currently evaluating the impact of adopting FIN No. 48 on our financial condition, results of operations and cash flows.

In September, 2006, the FASB issued SFAS 157, Fair Value Measurement. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement also requires expanded disclosures on the inputs used

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to measure fair value, and for recurring fair value measurements using unobservable inputs, which affects the earnings for the period. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Additionally, prospective application of this statement is required as of the beginning of the fiscal year in which it is initially applied. We are currently assessing the impact of adopting this Statement but does not expect that it will have a material effect on our consolidated financial position or results of operations.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 provides that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. We have adopted SAB 108, and have considered its provisions in the preparation of our current financial statements and related disclosures and, as of December 31, 2006, it did not have a material effect on our consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS 159 on our financial position, cash flows, and results of operations.

Reclassifications

Patent assertion costs (reimbursement), net, of ($5.2 million) for the year ended December 31, 2006 has been disclosed as a stand- alone caption in the accompanying Consolidated Statements of Operations. The patent assertion costs for the years ended December 31, 2005 and 2004 of $326,000 and $519,000 respectively, have been reclassified from selling, general and administrative expense to a stand-alone caption in the accompanying Consolidated Statements of Operations, to be consistent with the current year presentation. The reclassifications had no effect on the Company’s previously disclosed net loss, cash flows or stockholders’ equity.

Restructuring recovery of $220,000 for the year ended December 31, 2005 has been reclassified from a stand-alone caption in the accompanying Consolidated Statements of Operations, to selling, general and administrative expense to be consistent with the current year presentation. Restructuring expense included within the selling, general and administrative expense for the year ended December 31, 2006 totaled $25,000. The reclassifications had no effect on the Company’s previously disclosed net loss, cash flows or stockholders’ equity.

Annual Results of Operations

REVENUE

	2006			Change			2005			Change			2004
	(Dollars in thousands)
Consumer Electronics	$	167,877			54.4	%	$	108,712			52.3	%	$	71,377
Personal Computer		49,399			0.4	%		49,212			19.4	%		41,223
Storage Products		33,098			(8.1	)%		35,999			(9.4	)%		39,750
Total product revenue	$	250,374			29.1	%	$	193,923			27.3	%	$	152,350
Percentage of total revenue		84.9	%					91.3	%					88.0	%
Development, licensing and royalties	$	44,584			141.3	%	$	18,476			(11.2	)%	$	20,809
Percentage of total revenue		15.1	%					8.7	%					12.0	%
Total revenue	$	294,958			38.9	%	$	212,399			22.7	%	$	173,159

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REVENUE (including development, licensing and royalty revenues (collectively, “licensing revenue”), by product line)

	2006		Change			2005		Change			2004
	(Dollars in thousands)
Consumer Electronics	$	194,721		64.2	%	$	118,578		40.2	%	$	84,604
Personal Computer		58,761		16.4	%		50,484		21.4	%		41,585
Storage Products		41,476		(4.3	)%		43,337		(7.7	)%		46,970
Total revenue	$	294,958		38.9	%	$	212,399		22.7	%	$	173,159

Total revenue for 2006 was $295 million and represented a sequential growth of 38.9% over 2005 driven by increased sales of our CE products. The increase in the CE product revenue was due primarily to strong sales volumes of HDMI receivers and transmitters. The increase in PC product revenue was driven primarily by PC transmitters that incorporate our DVI technology and our intelligent panel controllers, which are key components in LCD displays, partially offset by modest erosion in the average selling prices of products. Revenue from our DVI products are expected to decline in the future as DVI technology is replaced by HDMI and DisplayPort. The decrease in storage product revenue was due to the trend of declining sales of our legacy storage systems products, which are being phased out of customer applications, partially offset by contributions from our new SATA and SteelVine products. We have experienced erosion of average selling prices for all of our product categories. We expect average selling prices to continue to decline in the first quarter of 2007.

We license our technology in each of our areas of business, but usually limit the scope of the license to market areas that are complementary to our product sales and do not directly compete with our direct product offerings. The increase in licensing revenues in 2006 relative to 2005, was attributable primarily to recognition of royalty revenue of $11.8 million pursuant to the Genesis litigation settlement agreement, increased intellectual property licensing arrangements and the timing of revenue recognition for development projects.

Total revenue for 2005 was $212.4 million and represented a sequential growth of 22.7% over 2004. The increase in the CE product revenue was primarily due to strong sales of HDMI receivers and transmitters. The growth in PC product revenue was driven primarily by our new PC transmitters that incorporate our DVI technology and our intelligent panel controllers, which are key components in LCD displays, partially offset by erosion in the average selling prices of PC products. The decrease in storage product revenue was due to the trend of declining sales of our legacy storage systems products and Fibre Channel SerDes, which are being phased out of customer applications, partially offset by contributions from our new SATA and SteelVine products. The decrease in licensing revenues in 2005 relative to 2004, was attributable primarily to the deferral of revenue for certain development projects.

Products sold into the CE market have been increasing as a percentage of our total revenues and generated 57%, 51% and 41.% of our total revenues for the years ended December 31, 2006, 2005 and 2004, respectively. If we include licensing revenues, these percentages would be 66%, 56%, and 49% for the years ended December 31, 2006, 2005, and 2004, respectively. Demand for our CE products are driven primarily by the adoption rate of the HDMI standard within the CE market and we expect revenue from our CE products to continue to grow as a percentage of our total revenues as CE manufacturers continue to introduce new products using our HDMI 1.3 products.

Revenues from the PC market have been consistent, in dollar terms, in 2006 as compared to 2005 and 2004 and generated 17% of our revenue in 2006, 23% of our revenue in 2005, and 24% of our revenues in 2004. If we include licensing revenues, these percentages would be 20%, 24%, and 24% for the years ended December 31, 2006, 2005, and 2004, respectively. The slight increase in PC revenue for 2006 as compared to 2005 is primarily a result of sales of our DVI products increasing in 2006 due to the peaking of the adoption of the standard. We expect revenues from DVI products to decline in the future as it is replaced by HDMI and DisplayPort standards. While 2006 revenues grew in absolute dollars, our 2006 PC product revenues were negatively affected by battery recalls by major computer manufacturers as well as the late launch of Windows Vista operating system. Licensing revenues included in our revenues from the PC market increased substantially in 2006 due to the recognition of royalty revenues related to the settlement agreement with Genesis.

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Products sold into the storage market, as a percentage of our total revenues, generated 11%, 17%, and 23% of our revenue for the years ended December 31, 2006, 2005, and 2004, respectively. If we include storage related licensing revenues, these percentages were 14%, 20%, and 27%, for the years ended December 31, 2006, 2005, and 2004, respectively. Demand for our storage semiconductor products is dependent upon the rate at which interface technology transitions from parallel to serial, market acceptance of our SteelVine architecture, and the extent to which SATA is integrated into chipsets and controllers offered by other companies, which would make our discrete devices unnecessary. In 2007, we anticipate our legacy storage semiconductor business and PATA revenues to continue decreasing as our SteelVine revenues are projected to increase.

Our licensing activity is complementary to our product sales and it helps us to monetize our intellectual property and accelerate market adoption curves associated with our technology. Most of the intellectual property we license include a field of use restriction that prevents the licensee from building a chip in direct competition with those market segments we have chosen to pursue. Revenue from development for licensees, licensing and royalties accounted for 15.1%, 8.7% and 12.0% of our revenues for the years ended December 31, 2006, 2005 and 2004, respectively. The increase in 2006 was primarily due to recognition of $11.8 million of royalty revenues related to the Settlement Agreement with Genesis Microchip in the fourth quarter of 2006 and the recognition of revenue for certain development projects that were previously deferred. See detailed discussion under Part I Item 3- Legal Proceedings. Licensing contracts are complex and depend upon many factors including completion of milestones, allocation of values to delivered items, and customer acceptances. Although we attempt to make these factors predictable, many of these factors require significant judgments.

Commitments, Contingencies and Concentrations

Historically, a relatively small number of customers and distributors have generated a significant portion of our revenue. For instance, our top five customers, including distributors, generated 57%, 54%, and 47% of our revenue in 2006, 2005, and 2004, respectively. The percentage of revenue generated through distributors tends to be significant, since many OEM’s rely upon third-party manufacturers or distributors to provide purchasing and inventory management functions. In 2006, 50% of our revenue was generated through distributors, compared to 52% in 2005 and 45% in 2004. Microtek comprised 16%, 11%, and 12% of our revenue in 2006, 2005, and 2004, respectively. Innotech Corporation, comprised 16%, 9% and 5% of our revenue in 2006, 2005 and 2004 respectively. World Peace Inc., comprised 12%, 17% and 15% of our revenue in 2006, 2005 and 2004 respectively. Our licensing revenue is not generated through distributors, and to the extent licensing revenue increases, we would expect a decrease in the percentage of our revenue generated through distributors.

A significant portion of our revenue is generated from products sold overseas. Sales (including licensing) to customers in Asia, including distributors, generated 72%, 74%, and 67% of our revenue in 2006, 2005 and 2004, respectively. The reason for our geographical concentration in Asia is that most of our products are incorporated into flat panel displays, graphic cards and motherboards, the majority of which are manufactured in Asia. The percentage of our revenue derived from any country is dependent upon where our end customers choose to manufacture their products. Accordingly, variability in our geographic revenue is not necessarily indicative of any geographic trends, but rather is the combined effect of new design wins and changes in customer manufacturing locations. All revenue to date has been denominated in U.S. dollars.

COST OF REVENUE AND GROSS MARGIN

	2006			Change			2005			Change			2004
	(Dollars in thousands)
Cost of revenue(1)	$	121,247			45.9	%	$	83,105			21.1	%	$	68,614
Total gross margin	$	173,711			34.4	%	$	129,294			23.7	%	$	104,545
Gross margin as a percentage of total revenue		58.9	%					60.9	%					60.4	%
(1) Includes stock-based compensation expense (benefit)	$	2,427					$	(1,383	)				$	2,777

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Cost of revenue consists primarily of costs incurred to manufacture, assemble and test our products, as well as related overhead costs. Gross margin (revenue minus cost of revenue), as a percentage of revenue was 58.9%, 60.9% and 60.4% for 2006, 2005 and 2004, respectively. The decrease in gross margin from 2005 to 2006 was primarily due to the recognition of stock-based compensation expense of $2.4 million under FAS 123R “Share-Based Payment” as compared to the stock compensation benefit of $1.4 million recorded in 2005 under APB 25 “Accounting for Stock Issued to Employees’’, erosion in the average selling prices of our products as a result of increased competition, and to a lesser extent by higher overhead expenses as a result of increase in headcount and related compensation. In 2007, we expect continued competitive pressures to continue to reduce our average selling prices. However, we plan to mitigate this average selling price erosion through cost reductions and new product launches with expected higher margins. Also as a result of the Sci-worx acquisition, we expect our gross margins to be adversely affected in the first quarter of 2007 by Silicon Image Germany’s existing design services activities and other customer programs which are currently charged against cost of revenue. We expect that the effect of the sci-worx acquisition on our gross margins will decline over time as Silicon Image Germany shifts its focus to new product development, which will be charged to research and development expenses.

The increase in gross margin from 2004 to 2005 was due to recognition of stock-based compensation benefit of $1.4 million in 2005 as compared to stock-based compensation expense of $2.8 million in 2004. The net change in stock-based compensation expense was partially offset by $2.3 million less in licensing revenue, which have a disproportionate impact on gross profit compared to product sales, erosion in the average selling prices of our products, and higher overhead expenses.

OPERATING EXPENSES

Research and Development	2006			Change			2005			Change			2004
	(Dollars in thousands)
Research and development(1)	$	63,598			41.8	%	$	44,860			(27.0	)%	$	61,459
Percentage of total revenue		21.6	%					21.1	%					35.5	%
(1) Includes stock-based compensation expense (benefit)		11,108						(3,851	)					16,647

Research and development (“R&D”).  R&D expense consists primarily of compensation and related costs for employees, fees for independent contractors, the cost of software tools used for designing and testing our products and costs associated with prototype materials. R&D expense, including stock-based compensation expense, was $63.6 million, or 21.6% of revenue for 2006, compared to $44.9 million, or 21.1% of revenue, for 2005, and $61.5 million, or 35.5% of revenue, for 2004. The increase in R&D expenses in 2006 was primarily due to an increased headcount, performance bonus incentives and implementation of FAS 123R “Share-Based Payment” resulting in a recognition of stock-based compensation expense of $11.1 million as compared to the net stock compensation benefit of $3.9 million recorded in 2005 under APB 25 “Accounting for Stock Issued to Employees”. In addition, the increase also reflected increased use of consultants and the number of R&D projects and lower credit to expense from engineering projects funded by outside parties. While continuing to honor and support existing contract obligations assumed in connection with our acquisition of Silicon Image Germany, over time, we expect our R&D expense to increase as Silicon Image Germany shifts its focus to new product development.

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The decrease in 2005 from 2004 was primarily due to the recognition of stock compensation benefit of $3.9 million in 2005 as compared to stock-based compensation expense of $16.6 million in 2004 as well as the benefit from a credit to expense of approximately $1.8 million related to three engineering projects that are being funded by outside parties, irrespective of the results of the projects. These items were partially offset by an increase in the number of R&D projects as well higher salaries and wages resulting from an increased number of engineers on staff. Additional costs are also attributable to the increasing level of complexity in our new products.

Selling, General and Administrative	2006			Change			2005			Change			2004
	(Dollars in thousands)
Selling, general and administrative(2)	$	67,597			115.0	%	$	31,438			(25.5	)%	$	42,183
Percentage of total revenue		22.9	%					14.8	%					24.4	%
(2) Includes stock-based compensation expense (benefit)		13,696						(3,297	)					13,359

Selling, general and administrative(“SG&A”).  SG&A expense consists primarily of employee compensation and benefits, sales commissions, and marketing and promotional expenses. Including non-cash stock-based compensation expense, SG&A expense was $67.6 million or 22.9% of revenue, $31.4 million, or 14.8% of revenue for 2005, and $42.2 million, or 24.4% of revenue for 2004. The increase in SG&A expense in 2006 was primarily due to the recognition of stock-based compensation expense of $13.7 million under FAS 123R “Share-Based Payment” as compared to the stock compensation benefit of $3.3 million recorded in 2005 under APB 25 “Accounting for Stock Issued to Employees” and to a lesser extent by an increase in headcount and performance incentives in the form of bonuses to employees. The decrease in SG&A expense for 2005 was due to the $16.7 million stock compensation benefit and a significant decrease in legal costs relating to corporate governance issues. These items were partially offset by higher salaries and wages, higher fees for consulting and professional services, and higher commissions on higher sales.

Amortization of Intangible assets	2006			Change			2005			Change			2004
	(Dollars in thousands)
Amortization of intangible assets	$	508			(53.7	)%	$	1,098			(18.4	)%	$	1,345
Percentage of total revenue		0.2	%					0.5	%					0.8	%

Amortization of intangible assets.  During 2006, we recorded $508,000 of amortization of intangible assets, as compared to $1.1 million and $1.3 million for 2005 and 2004, respectively. The amortization expense recorded relates to intangible assets acquired in connection with the acquisition of Transwarp Networks.

Patent Assertion Costs (Reimbursement), Net	2006			Change			2005			Change			2004
	(Dollars in thousands)
Patent assertion costs (reimbursement), net	$	(5,244	)		(1708.6	)%	$	326			(37.2	)%	$	519
Percentage of total revenue		(1.8	)%					0.2	%					0.3	%

Patent assertion costs (reimbursement), net.  The reimbursement of patent assertion costs in the amount of $5.4 million recorded in 2006 as a contra expense, relates to the reimbursement of litigation expenses incurred in connection with the Genesis litigation. Please refer to Part I Item 3-Legal Proceedings section for a detailed discussion of the Genesis litigation and settlement. Included in this caption are patent assertion costs. The reimbursement of $5.4 million has been offset by $143,000 in patent assertion costs incurred in 2006. The patent assertion costs for the years ended December 31, 2005 and 2004 of $326,000 and $519,000 respectively, have been reclassified from selling, general and administrative expense to a standalone caption in our Consolidated Statements of Operations to be consistent with the current year presentation.

Interest Income and other, Net	2006			Change			2005			Change			2004
	(Dollars in thousands)
Interest income and other, net	$	9,205			169.9	%	$	3,410			374.9	%	$	718
Percentage of total revenue		3.1	%					1.6	%					0.4	%

Interest income.  Interest income was $9.4 million, $3.6 million, and $945,000 for 2006, 2005 and 2004, respectively. The increases in interest income for each year was attributable primarily to the increased cash and investment balances and higher interest rates.

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Other expenses, net.  Net other expenses were $233,000, $195,000, and $227,000 for 2006, 2005 and 2004, respectively.

Gain on Investment Security	2006			Change			2005			Change			2004
	(Dollars in thousands)
Gain on investment security	$	—			(100.0	)%	$	1,297			40.1	%	$	926
Percentage of total revenue		0.0	%					0.6	%					0.5	%

Gain on investment security.  In 2005, we recorded a net gain of $1.3 million from the mark to market and subsequent sale of our holdings in Leadis Technology, Inc (“Leadis”). In 2004, we recorded a net gain of $926,000 related to this investment. These holdings related to equity we acquired in a transaction with Leadis. As of December 31, 2005 our investment in Leadis was fully liquidated. Our typical practice is not to hold equity shares for investment purposes.

Provision for Income Taxes	2006			Change			2005			Change			2004
	(Dollars in thousands)
Provision for income taxes	$	13,992			107.9	%	$	6,730			568.3	%	$	1,007
Percentage of total revenue		4.7	%					3.2	%					0.6	%

Provision for Income Taxes.  For the year ended December 31, 2006, we recorded income tax expense of $14.0 million, compared to $6.7 million in 2005 and $1.0 million in 2004. Our effective income tax rate was 25% in 2006. In 2006, the difference between the provision for income taxes and the income tax determined by applying the statutory federal income tax rate of 35% was due primarily to the following three items: (1) $18.5 million of federal loss carryforwards utilized, inclusive of $14.3 million related to excess stock option tax benefits for which the reduction of the related valuation allowance was recorded to additional paid-in capital, (2) $24.8 million associated with the impact of the release of our remaining valuation allowance inclusive of certain current year changes in the deferred tax asset to which the valuation allowance relates, and (3) $22.8 million of tax charges related to unbenefited foreign losses in connection with the ongoing implementation of a new global strategy. The tax charges related to unbenefited foreign losses represent expenses for sharing in the costs of our ongoing research and development efforts as well as licensing commercial rights to exploit pre-existing intangibles to better align with customers outside the Americas. The new global strategy is designed to better align asset ownership and business functions with our expectations related to the sources, timing and amounts of future revenues and profits. In future years, we expect to achieve both operational benefits and a lower annual effective tax rate as a result of the new global strategy. See “— Overview” and “Risk Factors — There are risks to our global strategy.”

The fiscal year 2005 tax expense of $6.7 million was due primarily to a $5.4 million non-cash charge associated with stock option exercises, while the remaining $1.3 million was primarily for taxes in certain foreign jurisdictions and U.S. alternative minimum tax. The income tax provision of $1.0 million recorded in 2004 was primarily for foreign withholding taxes payable in connection with our licensing contracts, other foreign taxes where we recently commenced operations, and a provision for U.S. alternative minimum tax.

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Liquidity and Capital Resources

	2006			Change			2005			Change			2004
	(Dollars in thousands)
Cash and cash equivalents	$	81,921		$	4,044		$	77,877		$	54,597		$	23,280
Short-term investments		168,724			95,039			73,685			3,445			70,240
Total cash, cash equivalents and short-term investment	$	250,645		$	99,083		$	151,562		$	58,042		$	93,520
Percentage of total assets		65.9%						65.0%						60.4%
Total current assets	$	336,551		$	134,739		$	201,812		$	71,876		$	129,936
Total current liabilities		(74,471	)		(24,863	)		(49,608	)		(16,779	)		(32,829	)
Working capital	$	262,080		$	109,876		$	152,204		$	55,097		$	97,107
Cash provided by operating activities	$	46,003		$	(9,617	)	$	55,620		$	19,174		$	36,446
Cash used in investing activities		(100,647	)		(88,458	)		(12,189	)		40,951			(53,140	)
Cash provided by financing activities		58,669			47,503			11,166			(10,874	)		22,040
Effect of exchange rate changes on cash & cash equivalents		19			19			—			—			—
Net increase in cash and cash equivalents	$	4,044		$	(50,553	)	$	54,597		$	49,251		$	5,346

Our principal source of liquidity is cash provided by operations and exercise of stock options. At December 31, 2006, we had $262.1 million of working capital and $250.6 million of cash, cash equivalents and short-term investments. Our cash, cash equivalents and short-term investments increased by $99.1 million in 2006, compared to an increase of $58.0 million in 2005. We anticipate that we will continue to be able to fund future growth through cash provided from operations. We believe that our current cash, cash equivalents and short-term investment balances together with income derived from sales of our products and licensing will be sufficient to meet our liquidity requirements in the foreseeable future.

Operating Activities

Operating activities provided $46.0 million of cash during 2006 primarily due to non-cash stock-based compensation of $27.2 million.

Net accounts receivable increased to $39.9 million or 32.5% in 2006 reflecting increased revenue and the timing of sales. Inventories increased to $28.3 million at December 31, 2006 from $17.1 million at December 31, 2005. The increase is attributable primarily to increased sales, to a buildup of inventories of certain new products to in advance of sales, and to production levels of certain products that exceeded sales levels in late 2006. Our inventory turns decreased to 4.7 at December 31, 2006 from 6.0 at December 31, 2005. Inventory turns are computed on an annualized basis, using the most recent quarter results, and are a measure of the number of times inventory is replenished during the year. We plan to reduce inventory levels in early 2007 by shipping the material we have and reducing our purchases accordingly. Deferred revenue, which includes deferred intellectual property license revenue that is being recognized as completed over the contract, decreased $3.0 million or 36.4% in 2006, which is primarily related to the timing and recognition of revenue for which contracts exist. Deferred margin on sales to distributors increased to $17.7 million or 28.6% in 2006, as a result of overall increased shipments to distributors. Other current liabilities including accounts payable and accrued liabilities, increased to $51.5 million or 88.5% attributable primarily with the volume of our business, the timing of vendor payments, the accrual for income taxes of $12.7 million and the accrual for inventory related items and other items of $6.1 million.

Operating activities provided $55.6 million of cash during 2005. Increases in accounts receivable, inventories, accounts payable, accrued liabilities, deferred license revenue, and deferred margin on sales to distributors and decreases in prepaid assets and other current assets used $2.4 million in cash.

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Investing Activities

Net cash used in investing activities during the years ended December 31, 2006, 2005 and 2004 consisted primarily of purchases of short-term investments (net of proceeds from sales and maturities of investments) of $94.0 million, $8.2 million and $47.2 million, respectively, and purchases of property and equipment of $13.5 million, $6.2 million and $6.0 million, respectively. Our investments are in U.S. government notes and bonds, corporate notes and bonds, commercial paper and auction rate securities, and generated $9.4 million in interest income in 2006. We are not a capital-intensive business. Our purchases of property and equipment in 2006, 2005 and 2004 related mainly to testing equipment, leasehold improvements and information technology infrastructure.

Financing Activities

Net cash provided by financing activities in 2006 consisted primarily of proceeds from stock options exercises and ESPP purchases of $35.0 million and excess tax benefits from stock-based compensation of $23.9 million. Net cash flows provided by financing activities in 2005 and 2004 consisted primarily of proceeds from stock options exercises and ESPP purchases of $11.4 million and $23.7 million, respectively.

Cash requirements and commitments

In addition to our normal operating cash requirements, our principal future cash requirements will be to fund capital expenditures, share repurchases and any strategic acquisitions.

Specifically, we expect our cash requirements in 2007 to include the following:

•  Acquisition — In January 2007, we spent approximately $13.6 million for the acquisition of sci-worx. In addition, we also expect to pay $40.0 million under a licensing arrangement with Sunplus. Please refer to Note 11- Subsequent Events to the Consolidated Financial Statements for a detailed discussion.

•  Commitments — We have approximately $18.1 million in commitments for 2007 as disclosed in the contractual obligations table below.

•  On February 8, 2007, we announced that our Board of Directors authorized a stock repurchase program under which we intend, from time to time, as business conditions warrant, to purchase up to $100 million of common stock, on the open market, or in negotiated or block transactions. Purchases may be increased, decreased or discontinued at any time without prior notice. As of March 1, 2007, no shares had yet been repurchased under this stock repurchase program.

Debt and Lease Obligations

In November 2004, we leased certain capital equipment under a lease arrangement accounted for as a capital lease. The remaining principal balance was repaid during 2006 and there was no outstanding principal balance outstanding under this lease arrangement as of December 31, 2006. The principal balance outstanding under this arrangement as of December 31, 2005 was approximately $230,000.

In December 2002, we entered into a non-cancelable operating lease renewal for our principal operating facility, including an additional 30,000 square feet of space in an adjacent building, that commenced in August 2003 and expires in July 2010. In June 2004, the lease terms were amended and we leased approximately 28,000 square feet of additional space (for a total leased area of approximately 109,803 square feet). The revised agreement provides for a rent free period for the additional space and thereafter initial base monthly rental payments of $107,607 and provides for annual increases of 3% thereafter. As a result of the lease modification we recorded an adjustment of $220,000 to the restructuring accrual with an offsetting reduction of our operating expense for the year ended December 31, 2005. In May 2006, we entered into an amendment to the operating lease agreement. The amendment expanded the leased premises to include approximately 34,000 square feet of space in an adjacent building. The lease expiration was extended to July 2011 and the monthly rental payments are $146,237 with annual increases of 3% thereafter.

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In June 2001, in connection with our acquisition of CMD, we acquired the lease of an operating facility in Irvine, California with average monthly rental payments of approximately $100,000 through November 2005. We subleased parts of this facility to three separate third parties. These sublease agreements were co-terminous leases and expired in November 2005. These subleases collectively generated monthly sublease income of approximately $40,000 to offset our payments. Effective December 2005, the original lease was terminated and we entered into a new non-cancelable operating lease agreement through November 2008. Under the terms of the new agreement, base monthly rental lease payments of $42,000 are required and increases annually 3% thereafter.

We also lease office space in China, Germany, Japan, Korea, Taiwan, Turkey and United Kingdom.

Rent expense totaled $2.6 million, $1.7 million, and $1.8 million in 2006, 2005, and 2004, respectively. Future minimum lease payments under operating leases have not been reduced by expected sublease rental income or by the amount of our restructuring accrual that relates to leased facilities.

Future minimum payments for our software license commitments, operating leases, inventory and other purchase commitments and minimum royalty obligations at December 31, 2006 are as follows (in thousands):

	Payments Due In
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Contractual Obligations:
Software license commitments	$	8,248	$	3,971	$	4,277	$	—	$	—
Operating lease obligations		10,529		2,851		4,643		3,035		—
Inventory purchase commitments		11,132		11,132		—		—		—
Minimum royalty obligation		100		100		—		—		—
Total	$	30,009	$	18,054	$	8,920	$	3,035	$	—

Based on our estimated cash flows, we believe our existing cash and short-term investments are sufficient to meet our capital and operating requirements for at least the next twelve months. We expect to continue to invest in property and equipment in the ordinary course of business. Our future operating and capital requirements depend on many factors, including the levels at which we generate product revenue and related margins, the extent to which we generate cash through stock option exercises and proceeds from sales of shares under our employee stock purchase plan, the timing and extent of development, licensing and royalty revenue, investments in inventory, property, plant and equipment and accounts receivable, the cost of securing access to adequate manufacturing capacity, our operating expenses, including legal and patent assertion costs, and general economic conditions. In addition, cash may be required for future acquisitions should we choose to pursue any. While, we believe that our current cash, cash equivalents and short-term investment balances together with income derived from sales of our products and licensing will be sufficient to meet our liquidity requirements in the foreseeable future, to the extent existing resources and cash from operations are insufficient to support our activities, we may need to raise additional funds through public or private equity or debt financing. These funds may not be available when we need them, or if available, we may not be able to obtain them on terms favorable to us.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including government and corporate securities and money market funds. These securities are classified as available for sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss). All investments mature within one year from the date of purchase. We also limit our exposure to interest rate and credit risk by establishing and monitoring clear policies and guidelines of our fixed income portfolios. The guidelines also establish credit quality standards, limits on exposure to any one issuer and limits on exposure to the type of instrument. Due to the limited duration and

56

credit risk criteria established in our guidelines we do not expect the exposure to interest rate risk and credit risk to be material. If interest rates rise, the market value of our investments may decline, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. A sensitivity analysis was performed on our investment portfolio as of December 31, 2006. This sensitivity analysis was based on a modeling technique that measures the hypothetical market value changes that would result from a parallel shift in the yield curve of plus 50, 100, or 150 basis points over a twelve-month time horizon. The following represents the potential decrease to the value of our investments given a negative shift in the yield curve used in our sensitivity analysis.

0.5%	1.0%	1.5%
$626,000	$1,253,000	$1,879,000

As of December 31, 2005, we had an investment portfolio of fixed income securities as reported in short-term investments, including those classified as cash equivalents of approximately $151.6 million. These securities are subject to interest rate fluctuations. The following represents the potential decrease to the value of our fixed income securities given a negative shift in the yield curve used in our sensitivity analysis.

0.5%	1.0%	1.5%
$388,000	$776,000	$1,163,000

Foreign Currency Exchange Risk

All of our sales are denominated in U.S. dollars, and substantially all of our expenses are incurred in U.S. dollars, thus limiting our exposure to foreign currency exchange risk. The Company’s objective for holding derivatives is to minimize foreign currency exposure associated with foreign currency denominated transactions. The Company does not enter into derivatives for speculative or trading purposes. The effect of an immediate 10% change in foreign currency exchange rates may impact our future operating results or cash flows as any such increases in our currency exchange rate may result in increased wafer, packaging, assembly or testing costs as well as ongoing operating activities in our foreign operations. Additionally, many of our foreign distributors price our products in the local currency of the countries in which they sell. Therefore, significant strengthening of the U.S. dollar relative to those foreign currencies could result in reduced demand or lower U.S. dollar prices for our products, which would negatively affect our operating results.

In December 2006, we entered into a forward exchange contracts in connection with the sci-worx acquisition, with an aggregate notional amount of 11.3 million Euros, or approximately $14.9 million based upon the exchange rate at December 29, 2006. The effect of an immediate 10% adverse change in exchange rates on forward exchange contracts would result in an approximate $1.5 million loss. See Note 5 to our consolidated financial statements included in Item 15(a) of this report.

Item 8.   Financial Statements and Supplementary Data

The Financial Statements and Supplemental Data required by this item are set forth at the pages indicated at Item 15(a).

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and

57

communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting are included within our disclosure controls and procedures, they are included in the scope of our periodic controls evaluation.

For the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 has been made known to them on a timely basis and that such information has been properly recorded, processed, summarized and reported, as required.

Remediation of Prior Year Material Weakness

During fiscal 2006, we took steps toward remediation of the material weakness in internal control over financial reporting which resulted from the failure to maintain effective controls over the accounting for income taxes and which we previously reported in our Annual Report on Form 10-K for the year ended December 31, 2005 and our quarterly reports on Form 10-Q for the quarters ended September 30, 2006, June 30, 2006 and March 31, 2006.

These remediation steps included the following actions:

1) engaging external tax advisors to assist in the analysis of complex tax accounting calculations and disclosures;

2) performing extensive reconciliations of our income tax accounts and balances;

3) performing additional related tax analysis and studies; and

4) accelerating the timing of certain tax review activities during the financial statement close process.

We believe these actions have strengthened our internal control over financial reporting and addressed the material weakness identified above.

The remediation steps set forth above were designed and initiated following the identification of the material weakness and deployed as soon as practicable during fiscal year 2006, during which time management continued to evaluate the operating effectiveness of our internal controls. All the steps identified in the above remediation plan were implemented as of December 31, 2006.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

•  pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

•  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

58

•  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance, and is subject to lapses in judgment and breakdowns resulting from human failures. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2006 based on the framework established by the Committee of Sponsoring Organization (COSO) of the Treadway Commission in Internal Control — Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2006, our internal control over financial reporting was effective and that the material weakness in our internal control over financial reporting related to our accounting for income taxes identified in our Annual Report on Form 10-K for the year ended December 31, 2005 has been remediated.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by Deloitte& Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the fourth quarter of our 2006 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except that our Board of Directors determined that the material weakness we previously reported in our Annual Report on Form 10-K for the year ended December 31, 2005 and our quarterly reports on Form 10-Q for the quarters ended September 30, 2006, June 30, 2006 and March 31, 2006 relating to our income tax processes, procedures and controls had been remediated as of December 31, 2006.

59

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Silicon Image, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Silicon Image, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006, of the Company and our report dated March 1, 2007 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Statement of Financial Accounting Standards No. 123(R), effective January 1, 2006.

/s/  DELOITTE & TOUCHE LLP

San Jose, California

March 1, 2007

60

Item 9B.   Other Information

Not applicable.

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

The information required by this Item is herein incorporated by reference from Silicon Image’s Proxy Statement for its 2007 Annual Meeting of Stockholders.

Item 11.   Executive Compensation

The information required by this Item is herein incorporated by reference from Silicon Image’s Proxy Statement for its 2007 Annual Meeting of Stockholders.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is herein incorporated by reference from Silicon Image’s Proxy Statement for its 2007 Annual Meeting of Stockholders.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is herein incorporated by reference from Silicon Image’s Proxy Statement for its 2007 Annual Meeting of Stockholders.

Item 14.   Principal Accountant Fees and Services

The information required by this Item is herein incorporated by reference from Silicon Image’s Proxy Statement for its 2007 Annual Meeting of Stockholders.

61

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) The following documents are filed as a part of this Form:

1.  Financial Statements:

	Page
Consolidated Balance Sheets at December 31, 2006 and December 31, 2005		63
Consolidated Statements of Operations for the three years ended December 31, 2006		64
Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2006		65
Consolidated Statements of Cash Flows for the three years ended December 31, 2006		66
Notes to Consolidated Financial Statements		67
Unaudited Selected Quarterly Financial Data for the two years ended December 31, 2006		91
Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm		92
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm		93

2.  Financial Statement Schedules

Schedules not listed in Item 15(a)(1) above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

3.  Exhibits.

The exhibits listed in the Index to Exhibits are incorporated herein by reference as the list of exhibits required as part of this Annual Report on Form 10-K.

62

SILICON IMAGE, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006			2005
	(In thousands, except share and per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents	$	81,921		$	77,877
Short-term investments		168,724			73,685
Accounts receivable, net of allowances for doubtful accounts of $235 on December 31, 2006 and $417 on December 31, 2005		39,931			30,141
Inventories		28,287			17,072
Prepaid expenses and other current assets		4,895			3,037
Deferred income taxes		12,793			—
Total current assets		336,551			201,812
Property and equipment, net		18,431			9,613
Goodwill		13,021			13,021
Intangible assets, net		78			585
Deferred income taxes, non-current		10,580			—
Other assets		1,570			7,990
Total assets	$	380,231		$	233,021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	14,187		$	13,372
Accrued and other liabilities		37,308			13,952
Debt obligations and capital leases		—			230
Deferred license revenue		5,264			8,283
Deferred margin on sales to distributors		17,712			13,771
Total current liabilities		74,471			49,608
Other long-term liabilities		538			6,867
Total liabilities		75,009			56,475
Commitments and contingencies (Notes 5 and 8)
Stockholders’ equity:
Convertible preferred stock, par value $0.001; 5,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, par value $0.001; 150,000,000 shares authorized; shares issued and outstanding: 86,484,628 — 2006 and 80,491,557 — 2005		87			80
Additional paid-in capital		386,258			307,149
Unearned compensation		—			(6,742	)
Accumulated deficit		(80,964	)		(123,429	)
Accumulated other comprehensive loss		(159	)		(512	)
Total stockholders’ equity		305,222			176,546
Total liabilities and stockholders’ equity	$	380,231		$	233,021

See accompanying Notes to Consolidated Financial Statements.

63

SILICON IMAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2006			2005			2004
	(In thousands, except per share amounts)
Revenue:
Product	$	250,374		$	193,923		$	152,350
Development, licensing and royalties		44,584			18,476			20,809
Total revenue		294,958			212,399			173,159
Cost of revenue and operating expenses:
Cost of revenue(1)		121,247			83,105			68,614
Research and development(2)		63,598			44,860			61,459
Selling, general and administrative(3)		67,597			31,438			42,183
Amortization of intangible assets		508			1,098			1,345
Patent assertion costs (reimbursement), net		(5,244	)		326			519
Total cost of revenue and operating expenses		247,706			160,827			174,120
Income (loss) from operations		47,252			51,572			(961	)
Interest income		9,438			3,605			945
Other expenses, net		(233	)		(195	)		(227	)
Gain on investment security		—			1,297			926
Income before provision for income taxes		56,457			56,279			683
Provision for income taxes		13,992			6,730			1,007
Net income (loss)	$	42,465		$	49,549		$	(324	)
Net income (loss) per share — basic	$	0.51		$	0.63		$	(0.00	)
Net income (loss) per share — diluted	$	0.49		$	0.59		$	(0.00	)
Weighted average shares — basic		82,787			79,254			75,081
Weighted average shares — diluted		86,791			83,957			75,081
(1) Includes stock-based compensation expense (benefit)	$	2,427		$	(1,383	)	$	2,777
(2) Includes stock-based compensation expense (benefit)		11,108			(3,851	)		16,647
(3) Includes stock-based compensation expense (benefit)		13,696			(3,297	)		13,359

See accompanying Notes to Consolidated Financial Statements.

64

SILICON IMAGE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

															Accumulated
						Additional									Other
	Common Stock					Paid-In			Unearned			Accumulated			Comprehensive
	Shares			Amount		Capital			Compensation			Deficit			Income (Loss)			Total
Balance at December 31, 2003		72,367		$	72	$	243,171		$	(8,196	)	$	(172,654	)	$	—		$	62,393
Net loss		—			—		—			—			(324	)		—			(324	)
Unrealized net gain on available-for-sale investments, net of tax		—			—		—			—			—			2,867			2,867
Total comprehensive income		—			—		—			—			—			—			2,543
Net issuances of common stock		5,140			5		20,998			—			—			—			21,003
Common stock issued for ESPP		616			1		2,720			—			—			—			2,721
Common stock issued for acquisitions		9			—		—			—			—			—			—
Compensation expense for option modification		—			—		1,527			—			—			—			1,527
Tax benefit from equity based compensation plans		—			—		636			—			—			—			636
Stock-based compensation expense		—			—		30,692			564			—			—			31,256
Balance at December 31, 2004		78,132			78		299,744			(7,632	)		(172,978	)		2,867			122,079
Net income		—			—		—			—			49,549			—			49,549
Foreign currency translation adjustments		—			—		—			—			—			(22	)		(22	)
Unrealized net loss on available-for-sale investments, net of tax		—			—		—			—			—			(3,357	)		(3,357	)
Total comprehensive income		—			—		—			—			—			—			46,170
Net issuances of common stock		1,787			2		7,584			—			—			—			7,586
Common stock issued for ESPP		716			—		3,840			—			—			—			3,840
Restricted common stock repurchased		(143	)		—		(1	)		—			—			—			(1	)
Tax benefit from equity based compensation plans		—			—		5,403			—			—			—			5,403
Stock-based compensation benefit		—			—		(9,421	)		890			—			—			(8,531	)
Balance at December 31, 2005		80,492			80		307,149			(6,742	)		(123,429	)		(512	)		176,546
Net income													42,465			—			42,465
Unrealized net gain on available-for-sale investments, net of tax		—			—		—			—			—			334			334
Foreign currency translation adjustments		—			—		—			—			—			19			19
Total comprehensive income		—			—		—			—			—			—			42,818
Net issuances of common stock		5,571			6		31,120			—			—			—			31,126
Common stock issued for ESPP		421			1		3,916			—			—			—			3,917
Elimination of unearned compensation in connection with FAS 123(R) adoption		—			—		(6,742	)		6,742			—			—			—
Tax benefit from equity based compensation plans		—			—		23,584			—			—			—			23,584
Stock-based compensation expense		—			—		27,231			—			—			—			27,231
Balance at December 31, 2006		86,484		$	87	$	386,258		$	—		$	(80,964	)	$	(159	)	$	305,222

See accompanying Notes to Consolidated Financial Statements

65

SILICON IMAGE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2006			2005			2004
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	42,465		$	49,549		$	(324	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		7,108			6,108			4,903
Provision for doubtful accounts		215			194			75
Stock-based compensation expense (benefit)		27,231			(8,531	)		32,783
Amortization of intangible assets		508			1,098			1,345
Amortization/(Accretion) of investment premium/discount		(869	)		469			—
Gain on investment security		—			(1,297	)		(926	)
Tax benefit from employee stock transactions		23,584			5,403			636
Excess tax benefits from equity based compensation plans		(23,856	)		—			—
Realized loss on sale of investments		82			45			—
Unrealized loss on derivative transactions		41			—			—
Loss on disposal of property and equipment		15			148			—
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable		(10,005	)		(10,918	)		(6,738	)
Inventories		(11,215	)		(3,146	)		(3,614	)
Prepaid expenses and other assets		(1,824	)		(313	)		115
Deferred income taxes		(23,279	)		—			—
Accounts payable		(453	)		6,539			391
Accrued liabilities and deferred license revenue		19,181			6,463			5,112
Deferred patent infringement proceeds		(6,867	)		—			—
Deferred margin on sales to distributors		3,941			3,809			2,688
Cash provided by operating activities		46,003			55,620			36,446
Cash flows from investing activities:
Purchases of short-term investments		(240,308	)		(94,561	)		(75,109	)
Proceeds from sales of short-term investments		146,273			86,349			27,932
Proceeds from sale of investment security		—			2,171			—
Purchases of property and equipment		(13,479	)		(6,169	)		(5,963	)
Proceeds from sale of property and equipment		—			21			—
Release of restriction on cash received in conjunction with resolution of litigation		6,867			—			—
Cash used in investing activities		(100,647	)		(12,189	)		(53,140	)
Cash flows from financing activities:
Proceeds from issuances of common stock		35,043			11,426			23,724
Repayments of debt and capital lease obligations		(230	)		(259	)		(1,684	)
Repurchase of restricted stock		—			(1	)		—
Excess tax benefits from employee stock transactions		23,856			—			—
Cash provided by financing activities		58,669			11,166			22,040
Effect of exchange rate changes on cash and cash equivalents		19			—			—
Net increase in cash and cash equivalents		4,044			54,597			5,346
Cash and cash equivalents — beginning of period		77,877			23,280			17,934
Cash and cash equivalents — end of period	$	81,921		$	77,877		$	23,280
Supplemental cash flow information:
Acquisitions of property and equipment under capital lease arrangements	$	—		$	—		$	441
Cash payments for interest	$	10		$	34		$	54
Cash payments for taxes	$	1,316		$	946		$	310
Unrealized net gain (loss) on available-for-sale securities	$	334		$	(3,357	)	$	3,743
Reimbursable tenant improvements	$	—		$	—		$	582
Property and equipment received and accrued	$	2,462		$	227		$	—
Software support purchased not paid for	$	420			—			—
Increase in restricted cash and related long-term liability associated with Genesis litigation	$	—		$	6,867		$	—

See accompanying Notes to Consolidated Financial Statements.

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NOTE 1 — THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

The Company

Silicon Image, Inc. (referred to herein as “We”, “Our”, “the Company”, or “Silicon Image”), a Delaware corporation, was incorporated June 11, 1999. The Company is a leader in driving the architecture and semiconductor implementations for the secure storage, distribution and presentation of high-definition content in the consumer electronics and personal computing markets. Silicon Image creates and drives industry standards for digital content delivery such as DVI, HDMI^tm and Serial ATA (SATA), leveraging partnerships with global leaders in the consumer electronics and personal computing markets to meet the growing digital content needs of consumers worldwide.

Basis of presentation

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from these estimates. Areas where significant judgment and estimates are applied include revenue recognition, allowance for doubtful accounts, inventory valuation, realization of long lived assets, including goodwill, income taxes, accrued liabilities, stock based compensation and legal matters. The consolidated financial statements include the accounts of Silicon Image, Inc. and our subsidiaries after elimination of all significant inter-company balances and transactions.

Reclassifications

Patent assertion costs (reimbursement), net, of ($5.2 million) for the year ended December 31, 2006 has been disclosed as a stand alone caption in the accompanying Consolidated Statements of Operations. The patent assertion costs for the years ended December 31, 2005 and 2004 of $326,000 and $519,000 respectively, has been reclassified from selling, general and administrative expense to a stand-alone caption in the accompanying Consolidated Statements of Operations, to be consistent with the current year presentation. The reclassifications had no effect on previously disclosed net loss, cash flow or stockholders’ equity.

Restructuring recovery of $220,000 for the year ended December 31, 2005 has been reclassified from a stand-alone caption in the accompanying Consolidated Statements of Operations, to selling, general and administrative expense to be consistent with the current year presentation. Restructuring expense included within the selling, general and administrative expense for the year ended December 31, 2006 totaled $25,000. The reclassifications had no effect on previously disclosed net income, cash flows or stockholders’ equity.

Revenue recognition

For products sold directly to end-users, or to distributors that do not receive price concessions and do not have rights of return, we recognize revenue upon shipment and title transfer if we believe collection is reasonably assured. Reserves for sales returns are estimated based primarily on historical experience and are provided at the time of shipment.

The majority of our products are sold to distributors with agreements allowing for price concessions and product returns. Accordingly, we recognize revenue based on our best estimate of when the distributor sold the product to its end customer. Our estimate of distributor sell-through to end customers is based on point of sales reports received from our distributors. Due to the timing of receipt of these reports, we recognize distributor sell-through using information that lags quarter end by one month. Revenue is not recognized upon shipment since, due to various forms of price concessions, the sales price is not substantially fixed or determinable at that time. Price concessions are recorded when incurred, which is generally at the time the distributor sells the product to an end-user.

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Additionally, these distributors have contractual rights to return products, up to a specified amount for a given period of time. Revenue is earned when the distributor sells the product to an end-user, at which time our sales price to the distributor becomes fixed. Pursuant to our distributor agreements, older or end-of-life products are sold with no right of return and are not eligible for price concessions. Certain of our distributors agreements for new products also contain provisions that do not allow for product returns or price concessions. For these products, revenue is recognized upon shipment and title transfer assuming all other revenue recognition criteria are met.

At the time of shipment to distributors, we record a trade receivable for the selling price since there is a legally enforceable right to payment, relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor, and record the gross margin in “Deferred margin on sale to distributors”, a component of current liabilities on our Consolidated Balance Sheet. Deferred margin on the sale to distributor effectively represents the gross margin on the sale to the distributor. However, the amount of gross margin we recognize in future periods will be less than the originally recorded deferred margin on sale to distributor as a result of negotiated price concessions. We sell each item in our product price book to all of our distributors worldwide at a relatively uniform list price. However, distributors resell our products to end customers at a very broad range of individually negotiated price points based on customer, product, quantity, geography, competitive pricing, and other factors. The majority of our distributors’ resale are priced at a discount from list price. Often, under these circumstances, we remit back to the distributor a portion of their original purchase price after the resale transaction is completed. Thus, a substantial portion of the “Deferred margin on the sale to distributor and related allowances on sales to distributors” balance represents a portion of distributors’ original purchase price that will be remitted back to the distributor in the future. The wide range and variability of negotiated price concessions granted to distributors does not allow us to accurately estimate the portion of the balance in the Deferred margin on the sale to distributor and related allowances on sales to distributors that will be remitted back to the distributors. We do reduce deferred income by anticipated or determinable future price concessions.

License revenue is recognized when an agreement with a licensee exists, the price is fixed or determinable, delivery or performance has occurred, and collection is reasonably assured. Generally, we expect to meet these criteria and recognize revenue at the time we deliver the agreed-upon items. However, we may defer recognition of revenue until either cash is received if collection is not reasonably assured at the time of delivery or, in the event that the arrangement includes undelivered elements for which the fair value cannot be determined, until the earlier of such time that the fair value can be determined or the elements are delivered. The fair value of undelivered elements is generally based upon the price charged when the elements are sold separately. A number of our license agreements require customer acceptance of deliverables, in which case we would defer recognition of revenue until the licensee has accepted the deliverables and either payment has been received or is expected within 90 days of acceptance. Certain licensing agreements provide for royalty payments based on agreed upon royalty rates. Such rates can be fixed or variable depending on the terms of the agreement. The amount of revenue we recognize is determined based on a time period or on the agreed-upon royalty rate, extended by the number of units shipped by the customer. To determine the number of units shipped, we rely upon actual royalty reports from our customers when available, and rely upon estimates in lieu of actual royalty reports when we have a sufficient history of receiving royalties from a specific customer for us to make an estimate based on available information from the licensee such as quantities held, manufactured and other information. These estimates for royalties necessarily involve the application of management judgment. As a result of our use of estimates, period-to-period numbers are “trued-up” in the following period to reflect actual units shipped. To date, such “true-up” adjustments have not been significant. In cases where royalty reports and other information are not available to allow us to estimate royalty revenue, we recognize revenue only when royalty reports are received. Revenues from such licenses are recognized proportionately as we perform services. On certain arrangements, based on the achievement of milestones, revenues derived from such development services are recognized using the percentage-of-completion method. For all license and service agreements accounted for using the percentage-of-completion method, we determine progress-to-completion using input measures based on labor-hours incurred. Our license revenue recognition depends upon many

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factors including development project status, completion of milestones, allocation of values to delivered items and customer acceptances.

Cash Equivalents and Short-Term Investments.

Cash equivalents consist of short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase. Short-term investments consist of taxable commercial paper, United States government agency obligations, corporate/municipal notes and bonds with high-credit quality, money market preferred stock and auction rate preferred stock and have maturities greater than three months from the date of purchase. The fair market value, based on quoted market prices, of cash equivalents and short-term investments. Cost of securities sold is based on a specific identification method.

In determining if and when a decline in market value below cost of these investments is other-than-temporary, the Company evaluates the market conditions, offering prices, trends of earnings, price multiples and other key measures. When such a decline in value is deemed to be other-than-temporary, the Company recognizes an impairment loss in the current period operating results to the extent of the decline.

Concentration of credit risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents and short-term investments and accounts receivable. A majority of our cash and investments are maintained with two major financial institutions headquartered in the United States. Cash balances held in foreign countries are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. As of December 31, 2006, cash held in foreign countries was not material. As part of our cash and investment management processes, we perform periodic evaluations of the credit standing of the financial institutions and we have not sustained any credit losses from investments held at these financial institutions. The counterparties to the agreements relating to our investment securities consist of various major corporations and financial institutions of high credit standing.

We perform on-going credit evaluations of our customers’ financial condition and may require collateral, such as letters of credit, to secure accounts receivable if deemed necessary. We maintain an allowance for potentially uncollectible accounts receivable based on our assessment of collectibility.

Allowance for Doubtful Accounts

We review collectibility of accounts receivable on an on-going basis and provide an allowance for amounts we estimate will not be collectible. During our review, we consider our historical experience, the age of the receivable balance, the credit-worthiness of the customer, and the reason for the delinquency.

	2006			2005			2004
	In thousands
Balance at January 1	$	417		$	745		$	670
Provision for doubtful accounts		215			194			75
Write offs/recoveries		(397	)		(522	)		—
Balance at December 31	$	235		$	417		$	745

Inventories

We record inventories at the lower of actual cost, determined on a first-in first-out (FIFO) basis, or market. Actual cost approximates standard cost, adjusted for variances between standard and actual. Standard costs are determined based on our estimate of material costs, manufacturing yields, costs to assemble, test and package our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

products, and allocable indirect costs. We record differences between standard costs and actual costs as variances. These variances are analyzed and are either included on the consolidated balance sheet or the consolidated statement of operations in order to state the inventories at actual costs on a FIFO basis. Standard costs are evaluated at least annually.

Provisions are recorded for excess and obsolete inventory, and are estimated based on a comparison of the quantity and cost of inventory on hand to management’s forecast of customer demand. Customer demand is dependent on many factors and requires us to use significant judgment in our forecasting process. We must also make assumptions regarding the rate at which new products will be accepted in the marketplace and at which customers will transition from older products to newer products. Generally, inventories in excess of six months demand are written down to zero and the related provision is recorded as a cost of revenue. Once a provision is established, it is maintained until the product to which it relates is sold or otherwise disposed of, even if in subsequent periods we forecast demand for the product.

Long-lived assets

Consideration paid in connection with acquisitions is required to be allocated to the assets, including identifiable intangible assets, and liabilities acquired. Acquired assets and liabilities are recorded based on our estimate of fair value, which requires significant judgment with respect to future cash flows and discount rates.

For certain long-lived assets, primarily fixed assets and identifiable intangible assets, we are required to estimate the useful life of the asset and recognize its cost as an expense over the useful life. We use the straight-line method to depreciate long-lived assets. We evaluate the recoverability of our long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Whenever events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we compare the carrying amount of long-lived assets to our projection of future undiscounted cash flows, attributable to such assets. In the event that the carrying amount exceeds the future undiscounted cash flows, we record an impairment charge against income equal to the excess of the carrying amount over the asset’s fair value. Predicting future cash flows attributable to a particular asset is difficult, and requires the use of significant judgment.

We assign the following useful lives to our fixed assets — three years for computers and software, one to five years for equipment and five to seven years for furniture and fixtures. Leasehold improvements and assets held under capital leases are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life, which ranges from two to six years. As of December 31, 2006 and 2005, we had $31.5 million and $23.2 million, respectively in long-lived assets, substantially all of which are located in the United States. Depreciation and amortization expense was $7.1 million, $6.1 million, and $4.9 million, for the years ended December 31, 2006, 2005 and 2004. Amortization of identifiable intangibles, totaled $508,000, $1.1 million, and $1.3 million, for the years ended December 31, 2006, 2005 and 2004, respectively.

Goodwill and intangible assets

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142) requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances, and written down when impaired. Furthermore, SFAS No. 142 requires purchased intangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite.

Based on the annual impairment test performed for 2006 and 2005 in accordance with SFAS No. 142, there was no impairment of goodwill or intangible assets at December 31, 2006 and 2005. The impairment analysis was based on our estimates of forecasted discounted cash flows as well as our market capitalization at that time as of December 31, 2006 and 2005.

Purchased intangible assets are carried at cost less accumulated amortization.

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Components of intangible assets were as follows:

			December 31, 2006					December 31, 2005
			Gross					Gross
	Estimated		Carrying		Accumulated			Carrying		Accumulated
	Useful Lives		Amount		Amortization			Amount		Amortization
			(Dollar in thousands)
Intangible assets subject to amortization:
Acquired technology(1)		36-48 months	$	1,780	$	(1,703	)	$	1,780	$	(1,348	)
Non-compete agreement		36 months		1,849		(1,849	)		1,849		(1,696	)
			$	3,629	$	(3,552	)	$	3,629	$	(3,044	)
Intangible assets not subject to amortization:
Goodwill			$	13,021				$	13,021

(1) Remaining balance of $77,000 to be fully amortized in 2007.

Deferred tax assets

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements, but have not been reflected in our taxable income. In general, a valuation allowance is established to reduce deferred tax assets to their estimated realizable value, if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Prior to 2006, we had provided a valuation allowance against 100% of our net deferred tax assets. No valuation allowance has been provided against our deferred tax assets as of December 31, 2006 as we have determined that our net deferred tax assets as of that date are more likely than not to be realized. We evaluate the realizability of the deferred tax assets quarterly and will continue to assess the need for additional valuation allowances, if any.

Accrued liabilities

Certain of our accrued liabilities are based largely on estimates. For instance, we record a liability on our consolidated balance sheet each period for the estimated cost of goods and services rendered to us, for which we have not received an invoice. Our estimates are based on historical experience, input from sources outside the Company, and other relevant facts and circumstances.

Guarantees, Indemnifications and Warranty Liabilities

Certain of our licensing agreements indemnify our customers for expenses or liabilities resulting from claimed infringements of patent, trademark or copyright by third parties related to the intellectual property content of our products. Certain of these indemnification provisions are perpetual from execution of the agreement and, in some instances; the maximum amount of potential future indemnification is not limited. To date, we have not paid any such claims or been required to defend any lawsuits with respect to a claim.

At the time of revenue recognition, we provide an accrual for estimated costs (included in accrued liabilities in the accompanying consolidated balance sheets) to be incurred pursuant to our warranty obligation. Our estimate is based primarily on historical experience.

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	2006			2005			2004
	(In thousands)
Balance at January 1	$	382		$	351		$	271
Provision for warranties issued during the period		30			273			300
Reduction to pre-existing warranties		(314	)		—			—
Cash and other settlements made during the period		(38	)		(242	)		(220	)
Balance at December 31	$	60		$	382		$	351

Stock-based compensation

Prior to 2006, our stock-based employee compensation plans were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees and related interpretations. Our Employee Stock Purchase Plan (ESPP) qualified as a non-compensatory plan under APB 25. Therefore, no compensation cost was recorded in relation to the discount offered to employees for purchases made under the ESPP.

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123R, Share-Based Payment, (SFAS No. 123R), requiring us to recognize expense related to the fair value of our stock-based compensation awards. We elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore have not restated our financial results for prior periods. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, as adjusted for estimated forfeitures. Stock-based compensation expense for all stock-based compensation awards granted subsequent to December 31, 2005 was based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Under SFAS No. 123R, our ESPP is considered a compensatory plan and we are required to recognize compensation cost for grants made under the ESPP. We recognize stock-based compensation expense on a straight-line basis for all share-based payment awards over the respective requisite service period of the awards. For purposes of calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R), we followed the alternative transition method discussed in FASB Staff Position No. 123(R )-3 “Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards.”

Advertising and Research and Development

Advertising and research and development costs are expensed as incurred. Advertising expenses were insignificant in 2006, 2005, and 2004. During the year ended December 31, 2006, the Company recorded a reduction to research and development expense totaling approximately $1.0 million related to funding received from outside parties for one engineering project. During the year ended December 31, 2005, the Company recorded a reduction to research and development expense totaling approximately $1.8 million related to funding received from outside parties for three engineering projects. Such funding was provided irrespective of the results of the projects.

Accumulated other comprehensive loss

Accumulated other comprehensive loss of ($159,000) as of December 31, 2006, was comprised of net unrealized losses on available-for-sale securities of ($156,000) and foreign currency translation adjustments of ($3,000). Accumulated other comprehensive loss of ($512,000) as of December 31, 2005, was comprised of net unrealized losses on available-for-sale securities of ($490,000) and foreign currency translation adjustments of ($22,000).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Net income (loss) per share

Basic net income (loss) per share is based on weighted average common shares outstanding, excluding shares subject to repurchase, and diluted net income (loss) per share is based on weighted average common shares and dilutive equivalents outstanding, if any. The following tables set forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

	Year Ended December 31,
	2006		2005			2004
Numerator:
Net income (loss)	$	42,465	$	49,549		$	(324	)
Denominator:
Weighted average shares of common stock outstanding		82,787		79,466			75,733
Less: unvested shares of common stock subject to repurchase		—		(212	)		(652	)
Weighted average shares — basic		82,787		79,254			75,081
Dilutive common stock options		4,004		4,491			—
Unvested shares of common stock subject to repurchase		—		212			—
Weighted average shares — diluted		86,791		83,957			75,081
Net income (loss) per share — basic	$	0.51	$	0.63		$	(0.00	)
Net income (loss) per share — diluted	$	0.49	$	0.59		$	(0.00	)

The weighted average securities that were anti-dilutive and excluded from our net income per share calculations were approximately 9,635,575 and 6,488,000 for the years ended December 31, 2006 and 2005 respectively. For the year ended December 31, 2004, all common share equivalents would have been anti-dilutive and have therefore been excluded from the diluted net loss per share calculation. The weighted average securities that were anti-dilutive and excluded from our calculation of net loss per share were approximately 20,257,000 for the year ended December 31, 2004.

Recent accounting pronouncements

In June 2006, the Financial Accounting Standards Board (FASB) issued FIN No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109. FIN No. 48 requires that management determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the financial statements. We expect to adopt the provisions of FIN No. 48 beginning in the first quarter of 2007. We are currently evaluating the impact of adopting FIN No. 48 on our financial condition, results of operations and cash flows.

In September, 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. SFAS 157 defines fair value as the price that would be received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement also requires expanded disclosures on the inputs used to measure fair value, and for recurring fair value measurements using unobservable inputs, which affects the earnings for the period. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Additionally, prospective application of this statement is required as of the beginning of the fiscal year in which it is initially applied. We are

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currently assessing the impact of adopting this Statement but does not expect that it will have a material effect on our consolidated financial position or results of operations.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 provides that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. We have adopted SAB 108, and have considered its provisions in the preparation of our current financial statements and related disclosures and as of December 31, 2006 it did not have a material effect on our consolidated financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS 159 on our financial position, cash flows, and results of operations.

NOTE 2 — CONSOLIDATED BALANCE SHEET COMPONENTS

Cash, cash equivalents and short-term investments consisted of the following as of December 31, 2006:

			Gross		Gross
	Carrying		Unrealized		Unrealized			Estimated
	Value		Gain		Loss			Fair Value
Classified as current assets:
Cash	$	30,895	$	—	$	—		$	30,895
Cash equivalents:									—
Money market funds		51,026		—		—			51,026
Commercial paper		—		—		—			—
Total cash equivalents		51,026		—		—			51,026
Total cash and cash equivalents		81,921		—		—			81,921
Short-term investments:
Corporate notes and bonds	$	60,837		16		(199	)	$	60,654
Asset-backed securities		87,764		8		(60	)		87,712
United States government agencies		2,494		1		—			2,495
Mortgage backed securities		17,879		—		(16	)		17,863
Total short-term investments		168,974		25		(275	)		168,724
Total cash and cash equivalents and short-term investments	$	250,895	$	25	$	(275	)	$	250,645

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Cash and cash equivalents and short-term investments consisted of the following as of December 31, 2005:

			Gross		Gross
	Carrying		Unrealized		Unrealized			Estimated
	Value		Gain		Loss			Fair Value
Classified as current assets:
Cash	$	7,929	$	—	$	—		$	7,929
Cash equivalents:
Money market funds		11,399		—		—			11,399
Commercial paper		58,529		20		—			58,549
Total cash equivalents		69,928		20		—			69,948
Total cash and cash equivalents		77,857		20		—			77,877
Short-term investments:
Corporate notes and bonds	$	32,095	$	2	$	(295	)	$	31,802
Asset-backed securities		26,154		—		(107	)		26,047
United States government agencies		15,946		—		(110	)		15,836
Total short-term investments		74,195		2		(512	)		73,685
Total cash and cash equivalents and short-term investments	$	152,052	$	22	$	(512	)	$	151,562

	December 31,
	2006			2005
	(In thousands)
Inventories:
Raw materials	$	7,908		$	3,123
Work in process		2,712			4,511
Finished goods		17,667			9,438
	$	28,287		$	17,072
Property and equipment:
Computers and software	$	22,432		$	16,669
Equipment		25,836			16,601
Furniture and fixtures		3,068			2,259
		51,336			35,529
Less: accumulated depreciation		(32,905	)		(25,916	)
	$	18,431		$	9,613

Property and equipment as of December 31, 2005, also include equipment acquired under a capital lease arrangement. As of December 31, 2006 and 2005, the principal balance outstanding of the capital lease was $0 and $230,000, respectively included in the Debt obligations and Capital leases on the December 31 Consolidated Balance Sheets. Amortization relating to assets acquired under capital lease arrangements is included in depreciation expense.

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	December 31,
	2006		2005
	(In thousands)
Accrued liabilities:
Accrued payroll and related expenses	$	4,921	$	4,738
Restructuring accrual (see Note 3)		—		25
Accrued legal fees		1,022		490
Warranty accrual (see Note 1)		60		382
Bonus accrual		8,718		2,615
Accrued income taxes		12,683		381
Accrued and other liabilities		9,904		5,321
	$	37,308	$	13,952

NOTE 3 — ASSET IMPAIRMENT AND RESTRUCTURING ACTIVITIES

In March 2003, we reorganized parts of the marketing and product engineering activities of the Company into lines of business for consumer electronics (CE), personal computer (PC), and storage products to enable us to better manage our long-term growth potential resulting in a reorganization. Through 2006 severance and benefits related to this restructuring was substantially complete.

The following table presents the changes to our restructuring reserves from 2004 through December 31, 2006 (in thousands):

	Severance			Leased
	and Benefits			Facilities			Total
Balance as of December 31, 2004	$	32		$	1,004		$	1,036
Cash payments		—			(759	)		(759	)
Adjustment related to lease modification		—			(220	)		(220	)
Non-cash activity		(32	)		—			(32	)
Balance as of December 31, 2005		—			25			25
Cash payments		—			(25	)		(25	)
Balance as of December 31, 2006	$	—		$	—		$	—

Effective December 2005, we renegotiated a lease for our Irvine, California facility, which was identified in our restructuring activities in 2001, that provided for early termination. We recorded an expense recovery of $220,000 to the restructuring accrual with an offsetting reduction of our operating expenses for the year ended December 31, 2005, resulting from this lease modification.

NOTE 4 — INCOME TAXES

Income (loss) before taxes and the provision for income taxes consisted of the following:

	Year Ended December 31,
	2006			2005		2004
Income (loss) before provision for income taxes:
U.S.	$	121,577		$	55,977	$	683
Non U.S.		(65,120	)		302		—
Total income before provision for income taxes	$	56,457		$	56,279	$	683

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

	Year Ended December 31,
Provision for Taxes	2006			2005		2004
Current:
Federal	$	12,130		$	701	$	636
State		205			13		—
Foreign		1,352			613		371
		13,687			1,327		1,007
Deferred:
Federal		(14,573	)		—		—
State		(8,706	)		—		—
		(23,279	)		—		—
Charge in lieu of taxes attributable to employee stock plans		23,584			5,403		—
Total provision for income taxes	$	13,992		$	6,730	$	1,007

The charge in lieu of taxes represents the tax benefit from employee stock transactions, in excess of related amounts reported for financial reporting purposes, that is recorded as a direct increase to additional paid-in capital instead of a reduction to the provision for income tax.

Our effective tax rate differs from the federal statutory rate due to the following:

	Year Ended December 31,
	2006			2005			2004
Tax provision at federal statutory rate	$	19,760		$	19,751		$	239
State income taxes		644			13			—
Foreign income and withholding taxes		1,361			613			371
U.S. federal losses utilized		(18,471	)		(19,821	)		(710	)
Changes in valuation allowance related to employee stock transactions		14,333			5,403			—
Foreign unbenefited losses		22,811			—			—
Impact of valuation allowance release		(24,779	)		—			—
Tax credits		(3,277	)		—			—
Stock-based compensation		1,526			—			—
Alternative minimum taxes		—			701			636
Non-deductible expenses		84			70			471
Tax provision	$	13,992		$	6,730		$	1,007

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Deferred income tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of net deferred income tax assets were (in thousands):

	December 31,
	2006		2005
Net operating loss carryforwards	$	200	$	23,666
Stock-based compensation		8,930		4,888
Tax credits		6,103		16,898
Inventory valuation		2,171		1,285
Capitalized research and development		1,245		2,873
Other items not currently deductible		4,724		2,663
		23,373		52,273
Less: valuation allowance		—		(52,273	)
Net deferred tax assets	$	23,373	$	—
Reported as:
Deferred income taxes	$	12,793
Deferred income taxes, non-current		10,580
Net deferred taxes	$	23,373

During 2006, we released the remaining valuation allowance of approximately $52.3 million that reduced the carrying value of our deferred tax assets as of December 31, 2005. In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered historical book income, the scheduled reversal of deferred tax assets and the projected taxable income. Based on this analysis and considering all positive and negative evidence, we determined that the deferred tax assets as of December 31, 2006 are more likely than not to be realized.

Included in our 2006 consolidated income tax expense are tax charges of approximately $22.8 million recorded in the fourth quarter for foreign unbenefited losses related to the ongoing implementation of a new global strategy. The tax charges related to unbenefited foreign losses represent expenses for sharing in the costs of our ongoing research and development efforts as well as licensing commercial rights to utilize pre-existing intangibles to better align with customers outside the Americas.

As of December 31, 2006, we had net operating loss carry forwards for U.S. federal tax purposes of approximately $0.5 million that will expire in the tax year 2012. As of December 31, 2006, we had net operating loss carry forwards for state tax purposes of approximately $0.7 million that will expire in the tax year 2013 and research credit carry forwards for state purposes of approximately $9.4 million that carry forward indefinitely. In the event we experience a future cumulative ownership change of greater than 50% pursuant to Internal Revenue Code sections 382 and 383 or similar state rules, our ability to utilize the loss and credit carry forwards may be limited.

NOTE 5 — DEBT, LEASE AND OTHER OBLIGATIONS

In November 2004, we leased certain capital equipment under a lease arrangement accounted for as a capital lease. As of December 31, 2006 and 2005, the principal balance outstanding was $0 and $230,000, respectively.

In December 2002, we entered into a non-cancelable operating lease renewal for our principal operating facility, including an additional 30,000 square feet of space in an adjacent building, that commenced in August 2003 and expires in July 2010. In June 2004, the lease terms were amended and we leased approximately 28,000 square

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feet of additional space (for a total leased area of approximately 109,803 square feet). The revised agreement provides for a rent free period for the additional space and thereafter initial base monthly rental payments of $107,607 and provides for annual increases of 3% thereafter. As a result of the lease modification, we recorded an adjustment of $220,000 to the restructuring accrual with an offsetting reduction to operating expenses for the year ended December 31, 2005. In addition, we recorded an expense related to the rent free period. In May, 2006, we entered into an amendment to the operating lease agreement. The amendment expanded the leased premises to include approximately 34,000 square feet of space in an adjacent building. The lease expiration was extended to July 2011 and the monthly rental payments are $146,237 with annual increases of 3% thereafter.

In June 2001, in connection with our acquisition of CMD, we acquired the lease of an operating facility in Irvine, California with average monthly rental payments of approximately $100,000 through November 2005. We subleased parts of this facility to three separate third parties. These sublease agreements were co-terminous leases and expired in November 2005. These subleases collectively generated monthly sublease income of approximately $40,000 to offset our payments. Effective December 2005, the original lease was terminated and we entered into a new non-cancelable operating lease agreement. Under the terms of the new agreement, base monthly rental lease payments of $42,000 are required and increases annually 3% thereafter until the lease expiration in November 2008.

We also lease office space in China, Germany, Japan, Korea, Taiwan, Turkey and the United Kingdom.

Rent expense totaled $2.6 million, $1.7 million, and $1.8 million, in 2006, 2005, and 2004, respectively. Future minimum lease payments under operating leases have not been reduced by expected sublease rental income or by the amount of our restructuring accrual that relates to leased facilities.

Future minimum payments for our software license commitments, operating lease obligations, non-cancelable inventory purchase commitments, and minimum royalty obligations at December 31, 2006 are as follows (in thousands):

	Payments Due In
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Contractual Obligations:
Software license commitments	$	8,248	$	3,971	$	4,277	$	—	$	—
Operating lease obligations		10,529		2,851		4,643		3,035		—
Inventory purchase commitments		9,340		9,340		—		—		—
Minimum royalty obligation		100		100		—		—		—
Total	$	28,217	$	16,262	$	8,920	$	3,035	$	—

The Company’s objective for holding derivatives is to minimize foreign currency exposure associated with foreign currency denominated transactions. The Company does not enter into derivatives for speculative or trading purposes. The Company’s derivative instruments are recorded at fair value on the balance sheet with changes in fair value recorded in other income (expense). On December 29, 2006, the Company entered into a foreign currency forward contract in connection with the sci-worx acquisition with a notional amount of 11.3 million Euros, or approximately $14.9 million based upon the exchange rate at that date. As of December 31, 2006, the change in fair value of this foreign currency forward contract was immaterial.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

NOTE 6 — STOCKHOLDERS’ EQUITY

1995 Equity Incentive Plan (the “1995 Plan”)

In September 1995, the Board of Directors adopted the 1995 Equity Incentive Plan (the “1995 Plan”), which provides for the granting of incentive stock options (ISOs) and non-qualified stock options (NSOs) to employees, directors and consultants. In accordance with the 1995 Plan, the stated exercise price shall not be less than 100% and 85% of the fair market value of our common stock on the date of grant for ISOs and NSOs, respectively. In September 1998, the 1995 Plan was amended to allow ISOs to be exercised prior to vesting. We have the right to repurchase such shares at their original purchase price if the optionee is terminated from service prior to vesting. Such right expires as the options vest.

1999 Equity Incentive Plan (the “1999 Plan”)

In October 1999, the 1999 Plan became the successor to the 1995 Plan and was changed to prohibit early exercise of stock options. The number of shares reserved for issuance under the 1999 Plan will be increased automatically on January 1 of each year by an amount equal to 5% of our total outstanding common shares as of the immediately preceding December 31.

In June and July 2001, in connection with the CMD and SCL acquisitions, we assumed all outstanding options and options available for issuance under the CMD 1999 Stock Incentive Plan and SCL 1999 Stock Option Plan. In April 2004, in connection with the TransWarp acquisition, we assumed all outstanding options and options available for issuance under the TransWarp Stock Option Plan. The terms of these Plans are very similar to those of the 1999 Plan. Our assumption of the CMD, SCL and TransWarp Plans and the outstanding options did not require the approval of, and was not approved by, our stockholders.

Options granted under all stock option plans are exercisable over periods not to exceed ten years and vest over periods ranging from one to five years and generally vest annually as to 25% of the shares subject to the options, although stock option grants to members of our Board of Directors vest monthly, over periods not to exceed four years. Some options provide for accelerated vesting if certain identified milestones are achieved.

Under our stock plans, we may grant options to purchase up to 5.1 million shares of common stock.

Non-plan options

In 2004 and 2003, our Board of Directors granted non-plan options to purchase 1.7 million and 625,000 shares, respectively, of our common stock to three executives and an employee. There were no non-plan option grants in 2006. All non-plan options were granted with exercise prices equal to the fair market value on the date of grant and with vesting periods ranging from four to five years, and expire in ten years, except that the repriced options (discussed in detail under “Stock Option Exchange (Repricing)”) were priced above our stock’s fair market value on the date of the repricing and expire in six years. Our non-plan option grants did not require the approval of, and were not approved by, our stockholders.

Adoption of SFAS No. 123R

Had we not adopted SFAS 123R, our income before income taxes for the year ended December 31, 2006 would have increased by $22.6 million, and our net income would have increased by $14.9 million. Basic net income per share for the year ended December 31, 2006 would have increased by $0.18, and diluted net income per share would have increased by $0.17. For the year ended December 31, 2006, cash provided by operating activities would have increased by $23.9 million and cash provided by financing activities would have decreased by $23.9 million related to excess tax benefits from equity-based compensation plans.

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Determining Fair Value

Valuation and amortization method — We estimate the fair value of stock options granted using the Black-Scholes option valuation model and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

Expected Term — The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

Expected Volatility — Our computation of expected volatility for the year ended December 31, 2006 is based on historical volatility.

Risk-Free Interest Rate — The risk-free interest rate used in the Black-Scholes option valuation method is based on the implied yield currently available on U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option.

Expected Dividend — The dividend yield reflects that we have not paid any dividends and have no intention to pay dividends in the foreseeable future.

In connection with the adoption of SFAS No. 123R, we reassessed the valuation technique and related assumptions. The Company estimates the fair value of stock options using a Black-Scholes option valuation model, consistent with the provisions of SFAS No. 123R, SAB 107 and our prior period pro forma disclosures of net earnings, including stock-based compensation (determined under a fair value method as prescribed by SFAS No. 123). The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions:

	Years Ended December 31,
	2006			2005			2004
Employee stock option plans:
Expected life in years		5.0			5.0			5.0
Expected volatility		86.4	%		90.0	%		90.0	%
Risk-free interest rate		4.7	%		4.2	%		3.4	%
Expected dividends		none			none			none
Weighted average grant date
fair value	$	7.47		$	8.14		$	9.29
Employee Stock Purchase Plan:
Expected life in years		1.25			1.22			1.32
Expected volatility		58.0	%		59.0	%		85.0	%
Risk-free interest rate		4.9	%		3.7	%		1.2	%
Expected dividends		none			none			none
Weighted average grant date
fair value	$	4.41		$	4.73		$	2.69

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Stock-based compensation expense

The following table shows total stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004 (in thousands):

	Year Ended December 31,
	2006			2005			2004
Cost of sales	$	2,427		$	(1,383	)	$	2,777
Research and development		11,108			(3,851	)		16,647
Selling, general and administrative		13,696			(3,297	)		13,359
Income tax effect		(8,757	)		3,473			—
	$	18,474		$	(5,058	)	$	32,783

We did not capitalize any stock-based compensation expense as part of inventory in 2006. As required by SFAS No. 123R, management estimated the expected forfeitures and recognizes stock-based compensation expense only for those equity awards expected to vest.

At December 31, 2006, the total stock-based compensation expense related to unvested stock-based awards granted to employees under the stock option plans but not yet recognized was approximately $50.8 million, after estimated forfeitures. This cost will generally be recognized on a straight-line basis over an estimated weighted-average period of approximately 2.47 years and will be adjusted if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

At December 31, 2006, the total stock-based compensation expense related to options to purchase common shares under the ESPP but not yet recognized was approximately $1.5 million. This expense will be recognized on a straight-line basis over a weighted-average period of approximately 1.25 years.

Prior to the adoption of SFAS No. 123R, we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in our statement of cash flows. In accordance with SFAS No. 123R, the cash flows resulting from excess tax benefits (from equity-based compensation plans) are classified as financing cash flows. For the year ended December 31 2006, we recorded $23.9 million of excess tax benefits from equity-based compensation plans as a financing cash inflow.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

Stock Options and Awards Activity

The following table summarizes information with respect to our Stock Option Plans, including options granted outside of the Plans (in thousands except per share data):

	Options Available for Future Issuance															Number of Option Shares Outstanding												Weighted		Weighted
				Non-Stockholder															Non-Stockholder									Average		Average
	1995 and			Approved Plans From Acquisitions												Stockholder			Approved									Exercise		Remaining		Aggregate
	1999			CMD			SCL			TWN						Approved			Plans From			Non-						Price per		Contractual		Intrinsic
	Plans			Plan			Plan			Plan			Total			Plan			Acquisitions			Plan*			Total			Share		Terms in Years		Value
At December 31, 2003		1,980			151			149			98			2,378			13,223			4,983			1,955			20,161		$	4.63
Authorized		3,618			—			—			—			3,618			—			—			—			—			—
Granted		(5,264	)		(189	)		(264	)		(43	)		(5,760	)		5,264			496			1,700			7,460			12.85
Canceled		1,145			124			169			—			1,438			(1,145	)		(293	)		—			(1,438	)		5.67
Exercised		—						—			—			—			(3,255	)		(1,162	)		(719	)		(5,136	)		4.09
At December 31, 2004		1,479			86			54			55			1,674			14,087			4,024			2,936			21,047			7.61
Authorized		3,907			—			—			—			3,907			—			—			—			—			—
Granted		(4,587	)		(152	)		(68	)		(36	)		(4,843	)		4,587			256			—			4,843			11.31
Canceled		1,576			93			30			18			1,717			(1,576	)		(141	)		(1,702	)		(3,419	)		12.40
Exercised		—			—			—			—			—			(962	)		(501	)		(324	)		(1,787	)		4.24
At December 31, 2005		2,375			27			16			37			2,455			16,136			3,638			910			20,684			7.98
Authorized		4,025												4,025												—
Granted		(2,539	)											(2,539	)		2,539									2,539			10.67
Canceled		1,253			69			32			44			1,398			(1,253	)		(145	)					(1,398	)		10.97
Exercised														—			(3,979	)		(1,213	)		(379	)		(5,571	)		5.59
At December 31, 2006		5,114			96			48			81			5,339			13,443			2,280			531			16,254		$	8.95		6.80	$	69,956
Vested and expected to vest at December 31, 2006																										15,651		$	8.88		0.49	$	68,551
Exercisable at December 31, 2006																										9,143		$	7.79		5.73	$	50,441

* primarily used as inducements for new officers

Of the options outstanding at December 31, 2006, and in the absence of acceleration of vesting or cancellations, approximately 3,399,248 options will vest in 2007, 2,270,874 in 2008, 1,164,846 in 2009, and 235,180 in 2010.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock that were in-the-money. The aggregate intrinsic value of options exercised under our stock option plans was $30.7 million, determined as of the date of option exercise during the year ended December 31, 2006.

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Pro-forma Disclosures

Prior to the adoption of SFAS 123R, as required by SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure, the following table illustrates the effect on net income and net income per share as if we had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation during the years ended December 31, 2005 and 2004 (in thousands, except per share amounts):

	Year Ended
	December 31,2005			December 31, 2004
Net income (loss) — as reported	$	49,549		$	(324	)
Stock-based employee compensation expense (benefit) included in net income (loss) as reported, net of taxes for 2005		(6,578	)		27,218
Stock-based employee compensation expense determined under fair value based method for all awards, net of taxes for 2005		(15,117	)		(22,769	)
Pro forma net income	$	27,854		$	4,125
Basic net income (loss) per share- pro forma	$	0.35		$	0.05
Diluted net income (loss) per share- pro forma	$	0.33		$	0.05
Basic net income (loss) per share- as reported	$	0.63		$	0.00
Diluted net income (loss) per share- as reported	$	0.59		$	0.00

For purposes of this pro forma disclosure, the value of the options was estimated using a Black-Scholes option valuation model and recognized over the respective vesting periods of the awards.

Information with respect to options outstanding at December 31, 2006 is as follows:

	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
	Number of		Exercise		Remaining		Number of		Exercise
Ranges of Exercise Prices	Shares		Price		Contractual Life		Shares		Price
	(In thousands)				(In Years)		(In thousands)
$ 0.06 - $ 2.74		1,655	$	1.37		4.48		1,578	$	1.34
$ 2.88 - $ 4.44		1,828		3.92		4.99		1,559		3.83
$ 4.45 - $ 6.16		1,675		5.82		4.65		1,278		5.79
$ 6.21 - $ 7.94		2,085		7.09		7.35		1,009		6.77
$ 7.99 - $ 9.89		2,013		9.51		8.23		656		9.39
$ 9.90 - $10.88		1,642		10.36		8.49		449		10.30
$10.91 - $12.68		1,746		11.86		8.25		591		11.83
$12.70 - $14.14		1,643		13.67		7.95		828		13.62
$14.21 - $17.01		1,964		16.39		6.53		1,193		16.60
$17.86 - $17.86		3		17.86		7.93		2		17.86
		16,254	$	8.95		6.80		9,143	$	7.79

Stock Option Exchange (Repricing)

On December 22, 2000, we implemented an option exchange program to allow employees and certain consultants to exchange approximately 3,000,000 stock options with a weighted average exercise price of $25.39 per share for new options with an exercise price of $5.63 per share (the fair market value on that date). On April 4, 2001, this program was extended to executives at the December 22, 2000 price (which was greater than

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

the fair market value of our stock on April 4, 2001). Under this program, new options vest over a four-year period and expire in six years. Compensation expense associated with the option exchange program was recorded until the options were exercised or expired and the expense or benefit for the increase or decrease, respectively, in the fair market value of our common stock in excess of the option’s exercise price was recognized immediately for vested options and is recognized over the vesting period using an accelerated method for unvested employee options. At December 31, 2006, there were 399,875 repriced options outstanding of which all were fully vested. The variable accounting associated with the repriced options ceased upon the adoption of SFAS No. 123R, effective January 1, 2006.

Employee Stock Purchase Plan

In October 1999, we adopted the 1999 Employee Stock Purchase Plan (the “Purchase Plan”) and reserved 500,000 shares of common stock for issuance under the Purchase Plan. The Purchase Plan authorizes the granting of stock purchase rights to eligible employees during two-year offering periods with exercise dates every six months. Shares are purchased using employee payroll deductions at purchase prices equal to 85% of the lesser of the fair market value of our common stock at either the first day of each offering period or the date of purchase. On December 13, 2006, our Board of Directors approved amendments to the 1999 Employee Stock Purchase Plan. The ESPP was amended and restated primarily to effect the following changes: (i) terminate ongoing offering periods as of January 31, 2007, (ii) reduce the length of offering periods to six months, beginning with the offering period that commences on February 1, 2007, (iii) provide that participants may effect only one decrease, and no increases, in payroll contribution percentages during an offering period, (iv) provide that if the Registrant is dissolved or liquidated, the Compensation Committee of the Board has discretion to either designate a new date on which to conduct a purchase prior to such time or terminate all offerings and refund contributions to participants without conducting a purchase, (v) provide that in the event of certain specified change in control transactions, the Compensation Committee of the Board will designate a final purchase date for all offerings in lieu of keeping the ESPP in place after the closing of such a transaction, and (vi) provide that the purchase date of an offering period is delayed if the ESPP must be submitted for stockholder approval with respect to shares that are to be made available for purchase in that offering period, provided that if as a result a purchase date would occur more than twenty-seven months after commencement of the offering period to which it relates, then such offering period will terminate without the purchase of shares and participants in such offering period will be refunded their contributions. In 2006, 2005, and 2004, 421,534, 716,000, and 616,000 shares of common stock, respectively, were sold under the Purchase Plan at average prices of $9.29, $5.36, and $4.43, per share, respectively. A total of approximately 1.7 million shares were reserved for future issuance at December 31, 2006. The number of shares reserved for issuance under the Purchase Plan is increased automatically on January 1 of each year by an amount equal to 1% of our total outstanding common shares as of the immediately preceding December 31.

Option Grants to Non-employees

During 2006, we did not grant any options to non-employees. During 2005, and 2004, we granted non-employees options to purchase 121,000, and 362,000, shares of our stock at weighted average exercise prices of $11.25, and $10.09 per share, respectively, in return for engineering, administration and consultancy services. Total stock-based compensation expense recognized for the years ended December 31, 2006 and 2005, for option grants to non-employees were $1.9 million and $2.6 million, respectively.

The non-employee options are recorded at fair value and adjusted to market over the performance period. The fair value during 2006 was estimated using the Black-Scholes pricing model based on an expected life of five years for the expected life, a risk-free interest rate of 4.7%, expected volatility of 86.4%, and dividend yield of zero.

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NOTE 7 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in a single industry segment (as defined by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information) encompassing the design, development and sale of solutions for applications that require high-bandwidth cost-effective solutions for high-speed data communications. Our chief operating decision maker is our Chief Executive Officer.

Revenue by geographic area was as follows (in thousands):

	Year Ended December 31,
	2006		2005		2004
Taiwan	$	59,865	$	53,579	$	42,715
Japan		103,140		46,170		34,620
United States		63,253		54,593		48,391
Hong Kong		11,293		6,819		5,243
Korea		20,867		20,663		8,015
Other		36,540		30,575		34,175
	$	294,958	$	212,399	$	173,159

Revenue by product line was as follows (in thousands):

	Year Ended December 31,
	2006		2005		2004
Consumer Electronics	$	167,877	$	108,712	$	71,377
Personal Computers		49,399		49,212		41,223
Storage products		33,098		35,999		39,750
Development, licensing and royalties		44,584		18,476		20,809
	$	294,958	$	212,399	$	173,159

Revenue by product line, including development, licensing and royalties, was as follows (in thousands):

	Year Ended December 31,
	2005		2005		2004
Consumer Electronics	$	194,721	$	118,578	$	84,604
Personal Computers		58,761		50,484		41,585
Storage products		41,476		43,337		46,970
	$	294,958	$	212,399	$	173,159

For all periods presented, substantially all of our long-lived assets were located within the United States.

In 2006, three customers generated 16%, 16% and 12% of our total revenue and at December 31, 2006, two customers represented 23% and 16% of gross accounts receivable. In 2005, two customers generated 17% and 11% of our total revenue and at December 31, 2005, one customer represented 13% of gross accounts receivable. In 2004, two customers generated 15% and 12% of our total revenue and at December 31, 2004 one customer represented 10% of gross accounts receivable. Our top five customers, including distributors, generated 57%, 54%, and 47% of our revenue in 2006, 2005, and 2004, respectively.

Cost of sales information by product line is not available. Accordingly, only revenue by product line is presented.

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SILICON IMAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

NOTE 8 — LEGAL PROCEEDINGS

In 2001, we filed a suit in the U.S. District Court for the Eastern District of Virginia against Genesis Microchip Corp. and Genesis Microchip, Inc. (collectively, “Genesis”) for patent infringement. In December 2002, the parties entered into a Memorandum of Understanding (MOU), which apparently settled the case. Disputes arose, however, regarding the interpretation of certain terms of the MOU, and after further court proceedings it was held that the MOU constituted a binding settlement agreement, and should be interpreted in accordance with our position. The legal action is now terminated. On December 21, 2006, the parties entered into a Settlement and License Agreement (the “Settlement Agreement”) and settled the litigation between the parties.

The Settlement Agreement grants Genesis certain licenses in exchange for payment of various fees and royalties. Pursuant to the Settlement Agreement, we agreed to grant to Genesis a worldwide, nonexclusive license to all of Silicon Image’s patents with a priority date on or before September 1, 2006. We recorded $11.8 million of royalty revenue and $5.4 million of reimbursement of litigation costs from the Settlement Agreement in the fourth quarter of 2006. Genesis has also agreed to pay us accrued and running royalties on all Genesis products compliant with the DVI 1.0 standard or the HDMI 1.0 standard (and/or any minor updates to the HDMI 1.0 standard). The parties have also agreed to mutually release each other from all claims, causes of action and liability arising prior to the date of the Settlement Agreement relating to the MOU, the litigation settled by the MOU and subsequent litigation over the interpretation of the MOU, all claims and counterclaims in such litigations, and claims of infringement of any patent licensed by Silicon Image to Genesis pursuant to the Settlement Agreement by the manufacture, use, offer for sale, sale or importation of a royalty-bearing product. However, such release does not affect Genesis’ right to challenge or assert claims, counterclaims or defenses with respect to the patents Silicon Image asserted in the prior litigation, including non-infringement, invalidity or unenforceability, provided that any such challenge or assertion by Genesis shall only be in response to an assertion or reasonable apprehension of assertion of such patents against Genesis or against the use, manufacture, importation, offering for sale or sale of Genesis products, or products incorporating a Genesis product to the extent such assertion implicates a Genesis product, by Genesis’ suppliers, manufacturers, licensees, distributors, resellers or customers. The Settlement Agreement also provides for a mutual covenant not to sue the other party for a period of three years. Subject to the terms of the Settlement Agreement, Genesis’ covenant not to sue is assignable on a change of control of Silicon Image to an acquiror of Silicon Image, with respect to Silicon Image products that have been commercially produced and sold prior to the change of control date, and shall continue only for the remainder of the term of the covenant and only with respect to patents owned by Genesis existing at the time of the change of control. We are not aware of any current disputes with Genesis. The Settlement Agreement expires on September 30, 2014, unless earlier terminated pursuant to its terms.

We and certain of our officers and directors, together with certain investment banks, have been named as defendants in a securities class action suit filed against us on behalf of purchasers of our securities between October 5, 1999 and December 6, 2000. It is alleged that the prospectus related to our initial public offering was misleading because it failed to disclose that the underwriters of our initial public offering had solicited and received excessive commissions from certain investors in exchange for agreements by investors to buy our shares in the aftermarket for predetermined prices. Due to inherent uncertainties in litigation, we cannot accurately predict the outcome of this litigation; however, a proposed settlement has been negotiated and has received preliminary approval by the Court. This settlement will not require Silicon Image to pay any settlement amounts nor issue any securities. In the event that the settlement is not granted final approval, we believe that these claims are without merit and we intend to defend vigorously against them.

We and certain of our officers were named as defendants in a securities class action captioned “Curry v. Silicon Image, Inc., Steve Tirado, and Robert Gargus,” commenced on January 31, 2005. Plaintiffs filed the action on behalf of a putative class of shareholders who purchased Silicon Image stock between October 19, 2004 and January 24, 2005. The lawsuit alleged that Silicon Image and certain of our officers and directors made alleged misstatements of material facts and violated certain provisions of Sections 20(a) and 10(b) of the Securities Exchange Act of 1934, as

87

SILICON IMAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. On April 27, 2005, the Court issued an order appointing lead plaintiff and approving the selection of lead counsel. On July 27, 2005 plaintiffs filed a consolidated amended complaint (“CAC”). The CAC no longer named Mr. Gargus as an individual defendant, but added Dr. David Lee as an individual defendant. The CAC also expanded the class period from June 25, 2004 to April 22, 2005. Defendants filed a motion to dismiss the CAC on September 26, 2005. Plaintiffs subsequently received leave to file, and did file, a second consolidated amended complaint (“Second CAC”) on December 8, 2005. The Second CAC extends the end of the class period from April 22, 2005 to October 13, 2005 and adds additional factual allegations under the same causes of action against Silicon Image, Mr. Tirado and Dr. Lee. The complaint also adds a new plaintiff, James D. Smallwood. Defendants filed a motion to dismiss the Second CAC on February 9, 2006. Plaintiffs filed an opposition to defendants’ motion to dismiss on April 10, 2006 and defendants filed a reply to plaintiffs’ opposition on May 19, 2006. On June 21, 2006 the court granted defendants’ motion to dismiss the Second CAC with leave to amend. Plaintiffs subsequently filed a third consolidated amended complaint (“Third CAC”) by the court established deadline of July 21, 2006. Defendants filed a motion to dismiss the Third CAC on September 1, 2006 and plaintiffs filed an opposition to that motion on November 1, 2006. Defendants filed a reply to plaintiffs’ opposition on December 15, 2006, and with leave of Court, plaintiffs filed a surreply on January 16, 2007. The Court vacated the hearing on this motion that was scheduled for February 9, 2007. On February 23, 2007, the Court granted defendants’ motion to dismiss the Third CAC with leave to amend.

On January 14, 2005, we received a preliminary notification that the Securities and Exchange Commission had commenced a formal investigation involving trading in our securities. On February 14, 2005, through our legal counsel, we received a formal notification of that investigation and associated subpoenas. We are fully cooperating with the SEC in this matter.

During 2006, we initiated a voluntary internal review of our historical stock option compensation practices. As a result of the review, we recorded a net stock-based compensation charge in the fourth quarter of 2006 in the amount of $95,000 related to options granted on two dates where we concluded that a different measurement date was appropriate. We concluded that it was not necessary to make any adjustment to any previously issued financial statements. Subsequent to our initiation of this review, we received written notice from the SEC that it is conducting an informal inquiry into the Company’s option-granting practices during the period January 1, 2004 through October 31, 2006. We are cooperating fully with the SEC.

On January 31, 2007, we filed a lawsuit in the United States District Court for the Northern District of California against Analogix Semiconductor, Inc. (“Analogix”), a semiconductor company based in California. The complaint charges Analogix with copyright infringement, misappropriation of trade secrets, and unlawful, unfair and fraudulent business practices. The lawsuit alleges that Analogix, without authorization and in violation of Silicon Image’s intellectual property rights, copied and used our proprietary register maps by gaining unauthorized access to Silicon Image’s proprietary and confidential information, illegally copied and modified Silicon Image’s semiconductor configuration software and knowingly and unlawfully encouraged its existing and prospective customers to modify and use Silicon Image’s semiconductor configuration software with Analogix’s chips, a use that is beyond the scope, and in violation of, the rights granted under, Silicon Image’s software license agreements. In addition to seeking monetary damages in an amount to be determined at trial, we are seeking an injunction barring Analogix from infringement of Silicon Image’s intellectual property rights.

In addition, we have been named as defendants in a number of judicial and administrative proceedings incidental to our business and may be named again from time to time.

We intend to defend such matters vigorously, and although adverse decisions or settlements may occur in one or more of such cases, the final resolution of these matters, individually or in the aggregate, is not expected to have a material adverse effect on our results of operations, financial position or cash flows.

88

SILICON IMAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

NOTE 9 — GAIN ON EQUITY INVESTMENT

In October 2000, as consideration for the transfer of certain technology, we received from Leadis Technology Inc. (Leadis), a development stage privately controlled enterprise, 300,000 shares of preferred stock and a derivative warrant to purchase 75,000 shares of their common stock. Initially these shares were valued at zero due to the early stage of Leadis’ development and other uncertainties as to the realization of this investment. During the quarter ended June 30, 2004, Leadis completed an initial public offering of its stock. In connection with the initial public offering the preferred stock was converted into common stock on a 1:1 basis. In connection with the initial public offering, we were subject to a lock-up agreement whereby we were restricted from selling the stock and the common stock underlying the warrant for a period of six months ending December 2004, (for the duration of the lock-up period we were also restricted from engaging in hedging or other transactions which would result in or lead to the sale or disposition of the shares underlying the derivative warrant). For the three and six month periods ended June 30, 2004, we valued the warrant using the Black-Scholes model and recorded a gain of approximately $990,000. In September 2004, we net exercised the derivative warrant for equivalent shares of common stock (74,397 shares), and based on the price of the stock at that date, recorded a loss of $64,000 on these shares.

Our 374,397 Leadis common shares were marked to market (as an available for sale security), with any resulting gain/loss recorded as other comprehensive income (loss) until sold or considered impaired on other than a temporary basis. Our typical practice has been not to hold shares for investment purposes. In February 2005, we sold approximately 23,600 shares at a price range from $7.40 to $7.50. These shares related to the warrant shares and consequently in connection with this sale, we recorded a loss of approximately $120,000 for the three-month period ended March 31, 2005. During the three month period ended June 30, 2005, we sold the remainder of our holdings in Leadis at prices ranging from $5.38 to $6.06 per share, and recorded a net realized gain of approximately $1.4 million.

NOTE 10 — RELATED PARTY TRANSACTIONS

On November 8, 2005, the Board of Directors of Silicon Image approved David Lee, Chairman of the Board of Directors of Simplay Labs, LLC, a wholly-owned subsidiary of Silicon Image, Inc., making an investment in and joining the Board of Directors of Synerchip Co., Ltd. (“Synerchip”). On November 21, 2005, Dr. Lee was appointed to the Board of Directors of Synerchip. Dr. Lee made a personal investment in the amount of $10,000 directly in Synerchip, and a limited partnership he controls made an investment in the amount of $500,000 in Synerchip. Sunplus Technology Co., Ltd. (“Sunplus”), a long-time customer and vendor of Silicon Image also has Board representation and an investment in Synerchip. Because of Sunplus’ representation on the Board of Directors of Synerchip and investment in Synerchip, Synerchip may have been deemed an affiliate of Sunplus. On March 24, 2006, Dr. Lee resigned as an employee of Silicon Image and its related subsidiary Simplay Labs, LLC; accordingly, Sunplus and Synerchip ceased as related parties to Silicon Image as of such date.

The related party transactions with Sunplus and Synerchip and its related subsidiaries and affiliates for the years ended December 31, 2006 and 2005 (which in the case of the year ended December 31, 2006 consist of transactions occurring on or before March 24, 2006) are described below:

Silicon Image paid $363,000 and $2.1 million to Sunplus for purchases of integrated semiconductors for the years ended December 31, 2006 and 2005, respectively.

Silicon Image paid $221,000 and $74,000 to Synerchip for purchases of integrated semiconductors for the years ended December 31, 2006 and 2005, respectively.

In March 2002, Silicon Image and Sunplus entered into a five-year Technology License Agreement pursuant to which Sunplus licensed certain LVDS receiver technology from Silicon Image. In connection with this agreement, Sunplus paid $132,000 and $291,000 to Silicon Image in related royalty fees for the years ended December 31, 2006 and 2005, respectively.

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SILICON IMAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

In June 2003, Silicon Image and Sunplus entered into a three-year Strategic Relationship Agreement for joint manufacturing, marketing, selling and distribution of certain semiconductors. In connection with this agreement, Sunplus paid annual subscription fees to Silicon Image in the amounts of $50,000 and $200,000 for the years ended December 31, 2006 and 2005 respectively.

NOTE 11 — SUBSEQUENT EVENTS

In January 2007, the Company completed its acquisition of sci-worx GmbH (“sci-worx”), an intellectual property (IP) and design service provider specializing in multimedia, communications, and networking applications. Prior to the acquisition, sci-worx was a wholly-owned subsidiary of Infineon Technologies AG. The acquisition will be accounted for under the purchase method. The purchase price allocation has not yet been finalized. We purchased all of the outstanding shares of capital stock of sci-worx and paid sci-worx’s intercompany debt to another Infineon subsidiary. The purchase price for the acquisition was $13.6 million in cash for sci-worx’ capital stock and its intercompany debt (net of its cash balances at closing).

In February 2007, we entered into a Video Processor Design License Agreement (the “License Agreement”) with Sunplus. Under the terms of the license agreement, we will receive a license to use and further develop advanced video processor technology. The License Agreement provides for the payment of an aggregate of $40.0 million to Sunplus by Silicon Image, $35.0 million of which is payable in consideration for the licensed technology and related deliverables and $5.0 million of which is payable in consideration for Sunplus support and maintenance obligations. Silicon Image paid Sunplus $10.0 million of the consideration for the licensed technology and related deliverables in February 2007, and is required to pay the remaining $25.0 million upon delivery and completion of certain milestones. The $5.0 million to be paid for support and maintenance by Sunplus is payable over a two-year period starting upon delivery of the final Sunplus deliverables. The license agreement also provides for the grant to Sunplus of a license to certain of our intellectual property, for which Sunplus has agreed to pay the Company $5.0 million upon delivery and acceptance of such intellectual property.

In February 2007, we announced that our Board of Directors authorized a stock repurchase program under which we intend, from time to time, as business conditions warrant, to purchase up to $100 million of common stock, on the open market, or in negotiated or block transactions. Purchases may be increased, decreased or discontinued at any time without prior notice. As of March 1, 2007, no shares had yet been repurchased under this stock repurchase program.

90

SILICON IMAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued

UNAUDITED SELECTED QUARTERLY FINANCIAL DATA

The following table sets forth the Company’s consolidated statements of operations data for the eight quarters ended December 31, 2006. This unaudited quarterly information has been prepared on the same basis as the Company’s audited consolidated financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of this data.

	Three Months Ended
	Mar 31			Jun 30		Sep 30			Dec 31
	(In thousands, except per share amounts)
2006
Total revenue	$	59,099		$	70,579	$	78,327		$	86,953
Gross margin(1)		33,751			40,794		45,606			53,560
Income from operations(2)		2,450			8,974		11,190			24,638
Net income		2,352			5,798		8,042			26,273
Net income per share — basic	$	0.03		$	0.07	$	0.10		$	0.31
Net income per share — diluted	$	0.03		$	0.07	$	0.09		$	0.29
Weighted average shares — basic		80,986			81,562		83,439			85,618
Weighted average shares — diluted		85,398			85,628		87,433			89,113
2005
Total revenue	$	44,320		$	50,721	$	56,002		$	61,356
Gross margin(3)		28,815			29,734		35,134			35,611
Income from operations(4)		16,466			8,684		14,797			11,625
Net income		16,633			10,460		9,903			12,553
Net income per share — basic	$	0.21		$	0.13	$	0.12		$	0.16
Net income per share — diluted	$	0.19		$	0.12	$	0.11		$	0.15
Weighted average shares — basic		78,307			78,981		79,736			80,315
Weighted average shares — diluted		83,963			83,928		84,051			84,042
(1) Includes stock-based compensation expense	$	628		$	554	$	772		$	473
(2) Includes stock-based compensation expense	$	7,283		$	6,551	$	8,626		$	4,771
(3) Includes stock-based compensation expense (benefit)	$	(1,196	)	$	41	$	(252	)	$	24
(4) Includes stock-based compensation expense (benefit)	$	(9,327	)	$	1,302	$	(1,447	)	$	941

Note- Effective January 1, 2006, we adopted SFAS 123R “Share-Based Payment”. Stock-based compensation expense (benefit) for years prior to 2006 were calculated based on provisions of APB 25 “Accounting for Stock Issued to Employees”.

Income from operations for the three months ended December 31, 2006 includes $17.2 million from the Settlement Agreement with Genesis, consisting of $11.8 million of revenue (which impacted gross margin by the same amount) and $5.4 million of reimbursement of litigation costs (see Note 8).

91

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Silicon Image, Inc.

We have audited the accompanying consolidated balance sheets of Silicon Image, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 2006 and 2005 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 6 to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for stock-based compensation in accordance with guidance provided in Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2007, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/  DELOITTE & TOUCHE LLP

San Jose, California
March 1, 2007

92

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Silicon Image, Inc.:

In our opinion, the accompanying consolidated statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2004 present fairly, in all material respects, the results of operations and cash flows of Silicon Image, Inc. and its subsidiaries for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Jose, California

March 14, 2005

93

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SILICON IMAGE, INC.

By:  /s/  STEVE TIRADO

Steve Tirado

Chief Executive Officer

(Principal Executive Officer)

Dated: March 1, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/  Steve Tirado Steve Tirado	Director, President and Chief Executive Officer (Principal Executive Officer)	March 1, 2007
/s/  Robert R. Freeman Robert R. Freeman	Chief Financial Officer (Principal Financial Officer)	March 1, 2007
/s/  William George William George	Director	March 1, 2007
/s/  Peter Hanelt Peter Hanelt	Director	March 1, 2007
/s/  John Hodge John Hodge	Director	March 1, 2007
/s/  David A. Hodges David A. Hodges	Director	March 1, 2007
/s/  Masood Jabbar Masood Jabbar	Director	March 1, 2007
/s/  William Raduchel William Raduchel	Director	March 1, 2007

94

INDEX TO EXHIBITS

3.01	Second Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference from Exhibit 3.03 of the Registrant’s Registration Statement on Form S-1 (File No. 333-83665), as amended, declared effective by the Securities and Exchange Commission on October 5, 1999 (the ‘‘Form S-1”)).
3.02	Restated Bylaws of the Registrant (Incorporated by reference from Exhibit 3.01 of the Form 8-K filed by the Registrant on February 4, 2005).
3.03	Certificate of Amendment of Second Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference from Exhibit 3.04 of the Form 10-Q filed by Registrant on August 14, 2001).
4.01	Form of Specimen Certificate for Registrant’s common stock (Incorporated by reference from Exhibit 4.01 of the Form S-1).
10.01*	Form of Indemnity Agreement entered into between the Registrant and certain of its directors and officers. (Incorporated by reference from Exhibit 10.01 of the Form 10-K filed by the Registrant on March 15, 2004).
10.02*	1995 Equity Incentive Plan, as amended through July 20, 1999, and related forms of stock option agreements and stock option exercise agreements (Incorporated by reference from Exhibit 10.02 of the Form S-1).
10.03*	1999 Equity Incentive Plan, as amended (including Sub-Plan for UK employees), and related forms of notice of grant of stock options, stock option agreement, stock option exercise notice and joint election (for UK employees) (Incorporated by reference from Exhibit 10.03 of the Form 10-K filed by the Registrant on March 16, 2006).
10.04*	1999 Employee Stock Purchase Plan (including Sub-Plan for UK employees) and related enrollment forms, subscription agreements, notice of suspension, notice of withdrawal and joint election (for UK employees).
10.05†	Business Cooperation Agreement dated September 16, 1998 between Intel Corporation and the Registrant, as amended October 30, 1998 (Incorporated by reference from Exhibit 10.12 of the Form S-1).
10.06†	Patent License Agreement dated September 16, 1998 between Intel Corporation and the Registrant (Incorporated by reference from Exhibit 10.13 of the Form S-1).
10.07	Digital Visual Interface Specification Revision 1.0 Promoter’s Agreement dated January 8, 1999 (Incorporated by reference from Exhibit 10.14 of the Form S-1).
10.08*	Form of Nonqualified Stock Option Agreement entered into between Registrant and its officers (Incorporated by reference from Exhibit 10.21 of the Form S-1).
10.09*	CMD Technology Inc. 1991 Stock Option Plan and related form of Incentive Stock Option Agreement (Incorporated by reference from Exhibit 4.05 of the Form S-8 filed by the Registrant on June 26, 2001).
10.10*	CMD Technology Inc. 1999 Stock Incentive Plan, as amended, and related form of Stock Option Agreement (Incorporated by reference from Exhibit 10.35 of the Form 10-Q filed by the Registrant on November 14, 2001).
10.11*	Silicon Communication Lab, Inc. 1999 Stock Option Plan, as amended, and related form of Stock Option Agreement (Incorporated by reference from Exhibit 10.35 of the Form 10-Q filed by the Registrant on November 14, 2001).
10.12*	Non-Plan Stock Option Agreement between Hyun Jong Shin (John Shin) and the Registrant dated November 6, 2001. (Incorporated by reference from Exhibit 10.42 of the Form 10-K filed by the Registrant on March 29, 2002).

95

10.13	Lease Agreement dated December 12, 2002 between iSTAR Sunnyvale Partners, L.P. and the Registrant. (Incorporated by reference from Exhibit 10.44 of the Form 10-K filed by the Registrant on March 27, 2003)
10.14*	TransWarp Networks, Inc. 2002 Stock Option/Stock Issuance Plan (Incorporated by reference from Exhibit 4.06 of the Form S-8 filed by the Registrant on May 23, 2003).
10.15*	Employment Offer Letter between J. Duane Northcutt and the Registrant dated February 19, 2002. (Incorporated by reference from Exhibit 10.27 of the Form 10-K filed by the Registrant on March 15, 2005).
10.16*	Employment Offer Letter between Robert Valiton and the Registrant dated April 17, 2004 (Incorporated by reference from Exhibit 10.01 of the Form 10-Q filed by the Registrant on August 9, 2004).
10.17*	Employment Offer Letter between Patrick Reutens and the Registrant dated September 20, 2004 (Incorporated by reference from Exhibit 10.2 of the Form 10-Q filed by the Registrant on November 8, 2004).
10.18*	Employment Offer Letter between Steve Tirado and the Registrant dated January 24, 2005 (Incorporated by reference from Exhibit 10.36 of the Form 10-K filed by the Registrant on March 15, 2005).
10.19*	Employment Offer Letter between Shin Hyun Jong (John Shin) and the Registrant dated August 20, 2001.
10.20*	Employment Offer Letter between Dale Zimmerman and the Registrant dated January 10, 2005.
10.21*	Director Compensation Plan (Incorporated by reference from Exhibit 10.01 of the Form 10-Q filed by the Registrant on May 10, 2005).
10.22†	Business Cooperation Agreement dated April 26, 2005 between Intel Corporation and the Registrant (Incorporated by reference from Exhibit 10.01 of the Form 10-Q filed by the Registrant on August 9, 2005).
10.23	Lease dated September 22, 2005 between Jeronimo Technology Partners, LLC and the Registrant.
10.24†	Unified Display Interface Specification Promoters Agreement dated April 26, 2005 among Intel Corporation, National Semiconductor Company and the Registrant (Incorporated by reference from Exhibit 10.02 of the Form 10-Q filed by the Registrant on August 9, 2005).
10.25*	Employment Offer Letter between Robert Freeman and the Registrant dated November 8, 2005 (Incorporated by reference from Exhibit 10.01 of the Form 8-K filed by the Registrant on November 14, 2005).
10.26*	Silicon Image, Inc. Bonus Plan for Fiscal Year 2006 (Incorporated by reference from Exhibit 10.01 of the Form 8-K filed by the Registrant on February 17, 2006).
10.27*	Silicon Image, Inc. Sales Incentive Plan for Vice President of Worldwide Sales for Fiscal Year 2006 (Incorporated by reference from Exhibit 10.02 of the Form 8-K filed by the Registrant on February 17, 2006).
10.28†/*	Consulting Agreement between David Lee and the Registrant dated March 15, 2006. (Incorporated by reference to Exhibit 10.03 to our current report on Form 8-K filed March 16, 2006.
10.29	First Amendment to Lease dated July 23, 2003 between iStar Sunnyvale Partners, L.P. and the Registrant.
10.30	Second Amendment to Lease dated February 17, 2004 between iStar Sunnyvale Partners, L.P. and the Registrant.
10.31	Third Amendment to Lease dated June 1, 2004 between iStar Sunnyvale Partners, L.P. and the Registrant.
10.32	Fourth Amendment to Lease dated May 10, 2006 between iStar Sunnyvale Partners, L.P. and the Registrant.

96

10.33*	Consulting Agreement between Patrick Reutens and the Registrant dated September 18, 2006 (Incorporated by reference from Exhibit 10.01 of the Form 8-K filed by the Registrant on September 20, 2006)
10.34*	Employment Offer Letter between Edward Lopez and the Registrant dated December 23, 2006.
10.35†	Settlement and License Agreement between the Registrant and Genesis Microchip Inc. dated December 21, 2006
10.36*	Silicon Image, Inc. Sales Compensation Plan for Vice President of Worldwide Sales for Fiscal Year 2007 (Incorporated by reference from Exhibit 10.01 to the Form 8K/A, Amendment No. 1 filed by the Registrant on February 27, 2007)
21.01	Subsidiaries of the Registrant.
23.01	Consent of Deloitte & Touche LLP.
23.02	Consent of PricewaterhouseCoopers LLP
24.01	Power of Attorney (included on signature page).
31.01	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01**	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.02**	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†	Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
*	This exhibit is a management contract or compensatory plan or arrangement.
**	This exhibit is being furnished, rather than filed, and shall not be deemed incorporated by reference into any filing of the Registrant, in accordance with Item 601 of Regulation S-K.

97

EX-10.04

EXHIBIT 10.04

SILICON IMAGE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN

As Amended and Restated on December 13, 2006

     1. Establishment of Plan. Silicon Image, Inc. (the “Company”) proposes to grant options for purchase of the Company’s Common Stock to eligible employees of the Company and its Participating Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this “Plan”). For purposes of this Plan, “Parent Corporation” and “Subsidiary” shall have the same meanings as “parent corporation” and “subsidiary corporation” in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the “Code”). “Participating Subsidiaries” are Parent Corporations or Subsidiaries that the Board of Directors of the Company (the “Board”) designates from time to time as corporations that shall participate in this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section (“Section 423”)), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 shall have the same definition herein. A total of 500,000 shares of the Company’s Common Stock is initially reserved for issuance under this Plan (after giving effect to the 2:1 stock split of August 18, 2000). In addition, on each January 1, the aggregate number of shares of the Company’s Common Stock reserved for issuance under the Plan shall be increased automatically by a number of shares equal to 1% of the total number of outstanding shares of the Company Common Stock on the immediately preceding December 31; provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year; and, provided further, that the aggregate number of shares issued over the term of this Plan shall not exceed 8,000,000 shares (after giving effect to the 2:1 stock split of August 18, 2000). Such number shall be subject to adjustments effected in accordance with Section 14 of this Plan.

     2. Purpose. The purpose of this Plan is to provide eligible employees of the Company and Participating Subsidiaries with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees’ sense of participation in the affairs of the Company and Participating Subsidiaries, and to provide an incentive for continued employment.

     3. Administration. This Plan shall be administered by the Compensation Committee of the Board (the “Committee”). Subject to the provisions of this Plan and the limitations of Section 423 or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all participants. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of this Plan shall be paid by the Company.

     4. Eligibility. Any employee of the Company or the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following:

          (a) employees who are not employed by the Company or a Participating Subsidiary (10) days before the beginning of such Offering Period;

          (b) employees who are customarily employed for twenty (20) hours or less per week;

          (c) employees who are customarily employed for five (5) months or less in a calendar year;

          (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and

Silicon Image, Inc.
1999 Employee Stock Purchase Plan

          (e) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes.

     5. Offering Dates. The offering periods of this Plan (each, an “Offering Period”) shall be of approximately six (6) months duration. The first such Offering Period shall commence on February 1, 2007, and end on the last business day to occur on or before July 31, 2007, and subsequent Offering Periods shall commence on each August 1 and February 1 thereafter. Each Offering Period that commences on, or after, February 1, 2007, shall consist of a single purchase period (a “Purchase Period”) during which payroll deductions of the participants are accumulated under this Plan. The first business day of each Offering Period is referred to as the “Offering Date”. The last business day of each Offering Period is referred to as the “Purchase Date” (with January 31, 2007 to be the final Purchase Date for all Offering Periods then in effect) and is the end of the Purchase Period. The Committee shall have the power to change the duration of Offering Periods with respect to offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected.

     6. Participation in this Plan. Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering a subscription agreement to the Company not later than five (5) days before such Offering Date. Notwithstanding the foregoing, the Committee may set a later time for filing the subscription agreement authorizing payroll deductions for all eligible employees with respect to a given Offering Period. An eligible employee who does not deliver a subscription agreement to the Company by such date after becoming eligible to participate in such Offering Period shall not participate in that Offering Period or any subsequent Offering Period unless such employee enrolls in this Plan by filing a subscription agreement with the Company not later than five (5) days preceding a subsequent Offering Date. Once an employee becomes a participant in an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period and is not required to file another subscription agreement to continue participation in this Plan other than following a withdrawal from participation as set forth in Section 11 below.

     7. Grant of Option on Enrollment. Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing (a) the amount accumulated in such employee’s payroll deduction account during such Offering Period by (b) the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company’s Common Stock on the Offering Date (but in no event less than the par value of a share of the Company’s Common Stock), or (ii) eighty-five percent (85%) of the fair market value of a share of the Company’s Common Stock on the Purchase Date (but in no event less than the par value of a share of the Company’s Common Stock), provided, however, that the number of shares of the Company’s Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(c) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Date. The fair market value of a share of the Company’s Common Stock shall be determined as provided in Section 8 below.

     8. Purchase Price. The purchase price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of:

          (a) The fair market value on the Offering Date; or

          (b) The fair market value on the Purchase Date.

          For purposes of this Plan, the term “Fair Market Value” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

(a) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities

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Silicon Image, Inc.
1999 Employee Stock Purchase Plan

	exchange on which the Common Stock is listed or admitted to trading as reported by The Wall Street Journal or other source designated by the Board or Committee;
(b)	if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or other source designated by the Board or Committee; or
(c)	if none of the foregoing is applicable, by the Board or Committee in good faith.

     9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of Shares.

          (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Offering Period. The deductions are made as a percentage of the participant’s compensation in one percent (1%) increments not less than one percent (1%), nor greater than fifteen percent (15%) or such lower limit set by the Committee. Compensation shall mean all W-2 cash compensation, including, but not limited to, base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions, provided, however, that for purposes of determining a participant’s compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday of the Offering Period and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan.

          (b) A participant may prospectively increase or decrease the rate of payroll deductions for any upcoming Offering Period by filing with the Company a new authorization for payroll deductions not later than fifteen (15) days before the beginning of such Offering Period.

          (c) A participant may decrease, but not increase, his or her payroll deduction percentage (including to zero) during a Purchase Period by filing with the Company a new authorization regarding upcoming payroll deductions. Such decrease shall be effective beginning with the next payroll period commencing more than fifteen (15) days after the Company’s receipt of the request. Only one such change may be made effective during any Purchase Period.

          (d) All payroll deductions made for a participant are credited to his or her account under this Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

          (e) On each Purchase Date, so long as this Plan remains in effect, and provided that the participant has not timely submitted a signed and completed withdrawal form before that date as provided in Section 11 below, the Company shall apply the funds then in the participant’s account to the purchase of whole shares of Common Stock reserved under the option granted to such participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of this Plan. Any cash remaining in a participant’s account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however that any amount remaining in such participant’s account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Offering Period. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date.

          (f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the participant’s benefit representing the shares purchased upon exercise of his or her option.

          (g) A participant’s option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.

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Silicon Image, Inc.
1999 Employee Stock Purchase Plan

     10. Limitations on Shares to be Purchased.

          (a) No participant shall be entitled to purchase stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in this Plan. The Company shall automatically suspend the payroll deductions of any participant as necessary to enforce such limit provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension.

          (b) No more than two hundred percent (200%) of the number of shares determined by using eighty-five percent (85%) of the fair market value of a share of the Company’s Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date.

          (c) No participant shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Not less than thirty (30) days prior to the commencement of any Offering Period, the Committee may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the “Maximum Share Amount”). Until otherwise determined by the Committee, there shall be no Maximum Share Amount. In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount prior to the commencement of the next Offering Period. The Maximum Share Amount shall continue to apply with respect to all succeeding Purchase Dates and Offering Periods unless revised by the Committee as set forth above.

          (d) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant’s option to each participant affected.

          (e) Any payroll deductions accumulated in a participant’s account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the applicable Offering Period, without interest.

     11. Withdrawal.

          (a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Company a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time at least fifteen (15) days prior to the end of an Offering Period.

          (b) Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan.

     12. Termination of Employment. Termination of a participant’s employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee of the Company or of a Participating Subsidiary, immediately terminates his or her participation in this Plan. In such event, the payroll deductions credited to the participant’s account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Subsidiary in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such

4

Silicon Image, Inc.
1999 Employee Stock Purchase Plan

leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute.

     13. Return of Payroll Deductions. In the event a participant’s interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the participant all payroll deductions credited to such participant’s account. No interest shall accrue on the payroll deductions of a participant in this Plan.

     14. Capital Changes. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under this Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under this Plan but have not yet been placed under option (collectively, the “Reserves”), as well as the price per share of Common Stock covered by each option under this Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of issued and outstanding shares of Common Stock effected without receipt of any consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration”. Such adjustment shall be made by the Committee, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option.

     In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee. The Committee may, in the exercise of its sole discretion in such instances, declare that this Plan shall terminate as of a date fixed by the Committee and give each participant the right to purchase shares under this Plan prior to such termination or return each participant’s funds on deposit without interest. In the event of (i) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the stockholders of the Company or their relative stock holdings and the options under this Plan are assumed, converted or replaced by the successor corporation, which assumption will be binding on all participants), (ii) a merger in which the Company is the surviving corporation but after which the stockholders of the Company immediately prior to such merger (other than any stockholder that merges, or which owns or controls another corporation that merges, with the Company in such merger) cease to own their shares or other equity interest in the Company, (iii) the sale of all or substantially all of the assets of the Company or (iv) the acquisition, sale, or transfer of more than 50% of the outstanding shares of the Company by tender offer or similar transaction, the Plan shall terminate as of a date fixed by the Committee and the date of such termination shall be the final Purchase Date for all Offering Periods then in effect.

     The Committee may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation.

     15. Nonassignability. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.

     16. Reports. Individual accounts will be maintained for each participant in this Plan. Each participant shall receive promptly after the end of each Offering Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Offering Period.

5

Silicon Image, Inc.
1999 Employee Stock Purchase Plan

     17. Notice of Disposition. Each participant shall notify the Company in writing if the participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date (the “Notice Period”). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.

     18. No Rights to Continued Employment. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Subsidiary, or restrict the right of the Company or any Participating Subsidiary to terminate such employee’s employment.

     19. Equal Rights And Privileges. All eligible employees shall have equal rights and privileges with respect to this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan.

     20. Notices. All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

     21. Term; Stockholder Approval. This Plan was first adopted by the Board on July 20, 1999 and was last amended by the Board as of the date shown above. When required by applicable law or Section 423, this Plan shall be submitted for approval by the stockholders of the Company, in any manner required, or permitted, by applicable law. No purchase of shares that are subject to such approval before becoming available under this Plan shall occur prior to stockholder approval of such shares and the Board or Committee may delay any Purchase Date and postpone the commencement of any Offering Period subsequent to such Purchase Date as deemed necessary or desirable to obtain such approval (provided that if a Purchase Date would occur more than twenty-seven (27) months after commencement of the Offering Period to which it relates, then such Purchase Date shall not occur and instead such Offering Period shall terminate without the purchase of shares and participants in such Offering Period shall be refunded their contributions without interest). This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) ten (10) years from the adoption of this Plan by the Board.

     22. Designation of Beneficiary.

          (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant’s account under this Plan in the event of such participant’s death subsequent to the end of a Purchase Period but prior to delivery to him of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant’s account under this Plan in the event of such participant’s death prior to a Purchase Date.

          (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant’s death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

     23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated

6

Silicon Image, Inc.
1999 Employee Stock Purchase Plan

thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

     24. Applicable Law. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California.

     25. Amendment or Termination of this Plan. The Board may at any time amend, terminate or extend the term of this Plan, except that any such termination cannot affect options previously granted under this Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the stockholders of the Company obtained in accordance with Section 21 above within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would:

          (a) increase the number of shares that may be issued under this Plan; or

          (b) change the designation of the employees (or class of employees) eligible for participation in this Plan.

          Notwithstanding the foregoing, the Board may make such amendments to the Plan as the Board determines to be advisable, if the continuation of the Plan or any Offering Period would result in financial accounting treatment for the Plan that is different from the financial accounting treatment in effect on the date this Plan was adopted by the Board.

7

THE SILICON IMAGE, INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

SUB-PLAN FOR UK EMPLOYEES

1.	The purpose of this Sub-Plan is to provide incentive for present and future employees in the United Kingdom of Silicon Image’s Subsidiaries through the grant of options over Common Stock.
2.	This Sub-Plan is governed by the Silicon Image, Inc. 1999 Employee Stock Purchase Plan (the “Plan”) and all its provisions shall be identical to those of the Plan SAVE THAT Section 4 shall be as stated in this Sub-Plan in order to accommodate the specific requirements of UK law.

Section 4 for purposes of this Sub-Plan reads:

     4. Eligibility. Any employee of the Participating Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under this Plan except the following:

          (a) employees who are not employed by the Company or a Participating Subsidiary (10) days before the beginning of such Offering Period;

          (b) employees who are customarily employed for five (5) months or less in a calendar year;

          (c) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any of its Participating Subsidiaries; and

          (d) individuals who provide services to the Company or any of its Participating Subsidiaries as independent contractors who are reclassified as common law employees for any reason except for federal income and employment tax purposes.

SILICON IMAGE, INC. 1999 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM

Check One:		Complete:
	o New Enrollment or Re-enrollment	Social Security No.
	o Change	Employee No.

o Change in How Shares Are to Be Held in Account
o Increase in Payroll Deduction Level onext Offering Period
o Decrease in Payroll Deduction Level othis Purchase Period onext Offering Period
o Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form)
o Withdrawal (Attach Completed Withdrawal Form)
o Beneficiary Change

1.	Name of Participant
2.	Shares purchased under the Plan should be held in account with the Plan Broker in my name or in my name together with the name(s) indicated below:

Name	Social Security No.
Name	Social Security No.

There may be tax consequences for naming individuals other than your spouse on the account in which Shares purchased under the Plan are held. If spouse (circle one): Joint Tenants/Community Property.

Please notify the Plan Broker directly to transfer or sell your stock.

3.	Payroll Deduction Level (from 1% to 15% in whole percentages):___ (the percentage deduction will be made from your W-2 compensation including base salary, commissions, overtime, shift premiums, bonuses and draws against commissions)
4.	I confirm my spouse’s interest (if married) in the community property herein (if in a community property state), and I hereby designate the following person(s) as my beneficiary(ies) to receive all payments and/or stock attributable to my interest under the Plan:

			*To be divided
NAME			as follows:	ADDRESS
Last	First	M.I.		Number	Street
Social Security No.		Relationship		City	State	Zip
Last	First	M.I.		Number	Street
Social Security No.		Relationship		City	State	Zip

* If more than one beneficiary: (1) insert “in equal shares”, or (2) insert percentage to be paid to each beneficiary.

5. The information provided on this Enrollment Form will remain in effect unless and until I complete and submit to Silicon Image, Inc. a new enrollment form.

	SILICON IMAGE, INC. OFFICE USE:
Signature:	Date received by the	:
Name:	Date entered into system:
Date:	Please return this completed form to Silicon Image, Inc.

SILICON IMAGE, INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

1.	I elect to participate in the Silicon Image, Inc. (the “Company”) 1999 Employee Stock Purchase Plan (the “Plan”) and to subscribe to purchase shares of the Company’s Common Stock (the “Shares”) in accordance with this Subscription Agreement and the Plan.
2.	I authorize payroll deductions from each of my paychecks in that percentage of my base salary, commissions, overtime, shift premiums, bonuses and draws against commissions as shown on my Enrollment Form, in accordance with the Plan.
3.	I understand that such payroll deductions shall be accumulated for the purchase of Shares under the Plan at the applicable purchase price determined in accordance with the Plan. I further understand that except as otherwise set forth in the Plan, Shares will be purchased for me automatically at the end of each Purchase Period unless I withdraw from the Plan or otherwise become ineligible to participate in the Plan.
4.	I understand that this Subscription Agreement will automatically re-enroll me in all subsequent Offering Periods unless I withdraw from the Plan or I become ineligible to participate in the Plan.
5.	I acknowledge that I have a copy of and am familiar with the Company’s most recent Prospectus which describes the Plan. A copy of the complete Plan and the Prospectus is on file with the Company.
6.	I understand that Shares purchased for me under the Plan will be held in a personal account with the Plan Broker unless I request otherwise and that I am obligated to notify the Company of any disqualifying disposition.
7.	I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
8.	I have read and understood this Subscription Agreement.

Signature:

Name:

Date:

Please return this completed form to the Company.

SILICON IMAGE, INC.
UK SUB-PLAN OF THE 1999
EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM

Tick One:		Complete:
	o New Enrollment or Re-enrollment	National Insurance No.
	o Change	Employee No.

o Increase in Payroll Deduction Level onext Offering Period
o Decrease in Payroll Deduction Level othis Purchase Period onext Offering Period
o Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form)
o Withdrawal (Attach Completed Withdrawal Form)
o Beneficiary Change

1.	Name of Participant
2.	Shares purchased under the Sub-Plan will be held in the account with the Plan Broker in your name.
	Please notify the Plan Broker directly if you wish to transfer the shares to an account other than your individual account. NOTE that there may be tax consequences for naming individuals other than your spouse on the account in which Shares purchased under the Sub-Plan are held. You should consult your tax advisor regarding this issue.
	Please notify the Plan Broker directly to transfer or sell your stock.
3.	Payroll Deduction Level (from 1% to 15% in whole percentages):___
	(the percentage deduction will be made from your post-tax remuneration including base salary, commissions, overtime, shift premiums, bonuses and draws against commissions)
4.	I confirm my spouse’s interest (if married) in the property herein, and I hereby designate the following person(s) as my beneficiary(ies) to receive all payments and/or stock attributable to my interest under the Sub-Plan:

			*To be divided
NAME			as follows:	ADDRESS
Last	First	M.I.		Number	Street
Social Security No.		Relationship		City	State	Zip
Last	First	M.I.		Number	Street
Social Security No.		Relationship		City	State	Zip

* If more than one beneficiary: (1) insert “in equal shares”, or (2) insert percentage to be paid to each beneficiary.

5. The information provided on this Enrollment Form will remain in effect unless and until I complete and submit to Silicon Image, Inc. a new enrollment form.

	SILICON IMAGE, INC. OFFICE USE:
Signature:	Date received
Name:	Date entered into system
Date:

Please return this completed form to Silicon Image, Inc. Human Resources — Fax (408) 830-9531.

SILICON IMAGE, INC.

UK SUB-PLAN OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

1. I elect to participate in the UK Sub-Plan of the Silicon Image, Inc. (the “Company”) 1999 Employee Stock Purchase Plan (the “Sub-Plan”) and to subscribe to purchase shares of the Company’s Common Stock (the “Shares”) in accordance with this Subscription Agreement and the Sub-Plan.

2. I authorize payroll deductions from each of my post-tax remuneration in that percentage of my base salary, commissions, overtime, shift premiums, bonuses and draws against commissions as shown on my Enrollment Form, in accordance with the Sub-Plan.

3. I understand that such payroll deductions shall be accumulated for the purchase of Shares under the Sub-Plan at the applicable purchase price determined in accordance with the Sub-Plan. I further understand that except as otherwise set forth in the Sub-Plan, Shares will be purchased for me automatically at the end of each Purchase Period unless I withdraw from the Sub-Plan or otherwise become ineligible to participate in the Sub-Plan.

4. I understand that this Subscription Agreement will automatically re-enroll me in all subsequent Offering Periods unless I withdraw from the Plan or I become ineligible to participate in the Sub-Plan.

5. I acknowledge that I have a copy of and am familiar with the Company’s most recent Prospectus which describes the Sub-Plan. A copy of the complete Sub-Plan and the Prospectus is on file with the Company. (In the case of the initial Plan Purchase Period, the Prospectus will be on file on the first day of the Offering Period.)

6. Taxation Indemnity.

(a)	I agree to indemnify and keep indemnified the Company and the Company as trustee for and on behalf of any related corporation, in respect of any liability or obligation of the Company and/or any related corporation to account for income tax (under PAYE) or any other taxation provisions and primary class 1 National Insurance Contributions (“NICs”) in the United Kingdom to the extent arising from the grant, exercise, assignment, release, cancellation or any other disposal of my option or arising out of the acquisition, retention and disposal of the Shares acquired pursuant to the Subscription Agreement.
(b)	The Company shall not be obliged to allot and issue any Shares or any interest in Shares to me unless and until I have paid to the Company such sum as is, in the opinion of the Company, sufficient to indemnify the Company in full against any liability the Company has to account to the Inland Revenue for any amount of, or representing, income tax and/or primary NICs (the “Tax Liability”), or I have made such other arrangement as in the opinion of the Company will ensure that the full amount of any Tax Liability will be recovered from me within such period as the Company may then determine.
(c)	In the absence of any such other arrangement being made, the Company shall have the right to retain out of the aggregate number of shares to which I would be otherwise entitled upon the exercise of my option, such number of Shares as, in the opinion of the Company, will enable the Company to sell as agent for me (at the best price which can reasonably expect to be obtained at the time of the sale) and to pay over to the Company sufficient monies out of the net proceeds of sale, after deduction of all fees, commissions and expenses incurred in relation to such sale, to satisfy my liability under such indemnity.

7. Employer’s NICs. As a consideration of the opportunity to participate in the Sub-Plan I agree to join with the Company or, if and to the extent that there is a change in the law, any other company or person who is or becomes a secondary contributor for NIC purposes in respect of this option (the “Secondary Contributor”) in making an election (in such terms and such form as provided in paragraphs 3A and 3B of Schedule 1 to the Social Security Contributions and Benefits Act 1992) which has been approved by the Inland Revenue (the “Joint Election”), for the transfer of the whole or any liability of the Secondary Contributor to Employer’s Class 1 NICs to me. I realize and agree that if the Company does not have an effective Joint Election on file for me by

the deadline for withdrawal from the Sub-Plan for a given Purchase Date, then the absence of such Joint Election shall be treated as an election by me to withdraw from the Sub-Plan and on such Purchase Date no purchase shall be made for me and any deductions/contributions shall be refunded to me.

8. I understand that Shares purchased for me under the Sub-Plan will be held in a personal account with the Plan Broker unless I request otherwise.

9. Data Protection.

(a)

In order to facilitate the administration of the Sub-Plan, it will be necessary for Silicon Image UK Limited (or its payroll administrators) to collect, hold and process certain personal information about me and to transfer this data to the Company and to the Plan Brokers. I consent to Silicon Image UK Limited collecting, holding and processing its personal data and transferring this data to the Company or any other third parties insofar as is reasonably necessary to implement, administer and manage the Sub-Plan.

(b)

I understand that I may, at any time, view my personal data, require any necessary corrections to it or withdraw the consents herein in writing by contacting the Human Resources Department of the Company (but acknowledge that without the use of such data it may not be practicable for Silicon Image UK Limited and the Company to administer my involvement in the Sub-Plan in a timely fashion or at all and this may be detrimental to me.

10. I hereby agree to be bound by the terms of the Sub-Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Sub-Plan.

11. I have read and understood this Subscription Agreement.

Signature:

Name:

Date:

Please return this completed form to Silicon Image, Inc., Human Resources

Fax (408) 830-9531.

SILICON IMAGE, INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF SUSPENSION

I, ___, the undersigned participant in the Offering Period of the Silicon Image, Inc. 1999 Employee Stock Purchase Plan (the “Plan”) which began on ___, hereby notify Silicon Image, Inc. (the “Company”) that I wish to suspend my payroll deductions to the Plan for the remainder of the Offering Period. I understand and agree that my request will be effective beginning with the next payroll period commencing more than 15 days after the Company receives this Notice of Suspension. I understand and agree that payroll deductions credited to my account prior to the date this Notice of Suspension is effective will be used to purchase shares on the next Purchase Date. I further understand that no additional payroll deductions will be made for the purchase of shares in the current Offering Period, and I will be eligible to participate in succeeding Offering Periods only by timely delivering to the Company a new Subscription Agreement and Enrollment Form.

Name and address of Participant (please print):

Name:
Street Address or P.O. Box:
City, State ZIP:
Signature	Date

Please return this form to Human Resources.

SILICON IMAGE, INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

I, ___, the undersigned participant in the Offering Period of the Silicon Image, Inc. 1999 Employee Stock Purchase Plan (the “Plan”) which began on ___, hereby notify Silicon Image, Inc. (the “Company”) that I wish to withdraw from the Offering Period. I direct the Company to pay to me as promptly as practicable all payroll deductions credited to my account with respect to such Offering Period. I understand and agree that my participation in the Plan will terminate and no shares will be purchased for me at the end of the Purchase Period so long as I submit this Notice of Withdrawal to the Company at least 15 days prior to the end of the Purchase Period. I understand and agree that if I submit this Notice of Withdrawal to the Company less than 15 days prior to the end of the Purchase Period, shares will be purchased for me at the end of the Purchase Period, and my participation in the Plan will end at the beginning of the next Purchase Period or Offering Period, as the case may be. I further understand that no additional payroll deductions will be made for the purchase of shares in the current Offering Period, and I shall be eligible to participate in succeeding Offering Periods only by timely delivering to the Company a new Subscription Agreement and Enrollment Form.

Name and address of Participant (please print):

Name:
Street Address or P.O. Box:
City, State ZIP:
Signature	Date

Please return this form to Human Resources.

Dated: (insert date)

SILICON IMAGE, INC.

- and -

SILICON IMAGE UK LIMITED

- and -

PARTICIPANT

JOINT ELECTION

TAYLOR WESSING
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y 0DX

Tel: +44 (0)20 7300 7000
Fax: +44 (0)20 7300 7100
DX 41 London

FINAL
13/03/2006
Ref: DNK/FXB/SIL–63–10

JOINT ELECTION

BETWEEN

(1)	SILICON IMAGE, INC. whose registered office is at 1060 East Arques Avenue, Sunnyvale CA 94085, USA (the “Company”); and
(2)	SILICON IMAGE UK LIMITED (company registration no. 05293397) whose registered office is at Carmelite, 50 Victoria Embankment, London EC4Y 0DX (the “Employer”); and
(3)	«Name» of «Address» (the “Participant” which shall include his executors or administrators in the case of his death).

INTRODUCTION

(A)	The Participant may be granted, from time to time, options (each one an “Option”) to acquire shares of common stock in the Company (the “Shares”) on terms to be set out in stock purchase agreements to be issued to the UK Sub-Plan of the Silicon Image, Inc. 1999 Employee Stock Purchase Plan (the “Plan”).
(B)	This joint election (the “Joint Election”) is in an approved format. The exercise, cancellation, release, assignment or other disposal of an Option is subject to the Participant entering into this Joint Election.
(C)	The Participant is currently an employee of the Employer.
(D)	The exercise, release, cancellation, assignment or other disposal of an Option (a “Trigger Event”) (whether in whole or in part), may result in the Employer or, if and to the extent that there is a change in law, any other company or person who becomes the secondary contributor for National Insurance contributions (“NIC”) purposes at the time of such Trigger Event having a liability to pay employer’s (secondary) Class I NICs (or any tax or social security premiums which may be introduced in substitution or in addition thereto) in respect of such Trigger Event.
(E)	Where the context so admits, any reference in this Joint Election:

(i)	to the singular number shall be construed as if it referred also to the plural number and vice versa;
(ii)	to the masculine gender shall be construed as though it referred also to the feminine gender;
(iii)	to a statute or statutory provision shall be construed as if it referred also to that statute or provision as for the time being amended or re-enacted;
(iv)	Shares means shares of common stock of the Company.

AGREED TERMS

1.	Joint Election
1.1	It is a condition of the exercise, cancellation, release, assignment or other disposal of an Option that the Participant has entered into this Joint Election with the Employer.

1.2 The Participant, the Company and the Employer elect to transfer the liability (the “Liability”) for all of the employer’s (Secondary) Class I NICs, referred to in (D) above and charged on payments or other benefits arising on a Trigger Event and treated as remuneration and earnings pursuant to section 4(4)(a) of the Social Security Contributions and Benefit Act 1992 (“SSCBA”) to the Participant. This Joint Election is made pursuant to an arrangement authorised by paragraph 3B, Schedule 1 of the SSCBA.

2. RESTRICTION ON REGISTRATION UNTIL LIABILITY PAID BY PARTICIPANT

     The Participant hereby agrees that no Shares shall be registered in his name until he has met the Liability as a result of a Trigger Event in accordance with this Joint Election.

3. PAYMENT

3.1 Where, in relation to an Option, the Participant is liable, or is in accordance with current practice at the date of the Trigger Event believed by the Employer to be liable (where it is believed that the shares under option are readily convertible assets), to account to the Inland Revenue for the Liability, the Participant and the Employer agree that, upon receipt of the funds to meet the Liability from the Employee, that such funds to meet the Liability shall be paid to the Collector of Taxes or other relevant taxation authority by the Employer on the Participant’s behalf within 14 days of the end of the income tax month in which the gain on the Option was made (“the 14 day period”) and for the purposes of securing payment of the Liability the Participant will on the occurrence of a Trigger Event:

(a)	pay to the Employer a cash amount equal to the Liability; and/or
(b)	suffer a deduction from salary or other remuneration due to the Participant such deduction being in an amount not exceeding the Liability; and/or
(c)	at the request of the Company enter into such arrangement or arrangements necessary or expedient with such person or persons (including the appointment of a nominee on behalf of the Participant) to effect the sale of Shares acquired through the exercise of the Option to cover all or any part of the Liability and use the proceeds to pay the Employer a cash amount equal to the Liability.

3.2 The Participant hereby irrevocably appoints the Company and the Employer as his attorney with full power in his name to execute or sign any document and do any other thing which the Company or the Employer may consider desirable for the purpose of giving effect to the Participant satisfying the Liability under clause 3.1 and satisfying any penalties and interest under clause 3.4. The Participant further agrees to ratify and confirm whatever the Company and the Employer may lawfully do as his attorney. In particular, the Employer and/or the Company will have the right to enter into such an arrangement (as envisaged by clause 3.1(c)) on the Participant’s behalf to sell sufficient of the Shares issued or transferred to the Participant on the exercise of the

Option to meet the Liability pursuant to clause 3.1 and any penalty or interest arising under clause 3.4.

3.3 The Employer shall pass all monies it has collected from the Participant in respect of the Liability to the Collector of Taxes by no later than 14 days after the end of the income tax month in which the Trigger Event occurred. The Employer shall be responsible for any penalties or interest that may arise in respect of the Liability from any failure on its part after it has collected any monies from the Participant to pass the Liability to the Collector of Taxes within the said 14 days period.

3.4 If the Participant has failed to pay all or part of the Liability to the Employer within the 14 day period the Participant hereby indemnifies the Employer against such penalties or interest that the Employer would have to pay in respect of the late payment of all or part of the Liability to the Collector of Taxes.

4. TERMINATION OF JOINT ELECTION

4.1 This Joint Election shall cease to have effect on the occurrence of any of the following:

(a)	if the terms of this Joint Election are satisfied in the reasonable opinion of the Company, the Employer and the Participant;
(b)	if the Company, the Employer and the Participant jointly agree in writing to revoke this Joint Election;
(c)	if the Inland Revenue withdraws approval of this Joint Election so far as it relates to share options covered by the Joint Election but not yet granted;
(d)	if the Options lapse or no Option is otherwise capable of being exercised pursuant to the Plan; and/or
(e)	if the Company and/or the Employer serve notice on the Participant that the Joint Election is to cease to have effect.

5. FURTHER ASSURANCE

5.1 The Company, Employer and the Participant shall do all such things and execute all such documents as may be necessary or desirable to ensure that this Joint Election complies with all relevant legislation and/or Inland Revenue requirements.

5.2 The Participant shall notify the Employer in writing of any Trigger Event which occurs in relation to an Option within three days of such Trigger Event.

5.3 The Company intends, as soon as practicable, to notify the Employer of the Participant’s intention of exercising an Option and shall provide the Employer with such information available to the Company to enable the Employer to calculate the Liability arising on the Trigger Event.

6.	SECONDARY CONTRIBUTOR
	The Employer enters into this Joint Election on its own behalf and on behalf of the Company, or, if and to the extent that there is a change in law, any other company or person who is or becomes a secondary contributor for NIC purposes in respect of an Option. It is agreed that the Employer can enforce the terms of this Joint Election against the Participant on behalf of any such company.

7. BINDING EFFECT

7.1 The Participant agrees to be bound by the terms of this Joint Election and for the avoidance of doubt the Participant shall continue to be bound by the terms of this Joint Election regardless of which country the Participant is working in when the Liability arises and regardless of whether the Participant is an employee of the Employer when the Liability arises.

7.2 The Employer and the Company agree to be bound by the terms of this Joint Election and for the avoidance of doubt the Employer and Company shall continue to be bound by the terms of this Joint Election regardless of which country the Participant is working in when the Liability arises and regardless of whether the Participant is an employee of the Employer when the Liability arises.

8. GOVERNING LAW

8.1 This Joint Election shall be governed by and construed in accordance with English law and the parties irrevocably submit to the non-exclusive jurisdiction of the English Courts to settle any claims, disputes or issues which may arise out of this deed.

This Joint Election has been executed and delivered as a deed on the date written above.

SIGNED as a Deed

By
	«Name1»

in the presence of:

Witness signature:

Name:

Address:

Occupation:

SIGNED as a DEED
by SILICON IMAGE UK LIMITED
acting by:

Robert Freeman

Director

Steve Tirado

Director

SIGNED as a DEED
By SILICON IMAGE, INC.
acting by the under-mentioned
person(s) acting on the authority
of the Company in accordance
with the laws of the territory of
its incorporation:

Name:

Corporate Secretary

Steve Tirado

President and CEO

EX-10.19

Exhibit 10.19

August 20, 2001

To: Dr. Hyun Jong John Shin

Dear Dr. Shin:

Silicon Image, Inc. (the “Company”) is pleased to confirm our offer to you with us, in the position of Vice President, Advanced Technology Development. The terms of our offer and the benefits currently provided by the company are as follows:

1.	Your starting base salary will be $225,000 per year and will be subject to annual review. You will also receive a one time signing bonus of $25,000, payable after 90 days of employment with Silicon Image, on the terms and condition that you have been employed at Silicon Image for 12 months. If you fail to complete the 12 months, you will refund the monthly-prorated amount of your signing bonus back to Silicon Image. In addition, you will be eligible to participate in regular health insurance, vacation and other employee benefit plans established by the Company for its employees from time to time.
2.	As an employee of the Company you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions which will be the property of the Company. To protect the interest of the Company, you will need to sign the Company’s standard “Employee Inventions and Confidentiality Agreement” as a condition of your employment. We wish to impress upon you that we do not wish you to bring any confidential or proprietary material of any former employer or to violate any other obligations you may have to your former employer.
3.	Management will recommend that the Board of Directors approve a grant to you of stock options for 350,000 shares of the Company’s Common Stock. The vesting schedule for all options will be at a rate of 25% for the first 12 months, and thereafter, at 2.083% after each full succeeding month. However, the grant of such options by the Company is subject to the Board’s approval and this promise to recommend such approval is not a promise of compensation, and is not intended to create any obligation on the part of the Company. Further details on the Company’s Option Plan and any specific grant to you will be provided upon approval of such grant by the Board.
4.	This offer of employment is made to you in confidence, and its terms must not be disclosed by you to anyone outside your immediate family. If you do disclose any of its terms to such a family member, you must caution him or her that such information is confidential and must not be disclosed to anyone.

5.	While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason at any time. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time.
6.	Please note that because of employer regulations adopted in the Immigration Reform and Control Act of 1986. within three business days of starting your new position you will need to present documentation demonstrating that you have authorization to work in the United States. If you have questions about this requirement, which applies to U. S. citizens and non-U.S. citizens alike, you may contact our Human Resource department.
7.	Please sign the enclosed copy of this letter in the space indicated and return it to the Human Resource department. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer and the attached documents. Should you have anything else that you wish to discuss, please do not hesitate to call.

     We look forward to the opportunity to welcome you to Silicon Image, Inc.

     Sincerely,

Doris Suh	8/20/01
Doris Suh
Sr. Dir, HR

Acknowledged. Accepted and Agreed

Hyun Jong John Shin	8/21/01	11/6/01
Hyun Jong John Shin	Date	Start Date

     This letter is simply for your information and is not to be construed as a contract of employment.

EX-10.20

Exhibit 10.20

January 10, 2005

Dale Zimmerman

Dear Dale:

Silicon Image, Inc. (the “Company”) is pleased to confirm our offer to you with us, in the position of Vice President, Worldwide Marketing, starting March 1, 2006. The terms of our offer and the benefits currently provided by the Company are as follows:

1.

Your initial annual base salary will be $265,000, payable in accordance with the Company’s normal payroll practices with such payroll deductions and withholdings as are required by law and subject to adjustment by the Board of Directors of the Company (the “Board”), or a committee of the Board. You will receive a sign on/relocation bonus in the amount of $100,000.00 gross (before withholding for taxes and other deductions). The bonus is payable within 30 days of start and repayable in full in the event of voluntary termination or termination for cause (based on any breach of this agreement or any other written agreement between you and the Company, any negligence or willful misconduct by you in your performance of duties to the Company, your repeated failure to follow the lawful directions of the Company’s CEO or Board, or any breach of your fiduciary duties to the Company) within the first 12 months of employment. Company will pay for (a) your air fare to San Francisco or San Jose, CA, and (b) reasonable apartment and car rental fees incurred by you during your transition, for up to 15 months after your arrival in California. As Vice President, Worldwide Marketing, you will be eligible to participate in regular bonus, health insurance, vacation, and other employee benefit plans established by the Company for its employees from time to time. You will be eligible to participate in the Company’s 2006 Bonus Program with an incentive target of 40% of base salary (pro-rated for completed service).

2.

You will have overall responsibility for the marketing organization of the Company and will report directly to the Chief Executive Officer. As an employee of the Company you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions which will be the property of the Company. You will be expected to devote your full working time and attention to the business of the Company, and you will not render services to any other business without the prior approval of the Board or, directly or indirectly, engage or participate in any business that is competitive in any manner with the business of the Company. You will also be expected to comply with and be bound by the Company’s operating policies, procedures and practices that are from time to time in effect during the term of your employment.

3.	As an employee of the Company you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the interest of the Company, you will need to sign the Company’s standard “Employee Inventions and Confidentiality Agreement” as a condition of your employment. We wish to impress upon you that we do not wish you to bring any confidential or proprietary material of any former employer or to violate any other obligations you may have to your former employer.
4.	We will recommend that the Board approve a grant to you, contingent on you accepting your new role as Vice President, Worldwide Marketing, stock options in the amount of 250,000 shares of the Company’s Common Stock at an exercise price equal to the closing price on the date that you begin your new position with the Company. Provided you continue to provide services to the Company, the stock options will become vested and exercisable with respect to 25% of the total shares granted on the 12 month anniversary date of your employment commencement date, and thereafter on the same date of each succeeding month an additional 2.083% of the total shares granted under the stock option will become vested and exercisable. However, the grant of such stock options by the Company is subject to the Board’s approval and this promise to recommend such approval is not a promise of compensation, and is not intended to create any obligation on the part of the Company. Further details on the Company’s stock option plan and on any specific stock option grant to you will be provided upon approval of such stock option grant by the Board.
5.	You will be eligible for standard company executive severance and change-in-control benefits if and when such standard executive severance and change-in-control benefits are approved by the Board.
6.	This letter agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect to such subject matter.
7.	This agreement will be governed by the laws of the State of California without reference to conflict of laws provisions.
8.	You agree that any dispute regarding the interpretation or enforcement of this agreement shall be decided by confidential, final and binding arbitration conducted by Judicial Arbitration and Mediation Services (“JAMS”) under the then existing JAMS rules rather than by litigation in court, trial by jury, administrative proceeding or in any other forum.
9.	While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason at any time. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time.
10.	Please note that because of employer regulations adopted in the Immigration Reform and Control Act of 1986, within three business days of starting your new position you will need to present

documentation demonstrating that you have authorization to work in the United States. If you have questions about this requirement, which applies to U. S. citizens and non-U.S. citizens alike, you may contact our Human Resource department.

11.

Please sign the enclosed copy of this letter in the space indicated and return it to the Human Resource department. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer and the attached documents. Should you have anything else that you wish to discuss, please do not hesitate to call.

12.

This offer will remain valid until Friday January 13, 2006. If you decide to accept our offer please sign the enclosed copy of this letter in the space indicated and return it to Sarah Rawson. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer and the attached documents. Should you have anything else that you wish to discuss, please do not hesitate to call.

We look forward to the opportunity to welcome you to Silicon Image, Inc.

Sincerely,

Steve Tirado	1/10/06
Steve Tirado Chief Executive Officer

Acknowledged, Accepted and Agreed

Dale Zimmerman	2/6/2006	2/21/2006
Dale Zimmerman	Date	Start Date

This letter is simply for your information and is not to be construed as a contract of employment.

EX-10.23

Exhibit 10.23

LEASE

BY AND BETWEEN

JERONIMO TECHNOLOGY PARTNERS LLC,
a California limited liability company

as Landlord

and

SILICON IMAGE, INC.
a Delaware corporation

as Tenant

September 22, 2005

Table Of Contents

	Page
ARTICLE 1 REFERENCE		1
1.1 References		1
ARTICLE 2 LEASED PREMISES, TERM AND POSSESSION		3
2.1 Demise Of Leased Premises		3
2.2 Right To Use Common Areas		3
2.3 Lease Commencement Date And Lease Term		3
2.4 Delivery Of Possession		3
2.5 Acceptance Of Possession; Performance Of Improvement Work		3
2.6 Surrender Of Possession		4
ARTICLE 3 RENT, LATE CHARGES AND SECURITY DEPOSITS		4
3.1 Base Monthly Rent		4
3.2 Additional Rent		4
3.3 Year-End Adjustments		5
3.4 Late Charge, And Interest On Rent In Default		5
3.5 Payment Of Rent		5
3.6 Prepaid Rent		5
3.7 Security Deposit		5
ARTICLE 4 USE OF LEASED PREMISES AND COMMON AREA		6
4.1 Permitted Use		6
4.2 General Limitations On Use		6
4.3 Noise And Emissions		6
4.4 Trash Disposal		6
4.5 Parking		7
4.6 Signs		7
4.7 Compliance With Laws And Restrictions		7
4.8 Compliance With Insurance Requirements		7
4.9 Landlord’s Right To Enter		8
4.10 Use Of Common Areas		8
4.11 Environmental Protection		8
4.12 Rules And Regulations		10
4.13 Reservations		10
ARTICLE 5 REPAIRS, MAINTENANCE, SERVICES AND UTILITIES		10
5.1 Repair And Maintenance		10
5.2 Services		10
5.3 Security		12
5.4 Energy And Resource Consumption		12
5.5 Limitation Of Landlord’s Liability		13
ARTICLE 6 ALTERATIONS AND IMPROVEMENTS		13
6.1 By Tenant		13
6.2 Ownership Of Improvements		13
6.3 Alterations Required By Law		14
6.4 Liens		14
ARTICLE 7 ASSIGNMENT AND SUBLETTING BY TENANT		14
7.1 By Tenant		14
7.2 Merger, Reorganization, or Sale of Assets		15
7.3 Landlord’s Election		15
7.4 Conditions To Landlord’s Consent		16

 i

Table Of Contents
(CONTINUED)

	Page
7.5 Assignment Consideration And Excess Rentals Defined		17
7.6 Payments		17
7.7 Good Faith		17
7.8 Effect Of Landlord’s Consent		17
ARTICLE 8 LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY		17
8.1 Limitation On Landlord’s Liability And Release		17
8.2 Tenant’s Indemnification Of Landlord		18
ARTICLE 9 INSURANCE		18
9.1 Tenant’s Insurance		18
9.2 Landlord’s Insurance		19
9.3 Mutual Waiver Of Subrogation		20
ARTICLE 10 DAMAGE TO LEASED PREMISES		20
10.1 Landlord’s Duty To Restore		20
10.2 Insurance Proceeds		20
10.3 Landlord’s Right To Terminate		20
10.4 Tenant’s Right To Terminate		20
10.5 Tenant’s Waiver		21
10.6 Abatement Of Rent		21
ARTICLE 11 CONDEMNATION		21
11.1 Tenant’s Right To Terminate		21
11.2 Landlord’s Right To Terminate		21
11.3 Restoration		21
11.4 Temporary Taking		21
11.5 Division Of Condemnation Award		21
11.6 Abatement Of Rent		22
11.7 Taking Defined		22
ARTICLE 12 DEFAULT AND REMEDIES		22
12.1 Events Of Tenant’s Default		22
12.2 Landlord’s Remedies		23
12.3 Landlord’s Default And Tenant’s Remedies		24
12.4 Limitation Of Tenant’s Recourse		24
12.5 Tenant’s Waiver		24
ARTICLE 13 GENERAL PROVISIONS		25
13.1 Taxes On Tenant’s Property		25
13.2 Holding Over		25
13.3 Subordination To Mortgages		25
13.4 Tenant’s Attornment Upon Foreclosure		26
13.5 Mortgagee Protection		26
13.6 Estoppel Certificate		26
13.7 Tenant’s Financial Information		26
13.8 Transfer By Landlord		26
13.9 Force Majeure		27
13.10 Notices		27
13.11 Attorneys’ Fees and Costs		27
13.12 Definitions		27
13.13 General Waivers		29
13.14 Miscellaneous		30

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Table Of Contents
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	Page
13.15 Patriot Act Compliance		30
ARTICLE 14 CORPORATE AUTHORITY BROKERS AND ENTIRE AGREEMENT		31
14.1 Corporate Authority		31
14.2 Brokerage Commissions		31
14.3 Entire Agreement		31
14.4 Landlord’s Representations		31
ARTICLE 15 OPTION TO EXTEND		31
ARTICLE 16 RIGHT OF FIRST OFFER		33

 iii

LEASE

     This Lease, dated September 22, 2005 for reference purposes only, is made by and between Jeronimo Technology Partners LLC, a California limited liability company (“Landlord”), and Silicon Image, Inc., a Delaware corporation (“Tenant”), to be effective and binding upon the parties as of the date the last of the designated signatories to this Lease shall have executed this Lease (the “Effective Date of this Lease”).

ARTICLE 1

REFERENCE

1.1 References. All references in this Lease (subject to any further clarifications contained in this Lease) to the following terms shall have the following meaning or refer to the respective address, person, date, time period, amount, percentage, calendar year or fiscal year as below set forth:

Tenant’s Address for Notice:	Silicon Image, Inc.
	1060 East Arques Avenue
	Sunnyvale, CA 94085
Tenant’s Representative:	Richard Zyhylij
Landlord’s Address for Notices:	c/o Menlo Equities LLC
	490 California Avenue
	4th Floor
	Palo Alto, California 94306
	With a copy to
	c/o Menlo Equities LLC
	4400 MacArthur Boulevard, Suite 380
	Newport Beach, CA 92660
Landlord’s Representative:	Henry Bullock/Richard Holmstrom
Phone Number:	(650) 326-9300
	Chad Iverson
	(949) 757-1521
Lease Commencement Date:	December 1, 2005
Lease Expiration Date:	November 30, 2008
Options to Extend:	One option to extend, for a term of three (3) years.
One Month’s Prepaid Rent:	$41,539.60
Tenant’s Security Deposit:	$44,117.92
Late Charge Amount:	Five Percent (5%) of the Delinquent Amount
Tenant’s Required Liability
Coverage:	$3,000,000 Combined Single Limit
Tenant’s Broker(s):	Cushman & Wakefield
Property:	That certain real property situated in the City of Irvine, County of Orange, State of California, as presently improved with two buildings, which real property is shown on the Site Plan attached hereto as Exhibit “A” and is commonly known as or otherwise described as follows: 9401 & 9501 Jeronimo Road, Irvine, California.
Building:	That certain building on the Property in which the Leased Premises are located commonly known as 9501 Jeronimo Road, Irvine, California (the “Building”), which Building is shown outlined on Exhibit “A” hereto.

1.

Common Areas:	The term “Common Areas” shall mean all areas in the Building and the Property not reserved for the exclusive use of Landlord, Tenant or any other tenant limitation, plazas, walkways, private roadways, loading docks, parking areas, landscaped areas, and the areas devoted to corridors, fire vestibules, stairways, elevator foyers, lobbies, electric and telephone closets, rest rooms, mechanical rooms and other similar facilities for the benefit of all tenants (or invitees) or servicing the Building as a whole. Landlord reserves the right to make changes to the Common Areas as it deems reasonably necessary.
Leased Premises:	The Leased Premises shall consist of approximately 28,648 rentable square feet known as Suite 200 on the second floor of the Building and designated on Exhibit A.
Tenant’s Expense Share:	The term “Tenant’s Expense Share” shall mean the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Building at the time of calculation. In the event that the rentable square footage of the Leased Premises or the Building is otherwise changed, Tenant’s Expense Share shall be recalculated to equal the percentage described in the first sentence of this paragraph, so that the aggregate Tenant’s Expense Share of all tenants of the Building shall equal 100%. Tenant’s Expense Share is subject to adjustment as set forth in Paragraphs 13.12(b) and 13.12 (c).
Base Monthly Rent:	“Base Monthly Rent” shall mean the following:

Months	Rate/SF/MO	Rent
1	$0	Abated
2-12	$1.45	$	41,539.60
13-24	$1.49	$	42,685.52
25-36	$1.54	$	44,117.92

Base Year	Calendar year 2006
Permitted Use:	General office, engineering and related legal uses.
Parking Spaces:	78 parking spaces on an unassigned and unreserved basis and subject to the provisions of Paragraph 4.5 herein. There shall be no separate charge for parking during the initial Lease Term.
Exhibits:	The term “Exhibits” shall mean the Exhibits of this Lease which are described as follows:
	Exhibit “A” – Floor Plan
	Exhibit “B” – Tenant Work Letter
	Exhibit “C” – Sample Form Subordination, Nondisturbance and Attornment Provisions
	Exhibit “D” – Sample Form of Tenant Estoppel Certificate
	Exhibit “E” – Rules and Regulations

2.

ARTICLE 2

LEASED PREMISES, TERM AND POSSESSION

2.1 Demise Of Leased Premises.

     (a) Landlord (as successor to LBA-VF III, LLC) and Tenant are parties to that certain Office Lease with respect to approximately 90,898 rentable square feet in the Building (the “Existing Lease”). In lieu of Tenant exercising its Right to Terminate Lease as provided in Rider 5 to the Existing Lease, Landlord and Tenant are entering into a new lease agreement, as set forth herein, and terminating the Existing Lease. The effectiveness of this Lease is conditioned upon the Landlord and Tenant entering into an amendment which terminates the Existing Lease, waives payment of any Termination Consideration (as defined in the Existing Lease), transfers a portion of the security deposit here thereunder to be applied to the Security Deposit required herein to and decreases the size of the premises leased by Tenant.

     (b) Subject to the provisions of Paragraph 2.1(a) above, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for Tenant’s own use in the conduct of Tenant’s business and not for purposes of speculating in real estate, for the Lease Term and upon the terms and subject to the conditions of this Lease, that certain interior space described in Article 1 as the Leased Premises, reserving and excepting to Landlord the right to fifty percent (50%) of all assignment consideration and excess rentals as provided in Article 7 below. Tenant’s lease of the Leased Premises, together with the appurtenant right to use the Common Areas as described in Paragraph 2.2 below, shall be conditioned upon and be subject to the continuing compliance by Tenant with (i) all the terms and conditions of this Lease, (ii) all Laws and Restrictions governing the use or occupancy of the Leased Premises and the Property, (iii) all easements and other matters now of public record respecting the use of the Leased Premises and Property, and (iv) all reasonable rules and regulations from time to time established by Landlord. Notwithstanding any provision of this Lease to the contrary, Landlord hereby reserves to itself and its designees all rights of access, use and occupancy of the Building roof, and Tenant shall have no right of access, use or occupancy of the Building roof except (if at all) to the extent required in order to enable Tenant to perform Tenant’s maintenance and repair obligations pursuant to this Lease. Tenant shall have the right to use the Leased Premises and Common Areas on a 24-hours a day, 7-days a week basis, subject to the provisions of this Lease.

2.2 Right To Use Common Areas. As an appurtenant right to Tenant’s right to the use and occupancy of the Leased Premises, Tenant shall have the right to use the Common Areas in conjunction with its use of the Leased Premises solely for the purposes for which they were designated and intended and for no other purposes whatsoever. Tenant’s right to so use the Common Areas shall be subject to the limitations on such use as set forth in Article 1 and shall terminate concurrently with any termination of this Lease.

2.3 Lease Commencement Date And Lease Term. Subject to Paragraph 2.4 below, the term of this Lease shall begin, and the Lease Commencement Date shall be deemed to have occurred on the date set forth in Article 1 (the “Lease Commencement Date”). Provided however, if Tenant commences regular business operations in the Leased Premises prior thereto, then the Lease Commencement Date shall be the date of commencement of Tenant’s business operations in the Premises. The term of this Lease shall in all events end on the Lease Expiration Date (as set forth in Article 1). The Lease Term shall be that period of time commencing on the Lease Commencement Date and ending on the Lease Expiration Date (the “Lease Term”). If for any reason the Lease Commencement Date occurs pursuant to the terms of this Lease on a day other than the first day of a calendar month, the period commencing on the Lease Commencement Date and ending on the last day of the calendar month in which the Lease Commencement Date occurs shall be an initial “Stub Period” which shall be added to the initial Lease Term, and Tenant shall pay all rent and other charges with respect to such Stub Period on a prorated basis at the same rate applicable to the first full calendar month of this Lease. Following such Stub Period and commencing as of the first day of the first full calendar month following the month in which the Lease Commencement Date occurs, Tenant shall commence the payment of rent and other charges payable hereunder as if the initial Lease Term has actually commenced on such date. The use of the Stub Period described above is intended to provide for ease of administration and calculation of all amounts owed hereunder, since all rental adjustments will be determined as of the first day of a calendar month and the Term of the Lease will end as of the last day of a calendar month (unless earlier terminated pursuant to the terms hereof).

2.4 Delivery Of Possession. Tenant is in possession of the Leased Premises pursuant to the Existing Lease.

2.5 Acceptance Of Possession; Performance Of Improvement Work. Tenant has occupied the Leased Premises since 2000 pursuant to the Existing Lease and is fully familiar with its condition and operations. Tenant formally accepts same in its current condition AS-IS and WITH ALL FAULTS. As soon as commercially reasonable after execution of this Lease, Tenant shall, pursuant to the Work Letter,

3.

perform the work and make the installations in the Leased Premises substantially as set forth in the Work Letter (such work and installations hereinafter referred to as the “Improvement Work”).

2.6 Surrender Of Possession. Immediately prior to the expiration or upon the sooner termination of this Lease, Tenant shall remove all of Tenant’s signs from the exterior of the Building and shall remove all of Tenant’s equipment (excluding telecommunications wiring and cabling), trade fixtures, furniture, supplies, wall decorations and other personal property from within the Leased Premises, the Building and the Common Areas, and shall vacate and surrender the Leased Premises, the Building, the Common Areas and the Property to Landlord in the same condition, broom clean, as existed at the Lease Commencement Date, reasonable wear and tear excepted. Tenant shall repair all damage to the Leased Premises, the exterior of the Building and the Common Areas caused by Tenant’s removal of Tenant’s property. Tenant shall, with respect to telecommunications wiring and cabling, leave the same in good condition and repair (reasonable wear and tear excepted) and labeled and/or coded sufficiently so that Landlord can readily determine the origin, destination and function of the wires and cables. Tenant shall patch and refinish, to Landlord’s reasonable satisfaction, all penetrations made by Tenant or its employees to the floor, walls or ceiling of the Leased Premises, whether such penetrations were made with Landlord’s approval or not. Tenant shall repair all damage caused by Tenant to the exterior surface of the Building and the paved surfaces of the Common Areas (reasonable wear and tear excepted) and, where necessary, replace or resurface same. Additionally, to the extent that Landlord shall have notified or is deemed to have notified Tenant in writing at the time the improvements were completed that it desired to have certain improvements made by Tenant or at the request of Tenant removed at the expiration or sooner termination of the Lease, Tenant shall, upon the expiration or sooner termination of the Lease, remove any such improvements constructed or installed by Landlord or Tenant and repair all damage caused by such removal. If the Leased Premises, the Building, the Common Areas and the Property are not surrendered to Landlord in the condition required by this paragraph at the expiration or sooner termination of this Lease, Landlord may, at Tenant’s expense, so remove Tenant’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Tenant’s expense, independent contractors to perform such work. Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Leased Premises, the Building and the Common Areas to the required condition, together with interest on all costs so incurred from the date paid by Landlord at the then maximum rate of interest not prohibited or made usurious by law until paid. Tenant shall pay to Landlord the amount of all costs so incurred plus such interest thereon, within ten (10) days of Landlord’s billing Tenant for same. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in surrendering the Leased Premises, including, without limitation, any claims made by any succeeding Tenant or any losses to Landlord with respect to lost opportunities to lease to succeeding tenants.

ARTICLE 3

RENT, LATE CHARGES AND SECURITY DEPOSITS

3.1 Base Monthly Rent. Commencing on the Lease Commencement Date (as determined pursuant to Paragraph 2.3 above) and continuing throughout the Lease Term, Tenant shall pay to Landlord, without prior demand therefor, in advance on the first day of each calendar month, the amount set forth as “Base Monthly Rent” in Article 1 (the “Base Monthly Rent”).

3.2 Additional Rent. In addition to the Base Monthly Rent and to the extent not required by Landlord to be contracted for and paid directly by Tenant, Tenant shall pay to Landlord as additional rent (the “Additional Rent”) the following amounts:

     (a) Commencing as of January 1, 2007, an amount equal to the Property Expense Increase (as defined in Article 13) incurred by Landlord. Payment shall be made as follows: Landlord shall deliver to Tenant a reasonably detailed written statement of Landlord’s reasonable estimate of the Property Expense Increase which it anticipates will be paid or incurred for the ensuing calendar year, as Landlord may determine, and Tenant shall pay to Landlord an amount equal to the estimated amount of such Property Expense Increase for such year in equal monthly installments during such ensuing year with the installments of Base Monthly Rent. Landlord reserves the right to revise such estimate from time to time the methods of billing Tenant for any given expense or group of expenses or the periodic basis on which such expenses are billed consistent with generally accepted building accounting procedures;

     (b) Landlord’s share of the consideration received by Tenant upon certain assignments and sublettings as required by Article 7;

     (c) Any legal fees and costs that Tenant is obligated to pay or reimburse to Landlord pursuant to Article 13; and

     (d) Any other charges or reimbursements due Landlord from Tenant pursuant to the terms of this Lease.

4.

3.3 Year-End Adjustments. Landlord shall furnish to Tenant within four months following the end of the applicable calendar or fiscal year, as the case may be, a statement setting forth (i) the amount of such expenses paid or incurred during the just ended calendar or fiscal year, as appropriate, and (ii) the amount that Tenant has paid to Landlord for credit against such expenses for such period. If Tenant shall have paid more than its obligation for such expenses for the stated period, Landlord shall, at its election, either (i) credit the amount of such overpayment toward the next ensuing payment or payments of Additional Rent that would otherwise be due or (ii) refund in cash to Tenant the amount of such overpayment. If such year-end statement shall show that Tenant did not pay its obligation for such expenses in full, then Tenant shall pay to Landlord the amount of such underpayment within thirty (30) days from Landlord’s billing of same to Tenant. The provisions of this Paragraph shall survive the expiration or sooner termination of this Lease. Tenant shall have the right, to be exercised not more than once during any calendar year, within sixty (60) days after Landlord’s final statement, to audit Operating Expenses for the prior year, and to examine Landlord’s records relating to the same. Any such audit shall be conducted during the normal business hours of Landlord and at Landlord’s office upon not less than thirty (30) days advance written notice. Such audit and examination shall be conducted only by an independent certified public accountant which shall not be compensated for such audit and review on a contingency basis. No audit may be conducted at any time Tenant is in Default of its obligations under this Lease (as defined in Article 12), regardless of any notice or cure period. Any audit report must be delivered to Landlord within one hundred eighty (180) days after Landlord’s final statement for the year being audited. The costs of any such audit shall be borne by Tenant, provided, however, that in the event such audit reveals that the amounts charged to Tenant were more than seven percent (7%) greater than the amounts permitted by this Lease to be charged to Tenant, then Landlord shall pay the reasonable costs of that audit. In addition, Landlord shall pay to Tenant, within ten (10) days of notice thereof, any amounts determined to be owed to Tenant as a result of such audit.

3.4 Late Charge, And Interest On Rent In Default. Tenant acknowledges that the late payment by Tenant of any monthly installment of Base Monthly Rent or any Additional Rent will cause Landlord to incur certain costs and expenses not contemplated under this Lease, the exact amounts of which are extremely difficult or impractical to fix. Such costs and expenses will include without limitation, administration and collection costs and processing and accounting expenses. Therefore, if any installment of Base Monthly Rent is not received by Landlord from Tenant within five (5) calendar days after the same becomes due, Tenant shall immediately pay to Landlord a late charge in an amount equal to the amount set forth in Article 1 as the “Late Charge Amount,” and if any Additional Rent is not received by Landlord when the same becomes due, Tenant shall immediately pay to Landlord a late charge in an amount equal to 5% of the Additional Rent not so paid. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for the anticipated loss Landlord would suffer by reason of Tenant’s failure to make timely payment. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rental installment or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant’s failure to pay each rental installment due under this Lease when due, including the right to terminate this Lease. If any rent remains delinquent for a period in excess of five (5) calendar days, then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not so paid from said fifth day at the then maximum rate of interest not prohibited or made usurious by Law until paid.

3.5 Payment Of Rent. Except as specifically provided otherwise in this Lease, all rent shall be paid in lawful money of the United States, without any abatement, reduction or offset for any reason whatsoever, to Landlord at such address as Landlord may designate from time to time. Tenant’s obligation to pay Base Monthly Rent and all Additional Rent shall be appropriately prorated at the commencement and expiration of the Lease Term. The failure by Tenant to pay any Additional Rent as required pursuant to this Lease when due shall be treated the same as a failure by Tenant to pay Base Monthly Rent when due, and Landlord shall have the same rights and remedies against Tenant as Landlord would have had Tenant failed to pay the Base Monthly Rent when due.

3.6 Prepaid Rent. Tenant shall, upon execution of this Lease, pay to Landlord the amount set forth in Article 1 as “One Month’s Prepaid Rent” as prepayment of rent for credit against the first payment of Base Monthly Rent and Additional Rent due hereunder.

3.7 Security Deposit. Tenant has deposited or shall deposit concurrently with Tenant’s execution of this Lease, with Landlord the amount set forth in Article 1 as the “Security Deposit” as security for the performance by Tenant of the terms of this Lease to be performed by Tenant, and not as prepayment of rent. Tenant hereby grants to Landlord a security interest in the Security Deposit, including but not limited to replenishments thereof. Landlord may apply such portion or portions of the Security Deposit as are reasonably necessary for the following purposes: (i) to remedy any default by Tenant in the payment of Base Monthly Rent or Additional Rent or a late charge or interest on defaulted rent, or any other monetary payment obligation of Tenant under this Lease; (ii) to repair damage to the Leased Premises, the Building or the Common Areas caused or permitted to occur by Tenant; (iii) to clean and restore and repair the Leased Premises, the Building or the Common Areas following their surrender to Landlord if not surrendered in the condition required pursuant to the provisions of Article 2, (iv) to remedy any other

5.

default of Tenant to the extent permitted by Law including, without limitation, paying in full on Tenant’s behalf any sums claimed by materialmen or contractors of Tenant to be owing to them by Tenant for work done or improvements made at Tenant’s request to the Leased Premises, and (v) to cover any other expense, loss or damage which Landlord may suffer due to Tenant’s default. In this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be applied as contained in Section 1950.7(c) of the California Civil Code and/or any successor statute. In the event the Security Deposit or any portion thereof is so used, Tenant shall pay to Landlord, promptly upon demand, an amount in cash sufficient to restore the Security Deposit to the full original sum. Landlord shall not be deemed a trustee of the Security Deposit. Landlord may use the Security Deposit in Landlord’s ordinary business and shall not be required to segregate it from Landlord’s general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Building or the Property during the Lease Term, Landlord may pay the Security Deposit to any subsequent owner in conformity with the provisions of Section 1950.7 of the California Civil Code and/or any successor statute, in which event the transferring landlord shall be released from all liability for the return of the Security Deposit. Tenant specifically grants to Landlord (and Tenant hereby waives the provisions of California Civil Code Section 1950.7 to the contrary) a period of ninety days following a surrender of the Leased Premises by Tenant to Landlord within which to inspect the Leased Premises, make required restorations and repairs, receive and verify workmen’s billings therefor, and prepare a final accounting with respect to the Security Deposit. Landlord shall return the Security Deposit, less any permitted deductions, to Tenant promptly at the end of such period. In no event shall the Security Deposit or any portion thereof, be considered prepaid rent.

ARTICLE 4

USE OF LEASED PREMISES AND COMMON AREA

4.1 Permitted Use. Tenant shall be entitled to use the Leased Premises solely for the “Permitted Use” as set forth in Article 1 and for no other purpose whatsoever. Tenant shall continuously and without interruption occupy the Leased Premises for such purpose for the entire Lease Term. Any discontinuance of such use for a period of sixty consecutive calendar days shall be, at Landlord’s election, a Default by Tenant under the terms of this Lease unless Tenant is exercising diligent efforts to find a subtenant or assignee, in which case Tenant shall have the right to vacate the Leased Premises, provided Tenant maintains the Leased Premises in the same condition as otherwise required by the terms of this Lease. Tenant shall have the right to use the Common Areas in conjunction with its Permitted Use of the Leased Premises solely for the purposes for which they were designed and intended and for no other purposes whatsoever.

4.2 General Limitations On Use. Tenant shall not do or permit anything to be done in or about the Leased Premises, the Building, the Common Areas or the Property which does or could (i) jeopardize the structural integrity of the Building or (ii) cause damage to any part of the Leased Premises, the Building, the Common Areas or the Property. Tenant shall not operate any equipment within the Leased Premises which does or could (A) injure, vibrate or shake the Leased Premises or the Building, (B) damage, overload or impair the efficient operation of any electrical, plumbing, heating, ventilating or air conditioning systems within or servicing the Leased Premises or the Building, or (C) damage or impair the efficient operation of the sprinkler system (if any) within or servicing the Leased Premises or the Building. Tenant shall not install any equipment or antennas on or make any penetrations of the exterior walls or roof of the Building. Tenant shall not affix any equipment to or make any penetrations or cuts in the floor, ceiling, walls or roof of the Leased Premises. Tenant shall not place any loads upon the floors, walls, ceiling or roof systems which could endanger the structural integrity of the Building or damage its floors, foundations or supporting structural components. Tenant shall not place any explosive, flammable or harmful fluids or other waste materials in the drainage systems of the Leased Premises, the Building, the Common Areas or the Property. Tenant shall not drain or discharge any fluids in the landscaped areas or across the paved areas of the Property. Tenant shall not use any of the Common Areas for the storage of its materials, supplies, inventory or equipment and all such materials, supplies, inventory or equipment shall at all times be stored within the Leased Premises. Tenant shall not commit nor permit to be committed any waste in or about the Leased Premises, the Building, the Common Areas or the Property.

4.3 Noise And Emissions. All noise generated by Tenant in its use of the Leased Premises shall be confined or muffled so that it does not interfere with the businesses of or annoy the occupants and/or users of adjacent properties. All dust, fumes, odors and other emissions generated by Tenant’s use of the Leased Premises shall be sufficiently dissipated in accordance with sound environmental practice and exhausted from the Leased Premises in such a manner so as not to interfere with the businesses of or annoy the occupants and/or users of adjacent properties, or cause any damage to the Leased Premises, the Building, the Common Areas or the Property or any component part thereof or the property of adjacent property owners.

4.4 Trash Disposal. Tenant shall provide trash bins or other adequate garbage disposal facilities within the Leased Premises sufficient for the interim disposal of all of its trash, garbage and waste. All such trash, garbage and waste temporarily stored in such areas shall be stored in such a manner so that it

6.

is not visible from outside of such areas, and Landlord shall cause such trash, garbage and waste to be regularly removed from the Leased Premises. Tenant shall keep the Leased Premises and the Common Areas free and clear of all of Tenant’s trash, garbage, waste and/or boxes, pallets and containers containing same at all times.

4.5 Parking. Tenant, its employees, contractors, agents and invitees may not use more than the number of parking spaces allocated to Tenant in Article 1. Tenant shall not, at any time, park or permit to be parked any recreational vehicles, inoperative vehicles or equipment in the Common Areas or on any portion of the Property. Tenant agrees to assume responsibility for compliance by its employees and invitees with the parking provisions contained herein. If Tenant or its employees park any vehicle within the Property in violation of these provisions, then Landlord may, upon prior written notice to Tenant giving Tenant one (1) day (or any applicable statutory notice period, if longer than one (1) day) to remove such vehicle(s), in addition to any other remedies Landlord may have under this Lease, charge Tenant, as Additional Rent, and Tenant agrees to pay, as Additional Rent, One Hundred Dollars ($100) per day for each day or partial day that each such vehicle is so parked within the Property. Landlord reserves the right to grant easements and access rights to others for use of the parking areas on the Property, provided that such grants do not materially interfere with Tenant’s use of the parking areas.

4.6 Signs. Tenant may maintain the signage existing as of the date of this Lease, subject to the terms and conditions set forth herein, except that Tenant’s Building and monument signage shall be non-exclusive commencing as of the lease Commencement Date Except for the foregoing, Tenant shall not place or install on or within any portion of the Leased Premises, the exterior of the Building, the Common Areas or the Property any sign, advertisement, banner, placard, or picture which is visible from the exterior of the Leased Premises. Tenant shall not place or install on or within any portion of the Leased Premises, the exterior of the Building, the Common Areas or the Property any business identification sign which is visible from the exterior of the Leased Premises until Landlord shall have approved in writing and in its sole discretion the location, size, content, design, method of attachment and material to be used in the making of such sign; provided, however, that so long as such signs are normal and customary business directional or identification signs within the Building, Tenant shall not be required to obtain Landlord’s approval. Any sign, once approved by Landlord, shall be installed at Tenant’s sole cost and expense and only in strict compliance with Landlord’s approval and any applicable Laws and Restrictions, using a person approved by Landlord to install same. Landlord may remove any signs (which have not been approved in writing by Landlord), advertisements, banners, placards or pictures so placed by Tenant on or within the Leased Premises, the exterior of the Building, the Common Areas or the Property and charge to Tenant the cost of such removal, together with any costs incurred by Landlord to repair any damage caused thereby, including any cost incurred to restore the surface (upon which such sign was so affixed) to its original condition. Tenant shall remove all of Tenant’s signs, repair any damage caused thereby, and restore the surface upon which the sign was affixed to its original condition, all to Landlord’s reasonable satisfaction, upon the termination of this Lease. The sign rights granted herein are personal to the original Tenant executing this Lease and may not be assigned, voluntarily or involuntarily, to any person or entity, except that Tenant may assign its sign rights hereunder to an assignee of all of Tenant’s rights under this Lease. The rights granted to the original Tenant hereunder are not assignable separate and apart form this Lease, nor may any right granted herein be separated from this Lease in any manner, either by reservation or otherwise.

4.7 Compliance With Laws And Restrictions. Except to the extent any failure to observe or comply arises due to the acts or omissions of Landlord, its employees, contractors or agents, Tenant shall abide by and shall promptly observe and comply with, at its sole cost and expense, all Laws and Restrictions respecting the use and occupancy of the Leased Premises, the Building, the Common Areas or the Property including, without limitation, Title 24, building codes, the Americans with Disabilities Act and the rules and regulations promulgated thereunder, and all Laws governing the use and/or disposal of hazardous materials, and shall cause its employees, guests, customers, invitees, vendors, and contractors to do the same, and shall defend with competent counsel, indemnify and hold Landlord harmless from any claims, damages or liability resulting from Tenant’s failure to so abide, observe, or comply. Tenant’s obligations hereunder shall survive the expiration or sooner termination of this Lease.

4.8 Compliance With Insurance Requirements. With respect to any insurance policies required or permitted to be carried by Landlord in accordance with the provisions of this Lease, Tenant shall not conduct nor permit any other person for whom Tenant is responsible to conduct any activities nor keep, store or use (or allow any of its employees, guests, customers, invitees, vendors, or contractors to conduct any activities nor keep, store or use) any item or thing within the Leased Premises, the Building, the Common Areas or the Property which (i) is prohibited under the terms of any such policies, (ii) could result in the termination of the coverage afforded under any of such policies, (iii) could give to the insurance carrier the right to cancel any of such policies, or (iv) could cause an increase in the rates (over standard rates) charged for the coverage afforded under any of such policies. In the event Landlord alleges that Tenant is breaching the covenant set forth above, then Tenant shall not be deemed in Default hereunder until Landlord has provided Tenant with written notice of such breach and Tenant has failed to cure the same within a reasonable period thereafter. Tenant shall comply with all requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to

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maintain, at standard rates, the insurance coverages carried by either Landlord or Tenant pursuant to this Lease, provided Landlord has communicated such requirements to Tenant in advance.

4.9 Landlord’s Right To Enter. Landlord and its agents shall have the right to enter the Leased Premises during normal business hours after giving Tenant reasonable notice and subject to Tenant’s reasonable security measures for the purpose of (i) inspecting the same; (ii) showing the Leased Premises to prospective purchasers, mortgagees or tenants; (iii) making necessary alterations, additions or repairs; and (iv) performing any of Tenant’s obligations when Tenant has failed to do so. Landlord shall have the right to enter the Leased Premises during normal business hours (or as otherwise agreed), subject to Tenant’s reasonable security measures, for purposes of supplying any maintenance or services agreed to be supplied by Landlord. Landlord shall have the right to enter the Common Areas during normal business hours for purposes of (i) inspecting the exterior of the Building and the Common Areas; (ii) posting notices of nonresponsibility (and for such purposes Tenant shall provide Landlord at least thirty days’ prior written notice of any work to be performed on the Leased Premises); and (iii) supplying any services to be provided by Landlord. Any entry into the Leased Premises or the Common Areas obtained by Landlord in accordance with this paragraph shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Leased Premises, or an eviction, actual or constructive of Tenant from the Leased Premises or any portion thereof.

4.10 Use Of Common Areas. Tenant, in its use of the Common Areas, shall at all times keep the Common Areas in a safe condition free and clear of all materials, equipment, debris, trash (except within existing enclosed trash areas), inoperable vehicles, and other items which are not specifically permitted by Landlord to be stored or located thereon by Tenant. If, in the opinion of Landlord, unauthorized persons are using any of the Common Areas by reason of, or under claim of, the express or implied authority or consent of Tenant, then Tenant, upon demand of Landlord, shall restrain, to the fullest extent then allowed by Law, such unauthorized use, and shall initiate such appropriate proceedings as may be required to so restrain such use. Landlord reserves the right to grant easements and access rights to others for use of the Common Areas and shall not be liable to Tenant for any diminution in Tenant’s right to use the Common Areas as a result.

4.11 Environmental Protection. Tenant’s obligations under this Paragraph 4.11 shall survive the expiration or termination of this Lease.

     (a) As used herein, the term “Hazardous Materials” shall mean any toxic or hazardous substance, material or waste or any pollutant or infectious or radioactive material, including but not limited to those substances, materials or wastes regulated now or in the future under any of the following statutes or regulations and any and all of those substances included within the definitions of “hazardous substances,” “hazardous materials,” “hazardous waste,” “hazardous chemical substance or mixture,” “imminently hazardous chemical substance or mixture,” “toxic substances,” “hazardous air pollutant,” “toxic pollutant,” or “solid waste” in the (a) Comprehensive Environmental Response, Compensation and Liability Act of 1990 (“CERCLA” or “Superfund”), as amended by the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), 42 U.S.C. § 9601 et seq., (b) Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. § 6901 et seq., (c) Federal Water Pollution Control Act (“FSPCA”), 33 U.S.C. § 1251 et seq., (d) Clean Air Act (“CAA”), 42 U.S.C. § 7401 et seq., (e) Toxic Substances Control Act (“TSCA”), 14 U.S.C. § 2601 et seq., (f) Hazardous Materials Transportation Act, 49 U.S.C. § 1801, et seq., (g) Carpenter-Presley-Tanner Hazardous Substance Account Act (“California Superfund”), Cal. Health & Safety Code § 25300 et seq., (h) California Hazardous Waste Control Act, Cal. Health & Safety code § 25100 et seq., (i) Porter-Cologne Water Quality Control Act (“Porter-Cologne Act”), Cal. Water Code § 13000 et seq., (j) Hazardous Waste Disposal Land Use Law, Cal. Health & Safety codes § 25220 et seq., (k) Safe Drinking Water and Toxic Enforcement Act of 1986 (“Proposition 65”), Cal. Health & Safety code § 25249.5 et seq., (l) Hazardous Substances Underground Storage Tank Law, Cal. Health & Safety code § 25280 et seq., (m) Air Resources Law, Cal. Health & Safety Code § 39000 et seq., and (n) regulations promulgated pursuant to said laws or any replacement thereof, or as similar terms are defined in the federal, state and local laws, statutes, regulations, orders or rules. Hazardous Materials shall also mean any and all other biohazardous wastes and substances, materials and wastes which are, or in the future become, regulated under applicable Laws for the protection of health or the environment, or which are classified as hazardous or toxic substances, materials or wastes, pollutants or contaminants, as defined, listed or regulated by any federal, state or local law, regulation or order or by common law decision, including, without limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and other chlorinated solvents, (ii) any petroleum products or fractions thereof, (iii) asbestos, (iv) polychlorinated biphenyls, (v) flammable explosives, (vi) urea formaldehyde, (vii) radioactive materials and waste, and (viii) materials and wastes that are harmful to or may threaten human health, ecology or the environment.

     (b) Notwithstanding anything to the contrary in this Lease, Tenant, at its sole cost, shall comply with all Laws relating to the storage, use and disposal of Hazardous Materials; provided, however, that Tenant shall not be responsible for contamination of the Leased Premises by Hazardous Materials existing as of the date the Leased Premises are delivered to Tenant or thereafter appearing (whether before or after the Lease Commencement Date) unless caused by Tenant. Tenant shall not store, use or

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dispose of any Hazardous Materials except for those Hazardous Materials listed in a Hazardous Materials management plan (“HMMP”) which Tenant shall deliver to Landlord upon execution of this Lease and update at least annually with Landlord (“Permitted Materials”) which may be used, stored and disposed of provided (i) such Permitted Materials are used, stored, transported, and disposed of in strict compliance with applicable laws, (ii) such Permitted Materials shall be limited to the materials listed on and may be used only in the quantities specified in the HMMP, and (iii) Tenant shall provide Landlord with copies of all material safety data sheets and other documentation required under applicable Laws in connection with Tenant’s use of Permitted Materials as and when such documentation is provided to any regulatory authority having jurisdiction. In no event shall Tenant cause or permit to be discharged into the plumbing or sewage system of the Building or onto the land underlying or adjacent to the Building any Hazardous Materials. Tenant shall be solely responsible for and shall defend, indemnify, and hold Landlord and its agents harmless from and against all claims, costs and liabilities, including attorneys’ fees and costs, arising out of or in connection with Tenant’s storage, use and/or disposal of Hazardous Materials. If the presence of Hazardous Materials on the Leased Premises caused or permitted by Tenant results in contamination or deterioration of water or soil, then Tenant shall promptly take any and all action necessary to clean up such contamination, but the foregoing shall in no event be deemed to constitute permission by Landlord to allow the presence of such Hazardous Materials. At any time prior to the expiration of the Lease Term if Tenant has a reasonable basis to suspect that there has been any release or the presence of Hazardous Materials in the ground or ground water on the Leased Premises which did not exist upon commencement of the Lease Term, Tenant shall have the right to conduct appropriate tests of water and soil and to deliver to Landlord the results of such tests to demonstrate that no contamination in excess of permitted levels has occurred as a result of Tenant’s use of the Leased Premises. Subject to the proviso in the first sentence of this Paragraph 4.11(b), Tenant shall further be solely responsible for, and shall defend, indemnify, and hold Landlord and its agents harmless from and against all claims, costs and liabilities, including attorneys’ fees and costs, arising out of or in connection with any removal, cleanup and restoration work and materials required hereunder to return the Leased Premises and any other property of whatever nature to their condition existing prior to the appearance of the Hazardous Materials for which Tenant is responsible.

     (c) Upon termination or expiration of the Lease Term, Tenant at its sole expense shall cause all Hazardous Materials placed in or about the Leased Premises, the Building and/or the Property by Tenant, its agents, contractors, or invitees, and all installations (whether interior or exterior) made by or on behalf of Tenant relating to the storage, use, disposal or transportation of Hazardous Materials to be removed from the property and transported for use, storage or disposal in accordance and compliance with all Laws and other requirements respecting Hazardous Materials used or permitted to be used by Tenant. Tenant shall apply for and shall obtain from all appropriate regulatory authorities (including any applicable fire department or regional water quality control board) all permits, approvals and clearances necessary for the closure of the Property and shall take all other actions as may be required to complete the closure of the Building and the Property. In addition, prior to vacating the Leased Premises, Tenant shall undertake and submit to Landlord an environmental site assessment from an environmental consulting company reasonably acceptable to Landlord which site assessment shall evidence Tenant’s compliance with this Paragraph 4.11.

     (d) At any time prior to expiration of the Lease Term, subject to reasonable prior notice (not less than forty-eight (48) hours) and Tenant’s reasonable security requirements and provided such activities do not unreasonably interfere with the conduct of Tenant’s business at the Leased Premises, Landlord shall have the right to enter in and upon the Property, Building and Leased Premises in order to conduct appropriate tests of water and soil to determine whether levels of any Hazardous Materials in excess of legally permissible levels has occurred as a result of Tenant’s use thereof. Landlord shall furnish copies of all such test results and reports to Tenant and, at Tenant’s option and cost, shall permit split sampling for testing and analysis by Tenant. Such testing shall be at Tenant’s expense if Landlord has a reasonable basis for suspecting and confirms the presence of Hazardous Materials in the soil or surface or ground water in, on, under, or about the Property, the Building or the Leased Premises, which has been caused by or resulted from the activities of Tenant, its agents, contractors, or invitees.

     (e) Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of any required compliance with the efforts of governmental agencies in reducing actual or potential environmental damage except as expressly provided in Paragraph 4.11(f) below. Tenant agrees at all times to cooperate fully with the requirements and recommendations of governmental agencies regulating, or otherwise involved in, the protection of the environment.

     (f) If the event of any release or contamination of the Property caused by Landlord, its employees or agents (“Landlord Release”), then Landlord hereby agrees that (i) to the extent any such release or contamination, or any cleanup, removal or remediation arising therefrom, materially impairs Tenant’s use of or access to the Premises, and such material impairment continues for more than three (3) business days, then Base Rent shall be abated to the extent Tenant is not reasonably able to conduct its business within the Leased Premises. Further if such material impairment can reasonably be anticipated to continue for more than six (6) months (as reasonably determined by Landlord’s environmental consultant), or does continue for more than six (6) months, then Tenant may terminate this Lease by

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providing Landlord written notice within seven (7) days after the sooner of the date Tenant receives written notice of such determination or the end of such six (6) month period. Further in the event of a Landlord Release, Landlord shall be solely responsible for all costs and shall indemnify and hold harmless Tenant from and against all claims, costs and liabilities, including attorneys’ fees and costs, arising therefrom.

4.12 Rules And Regulations. Tenant shall comply with Landlord’s reasonable Rules and Regulations for the Property as may be amended and adopted from time to time, provided, that, Landlord has provided Tenant with written notice of such Rules and Regulations. A copy of Landlord’s current Rules and Regulations for the Property is attached to this Lease as Exhibit E, and such Rules and Regulations are incorporated herein by reference. A violation by Tenant its agents, employees or invitees of any of such Rules and Regulations shall constitute a breach by Tenant under this Lease. If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Landlord shall not be responsible or liable to Tenant for the violation of such rules and regulations by any other tenant or user of the Property.

4.13 Reservations. Landlord reserves the right from time to time to grant, without the consent or joinder of Tenant, such easements, rights of way and dedications that Landlord deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way and dedications do not unreasonably interfere with the use of the Leased Premises by Tenant. Tenant agrees to execute any documents reasonably requested by Landlord to effectuate any such easement rights, dedications, maps or restrictions.

ARTICLE 5

REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

5.1 Repair And Maintenance. Except in the case of damage to or destruction of the Leased Premises, the Building, the Common Areas or the Property caused by an act of God or other peril, in which case the provisions of Article 10 shall control, the parties shall have the following obligations and responsibilities with respect to the repair and maintenance of the Leased Premises, the Building, the Common Areas, and the Property.

     (a) Tenant’s Obligations. Except with respect to maintenance of Building systems that is Landlord’s responsibility pursuant to Paragraph 5.1(b) below, Tenant shall, at all times during the Lease Term and at its sole cost and expense, continuously keep and maintain in good order, condition and repair the Leased Premises and every part thereof. Tenant shall, at its sole cost and expense, repair all damage to the Leased Premises, the Building, the Common Areas or the Property caused by the activities of Tenant, its employees, invitees or contractors promptly following written notice from Landlord to so repair such damages, subject to the waiver of subrogation set forth in Paragraph 9.3 below. If Tenant shall fail to perform the required maintenance or fail to make repairs required of it pursuant to this section within a reasonable period of time following notice from Landlord to do so, then Landlord may, at its election and without waiving any other remedy it may otherwise have under this Lease or at law, perform such maintenance or make such repairs and charge to Tenant, as Additional Rent, the costs so incurred by Landlord for same.

     (b) Landlord’s Obligation. Landlord shall, at all times during the Lease Term, maintain in good condition and repair the Common Areas, the foundation, roof structure and membrane, load-bearing and exterior walls of the Building, and those Building elevators, electrical, plumbing, and life safety (and Building central heating, ventilating, and air conditioning) systems or components thereof which serve the Building. Landlord shall hire a licensed roofing contractor to regularly and periodically inspect and perform required maintenance on the roof of the Building, and a licensed heating, ventilating and air conditioning contractor to regularly and periodically inspect and perform required maintenance on the heating, ventilating and air conditioning equipment and systems serving the Leased Premises. The provisions of this subsection (b) shall in no way limit the right of Landlord to charge to Tenant, as Additional Rent pursuant to Article 3 (to the extent permitted pursuant to Article 3), the costs incurred by Landlord in performing such maintenance and/or making such repairs.

5.2 Services.

     (a) Landlord will furnish to the Leased Premises during the period from 8:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m., Saturdays, except for New Year’s Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas and such other holidays as are generally recognized in the vicinity of the Property (hereafter, “Building Standard Hours”), and subject to rules and regulations from time to time established by Landlord: heating, air conditioning and ventilation (“HVAC”) in amounts required, in Landlord’s reasonable judgment, for the normal use and occupancy of the Leased Premises. If Tenant’s hours of operation of such HVAC units are outside Building Standard Hours, then Tenant shall pay Landlord the amount of Landlord’s then current hourly charge for Building standard HVAC for other than Building Standard Hours. Tenant

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acknowledges that the heating, air conditioning and ventilating system of the Building is designed to operate efficiently while electrical equipment such as customary lamps, typewriters, computers and other typical office machines are being used in the Leased Premises and while the Leased Premises are occupied in any building system zone by not more than one person per 200 square feet of rentable area of the Leased Premises. If the temperature otherwise maintained in any portion of the Leased Premises by the heating, air conditioning and ventilating system of the Building is affected by (i) Tenant’s use of any lights, machines or equipment (including, without limitation, computers, electronic data processing machines and copying machines) in excess of normal office usage, or (ii) the occupancy of the Leased Premises by more than one person per 200 square feet of rentable area of the Leased Premises, or (iii) an electrical load that generates heat in excess of normal office usage, Landlord shall have the right, unless Tenant ceases and desists from such usage or excess occupancy within fifteen (15) days after written notice from Landlord, to install any machinery and equipment that Landlord reasonably deems necessary to restore temperature balance, including, without limitation, supplemental and independent heating, air conditioning and ventilation systems and/or modifications to the standard air conditioning equipment. In such event, the cost thereof, including the cost of installation and any additional cost of operation and maintenance incurred thereby, shall be paid by Tenant to Landlord within thirty (30) days after demand therefore by Landlord; provided, however, Landlord agrees to use commercially reasonable efforts to resolve such issue in a cost effective manner. Tenant shall notify Landlord in advance, prior to installing or operating any machines or equipment, of the specifications of such machines or equipment which could so affect the temperature otherwise maintained in any portion of the Leased Premises by the heating, air conditioning and ventilating system of the Building.

     (b) Landlord will furnish to the Leased Premises during Building Standard Hours, and subject to rules and regulations from time to time established by Landlord: (a) elevator service (if any), (b) water for lavatory and drinking purposes, and (c) janitorial service on business days in the manner that such services are customarily furnished in comparable office buildings in the area; provided that in no event shall Landlord be obligated to furnish janitor service on Saturdays, Sundays, or legal holidays.

     (c) Landlord shall arrange at its sole cost and expense and in its own name, for the supply of gas and electricity to the Leased Premises. In the event that such services are not separately metered, Landlord shall, at its sole expense, either (i) cause sub-meters to be installed or (ii) charge Tenant for such utilities on a pro-rata basis based on the ratio from time to time of the rentable square footage of the Leased Premises to the total leased rentable square footage of the Building. Tenant shall pay all charges for gas and electricity supplied to the Leased Premises, irrespective of whether or not the services are maintained in Landlord’s or Tenant’s name.

     (d) In the event any governmental entity promulgates or revises any statute, ordinance or building, fire or other code or imposes mandatory or voluntary controls or guidelines on Landlord or the Building or any part thereof, or Landlord’s engineers propose guidelines or otherwise make recommendations, relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions or the provision of any other utility or service provided with respect to this Lease, or in the event Landlord is required or elects to make alterations or to perform maintenance with respect to, any part of the Property in order to comply with such mandatory or voluntary controls, guidelines or recommendations, such compliance, the making of such alterations and/or the performance of such maintenance shall in no event entitle Tenant to any damages, relieve Tenant of the obligation to pay the full Base Monthly Rent and Additional Rent reserved hereunder or to perform each of its other covenants hereunder or constitute or be construed as a constructive or other eviction of Tenant or a disturbance of Tenant’s peaceable possession, provided, that, Tenant’s use of and access to the Leased Premises is not materially impaired.

     (e) Without the prior written consent of Landlord, which Landlord may refuse in its sole discretion, Tenant shall not: (a) connect or use any electrical equipment that exceeds the capacity of the Building electrical system; (b) connect any apparatus, machine or device through electrical outlets except in the manner for which such outlets are designed and without the use of any device intended to increase the plug capacity of any electrical outlet; or (c) maintain at any time an electrical demand load in excess of 4 watts per square foot of useable area of the Leased Premises.

     (f) [intentionally deleted]

     (g) Landlord shall not be in default hereunder and no damages, compensation, or claim shall be payable by Landlord, and this Lease and the obligations of Tenant to perform all of its covenants and agreements hereunder shall in no way be affected, impaired, reduced, or excused, in the event that there shall be an interruption, curtailment, or suspension of the Building’s HVAC, utility, sanitary, elevator, water, telecommunications, security (including equipment, devices, and personnel), or other Building systems serving the Leased Premises or any other services required of Landlord under this Lease (an “Interruption of Service”), by reason of any casualty, accident, emergency, shortages of labor or materials or any other causes of any kind whatsoever that are beyond the control of Landlord, including, but limited to:

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          (i) Lack of access to the Building or the Leased Premises (which shall include, but not be limited to, the lack of access to the Building or the Leased Premises when it or they are structurally sound but inaccessible due to evacuation of the surrounding area or damage to nearby structures or public areas);

          (ii) Any cause outside the Building;

          (iii) Reduced air quality or other contaminants within the Building that would adversely affect the Building or its occupants (including, but not limited to, the presence of biological or other airborne agents within the Building or the Leased Premises);

          (iv) Disruption of mail and deliveries to the Building or the Leased Premises resulting from a casualty;

          (v) Disruption of telephone and telecommunications services to the Building or the Leased Premises resulting from a casualty; or

          (vi) Blockages of any windows, doors, or walkways to the Building or the Leased Premises resulting from a casualty.

Landlord reserves the right, without any liability to Tenant, except as otherwise expressly provided in this Lease, and without being in breach of any covenant of this Lease, to effect an Interruption of Service, as required by this Lease or by Law, or as Landlord in good faith deems advisable, whenever and for so long as may be necessary, to make repairs, alterations, upgrades, changes, or for any other reasonable reason, to the Building’s HVAC, utility, sanitary, elevator, water, telecommunications, security, or other Building systems serving the Leased Premises, or any other services required of Landlord under this Lease. In no event shall Landlord be permitted to effect an Interruption of Service as a retaliatory action against Tenant and/or other tenants of the Building.

In each instance, Landlord shall exercise commercially reasonable diligence to eliminate the cause of the Interruption of Service, if resulting from conditions within the Building and to conclude the Interruption of Service, Landlord shall give Tenant notice, when practicable, of the commencement and anticipated duration of such Interruption of Service.

Unless caused by the gross negligence or willful misconduct of Landlord, the occurrence of an Interruption of Service shall not constitute an actual or constructive eviction of Tenant, in whole or in part, entitle Tenant to any abatement or diminution of Rent, Escalation Rent, or any other costs due from Tenant pursuant to this Lease, relieve or release Tenant from any of its obligations under this Lease, or entitle Tenant to terminate this Lease. Notwithstanding anything to the contrary contained herein, if Tenant is unable to continue and therefore ceases its operations in the Leased Premises due to the affirmative act of Landlord which act constitutes gross negligence or willful misconduct, and is unable to resume its operations for three (3) consecutive days, then all Rent payable hereunder shall be abated commencing on the fourth day and continuing until Tenant is no longer prevented by such act from resuming its operations in the Leased Premises.

Tenant hereby waives the provisions of California Civil Code Section 1932 or any other applicable existing or future Law or ordinance or governmental regulation permitting the termination of this Lease due to any interruption, failure or inability to provide Landlord services as provided for herein.

     (h) If any portions of the Leased Premises require HVAC or other utility service in excess of the standard service to be provided by Landlord hereunder, Tenant may install, at Tenant’s cost, supplemental systems (such as supplemental HVAC units) subject to Landlord’s review of plans and specifications. Any supplemental units installed by Tenant shall be separately metered and utility charges relating to the operation thereof shall be paid for by Tenant. Tenant shall remove all such supplemental units and alterations relating thereto and restore the Leased Premises prior to the expiration or termination of the Lease Term.

5.3 Security. Tenant acknowledges that Landlord has not undertaken any duty whatsoever to provide security for the Leased Premises, the Building, the Common Areas or the Property and, accordingly, Landlord is not responsible for the security of same or the protection of Tenant’s property or Tenant’s employees, invitees or contractors. To the extent Tenant determines that such security or protection services are advisable or necessary, Tenant shall arrange for and pay the costs of providing same.

5.4 Energy And Resource Consumption. Landlord may voluntarily cooperate in a reasonable manner with the efforts of governmental agencies and/or utility suppliers in reducing energy or other resource consumption within the Property. Tenant shall not be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of such cooperation. Tenant agrees at all times to cooperate fully with Landlord and to abide by all reasonable rules established by Landlord (i) in order to maximize the efficient operation of the electrical, heating, ventilating and air conditioning systems and all other

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energy or other resource consumption systems with the Property and/or (ii) in order to comply with the recommendations of utility suppliers and governmental agencies regulating the consumption of energy and/or other resources.

5.5 Limitation Of Landlord’s Liability. Landlord shall not be liable to Tenant for injury to Tenant, its employees, agents, invitees or contractors, damage to Tenant’s property or loss of Tenant’s business or profits, nor shall Tenant be entitled to terminate this Lease or to any reduction in or abatement of rent by reason of (i) Landlord’s failure to provide security services or systems within the Property for the protection of the Leased Premises, the Building or the Common Areas, or the protection of Tenant’s property or Tenant’s employees, invitees, agents or contractors, or (ii) Landlord’s failure to perform any maintenance or repairs to the Leased Premises, the Building, the Common Areas or the Property until Tenant shall have first notified Landlord, in writing, of the need for such maintenance or repairs, and then only after Landlord shall have had a reasonable period of time following its receipt of such notice within which to perform such maintenance or repairs, or (iii) any failure, interruption, rationing or other curtailment in the supply of water, electric current, gas or other utility service to the Leased Premises, the Building, the Common Areas or the Property from whatever cause (other than Landlord’s gross negligence or willful misconduct), or (iv) the unauthorized intrusion or entry into the Leased Premises by third parties (other than Landlord).

ARTICLE 6

ALTERATIONS AND IMPROVEMENTS

6.1 By Tenant. Tenant shall not make any alterations to or modifications of the Leased Premises or construct any improvements within the Leased Premises until Landlord shall have first approved, in writing, the plans and specifications therefor, which approval may be withheld in Landlord’s sole discretion. Tenant’s written request shall also contain a request for Landlord to elect whether or not it will require Tenant to remove the subject alterations, modifications or improvements at the expiration or earlier termination of this Lease. If such additional request is not included, Landlord may make such election at the expiration or earlier termination of this Lease (and for purposes of Tenant’s removal obligations set forth in Paragraph 2.6 above, Landlord shall be deemed to have made the election at the time the alterations, modifications or improvements were completed). Landlord, however, may not require Tenant to remove or pay the cost to remove the Tenant Improvements installed as part of the Improvement Work pursuant to Exhibit B. All such modifications, alterations or improvements, once so approved, shall be made, constructed or installed by Tenant at Tenant’s expense (including all permit fees and governmental charges related thereto), using a licensed contractor first approved by Landlord, in substantial compliance with the Landlord-approved plans and specifications therefor. All work undertaken by Tenant shall be done in accordance with all Laws and Restrictions and in a good and workmanlike manner using new materials of good quality. Tenant shall not commence the making of any such modifications or alterations or the construction of any such improvements until (i) all required governmental approvals and permits shall have been obtained, (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant shall have given Landlord at least five (5) business days prior written notice of its intention to commence such work so that Landlord may post and file notices of non-responsibility, and (iv) if requested by Landlord, Tenant shall have obtained contingent liability and broad form builder’s risk insurance in an amount satisfactory to Landlord in its reasonable discretion to cover any perils relating to the proposed work not covered by insurance carried by Tenant pursuant to Article 9. In no event shall Tenant make any modification, alterations or improvements whatsoever to the Common Areas or the exterior or structural components of the Building including, without limitation, any cuts or penetrations in the floor, roof or exterior walls of the Leased Premises. As used in this Article, the term “modifications, alterations and/or improvements” shall include, without limitation, the installation of additional electrical outlets, overhead lighting fixtures, drains, sinks, partitions, doorways, or the like.

6.2 Ownership Of Improvements. All modifications, alterations and improvements made or added to the Leased Premises by Tenant (other than Tenant’s inventory, equipment, movable furniture, wall decorations and trade fixtures) shall be deemed real property and a part of the Leased Premises, but shall remain the property of Tenant during the Lease, and Tenant hereby covenants and agrees not to grant a security interest in any such items to any party other than Landlord. Any such modifications, alterations or improvements, once completed, shall not be altered or removed from the Leased Premises during the Lease Term without Landlord’s written approval first obtained in accordance with the provisions of Paragraph 6.1 above. At the expiration or sooner termination of this Lease, all such modifications, alterations and improvements other than Tenant’s inventory, equipment, movable furniture, wall decorations and trade fixtures, shall automatically become the property of Landlord and shall be surrendered to Landlord as part of the Leased Premises as required pursuant to Article 2, unless Landlord shall require Tenant to remove any of such modifications, alterations or improvements in accordance with the provisions of Article 2, in which case Tenant shall so remove same. Landlord shall have no obligations to reimburse Tenant for all or any portion of the cost or value of any such modifications, alterations or improvements so surrendered to Landlord. All modifications, alterations or improvements which are installed or constructed on or attached to the Leased Premises by Landlord and/or at Landlord’s

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expense shall be deemed real property and a part of the Leased Premises and shall be property of Landlord. All lighting, plumbing, electrical, heating, ventilating and air conditioning fixtures, partitioning, window coverings, wall coverings and floor coverings installed by Tenant shall be deemed improvements to the Leased Premises and not trade fixtures of Tenant.

6.3 Alterations Required By Law. Tenant shall make all modifications, alterations and improvements to the Leased Premises, at its sole cost, that are required by any Law because of (i) Tenant’s particular use or occupancy of the Leased Premises, the Building, the Common Areas or the Property, (ii) Tenant’s application for any permit or governmental approval, or (iii) Tenant’s making of any modifications, alterations or improvements to or within the Leased Premises. If Landlord shall, at any time during the Lease Term, be required by any governmental authority to make any modifications, alterations or improvements to the Building or the Property, the cost incurred by Landlord in making such modifications, alterations or improvements, including interest at a rate equal to the greater of (a) 10%, or (b) the sum of that rate quoted by Wells Fargo Bank, N.T. & S. A., from time to time as its prime rate, plus two percent (2%) (“Wells Prime Plus Two”) (but in no event more than the maximum rate of interest not prohibited or made usurious), shall be amortized by Landlord over the useful life of such modifications, alterations or improvements, as determined in accordance with generally accepted accounting principles, and the monthly amortized cost of such modifications, alterations and improvements as so amortized shall be considered a Property Maintenance Cost.

6.4 Liens. Tenant shall keep the Property and every part thereof free from any lien, and shall pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant, its agents, employees or contractors relating to the Property. If any such claim of lien is recorded against Tenant’s interest in this Lease, the Property or any part thereof, Tenant shall bond against, discharge or otherwise cause such lien to be entirely released within ten days after receipt of written notice that the same has been recorded. Tenant’s failure to do so shall be conclusively deemed a material Default under the terms of this Lease.

ARTICLE 7

ASSIGNMENT AND SUBLETTING BY TENANT

7.1 By Tenant. Tenant shall not sublet the Leased Premises or any portion thereof or assign its interest in this Lease, or permit the occupancy of the Premises by other than Tenant, whether voluntarily or by operation of Law, without Landlord’s prior written consent which shall not be unreasonably withheld. Any attempted subletting or assignment, or occupancy of the Leased Premises by other than Tenant, without Landlord’s prior written consent, at Landlord’s election, shall constitute a Default by Tenant under the terms of this Lease. The acceptance of rent by Landlord from any person or entity other than Tenant, or the acceptance of rent by Landlord from Tenant with knowledge of a violation of the provisions of this paragraph, shall not be deemed to be a waiver by Landlord of any provision of this Article or this Lease or to be a consent to any subletting by Tenant or any assignment of Tenant’s interest in this Lease. Without limiting the circumstances in which it may be reasonable for Landlord to withhold its consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold its consent in the following instances:

     (a) the proposed assignee or sublessee is a governmental agency;

     (b) in Landlord’s reasonable judgment, the use of the Leased Premises by the proposed assignee or sublessee would involve occupancy by other than for a Permitted Use, would entail any alterations which would lessen the value of the leasehold improvements in the Leased Premises, or would require increased services by Landlord;

     (c) in Landlord’s reasonable judgment, the credit-worthiness of the proposed assignee is less than that of Tenant or does not meet the credit standards applied by Landlord;

     (d) the proposed assignee or sublessee (or any of its affiliates) has been in material default under a lease, has been in litigation with a previous landlord, or in the ten years prior to the assignment or sublease has filed for bankruptcy protection, has been the subject of an involuntary bankruptcy, or has been adjudged insolvent;

     (e) Landlord has experienced a previous default by or is in litigation with the proposed assignee or sublessee;

     (f) in Landlord’s reasonable judgment, the Leased Premises, or the relevant part thereof, will be used in a manner that will violate any negative covenant as to use contained in this Lease;

     (g) the use of the Leased Premises by the proposed assignee or sublessee will violate any applicable law, ordinance or regulation;

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     (h) the proposed assignee or sublessee is a tenant in the Project and Landlord has other space available in the Project that is suitable in size and character for such proposed assignee or sublessee;

     (i) the proposed assignment or sublease fails to include all of the terms and provisions required to be included therein pursuant to this Article 7;

     (j) Tenant is in Default (as defined in Paragraph 12.1 below) of any obligation of Tenant under this Lease, or Tenant has been in Default under this Lease on three or more occasions during the 12 months preceding the date that Tenant shall request consent; or

     (k) in the case of a subletting of less than the entire Leased Premises, if the subletting would result in the division of the Leased Premises into more than two subparcels or would require improvements to be made outside of the Leased Premises.

7.2 Merger, Reorganization, or Sale of Assets.

     (a) Subject to paragraph (b) below: Any dissolution, merger, consolidation or other reorganization of Tenant, or the sale or other transfer in the aggregate over the Lease Term of a controlling percentage of the capital stock of Tenant, or the sale or transfer of all or a substantial portion of the assets of Tenant, shall be deemed a voluntary assignment of Tenant’s interest in this Lease. The phrase “controlling percentage” means the ownership of and the right to vote stock possessing more than fifty percent of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote for the election of directors. If Tenant is a partnership, a withdrawal or change, voluntary, involuntary or by operation of Law, of any general partner, or the dissolution of the partnership, shall be deemed a voluntary assignment of Tenant’s interest in this Lease. Upon Landlord’s request from time to time, Tenant shall promptly provide Landlord with a statement certified by the Tenant’s chief operating officer, which shall provide the following information: (i) the names of all of Tenant’s shareholders and their ownership interests at the time thereof, provided Tenant’s shares are not publicly traded; (ii) the state in which Tenant is incorporated; (iii) the location of Tenant’s principal place of business; (iv) information regarding a material change in the corporate structure of Tenant, including, without limitation, a merger or consolidation; and (v) any other information regarding Tenant’s ownership that Landlord reasonably requests. In the event of an acquisition by one entity of the controlling percentage of the capital stock of Tenant where this Lease is not assigned to and assumed in full by such entity, it shall be a condition to Landlord’s consent to such change in control that such entity acquiring the controlling percentage assume, as a primary obligor, all rights and obligations of Tenant under this Lease (and such entity shall execute all documents reasonably required to effectuate such assumption).

     (b) Notwithstanding subparagraph (a) above, over-the-counter stock market transactions shall not be deemed to be assignments under this Lease. In addition, provided that the conditions described below in this sentence have been satisfied prior to or upon such assignment or subleasing, Tenant may, without Landlord’s prior written consent, sublet the Leased Premises or assign this Lease to (i) a subsidiary, affiliate, division, corporation or joint venture controlling, controlled by or under common control with Tenant, (ii) a successor entity resulting from a merger, consolidation, or nonbankruptcy reorganization by Tenant, or (iii) a purchaser of substantially all of Tenant’s assets, provided in all cases (i), (ii) and (iii) that (A) the successor entity, assignee, purchaser or subtenant has a net worth reasonably satisfactory to meet the obligations being assumed, and assumes in writing for the benefit of Landlord, this Lease and all of Tenant’s obligations under this Lease, and (B) the entity with the greatest net worth involved directly or indirectly in the ownership and/or control of the acquiring, merged, reorganized, or consolidated entity (hereafter, the “Assignee Affiliate”) shall have unconditionally assumed in writing or guaranteed for the benefit of Landlord, in a form acceptable to Landlord, this Lease and all of Tenant’s obligations under this Lease. If any assignment or subleasing occurs without such an assumption and/or without Landlord’s consent as provided in Paragraph 7.1 above, Tenant shall be deemed for all purposes to be in material Default under this Lease and the Assignee Affiliate (and the successor entity, assignee, purchaser or subtenant) shall for all purposes be deemed to have unconditionally assumed in writing for the benefit of Landlord, this Lease and all of Tenant’s obligations under this Lease. In all events, Tenant shall remain fully liable under this Lease.

7.3 Landlord’s Election. If Tenant shall desire to assign its interest under the Lease or to sublet the Leased Premises, Tenant must first notify Landlord, in writing, of its intent to so assign or sublet, at least thirty (30) days in advance of taking any action with respect thereto. Once Tenant (or Landlord or both pursuant to the joint marketing election described below) has identified a potential assignee or sublessee, Tenant shall notify Landlord, in writing, of its intent to so assign or sublet, at least thirty (30) days in advance of the date it intends to so assign its interest in this Lease or sublet the Leased Premises but not sooner than one hundred eighty days in advance of such date, specifying in detail the terms of such proposed assignment or subletting, including the name of the proposed assignee or sublessee, the proposed assignee’s or sublessee’s intended use of the Leased Premises, current financial statements (including a balance sheet, income statement and statement of cash flow, all prepared in accordance with generally accepted accounting principles) of such proposed assignee or sublessee, the form of documents to be used in effectuating such assignment or subletting and such other information as Landlord may

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reasonably request. Landlord shall have a period of ten (10) business days following receipt of such notice and the required information within which to do one of the following: (i) consent to such requested assignment or subletting subject to Tenant’s compliance with the conditions set forth in Paragraph 7.4 below, or (ii) refuse to so consent to such requested assignment or subletting, provided that such consent shall not be unreasonably refused, or (iii) in the event of an assignment of the Lease or a sublease of more than 75% of the Leased Premises, terminate this Lease as to the entirety of the Leased Premises, or, at Landlord’s sole option, as to only such portion of the Leased Premises as is the subject of the proposed assignment or subletting (such termination to be effective either (A) on the date specified in Tenant’s notice as the intended effective date of the assignment or subletting, or (B) on such tenth (10^th) business day after receipt of Tenant’s notice, at Landlord’s option). During such ten (10) business day period, Tenant covenants and agrees to supply to Landlord, upon request, all necessary or relevant information which Landlord may reasonably request respecting such proposed assignment or subletting and/or the proposed assignee or sublessee. In the event of an election by Landlord under clause (iii) above, Landlord shall have the right to enter into a direct lease with the proposed assignee or sublessee without payment of any consideration to Tenant. In addition, in the event Tenant desires to sublease all or a portion of the Leased Premises, Landlord shall have the right to elect to jointly market with Tenant the applicable portion (including all) of the Leased Premises for subleasing and/or direct leasing, such joint marketing election to be made, if at all, in writing and delivered to Tenant during the thirty (30) day period described in the first sentence of this Paragraph 7.3.

7.4 Conditions To Landlord’s Consent. If Landlord elects to consent, or shall have been ordered to so consent by a court of competent jurisdiction, to such requested assignment or subletting, such consent shall be expressly conditioned upon the occurrence of each of the conditions below set forth, and any purported assignment or subletting made or ordered prior to the full and complete satisfaction of each of the following conditions shall be void and, at the election of Landlord, which election may be exercised at any time following such a purported assignment or subletting but prior to the satisfaction of each of the stated conditions, shall constitute a material Default by Tenant under this Lease until cured by satisfying in full each such condition by the assignee or sublessee. The conditions are as follows:

     (a) Landlord having approved in form and substance the assignment or sublease agreement and any ancillary documents, which approval shall not be unreasonably withheld by Landlord if the requirements of this Article 7 are otherwise complied with.

     (b) Each such sublessee or assignee having agreed, in writing satisfactory to Landlord and its counsel and for the benefit of Landlord, to assume, to be bound by, and to perform the obligations of this Lease to be performed by Tenant which relate to space being subleased.

     (c) Tenant not being in Default of its obligations under the terms of this Lease.

     (d) Tenant having reimbursed to Landlord all reasonable costs and reasonable attorneys’ fees incurred by Landlord in conjunction with the processing and documentation of any such requested subletting or assignment. Tenant shall be obligated to so reimburse Landlord whether or not such subletting or assignment is completed.

     (e) Tenant having delivered to Landlord a complete and fully-executed duplicate original of such sublease agreement or assignment agreement (as applicable) and all related agreements.

          (f) Tenant having paid, or having agreed in writing to pay as to future payments, to Landlord fifty percent (50%) of all assignment consideration or excess rentals to be paid to Tenant or to any other on Tenant’s behalf or for Tenant’s benefit for such assignment or subletting as follows:

               (i) If Tenant assigns its interest under this Lease and if all or a portion of the consideration for such assignment is to be paid by the assignee at the time of the assignment, that Tenant shall have paid to Landlord and Landlord shall have received an amount equal to fifty percent (50%) of the assignment consideration so paid or to be paid (whichever is the greater) at the time of the assignment by the assignee; or

               (ii) If Tenant assigns its interest under this Lease and if Tenant is to receive all or a portion of the consideration for such assignment in future installments, that Tenant and Tenant’s assignee shall have entered into a written agreement with and for the benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and Tenant’s assignee jointly agree to pay to Landlord an amount equal to fifty percent (50%) of all such future assignment consideration installments to be paid by such assignee as and when such assignment consideration is so paid.

               (iii) If Tenant subleases the Leased Premises, that Tenant and Tenant’s sublessee shall have entered into a written agreement with and for the benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and Tenant’s sublessee jointly agree to pay to Landlord fifty percent (50%) of all excess rentals to be paid by such sublessee.

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7.5 Assignment Consideration And Excess Rentals Defined. For purposes of this Article, including any amendment to this Article by way of addendum or other writing: (i) the term “assignment consideration” shall mean all consideration to be paid by the assignee to Tenant or to any other party on Tenant’s behalf or for Tenant’s benefit as consideration for such assignment, without deduction for any legal fees, tenant improvement, and other costs paid by Tenant or incurred by Tenant in connection with such assignment, excepting only market rate leasing commissions, which may be deducted on a straight-line basis over the remaining term of this Lease from and after the date of the assignment, and (ii) the term “excess rentals” shall mean all consideration to be paid by the sublessee to Tenant or to any other party on Tenant’s behalf or for Tenant’s benefit for the sublease of all or any portion of the Leased Premises in excess of the rent due to Landlord under the terms of this Lease for the portion so subleased for the same period, without deduction for any legal fees, tenant improvement, and other costs paid by Tenant or incurred by Tenant in connection with such sublease, excepting only market rate leasing commissions, which may be deducted on a straight-line basis over the term of the sublease. Tenant agrees that the portion of any assignment consideration and/or excess rentals arising from any assignment or subletting by Tenant which is to be paid to Landlord pursuant to this Article now is and shall then be the property of Landlord and not the property of Tenant.

7.6 Payments. All payments required by this Article to be made to Landlord shall be made in cash in full as and when they become due. At the time Tenant, Tenant’s assignee or sublessee makes each such payment to Landlord, Tenant or Tenant’s assignee or sublessee, as the case may be, shall deliver to Landlord an itemized statement in reasonable detail showing the method by which the amount due Landlord was calculated and certified by the party making such payment as true and correct.

7.7 Good Faith. The rights granted to Tenant by this Article are granted in consideration of Tenant’s express covenant that all pertinent allocations which are made by Tenant between the rental value of the Leased Premises and the value of any of Tenant’s personal property which may be conveyed or leased (or services provided) generally concurrently with and which may reasonably be considered a part of the same transaction as the permitted assignment or subletting shall be made fairly, honestly and in good faith. If Tenant shall breach this covenant, Landlord may immediately declare Tenant to be in Default under the terms of this Lease and terminate this Lease and/or exercise any other rights and remedies Landlord would have under the terms of this Lease in the case of a material Default by Tenant under this Lease.

7.8 Effect Of Landlord’s Consent. No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay rent and to perform all of the other obligations to be performed by Tenant hereunder. Consent by Landlord to one or more assignments of Tenant’s interest in this Lease or to one or more sublettings of the Leased Premises shall not be deemed to be a consent to any subsequent assignment or subletting. No subtenant shall have any right to assign its sublease or to further sublet any portion of the sublet premises or to permit any portion of the sublet premises to be used or occupied by any other party. No sublease may be terminated or modified without Landlord’s prior written consent. If Landlord shall have been ordered by a court of competent jurisdiction to consent to a requested assignment or subletting, or such an assignment or subletting shall have been ordered by a court of competent jurisdiction over the objection of Landlord, such assignment or subletting shall not be binding between the assignee (or sublessee) and Landlord until such time as all conditions set forth in Paragraph 7.4 above have been fully satisfied (to the extent not then satisfied) by the assignee or sublessee, including, without limitation, the payment to Landlord of all agreed assignment considerations and/or excess rentals then due Landlord. Upon a Default while a sublease is in effect, Landlord may collect directly from the sublessee all sums becoming due to Tenant under the sublease and apply this amount against any sums due Landlord by Tenant, and Tenant authorizes and directs any sublessee to make payments directly to Landlord upon notice from Landlord. No direct collection by Landlord from any sublessee shall constitute a novation or release of Tenant or any guarantor, a consent to the sublease or a waiver of the covenant prohibiting subleases. Landlord, as Tenant’s agent, may endorse any check, draft or other instrument payable to Tenant for sums due under a sublease, and apply the proceeds in accordance with this Lease; this agency is coupled with an interest and is irrevocable.

ARTICLE 8

LIMITATION ON LANDLORD’S LIABILITY AND INDEMNITY

8.1 Limitation On Landlord’s Liability And Release. Landlord shall not be liable to Tenant for, and Tenant hereby releases and waives all claims and rights of recovery against Landlord and its partners, principals, members, officers, agents, employees, lenders, attorneys, contractors, invitees, consultants, predecessors, successors and assigns (including without limitation prior and subsequent owners of the Property or portions thereof) (collectively, the “Landlord Indemnitees”) from, any and all liability, whether in contract, tort or on any other basis, for any injury to or any damage sustained by Tenant, Tenant’s agents, employees, contractors or invitees, any damage to Tenant’s property, or any loss to Tenant’s business, loss of Tenant’s profits or other financial loss of Tenant resulting from or attributable to the condition of, the management of, the repair or maintenance of, the protection of, the supply of services or utilities to, the damage in or destruction of the Leased Premises, the Building, the Property or

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the Common Areas, including without limitation (i) the failure, interruption, rationing or other curtailment or cessation in the supply of electricity, water, gas or other utility service to the Property, the Building or the Leased Premises; (ii) the vandalism or forcible entry into the Building or the Leased Premises; (iii) the penetration of water into or onto any portion of the Leased Premises; (iv) the failure to provide security and/or adequate lighting in or about the Property, the Building or the Leased Premises, (v) the existence of any design or construction defects within the Property, the Building or the Leased Premises; (vi) the failure of any mechanical systems to function properly (such as the HVAC systems); (vii) the blockage of access to any portion of the Property, the Building or the Leased Premises, except that Tenant does not so release Landlord from such liability to the extent such damage was proximately caused by Landlord’s gross negligence, willful misconduct, or Landlord’s failure to perform an obligation expressly undertaken pursuant to this Lease after a reasonable period of time shall have lapsed following receipt of written notice from Tenant to so perform such obligation. In this regard, Tenant acknowledges that it is fully apprised of the provisions of Law relating to releases, and particularly to those provisions contained in Section 1542 of the California Civil Code which reads as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Notwithstanding such statutory provision, and for the purpose of implementing a full and complete release and discharge, Tenant hereby (i) waives the benefit of such statutory provision and (ii) acknowledges that, subject to the exceptions specifically set forth herein, the release and discharge set forth in this paragraph is a full and complete settlement and release and discharge of all claims and is intended to include in its effect, without limitation, all claims which Tenant, as of the date hereof, does not know of or suspect to exist in its favor.

8.2 Tenant’s Indemnification Of Landlord. Tenant shall defend with competent counsel satisfactory to Landlord any claims made or legal actions filed or threatened against the Landlord Indemnitees with respect to the violation of any Law, or the death, bodily injury, personal injury, property damage, or interference with contractual or property rights suffered by any third party occurring within the Leased Premises or resulting from Tenant’s use or occupancy of the Leased Premises, the Building or the Common Areas, or resulting from Tenant’s activities in or about the Leased Premises, the Building, the Common Areas or the Property, and Tenant shall indemnify and hold the Landlord Indemnitees harmless from any loss liability, penalties, or expense whatsoever (including any loss attributable to vacant space which otherwise would have been leased, but for such activities) resulting therefrom, except to the extent proximately caused by the negligence or willful misconduct of Landlord or of any of the Landlord Indemnitees. This indemnity agreement shall survive the expiration or sooner termination of this Lease.

ARTICLE 9

INSURANCE

9.1 Tenant’s Insurance. Tenant shall maintain insurance complying with all of the following:

     (a) Tenant shall procure, pay for and keep in full force and effect, at all times during the Lease Term, the following:

          (i) Commercial general liability insurance insuring Tenant against liability for personal injury, bodily injury, death and damage to property occurring within the Leased Premises, or resulting from Tenant’s use or occupancy of the Leased Premises, the Building, the Common Areas or the Property, or resulting from Tenant’s activities in or about the Leased Premises or the Property, with coverage in an amount equal to Tenant’s Required Liability Coverage (as set forth in Article 1), which insurance shall contain “blanket contractual liability” and “broad form property damage” endorsements insuring Tenant’s performance of Tenant’s obligations to indemnify Landlord as contained in this Lease.

          (ii) Fire and property damage insurance in “special form” coverage insuring Tenant against loss from physical damage to Tenant’s personal property, inventory, trade fixtures and improvements within the Leased Premises with coverage for the full actual replacement cost thereof;

          (iii) Business income/extra expense insurance sufficient to pay Base Monthly Rent and Additional Rent for a period of not less than twelve (12) months;

          (iv) Plate glass insurance, at actual replacement cost;

          (v) Boiler and machinery insurance, to limits sufficient to restore the Building;

          (vi) Product liability insurance (including, without limitation, if food and/or beverages are distributed, sold and/or consumed within the Leased Premises, to the extent obtainable,

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coverage for liability arising out of the distribution, sale, use or consumption of food and/or beverages (including alcoholic beverages, if applicable) at the Leased Premises for not less than Tenant’s Required Liability Coverage (as set forth in Article 1);

          (vii) Workers’ compensation insurance (statutory coverage) with employer’s liability in amounts not less than $1,000,000 insurance sufficient to comply with all laws; and

          (viii) With respect to making of any alterations or modifications or the construction of improvements or the like undertaken by Tenant, course of construction, commercial general liability, automobile liability and workers’ compensation (to be carried by Tenant’s contractor), in an amount and with coverage reasonably satisfactory to Landlord.

     (b) Each policy of liability insurance required to be carried by Tenant pursuant to this paragraph or actually carried by Tenant with respect to the Leased Premises or the Property: (i) shall, except with respect to insurance required by subparagraphs (a)(ii) and (a)(viii) above, name Landlord, and such others as are designated by Landlord, as additional insureds; (ii) shall, with respect to insurance required by subparagraph (a)(ii) above, name Landlord, and such others as are designated by Landlord, as loss payees; (iii) shall be primary insurance providing that the insurer shall be liable for the full amount of the loss, up to and including the total amount of liability set forth in the declaration of coverage, without the right of contribution from or prior payment by any other insurance coverage of Landlord; (iv) shall be in a commercially reasonable form satisfactory to Landlord; (v) shall be carried with companies reasonably acceptable to Landlord with Best’s ratings of at least A- and VIII; (vi) shall provide that such policy shall not be subject to cancellation, lapse or change except after at least thirty (30) days prior written notice to Landlord, and (vii) shall contain a so-called “severability” or “cross liability” endorsement. Each policy of property insurance maintained by Tenant with respect to the Leased Premises or the Property or any property therein (i) shall provide that such policy shall not be subject to cancellation, lapse or change except after at least thirty (30) days prior written notice to Landlord and (ii) shall contain a waiver and/or a permission to waive by the insurer of any right of subrogation against Landlord, its partners, principals, members, officers, employees, agents and contractors, which might arise by reason of any payment under such policy or by reason of any act or omission of Landlord, its partners, principals, members, officers, employees, agents and contractors.

     (c) Prior to the time Tenant or any of its contractors enters the Leased Premises, Tenant shall deliver to Landlord, with respect to each policy of insurance required to be carried by Tenant pursuant to this Article, a copy of such policy (appropriately authenticated by the insurer as having been issued, premium paid) or a certificate of the insurer certifying in form satisfactory to Landlord that a policy has been issued, premium paid, providing the coverage required by this Paragraph and containing the provisions specified herein. With respect to each renewal or replacement of any such insurance, the requirements of this Paragraph must be complied with not less than thirty days prior to the expiration or cancellation of the policies being renewed or replaced. Landlord may, at any time and from time to time, inspect and/or copy any and all insurance policies required to be carried by Tenant pursuant to this Article. If Landlord’s Lender, insurance broker, advisor or counsel reasonably determines at any time that the amount of coverage set forth in Paragraph 9.1(a) for any policy of insurance Tenant is required to carry pursuant to this Article is not adequate, then Tenant shall increase the amount of coverage for such insurance to such greater amount as Landlord’s Lender, insurance broker, advisor or counsel reasonably deems adequate. In the event Tenant does not maintain said insurance, Landlord may, in its sole discretion and without waiving any other remedies hereunder, procure said insurance and Tenant shall pay to Landlord as additional rent the cost of said insurance plus a ten percent (10%) administrative fee.

9.2 Landlord’s Insurance. With respect to insurance maintained by Landlord:

     (a) Landlord shall maintain, as the minimum coverage required of it by this Lease, fire and property damage insurance in so-called special form coverage insuring Landlord (and such others as Landlord may designate) against loss from physical damage to the Building with coverage of not less than one hundred percent (100%) of the full actual replacement cost thereof and against loss of rents for a period of not less than six months. Such fire and property damage insurance, at Landlord’s election but without any requirements on Landlord’s behalf to do so, (i) may be written in so-called “all risk” form, excluding only those perils commonly excluded from such coverage by Landlord’s then property damage insurer; (ii) may provide coverage for physical damage to the improvements so insured for up to the entire full actual replacement cost thereof; (iii) may be endorsed to cover loss or damage caused by any additional perils against which Landlord may elect to insure, including earthquake and/or flood; and/or (iv) may provide coverage for loss of rents for a period of up to twelve months. Landlord shall not be required to cause such insurance to cover any of Tenant’s personal property, inventory, and trade fixtures, or any modifications, alterations or improvements made or constructed by Tenant to or within the Leased Premises. Landlord shall use commercially reasonable efforts to obtain such insurance at competitive rates.

     (b) Landlord shall maintain commercial general liability insurance insuring Landlord (and such others as are designated by Landlord) against liability for personal injury, bodily injury, death, and

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damage to property occurring in, on or about, or resulting from the use or occupancy of the Property, or any portion thereof, with combined single limit coverage of at least Ten Million Dollars ($10,000,000). Landlord may carry such greater coverage as Landlord or Landlord’s Lender, insurance broker, advisor or counsel may from time to time determine is reasonably necessary for the adequate protection of Landlord and the Property.

     (c) Landlord may maintain any other insurance which in the opinion of its insurance broker, advisor or legal counsel is prudent to carry under the given circumstances, provided such insurance is commonly carried by owners of property similarly situated and operating under similar circumstances.

9.3 Mutual Waiver Of Subrogation. Landlord hereby releases Tenant, and Tenant hereby releases Landlord and its respective partners, principals, members, officers, agents, employees and servants, from any and all liability for loss, damage or injury to the property of the other in or about the Leased Premises or the Property which is caused by or results from a peril or event or happening which is covered by insurance actually carried and in force at the time of the loss by the party sustaining such loss; provided, however, that such waiver shall be effective only to the extent permitted by the insurance covering such loss and to the extent such insurance is not prejudiced thereby.

ARTICLE 10

DAMAGE TO LEASED PREMISES

10.1 Landlord’s Duty To Restore. If the Leased Premises, the Building or the Common Area are damaged by any peril after the Effective Date of this Lease, Landlord shall restore the same, as and when required by this paragraph, unless this Lease is terminated by Landlord pursuant to Paragraph 10.3 or by Tenant pursuant to Paragraph 10.4. If this Lease is not so terminated, then upon the issuance of all necessary governmental permits, Landlord shall commence and diligently prosecute to completion the restoration of the Leased Premises, the Building or the Common Area, as the case may be, to the extent then allowed by law, to substantially the same condition in which it existed as of the Lease Commencement Date. Landlord’s obligation to restore shall be limited to the improvements constructed by Landlord. Landlord shall have no obligation to restore any alterations, modifications or improvements made by Tenant to the Leased Premises or any of Tenant’s personal property, inventory or trade fixtures. Upon completion of the restoration by Landlord, Tenant shall forthwith replace or fully repair all of Tenant’s personal property, inventory, trade fixtures and other improvements constructed by Tenant to like or similar conditions as existed at the time immediately prior to such damage or destruction.

10.2 Insurance Proceeds. All insurance proceeds available from the fire and property damage insurance carried by Landlord shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either Paragraph 10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant which cover loss of property that is Landlord’s property or would become Landlord’s property on termination of this Lease shall be paid to and become the property of Landlord, and the remainder of such proceeds shall be paid to and become the property of Tenant. If this Lease is not terminated pursuant to either Paragraph 10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant which cover loss to property that is Landlord’s property shall be paid to and become the property of Landlord, and all proceeds available from such insurance which cover loss to property which would only become the property of Landlord upon the termination of this Lease shall be paid to and remain the property of Tenant. The determination of Landlord’s property and Tenant’s property shall be made pursuant to Paragraph 6.2.

10.3 Landlord’s Right To Terminate. Landlord shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Tenant of a written notice of election to terminate within thirty days after the date of such damage or destruction:

     (a) The Building is damaged by any peril covered by valid and collectible insurance actually carried by Landlord and in force at the time of such damage or destruction (an “insured peril”) to such an extent that the estimated cost to restore the Building exceeds the lesser of (i) the insurance proceeds available from insurance actually carried by Landlord, or (ii) fifty percent of the then actual replacement cost thereof;

     (b) The Building is damaged by an uninsured peril, which peril Landlord was not required to insure against pursuant to the provisions of Article 9 of this Lease.

     (c) The Building is damaged by any peril and, because of the laws then in force, the Building (i) cannot be restored at reasonable cost or (ii) if restored, cannot be used for the same use being made thereof before such damage.

10.4 Tenant’s Right To Terminate. If the Leased Premises, the Building or the Common Area are damaged by any peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to this Article, then as soon as reasonably practicable, Landlord shall furnish Tenant

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with the written opinion of The Architect or construction consultant as to when the restoration work required of Landlord may be complete. Tenant shall have the option to terminate this Lease (if Tenant is not then in Default) in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven days after Tenant receives from Landlord the written estimate of the time needed to complete such restoration, which written notice of election to terminate shall specify a termination date not more than sixty (60) nor fewer than ten (10) days after Tenant’s receipt of such written estimate:

     (a) If the time estimated to substantially complete the restoration exceeds nine months from and after the date the architect’s or construction consultant’s written opinion is delivered to Landlord; or

     (b) If the damage occurred within twelve months of the last day of the Lease Term and the time estimated to substantially complete the restoration exceeds one hundred twenty days from and after the date such restoration is commenced.

10.5 Tenant’s Waiver. Landlord and Tenant agree that the provisions of Paragraph 10.4 above, captioned “Tenant’s Right To Terminate”, are intended to supersede and replace the provisions contained in California Civil Code, Section 1932, Subdivision 2, and California Civil Code, Section 1933, and accordingly, Tenant hereby waives the provisions of such Civil Code Sections and the provisions of any successor Civil Code Sections or similar laws hereinafter enacted.

10.6 Abatement Of Rent. In the event of damage to the Leased Premises which does not result in the termination of this Lease, the Base Monthly Rent (and any Additional Rent) shall: (a) not abated during the period of restoration until such time as the business income/extra expense insurance carried by Tenant has been exhausted with respect to such damage, and (b) thereafter until the restoration is complete, be abated during the remaining period of restoration in proportion in the degree to which Tenant’s use of the Leased Premises is impaired by such damage.

ARTICLE 11

CONDEMNATION

11.1 Tenant’s Right To Terminate. Except as otherwise provided in Paragraph 11.4 below regarding temporary takings, Tenant shall have the option to terminate this Lease if, as a result of any taking, (i) all of the Leased Premises is taken, or (ii) twenty-five percent (25%) or more of the Leased Premises is taken and the part of the Leased Premises that remains cannot, within a reasonable period of time, be made reasonably suitable for the continued operation of Tenant’s business. Tenant must exercise such option within a reasonable period of time, to be effective on the later to occur of (i) the date that possession of that portion of the Leased Premises that is condemned is taken by the condemnor or (ii) the date Tenant vacated the Leased Premises.

11.2 Landlord’s Right To Terminate. Except as otherwise provided in Paragraph 11.4 below regarding temporary takings, Landlord shall have the option to terminate this Lease if, as a result of any taking, (i) all of the Leased Premises is taken, (ii) twenty-five percent (25%) or more of the Leased Premises is taken and the part of the Leased Premises that remains cannot, within a reasonable period of time, be made reasonably suitable for the continued operation of Tenant’s business, or (iii) because of the laws then in force, the Leased Premises may not be used for the same use being made before such taking, whether or not restored as required by Paragraph 11.3 below. Any such option to terminate by Landlord must be exercised within a reasonable period of time, to be effective as of the date possession is taken by the condemnor.

11.3 Restoration. If any part of the Leased Premises or the Building is taken and this Lease is not terminated, then Landlord shall, to the extent not prohibited by laws then in force, repair any damage occasioned thereby to the remainder thereof to a condition reasonably suitable for Tenant’s continued operations and otherwise, to the extent practicable, in the manner and to the extent provided in Paragraph 10.1.

11.4 Temporary Taking. If a material portion of the Leased Premises is temporarily taken for a period of one year or less and such period does not extend beyond the Lease Expiration Date, this Lease shall remain in effect. If any material portion of the Leased Premises is temporarily taken for a period which exceeds one year or which extends beyond the Lease Expiration Date, then the rights of Landlord and Tenant shall be determined in accordance with Paragraphs 11.1 and 11.2 above.

11.5 Division Of Condemnation Award. Any award made for any taking of the Property, the Building, or the Leased Premises, or any portion thereof, shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be entitled to receive any portion of the award that is made specifically (i) for the taking of personal property, inventory or trade fixtures belonging to Tenant, (ii) for the interruption of Tenant’s business or its moving costs, or (iii) for the value of any leasehold improvements installed and paid for by

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Tenant. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Article, and each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure, and the provisions of any similar law hereinafter enacted, allowing either party to petition the Supreme Court to terminate this Lease and/or otherwise allocate condemnation awards between Landlord and Tenant in the event of a taking of the Leased Premises.

11.6 Abatement Of Rent. In the event of a taking of the Leased Premises which does not result in a termination of this Lease (other than a temporary taking), then, as of the date possession is taken by the condemning authority, the Base Monthly Rent shall be reduced in the same proportion that the area of that part of the Leased Premises so taken (less any addition to the area of the Leased Premises by reason of any reconstruction) bears to the area of the Leased Premises immediately prior to such taking.

11.7 Taking Defined. The term “taking” or “taken” as used in this Article 11 shall mean any transfer or conveyance of all or any portion of the Property to a public or quasi-public agency or other entity having the power of eminent domain pursuant to or as a result of the exercise of such power by such an agency, including any inverse condemnation and/or any sale or transfer by Landlord of all or any portion of the Property to such an agency under threat of condemnation or the exercise of such power.

ARTICLE 12

DEFAULT AND REMEDIES

12.1 Events Of Tenant’s Default. Tenant shall be in “Default” of its obligations under this Lease if any of the following events occur:

     (a) Tenant shall have failed to pay Base Monthly Rent or any Additional Rent when due and such failure continues for more than three (3) days following written notice from Landlord which notice shall serve as the notice required under California Code of Civil Procedure Section 1161 or otherwise required by law; or

     (b) Tenant shall have done or permitted to be done any act, use or thing in its use, occupancy or possession of the Leased Premises or the Building or the Outside Areas which is prohibited by the terms of this Lease, or Tenant shall have failed to perform any term, covenant, or condition of this Lease (except those requiring the Payment of Base Monthly Rent or Additional Rent, which failures shall be governed by subparagraph (a) above) and such failure is not cured within thirty (30) days after written notice from Landlord to Tenant specifying the nature of such failure and requesting Tenant to cure the same, or within such longer period as is reasonably required in the event such failure is curable but not within such thirty (30) day period, provided such cure is promptly commenced within such thirty (30) day period and is thereafter diligently prosecuted to completion; or

     (c) Tenant shall have sublet the Leased Premises or assigned or encumbered its interest in this Lease in violation of the provisions contained in Article 7, whether voluntarily or by operation of law; or

     (d) Tenant shall have abandoned the Leased Premises; or

     (e) Tenant or any Guarantor of this Lease shall have permitted or suffered the sequestration or attachment of, or execution on, or the appointment of a custodian or receiver with respect to, all or any substantial part of the property or assets of Tenant (or such Guarantor) or any property or asset essential to the conduct of Tenant’s (or such Guarantor’s) business, and Tenant (or such Guarantor) shall have failed to obtain a return or release of the same within thirty days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or

     (f) Tenant or any Guarantor of this Lease shall have made a general assignment of all or a substantial part of its assets for the benefit of its creditors; or

     (g) Tenant or any Guarantor of this Lease shall have allowed (or sought) to have entered against it a decree or order which: (i) grants or constitutes an order for relief, appointment of a trustee, or condemnation or a reorganization plan under the bankruptcy laws of the United States; (ii) approves as properly filed a petition seeking liquidation or reorganization under said bankruptcy laws or any other debtor’s relief law or similar statute of the United States or any state thereof; or (iii) otherwise directs the winding up or liquidation of Tenant; provided, however, if any decree or order was entered without Tenant’s consent or over Tenant’s objection, Landlord may not terminate this Lease pursuant to this Subparagraph if such decree or order is rescinded or reversed within thirty days after its original entry; or

     (h) Tenant or any Guarantor of this Lease shall have availed itself of the protection of any debtor’s relief law, moratorium law or other similar law which does not require the prior entry of a decree or order.

     (i) Tenant shall have committed an “Event of Default” under the Existing Lease.

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12.2 Landlord’s Remedies. In the event of any Default by Tenant, and without limiting Landlord’s right to indemnification as provided in Article 8.2, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law or otherwise provided in this Lease, to which Landlord may resort cumulatively, or in the alternative:

     (a) Landlord may, at Landlord’s election, keep this Lease in effect and enforce, by an action at law or in equity, all of its rights and remedies under this Lease including, without limitation, (i) the right to recover the rent and other sums as they become due by appropriate legal action, (ii) the right to make payments required by Tenant, or perform Tenant’s obligations and be reimbursed by Tenant for the cost thereof with interest at the then maximum rate of interest not prohibited by law from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive relief and specific performance to prevent Tenant from violating the terms of this Lease and/or to compel Tenant to perform its obligations under this Lease, as the case may be.

     (b) Landlord may, at Landlord’s election, terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date set forth for termination in such notice, in which event Tenant shall immediately surrender the Leased Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Leased Premises and expel or remove Tenant and any other person who may be occupying the Leased Premises or any part thereof, without being liable for prosecution or any claim or damages therefor. Any termination under this subparagraph shall not relieve Tenant from its obligation to pay to Landlord all Base Monthly Rent and Additional Rent then or thereafter due, or any other sums due or thereafter accruing to Landlord, or from any claim against Tenant for damages previously accrued or then or thereafter accruing. In no event shall any one or more of the following actions by Landlord, in the absence of a written election by Landlord to terminate this Lease constitute a termination of this Lease:

          (i) Appointment of a receiver or keeper in order to protect Landlord’s interest hereunder;

          (ii) Consent to any subletting of the Leased Premises or assignment of this Lease by Tenant, whether pursuant to the provisions hereof or otherwise; or

          (iii) Any action taken by Landlord or its partners, principals, members, officers, agents, employees, or servants, which is intended to mitigate the adverse effects of any breach of this Lease by Tenant, including, without limitation, any action taken to maintain and preserve the Leased Premises on any action taken to relet the Leased Premises or any portion thereof for the account at Tenant and in the name of Tenant.

     (c) In the event Tenant breaches this Lease and abandons the Leased Premises, Landlord may terminate this Lease, but this Lease shall not terminate unless Landlord gives Tenant written notice of termination. If Landlord does not terminate this Lease by giving written notice of termination, Landlord may enforce all its rights and remedies under this Lease, including the right and remedies provided by California Civil Code Section 1951.4 (“lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations”), as in effect on the Effective Date of this Lease.

     (d) In the event Landlord terminates this Lease, Landlord shall be entitled, at Landlord’s election, to the rights and remedies provided in California Civil Code Section 1951.2, as in effect on the Effective Date of this Lease. For purposes of computing damages pursuant to Section 1951.2, an interest rate equal to the maximum rate of interest then not prohibited by law shall be used where permitted. Such damages shall include, without limitation:

          (i) The worth at the time of the award of the unpaid rent which had been earned at the time of termination;

          (ii) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided;

          (iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco, at the time of award plus one percent;

          (iv) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom, including without limitation, the following: (i) expenses for cleaning, repairing or restoring the Leased Premises, (ii) expenses for altering, remodeling or otherwise improving the Leased Premises for the purpose of reletting, including removal of

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existing leasehold improvements and/or installation of additional leasehold improvements (regardless of how the same is funded, including reduction of rent, a direct payment or allowance to a new tenant, or otherwise), (iii) broker’s fees allocable to the remainder of the term of this Lease, advertising costs and other expenses of reletting the Leased Premises; (iv) costs of carrying and maintaining the Leased Premises, such as taxes, insurance premiums, utility charges and security precautions, (v) expenses incurred in removing, disposing of and/or storing any of Tenant’s personal property, inventory or trade fixtures remaining therein; (vi) reasonable attorney’s fees, expert witness fees, court costs and other reasonable expenses incurred by Landlord (but not limited to taxable costs) in retaking possession of the Leased Premises, establishing damages hereunder, and releasing the Leased Premises; and (vii) any other expenses, costs or damages otherwise incurred or suffered as a result of Tenant’s Default; and

          (v) The unamortized amount of any tenant improvement or similar allowance paid or credited by Landlord to Tenant pursuant to this Lease or the Work Letter.

     (e) Pursuant to California Code of Civil Procedure Section 1161.1, Landlord may accept a partial payment of Rent after serving a notice pursuant to California Code of Civil Procedure Section 1161, and may without further notice to the Tenant, commence and pursue an action to recover the difference between the amount demanded in that notice and the payment actually received. This acceptance of such a partial payment of Rent does not constitute a waiver of any rights, including any right the Landlord may have to recover possession of the Leased Premises.

12.3 Landlord’s Default And Tenant’s Remedies. In the event Landlord fails to perform its obligations under this Lease, Landlord shall nevertheless not be in default under the terms of this Lease until such time as Tenant shall have first given Landlord written notice specifying the nature of such failure to perform its obligations, and then only after Landlord shall have had thirty (30) days following its receipt of such notice within which to perform such obligations; provided that, if longer than thirty (30) days is reasonably required in order to perform such obligations, Landlord shall have such longer period. In the event of Landlord’s default as above set forth, then, and only then, Tenant may then proceed in equity or at law to compel Landlord to perform its obligations and/or to recover damages proximately caused by such failure to perform (except as and to the extent Tenant has waived its right to damages as provided in this Lease).

12.4 Limitation Of Tenant’s Recourse. Tenant’s sole recourse against Landlord shall be to Landlord’s interest in the Building and the Common Areas. If Landlord is a corporation, trust, partnership, joint venture, limited liability company, unincorporated association, or other form of business entity, Tenant agrees that (i) the obligations of Landlord under this Lease shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, managers, owners, stockholders, or other principals of such business entity, and (ii) Tenant shall have recourse only to the interest of such corporation, trust, partnership, joint venture, limited liability company, unincorporated association, or other form of business entity in the Building and the Common Areas for the satisfaction of such obligations and not against the assets of such officers, directors, trustees, partners, joint venturers, members, managers, owners, stockholders or principals. Additionally, if Landlord is a partnership or limited liability company, then Tenant covenants and agrees:

     (a) No partner, manager, or member of Landlord shall be sued or named as a party in any suit or action brought by Tenant with respect to any alleged breach of this Lease (except to the extent necessary to secure jurisdiction over the partnership or limited liability company and then only for that sole purpose);

     (b) No service of process shall be made against any partner, manager, or member of Landlord except for the sole purpose of securing jurisdiction over the partnership; and

     (c) No writ of execution will ever be levied against the assets of any partner, manager, or member of Landlord other than to the extent of his or her interest in the assets of the partnership or limited liability company constituting Landlord.

Tenant further agrees that each of the foregoing covenants and agreements shall be enforceable by Landlord and by any partner or member of Landlord and shall be applicable to any actual or alleged misrepresentation or nondisclosure made regarding this Lease or the Leased Premises or any actual or alleged failure, default or breach of any covenant or agreement either expressly or implicitly contained in this Lease or imposed by statute or at common law.

12.5 Tenant’s Waiver. Landlord and Tenant agree that the provisions of Paragraph 12.3 above are intended to supersede and replace the provisions of California Civil Code Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby waives the provisions of California Civil Code Sections 1932(1), 1941 and 1942 and/or any similar or successor law regarding Tenant’s right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under this Lease.

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ARTICLE 13

GENERAL PROVISIONS

13.1 Taxes On Tenant’s Property. Tenant shall pay before delinquency any and all taxes, assessments, license fees, use fees, permit fees and public charges of whatever nature or description levied, assessed or imposed against Tenant or Landlord by a governmental agency arising out of, caused by reason of or based upon Tenant’s estate in this Lease, Tenant’s ownership of property, improvements made by Tenant to the Leased Premises or the Common Areas, improvements made by Landlord for Tenant’s use within the Leased Premises or the Common Areas, Tenant’s use (or estimated use) of public facilities or services or Tenant’s consumption (or estimated consumption) of public utilities, energy, water or other resources (collectively, “Tenant’s Interest”). Upon demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. If any such taxes, assessments, fees or public charges are levied against Landlord, Landlord’s property, the Building or the Property, or if the assessed value of the Building or the Property is increased by the inclusion therein of a value placed upon Tenant’s Interest, regardless of the validity thereof, Landlord shall have the right to require Tenant to pay such taxes, and if not paid and satisfactory evidence of payment delivered to Landlord at least ten days prior to delinquency, then Landlord shall have the right to pay such taxes on Tenant’s behalf and to invoice Tenant for the same, in either case whether before or after the expiration or earlier termination of the Lease Term. Tenant shall, within the earlier to occur of (a) thirty (30) days of the date it receives an invoice from Landlord setting forth the amount of such taxes, assessments, fees, or public charge so levied, or (b) the due date of such invoice, pay to Landlord, as Additional Rent, the amount set forth in such invoice. Failure by Tenant to pay the amount so invoiced within such time period shall be conclusively deemed a Default by Tenant under this Lease. Tenant shall have the right to bring suit in any court of competent jurisdiction to recover from the taxing authority the amount of any such taxes, assessments, fees or public charges so paid.

13.2 Holding Over. This Lease shall terminate without further notice on the Lease Expiration Date (as set forth in Article 1). Any holding over by Tenant after expiration of the Lease Term shall neither constitute a renewal nor extension of this Lease nor give Tenant any rights in or to the Leased Premises except as expressly provided in this Paragraph. Any such holding over to which Landlord has consented shall be construed to be a tenancy from month to month, on the same terms and conditions herein specified insofar as applicable, except that the Base Monthly Rent shall be increased to an amount equal to one hundred fifty percent (150%) of the Base Monthly Rent payable during the last full month immediately preceding such holding over. Without limiting the foregoing, in the event of a holding over to which Landlord has consented, any rights of Landlord or obligations of Tenant set forth in this Lease and purporting to apply during the term of this Lease, shall nonetheless also be deemed to apply during any such hold over period. Tenant acknowledges that if Tenant holds over without Landlord’s consent, such holding over may compromise or otherwise affect Landlord’s ability to enter into new leases with prospective tenants regarding the Leased Premises. Therefore, if Tenant fails to surrender the Leased Premises upon the expiration or termination of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from and against all claims resulting from such failure, including, without limiting the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender, and any losses suffered by Landlord, including lost profits, resulting from such failure to surrender.

13.3 Subordination To Mortgages. This Lease is subject to and subordinate to all ground leases, mortgages and deeds of trust which affect the Building or the Property and which are of public record as of the Effective Date of this Lease, and to all renewals, modifications, consolidations, replacements and extensions thereof. However, if the lessor under any such ground lease or any lender holding any such mortgage or deed of trust shall advise Landlord that it desires or requires this Lease to be made prior and superior thereto, then, upon written request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and deliver any and all customary or reasonable documents or instruments which Landlord and such lessor or lender deems necessary or desirable to make this Lease prior thereto. Tenant hereby consents to Landlord’s ground leasing the land underlying the Building or the Property and/or encumbering the Building or the Property as security for future loans on such terms as Landlord shall desire, all of which future ground leases, mortgages or deeds of trust shall be subject to and subordinate to this Lease. However, if any lessor under any such future ground lease or any lender holding such future mortgage or deed of trust shall desire or require that this Lease be made subject to and subordinate to such future ground lease, mortgage or deed of trust, then Tenant agrees, within ten days after Landlord’s written request therefor, to execute, acknowledge and deliver to Landlord any and all documents or instruments requested by Landlord or by such lessor or lender as may be necessary or proper to assure the subordination of this Lease to such future ground lease, mortgage or deed of trust, but only if such lessor or lender agrees not to disturb Tenant’s quiet possession of the Leased Premises so long as Tenant is not in Default under this Lease. Tenant’s failure to execute and deliver such documents or instruments within ten business days after Landlord’s request therefor shall be a material Default by Tenant under this Lease, and no further notice shall be required under Paragraph 12.1(c) or any other provision of this Lease, and Landlord shall have all of the rights and remedies available to Landlord as Landlord would otherwise have in the case of any other material Default by Tenant, it being agreed and understood by Tenant that

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Tenant’s failure to so deliver such documents or instruments in a timely manner could result in Landlord being unable to perform committed obligations to other third parties which were made by Landlord in reliance upon this covenant of Tenant. If Landlord assigns the Lease as security for a loan, Tenant agrees to execute such documents as are reasonably requested by the lender and to provide reasonable provisions in the Lease protecting such lender’s security interest which are customarily required by institutional lenders making loans secured by a deed of trust, which may include, but shall not be limited to, those provisions listed on Exhibit C attached hereto. Upon the written request of Tenant, Landlord agrees to exercise commercially reasonable efforts to have Landlord’s Lender or ground lessor provide a subordination, nondisturbance, and attornment agreement for Tenant’s review and execution. In the event Tenant desires to have changes made in such document, Landlord agrees to request such changes of its Lender or ground lessor, but Tenant shall be responsible for and shall promptly pay upon demand, all costs incurred by Landlord (including but not limited to reasonable attorneys’ fees) in connection with the subordination, nondisturbance, and attornment agreement from and after delivery of the initial draft thereof for Tenant’s review and execution.

13.4 Tenant’s Attornment Upon Foreclosure. Tenant shall, upon request, attorn (i) to any purchaser of the Building or the Property at any foreclosure sale or private sale conducted pursuant to any security instruments encumbering the Building or the Property, (ii) to any grantee or transferee designated in any deed given in lieu of foreclosure of any security interest encumbering the Building or the Property, or (iii) to the lessor under an underlying ground lease of the land underlying the Building or the Property, should such ground lease be terminated; provided that such purchaser, grantee or lessor recognizes Tenant’s rights under this Lease.

13.5 Mortgagee Protection. In the event of any default on the part of Landlord, Tenant will give notice by registered mail to any Lender or lessor under any underlying ground lease who shall have requested, in writing, to Tenant that it be provided with such notice, and Tenant shall offer such Lender or lessor a reasonable opportunity to cure the default, including time to obtain possession of the Leased Premises by power of sale or judicial foreclosure or other appropriate legal proceedings if reasonably necessary to effect a cure.

13.6 Estoppel Certificate. Tenant will, following any request by Landlord, promptly execute and deliver to Landlord an estoppel certificate substantially in form attached as Exhibit D, (i) certifying that this Lease is unmodified and in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect, (ii) stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iv) certifying such other information about this Lease as may be reasonably requested by Landlord, its Lender or prospective lenders, investors or purchasers of the Building or the Property. Tenant’s failure to execute and deliver such estoppel certificate within ten business days after Landlord’s request therefor shall be a material Default by Tenant under this Lease, and no further notice shall be required under Paragraph 12.1(c) or any other provision of this Lease, and Landlord shall have all of the rights and remedies available to Landlord as Landlord would otherwise have in the case of any other material Default by Tenant, it being agreed and understood by Tenant that Tenant’s failure to so deliver such estoppel certificate in a timely manner could result in Landlord being unable to perform committed obligations to other third parties which were made by Landlord in reliance upon this covenant of Tenant. Landlord and Tenant intend that any statement delivered pursuant to this paragraph may be relied upon by any Lender or purchaser or prospective Lender or purchaser of the Building, the Property, or any interest in them.

13.7 Tenant’s Financial Information. Tenant shall, within ten business days after Landlord’s request therefor, deliver to Landlord a copy of Tenant’s (and any guarantor’s) current financial statements (including a balance sheet, income statement and statement of cash flow, all prepared in accordance with generally accepted accounting principles), a list of all of Tenant’s creditors with current contact information (but only if Tenant is in Default under this Lease at the time of such request by Landlord), and any such other information reasonably requested by Landlord regarding Tenant’s financial condition. Landlord shall be entitled to disclose such financial statements or other information to its Lender, to any present or prospective principal of or investor in Landlord, or to any prospective Lender or purchaser of the Building, the Property, or any portion thereof or interest therein. Any such financial statement or other information which is marked “confidential” or “company secrets” (or is otherwise similarly marked by Tenant) shall be confidential and shall not be disclosed by Landlord to any third party except as specifically provided in this paragraph, unless the same becomes a part of the public domain without the fault of Landlord.

13.8 Transfer By Landlord. Landlord and its successors in interest shall have the right to transfer their interest in the Building, the Property, or any portion thereof at any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and in the case of any subsequent transfer, the transferor), from the date of such transfer, shall be automatically relieved, without any further act by any person or entity, of all liability for (i) the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer, and (ii) repayment of any unapplied portion of

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the Security Deposit (upon transferring or crediting the same to the transferee), and (iii) the performance of the obligations of the Landlord hereunder which have accrued before the date of transfer if its transferee agrees to assume and perform all such prior obligations of the Landlord hereunder. Tenant shall attorn to any such transferee. After the date of any such transfer, the term “Landlord” as used herein shall mean the transferee of such interest in the Building or the Property.

13.9 Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

13.10 Notices. Any notice required or permitted to be given under this Lease other than statutory notices shall be in writing and (i) personally delivered, (ii) sent by United States mail, registered or certified mail, postage prepaid, return receipt requested, (iii) sent by Federal Express or similar nationally recognized overnight courier service, or (iv) transmitted by facsimile with a hard copy sent within one (1) business day by any of the foregoing means, and in all cases addressed as follows, and such notice shall be deemed to have been given upon the date of actual receipt or delivery (or refusal to accept delivery) at the address specified below (or such other addresses as may be specified by notice in the foregoing manner) as indicated on the return receipt or air bill:

If to Landlord:	Jeronimo Technology Partners LLC
	c/o Menlo Equities LLC
	490 California Avenue
	4th Floor
	Palo Alto, California 94306
	Attention: Henry Bullock/Richard Holmstrom
	Facsimile: (650) 326-9333
with a copy to:	Cooley Godward llp
	101 California Street, 5th Floor
	San Francisco, California 94111
	Attention: Paul Churchill
	Facsimile: (415) 693-2222
If to Tenant:	Silicon Image, Inc.
	1060 East Arques Avenue
	Sunnyvale, CA 94085
	Attention: Richard Zyhylij

Any notice given in accordance with the foregoing shall be deemed received upon actual receipt or refusal to accept delivery. Any statutory notice shall be given and deemed received in accordance with the applicable statute or as otherwise provided by law.

13.11 Attorneys’ Fees and Costs. In the event any party shall bring any action, arbitration, or other proceeding alleging a breach of any provision of this Lease, or a right to recover rent, to terminate this Lease, or to enforce, protect, interpret, determine, or establish any provision of this Lease or the rights or duties hereunder of either party, the prevailing party shall be entitled to recover from the non-prevailing party as a part of such action or proceeding, or in a separate action for that purpose brought within one year from the determination of such proceeding, reasonable attorneys’ fees, expert witness fees, court costs and reasonable disbursements, made or incurred by the prevailing party.

13.12 Definitions. Any term that is given a special meaning by any provision in this Lease shall, unless otherwise specifically stated, have such meaning wherever used in this Lease or in any Addenda or amendment hereto. In addition to the terms defined in Article 1, the following terms shall have the following meanings:

     (a) Real Property Taxes. The term “Real Property Tax” or “Real Property Taxes” shall each mean the following (to the extent applicable to any portion of the Lease Term, regardless of when the same are imposed, assessed, levied, or otherwise charged): (i) all taxes, assessments, levies and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any general or special assessments for public improvements and any increases resulting from reassessments caused by any change in ownership or new construction), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed for

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whatever reason against the Property or any portion thereof, or Landlord’s interest herein, or the fixtures, equipment and other property of Landlord that is an integral part of the Property and located thereon, or Landlord’s business of owning, leasing or managing the Property or the gross receipts, income or rentals from the Property, (ii) all charges, levies or fees imposed by any governmental authority against Landlord by reason of or based upon the use of or number of parking spaces within the Property, the amount of public services or public utilities used or consumed (e.g. water, gas, electricity, sewage or waste water disposal) at the Property, the number of persons employed by tenants of the Property, the size (whether measured in area, volume, number of tenants or whatever) or the value of the Property, or the type of use or uses conducted within the Property, and all costs and fees (including attorneys’ fees) reasonably incurred by Landlord in contesting any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. If, at any time during the Lease Term, the taxation or assessment of the Property prevailing as of the Effective Date of this Lease shall be altered so that in lieu of or in addition to any the Real Property Tax described above there shall be levied, awarded or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate, substitute, or additional use or charge (i) on the value, size, use or occupancy of the Property or Landlord’s interest therein or (ii) on or measured by the gross receipts, income or rentals from the Property, or on Landlord’s business of owning, leasing or managing the Property or (iii) computed in any manner with respect to the operation of the Property, then any such tax or charge, however designated, shall be included within the meaning of the terms “Real Property Tax” or “Real Property Taxes” for purposes of this Lease. If any Real Property Tax is partly based upon property or rents unrelated to the Property, then only that part of such Real Property Tax that is fairly allocable to the Property shall be included within the meaning of the terms “Real Property Tax” or “Real Property Taxes.” Notwithstanding the foregoing, in the event Landlord has the right to elect to have assessments amortized over different time periods, Landlord will elect (or will charge such assessment through to Tenant as if Landlord had elected) to have such assessment amortized over the longest period permitted by the assessing authority, and only the amortizing portion of such assessment (with interest at the lesser of ten percent (10%) per annum or the then maximum rate of interest not prohibited or made usurious by Law) shall be included in Additional Rent on a monthly basis). Notwithstanding the foregoing, the terms “Real Property Tax” or “Real Property Taxes” shall not include estate, inheritance, transfer, gift or franchise taxes of Landlord or the federal or state income tax imposed on Landlord’s income from all sources.

     (b) Landlord’s Insurance Costs. The term “Landlord’s Insurance Costs” shall mean the following (to the extent applicable to any portion of the Lease Term, regardless of when the same are incurred): the costs to Landlord to carry and maintain the policies of fire and property damage insurance for the Building and the Property and general liability and any other insurance required or permitted to be carried by Landlord pursuant to Article 9, together with any deductible amounts provided that respect to any deductible applied to the cost of capital repairs and improvements, the inclusion of such deductible shall be subject to the limitation and amortization provisions of Paragraphs 13.12(c) and 13.12(d). In the event any Landlord’s Insurance Cost relates to the Property as a whole, then Tenant’s Expense Share with respect to such Landlord’s Insurance Cost shall be deemed to be the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Property at the time of calculation. In the event the rentable square footage of the Leased Premises or the Property is changed, the foregoing deemed Tenant’s Expense Share shall be recalculated so that the aggregate deemed Tenant’s Expense Share of all tenants of the Property shall equal 100%.

     (c) Property Maintenance Costs. The term “Property Maintenance Costs” shall mean

          (i) All costs of management, operation, repair and maintenance of the Building, including, without limitation; wages, salaries and payroll of employees; Building management fees, janitorial, repairs and maintenance, guard, parking and other services; rent or rental value of offices used in connection with the management of the Building; improvements made by Landlord to comply with Laws, power, water, waste disposal and other utilities and services; materials and supplies; maintenance and repairs; costs for licenses, permits and inspections; insurance premiums and the deductible portion of any loss insured under Landlord’s liability insurance; costs for accounting, legal and other professional services incurred in connection with the operation of the Building and the calculation of Property Maintenance Costs; the reasonable cost of contesting the validity or applicability of any governmental enactments that may affect the Building; a reasonable allowance for depreciation on machinery and equipment used to maintain the Building and on other personal Building used by Landlord in the Building; and any other expense or charge, whether or not included herein, which in accordance with general accounting and management practices would be considered an expense of managing, operating, maintaining and repairing the Building.

          (ii) The cost of any capital improvements made to the Building by Landlord, provided such capital improvements have a useful life of five (5) years or less or are like-kind replacements of existing improvements and equipment existing at the Property as of the Lease Commencement Date, such cost or allocable portion thereof to be amortized over the useful life of such capital improvement as reasonably determined by Landlord in accordance with generally accepted accounting principles together with interest at a rate equal to the greater of (a) 10%, or (b) the sum of that rate quoted by Wells Fargo Bank, N.T. & S.A. from time to time as its prime rate (the “Prime Rate”), plus

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two percent (2%) or (c) such higher rate as may have been paid by Landlord on funds borrowed for the purpose of constructing such capital improvements or performing any capital repairs and/or replacements (but in no event more than the maximum rate of interest not prohibited or made usurious by Law).

          (iii) If less than 95% of the total rentable area of the Building is occupied during the Base Year or any calendar year during the term of this Lease, then Property Maintenance Expenses shall be adjusted to equal Landlord’s reasonable estimate had such percentage of the total rentable area of the Building been occupied.

          (iv) Market rate professional management fees and such other costs as may be paid or incurred with respect to operating, maintaining, and preserving the Building, such as repairing and resurfacing the exterior surfaces of the Building (including roofs), repairing and resurfacing paved areas, and repairing and replacing, when necessary, electrical, plumbing, heating, ventilating and air conditioning systems serving the Building. In the event a Property Maintenance Cost relates to the Property as a whole, then Tenant’s Expense Share with respect to such Property Maintenance Cost shall be deemed to be the percentage obtained by dividing the rentable square footage of the Leased Premises at the time of calculation by the rentable square footage of the Property at the time of calculation. In the event the rentable square footage of the Leased Premises or the Property is changed, the foregoing deemed Tenant’s Expense Share shall be recalculated so that the aggregate deemed Tenant’s Expense Share of all tenants of the Property shall equal 100%.

     (d) Property Expense Increase. The term “Operating Expenses” means the Real Property Taxes, Landlord’s Insurance Costs and Property Maintenance Cost. The term “Property Expense Increase” shall mean Tenant’s Expense Share of the Operating Expenses paid by Landlord during calendar year 2007 and subsequent calendar years over Tenant’s Expense Share of the Operating Expenses paid by Landlord during the Base Year. Real Property Taxes, Landlord’s Insurance Costs, and Property Maintenance Costs for each applicable Base Year shall not include market-wide cost increases due to extraordinary circumstances, including, but not limited to, Force Majeure, boycotts, strikes, conservation surcharges, embargoes or shortages, or amortized costs relating to capital improvements. Tenant’s Share of the Property Expense Increase attributable to the capital cost of repair and maintenance of the roof of the Building and the base building HVAC units and system shall not exceed $2,500.00 per calendar year. For the avoidance of doubt, if in calendar 2007 Real Property Taxes were the same as for 2006, Tenant’s Expense Share of Landlord’s insurance costs increased by $1,000 and Property Maintenance Costs decreased by $1,000, Tenant’s Property Expense Increase would be $0.00. In no event shall the Property Expense Increase for any calendar year subsequent to the Base Year be a negative number. Notwithstanding Tenant’s Expense Share, Landlord reserves the right to equitably apportion the Property Expense Increase between Tenant and other tenants of the Property if, in Landlord’s reasonable opinion (on the basis of factors such as hours and intensity of use of a utility or service), any tenant is responsible for a greater percentage of the Property Expense Increase than represented by such tenant’s Expense Share as appropriate. For the avoidance of doubt, Operating Expenses shall not include capital expenditures or the amortization of capital expenditures other than those identified above with respect to the roof and the base building HVAC units and system and those identified in Paragraph 13.12(c)(ii) above.

     (e) Law. The term “Law” shall mean any judicial decisions and any statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirements of any municipal, county, state, federal, or other governmental agency or authority having jurisdiction over the parties to this Lease, the Leased Premises, the Building or the Property, or any of them, in effect either at the Effective Date of this Lease or at any time during the Lease Term, including, without limitation, any regulation, order, or policy of any quasi-official entity or body (e.g. a board of fire examiners or a public utility or special district).

     (f) Lender. The term “Lender” shall mean the holder of any promissory note or other evidence of indebtedness secured by the Property or any portion thereof.

     (g) Restrictions. The term “Restrictions” shall mean (as they may exist from time to time) any and all covenants, conditions and restrictions, private agreements, easements, and any other recorded documents or instruments affecting the use of the Property, the Building, the Leased Premises, or the Common Areas.

     (h) Rent. The term “Rent” shall mean collectively Base Monthly Rent and all Additional Rent.

13.13 General Waivers. One party’s consent to or approval of any act by the other party requiring the first party’s consent or approval shall not be deemed to waive or render unnecessary the first party’s consent to or approval of any subsequent similar act by the other party. No waiver of any provision hereof, or any waiver of any breach of any provision hereof, shall be effective unless in writing and signed by the waiving party. The receipt by Landlord of any rent or payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach. No waiver

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of any provision of this Lease shall be deemed a continuing waiver unless such waiver specifically states so in writing and is signed by both Landlord and Tenant. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by either party of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or any other provisions herein contained.

13.14 Miscellaneous. Should any provisions of this Lease prove to be invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provisions hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. Any copy of this Lease which is executed by the parties shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. The benefit of each indemnity obligation of Tenant under this Lease is assignable in whole or in part by Landlord. The term “party” shall mean Landlord or Tenant as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. Submission of this Lease for review, examination or signature by Tenant does not constitute an offer to lease, a reservation of or an option for lease, and notwithstanding any inconsistent language contained in any other document, this Lease is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. This Lease shall be construed and enforced in accordance with the Laws of the State in which the Leased Premises are located. The captions in this Lease are for convenience only and shall not be construed in the construction or interpretation of any provision hereof. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership, corporation, limited liability company, joint venture, or other form of business entity, and the singular includes the plural. The terms “must,” “shall,” “will,” and “agree” are mandatory. The term “may” is permissive. The term “governmental agency” or “governmental authority” or similar terms shall include, without limitation, all federal, state, city, local and other governmental and quasi-governmental agencies, authorities, bodies, boards, etc., and any party or parties having enforcement rights under any Restrictions. When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless specific provision is made therefor. Where Landlord’s consent is required hereunder, the consent of any Lender shall also be required. Landlord and Tenant shall both be deemed to have drafted this Lease, and the rule of construction that a document is to be construed against the drafting party shall not be employed in the construction or interpretation of this Lease. Where Tenant is obligated not to perform any act or is not permitted to perform any act, Tenant is also obligated to restrain any others reasonably within its control, including agents, invitees, contractors, subcontractors and employees, from performing such act. Landlord shall not become or be deemed a partner or a joint venturer with Tenant by reason of any of the provisions of this Lease.

13.15 Patriot Act Compliance.

     (a) Tenant will use its good faith and commercially reasonable efforts to comply with the Patriot Act (as defined below) and all applicable requirements of governmental authorities having jurisdiction over Tenant or the Property, including those relating to money laundering and terrorism. Landlord shall have the right to audit Tenant’s compliance with the Patriot Act and all applicable requirements of governmental authorities having jurisdiction over Tenant or the Property, including those relating to money laundering and terrorism. In the event that Tenant fails to comply with the Patriot Act or any such requirements of governmental authorities, then Landlord may, at its option, cause Tenant to comply therewith and any and all reasonable costs and expenses incurred by Landlord in connection therewith shall be deemed Additional Charges and Rent and shall be immediately due and payable. For purposes hereof, the term “Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as the same may be amended from time to time, and corresponding provisions of future laws.

     (b) Neither Tenant nor any partner in Tenant or member of such partner (a) is listed on any Government Lists (as defined below), (b) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC (as defined below) or in any enabling legislation or other Presidential Executive Orders in respect thereof, (c) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense (as defined below), or (d) is currently under investigation by any governmental authority for alleged criminal activity. For purposes hereof, the term “Patriot Act Offense” means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (a) the criminal laws against terrorism; (b) the criminal laws against money laundering, (c) the Bank Secrecy Act, as amended, (d) the Money Laundering Control Act of 1986, as amended, or the (e) Patriot Act. “Patriot Act Offense” also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense. For purposes hereof, the term “Government Lists” means (i) the Specially

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Designated Nationals and Blocked Persons Lists maintained by Office of Foreign Assets Control (“OFAC”), (ii) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Landlord notified Tenant in writing is now included in “Governmental Lists”, or (iii) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other government authority or pursuant to any Executive Order of the President of the United States of America that Landlord notified Tenant in writing is now included in “Governmental Lists.”

ARTICLE 14

CORPORATE AUTHORITY
BROKERS AND ENTIRE AGREEMENT

14.1 Corporate Authority. If Tenant is a corporation, each individual executing this Lease on behalf of such corporation represents and warrants that Tenant is validly formed and duly authorized and existing, that Tenant is qualified to do business in the State in which the Leased Premises are located, that Tenant has the full right and legal authority to enter into this Lease, and that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant in accordance with its terms. Tenant shall, within three (3) business days after execution of this Lease, deliver to Landlord a certified copy of the resolution of its board of directors authorizing or ratifying the execution of this Lease, as well as a certified copy of binding resolutions of any guarantor in form reasonably acceptable to Landlord, authorizing or ratifying the execution of the applicable guaranty, and if Tenant fails to do so, the same shall be a material Default on the part of Tenant permitting Landlord at its sole election to terminate this Lease.

14.2 Brokerage Commissions. Tenant represents, warrants and agrees that it has not had any dealings with any real estate broker(s), leasing agent(s), finder(s) or salesmen, other than the Brokers (as named in Article 1) with respect to the lease by it of the Leased Premises pursuant to this Lease, and that it will indemnify, defend with competent counsel, and hold Landlord harmless from any liability for the payment of any real estate brokerage commissions, leasing commissions or finder’s fees claimed by any other real estate broker(s), leasing agent(s), finder(s), or salesmen to be earned or due and payable by reason of Tenant’s agreement or promise (implied or otherwise) to pay (or to have Landlord pay) such a commission or finder’s fee by reason of its leasing the Leased Premises pursuant to this Lease. Notwithstanding any provision of this Lease to the contrary, Landlord shall not be obligated to pay any leasing commission or compensation of any kind or type in connection with an extension of the term of this Lease, an expansion of the Leased Premises, a lease or sublease of any other premises leased by Tenant pursuant to any right of first offer or right of first refusal or other similar right granted to Tenant.

14.3 Entire Agreement. This Lease and the Exhibits (as described in Article 1), which Exhibits are by this reference incorporated herein, constitute the entire agreement between the parties, and there are no other agreements, understandings or representations between the parties relating to the lease by Landlord of the Leased Premises to Tenant, except as expressed herein. No subsequent changes, modifications or additions to this Lease shall be binding upon the parties unless in writing and signed by both Landlord and Tenant.

14.4 Landlord’s Representations. Tenant acknowledges that neither Landlord nor any of its agents made any representations or warranties respecting the Property, the Building or the Leased Premises, upon which Tenant relied in entering into the Lease, which are not expressly set forth in this Lease. Tenant further acknowledges that neither Landlord nor any of its agents made any representations as to (i) whether the Leased Premises may be used for Tenant’s intended use under existing Law, or (ii) the suitability of the Leased Premises for the conduct of Tenant’s business, or (iii) the exact square footage of the Leased Premises, and that Tenant relies solely upon its own investigations with respect to such matters. Tenant expressly waives any and all claims for damage by reason of any statement, representation, warranty, promise or other agreement of Landlord or Landlord’s agent(s), if any, not contained in this Lease or in any Exhibit attached hereto.

ARTICLE 15

OPTION TO EXTEND

15.1 So long as the named Tenant is the Tenant hereunder and occupies the entirety of the Leased Premises, and subject to the condition set forth in clause (b) below, Tenant shall have one option to extend the term of this Lease with respect to the entirety of the Leased Premises, for a period of three (3) years from the expiration of the initial Lease Term (the “Extension Period”), subject to the following conditions:

     (a) The option to extend shall be exercised, if at all, by notice of exercise given to Landlord by Tenant not more than twelve (12) months nor less than nine (9) months prior to the expiration of the Lease Term.

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     (b) Anything herein to the contrary notwithstanding, if Tenant is in Default under any of the terms, covenants or conditions of this Lease, either at the time Tenant exercises its extension option or on the commencement date of the Extension Period, Landlord shall have, in addition to all of Landlord’s other rights and remedies provided in this Lease, the right to terminate such option and any exercise of such option upon notice to Tenant; and

     (c) SolarFlare Communications, Inc., or any successor tenant under that certain lease for approximately 18,000 square feet on the second floor of the Building, also exercises its option to extend its lease of such premises; or Tenant, upon the expiration of such lease, adds such space to the Leased Premises hereunder.

15.2 In the event the option is exercised in a timely fashion, the Lease shall be extended for the term of the Extension Period upon all of the terms and conditions of this Lease, provided that the Base Monthly Rent for the Extension Period shall be the “Fair Market Rent” for the Leased Premises for the Extension Period, increased as set forth below. For purposes hereof, “Fair Market Rent” shall mean the net effective fair market rental rate (taking into account free rent, if any) as of first day of the Extension Period, for comparable space recently leased in the Building or Property, or, if there are no recent transactions involving comparable space in the Building or Property, then the net effective fair market rental rate (taking into account free rent) based on comparable lease transactions in the Irvine Spectrum area, all based on the best information available at the time of determination of the Fair Market Rent. The Fair Market Rent shall be based on prevailing rentals then being charged to new tenants in the Building or Property (or, if necessary, in other comparable buildings in the Irvine Spectrum area), for space of equivalent quality, size and location in the Building (or adjusting the rental rate as appropriate for differences therein), taking into such account the size, nature and stature of the tenant, the length of the Extension Period during which such rate will apply, and differences in terms and provisions of the applicable leases, such as pass-throughs of operating expenses and taxes. The Fair Market Rent shall not be reduced on account of any differences in leasing commissions or tenant improvements or improvement allowances. If the parties cannot agree as to Fair Market Rent, then Fair Market Rent shall be determined pursuant to the process described below. In no event, however, shall any adjustment of Base Monthly Rent pursuant to this paragraph result in a decrease of the Base Monthly Rent for the Leased Premises below the amount due from Tenant for the for the second month of the initial Lease Term. No leasing commissions shall be due or payable to any broker retained by Tenant with regard to this Lease for any Extension Period.

15.3 Within thirty (30) days after receipt of Tenant’s notice of exercise, Landlord shall notify Tenant in writing of Landlord’s estimate of the Base Monthly Rent for the Extension Period, based on the provisions of Paragraph 15.2 above. Within ten (10) business days after receipt of such notice from Landlord, Tenant may elect to withdraw the exercise of its extension option by delivering written notice of such withdrawal to Landlord. If Tenant does not elect to withdraw its exercise, then within thirty (30) days after receipt of such notice from Landlord, Tenant shall have the right either to (i) accept Landlord’s statement of Base Monthly Rent as the Base Monthly Rent for the Extension Period; or (ii) elect to arbitrate Landlord’s estimate of Fair Market Rent, such arbitration to be conducted pursuant to the provisions hereof. Failure on the part of Tenant to require arbitration of Fair Market Rent within such 30-day period shall constitute acceptance of the Base Monthly Rent for the applicable extension period as calculated by Landlord. If Tenant elects arbitration, the arbitration shall be concluded within 90 days after the date of Tenant’s election, subject to extension for an additional 30-day period if a third arbitrator is required and does not act in a timely manner. To the extent that arbitration has not been completed prior to the expiration of any preceding period for which Base Monthly Rent has been determined, Tenant shall pay Base Monthly Rent at 95% of the rate calculated by Landlord, with the potential for an adjustment to be made once Fair Market Rent is ultimately determined by arbitration.

15.4 In the event of arbitration, the judgment or the award rendered in any such arbitration may be entered in any court having jurisdiction and shall be final and binding between the parties. The arbitration shall be conducted and determined in the City and County of San Francisco in accordance with the then prevailing rules of the American Arbitration Association or its successor for arbitration of commercial disputes except to the extent that the procedures mandated by such rules shall be modified as follows:

     (a) Tenant shall make demand for arbitration in writing within thirty (30) days after service of Landlord’s determination of Fair Market Rent given under Paragraph 15.3 above, specifying therein the name and address of the person to act as the arbitrator on its behalf. The arbitrator shall be qualified as a real estate appraiser familiar with the Fair Market Rent of similar industrial, research and development, or office space in the Irvine Spectrum market area who would qualify as an expert witness over objection to give opinion testimony addressed to the issue in a court of competent jurisdiction. Failure on the part of Tenant to make a proper demand in a timely manner for such arbitration shall constitute a waiver of the right thereto. Within fifteen (15) days after the service of the demand for arbitration, Landlord shall give notice to Tenant, specifying the name and address of the person designated by Landlord to act as arbitrator on its behalf who shall be similarly qualified. If Landlord fails to notify Tenant of the appointment of its arbitrator, within or by the time above specified, then the arbitrator appointed by Tenant shall be the arbitrator to determine the issue.

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     (b) In the event that two arbitrators are chosen pursuant to Paragraph 15.4(a) above, the arbitrators so chosen shall, within fifteen (15) days after the second arbitrator is appointed determine the Fair Market Rent. If the two arbitrators shall be unable to agree upon a determination of Fair Market Rent within such 15-day period, they, themselves, shall appoint a third arbitrator, who shall be a competent and impartial person with qualifications similar to those required of the first two arbitrators pursuant to Paragraph 15.4(a). In the event they are unable to agree upon such appointment within seven days after expiration of such 15-day period, the third arbitrator shall be selected by the parties themselves, if they can agree thereon, within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both, may request appointment of such a qualified person by the then Presiding Judge of the California Superior Court having jurisdiction over the County of Orange, acting in his or her private and not in his or her official capacity, acting in his private and not in his official capacity, and the other party shall not raise any question as to such Judge’s full power and jurisdiction to entertain the application for and make the appointment. The three arbitrators shall decide the dispute if it has not previously been resolved by following the procedure set forth below.

     (c) Where an issue cannot be resolved by agreement between the two arbitrators selected by Landlord and Tenant or settlement between the parties during the course of arbitration, the issue shall be resolved by the three arbitrators within 15 days of the appointment of the third arbitrator in accordance with the following procedure. The arbitrator selected by each of the parties shall state in writing his determination of the Fair Market Rent supported by the reasons therefor with counterpart copies to each party. The arbitrators shall arrange for a simultaneous exchange of such proposed resolutions. The role of the third arbitrator shall be to select which of the two proposed resolutions most closely approximates his determination of Fair Market Rent. The third arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution he chooses as most closely approximating his determination shall constitute the decision of the arbitrators and be final and binding upon the parties.

     (d) In the event of a failure, refusal or inability of any arbitrator to act, his successor shall be appointed by him, but in the case of the third arbitrator, his successor shall be appointed in the same manner as provided for appointment of the third arbitrator. The arbitrators shall decide the issue within fifteen (15) days after the appointment of the third arbitrator. Any decision in which the arbitrator appointed by Landlord and the arbitrator appointed by Tenant concur shall be binding and conclusive upon the parties. Each party shall pay the fee and expenses of its respective arbitrator and both shall share the fee and expenses of the third arbitrator, if any, and the attorneys’ fees and expenses of counsel for the respective parties and of witnesses shall be paid by the respective party engaging such counsel or calling such witnesses.

     (e) The arbitrators shall have the right to consult experts and competent authorities to obtain factual information or evidence pertaining to a determination of Fair Market Rent, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrators shall render their decision and award in writing with counterpart copies to each party. The arbitrators shall have no power to modify the provisions of this Lease.

ARTICLE 16

RIGHT OF FIRST OFFER

16.1 Subject to the terms of this Paragraph 16.1, Landlord hereby grants to the Tenant a one-time right of first offer (“Right of First Offer”) with respect to any space which becomes available on the second floor of the Building during the Lease Term (the “First Offer Space”). Notwithstanding the foregoing, such first offer right of Tenant shall commence only following the expiration or earlier termination of the existing lease(s) for such space, including any renewals, extensions or expansions rights set forth in such leases, regardless of whether such renewal, extension or expansion rights are executed strictly in accordance with their terms or pursuant to a lease amendment or a new lease, and is subject to any rights of first offer, right of first refusal, expansion options or similar grants existing as of the date of this Lease (collectively, the “Superior Right Holders”) with respect to such First Offer Space. Tenant’s Right of First Offer shall be on the terms and conditions set forth in this Paragraph.

     (a) Procedure for Offer. Landlord shall notify Tenant (the “First Offer Notice”) from time to time when any First Offer Space becomes available for lease to third parties. Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the then available First Offer Space. The First Offer Notice shall describe the space so offered to Tenant and shall set forth the “First Offer Rent,” as that term is defined, below, and the other economic terms upon which Landlord is willing to lease such space to Tenant.

     (b) Procedure for Acceptance. If Tenant wishes to exercise Tenant’s Right of First Offer with respect to the space described in the First Offer Notice, then within five (5) business days of delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s election to exercise its Right of First Offer with respect to the entire space described in the First Offer Notice on the terms

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contained in such notice. If Tenant does not so notify Landlord within the five (5) business day period, then Landlord shall be free to lease the space described in the First Offer Notice to anyone to whom Landlord desires on any terms Landlord desires. Tenant must elect to exercise its Right of First Offer, if at all, with respect to all of the space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof. Further, if the remaining Lease Term as of the commencement date for the First Offer Space is less than eighteen (18) months, then the Lease Term shall be extended automatically to expire as of the last day of the 36^th full calendar month following the commencement date for the First Offer Space. Tenant shall take the First Offer Space in its “as is” condition unless otherwise indicated in the First Offer Notice. All annual adjustments of Base Monthly Rent for any First Offer Space leased by Tenant shall occur concurrently with the annual adjustments of Base Monthly Rent for the Leased Premises.

     (c) Amendment to Lease. If Tenant timely exercises Tenant’s right to lease the First Offer Space as set forth herein, Landlord and Tenant shall within thirty (30) days thereafter execute an amendment to this Lease for such First Offer Space upon the terms and conditions as set forth in the First Offer Notice and this Article. Tenant shall commence payment of rent for the First Offer Space, and the term of the First Offer Space shall commence upon the date of delivery of the First Offer Space to Tenant (the “First Offer Commencement Date”) and terminate on the date set forth in the First Offer Notice.

     (d) Termination of Right of First Offer. The right of first offer granted herein shall terminate as to any portion of the First Offer Space upon Tenant’s exercise or the failure by Tenant to exercise its Right of First Offer with respect to such portion of the First Offer Space as offered by Landlord. At Landlord’s option, Tenant shall not have the right to lease First Offer Space, as provided in this Paragraph, if, as of the date of the attempted exercise of any right of first offer by Tenant, or, as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in Default under this Lease beyond any applicable notice and cure periods.

     In Witness Whereof, Landlord and Tenant have executed this Lease as of the respective dates below set forth with the intent to be legally bound thereby as of the Effective Date of this Lease first above set forth.

Landlord:

	Jeronimo Technology Partners llc,
	a California limited liability company
	By:	Menlo Equities III LLC,
		a California limited liability company, its Manager
	By:	Menlo Equities LLC,
		a California limited liability company, its Manager
	By:	Diamant Investments LLC, its Member
	By:	/s/ Richard J. Holmstrom
Dated: 9/22, 2005		Richard J. Holmstrom Manager

34.

	Tenant:
	Silicon Image, Inc.,
	a Delaware corporation
Dated: 9/16/05	By:	/s/ Steve Tirado
	Title:	CEO
Dated:	By:
	Title:

35.

Exhibit A

SITE PLAN

Exhibit B

WORK LETTER

     This Work Letter, dated ___, 2005, is entered into by and between Jeronimo Technology Partners LLC, a California limited liability company (“Landlord”), and Silicon Image, Inc., a Delaware corporation (“Tenant”). On or about the date hereof, Landlord and Tenant entered into that certain Lease (the “Lease”) for certain premises (the “Leased Premises”) commonly known as 9501 Jeronimo Road, Irvine, California. This Work Letter sets forth the agreement of Landlord and Tenant with respect to the improvements to be constructed in the Initial Space. All defined terms used herein shall have the meaning set forth in the Lease, unless otherwise defined in this Work Letter.

     1. Construction of Tenant Improvements. Tenant shall, through its general contractor (the “Contractor”), furnish and install within the Leased Premises, substantially in accordance with the plans and specifications to be approved by Landlord and Tenant pursuant to paragraphs 2 and 3 below, limited items of general construction (the “Tenant Improvements”). The quantities, character and manner of installation of all of the Tenant Improvements shall be subject to the limitations imposed by any applicable governmental regulations relating to conservation of energy and by applicable building codes and regulations. In addition, Tenant agrees that the Tenant Improvements shall not require Landlord to perform work which would (i) require changes to structural components of the Building or the exterior design of the Building; (ii) require any material modification to the Building’s mechanical or electrical systems; or (iii) be incompatible with the Building plans filed with the City of Irvine. The construction of the Tenant Improvements hereunder may be referred to as the Improvement Work.

     2. Space Planning.

          (a) Tenant shall engage an architect reasonable acceptable to Landlord (the “Architect”) to prepare for Landlord’s approval “Space Planning Documents” showing the Tenant Improvements. Tenant agrees that such space planning documents are or, after revisions requested by Landlord shall be, sufficient to enable Landlord’s architect and engineers to evaluate the Working Drawings (as defined below).

          (b) All planning and interior design services relating to furniture and equipment, such as selection of colors, finishes, fixtures, furnishings or floor coverings, will be included in the cost of the Tenant Improvements, shall be subject to prior written approval of Landlord, and shall be timely delivered so as not to impede the design and construction of the Tenant Improvements.

          (c) Upon execution of the Lease and this Work Letter by Tenant and receipt by Landlord of the Space Planning Documents, Tenant shall be authorized to cause its architect and engineers to prepare the Working Drawings.

          (d) Tenant acknowledges that it has engaged its architect(s) and shall be solely responsible for the actions and omissions of its architect(s) and for any loss, liability, claim, cost, damage or expense suffered by Landlord or any other entity or person as a result of the acts or omissions of its architects or for delays caused by its architects. Tenant’s architect(s) shall be subject to Landlord’s reasonable approval in writing. Landlord’s approval of any of Tenant’s architects or engineers and of any documents prepared by any of them shall not be for the benefit of Tenant or any third party, and Landlord shall have no duty to Tenant or to any third parties for the actions or omissions of Tenant’s architects or engineers. Tenant shall indemnify and hold harmless Landlord against any and all losses, costs, damages, claims and liabilities arising from the actions or omissions of Tenant’s architects and engineers.

     3. Approval of Working Drawings.

          (a) Landlord and Tenant acknowledge that Tenant shall retain an architect and engineers to prepare all architectural and engineering plans and specifications required for the construction of the Tenant Improvements in conformance with the base building and tenant improvement standard specifications of the Building (the “Working Drawings”), and to prepare drawings and specifications for changes, if any, requested or required.

          (b) Tenant shall submit the completed Working Drawings to Landlord for Landlord’s approval within ___ days following the parties’ execution of the Lease. Landlord will provide written approval of the Working Drawings within five (5) business days after such submission. If Landlord disapproves any part of the submission, the disapproval shall include written instructions adequate for Tenant’s architect and engineers to revise the Working Drawings. Such revisions shall be resubmitted to Landlord for Landlord’s approval within ten (10) business days following Landlord’s disapproval.

          (c) If Tenant fails to submit the Working Drawings or the required Working Drawings within the applicable periods set forth in subparagraph 3(b) above, then Tenant shall be responsible for any resulting delay, and the cost of such delay.

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          (d) Upon Landlord’s approval of the Working Drawings, Tenant shall be authorized to cause the Contractor to proceed with the construction of the Tenant Improvements in accordance with the Working Drawings.

     4. Construction.

          (a) Tenant shall obtain all building and other permits necessary in connection with the Tenant Improvements prior to the commencement of such work. The Improvement Work shall (i) be constructed in compliance with all of the terms and conditions of the Lease and with all applicable laws and regulations, (ii) not involve changes to structural components of the Building nor involve any floor, roof, or wall penetrations unless approved by Landlord, and (iii) not require any material modifications of the Building’s mechanical or electrical systems unless approved by Landlord.

          (b) Prior to commencing construction, Tenant shall deliver to Landlord the following:

               (i) The address of Tenant’s general contractor, and the names of the primary subcontractors Tenant’s contractor intends to engage for the construction of the Leased Premises;

               (ii) The actual commencement date of construction and the estimated date of completion of the work, including fixturization;

               (iii) Evidence of insurance as called for herein below; and

               (iv) An executed copy of the applicable building permit for such work.

          (c) Tenant, in its discretion, may competitively bid the Improvement Work. Tenant’s contractors and subcontractors shall be acceptable to and approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed, and shall, at Landlord’s option, be subject to administrative supervision by Landlord. Landlord reserves the right to specify engineers and subcontractors for mechanical, life safety, electrical and plumbing work. Tenant shall furnish to Landlord a copy of the executed contract between Tenant and Tenant’s general contractor covering all of Tenant’s obligations under this Work Letter. Tenant shall use commercially reasonable efforts to cause such work to be performed in as efficient a manner as is commercially reasonable. Tenant shall reimburse Landlord on demand for the cost of repairing any damage to the Building caused by Tenant or its contractors during performance of the Improvement Work. Tenant’s Contractors shall conduct their work and employ labor in such manner as to maintain harmonious labor relations. Tenant’s Contractor shall obtain a builder’s risk policy of insurance in an amount and form and issued by a carrier reasonably satisfactory to Landlord, and Tenant’s general contractor and subcontractors shall carry worker’s compensation insurance for their employees as required by law. The builder’s risk policy of insurance shall name Landlord as an additional insured and shall not be cancelable without at least 30 days’ prior written notice to Landlord.

          (d) Any changes in the Improvement Work from the final drawings approved by Landlord shall be subject to Landlord’s prior written approval, which shall not be unreasonably withheld. Any deviation in construction from the design specifications and criteria set forth herein or from Tenant’s plans and specifications as approved by Landlord shall constitute a default for which Landlord may, within ten (10) days after giving written notice to Tenant, elect to exercise the remedies available in the event of default under the provisions of this Lease, unless such default is cured within such ten (10) day period, or, if the cure reasonably requires more than ten (10) days, unless such default is cured as soon as reasonably practicable but in no event later than thirty (30) days after Landlord’s notice to Tenant. Only new materials shall be used in the construction of the Improvement Work, except with the written consent of Landlord.

          (e) Trash removal will be done continually at Tenant’s sole cost and expense. No trash, or other debris, or other waste may be deposited at any time outside the Building. If so, Landlord may remove it at Tenant’s expense, which expense shall equal the cost of removal plus twenty five percent (25%) of such costs as a management fee.

          (f) Storage of Tenant’s contractors’ construction materials, tools and equipment shall be confined within the Leased Premises, and in no event shall any materials or debris be stored outside of the Leased Premises.

          (g) Landlord shall have the right to post in a conspicuous location on the Leased Premises, as well as record with the County of Orange, a Notice of Nonresponsibility.

          (h) Without limiting the generality of the foregoing, any work to be performed outside of the Leased Premises shall be coordinated with Landlord, and shall be subject to reasonable scheduling requirements of Landlord.

2.

          (i) Tenant, its contractors and subcontractors may use all or any portion of the parking spaces allotted to Tenant hereunder during construction of the Improvement Work, without charge but subject to the terms of this Lease.

     5. Payment of Costs of the Improvement Work.

          (a) Unless specified otherwise herein, Tenant shall bear and pay the cost of the Improvement Work (which cost shall include, without limitation, the costs of construction, cabling, permits and permit expediting, and all architectural and engineering services obtained by Landlord in connection with the Tenant Improvements, and the Contractor’s fees), provided that so long as Tenant in not in material default under the Lease, Landlord shall contribute a maximum of an amount equal to $54,000.00 (the “Improvement Allowance”) toward the cost of the Improvement Work. Tenant shall bear and pay the cost of the Improvement Work (including but not limited to all of the foregoing fees and costs) in excess of the Improvement Allowance, if any. Landlord shall not charge a construction management fee, supervision fee or plan review fee in connection with the Improvement Work.

          (b) Tenant shall submit applications for payment to Landlord in a form reasonably acceptable to Landlord covering each calendar month, certified as correct by an officer of Tenant and by Tenant’s architect, for payment of that portion of the cost of the Improvement Work allocable to labor, materials and equipment incorporated in the Building during the period from the first day of the same month projected through the last day of the month. Each application for payment shall set forth such information and shall be accompanied by such supporting documentation as shall be reasonably requested by Landlord, including the following:

               (i) Invoices and canceled checks.

               (ii) Fully executed conditional lien releases in the form prescribed by law from the Contractor and all subcontractors and suppliers furnishing labor or materials during such period and fully executed unconditional lien releases from all such entities covering the prior payment period.

               (iii) Contractor’s worksheets showing percentages of completion.

               (iv) Contractor’s certification as follows:

“There are no known mechanics’ or materialmen’s liens outstanding at the date of this application for payment, all due and payable bills with respect to the Building have been paid to date or shall be paid from the proceeds of this application for payment, and there is no known basis for the filing of any mechanics’ or materialmen’s liens against the Building or the Property, and, to the best of our knowledge, waivers from all subcontractors are valid and constitute an effective waiver of lien under applicable law to the extent of payments that have been made or shall be made concurrently herewith.”

          (c) Tenant shall submit with each application for payment all documents necessary to effect and perfect the transfer of title to the materials or equipment for which application for payment is made.

          (d) If an appropriately complete application for payment together with the required supporting documentation specified above is received by landlord on or before the 25th day of a calendar month, then on or before the 15th day of the month following submission of such application for payment and other required documentation, Landlord shall pay a share of such payment determined by multiplying the amount of such payment by a fraction, the numerator of which is the amount of the Improvement Allowance, and the denominator of which is the sum of (i) estimated construction cost of all Improvement Work, and (ii) the estimated cost of all professional services, fees and permits in connection therewith. Tenant shall pay the balance of such payment, provided that at such time as Landlord has paid the entire Improvement Allowance on account of such Improvement Work, all billings shall be paid entirely by Tenant. If upon completion of the Improvement Work and payment in full to the Contractor, the architect and engineer, and payment in full of all fees and permits, the portion of the cost of the Improvement Work, architects’ and engineers’ fees, permits and fees theretofore paid by Landlord is less than the Improvement Allowance, Landlord shall reimburse Tenant for costs expended by Tenant for Improvement Work up to the amount by which the Improvement Allowance exceeds the portion of such cost theretofore paid by Landlord. Landlord shall have no obligation to advance the Improvement Allowance to the extent it exceeds the total cost of the Improvement Work. In no event shall Landlord have any responsibility for the cost of the Improvement Work in excess of the Improvement Allowance. Landlord shall have no obligation to make any payments to Contractor’s material suppliers or subcontractors or to determine whether amounts due them from Contractor in connection with the Improvement Work have, in fact, been paid.

     6. Completion of Improvement Work.

          (a) Upon the completion of the Improvement Work, Tenant shall:

3.

               (i) Submit to Landlord a detailed breakdown of Tenant’s final and total construction costs, together with receipted evidence showing payment thereof, satisfactory to Landlord;

               (ii) Submit to Landlord all evidence reasonably available from governmental authorities showing compliance with any and all other laws, orders and regulations of any and all governmental authorities having jurisdiction over the Building, including, without limitation, authorization for physical occupancy of the Building;

               (iii) Submit to Landlord the as built plans and specifications referred to above; and

               (iv) Deliver to Landlord an assignment transferring to Landlord on a non-exclusive basis any and all rights Tenant may have against Tenant’s architects and contractors relating to the Improvement Work, without in any way obligating Landlord to pursue or prosecute such rights.

     In Witness Whereof, Landlord and Tenant have executed this Work Letter as of the respective dates set forth below.

Landlord:
Jeronimo Technology Partners LLC,
a California limited liability company
By:	Menlo Equities III LLC,
	a California limited liability company, its Manager
By:	Menlo Equities LLC,
	a California limited liability company, its Manager
By:	Diamant Investments LLC, its Member
By:	/s/ Richard J. Holmst
	Richard J. Holmst
	Manager

Dated:                     , 2005

Tenant:
Silicon Image, Inc.,
a California corporation
By:	/s/ Steve Tirado
Its:	CEO
By:
Its:

Dated: 9/16, 2005

4.

Exhibit C

SUBORDINATION, NONDISTURBANCE AND ATTORNMENT PROVISIONS

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT
(Lease To Deed of Trust)

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.

THIS SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL, ATTORNMENT AND NON-DISTURBANCE AGREEMENT (“Agreement”) is made                      by and between                      (“Owner”),                      (“Lessee”) and                                          (“Lender”).

RECITALS

A. Pursuant to the terms and provisions of a lease dated                      (“Lease”), Owner, as “Lessor”, granted to Lessee a leasehold estate in and to a portion of the property described on Exhibit A attached hereto and incorporated herein by this reference (which property, together with all improvements now or hereafter located on the property, is defined as the “Property”).

B. Said Lease contains provisions and terms granting Lessee an option to purchase the Property (the “Option To Purchase”).

C. Owner has executed, a deed of trust with absolute assignment of leases and rents, security agreement and fixture filing (“Deed of Trust”) securing, among other things, a promissory note (“Note”) in the principal sum of                      ($                    ), dated                     , in favor of Lender, which Note is payable with interest and upon the terms and conditions described therein (“Loan”). The Deed of Trust recorded                     .

D. Lender requires that the Deed of Trust be unconditionally and at all times remain a lien on the Property, prior and superior to all the rights of Lessee under the Lease and the Option To Purchase and that the Lessee specifically and unconditionally subordinate the Lease and the Option To Purchase to the lien of the Deed of Trust.

E. Owner and Lessee have agreed to the subordination, attornment and other agreements herein in favor of Lender.

NOW THEREFORE, for valuable consideration and to induce Lender to make the Loan, Owner and Lessee hereby agree for the benefit of Lender as follows:

SUBORDINATION. Owner and Lessee hereby agree that:

1.

Prior Lien. The Deed of Trust securing the Note in favor of Lender, and any modifications, renewals or extensions thereof, shall unconditionally be and at all times remain a lien on the Property prior and superior to the Lease and the Option To Purchase;

Subordination. Lender would not make the Loan without this agreement to subordinate; and

Whole Agreement. This Agreement shall be the whole agreement and only agreement with regard to the subordination of the Leaseand the Option To Purchase to the lien of the Deed of Trust and shall supersede and cancel, but only insofar as would affect the priority between the Deed of Trust and the Lease and the Option To Purchase, any prior agreements as to such subordination, including, without limitation, those provisions, if any, contained in the Lease which provide for the subordination of the Leaseand the Option To Purchase to a deed or deeds of trust or to a mortgage or mortgages.

AND FURTHER, Lessee individually declares, agrees and acknowledges for the benefit of Lender, that:

Use of Proceeds. Lender, in making disbursements pursuant to the Note, the Deed of Trust or any loan agreements with respect to the Property, is under no obligation or duty to, nor has Lender represented that it will, see to the application of such proceeds by the person or persons to whom Lender disburses such proceeds, and any application or use of such proceeds for purposes other than those provided for in such agreement or agreements shall not defeat this agreement to subordinate in whole or in part;

Waiver, Relinquishment and Subordination. Lessee intentionally and unconditionally waives, relinquishes and subordinates all of Lessee’s right, title and interest in and to the Property to the lien of the Deed of Trust and understands that in reliance upon, and in consideration of, this waiver, relinquishment and subordination, specific loans and advances are being and will be made by Lender and, as part and parcel thereof, specific monetary and other obligations are being and will be entered into which would not be made or entered into but for said reliance upon this waiver, relinquishment and subordination.

ASSIGNMENT. Lessee acknowledges and consents to the assignment of the Lease by Lessor in favor of Lender.

ESTOPPEL. Lessee acknowledges and represents that:

Lease Effective. The Lease has been duly executed and delivered by Lessee and, subject to the terms and conditions thereof, the Lease is in full force and effect, the obligations of Lessee thereunder are valid and binding and there have been no modifications or additions to the Lease, written or oral;

No Default. To the best of Lessee’s knowledge, as of the date hereof: (i) there exists no breach, default, or event or condition which, with the giving of notice or the passage of time or both, would constitute a breach or default under the Lease; and (ii) there are no existing claims, defenses or offsets against rental due or to become due under the Lease;

Entire Agreement. The Lease constitutes the entire agreement between Lessor and Lessee with respect to the Property and Lessee claims no rights with respect to the Property other than as set forth in the Lease; and

No Prepaid Rent. No deposits or prepayments of rent have been made in connection with the Lease, except as follows: (if none, state “None”)                     .

ADDITIONAL AGREEMENTS. Lessee covenants and agrees that, during all such times as Lender is the Beneficiary under the Deed of Trust:

Modification, Termination and Cancellation. Lessee will not consent to any modification, amendment, termination or cancellation of the Lease (in whole or in part) without Lender’s prior written consent and will not make any payment to Lessor in consideration of any modification, termination or cancellation of the Lease (in whole or in part) without Lender’s prior written consent;

Notice of Default. Lessee will notify Lender in writing concurrently with any notice given to Lessor of any default by Lessor under the Lease, and Lessee agrees that Lender has the right (but not the obligation) to cure any breach or default specified in such notice within the time periods set forth below and Lessee will not declare a default of the Lease, as to Lender, if Lender cures such default within fifteen (15) days from and after the expiration of the time period provided in the Lease for the cure thereof by Lessor; provided, however, that if such default cannot with diligence be cured by Lender within such fifteen (15) day period, the commencement of action by Lender within such fifteen (15) day period to remedy the same shall be deemed sufficient so long as Lender pursues such cure with diligence;

No Advance Rents. Lessee will make no payments or prepayments of rent more than one (1) month in advance of the time when the same become due under the Lease; and

2.

Assignment of Rents. Upon receipt by Lessee of written notice from Lender that Lender has elected to terminate the license granted to Lessor to collect rents, as provided in the Deed of Trust, and directing the payment of rents by Lessee to Lender, Lessee shall comply with such direction to pay and shall not be required to determine whether Lessor is in default under the Loan and/or the Deed of Trust.

ATTORNMENT. In the event of a foreclosure under the Deed of Trust, Lessee agrees for the benefit of Lender (including for this purpose any transferee of Lender or any transferee of Lessor’s title in and to the Property by Lender’s exercise of the remedy of sale by foreclosure under the Deed of Trust) as follows:

Payment of Rent. Lessee shall pay to Lender all rental payments required to be made by Lessee pursuant to the terms of the Lease for the duration of the term of the Lease;

Continuation of Performance. Lessee shall be bound to Lender in accordance with all of the provisions of the Lease for the balance of the term thereof, and Lessee hereby attorns to Lender as its landlord, such attornment to be effective and self-operative without the execution of any further instrument immediately upon Lender succeeding to Lessor’s interest in the Lease and giving written notice thereof to Lessee;

No Offset. Lender shall not be liable for, nor subject to, any offsets or defenses which Lessee may have by reason of any act or omission of Lessor under the Lease, nor for the return of any sums which Lessee may have paid to Lessor under the Lease as and for security deposits, advance rentals or otherwise, except to the extent that such sums are actually delivered by Lessor to Lender; and

Subsequent Transfer. If Lender, by succeeding to the interest of Lessor under the Lease, should become obligated to perform the covenants of Lessor thereunder, then, upon any further transfer of Lessor’s interest by Lender, all of such obligations shall terminate as to Lender.

NON-DISTURBANCE. In the event of a foreclosure under the Deed of Trust, so long as there shall then exist no breach, default, or event of default on the part of Lessee under the Lease, Lender agrees for itself and its successors and assigns that the leasehold interest of Lessee under the Lease shall not be extinguished or terminated by reason of such foreclosure, but rather the Lease shall continue in full force and effect and Lender shall recognize and accept Lessee as tenant under the Lease subject to the terms and provisions of the Lease except as modified by this Agreement; provided, however, that Lessee and Lender agree that the following provisions of the Lease (if any) shall not be binding on Lender:any option to purchase with respect to the Property; any right of first refusal with respect to the Property; any provision regarding the use of insurance proceeds or condemnation proceeds with respect to the Property which is inconsistent with the terms of the Deed of Trust.

MISCELLANEOUS.

Heirs, Successors, Assigns and Transferees. The covenants herein shall be binding upon, and inure to the benefit of, the heirs, successors and assigns of the parties hereto; and

Notices. All notices or other communications required or permitted to be given pursuant to the provisions hereof shall be deemed served upon delivery or, if mailed, upon the first to occur of receipt or the expiration of three (3) days after deposit in United States Postal Service, certified mail, postage prepaid and addressed to the address of Lessee or Lender appearing below:

“OWNER”

“LESSEE”

provided, however, any party shall have the right to change its address for notice hereunder by the giving of written notice thereof to the other party in the manner set forth in this Agreement; and

Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute and be construed as one and the same instrument; and

3.

Remedies Cumulative. All rights of Lender herein to collect rents on behalf of Lessor under the Lease are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Lessor or others; and

Paragraph Headings. Paragraph headings in this Agreement are for convenience only and are not to be construed as part of this Agreement or in any way limiting or applying the provisions hereof.

INCORPORATION. Exhibit A and Lease Guarantor’s Consent are attached hereto and incorporated herein by this reference.

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

NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON YOUR REAL PROPERTY SECURITY TO OBTAIN A LOAN A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE LAND.

4.

Exhibit D

FORM OF ESTOPPEL CERTIFICATE

                    , 20                    

Re                                         

                                              _, California

Ladies and Gentlemen:

Reference is made to that certain Lease, dated as of                     , 20___, between                      LLC, a California limited liability company (“Landlord”), and the undersigned (herein referred to as the “Lease”). A copy of the Lease [and all amendment thereto] is [are] attached hereto as Exhibit A. At the request of Landlord in connection with [ State reasons for request for estoppel certificate ], the undersigned hereby certifies to Landlord and to [state names of other parties requiring certification (e.g., lender, purchaser, investor)] (“Lender"/ “Purchaser"/ “Investor”) and each of your respective successors and assigns as follows:

     1. The undersigned is the tenant under the Lease.

     2. The Lease is in full force and effect and has not been amended, modified, supplemented or superseded except as indicated in Exhibit A.

     3. There is, to the undersigned’s knowledge, no defense, offset, claim or counterclaim by or in favor of the undersigned against Landlord under the Lease or against the obligations of the undersigned under the Lease. The undersigned has no renewal, extension or expansion option, no right of first offer or right of first refusal and no other similar right to renew or extend the term of the Lease or expand the property demised thereunder except as may be expressly set forth in the Lease.

     4. The undersigned is not aware of any default now existing of the undersigned or of Landlord under the Lease, nor of any event which with notice or the passage of time or both would constitute a default of the undersigned or of Landlord under the Lease.

     5. The undersigned has not received notice of a prior transfer, assignment, hypothecation or pledge by Landlord of any of Landlord’s interest in the Lease.

     6. The monthly rent due under the Lease is $                     and has been paid through                     , and all additional rent due and payable under the Lease has been paid through                     .

     7. The term of the Lease commenced on                     , and expires on                     , unless sooner terminated pursuant to the provisions of the Lease. Landlord has performed all work required by the Lease for the undersigned’s initial occupancy of the demised property.

     8. The undersigned has deposited the sum of $                     with Landlord as security for the performance of its obligations as tenant under the Lease, and no portion of such deposit has been applied by Landlord to any obligation under the Lease.

     9. There is no free rent period pending, nor is Tenant entitled to any Landlord’s contribution.

The above certifications are made to Landlord and [Lender/ Purchaser/ Investor] knowing that Landlord and [Lender/ Purchaser/ Investor] will rely thereon in [making a loan secured in part by an assignment of the Lease/ accepting an assignment of the Lease/ investing in Landlord/other].

Very truly yours,

1.

By:                                         
Name:                                         
Title:                                         

2.

Exhibit E

RULES AND REGULATIONS

     10. The sidewalks, halls, passages, exits, entrances, elevators, and stairways of the Building shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, elevators, and stairways are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent ingress to and egress from Tenant’s Premises to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. Except as specifically set forth in the Lease, no tenant and no employee or invitee of any tenant shall go upon the roof of the Building.

     11. No sign, placard, picture, name, advertisement or notice visible from the exterior of any tenant’s Premises shall be inscribed, painted, affixed or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. All approved signs or lettering on doors or walls adjacent to doors shall be printed, painted, affixed or inscribed at the expense of the Tenant by a person approved by Landlord, which approval will not be unreasonably withheld (provided that Landlord shall have no such approval right in connection with interior Premises signs which are not visible from the exterior of the Premises). Except as specifically set forth in the Lease, signs visible from outside the Building will not be permitted.

     12. No cooking shall be done or permitted on the Premises, except that use by any tenant of food and beverage vending machines and Underwriters’ Laboratory approved microwave and toaster ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted; provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations.

     13. No tenant shall employ any person or persons other than Landlord’s janitorial service for the purpose of cleaning the Premises, unless otherwise approved by Landlord. No person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. No tenant shall cause any unnecessary labor by reason of such tenant’s carelessness or indifference in the preservation of good order and cleanliness. Janitor service (other than garbage removal) will not be furnished to rooms when such rooms are occupied after 8:00 P.M. unless, by prior arrangement with Landlord, service is extended to a later hour for specifically designated rooms with any additional cost to be paid by the requesting tenant.

     14. Landlord will furnish each tenant free of charge with two keys to each door lock in its Premises. Landlord may make a reasonable charge for any additional keys. Tenants shall have the right to make keys. No tenant shall change any lock without the express written consent of the Landlord. The tenants shall in each case furnish Landlord with a key for any such lock. Each tenant, upon the termination of its tenancy, shall deliver to Landlord all keys to doors in the Building which shall have been furnished to or made by the tenant.

     15. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary properly to distribute the weight.

     16. No tenant shall use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or, without Landlord’s prior approval, use any method of heating or air conditioning other than that supplied by Landlord except as otherwise specifically permitted by the Tenant’s Lease. No tenant shall use or keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein except as otherwise specifically permitted by the Tenant’s Lease.

     17. Landlord shall have the right, exercisable without liability to any tenant to change the name and street address of the Project, provided that Landlord shall reimburse Tenant for reasonable costs of replacing Tenant’s stationery resulting from any such change.

     18. Landlord reserves the right to exclude from the Building between the hours of 6:00 P.M. and 8:00 A.M. and at all hours on Saturdays, Sundays and legal holidays all persons who do not present a proper access card or other identification as an employee of Tenant or who do not otherwise present

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proper authorization by Tenant for access to the Premises. In the case of invasion, mob, riot, public excitement or other circumstances rendering such action advisable in Landlord’s opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such action as Landlord may deem appropriate.

     19. Intentionally deleted.

     20. No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with any exterior window in the Building without the prior consent of Landlord. If consented to by Landlord, such items shall be installed on the office side of the standard window covering and shall in no way be visible from the exterior of the Building.

     21. Intentionally deleted.

     22. Each tenant shall see that the doors of its Premises are closed and locked and that all water faucets or apparatus, cooking facilities and office equipment (excluding office equipment required to be operative at all times) are shut off before the tenant or its employees leave the Premises at night, so as to prevent waste or damage, and for any default or carelessness in this regard the tenant shall be responsible for any damage sustained by other tenants or occupants of the Building or Landlord. All tenants shall keep the doors to the Building corridors closed at all times except for ingress and egress.

     23. The toilets, urinals, wash bowls and other restroom facilities shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein.

     24. Except with the prior consent of Landlord, no tenant shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises, in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in such tenant’s lease.

     25. Except as specifically set forth in the Lease, no tenant shall install any antenna, loudspeaker, or any other device on the roof or exterior walls of the Building.

     26. There shall not be used in any portion of the Building, by any tenant or its invitees, any hand trucks or other material handling equipment except those equipped with rubber tires and side guards unless otherwise approved by Landlord.

     27. Each tenant shall store its refuse within its Premises or in any trash collection area which is part of the Base Building or as otherwise approved by Landlord. No material shall be placed in the refuse boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of refuse in the City of Irvine without being in violation of any law or ordinance governing such disposal. All refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate.

     28. Canvassing, peddling, soliciting, and distribution of handbills or any other written materials in the Building are prohibited, and each tenant shall to prevent the same.

     29. Smoking in all portions of the Building is prohibited, and each tenant shall cooperate to prevent the same.

     30. Intentionally deleted.

     31. Holidays shall be limited to the following: Christmas (December 25); New Years (January 1); Memorial Day; Independence Day (July 4); Labor Day; and Thanksgiving.

     32. The requirements of the tenants will be attended to only upon application by telephone or in person at the office of the Landlord or Landlord’s designated representative. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.

     33. Intentionally deleted.

     34. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of Premises in the Building. In the event of any conflict between these rules and regulations and the Lease, the Lease shall prevail and control.

2.

     35. Subject to the terms of the leases, Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building, and for the preservation of good order therein.

     36. For purposes of this Exhibit F, all Rules and Regulations applicable to the Premises shall also apply to any storage space leased by Tenant.

3.

EX-10.29

EXHIBIT 10.29

FIRST AMENDMENT TO LEASE

     This First Amendment to Lease (this “Amendment”), dated as of July 23, 2003, by and between iSTAR SUNNYVALE PARTNERS, L.P., a Delaware limited partnership (“Landlord”), and SILICON IMAGE, INC., a Delaware corporation (“Tenant”), amends and forms a part of the Lease, dated December 12, 2002, by and between Landlord and Tenant (the “Lease”).

RECITALS

     A. Capitalized terms used herein and not defined herein have the meanings specified in the Lease.

     B. Landlord and Tenant have agreed upon the precise allocation of interior space within the 1070/1080 East Arques building and, accordingly, desire to amend the Lease as provided below.

AGREEMENTS

     Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

     1. Lease References. Article 1 of the Lease is hereby deleted in its entirety and replaced with the following:

“ARTICLE 1

REFERENCE

     1.1 References. All references in this Lease (subject to any further clarifications contained in this Lease) to the following terms shall have the following meaning or refer to the respective address, person, date, time period, amount, percentage, calendar year or fiscal year as below set forth:

Tenant’s Address for Notice:	Silicon Image, Inc. 1060 East Arques Avenue Sunnyvale, California 94085 Attention: Chief Financial Officer
Tenant’s Representative:	Richard Zyhylij
Landlord’s Address for Notices:	c/o iStar Financial, Inc. One Embarcadero Center Suite 3300 San Francisco, CA 94111 Attn: Asset Management
Landlord’s Representative:	Erich Stiger
Phone Number:	(415) 391-4300
Lease Commencement Date:	August 1, 2003
Lease Term:	Seven (7) years

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Lease Expiration Date:	Seven (7) Years from the Lease Commencement Date (as hereinabove defined), or such earlier date on which termination occurs in accordance with the terms of this Lease.
Options to Renew:	None.
Rights of First Refusal:	As provided in Article 15.
First Month’s Prepaid Rent:	$77,558.00
Tenant’s Security Deposit:	$152,045.00
Late Charge Amount:	Five Percent (5%) of the delinquent amount.
Tenant’s Required Liability Coverage:	$3,000,000 combined single limit
Tenant’s Broker(s):	Ted Eyre of BT Commercial.
Property:	That certain real property situated in the City of Sunnyvale, County of Santa Clara, State of California, together with all buildings, easements and improvements thereon, which real property is shown on the Site Plan attached hereto as Exhibit “A” and is commonly known as or otherwise described as follows: 1060-1090 East Arques Avenue, Sunnyvale, California.
Building:	Those certain buildings within the Property in which the Leased Premises are located, which buildings are designated on Exhibit “A” hereto (collectively, the “Building”) and are commonly known as or otherwise described as follows: 1060 East Arques Avenue and 1070/1080 East Arques Avenue, Sunnyvale, California.
Outside Areas:	The “Outside Areas” shall mean all areas within the Property which are located outside the buildings, such as pedestrian walkways, parking areas, landscaped area, open areas and enclosed trash disposal areas.
Leased Premises:	(1) All the interior space within the 1060 East Arques building, including stairwells, connecting walkways, and atriums, consisting of approximately 50,819 square feet and, for purposes of this Lease, agreed to contain said number of square feet and (2) that portion of the interior space within the 1070/1080 East Arques building shown on Exhibit “A-1” hereto, including stairwells, connecting walkways, and atriums within such portion, consisting of approximately 30,821 square feet and, for purposes of this Lease, agreed to contain said number of square feet.

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Base Monthly Rent:	The term “Base Monthly Rent” shall mean the following: $77,558.00 per month from the Lease Commencement Date for a period of 12 months. On the first day following the end of such 12 month period, and on the same date during each subsequent year of the Lease Term (each an “Adjustment Date”), Base Monthly Rent shall be increased to an amount equal to one hundred three percent (103%) of the Base Monthly Rent in effect immediately prior to such Adjustment Date.
Use:	General office, research & development, marketing, light storage and all other legal uses, subject to Paragraph 4.2.
Tenant’s Project Proportionate Share:	37.89%
Tenant’s Building Proportionate Share:	100% of the 1060 East Arques building; 52.25% of the 1070/1080 East Arques building
Exhibits:	The term “Exhibits” shall mean the Exhibits of this Lease which are described as follows:
	Exhibit “A” — Site Plan showing the Property.
	Exhibit “A-1” — Area Plan for the 1070/1080 East Arques building delineating the portion of such building leased to Tenant hereunder.
	Exhibit “B” — Form of Tenant Estoppel.”

     2. Area Plan for 1070/1080 East Arques Building. Exhibit “A-1” attached to this Amendment is the Area Plan for the 1070/1080 East Arques building delineating the portion of such building leased to Tenant under the Lease and shall constitute Exhibit “A-1” to the Lease.

     3. Conflicts; No Other Amendment. In the event of a conflict between the provisions of this Amendment and the provisions of the Lease, the provisions of this Amendment shall control. Except as set forth in this Amendment, the provisions of the Lease remain in full force and effect.

     4. Entire Agreement. The Lease, as modified by this Amendment, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and may be further modified only by a writing signed by the parties hereto.

     5. Facsimile; Counterparts. This Amendment may be signed in multiple counterparts which, when signed by all parties, shall constitute a binding agreement. Landlord and Tenant agree that the delivery of an executed copy of this Amendment by facsimile shall be legal and binding and shall have the same full force and effect as if an original executed copy of this Amendment had been delivered.

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     In Witness Whereof, the parties have caused this Amendment to be duly executed as of the date first above set forth.

iSTAR SUNNYVALE PARTNERS, L.P., a Delaware limited partnership, Landlord
By:	Erich Stiger
Its:	Vice President
SILICON IMAGE, INC., a Delaware corporation, Tenant
By:	Robert G. Gargus
Its:	Robert G. Gargus

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EXHIBIT A-1

Area Plan for 1070/1080 East Arques Building

Exhibit 10.29

Exhibit B

FORM OF TENANT ESTOPPEL CERTIFICATE

TENANT ESTOPPEL CERTIFICATE

To:	iStar Sunnyvale Partners, L.P.
	c/o iStar Financial, Inc.
	One Embarcadero Center, Suite 3300
	San Francisco, CA 94111
	ATTN: Asset Management
	ATTN:

Re:           Lease,           dated           as           of                                                   , 200     between                                         , a                                           , as tenant (the original named tenant under the Lease, together with such tenant’s successors and assigns, being hereinafter referred to collectively as the “Tenant”), and iStar Sunnyvale Partners, L.P., a Delaware limited partnership (“Landlord”), covering certain premises known by the street address                                          in the City of Sunnyvale, County of Santa Clara, State of California (the “Leased Premises”), as amended as noted on attached Schedule A (collectively, the “Lease”)

Gentlemen:

     The undersigned Tenant hereby represents, warrants and certifies to                                          (“                                          ”) and Landlord, that:

     1. The Lease has not been modified, changed, altered or amended in any respect, either orally or in writing, except as may be indicated on Schedule A attached hereto, and constitutes the entire agreement between Tenant and Landlord affecting Tenant’s leasing of the Leased Premises. A true and correct copy of the Lease is attached as Schedule B. The Lease is in full force and effect and is not subject to any contingencies or conditions not set forth in the Lease.

     2. The term of the Lease commenced on                                        ,                     and will expire on                                        ,                     ; the Tenant has no option to renew the Lease Term.

     3. The monthly base rent payable under the Lease as of the current month is $                     . Tenant has paid all fixed and additional rent and other sums which are due and payable under the Lease through the date hereof, and Tenant has not made and will not make any prepayments of fixed rent (except first month’s rent) for more than one month in advance. To Tenant’s best knowledge, there are no presently unexpired rental concessions or abatements due under the Lease except as set forth on Schedule A attached hereto. To Tenant’s best knowledge, Tenant has no credits, offsets, abatements, defenses, counterclaims or deductions against any rental or other payments due under the Lease or with respect to its performance of the other terms and conditions of the Lease, and has asserted no claims against Landlord.

     4. Tenant has paid to Landlord a security deposit in the amount of $                    . Landlord is the beneficiary under a letter of Credit in the amount of $                     required by the Lease as additional security. Tenant has not made any other payments to Landlord as a security deposit, advance or prepaid rent (except first month’s rent).

     5. Landlord has completed, and, if required under the Lease, paid for, any and all tenant work

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required under the Lease and Tenant has accepted the Leased Premises. Tenant is not entitled to any further payment or credit for tenant work.

     6. To Tenant’s current actual knowledge, Landlord is not in default in the performance of any of the terms of the Lease, nor is there now any fact or condition which, with notice or lapse of time or both, will become such a default. Tenant has not delivered to Landlord any notice of default with respect to the Landlord’s obligations under the Lease.

     7. Tenant is in actual possession of the entire Leased Premises and, to Tenant’s current actual knowledge, is not in any respect in default under any of the terms and conditions of the Lease, nor is there now any fact or condition which, with notice or lapse of time or both, will become such a default. Tenant has not received from Landlord any notice of default with respect to the Tenant’s obligations under the Lease.

     8. Tenant has not assigned transferred, mortgaged or otherwise encumbered its interest under the Lease, nor subleased any of the Leased Premises, nor permitted any person or entity to use the Leased Premises, except as otherwise indicated on Schedule A annexed hereto.

     9. Except as expressly provided in the Lease Tenant:

(i)	does not have any right to renew or extend the term of the lease,
(ii)	does not have any right to cancel or surrender the Lease prior to the expiration of the term of the Lease,
(iii)	does not have any option or rights of first refusal or first offer to purchase or lease all or any part of the Leased Premises or the real property of which the Leased Premises are a part,
(iv)	does not have any right, title or interest with respect to the Leased Premises other than as lessee under the lease, and
(v)	does not have any right to relocate into other property owned by Landlord or any of landlord’s affiliates.

     10. There has not been filed by or, to Tenant’s current actual knowledge, against Tenant a petition in bankruptcy, voluntary or otherwise, any assignment for the benefit of creditors, any petition seeking reorganization or arrangement under the bankruptcy laws of the United States, or any state thereof, or any other action brought under said bankruptcy laws with respect to Tenant.

     11. If Tenant is required to provide insurance coverage under the Lease, Tenant has not given or received written notice that Tenant’s insurance coverage will be canceled or will not be renewed.

     12. Tenant is not aware of any material defects or deficiencies in the systems, elements or components of the Leased Premises. Tenant has not received any written notice, citation or other claim alleging any material violation of any applicable building, zoning, land use, environmental, anti-pollution, health, fire, safety, access accommodations for the physically handicapped, subdivision, energy and resource conservation or similar laws, statutes, rules, regulations or ordinances, or any covenants, conditions and restrictions applicable to the Leased Premises.

     13. To the current actual knowledge of Tenant, any and all brokerage and leasing commissions relating to and/or resulting from Tenant’s execution and delivery of the Lease and occupancy of the Leased Premises have been paid in full.

     14. The individual executing this Tenant Estoppel Certificate on behalf of Tenant represents and warrants that he has the power and the authority to execute this Tenant Estoppel Certificate on behalf of Tenant.

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     15. This Tenant Estoppel Certificate shall inure to the benefit of _____ and Landlord and their respective nominees, successors, assigns, participants and designees and shall be binding upon Tenant and its successors and assigns.

Dated this      day of                                           ,                     .
Tenant:                                                                , a                       

By:                                                                                                           
Its:                                                                                                          

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Exhibit A

SITE PLAN

EXHIBIT A-1

Area Plan for 1070/1080 East Arques Building

EX-10.30

Exhibit 10.30

SECOND AMENDMENT TO LEASE

     This Second Amendment to Lease (this “Amendment”), dated as of 2/17, 2004. by and between iSTAR SUNNYVALE PARTNERS, L.P., a Delaware limited partnership (“Landlord”), and SILICON IMAGE, INC., a Delaware corporation (“Tenant”), amends and forms a part of the Lease, dated December 12, 2002, by and between Landlord and Tenant, as amended by the First Amendment to Lease dated July 23, 2003 (collectively, the “Lease”).

RECITALS

     A. Capitalized terms used herein and not defined herein have the meanings specified in the Lease.

     B. Landlord and Tenant desire to amend the Lease as provided below.

AGREEMENTS

     Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

     1. Installation of Emergency Exit Door and Corridor. At Landlord’s sole cost and expense, Landlord shall construct the emergency exit door and corridor described in Attachment No. 1 to this Amendment and perform any related activities Landlord determines to be necessary or desirable in connection therewith. Once constructed, the corridor shall continue to be part of the Leased Premises, provided that Tenant may use the emergency exit door only in emergencies and shall do so in compliance with Landlord’s reasonable regulations.

     2. Building Utility Services, Tenant acknowledges that certain electrical equipment and communications cabling (collectively, the “Building Utility Services”) exist throughout and serve the entire 1070/1080 East Arques building. The communications cabling portion of the Building Utility Services originates at the Main Point of Entry (“MPOE”) depicted in Attachment No. 2 to this Amendment, and the electrical equipment portion of the Building Utility Services originates at the Electric Service Entrance (“Electric Service Entrance’”) depicted in Attachment No. 2 to this Amendment. Tenant agrees that Landlord, any other tenant(s) of the 1070/1080 East Arques building, and their respective employees, agents and vendors accompanied by an employee, shall have the right to access the Building Utility Services via the MPOE and/or the Electric Service Entrance, as applicable, at any time and using reasonable efforts to give prior notice to Tenant, for performing necessary repair and maintenance work; provided that (a) Landlord or such other tenant(s), as applicable, shall promptly repair any damage caused to Tenant’s space, facilities, equipment, furniture, fixtures and/or operations in performing such repair and maintenance work and (b) Tenant shall not incur any additional cost or liability as a result of or Landlord’s or such other tenant(s)’s access to the Building Utility Services or repair and maintenance thereof. In furtherance of the foregoing, Tenant shall provide to Landlord and such other tenant(s) at least two (2) keys to any locks installed on the MPOE and/or the Electric Service Entrance and shall, upon receiving reasonable request from the Landlord and/or such other tenant(s), temporarily disable any alarm or other type of secured access system with respect to the MPOE and/or the Electric Service Entrance in order to allow the required access. For purposes of this section, reasonable efforts to give prior notice to Tenant should be understood as efforts made 1 hour in advance during normal business hours and 24 hours in advance during non-business hours.

     3. Tenant’s Communications Cabling. Landlord acknowledges and agrees that up to six thousand dollars ($6,000.00) of the Allowance described in Paragraph 2.7 of the Lease may be used to

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reimburse Tenant for direct, reasonable costs incurred by Tenant in designing and installing a conduit line on the exterior of the 1070/1080 East Arques building to provide communications cabling to the portion of the Leased Premises within such building. Such work by Tenant and such reimbursement by Landlord shall be subject to all of the terms and conditions of the Lease, including, without limitation, Paragraph 2.7 thereof. Tenant acknowledges and agrees that Tenant shall have no right to access or utilize any interior communications cabling in the 1070/1080 East Arques building that is outside of the Leased Premises.

     4. Conflicts; No Other Amendment. In the event of a conflict between the provisions of this Amendment and the provisions of the Lease, the provisions of this Amendment shall control. Except as set forth in this Amendment, the provisions of the Lease remain in full force and effect.

     5. Entire Agreement. The Lease, as modified by this Amendment, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and may be further modified only by a writing signed by the parties hereto.

     6. Facsimile; Counterparts. This Amendment may be signed in multiple counterparts which, when signed by all parties, shall constitute a binding agreement. Landlord and Tenant agree that the delivery of an executed copy of this Amendment by facsimile shall be legal and binding and shall have the same full force and effect as if an original executed copy of this Amendment had been delivered.

     In Witness Whereof, the parties have caused this Amendment to be duly executed as of the date first above set forth.

iSTAR SUNNYVALE PARTNERS, L.P., a Delaware limited partnership, Landlord
By:	/s/ Erich Stiger
Its:	Vice President
SILICON IMAGE, INC., a Delaware corporation, Tenant
By:	/s/ Robert Gargus
Its:	CFO

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ATTACHMENT NO. 1

ATTACHMENT NO. 2

EX-10.31

EXHIBIT 10.31

THIRD AMENDMENT TO LEASE

     This Third Amendment to Lease (this “Amendment”), dated as of June 1, 2004 (the “Amendment Date”), by and between iSTAR SUNNYVALE PARTNERS, L.P., a Delaware limited partnership (“Landlord”), and SILICON IMAGE, INC., a Delaware corporation (“Tenant”), amends and forms a part of the Lease, dated December 12, 2002, by and between Landlord and Tenant, as amended by the First Amendment to Lease dated July 23, 2003 and by the Second Amendment to Lease dated February 17, 2004 (collectively, the “Lease”).

RECITALS

     A. Capitalized terms used herein and not defined herein have the meanings specified in the Lease.

     B. Tenant currently leases the entirety of the interior space within the 1060 East Arques building and a 30,821 square foot portion of the interior space within the 1070/1080 East Arques building.

     C. Landlord and Tenant desire to amend the Lease to expand the Leased Premises to include the remaining portion of the interior space within the 1070/1080 East Arques building (the“Expansion Premises”), subject to the terms and conditions set forth herein. The Expansion Premises are depicted in Schedule 1 attached hereto and consist of approximately 28,163 square feet.

AGREEMENTS

     Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

     1. Expansion of Leased Premises.

     a. On July 1, 2004 (the “Expansion Premises Commencement Date”), Landlord shall deliver the Expansion Premises to Tenant, and Tenant shall accept the Expansion Premises from Landlord “as is”, “where is” and with all faults, on and subject to the terms and conditions set forth in Paragraph 2.5 of the Lease. Notwithstanding the foregoing, Landlord shall be responsible to repair any defects in the HVAC system if it is not in good working order if: (i) Tenant notifies Landlord in writing of such defect on or before August 15, 2004, and (ii) such defect is not caused due to any actions by Tenant.

     b. Effective as of the Expansion Premises Commencement Date, the definition of the “Leased Premises” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with the following:

“(1) All of the interior space within the 1060 East Arques building, including stairwells, connecting walkways, and atriums, consisting of approximately 50,819 square feet and, for purposes of this Lease, agreed to contain said number of square feet and (2) all of the interior space within the 1070/1080 East Arques building, including stairwells, connecting walkways, and atriums, consisting of approximately 58,984 square feet and, for purposes of this Lease, agreed to contain said number of square feet.”

     2. Lease Expiration Date. The Lease Expiration Date with respect to the entire Leased Premises (including, without limitation, the Expansion Premises) shall be and remain July 31, 2010.

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     3. Tenant’s Security Deposit. Within ten (10) days after the Amendment Date, Tenant shall deposit with Landlord the amount of fifty-five thousand one hundred ninety-nine dollars ($55,199.00) in order to increase Tenant’s Security Deposit to two hundred seven thousand two hundred forty-four dollars ($207,244.00).

     4. Abatement: Base Monthly Rent; First Month’s Prepaid Rent.

     (a) Provided that no Event of Default occurs, Base Monthly Rent for the period from the Amendment Date until March 31, 2005 shall be fully abated; provided that Tenant shall remain obligated to pay any and all Additional Rent due under the Lease during such period, including, without limitation, any Additional Rent related to the Expansion Premises from and after the Expansion Premises Commencement Date.

     (b) Effective as of April 1, 2005, the definition of “Base Monthly Rent” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with the following:

“$107,607.00 per month from April 1, 2005 for a period of 4 months. On August 1, 2005, and on August 1 during each subsequent year of the Lease Term (each an “Adjustment Date”), Base Monthly Rent shall be increased to an amount equal to one hundred three percent (103%) of the Base Monthly Rent in effect immediately prior to such Adjustment Date.”

     (c) Notwithstanding anything to the contrary herein, upon execution of this Amendment, Tenant shall pay to Landlord the April 1, 2005 installment of Base Monthly Rent set forth in Section 4(b) above; subsequent installments of Base Monthly Rent shall be payable on the first day of each calendar month beginning on May 1, 2005.

     5. Tenant’s Project Proportionate Share. Effective as of the Expansion Premises Commencement Date, the definition of the “Tenant’s Project Proportionate Share” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with fifty and 96/100 percent (50.96%).

     6. Tenant’s Building Proportionate Share. Effective as of the Expansion Premises Commencement Date, the definition of the “Tenant’s Building Proportionate Share” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with one hundred percent (100%).

     7. Area Plan for 1070/1080 East Arques Building. Effective as of the Expansion Premises Commencement Date, the Leased Premises shall include the entirety of the interior space within the 1070/1080 East Arques building, such that Exhibit “A-1” to the Lease, which exhibit delineates the portion of such building leased to Tenant prior to the Expansion Premises Commencement Date, will no longer apply. Accordingly, Exhibit “A-1” to the Lease, together with any and all references thereto in the Lease, shall be deleted in their entirety as of the Expansion Premises Commencement Date.

     8. Tenant Improvement Work; Allowance. Paragraph 2.7 of the Lease is hereby deleted in its entirety and replaced with the following:

“2.7 Tenant Improvement Work; Allowance. Landlord shall provide Tenant with an improvement allowance of up to seven hundred eighty-one thousand six hundred thirty dollars ($781,630.00) (the “Allowance”); provided, however, that three hundred sixty thousand six hundred twenty three and 15/100 dollars ($360,623.15) of such Allowance has already been used prior to the Amendment Date, leaving an available balance of up to four hundred twenty-one thousand six and 85/100 dollars ($421,006.85). The Allowance shall be used to reimburse Tenant only for direct, reasonable costs incurred by Tenant in designing, constructing and installing

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improvements in the Leased Premises (the “Tenant improvements”); provided, however, that the Allowance shall not be used to reimburse Tenant for any costs incurred by Tenant in connection with signage, furniture, trade fixtures, equipment or moving. The Tenant Improvements shall be designed, constructed and installed in accordance with plans and specifications to be reasonably approved in advance by Landlord and in accordance with all applicable laws, ordinances and regulations, and shall be constructed by a general contractor that is licensed in the State of California and reasonably approved in advance by Landlord. Tenant Improvement work may commence upon the completion and execution of all required documentation and receipt of all required approvals and permits. Landlord shall pay to Tenant the Allowance when Tenant provides to Landlord receipts for all Tenant Improvement work and evidence that all such work has been completed free and clear of all mechanics’ and materialman’s liens; provided that Landlord shall have no obligation to pay any portion of the Allowance for any Tenant Improvement work that has not been so completed by December 31, 2005.”

     9. Brokerage Commissions. Tenant represents, warrants and agrees that, except for Ted Eyre of BT Commercial, it has not had any dealings with any real estate broker(s), leasing agent(s), finder(s) or salesmen with respect to the subject matter of this Amendment, and that, subject to the immediately following sentence, it will indemnify, defend with competent counsel, and hold Landlord harmless from any liability for the payment of any real estate brokerage commissions, leasing commissions or finder’s fees claimed by any real estate broker(s), leasing agent(s), finder(s), or salesmen to be earned or due and payable by reason of Tenant’s agreement or promise (implied or otherwise) to pay (or to have Landlord pay) such a commission or finder’s fee by reason of the subject matter of this Amendment. For the transaction contemplated by this Amendment Landlord shall pay to BT Commercial a procuring fee equal to five percent (5%) of the Base Monthly Rent payable with respect to the Expansion Premises through the Lease Expiration Date, payable one-half (1/2) upon execution of this Amendment and one-half (1/2) on the Expansion Premises Commencement Date. Except as expressly provided in this Section 10 with respect to brokerage commissions payable with respect to this Amendment, Paragraph 14.2 of the Lease shall continue to apply and remain in full force and effect.

     10. Conflicts: No Other Amendment. In the event of a conflict between the provisions of this Amendment and the provisions of the Lease, the provisions of this Amendment shall control. Except as set forth in this Amendment, the provisions of the Lease remain in full force and effect.

     11. Entire Agreement. The Lease, as modified by this Amendment, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and may be further modified only by a writing signed by the parties hereto.

     12. Facsimile: Counterparts. This Amendment may be signed in multiple counterparts which, when signed by all parties, shall constitute a binding agreement. Landlord and Tenant agree that the delivery of an executed copy of this Amendment by facsimile shall be legal and binding and shall have the same full force and effect as if an original executed copy of this Amendment had been delivered.

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     In Witness Whereof, the parties have caused this Amendment to be duly executed as of the Amendment Date.

iSTAR SUNNYVALE PARTNERS, L.P., a
Delaware limited partnership, Landlord
By:	/s/ Erich Stiger
Its:	Vice President
SILICON IMAGE, INC., a Delaware corporation,
Tenant
By:	/s/ Robert Gargus
Its:

Schedule 1

Expansion Premises

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Exhibit 10.31

EX-10.32

EXHIBIT 10.32

FOURTH AMENDMENT TO LEASE

     This Fourth Amendment to Lease (this “Amendment”), dated as of May 10, 2006 (the “Amendment Date”), by and between iSTAR SUNNYVALE PARTNERS, L.P., a Delaware limited partnership (“Landlord”), and SILICON IMAGE, INC., a Delaware corporation (“Tenant”), amends and forms a part of the Lease, dated December 12, 2002, by and between Landlord and Tenant, as amended by the First Amendment to Lease dated July 23, 2003, by the Second Amendment to Lease dated February 17, 2004 and by the Third Amendment to Lease dated June 1, 2004 (collectively, the “Lease”).

RECITALS

     A. Capitalized terms used herein and not defined herein have the meanings specified in the Lease.

     B. Tenant currently leases the entirety of the interior space within the 1060 East Arques building and the entirety of the interior space within the 1070/1080 East Arques building.

     C. Landlord and Tenant desire to amend the Lease to expand the Leased Premises to include the entirety of the interior space within the 1090 East Arques building (the “1090 Expansion Premises”), subject to the terms and conditions set forth herein. The 1090 Expansion Premises are depicted in Schedule 1 attached hereto and consist of approximately 33,766 square feet.

AGREEMENTS

     Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows:

     1. Expansion of Leased Premises.

     (a) Landlord and Tenant presently anticipate that possession of the 1090 Expansion Premises will be tendered to Tenant on September 1, 2006 (the “Estimated Delivery Date”). If Landlord is unable to tender possession of the 1090 Expansion Premises to Tenant by the Estimated Delivery Date, then (i) the validity of the Lease and/or this Amendment shall not be affected or impaired thereby, (ii) Landlord shall not be in default under the Lease and/or this Amendment or be liable for damages therefor, and (iii) Tenant shall accept possession of the 1090 Expansion Premises on the date Landlord tenders possession thereof to Tenant, which date shall be the “1090 Expansion Premises Commencement Date”. By occupying the 1090 Expansion Premises, Tenant shall be deemed to have accepted the 1090 Expansion Premises “as is”, “where is” and with all faults, on and subject to the terms and conditions set forth in Paragraph 2.5 of the Lease, subject only to the following:

     (i) Landlord shall, at Landlord’s sole expense without possibility of reimbursement from Tenant, repair or replace any components of the Building’s Systems (as defined below) which (1) are not in good working condition for reasons other than the acts or omissions of Tenant or any of its employees, contractors, invitees, agents or other representatives (including any alterations of the applicable Building’s Systems by or on behalf of Tenant, whether in connection with the Tenant Improvements work or otherwise) and (2) Tenant, acting reasonably and in good faith, specifically identifies and describes as not being in good working condition in a written notice delivered to Landlord within thirty (30) days after the 1090 Expansion Premises Commencement Date (the “Warranty Period”), it being understood that, except for any components of the Building’s Systems so identified and described by Tenant before expiration of the Warranty Period, the Building’s Systems and the 1090 Expansion Premises shall be

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conclusively deemed to have been delivered in good working condition, subject only to clause (ii) below. Without limiting the foregoing, so long as Landlord provides Tenant with sufficient access to the 1090 Expansion Premises, Tenant shall use commercially reasonable efforts to evaluate the Building’s Systems and to identify and describe any problems with the Building’s Systems as soon as practicable following the Amendment Date, in order that Landlord may enforce any applicable rights it may have against the existing tenant in the 1090 Expansion Premises. As used herein, “Building’s Systems” means the HVAC, life-safety, plumbing, electrical, and mechanical systems of the 1090 East Arques building.

     (ii) Landlord shall, at Landlord’s sole expense without possibility of reimbursement from Tenant, replace the existing roof membrane of the 1090 East Arques building by July 31, 2007.

     (b) Effective as of the 1090 Expansion Premises Commencement Date, the definition of the “Leased Premises” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with the following:

“(1) All of the interior space within the 1060 East Arques building, including stairwells, connecting walkways, and atriums, consisting of approximately 50,819 square feet and, for purposes of this Lease, agreed to contain said number of square feet, (2) all of the interior space within the 1070/1080 East Arques building, including stairwells, connecting walkways, and atriums, consisting of approximately 58,984 square feet and, for purposes of this Lease, agreed to contain said number of square feet, and (3) all of the interior space within the 1090 East Arques building, including stairwells, connecting walkways, and atriums, consisting of approximately 33,766 square feet and, for purposes of this Lease, agreed to contain said number of square feet. Accordingly, the aggregate size of the Leased Premises shall be 143,569 square feet and, for purposes of this Lease, agreed to contain said number of square feet.”

     2. Lease Expiration Date. The Lease Expiration Date with respect to the entire Leased Premises (including, without limitation, the 1090 Expansion Premises) shall be July 31, 2011.

     3. Tenant’s Security Deposit. Upon execution of this Amendment, Tenant shall deposit with Landlord the amount of sixty-four thousand one hundred fifty-five and 40/100 dollars ($64,155.40) in order to increase Tenant’s Security Deposit to two hundred seventy-one thousand three hundred ninety-nine and 40/100 dollars ($271,399.40).

     4. Base Monthly Rent; Prepaid Rent for 1090 Expansion Premises.

     (a) Effective as of the 1090 Expansion Premises Commencement Date, the definition of “Base Monthly Rent” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with the following:

Month	Base Monthly Rent
(beginning on the 1090 Expansion Premises Commencement Date)
1	$114,160.27
2-12	$146,237.97

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Month	Base Monthly Rent
13-24	$150,675.75
25-36	$155,216.29
37-48	$159,862.65
49-Lease Expiration Date	$164,618.01

     (b) Tenant acknowledges that the 1090 Expansion Premises are currently leased to Trident MicroSystems, Inc. (“Trident”) through August 31, 2006. Landlord shall give Tenant a credit in an amount equal to fifty percent (50%) of base rent actually received from Trident for the month of August, 2006 to be applied against the Base Monthly Rent payable by Tenant under the Lease for the month of August, 2006. In addition, if Trident fails to vacate the 1090 Expansion Premises by August 31, 2006, Landlord shall thereafter give Tenant a credit in an amount equal to fifty percent (50%) of any holdover base rent actually received from Trident to be applied on a monthly basis against the Base Monthly Rent payable by Tenant under the Lease for each applicable month.

     (c) Notwithstanding anything to the contrary herein, upon execution of this Amendment, Tenant shall pay to Landlord the amount of $40,519.20, which shall be applied to the Base Monthly Rent and Additional Rent due for the second (2^nd) full month after the 1090 Expansion Premises Commencement Date; otherwise, full installments of Base Monthly Rent shall be payable on the first day of each calendar month pursuant to the Lease.

     5. Tenant’s Project Proportionate Share. Effective as of the 1090 Expansion Premises Commencement Date, the definition of the “Tenant’s Project Proportionate Share” set forth in Article 1 of the Lease shall be deleted in its entirety and replaced with sixty-six and 63/100 percent (66.63%).

     6. Tenant’s Building Proportionate Share. Effective as of the 1090 Expansion Premises Commencement Date, the definition of the “Tenant’s Building Proportionate Share” set forth in Article 1 of the Lease shall be and remain one hundred percent (100%).

     7. Tenant Improvement Work; Allowance. Paragraph 2.7 of the Lease is hereby deleted in its entirety and replaced with the following:

     “2.7 Tenant Improvement Work; Allowance; Additional Allowance.

     (a) Landlord shall provide Tenant with an improvement allowance of up to one million one hundred eighty-six thousand eight hundred twenty-two and 00/100 dollars ($1,186,822.00) (the “Allowance”); provided, however, that seven hundred eighty-one thousand six hundred thirty dollars ($781,630.00) of such Allowance has already been used prior to the Amendment Date, leaving an available balance of up to four hundred five thousand one hundred ninety-two and 00/100 dollars ($405,192.00). The Allowance shall be used to reimburse Tenant only for direct, reasonable costs incurred by Tenant in designing, constructing and installing improvements in the 1090 Expansion Premises (the “1090 Tenant Improvements”); provided, however, that any unused portion of the Allowance, not to exceed one hundred sixty-eight thousand eight hundred thirty and 00/100 dollars ($168,830.00), may be used to reimburse Tenant only for direct, reasonable costs incurred by Tenant in designing, constructing and installing improvements in the remainder of the Leased Premises, which improvements may include installing the underground conduit between the 1070/1080 East Arques building and the 1090

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East Arques building (the “Ancillary Tenant Improvements”) (the 1090 Tenant Improvements and the Ancillary Tenant Improvements are collectively the “Tenant Improvements”); and provided further, however, that the Allowance shall not be used to reimburse Tenant for any costs incurred by Tenant in connection with signage, furniture, trade fixtures, equipment or moving. The Tenant Improvements shall be designed, constructed and installed in accordance with plans and specifications to be reasonably approved in advance by Landlord and in accordance with all applicable laws, ordinances and regulations, and shall be constructed by a general contractor that is licensed in the State of California and reasonably approved in advance by Landlord. Tenant Improvements work may commence upon the completion and execution of all required documentation and receipt of all required approvals and permits. Landlord shall pay to Tenant the Allowance when Tenant provides to Landlord receipts for all Tenant Improvements work and evidence that all such work has been paid for and completed free and clear of all mechanics’ and materialman’s liens; provided that Landlord shall have no obligation to pay any portion of the Allowance for any Tenant Improvements work that has not been so completed by December 31, 2007.

     (b) If Tenant notifies Landlord in writing within two (2) months after the Amendment Date that Tenant reasonably anticipates that the cost of the 1090 Tenant Improvements will exceed the Allowance, then Tenant shall have the right (but not the obligation) subsequently to receive from Landlord an additional allowance not to exceed one hundred sixty-eight thousand eight hundred thirty and 00/100 dollars ($168,830.00) (the “Additional Allowance”) to be used to reimburse Tenant only for direct, reasonable costs incurred by Tenant in designing, constructing and installing the 1090 Tenant Improvements in excess of the Allowance. The Additional Allowance shall be paid by Landlord in accordance with, and subject to, the terms and conditions provided in Section 2.7(a) above for the disbursement of the Allowance; provided, however, that the total amount of the Additional Allowance paid by Landlord shall be amortized over the initial Lease Term at an interest rate of eight percent (8%) per annum, and Tenant shall pay Landlord, as Additional Rent, equal monthly installments sufficient to repay such total amortized amount by the expiration of the initial Lease Term. Landlord shall have no obligation to pay any portion of the Additional Allowance for any 1090 Tenant Improvement work that has not been completed by December 31, 2007.”

     9. Early Access to 1090 Expansion Premises. Beginning on the date of this Amendment and continuing through the 1090 Expansion Premises Commencement Date, Tenant and its employees, agents, contractors, consultants, architects and designers shall have access to the 1090 Expansion Premises for purposes of designing improvements to the 1090 Expansion Premises to be constructed in the 1090 Expansion Premises by or for the benefit of Tenant after the 1090 Expansion Premises Commencement Date, provided that (a) such access shall not unreasonably interfere with Trident’s use or occupancy of the 1090 Expansion Premises , (b) in no event shall any construction by or for the benefit of Tenant commence in the 1090 Expansion Premises, or any of Tenant’s personal property or trade fixtures be moved into the 1090 Expansion Premises, prior to the 1090 Expansion Premises Commencement Date, and (c) Tenant shall release, waive, discharge, indemnify, hold harmless, defend and protect Landlord from and against any and all claims, losses, liabilities, and/or damages (including reasonable attorneys’ fees and costs) of any nature arising out of or in any way related to any acts or omissions of Tenant or any of its employees, agents, contractors, consultants, architects and designers in or about the 1090 Expansion Premises prior to the 1090 Expansion Premises Commencement Date.

     10. Brokerage Commissions. Tenant represents, warrants and agrees that, except for Ted Eyre of NAI BT Commercial and Alan Guterman of CPS (collectively, “Tenant’s Broker”), it has not had any dealings with any real estate broker(s), leasing agent(s), fmder(s) or salesmen with respect to the subject matter of this Amendment, and that, subject to the immediately following sentence, it will

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indemnify, defend with competent counsel, and hold Landlord harmless from any liability for the payment of any real estate brokerage commissions, leasing commissions or finder’s fees claimed by any real estate broker(s), leasing agent(s), finder(s), or salesmen to be earned or due and payable by reason of Tenant’s agreement or promise (implied or otherwise) to pay (or to have Landlord pay) such a commission or finder’s fee by reason of the subject matter of this Amendment. For the transaction contemplated by this Amendment Landlord shall pay to Tenant’s Broker a procuring fee equal to six percent (6%) of the Base Monthly Rent payable with respect to the 1090 Expansion Premises through the Lease Expiration Date, payable one-half (1/2) upon execution of this Amendment and one-half (1/2) upon the 1090 Expansion Premises Commencement Date. Except as expressly provided in this Section 9 with respect to brokerage commissions payable with respect to this Amendment, Paragraph 14.2 of the Lease shall continue to apply and remain in full force and effect.

     11. Conflicts; No Other Amendment. In the event of a conflict between the provisions of this Amendment and the provisions of the Lease, the provisions of this Amendment shall control. Except as set forth in this Amendment, the provisions of the Lease remain in full force and effect.

     12. Entire Agreement. The Lease, as modified by this Amendment, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and may be further modified only by a writing signed by the parties hereto.

     13. Facsimile; Counterparts. This Amendment may be signed in multiple counterparts which, when signed by all parties, shall constitute a binding agreement. Landlord and Tenant agree that the delivery of an executed copy of this Amendment by facsimile shall be legal and binding and shall have the same full force and effect as if an original executed copy of this Amendment had been delivered.

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           In Witness Whereof, the parties have caused this Amendment to be duly executed as of the Amendment Date.

iSTAR SUNNYVALE PARTNERS, L.P., a
Delaware	limited partnership, Landlord
By:	/s/ Erich Stiger
Its:	Senior Vice President
SILICON IMAGE, INC., a Delaware corporation, Tenant
By:	/s/ Robert Freeman
Its:	CPO

Schedule 1 1090 Expansion Premises

Sunnyvale Research Center
1090 East Arques Avenue
Sunnyvale, CA

FIRST FLOOR

Sunnyvale Research Center
1090 East Arques Avenue
Sunnyvale, CA

SECOND FLOOR

EX-10.34

Exhibit 10.34

December 23, 2006

Mr. Edward Lopez

Dear Mr. Lopez;

Silicon Image, Inc. (the “Company”) is pleased to confirm our offer to you in the position of Chief Legal Officer reporting to Steve Tirado starting January 8, 2007. The terms of our offer and the benefits currently provided by the Company are as follows:

1.	Your starting base salary will be $275,000 and will be subject to annual review. In addition, you will be eligible to participate in the regular health insurance and other employee benefit plans established by the Company for its employees from time to time.
2.	As an employee of the Company you will have access to certain Company confidential information and you may, during the course of your employment, develop certain information or inventions which will be the property of the Company. During the period that you render services to the Company, you agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. To protect the interest of the Company, you will need to sign the Company’s standard “Employee Inventions and Confidentiality Agreement” as a condition of your employment. We wish to impress upon you that we do not wish you to bring any confidential or proprietary material of any former employer or to violate any other obligations you may have to your former employer. You represent that your signing of this offer letter, agreement(s) concerning stock options granted to you under the Plan (as defined below) and the Company’s Employee Invention Assignment and Confidentiality Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers.
3.	We will recommend that the Board approve a grant to you, contingent on you accepting your new role as Chief Legal Officer, of stock options in the amount of 100,000 shares of the Company’s Common Stock. The grant date for such grant of stock options shall be the first 15th day of the calendar month after you commence work at the Company, and the exercise price for such grant shall be the closing price on such grant date. Provided you continue to provide services to the Company, the stock options will become vested and exercisable with respect to 25% of the total shares granted on the 12 month anniversary date of the grant date, and thereafter on the 15th day of each succeeding month an additional 2.083% of the total shares granted under the stock option will become vested and exercisable. However, the grant of such stock options by the Company is subject to the Board’s approval and this promise to recommend such approval is not a promise of compensation, and is not intended to create any obligation on the part of the Company.

	Further details on the Company’s stock option plan and on any specific stock option grant to you will be provided upon approval of such stock option grant by the Board.
4.	This offer of employment is made to you in confidence, and we ask that you not disclose its terms to anyone outside your immediate family. If you do disclose any of its terms to such a family member, please caution him or her that such information is confidential and must not be disclosed to anyone.
5.	While we look forward to a long and profitable relationship, should you decide to accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason or no reason, at any time and without cause or prior notice. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) should be regarded by you as ineffective. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. The at-will nature of your employment with the Company may only be changed in a written agreement signed by the Company’s CEO.
6.	Please note that because of employer regulations adopted in the Immigration Reform and Control Act of 1986, within three business days of starting your new position you will need to present documentation confirming your identify and demonstrating that you have authorization to work in the United States. If you have questions about this requirement, which applies to U.S. citizens and non-U.S. citizens alike, you may contact our Human Resource department.
7.	Please also note that due to United States export control laws, the Company may need to make inquiries into your citizenship if you will have probable or actual contact with certain technology and/or source code. Should the Company determine that you will have probable or actual contact with certain technology and/or source code, and should you be a citizen of an embargoed country under United States export control laws, this may have a material effect on the terms and conditions of your employment with the Company.
8.	You and the Company agree to submit to mandatory and exclusive binding arbitration any controversy or claim arising out of, or relating to, this Agreement or any breach hereof, provided, however, that the parties retain their right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining injunctive relief from a court having jurisdiction over the parties for any alleged violation of the Employee Invention Assignment and Confidentiality Agreement. Such arbitration shall be conducted through JAMS in the State of California, Santa Clara County, before a single arbitrator, in accordance with the JAMS Employment Arbitration Rules and Procedures in effect at that time. The arbitrator must decide all disputes in accordance with California law and shall have power to decide all matters, including arbitrability. You will bear only those costs of arbitration you would otherwise bear had you brought a covered claim in court. When the arbitrator has issued a decision, judgment on that decision may be entered in any court having jurisdiction thereof. We each understand and agree that we are waiving a trial by jury. However, this arbitration provision shall not affect your right to file an administrative

	claim before any government agency where, as a matter of law, the parties may not restrict the Employee’s ability to file an administrative claim with said agency (by way of example, claims before the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, the parties agree that arbitration shall be the exclusive remedy for administrative claims.
9.	This offer will remain valid until Sunday, December 26, 2006. If you decide to accept our offer please sign the enclosed copy of this letter in the space indicated and return it to the Human Resource department. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer and the attached documents. Should you have anything else that you wish to discuss, please do not hesitate to call.
	We look forward to the opportunity to welcome you to Silicon Image, Inc.
	Sincerely, Silicon Image, Inc
	/s/ Doug Haslam
	Doug Haslam Vice President Human Resources
	My signature below indicates acceptance of the terms and conditions of this offer and acknowledgement that I have read and understood the terms and conditions of this offer. I further acknowledge that no other commitments or representations were made to me as part of my employment offer except as specifically set forth herein.

/s/ Edward Lopez	12/23/06	1/08/07
Edward Lopez	Date	Start Date

EX-10.35

EXHIBIT 10.35
CONFIDENTIAL TREATMENT REQUESTED

SETTLEMENT AND LICENSE AGREEMENT

     This Settlement and License Agreement (^“Agreement^”) is entered into and made effective as of December 21, 2006 (the “Effective Date”), by and between Silicon Image, Inc. (“Silicon Image”), a Delaware corporation having its principal place of business at 1060 E. Arques Ave., Sunnyvale, CA 94085, for itself and its majority owned or controlled subsidiaries (collectively, “SIMG”), and Genesis Microchip Inc. (“Genesis”) a Delaware corporation with its principal place of business at 2150 Gold Street, Alviso, CA 95002, for itself and its majority owned or controlled subsidiaries (collectively, “GNSS”).

RECITALS

     WHEREAS, Silicon Image filed suit against Genesis in the U.S. District Court for the Eastern District of Virginia (the “District Court”) in 2001 for alleged infringement of Silicon Image’s U.S. patent number 5,905,769, and subsequently added a claim for alleged infringement of Silicon Image’s U.S. patent number 5,974,464;

     WHEREAS, Silicon Image and Genesis entered into a memorandum of understanding dated as of December 18, 2002 (the “MOU”);

     WHEREAS, the parties have been involved in litigation regarding the MOU before the District Court and the U.S. Court of Appeals for the Federal Circuit;

     WHEREAS, GNSS is currently selling, and wishes to continue to sell Royalty-Bearing Products (as defined below), for incorporation by its customers into personal computers, televisions and other products that use the DVI 1.0 and/or HDMI 1.x standards (as defined below);

     WHEREAS, Silicon Image is one of the founders of the DVI 1.0 and HDMI 1.x standards, and wishes to promote the adoption of such standards;

     WHEREAS, GNSS wishes to obtain, and SIMG is willing to grant to GNSS, the rights set forth in this Agreement subject to the terms and conditions of this Agreement;

     NOW, THEREFORE, the parties agree as follows:

1. Definitions.

     1.1 “HDMI 1.x standard” means the HDMI Version 1.0 standard and/or its Minor Updates.

     1.2 “Minor Update” has the same definition herein as the definition of “Minor Update” set forth in the High-Definition Multimedia Interface Specification Revision 1.1 Adopter Agreement signed by Genesis in July 2005.

     1.3 “Royalty-Bearing Products” means all products designed by GNSS or sold or offered for sale by GNSS under a GNSS brand which implement the DVI Version 1.0 standard

or the HDMI 1.x standard. For purposes of this Agreement, Royalty-Bearing Products are either “Rx products” or “Tx products”. “Rx product” means a Royalty-Bearing Product that is an IC device capable of being used to receive and decode DVI or HDMI signals. “Tx product” means a Royalty-Bearing Product that is an IC device capable of being used to encode and transmit DVI or HDMI signals. Further, an Rx product is either “discrete” or “integrated”. An Rx product is “discrete” if the sole capability of that product is to receive pixel data over a DVI/HDMI signal link and output the same pixel data without alteration on a parallel signal link with separate signals for each bit of pixel data and each control signal. An Rx product is “integrated” if it is not a discrete Rx product as defined in the preceding sentence.

     1.4 “SIMG Licensed Patents” means all patent claims owned by SIMG claiming entitlement to a priority date on or before September 1, 2006, and all reissues, reexaminations and foreign counterparts thereof.

     1.5 (i) As used in this Agreement, a patent claim is “owned” by a party if the party either owns or otherwise has the right to assert the patent claim.

          (ii) Notwithstanding anything to the contrary in this Agreement, HDMI Licensing, LLC, a subsidiary of Silicon Image that is the agent responsible for administering the licensing of the HDMI specifications, promoting and enforcing the HDMI standard, and providing education on the benefits of HDMI to retailers and consumers, shall not be considered to be a “majority owned or controlled subsidiary” of Silicon Image for the purposes of this Agreement. No licenses are granted hereunder by HDMI Licensing, LLC. Silicon Image represents and warrants that HDMI Licensing, LLC does not own any patents or patent applications, or have the right to assert any patents, and that HDMI Licensing, LLC will not own any patents or patent applications or have the right to assert any patents during the term of this Agreement. Without limiting the foregoing sentence, Silicon Image covenants for a period of three (3) years after the Effective Date that it shall not allow HDMI Licensing, LLC to assert patents in a manner that would be a breach of the covenant in Section 6.1 if such assertion were made directly by Silicon Image.

          (iii) For avoidance of doubt, and without limiting the scope of any rights granted to GNSS in this Agreement, in the event SIMG offers to license a content protection, storage, or networking scheme, protocol or standard pursuant to a standard adopters agreement available to adopters on reasonable and nondiscriminatory terms, this Agreement shall not be deemed to make GNSS an “adopter” under any such adopters agreement unless GNSS executes such adopters agreement.

2. License Grants.

     2.1 Subject to the terms and conditions of this Agreement, SIMG hereby grants GNSS a worldwide, nonexclusive license under the SIMG Licensed Patents to make, have made, use, offer for sale, sell and import Royalty-Bearing Products.

     2.2 The license granted in Section 2.1 is non-sublicensable and non-assignable (except to an entity that gains majority ownership or control of GNSS to the extent set forth in Section 8).

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     2.3 SIMG represents and warrants that it owns the SIMG Licensed Patents and has the right to grant the license in Section 2.1, that fewer than ten (10) of the SIMG Licensed Patents are jointly owned, and that it has not assigned any patents or patent applications between December 18, 2002 and the Effective Date. Each party reserves all rights not expressly granted herein.

3. Payments.

     GNSS previously has paid certain amounts in connection with the parties’ litigation and the MOU, including a transfer from the District Court escrow to Silicon Image in the amount set forth in Exhibit A, Section A.1 in or around May, 2006, and a direct payment by Genesis to Silicon Image in the amount set forth in Exhibit A, Section A.2 in or around July, 2006.

     In addition, Genesis will pay Silicon Image, within seven (7) working days (i.e. excluding weekends and holidays) after the Effective Date, the following amounts:

     (i) the amount set forth in Exhibit A, Section A.3; and

     (ii) the amount set forth in Exhibit A, Section A.4.

     In addition, within seven (7) working days after the Effective Date, Genesis will provide to SIMG a written statement in the form attached as Exhibit B, setting forth sales information, by quarter, for Royalty-Bearing Products sold by GNSS to third parties (“Sold,” and each such sale, “Sale”) from December 18, 2002 through September 30, 2006 (including without limitation the number of DVI integrated Rx products Sold since December 18, 2002, and including the number of units set forth in Exhibit A, Section A.5 of DVI integrated Rx products Sold after December 18, 2002, but excluding Royalty-Bearing Products excluded pursuant to Section 4.5).

4. Royalty Payments.

     4.1 For all Royalty-Bearing Products Sold beginning on October 1, 2006 until the earlier of the expiration of this Agreement or the termination of this Agreement in accordance with its terms (other than (a) the number of units set forth in Exhibit A, Section A.5 of DVI integrated Rx products Sold after December 18, 2002 and (b) Royalty-Bearing Products excluded pursuant to Section 4.5), Genesis shall pay Silicon Image the per IC royalties set forth in Exhibit C.

     4.2 The foregoing royalties are in addition to royalties payable by GNSS, if any, under its HDMI adopter agreement or any adopter agreement GNSS may execute for any other standard.

     4.3 Units with DVI or HDMI circuitry that is not functional and cannot be made functional (i.e. as a result of not being bonded-out or as a result of other permanent and irreversible disablement, the IC is not capable of being used to receive and decode DVI or HDMI signals in the case of receiver circuitry, and the IC is not capable of being used to encode and transmit DVI or HDMI signals in the case of transmitter circuitry), will not be subject to payment of royalties under this Agreement. On a quarterly basis, GNSS shall provide Silicon

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Image with a written list identifying by part number any such GNSS products Sold containing DVI or HDMI circuitry that is not functional and cannot be made functional.

     4.4 SIMG and GNSS acknowledge, in connection with the products described in this settlement proposal, the unusual technical difficulties in determining the use or non-use of particular patent claims, and the mutual convenience of computing royalties on defined classes of products without regard to actual use of patent claims. Accordingly, and in furtherance of their desire to resolve their present disputes and to avoid future disputes, the parties acknowledge that computing royalties on the products described herein, regardless of actual use of particular patent claims, provides a mutually convenient means for measuring the value of the licenses granted.

     4.5 For avoidance of doubt and notwithstanding anything to the contrary, only a single royalty will be payable by GNSS directly to SIMG under this Agreement on a single unit of Royalty-Bearing Product. If multiple royalties would otherwise apply to a single unit of Royalty-Bearing Product under this Section 4, only the highest of the applicable royalties will apply. Royalties will not be due on Royalty-Bearing Products sold to third parties that have a royalty-bearing or fully paid up patent license with SIMG that covers the third party’s sale of products containing components from such third party’s suppliers that implement the DVI Version 1.0 standard or the HDMI 1.x standard, including without limitation (as of the Effective Date) Sony, Toshiba and Pace Micro Technology. In the event SIMG enters into additional such licenses in the future, Silicon Image shall promptly notify Genesis of the identity of the third party so that GNSS may adjust its calculations accordingly. (A license or non-assert relating to a specification or standard that is granted to a founder or adopter of the specification or standard pursuant to a form agreement available to founders or adopters on nondiscriminatory terms to implement the specification or standard (such as, for example and without limitation, the HDMI Specification Adopter Agreement or the Digital Visual Interface Specification Revision 1.0 Adopter’s Agreement) will not be deemed a “royalty-bearing or fully paid up patent license with SIMG” for purposes of the preceding sentences). In the event GNSS becomes licensed to SIMG Licensed Patents under a separate agreement with SIMG, whether by merger or acquisition or otherwise, and a Royalty-Bearing Product under this Agreement would also bear a royal_ty under that separate agreement absent this Section 4.5, then GNSS may pay only the higher of the two royalties under either this Agreement or that separate agreement for such Royalty-Bearing Product. For avoidance of doubt, and notwithstanding anything to the contrary, if GNSS acquires or develops a product line that incorporates a licensed core provided by SIMG or anyone authorized by SIMG to provide such licensed core pursuant to a royalty-bearing or fully paid-up core license agreement, then those products will continue to be governed solely by the core license agreement and not be covered by this Agreement.

     4.6 Within forty-five (45) days after the end of each calendar quarter during the term of this Agreement, commencing with the quarter ending December 31, 2006, Genesis shall provide Silicon Image with a written statement in the form of Exhibit D setting forth the basis for the calculation of the amount payable by GNSS to SIMG under Section 4.1 of this Agreement for GNSS’s sales to third parties of Royalty-Bearing Products during the just-ended quarter, together with payment of such amount. GNSS shall pay interest on all overdue, undisputed amounts at the WSJ prime rate.

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     4.7 For purposes of computing and reporting royalties hereunder, royalties shall accrue only for Sales, which may be reduced to account for returns, exchanges, credits, and other similar adjustments or allowances.

5. Mutual Release.

     5.1 Upon receipt by Silicon Image of the payments in Sections 3(i) and 3(ii) and the written report in Section 3, SIMG and GNSS hereby irrevocably release each other and their suppliers, manufacturers, licensees, distributors, resellers, customers, successors and assigns from all claims, causes of action and liability arising prior to the Effective Date: (i) relating to the MOU, (ii) which the releasing party had against the other party that relate to the litigation settled by the MOU and subsequent litigation over the interpretation of the MOU, (iii) arising out of or related to all claims and counterclaims that were asserted, or could have been asserted by the releasing party, in such litigations, or (iv) arising out of or related to infringement of any SIMG Licensed Patents by the manufacture, use, offer for sale, sale or importation of a Royalty-Bearing Product. However, the foregoing release shall not affect GNSS’s right to challenge, or assert, after the Effective Date, any claims, counterclaims or defenses with respect to the patents that SIMG asserted in the prior litigation, including noninfringement, invalidity or unenforceability; provided, that any such challenge or assertion by GNSS shall only be in response to an assertion or reasonable apprehension of assertion of such patents after the Effective Date against (a) GNSS, or (b) the use, manufacture, importation, offering for sale or sale of GNSS products (or products incorporating a GNSS product to the extent such assertion implicates a GNSS product) by GNSS’s direct or indirect suppliers, manufacturers, licensees, distributors, resellers or customers.

     5.2 To the extent Section 1542 of the Civil Code of the State of California might otherwise apply to the release in Section 5.1, each of GNSS and SIMG waives any and all rights under Section 1542 of the Civil Code of the State of California, which provides as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with debtor.

6. Other Covenants.

     6.1 GNSS and SIMG (each, the “Covenanting Party”) each covenants that it will not, for a period of three (3) years after the Effective Date, under any patent owned by the Covenanting Party, (a) sue or assert any infringement claim against the other party (collectively, the “Receiving Party”), or (b) in connection with a product imported, manufactured, offered for sale, used, sold or distributed by a Receiving Party, or in connection with the license of a Receiving Party’s core design to a third party by a Receiving Party, sue or assert any infringement claim against a Receiving Party’s suppliers, licensees of Receiving Party’s core designs, manufacturers, distributors, resellers or customers, whether direct or indirect.

     6.2 If either party breaches the foregoing covenant, the non-breaching party will be entitled to reimbursement by the breaching party of reasonable attorneys fees, costs and expenses

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incurred to enforce this covenant, in addition to any other remedies available under law. The parties further agree that injunctive relief to enforce the covenants is an appropriate remedy for such breach.

7. Term and Termination.

     7.1 This Agreement will commence: on the Effective Date and expire on September 30, 2014, unless earlier terminated pursuant to Section 7.2.

     7.2 This Agreement may be terminated on written notice by the nonbreaching party if the other party’s material breach remains uncured sixty (60) days after the breaching party’s receipt of written notice thereof from the nonbreaching party. However, any failure to make payment based on a genuine dispute will not give rise to SIMG’s right to terminate, subject to the following: In the event of a dispute over payment, GNSS shall continue to pay Silicon Image all amounts not in dispute, and either party may request a meeting between the chief executive officers of both parties to resolve such dispute. Within 30 days after receipt of such request, the parties’ chief executive officers shall meet and attempt to resolve the dispute in good faith. If the parties have not resolved such dispute within 30 days after such initial meeting, then GNSS shall deposit the amount in dispute into an escrow account pending final adjudication of the dispute through litigation or mutually agreed arbitration proceedings. Upon a final and binding resolution of the dispute in Silicon Image’s favor, the amount adjudged due to Silicon Image will be released to Silicon Image from the escrow account.

     7.3 Genesis shall pay to Silicon Image all unpaid amounts payable by GNSS to SIMG under this Agreement within forty-five (45) days after the expiration or termination of this Agreement. Such payment shall be accompanied by a written statement in the form attached as Exhibit D setting forth the basis for calculation of such payment.

     7.4 Sections 1, 2.3, 5, 6.2, 7.3, 7.4, 10, 11 and 12 will survive the termination or expiration of this Agreement. In addition, Section 9 will survive for three years after termination or expiration of this Agreement.

8. Effect of Change of Control.

     8.1 After any acquisition or change of control of GNSS, (a) SIMG’s covenant not to sue in Section 6 above will continue only for the remainder of the term of the covenant and only with respect to patents owned by SIMG that are entitled to an earliest priority date before such acquisition or change of control of GNSS (such patent claims collectively, “Existing SIMG Patents”) and patent claims claiming priority from such Existing SIMG Patents, and (b) the license grants (and corresponding royalty and reporting obligations) in this Agreement will continue only for the remainder of the term of this Agreement; provided that, for both (a) and (b), such covenant not to sue and license grants by SIMG shall continue only with respect to (i) GNSS products that have been commercially produced and sold prior to the change of control date which the acquirer or entity resulting from such change of control or acquisition (as the case may be) sells after such acquisition or change of control, and any derivatives that have the same form, fit, function and process technology in all material respects which the acquirer or entity resulting from such GNSS change of control or acquisition (as the case may be) sells after such

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acquisition or change of control, and (ii) at the request of the acquirer or entity resulting from such GNSS acquisition or change of control (as the case may be) and SIMG’s discretion, which will not be unreasonably withheld or delayed after presentation of appropriate documentation, products introduced in the 120 days after the change of control date which were being developed solely by GNSS prior to the change of control date. For avoidance of doubt, the acquirer or entity resulting from such GNSS acquisition or change of control (as the case may be) shall continue to be bound by the covenant not to sue in Section 6 with respect to patents owned by GNSS before such acquisition or change of control and patent claims that claim priority to applications owned by GNSS before such acquisition or change of control, but not with respect to patents owned by the acquirer or merger partner before such acquisition or change of control, or patents owned by the acquirer or entity resulting from such GNSS acquisition or change of control (as the case may be) after such acquisition or change of control which do not claim priority to any application owned by GNSS before such acquisition or change of control.

     8.2 After any acquisition or change of control of SIMG, GNSS’s covenant not to sue in Section 6 above will continue only for the remainder of the term of the covenant and only with respect to patents owned by GNSS that are entitled to an earliest priority date before such acquisition or change of control of SIMG (such patent claims collectively, “Existing GNSS Patents”) and patent claims claiming priority from such Existing GNSS Patents, and only with respect to (i) SIMG products that have been commercially produced and sold prior to the change of control date which the acquirer or entity resulting from such change of control or acquisition (as the case may be) sells after such acquisition or change of control, and any derivatives that have the same form, fit, function and process technology in all material respects which the acquirer or entity resulting from such SIMG change of control or acquisition (as the case may be) sells after such acquisition or change of control, and (ii) at the request of the acquirer or entity resulting from such SIMG acquisition or change of control (as the case may be) and GNSS’s discretion, which will not be unreasonably withheld or delayed after presentation of appropriate documentation, products introduced in the 120 days after the change of control date which were being developed solely by SIMG prior to the change of control date. For avoidance of doubt, the acquirer or entity resulting from such SIMG acquisition or change of control (as the case may be) shall continue to be bound by the covenant not to sue in Section 6 with respect to patents owned by SIMG before such acquisition or change of control and patent claims that claim priority to applications owned by SIMG before such acquisition or change of control, but not with respect to patents owned by the acquirer or merger partner before such acquisition or change of control, or patents owned by the acquirer or entity resulting from such SIMG acquisition or change of control (as the case may be) after such acquisition or change of control but which do not claim priority to any application owned by SIMG before such acquisition or change of control.

     8.3 For avoidance of doubt, in the event of an acquisition or change of control of GNSS, the acquirer or entity resulting from such GNSS acquisition or change of control (as the case may be) will be bound by this Agreement, but subject to the limitations set forth in sections 8.1 and 8.2. For avoidance of doubt, in the event of an, acquisition or change of control of SIMG, the acquirer or entity resulting from such SIMG acquisition or change of control (as the case may be) will be bound by this Agreement, but subject to the limitations set forth in sections 8.1 and 8.2.

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     8.4 For purposes of this Section 8, “control” means the power to direct or cause the direction of the management and policies of Genesis or Silicon Image (as applicable) (the “Subject Entity”), whether (a) by ownership of more than 50% of the Subject Entity’s then-outstanding voting securities, (b) by merger or consolidation of the Subject Entity with or into another entity where the holders of the Subject Entity’s capital stock immediately prior to such merger or consolidation do not hold more than 50% of the total voting power of the entity resulting from such merger or consolidation immediately after such merger or consolidation, or (c) by contract. For avoidance of doubt, the foregoing sentence is not intended to cover a change of the Subject Entity^’s management personnel in and of itself that occurs apart from a change in control of the Subject Entity, or entry by the Subject Entity into licenses or other contracts in the ordinary course of business that do not involve a change in control of the Subject Entity.

     9. Audit Rights.

During the term, Silicon Image will have the right to retain, at its expense, a reputable independent auditor (not Silicon Image’s then-current independent auditor), reasonably acceptable to GNSS, to conduct an audit of GNSS’s records relevant to the payment under Section 4.1 for Sales occurring on or after October 1, 2006 for the sole purpose of verifying the accuracy of royalty payments made under this Agreement, during GNSS’s regular business hours without undue interruption to GNSS business activities and upon no less than 30 days’ prior written notice. Such audits may occur no more than once every 12 months, and only the Sales occurring in the three-year period preceding the audit request will be subject to audit. The auditor must enter into GNSS’s standard confidentiality agreement and may only disclose to Silicon Image the presence and amount of underpayment or overpayment, if any. The auditor must provide GNSS with a copy of the auditor’s report no later than it is provided to Silicon Image. GNSS shall pay Silicon Image any amounts owing promptly, but in no event later than thirty (30) days after, notice thereof from Silicon Image; provided however that any reasonably disputed portion thereof shall not bear interest during the period of such dispute. If an underpayment exceeds 10 % of the correct amount due for the audited period, then GNSS shall pay the actual reasonable costs of the independent auditor for such audit of GNSS records, and SIMG shall have the right to conduct one supplemental audit within the twelve (12) month period following the initial audit, such supplemental audit to be in addition to the audit set forth above.

10. Confidentiality.

SIMG shall keep confidential all reports (and their contents) provided by GNSS; limit access to such reports to Silicon Image’s employees who have a reasonable need to know for verifying payments made under this Agreement, subject to such employees being bound to appropriate confidentiality obligations in writing; and use such information only to verify the payments made hereunder. Silicon Image may disclose such reports (a) to the extent such disclosure is required by law, applicable governmental regulations, governmental entity, regulatory entity or court order; provided that Silicon Image shall disclose only to the extent necessary to comply with such requirements, and shall provide GNSS with timely written notice, prior to any disclosure, sufficient to permit GNSS to oppose the disclosure or to secure confidential treatment prior to such disclosure, and (b) to Silicon Image’s financial advisors and to its legal advisors, under a nondisclosure agreement (“NDA”) or applicable contractual or ethical duties and obligations of

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confidentiality. Neither party may disclose the dollar amounts, unit volumes, royalty rates or schedules in Exhibit A, Exhibit B or Exhibit C of this Agreement to third parties without the prior written consent of the other party, except as follows: (i) to the extent such disclosure is required by law, applicable governmental regulations, governmental entity, regulatory entity or court order; provided that the party seeking such disclosure shall disclose only to the extent necessary to comply with such requirements (both parties expressly acknowledge and agree that each party may file this Agreement with the United States Securities and Exchange Commission (“SEC”) and request confidential treatment from the SEC as the filing party deems necessary, and that such disclosure will not constitute a breach of this Section 10, notwithstanding the outcome of any request for confidential treatment by the filing party), (ii) to the extent a party deems necessary in disclosing the financial impact of this Agreement on its quarterly and annual financial results, including in press releases announcing such financial results and/or the entry into this Agreement, (iii) to its financial advisors and to its legal advisors, under NDA or applicable ethical duties and obligations of confidentiality, and (iv) under an NDA, to investors, potential acquirers, merger partners or entities that may be acquired by the disclosing party.

11. LIMITATION OF LIABILITY

NOTWITHSTANDING ANYTHING TO THE CONTRARY, NEITHER GNSS NOR ITS RESPECTIVE EMPLOYEES, AGENTS, OFFICERS AND/OR DIRECTORS SHALL BE LIABLE TO SIMG FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS AND LOST BUSINESS), ARISING FROM A BREACH OF SECTION 3, 4, 7.2, 7.3, 9 OR 12.5. THE FOREGOING LIMITATION SHALL APPLY EVEN IF SUCH DAMAGES ARE FORESEEABLE AND EVEN IF THE REMEDIES PROVIDED HEREIN FAIL OF THEIR ESSENTIAL PURPOSE.

12. General Provisions.

     12.1 Representation by Counsel. GNSS and SIMG each acknowledges that it has had the opportunity to consult with counsel of its choosing, that it has had the opportunity to have this Agreement fully explained to it by its own counsel and that it is fully aware of its contents and of its legal effect.

     12.2 Governing Law. The laws of the State of California (excluding conflicts of laws provisions) shall govern the performance and interpretation of this Agreement.

     12.3 Venue. All disputes arising from or related to this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts in Santa Clara County, California, and GNSS and SIMG hereby consent to the jurisdiction of the aforementioned courts for any disputes arising from or related to this Agreement.

     12.4 Entire Agreement. This Agreement constitutes the entire agreement between SIMG and GNSS pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, between GNSS and SIMG regarding the subject matter hereof (including without limitation the MOU, which shall be of no further force or effect). No modification, waiver or

9

termination of this Agreement or any provision hereof shall be binding unless executed in writing by Genesis and Silicon Image.

     12.5 Notice and Payment. Any notice required or permitted to be given under this Agreement may be delivered to the Chief Executive Officer of the addressee thereof personally, sent by U.S. Mail by certified or registered mail, or sent by tracked overnight delivery by a nationally recognized courier service, at the address set forth above. Such notice will be deemed effective upon delivery at the specified address. A U.S. Postal Service return receipt or the tracking records of a nationally recognized courier service shall be satisfactory evidence of delivery. Upon written notice, either party may change its address for receipt of notices hereunder. Payments to Silicon Image under Sections 3 and 4 will be made by wire transfer to an account designated by Silicon Image.

     12.6 Counterparts, Copies. This Agreement may be executed in counterparts. A true and correct photocopy of the fully executed Agreement shall be treated the same as and have the same legal significance as the Agreement bearing the original signatures.

     12.7 Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be illegal, invalid, void or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that the remaining provisions of the Agreement shall nevertheless continue in full force, without being impaired or invalidated in any way.

     12.8 No Waiver. The failure of either party to enforce at any time a provision of this Agreement shall in no way constitute a waiver of such provision.

     12.9 Construction. GNSS and SIMG each expressly declares that it participated in the negotiation of this Agreement, and that therefore no ambiguities in this Agreement may be resolved in favor of one party because the other party is the drafter of this Agreement.

     12.10 Attorneys Fees. If either party breaches this Agreement, the non-breaching party will be entitled to reimbursement by the breaching party of reasonable attorneys fees, costs and expenses incurred to enforce this Agreement, in addition to any other remedies available under law.

     12.11 Independence. GNSS and SIMG are independent companies and are not partners or joint venturers with each other.

     12.12 Subsidiaries. With respect to subsidiaries, the term “control” means the possession of the power to direct or cause the direction of the management and policies of the subsidiary, whether through ownership of more than 50% of subsidiary’s then-outstanding voting securities or by contract. Except as set forth in this Agreement, current and future majority owned or controlled subsidiaries of a party will be covered by this Agreement, but only so long as such majority ownership or control exists. For avoidance of doubt, SIMG Licensed Patents will remain licensed under this Agreement notwithstanding any subsequent change in ownership or control of any SIMG majority owned or controlled subsidiary. Silicon Image represents and warrants that, as of the Effective Date, it is not a majority owned subsidiary of any other entity. Genesis represents and warrants that, as of the Effective Date, it is not a majority owned subsidiary of any other entity.

10

     IN WITNESS WHEREOF, GNSS and SIMG has each caused this Agreement to be executed by a duly authorized representative.

SILICON IMAGE, INC., on behalf of itself and its majority owned or controlled subsidiaries		GENESIS MICROCHIP INC., on behalf of itself and its majority owned or controlled subsidiaries
By:	/s/ Steve Tirado	By:	/s/ Elias Antoun
Print Name: Steve Tirado		Print Name: Elias Antoun
Title: CEO		Title: President & CEO

11

Exhibit A

     Section A.1.   $[***]

     Section A.2.   $[***]

     Section A.3.   $[***]

     Section A.4.   $[***]

     Section A.5.   first [***] units Sold after December 18, 2002

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

12

Exhibit B

HIGHLY CONFIDENTIAL

Genesis Microchip Inc.

SILICON IMAGE
Quarterly Sales/Shipment Report

				Adjustment	Net	License
Quarter ending	Type	Rate	Quantity	Quantity	Quantity	Royalty
12/31/2002	DVI	[***]	0	0	0		0.00
3/31/2003	DVI	[***]	0	0	0		0.00
6/30/2003	DVI	[***]	0	0	0		0.00
9/30/2003	DVI	[***]	0	0	0		0.00
12/31/2003	DVI	[***]	0	0	0		0.00
3/31/2004	DVI	[***]	0	0	0		0.00
6/30/2004	DVI	[***]	0	0	0		0.00
9/30/2004	DVI	[***]	0	0	0		0.00
12/31/2004	DVI	[***]	0	0	0		0.00
3/31/2005	DVI	[***]	0	0	0		0.00
6/30/2005	DVI	[***]	0	0	0		0.00
9/30/2005	DVI	[***]	0	0	0		0.00
12/31/2005	DVI	[***]	0	0	0		0.00
3/31/2006	DVI	[***]	0	0	0		0.00
6/30/2006	DVI	[***]	0	0	0		0.00
9/30/2006	DVI	[***]	0	0	0		0.00
Sub-total 12/31/2002 - 9/30/06	DVI	[***]	0	0	0	$	—
12/31/2002	HDMI	[***]	0	0	0		0.00
3/31/2003	HDMI	[***]	0	0	0		0.00
6/30/2003	HDMI	[***]	0	0	0		0.00
9/30/2003	HDMI	[***]	0	0	0		0.00
12/31/2003	HDMI	[***]	0	0	0		0.00
3/31/2004	HDMI	[***]	0	0	0		0.00
6/30/2004	HDMI	[***]	0	0	0		0.00

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

13

				Adjustment	Net	License
Quarter ending	Type	Rate	Quantity	Quantity	Quantity	Royalty
9/30/2004	HDMI	[***]	0	0	0		0.00
12/31/2004	HDMI	[***]	0	0	0		0.00
3/31/2005	HDMI	[***]	0	0	0		0.00
6/30/2005	HDMI	[***]	0	0	0		0.00
9/30/2005	HDMI	[***]	0	0	0		0.00
12/31/2005	HDMI	[***]	0	0	0		0.00
3/31/2006	HDMI	[***]	0	0	0		0.00
6/30/2006	HDMI	[***]	0	0	0		0.00
9/30/2006	HDMI	[***]	0	0	0		0.00
Sub-total 12/31/2002 - 9/30/06	HDMI	[***]	0	0	0	$	—
Total Sale Royalties

Genesis Microchip Inc.	Date:
By:
Print Name:
Title:

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

14

Exhibit C

Integrated Rx Products				Tx Products and Discrete Rx Products
DVI	$	[***]		$[***]
HDMI	$	(a	)	$[***]
Where (a) =	$	[***]		first [***] of HDMI integrated Rx products Sold beginning October 1, 2006
	$	[***]		next [***] units Sold
	$	[***]		next [***] units Sold
	$	[***]		next [***] units Sold
	$	[***]		thereafter

*** Note: Confidential treatment has been requested with respect to the information contained within the [***] marking. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission.

15

Exhibit D

HIGHLY CONFIDENTIAL

Genesis Microchip Inc.

SILICON IMAGE
Quarterly Sales/Shipment Report

				Adjustment	Net	License
Quarter ending	Type	Rate	Quantity	Quantity	Quantity	Royalty
	(DVI or HDMI)
Total Sale Royalties

Genesis Microchip Inc.	Date:
By:
Print Name:
Title:

16

EX-21.01

Exhibit 21.01

Subsidiary Name	Jurisdiction of Incorporation or Organization
CMD Technology Inc.	California
DVDO, Inc.	California
HDMI Licensing, LLC	Delaware
Simplay Labs, LLC	Delaware
Slice Acquisition Corp.	Delaware
TWN Acquisition Corp.	Delaware
Silicon Image, UK	United Kingdom
Silicon Image, KK	Japan
Zillion Technologies, LLC	California
Silicon Image Electronics Technology Co. Ltd	China
Silicon Image Korea	Korea
Silicon Image Inc. Taiwan	Taiwan
Silicon Image Turkey	Turkey
Silicon Image, Cayman Islands Limited	Cayman Islands

EX-23.01

EXHIBIT 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-62724, 333-67424 and 333-105497) and Form S-8 (Nos. 333-88543, 333-95713, 333-35738, 333-44768, 333-61218, 333-63900, 333-67730, 333-86324, 333-102771, 333-105498, 333-113856, 333-123377 and 333-132490) of our reports dated March 1, 2007, relating to (1) consolidated financial statements of Silicon Image, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment) as of December 31, 2006 and 2005, and for the years then ended, and (2) management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Silicon Image, Inc. for the year ended December 31, 2006.

\s\ DELOITTE & TOUCHE LLP

San Jose, California
March 1, 2007

EX-23.02

EXHIBIT 23.02

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-62724, 333-67424 and 333-105497) and Form S-8 (Nos. 333-88543, 333-95713, 333-35738, 333-44768, 333-61218, 333-63900, 333-67730, 333-86324, 333-102771, 333-105498, 333-113856, 333-123377, and 333-132490) of Silicon Image, Inc. of our report dated March 14, 2005 relating to the consolidated financial statements which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
San Jose, California
February 28, 2007

EX-31.01

Exhibit 31.01

Certification of Principal Executive
Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Steve Tirado, certify that:

1.	I have reviewed this annual report on Form 10-K of Silicon Image, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007	/s/ Steve Tirado
	Steve Tirado President and Chief Executive Officer (Principal Executive Officer)

EX-31.02

Exhibit 31.02

Certification of Principal Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert Freeman, certify that:

1.	I have reviewed this annual report on Form 10-K of Silicon Image, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007	/s/ Robert Freeman
	Robert Freeman Chief Financial Officer (Principal Financial Officer)

EX-32.01

Exhibit 32.01

Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Annual Report of Silicon Image, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), I, Steve Tirado, President and Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods presented therein.

Date: March 1, 2007	/s/ Steve Tirado
	Steve Tirado President and Chief Executive Officer (Principal Executive Officer)

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.02

Exhibit 32.02

Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Annual Report of Silicon Image, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “Report”), I, Robert Freeman, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods presented therein.

Date: March 1, 2007	/s/ Robert Freeman
	Robert Freeman Chief Financial Officer (Principal Financial Officer)

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.