DIGITAL VIDEO SYSTEMS INC, PRE 14A, 1997-08-01

DIGITAL VIDEO SYSTEMS INC
PRE 14A, 1997-08-01
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

Previous: CONCENTRIC NETWORK CORP, 424B4, 1997-08-01

Next: HALL KINION & ASSOCIATES INC, S-1/A, 1997-08-01

<PAGE>

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement

[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

DIGITAL VIDEO SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

______________________________________________________________________

2) Aggregate number of securities to which transaction applies:

______________________________________________________________________

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
filing fee is calculated and state how it was determined.)

______________________________________________________________________

4) Proposed maximum aggregate value of transaction:

______________________________________________________________________

5) Total fee paid:

______________________________________________________________________

[_] Fee paid previously by written preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:_______________________________________________

2) Form, Schedule or Registration Statement No.:_________________________

3) Filing Party:_________________________________________________________

4) Date Filed:___________________________________________________________
<PAGE>

DIGITAL VIDEO SYSTEMS, INC.
2710 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON THURSDAY, SEPTEMBER 11, 1997

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Digital
Video Systems, Inc. (the "Company") will be held at the principal executive
offices of the Company, located at 2710 Walsh Avenue, Santa Clara, California,
on Thursday, September 11, 1997 at 10:00 A.M. for the following purposes, as
more fully described in the attached Proxy Statement and Information Statement:

(1) To elect seven directors of the Company to serve until the next
annual meeting of stockholders or until their successors are duly elected
and qualified;

(2) To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation, to increase the number of shares of Common
Stock authorized for issuance from 60,000,000 to 80,000,000;

(3) To approve the Company's 1997 Employee Stock Purchase Plan;

(4) To approve an amendment to the Company's 1993 Amended and
Restated Stock Option Plan to permit compliance with the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended, applicable
to qualified performance-based compensation;

(5) To ratify the adoption of the Company's 1996 Stock Option Plan,
as amended;

(6) To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
March 31, 1998; and

(7) To transact such other business as may properly be brought before
the Annual Meeting or any and all adjournments thereof.

The Board of Directors has fixed the close of business on Wednesday, July
16, 1997 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting. Only stockholders at the close of
business on the record date are entitled to vote at the Annual Meeting.

Accompanying this Notice are a Proxy and Proxy Statement and Information
Statement. IF YOU WILL NOT BE ABLE TO ATTEND THE ANNUAL MEETING TO VOTE IN
PERSON, PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE. The Proxy may be revoked at any
time prior to its exercise at the Annual Meeting.

By Order of the Board of Directors,

Seth Halio
Secretary

Santa Clara, California
August 13, 1997
<PAGE>

DIGITAL VIDEO SYSTEMS, INC.
2710 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051

ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 11, 1997

PROXY STATEMENT AND INFORMATION STATEMENT

(ALSO CONSTITUTING NOTICE OF ACTION TAKEN WITHOUT A MEETING)

INTRODUCTION

This Proxy Statement and Information Statement (collectively, the
"Proxy/Information Statement") is furnished to the stockholders of Digital Video
Systems, Inc., a Delaware corporation (the "Company"), in connection with (i)
the solicitation of proxies by and on behalf of the Board of Directors of the
Company and (ii) providing notice of, and information with respect to, an action
taken by written consent of holders of a majority of the outstanding shares of
the Company's Common Stock approving the Company's 1996 Stock Option Plan, as
amended (the "1996 Stock Option Plan"). The proxies solicited hereby are to be
voted at the Annual Meeting of Stockholders of the Company to be held on
September 11, 1997, and at any and all adjournments thereof (the "Annual
Meeting").

PURPOSE OF ANNUAL MEETING

At the Annual Meeting, stockholders will be asked: (i) to elect seven
directors of the Company to serve until the next annual meeting of stockholders
or until their successors are duly elected and qualified; (ii) to approve an
amendment to the Company's Amended and Restated Certificate of Incorporation
(the "Certificate"), to increase the number of shares of Common Stock authorized
for issuance from 60,000,000 to 80,000,000; (iii) to approve the Company's 1997
Employee Stock Purchase Plan (the "Stock Purchase Plan"); (iv) to approve an
amendment to the Company's 1993 Amended and Restated Stock Option Plan (the
"1993 Stock Option Plan") to permit compliance with the requirements of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), applicable
to qualified performance-based compensation; (v) to ratify the adoption of the
1996 Stock Option Plan; (vi) to ratify the appointment by the Board of Directors
of Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending March 31, 1998; and (vii) to transact such other business as may properly
be brought before the Annual Meeting or any and all adjournments thereof. The
Board recommends a vote in favor of (i.e., "FOR") (a) the election of the seven
nominees for directors of the Company listed below and (b) the proposals set
forth in (ii) through (vi) above.

QUORUM AND VOTING RIGHTS

The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. Only stockholders of record at the close of business on
Wednesday, July 16, 1997 (the "Record Date") will be entitled to notice of, and
to vote at, the Annual Meeting. As of the Record Date, there were 20,283,921
shares of Common Stock outstanding and entitled to vote. Holders of Common
Stock as of the Record Date are entitled to one vote for each share held.

All shares of Common Stock represented by properly executed proxies will,
unless the proxies have previously been revoked, be voted in accordance with the
instructions indicated in the proxies. If no instructions are indicated, the
shares will be voted in favor of (i.e., "FOR") (i) the election of the seven
nominees for directors of the Company listed under Proposal 1; (ii) the increase
in the number of shares of

1.
<PAGE>

Common Stock authorized under the Certificate; (iii) the approval of the Stock
Purchase Plan; (iv) the approval of the amendment to the 1993 Stock Option Plan;
(v) ratification of the adoption of the 1996 Stock Option Plan; and (vi) the
ratification of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending March 31, 1998. With respect to any other item of business
that may come before the Annual Meeting, the proxy holders will vote the proxy
in accordance with their best judgment.

In the election of directors, the seven candidates receiving the highest
number of votes will be elected as directors. Approval of the amendment to the
Certificate requires the affirmative vote of a majority of the outstanding
shares of Common Stock. The other matters submitted for stockholder approval at
the Annual Meeting will be decided by the affirmative vote of the majority of
the shares represented in person or by proxy and entitled to vote on each such
matter. Abstentions with respect to any matter are treated as shares present or
represented and entitled to vote on that matter and thus have the same effect as
negative votes. If a broker which is the record holder of certain shares
indicates on a proxy that it does not have discretionary authority to vote on a
particular matter as to such shares, or if shares are not voted in other
circumstances in which proxy authority is defective or has been withheld with
respect to a particular matter, these non-voted shares will be counted for
quorum purposes but are not deemed to be present or represented for purposes of
determining whether stockholder approval of that matter has been obtained. Any
stockholder executing a proxy has the power to revoke the proxy at any time
prior to its exercise. A proxy may be revoked prior to exercise by (a) filing
with the Company a written revocation of the proxy; (b) appearing at the Annual
Meeting and casting a vote contrary to that indicated on the proxy; or (c)
submitting a duly executed proxy bearing a later date.

PURPOSE OF INFORMATION STATEMENT

On July 31, 1997, Dr. Edmund Sun and Hyundai Electronics Industries Company,
Ltd. (the "Majority Stockholders"), as the owners of record, collectively, of
approximately 57.8% of the Company's issued and outstanding shares of Common
Stock, signed a written consent (the "Written Consent") adopting the Company's
1996 Stock Option Plan, as permitted by the Delaware General Corporation Law
(the "DGCL") and the Company's By-Laws. The Written Consent provides that the
effective date of such approval will be 20 days after the Company's stockholders
are sent a copy of this Proxy/Information Statement. The Written Consent also
provides that, in the event the stockholders of the Company do not ratify the
adoption of the 1996 Stock Option Plan at the Annual Meeting of Stockholders,
the Company will terminate the Plan (provided, however, that all options granted
-------- -------
under the 1996 Stock Option Plan through the date of the Annual Meeting will
remain outstanding in accordance with their terms). Accordingly, this
Proxy/Information Statement is being furnished to all stockholders of record to
provide information with respect to the adoption of the 1996 Stock Option Plan.
This Proxy/Information Statement also constitutes notice of action taken without
a meeting as required by Section 228 of the DGCL.

The cost of preparing, printing, assembling and mailing this
Proxy/Information Statement and other material furnished to stockholders in
connection with the solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by use of the mails, officers, directors
and regular employees of the Company may solicit proxies by written
communications, by telephone, telegraph or personal call. These persons are to
receive no special compensation for any solicitation activities. The Company
will reimburse banks, brokers and other persons holding Common Stock in their
names, or those of their nominees, for their expenses in forwarding proxy
solicitation materials to beneficial owners of Common Stock.

This Proxy/Information Statement and the accompanying form of proxy are first
being mailed to stockholders on or about August 13, 1997.

2.
<PAGE>

PROPOSAL 1 -
ELECTION OF DIRECTORS

NOMINEES

At the Annual Meeting, seven directors, who will constitute the entire Board
of Directors, are to be elected to serve until the next Annual Meeting of
Stockholders and until their successors shall be elected and shall qualify. All
nominees have consented to being named herein and have agreed to serve if
elected. The names of such nominees are as follows:

Edmund Y. Sun
Thomas R. Parkinson
Robert B. Pfannkuch
Sung Hee Lee
Sanford C. Sigoloff
Philip B. Smith
Joseph F. Troy

Management proxies will be voted FOR the election of all of the above named
nominees unless the stockholders indicate that the proxy shall not be voted for
all or any one of the nominees. Nominees receiving the highest number of
affirmative votes cast, up to the number of directors to be elected, will be
elected as directors. Abstentions, broker non-votes, and instructions on the
accompanying proxy card to withhold authority to vote for one or more of the
nominees will result in the respective nominees receiving fewer votes. If for
any reason any nominee should, prior to the Annual Meeting, become unavailable
for election as a Director, an event not now anticipated, the proxies will be
voted for such substitute nominee, if any, as may be recommended by management.
In no event, however, shall the proxies be voted for a greater number of persons
than the number of nominees named.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE SEVEN PERSONS NOMINATED FOR DIRECTOR HEREIN.

MEETINGS; ATTENDANCE; COMMITTEES

During the fiscal year ended March 31, 1997, the Board of Directors of the
Company met nine times, and the audit committee met two times. There were no
compensation committee, risk management committee, nominating committee or
executive committee meetings held during the fiscal year. No incumbent member
who was a director during the past fiscal year attended fewer than 75% of the
aggregate of all meetings of the Board of Directors and all meetings of the
committees of the Board of Directors on which he served, except for Mr. Lee, who
attended five Board meetings.

The Company's compensation committee was formed to make recommendations to
the Board concerning salaries and incentive compensation for officers and
employees of the Company. The compensation committee currently consists of Dr.
Sun and Messrs. Smith and Troy. The audit committee reviews the scope of the
audit and other accounting related matters. The Company's audit committee
currently consists of Messrs. Sigoloff, Smith and Troy. The Company's risk
management committee was formed to establish systems and policies to supervise
and manage the Company's risk of doing business outside the United States. The
risk management committee currently consists of Mr. Smith and Janis Gemignani.
The Nominating Committee was formed to make recommendations to the Board as to
candidates to serve on the Board. The Nominating Committee currently consists
of Messrs. Smith and Troy. The Board recently formed an Executive Committee of
the Board, which committee is authorized to exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Company, to the fullest extent permitted by law. The executive
committee currently consists of Mr. Pfannkuch, who is Chairman of the committee
and Messrs. Sun, Smith and Troy. The Company also recently formed a committee
of "outside directors" within the meaning

3.
<PAGE>

of Section 162(m) of the Internal Revenue Code of 1986, as amended, comprised of
Messrs. Lee and Sigoloff, to make grants of options to executive officers under
the Company's stock option plans. The Company has no other committees of its
Board of Directors.

MANAGEMENT OF THE COMPANY

Set forth below is certain information with respect to the directors and
executive officers of the Company as of August 1, 1997 and with respect to the
director nominees:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
<S> <C> <C> <C>
Edmund Y. Sun 48 Chairman of the Board and 1992
Chief Executive Officer

Thomas R. Parkinson(1) 50 President, Chief Operating Officer --
and Director Nominee

Robert B. Pfannkuch(2) 62 Director 1996

Janis P. Gemignani(3) 49 Director 1985

Sung Hee Lee 42 Director 1994

Sanford C. Sigoloff 66 Director 1996

Philip B. Smith 61 Director 1995

Joseph F. Troy 58 Director 1996

Seth Halio 35 Controller and Secretary --
</TABLE>

____________

(1) Mr. Parkinson was appointed President and Chief Operating Officer of the
Company, effective as of April 15, 1997
(2) Mr. Pfannkuch resigned as President, effective as of April 14, 1997.
(3) Ms. Gemignani served as Chief Financial Officer, Vice President and
Secretary of the Company from August 1995 until October 1996.

EDMUND Y. SUN has served as the Company's Chairman of the Board and Chief
Executive Officer since its inception in October 1992 and is the founder of the
Company. Dr. Sun served as President of the Company from October 1992 to May
1996. Dr. Sun founded C-Cube Microsystems Inc. ("C-Cube"), a public company
involved in the development of full-color still and motion picture compression
technology, and was its Chief Executive Officer from March 1989 to September
1991, and Chairman of the Board from August 1988 until April 1993. Dr. Sun was
also a founder, Vice President, and Chief Technical Officer of Weitek
Corporation, a public company involved in high-speed three-dimensional shaded
graphics systems and the use of high speed chips in various computer
applications. Dr. Sun is a director of CSS Laboratories, Inc., a privately-held
company involved in computer hardware. Dr. Sun has a Ph.D. in Applied Physics,
an M.S. in Electrical Engineering from the California Institute of Technology,
and a B.S. in Electrophysics from the National Chiao-Tung University in Taiwan.

THOMAS R. PARKINSON has served as the Company's President and Chief Operating
Officer since April 15, 1997 and is a director nominee. In 1993, Mr. Parkinson
served as a consultant for Shape, Inc., a manufacturer of home video
entertainment and computer related companies and, from 1994 to April 1997 served
as that company's President and Chief Executive Officer. In 1992, Mr. Parkinson
founded Technology Vision, Inc., a provider of management services.

4.
<PAGE>

ROBERT B. PFANNKUCH has served as a director of the Company since May 1996
and served as the President of the Company from May 1996 to April 1997. Since
April 1997, Mr. Pfannkuch has served as President for Panasonic Disc Services
Corporation. From March 1996 to May 1996 he served as a consultant to the
Company. Mr. Pfannkuch has been the President of Telefuture Partners, a
consulting firm, since January 1990. He was the Chairman and Chief Executive
Officer of Rank Video Services America (formerly Bell & Howell/Columbia
Pictures/Paramount Video Services) from 1981 to January 1990. From 1974 to
1981, he was the President of Bell & Howell Video Group and Vice President of
Bell & Howell. Mr. Pfannkuch received a B.S. from the University of
Connecticut.

JANIS P. GEMIGNANI has been a director of the Company since August 1995 and
served as the Chief Financial Officer, Vice President and Secretary of the
Company from August 1995 until October 1996. Ms. Gemignani was a co-founder and
from 1984 to August 1995, Chief Financial Officer of Vertical Software, Inc., a
value-added reseller of computer hardware and software located in Houston,
Texas. Ms. Gemignani earned her B.A. degree with honors from the University of
West Florida. Ms. Gemignani is a Certified Public Accountant.

SUNG HEE LEE has been a director of the Company since March 1994. Mr. Lee
founded and has been the Director of the Multimedia Business Division of Hyundai
Electronics Industries Co., Ltd. ("Hyundai") since March 1993. From May 1991
until March 1993, Mr. Lee served as a Senior Manager of the Marketing Department
of Hyundai's Information Systems Business Sector. From January 1989 until May
1991, he served as a Senior Manager of Hyundai's Computer Export Department. He
was also responsible for establishing the Hyundai Electronics America subsidiary
in the United States. Mr. Lee is a member of the Board of Directors of Wanyan
Electronics Co., Ltd., in China. He received his M.S. in Industrial Engineering
from the Korea Advanced Institute of Science & Technology. Mr. Lee serves as
the representative of Hyundai on the Company's Board of Directors.

SANFORD C. SIGOLOFF has served as a director of the Company since June 1996.
Mr. Sigoloff has been Chairman of the Board, President and Chief Executive
Officer of Sigoloff & Associates, Inc. (a management consulting company) since
1989. He served as Chief Executive Officer of L.J. Hooker Corporation (a retail
conglomerate) from August 1989 to June 1992. From March 1982 until 1988, Mr.
Sigoloff served as Chairman of the Board, President and Chief Executive Officer
of Wickes Companies, Inc. (a furniture retail chain). Mr. Sigoloff is a
director of Sun America, Inc., Kaufman and Broad Home Corporation, ChatCom, Inc.
and Movie Gallery, Inc., which are public companies. Mr. Sigoloff is an adjunct
full professor at the John E. Anderson Graduate School of Management at the
University of California at Los Angeles.

PHILIP B. SMITH has served as a director of the Company since November 1995.
Mr. Smith has been a Vice Chairman of the Board of Spencer Trask Securities
Incorporated since 1991. He was formerly a Managing Director of Prudential
Securities in their merchant banking division from 1985 to 1991. Mr. Smith is a
founding General Partner of Lawrence Venture Associates, a venture capital
limited partnership headquartered in New York City and was the General Partner
from 1984 to 1985. From 1981 to 1984, he served as Executive Vice President and
Group Executive of the international banking and worldwide corporations group at
Irving Trust Company. Prior to joining Irving Trust Company, he was at Citibank
for 15 years, where he founded Citicorp Venture Capital and was its President
and Chief Executive Officer. Since 1988, Mr. Smith has also been the managing
general partner of Private Equity Partnership, L.P. Mr. Smith is a director of
Movie Gallery, Inc., DenAmerica Corp., ChatCom, Inc. and KLS Enviro Resources,
Inc., all publicly-held companies. Mr. Smith is an adjunct professor at
Columbia University Graduate School of Business. He holds a B.S.E. from
Princeton University and an M.B.A. from Harvard University.

JOSEPH F. TROY has served as a director of the Company since May 1996. Mr.
Troy is the founder and has been a member of the law firm of Troy & Gould
Professional Corporation since May 1970. He is a director of Movie Gallery,
Inc., a publicly-held company. Mr. Troy holds a B.A. from Yale University and
an LL.B. from Harvard University.

5.
<PAGE>

SETH HALIO has served as Controller of the Company since February 1997 and
Secretary of the Company since March 1997. From 1994 to 1997, Mr. Halio was
employed at California Microwave, Inc., most recently as Director of Accounting
and Finance. From 1986 to 1994, Mr. Halio was employed at Ernst & Young, most
recently as senior manager. Mr. Halio resigned from the Company, effective as
of August 16, 1997.

Directors serve until the next annual meeting or until their successors are
elected or appointed. Officers are elected by and serve at the discretion of
the Board of Directors. There are no family relationships among the officers or
directors of the Company.

Pursuant to the underwriting agreement entered into by the Company in
connection with the initial public offering of the Company's securities in May
1996 (the "IPO"), the Company agreed for a period of five years commencing on
May 9, 1996, if requested by the underwriter, D.H. Blair Investment Banking
Corp. (the "Underwriter"), to nominate a designee of the Underwriter who is
reasonably acceptable to the Company to the Company's Board of Directors. To
date, the Underwriter has not designated a director.

KEY EMPLOYEES:

The following individuals are key employees of the Company:

JAMES A. MUNRO has served as the Director of Engineering of the Company since
July 1995. From 1978 to July 1995, Mr. Munro served in a number of different
managerial positions with Wyse Technology, Inc. in San Jose, California, the
most recent being as product marketing manager for X-Terminals. From 1978 to
1983, he was a Marketing Manager and Director of Engineering at Zentec
Corporation, which was a publicly-traded computer hardware company in Santa
Clara, California. He holds a B.S.E.E. from Manchester University in England.

ED MARTINI has served as the Project Manager of Network Video for the Company
since January 1993. Mr. Martini was previously the engineering liaison to C-
Cube from Sun Microsystems, Inc. and worked in various engineering capacities
with Sun Microsystems, Inc. from May 1987 to January 1993. Mr. Martini has a
B.S. from California Polytechnic State University at San Luis Obispo.

JAMES KIRKPATRICK, JR. has served as the Chief Technical Officer of ViComp
Technology, Inc. ("ViComp") since the acquisition of that company in October
1996 by the Company. He was the co-founder and from August 1995 to October 1996
served as a director and the Chief Executive Officer of ViComp. From June 1993
to May 1995, Mr. Kirkpatrick was a Vice President of Hyundai and the General
Manager of its Digital Media Division. Mr. Kirkpatrick was an independent
consultant on chip development from February 1992 to June 1993. He held various
positions at C-Cube from September 1988 to February 1992, including Vice
President of Engineering. Mr. Kirkpatrick has a B.B.E. and a Master of Science
degree from Ohio State University and an M.B.A. from the University of Santa
Clara.

6.
<PAGE>

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

EXECUTIVE COMPENSATION

The following table sets forth the compensation for the fiscal year ended
March 31, 1997, the twelve months ended March, 31, 1996 and the fiscal year
ended December 31, 1995 paid by the Company to its Chief Executive Officer and
the other executive officer of the Company who earned in excess of $100,000
(collectively, the "Named Executive Officers") based on salary and bonus for the
fiscal year ended March 31, 1997:

<TABLE>
<CAPTION>
Long-Term
Compensation
ANNUAL COMPENSATION(1) Awards
-------------------------------------------- ------------------
Other Securities
Name and Fiscal Year Annual Underlying
Principal Position Ended(2) Salary($) Compensation Options (#)
------------------ -------------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>

Dr. Edmund Y. Sun(3) March 31, 1997 $159,751 $ -- --
Chairman of the Board March 31, 1996 131,709 -- --
and Chief Executive Officer December 31, 1995 125,485 -- --

Robert Pfannkuch March 31, 1997 128,652 10,000(5) 750,000(6)
President(4) March 31, 1996 -- -- --
December 31, 1995 -- -- --
</TABLE>

_________

(1) The compensation described in this table does not include medical insurance,
retirement benefits and other benefits received by the foregoing executive
officers which are available generally to all employees of the Company and
certain perquisites and other personal benefits received by the foregoing
executive officers of the Company, the value of which did not exceed the
lesser of $50,000 or 10% of the executive officer's cash compensation in the
table.
(2) In June 1996, the Company changed its fiscal year end from December 31 to
March 31. The compensation reported for Dr. Sun for the twelve months ended
March 31, 1996 includes a portion ($98,782) of the amount reported for the
year ended December 31, 1995.
(3) Dr. Sun also served as President of the Company during the fiscal year ended
December 31, 1995 and through May 1996.
(4) Mr. Pfannkuch resigned as President of the Company effective April 14, 1997.
Mr. Pfannkuch continues to serve as a director of the Company.
(5) Represents payments made to Mr. Pfannkuch as a consultant prior to his
employment by the Company as President.
(6) Includes 400,000 options which were cancelled as of March 26, 1997.

7.
<PAGE>

The following table provides information on stock options granted in the
fiscal year ended March 31, 1997:

OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE (PER SHARE) DATE
- ------------------ -------------------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Dr. Edmund Y. Sun -- -- -- --

Robert B. Pfannkuch 400,000(1) 20.7% $3.50 (1)
187,500(2) 9.7% $3.50 May 8, 2001
162,500(2) 8.4% $3.50 May 8, 2001
</TABLE>

____________________
(1) All of such options were canceled effective as of March 26, 1997.
(2) Such options vest and become exercisable on a pro rata basis over 48 months
for each full month of completed service by Mr. Pfannkuch as a director of
the Company after May 8, 1997. 125,000 and 108,333 of such options,
respectively have been deposited in escrow pursuant to an Escrow Agreement
between the Company, American Stock Transfer and Trust Company and certain
of the Company's stockholders and optionholders. Such options (as well as
the shares of Common Stock issuable upon exercise of such options) are
subject to forfeiture and cancellation unless and until certain minimum pre-
tax income or stock price levels for the Company are met. See "Security
Ownership of Certain Beneficial Owners and Management - Escrow Securities."

DIRECTOR COMPENSATION

Directors (other than directors who are employees of the Company and who
receive no compensation for serving on the Board of Directors) receive $15,000
per year as compensation for serving on the Board of Directors and are also
entitled to participate in the Company's stock option plans and from time to
time to receive grants of options thereunder to purchase shares of the Company's
Common Stock. During the fiscal year ended March 31, 1997, the following option
grants were made pursuant to the Company's 1993 Stock Option Plan: Joseph F.
Troy: options to purchase 136,608 shares of Common Stock at $3.50 per share;
Robert B. Pfannkuch; options to purchase 750,000 shares of Common Stock at $3.50
per share, pursuant to Mr. Pfannkuch's Consulting and Employment Agreement (of
which 400,000 options were subsequently cancelled); Sanford C. Sigoloff:
options to purchase 136,608 shares of Common Stock at $7.25 per share.

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company entered into an employment agreement (the "Sun Employment
Agreement") with Dr. Sun, the Company's founder, Chairman of the Board and Chief
Executive Officer, in March 1996. The term of the Sun Employment Agreement
commenced in May 1996 and will expire on March 31, 2001; provided, however, that
-------- -------
the Sun Employment Agreement can be terminated by either party after March 31,
1999, if all of the Escrow Securities (as defined herein) have been released.
The Sun Employment Agreement provides that in consideration for Dr. Sun's
services, he is to be paid a salary of $160,000 during the first year of the
agreement. In addition, he will receive increases in salary and bonuses as
deemed appropriate by the Board of Directors.

The Company entered into a two-year employment agreement dated as of March
28, 1997 with Thomas R. Parkinson, pursuant to which Mr. Parkinson became the
President and Chief Operating Officer of the Company commencing on April 15,
1997. In connection with entering into such agreement, Mr. Parkinson

8.
<PAGE>

received five-year options to purchase 400,000 shares of Common Stock at $3.75
per share under the Company's 1993 Stock Option Plan, of which options to
purchase 266,667 shares are Escrow Securities. See "Security Ownership of
Certain Beneficial Owners and Management--Escrow Securities." One-fourth of
such options vest and become exercisable after Mr. Parkinson has served as the
President of the Company for one year, and the balance will vest at a monthly
rate of 2.083% over the following 36 months, subject to acceleration of this
vesting schedule or forfeiture of these options under certain circumstances.
In addition, Mr. Parkinson received five-year options to purchase 500,000 shares
of Common Stock at $3.75 per share under the Company's 1996 Stock Option Plan.
Such options vest at a monthly rate of 2.083% over a four-year period commencing
on April 30, 1997, subject to acceleration of this vesting schedule or
forfeiture of these options under certain circumstances. Mr. Parkinson receives
an annual salary of $280,000 and will be eligible for an annual performance
bonus ranging from $120,000 to $200,000. Mr. Parkinson's salary and bonus
shall be mutually agreed to by Mr. Parkinson and the Board after the first year.
Mr. Parkinson's employment as President and Chief Operating Officer is renewable
at the end of the initial two-year term by mutual agreement of the parties.

The Company entered into a Consulting and Employment Agreement dated as of
March 15, 1996 with Robert B. Pfannkuch, pursuant to which Mr. Pfannkuch became
a director and the President of the Company in May 1996. Upon entering into
such agreement, Mr. Pfannkuch received five-year options to purchase 750,000
shares of Common Stock at $3.50 per share, of which options to purchase 500,000
shares were designated as Escrow Securities. See "Security Ownership of Certain
Beneficial Owners and Management--Escrow Securities." One-fourth of such
options were to vest and become exercisable after Mr. Pfannkuch had been the
President of the Company for one year, and the balance were to vest and become
exercisable at the rate of 11,719 per month, subject to acceleration of this
vesting schedule or forfeiture of these options under certain circumstances.
Mr. Pfannkuch received an annual salary of $150,000 as President of the Company,
and his employment as President was renewable on a yearly basis by mutual
agreement of the parties. Mr. Pfannkuch terminated his employment as President
in April 1997 but continues to serve as a director of the Company. In
connection with his termination as President, Mr. Pfannkuch and the Company
agreed that his options to purchase 187,500 shares of Common Stock would vest on
May 8, 1997 (provided he continued to serve as a director of the Company through
that date), his options to purchase 162,500 shares of Common Stock will vest on
a pro rata basis over 48 months for each full month of completed service by Mr.
Pfannkuch as a director of the Company after May 8, 1997 and his options to
purchase 400,000 shares of Common Stock would be cancelled. 233,333 of the
foregoing options which were not cancelled are Escrow Securities.

STOCK OPTION PLANS

For a description of the Company's 1993 Stock Option Plan and 1996 Stock
Option Plan, see "Proposal 4 - Proposal to Amend the Company's 1993 Amended and
Restated Stock Option Plan" and "Proposal 5 - Proposal to Ratify the Approval of
the Company's 1996 Stock Option Plan, As Amended," respectively.

9.
<PAGE>

CERTAIN TRANSACTIONS

In October 1996, the Company acquired all of the outstanding capital stock of
ViComp Technology, Inc. ("ViComp") for 491,253 shares (the "Acquisition Shares")
of the Company's Common Stock (the "ViComp Acquisition"). Dr. Edmund Y. Sun,
the Company's Chairman of the Board and Chief Executive Officer, was a co-
founder of ViComp and owned 57.3% of the outstanding capital stock of ViComp
(for which he had paid a total of $1,000,000 in September 1995 and January 1996)
at the time of the ViComp Acquisition. The Company issued to Dr. Sun 281,520
shares of the Company's Common Stock for his ViComp capital stock in the ViComp
Acquisition (57.3% of the total 491,253 shares of Common Stock issued in the
ViComp Acquisition).

All of the Acquisition Shares issued to Dr. Sun and 10% of the Acquisition
Shares issued to the other former ViComp stockholders have been deposited in
escrow, are subject to forfeiture and cancellation under certain circumstances
and may not be publicly resold until released from escrow. Dr. Sun and the
other holders of the Acquisition Shares were granted certain demand and
piggyback registration rights under a registration rights agreement pursuant to
the terms of the ViComp Acquisition, with Dr. Sun and such other holders
exercising their demand registration rights in May 1997 and the Company filing a
registration statement covering all of the shares issued in the ViComp
Acquisition with the Securities and Exchange Commission in July 1997.

The ViComp Acquisition was unanimously approved by the disinterested members
of the Company's Board of Directors, and the Company's Board of Directors was
advised by Sutter Securities Incorporated that the ViComp Acquisition is fair
from a financial point of view to the Company's stockholders other than Dr. Sun.

The Company purchased approximately $7,178,703 and $809,000 of inventory from
C-Cube during the fiscal year ended March 31, 1997 and the year ended December
31, 1995, respectively. Dr. Sun is the founder and was a significant
shareholder of C-Cube.

In February 1995, the Company borrowed $500,000 from Dr. Sun. The loan was
secured by the assets of the Company and bore interest at the prime rate plus 1%
per annum. In October 1995, the Company amended the terms of the loan to allow
for additional borrowings of $1,500,000 at the same interest rate. In December
1995, Dr. Sun converted the $2,000,000 of principal plus approximately $57,000
of accrued interest into 1,335,949 shares of the Company's Series B Preferred
Stock at $1.54 per share. These shares were converted into 1,335,949 shares of
Common Stock upon the closing of the IPO in May 1996.

Hyundai purchased 3,247,473 shares of the Company's Series A Preferred Stock
for approximately $5,000,000 and 649,526 shares of the Company's Series B
Preferred Stock for approximately $1,000,000 from the Company in January 1994
and April 1995, respectively. In connection with such purchases, Hyundai was
given the right to designate a director, a right of first refusal relating to
sales of the Company's securities and certain registration rights. Such right
of first refusal terminated in connection with the IPO and Hyundai waived its
registration rights for 13 months following the closing of the IPO in May 1996.
Hyundai's Series A Preferred Stock and the Series B Preferred Stock were
converted into 3,896,999 shares of Common Stock upon the closing of the IPO in
May 1996.

In 1993, Hyundai and the Company entered into agreements relating to the
Company's development of a consumer karaoke player, a karaoke jukebox, encoding
machines and a karaoke network system. These agreements were subsequently
amended in 1994 in connection with the Company and Hyundai agreeing to a
manufacturing relationship for karaoke jukebox players. The Company and Hyundai
subsequently entered into the 1995 Hyundai Technical Assistance and License
Agreement which subsumed part of the agreements entered into in 1993 and
obligated the Company to develop MPEG-2 compressor products.

10.
<PAGE>

In March 1996, the Company entered into an employment agreement with Dr. Sun
and a consulting and employment agreement with Mr. Pfannkuch. See "Compensation
of Directors and Executive Officers--Employment and Consulting Agreements."

In October 1996, the Company removed Janis Gemignani as the Company's Vice
President, Secretary and Chief Financial Officer. Pursuant to a Settlement
Agreement and General Releases between Ms. Gemignani and the Company, the
Company agreed, in connection with the settlement of certain actions brought by
Ms. Gemignani in connection with her removal, to retain Ms. Gemignani as a
consultant for a period of twelve months commencing February 4, 1997, at a fee
of $15,000 per month.

Mr. Troy is a member of Troy & Gould Professional Corporation, a law firm
which was retained by the Company during the fiscal year ended March 31, 1997,
and has been retained to provide services for the current fiscal year.

Mr. Smith provided consulting services to the Company during the fiscal year
ended March 31, 1997, pursuant to which he received fees of $6,000.

11.
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 1, 1997, by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's directors and director
nominees; (iii) each of the Named Executive Officers; and (iv) all officers,
directors and director nominees of the Company as a group.

<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name and Address(1) Ownership(2) Ownership
- ---------------------------------------------- -------------- -----------
<S> <C> <C>
Edmund Y. Sun................................. 7,822,418(3) 37.5%
Thomas R. Parkinson........................... 62,500(4) *
Robert B. Pfannkuch........................... 201,042(5) *
Janis Gemignani............................... 134,238(6) *
Sung Hee Lee.................................. 0(7) -
Philip B. Smith............................... 68,304(8) *
Sanford Sigoloff.............................. 45,536(9) *
Joseph F. Troy................................ 51,228(10) *
Seth Halio.................................... 0(11) *
Hyundai Electronics Industries Company, Ltd... 3,896,999(12) 18.7
10th Floor, Boram Building
705-19, Yeeksam-dong
Kongnam-Ku, Seoul, Korea
All executive officers and directors
as a group (9 persons)....................... 8,385,266 40.2
</TABLE>

____________________

* Less than one percent.
(1) Except as otherwise indicated, the address of each principal stockholder is
c/o the Company at 2710 Walsh Avenue, Santa Clara, California 95051.
(2) Includes the Escrow Securities of such individual or entity. See "--Escrow
Securities." Nature of beneficial ownership of securities is direct and
arises from sole voting power and sole investment power, subject to
community property laws where applicable. Shares underlying options to
purchase Common Stock exercisable within 60 days of August 1, 1997 are
deemed to be outstanding for purposes of calculating the number of shares
owned by the holders of such options.
(3) Includes 281,520 shares of Common Stock acquired by Dr. Sun in the ViComp
Acquisition, all of which have been deposited in escrow and are subject to
cancellation in certain circumstances. Also includes 280,334 shares owned
by Dr. Sun's sons and 21,564 shares owned by Dr. Sun's sister.
(4) Represents options to purchase 62,500 shares of Common Stock. Excludes
options to purchase 837,500 shares of Common Stock which are not
exercisable within 60 days.
(5) Represents options to purchase 201,042 shares of Common Stock. Excludes
options to purchase 148,958 shares of Common Stock which are not
exercisable within 60 days.
(6) Represents options to purchase 134,238 shares of Common Stock. Excludes
options to purchase 104,408 shares of Common Stock which are not
exercisable within 60 days. The address for Janis Gemignani is 373 River
Oak Circle, Suite 1803, San Jose, California 95134.
(7) Although Mr. Lee serves as Hyundai's representative on the Company's Board
of Directors, he does not have any right to vote or dispose of the shares
owned by Hyundai.

12.
<PAGE>

(8) Represents options to purchase 68,304 shares of Common Stock. Excludes
options to purchase 68,304 shares of Common Stock which are not exercisable
within 60 days.
(9) Represents options to purchase 45,536 shares of Common Stock. Excludes
options to purchase 91,072 shares of Common Stock which are not exercisable
within 60 days.
(10) Represents options to purchase 51,228 shares of Common Stock. Excludes
options to purchase 85,380 shares of Common Stock which are not exercisable
within 60 days.
(11) Excludes options to purchase 50,000 shares of Common Stock which are not
exercisable within 60 days.
(12) Mong Hun Chung is the Chairman and largest individual shareholder of
Hyundai and may be considered a beneficial owner of such shares.

ESCROW SECURITIES

In connection with the IPO and through March 31, 1997, the holders of the
Company's Common Stock and options to purchase Common Stock placed 8,086,321
shares (the "Escrow Shares") and options to purchase 1,985,656 shares (the
"Escrow Options") and the Company has placed through March 31, 1997 options
issuable under the 1993 Stock Option Plan to purchase 28,023 shares of Common
Stock (together with the Escrow Options and the Escrow Shares, the "Escrow
Securities") into escrow pursuant to an escrow agreement (the "Escrow
Agreement") with American Stock Transfer & Trust Company, as escrow agent. The
Escrow Securities are not assignable or transferable; however, the Escrow Shares
may be voted. Holders of any options in escrow may exercise their options prior
to their release from escrow; however, the shares issuable upon any such
exercise will continue to be held in escrow as Escrow Shares pursuant to the
Escrow Agreement.

All or a portion of the Escrow Securities may be released from escrow based
on the Company's Minimum Pretax Income amounts (as defined and set forth below)
or the trading price of the Company's Common Stock. The Minimum Pretax Income
amounts (i) shall be calculated exclusively of any extraordinary earnings,
including, but not limited to, any charge to income resulting from the release
of the Escrow Securities; and (ii) shall be increased from the amounts
established at the time of the IPO proportionately, with certain limitations, in
the event additional shares of Common Stock or securities convertible into,
exchangeable for or exercisable into Common Stock are issued after the IPO. The
Minimum Pretax Income amounts as originally established at the time of the IPO
are described below.

Of the Escrow Securities, one-half (representing 5,050,000 shares of issued
or issuable shares of Common Stock) will be released from escrow, on a pro rata
basis, if, and only if, one or more of the following conditions are met (none of
such conditions having been met to date):

(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings as audited and determined by the
Company's independent public accountants (the "Minimum Pretax Income") amounts
to at least $10.0 million for the fiscal year ended March 31, 1997;

(ii) the Minimum Pretax Income amounts to at least $15.0 million for the
fiscal year ending March 31, 1998;

(iii) the Minimum Pretax Income amounts to at least $23.0 million for the
fiscal year ending March 31, 1999;

(iv) the Minimum Pretax Income amounts to at least $31.0 million for the
fiscal year ending March 31, 2000;

(v) the Minimum Pretax Income amounts to at least $39.0 million for the
fiscal year ending March 31, 2001;

13.
<PAGE>

(vi) commencing on May 9, 1996 and ending 18 months thereafter, the bid
price of the Company's Common Stock averages in excess of $24.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 60 consecutive business days;

(vii) commencing November 9, 1997 and ending 36 months thereafter, the bid
price of the Company's Common Stock averages in excess of $48.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 90 consecutive business days; or

(viii) during the periods specified in (vi) or (vii) above, the Company is
acquired by or merged into another entity in a transaction in which the value of
the per share consideration received by the stockholders of the Company on the
date of such transaction or at any time during the applicable period set forth
in (vi) or (vii), respectively, equals or exceeds the applicable levels set
forth in (vi) or (vii), respectively.

The remaining Escrow Securities (representing 5,050,000 shares of issued or
issuable shares of Common Stock) will be released from escrow, on a pro rata
basis, if, and only if, one or more of the following conditions is met (none of
such conditions having been met to date):

(i) the Minimum Pretax Income amounts to at least $15.0 million for the
fiscal year ended March 31, 1997;

(ii) the Minimum Pretax Income amounts to at least $21.0 million for the
fiscal year ending March 31, 1998;

(iii) the Minimum Pretax Income amounts to at least $32.0 million for the
fiscal year ending March 31, 1999;

(iv) the Minimum Pretax Income amounts to at least $42.0 million for the
fiscal year ending March 31, 2000;

(v) the Minimum Pretax Income amounts to at least $53.0 million for the
fiscal year ending March 31, 2001;

(vi) commencing on May 9, 1996 and ending 18 months thereafter, the bid
price of the Company's Common Stock averages in excess of $48.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 60 consecutive business days;

(vii) commencing November 9, 1997 and ending 36 months thereafter, the bid
price of the Company's Common Stock averages in excess of $96.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 90 consecutive business days; or

The bid price amounts set forth above are subject to adjustment in the event
of any stock splits, reverse stock splits or other similar events.

Holders of Escrow Securities have agreed not to sell, transfer, hypothecate,
negotiate, pledge, assign, encumber or otherwise dispose of any or all of the
Escrow Securities unless and until (A) the Company shall have given notice that
the conditions for the release of the Escrow Securities set forth in Paragraphs
(a) and (b) above are met, or (B) such disposition is (i) proposed in connection
with an agreement by which the Company is to be acquired by or merged into
another entity in which the consideration paid by the acquiror

14.
<PAGE>

per share of the Company's stock is no less than 80% of the minimum
consideration required by Paragraphs (a)(vi) and (vii) above as to a disposition
of up to 50% of the Escrow Securities or by Paragraphs (b)(vi) and (vii) above
as to a disposition of up to 100% of the Escrow Securities and (ii) approved by
at least 80% of the votes cast, in person or by proxy, by holders of the Common
Stock eligible to vote on such matter excluding the shares held by the holders
of the Escrow Securities, provided that the holders of at least 50% of the
Common Stock (excluding the shares held by the holders of the Escrow Securities)
actually vote on such matter, in person or by proxy, or are present, in person
or by proxy, at the meeting at which the vote takes place. If the Company is
acquired by or merges into another company that thereafter owns all of the
outstanding stock of the Company except for the Escrow Securities, at any time
from and after the consummation of the merger or acquisition, holders of Escrow
Securities desiring to dispose of their Escrow Securities will be permitted to
do so if the acquiror gives notice as to conditions being met in Paragraphs (a)
and (b) above or consents in writing to the disposition, but no vote or consent
of the former stockholders of the Company will be required.

Any money, securities, rights or property distributed in respect of the
Escrow Securities, including any property distributed as dividends or pursuant
to any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Securities. If none of the applicable Minimum Pretax Income or bid price levels
set forth above have been met by July 15, 2001, the Escrow Securities, as well
as any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Securities to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares on the date of release. Such charge could
substantially increase the loss or reduce or eliminate the Company's net income
for financial reporting purposes for the period or periods during which such
shares are, or become probable of being, released from escrow. Although the
amount of compensation expense recognized by the Company will not affect the
Company's total shareholders' equity, it may have a negative effect on the
market price of the Company's securities.

The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between the Company and the Underwriter of the IPO
prior to the IPO and should not be construed to imply or predict any future
earnings by the Company or any increase in the market price of its securities.

15.
<PAGE>

PROPOSAL 2 -
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK

On August 1, 1997, the Board of Directors unanimously approved, subject to
stockholder approval, an amendment to the Company's Amended and Restated
Certificate of Incorporation (the "Certificate"), to increase the number of
authorized shares of Common Stock from 60,000,000 to 80,000,000.

The Board of Directors believes that the authorized number of shares of
Common Stock remaining available is not sufficient to enable the Company to
respond to potential business opportunities and to pursue important objectives
that may be anticipated. Accordingly, the Board of Directors believes that it
is in the Company's best interests to increase the number of authorized shares
of Common Stock as described above. The Board of Directors also believes that
the availability of such shares will provide the Company with the flexibility to
issue Common Stock for proper corporate purposes that may be identified by the
Board of Directors from time to time, such as stock dividends (including stock
splits in the form of stock dividends), financings, acquisitions, or strategic
business relationships. Further, the Board of Directors believes the
availability of additional shares of Common Stock will help enable the Company
to attract and retain talented employees through the grant of stock options and
other stock-based incentives. An important component of the Company's business
strategy is to develop and market new products, including through the
acquisition of technologies, assets and businesses deemed synergistic with the
Company's operations. For example, in October 1996, the Company acquired all of
the outstanding capital stock of ViComp, a company that designs and develops
integrated circuits, in exchange for 491,253 shares of the Company's Common
Stock. Further, the Company recently entered into an agreement to acquire
substantially all of the assets of the Digital Video division of Arris
Interactive L.L.C. (the "DV Business") for a combination of cash, 600,000 shares
of Common Stock of the Company and additional cash consideration to be based on
the future revenue of the DV Business. Although the Company does not, as of the
date of this Proxy/Information Statement, have any other agreements with respect
to future acquisitions that would require the issuance of shares of the
Company's Common Stock, the Company continues to seek acquisition opportunities
that may require such issuances. The issuance of additional shares of Common
Stock may have a dilutive effect on earnings per share and, with respect to a
person who does not purchase additional shares to maintain his or her pro rata
interest, on a stockholder's percentage voting power.

The authorized shares of Common Stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable without further action by the Company's
stockholders, except as may be required by applicable laws or the rules of any
stock exchange or national securities association trading system on which the
securities may be listed or traded. Upon issuance, such shares will have the
same rights as the outstanding shares of Common Stock. Holders of Common Stock
do not have preemptive rights. The Board of Directors does not intend to issue
any shares of Common Stock except on terms which the Board deems to be in the
best interests of the Company and its then-existing stockholders.

The Board of Directors does not recommend this proposed amendment with the
intent to use the ability to issue additional shares of Common Stock to
discourage tender offers or takeover attempts. However, the availability of
authorized shares of Common Stock for issuance could render more difficult or
discourage a merger, tender offer, proxy contest or other attempt to obtain
control of the Company. The proposed amendment is not in response to any effort
on the part of any party to accumulate material amounts of Common Stock or to
acquire control of the Company by means of merger, tender offer, proxy contest
or otherwise, or to change the Company's management. In addition, the proposal
is not part of any plan by management to recommend a series of similar
amendments to the Board of Directors and the stockholders.

As of July 16, 1997, the Company had 20,283,921 shares of Common Stock
outstanding. An additional 38,518,500 shares were reserved for future issuance
under the Company's stock option plans and pursuant

16.
<PAGE>

to other options and warrants (including shares currently reserved for issuance
under the Company's 1997 Employee Stock Purchase Plan and 1996 Option Plan), of
which 22,083,829 shares were covered by outstanding options and warrants and
16,434,671 shares were available for future grant or purchase. The remaining
1,197,597 shares were unreserved.

The text of the first paragraph of Article IV of the Certificate, as it is
proposed to be amended pursuant to this proposal, is as follows:

"This corporation is authorized to issue two classes of shares, which
shall be designated as Common Stock, $.0001 par value per share, and
Preferred Stock, $.0001 par value per share. The total number of shares
of Common Stock which this corporation is authorized to issue is Eighty
Million (80,000,000 ) and the total number of shares of Preferred Stock
which this corporation is authorized to issue is Five Million (5,000,000).
The Preferred Stock may be issued from time to time in one or more
series."

The affirmative vote of the holders of a majority of the shares of the
Company's outstanding Common Stock is required to approve this proposal. If
approved by the stockholders, the proposed amendment to the Certificate will
become effective upon the filing of a Certificate of Amendment with the
Secretary of State of Delaware, which will occur as soon as reasonably
practicable.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.

PROPOSAL 3 -
PROPOSAL TO APPROVE THE
1997 EMPLOYEE STOCK PURCHASE PLAN

On July 31, 1997, the Company's Board of Directors adopted the 1997 Employee
Stock Purchase Plan (the "Stock Purchase Plan" or the "Plan"), subject to
stockholder approval. The Stock Purchase Plan is designed to provide eligible
employees of the Company and its participating subsidiaries (collectively
"Participating Companies") with added incentive to continue in the employment of
the Participating Companies by permitting them to purchase shares of Common
Stock on a discounted basis through payroll withholding. The Stock Purchase
Plan will be effective on the first day immediately following the date on which
the Plan is approved by the stockholders. The full text of the Stock Purchase
Plan appears as Exhibit 1 to this Proxy/Information Statement and the
description of the Plan herein is qualified by reference to the text of the
Plan.

DESCRIPTION OF THE STOCK PURCHASE PLAN

The Stock Purchase Plan is administered by the Board of Directors or a
committee of the Board (the "Committee") consisting of at least three persons,
at least one of whom must be a member of the Company's Board of Directors. The
Board or Committee has the authority to interpret the Plan and to establish
rules and regulations thereunder.

Up to 500,000 shares of Common Stock in the aggregate may be purchased under
the Stock Purchase Plan, subject to adjustment in the event of a stock dividend,
stock split or combination of shares.

Participation under the Plan is open to all active employees of the
Participating Companies, except (i) employees who have not been continuously
employed by the Participating Companies for at least one year, (ii) employees
whose customary employment by the Participating Companies is less than 20 hours
per week, or (iii) employees whose customary employment by the Participating
Companies is five months or less in any

17.
<PAGE>

calendar year. Employees who, immediately upon enrollment in the Plan, would,
together with certain relatives, own more than 5% of the total combined voting
power or value of all classes of stock of the Company or any subsidiary
corporation thereof are not eligible.

Payment for shares of Common Stock is to be made in installments through
payroll deductions over the Plan's designated offering period (the "Offering
Period").

Each eligible employee may enroll in the Plan as of the first day of the
Offering Period following the date which is ten days after such employee first
becomes eligible to participate in the Stock Purchase Plan or as of the first
day of any subsequent Offering Period (or as of the first day of each three-
month period ending on the close of a calendar quarter during and within an
Offering Period (an "Interim Offering Period")).

Each eligible employee may authorize payroll deductions under the Stock
Purchase Plan in an amount not to exceed 10% of the participant's compensation
(before withholding or other deductions). For purposes of the Plan,
"compensation" means the annual base rate of pay, determined by the Board of
Directors (including commissions, but exclusive of bonuses and certain other
fringe benefits).

As of the last day of each Interim Offering Period, funds credited to each
participant's account will be applied to the purchase of whole shares of Common
Stock. No interest will be paid on amounts held in a participant's account.
The purchase price per share of Common Stock under the Plan for any Offering
Period shall be 85% of the fair market value of the Common Stock on the first
business day or the last business day of such Offering Period, whichever is
less.

A participant may at any time elect to terminate his participation in the
Plan, except that no such termination shall be effective as to any Interim
Offering Period unless such election is received in writing by the Committee
prior to the last day of such Interim Offering Period.

In the event of the death of any participant, the termination of his
employment with any of the Participating Companies for any reason (unless he
remains or immediately becomes employed by another Participating Company), or
any other cessation of his eligibility to participate in the Plan, his
participation in the Plan shall immediately terminate, and all amounts not used
to purchase shares of Common Stock as of the date of such termination, shall be
returned to him or his legal representatives.

The Board of Directors may amend, modify or terminate the Stock Purchase Plan
at any time, provided, however, that no such amendment shall adversely affect
any participant's existing rights and provided further that no amendment shall
be effective without shareholder approval if such amendment would: (a) increase
the aggregate number of shares which may be issued under the Plan (except for
adjustment for certain capital changes as provided in the Plan); (b) materially
modify the requirements for eligibility to participate in the Plan; (c) increase
the maximum number of shares of stock which a participant may purchase in any
Offering Period; (d) extend the term of the Plan; (e) alter the purchase price
formula so as to reduce the price for shares of stock to be purchased under the
Plan; (f) otherwise materially increase the benefits accruing to participants
under the Plan; or (g) cause the Plan to fail to meet the requirements of an
"employee stock purchase plan" under Section 423 of the Code. The Stock
Purchase Plan will terminate if it does not receive the approval of a majority
of the stockholders of the Company voting at the Annual Meeting.

Rights acquired under the Stock Purchase Plan are not transferable (other
than by will or the applicable laws of descent and distribution) and may be
exercised only by a participant.

No eligible employee or participant shall by reason of the Plan have any
rights of a stockholder of the Company until the date of issuance of a stock
certificate to such participant for shares issued under the Plan.

18.
<PAGE>

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Stock Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. Assuming such qualification, a participant
will not recognize income in connection with his participation in the Stock
Purchase Plan (other than upon the payment of dividends with respect to shares
purchased under the Stock Purchase Plan) prior to the date that the participant
disposes of shares of Common Stock acquired by him under the Stock Purchase Plan
("Plan Stock").

A participant who disposes of Plan Stock (by sale, exchange, gift or other
transfer covered by Section 425(c) of the Code) more than two years after the
first day of the Offering Period with respect to which the Plan Stock was
purchased (such first day of the period is herein referred to as the "offering
date"), will recognize ordinary income equal to the lesser of (i) 15% of the
fair market value of such shares on the offering date or (ii) the excess, if
any, of the fair market value of the shares on the date of the disposition over
the purchase price of the shares. In addition, such participant will recognize
long-term capital gain equal to the excess, if any, of the proceeds from the
disposition over the sum of (i) the purchase price of the shares and (ii) the
amount of ordinary income the participant recognizes (as described in the
preceding sentence). If the proceeds from the disposition of the shares are
less than the purchase price of the shares, the participant will be entitled to
a long-term capital loss equal to the amount of such difference.

If a participant disposes of Plan Stock within two years or less after the
applicable offering date (a "disqualifying disposition"), such participant will
be required to recognize ordinary income equal to the excess of the fair market
value of such shares on the date of their purchase over the purchase price of
the shares. In addition, such participant will be required to recognize capital
gain equal to the excess, if any, of the proceeds from the disposition over the
fair market value of the shares on the date on which they were purchased. If
the proceeds from the disposition are less than the fair market value of the
shares on the date on which they were purchased, such participant will be
entitled to a capital loss equal to the amount of such difference. A capital
gain or loss described in this paragraph will be characterized as long-term if
the applicable shares are disposed of more than one year after they are acquired
and short-term if the applicable shares are disposed of one year or less after
they are acquired.

The Company is not entitled to any deduction in connection with the purchase
or disposition of shares of Common Stock under the Stock Purchase Plan, other
than in connection with a disqualifying disposition. If a participant makes a
disqualifying disposition, the Company is entitled to a deduction equal to the
amount of ordinary income recognized by such participant, provided that
applicable withholding requirements are satisfied.

The foregoing constitutes a brief summary of the principal federal income tax
consequences of transactions based on current federal income tax laws. This
summary is not intended to be exhaustive and does not describe state, local or
foreign tax consequences.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE
COMPANY'S 1997 EMPLOYEE STOCK PURCHASE PLAN.

PROPOSAL 4 -
PROPOSAL TO AMEND THE COMPANY'S 1993 AMENDED
AND RESTATED STOCK OPTION PLAN

On July 31, 1997, the Board of Directors of the Company unanimously adopted
an amendment to the 1993 Stock Option Plan (the "Amendment") intended to permit
income recognized in connection with grants of options to qualify as
"performance-based" compensation for purposes of Section 162(m) of the Code.
The Amendment provides that options covering no more than 750,000 shares of
Common Stock may be granted under the 1993 Stock Option Plan in any twelve month
period. The Amendment, which is described in more

19.
<PAGE>

detail below, also made other changes to the 1993 Stock Option Plan necessary or
advisable to permit compliance with Section 162(m) of the Code. Section 162(m)
of the Code limits the amount of compensation paid to named executive officers
that may be deducted for federal income tax purposes by the Company in any year
to $1.0 million, unless the compensation qualifies as "performance-based"
compensation. The full text of the Amendment appears as Exhibit 2 to this
Proxy/Information Statement and the description of the Amendment herein is
qualified by reference to the text of the Amendment.

DESCRIPTION OF THE 1993 STOCK OPTION PLAN

The key terms of the 1993 Stock Option Plan, as proposed to be amended, are
outlined below. Copies of the 1993 Stock Option Plan are available upon request
to the Company.

In October 1993, the Board of Directors approved the Company's 1993 Stock
Option Plan, which plan was subsequently approved by the Company's stockholders
in March 1994. In April 1996, the Board of Directors and the stockholders of
the Company approved the 1993 Amended and Restated Stock Option Plan, which
effected certain amendments to the 1993 Stock Option Plan. The 1993 Stock
Option Plan provides for the grant of options to officers, directors, other key
employees and consultants of the Company to purchase up to an aggregate of
3,762,532 shares of Common Stock. The 1993 Stock Option Plan is administered by
the Board of Directors or a committee of the Board and is currently administered
by the Board of Directors, which has complete discretion to select the optionees
and to establish the terms and conditions of each option, subject to the
provisions of the 1993 Stock Option Plan. The Amendment to the 1993 Stock
Option Plan revises the administration provisions to require that grants of
options under the 1993 Stock Option Plan to named executive officers may be made
only by a committee of directors who qualify as "outside directors" within the
meaning of Section 162(m) of the Code. The Company recently formed such a
committee to make grants of options to executive officers under the Company's
stock option plans. Options granted under the 1993 Stock Option Plan may be
"incentive stock options" as defined in Section 422 of the Code, or nonqualified
options, and will be designated as such.

The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may be acquired in any one year pursuant to incentive stock options
under the 1993 Stock Option Plan or any other option plan adopted by the
Company. Nonqualified options may be granted under the 1993 Stock Option Plan
at an exercise price less than the fair market value of the Common Stock on the
date of grant. Nonqualified options also may be granted without regard to any
restriction on the amount of Common Stock that may be acquired pursuant to such
options in any one year.

In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (six months in the case of termination by reason of
death or disability) following termination of employment.

Options may not be exercised more than ten years after the grant (five years
after the grant if the grant is an incentive stock option to an employee who
owns more than 10% of the total combined voting power of all classes of capital
stock of the Company). Options granted under the 1993 Stock Option Plan are not
transferable and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the 1993 Stock Option Plan, shares subject to cancelled or terminated
options are reserved for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends. The 1993 Stock Option Plan is effective for ten years, unless
sooner terminated or suspended. The Amendment provides that options covering no
more than 750,000 shares of Common Stock may be granted to any one employee in
any fiscal year.

20.
<PAGE>

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

Incentive stock options under the 1993 Stock Option Plan are afforded
favorable federal income tax treatment under the Code. If an option is treated
as an incentive stock option, the optionee will recognize no income upon grant
or exercise of the option unless the alternative minimum tax rules apply. Upon
an optionee's sale of the shares (assuming that the sale occurs at least two
years after grant of the option and at least one year after exercise of the
option), any gain will be taxed to the optionee as long-term capital gain. If
the optionee disposes of the shares prior to the expiration of the above holding
periods, then the optionee will recognize ordinary income in an amount generally
measured as the difference between the exercise price and the lower of the fair
market value of the shares at the exercise date or the sale price of the shares.
Any gain or loss recognized on such a premature sale of the shares in excess of
the amount treated as ordinary income will be characterized as capital gain or
loss.

All other options granted under the 1993 Stock Option Plan are nonstatutory
stock options and will not qualify for any special tax benefits to the optionee.
An optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. However, upon exercise of the nonstatutory
stock option, the optionee will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon an optionee's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long-term capital gain or loss treatment if the shares
have been held for more than one year.

Subject to the limits on deductibility of employee remuneration under Section
162(m) of the Code, the Company will generally be entitled to a tax deduction in
the amount that an optionee recognizes as ordinary income with respect to an
option. Options granted to executive officers under the 1993 Stock Option Plan
are intended to qualify as performance-based compensation for purposes of
Section 162(m) of the Code, and the Company will generally be entitled to a tax
deduction in the amount recognized by such officers upon exercise of the
options. No tax authority or court has ruled on the applicability of Section
162(m) to the 1993 Stock Option Plan and any final determination of the
deductibility of amounts realized upon exercise of an option granted under the
1993 Stock Option Plan could ultimately be made by the Internal Revenue Service
or a court having final jurisdiction with respect to the matter. The Company
retains the right to grant options under the 1993 Stock Option Plan in
accordance with the terms of the 1993 Stock Option Plan regardless of any final
determination as to the applicability of Section 162(m) of the Code to these
grants.

The foregoing does not purport to be a complete summary of the federal income
tax considerations that may be relevant to holders of options or to the Company.
It also does not reflect provisions of the income tax laws of any municipality,
state or foreign country in which an optionee may reside, nor does it reflect
the tax consequences of an optionee's death.

PARTICIPATION IN THE 1993 STOCK OPTION PLAN

During the fiscal year ended March 31, 1997, options to purchase 1,934,216
shares of Common Stock were granted under the 1993 Stock Option Plan. Grants
under the 1993 Stock Option Plan are made at the discretion of the administrator
of the 1993 Stock Option Plan and future grants under the 1993 Stock Option Plan
have not yet been determined.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
COMPANY'S 1993 STOCK OPTION PLAN.

21.
<PAGE>

PROPOSAL 5 -
PROPOSAL TO RATIFY THE APPROVAL OF THE COMPANY'S 1996 STOCK
OPTION PLAN, AS AMENDED.

In September 1996 and July 1997, the Company's Board of Directors approved
the Company's 1996 Stock Option Plan and an amendment thereto, in each case
subject to stockholder approval. On July 31, 1997, the Majority Stockholders
executed the Written Consent, adopting the 1996 Stock Option Plan, as amended.
The Written Consent provides that, in the event the stockholders of the Company
do not ratify such adoption at the Annual Meeting, the Company will terminate
the 1996 Stock Option Plan (provided, however, that all options granted under
-------- --------
the 1996 Stock Option Plan through the date of the Annual Meeting will remain
outstanding in accordance with their terms). The purpose of the 1996 Stock
Option Plan is to enable the Company to attract and retain top-quality
employees, officers, directors and consultants and to provide such employees,
officers, directors and consultants with an incentive to enhance stockholder
return. The full text of the 1996 Stock Option Plan appears as Exhibit 3 to
this Proxy/ Information Statement and the description of the Plan herein is
qualified by reference to the text of the Plan.

DESCRIPTION OF THE 1996 STOCK OPTION PLAN

The key terms of the 1996 Stock Option Plan are outlined below.

The 1996 Stock Option Plan provides for the grant of options to officers,
directors, other key employees and consultants of the Company to purchase up to
an aggregate of 2,000,000 shares of Common Stock. The 1996 Stock Option Plan is
administered by the Board of Directors or a committee of the Board, and is
currently administered by the Board of Directors, which has complete discretion
to select the optionees and to establish the terms and conditions of each
option, subject to the provisions of the 1996 Stock Option Plan.
Notwithstanding the foregoing, grants of options to executive officers may be
made only by a committee of directors who qualify as "outside directors" within
the meaning of Section 162(m) of the Code. Options granted under the 1996 Stock
Option Plan may be "incentive stock options" as defined in Section 422 of the
Code, or nonqualified options, and will be designated as such.

The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may be acquired in any one year pursuant to incentive stock options
under the 1996 Stock Option Plan or any other option plan adopted by the
Company. Nonqualified options may be granted under the 1996 Stock Option Plan
at an exercise price less than the fair market value of the Common Stock on the
date of grant. Nonqualified options also may be granted without regard to any
restriction on the amount of Common Stock that may be acquired pursuant to such
options in any one year.

Options may not be exercised more than ten years after the grant (five years
after the grant if the grant is an incentive stock option to an employee who
owns more than 10% of the total combined voting power of all classes of capital
stock of the Company). Options granted under the 1996 Stock Option Plan are not
transferable and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the 1996 Stock Option Plan, shares subject to cancelled or terminated
options are reserved for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends. The 1996 Stock Option Plan is effective for ten

22.
<PAGE>

years, unless sooner terminated or suspended. The 1996 Stock Option Plan
provides that options covering no more than 500,000 shares of Common Stock may
be granted to any one employee in any twelve month period.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

Incentive stock options under the 1996 Stock Option Plan are afforded
favorable federal income tax treatment under the Code. If an option is treated
as an incentive stock option, the optionee will recognize no income upon grant
or exercise of the option unless the alternative minimum tax rules apply. Upon
an optionee's sale of the shares (assuming that the sale occurs at least two
years after grant of the option and at least one year after exercise of the
option), any gain will be taxed to the optionee as long-term capital gain. If
the optionee disposes of the shares prior to the expiration of the above holding
periods, then the optionee will recognize ordinary income in an amount generally
measured as the difference between the exercise price and the lower of the fair
market value of the shares at the exercise date or the sale price of the shares.
Any gain or loss recognized on such a premature sale of the shares in excess of
the amount treated as ordinary income will be characterized as capital gain or
loss.

All other options granted under the 1996 Stock Option Plan are nonstatutory
stock options and will not qualify for any special tax benefits to the optionee.
An optionee will not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. However, upon exercise of the nonstatutory
stock option, the optionee will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon an optionee's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long-term capital gain or loss treatment if the shares
have been held for more than one year.

Subject to the limits on deductibility of employee remuneration under Section
162(m) of the Code, the Company will generally be entitled to a tax deduction in
the amount that an optionee recognizes as ordinary income with respect to an
option. Options granted to executive officers under the 1996 Stock Option Plan
are intended to qualify as performance-based compensation for purposes of
Section 162(m) of the Code, and the Company will generally be entitled to a tax
deduction in the amount recognized by such officers upon exercise of the
options. No tax authority or court has ruled on the applicability of Section
162(m) to the 1996 Stock Option Plan and any final determination of the
deductibility of amounts realized upon exercise of an option granted under the
1996 Stock Option Plan could ultimately be made by the Internal Revenue Service
or a court having final jurisdiction with respect to the matter. The Company
retains the right to grant options under the 1996 Stock Option Plan in
accordance with the terms of the 1996 Stock Option Plan regardless of any final
determination as to the applicability of Section 162(m) of the Code to these
grants.

PARTICIPATION IN THE 1996 STOCK OPTION PLAN

During the fiscal year ended March 31, 1997, option to purchase 644,514
shares of Common Stock were granted under the 1996 Stock Option Plan. Grants
under the 1996 Stock Option Plan are made at the discretion of the administrator
of the 1996 Stock Option Plan and future grants under the 1996 Stock Option Plan
have not yet been determined.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN, AS AMENDED.

23.
<PAGE>

PROPOSAL 6 -
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The Board of Directors has appointed Ernst & Young LLP as independent
auditors of the Company's financial statements for the fiscal year ending March
31, 1998 subject to ratification by the stockholders. Ernst & Young LLP has
served as independent auditors of the Company's financial statements for the
fiscal year ended December 31, 1995, for the three months ended March 31, 1996
and for the fiscal year ended March 31, 1997. A representative of Ernst & Young
LLP will be available at the Annual Meeting to respond to appropriate questions
or make other statements such representative deems appropriate.

COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and certain of its officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they file. Based solely upon a review of the copies of
the forms furnished to the Company and the representations made by the reporting
persons to the Company, the Company believes that during the fiscal year ended
March 31, 1997, its directors, officers and 10% stockholders complied with all
filing requirements under Section 16(a) of the Exchange Act, with the exception
of the following: Dr. Sun filed a late Form 5 to report the acquisition of
shares in the ViComp Acquisition, which he failed to report on a Form 4. Mr.
Sigoloff filed a late Form 5 to report the receipt of options to purchase
136,608 shares of Common Stock, which he failed to report on a Form 4. Mr.
Pfannkuch filed a late Form 5 to report the cancellation of options to purchase
400,000 shares of Common Stock, which he failed to report on a Form 4. Mr.
Halio filed a late Form 3 to report the receipt of options to purchase 50,000
shares of Common Stock.

SUBMISSION OF STOCKHOLDER PROPOSALS

Stockholders are advised that any stockholder proposal, including nominations
to the Board of Directors, intended for consideration at the 1998 Annual
Stockholders Meeting must be received by the Company no later than February 15,
1998 to be included in the proxy material for the 1998 Annual Meeting. It is
recommended that stockholders submitting proposals direct them to Thomas R.
Parkinson, President of the Company, and utilize certified mail, return-receipt
requested in order to ensure timely delivery.

OTHER MATTERS

The Board of Directors knows of no matter to come before the Annual Meeting
other than as specified herein. If other business should, however, be properly
brought before the Annual Meeting, the persons voting the proxies will vote them
in accordance with their best judgment.

24.
<PAGE>

THE STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.

By Order of the Board of Directors

Dr. Edmund Y. Sun
Chairman of the Board

August 13, 1997

25.
<PAGE>

EXHIBIT 1

DIGITAL VIDEO SYSTEMS, INC.

EMPLOYEE STOCK PURCHASE PLAN

1. Establishment of the Plan; Purpose. This Employee Stock Purchase Plan
----------------------------------
(the "Plan") was established to provide Eligible Employees with an opportunity
through regular payroll deductions to purchase Common Stock of Digital Video
Systems, Inc., a Delaware corporation (the "Company") so that they may increase
their proprietary interest in the Company. The Plan was adopted by the Board of
Directors of the Company on July 31, 1997. The Plan is intended to qualify as
an "employee stock purchase plan" under Section 423 of the Internal Revenue
Code.

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

(a) "Board of Directors" means the Committee if one has been
appointed, or the Board of Directors of the Company if no Committee has been
appointed.

(b) "Code" means the Internal Revenue Code of 1986.

(c) "Committee" means the committee appointed by the Board of
Directors to administer the Plan in accordance with Section 3 below, if one is
appointed.

(d) "Company" means Digital Video Systems, Inc. and such present or
future Subsidiaries, as defined in Section 425 of the Code, of the Company as
the Board of Directors shall from time to time designate.

(e) "Compensation" means the annual base rate of pay of a Participant
as of the first day of an Offering Period, determined in accordance with
nondiscriminatory rules adopted by the Board of Directors, including
commissions, but excluding bonuses, income with respect to stock options or
other stock purchases, moving expense reimbursements, shift differentials or any
pay for work outside the regular work schedule.

(f) "Eligible Employee" means any regular employee of the Company
whose date of hire was at least one year prior to the commencement of an
Offering Period or an Interim Offering Period and who is customarily employed
for at least 20 hours per week and more than five (5) months in any calendar
year.

(g) "Fair Market Value" of a share of Stock means the closing price on
the Nasdaq National Market on the applicable date. In the event the Stock is
not traded on the date as of which the Fair Market Value is to be determined,
Fair Market Value shall be determined as of the next preceding date on which the
Stock was traded.

(h) "Interim Offering Period" means each three-month period ending on
the close of a calendar quarter during and within an Offering Period.

(i) "Option" means the right of a Participant to purchase Stock during
the applicable Offering Period.

(j) "Offering Date" means the first business day of each Offering
Period.

(k) "Offering Period" means, in the absence of a specific
determination to the contrary by the Board of Directors or the Committee, a 24-
month period beginning on the first day of a calendar quarter

1.
<PAGE>

during which contributions may be made toward the purchase of Stock under the
Plan. The Board of Directors or the Committee shall establish from time to time
Option Periods which shall be up to twenty-four (24) months.

(l) "Participant" means an Eligible Employee who elects to participate
in the Plan.

(m) "Plan Account" means the account established for each Participant
pursuant to the Plan.

(n) "Purchase Price" means the price at which Participants may
purchase Stock as determined pursuant to the Plan.

(o) "Stock" means the Common Stock of the Company.

(p) "Subsidiary" means a corporation a majority of whose voting shares
are owned by the Company.

3. Administration. The Plan shall be administered by the Board of
--------------
Directors and/or by a duly appointed Committee consisting of not less than three
persons, at least one of which shall be a member of the Board of Directors, and
having such powers as shall be specified by the Board. The Board of Directors
may from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, howsoever caused, shall be filled by the Board of
Directors. The Committee shall select one of its members as Chairman, and shall
hold meetings at such times and places as it may determine. The interpretation
and construction by the Board of Directors or the Committee of any provision of
the Plan or of any right to purchase Stock shall be conclusive and binding on
all persons.

4. Number of Shares to be Offered. The maximum aggregate number of shares
------------------------------
which shall be offered under the Plan shall be 500,000 shares of Stock, subject
to adjustment as provided in Section 8 hereof. In the event that any Option
granted under the Plan expires or is terminated for any reason, such shares
allocable to the unexercised portion of such Option shall again be subject to an
Option under the Plan.

5. Eligibility and Participation.
-----------------------------

(a) Initial Participation. An Eligible Employee shall become a
---------------------
Participant on the Offering Date after satisfying the eligibility requirements
by delivering to the Company's payroll office an enrollment form authorizing
payroll deductions not less than ten (10) business days prior to such Offering
Date. An Eligible Employee who did not enroll in the Plan prior to the Offering
Date, or a person who becomes an Eligible Employee after an Offering Date, may
enroll in the Plan for the remainder of the Offering Period as of the beginning
of the next Interim Offering Period by completing and filing an enrollment form
prior to the commencement date of such Interim Offering Period.

(b) Continued Participation. A Participant shall automatically
-----------------------
participate in each successive Offering Period (including Interim Offering
Periods) until such time as such Participant withdraws from the Plan as set
forth below. A Participant is not required to file any additional enrollment
forms for subsequent Offering Periods in order to continue participation in the
Plan.

(c) Payroll Deduction Rate. The Participant shall designate on the
----------------------
enrollment form the percentage of Compensation which he or she elects to have
withheld for the purchase of Stock, which may be any whole percentage from 1% to
10% of the Participant's Compensation. A Participant may reduce (but not
increase) the rate of payroll withholding during an Offering Period by filing an
amended enrollment form with the Committee at any time prior to the last day of
any Interim Offering Period (for which such change is to be effective), but not
more than three (3) changes may be made in any Offering Period (or such other
number of changes as may be approved by the Board or the Committee). A
Participant may increase or decrease the rate of payroll deduction for any
subsequent Offering Period by filing with the Company a new

2.
<PAGE>

authorization for payroll deductions not less than ten (10) days prior to the
Offering Date for such subsequent Offering Period.

By enrolling in the Plan, a Participant shall be deemed to have elected to
purchase the maximum number of whole shares of Stock which can be purchased with
the amount of the Participant's Compensation which is withheld during the
Offering Period; provided, however, that with respect to any Interim Offering
Period no Participant may purchase shares of Stock in excess of the amount
permitted under Section 9.

(d) Offering Period. Any Options granted pursuant to the Plan shall
---------------
be subject to the Company obtaining all necessary governmental approvals and/or
qualifications of the sale and/or issuance of Options and/or Stock.

(e) Purchase Price. The Purchase Price for each share of Stock to be
--------------
purchased under the Plan shall be eighty-five percent (85%) of the Fair Market
Value of such share on either (i) the Offering Date (or the date of entry for
new or re-enrolling employees) or (ii) the last business day of each Offering
Period, whichever is less.

(f) Contributions. The Purchase Price of the Stock shall be
-------------
accumulated by payroll deductions throughout the Offering Period, which shall be
applied automatically to purchase Stock at the end of each Interim Offering
Period. In the absence of a contrary determination prior to the commencement of
an Offering Period, each Interim Offering Period shall have a three-month
duration. At the end of each Interim Offering Period, accrued payroll deductions
will be automatically applied to the purchase of Stock at the Purchase Price as
hereinabove defined. Payroll deductions shall commence on the first payday
following the Offering Date (or, in the case of a new or re-enrolling employee,
on the first payday following the commencement of the applicable Interim
Offering Period) and shall continue to the end of the Offering Period unless
sooner altered or terminated as provided in the Plan.

(g) Effect of Leave of Absence. During a leave of absence approved by
--------------------------
the Company, a Participant may, for such period as the Committee shall deem
reasonable, continue contributions to the Plan by making cash payments to the
Company on his normal paydays in an amount equal to the difference between the
amount of his regular payroll deductions taken while such employee was
participating under the Plan and the amount of his payroll deductions taken
while on such leave of absence. Failure to pay any installment within ten (10)
days after the payday on which it is due shall be treated as a withdrawal from
the Plan.

(h) Purchase of Stock. The Company will maintain a Plan Account on
-----------------
its books in the name of each Participant. On each payday the amount deducted
from the Participant's Compensation will be credited to the Participant's Plan
Account. No interest shall accrue on any such payroll deductions. As of the last
day of each Interim Offering Period the amount then in the Participant's Plan
Account will be divided by the Purchase Price and the amount in the
Participant's Plan Account shall be used to purchase the number of whole shares
of Stock which result. Share certificates representing the number of shares of
Stock so purchased shall be issued and delivered to the Participant as soon as
reasonably practicable after the close of each Interim Offering Period. Any
amount remaining in the Participant's Plan Account at the end of an Offering
Period after deducting the amount of the Purchase Price for the number of whole
Shares issued to the Participant shall be refunded to the Participant, without
interest.

(i) Withdrawal. A Participant may elect to withdraw from
----------
participation in the Plan at any time up to the last day of an Interim Offering
Period by filing the prescribed form with the Committee. At the time of
withdrawal the amount credited to the Participant's Plan Account will be
refunded in cash, without interest. Upon withdrawal from the Plan, the
accumulated payroll deductions shall be returned to the withdrawn Participant
and the withdrawn Participant's interest in the Plan shall terminate. In the
event a Participant voluntarily elects to withdraw from the Plan, such
Participant may not resume participation in the Plan until after the expiration
of one complete Interim Offering Period; re-enrollment shall be made in the same
manner as set forth above for initial participation in the Plan.

3.
<PAGE>

(j) Pro Rata Allocation. In the event that the aggregate number of
-------------------
shares which all Participants elect to purchase during an Interim Offering
Period shall exceed the number of shares remaining available for issuance under
the Plan, the number of shares to which each Participant shall become entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the sum of the number of shares the
Participant has elected to purchase and the denominator of which is the sum of
the number of shares which all Participants have elected to purchase.

6. Effect of Termination of Employment. Termination of a Participant's
-----------------------------------
employment for any reason, including retirement or death, or the failure of a
Participant to remain an Eligible Employee shall be treated as a withdrawal
under the Plan. In the event of the Participant's death, a refund of the
Participant's Plan Account shall be paid, without interest, to the
representative of the Participant's estate. A transfer by a Participant from
the Company to a Subsidiary, from one Subsidiary to another, or from a
Subsidiary to the Company shall not be treated as a termination of employment.

7. Rights Not Transferable. The rights or interests of any Participant in
-----------------------
the Plan, in any Option granted under the Plan, or in any Stock or moneys to
which he or she may be entitled under the Plan, shall not be transferable by
voluntary or involuntary assignment or by operation of law, or by any other
manner otherwise than by will or the applicable laws of descent and
distribution. If the Participant shall in any manner attempt to transfer,
assign or otherwise encumber his or her rights or interests under the Plan,
other than by will, such act shall be treated as a withdrawal from the Plan.

8. Recapitalization, Etc. Subject to any required action by the
---------------------
shareholders of the Company, the number of shares of Stock covered by each
Option under the Plan which has not yet been exercised and the number of shares
of Stock which have been authorized for issuance under the Plan but have not yet
been placed under an option (collectively the "Reserves"), as well as the price
per share of Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of Stock, or any other
increase or decrease in the number of shares of Stock effected without receipt
of 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 Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
capital 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 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 Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each Option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the Participant
shall have the right to exercise the Option as to all of the optioned Stock,
including shares as to which the Option would not otherwise be exercisable. If
the Board makes an option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
the Participant that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and the Option will terminate
upon the expiration of such period.

The Board way also, if it so determines in the exercise of its sole
discretion, make provision for adjusting the Reserves, as well as the price per
share of 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 Stock, and in the
event of the Company being consolidated with or merged into any other
corporation.

4.
<PAGE>

9. Limitation on Stock Ownership. Notwithstanding any provision herein to
-----------------------------
the contrary, no Participant shall be granted a right to purchase Stock pursuant
to Section 5 if such Participant, immediately after electing to purchase such
Stock, would own 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
parent or Subsidiary of the Company, or (ii) if under the terms of the Plan the
rights of the employee to purchase Stock under this and all other qualified
employee stock purchase plans of the Company or its Subsidiaries would accrue at
a rate that exceeds $25,000 of fair market value of such Stock (determined at
the time such right is granted) for each calendar year for which such right is
outstanding at any time. For purposes of this Section 9, ownership of Stock
shall be determined by the attribution rules of Section 425(d) of the Code and
Participants shall be considered to own any Stock which they have a right or
option to purchase under this or any other plan.

10. Rights as an Employee. Nothing in the Plan shall be construed to give
---------------------
any Participant the right to remain in the employ of the Company or a Subsidiary
or to affect the right of the Company and its Subsidiaries or the Participant to
terminate such employment at any time with or without cause.

11. Rights as a Shareholder. A Participant shall have no rights as a
-----------------------
shareholder with respect to any shares of Stock he or she may have a right to
purchase under the Plan until the date of issuance of a stock certificate to
such Participant for shares issued pursuant to the Plan.

12. Amendment or Termination of the Plan. The Board of Directors shall
------------------------------------
have the right to amend, modify or terminate the Plan at any time without
notice, provided that no Participant's existing rights are adversely affected
thereby, and provided further that no amendment to the Plan shall be effective
until such amendment is approved by a vote of the holders of at least a majority
of the outstanding shares of Common Stock of the Company within twelve months
before or after the date upon which such action is taken by the Board of
Directors, if such amendment would:

(a) Increase the aggregate number of shares of Stock to be issued
under the Plan (except as provided in Section 8 hereof);

(b) Materially modify the requirements for eligibility to participate
in the Plan;

(d) Extend the term of the Plan;

(e) Alter the Purchase Price formula so as to reduce the price for
shares of Stock to be purchased under the Plan;

(f) Otherwise materially increase the benefits accruing to
Participants under the Plan; or

(g) Cause the Plan to fail to meet the requirements of an "employee
stock purchase plan" under Section 423 of the Code.

The Plan shall terminate on July 31, 2007 if it has not been earlier
terminated pursuant to this Section 12, but the Plan shall remain in full force
and effect until the end of the Offering Period then in effect.

13. Shareholder Approval. Continuance of the Plan and the effectiveness of
--------------------
any Option granted hereunder shall be subject to approval of the Plan by the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Stock of the Company present or represented and entitled
to vote thereon, within 12 months after the date of adoption of this Plan by the
Board of Directors.

5.
<PAGE>

14. Governing Law. To the extent not preempted by federal law, all legal
-------------
questions pertaining to the Plan shall be determined in accordance with the laws
of the State of Delaware.

6.
<PAGE>

EXHIBIT 2

AMENDMENT
TO THE
1993 AMENDED AND RESTATED STOCK OPTION PLAN
OF
DIGITAL VIDEO SYSTEMS, INC.

The 1993 Amended and Restated Stock Option Plan of Digital Video Systems,
Inc. (the "1993 Stock Option Plan") is hereby amended as follows:

1. Section 3 of the Plan is hereby amended as follows:

3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
----------------------------------------------------

Subject to the provisions of Section 6.1.1 of the Plan, the total number
of shares of stock which may be issued under this Plan shall not exceed
3,762,530 shares of Common Stock. The shares covered by the portion of any
grant under the Plan which expires unexercised shall become available again
for grants under the Plan. No eligible person shall be granted Options during
any twelve-month period covering more than 750,000 shares.

2. Section 4(b) of the Plan is hereby amended to read in its entirety as
follows:

4. ADMINISTRATION
--------------

(b) The Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee (the "Committee") to which
administration of the Plan, or of part of the Plan, is delegated by the Board
(in either case, the "Administrator"). The Board shall appoint and remove
members of the Committee in its discretion in accordance with applicable
laws. If necessary in order to comply with Rule 16b-3 under the Exchange Act
and Section 162(m) of the Code, the Committee shall, in the Board's
discretion, be comprised solely of "non-employee directors" within the
meaning of said Rule 16b-3 and "outside directors" within the meaning of
Section 162(m) of the Code. The foregoing notwithstanding, the Administrator
may delegate nondiscretionary administrative duties to such employees of the
Company as it deems proper and the Board, in its absolute discretion, may at
any time and from time to time exercise any and all rights and duties of the
Administrator under the Plan.
<PAGE>

EXHIBIT 3

AMENDED AND RESTATED
1996 STOCK OPTION PLAN
OF
DIGITAL VIDEO SYSTEMS, INC.

1. PURPOSES OF THE PLAN
--------------------

The purposes of the 1996 Stock Option Plan (the "Plan") of Digital Video
Systems, Inc., a Delaware corporation (the "Company"), are to:

(a) Encourage selected employees, directors and consultants to improve
operations and increase profits of the Company;

(b) Encourage selected employees, directors and consultants to accept or
continue employment or association with the Company or its Affiliates; and

(c) Increase the interest of selected employees, directors and consultants
in the Company's welfare through participation in the growth in value of the
common stock of the Company (the "Common Stock").

Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").

2. ELIGIBLE PERSONS
----------------

Every person who at the date of grant of an Option is a full-time employee
of the Company or of any Affiliate (as defined below) of the Company is eligible
to receive NQOs or ISOs under this Plan. Every person who at the date of grant
is a consultant to, or non-employee director of, the Company or any Affiliate
(as defined below) of the Company is eligible to receive NQOs under this Plan.
The term "Affiliate" as used in the Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer or
director who is an employee, of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.

3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
----------------------------------------------------

Subject to the provisions of Section 6.1.1 of the Plan, the total number of
shares of stock which may be issued under Options granted pursuant to this Plan
shall not exceed 2,000,000 shares of Common Stock. The shares covered by the
portion of any grant under the Plan which expires unexercised shall become
available again for grants under the Plan. No eligible person shall be granted
Options during any twelve-month period covering more than 500,000 shares.

4. ADMINISTRATION
--------------

(a) It is intended that this Plan shall be administered in accordance with
the disinterested administration requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission ("Rule 16b-3"), or any successor rule
thereto.

1.
<PAGE>

Board (in either case, the "Administrator"). The Board shall appoint and remove
members of the Committee in its discretion in accordance with applicable laws.
If necessary in order to comply with Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code, the Committee shall, in the Board's discretion, be
comprised solely of "non-employee directors" within the meaning of said Rule
16b-3 and "outside directors" within the meaning of Section 162(m) of the Code.
The foregoing notwithstanding, the Administrator may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper and
the Board, in its absolute discretion, may at any time and from time to time
exercise any and all rights and duties of the Administrator under the Plan.

(c) Subject to the other provisions of this Plan, the Administrator shall
have the authority, in its discretion: (i) to grant Options; (ii) to determine
the fair market value of the Common Stock subject to Options; (iii) to determine
the exercise price of Options granted; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted, and the number of
shares subject to each Option; (v) to interpret this Plan; (vi) to prescribe,
amend, and rescind rules and regulations relating to this Plan; (vii) to
determine the terms and provisions of each Option granted (which need not be
identical), including but not limited to, the time or times at which Options
shall be exercisable; (viii) with the consent of the optionee, to modify or
amend any Option; (ix) to defer (with the consent of the optionee) the exercise
date of any Option; (x) to authorize any person to execute on behalf of the
Company any instrument evidencing the grant of an Option; and (xi) to make all
other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative
duties to such employees of the Company as it deems proper.

(d) All questions of interpretation, implementation, and application of
this Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.

5. GRANTING OF OPTIONS; OPTION AGREEMENT
-------------------------------------

(a) No Options shall be granted under this Plan after 10 years from the
date of adoption of this Plan by the Board.

(b) Each Option shall be evidenced by a written stock option agreement, in
form satisfactory to the Company, executed by the Company and the person to whom
such Option is granted; provided, however, that the failure by the Company, the
optionee, or both to execute such an agreement shall not invalidate the granting
of an Option, although the exercise of each Option shall be subject to Section
6.1.3.

(d) Subject to Section 6.3.3 with respect to ISOs, the Administrator may
approve the grant of Options under this Plan to persons who are expected to
become employees, directors or consultants of the Company, but are not
employees, directors or consultants at the date of approval, and the date of
approval shall be deemed to be the date of grant unless otherwise specified by
the Administrator.

6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------

Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1, NQOs shall be also subject to the terms and
conditions set forth in Section 6.2, but not those set forth in Section 6.3,
ISOs shall also be subject to the terms and conditions set forth in Section 6.3,
but not those set forth in Section 6.2.

6.1 Terms and Conditions to Which All Options Are Subject. All Options
-----------------------------------------------------
granted under this Plan shall be subject to the following terms and conditions:

2.
<PAGE>

6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if the
----------------------------
stock of the Company is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.

6.1.2 Corporate Transactions. In the event of the proposed
----------------------
dissolution or liquidation of the Company, the Administrator shall notify each
optionee at least 30 days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action; provided, however, that the Administrator,
in the exercise of his sole discretion, may permit exercise of any Options prior
to their termination, even if such Options were not otherwise exercisable. In
the event of a merger or consolidation of the Company with or into another
corporation or entity in which the Company does not survive, or in the event of
a sale of all or substantially all of the assets of the Company in which the
stockholders of the Company receive securities of the acquiring entity or an
affiliate thereof, all Options shall be assumed or equivalent options shall be
substituted by the successor corporation (or other entity) or a parent or
subsidiary of such successor corporation (or other entity); provided, however,
that if such successor does not agree to assume the Options or to substitute
equivalent options therefor, the Administrator, in the exercise of his sole
discretion, may permit the exercise of any of the Options prior to consummation
of such event, even if such Options were not otherwise exercisable.

6.1.3 Time of Option Exercise. Subject to Section 5 and Section
-----------------------
6.3.4, Options granted under this Plan shall be exercisable (a) immediately as
of the effective date of the stock option agreement granting the Option, or (b)
in accordance with a schedule related to the date of the grant of the Option,
the date of first employment, or such other date as may be set by the
Administrator (in any case, the "Vesting Base Date") and specified in the
written stock option agreement relating to such Option; provided, however, that
the right to exercise an Option must vest at the rate of at least 20% per year
over five years from the date the Option was granted. In any case, no Option
shall be exercisable until a written stock option agreement in form satisfactory
to the Company is executed by the Company and the optionee.

6.1.4 Option Grant Date. Except in the case of advance approvals
-----------------
described in Section 5(d), the date of grant of an Option under this Plan shall
be the date as of which the Administrator approves the grant.

6.1.5 Nontransferability of Option Rights. No Option granted under
-----------------------------------
this Plan shall be assignable or otherwise transferable by the optionee except
by will or by the laws of descent and distribution. During the life of the
optionee, an Option shall be exercisable only by the optionee.

6.1.6 Payment. Except as provided below, payment in full, in cash,
-------
shall be made for all stock purchased at the time written notice of exercise of
an Option is given to the Company, and proceeds of any payment shall constitute
general funds of the Company. At the time an Option is granted or exercised,
the Administrator, in the exercise of its absolute discretion after considering
any tax, accounting and financial consequences, may authorize any one or more of
the following additional methods of payment:

(a) Acceptance of the optionee's full recourse promissory
note for all or part of the Option price, payable on such terms and bearing such
interest rate as determined by the Administrator (but in no event less than the
minimum interest rate specified under the Code at which no additional interest
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the shares of the Company); and

(b) Subject to the discretion of the Administrator and the
terms of the stock option agreement granting the Option, delivery by the
optionee of Common Stock already owned by the optionee for all or part of the
Option price, provided the value (determined as set forth in Section 6.1.10) of
such Common

3.
<PAGE>

Stock is equal on the date of exercise to the Option price, or such portion
thereof as the optionee is authorized to pay by delivery of such stock.

6.1.7 Termination of Employment. If for any reason other than death
-------------------------
or permanent and total disability, an optionee ceases to be employed by the
Company or any of its Affiliates (such event being called a "Termination"),
Options held at the date of Termination (to the extent then exercisable) may be
exercised in whole or in part at any time within three months of the date of
such Termination, or such other period of not less than 30 days after the date
of such Termination as is specified in the Option Agreement (but in no event
after the Expiration Date); provided, however, that if such exercise of the
Option would result in liability for the optionee under Section 16(b) of the
Exchange Act, then such three-month period automatically shall be extended until
the tenth day following the last date upon which optionee has any liability
under Section 16(b) (but in no event after the Expiration Date). If an optionee
dies or becomes permanently and totally disabled (within the meaning of Section
22(e)(3) of the Code) while employed by the Company or an Affiliate or within
the period that the Option remains exercisable after Termination, Options then
held (to the extent then exercisable) may be exercised, in whole or in part, by
the optionee, by the optionee's personal representative or by the person to whom
the Option is transferred by devise or the laws of descent and distribution, at
any time within six months after the death or six months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement (but in no event after the Expiration Date). For purposes of this
Section 6.1.7, "employment" includes service as a director or as a consultant.
For purposes of this Section 6.1.7, an optionee's employment shall not be deemed
to terminate by reason of sick leave, military leave or other leave of absence
approved by the Administrator, if the period of any such leave does not exceed
90 days or, if longer, if the optionee's right to reemployment by the Company or
any Affiliate is guaranteed either contractually or by statute.

6.1.8 Withholding and Employment Taxes. At the time of exercise of an
--------------------------------
Option and as a condition thereto, or at such other time as the amount of such
obligations becomes determinable (the "Tax Date"), the optionee shall remit to
the Company in cash all applicable federal and state withholding and employment
taxes. Such obligation to remit may be satisfied, if authorized by the
Administrator in its sole discretion, after considering any tax, accounting and
financial consequences, by the optionee's (i) delivery of a promissory note in
the required amount on such terms as the Administrator deems appropriate, (ii)
tendering to the Company previously owned shares of Stock or other securities of
the Company with a fair market value equal to the required amount, or (iii)
agreeing to have shares of Common Stock (with a fair market value equal to the
required amount) which are acquired upon exercise of the Option withheld by the
Company, subject to the following limitations:

(a) Any election pursuant to clause (iii) above by an
optionee subject to Section 16 of the Exchange Act shall either (x) be made at
least six months before the Tax Date and shall be irrevocable; or (y) shall be
made in (or made earlier to take effect in) any 10-day period beginning on the
third business day following the date of release for publication of the
Company's quarterly or annual summary statements of earnings and shall be
subject to approval by the Administrator, which approval may be given at any
time after such election has been made. In addition, in the case of (y), the
Option shall be held at least six months prior to the Tax Date.

(b) Any election pursuant to clause (ii) above, where the
optionee is tendering Common Stock issued pursuant to the exercise of an Option,
shall require that such shares be held at least six months prior to the Tax
Date.

Any of the foregoing limitations may be waived (or additional limitations
may be imposed) by the Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations are not required (or
that such additional limitations are required) in order that the transaction
shall be exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3,
or any successor rule thereto. In addition, any of the foregoing limitations may
be waived by the Administrator, in its sole discretion, if the Administrator

4.
<PAGE>

determines that Rule 16b-3, or any successor rule thereto, is not applicable to
the exercise of the Option by the optionee or for any other reason.

Any securities tendered or withheld in accordance with this Section 6.1.8
shall be valued by the Company as of the Tax Date.

6.1.9 Other Provisions. Each Option granted under this Plan may
----------------
contain may be determined by the Administrator, and each ISO granted under this
Plan shall include such provisions and conditions as are necessary to qualify
the Option as an "incentive stock option" within the meaning of Section 422 of
the Code.

6.1.10 Determination of Value. For purposes of the Plan, the value of
----------------------
Common Stock or other securities of the Company shall be determined as follows:

(a) If the stock of the Company is regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair market value
shall be the mean between the high bid and low asked prices for the stock on the
date the value is to be determined (or if there are no quoted prices for the
date of grant, then for the last preceding business day on which there were
quoted prices).

(b) In the absence of an established market for the stock, the fair
market value thereof shall be determined in good faith by the Administrator,
with reference to the Company's net worth, prospective earning power, dividend-
paying capacity, and other relevant factors, including the goodwill of the
Company, the economic outlook in the Company's industry, the Company's position
in the industry, the Company's management, and the values of stock of other
corporations in the same or a similar line of business.

6.1.11 Option Term. Subject to Section 6.3.5, no Option shall be
-----------
exercisable more than 10 years after the date of grant, or such lesser period of
time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").

6.2 Terms and Conditions to Which Only NQOs Are Subject. Options granted
---------------------------------------------------
under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:

6.2.1 Exercise Price. The exercise price of a NQO shall be not less
--------------
than 85% of the fair market value (determined in accordance with Section 6.1.10)
of the stock subject to the Option on the date of grant.

6.3 Terms and Conditions to Which Only ISOs Are Subject. Options granted
---------------------------------------------------
under this Plan which are designated as ISOs shall be subject to the following
terms and conditions:

6.3.1 Exercise Price. (a) Except as set forth in Section 6.3.1(b),
--------------
the exercise price of an ISO shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the fair
market value (determined in accordance with Section 6.1.10) of the stock covered
by the Option at the time the Option is granted.

(b) The exercise price of an ISO granted to any person who
owns, directly or by attribution under the Code (currently Section 424(d)),
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Affiliate (a "Ten Percent
Stockholder") shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.

6.3.2 Disqualifying Dispositions. If stock acquired by exercise of an
--------------------------
ISO granted pursuant to this Plan is disposed of in a "disqualifying
disposition" within the meaning of Section 422 of the Code, the

5.
<PAGE>

holder of the stock immediately before the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall provide
such other information regarding the Option as the Company may reasonably
require.

6.3.3 Grant Date. If an ISO is granted in anticipation of employment
----------
as provided in Section 5(d), the Option shall be deemed granted, without further
approval, on the date the grantee assumes the employment relationship forming
the basis for such grant, and, in addition, satisfies all requirements of this
Plan for Options granted on that date.

6.3.4 Vesting. Notwithstanding any other provision of this Plan, ISOs
-------
granted for any optionee under all incentive stock option plans of the Company
and its subsidiaries may not "vest" for more than $100,000 in fair market value
of stock (measured on the grant dates(s)) in any calendar year. For purposes of
the preceding sentence, an Option "vests" when it first becomes exercisable. If,
by their terms, such ISOs taken together would vest to a greater extent in a
calendar year, and unless otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring the exercisability of
those ISOs or portions of ISOs which have the highest per share exercise prices;
but in no event shall more than $100,000 in fair market value of stock (measured
on the grant date(s)) vest in any calendar year. The ISOs or portions of ISOs
whose exercisability is so deferred shall become exercisable on the first day of
the first subsequent calendar year during which they may be exercised, as
determined by applying these same principles and all other provisions of this
Plan including those relating to the expiration and termination of ISOs. In no
event, however, will the operation of this Section 6.3.4 cause an ISO to vest
before its terms or, having vested, cease to be vested.

6.3.5 Term. Notwithstanding Section 6.1.11, no ISO granted to any Ten
----
Percent Stockholder shall be exercisable more than five years after the date of
grant.

7. MANNER OF EXERCISE
------------------

(a) An optionee wishing to exercise an Option shall give written notice to
the Company at its principal executive office, to the attention of the officer
of the Company designated by the Administrator, accompanied by payment of the
exercise price and withholding taxes as provided in Sections 6.1.6 and 6.1.8.
The date the Company receives written notice of an exercise hereunder
accompanied by payment of the exercise price will be considered as the date such
Option was exercised.

(b) Promptly after receipt of written notice of exercise of an Option and
the payments called for by Section 7(a), the Company shall, without stock issue
or transfer taxes to the optionee or other person entitled to exercise the
Option, deliver to the optionee or such other person a certificate or
certificates for the requisite number of shares of stock. An optionee or
permitted transferee of an optionee shall not have any privileges as a
stockholder with respect to any shares of stock covered by the Option until the
date of issuance (as evidenced by the appropriate entry on the books of the
Company or a duly authorized transfer agent) of such shares.

(c) Unless exempted by the Administrator, if an officer or director who is
subject to the provisions of Section 16(b) of the Exchange Act exercises an
Option within six months of the grant of such Option, the shares acquired upon
exercise of such Option may not be disposed of until six months after the date
of grant of such Option.

8. EMPLOYMENT OR CONSULTING RELATIONSHIP
-------------------------------------

Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.

6.
<PAGE>

9. CONDITIONS UPON ISSUANCE OF SHARES
----------------------------------

Shares of Common Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act").

10. NONEXCLUSIVITY OF THE PLAN
--------------------------

The adoption of the Plan shall not be construed as creating any limitations
on the power of the Company to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options
other than under the Plan.

11. MARKET STANDOFF
---------------

Each optionee, if so requested by the Company or any representative of the
underwriters in connection with any registration of the offering of any
securities of the Company under the Securities Act shall not sell or otherwise
transfer any shares of Common Stock acquired upon exercise of Options during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act; provided, however, that such restriction
shall apply only to the first registration statement of the Company to become
effective under the Securities Act after the date of adoption of this Plan which
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restriction until the end of such 180-day period.

12. AMENDMENTS TO PLAN
------------------

The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require stockholder approval unless (a)
stockholder approval is required to preserve incentive stock option treatment
for federal income tax purposes, or (b) the Board otherwise concludes that
stockholder approval is advisable; provided, however, that no such amendment
shall, without the approval of the stockholders of the Company, effectuate a
change for which stockholder approval is required in order for the Plan to
continue to qualify under Rule 16b-3 (while it is in effect) or any successor
rule thereto.

13. EFFECTIVE DATE OF PLAN
----------------------

This Plan shall become effective upon adoption by the Board provided,
however, that no Option shall be exercisable unless and until written consent of
the stockholders of the Company, or approval of stockholders of the Company
voting at a validly called stockholders' meeting, is obtained within twelve
months after adoption by the Board. If such stockholder approval is not
obtained within such time, Options granted hereunder shall terminate and be of
no force and effect from and after expiration of such twelve-month period.
Options may be granted and exercised under this Plan only after there has been
compliance with all applicable federal and state securities laws.

7.
<PAGE>

DIGITAL VIDEO SYSTEMS, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, SEPTEMBER 11, 1997

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints Edmund Y. Sun and Thomas R. Parkinson, and
each or either of them, as proxy holders with power to appoint his substitute
and hereby authorizes the proxy holders to represent and vote, as designated
below, all the shares of Digital Video Systems, Inc. (the "Company") held of
record by the undersigned on July 16, 1997 at the Annual Meeting of Stockholders
to be held on September 11, 1997 at 10:00 A.M. or any and all adjournments
thereof.

1. ELECTION OF DIRECTORS:

[_] FOR all nominees listed below (except as marked to the
contrary below).

[_] WITHHOLD AUTHORITY to vote for all nominees listed below.

(INSTRUCTION: To withhold authority to vote for any nominee, draw a line
through such nominee's name.)

Edmund Y. Sun
Thomas R. Parkinson
Robert B. Pfannkuch
Sung Hee Lee
Sanford C. Sigoloff
Philip B. Smith
Joseph F. Troy

2. Proposal to approve an amendment to the Company's Amended and Restated
Certificate of Incorporation.

[_] FOR [_] AGAINST [_] ABSTAIN

3. Proposal to approve the Company's 1997 Employee Stock Purchase Plan.

[_} FOR [_] AGAINST [_] ABSTAIN

4. Proposal to approve an amendment to the Company's 1993 Amended and
Restated Stock Option Plan.

[_] FOR [_] AGAINST [_] ABSTAIN

5. Proposal to ratify the approval of the Company's 1996 Stock Option
Plan, as amended.

[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE>

6. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending March 31, 1998.

[_] FOR [_] AGAINST [_] ABSTAIN

7. In their discretion, the proxy holders are authorized to vote upon such
other business as may properly be brought before the Annual Meeting or
any and all adjournments thereof.

THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR THE
ELECTION OF THE NOMINEES, FOR PROPOSALS 2, 3, 4, 5 AND 6 AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING
AND ANY AND ALL ADJOURNMENTS THEREOF. IN THE EVENT ANY OF THE NOMINEES IS
UNAVAILABLE FOR ELECTION OR UNABLE TO SERVE, THE SHARES REPRESENTED BY THIS
PROXY MAY BE VOTED FOR A SUBSTITUTE NOMINEE SELECTED BY THE BOARD OF
DIRECTORS.

Dated: ________________, 1997

______________________________________________
Signature

_____________________________________________
(Signature, if held jointly)

Please sign exactly as your name appears hereon.
When shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in
full corporate name by the President or other
authorized officer. If a partnership, please sign
in partner ship name by an authorized partner.

PLEASE PROMPTLY MARK, SIGN, DATE, AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.