Exhibit
4.2


 


UNLESS THIS CERTIFICATE
IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(“DTC”) TO PIXELWORKS, INC. (OR ITS SUCCESSOR) OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, CONVERSION OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR OF SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.


 


THIS DEBENTURE (OR ITS
PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS
DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS DEBENTURE IS HEREBY
NOTIFIED THAT THE SELLER OF THIS DEBENTURE MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A OR
REGULATION S THEREUNDER.


 


THE HOLDER OF THIS
DEBENTURE AGREES FOR THE BENEFIT OF PIXELWORKS, INC. THAT (A) THIS
DEBENTURE AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF MAY BE OFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (IV) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH
(IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES, (B) THE HOLDER WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN
ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT, AND (C) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS DEBENTURE FROM IT OF THE RESTRICTIONS
REFERRED TO IN (A) AND (B) ABOVE.


 


PIXELWORKS, INC.


 


1.75% Convertible Subordinated Debenture due 2024


 


	
   

  	
   

  	
  CUSIP NO. 72581M
  AA 5

  
	
   

  	
   

  	
   

  
	
  No. 1

  	
   

  	
  $125,000,000

  



 


PIXELWORKS, INC., an
Oregon corporation (the “Company”,
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to


 


1

















 


Cede & Co., or its registered assigns, the
principal sum of One Hundred Twenty-Five Million U.S. Dollars ($125,000,000) on
May 15, 2024.


 


Interest Payment Dates: May 15 and November 15,
commencing November 15, 2004.


 


Regular Record Dates: May 1 and November 1.


 


Reference is hereby made
to the further provisions of this Security set forth on the reverse hereof,
which further provisions shall for all purposes have the same effect as if set
forth at this place.


 


2

















 


IN WITNESS WHEREOF, the
Company has caused this Security to be duly executed manually or by facsimile
by its duly authorized officers.


 


Dated: 


 


	
   

  	
  PIXELWORKS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  ALLEN
  H. ALLEY  

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Allen H. Alley

  
	
   

  	
   

  	
  Title:

  	
  President, Chief
  Executive

  Officer & Chairman

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  JEFFREY
  BOUCHARD

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey Bouchard

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial
  Officer, Vice

  President-Finance, and Secretary

  
					



 


3

















 


Trustee’s
Certificate of Authentication


 


This is one of the 1.75%
Convertible Subordinated Debentures due 2024 described in the within-named
Indenture.


 


	
   

  	
  WELLS
  FARGO BANK, NATIONAL

  ASSOCIATION, as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/  JEANIE
  MAR

  	
   

  
	
   

  	
   

  	
   

  	
  Authorized
  Signatory

  
	
   

  	
   

  	
  Name:

  	
  Jeanie Mar

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  
	
  Dated: 
  May 18, 2004

  



 


4

















 


REVERSE OF SECURITY


 


PIXELWORKS, INC.


 


1.75%
Convertible Subordinated Debenture due 2024


 


Capitalized terms used
herein but not defined shall have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.


 


1.                                       Principal and Interest.    Pixelworks, Inc.,
an Oregon corporation (the “Company”),
promises to pay interest on the principal amount of this Security at the
Interest Rate from the date of issuance until repayment at Maturity, redemption
or purchase. The Company shall pay interest on this Security semiannually in
arrears on May 15 and November 15 of each year (each an “Interest Payment Date”), commencing
November 15, 2004.


 


Interest on this Security
shall be computed on the basis of a 360-day year of twelve 30-day months and
for any period shorter than a full semiannual period for which interest is
calculated, on the basis of a 30-day month and, for such periods of less than a
month, the actual number of days elapsed over a 30-day month.


 


Subject to
Section 2.17 of the Indenture, a Holder of any Security at the close of
business on a Regular Record Date shall be entitled to receive interest on such
Security on the corresponding Interest Payment Date. A Holder of any Security
which is converted after the close of business on a Regular Record Date and
prior to the corresponding Interest Payment Date (other than any Security whose
Maturity is prior to such Interest Payment Date) shall be entitled to receive
interest (including Liquidated Damages, if any) on the principal amount of such
Security, notwithstanding the conversion of such Security prior to such
Interest Payment Date. However, any such Holder which surrenders any such
Security for conversion during the period between the close of business on such
Regular Record Date and ending with the opening of business on the
corresponding Interest Payment Date shall be required to pay the Company an
amount equal to the interest (excluding Liquidated Damages, if any) on the
principal amount of such Security so converted (but excluding any Defaulted
Interest on the principal amount of such Security so converted that exists at the
time such Holder surrenders such Security for conversion), which is payable by
the Company to such Holder on such Interest Payment Date, at the time such
Holder surrenders such Security for conversion. Notwithstanding the foregoing,
any such Holder which surrenders for conversion any Security (a) which has
been called for redemption by the Company in a notice of redemption given by
the Company pursuant to Section 10.04 of the Indenture on a Redemption
Date after such Regular Record Date and on or prior to the next succeeding
Interest Payment Date or (b) with respect to which the Company has
specified a Purchase Date that is after such Regular Record Date and on or
prior to the next succeeding Interest Payment Date, in either case, shall be
entitled to receive (and retain) such interest and need not pay the Company an
amount equal to the interest on the principal amount of such Security so
converted at the time such Holder surrenders such Security for conversion.


 


In accordance with the
terms of the Registration Rights Agreement, during the first 90 days
following a Registration Default (as defined in the Registration Rights
Agreement), the Interest Rate borne by this Security shall be increased by
0.25%. From and after the 91st day following such Registration Default, the
Interest Rate borne by this Security shall be increased by 0.50%. In no event
shall the Interest Rate borne by this Security be increased by more than 0.50%.


 


Any amount of additional
interest shall be payable in cash semiannually, in arrears, on each Interest
Payment Date and shall cease to accrue on the date the Registration Default is
cured. The Holder of this Security is entitled to the benefits of the
Registration Rights Agreement.


 


2.                                       Method of Payment.    Interest on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the person in whose name that Security
(or


 


5

















 


one or more Predecessor Securities) is registered at
the close of business on the Regular Record Date for such interest.


 


Principal of and interest
on, Global Securities shall be payable to the Depositary in immediately
available funds.


 


Principal of Physical
Securities shall be payable at the office or agency of the Company maintained
for such purpose, initially the Corporate Trust Office of the Trustee. Interest
on Physical Securities shall be payable by (i) U.S. Dollar check drawn on
a bank located in the city where the Corporate Trust Office of the Trustee is
located mailed to the address of the Person entitled thereto as such address
shall appear in the Register, or (ii) upon application to the Registrar
not later than the relevant Record Date by a Holder of an aggregate principal
amount of Securities in excess of $5,000,000, wire transfer in immediately
available funds.


 


3.                                       Paying Agent and
Registrar.    Initially,
Wells Fargo Bank, National Association, the Trustee under the Indenture, will
act as Paying Agent and Registrar. The Company may change the Paying Agent or
Registrar without notice to any Holder.


 


4.                                       Indenture.    The Company
issued this Security under an Indenture, dated as of May 18, 2004 (the “Indenture”), between the Company and Wells
Fargo Bank, National Association, as trustee (the “Trustee”). The terms of this Security include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (“TIA”).
This Security is subject to all such terms, and Holders are referred to the
Indenture and the TIA for a statement of all such terms. To the extent
permitted by applicable law, in the event of any inconsistency between the
terms of this Security and the terms of the Indenture, the terms of the
Indenture shall control.


 


5.                                       Optional Redemption.    This Security is
not redeemable prior to May 15, 2011. This Security may be redeemed in
whole or in part, upon not less than 30 nor more than 60 days’ notice, at
any time on or after May 15, 2011, at the option of the Company, at a
redemption price equal to 100% of the principal amount of the Securities plus
any interest accrued (including Liquidated Damages, if any) but not paid prior
to, but excluding, the Redemption Date.


 


If fewer than all the
Securities are to be redeemed, the Trustee shall select the particular
Securities to be redeemed from the Outstanding Securities by the methods as
provided in the Indenture. If any Security selected for partial redemption is
converted in part before termination of the conversion right with respect to
the portion of the Security so selected, the converted portion of such Security
shall be deemed to be the portion selected for redemption (provided, however,
that the Holder of such Security so converted and deemed redeemed shall not be
entitled to any additional interest payment as a result of such deemed
redemption than such Holder would have otherwise been entitled to receive upon
conversion of such Security). Securities which have been converted during a
selection of Securities to be redeemed may be treated by the Trustee as
Outstanding for the purpose of such selection.


 


On and after the
Redemption Date, interest shall cease to accrue on Securities or portions of
Securities called for redemption, unless the Company defaults in the payment of
the Optional Redemption Price and accrued and unpaid interest.


 


Notice of redemption
shall be given by the Company to the Holders as provided in the Indenture.


 


6.                                       Purchase Rights.


 


(a)                                  Purchase Right Upon a
Fundamental Change.    If
a Fundamental Change occurs, the Holder of Securities, at the Holder’s option,
shall have the right, in accordance with the provisions of the Indenture, to
require the Company to purchase the Securities (or any portion of the principal
amount hereof that is at least $1,000 or a multiple thereof; provided, however,
that the portion of the principal amount of this Security to be Outstanding
after such purchase is at least equal to $1,000) at a purchase price equal to
100% of the principal amount of the Securities to be


 


6

















 


purchased (the “Purchase Price”), plus interest accrued
(including Liquidated Damages, if any) and unpaid to, but excluding, the
Purchase Date.


 


A Company Notice shall be
given by the Company to the Holders as provided in the Indenture. To exercise a
Purchase Right, a Holder must deliver to the Trustee a written notice as
provided in the Indenture.


 


(b)    Purchase by the Company at
the Option of the Holder.    Subject to the
terms and conditions of the Indenture, each Holder shall have the right to
require the Company to purchase all or a portion of their Securities on
May 15, 2011, May 15, 2014 and May 15, 2019 (or, if any such
date is not a Business Day, on the immediately succeeding Business Day) (each,
a “Put Purchase Date”), at 100% of
the principal amount of the Securities to be so purchased, plus accrued
(including Liquidated Damages, if any) and unpaid interest, if any, to, but
excluding, such Put Purchase Date (the “Put
Purchase Price”). On or before the twenty-third (23rd) Business Day
prior to each Put Purchase Date, the Company shall provide to the Trustee, the
Paying Agent and to all Holders at their respective addresses as shown on the
Register, and to beneficial owners of the Securities where required by
applicable law, a notice as provided in the Indenture. The Company will be
required to purchase only Securities with respect to which a Holder has
delivered a Purchase Notice in accordance with the terms and conditions of the
Indenture and subject to the satisfaction of the other conditions set forth in
the Indenture.


 


7.                                       Conversion Rights.    (a) Subject
to and upon compliance with the provisions of the Indenture and the occurrence
of one or more of the conditions set forth in clause (d) of this
paragraph 7, the Holder of Securities shall be entitled, at such Holder’s
option, at any time before the close of business on May 15, 2024, to
convert the Holder’s Securities (or any portion of the principal amount hereof
which is $1,000 or a multiple thereof), at the principal amount thereof or of
such portion thereof into duly authorized, fully paid and nonassessable shares
of Common Stock of the Company at the Conversion Rate in effect at the time of
conversion.


 


(b)                                 In the case of a Security (or a portion
thereof) called for redemption, such conversion right in respect of the
Security (or such portion thereof) so called shall expire at the close of
business on the Business Day immediately preceding the Redemption Date, unless
the Company defaults in making the payment due upon redemption. If a Holder
exercises its Purchase Right or Put Purchase Right with respect to a Security
(or a portion thereof), such conversion right in respect of the Security (or
portion thereof) shall expire at the close of business on the Business Day preceding
the Purchase Date or Put Purchase Date, as applicable.


 


(c)                                  Each $1,000 principal amount of the
Securities shall initially be convertible into 41.0627 shares of Common Stock
(referred to as the “Conversion Rate”). The Conversion Price shall be initially
equal approximately $24.35 per share of Common Stock. The Conversion Rate shall
be adjusted under certain circumstances as provided in the Indenture.


 


(d)                                 Regardless of anything else contained
herein, Holders may surrender their Securities for conversion into shares of
the Company’s Common Stock prior to Stated Maturity in the following
circumstances:


 


(i)                                     Conversion Upon
Satisfaction of Sale Price Condition.


 


(A)  A Holder
may surrender any of its Securities for conversion into shares of the Company’s
Common Stock in any calendar quarter (and only during such calendar quarter)
after the quarter ending September 30, 2004 if the sale price of the
Company’s Common Stock, for at least 20 Trading Days during the period of 30
consecutive Trading Days ending on the last Trading Day of the previous
calendar quarter, is greater than or equal to 130% of the applicable Conversion
Price per share of the Company’s Common Stock on such last Trading Day.


 


7

















 


(B)  The “sale price” of the Company’s Common Stock
on any date means the closing sale price per share (or if no closing sale price
is reported, the average of the bid and asked prices or, if more than one in
either case, the average of the average bid and the average asked prices) on
that date as reported in transactions for the principal U.S. securities
exchange on which the Company’s Common Stock is traded or, if the Company’s
Common Stock is not listed on a U.S. national or regional securities exchange,
as reported by the Nasdaq National Market. The sale price shall be determined
without reference to after-hours or extended market trading. If the Company’s
Common Stock is not listed for trading on a U.S. national or regional
securities exchange and not reported by the Nasdaq National Market on the
relevant date, the “sale price”
shall be the last quoted bid price for the Company’s Common Stock in the
over-the-counter market on the relevant date as reported by the National
Quotation Bureau or similar organization. If the Company’s Common Stock is not
so quoted, the “sale price” shall
be the average of the mid-point of the last bid and asked prices for the
Company’s Common Stock on the relevant date from each of at least three
nationally recognized independent investment banking firms selected by the
Company for this purpose.


 


(ii)                                  Conversion Upon
Satisfaction of Trading Price Condition.


 


(A)  A Holder
may surrender its Securities for conversion into the Company’s Common Stock
during the five Business Days immediately following any five consecutive
Trading-Day period in which the Trading Price per $1,000 principal amount of
Securities (as determined following a request by a Holder of the Securities in
accordance with the procedures described below) for each day of that period was
less than 98% of the product of the sale price of the Company’s Common Stock
and the then applicable Conversion Rate; provided,
however, that a Holder may not
convert Securities in reliance on this clause (d)(ii) of this
paragraph 7 after May 15, 2019 if on any Trading Day during the five
consecutive Trading-Day period, the sale price of the Company’s Common Stock
was between 100% and 130% of the Conversion Price in effect on such Trading
Day.


 


(B)  In
connection with any conversion upon satisfaction of the condition set forth in
clause (A) above, the Trustee shall have no obligation to determine the
Trading Price of the Securities unless the Company has requested such
determination, and the Company shall have no obligation to make such request
unless the Holder provides the Company with reasonable evidence that the
Trading Price per $1,000 principal amount of the Securities would be less than
98% of the product of the sale price of the Company’s Common Stock and the then
applicable Conversion Rate; at which time the Company shall instruct the
Trustee to determine the Trading Price of the Securities beginning on the next
Trading Day and on each successive Trading Day until the trading price is
greater than or equal to 98% of the product of the sale price of the Company’s
Common Stock and the then applicable Conversion Rate.


 


(iii)                               Conversion Upon Notice
of Redemption.    If
the Company calls any or all of the Securities for redemption pursuant to the
provisions of Article 10 of the Indenture, Holders may convert Securities
into the Company’s Common Stock at any time prior to the close of business on
the Business Day immediately preceding the Redemption Date, even if the
Securities are not otherwise convertible at such time. If a Holder already has
delivered a purchase notice with respect to a Security, however, the Holder may
not surrender that Security for conversion until the Holder has withdrawn the
purchase notice in accordance with this Indenture.


 


8

















 


(iv)                              Conversion Upon
Specified Corporate Transactions.


 


(A)  If the
Company elects to: (1) distribute to all holders of the Company’s Common
Stock rights entitling them to purchase shares of the Company’s Common Stock at
less than the sale price of a share of the Company’s Common Stock on the
Trading Day immediately preceding the declaration date of the distribution, or
(2) distribute to all holders of the Company’s Common Stock the Company’s
assets, debt securities or rights to purchase the Company’s securities, which
distribution has a per share value as determined by the Company’s board of
directors exceeding 10% of the sale price of a share of the Company’s Common
Stock on the Trading Day immediately preceding the declaration date of the
distribution, the Company must notify the Holders of the Securities at least
20 days prior to the ex-dividend date for such distribution. Upon such
notice, Holders may surrender their Securities for conversion at any time until
the earlier of the close of business on the Business Day immediately prior to
the ex-dividend date or the Company’s announcement that such distribution will
not take place, even if the Securities are not otherwise convertible at such
time. No Holder may exercise this right to convert if the Holder otherwise may
participate in the distribution without conversion. The ex-dividend date is the
first date upon which a sale of the Common Stock does not automatically
transfer the right to receive the relevant distribution from the seller of the
Common Stock to its buyer.


 


(B)  If the
Company is a party to a consolidation, merger or binding share exchange
pursuant to which the Company’s Common Stock would be converted into cash,
securities or property, a Holder may surrender Securities for conversion at any
time from and after the date that is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual effective
date of such transaction, and at the effective time of the transaction, the
right to convert a Security into the Company’s Common Stock shall be changed
into a right to convert a Security into the kind and amount of cash, securities
or other property that the Holder would have received if the Holder had
converted its Securities immediately prior to the applicable record date for
such transaction. If the transaction also constitutes a Fundamental Change, a
Holder may require the Company to purchase all or a portion of its Securities
as set forth in Article 11 of the Indenture.


 


(e)                                  To exercise the conversion right, the
Holder must surrender the Security (or portion thereof) duly endorsed or
assigned to the Company or in blank, at the office of the Conversion Agent,
accompanied by a duly signed conversion notice to the Company. Any Security
surrendered for conversion during the period between the close of business on
any Regular Record Date and the opening of business on the corresponding
Interest Payment Date (other than any Security whose Maturity is prior to such
Interest Payment Date) shall be accompanied by payment in New York Clearing
House funds or other funds acceptable to the Company of an amount equal to the
interest (excluding Liquidated Damages, if any) payable on such Interest
Payment Date by the Company on the principal amount of the Security being
surrendered for conversion (but excluding any overdue interest on the principal
amount of such Security so converted that exists at the time such Holder
surrenders such Security for conversion). Notwithstanding the foregoing, any
such Holder which surrenders for conversion any Security (a) which has
been called for redemption by the Company in a notice of redemption given by
the Company pursuant to Section 10.04 of the Indenture on a Redemption
Date after such Regular Record Date and on or prior to the next succeeding
Interest Payment Date or (b) with respect to which the Company has
specified a Purchase Date that is after such Regular Record Date and on or
prior to the next succeeding Interest Payment Date, in either case, need not
pay the Company an amount equal to the interest on the principal amount of such
Security so converted at the time such Holder surrenders such Security for
conversion.


 


(f)                                    No fractional shares of Common Stock
shall be issued upon conversion of any Securities. Instead of any fractional
share of Common Stock which would otherwise be issued upon conversion of such
Securities, the Company shall pay a cash adjustment as provided in the
Indenture.


 


9

















 


8.                                       Subordination.    The Indebtedness
evidenced by this Security is, to the extent and in the manner provided in the
Indenture, subordinated and subject in right of payment to the prior payment in
full of all amounts then due on all Senior Debt of the Company. Each Holder of
this Security, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee on such Holder’s
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee such Holder’s
attorney-in-fact for any and all such purposes.


 


9.                                       Denominations;
Transfer; Exchange.    The
Securities are issuable in registered form, without coupons, in denominations
of $1,000 and multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture.


 


In the event of a
redemption in part, the Company shall not be required (a) to register the
transfer of, or exchange, Securities for a period of 15 days immediately
preceding the date notice is given identifying the serial numbers of the
Securities called for such redemption, or (b) to register the transfer of,
or exchange, any such Securities, or portion thereof, called for redemption.


 


In the event of
redemption, conversion or purchase of the Securities in part only, a new
Security or Securities for the unredeemed, unconverted or unpurchased portion
thereof shall be issued in the name of the Holder hereof.


 


10.                                 Persons Deemed Owners.    The registered
Holder of this Security shall be treated as its owner for all purposes.


 


11.                                 Unclaimed Money.    The Trustee and
the Paying Agent shall pay to the Company any money held by them for the
payment of principal or interest that remains unclaimed for two years after the
date upon which such payment shall have become due. After payment to the
Company, Holders entitled to the money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates
another Person, and all liability of the Trustee and the Paying Agent with respect
to such money shall cease.


 


12.                                 Discharge Prior to
Redemption or Maturity.    Subject to certain conditions contained in the
Indenture, the Company may discharge its obligations under the Securities and
the Indenture if (1) (a) all of the Outstanding Securities have become due
and payable or shall become due and payable at their scheduled Maturity within
one year or (b) all of the Outstanding Securities are scheduled for
redemption within one year, and (2) the Company shall have deposited with
the Trustee an amount in cash sufficient to pay the principal of and interest
on, all of the Outstanding Securities on the date of Maturity or redemption, as
the case may be.


 


13.                                 Amendment; Supplement;
Waiver.    The
Indenture permits, with certain exceptions as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the rights of the Holders of the Securities under the Indenture at any time by
the Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Outstanding Securities (or such lesser amount
as shall have acted at a meeting pursuant to the provisions of the Indenture).
The Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities at the time Outstanding, on
behalf of the Holders of all the Securities, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon registration of
transfer hereof or in exchange herefor


 


10

















 


or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security or such other Security.


 


No reference herein to
the Indenture and no provision of this Security or of the Indenture shall alter
or impair the obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest (including Liquidated Damages, if any) on
this Security at the times, places and rate, and in the coin or currency,
herein prescribed or to convert this Security as provided in the Indenture.


 


14.                                 Defaults and Remedies.    The Indenture
provides that an Event of Default with respect to the Securities occurs when
any of the following occurs:


 


(a)                                  the Company defaults in the payment of
the principal on any of the Securities when it becomes due and payable, at
Maturity, upon redemption or exercise of a Purchase Right or Put Purchase Right
or otherwise, whether or not such payment is prohibited by the subordination
provisions of Article 13 of the Indenture; or


 


(b)                                 the Company defaults in the payment of
interest (including Liquidated Damages, if any) on any of the Securities when
it becomes due and payable and such default continues for a period of
30 days, whether or not such payment is prohibited by the subordination
provisions of Article 13 of the Indenture; or


 


(c)                                  the Company fails to deliver shares of
Common Stock, together with cash instead of fractional shares, when those
shares of Common Stock or cash instead of fractional shares is required to be
delivered following conversion of a Security in accordance with the provisions
of Article 12 of the Indenture and that failure continues for
10 days; or


 


(d)                                 the Company fails to perform or observe
any other term, covenant or agreement contained in the Securities or the
Indenture and such default continues for a period of 60 days after written
notice of such failure is given as specified in the Indenture; or


 


(e)                                  (i) the Company fails to make any
payment by the end of the applicable grace period, if any, after the maturity
of any Indebtedness for borrowed money in an amount in excess of $10,000,000,
or (ii) there is an acceleration of any Indebtedness for borrowed money in
an amount in excess of $10,000,000 because of a default with respect to such
Indebtedness without such Indebtedness having been discharged or such
acceleration having been cured, waived, rescinded or annulled, in the case of
either clause (i) or (ii) above, for a period of 30 days after
written notice is given to the Company as specified in the Indenture; or


 


(f)                                    the Company fails, within 30 days
after the occurrence of a Fundamental Change, to give to each Holder of
Securities notice pursuant to Section 11.03 of the Indenture; or


 


(g)                                 there are certain events of bankruptcy,
insolvency or reorganization of the Company.


 


If an Event of Default
shall occur and be continuing, the principal of all the Securities maybe
declared due and payable in the manner and with the effect provided in the
Indenture.


 


15.                                 Authentication.    This Security
shall not be valid until the Trustee (or authenticating agent) executes the
certificate of authentication on the other side of this Security.


 


16.                                 Abbreviations.    Customary
abbreviations may be used in the name of a Holder or an assignee, such as: TEN
COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN
(=joint tenants with right of survivorship and not as tenants in common), CUST
(= Custodian) and U/G/M/A (=Uniform Gifts to Minors Act).


 


17.                                 Additional Rights of
Holders of Registrable Securities.    In addition to the rights
provided to Holders under the Indenture, Holders of Registrable Securities
shall have all the rights set forth in the Registration Rights Agreement.


 


11

















 


18.                                 CUSIP Numbers.    Pursuant to a
recommendation promulgated by the Committee on Uniform Security Identification
Procedures, the Company has caused CUSIP numbers to be printed on this Security
and the Trustee may use CUSIP numbers in notices of redemption as a convenience
to Holders. No representation is made as to the accuracy of such numbers either
as printed on this Security or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.


 


19.                                 Governing Law.    The Indenture and
this Security shall be governed by, and construed in accordance with, the law
of the State of New York.


 


20.                                 Successor Corporation.    In the event a
successor corporation assumes all the obligations of the Company under this
Security, pursuant to the terms hereof and of the Indenture, the Company shall
be released from all such obligations.


 


12

















 


ASSIGNMENT FORM


 


To assign this Security,
fill in the form below and have your signature guaranteed: (I) or (we)
assign and transfer this Security to:


 


	
  (Insert
  assignee’s soc. sec. or tax ID. no.)

  
	
   

  
	
   

  
	
  (Print or type
  assignee’s name, address and zip code)

  



 


and irrevocably
appoint                                        
                               to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.


 


	
  Dated:

  	
   

  
	
   

  	
  Your Name:

  	
   

  	
   

  
	
   

  	
   

  	
  (Print your name
  exactly as it

  appears on the face of this

  Security)

  
	
   

  	
   

  	
   

  
	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign exactly as
  your name

  appears on the face of this

  Security)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature
  Guarantee*:

  



 












*                                         Participant
in a recognized Signature Guarantee Medallion Program (or other signature
guarantor acceptable to the Trustee).


 


In connection with any transfer of this Security
occurring prior to the end of the period referred to in Rule 144(k) under
the Securities Act, the undersigned confirms that without utilizing any general
solicitation or general advertising:


 


[Check One]


 


o                                    (a) this Security is being
transferred in compliance with the exemption from registration under the
Securities Act of 1933, as amended, provided by Rule 144A thereunder.


 


or


 


o                                    (b) this Security is being
transferred in compliance with the exemption from registration under the
Securities Act of 1933, as amended, provided by Regulation S thereunder.


 


or


 


o                                    (c) this Security is being
transferred other than in accordance with (a) or (b) above and
documents are being furnished which comply with the conditions of transfer set
forth in this Security and the Indenture.


 


If none of the foregoing boxes is checked, the Trustee
or other Registrar shall not be obligated to register this Security in the name
of any Person other than the Holder hereof unless the conditions to any such
transfer of registration set forth herein and in Sections 2.07, 2.08 and 2.09
of the Indenture shall have been satisfied.


 


	
  Dated:

  	
   

  	
   

  



 


13

















 


NOTICE:                        The signature to this assignment must
correspond with the name as written upon the face of the within-mentioned
instrument in every particular, without alteration or any change whatsoever.


 


	
  Signature

  Guarantee:

  	
   

  	
   

  
	
   

  	
  Signature must
  be

  guaranteed by a

  participant in a

  recognized signature

  guaranty medallion

  program or other

  signature guarantor

  acceptable to the Trustee.

  	
   

  



 


TO BE COMPLETED BY PURCHASER IF
(a) ABOVE IS CHECKED.


 


The undersigned represents and warrants that it is
purchasing this Security for its own account or an account with respect to
which it exercises sole investment discretion, in each case for investment and
not with a view to distribution, and that it and any such account is a
“Qualified Institutional Buyer” within the meaning of Rule 144A under the
Securities Act of 1933 and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is
aware that the transferor is relying upon the undersigned’s foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.


 


	
  Dated:

  	
   

  	
   

  



 


NOTICE:                        To be executed by an executive officer


 


TO BE COMPLETED BY PURCHASER IF
(b) ABOVE IS CHECKED.


 


The undersigned represents and warrants that the
transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the undersigned
further certifies that (A) the transfer is not being made to a person in
the United States and (1) at the time the buy order was originated, the
transferee was outside the United States or such transferor and any Person
acting on its behalf reasonably believed and believes that the transferee was
outside the United States or (2) the transaction was executed in, on or
through the facilities of a designated offshore securities market and neither
such transferor nor any Person acting on its behalf knows that the transaction
was prearranged with a buyer in the United States; (B) no directed selling
efforts have been made in contravention of the requirements of Rule 903(b)
or Rule 904(b) of Regulation S under the Securities Act; (C) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act; and (D) if the proposed transfer is
not being made prior to the expiration of the Restricted Period, the transfer
is not being made to a U.S. Person.


 


	
  Dated:

  	
   

  	
   

  



 


NOTICE:                        To be executed by an executive officer


 


14

















 


CONVERSION NOTICE


 


	
  TO:

  	
   

  	
  PIXELWORKS, INC.

  
	
   

  	
   

  	
  8100 Nyberg
  Street, Suite 300

  
	
   

  	
   

  	
  Tualatin, Oregon
  97062

  
	
   

  	
   

  	
  Attention: Chief
  Financial Officer

  



 


The undersigned
registered owner of this Security hereby irrevocably exercises the option to
convert this Security, or the portion hereof (which is $1,000 principal amount
or a multiple thereof) below designated, into shares of Common Stock in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon such conversion, together
with any check in payment for fractional shares and any Securities representing
any unconverted principal amount hereof, be issued and delivered to the
registered holder hereof unless a different name has been indicated below. If shares
or any portion of this Security not converted is to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid to the undersigned
on account of interest accompanies this Security.


 


	
  Dated:

  	
   

  
	
   

  	
  Your Name:

  	
   

  	
   

  
	
   

  	
   

  	
  (Print your name
  exactly as it

  appears on the face of this

  Security)

  
	
   

  	
   

  	
   

  
	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign exactly as
  your name

  appears on the face of this

  Security)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature

  Guarantee*:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Social Security
  or

  other Taxpayer

  Identification

  Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Principal amount
  to be converted (if less than all):

  	
  $

  	
   

  	
   

  	
   

  	
   

  
						



 












*                                         Participant
in a recognized Signature Guarantee Medallion Program (or other signature
guarantor acceptable to the Trustee).


 


15

















 


Fill in for registration of shares (if to be issued)
and Securities (if to be delivered) other than to and in the name of the
registered holder:


 


	
  (Name)

  
	
   

  
	
  (Street Address)

  
	
   

  
	
  (City, State and
  Zip Code)

  



 


In connection with any conversion of this Security
occurring prior to the end of the period referred to in Rule 144(k) under
the Securities Act, if any shares of the Common Stock to be issued upon
conversion of this Security are to be registered in a name other than that of
the undersigned registered owner, the undersigned confirms that without
utilizing any general solicitation or general advertising:


 


[Check One]


 


o                                    (a) this Security and the shares of
Common Stock to be issued upon conversion of this Security are being
transferred in compliance with the exemption from registration under the
Securities Act of 1933, as amended, provided by Rule 144A thereunder.


 


or


 


o                                    (b) this Security and the shares of
Common Stock to be issued upon conversion of this Security are being
transferred in compliance with the exemption from registration under the
Securities Act of 1933, as amended, provided by Regulation S thereunder.


 


or


 


o                                    (c) this Security and the shares of
Common Stock to be issued upon conversion of this Security are being
transferred other than in accordance with (a) or (b) above and
documents are being furnished which comply with the conditions of transfer set
forth in this Security and the Indenture.


 


If none of the foregoing boxes is checked, the Trustee
or other Registrar shall not be obligated to register this Security or the
shares of Common Stock to be issued upon conversion of this Security in the
name of any Person other than the Holder hereof unless the conditions to any
such transfer of registration set forth herein and in Sections 2.07, 2.08 and
2.09 of the Indenture shall have been satisfied.


 


TO BE COMPLETED BY TRANSFEREE IF
(a) ABOVE IS CHECKED.


 


The undersigned represents and warrants that it is
purchasing this Security for its own account or an account with respect to
which it exercises sole investment discretion, in each case for investment and
not with a view to distribution, and that it and any such account is a
“Qualified Institutional Buyer” within the meaning of Rule 144A under the Securities
Act of 1933 and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned’s foregoing representations in order
to claim the exemption from registration provided by Rule 144A.


 


	
  Dated:

  	
   

  	
   

  



 


NOTICE:                        To be executed by an executive officer


 


16

















 


TO BE COMPLETED BY TRANSFEREE IF
(b) ABOVE IS CHECKED.


 


The undersigned represents and warrants that the
transfer is being effected pursuant to and in accordance with Rule 903 or
Rule 904 under the Securities Act and, accordingly, the undersigned
further certifies that (A) the transfer is not being made to a person in
the United States and (1) at the time the buy order was originated, the
transferee was outside the United States or such transferor and any Person
acting on its behalf reasonably believed and believes that the transferee was
outside the United States or (2) the transaction was executed in, on or
through the facilities of a designated offshore securities market and neither
such transferor nor any Person acting on its behalf knows that the transaction
was prearranged with a buyer in the United States; (B) no directed selling
efforts have been made in contravention of the requirements of Rule 903(b)
or Rule 904(b) of Regulation S under the Securities Act; (C) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act; and (D) if the proposed transfer is
not being made prior to the expiration of the Restricted Period, the transfer
is not being made to a U.S. Person.


 


	
  Dated:

  	
   

  	
   

  



 


NOTICE:                        To be executed by an executive officer


 


17

















 


NOTICE
OF EXERCISE OF PURCHASE RIGHT


 


	
  TO:

  	
   

  	
  PIXELWORKS, INC.

  
	
   

  	
   

  	
  8100 Nyberg
  Street, Suite 300

  
	
   

  	
   

  	
  Tualatin, Oregon
  97062

  
	
   

  	
   

  	
  Attention: Chief
  Financial Officer

  



 


The undersigned
registered owner of this Security hereby irrevocably acknowledges receipt of a
notice from Pixelworks, Inc. (the “Company”)
as to the occurrence of a Fundamental Change with respect to the Company and
requests and instructs the Company to repay the entire principal amount of this
Security, or the portion thereof (which is $1,000 principal amount or a
multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Security, together with interest (including
Liquidated Damages, if any) accrued and unpaid to, but excluding, such date, to
the registered holder hereof, in cash.


 


	
  Dated:

  	
   

  
	
   

  	
  Your Name:

  	
   

  	
   

  
	
   

  	
   

  	
  (Print your name
  exactly as it

  appears on the face of this

  Security)

  
	
   

  	
   

  	
   

  
	
   

  	
  Your Signature:

  	
   

  	
   

  
	
   

  	
   

  	
  (Sign exactly as
  your name

  appears on the face of this

  Security)

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature

  Guarantee*:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Social Security
  or

  other Taxpayer

  Identification

  Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Principal amount
  to be repurchased (if less than all):

  	
  $

  	
   

  	
   

  	
   

  	
   

  
						



 












*                                         Participant
in a recognized Signature Guarantee Medallion Program (or other signature
guarantor acceptable to the Trustee).


 


	
  Serial Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Certificate
  Number (if Physical Security):

  	
   

  	
   

  
					



 


18

















 


SCHEDULE OF
EXCHANGES FOR PHYSICAL SECURITIES


 


The following exchanges
of a part of this Global Security for Physical Securities have been made:


 


	
  Date of
  Exchange  

  	
   

  	
  Amount of
  decrease

  in Principal Amount

  of this Global

  Security  

  	
   

  	
  Amount of
  increase

  in Principal Amount

  of this Global

  Security

  	
   

  	
  Principal
  Amount of

  this Global Security

  following such

  decrease (or

  increase)

  	
   

  	
  Signature
  of

  authorized officer of

  Trustee

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


19