Exhibit
4.3


 


PIXELWORKS, INC.


 


1.75%
Convertible Subordinated Debentures Due 2024


 


REGISTRATION RIGHTS
AGREEMENT


 


May 18, 2004


 


Citigroup Global Markets Inc.

As Representative of the Initial Purchasers

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013


 


Ladies and Gentlemen:


 


Pixelworks, Inc., a
corporation organized under the laws of Oregon (the “Company”), proposes to
issue and sell to certain purchasers (the “Initial Purchasers”), for whom you
(the “Representative”) are acting as representative, its 1.75% Convertible
Subordinated Debentures Due 2024 (the “Securities”), upon the terms set forth
in the Purchase Agreement between the Company and the Representative dated
May 12, 2004 (the “Purchase Agreement”) relating to the initial placement
(the “Initial Placement”) of the Securities. The Securities will be convertible
into fully paid, nonassessable shares of common stock, par value $0.001 per
share, of the Company (the “Common Stock”) on the terms, and subject to the
conditions, set forth in the Indenture (as defined herein). To induce the
Initial Purchasers to enter into the Purchase Agreement and to satisfy a
condition to your obligations thereunder, the Company agrees with you for your
benefit and the benefit of the holders from time to time of the Securities and
the Common Stock issued upon conversion of Securities (including the Initial
Purchasers) (each a “Holder” and, collectively, the “Holders”), as follows:


 


1.                                       Definitions.    Capitalized terms
used herein without definition shall have their respective meanings set forth
in the Purchase Agreement. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:


 


“Act” shall mean the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission promulgated thereunder.


 


“Affiliate” shall have
the meaning specified in Rule 405 under the Act and the terms
“controlling” and “controlled” shall have meanings correlative thereto.


 


“Broker-Dealer” shall
mean any broker or dealer registered as such under the Exchange Act.


 


“Business Day” shall mean
any day other than a Saturday, a Sunday or a legal holiday or a day on which
banking institutions or trust companies are authorized or obligated by law to
close in New York City.


 


“Closing Date” shall mean
the date of the first issuance of the Securities.


 


“Commission” shall mean
the Securities and Exchange Commission.


 


“Damages Payment Date”
shall mean each Interest Payment Date. For purposes of this Agreement, if no
Securities are outstanding, “Damages Payment Date” shall mean each May 15
and November 15.


 


“Deferral Period” shall
have the meaning indicated in Section 3(h) hereof.


 


“Exchange Act” shall mean
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder.


 

















 


“Final Memorandum” shall
mean the offering memorandum, dated May 12, 2004, relating to the
Securities, including any and all exhibits thereto and any information
incorporated by reference therein as of such date.


 


“Holder” shall have the
meaning set forth in the preamble hereto.


 


“Indenture” shall mean
the Indenture relating to the Securities, dated as of May 18, 2004,
between the Company and Wells Fargo Bank, National Association, as trustee, as
the same may be amended from time to time in accordance with the terms thereof.


 


“Initial Placement” shall
have the meaning set forth in the preamble hereto.


 


“Initial Purchasers”
shall have the meaning set forth in the preamble hereto.


 


“Interest Payment Date”
shall have the meaning set forth in the Indenture.


 


“Losses” shall have the
meaning set forth in Section 5(d) hereof.


 


“Majority Holders” shall
mean, on any date, Holders of a majority of the then outstanding shares of
Common Stock constituting Registrable Securities (with Holders of Securities
deemed to be Holders, for purposes of this definition, of the number of
outstanding shares of Common Stock into which such Securities are would be
convertible as of such date) registered under a Registration Statement.


 


“Managing Underwriters”
shall mean the investment banker or investment bankers and manager or managers
that administer an underwritten offering, if any, conducted pursuant to
Section 6 hereof.


 


“NASD Rules” shall mean
the Conduct Rules and the By-Laws of the National Association of Securities
Dealers, Inc.


 


“Notice and
Questionnaire” shall mean a written notice delivered to the Company
substantially in the form attached as Annex A to the Final Memorandum.


 


“Notice Holder” shall
mean, on any date, any Holder of Registrable Securities that has delivered a
completed and executed Notice and Questionnaire to the Company on or prior to
such date.


 


“Prospectus” shall mean a
prospectus included in the Shelf Registration Statement (including, without
limitation, a prospectus that discloses information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A under the Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by the Shelf Registration Statement, and
all amendments and supplements thereto, including any and all exhibits thereto
and any information incorporated by reference therein.


 


“Purchase Agreement”
shall have the meaning set forth in the preamble hereto.


 


“Record Holder” shall
mean with respect to any Damages Payment Date, each person who is a Holder on
the record date with respect to the Interest Payment Date on which such Damages
Payment Date shall occur. In the case of a Holder of shares of Common Stock
issued upon conversion of the Securities, “Record Holder” shall mean each
person who is a Holder of shares of Common Stock which constitute Registrable
Securities on the May 1 or November 1 immediately preceding the
Damages Payment Date.


 


“Registrable Securities”
shall mean Securities and each share of Common Stock issued upon conversion of
Securities other than those that have been (i) registered under the Shelf
Registration Statement and disposed of in accordance therewith or
(ii) distributed to the public pursuant to Rule 144 under the Act or
any successor rule or regulation thereto that may be adopted by the Commission.


 


“Registration Default
Damages” shall have the meaning set forth in Section 7 hereof.


 


2

















 


“Securities” shall have
the meaning set forth in the preamble hereto.


 


“Shelf Registration
Period” shall have the meaning set forth in Section 2(c) hereof.


 


“Shelf Registration
Statement” shall mean a “shelf” registration statement of the Company pursuant
to the provisions of Section 2 hereof which covers some or all of the
Registrable Securities on an appropriate form under Rule 415 under the
Act, or any similar rule that may be adopted by the Commission, amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.


 


“Special Counsel” means
Davis Polk & Wardwell or one such other successor counsel as shall be
specified by the Majority Holders.


 


“Trustee” shall mean the
trustee with respect to the Securities under the Indenture.


 


“Trust Indenture Act”
shall mean the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the Commission promulgated thereunder.


 


“underwriter” shall mean
any underwriter of Registrable Securities in connection with an offering
thereof under the Shelf Registration Statement.


 


2.                                       Shelf Registration.    (a) The
Company shall as promptly as practicable (but in no event more than
90 days after the Closing Date) use its commercially reasonable best
efforts to file with the Commission a Shelf Registration Statement providing
for the registration of, and the sale on a continuous or delayed basis by the
Holders of, all of the Registrable Securities, from time to time in accordance
with the methods of distribution elected by such Holders, pursuant to
Rule 415 under the Act or any similar rule that may be adopted by the
Commission.


 


(b)                                 The Company shall use its commercially
reasonable best efforts to cause the Shelf Registration Statement to become or
be declared effective under the Act as promptly as practicable (but in no event
more than 180 days after the Closing Date).


 


(c)                                  The Company shall use its commercially
reasonable best efforts to keep the Shelf Registration Statement continuously
effective, supplemented and amended as required by the Act, in order to permit
the Prospectus forming part thereof to be usable by Holders for a period (the
“Shelf Registration Period”) from the date the Shelf Registration Statement is
declared effective by the Commission until the earlier of (i) the second
anniversary thereof, (ii) the date upon which there are no Registrable
Securities outstanding, (iii) the date as of which all the Registrable
Securities have been sold either under Rule 144 under the Act (or any
similar provision then in force) or pursuant to the Shelf Registration
Statement, or (iv) the date on which all Registrable Securities held by
non-Affiliates are eligible to be sold to the public pursuant to
Rule 144(k) under the Act.


 


(d)                                 The Company shall cause the Shelf
Registration Statement and the related Prospectus and any amendment or
supplement thereto, as of the effective date of the Shelf Registration
Statement or such amendment or supplement, (i) to comply in all material
respects with the applicable requirements of the Act; and (ii) not to
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein (in the case of the Prospectus, in the light of the circumstances under
which they were made) not misleading.


 


(e)                                  At the time the Shelf Registration
Statement is declared to be effective, each Holder that became a Notice Holder
on or prior to the date ten Business Days prior to such time of effectiveness
shall be named as a selling securityholder in the Shelf Registration Statement
and the related Prospectus in such a manner as to permit such Holder to deliver
such Prospectus to purchasers of Registrable Securities in accordance with
applicable law, subject to the terms and conditions hereof. Following the date
that the Shelf Registration Statement is declared effective, each Holder that
is not a


 


3

















 


Notice Holder wishing to sell Registrable Securities
pursuant to a Shelf Registration Statement and related Prospectus agrees to
deliver a Notice and Questionnaire (and such other information as is required
by Section 3(l)) to the Company prior to any intended distribution by it
of Registrable Securities under the Shelf Registration Statement. From and
after the date the Shelf Registration Statement is declared effective and
during the Shelf Registration Period (but excluding any Deferral Period), the
Company shall as promptly as is practicable after the date a Notice and
Questionnaire (and such other information as is required by Section 3(l))
is delivered, and in any event within the later of (x) 10 Business Days
after such date or (y) 10 Business Days after the expiration of any
Deferred Period in effect when the Notice and Questionnaire (and such other
information as is required by Section 3(l)) is delivered, file a
supplement to the Shelf Registration Statement and related Prospectus as is
necessary and permitted to name such Holder as a selling securityholder or if
not permitted to name such Holder as a selling securityholder by supplement,
file any necessary post-effective amendments to the Shelf Registration
Statement or prepare and, if required by applicable law, file an amendment or
supplement to any document incorporated by reference or file any other required
document so that such Holder is named as selling securityholder, provided that
the Company shall be obligated to file such post-effective amendment only once
in each of the quarterly periods commencing on April 1, July 1,
October 1 and January 1 of each year during the Shelf Registration
Period, and use commercially reasonable best efforts to cause such
post-effective amendment to be declared effective under the Act as promptly as
practicable, but in no event later than the date (the “Amendment Effectiveness
Deadline Date”) that is 60 days after the date such post-effective
amendment is required to be filed. In connection with such filing, the Company
agrees to:


 


(i)  provide
such Holder copies of any documents filed pursuant to Section 2(e) hereof;
and


 


(ii)  notify
such Holder as promptly as practicable after the effectiveness under the Act of
any post-effective amendment filed pursuant to Section 2(e) hereof;


 


Notwithstanding anything contained herein to the
contrary, the Company shall be under no obligation to name any Holder that is
not a Notice Holder as a selling holder in the Shelf Registration Statement or
related Prospectus; provided, however,
that any Holder that becomes a Notice Holder pursuant to the provisions of this
Section 2(e) (whether or not such Holder was a Notice Holder at the time
the Shelf Registration Statement was declared effective) shall be named as a
selling holder in the Shelf Registration Statement or related Prospectus in
accordance with the requirements of this Section 2(e).


 


3.                                       Registration
Procedures.    The
following provisions shall apply in connection with the Shelf Registration
Statement.


 


(a)                                  The Company shall:


 


(i)  furnish to
the Representative and to Special Counsel for the Notice Holders, not less than
two Business Days prior to the filing with the Commission a copy of the Shelf
Registration Statement and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein (including all documents
incorporated by reference therein after the initial filing) and shall use its commercially
reasonable best efforts to reflect in each such document, when so filed with
the Commission, such comments as the Representative reasonably proposes; and


 


(ii)  include
information regarding the Notice Holders and the methods of distribution they
have elected for their Registrable Securities provided to the Company in
Notices and Questionnaires as necessary to permit such distribution by the
methods specified therein.


 


4

















 


(b)                                 The Company shall give notice to the
Representatives and the Notice Holders (which notice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use
of the Prospectus until the Company shall have remedied the basis for such
suspension):


 


(i)  when the
Shelf Registration Statement and any amendment thereto has been filed with the
Commission and when the Shelf Registration Statement or any post-effective
amendment thereto has become effective;


 


(ii)  of any
request by the Commission for any amendment or supplement to the Shelf
Registration Statement or the Prospectus or for additional information, to the
extent that the Company determines in good faith that the Shelf Registration
Statement or Prospectus contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) misleading without the changes
requested by the Commission;


 


(iii)  of the
issuance by the Commission of any stop order suspending the effectiveness of
the Shelf Registration Statement or the institution of any proceeding for that
purpose;


 


(iv)  of the
receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities included therein for sale in
any jurisdiction or the institution of any proceeding for such purpose; and


 


(v)  of the
happening of any event that requires any change in the Shelf Registration
Statement or the Prospectus so that, as of such date, they (A) do not
contain any untrue statement of a material fact and (B) do not omit to
state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading.


 


(c)                                  The Company shall use its commercially
reasonable best efforts to obtain as soon as possible the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement or the
qualification of the securities therein for sale in any jurisdiction in which
they have been qualified for sale.


 


(d)                                 The Company shall furnish to each Notice
Holder, without charge, at least one copy of the Shelf Registration Statement
and any post-effective amendment thereto, including all material incorporated
therein by reference, and, if a Notice Holder so requests in writing, all
exhibits thereto (including exhibits incorporated by reference therein).


 


(e)                                  During the Shelf Registration Period, the
Company shall promptly deliver to each Initial Purchaser, each Notice Holder,
and any sales or placement agents or underwriters acting on their behalf,
without charge, as many copies of the Prospectus (including the preliminary
Prospectus) included in the Shelf Registration Statement and any amendment or
supplement thereto as any such person may reasonably request. The Company
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the foregoing in connection with the offering and sale of the
Registrable Securities (except during any Deferral Period, as defined below).


 


(f)                                    Prior to any offering of Registrable
Securities pursuant to the Shelf Registration Statement, the Company shall
arrange for the qualification of the Registrable Securities for sale under the
laws of such jurisdictions as any Notice Holder shall reasonably request and
shall maintain such qualification in effect so long as required; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not then so qualified or to take any action in
connection therewith that would subject it to taxation or service of process in
suits, other than those arising out of the Initial Placement or any offering
pursuant to the Shelf Registration Statement, in any jurisdiction where it is
not then so subject.


 


5

















 


(g)                                 Upon the occurrence of any event
contemplated by subsections (b)(ii) through (v) above, the Company
shall promptly (or within the time period provided for by Section 3(h)
hereof, if applicable) prepare a post-effective amendment to the Shelf
Registration Statement or an amendment or supplement to the related Prospectus
or file any other required document so that, as thereafter delivered to Initial
Purchasers of the securities included therein, the Prospectus will not include
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.


 


(h)                                 The Company may suspend each Holder’s use
of the Shelf Registration and any Prospectus for a maximum of 45 days in
any 90-day period, and not to exceed an aggregate of 120 days in any
12 month period, if (i) the Company, in its reasonable judgment,
believes it may possess material non-public information the disclosure of which
would be seriously detrimental to the Company and its subsidiaries taken as a
whole or (ii) the Shelf Registration Statement and any Prospectus would,
in the Company’s judgment, contain a material misstatement or omission as a
result of an event that has occurred or is continuing. However, if the
disclosure relates to a proposed or pending material business transaction, the
disclosure of which the Company determines in good faith would be reasonably
likely to impede its ability to consummate such transaction, or would otherwise
be seriously detrimental to the Company and its subsidiaries taken as a whole,
the Company may extend the suspension period from 45 days to 60 days.
Any suspension period described in this Section 3(h) shall be referred to
herein as the “Deferral Period.” The Company shall give notice to the Notice
Holders that the availability of the Shelf Registration is suspended and upon
notice duly given pursuant to Section 10 hereof, each Notice Holder agrees
not to sell any Registrable Securities pursuant to the Shelf Registration until
such Notice Holder’s receipt of copies of the supplemented or amended
Prospectus provided for in Section 3(h) hereof, or until it is advised in
writing by the Company that the Prospectus may be used, and has received copies
of any additional or supplemental filings that are incorporated or deemed
incorporated by reference in such Prospectus. The Company need not specify the
nature of the event giving rise to a suspension in any notice to holders of the
Securities of the existence of such a suspension. Each Holder, by its acceptance
of the Securities, agrees to hold any communication by the Company in response
to a notice of a proposed sale in confidence.


 


(i)                                     Not later than the effective date of the
Shelf Registration Statement, the Company shall provide a CUSIP number for the
Registrable Securities registered under the Shelf Registration Statement and,
if required, provide the Trustee with printed certificates for such Securities,
free of any restrictive legends, in a form eligible for deposit with The
Depository Trust Company.


 


(j)                                     The Company shall comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders an earnings statement satisfying the
provisions of Section 11(a) of the Act as soon as practicable after the
effective date of the Shelf Registration Statement and in any event no later
than 45 days after the end of a 12-month period (or 90 days, if such
period is a fiscal year) beginning with the first month of the Company’s first
fiscal quarter commencing after the effective date of the Shelf Registration
Statement.


 


(k)                                  The Company shall cause the Indenture to
be qualified under the Trust Indenture Act in a timely manner.


 


(l)                                     The Company may require each Holder of
Registrable Securities to be sold pursuant to the Shelf Registration Statement
to deliver to the Company a completed and executed Notice and Questionnaire and
to furnish to the Company such other information regarding the Holder and the
distribution of such Registrable Securities as the Company may from time to
time reasonably require for inclusion in the Shelf Registration Statement. The
Company may exclude (i) from the initial Shelf Registration Statement the
Securities of any Holder that fails to return a completed and executed Notice
and Questionnaire and fails to furnish such other information no later than ten
Business Days


 


6

















 


before the initial effectiveness of the Shelf
Registration Statement and (ii) from any post-effective amendment or supplement
the Securities of any Holder that fails to return a completed and executed
Notice and Questionnaire and fails to furnish such other information no later
than ten Business Days before the date of filing any post-effective amendment
or supplement to the Shelf Registration Statement contemplated by
Section 2(e)(i), as applicable.


 


(m)                               The Company shall enter into customary
agreements (including, subject to Section 6, if requested, an underwriting
agreement in customary form) and take all other appropriate actions as
reasonably requested by the Notice Holders in order to expedite or facilitate
the registration or the disposition of the Registrable Securities, and in
connection therewith, if an underwriting agreement is entered into, cause the
same to contain indemnification provisions and procedures no less favorable
than those set forth in Section 5 hereof.


 


(n)                                 The Company shall:


 


(i)  make
reasonably available for inspection during normal business hours by the Notice
Holders of Registrable Securities to be registered thereunder, any underwriter
participating in any disposition pursuant to the Shelf Registration Statement,
and any attorney, accountant or other agent retained by the Holders or any such
underwriter all relevant financial and other records and pertinent corporate
documents of the Company and its subsidiaries;


 


(ii)  cause the
Company’s officers, directors, employees, accountants and auditors to supply
all relevant information reasonably requested by the Notice Holders or any such
underwriter, attorney, accountant or agent in connection with any the Shelf
Registration Statement as is customary for similar due diligence examinations;
provided that the inspection and information gathering pursuant to
clause (i) and (ii) shall be coordinated by a single party (or a
single counsel (which shall be the Special Counsel) on behalf of the parties so
inspecting and gathering);


 


(iii)  make
such representations and warranties to the Holders of Registrable Securities
registered thereunder and the underwriters in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten offerings
and covering those matters set forth in the Purchase Agreement;


 


(iv)  obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling Holder and the
underwriters, if any, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may be
reasonably requested by such Holders and underwriters;


 


(v)  obtain
“comfort” letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included in the Shelf Registration Statement), addressed to
each selling Holder of Registrable Securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the type
customarily covered in “comfort” letters in connection with primary
underwritten offerings; and


 


(vi)  deliver
such documents and certificates as may be reasonably requested by the Majority
Holders or the Managing Underwriters, if any, including those to evidence
compliance with Section 3(i) hereof and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company.


 


Regardless of the foregoing, the actions set forth in
clauses (iii), (iv), (v) and (vi) of this paragraph (n) shall
only be performed in connection with an underwritten offering pursuant to Section 6
hereof and only if requested by the underwriters thereof.


 


7

















 


(o)                                 In the event that any Broker-Dealer shall
underwrite any Registrable Securities or participate as a member of an
underwriting syndicate or selling group or “assist in the distribution” (within
the meaning of the NASD Rules) thereof, whether as a Holder of such Registrable
Securities or as an underwriter, a placement or sales agent or a broker or
dealer in respect thereof, or otherwise, the Company shall use its commercially
reasonable efforts to assist such Broker-Dealer in complying with the NASD
Rules.


 


(p)                                 The Company shall upon (i) the
filing of the initial Shelf Registration Statement and (ii) the
effectiveness of the initial Shelf Registration Statement, announce the same,
in each case by release to Reuters Economic Services and Bloomberg Business
News.


 


(q)                                 The Company shall use its commercially
reasonable best efforts to take all other steps necessary to effect the
registration of the Registrable Securities covered by the Shelf Registration
Statement.


 


4.                                       Registration Expenses.    The Company shall
bear all expenses incurred in connection with the performance of its
obligations under Sections 2 and 3 hereof and shall reimburse the Holders for
the reasonable fees and disbursements of one firm or counsel (which shall be
the Special Counsel) to act as counsel for the Holders in connection therewith.
The Holders will bear their individual selling expenses, including commissions
and discounts and transfer taxes.


 


5.                                       Indemnification and
Contribution.    (a) The
Company agrees to indemnify and hold harmless each Holder of Registrable
Securities covered by the Shelf Registration Statement, each Initial Purchaser,
the directors, officers, employees, Affiliates and agents of each such Holder
or Initial Purchaser and each person who controls any such Holder or Initial
Purchaser within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Shelf Registration Statement as
originally filed or in any amendment thereof, or in any preliminary Prospectus
or the Prospectus, or in any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any preliminary Prospectus or the Prospectus, in the
light of the circumstances under which they were made) not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the party claiming indemnification specifically for
inclusion therein; provided further,
that the foregoing indemnity agreement of the Company shall not inure to any
Holder (or any director, officer, employee, Affiliate, or agent thereof, or any
person who controls such Holder) on account of any such loss, claim, damage or
liability caused by any such untrue statement, alleged untrue statement,
omission or alleged omission made in a preliminary prospectus (A) if such
Holder failed to send or deliver a copy of the final Prospectus at the time
required by the Act to the person asserting the claim from which such loss,
claim, damage or liability arises and the final Prospectus would have corrected
such untrue statement or alleged untrue statement or such omission or alleged
omission or (B) such untrue statement or alleged untrue statement or such
omission or alleged omission is corrected in an amendment or supplement to the
Prospectus and, having previously been furnished by or on behalf of the Company
with copies of the Prospectus as so amended or supplemented, such Holder thereafter
fails to deliver such Prospectus as so amended or supplemented at the time
required by the Act; provided further
that the foregoing indemnity agreement


 


8

















 


of the Company shall not inure to any Holder (or any
director, officer, employee, Affiliate, or agent thereof, or any person who
controls such Holder) to the extent that any such Holder effects any sale of
Registrable Securities during a Deferral Period. This indemnity agreement shall
be in addition to any liability that the Company may otherwise have.


 


The Company also agrees
to indemnify as provided in this Section 5(a) or contribute as provided in
Section 5(d) hereof to Losses of each underwriter, if any, of Registrable
Securities registered under the Shelf Registration Statement, its directors,
officers, employees, Affiliates or agents and each person who controls such
underwriter on substantially the same basis as that of the indemnification of
the Initial Purchasers and the selling Holders provided in this
paragraph (a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in
Section 3(n) hereof.


 


(b)                                 Each Holder of securities covered by the
Shelf Registration Statement (including each Initial Purchaser that is a
Holder, in such capacity) severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signs the Shelf Registration Statement and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each such Holder, but only with
reference to written information relating to such Holder furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement
shall be acknowledged by each Notice Holder that is not an Initial Purchaser in
such Notice Holder’s Notice and Questionnaire and shall be in addition to any
liability that any such Notice Holder may otherwise have.


 


(c)                                  Promptly after receipt by an indemnified
party under this Section 5 or notice of the commencement of any action,
such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 5, notify the
indemnifying party in writing of the commencement thereof; but the failure so
to notify the indemnifying party (i) will not relieve it from liability
under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by
the indemnifying party of substantial rights and defenses; and (ii) will
not, in any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel (including local counsel) of the indemnifying party’s choice
at the indemnifying party’s expense to represent the indemnified party in any
action for which indemnification is sought (in which case the indemnifying
party shall not thereafter be responsible for the fees and expenses of any
separate counsel, other than local counsel if not appointed by the indemnifying
party, retained by the indemnified party or parties except as set forth below);
provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party’s election to appoint counsel (including local counsel) to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying
party to represent the indemnified party would present such counsel with a
conflict of interest; (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party; (iii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of the institution of such action;
or (iv) the indemnifying party shall authorize the indemnified party to
employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding


 


9

















 


in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise
or consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.


 


(d)                                 In the event that the indemnity provided
in paragraph (a) or (b) of this Section 5 is unavailable to or
insufficient to hold harmless an indemnified party for any reason, then each
applicable indemnifying party shall have a joint and several obligation to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending loss, claim, liability, damage or action) (collectively “Losses”) to
which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying
party, on the one hand, and such indemnified party, on the other hand, from the
Initial Placement and the Shelf Registration Statement which resulted in such
Losses; provided, however, that
in no case shall any Initial Purchaser be responsible, in the aggregate, for
any amount in excess of the purchase discount or commission applicable to such
Security, as set forth in the Final Memorandum, nor shall any underwriter be
responsible for any amount in excess of the underwriting discount or commission
applicable to the securities purchased by such underwriter under the Shelf
Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the Initial Placement (before deducting expenses)
as set forth in the Final Memorandum. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and commissions
as set forth on the cover page of the Final Memorandum, and benefits received
by any other Holders shall be deemed to be equal to the value of receiving
Securities registered under the Act. Benefits received by any underwriter shall
be deemed to be equal to the total underwriting discounts and commissions, as
set forth on the cover page of the Prospectus forming a part of the Shelf
Registration Statement which resulted in such Losses. Relative fault shall be
determined by reference to, among other things, whether any untrue or any
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information provided by the indemnifying
party, on the one hand, or by the indemnified party, on the other hand, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
parties agree that it would not be just and equitable if contribution were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5, each person
who controls a Holder within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of such Holder shall have the
same rights to contribution as such Holder, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each officer
of the Company who shall have signed the Shelf Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).


 


(e)                                  The provisions of this Section 5
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any Holder or the Company or any of the indemnified persons
referred to in this Section 5, and shall survive the sale by a Holder of
Registrable Securities covered by the Shelf Registration Statement.


 


10

















 


6.                                       Underwritten
Registrations.    (a) The
Registrable Securities may be sold in an underwritten offering only with the
consent of the Company, and, in such event, the Managing Underwriters shall be
selected by the Majority Holders; provided that such Managing Underwriters are
reasonably acceptable to the Company.


 


(b)                                 No person may participate in any underwritten
offering pursuant to the Shelf Registration Statement unless such person
(i) agrees to sell such person’s Registrable Securities on the basis
reasonably provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements; and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.


 


7.                                       Registration Defaults.    (a) If:


 


(i)  the Shelf
Registration Statement is not filed with the Commission on or prior to the 90th
day following the Closing Date; or


 


(ii)  the Shelf
Registration Statement is not declared effective by the Commission on or prior
to the 180th day following the Closing Date; or


 


(iii)  the
Company has failed to perform its obligations set forth in
Section 2(e)(i) within the time required therein; or


 


(iv)  any
post-effective amendment to a Shelf Registration Statement filed pursuant to
Section 2(e) has not become effective under the Securities Act on or prior
to the Amendment Effectiveness Deadline Date; or


 


(v)  the
aggregate duration of Deferral Periods in any period exceeds the number of days
permitted in respect of such period pursuant to Section 3(i) hereof
(in each case except as the result of filing a post-effective amendment solely
to add additional selling securityholders);


 


(each such event referred to in the foregoing clauses
(i) through (v), a “Registration Default”), the Company hereby agrees to
pay liquidated damages (“Liquidated Damages”) with respect to the Registrable
Securities from and including the day following the Registration Default to but
excluding the day on which the Registration Default has been cured:


 


(A)  in respect
of the Registrable Securities that are Securities, to each holder thereof,
(x) with respect to the first 90-day period during which a Registration
Default shall have occurred and be continuing, in an amount per year equal to
an additional 0.25% of the principal amount of the Securities and (y) with
respect to the period commencing on the 91st day following the day the
Registration Default shall have occurred and be continuing, in an amount per
year equal to an additional 0.50% of the principal amount of the Securities;
provided that in no event shall Liquidated Damages accrue at a rate per year
exceeding 0.50% of the principal amount of the Securities; and


 


(B)  in respect
of Registrable Securities that are shares of Common Stock issued upon
conversion of the Securities, to each holder thereof, (x) with respect to
the first 90-day period in which a Registration Default shall have occurred and
be continuing, in an amount per year equal to 0.25% of the principal amount of
the converted Securities and (y) with respect to the period commencing the
91st day following the day the Registration Default shall have occurred and be
continuing, in an amount per year equal to 0.50% of the principal amount of the
converted Securities; provided, however, that in no event shall Liquidated
Damages accrue at a rate per year exceeding 0.50% of the principal amount of
the converted Securities.


 


(b)                                 All accrued Liquidated Damages shall be
paid in arrears to Record Holders by the Company on each Damages Payment Date
by wire transfer of immediately available funds or by federal funds


 


11

















 


check. Following the cure of all Registration Defaults
relating to any particular Securities or share of Common Stock, the accrual of
Liquidated Damages with respect to such Securities or share of Common Stock
will cease.


 


All obligations of the
Company set forth in this Section 7 that are outstanding with respect to
any Registrable Securities at the time such security ceases to be a Registrable
Security shall survive until such time as all such obligations with respect to
such Registrable Security shall have been satisfied in full.


 


8.                                       No Inconsistent
Agreements.    The
Company has not entered into, and agrees not to enter into, any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders herein or that otherwise conflicts with the provisions hereof. The
parties agree and acknowledge that other shareholders of the Company may be
entitled to participate in the Shelf Registration Statement, on parity with the
Holders, pursuant to a registration rights agreement with the Company existing
on the date hereof.


 


9.                                       Amendments and Waivers.    The provisions of
this Agreement may not be amended, qualified, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the Holders of a
majority of the then outstanding shares of Common Stock constituting
Registrable Securities (with Holders of Securities deemed to be Holders, for
purposes of this Section, of the number of outstanding shares of Common Stock
into which such Securities are would be convertible as of the date on which
such consent is requested); provided
that, with respect to any matter that adversely affects the rights of any
Initial Purchaser hereunder, the Company shall obtain the written consent of
each such Initial Purchaser against which such amendment, qualification,
supplement, waiver or consent is to be effective; provided, further, that no amendment, qualification,
supplement, waiver or consent with respect to Section 7 hereof shall be
effective as against any Holder of Registered Securities unless consented to in
writing by such Holder; and provided,
further, that the provisions of this Article 9 may not be
amended, qualified, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company has
obtained the written consent of the Initial Purchasers and each Holder.


 


10.                                 Notices.    All notices,
requests and other communications provided for or permitted hereunder shall be
made in writing by hand-delivery, first-class mail, telex, facsimile or air
courier guaranteeing overnight delivery:


 


(a)                                  if to a Holder, at the most current
address given by such holder to the Company in accordance with the provisions
of the Notice and Questionnaire, which address initially is, with respect to
each Holder, the address of such Holder maintained by the Registrar under the
Indenture;


 


(b)                                 if to the Initial Purchasers or the
Representatives, initially at the address or addresses set forth in the
Purchase Agreement; and


 


(c)                                  if to the Company, initially at its
address set forth in the Purchase Agreement.


 


All such notices and
communications shall be deemed to have been duly given on the earliest of
(i) at the time delivered, if delivered by hand-delivery; (ii) three
business days after being deposited in the mail, postage prepaid, if mailed by
first-class mail; (iii) when receipt is acknowledged and confirmed as sent
by sender’s telex or facsimile machine, if sent by telex or facsimile
transmission; and (iv) on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.


 


The Initial Purchasers or
the Company by notice to the other parties may designate additional or
different addresses for subsequent notices or communications.


 


11.                                 Remedies.    Each party, in
addition to being entitled to exercise all rights provided to it herein, in the
Indenture or in the Purchase Agreement or granted by law, including recovery of


 


12

















 


liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. Each party agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive in any action for specific performance the defense that a remedy at
law would be adequate.


 


12.                                 Successors.    This Agreement
shall inure to the benefit of and be binding upon the parties hereto, their
respective successors and assigns, including, without the need for an express
assignment or any consent by the Company thereto, subsequent Holders of Registrable
Securities, and the indemnified persons referred to in Section 5 hereof.
The Company hereby agrees to extend the benefits of this Agreement to any
Holder of Registrable Securities, and any such Holder may specifically enforce
the provisions of this Agreement as if an original party hereto.


 


13.                                 Counterparts.    This Agreement
may be signed in one or more counterparts, each of which shall constitute an
original and all of which together shall constitute one and the same agreement.


 


14.                                 Headings.    The
section headings used herein are for convenience only and shall not affect
the construction hereof.


 


15.                                 Applicable Law.    This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and to be performed in the State of New
York. The parties hereto each hereby waive any right to trial by jury in any
action, proceeding or counterclaim arising out of or relating to this
Agreement.


 


16.                                 Severability.    In the event that
any one of more of the provisions contained herein, or the application thereof
in any circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be in
any way impaired or affected thereby, it being intended that all of the rights
and privileges of the parties shall be enforceable to the fullest extent
permitted by law.


 


17.                                 Securities Held by the
Company, etc.    Whenever
the consent or approval of Holders of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its Affiliates (other
than subsequent Holders of Securities if such subsequent Holders are deemed to
be Affiliates solely by reason of their holdings of such Registrable
Securities) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.


 


13

















 


If the foregoing is in
accordance with your understanding of our agreement, please sign and return to
us the enclosed duplicate hereof, whereupon this letter and your acceptance
shall represent a binding agreement between the Company and the several Initial
Purchasers.


 


	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  Pixelworks, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  JEFFREY
  BOUCHARD

  	
   

  
	
   

  	
   

  	
  Name: Jeffrey
  Bouchard

  Title: Chief Financial Officer, Vice

  President-Finance, and Secretary

  
	
   

  	
   

  	
   

  
	
  The foregoing
  Agreement is hereby confirmed

  and accepted as of the date first above written.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Citigroup Global
  Markets Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/  RICHARD
  GALLIVAN

  	
   

  	
   

  
	
   

  	
  Name: Richard
  Gallivan

  Title: Managing Director

  	
   

  
	
   

  	
   

  
	
  For itself and
  the other several Initial

  Purchasers named in Schedule I to the

  Purchase Agreement.

  	
   

  
						



 


14