Exhibit
10.1


 


SECURITIES
PURCHASE AGREEMENT


 


 


This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as
of August 19, 2004, is by and between NeoMagic Corporation, a Delaware
corporation (the “Company”), and each of the entities whose names appear
on the signature pages hereof. Such entities are each referred to herein as an
“Investor” and, collectively, as the “Investors”.


 


A.                                   The Company wishes to sell to each Investor,
and each Investor wishes to purchase, on the terms and subject to the
conditions set forth in this Agreement, (A) shares (the “Series B Preferred
Shares” or “Preferred Shares”) of the Company’s Series B Convertible
Preferred Stock (the “Series B Preferred Stock” or “Preferred Stock”)
having the rights and privileges set forth in the form of Certificate of
Designations, Preferences and Rights attached hereto as Exhibit A (the “Certificate
of Designation” or “Certificate”), (B) a Warrant in the form
attached hereto as Exhibit B (each, a “Series A Warrant” and,
collectively, the “Series A Warrants”) and (C) a Warrant in the form
attached hereto as Exhibit C (each, a “Series B Warrant” and,
collectively, the “Series B Warrants”). 
The Series A Warrants and the Series B Warrants are collectively
referred to herein as the “Warrants”.


 


B.                                     The Series A Warrants issued to an Investor
will entitle such Investor to purchase a number of shares of Common Stock equal
to such Investor’s Pro Rata Share (as defined below) of 1,608,696 shares. The
Series A Warrants will be exercisable commencing on the Closing Date, have an
exercise price per share equal to $1.64 (subject to adjustment as provided therein), and expire on the date
that is the fifth (5th) anniversary of the Closing Date (as defined
below). The Series B Warrants issued to an Investor will entitle such Investor
to purchase a number of shares of Common Stock equal to such Investor’s Pro
Rata Share of 1,000,000 shares.  The
Series B Warrants will have an exercise price per share equal to $1.60 (subject
to adjustment as provided therein) and will expire on the ninetieth (90th)
day following the Effective Date (as defined below).


 


C.                                     The shares of Common Stock into which the
shares of Preferred Stock are convertible are referred to herein as the “Conversion
Shares” and the shares of Common Stock into which the Warrants are
exercisable are referred to herein as the “Warrant Shares”. The
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
are collectively referred to herein as the “Securities”.


 


D.                                    The Company has agreed to effect the
registration of the Conversion Shares and the Warrant Shares under the
Securities Act of 1933, as amended (the “Securities Act”), pursuant to a
Registration Rights Agreement in the form attached hereto as Exhibit D
(the “Registration Rights Agreement”). 
The sale of the Preferred Shares and the Warrants by the Company to the
Investors will be effected in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D (“Regulation D”),
as promulgated by the Securities and Exchange Commission (the “Commission”)
under the Securities Act.


 


In consideration of the mutual promises made herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each Investor hereby agree as follows:


 

















 


1.                                       PURCHASE AND SALE OF  PREFERRED SHARES AND WARRANTS.


 


1.1                                 Closing.  Upon the terms and subject to
the satisfaction or waiver of the conditions set forth herein, the Company
agrees to sell and each Investor agrees to purchase for the Purchase Price (as
defined below) (i) the number of Series B Preferred Shares set forth below such
Investor’s name on the signature pages hereof, (ii) a Series A Warrant, and
(iii) a Series B Warrant. The closing of the purchase and sale of the Series B
Preferred Shares and the Warrants (the “Closing”) will be deemed to
occur at the offices of Duval & Stachenfeld, LLP, 300 East 42nd
Street, New York, New York 10017, when (A) this Agreement and the other
Transaction Documents (as defined below) have been executed and delivered by
the Company and, to the extent applicable, by each Investor, (B) each of the
conditions to the Closing described in Sections 5.1 and 5.2 hereof has been
satisfied or waived by the Company or each Investor, as appropriate, and (C)
each Investor shall have delivered the Purchase Price payable by it to the
Company by wire transfer of immediately available funds against physical
delivery of duly executed certificates representing the Series B Preferred
Shares and Warrants being purchased by such Investor. The date on which the
Closing occurs is referred to herein as the “Closing Date”.


 


1.2                                 Certain Definitions. 
When used herein, the following terms shall have the respective meanings
indicated:


 


“Affiliate” means, as to any Person (the “subject Person”),
any other Person (a) that directly or indirectly through one or more
intermediaries controls or is controlled by, or is under direct or indirect
common control with, the subject Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
equity of the subject Person, or (c) ten percent (10%) or more of the
voting equity of which is directly or indirectly beneficially owned or held by
the subject Person. For the purposes of this definition, “control” when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, through representation on such Person’s board of
directors or other management committee or group, by contract or otherwise.


 


“Board of Directors” means the Company’s board of directors.


 


“Business Day” means any day other than a Saturday, a Sunday or
a day on which the New York Stock Exchange or commercial banks located in New
York City are authorized or permitted by law to close.


 


“Certificate of Designation” has the meaning specified in the
preamble to this Agreement.


 


“Closing Bid Price” shall mean, for the Common Stock as of any
date, the closing bid price on such date for the Common Stock on the Principal
Market as reported by Bloomberg Financial Markets (“Bloomberg”), or if
the Principal Market begins to operate on an extended hours basis, and does not
designate the closing bid price, then the last bid price at 4:00 p.m. (eastern
time), as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid


 


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price of the Common Stock in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last closing
trade price for such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the “pink sheets”
by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Closing Bid Price cannot be calculated for the Common Stock on such date on any
of the foregoing bases, then the Company shall submit such calculation to an
independent investment banking firm of national reputation reasonably
acceptable to the Holder, and shall cause such investment banking firm to
perform such determination and notify the Company and the Holder of the results
of determination no later than two (2) Business Days from the time such
calculation was submitted to it by the Company.  All such determinations shall be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.


 


“Closing Date” has the meaning specified in Section 1.1 hereof.


 


“Common Stock” means the common stock, par value $0.001 per
share, of the Company.


 


“Conversion Price” has the meaning specified in the Certificate
of Designation.


 


“Current Violation” has the meaning specified in Section 3.7
hereof.


 


“Debt” means, as to any Person at any time: (a) all
indebtedness, liabilities and obligations of such Person for borrowed money;
(b) all indebtedness, liabilities and obligations of such Person to pay the
deferred purchase price of Property or services, except trade accounts payable
of such Person arising in the ordinary course of business that are not past due
by more than 90 days; (c) all capital lease obligations of such Person; (d) all
indebtedness, liabilities and obligations of others guaranteed by such Person;
(e) all indebtedness, liabilities and obligations secured by a Lien existing on
Property owned by such Person, whether or not the indebtedness, liabilities or
obligations secured thereby have been assumed by such Person or are
non-recourse to such Person; (f) all reimbursement obligations of such Person
(whether contingent or otherwise) in respect of letters of credit, bankers’
acceptances, surety or other bonds and similar instruments; and (g) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of capital stock of such Person.


 


“Disclosure Documents” means all SEC Documents filed by the Company
at least two (2) Business Days prior to the date of this Agreement via the
Commission’s Electronic Data Gathering, Analysis and Retrieval system (EDGAR)
in accordance with the requirements of Regulation S-T under the Exchange Act.


 


“Effective Date” has the meaning set forth in the Registration
Rights Agreement.


 


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“Environmental Law” means any applicable federal, state,
provincial, local or foreign law, statute, code or ordinance, principle of
common law, rule or regulation, as well as any Permit, order, decree, judgment
or injunction issued, promulgated, approved or entered thereunder, relating to
pollution or the protection, cleanup or restoration of the environment or
natural resources, or to the public health or safety, or otherwise governing
the generation, use, handling, collection, treatment, storage, transportation,
recovery, recycling, discharge or disposal of hazardous materials.


 


“ERISA” means the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder.


 


“Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.


 


“Execution Date” means August 19, 2004.


 


“GAAP” means generally accepted accounting principles, applied
on a consistent basis, as set forth in (i) opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
(ii) statements of the Financial Accounting Standards Board and (iii) interpretations
of the Commission and the Staff of the Commission. Accounting principles are
applied on a “consistent basis” when the accounting principles applied in a
current period are comparable in all material respects to those accounting
principles applied in a preceding period.


 


“Governmental Authority” means any nation or government, any
state, provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including without limitation any stock exchange,
securities market or self-regulatory organization.


 


“Governmental Requirement” means any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
license or other directive or requirement of any federal, state, county,
municipal, parish, provincial or other Governmental Authority or any
department, commission, board, court, agency or any other instrumentality of
any of them.


 


“Intellectual Property” means any U.S. or foreign patents,
patent rights, patent applications, trademarks, trade names, service marks,
brand names, logos and other trade designations (including unregistered names
and marks), trademark and service mark registrations and applications, copyrights
and copyright registrations and applications, inventions, invention
disclosures, protected formulae, formulations, processes, methods, trade
secrets, computer software, computer programs and source codes, manufacturing
research and similar technical information, engineering know-how, customer and
supplier information, assembly and test data drawings or royalty rights.


 


“Key Employees” means (i) Prakash C. Agarwal, Sanjay Adkar,
Scott Sullinger, Ernest Lin and Mark Singer, and (ii) each other person from
time to time serving as an executive officer (as defined in Rule 501(f) of the
Securities Act) of the Company.


 


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“Lien” means, with respect to any Property, any mortgage or
mortgages, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, or other lien, charge,
easement, encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).


 


“Market Price” means, as of a particular date, the average
Closing Bid Price for the Common Stock during the period of five (5)
consecutive Trading Days occurring immediately prior to (but not including)
such date.


 


“Material Adverse Effect” means an effect that is material and
adverse to (i) the consolidated business, operations, properties, financial
condition, prospects or results of operations of the Company and the
Subsidiaries taken as a whole or (ii) the transactions contemplated by the
Certificate, this Agreement or the other Transaction Documents.


 


“Material Contracts” means, as to the Company, any agreement
required pursuant to Item 601 of Regulation S-B or Item 601, as applicable, of
Regulation S-K under the Securities Act to be filed as an exhibit to any
report, schedule, registration statement or definitive proxy statement filed or
required to be filed by the Company with the Commission under the Exchange Act
or any rule or regulation promulgated thereunder, and any and all amendments,
modifications, supplements, renewals or restatements thereof.


 


“NASD” means the National Association of Securities Dealers,
Inc.


 


“Outstanding Registrable Securities” means, at any time, all
Registrable Securities that at such time are either issued and outstanding or
issuable upon conversion of the Preferred Stock or exercise of the Warrants
(without regard to any limitation on such conversion or exercise).


 


“Pension Plan” means an employee benefit plan (as defined in
ERISA) maintained by the Company for employees of the Company or any of its
Affiliates.


 


“Permitted Liens” means the following:


 


(a)                                  encumbrances consisting of easements,
rights-of-way, zoning restrictions or other restrictions on the use of real
Property or imperfections to title that do not (individually or in the
aggregate) materially impair the ability of the Company or any of the
Subsidiaries to use such Property in its businesses, and none of which is
violated in any material respect by existing or proposed structures or land
use;


 


(b)                                 Liens for taxes, assessments or other
governmental charges that are not delinquent or which are being contested in
good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such Liens, and
for which adequate reserves (as determined in accordance with GAAP) have been
established; and


 


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(c)                                  Liens of mechanics, materialmen,
warehousemen, carriers, landlords or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary course of
business or which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, for which adequate reserves (as determined in
accordance with GAAP) have been established.


 


“Person” means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.


 


“Principal Market” means the principal exchange or market on
which the Common Stock is listed or traded.


 


“Property” means property and/or assets of all kinds, whether
real, personal or mixed, tangible or intangible (including, without limitation,
all rights relating thereto).


 


“Pro Rata Share” means, with respect to an Investor, the ratio
determined by dividing (i) the number of Preferred Shares purchased hereunder
by such Investor by (ii) the aggregate number of Preferred Shares purchased
hereunder by all of the Investors.


 


“Purchase Price” means the Stated Value of the Preferred Shares
being purchased by an Investor.


 


“Registrable Securities” means the Conversion Shares and the
Warrant Shares, any other shares of Common Stock issuable pursuant to the terms
of the Certificate of Designation or the Warrants, and any shares of capital
stock issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of the Conversion
Shares or the Warrant Shares; provided, however, that
“Registrable Securities” shall not include any such shares that have been sold
to the public pursuant to the Registration Statement or Rule 144.


 


“Registration Statement” has the meaning set forth in the
Registration Rights Agreement.


 


“Rights Agreement” means the Preferred Stock Rights Agreement,
dated as of December 19, 2002, between the Company and EquiServe Trust
Company, N.A.


 


“Rule 144” means Rule 144 under the Securities Act, or any
successor provision.


 


“SEC Documents” has the meaning specified in Section 3.4 hereof.


 


“Securities” has the meaning specified in the preamble to this
Agreement.


 


“Stated Value” means $1,000, subject to adjustment in the event
of a stock split or similar event.


 


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“Subsidiary” means, with respect to the Company, any corporation
or other entity (other than an entity having no material operations or business
during the twelve month period immediately preceding the Execution Date) of
which at least a majority of the outstanding shares of stock or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors (or Persons performing similar functions) of such
corporation or entity (regardless of whether, in the case of a corporation,
stock of any other class or classes of such corporation shall or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by the Company and/or one or more
of its Affiliates.


 


“Termination Date” means the first date on which there are no
Preferred Shares or Warrants outstanding.


 


“Trading Day” means any day on which the Common Stock is
purchased and sold on the Principal Market.


 


“Transaction Documents” means (i) this Agreement, (ii) the
Series A Warrants, (iii) the Series B Warrants, (iv) the Registration Rights
Agreement, and (v) all other agreements, documents and other instruments
executed and delivered by or on behalf of the Company or any of its officers at
the Closing.


 


1.3                                 Other Definitional Provisions.  All
definitions contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. 
The words “hereof”, “herein” and “hereunder” and words of similar import
referring to this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement.


 


2.                                       REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.


 


Each Investor hereby represents and warrants to the Company and agrees
with the Company that, as of the Execution Date and as of the Closing Date:


 


2.1                                 Authorization; Enforceability. 
Such Investor is duly and validly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization as set forth below such Investor’s name on the signature page
hereof with the requisite corporate power and authority to purchase the
Securities being purchased by it and to execute and deliver this Agreement and
the other Transaction Documents.  This
Agreement constitutes, and upon execution and delivery thereof, each other
Transaction Document to which such Investor is a party will constitute, such
Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws of general application relating to or affecting the enforcement of
creditors’ rights generally and (ii) general principles of equity.


 


2.2                                 Accredited Investor.  Such
Investor is an “accredited investor” as that term is defined in Rule 501 of
Regulation D; (ii) is acquiring the Securities solely for its own account, and
not with a present view to the public resale or distribution of all or any part
thereof, except pursuant to sales that are registered under the Securities Act
or are exempt from the registration requirements of the Securities Act; provided,
however, that, in making such representation, such Investor does not
agree to


 


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hold the Securities for any minimum or specific term and reserves the
right to sell, transfer or otherwise dispose of the Securities at any time in
accordance with the provisions of this Agreement and with Federal and state
securities laws applicable to such sale, transfer or disposition.


 


2.3                                 Information.  The Company has provided such
Investor with information regarding the business, operations and financial
condition of the Company, and has granted to such Investor the opportunity to
ask questions of and receive satisfactory answers from representatives of the
Company, its officers, directors, employees and agents concerning the Company
and materials relating to the terms and conditions of the purchase and sale of
the Securities hereunder, and based thereon believes it can make an informed
decision with respect to its investment in the Securities. Neither such
information nor any other investigation conducted by such Investor or its
representatives shall modify, amend or otherwise affect such Investor’s right
to rely on the Company’s representations and warranties contained in this
Agreement.  The foregoing shall not be
interpreted to mean that the Company has provided to any Investor any material
nonpublic information of or relating to the Company.


 


2.4                                 Limitations on Disposition. 
Such Investor acknowledges that, except as provided in the Registration
Rights Agreement, the Securities have not been and are not being registered
under the Securities Act and may not be transferred or resold without
registration under the Securities Act or unless pursuant to an exemption
therefrom.


 


2.5                                 Legend.  Such Investor understands
that the certificates representing the Securities may bear at issuance a
restrictive legend in substantially the following form:


 


“The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the “Securities Act”),
or the securities laws of any state, and may not be offered or sold unless a
registration statement under the Securities Act and applicable state securities
laws shall have become effective with regard thereto, or an exemption from
registration under the Securities Act and applicable state securities laws is
available in connection with such offer or sale.”


 


Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement and
the holder represents in writing to the Company that such Securities have been
or will be sold pursuant to such registration statement, (B) such Securities
have been sold pursuant to Rule 144, subject to receipt by the Company of
customary documentation in connection therewith, or (C) such Securities are
eligible for resale under Rule 144(k) or any successor provision and the holder
thereof represents in writing to the Company that it is eligible to use such
rule for public resales of such Securities, the certificates representing such
Securities shall be issued without any legend or other restrictive language
and, with respect to Securities upon which such legend is stamped, the Company
shall issue new certificates without such legend to the holder upon request.


 


2.6                                 Reliance on Exemptions. 
Such Investor understands that the Securities are being offered and sold
to it in reliance upon specific exemptions from the registration requirements
of federal and state securities laws and that the Company is relying on the
truth and accuracy of the


 


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representations and warranties of such Investor set forth in this
Section 2 in order to determine the availability of such exemptions and the
eligibility of such Investor to acquire the Securities.


 


2.7                                 Non-Affiliate Status; Common Stock Ownership. 
Such Investor is not an Affiliate of the Company or of any other
Investor and is not acting in association or concert with any other Person with
regard to its purchase of Preferred Shares and Warrants or otherwise in respect
of the Company.  Such Investor’s
investment in the Securities is not for the purpose of acquiring, directly or
indirectly, control of, and it has no intent to acquire or exercise control of,
the Company or to influence the decisions or policies of the Board of
Directors.


 


2.8                                 No Short Position in Company Securities. 
Neither such Investor nor any person trading on its behalf or at its
direction has established or maintained a short position in the Common Stock or
any other securities of the Company at any time during the period of fifteen
(15) Trading Days immediately preceding the Execution Date.


 


3.                                       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.                                              The Company hereby represents and warrants to
each Investor and agrees with such Investor that, except as expressly set forth
on the disclosure schedules to this Agreement, as of the Execution Date and
(except as otherwise expressly set forth below) as of the Closing Date:


 


3.1                                 Organization, Good Standing and Qualification. 
Each of the Company and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to
carry on its business as now conducted. 
Each of the Company and the Subsidiaries is duly qualified to transact
business and is in good standing in each jurisdiction in which it conducts
business except where the failure so to qualify has not had or would not
reasonably be expected to have a Material Adverse Effect.


 


3.2                                 Authorization; Consents.


 


3.2.1                        The Company has the requisite corporate power
and authority to adopt and file the Certificate of Designation and perform its
obligations thereunder, to enter into and perform its obligations under this
Agreement and the other Transaction Documents, including without limitation its
obligations to issue and sell the Preferred Shares and Warrants to such
Investor in accordance with the terms thereof and to issue Conversion Shares
and Warrant Shares upon conversion of the Preferred Shares or exercise of the
Warrants, as the case may be.  Except as
expressly set forth below, all corporate action on the part of the Company by
its officers, directors and stockholders necessary for the authorization, execution
and delivery of, and the performance by the Company of its obligations under,
the Certificate of Designation, this Agreement and the other Transaction
Documents has been taken and no further consent or authorization of the
Company, its Board of Directors, stockholders, any Governmental Authority or
organization, or any other person or entity is required (pursuant to any rule
of the Nasdaq National Market or otherwise) other than such approval as may be
required under the Securities Act and applicable state securities laws in
respect of the Registration Rights Agreement.


 


3.2.2                        The Board of Directors has determined, at a
duly convened meeting or pursuant to a unanimous written consent, that the
issuance and sale of the Securities, and the consummation of the transactions
contemplated by the Certificate of Designation, this Agreement


 


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and the other Transaction Documents (including without limitation the
issuance of the Conversion Shares and the Warrant Shares), are in the best
interests of the Company.


 


3.3                                 Due Execution; Enforceability. 
This Agreement has been and, at or prior to the  Closing, each other Transaction Document
executed and/or delivered thereat will be, duly executed and delivered by the
Company.  Each Transaction Document constitutes
(or as of the Closing will constitute) the valid and legally binding obligation
of the Company, enforceable against it in accordance with its terms, subject to
(i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity.


 


3.4                                 SEC Documents; Agreements; Financial
Statements; Other Information.  The Company has filed with the Commission
all reports, schedules, registration statements and definitive proxy statements
that the Company was required to file with the Commission on or after January
26, 2003 (collectively, the “SEC Documents”).  The Company is not aware of any event occurring on or prior to
the Closing Date (other than the transactions effected hereby) that would
require the filing of, or with respect to which the Company intends to file, a
Form 8-K after the Closing. Each SEC Document, as of the date of the filing
thereof with the Commission, complied in all material respects with the
requirements of the Securities Act or Exchange Act, as applicable, and the
rules and regulations promulgated thereunder and, as of the date of such filing
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing), such SEC Document (including all exhibits and
schedules thereto and documents incorporated by reference therein) did not
contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
documents required to be filed as exhibits to the SEC Documents have been filed
as required. Except as set forth in the Disclosure Documents, the Company has
no liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which, under GAAP, are not required to be reflected
in the financial statements included in the SEC Documents and which,
individually or in the aggregate, are not material to the consolidated business
or financial condition of the Company and the Subsidiaries taken as a whole.
The financial statements included in the SEC Documents have been prepared in
accordance with GAAP consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end adjustments).


 


3.5                                 Capitalization; Debt Schedule.  The
capitalization of the Company as of the Execution Date, including its
authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company’s
stock option plans and agreements, the number of shares issuable and reserved
for issuance pursuant to securities (other than the Securities) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion of the
Series B Preferred Shares and exercise of the Warrants is set forth on Schedule
3.5 hereto.  All issued and
outstanding shares of capital stock of the Company have been validly issued,
fully paid and non-assessable, and all shares of capital stock issued by
any Subsidiary have been validly issued, fully paid and non-assessable,


 


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free and clear of all Liens other than Permitted Liens. No shares of
the capital stock of the Company are subject to preemptive rights or any other
similar rights of security holders of the Company or any Liens created by or
through the Company.  Except as set
forth or Schedule 3.5, there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company or any of the Subsidiaries (whether pursuant to
anti-dilution, “reset” or other similar provisions). Except as described on Schedule
3.5 hereto, neither the Company nor any of the Subsidiaries has any
material Debt outstanding as of the date hereof.


 


3.6                                 Due Authorization; Valid Issuance.  The
shares of Preferred Stock are duly authorized and, when issued, sold and
delivered in accordance with the terms hereof, (i) will be duly and validly
issued, free and clear of any Liens imposed by or through the Company, (ii)
assuming the accuracy of each Investor’s representations in this Agreement,
will be issued, sold and delivered in compliance with all applicable Federal
and state securities laws and (iii) will be entitled to all rights, preferences
and privileges described in the Certificate of Designation. The Series A
Warrants, the Series B Warrants, the Conversion Shares issuable with respect to
the Series B Preferred Shares and the Warrant Shares issuable with respect to
the Series A Warrants and the Series B Warrants are duly authorized and, when
issued, sold and delivered in accordance with the terms of this Agreement, the
Series B Certificate the Series A Warrants or the Series B Warrants, as the
case may be, will be duly and validly issued, fully paid and non-assessable,
free and clear of any Liens imposed by or through the Company and, assuming the
accuracy of each Investor’s representations in this Agreement, will be issued,
sold and delivered in compliance with all applicable Federal and state
securities laws.


 


3.7                                 No Conflict with Other Instruments. 
Neither the Company nor any of the Subsidiaries is in violation of any
provisions of its charter, bylaws or any other governing document or in default
(and no event has occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of any instrument or contract to
which it is a party or by which it or any of its Property is bound, or in
violation of any provision of any Governmental Requirement applicable to it,
except for any default under any such instrument or contract or any violation of
any provision of a Governmental Requirement that, in either such case, has not
had or would not reasonably be expected to have a Material Adverse Effect (any
such violation or default being referred to herein as a “Current Violation”).  The (i) execution, delivery and performance
of this Agreement and the other Transaction Documents, (ii) filing of and
performance of its obligations under the Certificate of Designation, and (iii)
consummation of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Preferred Stock and the Warrants and the
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares) will not result in a Current Violation or in the creation of any Lien
upon any assets of the Company or of any of the Subsidiaries or the triggering
of any preemptive or anti-dilution rights (including without limitation
pursuant to any “reset” or similar provisions) or rights of first refusal or
first offer, or any other rights that would allow or permit the holders of the
Company’s securities or other Persons to purchase shares of Common Stock or
other securities of the Company (whether pursuant to the Rights Agreement or
otherwise).


 


11

















 


3.8                                 Financial Condition; Taxes; Litigation.


 


3.8.1  The Company’s financial
condition is, in all material respects, as described in the Disclosure
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and the
Subsidiaries taken as a whole. There has occurred no (i) material adverse
change to the Company’s business, operations, properties, financial condition,
or results of operations since the date of the Company’s most recent audited
financial statements contained in the Disclosure Documents or (ii) change by
the Company in its accounting principles, policies and methods except as
required by changes in GAAP or applicable law.


 


3.8.2  Each of the Company and
the Subsidiaries (i) has prepared in good faith and duly and timely filed all
tax returns required to be filed by it and such returns are complete and
accurate in all material respects and (ii) has paid all taxes required to have
been paid by it, except for taxes which it reasonably disputes in good faith or
the failure of which to pay has not had or would not reasonably be expected to
have a Material Adverse Effect, and has no liability with respect to accrued
taxes in excess of the amounts that are described as accrued in the most recent
financial statements included in the Disclosure Documents.


 


3.8.3  Except as described in Schedule
3.8.3, neither the Company nor any of the Subsidiaries is the subject of
any pending or, to the Company’s knowledge, threatened inquiry, investigation
or administrative or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction (other than with respect
to taxes which it reasonably disputes in good faith or the failure of which to
pay has not had or would not reasonably be expected to have a Material Adverse
Effect), the Commission, the NASD, any state securities commission or other
Governmental Authority.


 


3.8.4  Except as described in Schedule
3.8.4, there is no material claim, litigation or administrative proceeding
pending or, to the Company’s knowledge, threatened or contemplated, against the
Company or any of the Subsidiaries, or, to the Company’s knowledge, against any
officer, director or employee of the Company or any such Subsidiary in
connection with such person’s employment therewith.  Neither the Company nor any of the Subsidiaries is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree
of any court or Governmental Authority which has had or would reasonably be
expected to have a Material Adverse Effect.


 


3.9                                 Form S-3.  The Company is eligible to
register the Registrable Securities for resale by each Investor on a
registration statement on Form S-3 under the Securities Act. To the Company’s
knowledge, there exist no facts or circumstances (including without limitation
any required approvals or waivers of any circumstances that may delay or
prevent the obtaining of accountant’s consents) that could reasonably be
expected to prohibit or delay the preparation, filing or effectiveness of such
registration statement.


 


3.10                           Acknowledgement of Dilution.  The
Company acknowledges that the issuance of the Conversion Shares upon conversion
of the Preferred Shares and issuance of Warrant Shares upon exercise of the
Warrants may result in dilution of the outstanding shares of Common Stock. The
Company further acknowledges that its obligation to issue Conversion Shares and
Warrant Shares in


 


12

















 


accordance with the terms of the Certificate of Designation and
Warrants, respectively, is unconditional regardless of the effect of any such
dilution.


 


3.11                           Intellectual Property.  Except
as set forth in Schedule 3.11:


 


(a)                                  The
Company owns, free and clear of claims or rights or any other Person, with full
right to use, sell, license, sublicense, dispose of, and bring actions for
infringement of, or has acquired licenses or other rights to use, all Intellectual
Property necessary for the conduct of its business as presently conducted
(other than with respect to “off-the-shelf” software which is generally
commercially available and open source software which may be subject to one or
more “general public” licenses).  All
Intellectual Property that is used or incorporated into the Company’s services,
products or services or products actively under development and which is
proprietary to the Company was developed by or for the Company by the current
or former employees, consultants or independent contractors of the Company or
its predecessors in interest or purchased by the Company or its predecessors in
interest and are owned by the Company, free and clear of claims and rights of
any other Person.


 


(b)                                 The
business of the Company as presently conducted and the production, marketing,
licensing, use and servicing of any products or services of the Company do not
infringe or conflict with any patent, trademark, copyright, or trade secret
rights of any third parties or any other Intellectual Property of any third
parties.  The Company has not received
written notice from any third party asserting that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company and, to the Company’s
knowledge, there is no valid basis for any such claim (whether or not pending
or threatened).


 


(c)                                  No
claim is pending or, to the Company’s knowledge, threatened against the Company
nor has the Company received any written notice or other written claim from any
Person asserting that any of the Company’s present or contemplated activities
infringe or may infringe in any material respect any Intellectual Property of
such Person and the Company is not aware of any infringement by any other
Person of any material rights of the Company under any Intellectual Property
Rights.


 


(d)                                 All
licenses or other agreements under which the Company is granted Intellectual
Property (excluding licenses to use “off-the-shelf” software utilized in the
Company’s internal operations and which is generally commercially available)
are listed in Schedule 3.11.  All
such licenses or other agreements are in full force and effect and, to the
Company’s knowledge, there is no material default by any party thereto.  The Company has no reason to believe that
the licensors under such licenses and other agreements do not have and did not
have all requisite power and authority to grant the rights to the Intellectual
Property purported to be granted thereby.


 


(e)                                  All
licenses or other agreements under which the Company has granted rights to
Intellectual Property to others (including all end-user agreements) are in full
force and effect, there has been no material default thereunder and, to the
Company’s knowledge, there is no material default by any party thereto.


 


13

















 


(f)                                    The
Company has taken all steps required in accordance with commercially reasonable
business practice to establish and preserve its ownership in its owned
Intellectual Property and to keep confidential all material technical
information developed by or belonging to the Company which has not been
patented or copyrighted.  The Company is
not making unlawful use of any Intellectual Property of any other Person,
including, without limitation, any former employer of any past or present
employees of the Company.  Neither the
Company nor any of its employees or consultants has any agreements or
arrangements with former employers of such employees or consultants relating to
any Intellectual Property of such employers, which materially interfere or
conflict with the performance of such employee’s or consultant’s duties for the
Company or result in any former employers of such employees and consultants
having any rights in, or claims on, the Company’s Intellectual Property.  To the Company’s knowledge, the activities
of the Company’s employees and consultants do not violate any agreements or arrangements
which any such employees have with former employers.  Each current or former employee, independent contractor or
consultant of the Company has executed agreements regarding confidentiality,
proprietary information and assignment of inventions and copyrights to the
Company, and the Company has not received written notice that any employee,
consultant or independent contractor is in violation of any agreement or in
breach of any agreement or arrangement with former or present employers
relating to proprietary information or assignment of inventions.  Each employee listed in Schedule 3.11
has executed a non-competition agreement. 
Without limiting the foregoing: (i) the Company has taken reasonable
security measures to guard against unauthorized disclosure or use of any of its
Intellectual Property; and (ii) the Company has no reason to believe that any
Person (including, without limitation, any former employee or consultant of the
Company) has unauthorized possession of any of its Intellectual Property, or
any part thereof, or that any Person has obtained unauthorized access to any of
its Intellectual Property.  The consummation of the transactions
contemplated by the Certificate, this Agreement and the other Transaction
Documents will not materially alter or impair, individually or in the aggregate,
any of such rights of the Company. The Company and the Subsidiaries each has
complied in all material respects with its obligations pursuant to all
agreements relating to Intellectual Property rights that are the subject of
licenses granted by third parties, except for any non-compliance that has
not had or would not reasonably be expected to have a Material Adverse Effect.


 


3.12                           Registration Rights. 
Except as described on Schedule 3.12 hereto, the Company has not
granted or agreed to grant to any person or entity any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has
not been satisfied in full prior to the date hereof.


 


3.13                           Fees.  Except as set forth on Schedule
3.13, the Company is not obligated to pay any compensation or other fee,
cost or related expenditure to any underwriter, broker, agent or other
representative in connection with the transactions contemplated hereby. The
Company will indemnify and hold harmless each Investor from and against any
claim by any person or entity alleging that, as a result of any agreement or
arrangement between such Person and the Company, such Investor is obligated to
pay any such compensation, fee, cost or related expenditure in connection with
the transactions contemplated hereby.


 


3.14                           Foreign Corrupt Practices. 
Neither the Company, nor to the Company’s knowledge any of the
Subsidiaries nor to the Company’s knowledge any director, officer, agent,
employee or other


 


14

















 


person acting on behalf of the Company or any Subsidiary, has (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity, (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee (including without limitation any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment), or (iii) violated any provision
of the Foreign Corrupt Practices Act of 1977, as amended.


 


3.15                           Key Employees. Each Key Employee named in the SEC
Documents is currently serving in the capacity described therein.   The Company has no knowledge of any fact or
circumstance (including without limitation (i) the terms of any agreement to
which such person is a party or any litigation in which such person is or may
become involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that
would limit or prevent any such person from serving in such capacity on a
full-time basis in the foreseeable future, or of any intention on the part of
any such person to limit or terminate his or her employment with the
Company.  Except as set forth on Schedule
3.15, no Key Employee has borrowed money pursuant to a currently
outstanding loan that is secured by Common Stock or any right or option to
receive Common Stock.


 


3.16                           Employee Matters. 
There is no strike, labor dispute or union organization activities
pending or, to the knowledge of the Company, threatened between it and its
employees (or between any of the Subsidiaries and such Subsidiary’s
employees).  No employees of the Company
belong to any union or collective bargaining unit. The Company has complied in
all material respects with all applicable federal and state equal opportunity
and other laws related to employment.


 


3.17                           Environment. To the Company’s knowledge, neither the Company nor any of the Subsidiaries
has any current liability under any Environmental Law, nor, to the knowledge of
the Company, do any factors exist that are reasonably likely to give rise to
any such liability that, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect. To the Company’s
knowledge, neither the Company nor any of the Subsidiaries has violated any
Environmental Law applicable to it now or previously in effect, other than such
violations or infringements that, individually or in the aggregate, have not
had and would not reasonably be expected to have a Material Adverse Effect.


 


3.18                           ERISA.  Except as described on Schedule
3.18, neither the Company nor any of the Subsidiaries maintains or
contributes to, or has any obligation under, any Pension Plan. The Company and
each of the Subsidiaries is in compliance in all material respects with the
presently applicable provisions of ERISA and the United States Internal Revenue
Code of 1986, as amended, except for matters that, individually or in the
aggregate, have not had, and would not reasonably be expected to have, a
Material Adverse Effect.


 


3.19                           Disclosure.  To the Company’s knowledge,
no written statement, information, report, representation or warranty made by
the Company in this Agreement or any other Transaction Document or furnished to
such Investor by or on behalf of the Company or any of the Subsidiaries in
connection with the Closing or such Investor’s due diligence investigation of
the Company contains any untrue statement of a material fact or omits to state
any material fact necessary to make the statements herein or therein, in light
of the circumstances in which made, not misleading. Neither the Company nor any
Person acting on its behalf or at its direction has provided such


 


15

















 


Investor with material non-public information. Following the issuance
of the press release in accordance with Section 4.1(c) hereof, to the Company’s
knowledge, such Investor will not possess any material non-public information
concerning the Company.  The Company
acknowledges that such Investor is relying on the representations,
acknowledgements and agreements made by the Company in this Section 3.19 and
elsewhere in this Agreement in making trading and other decisions concerning
the Company’s securities.


 


3.20                           Insurance.  The Company maintains
insurance for itself and the Subsidiaries in such amounts and covering such
losses and risks as the Company believes to be reasonably prudent in relation
to the businesses in which the Company and the Subsidiaries are engaged. No
notice of cancellation has been received for any of such policies and the
Company reasonably believes that is in compliance with all of the terms and
conditions thereof.  The Company has no
reason to believe that it will not be able to renew any existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue doing business as currently
conducted without a significant increase in cost, other than normal increases
in the industry.  Without limiting the
generality of the foregoing, the Company maintains Director’s and Officer’s
insurance in an amount not less than $10 million for each covered occurrence
and in the aggregate.


 


3.21                           Property.  The Company and the
Subsidiaries have good and marketable title to all personal Property and good
and marketable title in fee simple to all real property owned by them which,
individually or in the aggregate, is material to the business of the Company
and the Subsidiaries, in each such case free and clear of all Liens except for
Permitted Liens.  Any Property held
under lease by the Company and the Subsidiaries is held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such Property by
the Company and the Subsidiaries.


 


3.22                           Regulatory Permits.  The
Company and the Subsidiaries possess all material certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses other than where
the failure to possess such certificates, authorizations or permits, individually
or in the aggregate, has not had and would not reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any such Subsidiary has
received any notice or otherwise become aware of any proceedings, inquiries or
investigations relating to the revocation or modification of any such
certificate, authorization or permit.


 


3.23                           Exchange Act
Registration; Listing.  The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is listed on the Nasdaq National Market. The Company currently meets
the continuing eligibility requirements for listing on the Nasdaq National
Market and has not received any notice from such market or the NASD that it may
not currently satisfy such requirements or that such continued listing is in
any way threatened.  The Company has
taken no action designed to, or which, to the knowledge of the Company, may
have the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market.


 


3.24                           Investment Company Status. The Company is not, and immediately after
receipt of the Purchase Price for the Securities issued under this Agreement
will not be, an “investment company” or an entity “controlled” by
an “investment company” within the meaning of the


 


16

















 


Investment Company Act of 1940, as amended (the “Investment Company
Act”), and shall conduct its business in a manner so that it will not
become subject to the Investment Company Act.


 


3.25                           Transfer Taxes. No stock transfer or other taxes (other
than income taxes) are required to be paid in connection with the issuance and
sale of any of the Securities, other than such taxes for which the Company has
established appropriate reserves and intends to pay in full on or before the
relevant Closing.


 


3.26                           Internal Controls and
Procedures. The Company maintains internal accounting controls, policies
and procedures, and such books and records as are reasonably designed to
provide reasonable assurance that (i) all transactions to which the Company or
any Subsidiary is a party or by which its properties are bound are effected by
a duly authorized employee or agent of the Company, supervised by and acting
within the scope of the authority granted by the Company’s senior management;
(ii) the recorded accounting of the Company’s consolidated assets is compared
with existing assets at regular intervals; and (iii) all transactions to which
the Company or any Subsidiary is a party, or by which its properties are bound,
are recorded (and such records maintained) in accordance with all Government
Requirements and as may be necessary or appropriate to ensure that the
financial statements of the Company are prepared in accordance with GAAP, except,
in any individual case or in the aggregate, has not had, and would not
reasonably be expected to have, a Material Adverse Effect.


 


3.27                           Embargoed Person. 
None of the funds or other assets of the Company shall constitute
property of, or shall be beneficially owned, directly or indirectly, by any
person subject to trade restrictions under United States law, including, but
not limited to, the International Emergency Economic Powers Act, 50 U.S.C.
§ 1701 et seq., The
Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or
regulations promulgated under any such United States laws (each, an “Embargoed
Person”), with the result that the investments evidenced by the Securities
are or would be in violation of law. No Embargoed Person shall have any
interest of any nature whatsoever in the Company with the result that the
investments evidenced by the Securities are or would be in violation of
law.  None of the funds or other assets
of the Company shall be derived from any unlawful activity with the result that
the investments evidenced by the Securities are or would be in violation of
law.


 


3.28                           Solvency.  (i) The fair saleable value of the Company’s
assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing Debt as such Debt matures or is otherwise payable; (ii)
the Company’s assets do not constitute unreasonably small capital to carry on
its business for the current fiscal year as now conducted and as proposed to be
conducted taking into account the current and projected capital requirements of
the business conducted by the Company and projected capital availability; and
(iii) the current cash flow of the Company, together with the proceeds the
Company would receive upon liquidation of its assets, after taking into account
all anticipated uses of such amounts, would be sufficient to pay all Debt when
such Debt is  required to be paid.  The Company does not intend to incur Debt
beyond its ability to pay such Debt as it matures. The Company has no knowledge
of any facts or circumstances which lead it to believe that it will be required
to file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction, and has no present intention to so
file.


 


17

















 


3.29                           Transactions
with Interested Person.   Except as
set forth in Schedule 3.29, no officer, director or employee of the
Company is or has taken any steps to become a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.


 


3.30                           Customers;
Suppliers.  The relationships of the
Company with its customers and suppliers are maintained on commercially
reasonable terms.  Except as set forth
in Schedule 3.30, since January 26, 2004, no customer or supplier of the
Company has canceled, materially modified, or otherwise terminated its
relationship with the Company or decreased materially its usage or purchase or
supply of the services or products of the Company, nor does any Customer or
Supplier have, to such Stockholder’s knowledge, any plan or intention to do any
of the foregoing.  The Company has no
reason to believe that any of its suppliers will experience a manufacturing
disruption, a failure to dedicate adequate resources to the production,
assembly or testing of the Company’s products, or financial instability, or
that any such supplier will be unable to successfully transition its
manufacturing capabilities to the future needs of the Company.


 


3.31                           Full
Disclosure.  The representations,
warranties and statements contained in this Agreement and in the certificates,
exhibits and schedules delivered by the Company pursuant to this Agreement to
such Investor do not contain any untrue statement of a material fact, and do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made.


 


3.32                           No
Other Agreements.  The Company has
not, directly or indirectly, entered into any agreement with or granted any right
to any Investor relating to the terms or conditions of the transactions
contemplated by the Certificate of Designation or the Transaction Documents
except as expressly set forth therein.


 


4.                                       COVENANTS OF THE COMPANY AND EACH INVESTOR.


 


4.1                                 The Company agrees with each Investor that it
will:


 


(a)                                  file a Form D with respect to the Securities
issued at the Closing as and when required under Regulation D and provide a
copy of each such Form D to such Investor promptly after such filing;


 


(b)                                 take such action as the Company reasonably
determines upon the advice of counsel is necessary to qualify the Securities
for sale under applicable state or “blue-sky” laws or obtain an exemption
therefrom, and shall provide evidence of any such action to such Investor at
the Closing; and


 


18

















 


(c)                                  (i) on or prior to 9:30 a.m. (eastern time)
on the Business Day immediately following the Execution Date, issue a press
release disclosing the material terms of this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby and
(ii) on or prior to 5:30 p.m. (eastern time) on the Business Day immediately
following the Execution Date, file with the Commission a Current Report on Form
8-K disclosing the material terms of this Agreement, the Certificate of
Designation and the other Transaction Documents and the transactions
contemplated hereby and thereby, including as exhibits this Agreement, the
Certificate of Designation and the other Transaction Documents; provided,
however, that each Investor named therein shall have a reasonable
opportunity to review and comment on any such press release or Form 8-K prior
to the issuance or filing thereof. Thereafter, the Company shall timely file
any filings and notices required by the Commission or applicable law with
respect to the transactions contemplated hereby.


 


4.2                                 The Company agrees that it will, during the
period beginning on the Execution Date and ending (except as otherwise
specified herein) on the Termination Date:


 


(a)                                  maintain its corporate existence in good
standing;


 


(b)                                 maintain, keep and preserve all of its
Properties necessary in the proper conduct of its businesses in good repair,
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs, renewals and replacements and improvements thereto, except
where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;


 


(c)                                  pay or discharge before becoming delinquent
(a) all taxes, levies, assessments and governmental charges imposed on it
or its income or profits or any of its Property and (b) all lawful claims
for labor, material and supplies, which, if unpaid, might become a Lien upon
any of its Property, except where the failure to do so would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect; provided,
however, that the Company shall not be required to pay or discharge any
tax, levy, assessment or governmental charge, or claim for labor, material or
supplies, whose amount, applicability or validity is being contested in good
faith by appropriate proceedings being diligently pursued and for which
adequate reserves have been established under GAAP;


 


(d)                                 comply with all Governmental Requirements
applicable to the operation of its business, except for instances of
noncompliance that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect; provided, however, that
the Company shall not be required to comply with any Governmental Requirements,
the applicability or validity of which is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate
reserves have been established under GAAP;


 


(e)                                  comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;


 


19

















 


(f)                                    provide each Investor with copies of all
materials sent to its stockholders, in each such case at the same time as
delivered to such stockholders;


 


(g)                                 timely file with the Commission all reports
required to be filed pursuant to the Exchange Act and refrain from terminating
its status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination;


 


(h)                                 during the period commencing on the Execution
Date and ending on the earlier to occur of (i) six (6) months from the Closing
Date and (ii) the Effective Date, take commercially reasonable steps to
restrict Key Employees from selling shares of Common Stock, or entering into
any arrangement or transaction that has substantially the same economic effect
as selling shares of Common Stock, other than pursuant to any 10b-5(1) trading
plans in effect as of the Execution Date and disclosed to each Investor in
writing; provided,
however, that in the event that the employment of any Key Employee
(other than Prakash C. Agarwal) is involuntarily terminated by the Company (and
such Key Employee is not then an employee of any Affiliate of the Company),
such Key Employee may, upon the effectiveness of such involuntary termination,
be released from such restriction;


 


(i)                                     use commercially reasonable efforts to
maintain adequate insurance coverage (including D&O insurance) for the
Company and each Subsidiary;


 


(j)                                     refrain from incurring any Debt or issuing
any securities that would rank senior to or pari passu with the Preferred Stock in
right of payment or distribution upon liquidation;


 


(k)                                  not create, incur, assume or suffer to exist
any Lien upon or with respect to any of its properties or assets, whether now
owned or hereafter acquired, other than Permitted Liens; and


 


(l)                                     until sixty (60) days following the Effective
Date, refrain from issuing any equity securities or securities convertible into
or exchangeable for equity securities; provided, however, that the foregoing
restriction shall not restrict the Company from issuing (i) shares of Common
Stock to officers, directors and employees of, or consultants to, the Company
pursuant to stock grants, option plans, purchase plans or other employee stock
incentive programs or arrangements approved by the Board of  Directors, or shares of Common Stock upon
exercise of options or warrants granted to such parties pursuant to any of the
foregoing, and (ii) shares of Common Stock in connection with sponsored
research, collaboration, technology license, development, OEM, marketing or
other similar agreements or strategic arrangements approved by the Board of
Directors .


 


4.3                                 Reservation of Common Stock.  The
Company shall authorize and reserve for issuance to the Investors, free from
any preemptive rights, a number of shares of Common Stock that, on the Closing
Date, is not less than one hundred and twenty five percent (125%) of the sum of
(A) the number of Conversion Shares issuable upon conversion of all of the
Series B Preferred Shares issuable at the Closing plus (B) the number of
Warrant Shares issuable upon exercise of all of the Series A Warrants and
Series B Warrants issuable at the Closing, in each case without regard to any
limitation on such conversion or exercise that may otherwise exist.  Such authorized and reserved shares of


 


20

















 


Common Stock (the “Reserved Amount”) shall be allocated in
accordance with each Investor’s Pro Rata Share.  In the event that an Investor shall sell or otherwise transfer
any of such Investor’s Preferred Shares or Warrants, each transferee shall be allocated
a pro rata portion of such
transferor’s Reserved Amount. Any portion of the Reserved Amount allocated to
any Investor or other Person which no longer holds any Preferred Shares or
Warrants shall be reallocated to the remaining Investors pro rata based on the number of Outstanding
Registrable Securities held by such Investors at such time.  In the event that the Reserved Amount is insufficient at any
time to cover one hundred percent 100% of the Registrable Securities issuable
upon the conversion of the then outstanding Preferred Stock and the exercise of
the then outstanding Warrants (without regard to any restriction on such
conversion or exercise), the Company shall take such action (including without
limitation holding a meeting of its stockholders) to increase the Reserved Amount
to cover 125% of the Registrable Securities issuable upon such conversion and
exercise, such increase to be effective not later than the thirtieth (30th)
day (or sixtieth (60th) day, in the event stockholder approval is
required for such increase) following the Company’s receipt of written notice
of such deficiency. While any Preferred
Shares or Warrants are outstanding, the Company shall not reduce the Reserved
Amount without obtaining the prior written consent of each Investor.


 


4.4                                 Use of Proceeds.  The
Company shall use the proceeds from the sale of the Securities in the ordinary
course of its business and consistent with past practice; provided, however,
that the Company shall not use such proceeds (i) to pay down, repurchase or
redeem any debt or securities issued by the Company or any Subsidiary, (ii) to
pay any dividend or make any distribution on any such securities, or (iii) to
repay any loan made to or incurred by any Key Employee or Affiliate of the
Company.


 


4.5                                 Use of Investor Name. 
Except as may be required by applicable law and/or this Agreement, the
Company shall not use, directly or indirectly, any Investor’s name or the name
of any of its affiliates in any advertisement, announcement, press release or
other similar communication unless it has received the prior written consent of
such Investor for the specific use contemplated or as otherwise required by
applicable law or regulation.


 


4.6                                 No Adverse Action. The Company and the Subsidiaries shall
refrain, during the period beginning on the Execution Date and ending on the
Termination Date, from taking any action or entering into any arrangement which
in any way materially and adversely affects the provisions of the Certificate
of Designation, this Agreement or any other Transaction Document.


 


4.7                                 Limitations on
Disposition.  No Investor shall
sell, transfer, assign or dispose of any Securities, unless:


 


(a)                                  there is then in
effect an effective registration statement under the Securities Act covering
such proposed disposition and such disposition is made in accordance with such
registration statement; or


 


(b)                                 such Investor has notified the Company in
writing of any such disposition, received the Company’s written consent to such
disposition and furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of such Securities under the Securities Act; provided, however,
that no such consent or opinion of counsel will be required (A) if the
sale, transfer or assignment complies with federal and


 


21

















 


state securities laws and is made to an Affiliate of such Investor
which is also an “accredited investor” as that term is defined in Rule 501 of
Regulation D, (B) if the sale, transfer or assignment is made pursuant to
Rule 144 and such Investor provides the Company with evidence reasonably
satisfactory to the Company that the proposed transaction satisfies the
requirements of Rule 144 or (C) in connection with a bona fide pledge or hypothecation of any
Securities under a margin arrangement with a broker-dealer or other financial
institution.


 


4.8                                 Disclosure of Information.  The
Company agrees that it will not at any time following the Execution Date
disclose material non-public information to any Investor without first
obtaining such Investor’s written consent to such receive such information.


 


4.9                                 Listing.  The Company shall (i)
promptly following the Closing, use its best efforts to include all of the
Conversion Shares issuable upon conversion of the Series B Preferred Shares and
all of the Warrant Shares issuable upon exercise of the Series A Warrants and
Series B Warrants (without regard to any limitation on such conversion or
exercise) for listing on the Nasdaq National Market, and (ii) use its best
efforts to maintain the designation and quotation, or listing, of the Common
Stock on the Nasdaq National Market or the New York Stock Exchange for a
minimum of five (5) years and six (6) months following the Closing Date.


 


4.10                           Indemnification
of Investors.   The Company will
indemnify and hold each Investor and its directors, managers, officers,
shareholders, members, partners, employees and agents (each, an “Investor
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Investor Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against an Investor, or any
of them or their respective Affiliates, by any stockholder of the Company who
is not an Affiliate of such Investor, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Investor’s representation, warranties or covenants under the
Transaction Documents or any agreements or understandings such Investor may
have with any such stockholder or any violations by such Investor of state or
federal securities laws or any conduct by such Investor which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any
action shall be brought against any Investor Party in respect of which
indemnity may be sought pursuant to this Agreement, such Investor Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing.  Any Investor
Party shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Investor Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Investor Party.  The Company will not be liable to any Investor Party
under this Agreement (i) for any settlement by an Investor Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to such Investor Party’s wrongful
actions or omissions, or gross


 


22

















 


negligence or to such Investor Party’s breach of any of the
representations, warranties, covenants or agreements made by such Investor in
this Agreement or in the other Transaction Documents.


 


4.11                           Certain Trading Limitations. 
Each Investor agrees that, prior to the later to occur of (i) ninety
(90) days following the Closing Date and (ii) the Effective Date, it will not
enter into any Short Sales (as hereinafter defined).  For purposes of this Section 4.11, a “Short Sale” shall
mean a sale of Common Stock that is marked as a short sale and that is executed
at a time when such Investor has no equivalent offsetting long position in the
Common Stock.  For purposes of
determining whether an Investor has an equivalent offsetting long position in
the Common Stock at any time, all Common Stock that (i) is held long by such
Investor at such time, or (ii) is issuable upon the conversion and/or exercise
in full of all Securities then held by such Investor at such time (assuming
that such Securities were then fully convertible or exercisable (as the case
may be), notwithstanding any limitations on such conversion or exercise that
would otherwise apply, and giving effect to any conversion price, exercise
price or other adjustments then in effect or scheduled to take effect in the
future) shall be deemed to be held long by such Investor.


 


5.                                       CONDITIONS TO CLOSING.


 


5.1                                 Conditions to Investors’ Obligations at the
Closing.  Each Investor’s obligations to effect the
Closing, including without limitation its obligation to purchase Series B
Preferred Shares, the Series A Warrants and the Series B Warrants at the
Closing, are conditioned upon the fulfillment (or waiver by such Investor in
its sole and absolute discretion) of each of the following events as of the
Closing Date:


 


5.1.1                        the representations and warranties of the Company set forth in this
Agreement and in the other Transaction Documents shall be true and correct in
all material respects as of such date as if made on such date (except that to
the extent that any such representation or warranty relates to a particular
date, in which case such representation or warranty shall be true and correct
in all respects as of that particular date);


 


5.1.2                        the Company shall have complied with or performed in all material
respects all of the agreements, obligations and conditions set forth in the
Certificate of Designation, this Agreement or the other Transaction Documents that are required to be complied with
or performed by the Company on or before such date;


 


5.1.3                        the Company shall have filed the Certificate of Designation with the
Secretary of State of the State of Delaware, and delivered to such Investor
written evidence of the acceptance of such filing;


 


5.1.4                        the Closing Date shall occur not later than August 23, 2004;


 


5.1.5                        the Company shall have delivered to such Investor a certificate, signed
by the Chief Executive Officer and Chief Financial Officer of the Company,
certifying that the conditions specified in this paragraph 5.1


 


23

















 


have been fulfilled as of the Closing Date, it being understood that
such Investor may rely on such certificate as though it were a representation
and warranty of the Company made herein;


 


5.1.6                        the Company shall have
delivered to such Investor a certificate, signed by the Secretary or an
Assistant Secretary of the Company, attaching (i) the Certificate of
Incorporation and By-Laws of the Company, and (ii) resolutions passed by its
Board of Directors to authorize the transactions contemplated hereby and by the
other Transaction Documents, and certifying that such documents are true and
complete copies of the originals and that such resolutions have not been
amended or superseded, it being understood that such Investor may rely on such
certificate as though it were a representation and warranty of the Company made
herein;


 


5.1.7                        the Company shall have delivered to such Investor an opinion of counsel
for the Company, dated as of the Closing Date, in form and substance
reasonably satisfactory to such Investor;


 


5.1.8                        the Company shall have delivered to such Investor duly executed Series
A Warrants and Series B Warrants and certificates representing the Series B
Preferred Shares being purchased by such Investor at the Closing;


 


5.1.9                        the Company shall have executed and delivered to such Investor the
Registration Rights Agreement;


 


5.1.10                      the Company shall have obtained the written agreement of each Key
Employee to refrain from selling shares of Common Stock (or engaging in any
arrangement or transaction that has substantially the same economic effect as
selling shares of Common Stock) during the period beginning on the Execution
Date and ending on  the earlier to occur
of (i) six months following the Closing Date and (ii) the Effective Date other
than, in any such case, pursuant to any 10b-5(1) trading plans in effect as of
the Execution Date and disclosed to each Investor in writing; provided,
however, that in the event that the employment of any Key Employee
(other than Prakash C. Agarwal) is involuntarily terminated by the Company,
such Key Employee may, upon the effectiveness of such involuntary termination,
be released from such restriction;


 


5.1.11                      there shall have occurred no material adverse change in the Company’s
consolidated business or financial condition since the date of the Company’s
most recent financial statements contained in the Disclosure Documents;


 


24

















 


5.1.12                      (i) the Common Stock shall be listed and actively traded on the Nasdaq
National Market, and (ii) the Company shall be in compliance, in all material
respects, with each of the quantitative and qualitative listing standards and
requirements (without regard to any specified compliance periods) of the Nasdaq
National Market, and (iii) the Company shall not have received any notice from
Nasdaq that the Company may not be in such compliance; and


 


5.1.13                      there shall be no injunction, restraining order or decree of any nature
of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Transaction Documents.


 


5.2                                 Conditions to Company’s Obligations at the
Closing.  The Company’s obligations to effect the
Closing with each Investor are conditioned upon the fulfillment (or waiver by
the Company in its sole and absolute discretion) of each of the following
events as of the Closing Date:


 


5.2.1                        the representations and warranties of such Investor set forth in this
Agreement and in the other Transaction Documents shall be true and correct in
all material respects as of such date as if made on such date (except that to
the extent that any such representation or warranty relates to a particular
date, in which case such representation or warranty shall be true and correct
in all respects as of that particular date);


 


5.2.2                        such Investor shall have complied with or performed all of the
agreements, obligations and conditions set forth in this Agreement and in the
other Transaction Documents that are required to be complied with or performed
by such Investor on or before the Closing Date;


 


5.2.3                        there shall be no injunction, restraining order or decree of any nature
of any court or Government Authority of competent jurisdiction that is in
effect that restrains or prohibits the consummation of the transactions
contemplated hereby or by the other Transaction Documents;


 


5.2.4                        such Investor shall have executed each Transaction Document to which it
is a party and delivered the same to the Company; and


 


5.2.5                        such Investor shall have tendered to the Company the Purchase Price for
the Series B Preferred Shares, Series A Warrants and Series B Warrants being
purchased by it at the Closing.


 


25

















 


6.                                       MISCELLANEOUS.


 


6.1                                 Survival; Severability.  The
representations, warranties, covenants and indemnities made by the parties
herein, in the Certificate of Designation and in the other Transaction
Documents shall survive the Closing notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon.  In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that in such case the parties shall negotiate
in good faith to replace such provision with a new provision which is not
illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.


 


6.2                                 Successors and Assigns.  The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the
parties.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.  Each Investor may assign its rights and obligations hereunder, in
connection with any private sale or transfer of Preferred Shares or Warrants in
accordance with the terms hereof, as long as, as a condition precedent to such
transfer, the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement, in which case the term “Investor”
shall be deemed to refer to such transferee as though such transferee were an
original signatory hereto. The Company may not assign its rights or obligations
under this Agreement.


 


6.3                                 No Reliance.  Each party acknowledges that
(i) it has such knowledge in business and financial matters as to be fully
capable of evaluating this Agreement, the other Transaction Documents, and the
transactions contemplated hereby and thereby, (ii) it is not relying on any
advice or representation of any other party in connection with entering into
this Agreement, the other Transaction Documents, or such transactions (other
than the representations made in this Agreement or the other Transaction
Documents), (iii) it has not received from any party any assurance or guarantee
as to the merits (whether legal, regulatory, tax, financial or otherwise) of
entering into this Agreement or the other Transaction Documents or the
performance of its obligations hereunder and thereunder, and (iv) it has
consulted with its own legal, regulatory, tax, business, investment, financial
and accounting advisors to the extent that it has deemed necessary, and has
entered into this Agreement and the other Transaction Documents based on its
own independent judgment and on the advice of its advisors as it has deemed
necessary, and not on any view (whether written or oral) expressed by any
party.


 


6.4                                 Independent
Nature of Investors’ Obligations and Rights.  The obligations of each Investor hereunder are several and not
joint with the obligations of the other Investors hereunder, and no Investor
shall be responsible in any way for the performance of the obligations of any
other investor hereunder.  Nothing
contained herein, in the Certificate of Designation or in any other Transaction
Document, and no action taken by any Investor pursuant hereto or thereto, shall
be deemed to constitute any Investors as a partnership, an association, a joint
venture or any other kind of entity, or a “group” as described in Section 13(d)
of the Exchange Act, or create a presumption that any Investors are in any way
acting in concert with respect to such obligations or


 


26

















 


the transactions contemplated by this Agreement.  Each Investor has been represented by its
own separate counsel in connection with the transactions contemplated hereby,
shall be entitled to protect and enforce its rights, including without
limitation rights arising out of this Agreement or the other Transaction
Documents, individually, and shall not be required to be join any other
Investor as an additional party in any proceeding for such purpose.


 


6.5                                 Injunctive Relief.  The
parties hereto acknowledge and agree that a breach by either of their
obligations hereunder will cause irreparable harm the other party and that the
remedy or remedies at law for any such breach will be inadequate and agrees, in
the event of any such breach, in addition to all other available remedies, the
non-breaching party shall be entitled to an injunction restraining any breach
and requiring immediate and specific performance of such obligations without
the necessity of showing economic loss.


 


6.6                                 Governing Law; Jurisdiction. 
This Agreement shall be governed by and construed under the laws of the
State of New York applicable to contracts made and to be performed entirely
within the State of New York.  Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the state
and federal courts sitting in the City of New York in the borough
of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby, and hereby irrevocably waives, and agrees not
to assert in any suit, action or proceeding involving the Investor or permitted
assignee of the Investor, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.


 


6.7                                 Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.  This
Agreement may be executed and delivered by facsimile transmission.


 


6.8                                 Headings.  The headings used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.


 


6.9                                 Notices. Any notice, demand or request required or permitted to be given by
the Company or the Investor pursuant to the terms of this Agreement shall be in
writing and shall be deemed delivered (i) when delivered personally or by
verifiable facsimile transmission, unless such delivery is made on a day that
is not a Business Day, in which case such delivery will be deemed to be made on
the next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:


 


27

















 


If
to the Company:


 


NeoMagic Corporation
3250 Jay Street

Santa Clara, CA 95054
Attn:       Chief
Financial Officer

Tel:         (408) 988-7020

Fax:         (408) 988-5196


 


with
a copy to:


 


Wilson Sonsini Goodrich & Rosati

650 Page Mill Road

Palo Alto, CA 94304

Attn:       Michael J.
Danaher, Esq.

Tel:         (650) 493-9300

Fax:         (650) 493-6811


 


and if to an Investor, to such address for such Investor as shall
appear on the signature page hereof executed by such Investor, or as shall be
designated by such Investor in writing to the Company in accordance with this
Section 6.9.


 


6.10                           Expenses.  The Company and each Investor
shall pay all costs and expenses that it incurs in connection with the
negotiation, execution, delivery and performance of this Agreement or the other
Transaction Documents, provided, however, that that the Company
shall, at the Closing, pay up to an aggregate of $65,000 in immediately
available funds for all reasonable out-of-pocket expenses (including without
limitation reasonable legal fees and expenses) incurred or to be incurred by
Satellite Strategic Finance Associates, LLC (“Satellite”) in connection
its due diligence investigation of the Company and the negotiation,
preparation, execution, delivery and performance of this Agreement, the
Certificate of Designation and the other Transaction Documents. At the Closing,
the amount due for such fees and expenses (which may include fees and expenses
estimated to be incurred for completion of the transaction and post-closing
matters) may be netted out of the Purchase Price payable by Satellite.  In the event the amount paid by the Company
for such fees and expenses is less than the amount of fees and expenses
actually incurred by Satellite, the Company shall promptly pay such deficiency
(up to $65,000 in the aggregate) within thirty (30) days following receipt of
an invoice therefor.


 


6.11                           Entire Agreement; Amendments. 
This Agreement, the Certificate of Designation and the other Transaction
Documents constitute the entire agreement between the parties with regard to
the subject matter hereof and thereof, superseding all prior agreements or
understandings, whether written or oral, between or among the parties.  Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended except pursuant to a written
instrument executed by the Company and the holders of at least two-thirds (2/3)
of the Outstanding Registrable Securities at such time, and no provision hereof
may be waived other than by a written instrument signed by the party against
whom enforcement of any such waiver is sought. Any waver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.


 


28

















 


IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.


 


	
  NEOMAGIC CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC

  
	
   

  
	
  By:

  	
  Satellite Asset Management, L.P., its Manager

  
	
   

  
	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Brian S. Kriftcher

  
	
   

  	
   

  	
  Chief Operating Officer and Principal

  
					



 


ADDRESS:


 


c/o Satellite Advisors, L.L.C.

623 Fifth Avenue, 20th Floor

New York, New York 10022

Tel:         212-209-2000

Fax:         212-209-2021


 


With a
copy to:


 


Duval & Stachenfeld LLP

300 East 42nd Street

New York, New York 10017

Attn:       Robert L. Mazzeo, Esq.

Tel:         212-883-1700

Fax:         212-883-8883


 


 


Number of Preferred Shares to be Purchased: 5,000 Shares


 


Purchase Price for Preferred Shares to be Purchased: $5,000,000


 


29