Exhibit 4.4


 


AMENDED AND RESTATED


 


CERTIFICATE OF DESIGNATIONS,


PREFERENCES AND RIGHTS


 


of the


 


SERIES B CONVERTIBLE PREFERRED STOCK


 


of


 


NEOMAGIC
CORPORATION


 


Pursuant to Section 151 of the


Delaware General Corporation Law


 


NEOMAGIC CORPORATION, a Delaware corporation (the
“Company”), hereby certifies that the following resolutions were adopted by the
Board of Directors of the Company pursuant to the authority of the Board of
Directors as required by Section 151 of the Delaware General Corporation Law.


 


RESOLVED, that pursuant to the authority granted to
the Board of Directors in accordance with the provisions of the Company’s
Certificate of Incorporation, the Board of Directors hereby authorizes a series
of the Company’s previously authorized Preferred Stock, par value $.001 per
share (the “Preferred Stock”), and hereby states the designation and
number of shares, and fixes the relative rights, preferences, privileges and
restrictions thereof as follows:


 


1.                                       DESIGNATION.


 


This series shall consist
of five thousand (5,000) shares of Preferred Stock and shall be designated the
“Series B Convertible Preferred Stock” (the “Series B Preferred Stock”).
The face amount of each share of Series B Preferred Stock (each, a “Preferred
Share” and collectively, the “Preferred Shares”) shall be One
Thousand Dollars ($1,000) (the “Stated Value”).


 


2.                                       CERTAIN DEFINITIONS.


 


“Bankruptcy Law” means
Title 11, United States Code, and the Federal Rules of Bankruptcy
Procedure, and any similar Federal or state law, rule or regulation providing
for the relief of debtors.


 


“Board
of Directors” or “Board” means the Company’s Board of Directors, as
constituted from time to time.


 


“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.


 

















 


“Cap Amount” means
19.99% of the number of shares of Common Stock outstanding on the Closing Date
(subject to adjustment upon a stock split, stock dividend or similar event).


 


“Certificate” means this Certificate of
Designation.


 


“Change of Control” means the existence or
occurrence of any of the following: (a) the sale, conveyance or disposition of
all or substantially all of the assets of the Company; (b) the effectuation of
a transaction or series of transactions in which more than fifty percent (50%)
of the voting power of the Company is disposed of (other than as a direct
result of normal, uncoordinated trading activities in the Common Stock
generally); (c) the consolidation, merger or other business combination of the
Company with or into any other entity, immediately following which the prior
stockholders of the Company fail to own, directly or indirectly, at least fifty
percent (50%) of the voting equity of the surviving entity; (d) a transaction
or series of transactions in which any Person or group acquires more than fifty
percent (50%) of the voting equity of the Company; and (e) the replacement of a
majority of the Board of Directors with individuals who do not constitute
Continuing Directors.


 


“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 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 the
Securities Purchase Agreement.


 


“Common Stock” means the Company’s common
stock, par value $.001 per share.


 


“Common Stock Payment Condition” means each of
the following events:


 


(i)                                     the
payment to be made in Common Stock shall not cause the number of shares of
Common Stock beneficially owned by any Holder to exceed 4.99% of the total
number of shares of Common Stock then outstanding;


 


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(ii)                                  the
Registration Statement shall have been declared effective and be available to
each Holder, and shall cover the number of Registrable Securities required by
the Registration Rights Agreement, or all Registrable Securities may be sold by
each Holder pursuant to Rule 144(k) under the Securities Act;


 


(iii)                               (x)
the Common Stock shall be listed on the Nasdaq National Market or the New York
Stock Exchange and trading in the Common Stock on such market or exchange shall
not have been suspended, and (y) 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 or the New
York Stock Exchange, as the case may be, and (z) the Company shall not have
received any notice from the NASD or the New York Stock Exchange, as the case may
be, that the Company may not be in such compliance; and


 


(iv)                              a
Fundamental Change, or an event that with the 
giving of notice, would constitute a Fundamental Change, shall not have
occurred and be continuing.


 


“Continuing Director” means, on any date, a
member of the Board of Directors who (i) was a member of such board on the
Execution Date (as defined in the Securities Purchase Agreement) or (ii) was
nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Board of Directors was recommended or endorsed by at least a
majority of the directors who were Continuing Directors at the time of such
nomination or election.


 


“Conversion Price” means $1.15, subject to
adjustment as provided herein.


 


“Debt” means, as to
any Person at any time: (a) all indebtedness, liabilities and obligations of
such Person; (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 Debt 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.


 


“Default Interest Rate” means the lower of
twelve percent (12%) and the highest rate permitted by applicable law.


 


“Effective Date” means the date on which the
Registration Statement is declared effective by the Securities and Exchange
Commission.


 


“Fundamental Change” means any of the following
events or circumstances: (i) any representation or warranty of the Company set
forth in the Securities Purchase Agreement, this


 


3

















 


Certificate or the other
Transaction Documents fails at any time to be true and correct in all material
respects as of the Closing Date as if made on such date; (ii) the Company fails
at any time to comply with or perform in all material respects all of the
agreements, obligations and conditions set forth in the Securities Purchase
Agreement, this Certificate or the other Transaction Documents that are
required to be complied with or performed by the Company and such failure
continues for seven (7) Business Days after written notice thereof to the
Company; (iii) a Change of Control occurs; or (iv) a Liquidation Event occurs
or is publicly announced.


 


“Holder” means any holder of Preferred Shares.


 


“Junior Securities” means the Common Stock and
all other capital stock of the Company that does not constitute Pari Passu
Securities or Senior Securities.


 


“Liquidation Event” means:


 


(a)                                  that
the Company or any Subsidiary, pursuant to or under or within the meaning of
any Bankruptcy Law: (i) commences a voluntary case or proceeding; (ii) consents
to the entry of any order for relief against it in an involuntary case or
proceeding or the commencement of any case against it; (iii) consents to the
appointment of a Custodian of it or for any substantial part of its property;
(iv) makes a general assignment for the benefit of its creditors; (v) files a
petition in bankruptcy or answer or consent seeking reorganization or relief;
or (vi) consents to the filing of such petition or the appointment of or taking
possession by a Custodian; or


 


(b)                                 that
a court of competent jurisdiction has entered an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company or any Subsidiary,
or adjudicates the Company or any Subsidiary to be insolvent or bankrupt; (ii)
appoints a custodian or receiver for the Company or any Subsidiary, or for any
substantial part of its property; or (iii) orders the winding up or liquidation
of the Company or any Subsidiary, and such order or decree remains unstayed and
in effect for at least thirty (30) days.


 


“Liquidation Preference” means, with respect to
a Preferred Share, an amount equal to the Stated Value of such Preferred Share.


 


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


 


“Maturity Date” means the third (3rd)
anniversary of the Closing Date.


 


“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).


 


“Pari Passu Securities” means any securities ranking
by their terms pari passu with the Series B Preferred Stock in respect of
redemption or distribution upon liquidation.


 


“Preferred Stock”
means the Company’s Series B Convertible Preferred Stock.


 


4

















 


“Preferred Shares”
means the shares of Preferred Stock issued pursuant to the Securities Purchase
Agreement.


 


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


 


“Registrable Securities” means the Conversion
Shares and the Warrant Shares, any other shares of Common Stock issuable
pursuant to the terms of this Certificate or the Warrants, and any shares of
common 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 pursuant to Rule 144.


 


“Registration Rights Agreement” means the
agreement pursuant to which the Company has agreed to register the resale of
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
or exercise of the Warrants.


 


“Registration Statement” has the meaning
specified in the Registration Rights Agreement.


 


“Securities Purchase Agreement” means the
agreement pursuant to which the Company is obligated to issue the Preferred
Shares to the persons named therein.


 


“Senior Securities” means (i) any Debt issued
or assumed by the Company and (ii) any securities of the Company which by their
terms have a preference over the Series B Preferred Stock in respect of
redemption or distribution upon liquidation.


 


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


 


“Stockholder Approval” means the affirmative
vote of the holders of a majority of the votes cast (including a majority of
the votes cast by each class of stock entitled to vote as a separate class) at
a meeting of stockholders approving the issuance of Common Stock in excess of
the Cap Amount.


 


“Subsidiary” means, with respect to the
Company, any corporation or other entity 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
(irrespective of whether or not at the time, in the case of a corporation,
stock of any other class or classes of such corporation shall have 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 or one or more of its
Subsidiaries or by the Company and one or more of its Subsidiaries.


 


“Trading Day” means any day on which the Common
Stock is purchased and sold on the principal securities exchange or market on
which the Common Stock is then listed or traded.


 


5

















 


“Warrants” means the warrants issued by the
Company pursuant to the Securities Purchase Agreement.


 


All definitions contained in this Certificate 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 Certificate refer to this Certificate as a whole and
not to any particular provision of this Certificate.


 


3.                                       PRIORITY
IN LIQUIDATION.


 


Upon the occurrence of a
Liquidation Event, no distribution shall be made to the holders of any shares
of Junior Securities unless each Holder shall have received the Liquidation
Preference with respect to each Preferred Share then held by such Holder.  In the event that, upon the occurrence of a
Liquidation Event, the assets available for distribution to the Holders and the
holders of Pari Passu Securities are insufficient to pay the Liquidation
Preference with respect to all of the outstanding Preferred Shares and the
preferential amounts payable to such holders, the entire assets of the Company
shall be distributed ratably among the Preferred Shares and the shares of such
Pari Passu Securities in proportion to the ratio that the preferential amount
payable on each such share (which shall be the Liquidation Preference in the
case of a Preferred Share) bears to the aggregate preferential amount payable
on all such shares.


 


4.                                       DIVIDENDS.


 


(a)                                No
Dividends.  No dividends shall be
paid in respect of the Series B Preferred Stock.


 


(b)                                 Payment
on Junior Securities. As long as any Preferred Shares are outstanding, the
Company shall not (i) purchase, redeem or otherwise acquire for value any
shares of Junior Securities, directly or indirectly, other than as a result of
reclassification of Junior Securities or the exchange or conversion of one type
of Junior Securities for or into another type of Junior Securities, or (ii)
make any payment on account of, or set aside money for, a sinking or other like
fund for the purchase, redemption or other acquisition for value of any share
of Junior Securities.


 


5.                                       CONVERSION.


 


(a)                                  Right
to Convert.  Each Holder shall have
the right to convert, at any time and from time to time after the Closing Date,
all or any part of the Preferred Shares held by such Holder into such number of
fully paid and non-assessable shares (“Conversion Shares”) of the Common
Stock as is determined in accordance with the terms hereof (a “Conversion”).


 


(b)                                 Conversion
Notice.  In order to convert
Preferred Shares, a Holder shall send to the Company by facsimile transmission,
at any time prior to 6:00 p.m., eastern time, on the date on which such Holder
wishes to effect such Conversion (the “Conversion Date”), (i) a notice
of conversion (a “Conversion Notice”), in substantially the form of
Exhibit A hereto, stating the number of Preferred Shares to be converted and a
calculation of the number of shares of Common Stock issuable upon such
Conversion and (ii) a copy of the certificate or certificates representing the
Preferred Shares being converted.  The
Holder shall thereafter send the original of the Conversion Notice and of such


 


6

















 


certificate or
certificates to the Company.  The
Company shall issue a new certificate for Preferred Shares to the Holder in the
event that less than all of the Preferred Shares represented by a certificate
are converted; provided, however, that the failure of the Company
to deliver such new certificate shall not affect the right of the Holder to
submit a further Conversion Notice with respect to such Preferred Shares and,
in any such case, the Holder shall be deemed to have submitted the original of
such new certificate at the time that it submits such further Conversion
Notice. Except as otherwise provided herein, upon delivery of a Conversion
Notice by a Holder in accordance with the terms hereof, such Holder shall, as
of the applicable Conversion Date, be deemed for all purposes to be the record
owner of the Common Stock to which such Conversion Notice relates.  In the case of a dispute between the Company
and a Holder as to the calculation of the Conversion Price or the number of
Conversion Shares issuable upon a Conversion (including without limitation the
calculation of any adjustment to the Conversion Price pursuant to Section 7
below), the Company shall issue to such Holder the number of Conversion Shares
that are not disputed within the time periods specified in paragraph 5(d) below
and shall submit the disputed calculations to its independent accountant within
two (2) Business Days of receipt of such Holder’s Conversion Notice.  The Company shall cause such accountant to
calculate the Conversion Price as provided herein and to notify the Company and
such Holder of the results in writing no later than five (5) Business Days
following the Company’s receipt of such Holder’s Conversion Notice (such fifth
Business Day being referred to herein as the “Disputed Share Calculation
Date”).  Such accountant’s
calculation shall be deemed conclusive absent manifest error.  The fees of any such accountant shall be
borne by the party whose calculations were most at variance with those of such
accountant.


 


(c)                                  Number
of Conversion Shares.  The number of
Conversion Shares to be delivered by the Company pursuant to a Conversion shall
be determined by dividing (i) the aggregate Liquidation Preference of the
Preferred Shares to be converted by (ii) the Conversion Price in effect on the
applicable Conversion Date.


 


(d)                                 Delivery
of Conversion Shares.  Upon receipt
of a fax copy of a Conversion Notice from a Holder, the Company shall, no later
than the close of business on the earlier to occur of (i) the third (3rd)
Business Day following the Conversion Date set forth in such Conversion Notice
and (ii) the date after the date on which the Company receives the original
Conversion Notice and Preferred Shares (the “Delivery Date”), issue and
deliver or caused to be delivered to such Holder the number of Conversion
Shares determined pursuant to paragraph 5(c) above, provided, however,
that any Conversion Shares that are the subject of a Dispute Procedure shall be
delivered no later than the close of business on the third (3rd) Business Day
following the determination made pursuant thereto. The Company shall effect
delivery of Conversion Shares to such Holder by, as long as Company’s transfer agent (“Transfer Agent”)
participates in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer program (“FAST”), crediting the account of
such Holder or its nominee at DTC (as specified in the applicable Conversion
Notice) with the number of Conversion Shares required to be delivered, no later
than the close of business on such Delivery Date. In the event that the
Transfer Agent is not a participant in FAST or if a Holder so specifies in a
Conversion Notice or otherwise in writing on or before the Conversion Date, the
Company shall effect delivery of Conversion Shares by delivering to such Holder
or its nominee physical certificates representing such Conversion Shares, no
later than the close of business on such Delivery Date. If any Conversion would
create a fractional Conversion Share, such fractional Conversion Share shall be
disregarded and the number of Conversion Shares issuable upon such Conversion,
in the aggregate,


 


7

















 


shall be the next closest
number of Conversion Shares.  Conversion
Shares delivered to a Holder shall not contain any restrictive legend as long
as the resale of such Conversion Shares (x) has been or will be made (as
certified in writing by such Holder to the Company) pursuant to an effective
Registration Statement (as defined in the Registration Rights Agreement), (y)
has been made pursuant to Rule 144 under the Securities Act of 1933, as amended
(the “Securities Act”), or (z) may be made pursuant to Rule 144(k)
under the Securities Act or any successor rule or provision.


 


(e)                                  Failure
to Deliver Conversion Shares.


 


(i)                                     In
the event that, for any reason, a Holder has not received certificates
representing the number of Conversion Shares specified in the applicable
Conversion Notice, without any restrictive legend in the circumstances
described in clause (x), (y) or (z) of paragraph 5(d) above, on or before the
Delivery Date therefor (a “Conversion Default”), and such failure to
deliver certificates continues for five (5) Business Days following the
delivery of written notice thereof from such Holder (such fifth Business Day
being referred to herein as the “Conversion Default Date”), the Company
shall pay to such Holder payments (“Conversion Default Payments”) in the
amount of (A) “N” multiplied by (B) the aggregate Liquidation Preference
of the Preferred Shares which are the subject of such Conversion Default multiplied
by (C) one percent (1%),  where “N”
equals the number of days elapsed between the Conversion Default Date and the
date on which all of the certificates representing such Conversion Shares
(without any restrictive legend in the circumstances described in clause (x),
(y) or (z) of paragraph 5(d) above) are issued and delivered to such
Holder.  Amounts payable hereunder shall
be paid to the Holder in immediately available funds on or before the fifth
(5th) Business Day of the calendar month immediately following the calendar
month in which such amounts have accrued.


 


(ii)                                  In
addition to any other remedies provided herein, each Holder shall have the
right to pursue actual damages for the Company’s failure to issue and deliver
Conversion Shares on the applicable Delivery Date, including, without
limitation, damages relating to any purchase of shares of Common Stock by or on
behalf of such Holder in order to make delivery on a sale lawfully effected in
anticipation of receiving Conversion Shares, such damages to be in an amount
equal to (A) the aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate amount received by such
Holder upon the sale of such Conversion Shares, and such Holder shall have the
right to pursue all other remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).


 


6.                                       MATURITY
OF PREFERRED SHARES.


 


(a)                                  Payment
at Maturity.  On the Maturity Date,
the Company shall pay to each Holder the aggregate Liquidation Preference for
such Holder’s Preferred Shares that are outstanding on such date.  Such payment shall be made in cash by wire
transfer of immediately available funds; provided, however, that the Company may elect, subject to
the satisfaction of all of the Common Stock Payment Conditions, to pay such
Liquidation Preference in shares of Common Stock (the “Common Stock Maturity
Payment Option”).   Any amount of
cash that is due on the Maturity Date and which is not paid within five (5)
Business Days of such date shall bear interest until paid at the Default
Interest Rate.


 


(b)                                 Common
Stock Payment Conditions. The Company shall not be entitled to exercise the
Common Stock Maturity Payment Option unless, on the Maturity Date and on each
of the twenty (20)


 


8

















 


Trading Days immediately
preceding such date, all of the Common Stock Payment Conditions are satisfied
in full.  In the event that any Common
Stock Payment Condition is not satisfied as of the applicable Maturity Date and
each such Trading Day, the Company shall not be permitted to exercise the
Common Stock Maturity Payment Option and must pay all amounts due on such
Maturity Date in cash by wire transfer of immediately available funds.


 


(c)                                Common
Stock Option Notice.  In order to
exercise the Common Stock Maturity Payment Option with respect to the Maturity
Date, the Company must deliver, on or before the thirtieth (30th)
calendar day immediately prior to such date, written notice to each Holder
stating that the Company wishes to exercise such option (a “Common Stock
Option Notice”).  If the Company
wishes to exercise the Common Stock Maturity Payment Option, it must do so with
respect to all (but not less than all) of the Preferred Shares then
outstanding. A Common Stock Option Notice, once delivered by the Company, shall
be irrevocable. In the event that the Company does not deliver a Common Stock
Option Notice on or before such thirtieth day, the Company will be deemed to
have elected to pay the related Liquidation Preference in cash.


 


(d)                               Delivery
of Shares.  On or before the third
(3rd) Business Day
following the Maturity Date, and provided that Company has validly exercised
the Common Stock Maturity Payment Option in accordance with the terms hereof
(each a “Common Stock Option Delivery Date”), the Company must deliver
to each Holder a number of shares of Common Stock equal to (A) the Liquidation
Preference of such Holder’s Preferred Shares outstanding on the Maturity Date divided
by (B) the Market Price in effect on such date times ninety percent
(90%).  The Company must deliver such
shares of Common Stock to such Holder in accordance with the provisions of
paragraph 5(d) above, with the Common Stock Option Delivery Date being deemed
the Delivery Date, and in the event of the Company’s failure to effect such
delivery on the applicable Delivery Date therefor (calculated in accordance
with paragraph 5(d)), such Holder shall have the remedies specified in
paragraph 5(e) above.


 


7.                                       CONVERSION
LIMITATIONS.  In no event shall
a Holder be permitted to convert any Preferred Shares to the extent that, upon
the Conversion of such Preferred Shares, either:


 


(a)                                  the
number of shares of Common Stock beneficially owned by such Holder (other than
shares of Common Stock issuable upon conversion of such Preferred Shares or
which would otherwise be deemed beneficially owned except for being subject to
a limitation on conversion or exercise analogous to the limitation contained in
this paragraph 7), when added to the number of shares of Common Stock issuable
upon the Conversion of such Preferred Shares, would exceed 4.9% of the number
of shares of Common Stock then issued and outstanding.  As used herein, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and the rules thereunder. To the extent that the
limitation contained in this paragraph applies (and without limiting any rights
the Company may otherwise have), the Company may rely on the Holder’s
determination of whether Preferred Shares are convertible pursuant to the terms
hereof, the Company having no obligation whatsoever to verify or confirm the
accuracy of such determination, and the submission of a Conversion Notice by
the Holder shall be deemed to be the Holder’s representation that the Preferred
Shares specified therein are convertible pursuant to the terms hereof.  Nothing contained herein shall be deemed to
restrict the right of a Holder to convert Preferred Shares at such time as the
Conversion thereof will not violate the provisions of this paragraph. The
limitation


 


9

















 


contained in this
paragraph shall cease to apply to a Holder (x) upon sixty (60) days’ prior
written notice from such Holder to the Company, (y) immediately upon written
notice from such Holder to the Company at any time after the public
announcement or other disclosure of a Major Transaction (as defined below) or a
Change of Control and (z) on the Maturity Date; or


 


(b)                                 unless
Stockholder Approval has been obtained or a Holder has delivered to the Company
a legal opinion reasonably acceptable to the Company that such approval is no
longer required under the applicable listing requirements of the Nasdaq Stock
Market, the number of Conversion Shares that such Holder would receive upon
such Conversion, when added to (i) the number of Conversion Shares previously
received by such Holder pursuant to this provisions of this Certificate plus
(ii) the number of Warrant Shares previously received by such Holder pursuant
to the Series A Warrant, would exceed the product of (A) the Cap Amount multiplied
by (B) a fraction, the numerator of which is the aggregate Stated Value of
the Preferred Shares purchased by such Investor and the denominator of which is
the aggregate Stated Value of all Preferred Shares purchased by the Investors
(such product, the “Allocation Amount”).  In the event that any Investor shall sell or otherwise transfer
any of such Investor’s Preferred Shares, the remaining Conversion Shares constituting
such transferring Investor’s Allocation Amount shall be allocated between the
transferring Investor and transferee pro
rata in proportion to the Stated Value of the Preferred Shares
transferred to such transferee and the Stated Value of the Preferred Shares
retained by such transferring Investor. 
In the event that any Investor shall convert all of such Investor’s
Preferred Shares into a number of Conversion Shares and Series A Warrant Shares
that, in the aggregate, is less than such Investor’s Allocation Amount, then
the difference between such Investor’s Allocation Amount and the number of
Conversion Shares actually issued to such Investor shall be allocated to the
remaining Investors on a pro rata
basis in proportion to number of Preferred Shares held by each Investor. In the
event that, at any time, the sum of (i) the number of Conversion Shares
issuable under the Preferred Shares (without regard to any restrictions on such
issuance contained in this Certificate) plus (ii) the number of Warrant Shares
issuable upon exercise of the Series A Warrants (without regard to any
restrictions on such exercise contained in the Series A Warrants) plus (iii)
any issued or issuable shares of Common Stock that would be integrated with
such Conversion Shares and Series A Warrant Shares pursuant to applicable
Nasdaq rules and regulations, exceeds one hundred percent (100%) of the Cap
Amount, the Company shall, upon the written request of any Holder, hold a
special meeting of its stockholders for the purpose of obtaining Stockholder
Approval. In the event that the stockholders do not approve such transactions
at such meeting, the Company shall continue to use its best efforts to seek
such approval as soon as practicable after such meeting but no less frequently than
quarterly thereafter.


 


8.                                       ADJUSTMENTS TO CONVERSION PRICE. The
Conversion Price shall be subject to adjustment from time to time as provided
in this Section 8. In the event that any adjustment of the Conversion Price
required herein results in a fraction of a cent or fraction of a share, as
applicable, the Conversion Price shall be rounded up or down to the nearest
cent or share, as applicable.


 


(a)                                  Subdivision
or Combination of Common Stock.  If
the Company, at any time after the Closing Date, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) the outstanding shares of Common Stock into a greater number of
shares, then after the date of record for effecting such subdivision, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the
Company, at any time after the


 


10

















 


Closing Date, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the outstanding shares of Common
Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Conversion Price in effect immediately prior to
such combination will be proportionally increased.


 


(b)                                 Distributions.  If the Company shall declare or make any
distribution of cash or any other assets (or rights to acquire such assets) to
holders of Common Stock, as a partial liquidating dividend or otherwise,
including without limitation any dividend or distribution to the Company’s
stockholders in shares (or rights to acquire shares) of capital stock of a
subsidiary (a “Distribution”),
the Company shall deliver written notice of such Distribution (a “Distribution Notice”) to each Holder
at least thirty (30) days prior to the earlier to occur of (i) the record date
for determining stockholders entitled to such Distribution (the “Record Date”)
and (ii) the date on which such Distribution is made (the “Distribution Date”).  The earlier to occur of the Record Date and
the Distribution Date is referred to herein as the “Determination Date”.  In the Distribution Notice to a Holder, the
Company must indicate whether the Company has elected (A) to deliver to such
Holder the same amount and type of assets being distributed in such
Distribution as though the Holder were a holder on the Determination Date
therefor of a number of shares of Common Stock into which the Preferred Shares
held by such Holder are convertible as of such Determination Date (such number
of shares to be determined at the Conversion Price then in effect and without
giving effect to any limitations on such conversion) or (B) to reduce the
Conversion Price as of the Determination Date therefor by an amount equal to
the fair market value of the assets to be distributed divided by the
number of shares of Common Stock as to which such Distribution is to be made,
such fair market value to be reasonably determined in good faith by the
independent members of the Company’s Board of Directors. If the Company does
not notify the Holders of its election pursuant to the preceding sentence on or
prior to the Determination Date, the Company shall be deemed to have elected
clause (A) of the preceding sentence.


 


(c)                                  Dilutive
Issuances.


 


(i)                                     Adjustment
Upon Dilutive Issuance.  If, at any
time after the Closing Date, the Company issues or sells or, pursuant to
subparagraph (iii) of this paragraph (c), is deemed to have issued or sold, any
shares of Common Stock for per share consideration less than the Conversion
Price on the date of such issuance or sale (or deemed issuance or sale) (a “Dilutive Issuance”), then the
Conversion Price shall be adjusted as follows:


 


(A)                              If
such Dilutive Issuance occurs prior to the Effective Date, then effective immediately
upon the Dilutive Issuance, the Conversion Price shall be adjusted so as to
equal the value of the consideration received or receivable by the Company (on
a per share basis) for the additional shares of Common Stock so issued, sold or
deemed issued or sold in such Dilutive Issuance (which, in the case of a deemed
issuance or sale, shall be calculated in accordance with subparagraph (iii)
below).


 


(B)                                If
such Dilutive Issuance occurs on or after the Effective Date, then effective
immediately upon the Dilutive Issuance, the Conversion Price shall be adjusted
so as to equal an amount determined by multiplying such Conversion Price by the
following fraction:


 


11

















 


	
  N0 + N1

  	
   

  
	
  N0 + N2

  	
   

  



 


 


where:


 


	
  N0 = 

  	
   

  	
  the number of shares of Common Stock outstanding
  immediately prior to the issuance, sale or deemed issuance or sale of such
  additional shares of Common Stock in such Dilutive Issuance (without taking
  into account any shares of Common Stock issuable upon conversion, exchange or
  exercise of any securities or other instruments which are convertible into or
  exercisable or exchangeable for Common Stock (“Convertible Securities”)
  or options, warrants or other rights to purchase or subscribe for Common
  Stock or Convertible Securities (“Purchase Rights”), other than shares
  of Common Stock issuable under the Preferred Shares and the Warrants, which
  shall be taken into account in determining such number);

  
	
   

  	
   

  	
   

  
	
  N1 = 

  	
   

  	
  the number of shares of Common Stock which the
  aggregate consideration, if any, received or receivable by the Company for
  the total number of such additional shares of Common Stock so issued, sold or
  deemed issued or sold in such Dilutive Issuance (which, in the case of a
  deemed issuance or sale, shall be calculated in accordance with subparagraph
  (iii) below) would purchase at the Conversion Price in effect immediately
  prior to such Dilutive Issuance; and

  
	
   

  	
   

  	
   

  
	
  N2 =

  	
   

  	
  the number of such additional shares of Common Stock
  so issued, sold or deemed issued or sold in such Dilutive Issuance.

  



 


Notwithstanding
the foregoing, no adjustment shall be made pursuant to paragraph (A) or (B)
above if such adjustment would result in an increase in the Conversion Price.


 


(ii)                                  Adjustment
Upon Below Market Issuance.  If, at
any time after the Closing Date, the Company issues or sells, or in accordance
with subparagraph (iii) of this paragraph (c), is deemed to have issued or
sold, any shares of Common Stock for a consideration per share less than the
lower of (x) the Market Price on the date of such issuance or sale (or deemed
issuance or sale) and (y) $4.00 per share (a “Below Market Issuance”), then the Conversion Price shall be
adjusted as follows:


 


(A)                              If
such Below Market Issuance occurs prior to the Effective Date, then effective
immediately upon the Below Market Issuance, the Conversion Price shall be
adjusted so as to equal the consideration received or receivable by the Company
(on a per share basis) for the additional shares of Common Stock so issued,
sold or deemed issued or sold in such Below Market Issuance (which, in the case
of a deemed issuance or sale, shall be calculated in accordance with
subparagraph (iii) below).


 


12

















 


(B)                                If
such Below Market Issuance occurs on or after the Effective Date, then
effective immediately upon the Below Market Issuance, then the Conversion Price
shall be adjusted so as to equal an amount determined by multiplying such
Conversion Price by the following fraction:


 


	
  N0 + N1

  	
   

  
	
  N0 + N2

  	
   

  



 


where:


 


	
  N0 =

  	
   

  	
  the number of shares of Common Stock outstanding
  immediately prior to the issuance, sale or deemed issuance or sale of such
  additional shares of Common Stock in such Below Market Issuance (without
  taking into account any shares of Common Stock issuable upon conversion,
  exchange or exercise of any Convertible Securities or Purchase Rights, other
  than shares of Common Stock issuable under the Preferred Shares and the
  Warrants, which shall be taken into account in determining such number);

  
	
   

  	
   

  	
   

  
	
  N1 =

  	
   

  	
  the number of shares of Common Stock which the
  aggregate consideration, if any, received or receivable by the Company for
  the total number of such additional shares of Common Stock so issued, sold or
  deemed issued or sold in such Below Market Issuance (which, in the case of a
  deemed issuance or sale, shall be calculated in accordance with subparagraph
  (iii) below) would purchase at the Market Price in effect on the date of such
  Below Market Issuance; and

  
	
   

  	
   

  	
   

  
	
  N2 =

  	
   

  	
  the number of such additional shares of Common Stock
  so issued, sold or deemed issued or sold in such Below Market Issuance.

  



 


Notwithstanding
the foregoing, no adjustment shall be made pursuant to this paragraph (c)(ii)
if such adjustment would result in an increase in the Conversion Price.  In the event that the Company effects an
issuance that is both a Dilutive Issuance and a Below Market Issuance, the
Conversion Price will be adjusted to the lower of the prices calculated
pursuant to subparagraphs (i) and (ii) of this paragraph (c).


 


(iii)                               Effect On Conversion
Price Of Certain Events.  For
purposes of determining the adjusted Conversion Price under subparagraph (i) or
(ii) of this paragraph (c), the following will be applicable:


 


(A)                              Issuance
of Purchase Rights.  If the Company
issues or sells any Purchase Rights, whether or not immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Purchase Rights (and the price of any conversion of Convertible
Securities, if applicable) is less than either or both of the Conversion Price
and the lower of (x) the Market Price in effect on the date of issuance or sale
of such Purchase Rights and (y) $4.00 per share, then the maximum total number
of shares of Common Stock issuable upon the exercise of all such Purchase
Rights (assuming full


 


13

















 


conversion, exercise or exchange of Convertible
Securities, if applicable) shall, as of the date of the issuance or sale of
such Purchase Rights, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the “price per share for which Common Stock is issuable upon the
exercise of such Purchase Rights” shall be determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Purchase Rights, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the exercise
of all such Purchase Rights, plus, in the case of Convertible Securities
issuable upon the exercise of such Purchase Rights, the minimum aggregate
amount of additional consideration payable upon the conversion, exercise or
exchange thereof (determined in accordance with the calculation method set
forth in subparagraph (iii)(B) below) at the time such Convertible Securities
first become convertible, exercisable or exchangeable, by (y) the maximum total
number of shares of Common Stock issuable upon the exercise of all such
Purchase Rights (assuming full conversion, exercise or exchange of Convertible
Securities, if applicable). No further adjustment to the Conversion Price shall
be made upon the actual issuance of such Common Stock upon the exercise of such
Purchase Rights or upon the conversion, exercise or exchange of Convertible
Securities issuable upon exercise of such Purchase Rights.  To the
extent that shares of Common Stock or Convertible Securities are not delivered
pursuant to such Purchase Rights, upon the expiration or termination of such
Purchase Rights, the Conversion Price shall be readjusted to the Conversion
Price that would then be in effect had the adjustments made upon the issuance
of such Purchase Rights been made on the basis of delivery of only the number
of shares of Common Stock actually delivered.


 


(B)                                Issuance
of Convertible Securities.  If the
Company issues or sells any Convertible Securities, whether or not immediately
convertible, exercisable or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion, exercise or exchange is less
than either or both of the Conversion Price and the lower of (x) the Market
Price in effect on the date of issuance or sale of such Convertible Securities
and (y) $4.00 per share, then the maximum total number of shares of Common
Stock issuable upon the conversion, exercise or exchange of all such
Convertible Securities shall, as of the date of the issuance or sale of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. If the Convertible Securities so
issued or sold do not have a fluctuating conversion or exercise price or
exchange ratio, then for the purposes of the immediately preceding sentence,
the “price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the issuance or
sale of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion,
exercise or exchange thereof (determined in accordance with the calculation
method set forth in this subparagraph (iii)(B)) at the time such Convertible
Securities first become convertible, exercisable or exchangeable, by (y) the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. If the Convertible Securities
so issued or sold have a fluctuating conversion or exercise price or exchange
ratio (a “Variable Rate Convertible
Security”) (provided, however, that if the conversion or exercise
price or exchange ratio of a Convertible Security may fluctuate solely as a
result of provisions designed to protect


 


14

















 


against dilution, such Convertible Security shall not
be deemed to be a Variable Rate Convertible Security), then for purposes of the
first sentence of this subparagraph (B), the “price per share for which Common
Stock is issuable upon such conversion, exercise or exchange” shall be deemed
to be the lowest price per share which would be applicable (assuming all
holding period and other conditions to any discounts contained in such Variable
Rate Convertible Security have been satisfied) if the conversion price of such
Variable Rate Convertible Security on the date of issuance or sale thereof were
seventy-five percent (75%) of the actual conversion price on such date (the “Assumed Variable Market Price”),
and, further, if the conversion price of such Variable Rate Convertible
Security at any time or times thereafter is less than or equal to the Assumed
Variable Market Price last used for making any adjustment under this paragraph
(c) with respect to any Variable Rate Convertible Security, the Conversion
Price in effect at such time shall be readjusted to equal the Conversion Price
which would have resulted if the Assumed Variable Market Price at the time of issuance
of the Variable Rate Convertible Security had been seventy-five percent (75%)
of the actual conversion price of such Variable Rate Convertible Security
existing at the time of the adjustment required by this sentence.  No further adjustment to the Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.  To the
extent that shares of Common Stock are not delivered pursuant to conversion of
such Convertible Securities, upon the expiration or termination of the right to
convert such Convertible Securities into Common Stock, the Conversion Price
shall be readjusted to the Conversion Price that would then be in effect had
the adjustments made upon the issuance of such Convertible Securities been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered.


 


(C)                                Change
in Option Price or Conversion Rate. 
If, following an adjustment to the Conversion Price upon the issuance of
Purchase Rights or Convertible Securities pursuant to a Below Market Issuance,
there is a change at any time in (x) the amount of additional consideration
payable to the Company upon the exercise of any Purchase Rights; (y) the amount
of additional consideration, if any, payable to the Company upon the
conversion, exercise or exchange of any Convertible Securities; or (z) the rate
at which any Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock (in each such case, other than under or by reason
of provisions designed to protect against dilution), then in any such case, the
Conversion Price in effect at the time of such change shall be readjusted to
the Conversion Price which would have been in effect at such time had such
Purchase Rights or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion, exercise or exchange
rate, as the case may be, at the time initially issued or sold.


 


(D)                               Calculation
of Consideration Received.  If any
Common Stock, Purchase Rights or Convertible Securities are issued or sold for
cash, the consideration received therefor will be the amount received by the
Company therefor. In case any Common Stock, Purchase Rights or Convertible
Securities are issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar arrangement in
which the other entity will provide services to the Company, purchase services
from the Company or otherwise provide intangible consideration to the Company,
the amount of the consideration other than cash received by the Company
(including the net present value of


 


15

















 


the consideration other than cash expected by the Company
for the provided or purchased services) shall be the fair market value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the average of
the last sale prices thereof on the principal market for such securities during
the period of ten Trading Days immediately preceding  the date of receipt. In case any Common Stock, Purchase Rights or
Convertible Securities are issued in connection with any merger or
consolidation in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Purchase Rights or Convertible Securities,
as the case may be. Notwithstanding anything else herein to the contrary, if
Common Stock, Purchase Rights or Convertible Securities are issued or sold in
conjunction with each other as part of a single transaction or in a series of
related transactions, a Holder may elect to determine the amount of
consideration deemed to be received by the Company therefor by deducting the
fair value of any type of securities (the “Disregarded Securities”) issued or sold in such transaction or
series of transactions. If a Holder makes an election pursuant to the
immediately preceding sentence, no adjustment to the Conversion Price shall be
made pursuant to this paragraph (c) for the issuance of the Disregarded Securities
or upon any conversion, exercise or exchange thereof. The independent members
of the Company’s Board of Directors shall calculate reasonably and in good
faith, using standard commercial valuation methods appropriate for valuing such
assets, the fair market value of any consideration other than cash or
securities.


 


(E)                                 Issuances
Without Consideration Pursuant to Existing Securities.  If the Company issues (or becomes obligated
to issue) shares of Common Stock pursuant to any anti-dilution or similar
adjustments (other than as a result of stock splits, stock dividends and the
like) contained in any Convertible Securities or Purchase Rights outstanding as
of the date hereof but not included in the Disclosure Schedule to the
Securities Purchase Agreement, then all shares of Common Stock so issued shall
be deemed to have been issued for no consideration. If the Company issues (or
becomes obligated to issue) shares of Common Stock pursuant to any
anti-dilution or similar adjustments contained in any Convertible Securities or
Purchase Rights disclosed in a schedule to the Securities Purchase Agreement as
a result of the issuance of the Warrants and the number of shares that the
Company issues (or is obligated to issue) as a result of such initial issuance
exceeds the amount specified in such schedule, such excess shares shall be
deemed to have been issued for no consideration.


 


(iv)                              Exceptions
To Adjustment Of Conversion Price. 
Notwithstanding the foregoing, no adjustment to the Conversion Price
shall be made pursuant to this paragraph (c) upon the issuance of any Excluded
Securities.  For purposes hereof, “Excluded
Securities” means (A) securities purchased under the Securities Purchase
Agreement; (B) securities issued upon conversion of the Preferred Shares or exercise
of the Warrants; (C) shares of Common Stock issuable or issued to (x) employees
or directors from time to time either directly or upon the exercise of options,
in such case granted or to be granted in the discretion of the Board of
Directors, as approved by the independent members of the Board, pursuant to one
or more stock option plans or restricted stock plans or stock purchase plans in effect as of the Closing Date or
approved by the independent members of the Board of Directors or by the
Company’s shareholders, or (y) 


 


16

















 


consultants, either
directly or pursuant to warrants to purchase Common Stock that are outstanding
on the date hereof or issued hereafter, provided such issuances are approved by
the independent members of the Board of Directors or by the Company’s
shareholders; (D) shares of Common Stock issued in connection with any
Convertible Securities or Purchase Rights outstanding on the date hereof; and
(E) shares of Common Stock issued to a Person in connection with a joint
venture, strategic alliance or other commercial relationship with such Person
relating to the operation of the Company’s business and not for the purpose of
raising equity capital.


 


(v)                                 Notice
Of Adjustments.  Upon the occurrence
of an adjustment to the Conversion Price pursuant to this paragraph (c), the
Company, at its expense, shall promptly compute such adjustment or readjustment
or change and prepare and furnish to each Holder a notice (an “Adjustment
Notice”) setting forth such adjustment or readjustment or change and
showing in detail the facts upon which such adjustment or readjustment or
change is based.  The failure of the
Company to deliver an Adjustment Notice shall not affect the validity of any
such adjustment.


 


(d)                                 Major
Transactions.  In the event of a
merger, consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a
result of which shares of Common Stock shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities or other assets of the Company or another entity or the Company
shall sell all or substantially all of its assets (each of the foregoing being
a “Major Transaction”), the Company will give each Holder at least
twenty (20) Trading Days’ written notice prior to the closing of such Major
Transaction, and: (i) each Holder shall be permitted to convert the Preferred
Shares held by such Holder in whole or in part at any time prior to the record
date for the receipt of such consideration and shall be entitled to receive,
for each share of Common Stock issuable to such Holder for such exercise, the
same per share consideration payable to the other holders of Common Stock in
connection with such Major Transaction, and (ii) if and to the extent that a
Holder retains any Preferred Shares following such record date, the Company
will cause the surviving or, in the event of a sale of assets, purchasing
entity, as a condition precedent to such Major Transaction, to assume the
obligations of the Company with respect to the Series B Preferred Stock, with
such adjustments to the Conversion Price and the securities covered hereby as
may be necessary in order to preserve the economic benefits of the Series B
Preferred Stock to such Holder.


 


(e)                                  Adjustments;
Additional Shares, Securities or Assets. 
In the event that at any time, as a result of an adjustment made
pursuant to this Section 8, each Holder shall, upon conversion of such Holder’s
Preferred Shares, become entitled to receive securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 8.


 


9.                                       REDEMPTION.


 


(a)                                  Mandatory
Redemption.  In the event that a
Fundamental Change occurs, each Holder shall have the right to require the
Company to redeem all or any portion of the Preferred Shares held by such
Holder (a “Mandatory Redemption”) at the Mandatory Redemption Price (as
defined below).  In order to exercise
its right to effect a Mandatory Redemption, a Holder must deliver a written
notice (a 


 


17

















 


“Mandatory Redemption
Notice”) to the Company at any time on or before 6:00 p.m. (eastern time)
on the third (3rd) Business Day following the Business Day on which
the Fundamental Change to which such Mandatory Redemption Notice relates is no
longer in effect. The Mandatory Redemption Notice shall specify the effective
date of such Mandatory Redemption (the “Mandatory Redemption Date”) and
the number of such shares to be redeemed.


 


(b)                                 Mandatory
Redemption Price.  The “Mandatory
Redemption Price” shall be equal to the greater of (i) the Liquidation
Preference of the Preferred Shares being redeemed times one hundred and
one percent (101%) and (ii) the Liquidation Preference for such Preferred
Shares divided by the Conversion Price times the Market Price in
effect on the Mandatory Redemption Date.


 


(c)                                  Payment
of Mandatory Redemption Price.


 


(i)                                     The
Company shall pay the Mandatory Redemption Price to the Holder exercising its
right to redemption on the later to occur of (A) the fifth (5th) Business Day
following the Mandatory Redemption Date and (B) the date on which the Preferred
Shares being redeemed are delivered by the Investor to the Company for
cancellation (the “Mandatory Redemption Payment Date”).


 


(ii)                                  If
Company fails to pay the Mandatory Redemption Price to a Holder on or before
the Mandatory Redemption Date, such Holder shall be entitled to interest
thereon, from and after the Mandatory Redemption Payment Date until the
Mandatory Redemption Price has been paid in full, at an annual rate equal to
the Default Interest Rate.


 


10.                                 MISCELLANEOUS.


 


(a)                                  Transfer
of Preferred Shares.  Upon notice to
the Company, a Holder may sell or transfer all or any portion of the Preferred
Shares to any person or entity as long as such sale or transfer is the subject
of an effective registration statement under the Securities Act or is exempt
from registration thereunder and otherwise is made in accordance with the terms
of the Securities Purchase Agreement. 
From and after the date of such sale or transfer, the transferee thereof
shall be deemed to be a Holder.  Upon
any such sale or transfer, the Company shall, promptly following the return of
the certificate or certificates representing the Preferred Shares that are the
subject of such sale or transfer, issue and deliver to such transferee a new
certificate in the name of such transferee.


 


(b)                                 Notices.  Any notice, demand or request required or
permitted to be given by the Company or an 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:


 


18

















 


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 any Holder, to
such address for such Holder as shall be designated by such Holder in writing
to the Company.


 


(c)                                  Lost
or Stolen Certificate.  Upon receipt
by the Company of evidence of the loss, theft, destruction or mutilation of a
certificate representing a Holder’s Preferred Shares, and (in the case of loss,
theft or destruction) of indemnity or security reasonably satisfactory to the
Company and the Transfer Agent, and upon surrender and cancellation of such
certificate if mutilated, the Company shall execute and deliver to such Holder
a new certificate identical in all respects to the original certificate.


 


(d)                                 No
Voting Rights.  Except as provided
by applicable law and paragraph 10(g) below, the Holders of the Preferred
Shares shall have no voting rights with respect to the business, management or
affairs of the Company; provided that the Company shall provide each Holder
with prior notification of each meeting of stockholders (and copies of proxy
statements and other information sent to such stockholders).


 


(e)                                  Remedies.  The remedies provided to a Holder in this
Certificate shall be cumulative and in addition to all other remedies available
to such Holder under this Certificate or under any Transaction Document (as defined
in the Securities Purchase Agreement), at law or in equity (including without
limitation a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing contained herein shall limit
such Holder’s right to pursue actual damages for any failure by the Company to
comply with the terms of this Certificate. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder hereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof). The Company acknowledges that a
material breach by it of its obligations hereunder will cause irreparable harm
to the Holders and that the remedy at law for any such breach may be
inadequate. The Company agrees, in the event of any such breach or threatened
breach, each Holder shall be entitled, in addition to all other available
remedies, to an


 


19

















 


injunction restraining
any breach, without the necessity of showing economic loss and without any bond
or other security being required.


 


(f)                                    Failure
or Delay not Waiver.  No failure or
delay on the part of a Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.


 


(g)                                 Protective
Provisions. So long as shares of Series B Preferred Stock are outstanding,
the Company shall not, without first obtaining the written approval of the Holders
of at least two-thirds (2/3) of the outstanding shares of Series B Preferred
Stock:


 


(i)                                     alter,
change, modify or amend (x) the terms of the Series B Preferred Stock in any
way or (y) the terms of any other capital stock of the Company so as to affect
adversely the Series B Preferred Stock;


 


(ii)                                  create
any new class or series of capital stock having a preference over or ranking
pari passu with the Series B Preferred Stock as to redemption or distribution
of assets upon a Liquidation Event or any other liquidation, dissolution or
winding up of the Company;


 


(iii)                               increase
the authorized number of shares of Series B Preferred Stock;


 


(iv)                              re-issue
any shares of Series B Preferred Stock which have been converted or redeemed in
accordance with the terms hereof;


 


(v)                                 issue
any Pari Passu Securities or Senior Securities;


 


(vi)                              redeem,
or declare, pay or make any provision for any dividend or distribution with
respect to Junior Securities; or


 


(vii)                           issue
any Series B Preferred Stock except pursuant to the terms of the Securities
Purchase Agreement.


 


In the event that the
Holders of at least two-thirds of the outstanding shares of Series B Preferred
Stock agree to allow the Company to alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock pursuant to the terms
hereof, then the Company will deliver notice of such approved change to the
holders of the Series B Preferred Stock that did not agree to such alteration
or change (the “Dissenting Holders”) and the Dissenting Holders shall
have the right for a period of thirty (30) days following such delivery to
convert their Preferred Shares pursuant to the terms hereof as they existed
prior to such alteration or change, or to continue to hold such Preferred
Shares.  No such change shall be
effective to the extent that, by its terms, such change applies to less than
all of the shares of Series B Preferred Stock then outstanding.


 


[Remainder of Page
Intentionally Left Blank]


 


20

















 


IN WITNESS WHEREOF, the
Company has executed this Certificate as of the      
day of August, 2004.


 


NEOMAGIC CORPORATION


 


 


	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


21

















 


[EXECUTION COPY]


 


EXHIBIT A


 


NOTICE OF
CONVERSION


 


The undersigned hereby
elects to convert shares of Series B Convertible Preferred Stock (the
“Preferred Stock”), represented by stock certificate No(s).
                       
(the “Preferred Stock Certificates”), into shares of common stock (“Common
Stock”) of NEOMAGIC CORPORATION according to the terms and conditions of the
Certificate of Designation relating to the Preferred Stock (the “Certificate of
Designation”), as of the date written below. 
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Certificate of Designation. Unless
otherwise specified in writing to the Company, the undersigned represents to
the Company that the shares of Common Stock covered by this notice have been or
will be sold pursuant to the terms of an effective registration statement.


 


	
   

  	
  Date of Conversion:

  	
   

  
	
   

  	
   

  
	
   

  	
  Stated Value of

  
	
   

  	
  Preferred Stock to be
  Converted:

  	
   

  
	
   

  	
   

  
	
   

  	
  Applicable Conversion
  Price:

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Shares of

  
	
   

  	
  Common Stock to be
  Issued:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name of Holder:

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Holder Requests
  Delivery to be made: (check one)

  	
   

  
	
   

  	
   

  
	
  o

  	
  By Delivery of Physical
  Certificates to the Above Address

  
	
   

  	
   

  	
   

  
	
  o

  	
  Through Depository
  Trust Corporation

  	
   

  
	
   

  	
  (Account

  	
   

  	
  )