Exhibit 4.1


 


THIS WARRANT AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY
NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED UNLESS A REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH
RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER,
SALE OR TRANSFER. SUBJECT TO COMPLIANCE WITH THE REQUIREMENTS OF THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE PLEDGED OR HYPOTHECATED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS
WARRANT OR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT.


 


SERIES A WARRANT 


 


TO PURCHASE COMMON STOCK 


 


OF


 


NEOMAGIC CORPORATION


 


	
  Issue Date:  August 20, 2004

  	
   

  	
  Warrant No. 2004-1A

  



 


THIS CERTIFIES that SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC or any
subsequent holder hereof (the “Holder”), has the right to purchase from
NEOMAGIC CORPORATION, a Delaware corporation (the “Company”), up to
1,608,696 fully paid and nonassessable shares of the Company’s common stock,
par value $0.001 per share (the “Common Stock”), subject to adjustment
as provided herein, at a price per share equal to the Exercise Price (as
defined below), at any time and from time to time beginning on the date on
which this Warrant is originally issued (the “Issue Date”) and ending at
6:00 p.m., eastern time, on the date that is the fifth (5th)
anniversary of the Issue Date (or, if such date is not a Business Day, on the
Business Day immediately following such date) (the “Expiration Date”).  This Warrant is issued pursuant to a
Securities Purchase Agreement, dated as of August 19, 2004 (the “Securities
Purchase Agreement”).  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Securities Purchase Agreement.


 

















 


1.                                       Exercise.


 


(a)                                  Right
to Exercise; Exercise Price.  The
Holder shall have the right to exercise this Warrant at any time and from time
to time during the period beginning on the Issue Date and ending on the Expiration
Date as to all or any part of the shares of Common Stock covered hereby (the “Warrant
Shares”).  The “Exercise Price”
for each Warrant Share purchased by the Holder upon the exercise of this
Warrant shall be equal to $1.64, subject to adjustment for the events specified
in Section 6 below. 


 


(b)                                 Exercise
Notice.  In order to exercise this
Warrant, the Holder shall send by facsimile transmission, at any time prior to
6:00 p.m., eastern time, on the Business Day on which the Holder wishes to
effect such exercise (the “Exercise Date”), to the Company an executed
copy of the notice of exercise in the form attached hereto as Exhibit A (the “Exercise
Notice”), and a copy of the original Warrant, and, in the case of a Cash
Exercise (as defined below), shall forward to the Company the Exercise
Price.  The Exercise Notice shall also state the name or names (with
address) in which the shares of Common Stock that are issuable on such exercise
shall be issued.  In the
case of a dispute as to the calculation of the Exercise Price or the number of
Warrant Shares issuable hereunder (including, without limitation, the
calculation of any adjustment pursuant to Section 6 below), the Company
shall promptly issue to the Holder the number of Warrant Shares that are not disputed
and shall submit the disputed calculations to a certified public accounting
firm of national recognition (other than the Company’s independent accountants)
within two (2) Business Days following the date on which the Exercise Notice is
delivered to the Company. The Company shall cause such accountant to calculate
the Exercise Price and/or the number of Warrant Shares issuable hereunder and
to notify the Company and the Holder of the results in writing no later than
three (3) Business Days following the day on which such accountant received the
disputed calculations (the “Dispute Procedure”). 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)           Holder of Record.  The Holder shall, for all purposes, be
deemed to have become the holder of record of the Warrant Shares specified in
an Exercise Notice on the Exercise Date specified therein, irrespective of the
date of delivery of such Warrant Shares. 
Except as specifically provided herein, nothing in this Warrant shall be
construed as conferring upon the Holder hereof any rights as a stockholder of
the Company prior to the Exercise Date.


 


(d)                                 Cancellation
of Warrant.  This Warrant shall be
canceled upon its exercise and, if this Warrant is exercised in part, the
Company shall, at the time that it delivers Warrant Shares to the Holder
pursuant to such exercise as provided herein, issue a new warrant, and deliver
to the Holder a certificate representing such new warrant, with terms identical
in all respects to this Warrant (except that such new warrant shall be
exercisable into the number of shares of Common Stock with respect to which
this Warrant shall remain unexercised); provided, however, that the Holder shall
be entitled to exercise all or any portion of such new warrant at any time
following the time at which this Warrant is exercised, regardless of whether
the Company has actually issued such new warrant or delivered to the Holder a
certificate therefor.


 


2

















 


2.                                       Delivery
of Warrant Shares Upon Exercise. 
Upon receipt of an Exercise Notice pursuant to Section 1 above, the
Company shall, (A) in the case of a Cash Exercise no later than the close of
business on the later to occur of (i) the third (3rd) Business Day following
the Exercise Date set forth in such Exercise Notice and (ii) such later date on
which the Company shall have received payment of the Exercise Price, (B) in the
case of a Cashless Exercise (as defined below), no later than the close of
business on the third (3rd) Business Day following the Exercise Date set forth
in such Exercise Notice, and (C) with respect to Warrant Shares that are the
subject of a Dispute Procedure, the close of business on the third (3rd)
Business Day following the determination made pursuant to Section 1(b)
(each of the dates specified in (A), (B) or (C) being referred to as a “Delivery
Date”), issue and deliver or caused to be delivered to the Holder the
number of Warrant Shares as shall be determined as provided herein.  As long as the Company’s
transfer agent (“Transfer Agent”) participates in the Depository
Trust Company (“DTC”) Fast Automated Securities Transfer program (“FAST”),
and except as otherwise provided in the next following sentence of this
Section 2, the Company shall effect delivery of Warrant Shares to the
Holder by crediting the account of the Holder or its nominee at DTC (as
specified in the applicable Exercise Notice) with the number of Warrant 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 the Warrant Shares are not otherwise
eligible for delivery through FAST, or if the Holder so specifies in an
Exercise Notice or otherwise in writing on or before the Exercise Date, the
Company shall effect delivery of Warrant Shares by delivering to the Holder or
its nominee physical certificates representing such Warrant Shares, no later
than the close of business on such Delivery Date. 


 


3.                                       Failure
to Deliver Warrant Shares. 


 


(a)                                  In
the event that the Company fails for any reason to deliver to the Holder the
number of Warrant Shares specified in the applicable Exercise Notice on or
before the Delivery Date therefor (an “Exercise Default”), the Company
shall pay to the Holder payments (“Exercise Default Payments”) in the
amount of (i) (N/365) multiplied by (ii) the aggregate Exercise Price of
the Warrant Shares which are the subject of such Exercise Default multiplied
by (iii) the lower of fifteen percent (15%) and the maximum rate permitted
by applicable law (the “Default Interest Rate”), where “N” equals the
number of days elapsed between the original Delivery Date of such Warrant
Shares and the date on which all of such Warrant Shares are issued and
delivered to the Holder.  Cash amounts
payable hereunder shall be paid on or before the fifth (5th) Business Day of
each calendar month following the calendar month in which such amount has
accrued. 


 


(b)                                 In
the event of an Exercise Default, the Holder may, upon written notice to the
Company (an “Exercise Default Notice”), regain on the date of such
notice the rights of the Holder under the exercised portion of this Warrant
that is the subject of such Exercise Default, in which case the Exercise Price
upon any subsequent exercise of such portion of this Warrant will be equal to
the lesser of (x) the lowest Exercise Price occurring during the period
beginning on related Delivery Date and ending on the date on which the Exercise
Default Notice is delivered to the Company and (y) the Exercise Price in effect
on the applicable Exercise Date (it being understood that the Holder may
deliver an Exercise Notice at any time following delivery of an Exercise
Default Notice to the Company).  In such
event, the Holder shall retain all of the Holder’s rights


 


3

















 


and remedies with respect to the Company’s failure to deliver such
Warrant Shares (including without limitation the right to receive the cash
payments specified in Section 3(a) above).


 


(c)                                  The
Holder’s rights and remedies hereunder are cumulative, and no right or remedy
is exclusive of any other.  In addition
to the amounts specified herein, the 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). Nothing
herein shall limit the Holder’s right to pursue actual damages for the
Company’s failure to issue and deliver Warrant Shares on the applicable
Delivery Date (including, without limitation, damages relating to any purchase
of Common Stock by the Holder to make delivery on a sale effected in
anticipation of receiving Warrant Shares upon exercise, such damages to be in
an amount equal to (A) the aggregate amount paid by the Holder for the Common
Stock so purchased minus (B) the aggregate amount of net proceeds, if
any, received by the Holder from the sale of the Warrant Shares issued by the
Company pursuant to such exercise).


 


4.                                       Exercise
Limitations.  In no event shall a
Holder be permitted to exercise this Warrant, or part hereof, if, upon such
exercise, either:


 


(a)                                  the
number of shares of Common Stock beneficially owned by the Holder (other than
shares 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 Section 4), would exceed 4.99% 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 Section 4 applies, the
submission of an Exercise Notice by the Holder shall be deemed to be the
Holder’s representation that this Warrant is exercisable pursuant to the terms
hereof and the Company shall be entitled to rely on such representation without
making any further inquiry as to whether this Section 4 applies. Nothing
contained herein shall be deemed to restrict the right of a Holder to exercise
this Warrant, or part thereof, at such time as such exercise will not violate
the provisions of this Section 4(a). 
This Section 4 may not be amended unless such amendment is approved
by the holders of a majority of the Common Stock then outstanding; provided,
however, that the limitations contained in this Section 4(a)
shall cease to apply (x) upon sixty (60) days’ prior written notice from the
Holder to the Company, or (y) immediately upon written notice from the Holder
to the Company at any time after the public announcement or other disclosure of
a Major Transaction (as defined below), or


 


(b)                                 unless
Stockholder Approval (as defined below) has been obtained or the 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 Warrant Shares that such
Holder would receive upon such exercise, when added to (i) the number of
Warrant Shares previously received by such Holder pursuant to this Warrant plus
(ii) the number of shares of Common Stock previously received by such Holder
upon conversion of Series B Preferred Shares, would exceed the product of (A)
the Cap Amount (as defined in the Certificate) multiplied by (B) a fraction,
the numerator of which is the number of Warrant Shares originally issuable
under this Warrant and the denominator of which is the aggregate number of
Warrant Shares originally issuable under this Warrant and the other Warrants


 


4

















 


(such product, the “Allocation Amount”).  In the event that any Investor to which this
Warrant was originally issued shall sell or otherwise transfer any part of this
Warrant, the remaining Warrant Shares constituting such transferring Investor’s
Allocation Amount shall be allocated between the transferring Investor and the
transferee in proportion to amount of this Warrant being transferred.  In the event that, at any time, the sum of
(i) the aggregate number of Warrant Shares issuable under this Warrant (without
regard to any restrictions on such issuance) plus (ii) the aggregate number of
shares of Common Stock issuable upon conversion of Series B Preferred Shares
(without regard to any restrictions on such conversion) plus (iii) and any
issued or issuable shares of Common Stock that would be integrated with such
Warrant Shares and conversion 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 the Holder, hold as promptly as reasonably
practicable a special meeting of its stockholders for the purpose of obtaining,
and use its best efforts to obtain, 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 annually
thereafter.  “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.


 


5.                                       Payment
of the Exercise Price; Cashless Exercise.  The Holder may pay the Exercise Price in either of the following
forms or, at the election of Holder, a combination thereof:


 


(a)                                  through
a cash exercise (a “Cash Exercise”) by delivering immediately available
funds, or


 


(b)                                 through
a cashless exercise (a “Cashless Exercise”), as hereinafter
provided.  The Holder may effect a
Cashless Exercise by surrendering this Warrant to the Company and noting on the
Exercise Notice that the Holder wishes to effect a Cashless Exercise, upon
which the Company shall issue to the Holder the number of Warrant Shares
determined as follows:


 


	
   

  	
   

  	
  X = Y x (A-B)/A

  
	
   

  	
   

  	
   

  
	
  where:

  	
   

  	
  X = the number of Warrant Shares to be issued to the Holder;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Y = the number of Warrant Shares with
  respect to which this Warrant is being exercised;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A = the Market Price (as defined in the Certificate) as of the
  Exercise Date; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B = the Exercise Price.

  



 


For purposes of Rule 144, it is
intended and acknowledged that the Warrant Shares issued in a Cashless Exercise
transaction shall be deemed to have been acquired by the Holder, and the


 


5

















 


holding period for the Warrant
Shares required by Rule 144 shall be deemed to have been commenced, on the
Issue Date. 


 


6.                                       Anti-Dilution
Adjustments; Distributions; Other Events. The Exercise Price and the number
of Warrant Shares issuable hereunder shall be subject to adjustment from time
to time as provided in this Section 6. 
In the event that any adjustment of the Exercise Price required herein
results in a fraction of a cent, the Exercise Price shall be rounded up or down
to the nearest one hundredth of a cent.


 


(a)                                  Subdivision
or Combination of Common Stock.  If
the Company, at any time after the Issue 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 effective upon the close of business on the record date for
effecting such subdivision, the Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced.  If the Company, at any time after the Issue Date, combines (by
reverse stock split, recapitalization, reorganization, reclassification or
otherwise) the outstanding shares of Common Stock into a smaller number of
shares, then, effective upon the close of business on the record date for
effecting such combination, the Exercise 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 the
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”).  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 this Warrant is
exercisable as of such Determination Date (such number of shares to be
determined at the Exercise Price then in effect and without giving effect to
any limitations on such exercise) or (B) to reduce the Exercise 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 Issue 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 per share consideration less than


 


6

















 


the Exercise Price on the date of such issuance or sale (a “Dilutive Issuance”), then the
Exercise Price shall be adjusted as follows:


 


(A)                              If
such Dilutive Issuance occurs prior to the Effective Date (as defined in the
Registration Rights Agreement), then effective immediately upon the Dilutive
Issuance, the Exercise 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
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 Exercise Price shall be adjusted so as to equal an
amount determined by multiplying such Exercise 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 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 Exercise 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.


 


7

















 


Notwithstanding the foregoing, no adjustment
shall be made pursuant hereto if such adjustment would result in an increase in
the Exercise Price.


 


(ii)                                  Adjustment
Upon Below Market Issuance.  If, at
any time after the Issue 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 per share consideration less than the
lower of (x) the Market Price on the date of such issuance or sale (or deemed
issuance or sale) and (y) $5.00 per share (a “Below Market Issuance”), then the Exercise Price shall be
adjusted as follows:


 


(A)                              If
such Below Market Issuance occurs prior to the Effective Date (as defined in
the Registration Rights Agreement), then effective immediately upon such
issuance, the Exercise 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 Below Market Issuance (which, in the case of a deemed issuance or sale,
shall be calculated in accordance with subparagraph (iii) below).


 


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


 


8

















 


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 Exercise Price. 
In the event that the Company effects an issuance that is both a
Dilutive Issuance and a Below Market Issuance, the Exercise Price will be
adjusted to the lower of the prices calculated pursuant to subparagraphs (i)
and (ii) of this paragraph (c).


 


(iii)                               Effect
On Exercise Price Of Certain Events. 
For purposes of determining the adjusted Exercise 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 the lower of (x) the Market Price in effect on the
date of issuance or sale of such Purchase Rights and (y) $5.00 per share, then
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) 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 Exercise 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.  No further adjustment
to the Exercise 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 Exercise Price shall be readjusted to the Exercise 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.


 


9

















 


(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 the lower of (x) Market Price in effect on the date of issuance or sale of
such Convertible Securities and (y) $5.00 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)), 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 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 Exercise Price
in effect at such time shall be readjusted to equal the Exercise 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 Exercise 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 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.


 


10

















 


(C)                                Change In Option
Price Or Conversion Rate.  If,
following an adjustment to the Exercise 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
Exercise Price in effect at the time of such change shall be readjusted to the
Exercise 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 therefore.  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 the consideration 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 publicly traded 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, the 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 the Holder makes an election pursuant to
the immediately preceding sentence, no adjustment to the Exercise 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.


 


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(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, whether as a result of the issuance of the Warrants or otherwise,
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 Exercise Price. 
Notwithstanding the foregoing, no adjustment to the Exercise Price shall
be made pursuant to this paragraph (c) upon the issuance of any Excluded
Securities.  For purposes hereof, “Excluded
Securities” means (I) securities purchased under the Securities Purchase
Agreement; (II) securities issued upon conversion of the Preferred Shares or
exercise of the Warrants; (III) 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 Execution Date or approved by the
independent members of the Board of Directors or by the Company’s shareholders,
or (y) 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; (IV) shares of Common Stock issued in
connection with any Convertible Securities or Purchase Rights outstanding on
the date hereof; and (V) 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 one or more adjustments or readjustments of the Exercise Price pursuant to
this paragraph (c) resulting in a change in the Exercise Price by more than one
percent (1%) in the aggregate, or any change in the number or type of stock,
securities and/or other property issuable upon exercise of this Warrant, the
Company, at its expense, shall promptly compute such adjustment or readjustment
or change and prepare and furnish to the 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


 


12

















 


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 the Holder
at least thirty (30) days written notice prior to the earlier of (I) the closing
or effectiveness of such Major Transaction and (II) the record date for the
receipt of such shares of stock or securities or other assets, and: (i) the
Holder shall be permitted to exercise this Warrant in whole or in part at any
time prior to the record date for the receipt of such shares of stock or
securities or other assets and shall be entitled to receive, for each share of
Common Stock issuable to 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 the Holder retains
any portion of this Warrant 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 under this Warrant, with such adjustments to the Exercise Price and the
securities covered hereby as may be necessary in order to preserve the economic
benefits of this Warrant to the 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 6, the Holder of this Warrant shall, upon
exercise of this Warrant, 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 6.  Any
adjustment made herein that results in a decrease in the Exercise Price shall
also effect a proportional increase in the number of shares of Common Stock
into which this Warrant is exercisable.


 


7.                                       Fractional
Interests.


 


No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant,
the Holder hereof may purchase only a whole number of shares of Common
Stock.  If, on exercise of this Warrant,
the Holder hereof would be entitled to a fractional share of Common Stock or a
right to acquire a fractional share of Common Stock, the Company shall, in lieu
of issuing any such fractional share, pay to the Holder an amount in cash equal
to the product resulting from multiplying such fraction by the Market Price as
of the Exercise Date. 


 


8.                                       Transfer
of this Warrant.  


 


The Holder may sell, transfer, assign, pledge or otherwise dispose of
this Warrant, in whole or in part, as long as such sale or other disposition is
made pursuant to an effective registration statement or an exemption from the
registration requirements of the Securities Act.  Upon such transfer or other disposition, the Holder shall deliver
this Warrant to the Company together with a written notice to the Company,
substantially in the form of the Transfer Notice attached hereto as Exhibit B
(the “Transfer Notice”), indicating the person or persons to whom this
Warrant shall be transferred and, if less than all of this Warrant is
transferred, the number of


 


13

















 


Warrant Shares to be covered by the part of this Warrant to be
transferred to each such person. Within three (3) Business Days of receiving a
Transfer Notice and the original of this Warrant, the Company shall deliver to
the each transferee designated by the Holder a Warrant or Warrants of like
tenor and terms for the appropriate number of Warrant Shares and, if less than
all this Warrant is transferred, shall deliver to the Holder a Warrant for the
remaining number of Warrant Shares.  


 


9.                                       Benefits
of this Warrant.


 


This Warrant shall be for the sole and exclusive benefit of the Holder
of this Warrant and nothing in this Warrant shall be construed to confer upon
any person other than the Holder of this Warrant any legal or equitable right,
remedy or claim hereunder.


 


10.                                 Loss,
theft, destruction or mutilation  of
Warrant.


 


Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.


 


11.                                 Notice
or Demands.


 


Any notice, demand or request required or permitted to be given by the
Company or the Holder pursuant to the terms of this Warrant 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:


 


If to the Company:


 


NeoMagic Corporation


3250 Jay Street


Santa Clara, California  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


 


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and if to the Holder, to such address as shall be designated by the
Holder in writing to the Company. 


 


12.                                 Applicable
Law.


 


This Warrant
is issued under and shall for all purposes be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within the State of New York.


 


13.                                 Amendments.


 


No amendment,
modification or other change to, or waiver of any provision of, this Warrant
may be made unless such amendment, modification or change is (A) set forth in
writing and is signed by the Company and the Holder and (B) agreed to in writing
by the holders of at least two-thirds (2/3) of the number of shares into which
the Warrants are exercisable (without regard to any limitation contained herein
on such exercise), it being understood that upon the satisfaction of the
conditions described in (A) and (B) above, each Warrant (including any Warrant
held by the Holder who did not execute the agreement specified in (B) above)
shall be deemed to incorporate any amendment, modification, change or waiver
effected thereby as of the effective date thereof.


 


14.                                 Entire Agreement.                                                


 


This Warrant, the Securities Purchase Agreement, the Certificate
of Designation, the
Registration Rights Agreement, and the other Transaction Documents constitute
the entire agreement among the parties hereto with respect to the subject
matter hereof and thereof.  There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein.  This
Warrant, the Securities Purchase Agreement, the Certificate of
Designation, the Registration
Rights Agreement, and the other Transaction Documents supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.


 


15.                                 Headings.  


 


The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.


 


[Signature Page to Follow]


 


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IN WITNESS WHEREOF, the Company has duly
executed and delivered this Series A Warrant as of the Issue Date.


 


	
   

  	
  NEOMAGIC CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  



 

















 


EXHIBIT A to SERIES A WARRANT


 


EXERCISE NOTICE


 


The undersigned Holder hereby irrevocably exercises the right to
purchase                           of
the shares of Common Stock (“Warrant Shares”) of
                                      evidenced by the attached Series A Warrant
(the “Warrant”).  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.


 


1.                                       Form
of Exercise Price.  The Holder intends
that payment of the Exercise Price shall be made as:


 


                      
a Cash Exercise with respect to
                 
Warrant Shares; and/or 


 


                      
a Cashless Exercise with respect to                  
Warrant Shares, as permitted by Section 5(b) of the attached Warrant.


 


2.             Payment of Exercise
Price.  In the event that the Holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the Holder shall pay the sum of
$                
to the Company in accordance with the terms of the Warrant.


 


 


	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


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EXHIBIT B to SERIES A WARRANT


 


TRANSFER NOTICE


 


FOR VALUE RECEIVED, the undersigned Holder of the attached Series A
Warrant hereby sells, assigns and transfers unto the person or persons named
below the right to
purchase          shares of
the Common Stock of                      
evidenced by the attached Series A Warrant.


 


	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Registered Holder

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  
	
  Transferee Name and Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
						



 


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