Document:

Exhibit 4.3

 

REGISTRATION RIGHTS AGREEMENT

 

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

 

The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement, dated as of August 19, 2004
(the “Securities Purchase Agreement”), to issue and sell to each
Investor named therein shares of Series B Convertible Preferred Stock (the “Preferred
Stock”), a Series A Warrant and a Series B Warrant (as defined in the
Securities Purchase Agreement; and collectively, the “Warrants”).

 

The shares of Preferred Stock are convertible into shares (the “Conversion
Shares”) of the Company’s common stock, par value $0.001 per share (the “Common
Stock”). The Warrants are exercisable into shares of Common Stock (the “Warrant
Shares”) in accordance with their terms.

 

In order to induce each Investor to enter into the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended (the “Securities Act”), and under
applicable state securities laws.

 

In
consideration of each Investor entering into the Securities Purchase Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:

 

1.                                       DEFINITIONS.

 

For purposes of this Agreement, the following terms shall have the
meanings specified:

 

“Commission” means the Securities and
Exchange Commission.

 

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

 

“Filing Deadline” means the thirtieth
(30th) calendar day following the Closing Date.

 

“Holder” means any person owning or
having the right to acquire, through conversion of the Preferred Stock or
exercise of the Warrants or otherwise, Registrable Securities, including
initially each Investor and thereafter any permitted assignee thereof.

 

“Registrable Securities” means the
Conversion Shares and the Warrant Shares and any other shares of Common Stock
issuable pursuant to the terms of the Preferred Stock or the Warrants, and any
shares of capital stock issued or issuable from time to time (with any

 

 

adjustments) in replacement of, in exchange for or otherwise in respect
of the Conversion Shares or the Warrant Shares.

 

“Registration Deadline” means the one
hundred twentieth (120th) calendar day following the Closing Date.

 

“Registration Statement” means the
Registration Statement filed by the Company pursuant to paragraph  2(a) hereof.

 

“Registration Period” has the meaning
set forth in paragraph 2(c) below.

 

“Registration Statement” means a
registration statement or statements prepared in compliance with the Securities
Act and pursuant to Rule 415 under the Securities Act (“Rule 415”) or
any successor rule providing for the offering of securities on a continuous or
delayed basis.

 

Capitalized terms used herein and not otherwise defined shall have the
respective meanings specified in the Securities Purchase Agreement or the
Certificate of Designation, as applicable.

 

2.                                       REGISTRATION.

 

(a)                                  Registration
Statement.  On or before the Filing
Deadline, the Company shall prepare and file with the Commission a Registration
Statement on Form S-3 as a “shelf” registration statement under Rule 415
covering the resale of a number of shares of Registrable Securities equal to
one hundred and twenty-five percent (125%) of the number of shares of Common
Stock issuable on the Closing Date pursuant to the conversion of the Series B
Preferred Stock and the exercise of the Series A Warrants and the Series B
Warrants (such number to be determined using the Conversion Price or Exercise
Price, as applicable, in effect on such date and without regard to any
restriction on the ability of any Holder to convert such Holder’s Series B Preferred
Stock or exercise such Holder’s Series A Warrant or Series B Warrant as of such
date).  Such Registration Statement
shall state, to the extent permitted by Rule 416 under the Securities Act, that
it also covers such indeterminate number of additional shares of Common Stock
as may become issuable upon the conversion of the Series B Preferred Stock and
exercise of the Series A Warrants in order to prevent dilution resulting from
stock splits, stock dividends or similar events.

 

(b)                                 Alternative
Registration Statement. 
Notwithstanding the foregoing paragraph 2(a), if at the relevant dates
the Company does not meet the eligibility requirements for filing a
Registration Statement on Form S-3, then in each such case the Company shall
instead prepare and file with the Commission a Registration Statement meeting
the foregoing requirements on Form S-1 or Form S-2, and in such event, the
Company shall re-file such Registration Statement, or file a new Registration
Statement covering at least the number of shares then registered on the
existing Registration Statement(s) (and not previously sold pursuant to an
existing Registration Statement or pursuant to Rule 144 under the Securities
Act (“Rule 144”)), on Form S-3 as promptly as practicable (but in no
event later than thirty (30) days) after the Company meets the eligibility
requirements to use Form S-3 for the resale of Registrable Securities by each
Investor.

 

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(c)                                  Effectiveness.  The Company shall use its best efforts to
cause the Registration Statement to become effective as soon as practicable
following the filing thereof, but in no event later than the Registration
Deadline.  The Company shall respond
promptly to any and all comments made by the staff of the Commission on the
Registration Statements, and shall submit to the Commission, within two (2)
Business Days after the Company learns that no review of a Registration
Statement will be made by the staff of the Commission or that the staff of the
Commission has no further comments on a Registration Statement, as the case may
be, a request for acceleration of the effectiveness of such Registration
Statement to a time and date not later than two (2) Business Days after the
submission of such request. The Company will maintain the effectiveness of each
Registration Statement until the earlier to occur of (i) the date on which all
of the Registrable Securities eligible for resale thereunder have been publicly
sold pursuant to either the Registration Statement or Rule 144 and (ii) the
date on which all of the Registrable Securities remaining to be sold under such
Registration Statement (in the reasonable opinion of counsel to the Company)
may be immediately sold to the public under Rule 144(k) under the Securities
Act (“Rule 144(k)”) or any successor provision (the period beginning on
the Closing Date and ending on the earlier to occur of (i) or (ii) above being
referred to herein as the “Registration Period”).

 

(d)                                 Registration
Default.  If (i) the Registration Statement
is not filed on or before the Filing Deadline or declared effective by the
Commission on or before the Registration Deadline, (ii) after the Registration
Statement has been declared effective by the Commission, sales of Registrable
Securities cannot be made by a Holder under such Registration Statement for any
reason not within the exclusive control of such Holder (other than such
Registrable Securities as are then freely saleable pursuant to Rule 144(k)), or
(iii) an amendment or supplement to the Registration Statement, or a new
registration statement, required to be filed pursuant to the terms of paragraph
4(j) below is not filed on or before the date required by such paragraph (each
of the foregoing clauses (i), (ii) and (iii) being referred to herein as a “Registration
Default”), the Company shall make cash payments to each Holder equal to
such Holder’s pro rata share (based on the aggregate number of Registrable
Securities held by or issuable to such Holder as of the Registration Deadline)
of $50,000 [i.e.
1% of the Purchase Price] for each thirty (30) day period or part thereof in
which a Registration Default exists; provided, however, that notwithstanding
the foregoing, the maximum amount of payments to a Holder associated with a
Registration Default relating to the Registrable Securities shall equal 12% of
the aggregate Purchase Price paid by such Holder.  Each such payment shall be made within five (5) Business Days
following the last day of each calendar month in which a Registration Default existed.
Any such payment shall be in addition to any other remedies available to each
Holder at law or in equity, whether pursuant to the terms hereof, the
Securities Purchase Agreement, the Certificate of Designation, or otherwise.

 

(e)                                  Allocation
of Conversion Shares and Warrant Shares. The initial number of Conversion
Shares and Warrant Shares included in any Registration Statement and each
increase in the number thereof included therein shall be allocated pro rata
among the Holders based on the aggregate number of Registrable Securities
issuable to each Holder at the time the Registration Statement covering such
initial number of Registrable Securities or increase thereof is declared
effective by the Commission (such number to be determined using the Conversion
Price or Exercise Price, as applicable, in effect at such time and without
regard to any restriction on the ability of a Holder to convert such Holder’s
Preferred Stock or exercise such Holder’s Warrant as of such date).  In the event that a Holder sells or
otherwise transfers any of such Holder’s Registrable Securities,

 

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each transferee shall be allocated the portion of the then remaining
number of Registrable Securities included in such Registration Statement
allocable to the transferor.

 

(f)                                    Registration
of Other Securities.  During the
period beginning on the date hereof and ending on the Effective Date, the
Company shall, except as described in Schedule 3.12 to the Securities
Purchase Agreement, refrain from filing any registration statement (other than
(i) a Registration Statement filed hereunder, or (ii) a registration statement
on Form S-8 with respect to stock option plans and agreements and stock plans
currently in effect and disclosed in the Securities Purchase Agreement or the
schedules thereto.  In no event shall
the Company include any securities other than the Registrable Securities on any
Registration Statement filed by the Company on behalf of the Holders pursuant
to the terms hereof.

 

3.                                       PIGGYBACK
REGISTRATION.

 

If at any time prior to the expiration of the Registration Period, (i)
the Company proposes to register shares of Common Stock under the Securities
Act in connection with the public offering of such shares for cash (a “Proposed
Registration”) other than a registration statement on Form S-8 or Form S-4
or any successor or other forms promulgated for similar purposes and (ii) a
Registration Statement covering the sale of all of the Registrable Securities
is not then effective and available for sales thereof by the Holders or the
Registrable Securities are not freely transferable pursuant to Rule 144(k)
under the Securities Act, the Company shall, at such time, promptly give each
Holder written notice of such Proposed Registration.  Each Holder shall have ten (10) Business Days from its receipt of
such notice to deliver to the Company a written request specifying the amount
of Registrable Securities that such Holder intends to sell and such Holder’s
intended method of distribution.  Upon
receipt of such request, the Company shall use its best efforts to cause all
Registrable Securities which the Company has been requested to register to be
registered under the Securities Act to the extent necessary to permit their
sale or other disposition in accordance with the intended methods of
distribution specified in the request of such Holder; provided, however, that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 3 without obligation to the Holders.  If, in connection with any underwritten
public offering for the account of the Company or for stockholders of the
Company that have contractual rights to require the Company to register shares
of Common Stock, the managing underwriter(s) thereof shall impose a limitation
on the number of shares of Common Stock which may be included in a registration
statement because, in the judgment of such underwriter(s), marketing or other
factors dictate such limitation is necessary to facilitate such offering, then
the Company shall be obligated to include in the registration statement only
such limited portion of the Registrable Securities with respect to which each
Holder has requested inclusion hereunder as such underwriter(s) shall permit.  Any exclusion of Registrable Securities
shall be made pro rata among the
Holders seeking to include Registrable Securities in a registration statement,
in proportion to the number of Registrable Securities sought to be included by
such Holders; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in the registration statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, that, after giving effect to the
immediately preceding proviso, any exclusion of Registrable Securities shall be
made pro rata with holders of
other securities having the right to include such securities in the
registration statement.

 

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4.                                       OBLIGATIONS
OF THE COMPANY.

 

In addition to performing its obligations hereunder, including without
limitation those pursuant to Section 2 above, the Company shall, with
respect to each Registration Statement:

 

(a)                                  prepare
and file with the Commission such amendments and supplements to such
Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act or to maintain the effectiveness of such Registration Statement
during the Registration Period, or as may be reasonably requested by a Holder
in order to incorporate information concerning such Holder or such Holder’s
intended method of distribution;

 

(b)                                 promptly
following the Closing, secure the listing on the Nasdaq National Market System
of all Registrable Securities issuable upon conversion of the Series B
Preferred Stock and exercise of the Series A Warrants and the Series B
Warrants, and provide each Holder with reasonable evidence thereof;

 

(c)                                  furnish
to each Holder such number of copies of the prospectus included in such
Registration Statement, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as such Holder
may reasonably request in order to facilitate the disposition of such Holder’s
Registrable Securities;

 

(d)                                 use
all commercially reasonable efforts to register or qualify the Registrable
Securities under the securities or “blue sky” laws of such jurisdictions within
the United States as shall be reasonably requested from time to time by a
Holder, and do any and all other acts or things which may be necessary or
advisable to enable such Holder to consummate the public sale or other
disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction;

 

(e)                                  notify
each Holder immediately after becoming aware of the occurrence of any event
(but shall not, without the prior written consent of such Holder, disclose to
such Holder any facts or circumstances constituting material non-public
information) as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and as promptly as practicable prepare and file with the Commission
and furnish to each Holder a reasonable number of copies of a supplement or an
amendment to such prospectus as may be necessary so that such prospectus does
not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;

 

(f)                                    use
all commercially reasonable efforts to prevent the issuance of any stop order
or other order suspending the effectiveness of such Registration Statement and,
if such an order is issued, to obtain the withdrawal thereof at the earliest
possible time and to notify each Holder of the issuance of such order and the
resolution thereof;

 

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(g)                                 furnish
to each Holder, on the date that such Registration Statement, or any successor
registration statement, becomes effective, (x) a letter, dated such date, of
outside counsel representing the Company (and reasonably acceptable to such
Holder) addressed to such Holder, confirming such effectiveness and, to the
knowledge of  such counsel, the absence
of any stop order, and (y) in the case of an underwriting, (A) a copy of an
opinion, dated such date, of such outside counsel, in such form and substance
as is required to be given to the underwriters, and (B) a letter addressed to
such Holder, dated such date, from the Company’s independent certified public
accountants, in such form and substance as is required to be given by the
Company’s independent certified public accountants to such underwriters;

 

(h)                                 provide
to each Holder and its representatives the reasonable opportunity to conduct a
reasonable inquiry of the Company’s financial and other records during normal
business hours and make available its officers, directors and employees for
questions regarding information which such Holder may reasonably request in
order to fulfill any due diligence obligation on its part;

 

(i)                                     permit
counsel for each Holder to review such Registration Statement and all
amendments and supplements thereto, and any comments made by the staff of the
Commission concerning such Holder and/or the transactions contemplated by the
Transaction Documents and the Company’s responses thereto, within a reasonable
period of time prior to the filing thereof with the Commission (or, in the case
of comments made by the staff of the Commission, within a reasonable period of
time following the receipt thereof by the Company); and

 

(j)                                     in
the event that, at any time, the number of shares available under the
Registration Statement is insufficient to cover one hundred twenty five percent
125% of the Registrable Securities issuable under the Series B Preferred
Stock,  Series A Warrants and Series B
Warrants (such number to be determined using the Conversion Price or Exercise Price,
as applicable, in effect at such time and without regard to any restriction on
the ability of any Holder to convert such Holder’s Series B Preferred Stock or
exercise such Holder’s Series A Warrant or Series B Warrant) the Company shall
promptly amend such Registration Statement or file a new registration
statement, in any event as soon as practicable, but not later than the tenth
(10th) day following notice from a Holder of the occurrence of such
event, so that such Registration Statement or such new registration statement,
or both, covers no less than one hundred twenty-five percent (125%) of the
Registrable Securities eligible for resale thereunder and issuable under the
related Series B Preferred Stock, Series A Warrants and Series B Warrants (such
number to be determined using the Conversion Price or Exercise Price, as
applicable, in effect at the time of such amendment or filing and without
regard to any restriction on the ability of any Holder to convert such Holder’s
Series B Preferred Stock or exercise such Holder’s Series A Warrant or Series B
Warrant).  The Company shall use its
best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. Any
Registration Statement filed pursuant to this paragraph 4(j) shall state that,
to the extent permitted by Rule 416 under the Securities Act, such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Series B Preferred Stock and
exercise of the Series A Warrants and Series B Warrants in order to prevent
dilution resulting from stock splits, stock dividends or similar events. Unless
and until such amendment or new

 

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Registration Statement becomes effective, each Holder shall have the
rights described in paragraph 2(d) above.

 

5.                                       OBLIGATIONS
OF EACH HOLDER.

 

In connection with the registration of Registrable Securities pursuant
to a Registration Statement, each Holder shall:

 

(a)  timely furnish to the
Company in writing such information regarding itself and the intended method of
disposition of such Registrable Securities as the Company shall reasonably
request in order to effect the registration thereof;

 

(b)  upon receipt of any notice
from the Company of the happening of any event of the kind described in
paragraphs 4(e) or 4(f), immediately discontinue any sale or other disposition
of such Registrable Securities pursuant to such Registration Statement until
the filing of an amendment or supplement as described in paragraph 4(e) or
withdrawal of the stop order referred to in paragraph 4(f), and use
commercially reasonable efforts to maintain the confidentiality of such notice
and its contents;

 

(c)  in the event of an
underwritten offering of such Registrable Securities in which such Holder
participates, enter into a customary and reasonable underwriting agreement and
execute such other documents as the Company and the managing underwriter for
such offering may reasonably request;

 

(d)  to the extent required by
applicable law, deliver a prospectus to the purchaser of such Registrable
Securities;

 

(e)  notify the Company when it
has sold all of the Registrable Securities held by it; and

 

(f)  notify the Company in the
event that any information supplied by such Holder in writing for inclusion in
such Registration Statement or related prospectus is untrue or omits to state a
material fact required to be stated therein or necessary to make such
information not misleading in light of the circumstances then existing;
immediately discontinue any sale or other disposition of such Registrable
Securities pursuant to such Registration Statement until the filing of an
amendment or supplement to such prospectus as may be necessary so that such prospectus
does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing; and use
commercially reasonable efforts to assist the Company as may be appropriate to
make such amendment or supplement effective for such purpose.

 

6.                                       INDEMNIFICATION.

 

In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:

 

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(a)                                  To
the extent permitted by law, the Company shall indemnify and hold harmless each
Holder, the officers, directors, employees, agents and representatives of such
Holder, and each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), against any losses, claims, damages, liabilities or reasonable
out-of-pocket expenses (whether joint or several) (collectively, including
legal or other expenses reasonably incurred in connection with investigating or
defending same, “Losses”), insofar as any such Losses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  Subject to the
provisions of paragraph 6(c) below, the Company will reimburse such Holder, and
each such officer, director, employee, agent, representative or controlling
person, for any legal or other out-of-pocket expenses as reasonably incurred by
any such entity or person in connection with investigating or defending any
Loss; provided,
however, that the foregoing indemnity shall not apply to amounts
paid in settlement of any Loss if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be obligated to indemnify any person for any Loss to the
extent that such Loss is (i) based upon and is in conformity with written
information furnished by such person expressly for use in such Registration
Statement or (ii) based on a failure of such person to deliver or cause to be
delivered the final prospectus contained in the Registration Statement and made
available by the Company, if such delivery is required by applicable law.

 

(b)                                 To
the extent permitted by law, each Holder who is named in such Registration
Statement as a selling stockholder, acting severally and not jointly, shall
indemnify and hold harmless the Company, the officers, directors, employees,
agents and representatives of the Company, and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, against any Losses to the extent (and only to the extent) that any such
Losses are based upon and in conformity with written information furnished by
such Holder expressly for use in such Registration Statement. Subject to the
provisions of paragraph 6(c) below, such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person, in connection
with investigating or defending any such Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any such
Loss if such settlement is effected without the consent of such Holder (which
consent shall not be unreasonably withheld); and provided, further, that, in
no event shall any indemnity under this paragraph 6(b) exceed the net proceeds
resulting from the sale of the Registrable Securities sold by such Holder under
such Registration Statement.

 

(c)                                  Promptly
after receipt by an indemnified party under this Section 6 of notice of
the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in and to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the reasonably
incurred fees and expenses of one such

 

8

 

counsel for all indemnified parties to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate under applicable standards of
professional conduct due to actual or potential conflicting interests between
such indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, to the extent prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 6 with respect to such action,
but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 6 or with respect to any other action
unless the indemnifying party is materially prejudiced as a result of not
receiving such notice.

 

(d)                                 In
the event that the indemnity provided in paragraph (a) or (b) of this
Section 6 is unavailable or insufficient to hold harmless an indemnified
party for any reason, the Company and each Holder agree, severally and not
jointly, to contribute to the aggregate Losses to which the Company or such
Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and such Holder in connection with the statements
or omissions which resulted in such Losses; provided, however, that in no case shall
such Holder be responsible for any amount in excess of the net proceeds
resulting from the sale of the Registrable Securities sold by it under the
Registration Statement.  Relative fault
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company or by such Holder.  The Company and each Holder agree that it
would not be just and equitable if contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above.  Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.  For
purposes of this Section 6, each person who controls a Holder within the
meaning of either the Securities Act or the Exchange Act and each officer,
director, employee, agent or representative of such Holder shall have the same
rights to contribution as such Holder, and each person who controls the Company
within the meaning of either the Securities Act or the Exchange Act and each
officer, director, employee, agent or representative of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).

 

(e)                                  The
obligations of the Company and each Holder under this Section 6 shall
survive the conversion of the Preferred Stock and exercise of the Warrants in
full, the completion of any offering or sale of Registrable Securities pursuant
to a Registration Statement under this Agreement, or otherwise.

 

7.                                       REPORTS.

 

With a view to making available to each Holder the benefits of Rule 144
and any other similar rule or regulation of the Commission that may at any time
permit such Holder to sell securities of the Company to the public without
registration, the Company agrees to:

 

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(a)                                  make
and keep public information available, as those terms are understood and
defined in Rule 144;

 

(b)                                 file
with the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act; and

 

(c)                                  furnish
to such Holder, so long as such Holder owns any Registrable Securities,
promptly upon written request (i) a written statement by the Company, if true,
that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) to the extent not publicly available
through the Commission’s EDGAR database, a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
by such Holder in connection with such Holder’s compliance with any rule or
regulation of the Commission which permits the selling of any such securities
without registration.

 

8.                                       MISCELLANEOUS.

 

(a)                                  Expenses
of Registration.  Except as
otherwise provided in the Securities Purchase Agreement, all reasonable
expenses, other than underwriting discounts and commissions and fees and
expenses of counsel and other advisors to each Holder, incurred in connection
with the registrations, filings or qualifications described herein, including
(without limitation) all registration, filing and qualification fees, printers’
and accounting fees, the fees and disbursements of counsel for the Company, and
the fees and disbursements incurred in connection with the opinion and letter
described in paragraph 4(g) hereof, shall be borne by the Company.

 

(b)                                 Amendment;
Waiver.  Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended or
waived except pursuant to a written instrument executed by the Company and the
Holders of at least two-thirds (2/3) of the Registrable Securities into which
all of the Preferred Stock and Warrants then outstanding are convertible or
exercisable (without regard to any limitation on such conversion or exercise).
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder, each future Holder and the Company.  The failure of any party to exercise any
right or remedy under this Agreement or otherwise, or the delay by any party in
exercising such right or remedy, shall not operate as a waiver thereof.

 

(c)                                  Notices.  Any notice, demand or request required or
permitted to be given by the Company or a Holder 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:

 

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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

 

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

 

(d)                                 Assignment.  Upon the transfer of any Preferred Stock,
Warrants or Registrable Securities by a Holder, the rights of such Holder
hereunder with respect to such securities so transferred shall be assigned
automatically to the transferee thereof, and such transferee shall thereupon be
deemed to be a “Holder” for purposes of this Agreement, as long as: (i) the
Company is, within a reasonable period of time following such transfer,
furnished with written notice of the name and address of such transferee, (ii)
the transferee agrees in writing with the Company to be bound by all of the
provisions hereof, and (iii) such transfer is made in accordance with the
applicable requirements of the Securities Purchase Agreement; provided,
however, that the registration rights granted under this Agreement
shall not be assigned to any person or entity that receives any Preferred
Stock, Warrants or Registrable Securities in a public transaction pursuant to
an effective registration statement under the Securities Act or pursuant to
Rule 144.

 

(e)                                  Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument.  This Agreement, once executed by a party, may be delivered to any
other party hereto by facsimile transmission.

 

(f)                                    Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within the State of
New York.

 

(g)                                 Holder of Record.  A person is deemed to be a Holder whenever
such person owns or is deemed to own of record such Registrable
Securities.  If the Company receives
conflicting instructions, notices or elections from two or more persons with
respect to the same Registrable Securities, the Company shall act upon the
basis of instructions, notice or election received from the record owner of
such Registrable Securities.

 

11

 

(h)                                 Entire Agreement.
This Agreement, the Securities Purchase Agreement, the Certificate of
Designation, the Warrants, 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
Agreement, the Securities Purchase Agreement, the Certificate of Designation,
the Warrants, and the other Transaction Documents supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.

 

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

 

(j)                                     Third Party
Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.

 

[Signature Pages to Follow]

 

12

 

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

 

	
  NEOMAGIC CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC

  
	
   

  
	
  By:

  	
  Satellite Asset Management, L.P., its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Brian S. Kriftcher

  
	
   

  	
   

  	
  Chief Operating Officer and PrincipalExhibit 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;

 

2

 

(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

  	
   

  	
  )

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