Document:

Exhibit
4.3

 

PIXELWORKS, INC.

 

1.75%
Convertible Subordinated Debentures Due 2024

 

REGISTRATION RIGHTS
AGREEMENT

 

May 18, 2004

 

Citigroup Global Markets Inc.

As Representative of the Initial Purchasers

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

 

Ladies and Gentlemen:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Commission” shall mean
the Securities and Exchange Commission.

 

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

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

(a)                                  The Company shall:

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

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

 

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

 

(n)                                 The Company shall:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

10

 

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

 

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

 

7.                                       Registration Defaults.    (a) If:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  Pixelworks, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  JEFFREY
  BOUCHARD

  	
   

  
	
   

  	
   

  	
  Name: Jeffrey
  Bouchard

  Title: Chief Financial Officer, Vice

  President-Finance, and Secretary

  
	
   

  	
   

  	
   

  
	
  The foregoing
  Agreement is hereby confirmed

  and accepted as of the date first above written.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Citigroup Global
  Markets Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/  RICHARD
  GALLIVAN

  	
   

  	
   

  
	
   

  	
  Name: Richard
  Gallivan

  Title: Managing Director

  	
   

  
	
   

  	
   

  
	
  For itself and
  the other several Initial

  Purchasers named in Schedule I to the

  Purchase Agreement.

  	
   

  
						

 

14Exhibit
4.4

 

PIXELWORKS, INC.

 

$125,000,000 1.750%
Convertible Subordinated Debentures Due 2024

 

Purchase Agreement

 

May 12, 2004

 

Citigroup Global Markets
Inc.

As Representative of the
Initial Purchasers

388 Greenwich Street

New York, New York  10013

 

Ladies and Gentlemen:

 

Pixelworks, Inc.,
a corporation organized under the laws of the State of Oregon (the “Company”),
proposes to issue and sell to the several parties named in Schedule I
hereto (the “Initial Purchasers”), for whom you (the “Representative”) are
acting as representative, $125,000,000 principal amount of its 1.750%
Convertible Subordinated Debentures Due 2024 (the “Firm Securities”).  The Company also proposes to grant to the
Initial Purchasers an option to purchase up to $25,000,000 additional principal
amount of such Convertible Subordinated Debentures if the Initial Purchasers
exercise their option to buy such additional Convertible Subordinated
Debentures (the “Option Securities” and, together with the Firm Securities, the
“Securities”). The Securities are convertible into shares of Common Stock, par
value $0.001 per share (the “Common Stock”), of the Company at the conversion
price set forth herein.  The Securities
are to be issued under an indenture (the “Indenture”), to be dated as of the
Closing Date, between the Company and Wells Fargo Bank, N.A., as trustee (the
“Trustee”).  The Securities will have
the benefit of a registration rights agreement (the “Registration Rights
Agreement”), to be dated as of the Closing Date, between the Company and the
Initial Purchasers, pursuant to which the Company will agree to register the
resale of the Securities under the Act subject to the terms and conditions
therein specified.  To the extent there
are no additional parties listed on Schedule I other than you, the term
Representative as used herein shall mean you as the Initial Purchasers, and the
term Initial Purchasers shall mean either the singular or plural as the context
requires.  The use of the neuter in this
Agreement shall include the feminine and masculine wherever appropriate.  Certain terms used herein are defined in
Section 18 hereof.

 

The sale of the
Securities to the Initial Purchasers will be made without registration of the
Securities or the Common Stock issuable upon conversion thereof under the Act
in reliance upon exemptions from the registration requirements of the Act.

 

In connection with the
sale of the Securities, the Company has prepared a preliminary offering
memorandum, dated May 11, 2004 (as amended or supplemented at the date thereof,
including any and all exhibits thereto and any information incorporated by
reference therein, the “Preliminary Memorandum”), and a final offering
memorandum, dated May 12, 2004 (as amended or supplemented at the Execution
Time, including any and all exhibits thereto

 

 

and any information
incorporated by reference therein, the “Final Memorandum”).  Each of the Preliminary Memorandum and the
Final Memorandum sets forth certain information concerning the Company, the
Securities and the Common Stock issuable upon conversion thereof.  The Company hereby confirms that it has
authorized the use of the Preliminary Memorandum and the Final Memorandum, and
any amendment or supplement thereto, in connection with the offer and sale of
the Securities by the Initial Purchasers. 
Unless stated to the contrary, any references herein to the terms
“amend”, “amendment” or “supplement” with respect to the Final Memorandum shall
be deemed to refer to and include any information filed under the Exchange Act
subsequent to the Execution Time that is incorporated by reference therein.

 

1.  Representations and Warranties.  The Company represents and warrants to each
Initial Purchaser as set forth below in this Section 1.

 

(a)                                  The
Preliminary Memorandum, at the date thereof, did not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.  At the
Execution Time, on the Closing Date and on any settlement date, the Final
Memorandum did not and will not (and any amendment or supplement thereto, at
the date thereof, at the Closing Date and on any settlement date, will not)
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representation or warranty as to the information
contained in or omitted from the Preliminary Memorandum or the Final
Memorandum, or any amendment or supplement thereto, in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of the Initial Purchasers through the Representative specifically for inclusion
therein.

 

(b)                                 None
of the Company, its Affiliates, or any person acting on its or their behalf
has, directly or indirectly, made offers or sales of any security, or solicited
offers to buy, any security under circumstances that would require the
registration of the Securities or the Common Stock issuable upon conversion
thereof under the Act.

 

(c)                                  None
of the Company, its Affiliates, or any person acting on its or their behalf
has: (i) engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with any offer
or sale of the Securities or (ii) engaged in any directed selling efforts
(within the meaning of Regulation S) with respect to the Securities or the
Common Stock issuable upon conversion thereof; and each of the Company, its
Affiliates and each person acting on its or their behalf has complied with the
offering restrictions requirement of Regulation S.

 

(d)                                 The
Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the
Act.

 

(e)                                  Assuming
(i) the accuracy of the representations and warranties of the Initial
Purchasers made herein and (ii) the due performance by the Initial Purchasers
of the covenants and agreements made by them herein, no registration under the
Act of the Securities is

 

2

 

required for the
offer and sale of the Securities to or by the Initial Purchasers in the manner
contemplated herein and in the Final Memorandum.

 

(f)                                    The
Company is not, and after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the
Final Memorandum will not be, required to register as an “investment company”
as defined in the Investment Company Act.

 

(g)                                 The
Company is subject to and in compliance in all material respects with the
reporting requirements of Section 13 or Section 15(d) of the Exchange
Act.

 

(h)                                 The
Company has not paid or agreed to pay to any person any compensation for
soliciting another in connection with the offering of the Securities (except as
contemplated in this Agreement).

 

(i)                                     The
Company has not taken, directly or indirectly, any action designed to or that
has constituted or that might reasonably be expected to cause or result, under
the Exchange Act or otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities.

 

(j)                                     Each
of the Company and its subsidiaries has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
in which it is chartered or organized with full corporate or limited liability
company, as applicable, power and authority to own or lease, as the case may
be, and to operate its properties and conduct its business as described in the
Final Memorandum, and is duly qualified to do business as a foreign corporation
or limited liability company, as applicable, and is in good standing under the
laws of each jurisdiction in which the nature of its business or ownership or
leasing of property requires such qualification, except where the failure to be
so qualified and in good standing would not reasonably be expected to,
individually or in the aggregate, have a material adverse effect on (i) the
ability of the Company to perform its obligations under this Agreement, the
Indenture or the Registration Rights Agreement or (ii) the properties, business
operations, earnings, financial condition or prospects of the Company and its
subsidiaries taken as a whole (“Material Adverse Effect”).

 

(k)                                  All
the outstanding shares of capital stock or limited liability company interests,
as the case may be, of each subsidiary have been duly authorized and validly
issued and are fully paid (in the case of shares of capital stock) and
nonassessable (in the case of shares of capital stock), and, except as
otherwise set forth in the Final Memorandum, are owned by the Company either
directly or through wholly owned subsidiaries free and clear of any security
interest, claim, lien or encumbrance.

 

(l)                                     The
Company’s authorized equity capitalization is as set forth in the Final
Memorandum; the capital stock of the Company conforms to the description
thereof contained in the Final Memorandum; the outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable; the shares of Common Stock initially issuable upon conversion of
the Securities have been duly and validly authorized and, when issued upon
conversion of the Securities against payment of the conversion price and in

 

3

 

accordance with
the terms of the Securities, will be validly issued, fully paid and
nonassessable; the Board of Directors of the Company has duly and validly
adopted resolutions reserving such shares of Common Stock for issuance upon
conversion of the Securities; the holders of outstanding shares of capital
stock of the Company are not entitled to preemptive or other rights to
subscribe for the Securities or the shares of Common Stock issuable upon
conversion thereof; and, except as set forth in the Final Memorandum, no
options, warrants or other rights to purchase, agreements or other obligations
to issue, or rights to convert any obligations into or exchange any securities
for, shares of capital stock of or ownership interests in the Company are
outstanding.

 

(m)                               The
statements in the Final Memorandum under the headings “Certain U.S. Federal
Income Tax Considerations”, “Description of Debentures”, “Description of
Capital Stock”, “Plan of Distribution” and “Notice to Investors” fairly
summarize the matters therein described.

 

(n)                                 This
Agreement has been duly authorized, executed and delivered by the Company; the
Indenture has been duly authorized and, assuming due authorization, execution
and delivery thereof by the Trustee, when executed and delivered by the
Company, will constitute a legal, valid, binding instrument enforceable against
the Company in accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting creditors’ rights generally from time to time in effect
and to general principles of equity); the Securities have been duly authorized,
and, when executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers, will have
been duly executed and delivered by the Company and will constitute the legal,
valid and binding obligations of the Company entitled to the benefits of the
Indenture (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting
creditors’ rights generally from time to time in effect and to general principles
of equity) and will be convertible into Common Stock in accordance with their
terms; and the Registration Rights Agreement has been duly authorized by the
Company and, when executed and delivered by the Company, will constitute the
legal, valid, binding and enforceable instrument of the Company (subject, as to
the enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors’ rights generally from
time to time in effect and to general principles of equity), provided that no
representation is made with respect to Section 8 thereof.

 

(o)                                 No
consent, approval, authorization, filing with or order of any court or
governmental agency or body is required in connection with the transactions contemplated
herein, in the Indenture or in the Registration Rights Agreement, except such
as may be required under the blue sky laws of any domestic or foreign
jurisdiction in which the Securities are offered and sold and, in the case of
the Registration Rights Agreement, such as may be required under the Act and
the Trust Indenture Act.

 

(p)                                 None
of the execution and delivery of the Indenture, this Agreement or the
Registration Rights Agreement, the issuance and sale of the Securities or the
issuance of the Common Stock upon conversion thereof, or the consummation of
any other of the transactions herein or therein contemplated, or the
fulfillment of the terms hereof or thereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance upon any

 

4

 

property or assets
of the Company or any of its subsidiaries pursuant to, (i) the charter or
by-laws of the Company or any of its subsidiaries; (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument to
which the Company or any of its subsidiaries is a party or bound or to which
its or their property is subject; or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its subsidiaries or any of its or their properties, other
than, with respect to clause (ii) and (iii), any such conflict, breach,
violation, or imposition that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.

 

(q)                                 The
consolidated historical financial statements, together with the related notes
and schedules, of the Company and its consolidated subsidiaries included or
incorporated by reference in the Final Memorandum present fairly the financial
condition, results of operations and cash flows of the Company as of the dates
and for the periods indicated, comply as to form with the applicable accounting
requirements of Regulation S-X and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein); the
selected consolidated financial data set forth under the caption “Selected
Consolidated Financial Data” in the Final Memorandum fairly present, on the
basis stated in the Final Memorandum, the information included therein.

 

(r)                                    No
action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any of its
subsidiaries or its or their property is pending or, to the knowledge of the
Company, threatened, in any case that would reasonably be expected to have a
Material Adverse Effect, except as set forth in or contemplated in the Final
Memorandum (exclusive of any amendment or supplement thereto).

 

(s)                                  Each
of the Company and its subsidiaries owns or leases all such properties that are
material to the business of the Company and its subsidiaries taken as a whole,
free and clear of all liens, encumbrances, claims and defects that are not set
forth or contemplated in the Final Memorandum but that would reasonably be
expected to have a Material Adverse Effect.

 

(t)                                    Neither
the Company nor any of its subsidiaries is in violation or default of (i) any
provision of its charter or bylaws; (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which it is a party
or bound or to which its property is subject; or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or
such subsidiary or any of its properties, as applicable, other than, with
respect to clauses (ii) and (iii), any such violation or default (1) that would
not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect or (2) that is set forth or contemplated in the Final
Memorandum (exclusive of any amendment or supplement thereto).

 

5

 

(u)                                 KPMG
LLP, who have certified certain financial statements of the Company and its
consolidated subsidiaries and delivered their report with respect to the
audited consolidated financial statements and schedules included or
incorporated by reference in the Final Memorandum, are independent public
accountants with respect to the Company within the meaning of the Act.

 

(v)                                 There
are no stamp or other issuance or transfer taxes or duties or other similar
fees or charges required to be paid in connection with the execution and
delivery of this Agreement or the issuance or sale by the Company of the
Securities or upon the issuance of Common Stock upon the conversion thereof.

 

(w)                               The
Company has filed all non-U.S., U.S. federal, state and local tax returns that
are required to be filed or has requested extensions thereof (except (i) in any
case in which the failure so to file would not have a Material Adverse Effect
and (ii) as set forth in or contemplated in the Final Memorandum (exclusive of
any amendment or supplement thereto)) and has paid all taxes required to be
paid by it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith or
as would not have a Material Adverse Effect and except as set forth in or
contemplated in the Final Memorandum (exclusive of any amendment or supplement
thereto).

 

(x)                                   No
labor problem or dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is threatened or
imminent that in any case would reasonably be expected to have a Material
Adverse Effect except as set forth in or contemplated in the Final Memorandum
(exclusive of any amendment or supplement thereto), and except as set forth in
or contemplated in the Final Memorandum (exclusive of any amendment or
supplement thereto).

 

(y)                                 The
Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are customary in the businesses in which they are engaged. Except as would not
have a Material Adverse Effect and except as set forth in or contemplated in
the Final Memorandum (exclusive of any amendment or supplement thereto): (1)
all policies of insurance and fidelity or surety bonds insuring the Company or
any of its subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; (2) the Company and its
subsidiaries are in compliance with the terms of such policies and instruments;
and (3) there are no claims by the Company or any of its subsidiaries under any
such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause; neither the
Company nor any of its subsidiaries has been refused any insurance coverage
sought or applied for. To the knowledge of the Company, the Company and its
subsidiaries will be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not have a
Material Adverse Effect except as set forth in or contemplated in the Final
Memorandum (exclusive of any amendment or supplement thereto).

 

(z)                                   No
subsidiary of the Company is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other distribution on

 

6

 

such subsidiary’s
capital stock, from repaying to the Company any loans or advances to such
subsidiary from the Company or from transferring any of such subsidiary’s
property or assets to the Company or any other subsidiary of the Company,
except as described in or contemplated in the Final Memorandum (exclusive of
any amendment or supplement thereto).

 

(aa)                            The
Company and its subsidiaries possess all licenses, certificates, permits and
other authorizations issued by the appropriate U.S. federal, state or non-U.S.
regulatory authorities necessary to conduct their respective businesses except
any such certificate, authorization or permit the failure of which to so
possess, singly or in the aggregate, would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect,
in each case, except as set forth in or contemplated in the Final Memorandum
(exclusive of any amendment or supplement thereto).

 

(bb)                          The
Company and each of its subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management’s general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

(cc)                            The
Company and its subsidiaries are (i) in compliance with any and all applicable
non-U.S., U.S. federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”); (ii)
have received and are in compliance with all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (iii) have not received notice of any actual or
potential liability under any Environmental Law, except where such
non-compliance with Environmental Laws, failure to receive or comply with
required permits, licenses or other approvals, or liability would not,
individually or in the aggregate, have a Material Adverse Effect, except as set
forth in or contemplated in the Final Memorandum (exclusive of any amendment or
supplement thereto).  Except as set
forth in the Final Memorandum, to the knowledge of the Company, neither the
Company nor any of its subsidiaries has been named as a “potentially
responsible party” under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.

 

(dd)                          The
Company and each of its subsidiaries believe that the costs and liabilities of
Environmental Laws on the business, operations and properties of the Company
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) would not, singly or
in the aggregate, have a Material Adverse Effect, except as set forth in or
contemplated in the Final Memorandum (exclusive of any supplement thereto).

 

7

 

(ee)                            The
Company and each of its subsidiaries has fulfilled its obligations in all
material respects, if any, under the minimum funding standards of
Section 302 of the United States Employee Retirement Income Security Act
of 1974 (“ERISA”) and the regulations and published interpretations thereunder
with respect to each “plan” (as defined in Section 3(3) of ERISA and such
regulations and published interpretations) in which employees of the Company
are eligible to participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such regulations
and published interpretations. The Company and each of its subsidiaries has not
incurred any unpaid material liability to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums in the ordinary course) or
to any such plan under Title IV of ERISA.

 

(ff)                                The
Company and each of its subsidiaries own, possess, license or have other rights
to use, except as set forth in the Final Memorandum, all patents, patent
applications, trade and service marks, trade and service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets, technology,
know-how and other intellectual property (collectively, the “Intellectual
Property”) material to the conduct of the Company’s business as now conducted.  Except as set forth in the Final Memorandum,
(a) to the Company’s knowledge, there is no material infringement by third
parties of any such Intellectual Property; (b) there is no pending or, to the
Company’s knowledge, threatened action, suit, proceeding or claim by others
challenging the Company’s rights in or to any such Intellectual Property,
except to the extent that, if the subject of an unfavorable decision, finding
or ruling, individually or in the aggregate, it would not be reasonably likely
to have a Material Adverse Effect; (c) there is no pending or, to the Company’s
knowledge, threatened action, suit, proceeding or claim by others challenging
the validity or scope of any such Intellectual Property, except to the extent
that if the subject of an unfavorable decision, finding or ruling, individually
or in the aggregate, it would not be reasonably likely to have a Material
Adverse Effect; (d) there is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others that the Company
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary rights of others; (e) to the Company’s knowledge, there is
no prior art that may render any U.S. patent held by the Company invalid or any
U.S. patent application held by the Company that is material to the conduct of
the business of the Company unpatentable which has not been disclosed to the
U.S. Patent and Trademark Office.

 

(gg)                          The
subsidiaries of the Company would not, individually or in the aggregate, be a
“significant subsidiary” of the Company (as defined in Rule l-02 of Regulation
S-X under the Act).

 

(hh)                          The
Company has not taken any action or omitted to take any action (such as issuing
any press release relating to any Securities without an appropriate legend)
which may result in the loss by any of the Initial Purchasers of the ability to
rely on any stabilization safe harbor provided by the Financial Services
Authority under the Financial Services and Markets Act 2000 (the “FSMA”). The
Company has been informed of the guidance relating to stabilization provided by
the Financial Services Authority, in particular in Section MAR 2 Annex 2G
of the Financial Services Handbook.

 

(ii)                                  None
of the Company, its subsidiaries or, to the knowledge of the Company, any
director, officer, agent, employee or Affiliate of the Company or any of its

 

8

 

subsidiaries has taken any action, directly or indirectly,
that would result in a violation by such Persons of Foreign Corrupt
Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation,
making use of the mails or any means or instrumentality of interstate commerce
corruptly in furtherance of an offer, payment, promise to pay or authorization
of the payment of any money, or other property, gift, promise to give, or
authorization of the giving of anything of value to any “foreign official” (as
such term is defined in the FCPA) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the
FCPA.

 

(jj)                                  The
operations of the Company and its subsidiaries are and have been conducted at
all times in compliance in all material respects with applicable financial
recordkeeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, the money laundering statutes
of all jurisdictions, the rules and regulations thereunder and any related or
similar rules, regulations or guidelines, issued, administered or enforced by
any governmental agency (collectively, the “Money Laundering Laws”) and no
action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company or any of its
subsidiaries with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company, threatened.

 

(kk)                            None
of the Company, any of its subsidiaries or, to the knowledge of the Company,
any director, officer, agent, employee or Affiliate of the Company or any of
its subsidiaries is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Department of the Treasury (“OFAC”); and the Company will not directly or indirectly use the
proceeds of the Offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other person or entity,
for the purpose of financing the activities of any person currently subject to any U.S. sanctions
administered by OFAC.

 

(ll)                                  Prior
to the date hereof, the Company has furnished to the Representative letters,
each substantially in the form of Exhibit A hereto, duly executed by each
officer and director of the Company and addressed to the Representative.

 

Any certificate signed by
any officer of the Company and delivered to the Representative or counsel for
the Initial Purchasers pursuant to Section 6 in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Initial Purchaser.

 

2.  Purchase and Sale.  (a) 
Subject to the terms and conditions and in reliance upon the
representations and warranties and covenants herein set forth, the Company
agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
97% of the principal amount thereof, plus accrued interest, if any, from May
18, 2004 to the Closing Date, the principal amount of Firm Securities set forth
opposite such Initial Purchaser’s name in Schedule I hereto.

 

(b)                                 Subject
to the terms and conditions and in reliance upon the representations and
warranties and covenants herein set forth, the Company hereby grants an option
to the several Initial Purchasers to purchase, severally and not jointly, the
Option

 

9

 

Securities at the
same purchase price as the Initial Purchasers shall pay for the Firm
Securities, plus accrued interest, if any, from May 18, 2004 to the settlement
date for the Option Securities.  The
option may be exercised in whole or in part at any time (but not more than
once) on or before the 30th day after the date of the Final Memorandum  upon
written notice by the Representative to the Company setting forth the principal
amount of Option Securities as to which the several Initial Purchasers are
exercising the option and the settlement date. 
Delivery of the Option Securities, and payment therefor, shall be made
as provided in Section 3 hereof. 
The principal amount of Option Securities to be purchased by each
Initial Purchaser shall be the same percentage of the total principal amount of
Option Securities to be purchased by the several Initial Purchasers as such
Initial Purchaser is purchasing of the Firm Securities, subject to such
adjustments as you in your absolute discretion shall make to eliminate any
fractional Securities.  No Option
Securities shall be sold or delivered unless the Firm Securities previously
have been, or simultaneously are, sold and delivered, to the Initial
Purchasers.

 

3.                                       Delivery
and Payment.  (a)  Delivery of and payment for the Firm
Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third
Business Day prior to the Closing Date) shall be made at  7:00A.M., California time, on May 18,
2004 or at such time on such later date not more than three Business Days after
the foregoing date as the Representative shall designate, which date and time
may be postponed by agreement between the Representative and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment
for the Securities being herein called the “Closing Date”).  Delivery of the Securities to the
Representative for the respective accounts of the Initial Purchasers shall be
made in the form of one or more permanent global securities deposited with the
Trustee as custodian for the Depository Trust Company (“DTC”) and registered in
the name of Cede & Co., as nominee for DTC, against payment by the several
Initial Purchasers through the Representative of the purchase price thereof to
or upon the order of the Company by wire transfer payable in same-day funds to
the account specified by the Company.

 

(b)                                 If
the option provided for in Section 2(b) hereof is exercised after the
third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representative in the
same manner described above on the date specified by the Representative (which
shall be within three Business Days after exercise of said option) for the
respective accounts of the several Initial Purchasers, against payment by the
several Initial Purchasers through the Representative of the purchase price
thereof to or upon the order of the Company by wire transfer payable in
same-day funds to the account specified by the Company.  If settlement for the Option Securities
occurs after the Closing Date, the Company will deliver to the Representative
in the same manner described above on the settlement date for the Option
Securities, and the obligation of the Initial Purchasers to purchase the Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.

 

4.  Offering by Initial Purchasers.  (a) 
Each Initial Purchaser acknowledges that the Securities and the Common
Stock issuable upon conversion thereof have not been and will not be registered
under the Act and may not be offered or sold within the United States or to, or

 

10

 

for the account or benefit of, U.S. persons, except pursuant to an
exemption from, or in a  transaction not
subject to, the registration requirements of the Act.

 

(b)  Each
Initial Purchaser, severally and not jointly, represents and warrants to and
agrees with the Company that:

 

(i)                                     it
has not offered or sold, and will not offer or sell, any Securities within the
United States or to, or for the account or benefit of, U.S. persons (x) as part
of their distribution at any time or (y) otherwise until one year after the later
of the commencement of the offering and the date of closing of the offering
except:

 

(A)                              to
those it reasonably believes to be “qualified institutional buyers” (as defined
in Rule 144A under the Act), or

 

(B)                                in
accordance with Rule 903 of Regulation S;

 

(ii)                                  neither
it nor any person acting on its behalf has made or will make offers or sales of
the Securities in the United States by means of any form of general
solicitation or general advertising (within the meaning of Regulation D) in the
United States;

 

(iii)                               in connection with each
sale pursuant to Section 4(b)(i)(A), it has taken or will take reasonable
steps to ensure that the purchaser of such Securities is aware that such sale
is being made in reliance on Rule 144A;

 

(iv)                              any
information provided by the Initial Purchasers to publishers of publicly
available databases about the terms of the Securities shall include a statement
that the Securities have not been registered under the Act and are subject to
restrictions under Rule 144A under the Act and Regulation S;

 

(v)                                 it
will not engage in hedging transactions with regard to the Securities prior to
the expiration of the distribution compliance period as (defined in Regulation
S), unless in compliance with the Act;

 

(vi)                              neither
it, nor any of its Affiliates nor any person acting on its or their behalf has
engaged or will engage in any directed selling efforts (within the meaning of
Regulation S) with respect to the Securities;

 

(vii)                           it has not entered and will
not enter into any contractual arrangement with any distributor (within the
meaning of Regulation S) with respect to the distribution of the Securities,
except with its affiliates or with the prior written consent of the Company;

 

(viii)                        it and they have complied and
will comply with the offering restrictions requirement of Regulation S;

 

11

 

(ix)                                at
or prior to the confirmation of sale of Securities (other than a sale of
Securities pursuant to Section 4(b)(i)(A) of this Agreement), it shall have
sent to each distributor, dealer or person receiving a selling concession, fee
or other remuneration that purchases Securities from it during the distribution
compliance period (within the meaning of Regulation S) a confirmation or notice
to substantially the following effect:

 

“The
Securities covered hereby have not been registered under the U.S. Securities
Act of 1933 (the “Act”) and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until one year after the later of
the commencement of the offering and the date of closing of the offering,
except in either case in accordance with Regulation S or Rule 144A under the
Act.  Additional restrictions on the
offer and sale of the Securities and the Common Stock issuable upon conversion
thereof are described in the offering memorandum for the Securities.  Terms used in this paragraph have the
meanings given to them by Regulation S.”

 

(x)                                   it
acknowledges that additional restrictions on the offer and sale of the
Securities and the Common Stock issuable upon conversion thereof are described
in the Final Memorandum;

 

(xi)                                it
has not offered or sold and, prior to the date six months after the date of issuance
of the Securities, will not offer or sell any Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or as
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995;

 

(xii)                             it has complied and will
comply with all applicable provisions of the FSMA with respect to anything done
by it in relation to the Securities in, from or otherwise involving the United
Kingdom;

 

(xiii)                          it has only communicated or
caused to be communicated and will only communicate or cause to be communicated
any invitation or inducement to engage in investment activity (within the
meaning of section 21 of the FSMA) received by it in connection with the
issue or sale of any Securities, in circumstances in which section 21(1)
of the FSMA does not apply to the Company; and

 

(xiv)                         it is an “accredited investor”
within the meaning of Regulation D under the Securities Act.

 

5.  Agreements.  The Company agrees with each Initial
Purchaser that:

 

(a)                                  The
Company will furnish to each Initial Purchaser and to counsel for the Initial
Purchasers, without charge, during the period referred to in paragraph (c)
below, as many

 

12

 

copies of the
Final Memorandum and any amendments and supplements thereto as they may
reasonably request.

 

(b)                                 Before
amending or supplementing the Final Memorandum, including by filing any
document under the Exchange Act that is incorporated by reference in the Final
Memorandum, the Company will furnish to the Representative a copy of each such
proposed amendment, supplement, or document to be incorporated and will not use
any such proposed amendment, supplement or incorporated document to which the
Representative reasonably object.  The
Company will promptly advise the Representative when any document filed under
the Exchange Act that is incorporated by reference in the Final Memorandum
shall have been filed with the Commission.

 

(c)                                  If
at any time prior to the completion of the sale of the Securities by the
Initial Purchasers (as determined by the Representative), any event occurs as a
result of which the Final Memorandum, as then amended or supplemented, would
include in the judgment of the Company any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
if it should be necessary to amend or supplement the Final Memorandum to comply
with applicable law, the Company will promptly (i) notify the Representative of
any such event; (ii) subject to the requirements of paragraph (b) of this
Section 5, prepare an amendment or supplement that will correct such
statement or omission or effect such compliance; and (iii) supply any
supplemented or amended Final Memorandum to the several Initial Purchasers and
counsel for the Initial Purchasers without charge in such quantities as they
may reasonably request.

 

(d)                                 The
Company will use commercially reasonable efforts to arrange, if necessary, for
the qualification of the Securities for sale by the Initial Purchasers under
the laws of such jurisdictions as the Representative may designate and will
maintain such qualifications in effect so long as required for the sale of the
Securities; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action that would subject it to service of process in suits, other
than those arising out of the offering or sale of the Securities, in any
jurisdiction where it is not now so subject. 
The Company will promptly advise the Representative of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose.

 

(e)                                  During
the period of two years after the Closing Date or the settlement date for the
Option Securities, if later, the Company will not, and will not permit any of
its Affiliates to, resell any Securities or Shares of Common Stock issued upon
conversion thereof which constitute “restricted securities” under Rule 144
that have been acquired by any of them.

 

(f)                                    None
of the Company, its Affiliates, or any person acting on its or their behalf
will, directly or indirectly, make offers or sales of any security, or solicit
offers to buy any security, under circumstances that would require the
registration of the Securities or Common Stock issuable upon conversion thereof
under the Act.

 

13

 

(g)                                 None
of the Company, its Affiliates, or any person acting on its or their behalf
will engage in any form of general solicitation or general advertising (within
the meaning of Regulation D) in connection with any offer or sale of the
Securities in the United States.

 

(h)                                 So
long as any of the Securities or the Common Stock issuable upon the conversion
thereof are “restricted securities” within the meaning of Rule 144(a)(3) under
the Act, the Company will, during any period in which it is not subject to and
in compliance with Section 13 or 15(d) of the Exchange Act,  provide
to each holder of such restricted securities and to each prospective purchaser
(as designated by such holder) of such restricted securities, upon the request
of such holder or prospective purchaser, any information required to be
provided by Rule 144A(d)(4) under the Act. 
This covenant is intended to be for the benefit of the holders, and the
prospective purchasers designated by such holders, from time to time of such
restricted securities.

 

(i)                                     None
of the Company, its Affiliates, or any person acting on its or their behalf
will engage in any directed selling efforts with respect to the Securities, and
each of them will comply with the offering restrictions requirement of
Regulation S.  Terms used in this
paragraph have the meanings given to them by Regulation S.

 

(j)                                     Any
information provided by the Company to publishers of publicly available
databases about the terms of the Securities shall include a statement that the
Securities have not been registered under the Act and are subject to
restrictions under Rule 144A under the Act and Regulation S.

 

(k)                                  The
Company will cooperate with the Representative and use its reasonable best
efforts to permit the Securities to be eligible for clearance and settlement
through The Depository Trust Company.

 

(l)                                     The
Company will reserve and keep available at all times, free of pre-emptive
rights, the full number of Shares of Common Stock issuable upon conversion of
the Securities.

 

(m)                               The
Company will not for a period of 75 days following the Execution Time, without
the prior written consent of Citigroup Global Markets, Inc., offer, sell or
contract to sell, or otherwise dispose of (or enter into any transaction which
is designed to, or might reasonably be expected to, result in the disposition
(whether by actual disposition or effective economic disposition due to cash
settlement or otherwise) by the Company or any Affiliate of the Company or any
person in privity with the Company or any Affiliate of the Company), directly
or indirectly, or announce the offering of, any debt securities issued or
guaranteed by the Company, any shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock (other than the
Securities); provided, however, that the Company may (i) issue
and sell Common Stock or securities convertible into or exchangeable for Common
Stock pursuant to any employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company described in the Final Memorandum and in
effect at the Execution Time or pursuant to the Company’s 1997 Stock Incentive
Plan as proposed to be amended in the Company’s Proxy Statement on
Schedule 14A, filed on April 26, 2004, and the Company may issue
Common Stock issuable upon the conversion of securities or the exercise of

 

14

 

warrants
outstanding at the Execution Time and described in the Final Memorandum or (ii)
file the shelf registration statement covering resales of the Securities or the
shares of Common Stock issuable upon conversion thereof.

 

(n)                                 The
Company will not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or result, under
the Exchange Act or otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities.

 

(o)                                 Between
the date hereof and the Closing Date, the Company will not do or authorize any
act or thing that would result in an adjustment of the conversion price.

 

(p)                                 The
Company agrees to pay the costs and expenses relating to the following matters:
(i) the preparation of the Indenture and the Registration Rights Agreement, the
issuance of the Securities, the fees of the Trustee and the issuance of the
Common Stock upon conversion of the Securities; (ii) the preparation, printing
or reproduction of the Preliminary Memorandum and the Final Memorandum and each
amendment or supplement to either of them; (iii) the printing (or reproduction)
and delivery (including postage, air freight charges and charges for counting
and packaging) of such copies of the Preliminary Memorandum and the Final
Memorandum, and all amendments or supplements to either of them, as may, in
each case, be reasonably requested for use in connection with the offering and
sale of the Securities; (iv) the preparation, printing, authentication,
issuance and delivery of certificates for the Securities; (v) any stamp or
transfer taxes in connection with the original issuance and sale of the
Securities; (vi) the printing (or reproduction) and delivery of this Agreement,
any blue sky memorandum and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Securities; (vii) any
registration or qualification of the Securities for offer and sale under the
securities or blue sky laws of the several states and any other jurisdictions
specified pursuant to Section 5(d) (including filing fees and the
reasonable fees and expenses of counsel for the Initial Purchasers relating to
such registration and qualification); (viii) admitting the Securities for
trading in the PORTAL Market;  (ix) the transportation and other expenses
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Securities;  (x) the fees and expenses of
the Company’s accountants and the fees and expenses of counsel (including local
and special counsel) for the Company; and (xi) all other costs and expenses
incident to the performance by the Company of its obligations hereunder. Except
as provided in Section 7, the Initial Purchasers will pay their own costs
and expenses, including the fees of its counsel and transfer taxes on the
resale of any Securities.

 

(q)                                 The
Company will not take any action or omit to take any action (such as issuing
any press release relating to any Securities without an appropriate legend)
which may result in the loss by any of the Initial Purchases of the ability to
rely on any stabilization safe harbor provided by the Financial Services
Authority under the FSMA.

 

6.  Conditions to the Obligations of the
Initial Purchasers.  The obligations
of the Initial Purchasers to purchase the Firm Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties of the Company contained herein at the Execution
Time, the Closing Date and any settlement date pursuant to Section 3

 

15

 

hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional
conditions:

 

(a)                                  The
Company shall have requested and caused Ater Wynne LLP, counsel for the
Company, to furnish to the Representative its opinion, dated the Closing Date
and addressed to the Representative, to the effect that:

 

(i)                                     the
Company has been duly incorporated and is validly existing as a corporation
under the laws of the jurisdiction in which it is chartered or organized, with
full corporate power and authority to own or lease, as the case may be, and to
operate its properties and conduct its business as described in the Final
Memorandum, and is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each jurisdiction which requires such
qualification, except where the failure to be so qualified and in good standing
would not reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect;

 

(ii)                                  the
Company’s authorized equity capitalization is as set forth in the Final
Memorandum and the capital stock of the Company conforms to the description
thereof contained in the Final Memorandum; the outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable; the shares of Common Stock initially issuable upon conversion of
the Securities have been duly authorized and, when issued upon conversion of
the Securities against payment of the conversion price, will be validly issued,
fully paid and nonassessable; the Board of Directors of the Company has duly
and validly adopted resolutions reserving such shares of Common Stock for
issuance upon conversion of the Securities; the holders of the outstanding
shares of capital stock of the Company are not entitled to any preemptive or
other rights to subscribe for the Securities or the shares of Common Stock
issuable upon conversion thereof; and, except as set forth in the Final
Memorandum, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership interests
in the Company are outstanding;

 

(iii)                               the Indenture has been
duly authorized, executed and delivered; the Securities have been duly
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers under this Agreement, will be validly executed and delivered; the
Registration Rights Agreement has been duly authorized, executed and delivered;
and the statements set forth under the heading “Description of Capital Stock”
in the Final Memorandum, insofar as such statements purport to summarize
certain provisions of the Common Stock, provide a fair summary of such
provisions;

 

16

 

(iv)                              to
the knowledge of such counsel, there is no pending or threatened action, suit
or proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or any of its subsidiaries or its or
their property that is not adequately disclosed in the Final Memorandum, except
in each case for such proceedings that, if the subject of an unfavorable
decision, ruling or finding would not singly or in the aggregate, have a Material
Adverse Effect;

 

(v)                                 such
counsel has no reason to believe that at the Execution Time or on the Closing
Date the Final Memorandum contained or contains any untrue statement of a
material fact or omitted or omits to state any material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (in each case, other than the financial statements and
other financial information contained therein and other than the cover page and
sections of the Final Memorandum entitled “Notice to Investors”, “Summary – The
Offering”, “Risk Factors – Risks Related to the Debentures”, “Description of
Debentures”, “Material United States Federal Incomes Tax Considerations”, “Plan
of Distribution” and “Transfer Restrictions”, as to which such counsel need
express no opinion);

 

(vi)                              this
Agreement has been duly authorized, executed and delivered by the Company;

 

(vii)                           neither the execution and
delivery of the Indenture, this Agreement or the Registration Rights Agreement,
the issuance and sale of the Securities, nor the consummation of any other of
the transactions herein or therein contemplated, nor the fulfillment of the
terms hereof or thereof, including the issuance of the Common Stock upon the
conversion of the Securities, will conflict with, result in a breach or
violation of, or imposition of any lien, charge or encumbrance upon any
property or asset of the Company or of any of its subsidiaries pursuant to, (i)
the charter or by-laws of the Company or any of its subsidiaries; (ii) any
agreement which the Company has filed with the Commission as an exhibit to its
Annual Report on Form 10-K for the year ended December 31, 2003; or (iii)
any statute, law, rule, regulation, judgment, order or decree applicable to the
Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company, any of its subsidiaries or any of their
respective properties; and

 

(viii)                        the Company is not and, after
giving effect to the offering and sale of the Securities and the application of
the proceeds thereof as described in the Final Memorandum will not be, required
to register as an “investment company” as defined in the Investment Company
Act.

 

In rendering such
opinion, such counsel may rely (A) as to matters involving the application of
laws of any jurisdiction other than Oregon or the federal laws of the United
States the State of Oregon, to the extent they deem proper and specified in
such opinion, upon the opinion of O’Melveny and Myers LLP; and (B) as to
matters of fact, to the extent they deem 

 

17

 

proper, on certificates
of responsible officers of the Company and public officials.  References to the Final Memorandum in this
Section 6(a) include any amendment or supplement thereto at the Closing
Date.

 

(b)                                 The
Company shall have requested and caused O’Melveny & Myers LLP, counsel for
the Company, to furnish to the Representative its opinion, dated the Closing
Date and addressed to the Representative, to the effect that:

 

(i)                                     the
Securities conform to the description thereof contained in the Final Memorandum
in all material respects;

 

(ii)                                  assuming
the due authorization, execution and delivery under Oregon law, the Indenture
constitutes a legal, valid and binding instrument enforceable against the
Company in accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency moratorium or
other laws affecting creditors’ rights generally from time to time in effect
and to general principles of equity); assuming the due authorization under
Oregon law, the Securities, when executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the Initial
Purchasers under this Agreement, will constitute legal, valid, binding and
enforceable obligations of the Company entitled to the benefits of the
Indenture (subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting
creditors’ rights generally from time to time in effect and to general
principles of equity) and will be convertible into Common Stock in accordance
with their terms; assuming the due authorization, execution and delivery under
Oregon law, the Registration Rights Agreement constitutes the legal, valid,
binding and enforceable instrument of the Company (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors’ rights generally from time to
time in effect and to general principles of equity), except as rights to
indemnification and contribution under the Registration Rights Agreement may be
limited by applicable law;

 

(iii)                               the statements in the
Final Memorandum on the cover page and under the headings “Notice to
Investors”, “Summary – The Offering”, “Risk Factors – Risks Related to the
Debentures”, “Description of Debentures”, “Material United States Federal
Income Tax Considerations”, “Plan of Distribution” and “Transfer Restrictions”
insofar as they purport to summarize the provisions of laws and documents
referred to therein are accurate in all material respects;

 

(iv)                              no
consent, approval, authorization, filing with or order of any New York court or
governmental agency or body is required in connection with the transactions
contemplated herein, in the Indenture or in the Registration Rights Agreement,
except such as may be required under the blue sky or securities laws of any
jurisdiction in which the Securities are offered or sold (as to which such
counsel need express no opinion beyond that set forth in paragraph (v)

 

18

 

below) and such other approvals (specified in such opinion) as have
been obtained; and

 

(v)                                 assuming
the accuracy of the representations and warranties and compliance with the
agreements contained herein (without regard to the representation found in
Section 1(f)), no registration under the Act of the Securities or the
Common Stock issuable upon conversion thereof, and no qualification of an
indenture under the Trust Indenture Act, are required for the sale and delivery
of the Securities by the Company to the Initial Purchasers or the offer and
sale by the Initial Purchasers of the Securities in the manner contemplated
herein and in the Final Memorandum.

 

In rendering such opinion, such counsel may rely  as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and public
officials.  References to the Final
Memorandum in this Section 6(b) include any amendment or supplement
thereto at the Closing Date.

 

(c)                                  The
Representative shall have received from Davis Polk & Wardwell, counsel for
the Initial Purchasers, such opinion or opinions, dated the Closing Date and
addressed to the Representative, with respect to the issuance and sale of the
Securities, the Indenture, the Registration Rights Agreement, the Final Memorandum
(as amended or supplemented at the Closing Date) and other related matters as
the Representative may reasonably require, and the Company shall have furnished
to such counsel such documents as they request for the purpose of enabling them
to pass upon such matters.

 

(d)                                 The
Company shall have furnished to the Representative a certificate of the
Company, signed by (x) the Chairman of the Board or the President and (y) the
principal financial or accounting officer of the Company, dated the Closing
Date, to the effect that the signers of such certificate have carefully
examined the Final Memorandum, any amendment or supplement to the Final
Memorandum and this Agreement and that:

 

(i)                                     the
representations and warranties of the Company in this Agreement are true and
correct on and as of the Closing Date with the same effect as if made on the
Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date; and

 

(ii)                                  since
the date of the most recent financial statements included or incorporated by
reference in the Final Memorandum (exclusive of any amendment or supplement
thereto), there has been no material adverse change in the condition (financial
or otherwise), prospects, earnings, business or properties of the Company and
its subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the
Final Memorandum (exclusive of any amendment or supplement thereto).

 

19

 

(e)                                  At
the Execution Time and at the Closing Date, KPMG LLP shall have furnished to
the Initial Purchasers letters, dated respectively as of the Execution Time and
as of the Closing Date, in form and substance reasonably satisfactory to the
Representative, independent accountants, containing statements and information
of the type ordinarily included in accountants’ “comfort letters” to underwriters
with respect to the financial statements and certain financial information
contained in or incorporated by reference into the Final Memorandum (including
any amendment or supplement thereto at the date of the applicable letter);
provided that the letter delivered at the Closing Date shall use a “cut-off
date” not earlier than the date hereof.

 

(f)                                    Subsequent
to the Execution Time or, if earlier, the dates as of which information is
given in the Final Memorandum (exclusive of any amendment or supplement thereto),
there shall not have been (i) (A) any
change in capital stock (except for stock option exercises and exchangeable
shares exchanged), increase in long-term debt or any decreases in consolidated
net current assets (except for a decrease resulting from the use of cash and
cash equivalents to purchase long-term marketable securities) or consolidated
shareholders’ equity as compared with amounts shown on the March 31, 2004,
unaudited condensed consolidated balance sheet incorporated by reference in the
Final Memorandum or (B) any decreases, as compared with the corresponding
period in the preceding year, in consolidated net revenues, operating income or
in the total or per-share amounts of net income, in each case, specified in the
letter or letters referred to in paragraph (e) of this Section 6; or (ii)
any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), prospects, earnings, business
or properties of the Company and its subsidiaries taken as a whole, whether or
not arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Final Memorandum (exclusive of any amendment or
supplement thereto), the effect of which, in any case referred to in clause (i)
or (ii) above, is, in the sole judgment of the Representative, so material and
adverse as to make it impractical or inadvisable to proceed with the offering
or delivery of the Securities as contemplated in the Final Memorandum
(exclusive of any amendment or supplement thereto).

 

(g)                                 The
Securities shall have been designated as PORTAL-eligible securities in
accordance with the rules and regulations of the NASD and the Securities shall
be eligible for clearance and settlement through The Depository Trust Company.

 

(h)                                 Prior
to the Execution Time, the Company shall have furnished to the Representative a
letter substantially in the form of Exhibit A hereto from each officer and
director of the Company.

 

(i)                                     The
Company shall have caused the shares of Common Stock initially issuable upon
conversion of the Securities to be approved for listing, subject to issuance,
on the Nasdaq National Market.

 

(j)                                     Prior
to the Closing Date, the Company shall have furnished to the Representative
such further information, certificates and documents as the Representative may
reasonably request.

 

20

 

If any of the conditions
specified in this Section 6 shall not have been fulfilled when and as
provided in this Agreement, or if any of the opinions and certificates
mentioned above or elsewhere in this Agreement shall not be reasonably
satisfactory in form and substance to the Representative and counsel for the
Initial Purchasers, this Agreement and all obligations of the Initial Purchasers
hereunder may be cancelled at, or at any time prior to, the Closing Date by the
Representative.  Notice of such
cancellation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.

 

The documents required to
be delivered by this Section 6 will be delivered at the office of counsel
for the Initial Purchasers, at Davis Polk & Wardwell, 1600 El Camino Real,
Menlo Park, California  94025, on the
Closing Date.

 

7.  Reimbursement of Expenses.  If the sale of the Securities provided for
herein is not consummated because any condition to the obligations of the
Initial Purchasers set forth in Section 6 hereof is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by any of the Initial Purchasers, the Company will
reimburse the Initial Purchasers severally through Citigroup on demand for all
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.

 

8.  Indemnification and Contribution.  (a) The Company agrees to indemnify and
hold harmless each Initial Purchaser, the directors, officers, employees,
Affiliates and agents of each Initial Purchaser and each person who controls
any Initial Purchaser within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several,
to which they or any of them may become subject under the Act, the Exchange Act
or other U.S. federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Preliminary
Memorandum, the Final Memorandum or in any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in the Preliminary
Memorandum, the Final Memorandum, or in any amendment thereof or supplement
thereto, in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any Initial Purchaser through the
Representative specifically for inclusion therein.  This indemnity agreement will be in addition to any liability
that the Company may otherwise have.

 

(b)                                 Each
Initial Purchaser severally, and not jointly, agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each Initial Purchaser, but only with

 

21

 

reference to
written information relating to such Initial Purchaser furnished to the Company
by or on behalf of such Initial Purchaser through the Representative
specifically for inclusion in the Preliminary Memorandum, the Final Memorandum
or in any amendment or supplement thereto. 
This indemnity agreement will be in addition to any liability that any
Initial Purchaser may otherwise have. 
The Company acknowledges that (i) the statements set forth in the last  paragraph
of the cover page regarding delivery of the Securities and (ii), under the
heading “Plan of Distribution”, (A) the 4th sentence of the 1st paragraph and
the entirety of the 3rd paragraph and (B) the 10th paragraph related to
stabilization, syndicate covering transactions and penalty bids  in
the Preliminary Memorandum and the Final Memorandum constitute the only
information furnished in writing by or on behalf of the Initial Purchasers for
inclusion in the Preliminary Memorandum, the Final Memorandum or in any
amendment or supplement thereto.

 

(c)                                  Promptly
after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in
the forfeiture by the indemnifying party of substantial rights and defenses and
(ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. 
The indemnifying party shall be entitled to appoint counsel (including
local counsel) of the indemnifying party’s choice at the indemnifying party’s
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel,
other than local counsel if not appointed by the indemnifying party, retained
by the indemnified party or parties except as set forth below); provided,
however, that such counsel shall be satisfactory to the indemnified
party.  Notwithstanding the indemnifying
party’s election to appoint counsel (including local counsel) to represent the
indemnified party in an action, the indemnified party shall have the right to
employ separate counsel (including local counsel), and the indemnifying party
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest; (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties that are different from or additional to
those available to the indemnifying party; (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action; or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party.  An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise
or consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.

 

22

 

(d)                                 In
the event that the indemnity provided in paragraph (a) or (b) of this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and the Initial Purchasers severally agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending any loss, claim, damage, liability or action) (collectively “Losses”)
to which the Company and one or more of the Initial Purchasers may be subject
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and by the Initial Purchasers on the other from
the offering of the Securities; provided, however, that in no
case shall any Initial Purchaser be responsible for any amount in excess of the
purchase discount or commission applicable to the Securities purchased by such
Initial Purchaser hereunder.  If the
allocation provided by the immediately preceding sentence is unavailable for
any reason, the Company and the Initial Purchasers severally shall contribute
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the Initial
Purchasers on the other in connection with the statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.  Benefits received by the Company shall be
deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by it, and benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions.  Relative fault shall be
determined by reference to, among other things, whether any untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information provided by the Company on the one
hand or the Initial Purchasers on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. 
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution were determined by pro rata allocation or any
other method of allocation that does not take account of the equitable
considerations referred to above. 
Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. 
For purposes of this Section 8, each person who controls an Initial
Purchaser within the meaning of either the Act or the Exchange Act and each
director, officer, employee, Affiliate and agent of an Initial Purchaser shall
have the same rights to contribution as such Initial Purchaser, and each person
who controls the Company within the meaning of either the Act or the Exchange
Act and each officer and director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).

 

9.  Default by an Initial Purchaser.  If any one or more Initial Purchasers shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Initial Purchaser hereunder and such failure to purchase shall constitute
a default in the performance of its or their obligations under this Agreement,
the remaining Initial Purchasers shall be obligated severally to take up and
pay for (in the respective proportions which the principal amount of Securities
set forth opposite their names in Schedule I hereto bears to the aggregate
principal amount of Securities set forth opposite the names of all the
remaining Initial Purchasers) the Securities which the defaulting Initial
Purchaser or Initial Purchasers agreed but failed to purchase; provided,
however, that in the event that the aggregate principal amount of
Securities which the defaulting Initial Purchaser or Initial Purchasers agreed
but failed to purchase shall exceed 10% of the aggregate principal amount of
Securities set forth in Schedule I hereto, the remaining

 

23

 

Initial Purchasers shall have the right to purchase all, but shall not
be under any obligation to purchase any, of the Securities, and if such
nondefaulting Initial Purchasers do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Initial
Purchaser or the Company.  In the event
of a default by any Initial Purchaser as set forth in this Section 9, the
Closing Date shall be postponed for such period, not exceeding five Business
Days, as the Representative shall determine in order that the required changes
in the Final Memorandum or in any other documents or arrangements may be
effected.  Nothing contained in this
Agreement shall relieve any defaulting Initial Purchaser of its liability, if
any, to the Company or any nondefaulting Initial Purchaser for damages
occasioned by its default hereunder.

 

10.  Termination.  This Agreement shall be subject to termination
in the absolute discretion of the Representative, by notice given to the
Company prior to delivery of and payment for the Securities, if at any time
prior to such time (i) trading in the Company’s Common Stock shall have been
suspended by the Commission or the Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or limited or minimum prices shall have been
established on the Nasdaq National Market; (ii) a banking moratorium shall have
been declared either by U.S. federal or New York State authorities; or (iii)
there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the sole judgment of the Representative, impractical or inadvisable to
proceed with the offering or delivery of the Securities as contemplated in the
Final Memorandum (exclusive of any amendment or supplement thereto).

 

11.  Representations
and Indemnities to Survive.  The
respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers and of the Initial Purchasers set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Initial
Purchasers or the Company or any of the indemnified persons referred to in
Section 8 hereof, and will survive delivery of and payment for the
Securities.  The provisions of Sections
7 and 8 hereof shall survive the termination or cancellation of this Agreement.

 

12.  Notices.  All communications hereunder will be in
writing and effective only on receipt, and, if sent to the Representative, will
be mailed, delivered or telefaxed to the Citigroup General Counsel (fax no.:
(212) 816-7912) and confirmed to Citigroup at 388 Greenwich Street, New York,
New York 10013, Attention:  General
Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to
(503) 612-0848 and confirmed to it at Pixelworks, Inc., 8100 Nyberg Street
Suite 300, Tualatin, Oregon 97062, attention of the Legal Department with a
copy to Jeff Bouchard.

 

13.  Successors.  This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
indemnified persons referred to in Section 8 hereof and their respective
successors, and, except as expressly set forth in Section 5(h) hereof, no
other person will have any right or obligation hereunder.

 

24

 

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

 

15.  Waiver
of Tax Confidentiality. 
Notwithstanding anything herein to the contrary, purchasers of the
Securities (and each employee, representative or other agent of the Company)
may disclose to any and all persons, without limitation of any kind, the U.S.
tax treatment and U.S. tax structure of any transaction contemplated herein and
all materials of any kind (including opinions or other tax analyses) that are
provided to the purchasers of the Securities relating to such U.S. tax
treatment and U.S tax structure, other than any information for which
nondisclosure is reasonably necessary in order to comply with applicable
securities laws.

 

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

 

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

 

18.  Definitions.  The terms that follow, when used in this
Agreement, shall have the meanings indicated.

 

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

 

“Affiliate” shall have
the meaning specified in Rule 501(b) of Regulation D.

 

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

 

“Citigroup” shall mean
Citigroup Global Markets Inc.

 

“Code” shall mean the
Internal Revenue Code of 1986, as amended.

 

“Commission” shall mean
the Securities and Exchange Commission.

 

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

 

“Execution Time” shall
mean the date and time that this Agreement is executed and delivered by the
parties hereto.

 

“Investment Company Act”
shall mean the Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission promulgated thereunder.

 

25

 

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

 

“PORTAL” shall mean the
Private Offerings, Resales and Trading through Automated Linkages system of the
NASD.

 

“Regulation D” shall
mean Regulation D under the Act.

 

“Regulation S” shall
mean Regulation S under the Act.

 

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

 

26

 

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

 

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  Pixelworks, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/Allen H.
  Alley

  	
   

  
	
   

  	
   

  	
  Name:  Allen H. Alley

  
	
   

  	
   

  	
  Title:  President, CEO and Chairman

  
	
   

  	
   

  
	
  The foregoing Agreement
  is hereby

  confirmed and accepted as of the date first

  above written.

  	
   

  
	
   

  	
   

  
	
  Citigroup Global
  Markets Inc.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ Richard Gallivan

  	
   

  	
   

  
	
   

  	
  Name:  Richard Gallivan

  	
   

  
	
   

  	
  Title:  Managing Director

  	
   

  
	
   

  	
   

  
	
  For itself and the
  other several Initial

  Purchasers named in Schedule I to the

  foregoing Agreement.

  	
   

  
						

 

27

 

SCHEDULE I

 

	
  Initial Purchasers

  	
   

  	
  Principal
  Amount

  of Firm

  Securities to be

  Purchased

  	
   

  
	
  Citigroup
  Global Markets Inc

  	
   

  	
  $

  	
  116,250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  D.A.
  Davidson & Co.

  	
   

  	
  $

  	
  8,750,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  125,000,000

  	
   

  

 

28

 

EXHIBIT A

 

May       , 2004

 

Citigroup Global Markets
Inc.

As Representative of the
Initial Purchasers

388 Greenwich Street

New York, New York  10013

 

Ladies and Gentlemen:

 

This letter is being
delivered to you in connection with the execution of Purchase Agreement (the
“Purchase Agreement”) dated as of the date hereof between Pixelworks, Inc., an
Oregon corporation (the “Company”) and you as representative of a group of
Initial Purchasers named therein, relating to an offering of Convertible
Debentures Due 2024, which will be convertible into Shares of Common Stock, par
value $0.001 per share (the “Securities”), of the Company.

 

In order to induce you
and the other Initial Purchasers to enter into the Purchase Agreement, the
undersigned will not, without the prior written consent of Citigroup Global
Markets Inc., offer, sell, contract to sell, pledge or otherwise dispose of (or
enter into any transaction which is designed to, or might reasonably be expected
to, result in the disposition (whether by actual disposition or effective
disposition due to cash settlement or otherwise) by the undersigned or any  affiliate of the undersigned or any person
in privity with the undersigned or any affiliate of the undersigned) directly
or indirectly, including filing (or participation in the filing of) a
registration statement with the U.S. Securities and Exchange Commission in
respect of, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the U.S. Securities and Exchange Commission promulgated thereunder with
respect to, any shares of capital stock of the Company or any securities
convertible or exercisable or exchangeable for such capital stock, or publicly
announce an intention to effect any such transaction, for a period of 75 days
after the date of the Purchase Agreement. A transfer of shares of capital stock
of the Company or any securities convertible or exercisable or exchangeable for
such capital stock to an immediate family member or trust for no consideration
or by bona fide gift may be made, provided that the transferee or donee, as
applicable, shall execute and deliver to Citigroup Global Markets, Inc. a
duplicate form of this lock-up agreement.

 

If for any reason the
Purchase Agreement shall be terminated prior to the Closing Date (as defined in
the Purchase Agreement), the agreement set forth above shall likewise be
terminated.

 

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-1

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