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Proc-Type: 2001,MIC-CLEAR
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SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the
Securities Filed by the Registrant
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Filed by a party other than the Registrant ¨
Check the appropriate box:
Sigma Designs, Inc.
__________________________________________________________________________ Payment of Filing Fee (Check the appropriate box): ý
No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
Exchange Act of 1934
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Preliminary Proxy Statement
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Confidential, for the use of the Commission
only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under Rule 14a-12
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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SIGMA DESIGNS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 22, 2001
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Sigma Designs, Inc., a California corporation (the "Company"), will be held on Friday, June 22, 2001 at 2:00 p.m., local time, at the principal executive offices of the Company located at 355 Fairview Way, Milpitas, California 95035, for the following purposes:
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
Only shareholders of record at the close of business on April 23, 2001 are entitled to receive notice of, to attend and to vote at the meeting and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person. Whether or not you plan to attend, please sign and return the enclosed proxy as promptly as possible in the envelope enclosed. Should you receive more than one proxy because your shares are registered in different names or addresses, please sign and return each proxy to assure that all your shares will be voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy will be revoked automatically and only your vote at the Annual Meeting will be counted.
FOR THE BOARD OF DIRECTORS
Thinh Q. Tran
Chairman of the Board of Directors,
President and Chief Executive Officer
Milpitas, California
May 22, 2001
SIGMA DESIGNS, INC.
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of Sigma Designs, Inc., a California corporation (the "Company") for use at the Company's Annual Meeting of Shareholders (the "Annual Meeting") to be held Friday, June 22, 2001, at 2:00 p.m., local time, or at any adjournment(s) or postponement(s) thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at the principal executive offices of the Company at 355 Fairview Way, Milpitas, California 95035. The Company's telephone number is (408) 262-9003.
These proxy solicitation materials were mailed on or about May 22, 2001 to all shareholders entitled to vote at the Annual Meeting. You may request a copy of the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2001 at no charge, by writing to the Company at the following address: Investor Relations, Sigma Designs, Inc., 355 Fairview Way, Milpitas, California 95035.
INFORMATION CONCERNING SOLICITATION AND VOTING
Purposes of the Annual Meeting
The purposes of the Annual Meeting are (i) to elect four (4) directors to serve for the ensuing year and until their successors are duly elected and qualified; (ii) to consider and adopt the Company's 2001 Employee Stock Option Plan (iii) to consider and adopt the Company's 2001 Employee Stock Purchase Plan; (iv) to consider and approve an amendment to the Company's Second Restated Articles of Incorporation to increase the number of authorized shares of Common Stock by 15,000,000 shares from 20,000,000 shares to a total of 35,000,000 shares; (v) to ratify the appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending January 31, 2002; and (vi) to transact such other business as may properly come before the meeting or any adjournment thereof.
Record Date and Shares Outstanding
Shareholders of record at the close of business on April 23, 2001 (the "Record Date") are entitled to notice of, and to vote at the Annual Meeting. At the Record Date, 16,309,517 shares of the Company's Common Stock were outstanding. For information regarding security ownership by management and by beneficial owners of more than 5% of the Company's Common Stock, see "Security Ownership of Certain Beneficial Owners and Management."
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering a written notice of revocation or a duly executed proxy bearing a later date to the Secretary of the Company or by attending the Annual Meeting and voting in person. Attending the Annual Meeting in and of itself will not constitute a revocation of proxy. Any written notice of revocation or subsequent proxy should be delivered to Sigma Designs, Inc., 355 Fairview Way, Milpitas, California 95035, Attention: Secretary, or hand-delivered to the Secretary of the Company at or before the taking of the vote at the Annual Meeting.
Voting and Solicitation
Each shareholder entitled to vote at the Annual Meeting is entitled to one vote for each share of Common Stock held as of the Record Date on all matters presented at the Annual Meeting. Every shareholder voting in the election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute such shareholder's votes on the same principle among as many candidates as the shareholder may select, provided that votes cannot be cast for more than four (4) candidates. However, no shareholder shall be entitled to cumulate votes unless the candidate's name has been placed in nomination prior to the voting and the shareholder, or any other shareholder, has given notice at the Annual Meeting prior to the voting of the intention to cumulate the shareholder's votes. On all other matters, each share has one vote.
Shares of Common Stock represented by properly executed proxies will, unless such proxies have been previously revoked, be voted in accordance with the instructions indicated thereon. In the absence of specific instructions to the contrary, properly executed proxies will be voted: (i) FOR the election of each of the Company's nominees as a director; (ii) FOR the adoption of the Company's 2001 Employee Stock Option Plan (iii) FOR the adoption of the Company's 2001 Employee Stock Purchase Plan; (iv) FOR the approval of an amendment to the Company's Second Restated Articles of Incorporation to increase the authorized shares of Common Stock by 15,000,000 shares, from 20,000,000 shares to a total of 35,000,000 shares ; and (v) FOR ratification of the appointment of Deloitte & Touche LLP as independent auditors for the fiscal year ending January 31, 2002. No business other than that set forth in the accompanying Notice of Annual Meeting of Shareholders is expected to come before the Annual Meeting. Should any other matter requiring a vote of shareholders properly arise, the persons named in the enclosed form of proxy will vote such proxy as the Board of Directors may recommend.
Expenses of solicitation will be borne by the Company. The Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners. Proxies may also be solicited by certain of the Company's directors, officers and regular employees, without additional compensation, personally or by telephone, telegram or letter.
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting is a majority of the shares of Common Stock outstanding on the Record Date, entitled to vote, present in person or represented by proxy. Shares that are voted "FOR" or "AGAINST" a matter are treated as being present at the meeting for purposes of establishing a quorum and are also treated as votes eligible to be cast by the Common Stock present in person or represented by proxy at the Annual Meeting and "entitled to vote on the subject matter" (the "Votes Cast") with respect to such matter.
A plurality of the votes duly cast is required for the election of directors. A plurality of the votes duly cast means that only affirmative votes will affect the outcome of the election. The affirmative vote of a majority of the votes duly cast is required to approve the 2001 Employee Stock Option Plan and the 2001 Employee Stock Purchase Plan and to ratify the appointment of auditors. The affirmative vote of a majority of the Company's outstanding Common Stock entitled to vote on the matter is required to amend the Company's Articles of Incorporation.
While there is no definitive statutory or case law authority in California as to the proper treatment of abstentions or broker non-votes, the Company believes that both abstentions and broker non-votes should be counted for purposes of determining the presence or absence of a quorum for the transaction of business. The Company further believes that neither abstentions nor broker non-votes should be counted as shares "represented and voting" with respect to a particular matter for purposes of determining the total number of Votes Cast with respect to such matter. In the absence of controlling precedent to the contrary, the Company intends to treat abstentions and broker non-votes in this manner. Accordingly, abstentions and broker non-votes will not affect the determination as to whether the requisite majority of Votes Cast has been obtained with respect to a particular matter.
A broker "non-vote" occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner. With respect to the proposals submitted to our shareholders for voting pursuant to this proxy solicitation, nominees will not have discretionary voting power with respect to Proposals 2 and 3, and will consequently be unable to vote shares held by beneficial owners who do not give voting instructions to nominees with respect to those proposals.
Deadline for Receipt of Shareholder Proposals for 2002 Annual Meeting
Proposals of shareholders intended to be presented at the next Annual Meeting (i) must be received by the Company at 355 Fairview Way, Milpitas, California 95035 no later than January 22, 2002 and (ii) must satisfy the conditions established by the Securities and Exchange Commission for shareholder proposals to be included in the Company's Proxy Statement for that meeting. If a shareholder intends to submit a proposal at the Company's 2002 Annual Meeting which is not submitted in time to be eligible for inclusion in the proxy statement relating to that meeting, the shareholder must give notice to the Company not less than 90 days nor more than 120 days prior to the meeting in accordance with the requirements set forth in the Company's bylaws. If such a shareholder fails to comply with the foregoing notice provisions, the proposal may not be brought before the meeting.
The rules of the Securities and Exchange Commission (the "SEC") provide that a proxy may confer discretionary authority to vote on a matter for an annual meeting of stockholders if the proponent fails to notify the Company at least forty-five (45) days prior to the month and day of mailing of the prior year's proxy statement. Accordingly, if a proponent does not notify the Company on or before April 8, 2002 of a proposal for the 2002 Annual Meeting, management may use its discretionary voting authority to vote on such proposal. All notices of proposals by stockholders, whether or not included in the Company's proxy materials should be sent to Sigma Designs, Inc., 355 Fairview Way, Milpitas, California 95035, Attention: Secretary.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
Four nominees have been selected for election to the Company's Board of Directors at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the four nominees named below, all of whom are presently directors of the Company. In the event that any nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the current Board of Directors to fill the vacancy. The term of office of each person elected as a director will continue until the next Annual Meeting of Shareholders or until his or her successor has been elected and qualified. It is not expected that any nominee will be unable or will decline to serve as a director.
The name of and certain information regarding each nominee is set forth below.
Name of Nominee |
Age |
Principal Occupation |
Director Since |
Thinh Q. Tran |
47 |
Chairman of the Board, President and Chief Executive Officer of the Company |
1982 |
William J. Almon(1)(2) |
68 |
Board member of Read-Rite Corporation, Netfish Technologies Inc. and HDI Inc. |
1994 |
William Wang(1)(2) |
37 |
Chairman of the Board, Chief Executive Officer and President of Princeton Graphic Systems |
1995 |
Julien Nguyen (1)(3) |
44 |
General Partner of Global Catalyst, and Board member of VM Labs |
2000 |
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee beginning April 2001.
Except as set forth below, each of the nominees has been engaged in his principal occupation described above during the past five (5) years. There are no family relationships among the directors or executive officers of the Company.
Mr. Tran, a founder of the Company, has served as President, Chief Executive Officer and Chairman of the Board since February 1982. Prior to joining the Company, Mr. Tran was served as various engineering positions of Amdahl Corporation and a staff engineer of Trilogy Systems Corporation, both of which were involved in the IBM-compatible mainframe computer market.
Mr. Almon has served as a Director of the Company since April 1994. Mr. Almon also serves as a Director of Read-Rite Corporation, Netfish Technologies Inc. and HDI Inc. Most recently Mr. Almon served as Chairman of the Board of Internet Image, an internet software company and was merged with Intraware Inc. in October 1999. In May 1994, Mr. Almon founded and served as Chairman of the Board and Chief Executive Officer of Storemedia, Inc., a manufacturer of thin film disks. From December 1989 until February 1993, Mr. Almon served as President of Conner Peripherals. Prior to 1987, Mr. Almon spent 30 years with IBM Corporation, holding executive positions in both software and hardware management, most recently as Vice President, Low End Storage Products.
Mr. Wang became a Director of the Company in October 1995. From January 1995 to the present, Mr. Wang has served as Chairman of the Board, Chief Executive Officer and President of Princeton Graphic Systems, (a supplier of computer monitors), and has served since January 1996 as a Director of Diva LABS. From 1990 to April 1997, Mr. Wang served as Chairman of the Board and Chief Executive Officer of MAG Innovision Co., Inc., a supplier of computer monitors. From 1986 until 1990, Mr. Wang worked at Tatung Company of America in the Video Display Division.
Mr. Nguyen became a Director of the Company in May 2000. Mr. Nguyen is a General Partner of Global Catalyst Partners, a corporate venture fund. Mr. Nguyen co-founded and was the Chairman of ezlogin, a developer of personalization infrastructure tools for internet sites and wireless carriers. Prior to ezlogin, Mr Nguyen founded Novita Communications, and served as its Chief Executive Officer. Novita developed Java-based communications software and services. In 1998, Novita was acquired by PlanetWeb. From February 1995 to October 1996, Mr. Nguyen served as Co-Chairman and Chief Technical Officer of the Company. From August 1993 until January 1995, he served as Vice President, Engineering and Chief Technical Officer of the Company. From May 1992 until October 1993, Mr. Nguyen was President and Chief Executive of E-Motions, which was acquired by the Company in 1993. Prior to founding E-Motions, Mr. Nguyen worked at Radius Inc. as Director of Product Development and was in charge of all product development for five years. Mr. Nguyen also serves on the board of VM Labs.
Vote Required and Recommendation of the Board of Directors
The four (4) nominees receiving the highest number of affirmative votes of the shares present or represented and entitled to be voted for them shall be elected as directors. Votes withheld from any director are counted for purposes of determining the presence or absence of a quorum for the transaction of business, but have no further legal effect in the election of directors under California law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED ABOVE.
Board and Committees Meetings
The Board of Directors of the Company held a total of four (4) meetings during the fiscal year ended January 31, 2001 (the "Last Fiscal Year"). No incumbent director attended less than 75% of the aggregate of all meetings of the Board of Directors and any committees of the Board on which he served, if any, during his tenure as a director. The Board of Directors has an Audit Committee and a Compensation Committee. It does not have a nominating committee or a committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors, which currently consists of Mr. Almon, Mr. Wang and Mr. Nguyen. Mr. Nguyen was appointed to the Audit Committee effective April 2001. Mr. Almon and Mr. Wang met once during the Last Fiscal Year. The Audit Committee recommends engagement of the Company's independent auditors, and is primarily responsible for approving the services performed by the Company's independent auditors and for reviewing and evaluating the Company's accounting policies and its systems of internal accounting controls.
The Compensation Committee of the Board of Directors, which currently consists of Mr. Almon and Mr. Wang, met once during the Last Fiscal Year. The Compensation Committee reviews and makes recommendations to the Board concerning the Company's executive compensation policy.
Compensation of Directors
Members of the Board of Directors are currently compensated at the rate of $500 per Board meeting attended plus out-of-pocket expenses related to the attendance at such meetings. Pursuant to the Company's 1994 Director Option Plan, as amended, during the Last Fiscal Year, Mr. Nguyen was automatically granted options to purchase 20,000 shares of the Company's Common Stock at an exercise price of $4.31 per share, Mr. Almon and Mr. Wang were automatically granted options to purchase 2,500 shares each at an exercise price of $4.50 per share.
PROPOSAL NO. 2
ADOPTION OF THE COMPANY'S 2001 EMPLOYEE STOCK OPTION PLAN
The 2001 Employee Stock Option Plan (the "2001 Option Plan") was adopted by the Board of Directors in April 2001 to replace the Company's 1994 Option Plan, which had a total of 120,375 shares remaining for issuance as of April 23, 2001. A total of 500,000 shares of Common Stock are currently reserved for issuance under the 2001 Option Plan in addition to the shares which remain available for grant under the 1994 Option Plan and any additional shares that are available upon termination of options presently outstanding under the 1994 Option Plan. As of April 23, 2001, options to purchase 3,415,577 shares held by approximately 102 optionees were outstanding under the 1994 Option Plan at a weighted average per share exercise price of $ 2.74. The fair market value of the Company's Common Stock as of April 23, 2001 was $2.31 per share.
The Company's shareholders are requested to approve the adoption of the 2001 Stock Plan and the reservation of 500,000 shares of the Company's Common Stock for issuance under the plan, with an automatic annual increase on the first day of the Company's fiscal year equal to the lesser of (i) 1,000,000 shares, (ii) 4% of the Company's outstanding common stock on such date or (iii) a lesser number of shares as determined by the Board of Directors. In addition, 120,375 shares remained available for grant under the 1994 Option Plan as of April 23, 2001 as well as additional shares to the extent currently outstanding options under the 1994 Option Plan are terminated and the underlying shares are returned to the available pool. As of the date hereof, no options had been granted pursuant to the 2001 Option Plan.
The Company believes that the 2001 Option Plan is a key component of its strategy to attract and retain skilled employees and quality management. The Board of Director believes it is in the Company's best interests to adopt the 2001 Stock Plan so that the Company may continue to attract and retain the services of key employees by granting options to purchase the Company's Common Stock and other incentives to its employees in the form of equity ownership.
Vote Required and Recommendation of the Board of Directors
The approval of the 2001 Option Plan requires the affirmative vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE 2001 OPTION PLAN AND THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER.
Description of the 2001 Option Plan
The following is a summary of the principal features of the 2001 Option Plan. However, the following summary is qualified in its entirety by the specific language of the 2001 Option Plan, a copy of which is available to any shareholder upon written request to the Secretary of the Company.
General. The purpose of the 2001 Option Plan is to attract and retain the best available personnel for positions of substantial responsibility with the Company, to provide additional incentive to the employees and consultants of the Company and its subsidiaries and to promote the success of the Company's business. Options granted under the 2001 Option Plan may be either "incentive stock options" or nonstatutory stock options. Stock purchase rights may also be granted under the 2001 Option Plan.
Administration. The 2001 Option Plan may generally be administered by the Board or a Committee appointed by the Board (as applicable, the "Administrator"). The Administrator may make any determinations deemed necessary or advisable for the 2001 Option Plan.
Eligibility. Nonstatutory stock options and stock purchase rights may be granted under the 2001 Option Plan to employees, directors and consultants of the Company and any parent or subsidiary of the Company. Incentive stock options may be granted only to employees. The Administrator, in its discretion, selects the employees, directors and consultants to whom options and stock purchase rights may be granted, the time or times at which such options and stock purchase rights shall be granted, and the exercise price and number of shares subject to each such grant.
Limitations. Section 162(m) of the Code places limits on the deductibility for federal income tax purposes of compensation paid to certain executive officers of the Company. In order to preserve the Company's ability to deduct the compensation income associated with options granted to such persons, the 2001 Option Plan provides that no employee may be granted, in any fiscal year of the Company, options and stock purchase rights to purchase more than 400,000 shares of Common Stock. Notwithstanding this limit, however, in connection with such individual's initial employment with the Company, he or she may be granted options and stock purchase rights to purchase up to an additional 750,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock option agreement between the Company and the optionee, and is subject to the following terms and conditions:
Stock Purchase Rights. In the case of stock purchase rights, unless the Administrator determines otherwise, the restricted stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for shares repurchased pursuant to the restricted stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock of the Company changes by reason of any stock split, reverse stock split, stock dividend, combination, reclassification or other similar change in the capital structure of the Company effected without the receipt of consideration, appropriate adjustments shall be made in the number and class of shares of stock subject to the 2001 Option Plan, the number and class of shares of stock subject to any option or stock purchase right outstanding under the 2001 Option Plan, and the exercise price of any such outstanding option or stock purchase right.
In the event of a liquidation or dissolution, any unexercised options or stock purchase rights will terminate. The Administrator may, in its sole discretion, provide that each optionee shall have the right to exercise all or any part of the option or stock purchase right, including shares as to which the option or stock purchase right would not otherwise be exercisable.
In connection with any merger of the Company with or into another corporation or the sale of all or substantially all of the assets of the Company, each outstanding option and stock purchase right shall be assumed or an equivalent option or right substituted by the successor corporation. If the successor corporation refuses to assume the options and stock purchase rights or to substitute substantially equivalent options or rights, the optionee shall have the right to exercise the option or stock purchase right as to all the optioned stock, including shares not otherwise vested or exercisable. In such event, the Administrator shall notify the optionee that the option or stock purchase right is fully exercisable for fifteen (15) days from the date of such notice and that the option or stock purchase right terminates upon expiration of such period.
Amendment and Termination of the Plan. The Board may amend, alter, suspend or terminate the 2001 Option Plan, or any part thereof, at any time and for any reason. However, the Company shall obtain shareholder approval for any amendment to the 2001 Option Plan to the extent necessary and desirable to comply with applicable law. No such action by the Board or shareholders may alter or impair any option or stock purchase right previously granted under the 2001 Option Plan without the written consent of the optionee. Unless terminated earlier, the 2001 Option Plan shall terminate ten years from the date the 2001 Option Plan was adopted by the Board.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock option does not recognize taxable income at the time the option is granted or upon its exercise, although the exercise is an adjustment item for alternative minimum tax purposes and may subject the optionee to the alternative minimum tax. Upon a disposition of the shares more than two years after grant of the option and one year after exercise of the option, any gain or loss is treated as long-term capital gain or loss. Net capital gains on shares held more than twelve (12) months may be taxed at a maximum federal rate of 20%. Capital losses are allowed in full against capital gains and up to $3,000 against other income. If these holding periods are not satisfied, the optionee recognizes ordinary income at the time of disposition equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise or (ii) the sale price of the shares. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on the holding period. A different rule for measuring ordinary income upon such a premature disposition may apply if the optionee is also an officer, director, or 10% shareholder of the Company. Unless limited by Section 162(m) of the Code, the Company is entitled to a deduction in the same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable income at the time he or she is granted a nonstatutory stock option. Upon exercise, the optionee recognizes taxable income generally measured by the excess of the then fair market value of the shares over the exercise price. Any taxable income recognized in connection with an option exercise by an employee of the Company is subject to tax withholding by the Company. Unless limited by Section 162(m) of the Code, the Company is entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Upon a disposition of such shares by the optionee, any difference between the sale price and the optionee's exercise price, to the extent not recognized as taxable income as provided above, is treated as long-term or short-term capital gain or loss, depending on the holding period. Net capital gains on shares held more than 12 months may be taxed at a maximum federal rate of 20%. Capital losses are allowed in full against capital gains and up to $3,000 against other income.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the same manner as nonstatutory stock options. However, restricted stock is subject to a "substantial risk of forfeiture" within the meaning of Section 83 of the Code, because the Company may repurchase the stock when the purchaser ceases to provide services to the Company. As a result of this substantial risk of forfeiture, the purchaser will not recognize ordinary income at the time of purchase. Instead, the purchaser will recognize ordinary income on the dates when the stock is no longer subject to a substantial risk of forfeiture (i.e., when the Company's right of repurchase lapses). The purchaser's ordinary income is measured as the difference between the purchase price and the fair market value of the stock on the date the stock is no longer subject to right of repurchase.
The purchaser may accelerate to the date of purchase his or her recognition of ordinary income, if any, and begin his or her capital gains holding period by timely filing (i.e., within thirty days of purchase), an election pursuant to Section 83(b) of the Code. In such event, the ordinary income recognized, if any, is measured as the difference between the purchase price and the fair market value of the stock on the date of purchase, and the capital gain holding period commences on such date. The ordinary income recognized by a purchaser who is an employee will be subject to tax withholding by the Company. Different rules may apply if the purchaser is also an officer, director, or 10% shareholder of the Company.
The foregoing is only a summary of the effect of federal income taxation upon optionees and the Company with respect to the grant and exercise of options under the 2001 Option Plan. It does not purport to be complete, and does not discuss the tax consequences of the employee's or consultant's death or the provisions of the income tax laws of any municipality, state or foreign country in which the employee or consultant may reside.
New Plan Benefits
The Company can not currently determine the number of shares for which options or rights to purchase will be granted in the future under the 2001 Option Plan to all executive officers as a group, all directors who are not executive officers as a group or all employees (including current officers who are not executive officers) as a group. However, see "Management- Option Grants in the Last Fiscal Year," beginning on page 23 for the number of stock options granted to the officers named in the Summary Compensation Table in the last fiscal year. In the fiscal year ended February 3, 2001, options to purchase an aggregate of 195,000 shares of Common Stock of the Company were granted to executive officers as a group at a weighted average exercise price of approximately $3.50, options to purchase an aggregate of 25,000 shares of Common Stock of the Company were granted to all directors who are not executive officers as a group at a weighted average exercise price of approximately $4.34 and options to purchase an aggregate of 960,500 shares of Common Stock of the Company were granted to all employees (including current officers who are not executive officers) as a group at a weighted average exercise price of approximately $ 3.57.
PROPOSAL NO. 3
ADOPTION OF THE COMPANY'S 2001 EMPLOYEE STOCK PURCHASE
PLAN
The 2001 Employee Stock Purchase Plan (the "2001 Purchase Plan") was adopted by the Board of Directors in April 2001 to replace the Company's 1986 Stock Purchase Plan, which expired on June 30, 2000. A total 100,000 shares of Common Stock are currently reserved for issuance under the 2001 Purchase Plan. As of April 23, 2001, pursuant to offerings under the 1986 Stock Purchase Plan, a total of 300,000 shares had been issued to participants a weighted average price of $4.53 As of the date hereof, no shares had been purchased pursuant to the 2001 Purchase Plan. The fair market value of the Company's Common Stock as of April 23, 2001 was $2.31 per share.
The Company's shareholders are requested to approve the adoption of the 2001 Purchase Plan and the reservation of 100,000 shares of the Company's Common Stock for issuance under the plan, with an automatic annual increase on the first day of the Company's fiscal year equal to the lesser of (i) 500,000 shares, (ii) 2% of the Company's outstanding common stock on such date or (iii) a lesser number of shares as determined by the Board of Directors.
The Board of Directors believes it is in the Company's best interest to adopt the 2001 Purchase Plan so that the Company may continue to provide eligible employees the opportunity to purchase the Company's Common Stock through payroll deductions, thereby aligning their individual financial interest more closely with those of the Company's shareholders.
Vote Required and Recommendation of the Board of Directors
The approval of the 2001 Purchase Plan requires the affirmative vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE 2001 PURCHASE PLAN AND THE NUMBER OF SHARES RESERVED FOR ISSUANCE THERUNDER.
Description of the 2001 Employee Stock Purchase Plan
The following is a summary of the principal features of the 2001 Purchase Plan. However, the following summary is qualified in its entirety by the specific language of the 2001 Purchase Plan, a copy of which is available to any shareholder upon written request to the Secretary of the Company.
General. The purpose of the 2001 Purchase Plan is to provide employees with an opportunity to purchase Common Stock of the Company through payroll deductions.
Administration. The 2001 Purchase Plan may be administered by the Board of Directors (the "Board") or a committee appointed by the Board. All questions of interpretation or application of the 2001 Purchase Plan are determined by the Board or its appointed committee, and its decisions are final, conclusive and binding upon all participants.
Eligibility. Each employee of the Company (including officers), whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year, is eligible to participate in the 2001 Purchase Plan; provided, however, that no employee shall be granted an option under the 2001 Purchase Plan (i) to the extent that, immediately after the grant, such employee would own 5% of either the voting power or value of the stock of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year.
Offering Period. The 2001 Purchase Plan is implemented by offering periods lasting approximately six months in duration with a new offering period commencing on First day of January and First day of July of each year. To participate in the 2001 Purchase Plan, each eligible employee must authorize payroll deductions pursuant to the 2001 Purchase Plan. Such payroll deductions may not exceed 10% of a participant's daily compensation. Compensation is defined as base straight time gross earnings and commissions, but exclusive of payments for overtime and shift premium, incentive compensation, bonuses and other compensation. Once an employee becomes a participant in the 2001 Purchase Plan, the employee will remain a participant of the 2001 Purchase Plan, unless the participant withdraws or terminates employment earlier, and the employee will automatically participate in each successive offering period until such time as the employee withdraws from the 2001 Purchase Plan or the employee's employment with the Company terminates.
Purchase Price. The purchase price per share at which shares will be sold in an offering under the 2001 Purchase Plan is the lower of (i) 85% of the fair market value of a share of Common Stock on the first day of an offering period or (ii) 85% of the fair market value of a share of Common Stock on the last day of each offering period. The fair market value of the Common Stock on a given date is generally the closing sale price of the Common Stock as reported on the Nasdaq National Market for such date.
Payment of Purchase Price; Payroll Deductions. The purchase price of the shares is accumulated by payroll deductions throughout the offering period. The number of shares of Common Stock a participant may purchase in each offering period is determined by dividing the total amount of payroll deductions withheld from the participant's compensation during that offering period by the purchase price; provided, however, that a participant may not purchase more than 15,000 shares for each offering period. During the offering period, a participant may discontinue his or her participation in the 2001 Purchase Plan, and may decrease or increase the rate of payroll deductions in an offering period within limits set by the Administrator.
All payroll deductions made for a participant are credited to the participant's account under the 2001 Purchase Plan, are withheld in whole percentages only and are included with the general funds of the Company. Funds received by the Company pursuant to exercises under the 2001 Purchase Plan are also used for general corporate purposes. A participant may not make any additional payroll deduction into his or her account or any reduction of payroll deduction from his or her account during each offering period.
Withdrawal. A participant may terminate his or her participation in the 2001 Purchase Plan at any time by giving the Company a written notice of withdrawal. In such event, the payroll deductions credited to the participant's account will be returned, without interest, to such participant. Payroll deductions will not resume unless a new subscription agreement is delivered in connection with a subsequent offering period.
Termination of Employment. Termination of a participant's employment for any reason, including death, cancels his or her participation in the 2001 Purchase Plan immediately. In such event the payroll deductions credited to the participant's account will be returned without interest to such participant, his or her designated beneficiaries or the executors or administrators of his or her estate.
Adjustments Upon Changes in Capitalization. In the event of any changes in the capitalization of the Company effected without receipt of consideration by the Company, such as a stock split, stock dividend, combination or reclassification of the Common Stock, resulting in an increase or decrease in the number of shares of Common Stock, proportionate adjustments will be made by the Board in the shares subject to purchase and in the price per share under the 2001 Purchase Plan. In the event of liquidation or dissolution of the Company, the offering periods then in progress will terminate immediately prior to the consummation of such event unless otherwise provided by the Board. In the event of a sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the 2001 Purchase Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened and a new exercise date will be set.
Amendment and Termination. The Board may at any time and for any reason amend or terminate the 2001 Purchase Plan, except that no such termination shall affect options previously granted and no amendment shall make any change in an option granted prior thereto which adversely affects the rights of any participant. Shareholder approval for amendments to the 2001 Purchase Plan shall be obtained in such a manner and to such a degree as required to comply with all applicable laws or regulations. The 2001 Purchase Plan will terminate in ten (10) years unless terminated earlier by the Board in accordance with the 2001 Purchase Plan.
Certain Federal Income Tax Information. The following brief summary of the effect of federal income taxation upon the participant and the Company with respect to the shares purchased under the 2001 Purchase Plan does not purport to be complete, and does not discuss the tax consequences of a participant's death or the income tax laws of any state or foreign country in which the participant may reside.
The 2001 Purchase Plan, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the 2001 Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax in an amount that depends upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the applicable offering period and one year from the applicable date of purchase, the participant will recognize ordinary income measured as the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (b) an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period. Any additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short- term capital gain or loss, depending on the holding period. The Company generally is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding periods described above.
The foregoing is only a summary of the effect of federal income taxation upon optionees and the Company with respect to the grant and exercise of options under the 2001 Purchase Plan. It does not purport to be complete, and does not discuss the tax consequences of the employee's or consultant's death or the provisions of the income tax laws of any municipality, state or foreign country in which the employee or consultant may reside.
New Plan Benefits
The Company cannot currently determine the number of shares which will be purchased in the future under the 2001 Purchase Plan by all executive officers as a group, all directors who are not executive officers as a group or all employees (including current officers who are not executive officers) as a group.
PROPOSAL NO. 4
APPROVAL OF AN AMENDMENT TO THE
SECOND RESTATED ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
The Board of Directors has determined that it is in the best interests of the Company and its shareholders to amend the Company's Second Restated Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company by 15,000,000 shares, from 20,000,000 shares to a total of 35,000,000 shares (the "Amendment"). Accordingly, the Board of Directors has unanimously approved the Amendment and hereby solicits the approval of the Company's shareholders of the Amendment. If the Amendment is adopted by the shareholders, it will become effective upon filing of an Amendment to the Second Restated Articles of Incorporation on behalf of the Company with the Secretary of State of the State of California.
As of April 23, 2001, the Company has 20,000,000 authorized shares of Common Stock. Of this authorized number, 16,309,517 shares were outstanding, and 3,415,577 shares were reserved for issuance under the Company's stock incentive plans, leaving 274,906 shares unreserved, unissued, and available for issuance.
Purpose and Effect of the Amendment
The principal purpose of the proposal to authorize additional shares of Common Stock is to provide the Company with the flexibility to issue Common Stock for a variety of proper corporate purposes which the Board of Directors may deem advisable without further action by the Company's shareholders, except as may be required by law, regulation or Nasdaq rule. These purposes include, among other things, raising equity capital, adopting additional equity incentive plans or reserving additional shares for issuance under such plans, making acquisitions through the use of stock and declaring stock splits in the form of stock dividends or distributions. The availability of additional shares of Common Stock is particularly important in the event that the Board of Directors needs to undertake any of the foregoing actions on an expedited basis and thus avoid the time (and expense) of seeking shareholder approval in connection with the contemplated action. The Board of Directors has no present agreement, arrangement or intention to issue any of the additional shares for which approval is sought. However, if these situations were to arise, the issuance of additional shares of Common Stock could have a dilutive effect on earnings per share and a shareholder's percentage voting power in the Company.
The increase in the authorized number of shares of Common Stock and the subsequent issuance of such shares could, under certain circumstances, have the effect of delaying or preventing a change in control of the Company without further action by the shareholders (for example, by diluting the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer). The Company is not presently aware of any pending or proposed transaction involving a change in control of the Company. While it may be deemed to have potential anti-takeover effects, the proposed amendment to increase the authorized Common Stock is not prompted by any specific effort or takeover threat currently perceived by management.
Vote Required and Board of Directors Recommendation
The affirmative vote of the holders of a majority of the outstanding shares of the Common Stock will be required to approve this Amendment to the Company's Second Restated Articles of Incorporation. As a result, abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT OF THE COMPANY'S SECOND RESTATED ARTICLES OF INCORPORATION.
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP, independent auditors, to audit the consolidated financial statements of the Company for the fiscal year ending January 31, 2002 and recommends that shareholders vote for ratification of such appointment. In the event of a negative vote on such ratification, the Board of Directors will reconsider its selection.
Deloitte & Touche LLP has audited the Company's financial statements for each fiscal year since the Company's inception. Its representatives are expected to be present at the meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
FEES PAID TO ACCOUNTANTS FOR SERVICES RENDERED DURING FISCAL YEAR 2001
Audit Fees
The aggregate fees billed by Deloitte & Touche LLP and their respective affiliates (collectively, "D&T") for professional services rendered for the audit of the Company's annual consolidated financial statements for the fiscal year ended January 31, 2001 and for the reviews of the financial statements included in the Company's Quarterly Reports on Form 10-Q for that fiscal year were $213,452.
Financial Information Systems Designs and Implementation Fees
The Company did not engage D&T for professional services relating to financial information systems design and implementation for the fiscal year ended January 31, 2001.
All Other Fees
The aggregate fees billed by D&T for services rendered to the Company, other than the services described above under "Audit Fees" and "Financial Information Systems Design and Implementation Fees" for the fiscal year ended January 31, 2001 were $97,751.
The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal auditor's independence and believes such services are compatible with maintaining the auditor's independence.
Required Vote
Although stockholder approval is not required for the appointment of Deloitte & Touche LLP, since the Board of Directors has the responsibility of selecting auditors, the Board of Directors has conditioned its appointment of the Company's independent auditors upon the receipt of the affirmative vote of a majority of the votes duly cast at the Annual Meeting. In the event that the stockholders do not approve the selection of Deloitte & Touche LLP, the Board of Directors will reconsider its appointment. Even if the selection is ratified, the Board at its discretion and at the direction of the Audit Committee may direct the appointment of a different independent accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JANUARY 31, 2002.
OTHER INFORMATION
Executive Officers
In addition to Mr. Tran, the following persons were executive officers during the Last Fiscal Year and executive officers of the Company as of the Record Date:
Name |
Age |
Position |
Kit Tsui |
51 |
Chief Financial Officer |
Silvio Perich |
52 |
Senior Vice President, Worldwide Sales |
Jacques Martinella |
45 |
Vice President, Engineering |
Kenneth Lowe |
45 |
Vice President, Business Development |
Ms. Tsui joined the Company in November 1982 as its Accounting Manager. Ms. Tsui was promoted to Director of Finance in February 1990, Interim Chief Financial Officer and Secretary in December 1996, Chief Accounting Officer in January 2000, and to Chief Financial Officer in January 2001.
Mr. Perich joined the Company in September 1985 as Director, Sales. In September 1992, Mr. Perich became Senior Vice President, Worldwide Sales of the Company. Mr. Perich was a co-founder of Costar Incorporated, a manufacturer's representative organization for high technology products, where he served as partner from October 1979 to September 1985. From September 1972 until September 1979, Mr. Perich served in several sales management roles at Siliconix Inc., a specialty semiconductor manufacturer.
Mr. Martinella joined the Company in May 1994 as Director, VLSI Engineering. In December 1995, Mr. Martinella became Vice President, Engineering. From June 1990 to April 1994, Mr. Martinella served in engineering and management positions at Weitek, a microchip manufacturer. In addition, Mr. Martinella was an engineer at National Semiconductor, a semiconductor manufacturer, from June 1982 to June 1990.
Mr. Lowe joined the Company in May 2000 as Vice President, Marketing. In January 2001, Mr. Lowe became Vice President, Business Development. From 1998 to 2000, Mr. Lowe served as the Director of Multimedia Marketing for Cadence Design Systems. From 1996 to 1998, Mr. Lowe served as the Vice President of Marketing for Chrontel. Prior to 1996, Mr. Lowe held various marketing management positions at Sierra Semiconductor, Dataquest, Personal CAD Systems, Performix, and Gould-Biomation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent (10%) of a registered class of the Company's equity securities, to file certain reports regarding ownership of, and transactions in, the Company's securities with the Securities and Exchange Commission and with the National Association of Securities Dealers. Such officers, directors, and 10% shareholders are also required to furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on its review of copies of Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Rule 16a-3(e) and Forms 5 and amendments thereto furnished to the Company with respect to the Last Fiscal Year, and any written representations referred to in Item 405(b)(2)(i) of Regulation S-K stating that no Forms 5 were required, the Company believes that, during the Last Fiscal Year, all Section 16(a) filing requirements applicable to the Company's officers, directors and 10% shareholders were complied with, except that in May 2001 Silvio Perich filed a Form 5 for an option granted in May 2000, and in April 2001 Jacques Martinella filed a Form 5 for an option granted in May 2000.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of the Record Date by (i) each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each of the Company's directors, (iii) the Company's Chief Executive Officer and each of the four other most highly compensated individuals who served as executive officers of the Company at fiscal year end (the "Named Officers") and (iv) all individuals who served as directors or executive officers at fiscal year end as a group:
|
Shares Beneficially Owned (1)(2) |
|
Name |
Number |
Percent |
Thinh Q. Tran (3) |
1,292,250 |
7.5% |
Silvio Perich (4) |
363,082 |
2.2 |
Jacques Martinella (5) |
123,547 |
* |
Kit Tsui (6) |
121,519 |
* |
Kenneth Lowe (7) |
17,333 |
* |
William J. Almon (8) |
76,375 |
* |
William Wang(9) |
22,875 |
* |
Julien Nguyen (10) |
10,000 |
* |
All Directors and Executive Officers at fiscal year end as a group (8 persons)(11) |
2,026,981 |
11.5% |
* Less than 1%.
Executive Compensation
The following table shows, as to each of the Named Officers, information concerning compensation paid for services to the Company in all capacities during the three fiscal years ended January 31, 2001, January 31, 2000 and January 31, 1999:
|
|
Annual Compensation |
Long-Term Compensation Awards |
||
Name and Principal Position |
Fiscal Year |
Salary |
Bonus |
Securities Underlying Options (#) |
|
Thinh Q. Tran |
2001 |
$256,000 |
- |
50,000 |
|
Kit Tsui (2) |
2001 |
$109,241 |
- |
15,000 |
|
Silvio Perich |
2001 |
$158,654 |
$ 56,557 (3) |
25,000 |
|
Jacques Martinella |
2001 |
$171,808 |
$50,000 (4) |
25,000 |
|
Kenneth Lowe |
2001 |
$ 99,615 (5) |
$ 5,000 (6) |
80,000 |
Option Grants in Last Fiscal Year
The following table shows, as to each of the Named Officers, option grants during the Last Fiscal Year and the potential realizable value of options, assuming 5% and 10% appreciation, at the end of their term:
Name |
Number of Securities Underlying Options Granted |
% of Total Options Granted To Employees in Fiscal Year(1) |
Exercise Price |
Expiration Date |
Potential Realizable Value at Assumed
Annual Rates of |
|
Thinh Q. Tran |
50,000 (3) |
5.21% |
$ 3.50 |
5/31/2010 |
$110,057 |
$278,905 |
Kit Tsui |
15,000 (3) |
1.56% |
3.50 |
5/31/2010 |
33,017 |
83,671 |
Silvio Perich |
25,000 (3) |
2.60% |
3.50 |
5/31/2010 |
55,028 |
139,452 |
Jacques Martinella |
25,000 (3) |
2.60% |
3.50 |
5/31/2010 |
55,028 |
139,452 |
Kenneth Lowe |
80,000 (3) |
8.33% |
3.50 |
5/31/2010 |
175,091 |
446,248 |
Aggregate Option Exercises in Last Fiscal Year End Option Values
The following table shows, as to each of the Named Officers, information concerning options exercised during the Last Fiscal Year and the value of options held at fiscal year end:
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Name |
Shares Acquired on Exercise (#) |
Value Realized ($) |
Number of Securities Underlying Unexercised Options at Fiscal Year End |
Value of Unexercised In-the-money Options at Fiscal Year End(1) |
|||
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
||||
Kit Tsui |
5,591 |
$ 6,302 |
78,000 |
53,000 |
$420 |
$4,620 |
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors establishes the general compensation policies of the Company as well as the compensation plans and specific compensation levels for executive officers. It also administers the Company's employee stock benefit plan for executive officers. The Compensation Committee is currently composed of independent, non- employee directors who have no interlocking relationships as defined by the Securities and Exchange Commission.
The Compensation Committee believes that the compensation of the executive officers, including that of the Chief Executive Officer (collectively, the "Executive Officers") should be influenced by the Company's performance. The Committee establishes the salaries of all of the Executive Officers by considering (i) the Company' s financial performance for the past year, (ii) the achievement of certain objectives related to the particular Executive Officer's area of responsibility, (iii) the salaries of executive officers in similar positions of comparably-sized companies and (iv) the relationship between revenue and executive officer compensation. The Committee believes that the Company's executive officer salaries in the last fiscal year were comparable in the industry for similarly-sized business.
In addition to salary, the Committee, from time to time, grants options to Executive Officers. The Committee thus views stock option grants as an important component of its long-term, performance-based compensation philosophy. Since the value of an option bears a direct relationship to the Company's stock price, the Committee believes that options motivate Executive Officers to manage the Company in a manner which will also benefit shareholders. As such, options are granted at the current market price. One of the principal factors considered in granting stock options to an Executive Officer is the Executive Officer's ability to influence the Company's long-term growth and profitability.
Chief Executive Officer Compensation
Thinh Q. Tran, in his capacity as the Chief Executive Officer, participates in the same compensation programs as the other Named Officers. The Compensation Committee has targeted Mr. Tran's total compensation, including compensation derived from the performance bonus plan and stock option plan, at a level it believes is competitive with the average amount paid by other multimedia software and hardware companies with similar revenues and growth rates.
Mr. Tran's annual base salary was increased from approximately $231,565 to $256,000 in fiscal 2001. The Compensation Committee based its decision on Mr. Tran's efforts to improve Company performance during fiscal 2001, to increase revenues and market share in an increasingly competitive market, including contributions to continued releases of new products and product updates. The Compensation Committee also considered the need to offer Mr. Tran a competitive salary in order to retain him in a geographic market where demand for qualified Chief Executive Officers is intense. The Committee believes a bonus plan to Mr. Tran during fiscal 2001 is competitive in the industry and a necessary retention component.
Deductibility of Executive Compensation
Beginning in 1994, the Internal Revenue Code of 1986, as amended (the "Code") limited the federal income tax deductibility of compensation paid to the Company's Chief Executive Officer and to each of the other four most highly compensated executive officers. For this purpose, compensation can include, in addition to cash compensation, the difference between the exercise price of stock options and the value of the underlying stock on date of exercise. The Company may deduct compensation with respect to any of these individuals only to the extent that during any fiscal year such compensation does not exceed $1 million or meets certain other conditions (such as stockholder approval). Considering the Company's current compensation plans and policy, the Company and the Compensation Committee believe that, for the near future, there is little risk that the Company will lose any significant tax deduction relating to executive compensation. If the deductibility of executive compensation becomes a significant issue, the Company's compensation plans and policy will be modified to maximize deductibility if the Company and the Compensation Committee determine that such action is in the best interests of the Company.
Compensation Committee of the Board of Directors
William J. Almon
William Wang
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of William J. Almon and William Wang, each of whom is an independent, non-employee director. No executive officer of the Company serves as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee
Company Stock Price Performance
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, for the five-year period beginning January 31, 1996 and ending January 31, 2001 for the Company, the CRSP Index for the Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Index") and the CRSP Index for Computer Manufacturers' Stocks (the "Nasdaq Computer Manufacturers' Index"). The graph assumes that $100 was invested in the Company's Common Stock on January 31, 1996 and in the Nasdaq Index and the Nasdaq Computer Manufacturers' Index on January 31, 1996. Note that historic stock price performance is not necessarily indicative of future stock price performance.
Comparison of Five-Year Cumulative Total Returns
Notes:
THE FOREGOING COMPENSATION COMMITTEE REPORT AND COMPANY STOCK PRICE PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES BY REFERENCE INTO SUCH FILING.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board is responsible for providing independent, objective and review of the Company's accounting functions and internal controls. The Audit Committee is comprised of independent directors, and is governed by a written charter first adopted and approved by the Board of Directors in June 2000. Each of the members of the Audit Committee is independent as defined by Company policy and Rule 4200(a)(15) of the National Association of Securities Dealers' listing standards. A copy of the Audit Committee Charter is attached to this Proxy Statement as Appendix A.
The responsibilities of the Audit Committee include recommending to the Board an accounting firm to serve as the Company's independent accountants. The Audit Committee also, as appropriate, reviews and evaluates, and discusses and consults with Company management and the independent accountants regarding the following:
This year the Audit Committee reviewed the Audit Committee Charter and, after appropriate review and discussion, the Audit Committee determined that the Committee had fulfilled its responsibilities under the Audit Committee Charter.
The Audit Committee is responsible for recommending to the Board that the Company's financial statements be included in the Company's annual report. The Committee took a number of steps in making this recommendation for fiscal 2001. First, the Audit Committee discussed with Deloitte & Touche LLP, the Company's independent auditors for fiscal 2001, those matters Deloitte & Touche LLP communicated to and discussed with the Audit Committee under applicable auditing standards, including information concerning the scope and results of the audit. These communications and discussions are intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. Second, the Audit Committee discussed Deloitte & Touche LLP's independence with Deloitte & Touche LLP and received a letter from Deloitte & Touche LLP regarding independence as required under applicable independence standards for auditors of public companies. This discussion and disclosure informed the Audit Committee of Deloitte & Touche LLP's independence, and assisted the Audit Committee in evaluating such independence. Finally, the Audit Committee reviewed and discussed, with Company management and Deloitte & Touche LLP, the Company's audited consolidated balance sheets at January 31, 2001 and 2000, and consolidated statements of income, cash flows and stockholders' equity for the three years ended January 31, 2001. Based on the discussions with Deloitte & Touche LLP concerning the audit, the independence discussions, and the financial statement review, and additional matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Board that the Company's Annual Report on Form 10-K include these financial statements.
Audit Committee
William J. Almon
William Wang
THE FOREGOING AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE SECURITIES ACT OF THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES BY REFERENCE INTO SUCH FILING.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed proxy to vote the shares they represent as the Board of Directors may recommend.
It is important that your stock be represented at the meeting, regardless of the number of shares which you hold. You are, therefore, urged to execute and return the accompanying proxy in the envelope which has been enclosed, at your earliest convenience.
FOR THE BOARD OF DIRECTORS
Thinh Q. Tran
Chairman of the Board of Directors,
President and Chief Executive Officer
Dated: May 22, 2001
APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
SIGMA DESIGNS, INC.
PURPOSE:
The purpose of the Audit Committee of the Board of Directors of Sigma Designs, Inc. (the "Company") shall be:
The Audit Committee will undertake those specific duties and responsibilities listed below and such other duties as the Board of Directors may from time to time prescribe.
MEMBERSHIP:
The Audit Committee members will be appointed by, and will serve at the discretion of, the Board of Directors and will consist of at least three members of the Board of Directors. On or before June 14, 2001, the members will meet the following criteria:
1. Each member will be an independent director, in accordance with the Nasdaq National Market Audit Committee requirements;
2. Each member will be able to read and understand fundamental financial statements, in accordance with the Nasdaq National Market Audit Committee requirements; and
3. At least one member will have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background, including a current or past position as a chief executive or financial officer or other senior officer with financial oversight responsibilities.
RESPONSIBILITIES:
The responsibilities of the Audit Committee shall include:
MEETINGS:
The Audit Committee will meet at least quarterly. The Audit Committee may establish its own schedule, which it will provide to the Board of Directors in advance.
The Audit Committee will meet separately with the independent auditors as well as members of the Company's management as it deems appropriate in order to review the financial controls of the Company.
MINUTES:
The Audit Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board of Directors.
REPORTS:
Apart from the report prepared pursuant to Item 306 of Regulation S-K and Item 7(e) (3) of Schedule 14A, the Audit Committee will summarize its examinations and recommendations to the Board in written form from time to time as may be appropriate, consistent with the Committee's charter.
______________
1
Rule 4460(h) of the NASD Manual provides that each Nasdaq National Market issuer shall
utilize the company's Audit Committee or a comparable body of the Board of Directors for the
review of potential conflict of interest situations where appropriate."
PROXY SIGMA DESIGNS, INC. PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
June 22, 2001
The undersigned shareholder of Sigma Designs, Inc. (the "Company"), hereby appoints Thinh Q. Tran and Kit Tsui and each of them, with power of substitution to each, true and lawful attorneys, agents and proxyholders of the undersigned, and hereby authorizes them to represent and vote, as specified herein, all the shares of Common Stock of the Company held of record by the undersigned on April 23, 2001, at the 2001 Annual Meeting of Shareholders of the Company to be held on Friday, June 22, 2001 at 2:00 p.m., local time, at the Company's principal executive offices at 355 Fairview Way, Milpitas, California 95035, and any adjournments or postponements thereof.
(Continued, and to be signed on the other side)
FOLD AND DETACH HERE
|
FOR |
WITHHOLD ALL |
Nominees: Thinh Q. Tran, |
[ ] |
[ ] |
INSTRUCTION: If you wish to withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.
|
|
[X] Please mark your votes as this |
||||
|
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The shares represented by this proxy will be voted in the manner directed. In the absence of any direction, the shares will be voted FOR Proposals 1, 2, 3, 4 and 5. The undersigned acknowledges receipt of the Notice of Annual Meeting of Shareholders, Proxy Statement dated May 22, 2001 and the Company's Annual Report to Shareholders. |
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Please mark, sign and date this proxy and return it promptly whether you plan to attend the meeting or not. If you do attend, you may vote in person if you desire. |
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Signature(s) ____________________ Dated _______, 2001 |
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Please sign exactly as name appears hereon. Joint owners should each sign. Trustees and others acting in a representative capacity should indicate the capacity in which they sign and give their full title. If a corporation, please sign in full corporate name by an authorized officer. If a partnership please sign in partnership name by an authorized person. |
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FOLD AND DETACH HERE
SIGMA DESIGNS, INC.
2001 STOCK PLAN
1. Purposes of the Plan. The purposes of this 2001 Stock Plan are:
Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 500,000 Shares plus an annual increase to be added on the first day of the Company's fiscal year beginning in 2002, equal to the lesser of (i) 1,000,000 shares, (ii) 4% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of restricted stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
5. Eligibility. Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement
9. Option Exercise Price and Consideration.
(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in paragraph immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.
10. Exercise of Option.
An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
11. Limited Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
13. Date of Grant. The date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant
14. Amendment and Termination of the Plan.
15. Conditions Upon Issuance of Shares.
16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws.
SIGMA DESIGNS, INC.
2001 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
2. Definitions.
3. Eligibility.
4. Offering Periods. The Plan shall be implemented by consecutive Offering Periods with a new Offering Period commencing on January 1 and July 1 of each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after July 1, 2001 and end December 31, 2001. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
6. Payroll Deductions.
7. Grant of Option. On the Enrollment Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Offering Period more than a number of shares equal to three hundred percent (300%) of the number of shares which results from dividing ten percent (10%) of the aggregate Compensation which he or she receives during such Offering Period by the Purchase Price (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The Employee may accept the grant of such option by turning in a completed and signed subscription agreement to the Company on or prior to the first day of the Offering Period. The administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company's Common Stock an employee may purchase during an Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be refunded to the participant at the end of each applicable Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, the shares purchased upon exercise of his or her option.
10. Withdrawal.
11. Termination of Employment. Upon a participant's ceasing to be an Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated.
12. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan.
13. Stock.
14. Administration. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
16. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any.
19. Adjustments upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.
20. Amendment or Termination.
Such modifications or amendments shall not require shareholder approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof.
EXHIBIT A
SIGMA DESIGNS, INC.
2001 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Enrollment Date:_________
_______ Original Application
_______ Change in Payroll Deduction Rate
_______ Change of Beneficiary(ies)
NAME: (Please
print)
(First) (Middle) (Last)
Relationship
(Address)
Employee's Social
Security Number:
Employee's Address:
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ________________________
Signature of Employee
Spouse's Signature (If beneficiary other than spouse)
EXHIBIT B
SIGMA DESIGNS, INC.
2001 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Sigma Designs, Inc. 2001 Employee Stock Purchase Plan which began on ___________, ______ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
Signature:
Date:
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