-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SDcvIg2eS0BDhREcID7vM3hNuJ6RTdF5/1oVBbi+c5e6M7rI965xPCk9lU9ylLNU sNJWQH8uJj5lD2nNhs7DHw== 0000898430-96-000428.txt : 19960213 0000898430-96-000428.hdr.sgml : 19960213 ACCESSION NUMBER: 0000898430-96-000428 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19960212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGMA DESIGNS INC CENTRAL INDEX KEY: 0000790715 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 942848099 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-00883 FILM NUMBER: 96515996 BUSINESS ADDRESS: STREET 1: 46501 LANDING PKWY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5107700100 MAIL ADDRESS: STREET 2: 46501 LANDING PKWY CITY: FREMONT STATE: CA ZIP: 94538 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1996 REGISTRATION NO. 33-_____________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- SIGMA DESIGNS, INC. (Exact name of Registrant as specified in its charter) CALIFORNIA 7372 95-2848099 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
46501 LANDING PARKWAY FREMONT, CALIFORNIA 94538 (510) 770-0100 (Address, including zip code and telephone number, including area code, of Registrant's principal executive offices) THINH Q. TRAN PRESIDENT AND CHIEF EXECUTIVE OFFICER SIGMA DESIGNS, INC. 46501 LANDING PARKWAY FREMONT, CALIFORNIA 94538 (510) 770-0100 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- COPIES TO: TOR R. BRAHAM, ESQ. ADAM R. DOLINKO, ESQ. IVAN J. BROCKMAN, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (415) 493-9300 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. --------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If the only securities being delivered pursuant to this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------- Common Stock, no par value 1,550,243 shares $8.125 $12,595,724.37 $4,344 - ---------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee, based on the average of the high and low prices for the Common Stock as reported on the Nasdaq National Market on February 7, 1996, in accordance with Rule 457(c) under the Securities Act of 1933. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. ================================================================================ - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION DATED , 1996 PROSPECTUS 1,550,243 SHARES SIGMA DESIGNS, INC. COMMON STOCK This Prospectus may be used in connection with the offer and sale, from time to time, of up to 1,550,243 shares (the "Shares") of Common Stock, no par value per share (the "Common Stock"), of Sigma Designs, Inc. ("Sigma" or the "Company"), for the account of the selling shareholders identified below (the "Selling Shareholders"). All of the Shares covered hereby are to be sold by the Selling Shareholders. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Shareholders. The expenses incurred in registering the Shares, including legal and accounting fees, will be paid by the Company. The Shares offered hereby may be offered and sold, from time to time, by the Selling Shareholders in one or more transactions (which may involve block transactions) on the Nasdaq National Market (or any exchange on which the Common Stock may then be listed), in the over-the-counter market, in negotiated transactions or otherwise. Sales will be effected at such prices and for such consideration as may be obtainable from time to time. Commission expenses and brokerage fees, if any, will be paid by the Selling Shareholders. See "Plan of Distribution." The Company's Common Stock is traded on the Nasdaq National Market under the symbol "SIGM." On February 7, 1996, the last sale price for the Common Stock as reported on the Nasdaq National Market was $8.25 per share. --------------- SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- THE DATE OF THIS PROSPECTUS IS , 1996 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy and information statements and other information may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, Seven World Trade Center, New York, New York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed fees. The Common Stock of the Company is quoted on the Nasdaq National Market. Reports, proxy and information statements and other information concerning the Company may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. This Prospectus constitutes a part of a Registration Statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the shares covered by this prospectus, reference is made to the Registration Statement. Statements contained herein concerning the provisions of any document are not necessarily complete, and each such statement is qualified in its entirety by reference to the copy of such document filed with the Commission. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission are hereby incorporated by reference in this Prospectus: (i) the Company's Annual Report on Form 10-K as amended on Form 10-K/A for the fiscal year ended January 31, 1995; and (ii) the Company's Proxy Statement dated June 2, 1995, (iii) the Company's Quarterly Reports on Form 10-Q for each of the quarters ended April 30, 1995, July 31, 1995 and October 31, 1995, (iv) the Company's Current Report on Form 8-K filed with the Commission on July 21, 1995, and (v) the description of the Company's Common Stock contained in its Registration Statement on Form 8-A filed with the Commission on November 3, 1986, as amended on September 22, 1989. All reports and other documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of this offering shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such reports and documents. Any statement incorporated herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement or this Prospectus. The Company hereby undertakes to provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus has been delivered, upon written or oral request of such person, a copy of any or all of the foregoing documents incorporated herein by reference (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be submitted in writing to Q. Binh Trinh at the Company's principal executive offices at 46501 Landing Parkway, Fremont, California, 94538, or by telephone at (510) 770-0100. --------------- -2- RISK FACTORS In addition to the other information of this Prospectus, the following factors should be considered carefully by prospective investors in evaluating the Company before purchasing any of the shares of Common Stock offered hereby. Except for the historical information contained herein, the matters discussed in this prospectus are forward looking statements that involve risks and uncertainties, including the timely availability and acceptance of new products, the impact of competitive products and pricing, the management of growth, and the other risks detailed below and from time to time in the Company's other SEC reports. The actual results that the Company achieves may differ materially from any forward-looking projections due to such risks and uncertainties. HISTORY OF OPERATING LOSSES The Company has incurred significant losses in the last four fiscal years and has had substantial negative cash flow in the last five fiscal years. Since the introduction of the Company's REALmagic MPEG product line in November 1993, the Company has invested heavily in marketing and technological innovation for its REALmagic products. As a result, the Company has continued to experience significant losses. 1993, 1994 and 1995 also included significant losses associated with products other than those related to the REALmagic technology. There can be no assurance that the Company will continue to sell its new REALmagic products in substantial quantities or generate significant revenues from such sales, and as a result the Company does not expect to report significant net income, if any, in the fourth quarter of fiscal 1996 or the first quarter of fiscal 1997. There can be no assurance that the Company will achieve profitable operations in the future or that profitable operations, if achieved, will be sustainable. MARKETING RISKS The Company's ability to increase its sales, achieve profitability and maintain REALmagic as a PC industry multimedia standard depends substantially upon the Company's ability to achieve a sustained high level of sales to new OEM customers. To date, the Company has commenced initial shipments of its REALmagic products to NEC of Japan, Hyundai of Korea and Zenon Technology, PREMIO Express and Zenith Data Systems in the U.S. The Company has not executed volume purchase agreements with any of the Company's customers and these customers are not under any obligation to purchase any minimum quantity of the Company's products. Although the Company is continually engaged in marketing efforts directed to sales of REALmagic products to additional U.S. and international OEMs, the Company has not yet achieved design wins with a sufficient number of OEM customers to ensure success of the REALmagic product line. Moreover, even if the Company continues to achieve new design wins, there can be no assurance that PC manufacturers will purchase the Company's products in substantial volumes. Sales to any particular OEM customer are subject to significant variability from quarter to quarter and to severe price pressures. Based on its experience in the personal computer industry, the Company expects that its actual sales to OEM customers will experience significant fluctuations and estimates of future sales with respect to any particular customer or groups of customers are inherently uncertain. The Company's ability to achieve sustained profitability also depends on a substantial increase in sales of REALmagic products through domestic and international distributors for resale through retail channels. Sales to distributors are typically subject to contractual rights of inventory rotation or price protection. Regardless of particular contractual rights, however, the failure of one or more major distributors to achieve sustained sell-through of REALmagic products could result in product returns or collection problems, contributing to significant fluctuations in the Company's results of operations. There can be no assurance that the Company will be successful in maintaining a significant market for its REALmagic products. DEPENDENCE ON DEVELOPMENT OF SOFTWARE TITLES BY THIRD PARTIES The Company depends on third-party software developers to create, produce and market the software titles that will operate on the REALmagic format. No software developer is contractually obligated to produce a REALmagic-compatible title. There can be no assurance that third-party software developers will continue to produce a substantial number of software titles, or that they will produce enough software titles to develop and sustain a significant market in REALmagic products. Moreover, there can be no assurance that any individual software titles will be of high quality or that they will achieve market acceptance. There can also be no assurance that current popular software titles will be introduced in the REALmagic format. Because the Company has no control over the content of the titles produced by software developers, the software titles developed may represent only a limited number of software categories and are likely to be of varying quality. To date, over sixty interactive software titles are available in the REALmagic format. The Company expects that at least 12 additional titles will be available in the first half of 1996, although there can be no assurance that any such titles will not be delayed or cancelled. None of these titles are currently carried by retailers on an unbundled basis and these titles must be obtained -3- through a Company catalog which is not widely circulated. The Company has licensed the REALmagic API to over 1,000 software developers for development of REALmagic-compatible programs. However, the number of software titles to be developed by such software companies cannot be predicted. There can be no assurance that any software developer who develops a REALmagic-compatible title will actively promote the product or develop follow-on titles. Moreover, there can be no assurance that any published title will have the quality or price characteristics required to be commercially successful or that titles compatible with the REALmagic format will be allotted retail shelf space. While the Company is currently distributing titles itself by catalog, future sales of REALmagic products will likely depend upon retailers carrying compatible software titles on the shelf. TECHNOLOGICAL CHANGE The market for multimedia PC products is characterized by rapidly changing technology and user preferences, evolving formats for compression of video and audio data and frequent new product introductions. Even though REALmagic products and related software titles have gained initial market acceptance, the Company's success will depend, among other things, upon the ability of the Company, to maintain technological leadership and to remain competitive in terms of price and product performance. To achieve and maintain technological leadership, the Company must continue to make technological advancements in the area of MPEG video and audio compression. These advancements include compatibility with emerging standards and multiple platforms, improvements to the REALmagic architecture, enhancements to the REALmagic API and the achievement of these enhancements. There can be no assurance that the Company will be able to make any such advancements to the REALmagic technology or, if they are made, that the Company will be able to achieve and maintain technological leadership. Any material failure of the Company or OEMs and software developers to develop or incorporate any required improvement could adversely affect the continued acceptance of the Company's technology and the introduction and sale of future products based on the Company's technology. There can be no assurance that products or technologies developed by others will not render obsolete the Company's technology and the products based on the Company's technology. To further establish the Company's technology as a format, the Company announced in October 1995, its new strategic direction of selling chipsets to add-on card and computer manufacturers. The REALmagic Pro chipset became available in January 1996. This chipset will enable other companies to manufacture 100% OM-1 and REALmagic compatible MPEG playback cards capable of playing the growing number of MPEG software titles on the market. In addition, the Company announced the REALmagic Explorer chipset in November 1995, which will allow OEM customers to build type II ZV-port compatible PCMCIA cards for MPEG-1 video and audio playback, bringing MPEG technology to notebook computers for the first time. Any delay or failure to bring any of the chipsets to market could adversely affect the Company's market position by limiting the production of REALmagic compatible playback cards capable of playing MPEG software titles. Moreover, there can be no assurance that any of the Company's chipsets will be broadly accepted by computer manufacturers. To remain competitive, the Company must anticipate the needs of the market and successfully develop and introduce innovative new products in a timely fashion. No assurance can be given that the Company will be able to successfully complete the design of its new products, have these products manufactured at acceptable manufacturing yields or obtain significant purchase orders for these products. The introduction of products may adversely affect sales of existing products, contributing to fluctuations in operating results from quarter to quarter. The introduction of new products also requires the Company to carefully manage its inventory to avoid inventory obsolescence. In addition, new products typically have higher initial component costs than more mature products, possibly resulting in downward pressures on the Company's gross margins. COMPETITION The market for multimedia PC products is highly competitive. While the Company does not believe that any product sold by a third party is directly competitive with the REALmagic products at this time in terms of price and performance, the possibility that other companies with more experience and financial resources may develop a competitive product may inhibit continued acceptance and future growth of the REALmagic technology. REALmagic has earned its position as the leading product for the PC largely because of its affordable consumer price point. Increased price competition could have an adverse effect on the REALmagic product line. Several major computer product manufacturers have developed products and technologies that could compete directly with the REALmagic products on the PC platform. These include S3, Cirrus Logic Windbond, and SGS Thompson. Several OEMs and microprocessor companies possess proprietary video compression technology that may compete with MPEG-based products. Most of these companies have substantial experience and expertise in audio, video and multimedia technology and in producing and selling consumer products through retail distribution, and also have substantially greater engineering, marketing and financial resources than the Company. Competitors of the Company may form cooperative relationships, which could present formidable competition to the Company. There can be no assurance that the REALmagic -4- technology will achieve commercial success or that they will compete effectively against interactive multimedia products, services and technologies that currently exist, are under development or may be announced by competitors. RELIANCE ON A SINGLE LINE OF PRODUCTS The Company's business strategy has been to focus on REALmagic products by investing heavily in the PC-based MPEG technology. As a result of this strategy, net sales from multimedia products increased 278% for the fiscal year ended January 31, 1995 over fiscal 1994 while net sales of substantially all other product categories decreased over the same period. In the three-month period ended October 31, 1995, sales of multimedia products accounted for 100% of net sales as compared with 77% for the same quarter last year. A decline in the market demand for multimedia products would adversely affect the Company's operating results. The Company's present reliance on REALmagic products is exacerbated by the fact multimedia product sales are concentrated in the personal computer industry. A decline in demand for PCs could have a material adverse effect on the Company's operating results and financial condition. The Company currently has no plans to expand its product lines beyond multimedia technologies in the foreseeable future. VARIABILITY OF OPERATING RESULTS The Company's operating results have in the past and may continue to fluctuate in the future due to a number of factors, including but not limited to new product introductions by the Company and its competitors; market acceptance of the Company's products by OEMs, software developers and end users; the success of the Company's promotional programs; gains or losses of significant customers; reductions in selling prices; inventory obsolescence; an interrupted or inadequate supply of semiconductor chips; the Company's ability to protect its intellectual property; and loss of key personnel. In addition, sales to OEM customers are subject to significant variability from quarter to quarter, depending on the OEMs' timing and release of products incorporating the REALmagic technology, experience with sell-through of such products and inventory levels. The market for consumer electronics products is characterized by significant seasonal swings in demand, which typically peak in the fourth calendar quarter of each year. Because the Company expects to derive a substantial portion of its revenues from the sales of REALmagic products in the future, and the demand for such products will depend on the introduction of compact discs containing software titles compatible with the Company's format, the Company's revenues may also vary with the production of and demand for popular software titles. Such demand may increase or decrease as a result of a number of factors that cannot be predicted, such as consumer preferences and product announcements by competitors. Announcements of directly competing products will likely have a negative effect on operating results. Based on the Company's experience, the Company believes that a substantial portion of its shipments will occur in the third month of a quarter, with significant shipments competed in the latter part of the third month. This shipment pattern may cause the Company's results of operations to be difficult to predict. The Company currently places noncancelable orders to purchase semiconductor products from its foundries on a long lead time basis. Consequently, if, as a result of inaccurate forecasts or canceled purchase orders, anticipated sales and shipments in any quarter do not occur when expected, inventory levels could be disproportionately high, requiring significant working capital, negatively impacting results of operations. MANUFACTURING RISKS REALmagic includes VLSI chips which are manufactured by outside suppliers or foundries. Each of these suppliers is a sole source supplier to the Company of the respective chip. The Company does not have long-term contracts with such suppliers and conducts business with its suppliers on a written purchase order basis. The Company's reliance on independent suppliers involves several risks, including the absence of adequate capacity, the unavailability of, or interruptions in access to, certain process technologies and reduced control over delivery schedules, manufacturing yields and costs. Any delay or interruption in the supply of any of the components required for the production of the REALmagic multimedia card that is currently obtained from a single source could have a material adverse impact on the sales of the REALmagic products by the Company and thus on the Company's business. The Company must provide its suppliers with sufficient lead time in order to meet forecasted manufacturing objectives. Any failure to properly forecast such quantities could materially adversely affect the Company's ability to produce REALmagic products in sufficient quantities. No assurance can be given that the Company's forecasts regarding new product demand will be accurate, particularly since the Company sells REALmagic products on a purchase order basis. The manufacturing of the REALmagic chipsets is a complex process, and the Company may experience short-term difficulties in obtaining timely deliveries, which could affect the Company's ability to meet customer demand for its products. Any such delay in delivery products in the future could materially and adversely affect the Company's operating results. In addition, should any of the Company's major suppliers be unable or unwilling to continue to manufacture the Company's key components in required volumes, the Company would have to identify and qualify acceptable additional suppliers. This qualification process could take -5- up to three months or longer. No assurances can be given that any additional sources of supply could be in a position to satisfy the Company's requirements on a timely basis. In the past, the Company has experienced production delays and other difficulties and the Company could experience similar problems in the future. In addition, there can be no assurance that a product defect will not escape identification at the factory, possibly resulting in unanticipated costs, cancellations or deferrals of purchaser orders or costly recall of products from customer sites. DEPENDENCE ON KEY PERSONNEL The Company's future success depends in large part on the continued service of its key technical, marketing, sales and management personnel. Given the complexity of the REALmagic technology, the Company is dependent on its ability to retain and motivate highly skilled engineers involved in the ongoing hardware and software development of the REALmagic product, who will be required to refine the existing hardware system and API and to introduce enhancements in future applications. The multimedia PC industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that the Company's current employees will continue to work for the Company or that the Company will be able to obtain the services of additional personnel necessary for the Company's growth. The Company does not have "key person" life insurance policies on any of its employees. LIMITED INTELLECTUAL PROPERTY PROTECTION The Company's ability to compete may be affected by its ability to protect its proprietary information. The Company currently holds three patents covering the technology underlying the REALmagic products and the Company has filed certain patent applications and is in the process of preparing others. There can be no assurance that any additional patents for which the Company has applied will be issued or that any issued patents will provide meaningful protection of its product innovations. The Company, like other emerging multimedia companies, relies primarily on trade secrets and technological know-how in the conduct of its business. In addition, the Company is relying in part on copyright law to protect its proprietary rights with respect to the REALmagic technology. The electronics industry is characterized by frequent litigation regarding patent and intellectual property rights. Any such litigation could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not the outcome of such litigation is favorable to the Company. Moreover, in the event of an adverse result in any such litigation, the Company could be required to expend significant resources to develop noninfringing technology or to obtain licenses to the technology which is the subject of the litigation. There can be no assurance that the Company would be successful in such development or that any such licenses would be available on acceptable terms, if at all. In addition, patent disputes in the electronics industry have often been settled through cross-licensing arrangements. Because the Company does not yet have a large portfolio of issued patents, the Company may not be able to settle an alleged patent infringement claim through a cross-licensing arrangement. CHANGE IN BUSINESS PLAN The Company has dramatically altered its business plan with the acquisition of EMI and the elimination of all product lines other than the REALmagic line. The Company presently devotes all of its resources to the successful introduction of the REALmagic technology. As a result of this change in business strategy, the Company expects to continue to experience a period of significant alteration in number and organization of employees. This change has placed, and will continue to place, a substantial strain on the Company's management, operational, financial and accounting resources. The Company must be evaluated in light of the costs, delays and other difficulties frequently encountered in a recently established and rapidly changing business enterprise. INTERNATIONAL OPERATIONS During the fiscal years ended January 31, 1993, 1994, 1995, and the nine months ended October 31, 1994 and October 31, 1995, sales to international customers accounted for approximately 33%, 33%, 36%, 31% and 67% of the Company's net sales, respectively. The Company anticipates that sales to international customers, including sales of REALmagic products, will continue to account for a substantial percentage of net sales. In addition, some of the foundries that manufacture the Company's products and components are located in Asia. Overseas sales and purchases to date have been denominated in U.S. dollars. Due to the concentration of international sales and the manufacturing capacity in Asia, the Company is subject to the risks of conducting business internationally. These risks include unexpected changes in regulatory requirements and fluctuations in the U.S. dollar which could increase the sales price in local currencies of the Company's products in international markets or make -6- it difficult for the Company to obtain price reductions from its foundries. The Company does not currently engage in any hedging activities to mitigate exchange rate risks. To the extent that the Company is successful in increasing its sales to foreign customers, or to the extent that the Company increases its transactions in foreign currencies, the Company's results of operations could be adversely affected by exchange rate fluctuations. VOLATILITY OF STOCK PRICE The market price of the Company's Common Stock has been and is expected to continue to be subject to significant fluctuations. Factors such as announcements of the introduction of new products by the Company or its competitors and market conditions in the technology, entertainment and emerging growth company sectors may have a significant impact on the market price of the Company's Common Stock. Further, the stock market has experienced volatility that has particularly affected the market prices of equity securities of many high technology and development stage companies such as those in the electronics industry. Such volatility has often been unrelated or disproportionate to the operating performance of such companies. These fluctuations, as well as general economic and market conditions, may adversely affect the price of the Company's Common Stock. -7- THE COMPANY The Company designs, manufactures (using subcontractors) and markets multimedia products for use with personal computers. The emergence of multimedia technology in the personal computer market has dramatically changed the way users interact with computers. Multimedia integrates different elements, such as sound and video, to enhance the computing experience and deliver a heightened sense of realism. Prior to MPEG's introduction, video on personal computers suffered from serious drawbacks. Motion pictures appeared jerky and video was confined to small window sizes. MPEG, a defined ISO (International Standards Organization) standard for compression, eliminated those problems and revolutionized multimedia on the PC platform. For the first time, MPEG users could play back full-screen, full-motion video combined with stereo audio, even from a standard CD-ROM. A single CD-ROM using the MPEG compression technique can store up to 74 minutes of full-motion video and audio. Because of MPEG technology, producers could now create (and users can enjoy) an interactive, television-like experience on the desktop PC. The result was a new visual impact and the birth of many possibilities for a wide range of entertainment, education, training and business presentation applications. THE REALMAGIC MPEG STANDARD Since its first shipment in November 1993, REALmagic technology has received widespread support from PC industry leaders, software developers and OEM and retail customers. PARTNERSHIP WITH PC INDUSTRY LEADERS. Sigma has received endorsement for its REALmagic technology from companies such as Microsoft, IBM, Hewlett Packard, Oracle, Novell and Starlight Networks. On the operating system side, REALmagic is being supported by Microsoft Windows 95 and IBM O/S 2. Additionally, both Novell and Starlight Networks have products that are compatible with REALmagic in a network environment. SUPPORT FROM SOFTWARE DEVELOPERS. Support for Sigma's REALmagic MPEG standard has grown rapidly in the software development community. Two years ago, the Company listed fifty authorized REALmagic software developers; by the end of calendar 1995, Sigma's roster of developers rose to more than 1,000, including such prominent names such as Activision, Tsunami Media, Mindscape, Virgin Interactive Entertainment, Time Warner, and Interplay. This developer support has led to the introduction of more than 60 interactive software titles in the REALmagic format. SUPPORT FROM OEMS. In the U.S., Zenith Data Systems, Zenon Technology, Inc. and PREMIO Express, the direct marketing arm of Compu Trend Systems, Inc. have purchased the REALmagic Maxima boards for installation inside their multimedia PCs. Additionally many VARs have begun taking shipments of REALmagic boards for systems targeted at vertical kiosk, business training and presentation applications. In the Far East, where the popularity of Karaoke and videoCD has made REALmagic a very well received product, the Company's OEM customers include NEC in Japan and Hyundai in Korea. ACCEPTANCE BY RETAIL CHANNEL. In addition to international distributors, national U.S. distributors such as Ingram Micro Inc. and Tech Data are carrying REALmagic products. REALMAGIC PRODUCTS The Company offers a complete family of REALmagic products including: . REALMAGIC MAXIMA. An MPEG playback card designed to eliminate the compatibility issue with graphics cards by using the Analog Overlay Technology. The Maxima accelerates MPEG video to a guaranteed 30 frames per second playback rate with high quality CD sound at resolutions of 1280 x 1024, which is in compliance with the MPC3 industry standard for MPEG video playback. The REALmagic drivers guarantee compatibility with all the interactive MPEG titles available today and all future titles which are OM-1 compatible. . REALMAGIC PRO CHIPSET. In October 1995, the Company announced the availability for sale of the REALmagic Pro Chipset. This chipset has the following distinctive features: + Very high quality MPEG playback through 16 million color MPEG video; horizontal and vertical bilinear interpolation; digital brightness, contrast and saturation adjustment. -8- + The use of Sigma's REAL Overlay chip enables the mixing of MPEG video and PC graphics at resolutions up to 1600 x 1200 with an 85 Hz non-interlaced refresh rate. + 100% Windows 95 and MPC3 compliance. + 100% OM-1 and REALmagic compatibility. + Direct interface for NTSC/PAL decoder to support TV tuner input. . REALMAGIC EXPLORER. In November 1995, the Company announced the introduction of the REALmagic Explorer chipset. This chipset will put MPEG-1 digital video playback in ZV port PCMCIA cards for the new generation of notebook computers. The main features of this chipset are: + MPEG-1 video playback with 16 million colors. + MPEG-1 audio layers I and II. + 100% REALmagic and OM-1 standard compatible. + MPC3 standard compliant. + Windows 95 Plug and Play. . REALMAGIC PRODUCER. A 32-bit PCI low cost card with audio/video capture and MPEG encoding capabilities. This product comes bundled with a frame-accurate software VTR controller; real- time video Previewer; Adobe and Caligari trueSpace software which are necessary to make high-quality multimedia presentations and titles. REALmagic Producer features include: + Fully compliant with MPEG-1 standard. + Compatible with any AVI-compatible video editing software. + Compatible with REALmagic decoding products. + Files are converted to fully compressed MPEG-1 at three times actual time. + Accepts both S-VHS and Composite video inputs. MARKETING AND SALES Sigma Designs currently distributes its products through sales to national and regional distributors, VARs and OEMs in the U.S. and throughout the world. The Company's U.S. distributors include Ingram Micro Inc. and Tech Data, and its OEMs include Zenith Data Systems, Zenon Technology and PREMIO Express. The Company's international OEMs include NEC in Japan and Hyundai in Korea and its international distributors are strategically located in many countries around the world. However, there can be no assurance that the Company will achieve significant sales so as to realize profitability in the near term, if at all. The Company generally acquires and maintains products for distribution through retail channels based on forecasts rather than firm purchase orders. Additionally, the Company generally only acquires products for sales to its OEM customers after receiving purchase orders from such customers, which purchase orders are typically cancelable without substantial penalty from such OEM customers. The Company currently places noncancelable orders to purchase semiconductor products from its suppliers on a twelve to sixteen-week lead time basis. Consequently, if, as a result of inaccurate forecasts or canceled purchase orders, anticipated sales and shipments in any quarter do not occur when expected, expenses and inventory levels could be disproportionately high, requiring significant working capital resulting in severe pressure on the Company's financial condition. RESEARCH AND DEVELOPMENT As of October 31, 1995, the Company had a staff of 23 research and development personnel, which conducts all the Company's product development. The Company is focusing its development efforts primarily on MPEG multimedia products, including new and improved version of REALmagic MPEG chipsets, new software titles and cost reduction processes. To achieve and maintain its technological leadership, the Company must continue to make technological advancements in the areas of MPEG video and audio compression and decompression. These advancements include compatibility with emerging standards and multiple platforms, improvements to the REALmagic architecture and enhancements to REALmagic API. There can be no assurance that the Company will be able to make any of such advancement to the REALmagic MPEG technology or, if they are made, that the Company will be able to market such advancements to achieve profitability and maintain its technological leadership. During the first nine months of fiscal 1996 and in fiscal 1995 and fiscal 1994, the Company's research and development expenses were approximately $3.0 million, $4.3 million and $12.0 million (including $8.1 million of acquired research and -9- development relating to the acquisition of E-Motions, Inc.) respectively. The Company plans to continue to devote substantial resources to the research and development of the future generation of MPEG compression and decompression products. COMPETITION The market for MPEG multimedia products is highly competitive. While the Company does not believe that any products sold by a third party is in direct competition with the REALmagic encoding and decoding card in terms of price and performance, the possibility that other companies with more marketing and financial resources may develop a competitive product may inhibit the wide acceptance of REALmagic technology. The Company believes that many computer product manufacturers are developing MPEG products that will compete directly with REALmagic products in the near future. The Company believes that the principal competitive factors in the market for MPEG multimedia hardware products include time to market for new product introductions, product performance, compatibility to industry standards, price and marketing and distribution resources. The Company believes that it competes most favorably with respect to time to market, product performance and price of REALmagic products. Moreover, the Company believes that the acceptance of REALmagic API as an industry standard for software development could provide a significant competitive advantage for the Company. However, there can be no assurance that the Company's lead time in product introduction will be sustained. Sales to distributors and sometimes even to OEMs are typically subject to contractual rights of inventory rotation and price protection. Regardless of particular contractual rights, the failure of one or more distributors or OEMs to achieve sustained sell-through of REALmagic products could result in product returns or collection problems, contributing to significant fluctuations in the Company's results of operations. LICENSES, PATENTS AND TRADEMARKS The Company is seeking patent protection for the basic low-cost architecture of the REALmagic producers, as well as certain software and hardware features in current and future versions of REALmagic. The Company currently has eight pending patent applications for its REALmagic technology. Three patents have been issued to the Company and there can be no assurance that more patents will be issued, or, even if issued, will provide adequate protection for the Company's competitive position. The Company also attempts to protect its trade secrets and other proprietary information through agreements with customers, suppliers and employees and other security measures. Although the Company intends to protect its rights vigorously, there can be no assurance that these measures will be successful. MANUFACTURING To reduce overhead expenses, capital and staffing requirements, the Company currently uses third party contract manufacturers to fulfill its manufacturing needs. All of the chips used by the Company to make its encoding and decoding products are manufactured by outside suppliers and foundries. Each of these suppliers is a sole source of supply to the Company of the respective chips produced by such supplier. The Company's reliance on independent suppliers involves several risks, including the absence of adequate capacity, reduced control over delivery schedules, manufacturing yields and costs. Any delay or interruption on the supply of any of the components required for the production of REALmagic products could have a material adverse impact on the sales of the Company's products and thus on the Company's results of operations. -10- USE OF PROCEEDS The Company will not receive any proceeds from the sale of Shares hereunder by the Selling Shareholders. SELLING SHAREHOLDERS The following table sets forth certain information with respect to beneficial ownership of the Company's Common Stock as of February 9, 1996 by each Selling Shareholder. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO OWNED OFFERING (1)(2) NUMBER AFTER OFFERING(1)(2) -------------------- OF SHARES --------------------- NAME AND ADDRESS NUMBER PERCENT BEING OFFERED NUMBER PERCENT - ---------------- ------- ------- ------------- ------ ------- BKP Partners(3)........................... 682,303 * 682,303 0 0 One Sansome Street, #3900 San Francisco, CA 94104 Everest Capital International Ltd.(4)..... 231,983 * 231,983 0 0 Corner House 20 Parliament Street Hamilton HM12 British Virgin Islands Everest Capital Fund L.P.(5).............. 109,168 * 109,168 0 0 Corner House 20 Parliament Street Hamilton HM12 British Virgin Islands Hsu Hui Liang (6)......................... 113,716 * 113,716 0 0 Rm 501-2, Alliance Building 130-136, Connaught Road C Hong Kong Chao Ping Wang (7)........................ 113,716 * 113,716 0 0 82, 4FL, Liu Chou Avenue Taipei, Taiwan, R.O.C Direct International, Ltd (8)............. 113,716 * 113,716 0 0 7F-B1, Ruentex Banking Tower 76, Tun Hwa South Road, Section 2 Taipei, Taiwan, R.O.C. Chao Hsuan Mei Tseng (9).................. 45,487 * 45,487 0 0 2B, No. 203-2, Section 4 Hsin Yih Road Taipei, Taiwan, R.O.C. Sandra Ma (10)............................ 29,565 * 29,565 0 0 6/F, 311 Tun-Hwa South Road Section 1 Taipei, Taiwan, R.O.C. F&B Limited Liability Company (11)........ 27,292 * 27,292 0 0 7F-B1, Ruentex Banking Tower 76, Tun Hua South Road, Section 2 Taipei, Taiwan, R.O.C. Nitai Electronics Ind. Co., Ltd.(12)...... 22,743 * 22,743 0 0 No. 152, Section 4 Hsin Yih Road Taipei, Taiwan, R.O.C.
-11-
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO OWNED OFFERING (1)(2) NUMBER AFTER OFFERING(1)(2) -------------------- OF SHARES --------------------- NAME AND ADDRESS NUMBER PERCENT BEING OFFERED NUMBER PERCENT - ---------------- ------- ------- ------------- ------ ------- Hsieh Hsu Jui-Mei (13).................... 22,743 * 22,743 0 0 3F, No. 143, Section 2 Min Sheng E. Road Taipei, Taiwan, R.O.C. Peter Liu (14)............................ 13,457 * 13,457 0 0 50 California Street, Suite 2920 San Francisco, CA 94111 Austin Jieh (15).......................... 11,775 * 11,775 0 0 2917 San Juan Blvd. Belmont, CA 94002 Robert Chou (16).......................... 5,047 * 5,047 0 0 50 California Street, #2920 San Francisco, CA 94111 Capitol Bay Securities (17)............... 4,167 * 4,167 0 0 2200-B Douglas Blvd., Suite 100 Roseville, CA 95661 WI Harper, Inc. (18)...................... 3,365 * 3,365 0 0 50 California Street, Suite 2920 San Francisco, CA 94111
- --------------- * Represents less than 1% (1) The number and percentage of shares beneficially owned is determined under rules of the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within sixty (60) days of February 9, 1996 through the exercise of any Convertible Securities or other rights. (2) The persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table. (3) Includes shares underlying a warrant immediately exercisable for 170,576 shares of Common Stock. (4) Includes shares underlying a warrant immediately exercisable for 57,996 shares of Common Stock. (5) Includes shares underlying a warrant immediately exercisable for 27,292 shares of Common Stock. (6) Includes shares underlying a warrant immediately exercisable for 28,429 shares of Common Stock. (7) Includes shares underlying a warrant immediately exercisable for 28,429 shares of Common Stock. (8) Includes shares underlying a warrant immediately exercisable for 28,429 shares of Common Stock. (9) Includes shares underlying a warrant immediately exercisable for 11,372 shares of Common Stock. (10) Includes shares underlying a warrant immediately exercisable for 7,391 shares of Common Stock. (11) Includes shares underlying a warrant immediately exercisable for 6,823 shares of Common Stock. (12) Includes shares underlying a warrant immediately exercisable for 5,686 shares of Common Stock. (13) Includes shares underlying a warrant immediately exercisable for 5,686 shares of Common Stock. (14) Represents shares underlying a warrant immediately exercisable for Common Stock. (15) Represents shares underlying a warrant immediately exercisable for Common Stock. (16) Represents shares underlying a warrant immediately exercisable for Common Stock. (17) Represents shares underlying a warrant immediately exercisable for Common Stock. (18) Represents shares underlying a warrant immediately exercisable for Common Stock. -12- PLAN OF DISTRIBUTION The Shares may be sold from time to time by the Selling Shareholders or by pledgees, donees, transferees or other successors in interest. Such sales may be made in any one or more transactions (which may involve block transactions) on the Nasdaq National Market, or any exchange on which the Common Stock may then be listed, in the over-the-counter market or otherwise in negotiated transactions or a combination of such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling shares to or through broker-dealers, and such broker-dealers may sell the Shares as agent or may purchase such Shares as principal and resell them for their own account pursuant to this Prospectus. Such broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Shareholders and/or purchasers the Shares, for whom they may act as agent (which compensation may be in excess of customary commissions). In connection with such sales, the Selling Shareholders and any participating brokers or dealers may be deemed to be "underwriters" as defined in the Securities Act. The Subscription Agreement, dated December 15, 1995, by and among the Company and the Selling Shareholders provides that the Company will indemnify the Selling Shareholders against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters relating to validity of the shares of Common Stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements and the related financial statement schedule incorporated in this prospectus by reference from the Company's Annual Report on Form 10-K as amended on Form 10-K/A for the fiscal year ended January 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. -13- ================================================================================ TABLE OF CONTENTS Page ---- Available Information............................ 2 Incorporation of Certain Documents by Reference.. 2 Risk Factors..................................... 3 The Company...................................... 7 Use of Proceeds.................................. 10 Selling Shareholders............................. 10 Plan of Distribution............................. 11 Legal Matters.................................... 12 Experts.......................................... 12 --------------- No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information and representations must not be relied upon as having been authorized by the Company or the Selling Shareholders. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the Shares by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making the offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Under no circumstances shall the delivery of this Prospectus or any sale made pursuant to this Prospectus, create any implication that the information contained in this Prospectus is correct as of any time subsequent to the date of this Prospectus. --------------- ================================================================================ ================================================================================ 1,550,243 Shares SIGMA DESIGNS, INC. Common Stock ______________________ PROSPECTUS _____________________ -------- --, 1996 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of Common Stock being registered. All amounts are estimates except the Securities and Exchange Commission registration fee and the Nasdaq National Market Listing Fee. Securities and Exchange Commission Registration Fee.................... $ 4,344 Nasdaq National Market Listing Fee.... 17,500 Legal Fees and Expenses............... Accounting Fees and Expenses.......... Blue Sky Fees and Expenses............ Transfer Agent and Registrar Fees..... Miscellaneous......................... ------- Total.......................... $ =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 317 of the California Corporations Code authorizes a court to award or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for labilities (including reimbursement for expenses incurred) arising under the Securities Act. Article IV of the Registrant's Articles of Incorporation and Article VI of the Registrant's Bylaws provide for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the California Corporations Code. In addition, the Registrant has entered into Indemnification Agreements with its officers and directors. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS 4.1 Form of Subscription Agreement, by and between Sigma and the Selling Shareholders. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant. 23.1 Consent of Deloitte & Touche LLP, Independent Auditors. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-3). --------------- Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidation financial statements or notes thereto. II-1 ITEM 17. UNDERTAKINGS Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, or post-effective amendment to this Registration Statement to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes that for purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on the 9th day of February 1996. SIGMA DESIGNS, INC. By: /s/ Thinh Q. Tran ------------------------------ Thinh Q. Tran Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY Know all men by these presents, that each person whose signature appears below constitutes and appoints Thinh Q. Tran and Q. Binh Trinh, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agent, each with full power of substitution, for him and on his behalf to sign, execute and file this Registration Statement and any or all amendments (including, without limitation, post-effective amendments and any amendment or amendments or abbreviated registration statement increasing the amount of securities for which registration is being sought) to this Registration Statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he or she might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Thinh Q. Tran Chairman of the Board, President and Chief - ---------------------- Executive Officer (Principal Executive Officer) February 9, 1996 Thinh Q. Tran Co-Chairman of the Board and Chief Technical February , 1996 - ---------------------- Officer Julien Nguyen /s/ Q. Binh Trinh Vice President, Finance, Chief Financial Officer, - ---------------------- Secretary and Director (Chief Financial and Q. Binh Trinh Accounting Officer) February 9, 1996 /s/ William J. Almon Director February 9, 1996 - ---------------------- William J. Almon /s/ William Wang Director February 9, 1996 - ---------------------- William Wang
II-3 EXHIBIT INDEX EXHIBIT NUMBER -------------- 4.1 Form of Subscription Agreement, by and between Sigma and the Selling Shareholders. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant. 23.1 Consent of Deloitte & Touche LLP, Independent Auditors. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-3). EX-4.1 2 FORM OF SUBSCRIPTION AGREEMENT EXHIBIT 4.1 FORM OF SUBSCRIPTION AGREEMENT Sigma Designs, Inc. 46501 Landing Parkway Fremont, California 94538 Ladies and Gentlemen: 1. Subscription. The undersigned, intending to be legally bound, ------------ irrevocably agrees to lend to Sigma Designs, Inc., a California corporation (the "Company") the aggregate amount of $___________. At the Closing (as defined below), the Company agrees to issue and sell to the undersigned, and, subject to all of the terms and conditions hereof, the undersigned agrees to purchase a subordinated convertible promissory note, substantially in the form attached as Exhibit A hereto (the "Subordinated Convertible Promissory Note"), in the - --------- principal amount set forth above. Upon conversion of the note into the Company's common shares, the undersigned will also receive a warrant to purchase Common Stock of the Company for such number of shares as will be determined by multiplying such number of shares of Common Stock into which the Subordinated Convertible Promissory Note is converted by one-third, with an exercise price of 130% of the conversion price of the Subordinated Convertible Promissory Note. The warrant will expire twenty-four (24) months from the conversion date. 2. Payment. Simultaneously with the execution and delivery of this ------- Subscription Agreement and Schedule 1 hereto, the undersigned is delivering to ---------- the Company an amount equal to $___________ (the "Purchase Price"). Payment of the Purchase Price is being made by delivery to the Company of a certified or bank cashier's check drawn payable to the order of the Company, or by wire transfer of the Purchase Price to the Company or by other means satisfactory to the Company. 3. Acceptance. The undersigned understands and agrees that the Company, ---------- in its sole discretion, reserves the right to accept or reject any subscription, in whole or in part, and to withdraw its offer to borrow at any time prior to the issuance of the Subordinated Convertible Promissory Note. A subscription shall be deemed accepted by the Company when the Company either deposits a notice of conversion, a form of which is attached to the Subordinated Convertible Promissory Note, in the United States mail, or delivers such notice by overnight courier or by hand or transmits such notice by facsimile to the undersigned. 4. Closing. ------- (a) The closing of the purchase and sale of the Subordinated Convertible Promissory Note is scheduled to take place at the offices of Sigma Designs, Inc., 46501 Landing Parkway, Fremont, California 94538 on December 15, 1995 (the "Closing Date") or at such other time, date and place as the parties hereto may otherwise agree in writing (the "Closing"). At the Closing, the Company will deliver to the undersigned the Subordinated Convertible Promissory Note to be purchased, against receipt by the Company of the Purchase Price. (b) Prior to the Closing, all funds received in connection with subscriptions will be held by the Company in a separate account. In the event the Closing does not occur on or prior to January 15, 1996 or in the event this subscription is rejected or this offer is withdrawn, then the Company shall return to the undersigned all funds received from the undersigned in respect of the Purchase Price. 5. Company Representations. The Company represents, warrants and, with ----------------------- respect to the last clause of Section 5.4 below, covenants to the undersigned that: 5.1 Organization and Standing. The Company is a corporation duly ------------------------- organized and validly existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted. The Company is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which failure to so qualify could have a material adverse effect on its business, properties or financial condition. 5.2 Corporate Power. Prior to and as of the Closing, the Company --------------- will have all requisite legal and corporate power to execute and deliver this Agreement, to sell and issue the Subordinated Convertible Promissory Note hereunder, and to carry out and perform its obligations under this Agreement and the Subordinated Convertible Promissory Note. 5.3 Authorization. All corporate action on the part of the Company, ------------- its directors and its shareholders necessary for the authorization, execution, delivery and performance of this Subscription Agreement by the Company, and the authorization, sale, issuance and delivery of the Subordinated Convertible Promissory Note has been taken or will be taken prior to the Closing. This Subscription Agreement and the Subordinated Convertible Promissory Note, when executed and delivered by the Company, shall constitute the valid and binding obligations of the Company, enforce able in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Subordinated Convertible Promissory Note, when issued, will be free of any liens or encumbrances, created by any action or omission of the Company; provided, however, that the -------- ------- Subordinated Convertible Promissory Note and the underlying Common Stock will be subject to restrictions on transfer under state and federal securities laws as set forth herein or therein. 5.4 Governmental Consents. No consent, approval, order, or --------------------- authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local, or provincial governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement except for filings required pursuant to applicable federal and state securities laws and blue sky laws, which filings the Company covenants shall be made within the required statutory periods. -2- 5.5 Exempt Offering. Subject to the accuracy of the undersigned's --------------- representations and warranties set forth in Section 6 hereof, the offer, sale and issuance of the Subordinated Convertible Promissory Note, in conformity with the terms of this Agreement, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Act") and applicable state securities laws. 5.6 Disclosure Documents. The Company has provided or will provide to -------------------- the undersigned copies of (i) the Company's Annual Report Form 10-K for the year ended January 31, 1995, (ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended April 30, 1995 and July 31, 1995, (iii) the Company's Current Report on Form 8-K dated July 21, 1995, and (iv) the Company's Proxy Statement dated April 25, 1995 related to the Company's 1995 Annual Meeting of Shareholders (the "Disclosure Documents"). 5.7 No Material Adverse Change. Subsequent to the respective dates -------------------------- as of which information is given in the Disclosure Documents, there has not been any material adverse change in the condition (financial or otherwise), earnings, business, properties or prospects of the Company. Neither this Subscription Agreement nor the Disclosure Documents, taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 5.8 Compliance with Regulation D. The Company agrees to file five ---------------------------- copies of a Form D with the Securities and Exchange Commission within fifteen days of the date of the Closing and to file, on a timely basis, any amendments or supplements to such Form D as may be required under Regulation D promulgated under the Act. The Company also agrees to comply with the filing requirements of state securities laws applicable to the offering of securities to the undersigned. 6. Investment Representations. In order to induce the Company to accept -------------------------- this Subscription the undersigned represents, warrants and covenants to the Company as follows: 6.1 Authorization. It has full legal right, power and authority ------------- (including the due authorization by all necessary corporate or partnership action) to enter into this Agreement and to perform its obligations hereunder without the need for the consent of any other person or entity; and this Agreement has been duly executed and delivered and constitutes (or will constitute, as the case may be) the legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms. 6.2 Investment. The undersigned is acquiring the Subordinated ---------- Convertible Promissory Note solely for the account of the undersigned, for investment purposes only and not with a view to, or for, subdivision, resale, distribution, or fractionalization thereof, or for the account, in whole or in part, of others. No other person has or will have a direct or indirect beneficial interest in the Subordinated Convertible Promissory Note. The undersigned recognizes the restrictions on the transferability of the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock, and is able to bear the substantial economic risk of an investment in the Subordinated Convertible Promissory Note or the underlying shares of Common Stock, including a -3- complete loss thereof, for an indefinite period of time. The undersigned has no need for liquidity in this investment and has no reason to anticipate any change in circumstances, financial or otherwise, or other particular occasion or event which might cause or require the undersigned to attempt to sell or transfer the Subordinated Convertible Promissory Note, Warrant or the underlying shares of Common Stock . 6.3 Federal Securities Law Exemption. The undersigned understands -------------------------------- that the sale of the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock to the undersigned is intended to be exempt from registration under the Act, by virtue of Section 4(2) of the Act and applicable state securities laws. The undersigned will not sell, hypothecate or otherwise transfer any or all of the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock other than in accordance with the following provisions: (a) pursuant to a registration statement under the Act which has become effective, and a prospectus related thereto that is current, with respect to the securities to be disposed of, and if required, a registration statement under applicable state securities laws; or (b) pursuant to a specific exemption from registration under the Act and applicable state securities laws, but only upon the undersigned first having delivered to the Company a favorable reasoned written opinion of counsel for the undersigned, reasonably satisfactory in form and substance to the Company, to the effect that the proposed sale or transfer is exempt from registration under the Act and any applicable state securities laws. 6.4 Restricted Securities. The undersigned understands that the --------------------- Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock are not registered under the Act or applicable state securities laws and such securities must be held indefinitely, unless the subsequent disposition thereof is registered under the Act and applicable state securities laws or an exemption from such registration is available. The Company has not undertaken to register the Subordinated Convertible Promissory Note, Warrant or the underlying shares of Common Stock pursuant to the Act and, except as provided therein, will have no obligation to effect on behalf of the undersigned any registration under the Act or to assist the undersigned in complying with any exemption from registration under the Act or any state securities laws. The undersigned understands that the exemption from registration afforded by certain rules and regulations under the Act depends upon the satisfaction of various conditions and that, if applicable, such rules and regulations may afford the basis for sales of the Shares only in limited amounts. 6.5 Informed Investment Decision. The undersigned further represents ---------------------------- and warrants that in order to make an informed decision in connection with the purchase of the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock: (a) the undersigned has reviewed the merits and risks of an investment in the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock -4- with tax and legal counsel and with an investment advisor to the extent deemed advisable by the undersigned; (b) the undersigned recognizes that an investment in the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock involves a number of significant risks, including, without limitation, those set forth in the Disclosure Documents; the undersigned, or the undersigned's agent or attorney, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock; and (c) the undersigned, or the undersigned's agent or attorney, (i) has been provided with sufficient information with respect to the business of the Company and has carefully reviewed the Disclosure Documents, (ii) has been provided with such additional information with respect to the Company as the undersigned or the undersigned's agent or attorney has requested, and (iii) has had the opportunity to discuss such information with members of the management of the Company and any questions that the undersigned had with respect thereto have been answered to the full satisfaction of the undersigned. 6.6 Independent Advisors. The undersigned is not relying on the -------------------- Company with respect to the economic, tax and other considerations to the undersigned relating to this investment. With respect to such considerations, the undersigned has relied on the advice of its own qualified advisors to the extent the undersigned has deemed appropriate. 6.7 Accredited Investor. The undersigned represents and warrants ------------------- that the undersigned is an "accredited investor" as that term is defined in Rule 501 promulgated under the Act by virtue of one or more of the following: (a) The undersigned is either: a bank as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act, whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended; an insurance company as defined in Section 2(13) of the Act; an Investment Company registered under the Investment Company Act of 1940 or a Business Development Company as defined in Section 2(a)(48) of the Investment Company Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefits of its employees if such plan has total assets in excess of $5,000,000; or an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; or -5- (b) The undersigned is a private business development company as defined in Section 202(a) (22) of the Investment Advisers Act of 1940; or (c) The undersigned is an organization described in Section 501(c) (3) of the Internal Revenue Code of 1986, as amended (the "Code"), or a corporation, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the securities offered hereby, with total assets in excess of $5,000,000; or (d) The undersigned is a director or executive officer of the Company; or (e) The undersigned is a natural person whose individual net worth, or joint net worth with that person's spouse, at the time of the purchase, exceeds $1,000,000; or (f) The undersigned is a natural person who had individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; or (g) The undersigned is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered hereby, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the Act; or (h) The undersigned is a corporation or other entity all of whose shareholders or other equity owners are themselves accredited investors by virtue of this subparagraph or by subparagraphs (i), (ii), (iii), (iv), (v), (vi) or (vii) above. For purposes hereof, "individual income" means adjusted gross income as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any interest income received which is tax-exempt under Section 103 of the Code, (ii) the amount of losses claimed as a limited partner in a limited partnership (as reported on Schedule E of Form 1040), (iii) any deduction claimed for depletion under Section 611 et seq. of the Code, and -- --- (iv) any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Code. For purposes hereof, "net worth" means the excess of total asset at fair market value, including home and personal property, over total liabilities, including mortgage. 6.8 Representations to the Undersigned. No oral or written ---------------------------------- representations have been made or oral or written information furnished to the undersigned or the undersigned's advisors in connection with the offering that were in any way inconsistent with the information provided to the undersigned. The undersigned acknowledges that the Disclosure Documents replace and supersede any and all information delivered prior to delivery of the Disclosure Documents. -6- 6.9 No Solicitation. The undersigned is not subscribing to purchase --------------- the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person not previously known to the undersigned in connection with investments in securities generally. 6.10 Fiduciary Representations. If the undersigned is acting in a ------------------------- fiduciary capacity in purchasing the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock, the fiduciary represents and warrants that he or she has authority to execute this Subscription Agreement on behalf of the person or persons for whom the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock are being purchased, that such persons have been given the Disclosure Documents and this Subscription Agreement and have confirmed to the fiduciary that they have reviewed the same, and that the representations and warranties contained in this Subscription Agreement (and in any other written statement or document delivered to the Company) shall be deemed to have been made on behalf of such person or persons. 6.11 Representations True and Complete. All information which the --------------------------------- undersigned has furnished and is furnishing to the Company, including, without limitation, the representation as to the undersigned's status as an "Accredited Investor" within the meaning of Rule 501 promulgated under the Act and all other representations contained in this Subscription Agreement, are correct and complete as of the date of this Subscription Agreement, and if there should be any material change in such information prior to the undersigned's receipt of the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock, the undersigned will immediately furnish such revised or corrected information to the Company. The undersigned is executing and delivering this Subscription Agreement with full awareness of its implications and in recognition of the fact that the Company is relying on the undersigned's representations and warranties in selling the Subordinated Convertible Promissory Note, Warrant and the underlying shares of Common Stock to the undersigned, and that the Company and other investors may be damaged if such representations or warranties are incorrect. 6.12 Compliance with Laws. The undersigned agrees, within five days -------------------- after receipt of a request from the Company, to provide such information and to execute and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which the Company is subject. 7. Conditions to Closing of the Company. The Company's obligation to ------------------------------------ sell and issue the Subordinated Convertible Promissory Notes and Warrants at the Closing is subject to the fulfillment as of the Closing Date of the following conditions, any one or more of which may be waived by the Company: 7.1 Representations and Warranties. The representations and ------------------------------ warranties made by the undersigned in Section 6 hereof shall be true and correct when made, and shall be true and correct on the Closing Date. -7- 7.2 Payment of Purchase Price. The undersigned and all other ------------------------- purchasers of the Subordinated Convertible Promissory Notes and the Warrants shall have delivered to the Company the Purchase Price in respect of the Subordinated Convertible Promissory Note being purchased by each such purchaser. 7.3 Securities Law Matters. All federal and blue sky securities ---------------------- filings and consents required to be made by the Company in order to legally sell and issue the Subordinated Convertible Promissory Note to the undersigned and all other purchasers of the Subordinated Convertible Promissory Notes and the Warrants shall have been made or obtained. 8. Conditions to Closing of the Undersigned. The obligation of the ---------------------------------------- undersigned to purchase the Subordinated Convertible Promissory Note in the principal amount set forth above is subject to the fulfillment on or before the Closing Date of each of the following conditions: 8.1 Representations and Warranties. The representations and ------------------------------ warranties made by the Company in Section 5 hereof shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date. 8.2 Performance. The Company shall have performed and complied with ----------- all agreements, obligations and conditions contained in this Subscription Agreement that are required to be performed or complied with by it on or before the Closing. 8.3 Officer's Compliance Certificate. The Company shall have -------------------------------- delivered to the undersigned a certificate executed by the President of the Company, dated the Closing Date, and certifying to the fulfillment of the conditions set forth in Sections 8.1 and 8.2 of this Subscription Agreement. 8.4 Payment of Purchase Price. The undersigned shall have delivered ------------------------- to the Company the Purchase Price in respect of the Subordinated Convertible Promissory Note being purchased by the undersigned referenced in Section 2 hereof. 8.5 Securities Law Matters. All federal and blue sky securities ---------------------- filings and consents required to be made by the Company in order to legally sell and issue the Subordinated Convertible Promissory Note to the undersigned and all other purchasers of the Subordinated Convertible Promissory Notes and the Warrants shall have been made or obtained. 9. Covenants of the Company. The Company hereby covenants and agrees as ------------------------ follows: 9.1 Payment of Principal and Interest. The Company will duly and --------------------------------- punctually pay the principal of and interest on the Subordinated Convertible Promissory Notes in accordance with the terms thereof. -8- 9.2 Corporate Existence. The Company will do or cause to be done all ------------------- the things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors of the Company shall unanimously determine that the preservation thereof is no longer desirable in the conduct of the business of the Company. 9.3 Information Rights. The Company will furnish to the undersigned ------------------ for so long as the undersigned is a holder of the Subordinated Convertible Promissory Note: (a) as soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, consolidated statements of income and cash flows and a consolidated balance sheet as of the end of such fiscal year, of the Company and its subsidiaries, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent auditors selected by the Company; (b) as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, consolidated statements of income and cash flows for such period and for the current fiscal year to date and a consolidated balance sheet as of the end of such quarterly period, of the Company and its subsidiaries, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such financial statements need not contain the notes required by generally accepted accounting principles; (c) with reasonable promptness, copies of all filings the Company makes with the Securities and Exchange Commission pursuant to its reporting requirements under the Securities Exchange Act of 1934, as amended, and all materials furnished to the Company's shareholders; and (d) with reasonable promptness, such other non-confidential information and data with respect to the Company and its subsidiaries as may be requested from time to time. 10. Note Conversion; Price Adjustment. --------------------------------- 10.1 Conversion Option. Undersigned shall have the option to ----------------- convert, at any time, any then outstanding principal of or interest under the Subordinated Convertible Promissory Note into fully paid and nonassessable shares of the Company's Common Stock at the Conversion Price (defined below). 10.2 Conversion Price. The conversion price of the outstanding ---------------- principal of or interest under the Subordinated Convertible Promissory Note (the "Conversion Price") shall be equal to the greater of: -9- (a) the average closing price of the Company's Common Stock on the Nasdaq National Market during the ten (10) trading days prior to the Closing; or (b) the average closing price of the Company's Common Stock on the Nasdaq National Market during the ten (10) trading days prior to the conversion of the Subordinated Convertible Promissory Note (the "Conversion Date"); provided, however, that under no circumstances shall the Conversion Price exceed - -------- ------- 150% of the average closing price of the Company's Common Stock on the Nasdaq National Market during the ten (10) trading days prior to the Closing. 10.3 Reclassification. In case of any reclassification, change or ---------------- conversion of securities of the class issuable upon conversion of the Subordinated Convertible Promissory Note (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), as the case may be, the Company shall execute a new Subordinated Convertible Promissory Note (in form and substance satisfactory to the holder of the Subordinated Convertible Promissory Note) providing that the holder of the Subordinated Convertible Promissory Note shall have the right to conversion such new Subordinated Convertible Promissory Note and upon such conversion to receive, in lieu of each share of Common Stock theretofore issuable upon conversion of the Subordinated Convertible Promissory Note, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or conversion by a holder of one share of Common Stock. Such new Note shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 10. The provisions of this Section 10.3 shall similarly apply to successive reclassifications, changes and conversions. 10.4 Subdivision or Combination of Shares. If the Company at any ------------------------------------ time while the Subordinated Convertible Promissory Note remains outstanding and unexpired shall subdivide or combine its Common Stock, the Conversion Price and the number of shares issuable upon conversion of the Subordinated Convertible Promissory Note shall be proportionately adjusted. 10.5 Stock Dividends. If the Company at any time while the --------------- Subordinated Convertible Promissory Note is outstanding and unexpired shall pay a dividend payable in shares of Common Stock (except any distribution specifically provided for in the foregoing Sections 10.3 and 10.4) then the Conversion Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Conversion Price in effect immediately prior to such date of determination by a fraction (a) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (b) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution and the number of shares of Common Stock subject to the Subordinated Convertible Promissory Note shall be proportionately adjusted. 10.6 Other Distributions. In the event the Company shall declare a ------------------- dividend or distribution payable in cash, securities of other persons, evidences of indebtedness issued by the Company or other persons, assets or options or rights not referred to in Sections 10.3, 10.4 or 10.5, -10- then, in each such case, provision shall be made by the Company such that the holder of the Subordinated Convertible Promissory Note shall receive upon conversion of the Subordinated Convertible Promissory Note a proportionate share of any such dividend or distribution as though it were the holder of the number of shares of Common Stock of the Company as of the record date fixed for the determination of the holders of record of the Company entitled to receive such dividend or distribution. 10.7 No Impairment. The Company will not, by amendment of its ------------- Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of Section 10 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of the Subordinated Convertible Promissory Note against impairment. 10.8 Notice of Adjustments. Whenever the Conversion Price shall be --------------------- adjusted pursuant to the provisions hereof, the Company shall within thirty (30) days of such adjustment deliver a certificate signed by its chief financial officer to the registered holder(s) hereof setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Conversion Price after giving effect to such adjustment. 10.9 Notices of Record Date. In the event of any taking by the ---------------------- Company of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed merger or consolidation of the Company with or into any other corporation, or any proposed sale, lease or conveyance of all or substantially all of the assets of the Company, or any proposed liquidation, dissolution or winding up of the Company, the Company shall mail to the holder of the Subordinated Convertible Promissory Note, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 10.10 Fractional Shares. No fractional shares of Common Stock will ----------------- be issued in connection with any conversion of the Subordinated Convertible Promissory Note, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Conversion Price then in effect. 11. Registration Rights. ------------------- 11.1 Certain Definitions. As used in this Section 11, the following ------------------- terms shall have the following respective meanings: -11- "Holder" shall mean any holder of outstanding Registrable Securities; provided, however, that for all purposes under this Section 11, the holder of a - -------- ------- Subordinated Convertible Promissory Note or Warrant shall be deemed to be the Holder of the Registrable Securities into which such Subordinated Convertible Promissory Note or Warrant are then convertible. "Initiating Holders" shall mean any Holders of not less than one- hundred (100%) of the Registrable Securities. The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Act (and any post-effective amendments filed or required to be filed), and the declaration or ordering of the effectiveness of such registration statement. "Registrable Securities" means (i) shares of the Company's Common Stock issued or issuable upon conversion of the Subordinated Convertible Promissory Note or exercise of the Warrant, and (ii) any of the Company's Common Stock or other securities issued or issuable pursuant to the conversion of the Subordinated Convertible Promissory Note or exercise of the Warrant upon any stock split, stock dividend, recapitalization, or similar event, or any Common Stock otherwise issued or issuable with respect to the Subordinated Convertible Promissory Note or Warrant; provided, however, that Registrable Securities shall -------- ------- not include any shares of Common Stock which have previously been sold or hereafter registered and sold to the public or any shares sold to the public pursuant to Rule 144. "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 11.2 and 11.3 hereof. 11.2 Requested Registration. ---------------------- (a) Request for Registration. In case the Company shall receive from ------------------------ Initiating Holders a written request that the Company effect any underwritten registration, qualification, or compliance with respect to Registrable Securities, the Company shall: (1) promptly give written notice of the proposed registration, qualification, or compliance to all other Holders; and (2) as soon as practicable, use its most diligent efforts to effect all such registration, qualification, or compliance (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws, and appropriate compliance with applicable regulations issued under the Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder -12- or Holders joining in such request as are specified in a written request received by the Company within fifteen (15) days after receipt of such written notice from the Company; Provided, however, that the Company shall not be obligated to file any such registration, qualification, or compliance pursuant to this Section 11.2: (a) Prior to the conversion of all Subordinated Convertible Promissory Notes purchased by the undersigned and all other purchasers at the Closing into shares of the Company's Common Stock; (b) In any jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Act; (c) Within one hundred eighty (180) days immediately following the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan); (d) After the Company has effected such registrations pursuant to this Section 11.2(a), such registrations have been declared or ordered effective, and the securities offered pursuant to such registration have been sold; or Subject to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, and in any event within one hundred twenty (120) days, after receipt of the request or requests of the Initiating Holders; provided, however, that if the Company shall furnish to such Holders a -------- ------- certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company or its shareholders for such registration statement to be filed on or before the date filing would be required and it is therefore essential to defer the filing of such registration statement, the Company shall have the right, exercisable one time only pursuant to each specific request made under this Section 11.2, to defer such filing for a reasonable period not to exceed an additional one hundred twenty (120) days. (b) Underwriting. The right of any Holder to registration pursuant to ------------ Section 11.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested. The Company shall (together with all Holders and holders of other securities proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 11.2, if the managing underwriter advises the Initiating Holders in writing that -13- marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders and the other holders distributing their securities through such underwriting. The Common Stock (other than Registrable Securities) held by officers, directors, and all persons without contractual rights to inclusion in such registration shall be excluded from such registration to the extent required. If a limitation of the number of shares to be included in such registration is still required, Common Stock (other than Registrable Securities) shall be excluded from registration to the extent required. After giving effect to the foregoing, in the event that a limitation on the number of Registrable Securities to be included in such underwriting is still required, the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders in that proportion, as nearly as practicable, that the number of Registrable Securities held by each Holder bears to the total number of Registrable Securities (determined without regard to any requirement of a request to be included in such registration) held by all such Holders at the time of filing the registration statement. No Registrable Securities or other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter, and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration; provided, however, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 11.2(b). If the managing underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or for the account of others in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited and the price at which such Registrable Securities would otherwise have been sold will not thereby be reduced. 11.3 Incidental Registration. ----------------------- (a) Notice of Registration. If at any time or from time to time, the ---------------------- Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders (other than "Holders") exercising their respective demand registration rights ("Initiating Party") other than (i) a registration relating solely to employee benefit plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii) a registration effected pursuant to Section 11.4 of this Agreement, the Company will: (1) promptly give to each Holder written notice thereof; and -14- (2) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within fifteen (15) days after receipt of such written notice from the Company, by any Holder. (b) Underwriting. If the registration of which the Company gives ------------ notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 11.3(a)(i). In such event, the right of any Holder to registration pursuant to Section 11.3 shall be conditioned upon the participation by such Holder in such underwriting and the inclusion of the Registrable Securities of such Holder in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company, the Initiating Party, and the other holders having incidental or "piggyback" registration rights ("Other Holders") distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 11.3, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit part or all the Registrable Securities held by Holders to be included in such registration. The Company shall so advise all Holders and the Other Holders distributing their securities through such underwriting, and the number of shares of Registrable Securities and other securities that may be included in the registration and underwriting shall be allocated in the following priority: The Common Stock (other than shares as to which any person holds contractual rights to inclusion) held by officers, directors, employees, and all other persons shall first be excluded from such registration and underwriting to the extent required. If a limitation of the number of shares to be included in such registration and underwriting is still required, such limitation shall be allocated among Holders and Other Holders prior to any limitation on the number of shares so included for the account of the Initiating Party or the Company, as the case may be, in proportion, as nearly as practicable, to the respective amounts of securities contractually entitled to inclusion (determined without regard to any requirement of a request to be included in such registration) in such registration held by all such Holders and Other Holders at the time of filing the registration statement. If any Holder or Other Holder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. 11.4 Expenses of Registration. The Company shall bear the ------------------------ Registration Expenses of one (1) registration pursuant to Section 11.2. However, the Company shall not be required to pay for expenses of any registration proceeding begun pursuant to Section 11.2, the request of which has been subsequently withdrawn by the Initiating Holders, in which case such expenses shall be borne by the Initiating Holders of securities pro rata in accordance with the number of shares initially sought to be registered requesting or causing such withdrawal, unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 11.2; provided further, however, that if at the time of such withdrawal, the Initiating Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Initiating Holders at the time of their request, then the Initiating Holders shall not be required -15- to pay any of such expenses and shall retain their rights pursuant to Section 11.2. The Company shall bear the Registration Expenses of all registrations pursuant to Section 11.3. All other Registration Expenses shall be paid by the selling shareholders on a pro rata basis. 11.5 Letter or Opinion of Counsel in Lieu of Registration. If, in ---------------------------------------------------- the opinion of counsel for the Company, concurred in by counsel for Holders, no registration under the Act is required in connection with the disposition of the Registrable Securities covered by any request made under Sections 11.2 and 11.3 hereof in the manner in which they propose to dispose of the Registrable Securities included in such request, the Company need not comply with such request or requests; provided, however, that the Company shall not be so relieved of its obligations under Sections 11.2 and 11.3 hereof unless the aforementioned opinion of counsel for the Company shall have been mailed by the Company to such Holders within fifteen (15) days after the Company's receipt of their request or requests; and provided, further, that if counsel for the -------- ------- Company has opined that no registration is required in connection with any such disposition, such counsel shall further opine as to whether the removal of any legend from certificates representing all shares to which such opinion refers is permissible, and, if so, the Company shall remove from such certificates all legends no longer required thereon and shall rescind any stop-transfer instructions previously communicated to its transfer agent relating to such shares. 11.6 Registration Procedures. If and whenever the Company is ----------------------- required by the provisions of this Section 11 to use its most diligent efforts to effect promptly the registration of Registrable Securities, the Company shall: (a) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its most diligent efforts to cause such registration statement to become and remain effective as provided herein; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current and to comply with the provisions of the Act with respect to the sale or other disposition of all Registrable Securities covered by such registration statement, including such amendments and supplements as may be necessary to reflect the intended method of disposition of the prospective seller or sellers of such Registrable Securities, but for no longer than ninety (90) days subsequent to the effective date of such registration; (c) furnish to each prospective seller of Registrable Securities such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents, as such seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities of such seller; (d) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering; each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; -16- (e) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes 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 not misleading in the light of the circumstances then existing; and (f) furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 11, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 11, if such securities are being sold through underwriters, or, on the date that the registration statement with respect to such securities become effective, (i) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, in form and substance as is then customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is then customarily given by independent certified public accountants of the Company, in form and substance as is then customarily given by independent certified public accounts to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 11.7 Indemnification. In the event any of the Registrable Securities --------------- are included in a registration statement under this Section 11: (a) To the extent permitted by law, the Company will indemnify each Holder, each of its officers and directors and partners, and such Holder's separate legal counsel and independent accountants, and each person controlling such Holder within the meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to which they may become subject under the Act, the Exchange Act, or other federal or state law, in so far as such expenses, claims, losses, damages, or liabilities (or actions in respect thereof) arise out of or are based upon the following statements, omissions, or violations: (i) any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular, or other document, or any amendment or supplement thereto, incident to any such registration, qualification, or com pliance, (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (iii) any violation or alleged violation by the Company of the Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Act, the Exchange Act, or any state securities law, applicable to the Company in connection with any such registration, qualification, or compliance, and the Company will reimburse each such Holder, each of its officers and directors and partners, and such Holders' separate legal counsel and independent -17- accountants, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing, or defending any such claim, loss, damage, liability, or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use in connection with the offering of securities of the Company. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify the Company, each of its directors and officers and its legal counsel and independent accountants, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against all expenses, claims, losses, damages, and liabilities (or actions in respect thereof) to which any of the foregoing persons may be subject, under the Act, or the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto), arise out of or are based upon the following statements or omissions: (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use in connection with the offering of securities of the Company; provided, however, that the obligations any such Holder hereunder shall be limited to an amount equal to the proceeds to such Holder of Registrable Securities sold as contemplated herein. (c) Each party entitled to indemnification under this Section 11.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the -18- claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 11.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party, in lieu of indemni fying the Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party with respect to such loss, liability, claim, damage, or expense in the proportion that is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and the Indem nified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 11.8 Rule 144 Reporting. The Company agrees to: ------------------ (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Act; and (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Act and the Exchange Act, (at any time after it has become subject to such reporting requirements). 11.9 Amendment of Outstanding Registration Rights. Any amendments -------------------------------------------- hereto shall be effected only by vote of the holders of a majority of the Registrable Securities then outstanding. 11.10 Termination of Registration Rights. All rights under this ---------------------------------- Agreement shall terminate upon the Maturity Date of the Subordinated Convertible Promissory Note (as defined therein). 12. Miscellaneous. ------------- 12.1 Legends. The Subordinated Convertible Promissory Note shall ------- bear a legend stating, in substance, the following: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND OTHER FILING UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH PROPOSED TRANSFER OR SALE IS IN -19- COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. The Warrant, issued upon conversion of the Note into common shares, shall bear a legend stating, in substance, the following: THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 12.2 Entire Agreement. This Subscription Agreement together with the ---------------- Subordinated Convertible Promissory Note represent the entire agreement and understanding between the Company and the undersigned concerning the matters referred to herein and supersedes and replaces any and all prior agreements and understandings concerning such matters. 12.3 Successors and Assigns. Except as otherwise provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that nothing in this Subscription Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Subscription Agreement, except as may be expressly provided in this Subscription Agreement. 12.4 Expenses. The Company and the undersigned shall bear its -------- own expenses incurred on its behalf with respect to this Subscription Agreement and the transactions contemplated herein. 12.5 Amendment. This Subscription Agreement or any term hereof may --------- only be amended, modified or waived in writing signed by the Company and all purchasers of the Subordinated Convertible Promissory Note who would hold, if and when the Closing takes place, a majority of the outstanding aggregate principal amount of the outstanding Subordinated Convertible Promissory Note. 12.6 Notices. Any notice, request or other communication required or ------- permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent via facsimile, overnight courier service or mailed by registered or certified mail, postage prepaid, addressed or sent: (i) if to the undersigned, at the address of the undersigned as set forth on the investor information scheduled attached hereto, and (ii) if to the Company, at the principal corporate -20- offices of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail or with an overnight courier service or sent via facsimile in the manner set forth above and shall be deemed to have been received when delivered. 12.7 Severability. The invalidity or unenforceability of any term or ------------ provision of this Agreement will not affect the validity or enforceability of any other term or provision hereof or of the Subordinated Convertible Promissory Note and such other terms or provisions of this Agreement and the Subordinated Convertible Promissory Note shall remain in full force and effect. 12.8 Governing Law. This Agreement shall for all purposes be governed ------------- by and construed in accordance with the laws of the State of California, as applied to agreements between residents thereof to be performed entirely within such state, without regard to that body of law relating to conflicts of law or choice of law. 12.9 Counterparts. This Agreement may be executed in counterparts and ------------ each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. [THIS SPACE INTENTIONALLY LEFT BLANK] -21- IN WITNESS WHEREOF, the undersigned acknowledges agreement to the foregoing and subscribes to the purchase. Date: December 15, 1995 By: ___________________________________________ Name: _________________________________________ Title: ________________________________________ Agreed to and accepted this 15th day of December , 1995. SIGMA DESIGNS, INC. a California corporation By: ________________________________________ Name: ______________________________________ Title: _____________________________________ -22- SCHEDULE 1 INVESTOR INFORMATION (a) NAME OF SUBSCRIBER: _____________________________________________________ (b) PURCHASE PRICE: _________________________________________________________ (c) ADDRESS: ________________________________________________________________ (d) TELEPHONE NUMBER: _______________________________________________________ (e) SOCIAL SECURITY OR TAX IDENTIFICATION NO.: _________________________________________________ CO-SUBSCRIBER: __________________________________________________________ (f) DATE AND JURISDICTION OF ORGANIZATION IF SUBSCRIBER IS A BUSINESS ENTITY: ________________________________________ (g) DATE AND GOVERNING JURISDICTION IF SUBSCRIBER IS A TRUST: __________________________________________________ (h) TRUSTEES: NAME ADDRESS TELEPHONE NO. - ---- ------- ------------- ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ EXHIBIT A FORM OF SUBORDINATED CONVERTIBLE PROMISSORY NOTE THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND OTHER FILING UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH PROPOSED TRANSFER OR SALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. SIGMA DESIGNS, INC. SUBORDINATED CONVERTIBLE PROMISSORY NOTE $_______________ Fremont, California December 15, 1995 FOR VALUE RECEIVED, SIGMA DESIGNS, INC., a California corporation (the "Company"), hereby promises to pay to _________________________ (the "Holder") the sum of _________________________ Dollars ($_________), or such lesser amount as shall then equal the outstanding principal amount hereof, on the terms and conditions hereinafter set forth. This Note is one of a series of notes of like tenor (collectively the "Promissory Notes") issued pursuant to that certain Subscription Agreement between the Company and the Purchasers described therein, dated as of even date herewith (the "Subscription Agreement"). Payment for all amounts due hereunder shall be made by wire transfer to the account or by mail to the address of the Holder shown in the records of the Company, which account and address initially shall be as set forth below herein. The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees: 1. Maturity Date. The unpaid principal amount outstanding under this Note, ------------- together with all accrued but unpaid interest shall be due and payable in full on the earliest to occur of (the "Maturity"): (i) December 31, 2000 or (ii) the Company redeems the entire unpaid principal amount of, and all accrued interest pursuant to the provisions of Section 5 of this Note. 2. Interest. Commencing on the date of issuance of this Note first above -------- written, interest will accrue on the unpaid principal amount of this Note at a rate of seven percent (7%) per annum (computed on the basis of a 360-day year). All unpaid interest accrued under this Note shall be due and payable on December 31 of each year prior to the Maturity hereof, and the first payment will be payable on December 31, 1996. 3. Conversion Option. This Note is convertible at the option of Holder into ----------------- shares of Common Stock of the Company in accordance with Section 10 of the Subscription Agreement. The Subscription Agreement contains other rights and conditions of Holder to which this Note is subject. At such time as the Holder desires to convert all or part of this Note into shares of Common Stock of the Company, the Holder shall provide to the Company written notice in the form attached hereto as Exhibit A. At the time of conversion, the Holder will also receive a warrant to purchase one (1) share of Common Stock for ever three (3) shares of Common Stock converted. The warrant will have an exercise price of 130% of the conversion price and will expire twenty-four (24) months from the conversion date. 4. Redemption. Commencing two (2) years after the date of issuance of this ---------- Note first above written, the Company shall have the option to redeem all or part of the unpaid principal amount outstanding under this Note, at par value, without penalty, together with all accrued but unpaid interest, upon thirty (30) days prior written notice. 5. Change in Control. For a period of ninety (90) days following the date ----------------- upon which the Company provides to the Holder written notice of the occurrence of (i) the closing of a sale, transfer or other disposition of all or substantially all of the assets of the Company or (ii) the effectiveness of a merger or consolidation of the Company with or into another company (excluding a reincorporation of the Company in another jurisdiction in which the equity interests of the Company's shareholders are not changed) or other reorganization of the Company following which the shareholders of the Company immediately prior to such transaction do not own at least 51% of the company emerging as the survivor or parent company in such transaction, the Holder shall have the right to (x) convert all or part of this Note into shares of Common Stock of the Company or (y) require the Company to repay the unpaid principal amount outstanding under this Note, together with all accrued but unpaid interest. 6. Defaults and Remedies. --------------------- 6.1 Events of Default. The occurrence of any of the following events will ----------------- constitute an "Event of Default" hereunder: (a) The Company's failure to pay any principal of or any accrued interest on this Note or any other Promissory Note when the same is due and payable, which failure has not been cured within thirty (30) days after the same is due and payable; or (b) The Company's failure to perform, keep, comply with or observe any other covenant set forth in this Note, any other provision of this Note or a covenant set forth in Section 9 of the Subscription Agreement, which failure has not been cured within twenty (20) days after the Holder gives the Company notice thereof; or (c) The Company's becoming insolvent, or admitting in writing its inability to pay its debts as they mature, or making an assignment for the benefit of creditors, or applying for or consenting to the appointment of a receiver, liquidator, custodian or trustee for it or for a substantial part of its property or business, or such a receiver, liquidator, custodian or trustee otherwise being appointed and not discharged within thirty (30) calendar days after such appointment; or (d) Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any other law for the relief of debtors being instituted by or against the Company, or any order, judgment or decree being entered against the Company decreeing its dissolution or division; provided, however, that with respect to an involuntary petition in -------- ------- bankruptcy, such petition has not been dismissed within thirty (30) calendar days after the filing of such petition; or (e) This Note for any reason (other than the payment in full of all amounts owing hereunder) ceases to be, or is asserted by the Company not to be, a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, and such occurrence has not been cured to the Holder's satisfaction within twenty (20) calendar days after such Holder gives the Company notice thereof. 6.2 Remedies. Upon the occurrence and during the continuance of any Event -------- of Default, at the Holder's sole option by written notice to the Company, the Holder may do any one or more of the following: (a) declare the entire principal amount of, and all accrued interest on, this Note to immediately be due and payable in full, whereupon such amounts will accelerate and immediately become due and payable in full, provided that in the case of an Event of Default listed in paragraph (iii) or (iv) of Section 7.1, all unpaid principal and interest will immediately become due and payable in full without the requirement of any notice or other action by the Holder; and/or (b) exercise all rights and remedies otherwise available to the Holder at law or in equity. 7. Subordination. The indebtedness evidenced by this Note is hereby expressly ------------- subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all the Company's Senior Indebtedness (as hereinafter defined). 7.1 Senior Indebtedness. As used in this Note, the term "Senior ------------------- Indebtedness" shall mean the principal of and unpaid accrued interest on: (i) all indebtedness of the Company (or with respect to which the Company is a guarantor), whether outstanding on the date hereof or hereafter created or incurred, to equipment suppliers, banks, insurance companies, factors or other lending or finance institutions regularly engaged in the business of lending money, which is for money borrowed by the Company, whether or not such indebtedness is secured; and (ii) any deferrals, renewals or extensions of any such indebtedness referred to in clause (i) of this Section 8.1 or any debentures, notes or other evidence of indebtedness issued in exchange for such indebtedness. 7.2 Agreement to Subordinate. The Holder of this Note agrees that, if the ------------------------ Company should become the subject of any receivership, insolvency proceeding, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), or if any sale of all or substantially all of the assets of the Company should occur, or if there should occur any dissolution, liquidation, or any other marshaling of the assets and liabilities of the Company, or if there should occur an event of default or acceleration with respect to any Senior Indebtedness, then: (i) no amount need be paid by the Company in respect of the principal or accrued interest on this Note at the time outstanding, unless and until the principal amount of and all accrued interest on all the Senior Indebtedness then due and outstanding (including any accelerated payments) is first paid in full; and (ii) no claim or proof of claim will be filed against the Company (or with any Bankruptcy Court in respect of the Company) by or on behalf of the Holder of this Note which asserts any right to receive any payments in respect of the principal or accrued interest on this Note, except subject and subordinate to the prior payment in full of the entire principal amount of, and all accrued interest on, all of the Senior Indebtedness then outstanding. 7.3 Effect of Subordination. Subject to the prior rights of the holders ----------------------- of Senior Indebtedness under this Section 8 to receive payments of cash, securities and/or other properties otherwise payable or deliverable to the Holder of this Note, nothing contained in this Section 8 will impair, as between the Company and the Holder of this Note, the obligation of the Company, which is absolute and unconditional, to pay to the Holder hereof the principal amount of this Note and interest accrued hereon as and when the same become due and payable, or will prevent the Holder of this Note, upon the occurrence of an Event of Default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law, except as otherwise expressly provided in this Section 8. 8. Successors and Assigns. The provisions of this Note will inure to the ---------------------- benefit of, and be binding on, each party's respective heirs, successors and assigns. The Company may not assign or delegate any of its obligations under this Note without the Holder's prior written consent. 9. Waiver and Amendment. Any provision of this Note may be amended, waived or -------------------- modified upon the written consent of the Company and holders of at least two- thirds of the outstanding aggregate principal amount of all then outstanding Promissory Notes (exclusive of Notes held by the Company) issued pursuant to the Subscription Agreement; provided, however, that holders of all of the -------- ------- outstanding aggregate principal amount of all then outstanding Promissory Notes (exclusive of Notes held by the Company) issued pursuant to the Subscription Agreement must consent in writing to any amendment or waiver that affects the stated interest rate, maturity date, prepayment or redemption provisions, or the percentage required to amend the Notes. No waiver or consent with respect to this Note will be binding or effective unless it is set forth in writing and signed by the party against whom such waiver is asserted. No course of dealing between the Company and the Holder will operate as a waiver or modification of any party's rights or obligations under this Note. No delay or failure on the part of either party in exercising any right or remedy under this Note will operate as a waiver of such right or any other right. A waiver given on one occasion will not be construed as a bar to, or as a waiver of, any right or remedy on any future occasion. 10. Waiver of Presentment. The Company hereby waives presentment, notice of --------------------- dishonor, protest, demand and diligence. 11. Attorneys' Fees. The Company agrees to pay the Holder's reasonable --------------- expenses and costs in enforcing and collecting on this Note, including without limitation attorneys' fees and court costs. 12. Notices. Any notice, request or other communication required or permitted ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent via facsimile, overnight courier service or mailed by registered or certified mail, postage prepaid, addressed or sent: (i) if to the Holder, at the address of the Holder as set forth herein below, and (ii) if to the Company, at the principal corporate offices of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail or with an overnight courier service or sent via facsimile in the manner set forth above and shall be deemed to have been received when delivered. 13. Governing Law. This Note shall be governed by and construed in accordance ------------- with the laws of the State of California, as applied to agreements between residents thereof to be performed entirely within such state, without reference to that body of law relating to conflicts of law or choice of law. 14. Severability. The invalidity or unenforceability of any term or provision ------------ of this Note will not affect the validity or enforceability of any other term or provision hereof and such other terms or provisions shall remain in full force and effect. [THIS SPACE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Company has caused this Note to be issued this 15th day of December, 1995. SIGMA DESIGNS, INC. a California corporation By:________________________________________________________ Name:______________________________________________________ Title:_____________________________________________________ Name of Holder: _______________________ Address: _____________________________ _____________________________ _____________________________ EXHIBIT A TO SUBORDINATED CONVERTIBLE PROMISSORY NOTE FORM OF NOTICE OF CONVERSION To: SIGMA DESIGNS, INC. 46501 Landing Parkway Fremont, California 94538 The undersigned, the holder of the foregoing Note, hereby surrenders such Note for conversion into shares of Common Stock of SIGMA DESIGNS, INC., to the extent of $__________ unpaid principal amount of such Note, and requests that the certificates for such shares of Common Stock be issued in the name of, and delivered to, __________________________________, whose address is ________________________________________________________________________. In addition, the undersigned will also receive a warrant to purchase one (1) share of Common Stock for every three (3) shares of Common Stock converted. The warrant will have an exercise price of 130% of the conversion price and will expire twenty-four (24) months from the conversion date. Dated: _________________ By*:________________________________________________________ Name:_______________________________________________________ Title:______________________________________________________ Address:____________________________________________________ * Please note that the signature must conform in all material respects to the name of the holder as set forth on the face of the Note. EXHIBIT B FORM OF WARRANT THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE COMMON STOCK OF SIGMA DESIGNS, INC. THIS CERTIFIES THAT in consideration of the purchase of a Subordinated Promissory Note (the "Promissory Note") under that certain Subscription Agreement dated as of December 15, 1995, __________, or its permitted registered assigns ("Registered Holder"), is entitled, subject to the terms and conditions of this Warrant, to purchase from the Company at any time after the conversion of the Promissory Note into shares of the Common Stock of the Company (the "Note Conversion") and prior to 5:00 p.m. Pacific Time on the Expiration Date (as defined below), _________ shares of Common Stock of the Company, such number having been determined by multiplying the number of shares of Common Stock into which the Promissory Note has been converted by one-third, at a purchase price per share of $7.621, or 130% of the Promissory Note Conversion Price, subject to adjustment as provided herein. The number of shares of Common Stock to be received upon exercise of this Warrant (the "Warrant Shares") and the applicable exercise price are subject to adjustment as provided herein. 1. Certain Definitions. The following definitions shall apply for ------------------- purposes of this Warrant: (a) "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act (as defined below). (b) "Expiration Date" shall mean December 15, 1997. (c) "Holder" shall mean the Purchaser and any person holding Registrable Securities. (d) "Initiating Holders" shall mean the Holders originally requesting a registration of Registrable Securities pursuant to Section 11.1 hereof. (e) "Registrable Securities" shall mean any shares of Common Stock of the Company acquired pursuant to that certain Subscription Agreement dated December 15, 1995 and any shares of Common Stock of the Company issued or issuable with respect to such shares upon any stock split, dividend, combination, recapitalization or similar event. (f) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. (g) "Registration Expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Section 11.1 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration but excluding all Selling Expenses. (h) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (i) "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders, and all fees and disbursements of counsel for any Holder. (j) "Warrant" shall mean this Warrant and any warrant(s) delivered in substitution or exchange therefor, as provided herein. 2. Exercise. -------- 2.1 Cash Exercise. Subject to compliance with all applicable ------------- securities laws, this Warrant may be exercised in whole, at any time, on any business day subsequent to the Note Conversion and prior to the Expiration Date by the Registered Holder by surrender of this Warrant at -2- the principal office of the Company with (a) a subscription form duly executed by the Registered Holder, and (b) payment, in cash and/or cancellation of bona fide indebtedness of the Company for borrowed money to the Registered Holder, of the purchase price of the Warrant Shares to be purchased hereunder. 2.2 Mechanics of Exercise. This Warrant shall be deemed to have been --------------------- exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Warrant Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of whole Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share. No fractional shares may be issued upon any exercise of this Warrant, and any fractions shall be rounded down to the nearest whole number of shares. 3. Fully Paid Shares. All Warrant Shares issued upon the exercise of ----------------- this Warrant shall be validly issued, fully paid and nonassessable. 4. Adjustment of Purchase Price and Number of Shares. The number of ------------------------------------------------- Warrant Shares issuable upon exercise of this Warrant (or any shares of stock or other securities or property at the time receivable or issuable upon exercise of this Warrant) and the purchase price therefor, are subject to adjustment upon the occurrence of the following events: 4.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, ---------------------------------------------------------------- etc. The purchase price of this Warrant and the number of Warrant Shares - ---- issuable upon exercise of this Warrant shall each be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding Warrant Shares that occurs after the date of the Warrant. 4.2 Adjustment for Other Dividends and Distributions. In case the ------------------------------------------------ Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable respect to the Warrant Shares payable in securities of the Company (other than issuances with respect to which adjustment is made under Section 4.1), then, and in each such case, the Registered Holder of this Warrant, upon exercise of this Warrant at any time after the consummation, effective date or record date of such event, shall receive, in addition to the Warrant Shares issuable upon such exercise prior to such date, the securities or such other assets of the Company to which such Registered Holder would have been entitled upon such date if such Registered Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 5. No Impairment. The Company will not, by amendment of its Articles of ------------- Incorporation or Bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale or assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the -3- carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder under this Warrant against impairment. Without limiting the generality of the foregoing, the Company: (i) will not set nor increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefor upon such exercise, and (ii) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant. 6. Certificate as to Adjustments. In each case of any adjustment in ----------------------------- either the purchase price or in the number of Warrant Shares, or other stock, securities or property receivable upon the exercise of this Warrant, the Chief Financial Officer of the Company shall compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted purchase price. The Company will cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Registered Holder. 7. Loss or Mutilation. Upon receipt by the Company of evidence ------------------ reasonably satisfactory to it of the ownership, and the loss, theft, destruction or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 8. Reservation of Warrant Shares. If at any time the number of ----------------------------- authorized but unissued shares of the Company's Common Stock, or other securities of the Company shall not be sufficient to effect the exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock, or other securities to such number of shares as shall be sufficient for such purpose. 9. Restrictions on Transfer. ------------------------ 9.1 The Registered Holder understands that neither this Warrant nor the Warrant Shares have been registered under the Securities Act of 1933, as amended (the "Act"), or any state securities laws. As a condition to the issuance of this Warrant and to its exercise, the Registered Holder hereby represents and warrants to the Company that: (a) The Warrant and, if applicable, the Warrant Shares (collectively, the "Securities") have been acquired by the Registered Holder for investment and not with a view to the sale or other distribution thereof within the meaning of the Act and the Registered Holder has no present intention of selling or otherwise disposing of all or any portion of the Securities. (b) The Registered Holder has acquired and will acquire the Securities for the Registered Holder's own account only and no one else has any beneficial ownership in the Securities. -4- (c) The Registered Holder is capable of evaluating the merits and risks of any investment in the Securities, is financially capable of bearing a total loss of this investment and has either: (i) a preexisting personal or business relationship with the Company or its principals; (ii) by reason of the Registered Holder's business or financial experience, has the capacity to protect his or its own interests in connection with this investment; or (iii) is an "accredited investor" within the meaning of Regulation D promulgated under the Act, as amended. (d) The Registered Holder has had access to all information regarding the Company, its present and prospective business, assets, liabilities and financial condition that the Registered Holder considers important to making the decision to acquire the Securities and has had ample opportunity to ask questions of and receive answers from the Company's representatives concerning an investment in the Securities and to obtain any and all documents requested in order to supplement or verify any of the information supplied. (e) The Registered Holder understands that the securities shall be deemed restricted securities under the Act and may not be resold unless they are registered under the Act and any applicable state securities law, or in the opinion of counsel in form and substance satisfactory to the Company, an exemption from such registration is available. (f) The Registered Holder is aware of Rule 144 promulgated under the Act, which rules provides, in substance, that: (i) after two years from the date restricted securities have been purchased and fully paid for, a holder may transfer restricted securities provided certain conditions are met (e.g., certain public information is available about the Company), and specific limitations on the amount of shares which can be sold within certain periods and the manner in which such shares must be sold are complied with; and (ii) after three years from the date the securities have been purchased and fully paid for, holders who are not "affiliates" of the Company may sell restricted securities without satisfying such conditions. (g) The Registered Holder further understands that if the requirements of Rule 144 are not met, registration under the Act, compliance with Regulation A, or some other registration exemption will be required for any disposition of the Securities; and that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities other than in a registered offering or other than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and such persons and the brokers who participate in the transactions do so at their own risk. 9.2 The Registered Holder of this Warrant, by acceptance hereof, agrees that, absent an effective registration statement filed with the Securities and Exchange Commission under the Act, covering the disposition or sale of this Warrant or the Warrant Shares issued or issuable upon exercise hereof, such Registered Holder will not sell or transfer the Warrant or any or all of such Warrant Shares as the case may be, without first providing the Company with an opinion of counsel satisfactory to the Company to the effect that such sale or transfer will be exempt from the registration and prospectus delivery requirements of the Act, and such Registered Holder consents to -5- the Company making a notation on its records, or giving instructions to any transfer agent of this Warrant, or such Warrant Shares, in order to implement such restriction on transfer. The shares issued upon exercise of this Warrant shall bear legends referring to the restrictions or transfer set forth in this Section 9. As a condition to the transfer of this Warrant or transfer of the shares issuable on exercise hereof, any permitted transferee must execute and deliver to the Company representations and warranties similar to these set forth in this Section 10 and agree in writing to accept and be bound by all the terms and conditions of this Warrant. 10. Registration Rights. ------------------- 10.1 Company Registration. -------------------- (a) Notice of Registration. If the Company shall determine to ---------------------- register any of its securities, either for its own account or the account of a security holder or holders, other than a registration relating solely to employee benefit plans or a registration relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified by any Holder in a written request or requests made within twenty (20) days after receipt of such written notice from the Company. (b) Underwriting. If the registration of which the Company gives ------------ notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 10.1(a)(i). In such event, the right of any Holder to registration pursuant to this Section 10.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 10.1, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude entirely the Registrable Securities to be included in such registration. The Company shall so advise all Holders and other holders distributing their securities through such underwriting, and the number of shares of Registrable Securities and such other securities that may be included in the registration and underwriting on behalf of persons other than the Company shall be allocated among all Holders and such other holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and other securities entitled to registration rights held by such Holders and other holders at the time of filing the registration statement. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or other holder to the nearest one hundred (100) shares. -6- If any Holder or Holders disapproves of the terms of any such underwriting, he or she may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdraw from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to one hundred and twenty (120) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Right to Terminate Registration. The Company or the holders of ------------------------------- other registration rights demanding a registration shall have the right to terminate or withdraw any registration initiated by it or them prior to the effectiveness of such registration whether or not any Holder has elected under this Section 10.1 to include securities in such registration. (d) Limitation of Rights. The Company shall not be required to effect -------------------- more than two (2) registrations pursuant to this Section 10.1, (i) one of which shall be made on or before March 31, 1996 and (ii) the second of which shall take place at any time thereafter prior to the Expiration Date if the market price of the Company's Common Stock as reported on the Nasdaq National Market is greater than $7.621 and requested by the Initiating Holders representing more than fifty percent (50%) of all Holders. 10.2 Expenses of Registration. All Registration Expenses ------------------------ incurred in connection with the two registrations permitted pursuant to Section 10.1 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders of such securities pro rata on the basis of the number of shares so registered. 10.3 Registration Procedures. In the case of each registration, ----------------------- qualification or compliance effected by the Company pursuant to this Section 10, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least one hundred eighty (180) days or until the distribution described in the Registration Statement has been completed; (b) Furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities. 10.4 Indemnification. --------------- (a) The Company will indemnify each Holder, each of its officers, directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected -7- pursuant to this Section 10, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other documents, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Holder, each of its officers and directors, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder, controlling person or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder, each of its officers, directors and partners and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, partners, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein. (c) Each party entitled to indemnification under this Section 10.4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense and -8- settlement of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 10 unless the failure to give such notice is prejudicial to the Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability with respect to such claim or litigation. 10.5 Information by Holder. The Holder or Holders included in --------------------- any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 10. 10.6 Rule 144 Reporting. With a view to making available the ------------------ benefits of certain rules and regulations of the Commission which may at any time permit the sale of restricted securities, as such term is understood and defined in Rule 144 under the Securities Act, to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act. (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (c) So long as a Holder owns any restricted securities, furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for a public offering of its securities), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as any such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration. -9- 10.7 Termination of Registration Rights. The registration rights ---------------------------------- granted pursuant to Section 10.1 shall terminate on the Expiration Date. 11. No Rights or Liabilities as Shareholder. This Warrant does not by --------------------------------------- itself entitle the Registered Holder to any voting rights or other rights as a shareholder of the Company. In the absence of affirmative action by Registered Holder to purchase Warrant Shares by exercise of this Warrant, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Registered Holder shall cause such Registered Holder to be a shareholder of the Company for any purpose. 12. Amendment; Waiver. Any term of this Warrant may be amended, and the ----------------- observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) by the written consent of the Company and the Registered Holder. 13. Notices. Unless otherwise provided, any notice required or permitted ------- under this Warrant shall be given in writing and shall be deemed effectively given upon personal delivery or by delivery by confirmed telefax to the party to be notified, or five (5) days after deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at such address as such party may designate. 14. Attorneys' Fees. In the event any party is required to engage the --------------- services of any attorneys for the purpose of enforcing this Warrant, or any provision thereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and any other related cost or expenses. 15. Headings. The headings in this Warrant are for purposes of -------- convenience in reference only, and shall not be deemed to constitute a part hereof. 16. Governing Law. This Warrant shall be construed and enforced in ------------- accordance with, and governed by, the internal laws of the State of California, excluding that body of law applicable to conflicts of laws. -10- 17. Terms Binding. By acceptance of this Warrant, the Registered Holder ------------- of this Warrant (and each subsequent assignee, transferee or Registered Holder of this Warrant) accepts and agrees to be bound by all the terms and conditions of this Warrant. Dated: _______________________ SIGMA DESIGNS, INC. ACKNOWLEDGED AND ACCEPTED BY REGISTERED HOLDER: By: __________________________ By: _________________________________ Name: ________________________ Name: _______________________________ Title: _______________________ Title: ______________________________ -11- EX-5.1 3 OPINION OF WILSON SONSINI GOODRICH & ROSATI EXHIBIT 5.1 WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (415) 493-9300 FEBRUARY 12, 1996 Sigma Designs, Inc. 46501 Landing Parkway Fremont, CA 94538 RE: SIGMA DESIGNS, INC. REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-3 to be filed by you with the Securities and Exchange Commission on February 12, 1996 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of 1,550,243 shares of your Common Stock, no par value (the "Shares"), all of which are authorized and have been previously issued to the selling shareholders identified in the Registration Statement (the "Selling Shareholders"). The Shares are to be offered by the Selling Shareholders for sale to the public as described in the Registration Statement. As your counsel in connection with this transaction, we have examined the proceedings taken and proposed to be taken in connection with the sale of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated to be taken prior to the registration of the Shares, including such proceedings to be carried out in accordance with the securities laws of the various states, where required, the Shares, when sold in the manner referred to in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ WILSON SONSINI GOODRICH & ROSATI EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in this Registration Statement of Sigma Designs, Inc. on Form S-3 of our reports dated March 10, 1995, appearing in the Annual Report on Form 10-K as amended on Form 10-K/A of Sigma Designs, Inc. for the fiscal year ended January 31, 1995 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. DELOITTE & TOUCHE LLP San Jose, California February 12, 1996 -----END PRIVACY-ENHANCED MESSAGE-----