Commitments and contingencies

Commitments

Purchase commitments

When we operated as a going concern, we generally placed non-cancelable orders to purchase semiconductor products from our suppliers on an

eight

twelve

week lead-time basis. As of

February 3, 2018,

the total amount of outstanding non-cancelable purchase orders was approximately

$18.9

million, of which

$7.6

million applied to operations held for sale.

Third-party licensed technology

October 2015,

we entered into an agreement with a vendor to purchase

$6.1

million of licensed technology for integration into future iterations of our products. Payments under this agreement are being made on an annual basis from

December 2015

through

December 2018.

As of

May 5, 2018,

there were

remaining payments under this agreement. In addition to this agreement, we have entered into other purchase arrangements for certain licensed technology; there were

remaining payments under these agreements as of

May 5, 2018.

Design Tools

June 2016,

we entered into an agreement with a vendor to purchase

$7.8

million of design tools. Payments under this agreement are being made on a quarterly basis from

August 2016

through

May 2019.

As of

May 5, 2018,

there were

remaining payments under this agreement. In addition to this agreement, we have entered into other purchase arrangements for certain design tools; remaining payments under these agreements totaled

$0.7

million as of

May 5, 2018.

Payments under these arrangements are being made through fiscal

2019.

We have fully accrued these amounts as of

May 5, 2018.

Royalties

We paid royalties for the right to sell certain products under various license agreements. During the

three

months ended

April 29, 2017,

we recorded gross royalty expense of

$0.6

million in cost of revenue in the accompanying condensed consolidated statement of operations.

Our wholly-owned subsidiary, Sigma Designs Israel SDI Ltd. (formerly CopperGate Communications, Ltd.), participated in programs sponsored by the Office of the Chief Scientist of Israel's Ministry of Industry, Trade and Labor, or the OCS, for the support of research and development activities that we conducted in Israel. Through

April 29, 2017,

we had obtained grants from the OCS aggregating to

$5.2

million of our research and development projects in Israel. We completed the most recent of these projects in

2013.

We were obligated to pay royalties to the OCS, amounting up to

4.5%

of the sales of certain products up to an amount equal to the grants received, plus LIBOR-based interest. We disposed of this entity on

February 15, 2018

and have

further future obligations under these programs.

Contingencies

Product warranty

In general, we sold products with a

one

-year limited warranty that our products will be free from defects in material and workmanship. Warranty cost was estimated at the time revenue is recognized based on historical activity, and additionally, for any specific known product warranty issues. Accrued warranty cost includes hardware repair and/or replacement and is included in accrued liabilities in the accompanying condensed consolidated balance sheet.

Details of the change in accrued warranty as of

April 29, 2017

are as follows (in thousands):

Three Months Ended		Balance Beginning of Period				Additions and Adjustments				Deductions				Balance End of Period
April 29, 2017		$	783			$	84			$	(140	)		$	727

Litigation

From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. Any claims or proceedings against us, whether meritorious or

not,

could be time consuming, could result in costly litigation, could require significant amounts of management time, could result in the diversion of significant operational resources or could cause us to enter into royalty or licensing agreements which, if required,

may

not

be available on terms favorable to us. If an unfavorable outcome were to occur against us, there exists the possibility of a material adverse impact on the timing of and amount of funds available for distributions to our shareholders. Matters currently known to the Company are:

Advanced Micro Device, Inc.

Patent Infringement

Litigation

January 23, 2017,

AMD and ATI Technologies ULC (collectively “AMD”), filed suit against us and many other named defendants, including VIZIO, Mediatek and LG in the United States District Court for the District of Delaware asserting infringement of U.S. Patent Nos.

7,633,506

and

7,796,133.

January 24, 2017,

AMD instituted proceedings in the United States International Trade Commission (“ITC”) asserting infringement of U.S. Patent Nos.

7,633,506

and

7,796,133.

The Delaware and ITC complaint seek unspecified monetary damages and injunctive relief. On

April 13, 2018,

the ITC issued a Final Initial Determination finding in favor of AMD and recommending that cease and desist orders be issued against us, which would prevent the importation of certain of our SmartTV chipsets into the United States and any

third

-party products that incorporate these chipsets. The Company has executed agreements with a customer and a vendor under which reimbursement for defense costs and indemnity have been affected in amounts that appear sufficient to cover any future material costs related to these matters. Additionally, any liability for these matters

not

otherwise covered by such indemnification was assumed by the buyer of the related business unit. Therefore, the Company has a reasonable expectation of

material liability from the litigation.

Broadcom Corporation

Patent Infringement

Litigation

March 7, 2017,

Broadcom filed suit against us in the United States District Court for the Central District of California asserting infringement of U.S. Patent

No.

7,310,104.

March 8, 2017,

Broadcom instituted proceedings in the United States ITC asserting infringement of U.S. Patent Nos.

8,284,844,

7,590,059,

8,068,171

and

7,342,967.

The California and ITC complaint seek unspecified monetary damages and injunctive relief. The Company has executed an agreement with a customer under which the customer has assumed all liability and defense of these matters. On

May 11, 2018,

the ITC issued a Final Initial Determination stating that

violation of the pertinent Section

337

(

U.S.C.

§1337

) has occurred in regards to the Company. Additionally, any liability for this matter

not

otherwise covered by such indemnification was assumed by the buyer of the related business unit. Therefore, the Company has reasonable expectation of

material liability from the litigation.

Arris

International plc

Contract Pricing Dispute

2017,

Arris gave notice of its intent to pursue litigation regarding the “Most Favored Nation” clause of its customer contract, wherein Arris asserted that it had

not

received product pricing for which it was entitled. Arris made its assertion based upon its interpretation of the Company’s pricing structure for another customer, an interpretation the Company disputed. On

May 18, 2017,

the Company and Arris attended mediation in the state of New York with

resolution. On

April 4, 2018,

the parties agreed to a settlement with

material effect to the Company’s financial position.

Advanced Silicon Technologies S.a.r.l Patent Infringement

Litigation

June 21, 2017,

AST filed suit against Sigma Designs Technology Denmark ApS and Sigma Designs Technology Germany GmbH in the District Court of Düsseldorf, Germany alleging infringement of Patent

No.

1424653.

In late

February 2018,

the German Federal Patent Court accepted and posted notice of the Company’s statement of defense to nullify the action. The litigation is ongoing. On

March 30, 2018,

this liability was assumed by a

third

party as part of a business unit purchase. Therefore, the Company has a reasonable expectation of

material liability from this litigation.

Shareholder Litigation

. On

March 15, 2018,

a complaint captioned Ann Noyes v. Sigma Designs, Inc., et al., Case

No.

-cv-

01645

-WHO was filed in the United States District Court for the Northern District of California naming as defendants Sigma, certain members of the Board and Silicon Labs. This action purported to be a class action brought by a shareholder alleging, among other things, that the defendants violated Sections

(a) and

(a) of the Securities Exchange Act of

1934

and SEC Rule

14a

by filing a materially incomplete and misleading preliminary proxy statement on

February 23, 2018.

The complaint sought, among other things, either to enjoin the proposed transactions or to rescind the transactions or award rescissory damages in the event the transactions are consummated. An award of rescissory damages could reduce the amount of cash available for distribution to shareholders in any liquidation that Sigma might undertake following the Asset Sale. A

second

complaint, making similar allegations, captioned David Speiser v. Sigma Designs, Inc., et al., Case

No.

-cv-

01670

-WHO, was filed in the same court on

March 16, 2018.

March 27, 2018,

third

complaint, captioned Robert Stein v. Sigma Designs, Inc., et al., Case

No.

3:18

-cv-

1879

-JSW, was filed in the same court, making similar allegations regarding the definite proxy statement filed on

March 19, 2018.

All

three

complaints were subsequently dismissed. The dismissals were with prejudice to the individual named plaintiffs only and do

not

release or bar claims by other purported class members.

Indemnifications

In certain limited circumstances, we have agreed to indemnify certain customers against intellectual property infringement claims from

third

parties related to the use of our technology. In these limited circumstances, the terms and conditions of sale or our standing agreement with such customers generally limit the scope of the available remedies to a variety of industry-standard methods including, but

not

limited to, a right to control the defense or settlement of any claim, a right to obtain non-infringing continued usage and a right to replace or modify the infringing products to render them non-infringing. To date, we have

not

incurred or accrued any costs related to any claims under such indemnification provisions. The Company has transferred many of the indemnity agreements to buyers of the related business units. We are

not

aware of any current or pending claims related to our indemnity agreements.

Our articles of incorporation and bylaws require that we indemnify our officers and directors against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to us. In addition, we have entered into separate indemnification agreements with each of our directors and executive officers that provide for indemnification of these individuals under these and under additional circumstances. The indemnification obligations are more fully described in our charter documents and in the form of indemnification agreement filed with our SEC reports. We purchase insurance to cover claims or a portion of the claims made against our directors and officers. Since a maximum obligation is

not

explicitly stated in our charter documents or in our indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, if any, the overall maximum amount of the obligations cannot be reasonably estimated.

Third-party licensed technology

We regularly licensed technology from various

third

party licensors and incorporated that technology into our product offerings. Some technology licenses required us to pay royalties directly to the licensor while others required us to report sales activities to our licensors so that royalties

may

be collected from our customers. From time to time we were audited by our licensors for compliance with the terms of our license agreements. On

February 10, 2017,

we received notice from a licensor of their intent to audit our compliance with the terms of their license agreements. In fiscal

2018,

the audit was completed and the Company paid

$2.1

million to settle all associated claims.

For license agreements where we had royalty obligations, we charged any settlement-related payments that we made in connection with compliance audits to cost of revenue. For license agreements where we had reporting obligations, we treated any settlement-related payments as penalties and charged the amounts to operating expenses in sales and marketing. As of the date of this filing, we believe we are substantially in compliance with the terms of our license agreements.