-----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, VKNiWIih2sIKXB3g0/xfnDeZLZc6CQWAUoWssc9jFyqRp9HCqEhCJiBAYwZav6zL WBXGF4hkb6Dc3E4bluupKQ== 0000950005-98-000951.txt : 19981211 0000950005-98-000951.hdr.sgml : 19981211 ACCESSION NUMBER: 0000950005-98-000951 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19981210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIGMA DESIGNS INC CENTRAL INDEX KEY: 0000790715 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 942848099 STATE OF INCORPORATION: CA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-33147 FILM NUMBER: 98767778 BUSINESS ADDRESS: STREET 1: 46501 LANDING PKWY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5107700100 MAIL ADDRESS: STREET 1: 46501 LANDING PKWY STREET 2: 46501 LANDING PKWY CITY: FREMONT STATE: CA ZIP: 94538 S-3/A 1 FROM S-3/A As filed with the Securities and Exchange Commission on December 10, 1998 Registration No. 333-33147 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- POST-EFFECTIVE AMENDMENT NO. 1 TO 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 94-2848099 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Industrial Classification Identification Number) organization) Code 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: DAVID J. SEGRE, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (650) 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
======================================================================================================================= Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of of Securities to to be Offering Price Aggregate Offering Registration be Registered Registered (1) Per Share (2) Price (2) Fee - ----------------------------------------------------------------------------------------------------------------------- Common Stock no par value............ 1,100,000 shares $2.63 $2,893,000 $804.25 ======================================================================================================================= (1) Includes shares of Common Stock which may be offered pursuant to this Registration Statement consisting of 1,100,000 shares issuable upon conversion of 45,000 shares of Series A Convertible Preferred Stock of the Company and issuable upon exercise of warrants issued in connection with the issuance of the Series A Preferred Stock. In addition to the shares set forth in the table, pursuant to Rule 416 under the Securities Act of 1933, as amended, this Registration Statement also covers an indeterminate number of additional shares of Common Stock as may become issuable upon conversion of or in respect of the Company's Series A Preferred Stock and Warrants, as such number may be adjusted as a result of stock splits, stock dividends and antidilution provisions (including floating rate conversion prices). (2) 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 Stock Market on December 4, 1998, in accordance with Rule 457(c) under the Securities Act of 1933. A registration fee of $1,460 was paid by the Company in connection with the initial filing of Registration Statement No. 333-33147 on August 7, 1997.
--------------------------- 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 SAID SECTION 8(A), MAY DETERMINE. ================================================================================ PROSPECTUS 1,100,000 SHARES SIGMA DESIGNS, INC. COMMON STOCK This Prospectus may be used only in connection with the resale, from time to time, of up to 1,100,000 shares of Common Stock of Sigma Designs, Inc. ("Sigma" or the "Company"), by the Selling Shareholders, as listed in the table on page 22 of this Prospectus. All of the shares covered by this Prospectus are to be sold by the Selling Shareholders. The Selling Shareholders will receive the shares upon conversion of our Series A Preferred Stock and exercise of warrants. This Post-Effective Amendment No. 1 to the Form S-3 Registration Statement is filed to add KA Investments LDC as a Selling Shareholder. KA Investments LDC purchased shares of Series A Preferred Stock and warrants exercisable for shares of our Common Stock from Banque Edouard Constant SA who originally purchased Series A Preferred Stock and warrants directly from us in a transaction not subject to registration with the Securities and Exchange Commission. We will not receive any of the proceeds from the sale of the shares. We will, however, pay the expenses incurred in registering the shares, including legal and accounting fees. The shares offered by this Prospectus may be offered and sold, from time to time, by the Selling Shareholders, or others who receive the shares pursuant to a valid transfer. Such offers and sales can take place in transactions (including block transactions) on the Nasdaq Stock Market (or any other exchange on which our Common Stock may then be listed), in privately-negotiated transactions, broker-dealer transactions, exchange transactions, short sales, or other methods. Sales may be made at market prices or negotiated prices. The Selling Shareholders will pay for any commission expenses and brokerage fees. Our Common Stock is traded on the Nasdaq Stock Market under the symbol "SIGM." On December 4, 1998, the last sale price for our Common Stock as reported on the Nasdaq Stock Market was $2.63 per share. --------------------------- SEE "RISK FACTORS" ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS. --------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Date of this Prospectus is December 10, 1998 AVAILABLE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, we file reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). These 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 these materials 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. Our Common Stock is quoted on the Nasdaq Stock 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. The Public may obtain information on the operation of the Public Reference Room by calling the Securities Exchange Commission at 1-800-SEC-0330. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. We maintain a World Wide Web Site at http://www.sigmadesigns.com. 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 in this Prospectus 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 for the fiscal year ended January 31, 1998; (ii) the Company's Quarterly Report on Form 10-Q for the quarters ending April 30, 1998 and July 31, 1998; (iii) the Company's Proxy Statement relating to the Company's Annual Meeting of Shareholders held on June 12, 1998; and (iv) 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 Carol Kaplan, Director of Investor Relations, at the Company's principal executive offices at 46501 Landing Parkway, Fremont, California 94538, or by telephone at (510) 770-0100. RISK FACTORS You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely effected. In such case, the trading price of our Common Stock could decline, and you may lose all or part of your investment. This Prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Prospectus. History of Operating Losses; Recent Significant Losses; Liquidity We incurred significant losses in fiscal 1995, 1996, 1998 and during 1999 and had substantial negative cash flow in fiscal 1995, 1996, 1997, 1998 and during 1999. Since our introduction of the REALmagic Moving Picture Experts Group ("MPEG") product line in November 1993, we have made significant investments in marketing and technological innovation for our REALmagic products. As a result of our investments, we experienced significant losses through fiscal 1996. Fiscal 1995, 1996 and 1998 also included significant losses associated with products other than those related to our REALmagic technology. Since our inception through July 31, 1998, our total accumulated deficit is $39,205,000. We cannot assure you that we will continue to sell our new REALmagic products in substantial quantities or generate significant revenues from those sales. We cannot assure you that we will return to profitable operations in any future fiscal quarter or fiscal year. If profitable operations are achieved, we cannot assure you that they will be sustained. We have an Amended and Restated Business Loan Agreement with Silicon Valley Bank, dated October 26, 1998. Under the Agreement we gave two secured Promissory Notes in total principal amounts of $12 million and $6 million to Silicon Valley Bank. Under this Agreement and the Notes, we are subject to certain covenants relating to profitability and financial ratios. Since July, 1997, we have, on occasion, obtained waivers releasing us from our obligation to meet these covenants. We have a waiver for the quarter ended October 31, 1998. We expect to need another waiver for the quarter ending January 31, 1999. We cannot assure you that Silicon Valley Bank will grant that waiver. If we do not meet these covenants, and if we do not obtain another waiver, the loans may be in default. If we are in default, then the lender could accelerate payments on the Notes and we could suffer serious harm to our business, financial condition and prospects. Marketing Risks; Volatility of OEM Customer Sales; Volatility of Resale Distribution Our ability to increase sales, achieve profitability and maintain REALmagic as a personal computer ("PC") industry multimedia standard depends substantially on our ability to achieve a sustained high level of sales to new Original Equipment Manufacture ("OEM") customers. We have not executed volume purchase agreements with any of our customers. Our customers are not under any obligation to purchase any minimum quantity of our products. We have not achieved bundling agreements with many OEM customers to ensure the success of our REALmagic product line. Also, even if we achieve new design wins, we cannot assure you that PC manufacturers will purchase our products in substantial volumes. Sales to any particular OEM customer are subject to significant variability from quarter to quarter and to severe price pressures by competitors. Based on our experience in the PC industry, we expect that our actual sales to OEM customers will experience significant fluctuations. Also, estimates of future sales to any particular customer or groups of customers are inherently uncertain. Our ability to achieve sustained profitability also depends on a substantial increase in the sales of REALmagic products through domestic and international distributors for resale through corporate markets. Sales to such distributors are typically subject to contractual rights of inventory rotation or price protection. The failure of distributors to achieve sustained sell-through of REALmagic products could result in product returns or collection problems. This could contribute to fluctuations in our results of operations. We cannot assure you that we will be successful in maintaining a significant market for our REALmagic products. Technological Change; Uncertainty of Achievement of Technological Leadership The market for multimedia PC products is characterized by the following: 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, our success depends, among other things, on our ability to achieve and maintain technological leadership and to remain competitive in terms of price and product performance. To have technological leadership, we must continue to make technological advancements and research and development investments in the area of MPEG video and audio decoding. These advancements include the following: o compatibility with emerging standards and multiple platforms; o improvements to the REALmagic architecture; and o enhancements to the REALmagic application programming interface. We cannot assure you that we will be able to make these advancements to our REALmagic technology. If we do make these advances, we cannot assure you that we will be able to achieve and maintain technological leadership. Any material failure by us or OEMs and software developers to develop or incorporate any required improvement could adversely affect the continued acceptance of our technology and the introduction and sale of future products based on our technology. We cannot assure you that products or technologies developed by others will not render obsolete our technology, and the products based on our technology. To be competitive, we must anticipate the needs of the market and successfully develop and introduce innovative new products in a timely fashion. We cannot assure you that we will be able to successfully complete the design of our new products, have these products manufactured at acceptable manufacturing yields, or obtain significant purchase orders for these products. The introduction of new products may adversely affect sales of existing products and contribute to fluctuations in operating results from quarter to quarter. Our introduction of new products also requires that we carefully manage our inventory to avoid inventory obsolescence. In addition, new products, as opposed to more mature products, typically have higher initial component costs. This higher cost could result in downward pressures on our gross margins. Competition The market for multimedia PC products is highly competitive, and is driven by faster processors provided by Intel Corporation and other companies. Intel processors have, in recent years, included increased graphics functionality. Other companies with more experience and financial resources may develop a competitive product that could inhibit future growth of our REALmagic technology. Increased competition may be generated from several major computer product manufacturers that have developed products and technologies that could compete directly with REALmagic products on the PC platform. These competitors include: o SGS Thompson Microelectronics; o C-Cube Microsystems; o IBM Corporation; o Zoran Corporation; and o LSI Logic. In addition, Intel processors are becoming more powerful, so that video decoding could eventually be done in software. Intel processors have, in recent years, included increased graphics functionality. Most of our competitors have substantial experience and expertise in audio, video and multimedia technology and in producing and selling consumer products through retail distribution. These companies also have substantially greater engineering, marketing and financial resources than we have. Our competitors could form cooperative relationships that could present formidable competition to us. We cannot assure you that our REALmagic technology will achieve commercial success or that it will compete effectively against other 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; Source of Net Sales; Market Demand for Multimedia Products Our business strategy is, and has been, to focus on REALmagic products by investing heavily in PC-based MPEG technology. In the fiscal year ended January 31, 1998 and the six months ended July 31, 1998, sales of multimedia products accounted for virtually all of our net sales. A decline in market demand for multimedia products will materially adversely affect our operating results. Our present reliance on REALmagic products is further affected by the fact that multimedia product sales are concentrated in the PC industry. A decline in demand for PCs could have a material adverse effect on our operating results and financial condition. Variability of Operating Results; Seasonal Variations in Demand; DVD Technology Our operating results have fluctuated in the past and may continue to fluctuate in the future. This fluctuation is due to a number of factors, including the following and others: o our new product introductions and our competitors; o market acceptance of our products by OEMs, software developers and end users; o the success of our promotional programs; o gains or losses of our significant customers; o reductions in selling prices; o inventory obsolescence; o an interrupted or inadequate supply of semiconductor chips; o our ability to protect our intellectual property; and o loss of our key personnel. In addition, sales to OEM customers are subject to significant variability from quarter to quarter. This variability depends on OEMs' timing and release of products that incorporate our REALmagic technology, experience with sales of these products and inventory levels. The market for consumer electronics products is characterized by significant seasonal swings in demand. Demand typically peaks in the fourth calendar quarter of each year. We expect to derive a substantial portion of our revenues from the sales of REALmagic products in the future. The demand for our products will depend in part on the success of digital video technology. In light of this, our revenues may vary with the availability of and demand for DVD titles. This 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 our operating results. Based on our experience, we believe that a substantial portion of our shipments will occur in the third month of a quarter, with significant shipments completed in the latter part of the third month. This shipment pattern may cause our operating results to be difficult to predict. Currently, we place noncancellable orders to purchase semiconductor products from our foundries with a long lead time. Consequently, if, as a result of inaccurate forecasts or cancelled purchase orders, our anticipated sales and shipments in any quarter do not occur when expected, our inventory levels could be disproportionately high. This could require significant working capital, and negatively affect our operating results. Manufacturing Risks; Reliance on Independent Suppliers; Forecasting Risks; Production Delay Risks Our REALmagic products and components are presently manufactured by outside suppliers or foundries. We do not have long-term contracts with these suppliers. We conduct business with our suppliers on a written purchase order basis. Our reliance on independent suppliers subjects us to several risks. These risks include: o the absence of adequate capacity; o the unavailability of, or interruptions in access to, certain process technologies; and o reduced control over delivery schedules, manufacturing yields and costs. We obtain some of our components from a single source. Delays or interruptions have not occurred to date, but any delay or interruption in the supply of any of the components required for the production of our REALmagic multimedia card currently obtained from a single source could have a material adverse impact on our sales of REALmagic products, and on our business. We must provide our suppliers with sufficient lead time to meet our forecasted manufacturing objectives. Any failure to properly forecast such quantities could materially adversely affect our ability to produce REALmagic products in sufficient quantities. We cannot assure you that our forecasts regarding new product demand will be accurate, particularly because we sell our REALmagic products on a purchase order basis. Manufacturing the REALmagic chipsets is a complex process, and we may experience short-term difficulties in obtaining timely deliveries. This could affect our ability to meet customer demand for our products. Any such delay in delivering products in the future could materially and adversely affect our operating results. Also, should any of our major suppliers become unable or unwilling to continue to manufacture our key components in required volumes, we will have to identify and qualify acceptable additional suppliers. This qualification process could take up to three months or longer and additional sources of supply may not be in a position to satisfy our requirements on a timely basis. In the past, we have experienced production delays and other difficulties, and we could experience similar problems in the future. In addition, product defects may occur and they may escape identification at the factory. This could result in unanticipated costs, cancellations, deferrals of purchase orders, or costly recall of products from customer sites. Dependence on Key Personnel Our future success depends in large part on the continued service of our key technical, marketing, sales and management personnel. Given the complexity of REALmagic technology, we are dependent on our ability to retain and motivate highly skilled engineers involved in the ongoing hardware and software development of REALmagic products. These engineers are required to refine the existing hardware system and application programming interface and to introduce enhancements in future applications. The multimedia PC industry is characterized by high level employee mobility and aggressive recruiting of skilled personnel. Despite incentives we provide to them, our current employees may not continue to work for us, and if additional personnel were required for our operations, we may not able to obtain the services of additional personnel necessary for our growth. We do not have "keyperson" life insurance policies on any of our employees. Limited Intellectual Property Protection; Patents and Pending Patent Applications; Litigious Sector Our ability to compete may be affected by our ability to protect our proprietary information. We currently hold ten patents covering the technology underlying the REALmagic products. We have filed certain patent applications and are in the process of preparing others. We cannot assure that any additional patents for which we have applied will be issued or that any issued patents will provide meaningful protection of our product innovations. Like other emerging multimedia companies, we rely primarily on trade secrets and technological know-how in the conduct of our business. We also rely, in part, on copyright law to protect our proprietary rights with respect to REALmagic technology. We use measures such as confidentiality agreements to protect our intellectual property. These methods of protecting our intellectual property may not be sufficient. The electronics industry is characterized by frequent litigation regarding patent and intellectual property rights. Any such litigation could result in significant expense to us and divert the efforts of our technical and management personnel. In the event of an adverse result in any such litigation, we could be required to expend significant resources to develop noninfringing technology or to obtain licenses to the technology that is the subject of the litigation, and we may not be successful in such development or in obtaining such licenses on acceptable terms, if at all. In addition, patent disputes in the electronics industry have often been settled through cross-licensing arrangements. Because we do not yet have a large portfolio of issued patents, we may not be able to settle an alleged patent infringement claim through a cross-licensing arrangement. Risks of International Operations; Substantial Percentage of Net Sales Derived From the Asia Pacific Region During the fiscal years ended January 31, 1998, 1997 and 1996, sales to international customers accounted for approximately 64%, 72% and 63% of our net sales, respectively. We anticipate that sales to international customers, including sales of REALmagic products, will continue to account for a substantial percentage of our net sales. Also, some of the foundries that manufacture our 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, we are subject to the risks of conducting business internationally. These risks include unexpected changes in regulatory requirements and fluctuations in the U.S. dollar that could increase the sales price in local currencies of our products in international markets, or make it difficult for the Company to obtain price reductions from its foundries. We do not currently engage in any hedging activities to reduce our exposure to exchange rate risks. If and when we engage in transactions in foreign currencies, our results of operations could be adversely affected by exchange rate fluctuations. We derive a substantial portion of our revenues from sales to the Asia Pacific region. This region of the world is subject to increased levels of economic instability, and this instability could have a material adverse effect on our results of operations. Volatility of Stock Price The market of our Common Stock has been subject to significant volatility. This volatility is expected to continue. The following factors, among others, may have a significant impact on the market price of our Common Stock: o our announcement of the introduction of new products; o our competitors' announcements of the introduction of new products; o market conditions in the technology, entertainment and emerging growth company sectors; and o short sales by shareholders and others. The stock market has experienced, and is currently experiencing, volatility that particularly affects the market prices of equity securities of many high technology and development stage companies, such as those in the electronics industry. This volatility is often unrelated or disproportionate to the operating performance of such companies. These fluctuations, as well as general economic and market conditions, could adversely affect the price of our Common Stock. Potential for Dilution from Conversion of Series B Preferred Stock Series B Preferred Stock. As of December 7, 1998, 2,250 shares of our Series B Convertible Preferred Stock were issued and outstanding. The shares of Series B Preferred Stock are convertible at the option of the holders into that number of shares of Common Stock as is generally determined by the following formula: o Multiply the stated value ($1,000) by the number of outstanding shares of Series B Preferred Stock (under certain circumstances, this value may be increased by a premium based on the number of days the Series B Preferred Stock is held), and divide the product by the then current Conversion Price (set forth below). o The Conversion Price is based on the average of the lowest six trading prices of our Common Stock in the twenty trading days ending one day prior to the date of conversion of the Series B Preferred Stock. Thus, if the Series B Preferred Stock was converted on December 7, 1998, the Conversion Price would have been $2.06. Based on this formula, if the remaining outstanding Series B Preferred Stock was converted on December 7, 1998, it would have been convertible into approximately 1,092,233 shares of Common Stock. This number can prove to be significantly greater in the event of a decrease in the trading price of our Common Stock. Purchasers of our Common Stock will experience substantial dilution of their investment upon conversion of the Series B Preferred Stock. However, in the event the price of our Common Stock falls below $3.26, subject to applicable laws restricting our repurchase of stock, we have the option to elect to pay cash (at a premium to the then current market price of our Common Stock) to the holders of Series B Preferred Stock in lieu of converting the shares of Series B Preferred Stock. In the event we elect to pay cash, purchasers of our Common Stock will suffer less dilution. Our election to pay cash, however, will come at the expense of diverting our available cash funds from other potential uses. The shares of Series B Preferred Stock are not registered and may be sold only if registered under the Securities Act or sold in accordance with an applicable exemption from registration, such as Rule 144. As of December 7, 1998, warrants to purchase 50,000 shares of Common Stock issued to the purchasers of the Series B Preferred Stock and exercisable for a period of three years following May 1, 1998 at a price of $5.16 (as may be adjusted from time to time under certain antidilution provisions) were outstanding. As of December 7, 1998, 5,854,398 shares of Common Stock were reserved for issuance upon exercise of our outstanding warrants and options (excluding the warrants issued to the purchasers of the Series B Preferred Stock) and an additional 4,300,000 shares of Common Stock were reserved for issuance upon conversion of the preferred stock and exercise of the warrants issued to the purchasers of the Series B Preferred Stock. At October 31, 1998, there were 13,514,735 shares of Common Stock outstanding. Of these outstanding shares, 13,492,952 were freely tradable without restriction under the Securities Act unless held by affiliates who are subject to certain limitations under Rule 144 of the Securities Act of 1933, as amended. Impact of the Year 2000 Issue Year 2000 Compliance. We are aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The "year 2000 problem" is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two-digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. We have tested our products and believe our products are year 2000 compliant. Our management has also conducted a review of our exposure to the year 2000 problem, including working with computer systems and software vendors. We currently believe that our internal systems are year 2000 compliant. We do not expect to further incur any significant operating expenses or invest in additional computer systems to resolve issues relating to the year 2000 problem, with respect to both our information technology and product and service functions. However, significant uncertainty remains concerning the effects of the year 2000 problem, including uncertainty regarding assurances made by vendors. In addition, we have not investigated year 2000 compliance of other entities who are not our vendors or who are vendors or purchasers of our product. For example, we do not have control over the compliance of our distributors, partners, banks, stock markets or systems in which our products are used. We cannot assume that third parties will be year 2000 compliant, and if they are not, we cannot assume that we will not be subject to actions, liabilities or damages associated with these failures. We will develop appropriate contingency plans in the event that a significant exposure arises relative to any such third parties. THE COMPANY Overview The following sections regarding the Company contain forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as discussed in this Registration Statement. We design, manufacture (using subcontractors) and market multimedia products for use with personal computers. The emergence of multimedia technology in the personal computer (PC) market has dramatically changed the way in which 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. Through its REALmagic product line incorporating Moving Picture Experts Group (MPEG) technology, Sigma Designs has become a leader in this emerging market. 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 International Standards Organization (ISO) standard for video compression, eliminated many of 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. With MPEG technology, producers can create (and users can enjoy) an interactive, television-like experience on a desktop PC. The result is a significant new visual impact, thereby opening possibilities for a wide range of entertainment, education, training and business presentation applications. In April 1997, the Company announced its entry into the Digital Video Disk ("DVD") market. A key element of the DVD specification is the use of MPEG-2 for digital video compression, a technology in which Sigma has established expertise. Sigma's REALmagic EM8300, EM8220 and EM8800 PC-based DVD and SVCD solutions are extensions of the Company's MPEG expertise and provide a highly-integrated solution for the PC-DVD and PC-SVCD markets. The REALmagic MPEG Standard Since its first shipment in November 1993, REALmagic technology has received support from PC industry leaders, software developers and OEM and retail customers. Partnership with PC Industry Leaders Sigma has developed strategic partnerships to develop and market network streaming video products with companies such as Hughes Network Systems, IBM, Microsoft Corporation, Oracle Corporation, Silicon Graphics, Inc., Starlight Networks, Sun Microsystems, OptiVision and FVC.com. Support from Software Developers Support for Sigma's REALmagic MPEG standard has grown to over 1,200 software developers. To further expand the list of developers, Sigma has worked directly with Microsoft on Microsoft's new streaming standard for MPEG-2 called DirectShow. Sigma Designs is the first and currently the only company shipping drivers with DirectShow support for streaming MPEG-2 video, making it the only recommended decoder for use with Microsoft's NetShow Theater video server. Using the DirectShow standard, software developers can create streaming video applications with virtually any video server-without any C programming at all. This enables universities and corporations to get live video and video on demand applications online very rapidly, which shortens the sales process. Support from OEMs In the United States, Dell Computer Corporation, Compaq Computer Corporation, IBM, Hughes Network Systems and OptiVision have purchased REALmagic cards for installation inside their systems for streaming video. Additionally, Philips, Sony, Panasonic Canada, Matsushita, Toshiba, VideoLogic and several other companies market DVD kits that include REALmagic Hollywood Plus playback cards, and several vendors base their DVD systems on REALmagic DVD playback cards. Acceptance by the Corporate Market REALmagic is the most well-known and most recognized brand name for MPEG video on PCs. Sigma Designs has developed this brand name through marketing campaigns and by building a reputation for delivering and supporting inexpensive MPEG decoders with robust, powerful and flexible software drivers. This has made Sigma Designs' REALmagic the de facto standard for corporate market projects such as corporate-wide rollouts at Merrill Lynch, Smith Barney and Wal-Mart. REALmagic Business Strategy Sigma's corporate objective is to continue to be a leading provider of MPEG multimedia products that enable full-screen, full-motion, TV-like quality video on the standard desktop and the notebook PC. To accomplish this goal the Company intends to promote widespread acceptance of REALmagic technology. The key parts of this strategy include: Win More OEM Partnerships and Further Penetrate the Corporate Market To establish REALmagic for MPEG-2 as a standard, the Company will continue to seek design wins with major PC manufacturers worldwide, in which the OEMs will factory-install REALmagic boards or chipsets inside their multimedia PCs. On the retail side, the Company's systems integration sales team will continue to work with its network of national distributors and special Value Added Resellers (VARs) to distribute its high-end REALmagic playback card. In Europe and Asia Pacific, the Company will continue to expand its relationship with distributors as well as OEMs and VARs. In addition, the Company will seek to sell chipsets to add-on card manufacturers that will, in turn, market to owners of Pentium PCs. Introduce New Generations of REALmagic, Offer REALmagic products at Competitive Prices and Continually Reduce Product Costs A significant aspect of the Company's product strategy is to increase the sale of REALmagic chipsets while continuing to develop newer versions and generations of REALmagic products, including chipsets for both desktop and notebook PCs. The Company seeks to continue to offer consumers better-featured and lower-priced products over time. REALmagic Products The Company currently offers a complete family of REALmagic products including: o REALmagic Hollywood Plus-In April 1997, the Company announced its entry into the DVD market. The REALmagic Hollywood Plus MPEG-2 playback card turns a PC into a full-featured DVD player that exploits many of the digital video and digital surround sound capabilities of the DVD format and upcoming MPEG-2 interactive titles. The REALmagic Hollywood Plus DVD/MPEG-2 playback card displays flicker-free video at full-screen resolution, making video watching on a PC a new experience. Movies can be simultaneously displayed on the PC monitor and on a large-screen TV. o REALmagic NetStream 2-In October 1997, the Company announced its entry into the MPEG-2 networked video market. Products in the NetStream family include specialized hardware and software developed specifically for delivering video to corporate desktops and can be used for both video on demand and broadcast video playback. NetStream 2 is an MPEG-2 playback card offering full plug and play installation and compatibility with a broad range of third-party applications, including video servers for video on demand, MPEG encoders for stored or real-time playback, satellite delivery systems, streaming video playback systems and scores of customizable interactive training titles. o REALmagic EM8300-In March 1998, the Company announced the introduction of the EM8300 REALmagic DVD/MPEG-2/MPEG-1 decoder Integrated Circuit ("IC"). Integrating virtually all functions of a DVD decoder on one chip, the EM8300 is designed to provide a highly integrated, cost effective vehicle for high-quality DVD. The EM8300 feature set draws on Sigma's industry-leading experience in the DVD/MPEG-2 market with earlier designs such as the REALmagic Ventura and REALmagic Hollywood decoder cards. The result is a blend of performance and affordability that can be key to gaining market share in the rapidly growing DVD market. o REALmagic EM8220 DVD/MPEG-2 VGA Add-On Card-In June 1998, the Company announced the introduction of a daughter card to add to Intel i740-based 2D/3D Video Graphics Array ("VGA") graphics cards to quickly and effectively deliver high-performance, video-ready multimedia systems. o REALmagic DVD/MPEG-2 Notebook Module-Designed to connect directly to the VGA controller through the ZV-bus and to the system bus through the module's Peripheral Component Interconnect ("PCI") interface, the notebook module gives notebook users all of the power and impact of DVD performance with their go-anywhere systems. o REALmagic EM8800-In October 1998, the Company announced the REALmagic EM8800 decoder IC, the first single-chip PC solution for China's new Super Video Compact Disk ("SVCD") standard. Integrating virtually all SVCD decoding functions on one chip, the EM8800 can turn a PC into a full-featured home theater video player that fully exploits the improved video quality supported by the SVCD standard. Marketing and Sales Sigma Designs currently distributes its products through sales to national and regional distributors, value-added resellers 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 Sony, Philips, Panasonic Canada, IBM Canada, Matsushita, Toshiba, Kapok Computers, Sidus/TigerDirect, Inc., Royal Computer, ASE Technologies, LungHwa Electronics Co., Ltd., Formosa Industrial Computing, Labway Corporation and others. The Company's international distributors are strategically located in many countries around the world. The Company generally acquires and maintains products for distribution through corporate markets based on forecasts rather than firm purchase orders. Additionally, the Company generally acquires products for sale to its OEM customers only after receiving purchase orders from such customers, which purchase orders are typically cancellable without substantial penalty from such OEM customers. The Company currently places noncancellable 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 cancelled 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 and resulting in severe pressure on the Company's financial condition. Sales to distributors 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 operating results. Research and Development As of November 30, 1998 the Company had a staff of 31 research and development personnel. The research and development personnel conduct all the Company's product development. The Company is focusing its development efforts primarily on MPEG multimedia products, including new and improved versions of REALmagic MPEG chipsets and cost reduction processes. To achieve and maintain technological leadership, the Company must continue to make technological advancements in the areas of MPEG video and audio compression and decompression. These advancements include maintaining compatibility with emerging standards and multiple platforms, making improvements to the REALmagic architecture, and developing enhancements to the REALmagic Application Programming Interface (API). There can be no assurance that the Company will be able to make any such advancements in the REALmagic MPEG technology or, if they are made, that the Company will be able to market such advancements to maintain profitability and its technological leadership. During fiscal 1998, fiscal 1997 and fiscal 1996, the Company's research and development expenses were $4,948,000, $4,688,000 and $4,499,000, respectively. The Company plans to continue to devote substantial resources to research and development of future generations of MPEG and other multimedia products. Competition The market for MPEG multimedia products is highly competitive; companies such as C-Cube Microsystems have a high profile in the industry. Although the Company does not believe that any products sold by a third party are in direct competition with the REALmagic 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 with 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 its REALmagic products. Moreover, the Company believes that the acceptance of the 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 REALmagic API will be established as an industry standard or that the Company's lead time in product introduction will be sustained. Licenses, Patents and Trademarks The Company is seeking patent protection for certain software and hardware features in current and future versions of REALmagic. The Company currently has fifteen pending patent applications for its REALmagic technology. Ten patents have been issued to the Company. There can be no assurance that more patents will be issued or that such patents, 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, along with capital and staffing requirements, the Company currently uses third-party contract manufacturers to fulfill all of its manufacturing needs, including chipset manufacture and board-level assembly. All of the chips used by the Company to develop its 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 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 REALmagic products could have a material adverse impact on the sales of the Company's products and, thus, on the Company's operating results. Backlog Since the Company's customers typically expect quick deliveries, the Company seeks to ship products within a few weeks of receipt of a purchase order. However, the customer may reschedule delivery of products or cancel the purchase order entirely without significant penalty. Historically, the Company's backlog has not been reflective of future sales. The Company also expects that in the near term, its backlog will continue to be not indicative of future sales. Employees As of November 30, 1998, the Company had 71 full-time employees, including 31 in research and development, 15 in marketing, sales and support, 10 in operations, and 15 in finance and administration. The Company's future success will depend, in part, on its ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and management personnel, who are in great demand. The Company's employees are not represented by any collective bargaining unit, and the Company has never experienced a work stoppage. The Company believes that its employee relations are satisfactory. USE OF PROCEEDS The Company will not receive any proceeds from the sale of shares hereunder by the Selling Shareholders. SELLING SHAREHOLDERS On June 25, 1997, the Company entered into a Subscription Agreement with Banque Edouard Constant SA and RIC Entity Limited, pursuant to which those two entities purchased certain shares of Series A Preferred Stock that are convertible into Common Stock of the Company (the "Preferred Stock") in an aggregate amount of $4,500,000, and, concurrent with the purchase of the Preferred Stock, such entities also received warrants to purchase additional Common Stock at an exercise price in excess of the conversion price of the Preferred Stock. The original Registration Statement No. 333-33147 was filed by the Company pursuant to the exercise of certain registration rights granted under the Subscription Agreement. In addition, the Company granted 10,000 shares of Common Stock to Gene Jung on behalf of Trinity Capital Advisors, Inc. in consideration for his efforts in assisting with the sale of the Preferred Stock. On March 11, 1998, the Company, Banque Edouard Constant SA ("BEC"), and KA Investments LDC entered into an Assignment and Assumption Agreement under which KA Investments LDC purchased from BEC 15,000 shares of Series A Preferred Stock convertible into shares of the Company's Common Stock and a Warrant exercisable for 21,428 shares of the Company's Common Stock (the "Warrant"). The Series A Preferred Stock and Warrant now held by KA Investments LDC is subject to the terms of the June 25, 1997 Subscription Agreement, a Certificate of Determination of Preferences filed in connection with the initial issuance of the Preferred Stock, and a Registration Rights Agreement. In accordance with the Assignment and Assumption Agreement, KA Investments LDC obtained certain registration rights relating to the shares of Series A Preferred Stock and the Warrant under the Registration Rights Agreement. The following table sets forth certain information with respect to beneficial ownership of the Company's Common Stock as of December 7, 1998 by the Selling Shareholders as follows: (i) the name of each Selling Shareholder; (ii) the number of the Company's outstanding shares of Common Stock beneficially owned by such Selling Shareholders (including shares obtainable under options exercisable within sixty (60) days of such date) prior to the offering hereby; (iii) the number of shares of Common Stock being offered hereby; and (iv) the number of and percentage of the Company's outstanding shares of Common Stock to be beneficially owned by each Selling Shareholder after completion of the sale of Common Stock. 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. The Selling Shareholders have not held any position or office or had a material relationship with the Company or any of its affiliates within the past three years.
Number of Shares of Common Stock --------------------------------------------------------------------- Beneficially Owned Beneficially After Offering(1) Owned Prior to ---------------------- Name and Address Offering(1) Being Offered hereby Number Percent - ---------------- ----------- -------------------- ------ ------- Banque Edouard Constant(3) 35,714(2) 35,714 0(3) 0(3) c/o Kernco Trust SA 2, rue Jargonnaut P.O. Box 6432 CH 1211 Geneva 6 Switzerland Gene Jung 3,000 3,000 0(3) 0(3) Trinity Capital Advisors, Inc. 369 Pine Street, Suite 310 San Francisco, CA 94114 KA Investments LDC 402,254(4) 240,181 162,073(3) 1.2%(3) c/o Tarmachan Capital Management 1712 Hopkins Crossroads Minnetonka, Minnesota 55305 RIC Equity Limited 7,143(5) 7,143 0(3) 0(3) c/o Rana Investment Company P.O. Box 60148 Riydadh 11545 Saudi Arabia - --------------------------- (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 potential right to acquire within sixty (60) days of the Offering through the conversion of the shares of Series A Preferred Stock or the exercise of the warrants. (2) Represents shares underlying a warrant exercisable for 35,714 shares of Common Stock. (3) Assumes sale of all shares of Common Stock offered hereby. (4) Includes the number of shares of Common Stock (i) issued upon conversion of shares of Series A Preferred Stock and (ii) issuable upon exercise of the Warrant to purchase 21,428 shares of Common Stock. Also includes an indeterminate number of shares of Common Stock that may become issuable to prevent dilution resulting from stock splits, stock dividends and Conversion Price or exercise price adjustments, which are included pursuant to Rule 416 under the Securities Act of 1933, as amended. (5) Represents shares underlying a warrant exercisable for 7,143 shares of Common Stock.
PLAN OF DISTRIBUTION The Selling Shareholders may, from time to time, sell all or a portion of the shares on the Nasdaq Stock Market in privately negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices. The shares may be sold by The Selling Shareholders by one or more of the following methods, without limitation: (a) block trades in which the broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction, (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus, (c) an exchange distribution in accordance with the rules of such exchange, (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers, (e) privately negotiated transactions, (f) short sales, and (g) a combination of any such methods of sale. In effecting sales, brokers and dealers engaged by the Selling Shareholders may arrange for other brokers or dealers to participate. Brokers or dealers may receive commissions or discounts from the Selling Shareholders (or, if any such broker-dealer acts as agent for the purchaser of such shares, from such purchaser) in amounts to be negotiated which are not expected to exceed those customary in the types of transactions involved. Broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share, and, to the extent such broker-dealer is unable to do so acting as agent for a Selling Shareholder, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to such Selling Shareholder. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in transactions (which may involve block transactions and sales to and through other broker-dealers, including transactions of the nature described above) in the over-the-counter market or otherwise at prices and on terms then prevailing at the time of sale, at prices then related to the then-current market price or in negotiated transactions and, in connection with such resales, may pay to or receive from the purchasers of such shares commissions as described above. The Selling Shareholders may also sell the shares in accordance with Rule 144 under the Securities Act, rather than pursuant to this Prospectus. The Selling Shareholders and any broker-dealers or agents that participate with the Selling Shareholders in sales of the shares may be deemed to be "underwriters" withing the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. From time to time the Selling Shareholders may engage in short sales, short sales against the box, puts and calls and other transactions in securities of the Company or derivatives thereof, and may sell and deliver the shares in connection therewith or in settlement of securities loans. If the Selling Shareholders engage in such transactions, the Conversion Price may be affected. From time to time the Selling Shareholders may pledge their shares pursuant to the margin provisions of their customer agreements with their brokers. Upon a default by a Selling Shareholder, the broker may offer and sell the pledged shares from time to time. The Company is required to pay all fees and expenses incident to the registration of the shares, including one half of any fees and disbursements (which half is not to exceed an aggregate of $5,000) of counsel to the Selling Shareholders. The Company has agreed to indemnify the Selling Shareholders against certain losses, claims, damages and 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 for the fiscal year ended January 31, 1998 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is 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. TABLE OF CONTENTS Page Available Information .................................................... 2 Incorporation of Certain Documents by Reference .......................... 3 Risk Factors ............................................................. 3 The Company .............................................................. 12 Use of Proceeds .......................................................... 18 Selling Shareholders...................................................... 18 Plan of Distribution ..................................................... 22 Legal Matters ............................................................ 23 Experts .................................................................. 23 You should rely on the information contained in this Prospectus. We have not authorized anyone to provide you with information different from that contained in this Prospectus. We are offering to sell and seeking offers to buy, shares of Common Stock only in jurisdictions where offers and sales are permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of any sale of the Common Stock. In this Prospectus, the "Company," "Sigma," "we," "us," and "our" refer to Sigma Designs, Inc. 1,100,000 Shares SIGMA DESIGNS, INC. Common Stock ------------ PROSPECTUS ------------ December 10, 1998 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 Stock Market Listing Fee. Securities and Exchange Commission Registration Fee ................... $ 1,460 Nasdaq Stock Market Listing Fee ....................................... 17,500 Legal Fees and Expenses ............................................... 60,000 Accounting Fees and Expenses .......................................... 10,000 Blue Sky Fees and Expenses ............................................ 2,500 Transfer Agent and Registrar Fees ..................................... 5,000 Miscellaneous ......................................................... 1,500 Total ........................................................ $ 92,960 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 liabilities (including reimbursement for expenses incurred) arising under the Securities Act. Article IV of the Registrant's Second Restated 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 o 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 the Company and the initial purchasers of the Series A Preferred Stock and warrants. 4.2* Form of Registration Rights Agreement by and between the Company and the initial purchasers of the Series A Preferred Stock and warrants. 4.3 Assignment and Assumption Agreement by and among the Company, BEC and KA Investments LDC. 4.4 Form of Stock Purchase Warrant. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant. 23.1 Independent Auditors' Consent. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant (included in Exhibit 5.1). 24.1** Power of Attorney. * Incorporated by reference to Registration Statement No. 333-33147 (filed August 7, 1997). ** Previously filed. - --------------------------- 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 consolidated financial statements or notes thereto. II-2 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, a 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 ability 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. II-3 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 10th day of December 1998. SIGMA DESIGNS, INC. By: /s/ Thinh Q. Tran ---------------------- Thinh Q. Tran Chairman of the Board, President and Chief Executive Officer 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 Thinh Q. Tran* Chairman of the Board, President and Chief December 10, 1998 - -------------------------------------- Executive Officer (Principal Executive Officer) Thinh Q. Tran Kit Tsui* Director of Finance, Chief Financial Officer, December 10, 1998 - -------------------------------------- Secretary (Chief Financial and Accounting Officer) Kit Tsui William J. Almon* Director December 10, 1998 - -------------------------------------- William J. Almon William Wang* Director December 10, 1998 - -------------------------------------- William Wang *By: /s/ Thinh Q. Tran December 10, 1998 - -------------------------------------- Attorney-in-Fact
II-4 EXHIBIT INDEX EXHIBIT NUMBER - -------------- 4.1* Form of Subscription Agreement by and between the Company and the initial purchasers of the Series A Preferred Stock and warrants. 4.2* Form of Registration Rights Agreement by and between the Company and the initial purchasers of the Series A Preferred Stock and warrants. 4.3 Assignment and Assumption Agreement by and among the Company, BEC and KA Investments LDC. 4.4 Form of Stock Purchase Warrant. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant. 23.1 Independent Auditors' Consent. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Registrant (included in Exhibit 5.1). 24.1** Power of Attorney. (See page II-4). * Incorporated by reference to Registration Statement No. 333-33147 (filed August 7, 1997). ** Previously filed. II-5 EX-4.3 2 ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 4.3 Assignment and Assumption Agreement by and between the Company, BEC and the Selling Shareholder ASSIGNMENT AND ASSUMPTION AGREEMENT ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated as of March 11, 1998, among Banque Edouard Constant, a Swiss corporation ("Assignor"), KA Investments LDC, a Cayman Islands corporation ("Assignee"), and Sigma Designs, Inc., a California corporation (the "Company"). WHEREAS, the Company and Assignor entered into a certain Subscription Agreement (the "Subscription Agreement"; capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Subscription Agreement), dated as of June 25, 1997; WHEREAS, in connection with the transactions contemplated by the Subscription Agreement, the Company delivered to Assignor 40,000 shares of Series A Preferred Stock (the "Shares") and a common stock purchase warrant pursuant to which the Assignor is currently entitled to acquire 57,142 shares of Common Stock of the Company at an exercise price of $9.425, as set forth thereunder (the "Warrant") (the shares of Common Stock underlying the Warrant are referred to as the "Warrant Shares"); WHEREAS, the Assignor wishes to hereby sell, transfer, convey and assign to the Assignee its right, title and interest in 15,000 Shares (the "Sold Shares") and 21,428 Warrant Shares (the "Sold Warrants," together with the Sold Shares, the "Securities") and to retain its right, title and interest in the remaining 8,000 Shares and the remaining 35,714 Warrant Shares; WHEREAS, in connection with the transactions contemplated by the Subscription Agreement, the Company granted the Assignor certain registration rights regarding the Common Stock underlying the Shares (the "Underlying Shares") and the Warrant Shares pursuant to the Registration Rights Agreement, dated as of June 25, 1997 between the Company and the Assignor (the "Registration Rights Agreement"); WHEREAS, pursuant to the Registration Rights Agreement, on August 7, 1997, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission (the "SEC") covering the resale of the Underlying Shares and Warrant Shares (the "Registration Statement") and, in connection with the closing of the transactions contemplated hereunder, the Company will file a new registration statement (the "New Registration Statement") in order to register an additional 900,000 shares of Common Stock pursuant to the terms of the Registration Rights Agreement (the "Additional Registrable Securities") and to include the Assignee as a selling shareholder thereunder with respect to its Underlying Shares and Warrant Shares (the "Assignee's Underlying Share"); and WHEREAS, the Company has agreed to permit the sale, transfer, conveyance and assignment of the Securities, subject to the terms and conditions set forth below. -1- NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein set forth and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Assignment of the Securities. Subject to the terms and conditions set forth in this Agreement and the Escrow Agreement among the Company, Assignor and Assignee, dated the date hereof (the "Escrow Agreement"), the Assignor hereby sells, transfers, conveys and assigns to Assignee the Securities, the Assignee accepts such sale, transfer, conveyance and assignment in reliance upon the Assignor's representations and warranties set forth in Schedule A and the Company's representations and warranties set forth in Schedule B and the Company agrees to permit such sale, transfer, conveyance and assignment of the Securities in reliance upon the Assignee's representations and warranties set forth in Schedule C. 2. Purchase Price. The purchase price for the Securities shall be $1,500,000 (the "Purchase Price"). 3. Filing of the New Registration Statement. The Company acknowledges and confirms that within five (5) business days of its receipt of a fully-executed copy of this Agreement (the "Filing Date"), it will file the New Registration Statement to include the Additional Registrable Securities and name the Assignee as a selling shareholder thereunder with respect to the Assignee's Underlying Shares, provided, however, that not less than three (3) business days prior to the Filing Date, the Company shall (i) furnish to the Assignee and its counsel, copies of all such documents proposed to be filed in connection with the New Registration Statement, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of the Assignee and its counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the opinion of respective counsel to the Assignee, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the New Registration Statement if the Assignee is reviewing the New Registration Statement and shall reasonably object on a timely basis. Notwithstanding anything to the contrary contained herein, in the event that either (i) the Company and the Assignee are unable to agree on the language to be used in the New Registration Statement, or (ii) the New Registration Statement has not been filed with the SEC by the Filing Date, the Assignee shall have the right to terminate this Agreement at any time after the Filing Date (the "Assignee's Termination Right"). 4. Closing of the Sale of the Securities. (a) The closing for the sale of the Securities (the "Closing") shall, subject to the terms of the Escrow Agreement, take place two (2) business days following the date on which the Escrow Agent has received a copy of the New Registration Statement, together with proof reasonably satisfactory to the Assignee that such New Registration Statement has been filed with the SEC. -2- (b) At the Closing, the Escrow Agent, in accordance with and subject to the terms and conditions of the Escrow Agreement, shall deliver (i) to the Assignee, (x) a copy of the New Registration Statement which has been filed with the SEC, (y) now stock certificate(s) registered in the name of the Assignee reflecting the ownership of 15,000 shares of Series A Preferred Stock by the Assignee, and (z) a new common stock purchase warrant registered in the name of the Assignee (the "Assignee Warrant") in the form of the Warrant, to acquire 21,428 shares of Common Stock, which Assignee Warrant shall contain the same terms as the Warrant, except that the exercise price of the Assignee Warrant shall be 130% of the average closing bid price of the Common Stock for the five days trading days immediately preceding May 1, 1998, provided, that such exercise price shall not exceed $9.425, (ii) to the Assignor, (x) the Purchase Price, and (y) a new common stock purchase warrant registered in the name of the Assignor (the "Assignor Warrant"), in the form of the Warrant, to acquire 35,714 shares of Common Stock, which Assignor Warrant shall contain the same terms as the Assignee Warrant, (iii) to the Company, the old warrant, representing the Warrant, previously delivered to the Assignor in connection with the Subscription Agreement, and (iv) to the party entitled thereto, all other documents, instruments and writings, if any, required to have been delivered at or prior to such Closing by any party hereto pursuant to this Agreement or the Escrow Agreement. 5. Certain Agreements of the Company. (a) The Company acknowledges and confirms that (i) the Assignee is an intended beneficiary hereof and shall be entitled to enforce all of the rights and benefits of a Purchaser under the Purchase Agreement as if it were a party thereto, and (ii) the Assignee's Underlying Shares shall be deemed to be "Registrable Securities" (as defined in the Registration Rights Agreement), and that the Assignee shall have the same registration rights with respect to the Assignee's Underlying Shares as all other owners of "Registrable Securities" have under the Registration Rights Agreement as if it were a party thereto. (b) The Company acknowledges and confirms that if the New Registration Statement is not declared effective by the SEC on or prior to the 60th day following the date of the Closing (the "Effectiveness Date") the Company shall pay to the Assignee $15,000 on the Effectiveness Date as liquidated damages and not as a penalty. Thereafter, the Company shall pay to the Assignee, as liquidated damages and not as a penalty, $45,000 on each monthly anniversary following the Effectiveness Date in which the New Registration Statement has not been declared effective by the SEC. The Effectiveness Date will be extended, as applicable, by the number of days, in excess of two (2), during which the proposed registration statement was reviewed by the Assignee and its counsel pursuant to Section 3 hereof. (c) At the Closing, the Company shall pay one half (1/2) of the legal fees and expenses of the Assignee incident to the preparation and negotiation of documents relating to the transactions contemplated by this Agreement, up to a maximum of $5,000. -3- (d) At the Closing, the Company agrees to pay to the Assignor accrued and unpaid dividends up to and including the date of the Closing and a special payment of 1.5% of the aggregate Original Issue Price of the Sold Shares. (e) The Assignee and the Company agree that the Assignee's right to receive dividends on the Sold Shares shall begin on the day immediately following the Closing. 6. Certain Agreements of the Assignee. (a) The Assignee agrees that it will not exercise its right to convert the Sold Shares into shares of Common Stock prior to 90 days following the date of the Closing. (b) The Assignee agrees further that until the day the Assignee validly exercises its right to convert the Sold Shares into shares of Common Stock (the "Lock-up Period"), it will not, without the express prior written consent of the Company, offer, sell, make any short sale of, loan, encumber, grant any option for the purchase of, or otherwise, dispose of (the "Resale Restrictions"), any securities of the Company beneficially owned or otherwise held by the Assignee as of the date hereof or hereafter acquired by the Assignee (collectively, the "Restricted Securities"). The foregoing Resale Restrictions are expressly agreed to preclude the holder of the Restricted Securities from engaging in any hedging or other transaction which may lead to or result in a sale of Restricted Securities during the Lock-up Period, even if such Restricted Securities would be sold by someone other than the Assignee. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box), any pledge or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any of the Restricted Securities. The Resale Restrictions shall not apply to the conversion of the Sold Shares into Common Stock as contemplated by this Agreement but shall apply to the Common Stock issued upon such conversion. The Assignee agrees and consents to the entry of stop transfer instructions with the transfer agent for the Company's Common Stock against any transfer of shares of Common Stock by the undersigned in contravention of the Resale Restrictions. (c) The Assignee agrees not to effectuate or cause a third party to effectuate a sale of, offer for sale, or solicit a purchase or offer to purchase the Common Stock with the intention of causing a reduction in the Conversion Price. 7. Miscellaneous. (a) Authority. Each of the Company, the Assignor and the Assignee hereby represent and warrant to the other that each has the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement, that the execution and delivery of this Agreement and the transactions contemplated by this Agreement have been duly authorized by all necessary action, that this Agreement has been validly executed and delivered, and that this Agreement constitutes its valid, legal and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, -4- reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. (b) Further Assurances. The parties hereto agree to execute such other documents and instruments as may be reasonably required to effectuate the sale, transfer, conveyance and assignment contemplated by this Agreement. (c) Amendment and Modification. This Agreement may be amended, modified and supplemented only in a written agreement executed by each of the parties hereto. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. Assignment of the rights and obligations hereunder shall be governed by the terms thereof set forth in the Registration Rights Agreement. The assignment by a party of this Agreement or any rights hereunder shall not affect the obligations of such party under this Agreement. (e) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without regard to conflicts of law principals thereof. (f) Counterpart Signatures; Facsimile. This Agreement may be executed in counterparts, which will, when taken together, be deemed for all purposes to be one and the same Agreement. For all purposes, a signature delivered by facsimile shall have the same force and effect as the original of such signature. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [SIGNATURE PAGE FOLLOWS] -5- IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be duly executed as of the day and year first above written. SIGMA DESIGNS, INC. By:_________________________ Name:_________________ Title:________________ BANQUE EDOUARD CONSTANT By:_________________________ Name:_________________ Title:________________ KA INVESTMENTS LDC By:_________________________ Name:_________________ Title:________________ -6- Schedule A Representations and Warranties of Assignor 1. The Shares and the Warrant were acquired by the Assignor in a transaction exempt from the registration requirements of the Securities Act. 2. The Assignor holds of record and owns beneficially the Securities. 3. The Assignor is not a party to any option, warrant, purchase right, or other contract or commitment (other than this Agreement) that requires the Assignor to sell, transfer, or otherwise dispose of any of the Securities or the Underlying Shares. 4. The Assignor has all right, power and authority to transfer the Securities to the Assignee in accordance with the terms of this Agreement. 5. Upon the Closing, such Securities will be transferred to the Assignee free and clear of all liens, claims and encumbrances. 6. No consent, approval or other authorization is required for the Assignor to assign the Securities to the Assignee pursuant to the terms of this Agreement. 7. Immediately prior to the date of this Agreement, the Assignor was listed as a selling shareholder in the Registration Statement with respect to the Underlying Shares. Schedule B Representations and Warranties of the Company 1. The Shares and the Warrant were acquired by the Assignor in a transaction exempt from the registration requirements of the Securities Act. 2. The Registration Statement remains effective with respect to the resale of the Warrant Shares and shares of Common Stock underlying the Assignor's Shares. Schedule C Representations and Warranties of Assignee 1. The Assignee represents that it is an "accredited investor" as such term is defined in Rule 501(a) promulgated under the Securities Act. 2. The Assignee either alone or with its representatives has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement. 3. The Assignee is able to bear the economic risk of the investment contemplated by this Agreement and, at the present time, is able to afford a complete loss of such investment. 4. The Assignee has no present intention to sell the Securities to or through any person or entity. 5. The Assignee is acquiring the Securities for its own account and does not intend to be a "distributor" of the Securities. ESCROW AGREEMENT ESCROW AGREEMENT (this "Agreement"), dated as of March 11, 1998, among Sigma Designs, Inc. (the "Company"), Banque Edouard Constant (the "Assignor"), KA Investments LDC (the "Assignee") and Robinson Silverman Pearce Aronsohn & Berman LLP ("RSPA&B") as escrow agent (the "Escrow Agent"). Recitals A. Simultaneously with the execution of this Agreement, the Company, the Assignor and the Assignee have entered into an Assignment and Assumption Agreement, dated as of the date hereof (the "Assignment Agreement"; capitalized terms used herein without definition shall have the meanings assigned to such terms in the Assignment Agreement), pursuant to which the Assignor is assigning the Securities to the Assignee. B. The Escrow Agent is willing to act as escrow agent pursuant to the terms of this Agreement with respect to the delivery of the Purchase Price to be paid for the Securities and the delivery of one or more stock certificates representing the Sold Shares and the Sold Warrant (collectively, the "Consideration"). C. Upon the closing of the transaction contemplated by the Assignment Agreement (the "Closing"), and the occurrence of an event described in Section 2 below, the Escrow Agent shall cause the distribution of the Consideration in accordance with the terms of this Agreement. NOW, THEREFORE, IT IS AGREED: 1. Deposit of Consideration. (a) Concurrently with the execution hereof (i) the Assignee shall deposit the Purchase Price with the Escrow Agent, (ii) the Assignor shall deliver to the Escrow Agent (x) the stock certificate(s), representing the 15,000 Shares, previously delivered to the Assignor in connection with the Subscription Agreement (the "June Stock Certificates"), and (y) the common stock purchase warrant, representing the Warrant, previously delivered to the Assignor in connection with the Subscription Agreement (the "June Warrant" and together with the June Stock Certificate, the "June Securities"), and (iii) the Company shall deliver to the Escrow Agent (w) stock certificate(s) registered in the name of the Assignee reflecting the ownership of 15,000 Shares by the Assignee (the "Assignee March Stock Certificate"), (x) a common stock purchase warrant registered in the name of the Assignee, in the form of the Warrant, to acquire 21,428 shares of Common Stock, which, except as otherwise set forth in the Assignment Agreement, shall contain the same terms as the Warrant (the "Assignee March Warrant" and together with the Assignee March Stock Certificate, the "Assignee March Securities") and (y) a common stock purchase warrant registered in the name of the Assignor, in the form of the Warrant, to acquire 35,714, shares of Common Stock, which, except as otherwise set forth in the Assignment Agreement, shall contain the same terms as the Warrant (the "Assignor March Securities"). -1- (b) The Assignor shall also deliver to the Escrow Agent wiring instructions for transfer of the Purchase Price by the Escrow Agent into an account specified by the Assignor for such purpose. In addition, the Company, the Assignee and the Assignor shall deposit with the Escrow Agent all other certificates and documents required under the Assignment Agreement to be delivered by them at the Closing (such certificates and other documents being hereinafter referred to as the "Ancillary Closing Documents"). (i) The Purchase Price shall be delivered by the Assignee to the Escrow Agent by wire transfer to the following account: Citibank, N.A. 153 East 53rd Street New York, NY 10043 ABA No.: 021-000-089 For the Account of Robinson Silverman Pearce Aronsohn & Berman LLP Attorney Trust Account Account No.: 37-204-162 Reference: 11161-7 (ii) The Assignor March Securities, the Assignee March Securities, the June Securities and the Ancillary Closing Documents, if any, shall be delivered to the Escrow Agent at its address for notice indicated in Section 5(a). (c) Until termination of this Agreement, any additional Consideration to be paid or delivered pursuant to the Assignment Agreement shall be deposited with the Escrow Agent. (d) The Assignee and the Assignor understand that all monetary Consideration delivered to the Escrow Agent pursuant to this Agreement shall be held in escrow in the Escrow Agent's interest bearing business account until it is released in accordance with this Agreement. (e) At the Closing: (i) the Purchase Price shall be reduced by all wire transfer fees incurred thereupon; and (ii) the Company shall pay to the Escrow Agent one half (1/2) of the Assignee's legal fees, up to a maximum of $5,000, pursuant to Section 5(c) of the Assignment Agreement. -2- 2. Terms of Escrow. (a) The Escrow Agent shall continue to follow the provisions of this Agreement until the earlier to occur of (i) the date of the Escrow Agent's receipt of the New Registration Statement as filed with the SEC, or (ii) the earlier to occur of (x) the exercise by the Assignee of the Assignee's Termination Right, or (y) the date on which the Escrow Agent receives a written notice, executed by the Company, the Assignor and the Assignee, stating that the Assignment Agreement has been terminated in accordance with its terms and instructing the Escrow Agent with respect to the Purchase Price, the Assignee March Securities, the Assignor March Securities, the June Securities and the Ancillary Closing Documents, if any. (b) If the Escrow Agent receives the items referenced in clause (i) of Section 2(a) prior to its receipt of the notice referenced in clause (ii) of Section 2(a), then, promptly thereafter, the Escrow Agent shall deliver (i) to the Assignee the (x) Assignee March Securities, and (y) any interest earned on account of the Purchase Price that shall have accrued from the date hereof through the date of the Closing, (ii) to the Assignor, (x) the Purchase Price (net of amounts described under Section l(e)(i)), and (y) the Assignor March Securities, (iii) to the Company, the June Securities, and (iv) to the appropriate party, the Ancillary Closing Documents. (c) If the Escrow Agent receives the notice referenced in clause (ii) of Section 2(a) prior to its receipt of the items referenced in clause (i) of Section 2(a), then the Escrow Agent shall promptly upon receipt of such notice return (i) the Purchase Price (together with any interest earned thereon through such date) to the Assignee, (ii) the June Securities to the Assignor, (iii) the Assignor March Securities and the Assignee March Securities to the Company, and (iv) any Ancillary Closing Documents to the party that delivered the same. (d) If the Escrow Agent, prior to delivering or causing to be delivered the Consideration in accordance herewith, receives notice of objection, dispute, or other assertion in accordance with any of the provisions of this Agreement, the Escrow Agent shall continue to hold the Consideration until such time as the Escrow Agent shall receive (i) written instructions jointly executed by the Assignor, the Assignee and the Company, directing distribution of such Consideration, or (ii) a certified copy of a judgment, order or decree of a court of competent jurisdiction, final beyond the right of appeal, directing the Escrow Agent to distribute said Consideration to any party hereto or as such judgment, order or decree shall otherwise specify (including any such order directing the Escrow Agent to deposit the Consideration into the court rendering such order, pending determination of any dispute between any of the parties). In addition, the Escrow Agent shall have the right to deposit any of the Consideration with a court of competent jurisdiction pursuant to Section 1006 of the New York Civil Practice Law and Rules without liability to any party if said dispute is not resolved within 30 days of receipt of any such notice of objection, dispute or otherwise. -3- 3. Duties and Obligations of the Escrow Agent. (a) The parties hereto agree that the duties and obligations of the Escrow Agent are only such as are herein specifically provided and no other. The Escrow Agent's duties are as a depositary only, and the Escrow Agent shall incur no liability whatsoever, except as a direct result of its willful misconduct. (b) The Escrow Agent may consult with counsel of its choice, and shall not be liable for any action taken, suffered or omitted by it in accordance with the advice of such counsel. (c) The Escrow Agent shall not be bound in any way by the terms of any other agreement to which the Company, the Assignee and the Assignor are parties, whether or not it has knowledge thereof, and the Escrow Agent shall not in any way be required to determine whether or not any other agreement has been complied with by the Company, the Assignee and the Assignor, or any other party thereto. The Escrow Agent shall not be bound by any modification, amendment, termination, cancellation, rescission or supersession of this Agreement unless the same shall be in writing and signed by each of the Company, the Assignee and the Assignor, and agreed to in writing by the Escrow Agent. (d) In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands which, in its opinion, are in conflict with any of the provisions of this Agreement, it shall be entitled to refrain from taking any action, other than to keep safely all Consideration then held in escrow, until it shall jointly be directed otherwise in writing by the Assignee and the Assignor or by a final judgment of a court of competent jurisdiction. (e) The Escrow Agent shall be fully protected in relying upon any written notice, demand, certificate or document which it, in good faith, believes to be genuine. The Escrow Agent shall not be responsible for the sufficiency or accuracy of the form, execution, validity or genuineness of documents or securities now or hereafter deposited hereunder, or of any endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall the Escrow Agent be responsible or liable in any respect on account of the identity, authority or rights of the persons executing or delivering or purporting to execute or deliver any such document, security or endorsement. (f) The Escrow Agent shall not be required to institute legal proceedings of any kind and shall not be required to defend any legal proceedings which may be instituted against it or in respect of the Consideration. (g) If the Escrow Agent at any time, in its sole discretion, deems it necessary or advisable to relinquish custody of the Consideration then held by it, it may do so by delivering the same to any other escrow agent mutually agreeable to the Assignee and the Assignor and, if no such escrow agent shall be selected within three days of the Escrow Agent's notification to the Assignee and the Assignor of its desire to so relinquish custody of the Consideration then held by it, then the Escrow Agent may do so by delivering such Consideration (a) to any bank or trust company in the -4- Borough of Manhattan, City and State of New York, which is willing to act as escrow agent thereunder in place and instead of the Escrow Agent, or (b) to the clerk or other proper officer of a court of competent jurisdiction as may be permitted by law within the State, County and City of New York. The fee of any such bank or trust company or court officer shall be borne by the Assignor. Upon such delivery, the Escrow Agent shall be discharged from any and all responsibility or liability with respect to the Consideration and the Assignor shall promptly pay to the Escrow Agent all monies which may be owed it for its services hereunder, including, but not limited to, reimbursement of its out-of-pocket expenses pursuant to paragraph (i) below. (h) This Agreement shall not create any fiduciary duty on the Escrow Agent's part to the Company, the Assignee or the Assignor, nor disqualify the Escrow Agent from representing either party hereto in any dispute with the other, including any dispute with respect to the Consideration. The Company and the Assignor understand that RSPA&B has acted and will continue to act as counsel to Assignor. (i) The reasonable out-of-pocket expenses paid or incurred by the Escrow Agent in the administration of its duties hereunder, including, but not limited to, all counsel and advisors' and agents' fees and all taxes or other governmental charges, if any, shall be paid by the Assignor. 4. Indemnification. The Company, the Assignee and the Assignor, jointly and severally, hereby indemnify and hold the Escrow Agent harmless from and against any and all losses, damages, taxes, liabilities and expenses that may be incurred, directly or indirectly, by the Escrow Agent, arising out of or in connection with its acceptance of appointment as the Escrow Agent hereunder and/or the performance of its duties pursuant to this Agreement, including, but not limited to, all legal costs and expenses of the Escrow Agent incurred defending itself against any claim or liability in connection with its performance hereunder and the costs of recovery of amounts pursuant to this Section 4. 5. Miscellaneous. (a) All notices, requests, demands and other communications hereunder shall be made in accordance with the notice provisions of the Assignment Agreement at the addresses set forth therein. Notices to the Escrow Agent shall be sent to the following address: Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, New York 10104 Facsimile No.: (212) 541-4630 Attention: Eric L. Cohen, Esq. and Alexandre T. Speaker, Esq. (b) This Agreement shall be construed and enforced in accordance with the law of the State of New York applicable to contracts entered into and performed entirely within New York. -5- (c) This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [SIGNATURE PAGE FOLLOWS] -6- IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be signed the day and year first above written. SIGMA DESIGNS, INC. By:______________________________________ Name:_____________________________________ Title:_____________________________________ BANQUE EDOUARD CONSTANT By:______________________________________ Name:_____________________________________ Title:_____________________________________ KA INVESTMENTS LDC By:______________________________________ Name:_____________________________________ Title:_____________________________________ ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP By:______________________________________ A Member of the Firm -7- EX-4.4 3 FORM OF STOCK PURCHASE WARRANT WARRANT THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF SIGMA DESIGNS, INC. (THE "COMPANY") SET FORTH IN A PRIVATE SECURITIES SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND BANQUE EDOUARD CONSTANT DATED JUNE 25, 1997 AND IN THE ASSIGNMENT AND ASSUMPTION AGREEMENT BETWEEN THE COMPANY, BANQUE EDOUARD CONSTANT AND KA INVESTMENTS LDC. A COPY OF THE AFORESAID SUBSCRIPTION AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES. March 11, 1998 Warrant to Purchase up to 21,428 Shares of Common Stock of Sigma Designs, Inc. Sigma Designs, Inc., a California corporation (the "Company"), hereby acknowledges that KA Investments LDC (the "Buyer") or any other Warrant Holder (hereinafter defined) is entitled, on the terms and conditions set forth below, to purchase from the Company beginning the day after the six month anniversary date of the closing of the purchase of this warrant (the "Warrant") and ending three years after the six month anniversary date of the closing forty-two ((42) months after the original issuance of this Warrant) up to 21,428 fully paid and nonassessable shares of common stock, no par value, of the Company (the "Common Stock"), as the same may be adjusted pursuant to Section 5 herein, at the Purchase Price (hereinafter defined), as the same may be adjusted pursuant to Section 5 herein. The resale of the shares of Common Stock or other securities issuable upon exercise or exchange of this Warrant is subject to the provisions of the Registration Rights Agreement by and between the Company and the Investor dated as of June 25, 1997 (the "Registration Rights Agreement"). 1. Definitions. (a) The term "Warrant Holder" shall mean the Buyer or any assignee of all or any portion of this Warrant. (b) The term "Warrant Shares" shall mean the shares of Common Stock or other securities issuable upon exercise of this Warrant. (c) The term "Purchase Price" shall be an amount equal to 130% of the average closing bid price of Common Stock of the Company for five (5) trading days ending April 30,1998, provided that such price shall not exceed $9.425. (d) The term "Agreement" shall mean the Private Securities Subscription Agreement, dated as of June 25, 1997, between the Company and the Buyer. (e) Other capitalized terms used herein which are defined in the Agreement shall have the same meanings herein as therein. 2. Exercise or Exchange of Warrant. (a) This Warrant may be exercised by the Warrant Holder, in whole or in part, at any time during the life of this Warrant as described herein, and from time to time by surrender of this Warrant, together with the Exercise Form (as defined herein) at the end hereof duly executed by Warrant Holder, together with the full Purchase Price (as defined in Section 1) for each share of Common Stock as to which this Warrant is exercised to the Company at the address of the Company set forth in Section 13 hereof. In the event that the Warrant is not exercised in full, the number of Warrant Shares shall be reduced by the number of such Warrant Shares for which this Warrant is exercised, and the Company, at its expense, shall forthwith issue and deliver to or upon the order of the Warrant Holder a new Warrant of like tenor in the name of the Warrant Holder or as the Warrant Holder may request, reflecting such adjusted Warrant Shares. Warrants may be exchanged for shares of Common Stock, the value of the Warrants so exchanged shall equal the Closing Price (as hereinafter defined) minus the Purchase Price for each share subject to the Warrant so exchanged. The "Closing Price" shall mean (i) the closing bid price of such Common Stock as quoted on the Principal Market (as herein defined) on the Date of Exercise (as defined below) or (ii) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market or Small-Cap Market, the closing bid price on the over-the-counter market as furnished by any New York Stock Exchange member firm which makes a market in the Common Stock reasonably selected from time to time by the Company for that purpose, or (iii) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market or Small-Cap Market or traded over-the-counter and the average price cannot be determined as contemplated above, the fair market value of the Common Stock as reasonably determined in good faith by the Company's Board of Directors. (b) The "Date of Exercise" of the Warrant shall be the date that the advance copy of the form of exercise attached hereto as Exhibit A (the "Exercise Form"), is sent by facsimile to the Company, provided that the original Warrant and Exercise Form are received by the Company within reasonable time thereafter. If the Warrant Holder has not sent advance notice by facsimile, the Date of Exercise shall be the date the original Exercise Form is received by the Company. -2- 3. Delivery of Stock Certificates. (a) Subject to the terms and conditions of this Warrant, as soon as practicable after the exercise of this Warrant in full or in part, and in any event within five (5) business days thereafter, the Company at its expense (including, without limitation, the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Warrant Holder, or as the Warrant Holder may lawfully direct, a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock to which the Warrant Holder shall be entitled on such exercise, together with any other stock or other securities or property (including cash, where applicable) to which the Warrant Holder is entitled upon such exercise in accordance with the provisions hereof. (b) This Warrant may not be exercised as to fractional shares of Common Stock. In the event that the exercise of this Warrant, in full or in part, would result in the issuance of any fractional share of Common Stock, then in such event the Warrant Holder shall be entitled to cash equal to the fair market value of such fractional share. For purposes of this Warrant, "fair market value" shall equal the closing bid price of the Common Stock on the Nasdaq National Market or Small-Cap Market, the American Stock Exchange or the New York Stock Exchange, whichever is the principal trading exchange or market for the Common Stock (the "Principal Market") on the date of determination or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market or Small-Cap Market, the closing bid price on the over-the-counter market as furnished by any New York Stock Exchange member firm which makes a market in the Common Stock reasonably selected from time to time by the Company for that purpose, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market or Small-Cap Market or traded over-the-counter and the average price cannot be determined as contemplated above, the fair market value of the Common Stock shall be as reasonably determined in good faith by the Company's Board of Directors. 4. Covenants of the Company. (a) The Company shall use its reasonable best efforts to insure that a registration statement under the Securities Act covering the resale or other disposition thereof of the Warrant Shares by the Warrant Holder is effective to the extent provided by the Registration Rights Agreement. (b) All Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens, and charges with respect to the issue thereof. (c) The Company shall take all necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, including, without limitation the notification of the Nasdaq National Market, for the legal and valid issuance of this Warrant and the Warrant Shares to the Warrant Holder. -3- (d) From the date hereof through the last date on which this Warrant is exercisable, the Company shall take all steps reasonably necessary and within its control to insure that the Common Stock remains listed or quoted on the Principal Market. (e) The Company shall at all times reserve and keep available, solely for issuance and delivery as Warrant Shares hereunder, such shares of Common Stock as shall from time to time be issuable as Warrant Shares. (f) The Warrant Shares, when issued in accordance with the terms hereof, will be duly authorized and, when paid for or issued in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable. The Company has authorized and reserved for issuance to the Warrant Holder the requisite number of shares of Common Stock to be issued pursuant to this Warrant. (g) With a view to making available to the Warrant Holder the benefits of any rule or regulation of the Securities and Exchange Commission (the "SEC"), that may at any time permit the Warrant Holder to sell securities of the Company to the public without registration, including without limitation Rule 144, the Company agrees to use its reasonable best efforts to (i) make and keep public information available, as those terms are understood and defined in such rule or regulation, at all times; and (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act. (h) This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. 5. Adjustment of Purchase Price and Number of Shares. The number of and kind of securities purchasable upon exercise of this Warrant and the Purchase Price shall be subject to adjustment from time to time as follows: (a) Subdivisions, Combinations and Other Issuances. If the Company shall at any time after the date hereof but prior to the expiration of this Warrant subdivide its outstanding securities as to which purchase rights under this Warrant exist, by split-up, or otherwise, or combine its outstanding securities as to which purchase rights under this Warrant exist, the number of Warrant Shares as to which this Warrant is exercisable as of the date of such subdivision, split-up, or combination shall forthwith be proportionately increased in the case of a subdivision, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Purchase Price, so that after such adjustments the aggregate Purchase Price payable hereunder for the increased number of shares of Common Stock shall be the same as the aggregate Purchase Price in effect immediately prior to such adjustments. (b) Stock Dividend. If at any time after the date hereof the Company declares a dividend or other distribution on Common Stock payable in Common Stock or other securities or rights convertible into or exchangeable for Common Stock ("Common Stock Equivalents"), without payment of any consideration by holders of Common Stock for the additional shares of Common Stock or the -4- Common Stock Equivalents (including the additional shares of Common Stock issuable upon exercise or conversion thereof), then the number of shares of Common Stock for which this Warrant may be exercised shall be increased as of the record date (or the date of such dividend distribution if no record date is set) for determining which holders of Common Stock shall be entitled to receive such dividends, in proportion to the increase in the number of outstanding shares (and shares of Common Stock issuable upon conversion of all such Common Stock Equivalents) of Common Stock as a result of such dividend, and the Purchase Price shall be adjusted so that the aggregate amount payable for the purchase of all the Warrant Shares issuable hereunder immediately after the record date (or on the date of such distribution, if applicable) for such dividend shall equal the aggregate amount so payable before the record date (or before the date of such distribution, if applicable). (c) Other Distributions. If at any time after the date hereof the Company distributes to holders of its Common Stock, other than as part of a dissolution or liquidation or the winding up of its affairs, any shares of its capital stock, any evidence of indebtedness or any of its assets (other than cash, Common Stock or Common Stock Equivalents), then, in any such case, the Warrant Holder shall be entitled to receive, upon exercise of this Warrant, with respect to each share of Common Stock issuable upon such exercise, (i) the amount of evidences of indebtedness or other securities or assets (excluding cash and the Company's own Common Stock or Common Stock Equivalents) which such Warrant Holder would have been entitled to receive as a result of the happening of such event with respect to each such share of Common Stock subject to this Warrant had this Warrant been exercised immediately prior to the record date or other date determining the shareholders entitled to participate in such distribution (the "Determination Date") or (ii) in lieu thereof, if the Board of Directors of the Company should so determine at the time of such distribution, a lower Purchase Price reduced by the value of such distribution applicable to one share of Common Stock (such value to be determined in good faith by the Company's Board of Directors). (d) Merger, Consolidation, etc. If at any time after the date hereof there shall be a merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event"), then the Warrant Holder shall be entitled to receive upon such transfer, merger or consolidation becoming effective, and upon payment of the aggregate Purchase Price then in effect, the number of shares or other securities or property of or cash or other consideration from the Company or of the successor corporation resulting from such merger or consolidation, to which such Warrant Holder would have been entitled to receive as a result of the happening of such event with respect to each such share of Common Stock subject to this Warrant had this Warrant been exercised immediately prior to such transfer, merger or consolidation becoming effective or to the applicable record date thereof, as the case may be. The Company shall not effect any Consolidation Event unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Warrant Holder such shares of stock and/or securities as the Warrant Holder is entitled to receive had this Warrant been exercised in accordance with the foregoing; provided, however, that if as of the third business day prior to the consummation of the Consolidation Event the closing bid price of the Common Stock shall be equal to at least 200% of the Purchase Price, then the Warrant shall be automatically exchanged on the date of consummation of the Consolidation Event, as provided in Section 2 hereof. -5- (e) Reclassification, Etc. If at any time after the date hereof there shall be a reclassification of any securities as to which purchase rights under this Warrant exist, into the same or a different number of securities of any other class or classes, then the Warrant Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Purchase Price then in effect, the number of shares or other securities or property or cash or other consideration resulting from such reorganization or reclassification, which would have been received by the Warrant Holder for the shares of stock subject to this Warrant had this Warrant at such time been exercised. (f) Purchase Price Adjustment. In the event that the Company issues or sells any Common Stock or securities which are convertible into or exchangeable for its Common Stock or any convertible securities, or any warrants or other rights to subscribe for or to purchase or any options for the purchase of its Common Stock or any such convertible securities (other than issuance of Preferred Stock or of shares of Common Stock upon conversion thereof, shares or options issued or which may be issued to employees, directors or consultants pursuant to the Company's stock option or stock purchase plans listed in the Public Documents or shares issued upon exercise of options, warrants or rights outstanding on the date of the Agreement and listed in the Public Documents) at an effective purchase price per share which is less than the Purchase Price then in effect and less than the fair market value (as hereinabove defined) of the Common Stock on the trading day next preceding such issue or sale, then in each such case, the Purchase Price in effect immediately prior to such issue or sale shall be reduced effective concurrently with such issue or sale to an amount determined by multiplying the Purchase Price then in effect by a fraction, (x) the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issue or sale, including, without duplication, those deemed to have been issued under any provision of the Preferred Stock and the Warrants plus (2) the number of shares of Common Stock which the aggregate consideration received by the Company for such additional shares would purchase at such fair market value then in effect and (y) the denominator of which shall be the number of shares of Common Stock of the Company outstand ing immediately after such issue or sale including, without duplication, those deemed to have been issued under any provision of the Preferred Stock and Warrants; provided, however, there shall be no reduction of the Purchase Price for such issuances or sales at any time from June 25, 1997 through the term of this Warrant in an aggregate (i.e., not per transaction) amount of up to $4,500,000 provided that such issuance or sale is completed at an effective purchase price per share of at least 85% of the fair market value of the Common Stock on the trading day next preceding such issue or sale. For purposes of the foregoing fraction, Common Stock outstanding shall include, without limitation, any equity offer ings then outstanding, whether or not they are exercisable or convertible when such fraction is to be determined. The number of shares which may be purchased hereunder shall be increased proportionately to any reduction in Purchase Price pursuant to this paragraph 5(f), so that after such adjustments the aggregate Purchase Price payable hereunder for the increased number of shares of Common Stock shall be the same as the aggregate Purchase Price in effect immediately prior to such adjustments. -6- Notwithstanding anything else contained in this Warrant to the contrary, there shall be no adjustment of the Purchase Price or the number of shares of Common Stock issuable pursuant to the exercise of this Warrant in the event that during the term of this Warrant, the Company issues shares of Common Stock, or securities convertible into Common Stock to the Buyer. (g) Adjustments: Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this Section 5, the Warrant Holder shall, upon exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5. 6. No Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, 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 of this Warrant, but will at all times in good faith assist in the 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 Warrant Holder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, and (b) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant. 7. Notice of Adjustments; Notices. Whenever the Purchase Price or number of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5 hereof, the Company shall promptly execute and deliver to the Warrant Holder a certificate 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 Purchase Price and number of shares purchasable hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first class mail, postage prepaid) to the Warrant Holder. 8. Rights As Stockholder. Prior to exercise of this Warrant, the Warrant Holder shall not be entitled to any rights as a stockholder of the Company with respect to the Warrant Shares, including (without limitation) the right to vote such shares, receive dividends or other distributions thereon or be notified of stockholder meetings. However, in the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each Warrant Holder, at least 10 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. -7- 9. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Warrant and, in the case of any such loss, theft or destruction of the Warrant, upon delivery of an indemnity agreement or security reasonably satis factory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Consent to Jurisdiction. Each of the Company and the Warrant Holder (i) hereby irrevocably submits to personal jurisdiction in any state or federal court located in the State of California for the purposes of any suit, action or proceeding arising out of or relating to this Warrant. 11. Entire Agreement; Amendments. This Warrant and the Agreement contain the entire understanding of the parties with respect to the matters covered herein and therein. No provision of this Warrant may be waived or amended other than by a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought. 12. Restricted Securities. (a) Registration or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Act in reliance upon the provisions of Section 4(2) promulgated by the SEC under the Securities Act. This Warrant and the Warrant Shares issuable upon exercise of this Warrant may not be resold except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws. (b) Legend. The Warrant and any Warrant Shares issued upon exercise thereof (until a registration statement has been declared effective by the SEC with respect to the Warrant Shares, at which time, such legend shall be removed, and the Warrant Shares shall be freely tradeable), shall bear the following legend: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTER EST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPO THECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT -8- TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF SIGMA DESIGNS, INC. SET FORTH IN A PRIVATE SECURITIES SUBSCRIPTION AGREEMENT BETWEEN THE COMPANY AND BANQUE EDOUARD CONSTANT DATED JUNE 25, 1997. A COPY OF THE AFORESAID SUBSCRIPTION AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE OFFICES." The certificates representing the Warrants, the shares of Preferred Stock and underlying Common Stock shall also bear any other legends required by applicable Federal or state securities laws, which legends shall be removed when not required in accordance with this Paragraph 2(iii). (c) Assignment. Assuming the conditions of (a) above regarding registration or exemption have been satisfied, the Warrant Holder may sell, transfer, assign, pledge or otherwise dispose of this Warrant, in whole or in part. The Warrant Holder shall deliver a written notice to the Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the person or persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within ten (10) days, and shall deliver to the assignee(s) designated by the Warrant Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares. 13. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or delivery by facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: to the Company: Sigma Designs, Inc. 46501 Landing Parkway Fremont, California 94538 Attn: Ms. Carol Kaplan Fax: (510) 770-2640 -9- to the Warrant Holder: KA Investments LDC c/o Robinson Silverman Attn: Alexandre Speaker, Esq. 1290 Avenue of the Americas New York, NY 10104 ph: (212) 541-2000 fx: (212) 541-4630 with a copy to: Either party hereto may from time to time change its address or facsimile number for notices under this Section 13 by giving at least 10 days prior written notice of such changed address or facsimile number to the other party hereto. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of California. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. -10- SIGMA DESIGNS, INC. By: ___________________________________________ Thinh Q. Tran Chairman of the Board and Chief Executive Officer [CORPORATE SEAL] Attest: By: ___________________________________________ Kit Tsui Secretary -11- EXHIBIT A EXERCISE FORM SIGMA DESIGNS, INC. The undersigned hereby irrevocably exercises the right to purchase __________________ shares of Common Stock of SIGMA DESIGNS, INC., a California corporation, evidenced by the attached Warrant, and herewith makes payment of the Purchase Price with respect to such shares in full in the form of [cash or check in the amount of $___], [______ Warrant Shares which represent the amount of Warrant Shares as provided in the attached Warrant to be canceled in connection with such exercise], all in accordance with the conditions and provisions of said Warrant. The undersigned requests that stock certificates for such Warrant Shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to this Warrant in the name of the registered Holder and delivered to the undersigned at the address set forth below. Dated: ________________________________ Signature of Registered Holder Name of Registered Holder (Print) Address EXHIBIT B ASSIGNMENT (To be executed by the registered Warrant Holder desiring to transfer the Warrant) FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby sells, assigns and transfers unto the persons below named the right to purchase ______________ shares of the Common Stock of SIGMA DESIGNS, INC. evidenced by the attached Warrant and does hereby irrevocably constitute and appoint ______________________ attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises. Dated: ________________________________ Signature Fill in for new Registration of Warrant: Name Address Please print name and address of assignee (including zip code number) NOTICE The signature to the foregoing Exercise Form or Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-5.1 4 OPINION OF WILSON SONSINI GOODRICH & ROSATI December 10, 1998 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 Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 to be filed by you with the Securities and Exchange Commission on December 10, 1998 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of 1,100,000 shares of your Common Stock, no par value (the "Shares"), all of which are authorized and will be 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 5 INDEPENDENT AUDITORS' CONSENT Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Post-Effective Amendment No. 1 to Registration Statement 333-33147 of Sigma Designs, Inc. on Form S-3 of our report dated February 26, 1998, appearing in the Annual Report on Form 10-K of Sigma Designs, Inc. for the year ended January 31, 1998 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 December 8, 1998 -----END PRIVACY-ENHANCED MESSAGE-----