As filed with the Securities and Exchange Commission on March 12, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Sigma Designs, Inc.
(Exact name of Registrant as specified in its charter)
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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)
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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)
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Copies to:
DAVID A. SEGRE, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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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. [_]
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<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
===================================================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Offering Registration
be Registered Registered Per Share(2) Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock no par value............ 3,405,000 shares $3.06 $10,419,300 $3,074
===================================================================================================================================
<FN>
(1) Includes shares of Common Stock which may be offered pursuant to this
Registration Statement consisting of 3,400,000 shares issuable upon
conversion of 5,000 shares of Series B Convertible Preferred Stock of the
Company (the "Series B Preferred Stock") and issuable upon exercise of the
Warrants issued in connecton with the issuance of the Series B Preferred
Stock (the "Warrants"). For purposes of estimating the number of shares of
Common Stock to be included in this Registration Statement, the Company
calculated 200% of the number of shares of Common Stock issuable in
connection with the conversion of the Company's Series B Preferred Stock
(based on a conversion price which is the average of the six lowest daily
trade prices for the twenty trading day period ending February 9, 1998) and
the exercise of the Warrants. 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 B 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 National Market on March 6, 1998, in
accordance with Rule 457(c) under the Securities Act of 1933.
</FN>
</TABLE>
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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.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED MARCH 12, 1998
PROSPECTUS
3,405,000 SHARES
SIGMA DESIGNS, INC.
COMMON STOCK
This Prospectus may be used only in connection with the resale, from
time to time, of up to 3,405,000 shares (the "Shares") of Common Stock, no par
value per share (the "Common Stock"), of Sigma Designs, Inc. ("Sigma" or the
"Company"), by the selling shareholders identified below (the "Selling
Shareholders"). All of the Shares covered hereby are to be sold by the Selling
Shareholders, who originally received the Shares pursuant to a private
placement. The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders. The expenses incurred in registering the
Shares, including legal and accounting fees, will be paid by the Company.
The Shares offered hereby may be offered and sold, from time to time,
by the Selling Shareholders or their respective pledgees, donees, transferees or
other successors in interest in one or more transactions (which may involve
block transactions) on the Nasdaq National Market (or any exchange on which the
Common Stock may then be listed), in the over-the-counter market, in privately-
negotiated transactions, through the writing of options or the Shares, short
sales or otherwise. Sales will be effected at such prices and for such
consideration as may be obtainable from time to time. Commission expenses and
brokerage fees, if any, will be paid by the Selling Shareholders. See "Plan of
Distribution."
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "SIGM." On March 9, 1998, the last sale price for the Common
Stock as reported on the Nasdaq National Market was $3.19 per share.
---------------------------
SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, New York,
New York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. The Common Stock of the Company is
quoted on the Nasdaq National Market. Reports, proxy and information statements
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006. 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.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
shares covered by this prospectus, reference is made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997, (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997;
(iii) The Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1997; (iv) The Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1997; (v) the Company's Proxy Statement relating to the Company's
Annual Meeting of Shareholders to be held on June 6, 1997, and (vi) 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 at the Company's principal executive offices at 46501 Landing
Parkway, Fremont, California 94538, or by telephone at (510) 770-0100.
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<PAGE>
RISK FACTORS
In the interest of providing the Company's shareholders and potential
investors with certain Company information, including management's assessment of
the Company's future potential, certain statements set forth herein or
incorporated by reference herein relate to management's future plans and
objectives or to the Company's future economic performance. Such statements are
"forward-looking statements" within the meaning of Section 27A(I) of the
Securities Act of 1933, as amended, and in Section 21E(I) of the Securities Act
of 1934, as amended. Although any forward-looking statements contained herein or
incorporated by reference herein or otherwise expressed by or on behalf of the
Company are, to the knowledge and in the judgment of the officers and directors
of the Company, expected to prove true and to come to pass, the Company is not
able to predict such events with absolute certainty. Accordingly, shareholders
and potential investors are hereby cautioned that certain events or
circumstances could cause actual results to differ materially from those
projected or predicted. In addition, forward-looking statements are based on the
Company's knowledge and judgment as of the date hereof, and the Company does not
intend to update any forward-looking statements to reflect events occurring or
circumstances existing hereafter. In particular, the Company believes the
following facts could affect forward-looking statements made herein or
incorporated by reference herein or in future written or oral releases and by
hindsight, prove such statements to be overly optimistic and unachievable.
History of Operating Losses. The Company incurred significant losses in
fiscal 1993, 1994, 1995, and 1996 and had substantial negative operating cash
flow in fiscal 1992, 1993, 1994, 1995, and 1996. Since the introduction of the
Company's REALmagic Moving Picture Experts Group ("MPEG") product line in
November 1993, the Company has invested heavily in marketing and technological
innovation for its REALmagic products. As a result, the Company experienced
significant losses through fiscal 1996. Fiscal 1994, 1995, and 1996 also
included significant losses associated with products other than those related to
the REALmagic technology. Through the end of the third quarter of fiscal year
1998, the Company's total accumulated deficit is $38,141,000. There can be no
assurance that the Company will continue to sell its new REALmagic products in
substantial quantities or generate significant revenues from such sales.
Although the Company was profitable in fiscal 1997, there can be no assurance
that the Company will continue to achieve profitable operations in any future
fiscal quarter or fiscal year or that profitable operations, if achieved, will
be sustainable.
Marketing Risks. The Company's ability to increase its sales, achieve
profitability, and maintain REALmagic as a PC industry multimedia standard
depends substantially on the Company's ability to achieve a sustained high level
of sales to new OEM customers. The Company has not executed volume purchase
agreements with any of the Company's customers, and these customers are not
under any obligation to purchase any minimum quantity of the Company's products.
The Company has not achieved bundling agreements with numerous OEM customers to
ensure success of the REALmagic product line. Moreover, even if the Company
achieves new design wins, there can be no assurance that personal computer
("PC") manufacturers will purchase the Company's products in substantial
volumes. Sales to any particular OEM customer are subject to significant
variability from quarter to quarter and to severe price pressures by
competitors. Based on its experience in the personal computer industry, the
Company expects that its actual sales to OEM customers will experience
significant fluctuations, and estimates of future sales with respect to any
particular customer or groups of customers are inherently uncertain.
The Company's ability to achieve sustained profitability also depends
on a substantial increase in sales of REALmagic products through domestic and
international distributors for resale through retail channels. In fiscal 1997,
Ingram Micro, Inc. was the only domestic customer to which sales comprised over
10% of consolidated revenue. Sales to such distributors are typically subject to
contractual rights of inventory rotation or price protection. Regardless of
particular contractual rights, however, the failure of Ingram Micro, Inc. or
other distributors to achieve sustained sell-through of REALmagic products could
result in product returns or collection problems, contributing to fluctuations
in the Company's results of operations. There can be no assurance that the
Company will be successful in maintaining a significant market for its REALmagic
products.
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<PAGE>
Dependence on Development of Software Titles by Third Parties. The
Company depends on third-party content developers to create, produce, and market
software titles that will operate in the REALmagic format. No software developer
is contractually obligated to produce a REALmagic-compatible title. There can be
no assurance that third-party software developers will continue to produce a
substantial number of software titles, or that they will produce enough software
titles to develop and sustain a significant market in REALmagic products.
Moreover, there can be no assurance that any individual software titles will be
of high quality or that they will achieve market acceptance. There can also be
no assurance that current popular software titles will be introduced in the
REALmagic format. Because the Company has no control over the content of titles
produced by software developers, the software titles developed may represent
only a limited number of software categories and are likely to be of varying
quality.
Currently, more than 500 interactive MPEG off-the-shelf business
applications are available in the MPEG format. The Company has licensed the
REALmagic API to over 1,200 software developers for development of
REALmagic-compatible programs. However, the number of software titles to be
developed by such software companies cannot be predicted. There can be no
assurance that any software developer who develops a REALmagic-compatible title
will actively promote the product or develop follow-on titles. Moreover, there
can be no assurance that any published title will have the quality or price
characteristics required to be commercially successful or that titles compatible
with the REALmagic format will be allotted retail shelf space. Future sales of
REALmagic products will likely depend on a decision by retailers to carry
compatible software titles on the shelf.
The Company announced in October 1995 its strategic direction of
selling chipsets to add-on card and computer manufacturers. The REALmagic Pro
chipset announced in October 1995 became available in January 1996. This chipset
enables other companies to manufacture 100% OM-1 and REALmagic-compatible MPEG
playback cards capable of playing the growing number of MPEG software titles on
the market. In addition, the Company announced the REALmagic Explorer chipset in
November 1995, which enables OEM customers to build type II ZVport-compatible PC
cards for MPEG-1 video and audio playback, bringing MPEG technology to notebook
computers for the first time.
Technological Change. The market for multimedia PC products is
characterized by rapidly changing technology and user preferences, evolving
formats for compression of video and audio data, and frequent new product
introductions. Even though REALmagic products and related software titles have
gained initial market acceptance, the Company's success will depend, among other
things, on the Company's ability to achieve and maintain technological
leadership and to remain competitive in terms of price and product performance.
To have technological leadership, the Company must continue to make
technological advancements in the area of MPEG video and audio decoding. These
advancements include compatibility with emerging standards and multiple
platforms, improvements to the REALmagic architecture, enhancements to the
REALmagic API, and the achievement of these enhancements. There can be no
assurance that the Company will be able to make any such advancements to its
REALmagic technology or that, if such advances are made, the Company will be
able to achieve and maintain technological leadership. Any material failure of
the Company or OEMs and software developers to develop or incorporate any
required improvement could adversely affect the continued acceptance of the
Company's technology and the introduction and sale of future products based on
the Company's technology. There can be no assurance that products or
technologies developed by others will not render obsolete the Company's
technology and the products based on the Company's technology.
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<PAGE>
To be competitive, the Company must anticipate the needs of the market
and successfully develop and introduce innovative new products in a timely
fashion. No assurance can be given that the Company will be able to successfully
complete the design of its new products, have these products manufactured at
acceptable manufacturing yields, or obtain significant purchase orders for these
products. The introduction of new products may adversely affect sales of
existing products, contributing to fluctuations in operating results from
quarter to quarter. The introduction of new products also requires the Company
to carefully manage its inventory to avoid inventory obsolescence. In addition,
new products typically have higher initial component costs than more mature
products, possibly resulting in downward pressures on the Company's gross
margins.
Competition. The market for multimedia PC products is highly
competitive, driven by faster processors provided by Intel Corporation and other
companies. The possibility that other companies with more experience and
financial resources may develop a competitive product may inhibit future growth
of 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 include SGS-Thomson Microelectronics, C-Cube Microsystems, IBM
Microelectronics, Chromatic Research, Inc., Zoran Corporation and Mediamatics,
Inc. Also, several OEMs and microprocessor companies possess proprietary video
compression technology that may compete with MPEG-based products. These include
IBM, Intel Corporation, Mediamatics Corporation and ESS Technology, Inc. Most of
these companies have substantial experience and expertise in audio, video, and
multimedia technology and in producing and selling consumer products through
retail distribution, as well as substantially greater engineering, marketing,
and financial resources than the Company. Competitors of the Company may form
cooperative relationships, which could present formidable competition to the
Company. There can be no assurance that 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. The Company's business strategy
has been to focus on REALmagic products by investing heavily in PC-based MPEG
technology. In the fiscal year ended January 31, 1997, sales of multimedia
products accounted for virtually all of net sales. A decline in market demand
for multimedia products would adversely affect the Company's operating results.
The Company's present reliance on REALmagic products is exacerbated by the fact
that multimedia product sales are concentrated in the personal computer
industry. A decline in demand for PCs could have a material adverse effect on
the Company's operating results and financial condition.
Variability of Operating Results. The Company's operating results have
fluctuated in the past and may continue to fluctuate in the future due to a
number of factors, including but not limited to new product introductions by the
Company and its competitors; market acceptance of the Company's products by
OEMs, software developers, and end users; the success of the Company's
promotional programs; gains or losses of significant customers; reductions in
selling prices; inventory obsolescence; an interrupted or inadequate supply of
semiconductor chips; the Company's ability to protect its intellectual property;
and loss of key personnel. In addition, sales to OEM customers are subject to
significant variability from quarter to quarter, depending on OEMs' timing and
release of products incorporating REALmagic technology, experience with
sell-through of such products, and inventory levels.
The market for consumer electronics products is characterized by
significant seasonal swings in demand, which typically peak in the fourth
calendar quarter of each year. Since the Company expects to derive a substantial
portion of its revenues from the sales of REALmagic products in the future and
the demand for such products will depend in part on the emergence of digital
video technology, the Company's revenues may vary with the availability of and
demand for DVD titles. Such demand may increase or decrease as a result of a
number of factors that cannot be predicted, such as consumer preferences and
product announcements by competitors. Announcements of directly competing
products will likely have a negative effect on operating results. Based on the
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<PAGE>
Company's experience, the Company believes that a substantial portion of its
shipments will occur in the third month of a quarter, with significant shipments
completed in the latter part of the third month. This shipment pattern may cause
the Company's operating results to be difficult to predict. The Company
currently places noncancellable orders to purchase semiconductor products from
its foundries on a long lead time basis. Consequently, if, as a result of
inaccurate forecasts or canceled purchase orders, anticipated sales and
shipments in any quarter do not occur when expected, inventory levels could be
disproportionately high, requiring significant working capital, negatively
affecting operating results.
Manufacturing Risks. The Company does not have long-term contracts with
such suppliers and conducts business with its suppliers on a written purchase
order basis. The Company's reliance on independent suppliers involves several
risks, including the absence of adequate capacity, the unavailability of, or
interruptions in access to, certain process technologies, and reduced control
over delivery schedules, manufacturing yields, and costs. The Company obtains
certain of its components from a single source. Although delays or interruptions
have not occurred to date, any delay or interruption in the supply of any of the
components required for the production of the REALmagic multimedia card
currently obtained from a single source could have a material adverse impact on
sales of REALmagic products by the Company and, thus, on the Company's business.
The Company must provide its suppliers with sufficient lead time to
meet forecasted manufacturing objectives. Any failure to properly forecast such
quantities could materially adversely affect the Company's ability to produce
REALmagic products in sufficient quantities. No assurance can be given that the
Company's forecasts regarding new product demand will be accurate, particularly
since the Company sells REALmagic products on a purchase order basis.
Manufacturing the REALmagic chipsets is a complex process, and the Company may
experience short-term difficulties in obtaining timely deliveries, which could
affect the Company's ability to meet customer demand for its products. Any such
delay in delivering products in the future could materially and adversely affect
the Company's operating results. In addition, should any of the Company's major
suppliers be unable or unwilling to continue to manufacture the Company's key
components in required volumes, the Company would have to identify and qualify
acceptable additional suppliers. This qualification process could take up to
three months or longer. No assurances can be given that any additional sources
of supply could be in a position to satisfy the Company's requirements on a
timely basis.
In the past, the Company has experienced production delays and other
difficulties, and the Company could experience similar problems in the future.
In addition, there can be no assurance that a product defect will not escape
identification at the factory, possibly resulting in unanticipated costs,
cancellations or deferrals of purchase orders, or costly recall of products from
customer sites.
Dependence on Key Personnel. The Company's future success depends in
large part on the continued service of its key technical, marketing, sales, and
management personnel. Given the complexity of REALmagic technology, the Company
is dependent on its ability to retain and motivate highly skilled engineers
involved in the ongoing hardware and software development of REALmagic products
who will be required to refine the existing hardware system and API and to
introduce enhancements in future applications. The multimedia PC industry is
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. There can be no assurance that the Company's current
employees will continue to work for the Company or that the Company will be able
to obtain the services of additional personnel necessary for the Company's
growth. The Company does not have "key person" life insurance policies on any of
its employees.
Limited Intellectual Property Protection. The Company's ability to
compete may be affected by its ability to protect its proprietary information.
The Company currently holds five patents covering the technology underlying the
REALmagic products, and the Company has filed certain patent applications and is
in the process of preparing others. There can be no assurance that any
additional patents for which the Company has applied will be issued or that any
issued patents will provide meaningful protection of its product innovations.
The Company,
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<PAGE>
like other emerging multimedia companies, relies primarily on trade secrets and
technological know-how in the conduct of its business. In addition, the Company
is relying in part on copyright law to protect its proprietary rights with
respect to REALmagic technology.
The electronics industry is characterized by frequent litigation
regarding patent and intellectual property rights. Any such litigation could
result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not the outcome of such
litigation is favorable to the Company. Moreover, in the event of an adverse
result in any such litigation, the Company could be required to expend
significant resources to develop noninfringing technology or to obtain licenses
to the technology that is the subject of the litigation. There can be no
assurance that the Company would be successful in such development or that any
such licenses would be available on acceptable terms, if at all. In addition,
patent disputes in the electronics industry have often been settled through
cross-licensing arrangements. Because the Company does not yet have a large
portfolio of issued patents, the Company may not be able to settle an alleged
patent infringement claim through a cross-licensing arrangement.
International Operations. During the fiscal years ended January 31,
1997, 1996 and 1995, sales to international customers accounted for
approximately 72%, 63%, and 36% of the Company's net sales, respectively. The
Company anticipates that sales to international customers, including sales of
REALmagic products, will continue to account for a substantial percentage of net
sales. In addition, some of the foundries that manufacture the Company's
products and components are located in Asia. Overseas sales and purchases to
date have been denominated in U.S. dollars. Due to the concentration of
international sales and manufacturing capacity in Asia, the Company is subject
to the risks of conducting business internationally. These risks include
unexpected changes in regulatory requirements and fluctuations in the U.S.
dollar that could increase the sales price in local currencies of the Company's
products in international markets or make it difficult for the Company to obtain
price reductions from its foundries. The Company does not currently engage in
any hedging activities to mitigate exchange rate risks. To the extent that the
Company increases its transactions in foreign currencies, the Company's results
of operations could be adversely affected by exchange rate fluctuations.
The Company derives a substantial portion of its revenues from sales to
the Asia Pacific region, a region of the world subject to increased levels of
economic instability. There can be no assurance that such instability will not
have a material adverse effect on the Company's results of operations.
Volatility of Stock Price. The market of the Company's Common Stock has
been subject to significant volatility, which is expected to continue. Factors
such as announcements of the introduction of new products by the Company or its
competitors and market conditions in the technology, entertainment, and emerging
growth company sectors may have a significant impact on the market price of the
Company's Common Stock. Further, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
high technology and development stage companies such as those in the electronics
industry. Such volatility has often been unrelated or disproportionate to the
operating performance of such companies. These fluctuations, as well as general
economic and market conditions, may adversely affect the price of the Common
Stock.
Potential for Dilution.
Series B Preferred Stock. As of March 9, 1998, 5,000 shares of the
Company's Series B Convertible Preferred Stock (the "Series B Preferred Stock")
were issued and outstanding. Each share of the Series B Preferred Stock is
convertible into such number of shares of Common Stock as is determined by
dividing the stated value ($1,000) of the share of Series B Preferred Stock
(under certain circumstances, such value may be increased by a premium based on
the number of days the Series B Preferred Stock is held) by the then current
Conversion Price (which is deteremined by reference to the then current market
price). If converted on March 9, 1998, the Series B Preferred Stock would have
been convertible into approximately 1,666,667 shares of Common Stock, but this
number of shares could prove to be significantly greater in the event of a
decrease in the trading price of the Common Stock. Purchasers of Common Stock
could therefore experience substantial dilution of their investment upon
conversion of the Series B Preferred Stock. The shares of Series B Stock are not
registered and may be sold only if registered under the Securities Act or sold
in acordance with an applicable exemption from registration, such as Rule 144.
The shares of Common Stock into which the Series B Preferred Stock may be
converted are being registered pursuant to this Registration Statement.
As of March 9, 1998, "Warrants" to purchase 50,000 shares of Common
Stock issued to the purchasers of the Series B Preferred Stock and exercisable
beginning on May 1, 1998 for a period of three years at a price based on a
premium to the market price as of April 30, 1998 (as may be adjusted from time
to time under certain antidilution provisions) were outstanding. The shares of
Common Stock issuable upon exercise of these warrants are being registered
pursuant to this Registration Statement.
As of March 9, 1998, 5,754,398 shares of Common Stock were reserved for
issuance upon exercise of the Company's outstanding warrants and options
(excluding the Warrants) and an additional 3,400,000 shares of Common Stock were
reserved for issuance upon conversion of the preferred stock and exercise of the
Warrants. At March 9, 1998, there were 11,736,415 shares of Common Stock
outstanding. Of these outstanding shares, 11,714,632 were freely tradeable
without restriction under the Securities Act unless held by affiliates.
Series A Preferred Stock. As of March 9, 1998, 23,800 shares of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock")
were issued and outstanding. Each share of the Series A Preferred Stock is
convertible into such number of shares of Common Stock as is determined by
dividing the stated value ($100) of the share of Series A Preferred Stock by the
then current Conversion Price (which is deteremined by reference to the then
current market price). If converted on March 9, 1998, the Series A Preferred
Stock would have been convertible into approximately 790,698 shares of Common
Stock, but this number of shares could prove to be significantly greater in the
event of a decrease in the trading price of the Common Stock. Purchasers of
Common Stock could therefore also experience substantial dilution of their
investment upon conversion of the Series A Preferred Stock. The shares of Series
A Stock are not registered and may be sold only if registered under the
Securities Act or sold in acordance with an applicable exemption from
registration, such as Rule 144. A portion of the shares of Common Stock into
which the Series A Preferred Stock may be converted have been previously
registered and the remaining portion will be registered pursuant to a
Registration Statement to be filed in the future.
As of March 9, 1998, warrants to purchase 57,142 shares of Common Stock
issued to the purchasers of the Series A Preferred Stock and exercisable
beginning on April 30, 1998 for a period of three years at a price based on a
premium to the market price as of April 30, 1998 (as may be adjusted from time
to time under certain antidilution provisions) were outstanding. The shares of
Common Stock issuable upon exercise of these warrants have been previously
registered and the remaining portion will be registered pursuant to a
Registration Statement to be filed in the future.
-7-
<PAGE>
THE COMPANY
Overview
The following business section contains 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, including those set forth under "Risk Factors."
Sigma designs, manufactures (using subcontractors), and markets
multimedia products for use with personal computers. The emergence of multimedia
technology in the 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 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 compression, eliminated those problems and revolutionized
multimedia on the PC platform. For the first time, MPEG users could play back
full-screen, full-motion video combined with stereo audio, even from a standard
CD-ROM. A single CD-ROM using the MPEG compression technique can store up to 74
minutes of full-motion video and audio.
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 Hollywood PC-based DVD solution is an extension of the
Company's MPEG expertise and provides a highly-integrated solution for the
PC-DVD market.
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 received endorsement for its REALmagic technology from
companies such as Hewlett-Packard Company, Hughes Network Systems, IBM,
Microsoft Corporation, Oracle Corporation, Novell, Inc., Silicon Graphics, Inc.,
Starlight Networks and Sun Microsystems, Inc. On the operating system side,
REALmagic is supported by Microsoft Windows 95 and IBM O/S 2. Additionally, both
Novell and Starlight Networks have products that are compatible with REALmagic
in a network environment.
Support from Software Developers
Support for Sigma's REALmagic MPEG standard has grown rapidly in the
software development community. Three years ago, the Company listed fifty
authorized REALmagic software developers; by the end of fiscal 1996, Sigma's
roster of developers rose to more than 1,200, including Activision, Tsunami
Media, Mindscape, Inc. and Interplay Productions. This developer support has led
to the introduction of more than 500 off-the-shelf business applications in the
REALmagic format.
-8-
<PAGE>
The REALmagic DOS MPEG Applications Programming Interface (API) has
become an industry standard for MPEG-1 software development, further evidence of
support from the software development community. With its robust functionality,
the REALmagic API is currently the preferred technology available for creating
fully interactive MPEG software titles.
Support from OEMs
In the United States, Dell Computer Corporation, Smith Barney, Inc.,
Infotel, Royal Computer and Zenon Technology, Inc., have purchased REALmagic
Maxima boards for installation inside their multimedia PCs. Additionally, many
VARs have taken shipments of REALmagic boards for systems targeted at vertical
kiosk, business training, and presentation applications. In the Far East, where
the popularity of karaoke and videoCD has made REALmagic a well received
product, the Company's OEM customers include NEC Corporation, Panasonic
Industrial Co. and Virt in Japan and Hyundai and Haitai in Korea.
Acceptance by the Retail Channel
In addition to international distributors, national U.S. distributors
such as Ingram Micro, Inc. and Tech Data Corporation are carrying REALmagic
products.
REALmagic Business Strategies
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:
Encourage Continued Development of Software Utilizing REALmagic Technology
The Company continues to encourage widespread software title
development by providing free technical support and licensing its comprehensive
API free of charge to all developers who wish to publish REALmagic-compatible
software titles.
Win More OEM Partnerships and Further Penetrate the Retail Channel
To establish REALmagic 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 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 to add-on card manufacturers
who will, in turn, market to owners of 486 and 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 include
the sale of REALmagic chipsets in its product line and continue developing newer
versions and generations of REALmagic products, including chipsets for both
desktop and notebook PCs. The general direction is to continue to offer
consumers with better-featured and lower-priced products over time.
-9-
<PAGE>
REALmagic Products
The Company offers a complete family of REALmagic products including:
o REALmagic DVD--In April 1997, the Company announced its entry
into the DVD market. The Realmagic Hollywood DVD MPEG-2
playback card turns a PC into a full-featured DVD player that
fully exploits all of the digital video and digital surround
sound capabilities of the DVD format and upcoming MPEG-2
interactive titles. The REALmagic Hollywood 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 Maxima--An MPEG playback card designed to eliminate
compatibility issues with graphics cards by using Analog
Overlay Technology. The Maxima accelerates MPEG video to a
guaranteed 30 frames per second playback rate with
high-quality CD sound at resolutions of up to 1280 x 1024,
which is in compliance with the MPC3 industry standard for
MPEG video playback. The REALmagic drivers guarantee
compatibility with all interactive MPEG titles available today
and all future titles that are OM-1 compatible.
-10-
<PAGE>
Marketing and Sales
Sigma Designs currently distributes its products through sales to
national and regional distributors, VARs, and OEMs in the U.S. and throughout
the world. The company's U.S. distributors include Ingram Micro, Inc. and Tech
Data, and its OEMs include Kapok Computers, TigerDirect, Inc., Royal Computer,
ASE Technologies, Kingmax Technology, Inc., Lung Hwa Electronics Co., Ltd. and
Zenon Computer Systems. The Company's international distributors are
strategically located in many countries around the world.
The Company generally acquires and maintains products for distribution
through retail channels 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, whose
purchase orders are typically cancelable 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.
Research and Development
As of January 31, 1998, the Company had a staff of 35 research and
development personnel, which conducts all the Company's product development. The
Company is focusing its development efforts primarily on MPEG multimedia
products, including new and improved 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 compatibility with
emerging standards and multiple platforms, improvements to the REALmagic
architecture, and enhancements to the REALmagic 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.
-11-
<PAGE>
During fiscal 1997, fiscal 1996, and fiscal 1995, the Company's
research and development expenses were $4,688,000, $4,499,000, and $4,349,000,
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. 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 to industry standards,
price, and marketing and distribution resources. The Company believes that it
competes most favorably with respect to time to market, product performance, and
price of 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 Company's lead time in product introduction
will be sustained.
Sales to distributors and sometimes even to OEMs are typically subject
to contractual rights of inventory rotation and price protection. Regardless of
particular contractual rights, the failure of one or more distributors or OEMs
to achieve sustained sell-through of REALmagic products could result in product
returns or collection problems, contributing to significant fluctuations in the
Company's operating results.
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 eleven pending patent applications for its REALmagic technology.
Five 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 its manufacturing needs. All of the chips used by the Company to make
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.
-12-
<PAGE>
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. 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 January 31, 1998, the Company had 71 full-time employees,
including 35 in research and development, 12 in marketing, sales, and support,
11 in operations, and 13 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.
Certain Accounting Changes
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing net income available to common
shareholders by the weighted average of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.
<TABLE>
The following table presents selected financial data which includes earnings per
share amounts calculated in accordance with SFAS 128 (the table includes all
periods for which earnings per share amounts were previously presented in the
Form 10-K and Forms 10-Q which are incorporated by reference in this document):
<CAPTION>
(Dollars in 000's) Fiscal year ended January 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Revenues $41,214 $26,374 $43,700 $34,989 $27,058
Net Income (Loss) Available to
Common Shareholders $1,529 ($14,708) ($8,773) ($29,546) ($7,166)
Net Income (Loss) Per Share
- Basic $0.16 ($1.88) ($1.20) ($5.15) ($1.37)
- Diluted $0.14 ($1.88) ($1.20) ($5.15) ($1.37)
Shares Used in Computation
- Basic 9,843 7,822 7,307 5,733 5,234
- Diluted 11,259 7,822 7,307 5,733 5,234
</TABLE>
<TABLE>
<CAPTION>
Quarter ended,
October 31, July 31, April 30, January 31, October 31, July 31, April
1997 1997 1997 1997 1996 1996 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $10,022 $8,593 $8,507 $9,674 $12,727 $10,078 $8,735
Net Income (Loss) Available to
Common Shareholders ($64) ($4,406) ($598) $222 $1,062 $349 ($104)
Net Income (Loss) Per Share
- Basic ($0.01) ($0.40) ($0.06) $0.02 $0.11 $0.04 ($0.01)
- Diluted ($0.01) ($0.40) ($0.06) $0.02 $0.09 $0.03 ($0.01)
Shares Used in Computation
- Basic 10,970 10,916 10,852 10,318 9,931 9,773 9,267
- Diluted 10,970 10,916 10,852 11,615 11,441 11,377 9,267
</TABLE>
-13-
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares
hereunder by the Selling Shareholders.
SELLING SHAREHOLDERS
<TABLE>
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 9, 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 benefically owned
by each Selling Shareholder (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.
<CAPTION>
Shares Beneficially
Owned
Number of Shares Number of After Offering(1)(2)
Beneficially Owned Prior to Shares ----------------------
Name Offering(2) Being Offered Number Percent
- ------------------------------------- ----------------------------- -------------- ----------------------
<S> <C> <C> <C> <C>
RGC International Investors, LDC(1) 1,700,000 1,700,000(3) 0 0
Tsunami Capital, Inc. 5,000 5,000 0 0
<FN>
- ---------------------------
* Represents less than 1%
(1) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Selling Stockholder.
The actual number of shares of Common Stock issuable upon conversion of
Series B Preferred Stock and exercise of the Warrants is indeterminate, is
subject to adjustment and could be materially less or more than such
estimated number depending on factors which cannot be predicted by the
Company at this time, including, among other factors, the future market
price of the Common Stock. The actual number of shares of Common Stock
offered hereby, and included in the Registration Statement of which this
Prospectus is a part, includes such additional number of shares of Common
Stock as may be issued or issuable upon conversion of the Series B
Preferred Stock and exercise of the Warrants by reason of the floating rate
conversion price mechanism or other adjustment mechanisms described
therein, or by reason of any stock split, stock dividend or similar
transaction involving the Common Stock, in order to prevent dilution, in
accordance with Rule 416 under the Securities Act. Pursuant to the terms of
the Series B Preferred Stock, if the Series B Preferred Stock had been
actually converted on March 10, 1998, the conversion price would have been
$3.01 (the average of the six lowest traded prices of the Common Stock for
the 20 trading days immediately preceding such date) at which price the
Series B Preferred Stock would have been converted into approximately
1,661,130 shares of Common Stock. The Warrants are exercisable into 50,000
shares of Common Stock at an exercise price based on a premium to the
market price on April 30, 1998. Pursuant to the terms of the Series B
Preferred Stock and the Warrants, the shares of Series B Preferred Stock
are convertible and the Warrants are exercisable by any holder only to the
extent that the number of shares of Common Stock thereby issuable, together
with the number of shares of Common Stock owned by such holder and its
affiliates (but not including shares of Common Stock underlying unconverted
shares of Series B Preferred Stock or unexercised portions of the Warrants)
would not exceed 4.9% of the then outstanding Common Stock as determined in
accordance with Section 13(d) of the Exchange Act. Accordingly, the number
of shares of Common Stock set forth in the table for this Selling
Stockholder exceeds the number of shares of Common Stock that this Selling
Stockholder could own beneficially at any given time through their
ownership of the Series B Preferred Stock and the Warrants. In that regard,
beneficial ownership of this Selling Stockholder set forth in the table is
not determined in accordance with Rule 13d-3 under the Exchange Act.
(2) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
</FN>
</TABLE>
-14-
<PAGE>
PLAN OF DISTRIBUTION
On February 10, 1998 the Company entered into a Securities Purchase
Agreement dated as of January 30, 1998 with one of the Selling Shareholders (the
"Purchase Agreement"), pursuant to which that Selling Shareholder purchased
5,000 shares of Series B Preferred Stock that are convertible into Common Stock
of the Company (the "Preferred Stock"). The Preferred Stock can be converted by
that Selling Shareholder into shares of the Company's Common Stock starting 181
days after its issuance (or sooner under certain circumstances) at the
Conversion Prices described in the Purchase Agreement. Concurrent with the
purchase of the Preferred Stock, that Selling Shareholder received warrants to
purchase additional Common Stock at an exercise price based on a premium to the
market price on April 30, 1998. This Registration Statement has been filed by
the Company pursuant to the exercise of certain registration rights granted
under the Purchase Agreement. In addition, the Company granted 5,000 shares of
Common Stock to Tsunami Capital, Inc. in consideration for their efforts in
assisting with the sale of the Preferred Stock.
The Shares may be sold from time to time by the Selling Shareholders or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made in any one or more transactions (which may involve block transactions)
on the Nasdaq National Market, or any exchange on which the Common Stock may
then be listed, in the over-the-counter market, in privately-negotiated
transactions, through the writing of options on the Shares, short sales or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Shares may also be sold pursuant to Rule 144. The Selling
Shareholders shall have the sole discretion not to accept any purchase offer or
make any sale of Shares if they know the purchase price to be unsatisfactory at
any particular time.
The Selling Shareholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the Shares directly
to market makers acting as principle and/or broker-dealers acting as agents for
themselves or their customers. Brokers acting as agents for the Selling
Shareholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the Shares will
do so for their own account and at their own risk. It is possible that a Selling
Shareholder will attempt to sell shares of Common Stock in block transactions to
market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any of the Shares
offered hereby will be issued to, or sold by, the Selling Shareholders. In
connection with such sales, the Selling Shareholders and any participating
brokers or dealers may be deemed to be "underwriters" as defined in the
Securities Act. The Company has agreed to indemnify the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
-15-
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Risk Factors.............................................................. 3
The Company............................................................... 8
Use of Proceeds...........................................................14
Selling Shareholders......................................................14
Plan of Distribution..................................................... 15
Legal Matters............................................................ 15
Experts.................................................................. 15
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations in connection
with this offering other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circum stances, create an implication that
there has been no change in the affairs of the Company or that information
contained herein is correct as of any date subsequent to the date hereof.
3,405,000 Shares
SIGMA DESIGNS, INC.
Common Stock
------------
PROSPECTUS
------------
March __, 1998
-16-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
Common Stock being registered. All amounts are estimates except the Securities
and Exchange Commission registration fee and the Nasdaq National Market Listing
Fee.
Securities and Exchange Commission Registration Fee..... $ 3,074
Nasdaq National 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.......................................... 99,574
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 to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 16. Exhibits and Financial Statement Schedules
(a) EXHIBITS
4.1 Form of Securities Purchase Agreement by and between
Sigma and the Buyers.
4.2 Form of Registration Rights Agreement by and between
Sigma and the Initial Investors.
4.3 Form of Certificate of Determination of Preferences
of Series B Convertible Preferred Stock.
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.
- ---------------------------
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
<PAGE>
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 liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, the information omitted from
the form of Prospectus filed as part of this Registration Statement in reliance
upon 430A and contained in a form of Prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
II-3
<PAGE>
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 March 1998.
SIGMA DESIGNS, INC.
By: /s/ Thinh Q. Tran
-----------------------------------------
Thinh Q. Tran
Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Thinh Q. Tran (with full power to act
alone), his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and on his behalf to sign, execute and file this
Registration Statement and any or all amendments (including, without limitation,
post-effective amendments and any amendment or amendments or abbreviated
registration statement increasing the amount of securities for which
registration is being sought) to this Registration Statement, with all exhibits
and any and all documents required to be filed with respect thereto, with the
Securities and Exchange Commission or any regulatory authority, granting unto
such attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he or she might or could do if personally present, hereby ratifying and
confirming all that such attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
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:
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Thinh Q. Tran Chairman of the Board, President and Chief March 10, 1998
- -------------------------------------- Executive Officer (Principal Executive Officer)
Thinh Q. Tran
/s/ Kit Tsui Director of Finance, Chief Financial Officer, March 10, 1998
- -------------------------------------- Secretary (Chief Financial and Accounting Officer)
Kit Tsui
/s/ William J. Almon Director March 10, 1998
- --------------------------------------
William J. Almon
/s/ William Wang Director March 10, 1998
- --------------------------------------
William Wang
*By: /s/ Thinh Q. Tran March 10, 1998
- --------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER
- --------------
4.1 Form of Securities Purchase Agreement by and between
Sigma and the Buyers.
4.2 Form of Registration Rights Agreement by and between
Sigma and the Initial Investors.
4.3 Form of Certificate of Determination of Preferences of
Series B Convertible Preferred Stock.
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.)
II-5
Exhibit 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
30, 1998, by and among Sigma Designs, Inc., a California corporation, with
headquarters located at 46501 Landing Parkway, Fremont, California 94538
("Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock,
designated as Series B Convertible Preferred Stock (the "Preferred Stock"),
having the rights, preferences and privileges set forth in the Certificate of
Determination of Rights, Preferences, Privileges and Restrictions attached
hereto as Exhibit "A" (the "Certificate of Determination");
C. The Preferred Stock is convertible into shares of common stock, no
par value per share, of the Company (the "Common Stock"), upon the terms and
subject to the limitations and conditions set forth in the Certificate of
Determination;
D. The Company has authorized the issuance to the Buyers of warrants,
in the form attached hereto as Exhibit "B", to purchase Fifty Thousand (50,000)
shares of Common Stock (the "Warrants");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Five Thousand (5,000) shares of Preferred Stock, and (ii) Warrants
to purchase Fifty Thousand (50,000) shares of Common Stock, for an aggregate
purchase price of Five Million Dollars ($5,000,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, the number of shares of Preferred Stock and number of
Warrants as is set forth immediately below its name on the signature pages
hereto;
G. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto
<PAGE>
as Exhibit "C" (the "Registration Rights Agreement"), pursuant to which the
Company has agreed to provide certain registration rights under the 1933 Act and
the rules and regulations promulgated thereunder, and applicable state
securities laws; and
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. The
Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company such number of shares of Series B Preferred Stock
(collectively, together with any Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "Preferred Shares") and number of Warrants for the
aggregate purchase price (the "Purchase Price") as is set forth immediately
below such Buyer's name on the signature pages hereto. The aggregate number of
Preferred Shares to be issued at the Closing (as defined below) is Five Thousand
(5,000) and the aggregate number of Warrants to be issued at the Closing is
Fifty Thousand (50,000), for an aggregate purchase price of Five Million Dollars
($5,000,000).
b. Form of Payment. On the Closing Date (as defined
below), (i) each Buyer shall pay the Purchase Price for the Preferred Shares and
the Warrants to be issued and sold to it at the Closing (as defined below) by
wire transfer of immediately available funds to the Company, in accordance with
the Company's written wiring instructions, against delivery of duly executed
certificates representing such number of Preferred Shares and Warrants which
such Buyer is purchasing and (ii) the Company shall deliver such certificates
representing such number of Preferred Shares and Warrants duly executed on
behalf of the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Preferred Shares and the
Warrants pursuant to this Agreement (the "Closing Date") shall be 12:00 noon
Eastern Standard Time on February 9, 1998 or such other mutually agreed upon
time. The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur on the Closing Date at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, CA
94304, or at such other location as may be agreed to be the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company solely as to
such Buyer that:
2
<PAGE>
a. Investment Purpose. As of the date hereof, the
Buyer is purchasing the Preferred Shares and the shares of Common Stock issuable
upon conversion thereof (the "Conversion Shares") and the Warrants and the
shares of Common Stock issuable upon exercise thereof (the "Warrant Shares" and,
collectively with the Preferred Shares, Warrants and Conversion Shares the
"Securities") for its own account for investment only and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act.
b. Accredited Investor Status. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that
the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. Transfer or Resale. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the 1933 Act or any applicable state
securities laws, and may not be transferred unless (a) subsequently included in
an effective registration statement thereunder, or (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable to the Company) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (c) sold or transferred to an "affiliate" of the Buyer or
(d) sold pursuant to Rule 144 promulgated under the 1933 Act (or a
3
<PAGE>
successor rule); (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if said
Rule is not applicable, any resale of such Securities under circumstances in
which the seller (or the person through whom the sale is made) may be deemed to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement so long
as the Buyer complies with the provisions of this Section 2(f).
g. Legends. The Buyer understands that the Preferred
Shares and the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or
an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, that registration is not required
under said Act or unless sold pursuant to Rule 144 under said
Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of such
Security may be made without registration under the 1933 Act and such sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 under the 1933
Act (or a successor rule thereto) without any restriction as to the number of
Securities acquired as of a particular date that can then be immediately sold.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
4
<PAGE>
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on the business,
operations, assets or financial condition of the Company or its Subsidiaries, if
any, taken as a whole, or on the transactions contemplated hereby or by the
agreements or instruments to be entered into in connection herewith.
"Subsidiaries" means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or indirectly, any equity
or other ownership interest.
b. Authorization; Enforcement. Except as disclosed on
Schedule 3(b), (i) The Company has all requisite corporate power and authority
to file and perform its obligations under the Certificate of Determination and
to enter into and perform this Agreement, the Registration Rights Agreement and
the Warrants and to consummate the transactions contemplated hereby and thereby
and to issue the Securities, in accordance with the terms hereof and thereof,
(ii) the execution and delivery of this Agreement, the Registration Rights
Agreement and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Preferred Shares and the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares issuable
upon conversion or exercise thereof) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, or its shareholders is required, (iii) this Agreement has
been duly executed and delivered and the Certificate of Determination has been
duly filed by the Company, and (iv) each of this Agreement and the Certificate
of Determination constitutes, and upon execution and delivery by the Company
5
<PAGE>
of the Registration Rights Agreement and the Warrants, each of such instruments
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
c. Capitalization. As of January 21, 1998, the
authorized capital stock of the Company consists of (i) 20,000,000 shares of
Common Stock of which 11,646,075 shares are issued and outstanding, 3,454,398
shares are reserved for issuance pursuant to the Company's stock option plans,
2,300,000 shares are reserved for issuance pursuant to securities (other than
the Preferred Shares and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 3,400,000 (2x currently required)
shares are reserved for issuance upon conversion of the Preferred Shares and
exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); and (ii) 2,000,000 shares of
preferred stock, 26,550 of which shares are issued and outstanding. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Preferred Shares, the Warrants, the Conversion Shares or Warrant
Shares. The Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation as in effect on the date hereof ("Articles
of Incorporation"), the Company's By-laws, as in effect on the date hereof (the
"By-laws"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto.
d. Issuance of Shares. The Preferred Shares,
Conversion Shares and Warrant Shares are duly authorized and, upon issuance in
accordance with their respective terms of this Agreement (including the issuance
of the Conversion Shares upon conversion of the Preferred Shares in accordance
with the Certificate of Determination and the Warrant Shares upon exercise of
the Warrants in accordance with the terms thereof) will be validly issued, fully
paid and non-assessable, and free from all taxes, liens and charges with respect
to the issue thereof and shall not be subject to preemptive rights or other
similar rights of stockholders of the Company.
6
<PAGE>
The term Conversion Shares and Warrant Shares includes the shares of Common
Stock issuable upon conversion of the Preferred Shares or exercise of the
Warrants, including without limitation, such additional shares, if any, as are
issuable as a result of the events described in Section 2(c) of the Registration
Rights Agreement. The Company understands and acknowledges the potentially
dilutive effect to the Common Stock upon the issuance of the Conversion Shares
and Warrant Shares upon conversion or exercise of the Preferred Shares or
Warrants. The Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Preferred Shares or
exercise of the Warrants in accordance with the terms of and subject to the
limitations set forth in this Agreement, the Certificate of Determination and
the Warrants is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company.
e. No Conflicts. Except as disclosed in Schedule
3(e), the execution, delivery and performance of this Agreement the Registration
Rights Agreement and the Warrants by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the filing of the Certificate of Determination and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares) will not
(i) conflict with or result in a violation of any provision of the Articles of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). Except as disclosed in Schedule
3(e), neither the Company nor any of its Subsidiaries is in violation of its
Articles of Incorporation, By-laws or other organizational documents and neither
the Company nor any of its Subsidiaries is in default (and no event has occurred
which with notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that would give
to others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or any
of its Subsidiaries is bound or affected, except for possible defaults as would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being conducted
in violation of any law, ordinance or regulation of any governmental entity.
Except as specifically contemplated by this Agreement and as required under the
1933 Act and any applicable state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency
7
<PAGE>
in order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants in accordance with
the terms hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Nasdaq National Market ("Nasdaq") and has not received any
notice from Nasdaq that the Common Stock will be delisted by the Nasdaq. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
f. SEC Documents, Financial Statements. Since January
31, 1995, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
January 31, 1997 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
8
<PAGE>
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g), since January 31, 1997, there has been no change and no
development which would have a Material Adverse Effect.
h. Absence of Litigation. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries that could reasonably be
expected to have a Material Adverse Effect. Schedule 3(h) contains a complete
list and summary description of any pending or threatened proceeding against or
affecting the Company or any of its Subsidiaries, without regard to whether it
would have a Material Adverse Effect.
i. Patents, Copyrights, etc. The Company and each of
its Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent rights, inventions, know-how, trade secrets, trademarks, service
marks, service names, trade names and copyrights ("Intellectual Property")
necessary to enable it to conduct its business as now operated (and, except as
set forth in Schedule 3(i) hereof, to the Company's knowledge, as presently
contemplated to be operated in the future); there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company's knowledge
threatened which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its
business as now operated (and, except as set forth in Schedule 3(i) hereof, to
the Company's knowledge, as presently contemplated to be operated in the
future); to the Company's knowledge, the Company's or its Subsidiaries, current
and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
j. [Intentionally Omitted]
k. Tax Status. Except as set forth on Schedule 3(k),
the Company and each of its Subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the Company knows of no basis for any
such claim.
9
<PAGE>
l. Certain Transactions. Except as set forth on
Schedule 3(l) and except for arm's length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
m. Disclosure. All written information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Buyers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purposes that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
n. Acknowledgment Regarding Buyers' Purchase of
Securities. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers, purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
o. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited any
offers to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Buyers. The
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issuance of the Securities to the Buyers will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of The Nasdaq Stock Market.
p. No Brokers. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions, finder's
fees or similar payments relating to this Agreement or the transactions
contemplated hereby, except for dealings with Tsunami Capital, whose commissions
and fees will be paid for by the Company.
q. Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted except where the failure to
possess would not have a Material Adverse Effect (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since January 31,
1997, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
r. Environmental Matters.
(i) Except as set forth in Schedule 3(r),
there are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous
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Materials, as well as all authorizations, codes, decrees, demands or demand
letters, injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(ii) Other than those that are or were
stored, used or disposed of in compliance with applicable law, to the Company's
knowledge, no Hazardous Materials are contained on or about any real property
currently owned, leased or used by the Company or any of its Subsidiaries, and,
to the Company's knowledge, no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(r),
to the Company's knowledge, there are no underground storage tanks on or under
any real property owned, leased or used by the Company or any of its
Subsidiaries that are not in compliance with applicable law.
s. Title to Property. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
Schedule 3(s) or such as would not have a Material Adverse Effect. Any real
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
t. Insurance. The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
u. Internal Accounting Controls. The Company and each
of its Subsidiaries maintain a system of internal accounting controls
sufficient, int he judgment of the Company's board of directors, to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded
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accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4. COVENANTS.
a. Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file
a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the applicable closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the
proceeds from the sale of the Preferred Shares and the Warrants in the manner
set forth in Schedule 4(d) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries).
e. Additional Equity Capital; Right of First Refusal.
Subject to the exceptions described below, the Company will not, without the
prior written consent of a majority-in-interest of the Buyers, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component), during the period (the "Lock-up Period")
beginning on the Closing Date and ending on the later of (i) one hundred
thirty-five (135) days from the Closing Date and (ii) forty-five (45) days from
the date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (plus any days for which sales cannot be made
thereunder). In addition, subject to the exceptions described below, the Company
will not conduct any equity financing (including debt with an equity component)
("Future
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Offerings") during the period beginning on the Closing Date and ending one
hundred eighty (180) days after the end of the Lock-up Period, unless it shall
have first delivered to each Buyer, at least fifteen (15) business days prior to
the closing of such Future Offering, written notice describing the proposed
Future Offering, including the material terms and conditions thereof and the
proposed definitive documentation to be entered into in connection therewith,
and providing each Buyer an option during the ten (10) day period following
delivery of such notice to purchase its pro rata share (based on the ratio that
the number of Preferred Shares purchased by it hereunder bears to the aggregate
number of Preferred Shares purchased hereunder) of the securities being offered
in the Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this sentence are collectively referred to as
the "Capital Raising Limitations"). In the event the material terms and
conditions of a proposed Future Offering are amended in any respect after
delivery of the notice to the Buyers concerning such proposed Future Offering,
the Company shall deliver a new notice to each Buyer describing the material
amended terms and conditions of the proposed Future Offering and each Buyer
thereafter shall have an option during the ten (10) day period following
delivery of such new notice to purchase its pro rata share (based on the ratio
that the aggregate principal amount of the Debentures purchased by it hereunder
bears to the aggregate principal amount of Debentures purchased hereunder). The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or
(ii) issuances of securities as consideration for a merger, consolidation or
sale of assets, or in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or in connection
with the disposition or acquisition of a business, product or license by the
Company. The Capital Raising Limitations also shall not apply to (i) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities under any Company stock option, restricted stock option or employee
stock purchase plan approved by a majority of the Company's disinterested
directors or as incentive related distributions to employees approved by a
majority of the Company's disinterested directors, (ii) the issuance of
securities in connection with equipment financing or (iii) the issuance of
securities in connection with any commercial bank financing.
f. Expenses. The Company shall reimburse Rose Glen
Capital Management, L.P. ("RGC") for all expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including, without limitation, attorneys' and consultants' fees and expenses.
The Company's obligation to reimburse RGC's expenses under this Section 4(f)
shall be limited to Thirty-Five Thousand Dollars ($35,000).
g. Financial Information. The Company agrees to send
the following reports to each Buyer until such Buyer transfers, assigns, or
sells all of the Securities: (i) within
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ten (10) days after the filing with the SEC, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K;
(ii) within two (2) days after release, copies of all press releases issued by
the Company or any of its Subsidiaries; and (iii) contemporaneously with the
making available or giving to the stockholders of the Company, copies of any
notices or other information the Company makes available or gives to such
stockholders.
h. Reservation of Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise
of the outstanding Preferred Shares and Warrants and issuance of the Conversion
Shares and Warrant Shares in connection therewith (based on the Conversion Price
of the Preferred Shares or Exercise Price of the Warrants in effect from time to
time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of Preferred Shares and exercise of the
Warrants without the consent of each Buyer. The Company shall use its best
efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number that is then
actually issuable upon full conversion of the Preferred Shares and exercise of
the Warrants (based on the Conversion Price of the Preferred Shares or Exercise
Price of the Warrants in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Conversion Shares and Warrant Shares issued and issuable upon conversion of
the Preferred Shares and exercise of the Warrants (based on the Conversion Price
of the Preferred Shares or Exercise price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under this Section 4(h), in the case of an insufficient
number of authorized shares, and using its best efforts to obtain shareholder
approval of an increase in such authorized number of shares.
i. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time issuable
upon conversion of the Preferred Shares or exercise of the Warrants. The Company
will obtain and maintain the listing and trading of its Common Stock on Nasdaq,
the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from Nasdaq or any other securities exchange
or other
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securities market on which the Common Stock is then listed, regarding the
continued eligibility of the Common Stock for listing on such exchanges or
markets.
j. Corporate Existence. So long as a Buyer
beneficially owns any Preferred Shares or Warrants, the Company shall maintain
its corporate existence and shall not sell all or substantially all of the
Company's assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No Integration. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities
solely for purposes of Rule 4460(i) of the Nasdaq Stock Market.
l. Solvency. The Company (both before and after
giving effect to the transactions contemplated by this Agreement) is solvent
(i.e., its assets (as defined in accordance with GAAP) have a fair market value
in excess of the amount required to pay its liabilities (as defined in
accordance with GAAP) on its existing debts as they become absolute and
matured). The Company did not receive a qualified opinion from its auditors with
respect to its most recent fiscal year end and does not anticipate or know of
any basis upon which its auditors might issue a qualified opinion in respect of
its current fiscal year.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Preferred Shares or exercise of the Warrants in
accordance with the terms therewith (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act),
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer's obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Securities. If a
Buyer provides the Company with an opinion of counsel, reasonably satisfactory
to the Company in form, substance and scope, that
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registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Buyers shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Preferred Shares and
Warrants to a Buyer at the Closing is subject to the satisfaction, at or before
the Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
c. The Certificate of Determination shall have been
accepted for filing with the Secretary of State of the State of California.
d. The representations and warranties of the
applicable Buyer shall be true and correct in all material respects as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
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7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares and Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer
duly executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and Warrants in accordance with Section 1(b)
above.
c. The Certificate of Determination shall have been
accepted for filing with the Secretary of State of the State of California, and
a copy thereof certified by such Secretary of State shall have been delivered to
such Buyer.
d. The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to a majority-in-interest of the Buyers, shall
have been delivered to and acknowledged in writing by the Company's Transfer
Agent.
e. The representations and warranties of the Company
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, Bylaws and Board of Directors' resolutions relating
to the transactions contemplated hereby.
f. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
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g. The Conversion Shares and Warrant Shares shall
have been authorized for quotation on Nasdaq and trading in the Common Stock on
Nasdaq shall not have been suspended by the SEC or Nasdaq.
h. The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same form as
Exhibit "D" attached hereto.
i. The Buyer shall have received officers'
certificates in form and substance satisfactory to the Buyer dated as of the
Closing Date.
j. Since the date of execution of this Agreement,
there has been no change and no development which would have a Material Adverse
Effect.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.
b. Counterparts; Signatures by Facsimile. This
Agreement may be executed in two or more counterparts, all of which 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.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and
the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
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f. Notices. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Sigma Designs, Inc.
46501 Landing Parkway
Fremont, California 94538
Attention: Chief Executive Officer
Facsimile: (510) 770-2640
With copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David Segre
Stephen Diamond
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
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i. Survival. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive until the second (2nd) anniversary of the Closing Date
notwithstanding any due diligence investigation conducted by or on behalf of the
Buyers. The Company agrees to indemnify and hold harmless each of the Buyers and
all their officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by the Company of any
of its representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they are
incurred.
j. Publicity. The Company and each of the Buyers
shall have the right to review a reasonable period of time before issuance of
any press releases, SEC, Nasdaq or NASD filings, or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of each of the Buyers,
to make any press release or SEC, Nasdaq or NASD filings with respect to such
transactions as is required by applicable law and regulations (although a single
firm of counsel designated by the Buyers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
SIGMA DESIGNS, INC.
By:
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Thinh Q. Tran
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
--------------------------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of Preferred Stock: 5,000
Number of Warrants: 50,000
Aggregate Purchase Price: $5,000,000
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Exhibit A
(Certificate of Determination--See Exhibit 4.3)
1
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Exhibit B
(Stock Purchase Warrant--See Exhibit 4.4)
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Exhibit C
[Registration Rights Agreement - See Exhibit 4.2]
<PAGE>
Exhibit D
February 10, 1998
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Ladies and Gentlemen:
Reference is made to the Securities Purchase Agreement, dated as of
January 30, 1998 (the "Agreement"), complete with all listed exhibits thereto,
by and among Sigma Designs, Inc., a California corporation (the "Company"), and
RCG International Investors, LDC (the "Investors"), which provides for the
issuance by the Company to the Investors of shares of Series B Preferred Stock
of the Company (the "Shares") and Warrants to purchase 50,000 shares of Common
Stock (the "Warrants"). This opinion is rendered to you pursuant to Section 7(h)
of the Agreement, and all terms used herein have the meanings defined for them
in the Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Agreement and the Registration Rights Agreement and the
issuance of the Shares and Warrants. As such counsel, we have made such legal
and factual examinations and inquiries as we have deemed advisable or necessary
for the purpose of rendering this opinion. In addition, we have examined
originals or copies of such corporate records of the Company, certificates of
public officials and such other documents which we consider necessary or
advisable for the purpose of rendering this opinion. In such examination we have
assumed the genuineness of all signatures on original documents, the
authenticity and completeness of all documents submitted to us as originals, the
conformity to original documents of all copies submitted to us and the due
execution and delivery of all documents (except as to due execution and delivery
by the Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
<PAGE>
As used in this opinion, the expression "to our knowledge," "known to
us" or similar language with reference to matters of fact means that, after an
examination of documents made available to us by the Company, and after
inquiries of officers of the Company, but without any further independent
factual investigation, we find no reason to believe that the opinions expressed
herein are factually incorrect. Further, the expression "to our knowledge,"
"known to us" or similar language with reference to matters of fact refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreement and the
transactions contemplated thereby. Except to the extent expressly set forth
herein or as we otherwise believe to be necessary to our opinion, we have not
undertaken any independent investigation to determine the existence or absence
of any fact, and no inference as to our knowledge of the existence or absence of
any fact should be drawn from our representation of the Company or the rendering
of the opinion set forth below.
For purposes of this opinion, we are assuming that you have all
requisite power and authority, and have taken any and all necessary corporate or
partnership action, to execute and deliver the Agreement, and we are assuming
that the representations and warranties made by the Investors in the Agreement
and pursuant thereto are true and correct. We are also assuming that the
Investors have purchased the Shares for value, in good faith and without notice
of any adverse claims within the meaning of the California Uniform Commercial
Code.
The opinions hereinafter expressed are subject to the following
qualifications:
(a) We express no opinion as to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors;
(b) We express no opinion as to the effect of rules of law
governing specific performance, injunctive relief or other equitable remedies
(regardless of whether any such remedy is considered in a proceeding at law or
in equity);
(c) We express no opinion as to compliance with the anti-fraud
provisions of applicable securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Sections 6 and 7 of the Registration Rights
Agreement to the extent the provisions thereof may be subject to limitations of
public policy and the effect of applicable statutes and judicial decisions; and
(e) We express no opinion as to whether the Agreement, the
Certificate of Determination, the Registration Rights Agreement and the Warrants
or the several transaction contemplated thereby violate or constitute a default
under the Certificate of Determination for the Series A Preferred Stock, and
several documents executed by and among the Company and the several purchasers
of the Series A Preferred Stock of the Company (collectively, the "Series A
Documents") or whether the consent or approval of the holders of the Series A
Preferred Stock is required for the execution, delivery and performance of and
compliance with the terms of the Agreement, and the issuance of the Shares and
Warrants (and the Common Stock issuable upon conversion and exercise thereof).
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(f) We are members of the Bar of the State of California and,
except as set forth in paragraph 7 below with respect to the securities laws of
other states, we express no opinion as to any matter relating to the laws of any
jurisdiction other than the federal laws of the United States of America and the
laws of the State of California. To the extent this opinion addresses applicable
securities laws of states other than the State of California, we have not
retained nor relied on the opinion of counsel admitted to the bar of such
states, but rather have relied on compilations of the securities laws of such
states contained in reporting services presently available to us.
Based upon and subject to the foregoing, and except as set forth in the
Schedule of Exceptions to the Agreement, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under, and by virtue of, the laws of the State of California and is in good
standing under such laws. The Company has requisite corporate power to own and
operate its properties and assets, and to carry on its business as presently
conducted.
2. The Company has all requisite legal and corporate power to execute
and deliver the Agreement and the Registration Rights Agreement, to sell and
issue the Shares and Warrants thereunder, to issue the Common Stock of the
Company ("Common Stock") issuable upon conversion of the Shares and the exercise
of the Warrants and to carry out and perform its obligations under the terms of
the Agreement and the Registration Rights Agreement.
3. As of January 21, 1998, the authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, 11,646,075 shares of which are
issued and outstanding, and 50,000 shares of Series A Preferred Stock ("Series A
Preferred"), 45,000 shares of which are issued and outstanding. Each share of
outstanding Common Stock also represents an associated Right as such term is
defined in and pursuant to that certain Common Shares Rights Agreement, dated as
of September 15, 1989, between the Company and Bank of America, N.T.& S.A., a
national banking association. All such issued and outstanding shares of Series A
Preferred and Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. Three million four hundred thousand (3,400,000)
shares of Common Stock issuable upon conversion of the Shares and the exercise
of the Warrants have been duly and validly reserved, and when issued in
accordance with the Company's Articles of Incorporation will be validly issued,
fully paid and nonassessable and free of any liens, encumbrances and preemptive
or similar rights, subject to the requirements of Rule 4460(i) of the NASD or
any rule substantially similar on an exchange or quotation system on which the
Common Stock is traded. Upon consummation of the several transactions
contemplated by the Agreement and subject to the terms of conditions of the
Agreement, the Shares and Warrants issued under the Agreement shall be validly
issued, fully paid and nonassessable and free of any liens, encumbrances and
preemptive or similar rights contained in the Articles of Incorporation or
Bylaws of the Company, or, to our knowledge, in any agreement to which the
Company is a party, and which agreement is described in or filed as an exhibit
to the SEC Documents, the Series A Documents, or the Amended and Restated
Business Loan Agreement between the Company and Silicon Valley Bank dated
effective as of October 1, 1996 together with all modifications and waivers
thereto (the "Loan Agreement"), except as specifically provided in the
Agreement; provided, however, that the Shares and Warrants (and the Common Stock
issuable upon conversion or exercise thereof) may be subject to restrictions on
transfer under state and/or federal securities laws as set forth in the
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Agreement. To our knowledge, except as disclosed in Schedule 3(c) to the
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries
currently is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement).
4. All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution and delivery of the
Agreement and the Registration Rights Agreement by the Company, the
authorization, sale, issuance and delivery of the Shares (and the Common Stock
issuable upon conversion thereof) and the performance of the Company's
obligations under the Agreement has been taken subject to the requirements of
Rule 4460(i) of the NASD or any rule substantially similar on an exchange or
quotation system on which the Common Stock is traded. The Agreement and the
Registration Rights Agreement has been duly and validly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company.
5. The execution, delivery and performance of and compliance with the
terms of the Agreement, and the issuance of the Shares and Warrants (and the
Common Stock issuable upon conversion or exercise thereof), do not violate any
provision of the Articles of Incorporation or Bylaws, or, to our knowledge, any
provision of any applicable federal or state law, rule or regulation. To our
knowledge, the execution, delivery and performance of and compliance with the
Agreement and the Registration Rights Agreement, and the issuance of the Shares
and Warrants (and the Common issuable upon conversion or exercise thereof) do
not violate, or constitute a default under, any material contract, agreement,
instrument, judgment or decree binding upon the Company and which contract,
agreement, instrument, judgement or decree has been disclosed in or filed as an
exhibit to the Company's SEC Documents, the Series A Documents, or the Loan
Agreement.
6. Except as identified in the Agreement, to our knowledge, there are
no actions, suits, proceedings or investigations pending against the Company or
its properties before any court or governmental agency (nor, to our knowledge,
has the Company received any written threat thereof), which, either in any case
or in the aggregate, would have a Material Adverse Effect or which would
adversely affect the validity or the enforceability of the Agreement or the
Registration Rights Agreement or any action taken or to be taken by the Company
in connection therewith.
7. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority or the Nasdaq Stock Market (the
"Nasdaq") on the part of the Company is required in connection with the valid
execution and delivery of the Agreement and the Registration Rights Agreement,
or the offer, sale or issuance of the Shares and Warrants (and the Common Stock
issuable upon conversion or exercise thereof) or the consummation of any other
transaction contemplated by the Agreement, except (a) filing of the Certificate
of Determination in the Office of the Secretary of State of the State of
California, (b) qualification (or taking such action as may be necessary to
secure an exemption from qualification, if available) under the California
Corporate Securities Law and other applicable blue sky laws (but excluding
jurisdictions outside of the United States) of the offer and sale of the Shares
(and the Common Stock issuable upon conversion thereof)
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and (c) the filing of an application for the listing of additional shares with
the Nasdaq. The filing referred to in clause (a) above has been accomplished and
is effective. Our opinion herein is otherwise subject to the timely and proper
completion of all filings and other actions contemplated herein where such
filings and actions are to be undertaken on or after the date hereof.
8. Subject to the accuracy of the Investors' representations in Section
2 of the Agreement and their responses (if any) to the Company's inquiries, we
are of the opinion that the offer, sale and issuance of the Shares in conformity
with the terms of the Agreement constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended.
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This opinion is furnished to the Investors solely for their benefit in
connection with the purchase of the Shares, and may not be relied upon by any
other person or for any other purpose without our prior written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
6
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DISCLOSURE SCHEDULE
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3a. Organization
None.
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3b. Authorization; Enforcement
Series A Preferred Stock (Copies of the Certificate of Determination,
Subscription Agreement, Registration Rights Agreement and Warrant are attached
as Addendum 3b).
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3c. Capitalization
1. Series A Preferred Stock (See documents attached to Schedule
3b).
2. Sigma Designs 1994 Stock Option Plan.
3. Sigma Designs 1994 Director Stock Option Plan.
4. Active Design Stock Option Plan.
5. Each share of Common Stock incorporates a purchase right which
entitles the shareholder to buy, under certain circumstances,
one newly issued share of the Common Stock at an exercise
price per share of $75. The rights become exercisable if a
person or group acquires 20% or more of the Common Stock or
announces a tender or exchange offer for 30% or more of the
Common Stock under certain circumstances. In the event of
certain merger or sale transactions, each Right will then
entitle the holder to acquire shares having a value of twice
the Right's exercise price. The Company may redeem the Rights
at $.01 per Right prior to the earlier of the expiration of
the Rights on November 27, 1999 or at the time that 20% or
more of the Company's common stock has been acquired by a
person or group. Until the Rights become exercisable, they
have no dilutive effect on the earnings of the Company.
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3e. No Conflicts
Series A Preferred Stock (See documents attached to Schedule 3b).
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3g. Absence of Certain Changes
The Company incurred a charge to earnings related to accounts
receivable in the second quarter of fiscal year 1998. Please the attached
Quarterly Report on Form 10-Q dated as of September 12, 1997.
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3h. Absence of Litigation
1) The Company is the subject of:
A) A lawsuit filed by Phillips Electronics alleging a breach of
contract. Case number 774607-7 filed in Alameda County
Superior Court on March 6, 1997.
B) A lawsuit filed by Compudata, Inc. for an unpaid balance in
the amount of $10,600.00 Case Number 083920, Alameda County
Superior Court.
C) A lawsuit filed by Gregory Jones on February 26, 1997, former
V.P., Marketing, for wrongful termination and unpaid business
expenses, Case Number CV764366, Santa Clara County Superior
Court.
2) The Company has received a:
A) Letter dated August 8, 1995, from Tandy Corporation, regarding
dispute over outstanding amount allegedly owed.
B) Letter dated January 3, 1997 from attorney representing
Mindscope in re: alleged unpaid software development licensing
fee.
C) Verbal communication from counsel representing former employee
in lawsuit filed by the Company that cross-complaint may be
filed.
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3i. Patents, Copyrights, etc.
None.
-8-
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3k. Tax matters.
None.
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3l. Certain Transactions.
None.
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3r. Environmental Matters.
None.
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3t. Title to Property.
None.
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4d. Use of Proceeds.
The net proceeds to be received by the Company from the sale of the
Securities will be used for general corporate purposes.
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Addendum 3b.
(See Exhibits 4.1 and 4.2 of Registration Statement No. 333-33147.)
-14-
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January
30, 1998, by and among Sigma Designs, Inc., a California corporation, with its
headquarters located at 46501 Landing Parking, Fremont, California 94538 (the
"Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) shares of its Series B
Convertible Preferred Stock (the "Preferred Stock") that are convertible into
shares (the "Conversion Shares") of the Company's common stock, no par value per
share (the "Common Stock"), upon the terms and subject to the limitations and
conditions set forth in the Certificate of Determination of Rights, Preferences,
Privileges and Restrictions with respect to the Preferred Stock (the
"Certificate of Determination") and (ii) warrants (the "Warrants") to acquire
50,000 shares of Common Stock (the "Warrant Shares"), upon the terms and
conditions and subject to the limitations and conditions set forth in the
Warrants dated January 30, 1998; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
<PAGE>
(i) "Investors" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares and Warrant Shares issued or issuable and any shares of capital stock
issued or issuable as a dividend on or in exchange for or otherwise with respect
to any of the foregoing.
(iv) "Registration Statement" means a registration
statement of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to the date which is thirty (30) days after the date of the Closing
under the Securities Purchase Agreement (the "Closing Date"), file with the SEC
a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Preferred Stock and Warrants
issued or issuable pursuant to the Securities Purchase Agreement, which
Registration Statement, to the extent allowable under the 1933 Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Stock and exercise
of the Warrants (i) to prevent dilution resulting from stock splits, stock
dividends or similar transactions or (ii) by reason of changes in the Conversion
Price of the Preferred Stock in accordance with the terms thereof or the
exercise price of the Warrants in accordance with the terms thereof. The number
of shares of Common Stock initially included in such Registration Statement
shall be no less than two (2) times the sum of the number of Conversion Shares
and Warrant Shares that are then issuable upon conversion of the Preferred Stock
and the exercise of the Warrants without regard to any limitation on the
Investor's ability to convert the Preferred Stock or exercise the Warrants. The
Company acknowledges that the number of shares initially included in the
Registration Statement represents
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a good faith estimate of the maximum number of shares issuable upon conversion
and exercise of the Preferred Stock and Warrants.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
c. Payments by the Company. The Company shall use its best
efforts to obtain effectiveness of the Registration Statement as soon as
practicable. If (i) the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC within ninety (90) days after the Closing
Date or if, after the Registration Statement has been declared effective by the
SEC, sales cannot be made pursuant to the Registration Statement, or (ii) the
Common Stock is not listed or included for quotation on the Nasdaq National
Market System ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the
New York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX")
after being so listed or included for quotation, then the Company will make
payments to the Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay to each
holder of the Preferred Stock or Registerable Securities an amount equal to the
then outstanding principal amount of the Preferred Stock (and, in the case of
holders of Registerable Securities, the principal amount of Preferred Stock from
which such Registerable Securities were converted) ("Aggregate Share Price")
multiplied by the Applicable Percentage (as defined below) times the sum of: (i)
the number of months (prorated for partial months) after the end of such 90-day
period and prior to the date the Registration Statement is declared effective by
the SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investors to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) the number of
months (prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement or otherwise for any
reason outside the Investor's control, but excluding Allowed Delays (as defined
in Section 3(f))); and (iii) the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the Nasdaq,
Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted
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after the Registration Statement has been declared effective. The term
"Applicable Percentage" means one hundredth (.010) with respect to the first
thirty (30) days of any calculation under clause (i) of the sentence in which
the term is used, and two hundredths (.020) for any other purpose. (For example,
if the Registration Statement becomes effective one (1) month after the end of
such 90-day period, the Company would pay $10,000 for each $1,000,000 of
Aggregate Share Price. If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month, the Company
would pay an additional $20,000 for each $1,000,000 of Aggregate Share Price.)
Such amounts shall be paid in cash or, at each Investor's option, may be added
to the principal amount of the Preferred Stock and thereafter be convertible
into Common Stock at the "Conversion Price" (as defined in the Certificate of
Determination) in accordance with the terms of the Preferred Stock. Any shares
of Common Stock issued upon conversion of such amounts shall be Registrable
Securities. If the Investor desires to convert the amounts due hereunder into
Registrable Securities, it shall so notify the Company in writing within two (2)
business days of the date on which such amounts are first payable in cash and
such amounts shall be so convertible (pursuant to the mechanics set forth in the
Certificate of Determination), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding
4
<PAGE>
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
the Registration Statement to be filed pursuant to Section 2(a) in accordance
with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and
warrants that it meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
to the extent required to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than thirty (30) days after the Closing Date, a Registration Statement
with respect to the number of Registrable Securities provided in Section 2(a),
and thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as possible after
such filing, and keep the Registration Statement effective pursuant to Rule 415
at all times until such date as is the earlier of (i) the date on which all of
the Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Initial Investors) may
be immediately sold without restriction (including without limitation as to
volume by each holder thereof) without registration under the 1933 Act (the
"Registration Period"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein not misleading.
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b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover all of the Registrable Securities issued or issuable
upon conversion of the Preferred Stock and exercise of the Warrants, the Company
shall amend the Registration Statement, or file a new Registration Statement (on
the short form available therefore, if applicable), or both, so as to cover all
of the Registrable Securities, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. The provisions of
Section 2(c) above shall be applicable with respect to such obligation, with the
ninety (90) days running from the day after the date on which the Company
reasonably first determines (or reasonably should have determined) the need
therefor.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), each letter written by or on behalf of the Company
to the SEC or the staff of the SEC, and each item of correspondence from the SEC
or the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly file an acceleration request as soon as
practicable following the resolution or clearance of all SEC comments or, if
applicable, following notification by the SEC that the Registration Statement or
any amendment thereto will not be subject to review.
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d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of
the Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than forty-five (45) consecutive
trading days (or a total of not more than sixty (60) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under the Registration Statement until the end of
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the Allowed Delay. Upon expiration of the Allowed Delay, the Company shall again
be bound by the first sentence of this Section 3(f) with respect to the
information giving rise thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each
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<PAGE>
Inspector to enable each Inspector to exercise its due diligence responsibility,
and cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to an Investor) of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement, (b) the release of such Records is ordered pursuant
to a subpoena or other order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor's ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on the Nasdaq or, if not eligible for the Nasdaq on the Nasdaq
SmallCap and, without limiting the generality of
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<PAGE>
the foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel substantially
in the form attached hereto as Exhibit 2.
p. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has
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<PAGE>
notified the Company in writing of such Investor's election to exclude all of
such Investor's Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company.
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6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected
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<PAGE>
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof, and the Indemnified Person was promptly advised in writing not to use
the incorrect prospectus prior to the use giving rise to a Violation and such
Indemnified Person, notwithstanding such advice, used it. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party
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<PAGE>
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim relates
(with the approval of a majority-in-interest of the Initial Investors), if the
Investors are entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
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<PAGE>
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
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11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Sigma Designs, Inc.
46501 Landing Parkway
Fremont, California 94538
Attention: Chief Executive Officer
Facsimile: (510) 770-2640
With copy to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David Segre
Stephen Diamond
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
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c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into for Registrable Securities.
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k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
SIGMA DESIGNS, INC.
By:
--------------------------------------------------
Thinh Q. Tran
Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By:
---------------------------------------------------
Wayne D. Bloch
Managing Director
18
Exhibit 4.3
CERTIFICATE OF DETERMINATION OF
PREFERENCES OF SERIES B CONVERTIBLE PREFERRED STOCK
SIGMA DESIGNS, INC.
The undersigned, Thinh Q. Tran and Kit Tsui, hereby certify that:
1. They are the duly elected President and Secretary, respectively, of
Sigma Designs, Inc., a California corporation (the "Corporation").
2. The Corporation hereby designates Five Thousand (5,000) shares of
Series B Preferred Stock.
3. None of the shares of the Series B Preferred Stock have been
issued.
4. Pursuant to authority given by the Corporation's Second Restated
Articles of Incorporation, the Board of Directors of the Corporation has duly
adopted the following recitals and resolutions:
WHEREAS, the Second Restated Articles of Incorporation of the
Corporation provide for a class of shares known as Preferred Shares, issuable
from time to time in one or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized within
the limitations and restrictions stated in the Second Restated Articles of
Incorporation to determine or alter the rights, preferences, privileges, and
restrictions granted to or imposed on any wholly unissued series of Preferred
Shares, to fix the number of shares constituting any such series, and to
determine the designation thereof, or any of them; and
WHEREAS, the Corporation has previously issued Forty-Five Thousand
(45,000) shares of Preferred Stock designated as Series A Preferred Stock and
the Board of Directors of this Corporation desires to determine the rights,
preferences, privileges, and restrictions relating to this new series of
Preferred Stock, and the number of shares constituting said Series and the
designation of said series;
<PAGE>
NOW, THEREFORE, BE IT
RESOLVED: That the President and the Secretary of this Corporation are
each authorized to execute, verify and file a certificate of determination of
preferences with respect to the Series B Preferred Stock in accordance with the
laws of the State of California.
RESOLVED FURTHER: That the Board of Directors hereby determines the
rights, preferences, privileges and restrictions relating to said initial Series
of Preferred Stock shall be as set forth below:
A. Five thousand of the authorized shares of Preferred Stock of the
Corporation, none of which have been issued or are outstanding, are hereby
designated "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock").
B. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred Stock are as follows:
1. Rank. The Series B Preferred Stock shall rank (i) prior to
the Corporation's common stock, no par value per share (the "Common Stock");
(ii) prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series B Preferred Stock
obtained in accordance with Section 8 hereof, such class or series of capital
stock specifically, by its terms, ranks senior to the Series B Preferred Stock)
(collectively, with the Common Stock, "Junior Securities"); (iii) pari passu
with the Series A Preferred Stock and any class or series of capital stock of
the Corporation hereafter created specifically ranking, by its terms, on parity
with the Series B Preferred Stock ("Pari Passu Securities"); and (iv) junior to
any class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series B Preferred Stock obtained in accordance
with Section 8 hereof) specifically ranking, by its terms, senior to the Series
B Preferred Stock ("Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
2. Dividends Rights. The Series B Preferred Stock shall not
bear any dividends. In no event, so long as any Series B Preferred Stock shall
remain outstanding, shall any dividend whatsoever be declared or paid upon, nor
shall any distribution be made upon, any Junior Securities, nor shall any shares
of Junior Securities be purchased or redeemed by the Corporation nor shall any
moneys be paid to or made available for a sinking fund for the purchase or
redemption of any Junior Securities (other than a distribution of Junior
Securities), without, in each such case, the written consent of the holders of a
majority of the outstanding shares of Series B Preferred Stock, voting together
as a class. The stated value of the Series B Preferred Stock shall be one
Thousand Dollars ($1,000) per share (the "Stated Value").
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3. Voting Rights.
(a) The holders of the Series B Preferred Stock have
no voting power whatsoever, except as otherwise provided by the California
General Corporation Law ("CAGCL"), in this Section 3, and in Section 8 below.
(b) Notwithstanding the above, the Corporation shall
provide each holder of Series B Preferred Stock with prior notification of any
meeting of the shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Corporation of a record
of its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
(c) To the extent that under the CAGCL the vote of
the holders of the Series B Preferred Stock, voting separately as a class or
series as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series B Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series B Preferred Stock (except as otherwise may be required
under the CAGCL) shall constitute the approval of such action by the class. To
the extent that under the CAGCL holders of the Series B Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series B Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible using the record date for the taking of such vote of shareholders as
the date as of which the Conversion Price is calculated. Holders of the Series B
Preferred Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled to vote, which notice
would be provided pursuant to the Corporation's bylaws and the CAGCL.
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4. Liquidation Preference, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless, prior thereto, the holders of
shares of Series B Preferred Stock, subject to Section 6, shall have received
the Liquidation Preference (as defined in Section 4(c)) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series B Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series B
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate liquidation preference payable on all
such shares.
(b) So long as no shares of Series A Preferred Stock
are outstanding, at the option of any holder of Series B Preferred Stock, (i)
the sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, (ii) the effectuation by the Corporation of a transaction or
series of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or (iii) the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons in which the Corporation is not the survivor, shall either: (x) be
deemed to be a liquidation, dissolution or winding up of the Corporation
pursuant to which the Corporation shall be required to distribute upon
consummation of such transaction an amount equal to 115% of the Liquidation
Preference with respect to each outstanding share of Series B Preferred Stock in
accordance with and subject to the terms of this Section 4 or (y) be treated
pursuant to Section 6(e)(ii) below; provided, however, that no such distribution
pursuant to clause (x) above will be available and such event will be
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required to be treated pursuant to clause (y) above, where (i) the Company
undertakes such an event and plans to account for such event as a "pooling of
interests" in accordance with generally accepted accounting principles; and (ii)
the value of the distribution that would have been received pursuant to clause
(x) above would be less than the value of the Common Stock that would be
received upon conversion of the Series B Preferred Stock in accordance with
Section 6 below (treating the Trading Day (as defined in Section 6(d))
immediately preceding the date of such distribution as the "Conversion Date" (as
defined in Section 6(d)(i)). "Person" shall mean any individual, corporation,
limited liability company, partnership, association, trust or other entity or
organization.
(c) For purposes hereof, the "Liquidation Preference"
with respect to a share of the Series B Preferred Stock shall mean an amount
equal to the sum of (i) Stated Value thereof, plus (ii) an amount equal to three
percent (3%) per annum of such Stated Value for the period beginning on the date
of issuance of such share and ending on the date of final distribution to the
holder thereof (pro rated for any portion of such period). The liquidation
preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Determination filed in respect thereof.
5. Redemption.
(a) If any of the following events (each, a
"Mandatory Redemption Event") shall occur:
(i) The Corporation fails to issue shares of
Common Stock to the holders of Series B Preferred Stock upon exercise by the
holders of their conversion rights in accordance with the terms of this
Certificate of Determination (for a period of at least sixty (60) days if such
failure is solely as a result of the circumstances governed by the second
paragraph of Section 6(g) below and the Corporation is using all commercially
reasonable efforts to authorize a sufficient number of shares of Common Stock as
soon as practicable), fails to transfer or to cause its transfer agent to
transfer (electronically or in certificated form) any certificate for shares of
Common Stock issued to the holders upon conversion of the Series B Preferred
Stock as and when required by this Certificate of Determination or the
Registration Rights Agreement, dated as of January 30, 1998, by and among the
Corporation and the other signatories thereto (the "Registration Rights
Agreement"), fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate or any shares of
Common Stock issued to the holders of Series B Preferred Stock upon conversion
of the Series B Preferred Stock as and when required by this Certificate of
Determination, the Securities Purchase Agreement dated as of January 30, 1998,
by and between the Corporation and the other signatories thereto (the "Purchase
Agreement") or the Registration Rights Agreement, or fails to fulfill its
obligations pursuant to Sections 4(c), 4(e), 4(h), 4(j) or 5 of the Purchase
Agreement (or
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<PAGE>
makes any announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) business days;
(ii) The Corporation fails to obtain
effectiveness with the Securities and Exchange Commission (the "SEC") of the
Registration Statement (as defined in the Registration Rights Agreement) prior
to July 31, 1998 or such Registration Statement lapses in effect (or sales
otherwise cannot be made thereunder, whether by reason of the Company's failure
to amend or supplement the prospectus included therein in accordance with the
Registration Rights Agreement or otherwise for more than forty-five (45)
consecutive days or sixty (60) days in any twelve (12) month period after such
Registration Statement becomes effective; or
(iii) The Corporation shall fail to maintain
the listing of the Common Stock on the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange and such failure shall remain uncured for at least ten (10) days,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event at the option of the holders of a majority of the then
outstanding shares of Series B Preferred Stock by written notice (the "Series B
Shareholder Notice") to the Corporation of such Mandatory Redemption Event, so
long as no share of Series A Preferred Stock is outstanding, the Corporation
shall purchase each holder's shares of Series B Preferred Stock for an amount
per share equal to the greater of (1) 115% multiplied by the Stated Value of the
shares to be redeemed, and (2) the "parity value" of the shares to be redeemed,
where parity value means the product of (a) the maximum number of shares of
Common Stock issuable upon conversion of such shares in accordance with Section
6 below (without giving any effect to any limitations on conversion of shares
set forth in Sections 6(a) or 6(b) below, and treating the Trading Day (as
defined in Section 6(d)) immediately preceding the date of payment of Mandatory
Redemption Amount (the "Mandatory Redemption Date") as the "Conversion Date" (as
defined in Section 6(d)(i)) unless the Mandatory Redemption Event arises as a
result of a breach in respect of a specific Conversion Date in which case such
Conversion Date shall be the Conversion Date), multiplied by (b) the Closing
Price (as defined in Section 6(d) for the Common Stock on such "Conversion Date"
(the greater of such amounts being referred to as the "Mandatory Redemption
Amount"). The Mandatory Redemption Amount payable to any holder of Series B
Preferred Stock shall be reduced, dollar for dollar, by any Conversion Default
Payments previously paid to such holder pursuant to Sections 6(f)(ii) and 6(g)
and any payments previously paid to such holder pursuant to Section 2(c) of the
Registration Rights Agreement.
If a Series B Shareholder Notice is sent to the Corporation
while any share of Series A Preferred Stock is outstanding, in lieu of paying
the Mandatory Redemption Amount, (i) the
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Conversion Amount (as defined in Section 6(a)) shall equal the sum of the Stated
Value plus the Premium Amount (as defined in Section 6(a)) and (ii) the
Applicable Percentage (as defined in Section 6(d)) shall be reduced in
accordance with the proviso set forth in the definition of Applicable
Percentage.
In the case of a Mandatory Redemption Event, if the
Corporation fails to pay the Mandatory Redemption Amount for each share within
five (5) business days of written notice that such amount is due and payable,
then (assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series B Preferred Stock shall have the right
at any time, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to immediately issue (in accordance with and
subject to the terms of Section 6 below), in lieu of the Mandatory Redemption
Amount, with respect to each outstanding share of Series B Preferred Stock held
by such holder, the number of shares of Common Stock of the Corporation equal to
the Mandatory Redemption Amount divided by the Conversion Price then in effect.
(b) If the Series B Preferred Stock ceases to be
convertible as a result of the limitations described in Section 6(c) below (a
"19.99% Redemption Event"), and the Corporation has not prior to, or within
thirty (30) days of, the date that such 19.99% Redemption Event arises, (i)
obtained approval of the issuance of the additional shares of Common Stock by
the requisite vote of the holders of the then-outstanding Common Stock (not
including any shares of Common Stock held by present or former holders of Series
B Preferred Stock that were issued upon conversion of Series B Preferred Stock)
or (ii) received other permission pursuant to Nasdaq Requirement 4460(i)
allowing the Corporation to resume issuances of shares of Common Stock upon
conversion of Series B Preferred Stock or the Corporation's Common Stock is not
then listed on The Nasdaq Stock Market or an exchange or quotation system that
has a rule substantially similar to Rule 4460(i) of The Nasdaq Stock Market,
then the Corporation shall be obligated to redeem, out of the Corporation's
funds legally available therefor, immediately all of the then outstanding Series
B Preferred Stock, in accordance with this Section 5(b). An irrevocable
Redemption Notice shall be delivered promptly to the holders of Series B
Preferred Stock at their registered address appearing on the records of the
Corporation and shall state (1) that 19.99% of the Outstanding Common Amount (as
defined in Section 6(d)) has been issued upon exercise of the Series B Preferred
Stock, (2) that the Corporation is obligated to redeem all of the outstanding
Series B Preferred Stock and (3) the Mandatory Redemption Date, which shall be a
date within ten (10) business days of the date of the Redemption Notice. On the
Mandatory Redemption Date, the Corporation shall make payment of the Mandatory
Redemption Amount (as defined in Section 5(a) above) in cash.
(c) At any time after July 31, 1998 (the "First
Optional Redemption Date"), notwithstanding anything to the contrary contained
in this Section 5, so long as (i) no Mandatory Redemption Event shall have
occurred and be continuing, (ii) the Registration
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Statement is then in effect and has been in effect and sales can be made
thereunder for at least twenty (20) days prior to the Optional Redemption Date
(as defined below) and (iii) the Closing Bid Price (as defined in Section 6(b))
of the Common Stock, is greater than 150% of the Fixed Conversion Price (as
defined in Section 6(d)(i)) for any twenty (20) consecutive Trading Days (as
defined below), the Corporation shall have the right, exercisable on not less
than thirty (30) days prior written notice to the holders of Series B Preferred
Stock (which notice may not be sent to the holders of the Series B Preferred
Stock prior to the First Optional Redemption Date), to redeem the outstanding
shares of Series B Preferred Stock in accordance with this Section 5(c). The
First Optional Redemption Date shall be delayed by one (1) Trading Day each for
each Trading Day occurring prior thereto and prior to the full conversion of the
Series B Preferred Stock that (i) sales cannot be made pursuant to the
Registration Statement (whether by reason of the Company's failure to properly
supplement or amend the prospectus included therein in accordance with the terms
of the Registration Rights Agreement or otherwise) or (ii) any Mandatory
Redemption Event (as defined in Section 5(a)) exists, without regard to whether
any cure periods shall have run. Any notice of redemption hereunder (an
"Optional Redemption") shall be delivered to the holders of Series B Preferred
Stock at their registered addresses appearing on the books and records of the
Corporation and shall state (1) that the Corporation is exercising its right to
redeem the number of shares of Series B Preferred Stock issued on the date of
issuance of such shares (the "Issue Date") set forth in such notice and (2) the
date of redemption (the "Optional Redemption Notice"). On the date fixed for
redemption (the "Optional Redemption Date"), the Corporation shall make payment
of the Optional Redemption Amount (as defined below) to or upon the order of the
holders as specified by the holders in writing to the Corporation at least one
(1) business day prior to the Optional Redemption Date. If the Corporation
exercises its right to redeem the Series B Preferred Stock, the Corporation
shall make payment to the holders of an amount in cash (the "Optional Redemption
Amount") equal to 100% multiplied by the Stated Value of the shares of Series B
Preferred Stock to be redeemed for each share of Series B Preferred Stock then
held. Notwithstanding notice of an Optional Redemption, the holders shall at all
times prior to the Optional Redemption Date maintain the right to convert all or
any shares of Series B Preferred Stock in accordance with Section 6 and any
shares of Series B Preferred Stock so converted after receipt of an Optional
Redemption Notice and prior to the Optional Redemption Date set forth in such
notice and payment of the aggregate Optional Redemption Amount shall be deducted
from the shares of Series B Preferred Stock which are otherwise subject to
redemption pursuant to such notice. "Trading Day" shall mean any day on which
the Common Stock is traded for any period on Nasdaq, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded.
(d) Notwithstanding anything to the contrary in
Section 6 below, subject to the terms of this Section 5(d), if the Closing Price
(as defined below) of the Common Stock is below 70% of the Fixed Conversion
Price (as defined in Section 6(d)(i)) on any day a Notice of Conversion (as
defined in Section 6(f) below) is given, the Corporation shall have the option,
in lieu of issuing shares of Common Stock to the holders upon conversion in
accordance with the
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terms of Section (f) below, to redeem all or any portion of the shares of Series
B Preferred Stock submitted for conversion for an amount in cash equal to the
number of shares of Common Stock that would have otherwise been issued upon
conversion of the Series B Preferred Stock at the applicable Conversion Price
(as defined in Section 6(d)) multiplied by the Redemption Market Price (as
defined herein). "Redemption Market Price" shall be equal to the Closing Price
of the Common Stock on the Conversion Date. "Closing Price," as of any date,
means the last sale price of the Common Stock on the Nasdaq National Market as
reported by Bloomberg Financial Markets or an equivalent, reliable reporting
service mutually acceptable to and hereafter designated by the holders of a
majority in interest of the shares of Series B Preferred Stock and the
Corporation ("Bloomberg") or, if The Nasdaq National Market is not the principal
trading market for such security, the last sale price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last sale
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no last sale price of
such security or in the over-the-counter market on the electronic bulletin board
for such security in any of the foregoing manners, the average of the bid prices
of any market makers for such or security as reported in the "pink sheets" by
the National quotation Bureau, Inc. If the Closing Price cannot be calculated
for such security on such date in the manner provided above, the Closing Price
shall be the fair market value as mutually determined by the Corporation and the
holders of a majority in interest of shares of Series B Preferred Stock being
converted for which the calculation of the Closing Price is required in order to
determine the Conversion Price of such Series B Preferred Stock. From time to
time following the Issue Date, the holders may request advance notice as to
whether the Corporation will issue shares of Common Stock, deliver cash in
redemption or any combination thereof in respect of the shares of Series B
Preferred Stock submitted for conversion pursuant to Section 6. Such request
shall be made in writing and the Corporation shall respond in writing as
promptly as practicable but within two (2) business days of receipt of the
request. The Corporation will be bound by such response for a period of twenty
(20) Trading Days from the date of its response. A failure to respond within two
(2) business days shall be deemed to be an election to issue Common Stock on
conversion. Any redemption amounts payable hereunder shall be paid to the
converting holder within two (2) Trading Days of the Conversion Date.
6. Conversion at the Option of the Holder.
(a) Subject to the conversion schedule set
forth in Section 6(b)(i) below, each holder of shares of Series B Preferred
Stock may, at its option at any time and from time to time, upon surrender of
the certificates therefor, convert any or all of its shares of Series B
Preferred Stock into Common Stock as follows (an "Optional Conversion"). Each
share of Series B Preferred Stock shall be convertible into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (1)
the Conversion Amount (as defined below), by (2) the then effective Conversion
Price (as defined below); provided, however, that, unless the holder delivers a
waiver in accordance with the immediately following sentence, in no
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event (other than pursuant to the Automatic Conversion (as defined herein))
shall a holder of shares of Series B Preferred Stock be entitled to convert any
such shares in excess of that number of shares upon conversion of which the sum
of (x) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series B Preferred Stock) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series B Preferred Stock with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by a holder and such holder's affiliates of more than
4.9% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, (i) beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso and (ii) a holder may waive the limitations set forth
therein by written notice to the Corporation upon not less than sixty-one (61)
days prior written notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period). The "Conversion Amount"
shall equal the Stated Value; provided, however, that if a Mandatory Redemption
Notice is sent while any share of Series A Preferred Stock is outstanding, the
Conversion Amount shall equal the sum of (a) the Stated Value, plus (b) the
Premium Amount where the "Premium Amount" means the product of the Stated Value,
multiplied by .08, multiplied by (N/365) where "N" equals the number of days
elapsed from the Issue Date to and including the date the last Mandatory
Redemption Event ceased to occur prior to the Conversion Date (as defined below)
or, if a Mandatory Redemption Event is continuing on the Conversion Date, the
Conversion Date.
(b) Limitations on Conversion.
(i) Each holder of shares of Series B
Preferred Stock may convert only up to that percentage of the aggregate Stated
Value of all shares of Series B Preferred Stock received by such holder on the
Issue Date specified below during the time period set forth opposite such
percentage.
Percentage Time Period
0% 1-180 days following the Issue Date
33.3% 181-210 days following the Issue Date
66.6% 211-240 days following the Issue Date
100% 241 days following the Issue Date
; provided, however, that the restrictions on conversion set forth above shall
not apply, to conversions taking place on any Conversion Date (as defined below)
(i) after April 30, 1998, if on the Conversion Date the Closing Price of the
Common Stock is greater than or equal to (a) the Fixed Conversion Price (as
defined in Section 6(d)(i)) or (b) 120% times the then applicable
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Market Price (as defined in Section 6(d)(i)) or (ii) on or after the date the
Corporation makes a public announcement that it intends to merge or consolidate
with any other corporation or sell or transfer substantially all of the assets
of the Corporation or (iii) on or after the date any person, group or entity
(including the Corporation) publicly announces a tender offer to purchase 50% or
more of the Corporation's Common Stock or otherwise publicly announces an
intention to replace a majority of the Corporation's Board of Directors by
waging a proxy battle or otherwise.
(ii) In addition to the limitation set forth
in Section 6(b)(i) above, and notwithstanding anything else contained herein to
the contrary, the Company may prohibit holders of shares of Series B Preferred
Stock from converting any shares of Series B Preferred Stock (the "Conversion
Limitation") for a period of thirty (30) calendar days (the "Conversion
Limitation Period"), provided that the Company provides each holder of the
Series B Preferred Stock with at least ten (10) Trading Days prior written
notice of its intent to exercise the Conversion Limitation. The Company shall
have the right to exercise a Conversion Limitation only one time, and upon the
exercise of the Conversion Limitation, the Fixed Conversion Price for all
conversions effected after the exercise of the Conversion Limitation shall equal
the lesser of (i) 110% times the average of the Closing Bid Prices (as defined
below) for the Common Stock for the five (5) Trading Days ending on the last day
of the Conversion Limitation Period and (ii) 150% of the average of the Closing
Bid Prices for the Common Stock for the five (5) Trading Days ending February
27, 1998. "Closing Bid Price" means, for any security as of any date, the
closing bid price on The Nasdaq National Market as reported by Bloomberg or, if
The Nasdaq National Market is not the principal trading market for such
security, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security or in any of the foregoing manners, the average of the bid prices
of any market makers for such security or as reported in the "pink sheets" by
the National quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series B
Preferred Stock being converted for which the calculation of the Trade Price is
required in order to determine the Conversion Price of such Series B Preferred
Stock.
(c) So long as the Common Stock is listed for trading
on Nasdaq or an exchange or quotation system that has a rule substantially
similar to Rule 4460(i) then, notwithstanding anything to the contrary contained
herein if, at any time, the aggregate number of shares of Common Stock then
issued upon conversion of the Series B Preferred Stock (including any shares of
capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued or
issuable upon conversion of the Series B Preferred Stock for purposes of such
rule described below) equals 19.99% of the
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"Outstanding Common Amount" (as hereinafter defined), the Series B Preferred
Stock shall, from that time forward, cease to be convertible into Common Stock
in accordance with the terms of this Section 6(a) and Section 7 below, unless
the Corporation (i) has obtained approval of the issuance of the Common Stock
upon conversion of the Series B Preferred Stock by a majority of the total votes
cast on such proposal, in person or by proxy, by the holders of the
then-outstanding Common Stock (not including any shares of Common Stock held by
present or former holders of Series B Preferred Stock that were issued upon
conversion of Series B Preferred Stock), or (ii) shall have otherwise obtained
permission to allow such issuances from Nasdaq in accordance with Nasdaq
Requirement 4460(i) or the Corporation's Common Stock is not then listed on the
Nasdaq Stock Market or an exchange or quotation system that has a rule
substantially similar to Rule 4460(i) of The Nasdaq Stock Market. For purposes
of this paragraph, "Outstanding Common Amount" means (i) the number of shares of
the Common Stock outstanding on the date of issuance of the Series B Preferred
Stock pursuant to the Purchase Agreement plus (ii) any additional shares of
Common Stock issued thereafter in respect of such shares pursuant to a stock
dividend, stock split or similar event. The maximum number of shares of Common
Stock issuable as a result of the 19.99% limitation set forth herein is
hereinafter referred to as the "Maximum Share Amount." With respect to each
holder of Series B Preferred Stock, the Maximum Share Amount shall refer to such
holder's pro rata share thereof determined in accordance with Section 9 below.
In the event that Corporation obtains Stockholder Approval or the approval of
The Nasdaq Stock Market, by reason of the inapplicability of the rules of The
Nasdaq Stock Market or otherwise and concludes that it is able to increase the
number of shares to be issued above the Maximum Share Amount (such increased
number being the "New Maximum Share Amount"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to the greater New
Maximum Share Amount. In the event that Stockholder Approval is not obtained,
there are insufficient reserved or authorized shares or a registration statement
covering the additional shares of Common Stock which constitute the New Maximum
Share Amount is not effective prior to the Maximum Share Amount being issued (if
such registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the Holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the effective date of such registration
statement. In the event that (a) the aggregate number of shares of Common Stock
issued pursuant to the outstanding Series B Preferred Stock represents at least
twenty percent (20%) of the Maximum Share Amount and (b) the sum of (x) the
aggregate number of shares of Common Stock issued upon conversion of Series B
Preferred Stock plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of Series B Preferred Stock, represents at least
one hundred percent (100%) of the Maximum Share Amount (the "Triggering Event"),
the Corporation will use its best efforts to seek and obtain Stockholder
Approval (or obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable following the
Triggering Event and before the Mandatory Redemption Date.
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(d) Conversion Price. (i) Subject to subparagraph
(ii) below, the "Conversion Price" shall be the lesser of the Market Price (as
defined herein) and the Fixed Conversion Price (as defined herein), subject to
adjustments pursuant to the provisions of Section 6(e) below. Prior to the
determination of the Fixed Conversion Price, the Conversion Price shall be the
Market Price. "Market Price" shall mean the Applicable Percentage (as defined
below) times the average of the lowest six (6) daily Trade Prices of the Common
Stock, during the twenty (20) Trading Day period ending one (1) Trading Day
prior to the date (the "Conversion Date") the Conversion Notice is sent by a
holder to the Corporation via facsimile (the "Pricing Period"). "Fixed
Conversion Price" shall mean 150% of the average Closing Bid Prices for the five
(5) Trading Days ending February 27, 1998. "Trade Price" means, for any security
as of any date, the trade price on The Nasdaq National Market as reported by
Bloomberg or, if The Nasdaq National Market is not the principal trading market
for such security, the trade price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the trade price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no trade price of such security in the
over-the-counter market on the electronic bulletin board for such security or in
any of the foregoing manners, the bid price of any market makers for such
security as reported in the "pink sheets" by the National quotation Bureau, Inc.
If the Trade Price cannot be calculated for such security on such date in the
manner provided above, the Trade Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in interest
of shares of Series B Preferred Stock being converted for which the calculation
of the Trade Price is required in order to determine the Conversion Price of
such Series B Preferred Stock. "Applicable Percentage" shall mean 100%;
provided, however, that if, while any share of Series A Preferred Stock is
outstanding, (a) there is a Mandatory Redemption Event described in Paragraphs
5(a)(i) and 5(a)(ii), the Applicable Percentage shall be permanently reduced to
80% and (b) there is a Mandatory Redemption Event described in paragraph
5(a)(iii) and the Applicable Percentage at such time equals 100%, the Applicable
Percentage shall be permanently reduced to 90%, subject to adjustment pursuant
to clause (a) of this proviso.
(ii) Notwithstanding anything contained in
subparagraph (i) of this Paragraph (d) to the contrary, in the event the
Corporation (i) makes a public announcement that it intends to consolidate or
merge with any other corporation (other than a merger in which the Corporation
is the surviving or continuing corporation and its capital stock is unchanged)
or sell or transfer all or substantially all of the assets of the Corporation or
(ii) any person, group or entity (including the Corporation) publicly announces
a tender offer to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
corporation's Board of Directors by waging a proxy battle or otherwise (the date
of the announcement referred to in clause (i) or (ii) is hereinafter referred to
as the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be
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equal to the lower of (x) the Conversion Price which would have been applicable
for an Optional Conversion occurring on the Announcement Date and (y) the
Conversion Price that would otherwise be in effect. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in subparagraph (i) of this Section 6(d). For purposes hereof,
"Adjusted Conversion Price Termination Date" shall mean the earlier of (x) one
hundred twenty (120) days from the Announcement Date or (y) with respect to any
proposed transaction, tender offer or removal of the majority of the Board of
Directors which a public announcement as contemplated by this subparagraph (ii)
has been made, the date upon which the Corporation (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed transaction or
tender offer which caused this subparagraph (ii) to become operative.
(e) Adjustments to Conversion Price. The Conversion
Price shall be subject to adjustment from time to time as follows:
(i) Adjustment to Conversion Price Due to
Stock Split, Stock Dividend, Etc. If at any time when Series B Preferred Stock
is issued and outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Average Trading Price (as defined
below) to all holders of Common Stock or other similar event, which event shall
have taken place during the reference period for determination of the Conversion
Price for any Optional Conversion or Automatic Conversion of the Series B
Preferred Stock, then the Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date
thereof. "Average Trading Price," which shall be measured as of the record date
in respect of the rights offering means (i) the average of the last reported
sale prices for the shares of Common Stock on Nasdaq as reported by Bloomberg,
as applicable, for the five (5) Trading Days immediately preceding such date, or
(ii) if Nasdaq is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the principal trading
market for the Common Stock during the same period as reported by Bloomberg, or
(iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Average Trading Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or, (b) at the option of a majority-in-interest of the holders of
the outstanding Series B Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
(ii) Adjustment Due to Merger,
Consolidation, Etc. If, at any time when Series B Preferred Stock is issued and
outstanding and prior to the conversion of all Series B Preferred Stock, there
shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the
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<PAGE>
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation, then the holders of Series B Preferred Stock
shall thereafter have the right to receive upon conversion of the Series B
Preferred Stock, upon the bases and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which the holders of
Series B Preferred Stock would have been entitled to receive in such transaction
had the Series B Preferred Stock been converted in full (without regard to any
limitations on conversion contained herein) immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the holders of Series B Preferred Stock
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock) shall thereafter
be applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the conversion of Series B Preferred Stock.
The Corporation shall not effect any transaction described in this subparagraph
(ii) unless (a) it first gives, to the extent practical, thirty (30) days' prior
written notice (but in any event at least ten (10) business days prior written
notice) of such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
holders of Series B Preferred Stock shall be entitled to convert the Series B
Preferred Stock) and (b) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of this subparagraph
(ii). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
(iii) Other Securities Offerings. If, at any
time after the original date of issuance of the Series B Preferred Stock, the
Corporation sells Common Stock or securities convertible into, or exchangeable
for, Common Stock, other than (a) a sale pursuant to a bona fide firm commitment
underwritten public offering of Common Stock by the Corporation (not including a
continuous offering pursuant to Rule 415 under the Securities Act of 1933, as
amended), (b) the issuance of securities under any Company stock option,
restricted stock option or employee stock purchase plan approved by a majority
of the Company's disinterested directors or as incentive related distributions
to employees approved by a majority of the Company's disinterested directors,
(c) the issuance of securities in connection with equipment financing or (d) the
issuance of securities in connection with any commercial bank financing
(collectively, the "Other Common Stock"), then, if the effective or maximum
sales price of the Common Stock with respect to such transaction (including the
effective or maximum conversion, or exchange price) ("Other Price") is less than
the effective Conversion Price of the Series B Preferred Stock at such time and
such Other Common Stock is eligible for resale prior to January 30, 1999, the
Corporation shall adjust the Conversion Price applicable to the Series B
Preferred Stock not yet converted in form and substance reasonably satisfactory
to the holders of Series B Preferred Stock so that the Conversion
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<PAGE>
Price applicable to the Series B Preferred Stock shall not, in any event, be
greater, after giving effect to all other adjustments contained herein, than the
Other Price.
(iv) Adjustment Due to Distribution. Subject
to Section 2, if the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to all holders of Common Stock as of a
certain date of record as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the
holders of Series B Preferred Stock shall be entitled, upon any conversion of
shares of Series B Preferred Stock after such date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the holder with respect to the shares of Common
Stock issuable upon such conversion had such holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(v) Purchase Rights. Subject to Section 2 if
at any time when any Series B Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series B
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series B Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(vi) Adjustment for Restricted Periods. In
the event that (1) the Corporation fails to obtain effectiveness with the
Securities and Exchange Commission of the Registration Statement (as defined in
the Registration Rights Agreement) prior to ninety (90) days following the Issue
Date, or (2) such Registration Statement lapses in effect, or sales otherwise
cannot be made thereunder, whether by reason of the Corporation's failure or
inability to amend or supplement the prospectus (the "Prospectus") included
therein in accordance with the Registration Rights Agreement or otherwise, after
such Registration Statement becomes effective, then the Pricing Period shall be
comprised of, (i) in the case of an event described in clause (1), the twenty
(20) Trading Days preceding the 90th day following the Issue Date plus all
Trading Days through and including the third Trading Day following the date of
effectiveness of the Registration Statement; and (ii) in the case of an event
described in clause (2), the number of Trading Days preceding the date on which
the holder of the Series B Preferred Stock is first notified that sales may not
be made under the Prospectus that would otherwise then be included in the
Pricing Period in accordance with the definition thereof set forth in Section
6(d)(i), plus all Trading Days through and including the third Trading Day
following the date on which the Holder is first notified that such sales may
again be made under the Prospectus. If a holder of Series B Preferred Stock
determines that sales may not be made pursuant to the Prospectus (whether by
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<PAGE>
reason of the Corporation's failure or inability to amend or supplement the
Prospectus) it shall so notify the Corporation in writing and, unless the
Corporation provides such holder with a written opinion of the Corporation's
counsel to the contrary, such determination shall be binding for purposes of
this paragraph.
(vii) Notice of Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 6(e), the Corporation, at its expense, shall promptly compute
such adjustment or readjustment and prepare and furnish to each holder of Series
B Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series B Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time
in effect and (iii) the number of shares of Common Stock and the amount, if any,
of other securities or property which at the time would be received upon
conversion of a share of Series B Preferred Stock.
(f) Mechanics For Conversion. In order to convert
Series B Preferred Stock into full shares of Common Stock, a holder of Series B
Preferred Stock shall: (i) submit a copy of the fully executed notice of
conversion in the form attached hereto as Exhibit A ("Notice of Conversion") to
the Corporation by facsimile dispatched on the Conversion Date (or by other
means resulting in notice to the Corporation on the Conversion Date) at the
office of the Corporation or its designated Transfer Agent for the Series B
Preferred Stock that the holder elects to convert the same, which notice shall
specify the number of shares of Series B Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
each certificate to be converted) prior to Midnight, New York City time (the
"Conversion Notice Deadline") on the date of conversion specified on the Notice
of Conversion; and (ii) surrender the original certificates representing the
Series B Preferred Stock being converted (the "Preferred Stock Certificates"),
duly endorsed, along with a copy of the Notice of Conversion to the office of
the Corporation or the Transfer Agent for the Series B Preferred Stock as soon
as practicable thereafter. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Company or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (i) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (ii) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than two (2) business days from the time it
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<PAGE>
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon
receipt by the Corporation of evidence of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing shares of Series B
Preferred Stock, and (in the case of loss, theft or destruction) of indemnity
reasonably satisfactory to the Corporation, and upon surrender and cancellation
of the Preferred Stock Certificate(s), if mutilated, the Corporation shall
execute and deliver new Preferred Stock Certificate(s) of like tenor and date.
(ii) Delivery of Common Stock Upon
Conversion. Upon the surrender of certificates as described above together with
a Notice of Conversion, the Corporation shall issue and, within three (3)
business days after such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of agreement and indemnification pursuant to
subparagraph (i) above) (the "Delivery Period"), deliver (or cause its Transfer
Agent to so issue and deliver) to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of Series B
Preferred Stock converted as shall be determined in accordance herewith and (ii)
a certificate representing the balance of the shares of Series B Preferred Stock
not converted, if any. In addition to any other remedies available to the
holder, including actual damages and/or equitable relief, the Corporation shall
pay to a holder $1,000 per day in cash for each day beyond a two (2) day grace
period following the Delivery Period that the Corporation fails to deliver
Common Stock (a "Conversion Default") issuable upon surrender of shares of
Series B Preferred Stock with a Notice of Conversion until such time as the
Corporation has delivered all such Common Stock (the "Conversion Default
Payments"). Such cash amount shall be paid to such holder by the fifth day of
the month following the month in which it has accrued or, at the option of the
holder (by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into Common
Stock in accordance with the terms of this Section 6. The maximum amount of
damages payable by the Corporation to all holders of Series B Preferred Stock
pursuant to this paragraph 6(f)(ii) shall be $10,000.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Section 6(a)-(c) and in this Section
6(f), the Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
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(iii) No Fractional Shares. If any
conversion of Series B Preferred Stock would result in a fractional share of
Common Stock or the right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon Conversion of the Series B Preferred Stock shall be the next
higher number of shares.
(iv) Conversion Date. The "Conversion Date"
shall be the date specified in the Notice of Conversion, provided that the
Notice of Conversion is submitted by facsimile (or by other means resulting in
notice) to the Corporation or its Transfer Agent before Midnight, New York City
time, on the Conversion Date. The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such securities as of the Conversion
Date and all rights with respect to the shares of Series B Preferred Stock
surrendered shall forthwith terminate except the right to receive the shares of
Common Stock or other securities or property issuable on such conversion and
except that the holders preferential rights as a holder of Series B Preferred
Stock shall survive to the extent the corporation fails to deliver such
securities.
(g) Reservation of Stock Issuable Upon Conversion. A
number of shares of the authorized but unissued Common Stock sufficient to
provide for the conversion of the Series B Preferred Stock outstanding at the
then current Conversion Price shall at all times be reserved by the Corporation,
free from preemptive rights, for such conversion or exercise. As of the date of
issuance of the Series B Preferred Stock, 3,300,000 authorized and unissued
shares of Common Stock have been duly reserved for issuance upon conversion of
the Series B Preferred Stock (the "Reserved Amount"). The Reserved Amount shall
be increased from time to time in accordance with the Company's obligations
pursuant to Section 4(h) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Preferred Stock shall be convertible at the then
current Conversion Price, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series B Preferred Stock.
If at any time a holder of shares of Series B Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Section 6 (a "Conversion
Default"), the Corporation shall issue to the holder (or holders, if more than
one holder submits a Notice of Conversion in respect of the same Conversion
Date, pro rata based on the ratio that the number of shares of Series B
Preferred Stock then held by each such holder bears to the aggregate number of
such shares held by such holders) all of the shares of Common Stock which are
available to effect such conversion. The number of shares of Series B Preferred
Stock included in the Notice of Conversion which exceeds the amount which is
then
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convertible into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by the holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following a Conversion
Default. In addition, the Corporation shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (a)
(N/365), multiplied by (b) the sum of the Stated Value plus the Premium Amount
(if any) per share of Series B Preferred Stock through the Authorization Date
(as defined below), multiplied by (c) the Excess Amount on the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date"), multiplied by (d) .20, where (i) N = the number of
days from the Conversion Default Date to the date (the "Authorization Date")
that the Corporation authorizes a sufficient number of shares of Common Stock to
effect conversion of the full number of shares of Series B Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the Conversion Price, at the holder's option, as follows:
(i) In the event the holder elects to take
such payment in cash, cash payment shall be made to holder by the fifth day of
the month following the month in which it has accrued; and
(ii) In the event the holder elects to take
such payment in Common Stock, the holder may convert such payment amount into
Common Stock at the Conversion Price (as in effect at the time of Conversion) at
any time after the fifth day of the month following the month in which it has
accrued in accordance with the terms of this Section 6 (so long as there is then
a sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
(h) Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 6, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate setting forth such adjustment
or
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<PAGE>
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series B Preferred Stock.
(i) Status as Stockholder. Upon submission of a
Notice of Conversion by a holder of Series B Preferred Stock, (i) the shares
covered thereby (other than the shares, if any, which cannot be issued because
their issuance would exceed such holder's allocated portion of the Reserved
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series B Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Determination.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series B Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series B Preferred Stock with respect to such unconverted shares of Series B
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series B Preferred Stock to the holder or, if such shares
of Series B Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series B Preferred Stock have not been converted. In
all cases, the holder shall retain all of its rights and remedies (including,
without limitation, the right to receive Conversion Default Payments pursuant to
Section 6(f) to the extent required thereby for such Conversion Default and any
subsequent Conversion Default).
7. Automatic Conversion. So long as the Registration Statement
is effective and there is not then a continuing Mandatory Redemption Event, each
share of Series B Preferred Stock issued and outstanding on January 30, 2000,
subject to any adjustment as set forth below (the "Automatic Conversion Date"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Section 6 hereof (the "Automatic Conversion"). The Automatic
Conversion Date shall be delayed by one (1) Trading Day each for each Trading
Day occurring prior thereto and prior to the full conversion of the Series B
Preferred Stock that (i) sales cannot be made pursuant to the Registration
Statement (whether by reason of the Company's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of the
Registration Rights Agreement or otherwise) or (ii) any Mandatory Redemption
Event (as defined in Section 5) exists, without regard to whether any cure
periods shall have run. The Automatic Conversion Date shall be the Conversion
Date for purposes of determining the Conversion Price
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<PAGE>
and the time within which certificates representing the Common Stock must be
delivered to the holder.
8. Protective Provisions. So long as shares of Series B
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by the CAGCL) of
the holders of at least a majority of the then outstanding shares of Series B
Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock or any Senior Securities so as to
affect adversely the Series B Preferred Stock;
(b) create any new class or series of capital stock
having a preference over the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Section 1 hereof, "Senior Securities");
(c) increase the authorized number of shares of
Series B Preferred Stock; or
(d) do any act or thing not authorized or
contemplated by this Certificate of Determination which would result in taxation
of the holders of shares of the Series B Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series B Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series B
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Determination as they exist prior to such alteration or
change or continue to hold their shares of Series B Preferred Stock.
9. Pro Rata Allocations. The Maximum Share Amount and the
Reserved Amount (including any increases thereto) shall be allocated by the
Corporation pro rata among the holders of Series B Preferred Stock based on the
number of shares of Series B Preferred Stock then held by each holder relative
to the total aggregate number of shares of Series B Preferred Stock then
outstanding.
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<PAGE>
IN WITNESS WHEREOF, the undersigned each declares under
penalty of perjury that the matters set out in the foregoing certificate are
true of his own knowledge, and the undersigned have executed this certificate at
Fremont, California as of the 30th day of January, 1998.
------------------------
Thinh Q. Tran
President
------------------------
Kit Tsui
Secretary
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert ______
shares of Series B Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Sigma Designs, Inc. (the "Corporation") according to the
conditions of the Certificate of Determination of Series B Preferred Stock, as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer taxes,
if any. A copy of each Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Series B Preferred Stock shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the
"Act"), or pursuant to an exemption from registration under the Act.
If the undersigned does not wish to have the Common Stock
delivered electronically by crediting the account of the undersigned's Prime
Broker with the Depository Trust Company through its Deposit Withdrawal
Agreement Conversion System, check here |_|
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series B Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Determination for the number of business
days such issuance and delivery is late.
Exhibit 4.4
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF JANUARY 30, 1998, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRA TION UNDER SUCH ACT OR
AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE
SECURITIES LAWS.
Right to
Purchase
50,000
Shares of
Common
Stock, no par
value per
share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS,
LDC or its registered assigns, is entitled to purchase from Sigma Designs, Inc.,
a California corporation (the "Company"), at any time or from time to time
during the period specified in
Paragraph 2 hereof, Fifty Thousand (50,000) fully paid and nonassessable shares
of the Company's Common Stock, no par value per share (the "Common Stock"), at
the Exercise Price (as defined below). The "Exercise Price" per share shall mean
130% of the average closing bid prices of the Common Stock for the five (5)
Trading Days ending April 30, 1998. The term "Warrant Shares," as used herein,
refers to the shares of Common Stock purchasable hereunder. The Warrant Shares
and the Exercise Price are subject to adjustment as provided in Paragraph 4
hereof. The term Warrants means this Warrant and the other warrants issued
pursuant to that certain Securities Purchase Agreement, dated January 30, 1998,
by and among the Company and the Buyers listed on the execution page thereof
(the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in
no event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series B Preferred Stock (as
defined in the Securities Purchase Agreement) and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrants (or portions thereof) with
respect to which the determination described
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<PAGE>
herein is being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, (i) beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof and (ii) the Holder may waive the limitations set forth
therein by written notice to the Company upon not less than sixty-one (61) days
prior written notice (with such waiver taking effect only upon the expiration of
such 61 day notice period).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after April 30, 1998 and before 5:00 p.m., New York City time
on April 30, 2001 (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a suf ficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter 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 to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
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<PAGE>
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Paragraphs 4(c) and
4(e) hereof, if and whenever on or after the date of issuance of this Warrant,
the Company issues or sells, or in accordance with Paragraph 4(b) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection therewith)
less than the Market Price (as hereinafter defined) on the date of issuance (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Exercise
Price will be reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance. The term "Dilutive Issuance" shall not include (i) the
issuance of securities under any Company stock option, restricted stock option
or employee stock purchase plan approved by a majority of the Company's
disinterested directors or as incentive related distributions to employees
approved by a majority of the Company's disinterested directors, (ii) the
issuance of securities in connection with equipment financing or (iii) the
issuance of securities in connection with any commercial bank financing.
(b) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for
4
<PAGE>
the issuance or granting of all such Options, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the exercise of
all such Options, plus, in the case of Convertible Securities issuable upon the
exercise of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Options or upon
the conversion or exchange of Convertible Securities issuable upon exercise of
such Options.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance, then the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the "price per share for which Common
Stock is issuable upon such conversion or exchange" is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If
there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration
5
<PAGE>
or termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or
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<PAGE>
conveyance of all or substantially all of the assets of the Company other than
in connection with a plan of complete liquidation of the Company, then as a
condition of such consolidation, merger or sale or conveyance, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the shares of
Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless on or prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Paragraph 4 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (including cash) to holders of all Common
Stock as of a certain date of record as a partial liquidating dividend, by way
of return of capital or otherwise, then, after such date of record for
determining stockholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets which would have been payable to
the holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(j) Other Notices. In case at any time:
7
<PAGE>
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 20 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
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(ii) "Market Price," as of any date, (i) means the
average of the last reported sale prices for the shares of Common Stock on the
Nasdaq National Market ("Nasdaq") for the five (5) trading days immediately
preceding such date as reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if
Nasdaq is not the principal trading market for the shares of Common Stock, the
average of the last reported sale prices on the principal trading market for the
Common Stock during the same period as reported by Bloomberg, or (iii) if market
value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph
4, includes the Common Stock, no par value per share, and any additional class
of stock of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, no par value per share, in respect of which
this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in accordance
with the provisions of that certain Registration
9
<PAGE>
Rights Agreement, dated as of January 30, 1998, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
10
<PAGE>
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 46501 Landing Parkway,
Fremont, California 94538, Attention: Chief Executive Officer, or at such other
address as shall have been furnished to the holder of this Warrant by notice
from the Company. Any such notice, request, or other communication may be sent
by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) Cashless Exercise. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SIGMA DESIGNS, INC.
By:_________________________
Thinh Q. Tran
President
Dated as of January 30, 1998
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FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________________
Signature: ______________________________
Address: ________________________________
________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
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<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
__________________
Name: ___________________________________
Signature: _________________________
Title of Signing Officer or Agent (if any):
___________________________________
Address: ___________________________
___________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
14
EXHIBIT 5.1
March 12, 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 the Registration Statement on Form S-3 to be filed by
you with the Securities and Exchange Commission on March 11, 1998 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 3,405,000 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
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of Sigma Designs, Inc. on Form S-3 of our report dated February 28,
1997, appearing in the Annual Report on Form 10-K of Sigma Designs, Inc. for the
year ended January 31, 1997 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
March 9, 1998
