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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1997
REGISTRATION NO. 333-25365
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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3DFX INTERACTIVE, INC.
(Exact name of Registrant as specified in its charter)
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CALIFORNIA 3674 77-0390421
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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3DFX INTERACTIVE, INC.
4435 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 935-4400
(Address and telephone number of Registrant's principal executive offices)
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GARY P. MARTIN
VICE PRESIDENT, ADMINISTRATION AND
CHIEF FINANCIAL OFFICER
3DFX INTERACTIVE, INC.
4435 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 935-4400
(Name, address and telephone number of agent for service of process)
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Copies to:
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ROBERT P. LATTA, ESQ. THOMAS A. BEVILACQUA, ESQ.
WILSON SONSINI GOODRICH & ROSATI BROBECK PHLEGER & HARRISON LLP
PROFESSIONAL CORPORATION TWO EMBARCADERO PLACE
650 PAGE MILL ROAD 2200 GENG ROAD
PALO ALTO, CA 94304 PALO ALTO, CA 94303
(415) 493-9300 (415) 424-0160
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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, check the following box. [ ]
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 this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, no par value.............................. $41,055,000 $12,441(2)
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(1) Estimated solely for the purpose of computing the amount of the registration
fee. The estimate is made pursuant to Rule 457(o) of the Securities Act of
1933, as amended.
(2) Previously paid.
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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.
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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 MAY 22, 1997
[L O G O]
3,000,000 SHARES
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being sold
by 3Dfx Interactive, Inc. ("3Dfx" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. Electronic
Arts Inc. ("Electronic Arts") has agreed to purchase from the Underwriters $3.0
million of the shares of Common Stock offered hereby at a price per share of
$ (the Price to Public less the Underwriting Discounts and Commissions).
See "Investment By Electronic Arts." It is currently estimated that the initial
public offering price will be between $9.00 and $11.00 per share. See
"Underwriting" for information relating to the method of determining the initial
public offering price.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 6.
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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 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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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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Per Share.................................... $ $ $
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Total(2)..................................... $ $ $
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(1) Before deducting expenses payable by the Company, estimated at $700,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
-------------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
MONTGOMERY SECURITIES
UBS SECURITIES
The date of this Prospectus is , 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER ALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET AND MAY
IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
Image courtesy of GameFx(C) 1997 GameFx.
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION 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 UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR 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 CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Summary........................................................................... 4
Risk Factors...................................................................... 6
Investment by Electronic Arts..................................................... 20
Use of Proceeds................................................................... 20
Dividend Policy................................................................... 20
Capitalization.................................................................... 21
Dilution.......................................................................... 22
Selected Financial Data........................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 24
Business.......................................................................... 32
Management........................................................................ 50
Certain Transactions.............................................................. 59
Principal Shareholders............................................................ 60
Description of Capital Stock...................................................... 62
Shares Eligible for Future Sale................................................... 64
Underwriting...................................................................... 66
Legal Matters..................................................................... 68
Experts........................................................................... 68
Additional Information............................................................ 68
Index to Financial Statements..................................................... F-1
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The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each year
containing interim unaudited financial information. Upon completion of the
offering contemplated hereby, the Company will be subject to the informational
requirements of the Securities and Exchange Act of 1934, and in accordance
therewith, will be filing reports and other information with the Securities and
Exchange Commission.
Glide, Obsidian, Voodoo Graphics and Voodoo Rush and the 3Dfx logo are
trademarks of the Company. All other trademarks or tradenames referred to in
this Prospectus are the property of their respective owners.
The Company was incorporated in California in August 1994. The Company's
executive offices are located at 4435 Fortran Drive, San Jose, California 95134
and its telephone number at that address is (408) 935-4400.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. Prospective investors should consider carefully the
information discussed under "Risk Factors." This Prospectus 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" and elsewhere in this Prospectus.
THE COMPANY
3Dfx Interactive is a leading developer of high performance, cost-effective
3D media processors, software and related technology for the interactive
electronic entertainment market. The Company has developed 3D technology that
enables a highly immersive, interactive and realistic 3D experience across
multiple hardware entertainment platforms. Furthermore, the Company's technology
facilitates the virtually seamless portability of software content across the
three primary interactive electronic entertainment platforms: the PC, the home
game console and the coin-operated ("coin-op") arcade system. The Company's
strategy is to provide a 3D media processor solution comprised of hardware and
embedded software designed around a common architecture that will become the
standard graphics engine for the interactive electronic entertainment market.
The Company believes that the benefits of its technology, coupled with its
software content strategy, provide powerful incentives for the leading PC
original equipment manufacturers ("OEMs") and entertainment hardware
manufacturers to utilize the 3Dfx solution.
The growth of the interactive electronic entertainment market has been
constrained by the absence of a high performance, cost-effective 3D solution,
the lack of an architecture that facilitates virtually seamless porting across
the three primary platforms and the limited number of high quality 3D software
titles. The implementation of 3D graphics is extremely complex and
mathematically intensive and requires significant computing power. Consequently,
despite the desirability of 3D graphics, high quality 3D continues to remain a
niche technology not prevalent outside of high-end engineering workstation and
professional applications. To date, attempts to bring high quality, affordable
3D solutions to the entertainment market have required consumers to accept a
trade-off between visual realism, or fill rate, and gaming performance, or frame
rate. Today, the interactive electronic entertainment industry is demanding a
no-compromise 3D solution that will deliver both visual realism and performance
at a cost-effective price. The solution must also drive content development by
enabling developers to create a new generation of high quality 3D software that
delivers a realistic and immersive experience.
The Company's technology is optimized to alleviate the traditional consumer
trade-off between visual quality and gaming performance by providing a 3D
solution with both high fill rates and frame rates. To that end, the Company's
technology enables a highly immersive, interactive 3D experience with compelling
graphics, realistic motion and complex character and scene interaction at real
time frame rates. In addition, the Company's technology embodies a single
hardware/software architecture that can be deployed as the graphics engine for
each of the three primary interactive electronic entertainment platforms. To
promote the rapid adoption of its products, the Company's architecture supports
most industry standard 3D application programming interfaces ("APIs"), including
Apple Computer's Rave3D, Argonaut's BRender, Criterion's Renderware, Intel's
3DR, Microsoft's Direct3D and Silicon Graphics' OpenGL. Additionally, the
Company has developed Glide, its proprietary low-level 3D API, which facilitates
the virtually seamless portability of software content across multiple
entertainment platforms utilizing the Company's 3D media processor, thereby
leveraging the significant development and marketing expenses associated with a
given title.
Voodoo Graphics, the Company's first product, and subsequent 3D media
processors now under development are designed around a common architecture to be
utilized as the graphics engine for PCs and coin-op arcade systems. For PC
applications, Diamond Multimedia Systems, Inc. ("Diamond") and Orchid Technology
("Orchid") have each introduced consumer multimedia add-in cards incorporating
the Company's 3D media processor for sale in the retail channel and for
incorporation into PCs manufactured by, among others, Apricot/Mitsubishi, Falcon
Northwest, Hewlett-Packard and NEC. In the coin-op arcade market, the Voodoo
Graphics 3D media processor is being utilized by Acclaim, Kaneko, Midway Games
and Taito, among others. Voodoo Graphics technology is also the basis for the 3D
media processor chipset that the Company is developing for license to Sega
Enterprises, Ltd. ("Sega") for use in Sega's next generation consumer home game
console. The Company's second product, Voodoo Rush, is designed to incorporate a
3D/2D solution into a single personal computer interface ("PCI") board. Voodoo
Rush began sampling in November 1996 and limited commercial shipments are
expected in the second quarter of 1997. The Company has commenced development of
Banshee, which is intended to be a high performance, fully-featured single chip,
3D/2D media processor for the PC and coin-op arcade markets. The Company expects
to begin commercial shipments of Banshee in the first quarter of 1998. All of
the Company's products are manufactured, assembled, tested and packaged by
third-party suppliers.
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THE OFFERING
Common stock offered by the
Company............................. 3,000,000 shares
Common stock outstanding after the
offering.......................... 12,086,176 shares(1)
Use of proceeds..................... For working capital and other general
corporate purposes, including expansion
of sales and marketing and research and
product development efforts and
financing of accounts receivable and
inventories, and for capital
expenditures. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.............................. TDFX
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
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YEAR ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
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1995 1996 1996 1997
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STATEMENT OF OPERATIONS DATA:
Total revenues(2).................................................... $ -- $ 6,390 $ -- $ 5,247
Loss from operations................................................. (5,106) (14,810) (2,687) (1,134)
Net loss............................................................. (5,039) (14,751) (2,652) (1,161)
Pro forma net loss per share(3)...................................... $ (1.53) $ (0.11)
Shares used in pro forma net loss per share calculations(3).......... 9,627 10,386
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MARCH 31, 1997
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ACTUAL PRO FORMA(4) AS ADJUSTED(4)(5)
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BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 4,141 $ 4,193 $31,393
Working capital...................................................... 6,049 6,101 33,301
Total assets......................................................... 15,586 15,638 42,838
Capitalized lease obligations, less current portion.................. 468 468 468
Accumulated deficit.................................................. (20,951) (20,951) (20,951)
Total shareholders' equity........................................... 9,146 9,198 36,398
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(1) Based on shares outstanding as of March 31, 1997. Excludes (i) 1,875,461
shares of Common Stock issuable upon exercise of options outstanding as of
March 31, 1997, with a weighted average exercise price of $2.72 per share,
(ii) 77,159 shares of Common Stock issuable upon exercise of warrants
outstanding as of March 31, 1997, with a weighted average exercise price of
$3.24 per share and (iii) 1,124,307 shares of Common Stock reserved for
future issuance under the Company's stock plans. See "Management -- Stock
Plans," "Description of Capital Stock" and Notes 5 and 6 of Notes to
Financial Statements.
(2) Total revenues for the three months ended March 31, 1997 include $750,000 of
development contract revenues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
(3) See Note 1 of Notes to Financial Statements for an explanation of shares
used in pro forma net loss per share calculations.
(4) Pro forma information gives effect to the issuance of 95,010 shares of
Common Stock upon the exercise of warrants that expire automatically upon
the closing of this offering.
(5) Adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$10.00 per share and the application of the estimated net proceeds therefrom
after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company. See "Use of Proceeds" and
"Capitalization."
------------------------
Except as set forth in the financial statements or as otherwise indicated
herein, all information in this Prospectus (i) reflects an increase in the
authorized shares of Common Stock to 50,000,000 shares effected in April 1997,
(ii) reflects the May 1997 1-for-2 reverse stock split, (iii) reflects the
conversion of all of the Company's outstanding shares of Preferred Stock into
shares of Common Stock, which will occur automatically upon the closing of this
offering, (iv) reflects the filing, upon the closing of this offering, of
Restated Articles of Incorporation authorizing 5,000,000 shares of undesignated
Preferred Stock, (v) assumes the cash exercise of warrants to purchase 87,510
shares of Common Stock and the cashless exercise of warrants to purchase 7,500
shares of Common Stock and (vi) assumes that the Underwriters' over-allotment
option is not exercised. See "Description of Capital Stock," "Underwriting" and
Notes 1 and 5 of Notes to Financial Statements.
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RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as the
other information set forth in this Prospectus. This Prospectus contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. The Company's actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; ANTICIPATION OF CONTINUED LOSSES
The Company has had a limited operating history, has been engaged primarily
in research and product development with only limited revenues to date and has
incurred net losses in every quarter. The Company was founded in August 1994 and
was a development stage company until its first commercial product shipments in
the third quarter of 1996. The Company has been primarily dependent on private
equity financings to provide cash for operations. The Company's limited
operating history makes the assessment of future operating results difficult.
The Company incurred net losses of approximately $5.0 million, $14.8 million and
$1.2 million in 1995, 1996 and for the three months ended March 31, 1997,
respectively, and had an accumulated deficit of $21.0 million at March 31, 1997.
These net losses were attributable to the lack of substantial revenue and
continuing significant costs incurred in the research and development of the
Company's 3D media processor products and product testing. The Company expects
to incur additional net losses at least in the near term as it continues to
incur substantial research and development and sales and marketing expenses to
commercialize its products. There can be no assurance that significant revenues
or profitability will ever be achieved or, if they are achieved, that they can
be sustained or increased on a quarterly or annual basis in the future. See
"-- Dependence on Emerging 3D Interactive Electronic Entertainment Market,"
"-- Future Capital Needs; Uncertainty of Additional Funding" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON RELATIONSHIP WITH SEGA
In March 1997, the Company entered into a Technology Development and
License Agreement with Sega (the "Sega Agreement"), under which the Company will
develop and license to Sega the technology for a 3D media processor chipset (the
"Sega/3Dfx Chipset") for use in Sega's next generation home game console product
(the "New Sega Game Console"). The Sega Agreement grants Sega the exclusive
right for three years to the Company's architecture solely for use in home game
consoles. Through the end of 1998, the Company expects to earn development
contract revenues and certain development bonuses provided that certain
milestones set forth in the Sega Agreement are met. The Company will derive
royalty revenue for each Sega/3Dfx Chipset incorporated into products sold by
Sega. Therefore, the timely development of the Sega/3Dfx Chipset by the Company
and the successful introduction and sale of the New Sega Game Console by Sega
will be critical factors affecting the Company's future business, financial
condition and results of operations. The Company has not yet completed
development of the Sega/3Dfx Chipset, and there can be no assurance that the
Company will successfully complete such development or, if such development is
completed, that the Sega/3Dfx Chipset will perform as expected. Despite
pre-release testing of the Sega/3Dfx chipset by the Company, there can be no
assurance that, once the Sega/3Dfx Chipset is made available to Sega,
performance errors and deficiencies will not be found, or if discovered, that
the Company will be able to successfully correct such performance errors and
deficiencies in a timely manner, if at all. If the Company is unable to complete
the development of the Sega/3Dfx Chipset or successfully deliver it to Sega, the
Company's business, financial condition and results of operations would be
materially adversely affected.
There can be no assurance that Sega will ever introduce the New Sega Game
Console. Published reports in the financial press have indicated that Sega may
discontinue the manufacture and marketing
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of its home game console hardware. The Company's business, financial condition
and results of operations would be materially adversely affected if Sega does
not introduce the New Sega Game Console. If introduced, there can be no
assurance that the New Sega Game Console will achieve market acceptance. The
home game console industry has been characterized by unpredictable and sometimes
rapid shifts in the popularity of products, by severe price competition and by
frequent introductions of new technology and new products. Only a small number
of products have achieved broad market acceptance. Such market acceptance has
often followed intense competition between competing formats, such as those of
Nintendo Company, Ltd. ("Nintendo") and Sony Corporation ("Sony"). Any
competitive, technological or other factor adversely affecting the introduction
or sales of the New Sega Game Console or related software titles would have a
material adverse effect on the Company. Further, there can be no assurance that
Sega will successfully manage the introduction of the New Sega Game Console. As
is typical with any new product introduction, quality and reliability problems
may arise and any such problems may result in reduced orders, manufacturing
rework costs, delays in collecting accounts receivable, additional service and
warranty costs and a decline in Sega's competitive position. Further, Sega will
not manufacture all major subassemblies and will be dependent on several vendors
as manufacturers of such subassemblies. There can be no assurance that such
vendors will manufacture such subassemblies on a timely basis and with
acceptable quality, or, if demand for the New Sega Game Console increases, that
such vendors will be able to accelerate production of the subassemblies to meet
demand for such increases. Even if the New Sega Game Console is successfully
introduced and does gain initial market acceptance, competitive products with
comparable price and performance characteristics are likely to be introduced by
competitors. This competition may reduce future market acceptance for the New
Sega Game Console and result in decreased royalty revenues arising from the
Sega/3Dfx Chipset. The failure of the Company to successfully develop and
deliver the Sega/3Dfx Chipset or Sega's failure to successfully introduce and
market the New Sega Game Console or its failure to achieve market acceptance
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Result of Operations -- Overview" and
"Business -- Products, Products Under Development and Technology
License -- Strategic Relationship with Sega."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company believes that, even if it does achieve significant sales of its
products, quarterly and annual results of operations will be affected by a
variety of factors that could materially adversely affect revenues, gross profit
and income from operations. These factors include, among others, demand and
market acceptance for the Company's products; changes in the relative volume of
sales of the Company's various products; changes in the relative volume of sales
to the Company's various direct and indirect customers; the successful
development of the Sega/3Dfx Chipset; the success of the New Sega Game Console;
unanticipated delays or problems in the introduction or performance of the
Company's next generation of products; unanticipated delays or problems
experienced by the Company's product development partners; fluctuations in the
level and timing of royalty revenues and development contract revenues under the
Sega Agreement; market acceptance of the products of the Company's customers;
new product announcements or product introductions by the Company's competitors;
the Company's ability to introduce new products in accordance with OEM design
requirements and design cycles; changes in the timing of product orders due to
unexpected delays in the introduction of products of the Company's customers or
due to the life cycles of such customers' products ending earlier than
anticipated; fluctuations in manufacturing capacity; competitive pressures
resulting in lower average selling prices; the volume of orders that are
received and can be fulfilled in a quarter; the rescheduling or cancellation of
customer orders; supply constraints for the other components incorporated into
its customers' products; the unanticipated loss of any strategic relationship;
seasonal fluctuations associated with the tendency of PC sales to increase in
the second half of each calendar year; seasonal fluctuations associated with
sales of home game consoles; the level of expenditures for research and
development and sales, general and administrative functions of the
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Company; costs associated with protecting the Company's intellectual property;
and foreign exchange rate fluctuations. Any one or more of these factors could
result in the Company failing to achieve its expectations as to future revenues.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially adversely
affect quarterly results of operations. The Company may be required to reduce
prices or increase spending in response to competition or to pursue new market
opportunities which could result in inventory write-offs. If new competitors,
technological advances by existing competitors or other competitive factors
require the Company to invest significantly greater resources in research and
development efforts, the Company's results of operations in the future could be
materially adversely affected. Accordingly, the Company believes that
period-to-period comparisons of its results of operations should not be relied
upon as an indication of future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full fiscal
year. In certain future quarters, the Company's results of operations may be
below the expectations of public market analysts or investors. In such event,
the market price of the Common Stock could be materially adversely affected.
COMPETITION
The Company's strategy of targeting the interactive electronic
entertainment market across the PC, coin-op arcade systems and home game console
platforms requires the Company to compete against different companies in each of
these market segments, all of which are intensely competitive. The interactive
electronic entertainment market is comprised of interactive games played on PCs,
coin-op arcade systems and home game consoles, educational software and location
based entertainment ("LBE"). See "Business -- Competition."
Within the entertainment segment of the PC market, the Company competes
primarily against companies that typically have operated in the PC 2D graphics
market and that now offer 3D capability as an enhancement to their 2D solutions,
such as ATI Technologies, Inc. ("ATI"), Cirrus Logic, Inc. ("Cirrus"), Oak
Technology Inc. ("Oak Technology"), S3 Incorporated ("S3") and Trident. Many of
these competitors have introduced 3D functionality on new iterations of existing
graphics chips. The Company also competes with companies that have recently
entered the market with an integrated 3D/2D solution but which have not
traditionally manufactured 2D solutions, such as Chromatic Research, Inc.
("Chromatic"), nVidia Corporation ("nVidia") and Rendition Inc. ("Rendition").
In addition, the Company competes with Videologic Group Plc which has partnered
with NEC ("NEC/Videologic") to focus exclusively on developing a 3D solution for
the interactive electronic entertainment market.
In addition to competition from companies in the entertainment segment of
the PC market, the Company also faces potential competition from companies that
have focused on the high-end of the 3D market and the production of 3D systems
targeted for the professional engineering market, such as 3Dlabs Inc., Ltd
("3Dlabs"), Integraph Corporation ("Integraph"), Real 3D ("Real 3D"), an
operating unit of Lockheed Martin Corp. ("Lockheed"), and Silicon Graphics, Inc.
("SGI"). These companies are developing lower cost versions of their 3D
technology to bring workstation-like 3D graphics to mainstream applications.
There can be no assurance that these companies will not enter the interactive
electronics entertainment market or that the Company would be able to compete
successfully against them if they did.
Furthermore, a substantial number of companies including Intel and
Microsoft have announced plans to release 3D graphics chips in 1997 and 1998
that promise to provide low cost 3D functionality for PCs and workstations. If
successful, products based on any of these initiatives would be directly
competitive with the Company's 3D media processors and could materially
adversely affect the Company's competitive position and results of operations.
The market for interactive electronic arcade entertainment is comprised of
a small number of companies, including Acclaim Entertainment Inc. ("Acclaim"),
Namco, Ltd. ("Namco"), Sega, Taito
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Corporation, Ltd. ("Taito") and WMS Industries Inc. ("Williams"), and its
subsidiary Midway Games, Inc. ("Midway"). The home game console segment is
dominated by three companies, Nintendo, Sega and Sony. In each of the coin-op
arcade and home game console segments, the Company primarily faces competition
from in-house divisions of the companies which currently comprise such markets.
In addition, there can be no assurance that any of the companies which currently
compete in the 3D PC markets, will not enter the coin-op arcade market, or if
they do, that the Company will be able to compete against them successfully.
The Company expects competition to increase in the future from existing
competitors and from new market entrants with products that may be less costly
than the Company's 3D media processors or provide better performance or
additional features not currently provided by the Company. The Company believes
that the principal competitive factors for 3D graphics solutions are product
performance, conformity to industry standard APIs, software support, access to
customers and distribution channels, manufacturing capabilities and price. The
Company seeks to use strategic relationships to augment its capabilities, but
there can be no assurance that the benefits of these relationships will be
realized or be sufficient to overcome the entrenched positions of the Company's
largest competitors as incumbent suppliers to the large PC OEMs. Regardless of
the relative qualities of the Company's products, the market power, product
breadth and customer relationships of its larger competitors, including Intel
and Microsoft, can be expected to provide such competitors with substantial
competitive advantages. The Company does not seek to compete on the basis of
price alone.
Many of the Company's current and potential competitors have substantially
greater financial, technical, manufacturing, marketing, distribution and other
resources, greater name recognition and market presence, longer operating
histories, lower cost structures and larger customer bases than the Company. As
a result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. In addition, certain of the Company's
principal competitors offer a single vendor solution, since they maintain their
own semiconductor foundries and may therefore benefit from certain capacity,
cost and technical advantages. The Company's ability to compete successfully in
the rapidly evolving market for 3D interactive electronic entertainment will
depend upon certain factors, many of which are beyond the Company's control,
including, but not limited to, success in designing and subcontracting the
manufacture of new products; implementing new technologies; access to adequate
sources of raw materials and foundry capacity; the price, quality and timing of
new product introductions by the Company and its competitors; the emergence of
new multimedia and PC standards, the widespread development of 3D applications
by ISVs; the ability of the Company to protect its intellectual property; market
acceptance of the Company's 3D solution and API; success of the competitors'
products; and industry and general economic conditions. There can be no
assurance that the Company will be able to compete successfully in the emerging
3D interactive electronic entertainment market.
DEPENDENCE ON EMERGING 3D INTERACTIVE ELECTRONIC ENTERTAINMENT MARKET
The market for 3D interactive electronic entertainment for use in PCs, home
game consoles and coin-op arcade systems has only recently begun to emerge. The
Company's ability to achieve sustained revenue growth and profitability in the
future will depend to a large extent upon the demand for 3D multimedia
functionality in PCs, home game consoles and coin-op arcade systems. There can
be no assurance that the market for 3D interactive electronic entertainment will
continue to develop or grow at a rate sufficient to support the Company's
business. If the market for 3D interactive electronic entertainment fails to
develop, or develops more slowly than expected, or if the Company's products do
not achieve market acceptance, even if such market does develop, the Company's
business, financial condition and results of operations could be materially
adversely affected. Demand for the Company's products is also dependent upon the
widespread development of 3D interactive electronic entertainment applications
by independent software vendors ("ISVs"), the success of the Company's customers
in effectively implementing the Company's technology and developing a market for
the
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Company's products and the willingness of end users to pay for full function 3D
capabilities in PCs, home game consoles and coin-op arcade systems. Currently,
there is not a sufficient quantity or breadth of software game applications that
support or take advantage of 3D functionality in PCs, home game consoles and
coin-op arcade systems. There can be no assurance that such a base of software
game applications will develop in the near term or at all. Consequently, there
can be no assurance that a broad market for 3D multimedia functionality in PCs,
home game consoles and coin-op arcade systems will develop, or that the Company
will successfully sell 3D media processor products if such a market does
develop.
DEPENDENCE ON THE PC MARKET
For 1996 and the three months ended March 31, 1997, the Company derived 82%
and 76%, respectively, of its revenues from products sold for use in PCs. The
Company expects to continue to derive a significant portion of revenues from the
sale of its products for use in PCs. The PC market is characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and significant price competition, resulting in short product life
cycles and regular reductions of average selling prices over the life of a
specific product. Although the PC market has grown substantially in recent
years, there can be no assurance that such growth will continue. A reduction in
sales of PCs, or a reduction in the growth rate of such sales, would likely
reduce demand for the Company's products. Moreover, such changes in demand could
be large and sudden. Since PC manufacturers often build inventories during
periods of anticipated growth, they may be left with excess inventories if
growth slows or if they have incorrectly forecast product transitions. In such
cases, the PC manufacturers may abruptly suspend substantially all purchases of
additional inventory from suppliers such as the Company until the excess
inventory has been absorbed. Any reduction in the demand for PCs generally, or
for a particular product that incorporates the Company's 3D media processors,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's ability to compete in the future will depend on its ability
to identify and ensure compliance with evolving industry standards.
Unanticipated changes in industry standards could render the Company's products
incompatible with products developed by major hardware manufacturers and
software developers, including Intel Corporation ("Intel") and Microsoft
Corporation ("Microsoft"). The Company could be required, as a result, to invest
significant time and resources to redesign the Company's products to ensure
compliance with relevant standards. If the Company's products are not in
compliance with prevailing industry standards for a significant period of time,
the Company could miss opportunities to have its products specified as standard
3D media processors for new hardware components or subassemblies designed by PC
manufacturers and OEMs (a "design win"). The failure to achieve any such design
win would result in the loss of any potential sales volume that could be
generated by such newly designed hardware component or subassembly and would
also competitively advantage the 3D media processor manufacturer that achieves
such design win, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations. To the extent
that future developments in other PC components or subassemblies incorporate one
or more of the advantages offered by the Company's products, the market demand
for the Company's products may be negatively impacted, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ACCEPTANCE OF THE COMPANY'S 3D/2D SOLUTION FOR THE PC MARKET;
DEPENDENCE ON DEVELOPMENT OF A SINGLE CHIP SOLUTION
The Company's success depends upon market acceptance of its 3D media
processor products as a broadly accepted standard for high performance 3D
interactive electronic entertainment in PC applications. Currently, the majority
of multimedia PCs incorporate only 2D graphics acceleration technology. As a
result, the majority of entertainment titles currently available for play on PCs
are written for 2D acceleration technology. Because of the substantial installed
base of 2D acceleration
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technology and related game content, the Company believes that for its 3D media
processor products to gain wide market acceptance, such products must also offer
2D performance comparable or superior to existing 2D technology. To address this
demand, the Company is working with Alliance Semiconductor Corporation
("Alliance"), Macronix International Co., Ltd ("Macronix"), Media Reality
Technology, Inc. ("MRT") and Trident Semiconductor, Inc. ("Trident") to offer a
3D/2D chipset branded as the Company's Voodoo Rush product. Voodoo Rush will
function with a partner's companion 2D or 2D/3D accelerator within a single PCI
solution. There can be no assurance, however, that the Company's 3D/2D chipset
will perform the desired functions, offer significant price/performance benefits
or meet the technical or other requirements of potential buyers to realize
market acceptance. Despite pre-release testing of the Company's 3D/2D product,
there can be no assurance that performance errors and deficiencies will not be
found, or if found, that the Company will be able to successfully correct such
performance errors and deficiencies in a timely manner, if at all. Further,
there can be no assurance that the Company's partners will manufacture their
respective 2D or 2D/3D accelerators for use in the Company's 3D/2D chipset on a
timely basis and with acceptable quality, or that, if demand for the Company's
products increases, such vendors will be able to accelerate production of their
respective chipsets to meet demand for such increases.
The Company's 3D media processors for use in PC applications are currently
designed as a two or three chip solution. Typically, as the functionality of a
given semiconductor becomes technologically stable and widely accepted by users,
the cost of providing the functionality is reduced by means of large scale
integration of such functionality onto a single semiconductor chip. The Company
expects that such integration onto a single chip will occur with respect to the
functionality provided by the Company's current products used in PC
applications. Therefore, the Company's success will be largely dependent on its
ability to develop products on a timely basis that integrate the Company's 3D
technology along with superior performance 2D technology. The Company is
currently developing Banshee, a proprietary 3D/2D single chip solution which the
Company expects will be available for commercial shipment in the first quarter
of 1998. There can be no assurance that the Company will successfully complete
such development on a timely basis or, if such development is completed, that
the resulting single chip 3D/2D solution will perform the desired functions,
offer sufficient price/ performance benefits or meet the technical or other
requirements of potential buyers to realize market acceptance. Furthermore, most
PC OEMs have a lengthy evaluation process, and, in order for the Company's
single chip product to be designed into the OEM's system, the Company must
complete the development of its product to meet the deadline for the start of
the OEM's evaluation cycle. If the Company is unable to complete the timely
development of, and successfully manufacture and deliver, a single chip 3D/2D
solution, the Company's business, financial condition and results of operations
would be materially adversely affected.
If successfully introduced, there can be no assurance that the Company's
single chip 3D/2D solution will achieve market acceptance. The market for PC
media processors has been characterized by unpredictable and sometimes rapid
shifts in the popularity of products, by severe price competition and by
frequent new technology and product introductions. Only a small number of
products have achieved broad market acceptance. Such market acceptance has often
been followed by intense competition between alternative solutions. Any
competitive, technological or other factor adversely affecting the introduction
or sales of the Company's single chip 3D/2D solution for PC applications would
have a material adverse effect on the Company's business, financial condition
and results of operations. Even if the Company's single chip 3D/2D solution is
successfully introduced and does gain initial market acceptance, competitors are
likely to introduce products with comparable price and performance
characteristics. This competition may reduce future market acceptance for the
Company's product and result in decreasing sales and lower gross margins. The
failure of the Company to successfully develop and deliver a single chip 3D/2D
solution for PC applications or its failure to achieve market acceptance would
have a material adverse effect on the Company's business, financial condition
and results of operations.
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DEPENDENCE ON THIRD PARTY DEVELOPERS AND PUBLISHERS
The Company believes that the availability of a sufficient number of high
quality, commercially successful software entertainment titles and applications
will be a significant competitive factor in the sales of multimedia hardware for
the interactive electronic entertainment market. The Company depends on third
party software developers and publishers to create, produce and market software
titles that will operate with the Company's 3D media processor products. Only a
limited number of software developers are capable of creating high quality
entertainment software. Competition for these resources is intense and is
expected to increase. There can be no assurance that the Company will be able to
attract the number and quality of software developers and publishers necessary
to develop a sufficient number of high quality, commercially successful software
titles compatible with the Company's 3D media processor products. Further, there
can be no assurance that these third parties will publish a substantial number
of software entertainment titles or, if software entertainment titles are
available, that they will be of high quality or that they will achieve market
acceptance. Further, the development and marketing of game titles that do not
fully demonstrate the technical capabilities of the Company's 3D media processor
products could create the impression that the Company's technology offers only
marginal, if any, performance improvements over competing 3D media processors.
Because the Company has no control over the content of the entertainment titles
produced by software developers and publishers, the software entertainment
titles developed may represent only a limited number of game categories and are
likely to be of varying quality. See "Business -- Sales and Marketing."
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE
The Company's business, financial condition and results of operations will
depend to a significant extent on its ability to successfully develop new
products for the 3D interactive electronic entertainment market. As a result,
the Company believes that significant expenditures for research and development
will continue to be required in the future. The PC, home game console and
coin-op arcade system markets for which the Company's products are designed are
intensely competitive and are characterized by rapidly changing technology,
evolving industry standards and declining average selling prices. The Company
must anticipate the features and functionality that consumers will demand,
incorporate those features and functionality into products that meet the
exacting design requirements of the PC, home game console and coin-op arcade
system manufacturers, price its products competitively and introduce the
products to the market within the limited window for OEM design cycles. The
success of new product introductions is dependent on several factors, including
proper new product definition, timely completion and introduction of new product
designs, the ability of Taiwan Semiconductor Manufacturing Corporation ("TSMC")
and any additional manufacturers to effectively design and implement the
manufacture of new products, quality of new products, differentiation of new
products from those of the Company's competitors and market acceptance of the
Company's and its customers' products. There can be no assurance that the
products the Company expects to introduce will incorporate the features and
functionality demanded by PC, home game console and coin-op arcade system
manufacturers and consumers of interactive electronic entertainment, will be
successfully developed or will be introduced within the appropriate window of
market demand. The failure of the Company to successfully develop and introduce
new products and achieve market acceptance for such products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Because of the complexity of its technology, the Company has experienced
delays from time to time in completing development and introduction of new
products. In the event that there are delays in the completion of development of
future products, including the products currently expected to be announced over
the next year, the Company's business, financial condition and results of
operations would be materially adversely affected. The time required for
competitors to develop and introduce competing products may be shorter and
manufacturing yields may be better than those experienced by the Company.
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As the markets for the Company's products continue to develop and
competition increases, the Company anticipates that product life cycles will
shorten and average selling prices will decline. In particular, average selling
prices and, in some cases, gross margin for each of the Company's products will
decline as such products mature. Thus, the Company will need to introduce new
products to maintain average selling prices and gross margins. There can be no
assurance that the Company will successfully identify new product opportunities
or develop and bring new products to market in a timely manner, that products or
technologies developed by others will not render the Company's products or
technologies obsolete or uncompetitive, or that the Company's products will be
selected for design into the products of its targeted customers. The failure of
the Company's new product development efforts would have a material adverse
effect on the Company's business, financial condition and results of operations.
CUSTOMER CONCENTRATION
Because of the Company's limited operating history and early stage of
development, it has only a limited number of customers. For these reasons, the
Company's sales are highly concentrated. Revenues derived from sales to Orchid,
Diamond and Williams accounted for 44%, 33% and 11%, respectively, of product
revenues for 1996. All such sales were made pursuant to purchase orders.
Revenues derived from sales to Diamond and Williams accounted for 59% and 15%,
respectively, of product revenues for the three months ended March 31, 1997.
Development contract revenues recognized under the Sega Agreement represented
14.3% of total revenues during the three months ended March 31, 1997. The
Company expects that a small number of customers will continue to account for a
substantial portion of its revenues for the foreseeable future. Furthermore,
substantially all of the Company's sales are made on the basis of purchase
orders rather than long-term agreements. As a result, the Company's business,
financial condition and results of operations could be materially adversely
affected by the decision of a single customer to cease using the Company's
products or by a decline in the number of PCs, home game consoles or coin-op
arcade systems sold by a single customer or by a small number of customers. In
addition, there can be no assurance that revenues from customers that have
accounted for significant revenues in past periods, individually or as a group,
will continue, or if continued, will reach or exceed historical levels in any
future period.
PRODUCT CONCENTRATION; RISKS ASSOCIATED WITH MULTIMEDIA PRODUCTS
The Company's revenues are dependent on the markets for 3D media processors
for PCs, coin-op arcade systems and home game consoles and on the Company's
ability to compete in those markets. Since the Company has no other products,
the Company's revenues and results of operations would be materially adversely
affected if for any reason it were unsuccessful in selling 3D media processors.
The PC, home game console and coin-op arcade system markets frequently undergo
transitions in which products rapidly incorporate new features and performance
standards on an industry-wide basis. If the Company's products are unable at the
beginning of each such transition to support the new feature sets or performance
levels being required by PC, home game console and coin-op arcade system
manufacturers, the Company would be likely to lose design wins and, moreover,
not have the opportunity to compete for new design wins until the next product
transition occurred. Thus, a failure to develop products with required feature
sets or performance standards or a delay as short as a few months in bringing a
new product to market could significantly reduce the Company's revenues for a
substantial period, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
ADOPTION OF GLIDE
The Company's success will be substantially affected by the adoption by
software developers of Glide, its proprietary, low-level 3D API. Although the
Company's products support game titles developed for most industry standard
APIs, the Company believes that Glide currently allows developers to fully
exploit the technical capabilities of the Company's 3D media processor products.
Glide competes with APIs developed or to be developed by other companies having
significantly greater financial resources, marketing power, name recognition and
experience than the Company. For
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example, certain industry standard APIs, such as Direct3D ("D3D") developed by
Microsoft and OpenGL developed by SGI, have a much larger installed customer
base and a much larger base of existing software titles. Developers may face
additional costs to port games developed on other standard APIs to Glide for
play on the Company's architecture. There can be no assurance that Glide will be
adopted by a sufficient number of software developers or that developers who
have utilized Glide will continue to do so in the future.
Intel has entered into an agreement with the Company to license an early
version of Glide. Intel also has an option to license future versions of Glide
on terms no less favorable than licenses of Glide to other third party graphics
hardware manufacturers. Intel has not implemented Glide nor has it announced any
intention to do so. However, because of Intel's significant market penetration,
marketing power and financial resources, if Intel were to implement this early
version of Glide as a standard development tool for current or future Intel 3D
chipsets, it could substantially reduce or even eliminate any competitive
advantages that the Company's products may have.
DEPENDENCE ON INDEPENDENT MANUFACTURERS AND OTHER THIRD PARTIES;
ABSENCE OF MANUFACTURING CAPACITY; MANUFACTURING RISKS
The Company does not manufacture the semiconductor wafers used for its
products and does not own or operate a wafer fabrication facility. The Company's
products require wafers manufactured with state-of-the-art fabrication equipment
and techniques. All of the Company's products are currently manufactured by TSMC
in Taiwan. The Company obtains manufacturing services from TSMC on a purchase
order basis. Because the lead time needed to establish a strategic relationship
with a new manufacturing partner could be several months, there is no readily
available alternative source of supply for any specific product. A manufacturing
disruption experienced by TSMC would impact the production of the Company's
products for a substantial period of time, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company believes that long-term market acceptance for the Company's products
will depend on reliable relationships between the Company and TSMC (and any
other independent foundries qualified by the Company) to ensure adequate product
supply responsive to customer demand. The Company's relationship with TSMC has
only recently been established, and there can be no assurance that this
relationship will meet the business objectives of the Company. In addition, TSMC
fabricates wafers for other companies and could choose to prioritize capacity
for other uses or reduce or eliminate deliveries to the Company on short notice.
There are many other risks associated with the Company's dependence upon
third party manufacturers, including: reduced control over delivery schedules,
quality assurance, manufacturing yields and cost; the potential lack of adequate
capacity during periods of excess demand; limited warranties on wafers supplied
to the Company; and potential misappropriation of the Company's intellectual
property. The Company is dependent on TSMC, and expects in the future to be
dependent upon TSMC, to produce wafers of acceptable quality and with acceptable
manufacturing yields, to deliver those wafers to the Company and its independent
assembly and testing subcontractors on a timely basis and to allocate to the
Company a portion of their manufacturing capacity sufficient to meet the
Company's needs. The Company's wafer requirements represent a very small portion
of the total production of TSMC. Although the Company's products are designed
using TSMC's process design rules, there can be no assurance that TSMC will be
able to achieve or maintain acceptable yields or deliver sufficient quantities
of wafers on a timely basis or at an acceptable cost. Additionally, there can be
no assurance that TSMC will continue to devote resources to the production of
the Company's products or continue to advance the process design technologies on
which the manufacturing of the Company's products are based. Any such
difficulties would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's products are assembled and tested by a third party
subcontractor, Advanced Semiconductor Engineering Group ("ASE"). Such assembly
and testing is conducted on a purchase order basis rather than under a long-term
agreement. As a result of its reliance on ASE to assemble and
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test its products, the Company cannot directly control product delivery
schedules, which could lead to product shortages or quality assurance problems
that could increase the costs of manufacturing or assembly of the Company's
products. Due to the amount of time normally required to qualify assembly and
test subcontractors, product shipments could be delayed significantly if the
Company is required to find alternative subcontractors. Any problems associated
with the delivery, quality or cost of the assembly and test of the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing."
MANUFACTURING YIELDS
The fabrication of semiconductors is a complex and precise process. Minute
levels of contaminants in the manufacturing environment, defects in masks used
to print circuits on a wafer, difficulties in the fabrication process or other
factors can cause a substantial percentage of wafers to be rejected or a
significant number of die on each wafer to be nonfunctional. Many of these
problems are difficult to diagnose and time consuming or expensive to remedy. As
a result, semiconductor companies often experience problems in achieving
acceptable wafer manufacturing yields, which are represented by the number of
good die as a proportion of the total number of die on any particular wafer.
Once production yield for a particular product stabilizes, the Company pays an
agreed price for wafers meeting certain acceptance criteria pursuant to a "good
die" only pricing structure for that particular product. Until production yield
for a particular product stabilizes, however, the Company must pay an agreed
price for wafers regardless of yield. Accordingly, in this circumstance, the
Company bears the risk of final yield of good die. Poor yields would materially
adversely affect the Company's revenues, gross profit and results of operations.
Semiconductor manufacturing yields are a function both of product design,
which is developed largely by the Company, and process technology, which is
typically proprietary to the manufacturer. Since low yields may result from
either design or process technology failures, yield problems may not be
effectively determined or resolved until an actual product exists that can be
analyzed and tested to identify process sensitivities relating to the design
rules that are used. As a result, yield problems may not be identified until
well into the production process, and resolution of yield problems would require
cooperation by and communication between the Company and the manufacturer. This
risk is compounded by the offshore location of the Company's manufacturer,
increasing the effort and time required to identify, communicate and resolve
manufacturing yield problems. As the Company's relationships with TSMC and any
additional manufacturing partners develop, yields could be adversely affected
due to difficulties associated with adapting the Company's technology and
product design to the proprietary process technology and design rules of each
manufacturer. Because of the Company's potentially limited access to wafer
fabrication capacity from its manufacturers, any decrease in manufacturing
yields could result in an increase in the Company's per unit costs and force the
Company to allocate its available product supply among its customers, thus
potentially adversely impacting customer relationships as well as revenues and
gross profit. There can be no assurance that the Company's manufacturers will
achieve or maintain acceptable manufacturing yields in the future. The inability
of the Company to achieve planned yields from its manufacturers could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the Company also faces the risk of product
recalls resulting from design or manufacturing defects which are not discovered
during the manufacturing and testing process. In the event of a significant
number of product returns due to a defect or recall, the Company's revenues and
gross profit could be materially adversely affected.
MANAGEMENT OF GROWTH
The ability of the Company to successfully offer services and products and
implement its business plan in a rapidly evolving market requires an effective
planning and management process. The Company's rapid growth has placed, and is
expected to continue to place, a significant strain on the Company's managerial,
operational and financial resources. As of March 31, 1997, the Company had
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grown to 87 employees from 35 employees as of December 31, 1995. If the
Company's products achieve market acceptance, the Company expects that the
number of its employees will increase substantially over the next 12 months. The
Company's financial and management controls, reporting systems and procedures
are also very limited. Although some new controls, systems and procedures have
been implemented, the Company's future growth, if any, will depend on its
ability to continue to implement and improve operational, financial and
management information and control systems on a timely basis, together with
maintaining effective cost controls, and any failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, the Company will be required to manage multiple
relationships with various customers and other third parties. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the Company's operations or that the Company's management will be able
to achieve the rapid execution necessary to successfully offer its services and
products and implement its business plan. The Company's inability to effectively
manage any future growth would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Employees" and "Management".
DEPENDENCE ON KEY PERSONNEL
The Company's performance will be substantially dependent on the
performance of its executive officers and key employees, most of whom have
worked together for only a short period of time. None of the Company's officers
or employees are bound by an employment agreement, and the relationships of such
officers and employees with the Company are, therefore, at will. Given the
Company's early stage of development, the Company will be dependent on its
ability to attract, retain and motivate high quality personnel, especially its
management and development teams. The Company does not have "key person" life
insurance policies on any of its employees. The loss of the services of any of
its executive officers, technical personnel or other key employees would have a
material adverse effect on the business, financial condition and results of
operations of the Company. The Company's success depends on its ability to
identify, hire, train and retain highly qualified technical and managerial
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to identify, attract, assimilate or
retain highly qualified technical and managerial personnel in the future. The
inability to attract and retain the necessary technical and managerial personnel
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY
The semiconductor industry has historically been characterized by rapid
technological change, cyclical market patterns, significant price erosion,
fluctuating inventory levels, alternating periods of over-capacity and capacity
constraints, variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development. In addition, the
industry has experienced significant economic downturns at various times,
characterized by diminished product demand and accelerated erosion of product
prices. The Company may experience substantial period-to-period fluctuations in
results of operations due to general semiconductor industry conditions.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
As the Company begins commercial production of its products in increasing
volumes, it will be required to invest significant working capital in inventory
and accounts receivable. The Company intends also to continue to invest heavily
in research and development for its existing products and for new product
development. The Company's future liquidity and capital requirements will depend
upon numerous factors, including the costs and timing of expansion of research
and product development efforts and the success of these development efforts,
the costs and timing of expansion of sales and marketing activities, the extent
to which the Company's existing and new products gain market acceptance,
competing technological and market developments, the costs involved in
maintaining and
16
<PAGE> 18
enforcing patent claims and other intellectual property rights, the level and
timing of development contract revenues, royalty revenues associated with the
Sega Agreement, available borrowings under line of credit arrangements and other
factors. The Company believes that the proceeds from this offering together with
the Company's current cash balances and cash generated from operations and from
available or future debt financing will be sufficient to meet the Company's
operating and capital requirements through December 1998. However, there can be
no assurance that the Company will not require additional financing within this
time frame. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary. The factors described earlier in this paragraph will impact
the Company's future capital requirements and the adequacy of its available
funds. The Company may be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. There can be
no assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to shareholders, and debt financing, if available, may
involve restrictive covenants. Strategic arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies or products. The failure of the Company to raise capital when
needed could have a material adverse effect on the Company's business, financial
condition and results of operations. See " -- Limited Operating History;
Anticipation of Continued Losses," "-- Potential Fluctuations in Quarterly
Results," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATING TO INTELLECTUAL PROPERTY
The Company relies primarily on a combination of patent, mask work
protection, trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its intellectual
property. The Company has five patent applications pending in the United States
Patent and Trademark Office ("PTO"). There can be no assurance that the
Company's pending patent applications or any future applications will be
approved, or that any issued patents will provide the Company with competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on the Company's ability to do business.
In addition, there can be no assurance that others will not independently
develop substantially equivalent intellectual property or otherwise gain access
to the Company's trade secrets or intellectual property, or disclose such
intellectual property or trade secrets, or that the Company can meaningfully
protect its intellectual property. A failure by the Company to meaningfully
protect its intellectual property could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Patents and Proprietary Rights."
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. There can be no
assurance that infringement claims by third parties or claims for
indemnification by other customers or end users of the Company's products
resulting from infringement claims will not be asserted in the future or that
such assertions, if proven to be true, will not materially adversely affect the
Company's business, financial condition and results of operations. Any
limitations on the Company's ability to market its products, or delays and costs
associated with redesigning its products or payments of license fees to third
parties, or any failure by the Company to develop or license a substitute
technology on commercially reasonable terms could have a material adverse effect
on the Company's business, financial condition and results of operations.
Litigation by or against the Company could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel, whether or not such litigation results in a favorable determination
for the Company. In the event of an adverse result in any such litigation, the
Company could be required to pay substantial damages, cease the manufacture, use
and sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses for the infringing technology.
17
<PAGE> 19
INTERNATIONAL OPERATIONS
The Company's reliance on foreign third-party manufacturing, assembly and
testing operations, all of which are located in Asia, and the Company's
expectation of international sales subject it to a number of risks associated
with conducting business outside of the United States. These risks include
unexpected changes in, or impositions of, legislative or regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs, quotas and other trade barriers and restrictions,
longer payment cycles, greater difficulty in accounts receivable collection,
potentially adverse taxes, the burdens of complying with a variety of foreign
laws and other factors beyond the Company's control. The Company is also subject
to general political risks in connection with its international trade
relationships. Although the Company has not to date experienced any material
adverse effect on its business, financial condition or results of operations as
a result of such regulatory, political and other factors, there can be no
assurance that such factors will not have a material adverse effect on the
Company's business, financial condition and results of operations in the future
or require the Company to modify its current business practices. In addition,
the laws of certain foreign countries in which the Company's products are or may
be manufactured or sold, including various countries in Asia, may not protect
the Company's products or intellectual property rights to the same extent as do
the laws of the United States and thus make the possibility of piracy of the
Company's technology and products more likely. See "-- Risks Relating to
Intellectual Property." Currently, all of the Company's product sales and its
arrangements with its foundry and assembly and test vendor provide for pricing
and payment in U.S. dollars. Although currency fluctuations have been
insignificant to date, there can be no assurance that fluctuations in currency
exchange rates will not have a material adverse effect on the Company's
business, financial condition and results of operations in the future. In
addition, to date the Company has not engaged in any currency hedging
activities, although the Company may do so in the future. Further, there can be
no assurance that one or more of the foregoing factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations or require the Company to modify its current business practices. See
"Business -- Sales and Marketing."
NO PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which will be determined through negotiations between the Company and the
Underwriters, may not be indicative of prices that will prevail in the trading
market. In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. The market prices of the common stock of
many publicly held semiconductor companies have in the past been, and can in the
future be expected to be, especially volatile. The market price of the Company's
Common Stock is likely to be highly volatile and may be subject to wide
fluctuations in response to announcements of technological innovations or new
products by the Company, its customers or its competitors, release of reports by
securities analysts, developments or disputes concerning patents or proprietary
rights, economic and other external factors, as well as period-to-period
fluctuations in the Company's financial results. See "Underwriting."
CONTROL BY EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATED ENTITIES
The Company anticipates that the officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately 49%
of the Company's outstanding Common Stock following the completion of this
offering (48% if the Underwriters' over-allotment option is exercised). These
shareholders, if acting together, would be able to elect a majority of the
Company's board of directors and would have the ability to control the Company
and influence its affairs and the conduct of its business. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Principal Shareholders."
18
<PAGE> 20
EFFECT OF CERTAIN CHARTER PROVISIONS ON PRICE OF COMMON STOCK
The Board of Directors of the Company has the authority to issue shares of
Preferred Stock and to determine the rights, preferences, privileges and
restrictions of such shares without any further vote or action by the
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The possible issuance of Preferred Stock could
have the effect of delaying, deferring or preventing a change in control of the
Company. These provisions could also limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock. See
"Description of Capital Stock -- Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock prevailing from time to time. The number of shares of Common Stock
available for sale in the public market is limited by restrictions under the
Securities Act of 1933, as amended (the "Securities Act"), and lock-up
agreements executed by certain of the security holders of the Company under
which such security holders have agreed not to sell or otherwise dispose of any
of their shares until the later of 180 days after the date of this Prospectus or
the open of market on the third trading day following the date of public
disclosure of the Company's financial results for the fiscal year ending
December 31, 1997, without the prior written consent of Robertson, Stephens &
Company. In addition to the 3,000,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), there will be
9,086,176 shares of Common Stock outstanding as of the date of this Prospectus,
all of which are "restricted" shares under the Securities Act. As a result of
the lock-up agreements described above and the provisions of Rules 144(k), 144
and 701, the restricted shares will be available for sale in the public market
as follows: (i) no shares will be eligible for immediate sale on the date of
this Prospectus, (ii) no shares will be eligible for sale 90 days after the date
of this Prospectus, (iii) approximately 21,250 shares will be eligible for sale
120 days after the date of this Prospectus upon expiration of lock-up agreements
and (iv) approximately 8,977,416 shares will be eligible for sale on the later
of 180 days after the date of this Prospectus or the open of market on the third
trading day following the date of public disclosure of the Company's financial
results for the fiscal year ending December 31, 1997 and (v) approximately
87,510 shares will be eligible for sale approximately one year from the date of
this Prospectus. After this offering, the holders of approximately 7,021,859
shares of Common Stock and rights to acquire 72,159 shares of Common Stock will
be entitled to certain demand and piggyback rights with respect to registration
of such shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights." If such holders, by exercising their demand
registration rights, cause a large number of securities to be registered and
sold in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. If the Company were to initiate a
registration and include shares held by such holders pursuant to the exercise of
their piggyback registration rights, such sales may have an adverse effect on
the Company's ability to raise capital. See "Shares Eligible for Future Sale"
and "Underwriting."
ABSENCE OF DIVIDENDS; DILUTION
The Company does not anticipate paying any dividends in the foreseeable
future. See "Dividend Policy." The initial public offering price will be
substantially higher than the net tangible book value per share of Common Stock.
Investors purchasing shares of Common Stock in this Offering will therefore
incur immediate and substantial net tangible book value dilution. See
"Dilution."
19
<PAGE> 21
INVESTMENT BY ELECTRONIC ARTS
It is currently anticipated that Electronic Arts will purchase from the
Underwriters a portion of the shares of Common Stock offered hereby upon the
same terms and conditions as the other investors in this offering, except that
the per share purchase price paid by Electronic Arts will equal $ (the
Price to Public less the Underwriting Discounts and Commissions indicated on the
cover page of this Prospectus). The total investment by Electronic Arts will be
$3.0 million if Electronic Arts completes the purchase. Assuming a per share
Proceeds to Company price of $10.00, Electronic Arts would purchase
approximately 300,000 shares.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby, are estimated to be approximately
$27,200,000 (approximately $31,385,000 if the Underwriters' over-allotment
option is exercised in full) at an assumed initial public offering price of
$10.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company.
The Company expects to use approximately $6.5 million of the net proceeds
for capital expenditures through the end of 1998, primarily for the purchase of
computer equipment and related software tools, furniture, fixtures and leasehold
improvements. The Company also expects to use up to $1.0 million of the net
proceeds for consumer marketing. The Company intends to use the remaining net
proceeds of the offering for working capital and other general corporate
purposes, including expansion of sales and marketing and research and product
development efforts and financing of accounts receivable and inventories. The
foregoing represent estimates only, and the actual amounts expended by the
Company for these purposes and the timing of such expenditures will depend on
numerous factors, including the status of the Company's product development
efforts, the extent to which the Company's products gain market acceptance and
the competition the Company and its products encounter in the marketplace. The
Company may also use a portion of the net proceeds for the acquisition of
technologies, businesses or products that are complementary to those of the
Company, although no such acquisitions are planned or are being negotiated as of
the date of this Prospectus, and no portion of the net proceeds has been
allocated for any specific acquisition. Pending such uses, the net proceeds of
this offering will be invested in short-term, interest bearing, investment grade
securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain any future earnings for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1997, (ii) the capitalization of the Company on a pro forma
basis giving effect to an increase in the authorized shares of Common Stock to
50,000,000 shares effected in April 1997, the conversion of all outstanding
Preferred Stock into Common Stock and the authorization of 5,000,000 shares of
undesignated Preferred Stock upon the closing of this offering, and the issuance
of 87,510 shares of Common Stock upon the exercise of warrants that expire
automatically upon the closing of this offering and the application of the net
proceeds therefrom, (iii) the cashless exercise of warrants to purchase 7,500
shares of Common Stock for which the Company will receive no proceeds and (iv)
the pro forma capitalization of the Company as adjusted to give effect to the
sale of the 3,000,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom after deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company. The
capitalization information set forth below should be read in conjunction with
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------
PRO
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized lease obligations, less current portion(1)........ $ 468 $ 468 $ 468
-------- -------- ----
Shareholders' equity:
Preferred Stock, no par value; 7,269,018 shares authorized,
7,021,859 shares issued and outstanding actual; 5,000,000
shares authorized, none issued and outstanding pro forma
and as adjusted.......................................... 29,222 -- --
Common Stock, no par value; 25,033,000 shares authorized,
1,969,307 shares issued and outstanding actual;
50,000,000 shares authorized, 9,086,176 shares issued and
outstanding pro forma and 12,086,176 shares issued and
outstanding as adjusted(2)............................... 2,078 31,685 58,885
Warrants.................................................... 353 20 20
Notes receivable............................................ (12) (12) (12)
Deferred compensation....................................... (1,544) (1,544) (1,544)
Accumulated deficit......................................... (20,951) (20,951) (20,951)
-------- -------- ----
Total shareholders' equity............................. 9,146 9,198 36,398
-------- -------- ----
Total capitalization................................ $ 9,614 $ 9,666 $ 36,866
======== ======== ====
</TABLE>
- ------------
(1) See Note 8 of Notes to Financial Statements.
(2) Excludes (i) 1,875,461 shares of Common Stock issuable upon exercise of
options outstanding as of March 31, 1997, with a weighted average exercise
price of $2.72 per share, (ii) 77,159 shares of Common Stock issuable upon
exercise of warrants outstanding as of March 31, 1997, with a weighted
average exercise price of $3.24 per share and (iii) 1,124,307 shares of
Common Stock reserved for future issuance under the Company's stock plans.
See "Management -- Stock Plans," "Description of Capital Stock" and Notes 5
and 6 of Notes to Financial Statements.
21
<PAGE> 23
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $9,198,000, or $1.01 per share of Common Stock. "Pro forma net
tangible book value" per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding (assuming the conversion of all then outstanding Preferred Stock
into Common Stock). After giving effect to the receipt of the net proceeds from
the sale of the 3,000,000 shares of Common Stock offered by the Company hereby
(after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company) at an assumed initial public offering price of
$10.00 per share, the Company's net tangible book value as of March 31, 1997
would have been $36,398,000, or $3.01 per share of Common Stock. This represents
an immediate increase in net tangible book value of $2.00 per share to existing
shareholders and an immediate dilution of $6.99 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $10.00
Pro forma net tangible book value as of March 31, 1997............ $1.01
Increase attributable to new investors............................ 2.00
-----
Pro forma net tangible book value after offering.................... 3.01
-----
Dilution to new investors........................................... 6.99
=====
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing shareholders and by new public investors purchasing shares in this
offering at an assumed initial public offering price of $10.00 per share (before
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
shareholders(1)......... 9,086,176 75.2% $31,957,000 51.6% $ 3.52
New investors............. 3,000,000 24.8% 30,000,000 48.4% 10.00
---------- ----- ----------- -----
Total........... 12,086,176 100.0% $61,957,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations assume no exercise of stock options or warrants
after March 31, 1997. As of March 31, 1997, there were outstanding options to
purchase 1,875,461 shares of Common Stock, with a weighted average exercise
price of $2.72 per share, and outstanding warrants to purchase 77,159 shares of
Common Stock, with a weighted average exercise price of $3.24 per share. In
addition, as of March 31, 1997, 1,124,307 shares of Common Stock were reserved
for future issuance under the Company's stock plans. To the extent that any
shares available for issuance upon exercise of outstanding options, warrants or
reserved for future issuance under the Company's stock plans are issued, there
will be further dilution to new public investors. See "Management -- Stock
Plans," "Description of Capital Stock" and Notes 5 and 6 of Notes to Financial
Statements.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes thereto included
elsewhere in this Prospectus. The statement of operations data for the years
ended December 31, 1995 and 1996 and the three month period ended March 31, 1997
and the balance sheet data as of December 31, 1995 and 1996 and March 31, 1997
are derived from financial statements of the Company that have been audited by
Price Waterhouse LLP, independent accountants, and are included elsewhere in
this Prospectus. The statement of operations data for the three month period
ended March 31, 1996 is derived from unaudited financial statements included
elsewhere in this Prospectus. The unaudited financial statements have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
operating results for such period. The operating results for the three month
period ended March 31, 1997 are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
-------------------- --------------------
1995 1996 1996 1997
------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product.................................................. $ -- $ 6,390 $ -- $ 4,497
Development contract..................................... -- -- -- 750
------- -------- ------- --------
Total revenues................................... -- 6,390 -- 5,247
Cost of product revenues................................... -- 5,123 -- 2,582
------- -------- ------- --------
Gross profit............................................... -- 1,267 -- 2,665
------- -------- ------- --------
Operating expenses:
Research and development(1).............................. 2,940 9,435 1,659 1,953
Selling, general and administrative(1)................... 2,166 6,642 1,028 1,846
------- -------- ------- --------
Total operating expenses......................... 5,106 16,077 2,687 3,799
------- -------- ------- --------
Loss from operations....................................... (5,106) (14,810) (2,687) (1,134)
Interest and other income (expense), net................... 67 59 35 (27)
------- -------- ------- --------
Net loss................................................... $(5,039) $(14,751) $(2,652) $ (1,161)
======= ======== ======= ========
Pro forma net loss per share(2)............................ $ (1.53) $ (0.11)
======== ========
Shares used in pro forma net loss per share
calculations(2).......................................... 9,627 10,386
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 865 $ 5,291 $ 4,141
Working capital (deficit).................................. (307) 6,637 6,049
Total assets............................................... 2,440 15,581 15,586
Capitalized lease obligations, less current portion(3)..... 544 632 468
Accumulated deficit........................................ (5,039) (19,790) (20,951)
Total shareholders' equity................................. 552 9,621 9,146
</TABLE>
- ------------
(1) Research and development expenses include amortization of deferred
compensation of $22,000, $50,000, $6,000 and $48,000 for 1995, 1996 and the
three month periods ended March 31, 1996 and 1997, respectively. Selling,
general and administrative expenses include amortization of deferred
compensation of $34,000, $146,000, $8,000 and $73,000 for 1995, 1996 and the
three month periods ended March 31, 1996 and 1997, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(2) See Note 1 of Notes to Financial Statements for an explanation of shares
used in pro forma net loss per share calculations.
(3) See Note 8 of Notes to Financial Statements.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. The Company's actual results
and the timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company was founded in August 1994 to design, develop, market and
support 3D media processors, subsystems and API software for the interactive
electronic entertainment market. The Company had no operations during the period
from inception (August 24, 1994) through December 31, 1994. The Company was
considered a development stage enterprise and was primarily engaged in product
development and product testing until its first commercial product shipments in
the third quarter of 1996. The Company incurred losses in 1995, 1996 and the
three months ended March 31, 1997 and as of March 31, 1997 had an accumulated
deficit of $21.0 million. These net losses were attributable to the lack of
substantial revenue and continuing significant costs incurred in the research
and development of the Company's 3D media processor products and product
testing. The Company expects to incur additional net losses at least in the near
term as it continues to incur substantial research and development and sales and
marketing expenses to commercialize its products. There can be no assurance that
significant revenues or profitability will ever be achieved or, if they are
achieved, that they can be sustained or increased on a quarterly or annual basis
in the future
The Company derives revenue from the sale of 3D media processors and
subsystems and from its development contract with Sega pursuant to the Sega
Agreement. The Company's products are designed for use in PCs, home game
consoles and coin-op arcade systems. The Company began commercial shipments of
its first 3D graphics product, the Voodoo Graphics chipset, in September 1996.
The Company's second product, the Voodoo Rush chipset, is currently in the later
stages of development, with limited commercial shipments expected to begin in
the second quarter of 1997. The Company has also commenced development of
Banshee, which is intended to be a high performance, full-featured single chip
3D/2D media processor for the PC and coin-op arcade markets. Historically, the
Company has also marketed and sold limited quantities of its Obsidian products,
a line of Voodoo Graphics-based 3D processor boards. The Company currently
intends to sell the Obsidian product on an opportunistic basis in the future. As
a result of the Company's limited operating history and early stage of
development, it has only a limited number of customers. Revenues derived from
sales to Orchid, Diamond and Williams accounted for 44%, 33% and 11%,
respectively, of product revenues in 1996. Revenues derived from sales to
Diamond and Williams accounted for 59% and 15%, respectively, of product
revenues for the three months ended March 31, 1997. The Company expects that a
small number of customers will continue to account for a substantial portion of
its total revenues for the foreseeable future.
The Company is developing a 3D media processor chipset for Sega's next
generation home game console pursuant to the Sega Agreement. During the three
months ended March 31, 1997, the Company recognized development contract
revenues of $750,000 under the Sega Agreement representing a non-refundable
amount due for the delivery of certain engineering designs to Sega. Future
development contract revenues under the Sega Agreement will be recognized by the
Company under the percentage of completion method of accounting based upon costs
incurred relative to total contract costs. Development contract revenues
recognized under the Sega Agreement represented 14.3% of total revenues during
the three months ended March 31, 1997. The Company may earn additional
development contract revenue and certain development bonuses provided that
milestones set forth in the Sega Agreement are met. Under the Sega Agreement,
the Company will also derive royalty revenue for each Sega/3Dfx Chipset
incorporated into products sold by Sega. The timely development and availability
for shipment of the Sega/3Dfx Chipset by the Company and the
24
<PAGE> 26
successful introduction and sale of the New Sega Game Console will be critical
factors affecting the Company's future results of operations and financial
condition. Although published reports in the financial press have indicated that
Sega may discontinue the manufacture and marketing of its home game console
hardware, based on the Company's dealings with Sega in connection with the
negotiation, execution and performance to date of the Sega Agreement, the
Company has no reason to believe that Sega intends to withdraw from its
commitment to develop, manufacture and market the New Sega Game Console. See
"Risk Factors -- Dependence on Relationship with Sega" and
"Business -- Products, Products Under Development and Technology
License -- Strategic Relationship with Sega" for a description of the Sega
Agreement.
As part of its manufacturing strategy, the Company leverages the expertise
of third party suppliers in the areas of wafer fabrication, assembly, quality
control and assurance, reliability and testing. This strategy allows the Company
to devote its resources to research and development and sales and marketing
activities while avoiding the significant costs and risks associated with owning
and operating a wafer fabrication facility and related operations. The Company
does not manufacture the semiconductor wafers used for its products and does not
own or operate a wafer fabrication facility. All of the Company's semiconductor
products are currently manufactured by TSMC in Taiwan. The Company obtains
manufacturing services from TSMC on a purchase order basis. The Company provides
TSMC with a rolling six month forecast of its supply needs and TSMC builds to
the Company's forecast. The Company purchases wafers and die from TSMC. Once
production yield for a particular product stabilizes, the Company pays an agreed
price for wafers meeting certain acceptance criteria pursuant to a "good die"
only pricing structure for that particular product. Until production yield for a
particular product stabilizes, however, the Company must pay an agreed price for
wafers regardless of yield. Such wafer and die purchases constitute a
substantial portion of cost of products revenues once products are sold. TSMC is
responsible for procurement of raw materials used in the production of the
Company's products. The Company believes that raw materials required are readily
available. See "Risk Factors -- Dependence on Independent Manufacturers and
Other Third Parties; Absence of Manufacturing Capacity; Manufacturing Risks."
In connection with the grant of stock options to employees since inception
(August 1994), the Company recorded aggregate deferred compensation of
approximately $1.9 million, representing the difference between the deemed fair
value of the Common Stock for accounting purposes and the option exercise price
at the date of grant. This amount is presented as a reduction of shareholders'
equity and is amortized ratably over the vesting period of the applicable
options. These valuations resulted in charges to operations of $56,000 ($22,000
of which was recorded in research and development expenses and $34,000 of which
was recorded in selling, general and administrative expenses), $196,000 (of
which $50,000 and $146,000 were recorded in research and development expenses
and selling, general and administrative expenses, respectively) and $121,000 (of
which $48,000 and $73,000 were recorded in research and development expenses and
selling, general and administrative expenses, respectively) in 1995, 1996 and
the three months ended March 31, 1997, respectively, and will result in charges
over the next 15 quarters aggregating approximately $121,000 per quarter (of
which $48,000 and $73,000 will be recorded in research and development expenses
and selling, general and administrative expenses, respectively).
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
Revenues. Revenues from product sales are recognized upon product
shipment. Revenue resulting from development contracts is recognized by the
Company under the percentage of completion method of accounting based upon costs
incurred relative to total contract costs. The Company's total revenues were
$5.2 million in the three months ended March 31, 1997. No revenues were
generated in the three months ended March 31, 1996.
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<PAGE> 27
Product revenues were $4.5 million in the three months ended March 31,
1997. Product revenues in the three months ended March 31, 1997 were principally
attributable to sales of the Company's Voodoo Graphics chipset and, to a lesser
extent, sales of the Company's Obsidian graphics subsystems. The Company
currently plans to sell the Obsidian product on an opportunistic basis in the
future.
Development contract revenues of $750,000 were recognized in the three
months ended March 31, 1997 representing a non-refundable amount due for the
delivery of certain engineering designs to Sega. Development contract revenues
are billable by the Company to Sega based on a schedule of set forth in the Sega
Agreement. Development contract revenues in future quarters will be recognized
under the percentage of completion method of accounting as costs are incurred
relative to total contract costs and will fluctuate from quarter to quarter.
These fluctuations in development contract revenues will cause fluctuations in
the Company's total revenues, gross margins and results of operations. See "Risk
Factors -- Potential Fluctuations in Operating Results," "-- Overview" and
"Business -- Products, Products Under Development and Technology
License -- Strategic Relationship with Sega."
Gross Profit. Gross profit consists of total revenues less cost of product
revenues. Cost of product revenues consists primarily of costs associated with
the purchase of components, the procurement of semiconductors and printed
circuit board assemblies from the Company's contract manufacturers, labor and
overhead associated with such procurement and warehousing, shipping and warranty
costs. Cost of product revenues does not include expenses related to development
contract revenues. Gross profit was $2.7 million in the three months ended March
31, 1997. Cost of product revenues was $2.6 million in the three months ended
March 31, 1997. Gross profit as a percentage of total revenues was 50.8% in the
three months ended March 31, 1997. However, given the Company's limited
operating history and limited history of product shipments, the Company believes
that analysis of gross profit as a percentage of total revenues is not
meaningful. The Company's future gross profit will be affected by the overall
level of sales; the mix of products sold in a period; the mix of revenues
between product revenues, development contract revenues associated with the Sega
Agreement and licensing revenues in a period; manufacturing yields; and the
Company's ability to reduce product procurement costs.
Research and Development. Research and development expenses consist
primarily of compensation and other expenses related to research and development
personnel, occupancy costs of research and development facilities, depreciation
of capital equipment used in product development and engineering costs paid to
the Company's foundries in connection with manufacturing start-up of new
products. In addition, costs associated with development contracts are included
in research and development. Research and development expenses increased 17.7%
from $1.7 million in the three months ended March 31, 1996 to $2.0 million in
the three months ended March 31, 1997. Research and development expenses include
costs associated with development contract revenues of approximately $80,000.
The increase reflects increased personnel costs associated with the general
expansion of the Company's research and development activities and increased
nonrecurring engineering costs incurred in connection with the commencement of
manufacturing of the Voodoo Rush chipset. The market for the Company's products
is characterized by frequent new product introductions and rapidly changing
technology and industry standards. As a result, the Company's success will
depend to a substantial degree upon its ability to rapidly develop and introduce
new products and enhancements to existing products that meet changing customer
requirements and emerging industry standards. Accordingly, the Company expects
to continue to make substantial investments in research and development and
anticipates that research and development expenses will increase in absolute
dollars in future periods, although such expenses as a percentage of total
revenues will fluctuate.
Selling, General and Administrative. Selling, general and administrative
expenses include compensation and benefits for sales, marketing, finance and
administration personnel, commissions paid to independent sales representatives,
tradeshow, advertising and other promotional expenses and facilities expenses.
Selling, general and administrative expenses increased 79.6% from $1.0 million
in the three months ended March 31, 1996 to $1.8 million in the three months
ended March 31, 1997. The increase resulted from the addition of personnel in
sales, marketing, finance and administration as the
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<PAGE> 28
Company expanded operations, and increased commission expenses associated with
the commencement of commercial sales. The Company expects that selling, general
and administrative expenses will increase in absolute dollars in future periods,
although such expenses as a percentage of total revenues will fluctuate.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net decreased from net interest and other income of $35,000 in the
three months ended March 31, 1996 to net interest and other expense of $27,000
in the three months ended March 31, 1997. The decrease resulted from higher
interest expense as a result of outstanding balances under the equipment line of
credit and capitalized lease obligations, partially offset by interest income
earned on outstanding cash balances.
Provision For Income Taxes. The Company recorded no provision for income
taxes in the three months ended March 31, 1996 and 1997 as it incurred losses
during such periods. As of March 31, 1997, the Company had net operating loss
carryforwards of approximately $19.1 million for federal income tax purposes. If
not utilized, the net operating loss carryforwards will begin to expire in 2010.
Under the Tax Reform Act of 1986, the amount of and the benefit from net
operating losses that can be carried forward may be impaired in certain
circumstances, including for example, a cumulative ownership change of more than
50% over a three-year period. As of March 31, 1997, the Company's net operating
loss carryforwards were not subject to any material annual limitations on
utilization. The offering will result in an annual limitation of the Company's
ability to utilize net operating losses (from the effective date of this
offering).
At March 31, 1997, the Company had approximately $8.2 million of deferred
tax assets, comprised primarily of net operating loss and expenses not currently
deductible for tax purposes. The Company believes that available objective
evidence creates sufficient uncertainty regarding the realizability of such
deferred tax assets; therefore a full valuation allowance has been recorded. The
factors considered include the Company's history of losses, the lack of
carryback capacity to realize deferred tax assets, the uncertainty of the
development of the products and markets in which the Company competes and the
fact that the market in which the Company competes is intensely competitive and
characterized by rapidly changing technology. The Company believes that based on
the currently available evidence, it is more likely than not that the Company
will not generate sufficient taxable income to realize the Company's deferred
tax assets.
Years Ended December 31, 1996 and 1995
Revenues. The Company's total revenues were $6.4 million in 1996. In 1995
the Company was still in the development stage and did not generate any
revenues. Substantially all of the revenues in 1996 were derived from sale of
the Company's Voodoo Graphic chipset, which began commercial shipments in
September 1996 and, to a lesser extent, sale of Obsidian graphics subsystems.
There were no development contract revenues in 1996.
Gross Profit. Gross profit and cost of product revenues were $1.3 million
and $5.1 million, respectively, in 1996. Gross profit as a percentage of total
revenues was 19.8% in 1996. Cost of product revenues in 1996 reflected
significant prototype and manufacturing start-up expenses incurred in connection
with the initial commercial shipment of the Voodoo Graphics chipset.
Research and Development. Research and development expenses increased
220.9% from $2.9 million in 1995 to $9.4 million in 1996, as the Company
significantly increased research and product development activities and incurred
increased nonrecurring engineering costs in connection with beginning
manufacturing of the Voodoo Graphics chipset. The increased research and
development expenditures primarily related to compensation and related personnel
expenditures as the Company expanded its research and development operations.
Selling, General and Administrative. Selling, general and administrative
expenses increased 206.6% from $2.2 million in 1995 to $6.6 million in 1996, as
the Company (i) increased finance and administration staffing and related costs
necessary to support higher levels of operations,
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<PAGE> 29
(ii) established sales and marketing operations to support the commencement of
commercial product shipments and (iii) incurred commission expenses associated
with product sales.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net decreased from $67,000 in 1995 to $59,000 in 1996. The decrease
resulted from higher levels of interest expense as a result of higher
outstanding balances of capitalized lease obligations partially offset by higher
interest income as a result of higher outstanding cash balances.
Provision for Income Taxes. The Company recorded no provision for income
taxes in 1995 and 1996 as it incurred losses during such periods.
Quarterly Results of Operations
The following table sets forth unaudited quarterly results of operations
data for each quarter during the year ended December 31, 1996 and for the three
months ended March 31, 1997. This unaudited information has been prepared by the
Company on a basis consistent with the Company's audited financial statements
appearing elsewhere in this Prospectus and includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information for the periods presented. The unaudited quarterly information
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this Prospectus. In light of the Company's limited
operating history, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1996 1996 1996 1996 1997
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Product................................ $ -- $ -- $ 1,887 $ 4,503 $ 4,497
Development contract................... -- -- -- -- 750
------- ------- ------- ------- -------
Total revenues................. -- -- 1,887 4,503 5,247
Cost of product revenues................. -- -- 1,719 3,404 2,582
------- ------- ------- ------- -------
Gross profit............................. -- -- 168 1,099 2,665
------- ------- ------- ------- -------
Operating expenses:
Research and development............... 1,659 2,864 2,626 2,286 1,953
Selling, general and administrative.... 1,028 1,529 1,661 2,424 1,846
------- ------- ------- ------- -------
Total operating expenses....... 2,687 4,393 4,287 4,710 3,799
------- ------- ------- ------- -------
Loss from operations..................... (2,687) (4,393) (4,119) (3,611) (1,134)
Interest and other income (expense),
net.................................... 35 3 8 13 (27)
------- ------- ------- ------- -------
Net loss................................. $(2,652) $(4,390) $(4,111) $(3,598) $(1,161)
======= ======= ======= ======= =======
</TABLE>
The Company was founded in August 1994 and was a development stage company
until it began commercial shipments of its first product, Voodoo Graphics, in
the third quarter of 1996. Product revenues were derived primarily from the sale
of the Voodoo Graphics chipset in the three month periods ended September 30,
1996, December 31, 1996 and March 31, 1997. The Company's product revenues
remained relatively flat in the three months ended March 31, 1997 as compared to
the three months ended December 31, 1996 due to seasonality in the PC market.
During the three months ended March 31, 1997, the Company recognized development
contract revenues of $750,000 under the Sega Agreement representing a
non-refundable amount due for delivery of certain engineering designs to Sega.
Development contract revenues in future quarters derived pursuant to the Sega
Agreement will fluctuate from quarter to quarter. See "-- Overview." The
increase in cost of product revenues during the three months ended December 31,
1996 was primarily attributable to increased product revenues and manufacturing
inefficiencies as the Company increased commercial product sales. Total
operating expenses fluctuated from quarter to quarter as the Company expanded
research and development and
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<PAGE> 30
sales and marketing activities in 1996 to support the manufacture, development
and marketing of Voodoo Graphics and Voodoo Rush, respectively. Operating
expenses in the three month period ended March 31, 1997 decreased from the prior
periods as the Company began cost containment measures and incurred lower
manufacturing start-up expenses.
The Company believes that, even if it does achieve significant sales of its
products, quarterly and annual results of operations will be affected by a
variety of factors that could materially adversely affect revenues, gross profit
and income from operations. Accordingly, the Company believes that
period-to-period comparisons of its results of operations should not be relied
upon as an indication of future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full fiscal
year. In certain future quarters, the Company's results of operations may be
below the expectations of public market analysts or investors. In such event,
the market price of the Common Stock could be materially adversely affected. See
"Risk Factors -- Potential Fluctuations in Quarterly Results."
Impact of Adoption of New Accounting Standards
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123") which established a fair value based method of
accounting for stock-based compensation plans and requires additional
disclosures for those companies that elect not to adopt the new method of
accounting. In January 1996, the Company adopted the disclosure requirements of
FAS 123. The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The adoption of the disclosure requirements of FAS 123 did not have
a material impact on the Company's financial condition or results of operations.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("FAS 121")
which requires the Company to review for impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
might not be recoverable. In certain situations, an impairment loss would be
recognized. Effective January 1, 1996, the Company adopted FAS 121. The adoption
of FAS 121 did not have a material impact on the Company's financial condition
or results of operations.
In February 1997, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128")
which adjusts the calculation of earnings per share under generally accepted
accounting principles. FAS 128 is effective for the Company's fiscal year ending
December 31, 1997. See Note 1 of Notes to Financial Statements for the effect of
FAS 128 on the Company's pro forma net loss per share presentation.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private placements of equity securities yielding approximately $31.3 million. As
of March 31, 1997, the Company had approximately $1.6 million of equipment line
financing in place. As of March 31, 1997, the Company had approximately $4.1
million in cash and cash equivalents.
Net cash used in operating activities was approximately $3.9 million, $17.2
million and $1.8 million in 1995, 1996 and the three months ended March 31,
1997, respectively. For 1995, net cash used in operating activities was due
primarily to the net loss of $5.0 million, partially offset by increases in
accounts payable and accrued liabilities. Net cash used in operating activities
in 1996 was due primarily to the net loss of $14.8 million, a $4.9 million and
$1.5 million increase in inventory and accounts receivable, respectively,
associated with the generation of revenues which was partially offset by a $2.6
million increase in accounts payable and accrued liabilities. For the three
months ended March 31, 1997, net cash used in operating activities was due
primarily to the net loss of $1.2 million, a $2.6
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<PAGE> 31
million increase in accounts receivable, increases in other assets and decreases
in accounts payable partially offset by a $2.0 million decrease in inventory and
an $800,000 increase in deferred revenue.
Net cash used in investing activities was approximately $589,000, $2.2
million and $334,000 in 1995, 1996 and the three months ended March 31, 1997,
respectively, and was due, in each period, to the purchase of property and
equipment. The Company does not have any significant capital spending or
purchase commitments other than normal purchase commitments and commitments
under leases. As of March 31, 1997, the Company had capital equipment of $5.1
million less accumulated depreciation of $1.6 million to support its research
and development and administrative activities. The Company has financed
approximately $1.9 million from capital lease obligations through March 31,
1997. The Company has an equipment line of credit, which provided initially for
the purchase of up to $2.0 million of property and equipment, of which
approximately $1.6 million had been utilized as of March 31, 1997. No remaining
borrowing capacity is available under this equipment line of credit. Borrowings
under this line are secured by all of the Company's owned assets and bear
interest at the bank's prime rate plus 1.50% per annum (10.0% as of March 31,
1997). The agreement requires that the Company maintain certain financial ratios
and levels of tangible net worth profitability and liquidity. The Company was in
compliance with its covenants as of March 31, 1997. The lease line of credit
expires in August 1998. The Company expects to use approximately $6.5 million of
the net proceeds of this offering for capital expenditures through the end of
1998, primarily for the purchase of computer equipment and related software
tools, furniture, fixtures and leasehold improvements. The Company expects
capital expenditures to increase over the next several years as it expands
facilities and acquires equipment to support the planned expansion of its
operations.
Net cash provided by financing activities was approximately $5.4 million,
$23.8 million and $988,000 in 1995, 1996 and the three months ended March 31,
1997, respectively, due primarily to proceeds from the issuance of Preferred
Stock.
The Company has a line of credit agreement with Silicon Valley Bank, which
provides for maximum borrowings in an amount up to the lesser of 75% of eligible
accounts receivable plus 100% of cash and cash equivalents or $4.0 million.
Borrowings under the line are secured by all of the Company's owned assets and
bear interest at the bank's prime rate plus 1.50% per annum. The agreement
requires that the Company maintain certain financial ratios and levels of
tangible net worth, profitability and liquidity. The Company is in compliance
with its covenants as of March 31, 1997. The line of credit expires in August
1997. At March 31, 1997, there were no borrowings outstanding under this line of
credit. The Company has the ability to obtain and is actively considering
obtaining an additional $1.0 million term loan with Silicon Valley Bank for
software, equipment and leasehold improvements. In addition, the Company is
considering entering into a $500,000 lease line with a different lender for
equipment.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the costs and timing of expansion of research and
product development efforts and the success of these development efforts, the
costs and timing of expansion of sales and marketing activities, the extent to
which the Company's existing and new products gain market acceptance, competing
technological and market developments, the costs involved in maintaining and
enforcing patent claims and other intellectual property rights, the level and
timing of development contract revenues and royalty revenues associated with the
Sega Agreement and available borrowings under line of credit arrangements and
other factors. The Company believes that the proceeds from this offering
together with the Company's current cash balances and cash generated from
operations and from available or future debt financing will be sufficient to
meet the Company's operating and capital requirements through December 1998.
However, there can be no assurance that the Company will not require additional
financing within this time frame. The Company's forecast of the period of time
through which its financial resources will be adequate to support its operations
is a forward-looking statement that involves risks and uncertainties, and actual
results could vary. The factors described earlier in this paragraph will impact
the Company's future capital requirements and the adequacy of its available
funds. The Company may be required to raise additional funds through public or
private
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<PAGE> 32
financing, strategic relationships or other arrangements. There can be no
assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to shareholders, and debt financing, if available, may
involve restrictive covenants. Strategic arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies or products. The failure of the Company to raise capital when
needed could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Possible Future
Capital Requirements."
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<PAGE> 33
BUSINESS
3Dfx Interactive is a leading developer of high performance, cost-effective
3D media processors, software and related technology for the interactive
electronic entertainment market. The Company has developed 3D technology that
enables a highly immersive, interactive and realistic 3D experience across
multiple hardware entertainment platforms. Furthermore, the Company's technology
facilitates virtually "seamless portability", or the transfer of game titles or
other software content from one hardware platform to another, such as from an
arcade system to a PC, without significant rewriting of the code for such game
titles or other software content. The Company's strategy is to provide a 3D
media processor solution comprised of hardware and embedded software designed
around a common architecture that will become the standard graphics engine for
the interactive electronic entertainment market. The Company believes that the
benefits of its technology, coupled with its software content strategy, provide
powerful incentives for the leading PC OEMs and entertainment hardware
manufacturers to utilize the 3Dfx solution.
Voodoo Graphics, the Company's first product, and subsequent 3D media
processors now under development are designed around a common architecture to be
utilized as the graphics engine for PCs and coin-op arcade systems. For PC
applications, Diamond and Orchid have each introduced consumer multimedia add-in
cards incorporating the Company's 3D media processor for sale in the retail
channel and for incorporation into PCs manufactured by, among others,
Apricot/Mitsubishi Electronic PC Division ("Apricot/Mitsubishi"), Falcon
Northwest Computer Systems ("Falcon Northwest"), Hewlett-Packard Company
("Hewlett-Packard") and NEC Corp. ("NEC"). In the coin-op arcade market, the
Voodoo Graphics 3D media processor is being utilized by Acclaim, Kaneko, Ltd.,
Midway and Taito, among others. Voodoo Graphics technology is also the graphics
architecture for the Sega/3Dfx Chipset that the Company is developing for
license to Sega for use in the New Sega Game Console. The Company's second
product, Voodoo Rush, is designed to incorporate a 3D/2D solution into a single
PCI board. Voodoo Rush began sampling in November 1996 and limited commercial
shipments are expected in the second quarter of 1997. The Company has commenced
development of Banshee, which is intended to be a high performance,
fully-featured single chip, 3D/2D media processor for the PC and coin-op arcade
markets. The Company expects to begin commercial shipments of Banshee in the
first quarter of 1998. All of the Company's products are manufactured,
assembled, tested and packaged by third-party suppliers.
INDUSTRY BACKGROUND
The goal of interactive electronic entertainment is to create a realistic
and immersive environment in which users can actively participate. Interactive
electronic entertainment began in the 1970s with Atari's introduction of Pong, a
simplistic, 2D, black and white, coin-op arcade game resembling ping pong, and
has evolved to realistic and engaging 3D action games such as Quake and Tomb
Raider.
While interactive electronic entertainment started in the arcade, it was
brought to the mass market through the advent of inexpensive, dedicated home
game consoles that attached to televisions. Over the past 15 years, Nintendo,
Sega, Sony and other OEMs have introduced successive generations of these
consoles that, combined with better quality games, have provided increasing
realism and enhanced game play. The overall entertainment experience on these
platforms has been improving as a result of the recent introduction of first
generation 3D hardware and software in the arcade and console markets. Despite
its desirability, high performance 3D technology continues to be prevalent only
in high-end engineering workstations that typically cost tens of thousands of
dollars.
The ultimate goal of the use of 3D for entertainment applications is to
create an interactive experience with video quality comparable to that of motion
pictures. Interactive electronic entertainment applications employing 3D
graphics create plausible illusions of reality and thus provide more engaging
presentations of complex action and scenery than traditional 2D graphics. The
Company believes that once consumers experience high quality 3D technology on
any entertainment platform, they will demand it from all interactive
entertainment experiences.
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Interactive electronic entertainment products today are generally played on
three hardware platforms -- the coin-op arcade system, the home game console and
increasingly the PC. Coin-op arcade games have traditionally offered the most
compelling and immersive experience for game players and, as a result, 3D gaming
was first introduced in this high-end market. However, coin-op arcade games are
based on high cost, proprietary hardware and, consequently, the coin-op arcade
market has remained a relatively small segment of the overall 3D market. Like
coin-op arcade systems, home game console hardware is typically proprietary.
However, the attractive price point, traditionally $300 or less, continual
technological improvements and convenience of home play that home game consoles
offer have fueled the platform's substantial consumer adoption even though
performance still trails that of the arcade.
Although 3D interactive electronic entertainment has enjoyed success on
both the coin-op arcade and home game console platforms, which are optimized for
game play, to date 3D entertainment has had limited success in the PC market. In
fact, in 1996, PC games accounted for less than 20% of the total video game
market. Several recent developments, however, are enabling the PC to become a
more suitable platform for interactive electronic entertainment. First, the
emergence of more powerful microprocessors and dedicated graphics processors
have provided the necessary computing power to handle the computationally
intensive processing of 3D graphics at acceptable costs. Second, the PC industry
has adopted wider data buses in the PC architecture that are capable of
transmitting the vast streams of data needed for high quality 3D graphics.
Third, cost reductions in memory and other components have allowed PC OEMs to
offer lower cost, general purpose computing platforms that are ideal for 3D
interactive electronic entertainment. Finally, the industry has developed and
adopted industry standard 3D APIs, like Microsoft's D3D and SGI's OpenGL, which
serve as software bridges between applications and the 3D graphics processor.
In addition to the performance capabilities of the hardware, the success of
any game platform ultimately depends on the quality and quantity of software
titles developed for the platform and the ease with which developers can create
new software for, or port existing software to, a platform. Porting is the
adaptation of software code written for one platform for use on another. For
example, software written for a coin-op arcade system must be ported so that it
can be played on PCs or home game consoles. Historically, porting has been
technically challenging, costly and time consuming. Even though the coin-op
arcade market is the proving ground for new game titles with hits in the arcade
market virtually guaranteeing success in the PC and home game console markets,
software developers often opt not to pursue these opportunities because of the
significant engineering effort required to port a title from one platform to
another. As a result, game developers and publishers have not been able to fully
capitalize on their investment in software content. Consumers have been
frustrated by the long delays between their first experience with a game in an
arcade and the availability of the game for home use and by the significant
decrease in game quality typically experienced when software titles migrate from
the arcade platform. Thus, content developers are demanding an entertainment
solution that facilitates virtually seamless porting across platforms and
consumers are demanding a cost-effective solution that enables a high quality
gaming experience on their choice of platform.
The 3D Dilemma
The growth of the interactive electronic entertainment market has been
constrained by the absence of a high performance, cost-effective 3D solution,
the lack of an architecture that facilitates virtually seamless porting across
the three primary platforms and the limited number of high quality 3D software
titles. The implementation of 3D graphics is extremely complex and
mathematically intensive and requires significant computing power. Consequently,
despite the desirability of 3D graphics, high quality 3D continues to remain a
niche technology not prevalent outside of high-end engineering workstation and
professional applications. To date, attempts to bring high quality, affordable
3D solutions to the entertainment market have required consumers to accept a
trade-off between visual realism, or fill rate, and gaming performance, or frame
rate. Today, the interactive electronic entertainment industry is demanding a
no-compromise 3D solution that will deliver both
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<PAGE> 35
visual realism and performance at a cost-effective price. The solution must also
drive content development by enabling developers to create a new generation of
high quality 3D software that delivers a realistic and immersive experience.
THE 3DFX SOLUTION
3Dfx has developed hardware and software technology designed to deliver
superior 3D performance across multiple interactive electronic entertainment
platforms in a cost-effective manner. The Company's technology is optimized to
alleviate the traditional consumer trade-off between visual quality and gaming
performance by providing a 3D solution with both high fill rates and frame
rates. To that end, the Company's technology enables a highly immersive,
interactive 3D experience with compelling visual quality, realistic motion and
complex character and scene interaction at real time frame rates. Voodoo
Graphics, the Company's first product, and subsequent 3D media processors now
under development, are designed around a common architecture to be utilized as
the graphics engine for PCs and coin-op arcade systems. Voodoo Graphics
technology is also the graphics architecture for the Sega/3Dfx Chipset that the
Company is developing for license to Sega for use in the New Sega Game Console.
To promote the rapid adoption of its products, the Company's architecture
supports most industry standard APIs, including: Apple Computer Inc.'s Rave3D,
Argonaut Technologies Incorporated's BRender, Criterion Software Ltd.'s
Renderware, Intel's 3DR, Microsoft's D3D and SGI's OpenGL. The Company believes
that game titles using any of these APIs in conjunction with its 3D media
processor products offer compelling performance when compared to performance
achieved by competing hardware solutions. Additionally, the Company has
developed Glide, its proprietary, low-level 3D API. Glide was designed to
optimize the performance of software designed for any entertainment platform
powered by the Company's 3D media processors, and affords virtually seamless
portability of game content across multiple entertainment platforms. The content
provider's ability to rapidly port software titles to all three platforms
reduces the developer's time to market from the arcade to the high volume
platforms, significantly reduces the costs of porting across multiple platforms,
provides a successful title with enormous exposure and allows both the game
developer and the publisher to more effectively leverage their investment in a
given title. The Company believes that these are powerful incentives for the
leading PC OEMs, arcade and console hardware manufacturers, software content
developers and publishers to utilize and design applications for the 3Dfx
graphics engine.
STRATEGY
The Company's objective is to establish its products as the standard 3D
media processors in the interactive electronic entertainment market. Key
elements of the Company's business strategy include:
Focus on Interactive Electronic Entertainment Market. The interactive
electronic entertainment market is currently a multi-billion dollar industry
that is growing rapidly. The Company believes that the compelling visual quality
and high performance graphics enabled by its 3D media processors make its 3D
solution ideal for use in this market where users demand a high quality 3D
experience. The Company's strategy is to develop and introduce products that
cost-effectively deliver 3D performance levels that meet the demanding
requirements of the three major interactive electronic entertainment platforms.
Moreover, given the technical challenge of offering a high quality 3D solution
the Company believes that this market offers significant potential for continued
innovation of cost-effective, high performance 3D media processors.
Leverage Multi-Platform Architecture. The Company's 3D technology embodies
a single hardware/software architecture that can be deployed in each of the
three interactive electronic entertainment platforms. For PC applications,
Diamond and Orchid have each introduced consumer multimedia add-in cards
incorporating the Company's 3D media processor for sale in the retail channel
and for incorporation into PCs manufactured by Apricot/Mitsubishi, Falcon
Northwest, Hewlett-Packard and NEC, among others. In the coin-op arcade system
market, Voodoo Graphics is being utilized by Acclaim, Kaneko, Midway, and Taito,
among others. Voodoo Graphics technology is also the graphics
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<PAGE> 36
architecture for the Sega/3Dfx Chipset that the Company is developing for
license to Sega for use in the New Sega Game Console.
Promote Content Development. The Company believes that the availability of
a sufficient number of high quality, commercially successful software game
titles and applications drives hardware sales. Therefore, to become the standard
in the 3D interactive electronic entertainment arena, the Company is
collaborating with content developers to create software entertainment titles
designed to work with the Company's hardware. The Company attracts these
developers by providing the opportunity to differentiate their software products
with high quality 3D graphics, feature rich special effects and real time frame
rates. With a solution that enables game content to be easily ported across the
major interactive entertainment platforms, the Company offers its software
partners easy access to multiple outlets for their products. To encourage
developers and publishers to develop content based on the Company's technology,
the Company has devoted significant resources to its developer relations program
which currently includes over 500 content developers, game publishers and ISVs.
Pursue Branding Strategy. The Company continues to devote substantial
marketing resources towards establishing 3Dfx as a recognizable brand. The
Company is initially focusing on establishing its brand identity in the coin-op
arcade market by promoting the use of a spinning version of the 3Dfx logo at the
start of games utilizing the Company's hardware. In addition, the Company has
been working with both software developers and publishers in the PC market to
prominently display the 3Dfx logo on their software product boxes to indicate
that the software is compatible with the Company's products. To further identify
the Company in the marketplace, several software products display a spinning
version of the 3Dfx logo on the screen while loading. The Company believes that
this strategy creates market awareness because publishers first release games to
arcades where consumers will first encounter the 3Dfx logo, and then port
successful games to PCs and home game consoles. The Company further believes
that consumer awareness of its products will speed adoption of the Company's
architecture in the mass market, lead to increasing availability of 3Dfx enabled
software content and help establish the Company as the standard 3D solution for
the interactive electronic entertainment market.
Extend Technical Leadership. The Company offers superior performance 3D
media processors targeted toward the high-end of the interactive electronic
entertainment market. The Company intends to continue to leverage its technology
at the high-end of the 3D interactive electronic entertainment market in order
to optimize and cost-reduce such solutions for applications in the volume
market. The Company believes this strategy will create an effective barrier to
entry to potential competitors.
Leverage Core Technology to Address New Market Opportunities. The Company
believes it can leverage its 3D processor technology in a variety of other 3D
multimedia applications. Within the electronic entertainment market, the Company
intends to extend its technology to location based entertainment ("LBE")
applications, which would be enhanced by the Company's technology. LBE sites are
typically dedicated to one type of game or experience and the environment
includes mechanical or other environmental elements that add significantly to
the immersion of the experience. The Company is investigating opportunities to
apply its 3D technology to other product applications such as Internet/intranet
exploration, including virtual reality mark-up language ("VRML") browsers, 3D
graphical user interface ("GUI"), visual simulation, education and training
applications and other 3D visualization applications.
PRODUCTS, PRODUCTS UNDER DEVELOPMENT AND TECHNOLOGY LICENSE
The Company's product strategy is to offer a 3D media processor solution
comprised of hardware and embedded software designed around a common
architecture that will become the standard graphics engine for the interactive
electronic entertainment market. Voodoo Graphics, the Company's first product,
began commercial shipment in September 1996. Voodoo Rush, the Company's second
product, began sampling in November 1996 and limited commercial shipment is
expected for the second quarter of 1997. Both Voodoo Graphics and Voodoo Rush
are being targeted at price and
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<PAGE> 37
performance points for the PC and coin-op arcade markets. Voodoo Graphics and
subsequent 3D media processors under development are based on a common
architecture which offers developers a clear, compatible upgrade path. This
architecture is designed to scale with the PC's microprocessor. As a result, as
the processing power of the CPU increases, the Company's products will use that
additional processing power to improve the overall quality of the 3D. In
addition, Voodoo Graphics technology is the graphics architecture for the
Sega/3Dfx Chipset that the Company is developing for license to Sega for use in
the New Sega Game Console.
Voodoo Graphics. The Company believes that Voodoo Graphics offers a
cost-effective, high performance solution for 3D interactive electronic
entertainment applications. Voodoo Graphics is a stand-alone 3D media processor
designed to function as the primary display device in embedded applications,
such as coin-op arcade systems, or to work in conjunction with most standard 2D
processors in PC applications. Voodoo Graphics has seen initial acceptance in
both the PC and coin-op arcade markets. Diamond and Orchid have each introduced
multimedia add-in boards for PCs, Monster 3D and Righteous 3D, respectively,
that are currently supplied through retail, OEM and mail order channels in the
US, Europe and Asia. See "-- Sales and Marketing." Voodoo Graphics is being
utilized by Acclaim, Kaneko, Midway and Taito among others for coin-op arcade
systems and game applications. In addition, Voodoo Graphics is the basis for the
technology that the Company is developing and has licensed to Sega for use in
Sega's new home game console. See "-- Strategic Relationship with Sega." The
technological features found in the existing Voodoo Graphics product will be
incorporated into the Sega/3Dfx Chipset. There can be no assurance that the
Sega/3Dfx Chipset will be developed as anticipated, perform as required or be
incorporated into Sega's New Sega Game Console as planned. See "Risk
Factors -- Dependence on Relationship with Sega" and "-- Strategic Relationship
with Sega."
Voodoo Graphics is a two chip solution and has a 128-bit "dedicated texture
memory" architecture that provides over 800 megabytes per second of memory
bandwidth to deliver both the interactivity and the visual realism necessary for
the new generation of 3D games. Because Voodoo Graphics dedicates at least one
megabyte of memory to texture maps, interactive 3D games can now attain a level
of realism that was previously limited to pre-rendered games with limited
interactivity. Voodoo Graphics has scalable performance of 45 megapixels per
second sustained fill rate for bilinear or advanced filtered textures and one
million textured triangles per second polygon performance for filtered, level of
detail ("LOD") MIP-mapped, Z-buffered, alpha-blended, fogged, textured 50-pixel
triangles rendered on a Pentium-200 MMX system.
Voodoo Rush. Voodoo Rush began sampling in November 1996 and limited
commercial shipment is expected for the second quarter of 1997. There can be no
assurance that Voodoo Rush will be commercially shipped or will be accepted by
the market. Voodoo Rush is designed to offer a cost-effective solution for
implementing 3D graphics with 3D performance similar to that of Voodoo Graphics.
Based on the core 3D technology in Voodoo Graphics, Voodoo Rush was designed to
function with a partner's companion 2D or 2D/3D accelerator. Unlike Voodoo
Graphics, however, which requires independent 2D and 3D solutions, Voodoo Rush
is designed to incorporate a 3D/2D solution into a single PCI board. Alliance,
Macronix, MRT and Trident are the Company's partners for this program. The
Voodoo Rush solution is designed to increase system flexibility for the OEM, to
require less memory and to reduce the graphics system cost when compared to
Voodoo Graphics and stand-alone 2D graphics.
Voodoo Rush is designed to provide both full screen rendering and 3D in a
window, which permits the user to move easily between the 3D enabled
application, the desktop and other applications. Voodoo Rush has a sustained
fill rate of 45 megapixels per second for bilinear filtered textures with LOD
MIP-mapping, Z-buffering, alpha-blending and fogging enabled. The triangle rate
is one million triangles per second for filtered, LOD MIP-mapped, Z-buffered,
alpha-blended, fogged, textured triangles on a Pentium-200 MMX system.
Future Product Development. In connection with the Company's strategy of
developing a single-chip solution, the Company has commenced development of
Banshee, which is intended to be a high
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<PAGE> 38
performance, fully-featured single chip 3D/2D media processor for the PC and
coin-op arcade markets. See "-- Strategy." The Company expects to begin
commercial shipment of Banshee by the first quarter of 1998. The Company is
developing Banshee with the intent of delivering quality 3D/2D to a broader
portion of the interactive electronic entertainment market. In addition, Banshee
is designed to reduce graphics system costs and to be compatible with
applications designed for use with Voodoo Graphics and Voodoo Rush. There can be
no assurance that the Company will be able to introduce Banshee as scheduled or,
that if introduced, it will perform as intended or be accepted by OEMs, coin-op
board manufacturers and coin-op arcade system manufacturers. In addition, the
Company is in the early stages of development of the second generation of its
existing product. There can be no assurance, however, that these second
generation solutions will be developed, or, if developed, that they will perform
as expected or be accepted by the market. See "Risk Factors -- Acceptance of the
Company's 3D/2D Solution for the PC Market; Dependence on the Development of a
Single-Chip Solution" and "-- Dependence on New Product Development; Rapid
Technological Change."
Strategic Relationship with Sega
In March 1997, the Company entered into the Sega Agreement, under which the
Company will develop and license to Sega the Sega/3Dfx Chipset for use in the
New Sega Game Console. During the three months ended March 31, 1997, the Company
recognized development contract revenues of $750,000 under the Sega Agreement
representing a non-refundable amount due for the delivery of certain engineering
designs to Sega. Development contract revenues recognized under the Sega
Agreement represented 14.3% of total revenues, during the three months ended
March 31, 1997. Through the end of 1998, the Company may earn additional
development contract revenues and certain development bonuses provided that
certain milestones set forth in the Sega Agreement are met. The Company will
also derive royalty revenue for each Sega/3Dfx Chipset incorporated into
products sold by Sega.
Pursuant to the Sega Agreement, the Company shall maintain ownership of the
Sega/3Dfx Chipset intellectual property. The Company granted Sega a
royalty-bearing, worldwide license (i) to use the technology covered by the Sega
Agreement for the manufacture of the Sega/3Dfx Chipset, to perform engineering,
development, testing and integration of the Sega/3Dfx Chipset within the console
and to distribute the Sega/3Dfx Chipset as integrated into such console; and
(ii) to use the Sega/3Dfx Chipset solely for Sega's internal engineering,
development, testing, support and other purposes in connection with the
incorporation of the Sega/3Dfx Chipset into other potential Sega products. The
license rights to manufacture and distribute the Sega/3Dfx Chipset are exclusive
to Sega, solely with respect to home game consoles, for a period of three years
commencing on Sega's acceptance of the version of the Sega/3Dfx Chipset intended
for production in commercial volume. In addition to the chipset license, the
Company granted Sega a royalty-free license for certain software, including
Glide, subject to limitation.
The Sega Agreement will remain in full force and effect unless terminated
in accordance with its terms. Sega may terminate the Sega Agreement during the
development phase, if the Company defaults on the development schedule. Either
party may terminate the Sega Agreement, with limitations, upon the material
breach by the other party or in the event of the other party's bankruptcy,
dissolution or liquidation, assignment for the benefit of creditors, or the
appointment of a receiver or trustee or custodian for all or part of the assets
of such party.
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<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
3DFX PRODUCT DEVELOPMENT
- ----------------------------------------------------------------------------------------------------------
PRODUCT/LICENSE COMMERCIAL AVAILABILITY TARGET MARKET KEY FEATURES(1)
- ----------------------------------------------------------------------------------------------------------
Voodoo Graphics September 1996 PCs, coin-op arcade Add-on 3D solution;
systems scalability; consistent
sustained performance with
all features enabled; fill
rate of 45 Mpixel/sec; fully
featured triangle rate of
1.0M/sec; texture streaming;
fully featured architecture
- ----------------------------------------------------------------------------------------------------------
Voodoo Rush Expected second PCs Single-board 3D/2D solution;
quarter 1997 consistent sustained
performance with all features
enabled; fill rate of 45
Mpixel/sec; fully featured
triangle rate of 1.0M/sec;
texture streaming; fully
featured architecture; 3D in
a window
- ----------------------------------------------------------------------------------------------------------
Banshee Expected first PCs, coin-op arcade Single chip 3D/2D solution;
quarter 1998 systems large feature set; fully
integrated architecture; high
sustained fill rate and
triangle rate with all
features enabled; compatible
3D architecture with Voodoo
Graphics
- ----------------------------------------------------------------------------------------------------------
Sega/3Dfx Chipset To be announced Home game Key features based on Voodoo
License consoles Graphics architecture
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) "Fully featured" means textured, bilinear filtered with LOD MIP-mapping,
Z-buffered and fogged.
Graphics Subsystems and Development Boards. To address the coin-op arcade
market and to offer PC OEM customers development boards, the Company commenced
the design and manufacture of graphics boards immediately upon availability of
Voodoo Graphics. Branded "Obsidian," the Company also targeted these products to
address opportunities in the visual simulation, digital content creation and LBE
markets.
Because many of the Company's coin-op arcade OEM customers have implemented
embedded coin-op arcade systems as opposed to PC-based coin-op systems, the
principal demand for the Company's products in the coin-op arcade market is in
the form of components, rather than graphics boards or subsystems. Because the
graphics board business for the visual simulation, digital content creation and
LBE markets collectively comprise a significantly smaller volume market than the
embedded coin-op market, the Company does not intend to devote significant
resources to support the Obsidian product line. To maintain a presence in these
markets, while minimizing the associated support burdens, the Company has
recently entered into an agreement with Quantum3D, Inc. ("Quantum3D") pursuant
to which the Company will supply Obsidian graphics boards to Quantum3D for
resale into these and other markets. The Company anticipates that Quantum3D will
transition into a component customer in late 1997, and intends to support the
Obsidian product line on an opportunistic basis after such time.
CUSTOMERS
The Company markets its products to PC and graphics board OEMs and
manufacturers of coin-op arcade systems and home game consoles. The Company
works closely with its customers and software developers during the design
process of entertainment platforms and the development phase of
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<PAGE> 40
software titles and applications. The Company believes that this close technical
collaboration facilitates the integration of the Company's products into its
customers' entertainment platforms. There can be no assurance, however, that
design wins will ultimately result in orders or that the Company will retain
such customers through the ongoing and recurring design-in process. The
following is a list of the companies which are either direct or indirect
customers of the Company or companies with which the Company has design wins:
<TABLE>
<CAPTION>
PCS COIN-OP ARCADE SYSTEMS
---------------------------------------- ----------------------------------------
<S> <C>
Apricot/Mitsubishi Electric PC
Division(1) Acclaim Entertainment Inc.(2)
Deltron Precision, Inc. Eolith Co., Ltd.(2)
Diamond Multimedia Systems, Inc. IGS Taiwan(2)
Falcon Northwest Computer Systems(1) Interactive Light
Hercules Computer Technology, Inc. Kaneko Ltd.(2)
Hewlett-Packard Company(1) Konami Co. Ltd.
Intel Corporation LBE Technologies, Inc.
Micron Technology, Inc.(1) RealVision Corporation(2)
NEC Corp.(1) Taito Corporation(2)
Orchid Technology WMS Industries, Inc. (Williams)
Quantum3D, Inc.
</TABLE>
- ---------------
(1) Indirect customer that purchases products from the Company's board level
customers.
(2) Indicates design win only; such companies have not yet purchased commercial
quantities of the Company's products.
In addition to the design wins above, the Company has a design win with
Sega for the Sega/3Dfx Chipset which is being developed for use in the New Sega
Game Console. See "-- Products, Products Under Development and Technology
License -- Strategic Relationship with Sega."
Because of the Company's limited operating history and early stage of
development, it has only a limited number of customers. For these reasons, the
Company's sales are highly concentrated. Revenues derived from sales to Orchid,
Diamond and Williams accounted for 44%, 33% and 11% respectively, of product
revenues for 1996. Revenues derived from sales to Diamond and Williams accounted
for 59% and 15%, respectively of product revenues for the three months ended
March 31, 1997. Development contract revenues recognized under the Sega
Agreement represented 14.3% of total revenues during the three months ended
March 31, 1997. The Company expects that a small number of customers will
continue to account for a substantial portion of its revenues for the
foreseeable future. See "Risk Factors -- Customer Concentration."
SALES AND MARKETING
The Company sells its products to manufacturers of graphics and multimedia
accelerator subsystems for PCs and coin-op arcade systems and to PC OEMs through
a network of domestic and international independent sales representatives and
distributors. In the United States and Canada, the Company has 11 sales
representatives. The Company also sells its products directly to certain OEM
customers in each of the Company's target markets. Outside the United States and
Canada, primarily in the Far East and Europe, the Company's products are sold
through nine sales representatives. Sales outside of the United States were
insignificant during 1996 and the three months ended March 31, 1997. The Company
maintains a sales management organization which is primarily responsible for
supporting independent sales representatives and distributors and making direct
sales to customers that prefer to transact directly with the Company. As of
March 31, 1997, the Company employed 18 individuals in its sales, marketing and
customer support organization.
To meet customer requirements and achieve design wins, the Company's sales
and marketing personnel work closely with customers, potential customers and
leading industry software and hardware developers to define product features,
performance, price and market timing of new
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<PAGE> 41
products. The Company provides customers with early access to technical design
information and specifications, documentation, in-house engineering support,
first chip product samples and product development plans. This effort is
coordinated by the Company's sales management organization and is supported by
in-house applications engineers and marketing personnel. The Company's
applications engineers frequently work with existing and potential customers to
assist them with their design projects. The Company believes that these efforts
contribute to the Company's understanding of customer needs and assist the
Company in developing products that meet customer requirements.
To encourage software title developers and publishers to develop games
optimized for platforms utilizing the Company's products, the Company seeks to
establish and maintain strong relationships in the software development
community. The Company has branded a marketing effort named the "Buddy Program"
that employs the Company's expertise in software development to assist
developers through an on-site assistance program, sample source code and
electronic communication. As part of the Buddy Program, the Company has assigned
a software engineer to each strategic developer to assist with product
development. Generally the Company's assigned software engineer interacts with
the developer both remotely and through on-site visits and, by working closely
with the development team, attempts to ensure that the developer fully exploits
the 3D graphics capabilities of the Company's products. Another key element of
the Company's sales and marketing strategy has been the development of
manufacturing qualified reference design kits for the Company's 3D media
processors. The Company uses the reference design kits to seed important
developers before the commercial introduction of the Company's products to
ensure early software availability, and after commercial introduction to
encourage on-going support of the Company's products. The Company believes that
its close relationships with and attention to content developers encourages the
development of software for the Company's hardware, provides the Company with
information regarding the needs and concerns of the development community and
enables the Company to continually assess opportunities for future software
projects.
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The following table lists game titles for use with platforms utilizing the
Company's hardware that were commercially available as of March 31, 1997:
<TABLE>
<CAPTION>
TITLE PUBLISHER DEVELOPER API PLATFORM
- --------------------- ----------------------- ----------------------------- ---------- ---------------
<S> <C> <C> <C> <C>
Agile Warrior Virgin Interactive Black Ops Entertainment Inc. D3D PC
Entertainment Inc.
Cyberdome Microleague Above the Garage Production D3D PC
Multimedia, Inc.
CyberGladiators Sierra On-Line, Inc. Dynamix Inc. Glide/D3D PC
Descent 2: Interplay Productions Parallax Software Glide PC
The Infinite Abyss Corporation
Die Hard Trilogy Fox Interactive, Inc. Probe Entertainment D3D PC
The Divide Virgin Interactive Radical Entertainment D3D PC
Entertainment, Inc.
EF2000 Ocean Entertainment, Digital Image Design Glide PC
Inc.
Hellbender Microsoft Terminal Reality, Inc. D3D PC
Hyperblade Activision, Inc. Wizbang! Software D3D PC
Productions
Independence Day Fox Interactive, Inc. Radical Entertainment D3D PC
Mech Warrior 2 Activision, Inc. Activision, Inc. Glide PC
Monster Truck Madness Microsoft Terminal Reality D3D PC
pod UbiSoft Entertainment UbiSoft Entertainment Glide PC
Quake id Software, Inc. id Software OpenGL PC
Scorched Planet Virgin Interactive Criterion Studios Glide PC
Entertainment, Inc.
Scourge of Armagon Activision, Inc. Hypnotic OpenGL PC
(Quake Add On)
Shrak (Quake Add On) Quantum Access Quantum Access OpenGL PC
Starfighter The 3DO Company Krisalis Software Ltd. Glide PC
Terracide Eidos Interactive Simis D3D PC
TigerShark GT Interactive N-Space Glide PC
Software
Corporation
Tomb Raider Eidos Interactive Core Design Glide PC
Toshinden Playmates Interactive Digital Dialect Glide PC
Entertainment
Incorporated
VR Soccer '96 Interplay Productions Gremlin Glide PC
Whiplash Interplay Productions Gremlin Glide PC
Home Run Derby Interactive Light Interactive Light Glide Coin-Op Arcade
Mace Williams Atari Games Glide Coin-Op Arcade
Entertainment, Inc.
SF Rush Williams Atari Games Glide Coin-Op Arcade
Entertainment, Inc.
Wayne Gretzky Hockey Williams Atari Games Glide Coin-Op Arcade
Entertainment, Inc.
</TABLE>
To enhance awareness of the Company's 3D graphics solutions, the Company
has created several proprietary demonstrations that showcase the performance and
features made possible by the Company's products. These demonstrations, which
are often bundled with an OEM's product, are shown to software developers, OEMs,
VARs and tradeshow audiences. The Company believes that these demonstrations
effectively demonstrate the immediate potential for high quality 3D graphics in
interactive electronic entertainment and effectively differentiate the Company's
product offerings from competing products. The Company continues to devote
substantial marketing resources towards establishing 3Dfx as a recognizable
brand. The Company is initially focusing on establishing its brand
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<PAGE> 43
identity in the coin-op arcade market by promoting the use of a spinning version
of the 3Dfx logo at the start of games utilizing the Company's hardware. In
addition, the Company has been working with both software developers and
publishers in the PC market to prominently display the 3Dfx logo on their
software product boxes to indicate that the software is compatible with the
Company's products. To further identify the Company in the marketplace, several
software products display a spinning version of the 3Dfx logo on the screen
while loading. The Company believes that this strategy creates market awareness
because publishers first release games to arcades where consumers will first
encounter the 3Dfx logo, and then port successful games to PCs and home game
consoles. The Company further believes that consumer awareness of its products
will speed adoption of the Company's architecture in the mass market, lead to
increasing availability of 3Dfx enabled software content and help establish the
Company as the standard 3D solution for the interactive electronic entertainment
market.
The Company's marketing activities also consist of sponsorship of and
participation in industry tradeshows, marketing communications and market
development activities designed to generate awareness of the Company and its
products. Such activities include ongoing contact with industry press and
analysts and selective advertising in entertainment and game industry
publications. The Company is also active in the promotion of its products
through 3D graphics news groups on the Internet. The Company intends to promote
the 3Dfx name and trademarks to create a recognizable industry standard for high
quality 3D entertainment.
The Company has implemented a customer support program that enables end
users to contact the Company directly with questions or comments. The Company
offers free telephone customer support during normal business hours. The Company
also provides customer support via the Internet and maintains a page on the
World Wide Web to provide technical information to customers.
TECHNOLOGY
3D Technology
The technology necessary to create interactive, realistic and visually
engaging 3D at high frame rates is extremely compute intensive, complex and
technically challenging. Historically, such technology has been extremely
expensive and thus 3D has been prevalent only in high-end 3D workstations.
Today, 3D graphics companies face the challenge of designing affordable products
that offer realistic 3D graphics with full screen resolution in real time for
the mainstream PC market. The substantial complexity and technical demands of
achieving this level of 3D graphic performance requires compute and pixel
processing power and memory bandwidths well beyond what is available in typical
general purpose CPUs, such as Intel's Pentium Pro. Specialized 3D graphics
processors address this limitation by implementing all or part of what is
referred to as the "3D Pipeline" by providing dedicated 3D graphics processing
capability.
The 3D Pipeline is a sequence of operations, which, starting with three
dimensional model data, position and desired lighting models, results in 2D
pixels displayed on a computer monitor or television display. The creation of a
single 3D image from the numerical mode is comprised of three primary steps:
tessellation, geometry and rendering.
- Tessellation. Tessellation is the creation of a numerical description
(the "three dimensional model data") of an object and the conversion of
this model into a set of polygons. Polygons are often defined to be
triangles because triangles are simple geometric shapes which can be
easily defined by only a few data points and can be quickly modified by
mathematical operations. Each triangle requires a separate set of
calculations, which means that the more complex an object is, the more
compute intensive it is. As a result, triangles-per-second is one of the
essential performance metrics of 3D graphics.
- Geometry. The geometry phase of the 3D Pipeline includes three stages:
transformation, lighting and triangle setup, although triangle setup is
often considered a separate stage. The
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<PAGE> 44
transformation stage converts the native three dimensional model data
from its native numerical representation into a viewer-dependent model
space by using 4x4 matrix operations. The triangle setup operation takes
in the transformed, lighted triangles and calculates the edge and slope
information required to paint each individual triangle on the screen.
- Rendering or Rasterization. The third primary phase of the 3D Pipeline,
called triangle rendering or triangle rasterization, is the most
important phase for creating a quality 3D image. During this phase, a
two-dimensional image, capable of being displayed on a PC monitor or
television set, is created from the discrete, three-dimensional model
that emerges from the geometry phase. Within each particular triangle,
pixels are computed, rendered and displayed according to a complex set of
rules. Final image quality depends on the number and types of techniques
applied to each particular pixel. Various techniques are applied in the
rendering phase to achieve photo-realistic images, including scan
conversion, shading, texture-mapping and various perspective
enhancements. More advanced techniques in rendering include MIP mapping,
texture filtering, anti-aliasing, subpixel correction, fogging,
alpha-blending, and depth cueing.
The rasterization stage of the 3D Pipeline permits a significant level of
quality improvements, which can be achieved by the application of many
techniques. While these techniques can make a qualitative difference in the
realism that a 3D image conveys to the viewer, many of these techniques are
highly compute intensive. As a result, if performance is not sufficient given
the number and type of techniques used, the overall experience of the user will
diminish. In order for a 3D image to achieve realistic animation on a monitor
screen in real-time and with excellent visual quality, as many as twenty billion
operations per second might be necessary, a performance level which is roughly
80-100 times that of Intel's high-end microprocessor, the Pentium Pro. Most PC
systems that are equipped with 3D hardware accelerators perform the
tessellation, transformation, lighting, and clipping operations on the CPU and
pass the results to the 3D acceleration hardware for triangle setup and
rendering to complete the 3D pipeline. As a result, the rasterization stages of
the 3D Pipeline is almost always handled by a graphics processor, which has a
focused range of operation.
3Dfx Architecture and Technology
The primary goal of Voodoo Graphics and the Company's subsequent 3D media
processsors under development is to provide workstation-quality 3D performance
at affordable price points. Furthermore, the scaleable nature of the 3Dfx
solution is applicable across different markets and different price targets
without re-engineering the core logic. The block diagram below is an outline of
the Company's Voodoo Graphics product:
[DIAGRAM]
In the above diagram, the pixelfx chip is responsible for managing the
frame buffer, while the texelfx chip accesses dedicated texture memory. The
pixelfx chip performs triangle setup, Gouraud
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<PAGE> 45
shading, texture, fogging, alpha-blending and Z-buffering. The pixelfx chip is
also responsible for sending information to a low-cost external digital to
analog converter ("DAC") for display on a computer monitor or television set.
The texelfx chip is responsible for triangle setup of the texture coordinates,
texture address calculations, perspective-correction of the texture coordinates,
MIP Mapping calculations to properly select the appropriate texture map and
texture lookup. Subsequent to texture lookup, the texelfx chip formats the
incoming texture and decompresses the texture element if the texture map is
stored in a proprietary compressed format and performs bilinear blending.
Finally, the processed texel is sent to the pixelfx chip for final storage into
the frame buffer.
The performance benefits of having separate, dedicated frame buffer memory
distinct from texture memory is dramatic. While traditional consumer-oriented 3D
media processors have utilized a common pool of memory for both frame buffer and
texture storage, the 3Dfx solution allows for Z-buffering and alpha-blending
operations, performed in the frame buffer memory, to operate independently from
texture map lookup, performed in the dedicated texture memory. The result is an
architecture which maintains full performance when all of the advanced 3D
rendering features are enabled. And, since the memory technology utilized for
both the frame buffer and the dedicated texture memory is standard extended data
out dynamic random access memory instead of expensive video random access memory
solutions, OEMs realize significant cost savings by utilizing the Company's 3D
solution.
Due to the design's scaleability, multiple texelfx chips may be chained
together to form a "texture streaming" architecture, where multiple texture maps
may be accessed independently and blended together, a technique known as
"texture compositing" with no degradation in quality. In addition, multiple
complete pixelfx/texelfx subsystems may be chained together to double the raw
rendering capability for the high performance solutions.
To further reduce the solution cost of its products and to specifically
address PC motherboard designs, the Company has commenced development of
Banshee, which is designed to be a high performance, fully-featured single chip,
3D/2D media processor for the PC and coin-op arcade markets. In addition, the
Company offers Glide, its proprietary API, as a development tool to enable the
optimal performance and easy, low cost cross platform portability of software
content developed for the Company's 3D media processor products.
Research and development expenses were $2.9 million, $9.4 million and $2.0
million in 1995, 1996 and the three months ended March 31, 1997, respectively.
MANUFACTURING
The Company has adopted a "fabless" manufacturing strategy for both
semiconductors and printed circuit board assemblies ("PCBA") whereby the Company
employs world class suppliers for all phases of the manufacturing process,
including, manufacturing, assembly, testing, and packaging. This strategy
leverages the expertise of its industry leading, ISO Certified, suppliers in
such areas as fabrication, assembly, quality control and assurance, reliability,
and testing, and allows the Company to avoid the significant costs and risks
associated with owning and operating such operations. The Company's
semiconductor and system products are manufactured by third party suppliers.
These suppliers are responsible for procurement of raw materials used in the
production of these products. The Company believes that raw materials required
are readily available. As a result, the Company can focus its resources on
product design, quality assurance, marketing and customer support.
The Company's Voodoo Graphics and Voodoo Rush semiconductor products are
currently fabricated for the Company by TSMC, which is the largest independent
foundry in the world. TSMC currently produces the semiconductor die for the
Company using standard 0.5 micron Application Specific Integrated Circuit
("ASIC") Complimentary-symmetry Metal-Oxide Semiconductor ("CMOS") process
technology. The Company expects that, commencing in the second half of 1997,
TSMC will move to a 0.35 micron ASIC, CMOS process technology in connection with
production for the Company. After the wafer production process is completed, the
semiconductor die is shipped to
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<PAGE> 46
ASE, which assembles and packages the semiconductor die, tests the finished
product, and ships the finished product to the Company. Both suppliers have
their manufacturing operations located in Taiwan, R.O.C. The fabrication of
semiconductors is a complex and precise process. Minute levels of contaminants
in the manufacturing environment, defects in masks used to print circuits on a
wafer, difficulties in the fabrication process or other factors can cause a
substantial percentage of wafers to be rejected or a significant number of die
on each wafer to be nonfunctional. Many of these problems are difficult to
diagnose and time consuming or expensive to remedy. As a result, semiconductor
companies often experience problems in achieving acceptable wafer manufacturing
yields, which are represented by the number of good die as a proportion of the
total number of die on any particular wafer. Once production yield for a
particular product stabilizes, the Company pays an agreed price for wafers
meeting certain acceptance criteria pursuant to a "good die" only pricing
structure for that particular product. Until production yield for a particular
product stabilizes, the Company must pay an agreed price for wafers regardless
of yield. Accordingly, in this circumstance, the Company bears the risk of final
yield of good die. Poor yields would materially adversely affect the Company's
revenues, gross margin and results of operations. As the Company's relationships
with TSMC and any additional manufacturing partners develop, yields could be
adversely affected due to difficulties associated with adapting the Company's
technology and product design to the proprietary process technology and design
rules of each manufacturer. Because of the Company's potentially limited access
to wafer fabrication capacity from its manufacturers, any decrease in
manufacturing yields could result in an increase in the Company's per unit costs
and force the Company to allocate its available product supply among its
customers, thus potentially adversely impacting customer relationships as well
as revenues and gross profit.
In April 1996, the Company entered into a Warrant Purchase Agreement with
TSMC pursuant to which TSMC purchased two warrants to purchase 50,000 and 90,000
shares of the Company's Series B Preferred Stock at $4.40 per share of which the
warrant to purchase 50,000 shares is fully exercisable. The purchase right
represented by the warrants was exercisable at a rate of 10 shares of Series B
Preferred Stock for each wafer above 2,000 wafers delivered to the Company
during 1996. TSMC delivered a total of 5,751 wafers in 1996, and consequently
the warrant to purchase 50,000 shares of the Company's Series B Preferred Stock
became exercisable with respect to 37,510 of such shares of Series B Preferred
Stock.
The Company's Obsidian PCBA products are assembled locally by ISIS Surface
Mounting ("ISIS"), an ISO 9002 certified assembler. The Company consigns kits of
the materials required for assembly of the PCBAs to ISIS, which performs all
assembly and test operations and returns the board product to the Company.
The Company receives both semiconductor and PCBA products from its
subcontractors, performs incoming quality assurance, packages the products, and
ships them to its customers from its location in San Jose.
With the exception of the TSMC warrant discussed above, all of the
Company's commerce is performed through purchase orders without additional or
supplementary agreements. Whereas there can be no assurance that the Company
will be able to secure sufficient manufacturing capacity to meet product demand
in the future, which could have material adverse effects on the Company's
business, the Company believes that it has developed strong relationships with
its suppliers, and has experienced no material manufacturing concerns to date.
Although the Company is confident in its suppliers' abilities to fulfill product
requirements, the Company has been in active contact with other semiconductor
fabrication foundries in an effort to further diversify its supplier
manufacturing base. The Company has held discussions with certain potential
suppliers and, in some cases, has reviewed the technology and facilities of such
suppliers. However, the Company has not yet selected a second source of supply.
The Company does have a domestic second source for assembly. However, the
capacity at this domestic second source for assembly is limited and is therefore
not appropriate for full production.
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<PAGE> 47
In the event of production difficulties, shortages, or delays experienced
by any one of its suppliers, the Company's business, financial condition, or
results of operation may be adversely impacted. Furthermore, although quality
assurance measures have been taken, there can be no guarantee against defects
affecting the quality, performance or reliability of the Company's products. Any
such defects could require costly product recalls or cessation of shipments,
adversely affecting the Company's business, financial condition and results of
operations, and resulting in a decline of revenues, increased costs (associated
with return, repair, replacement and shrinkage associated with such defects),
cancellations or reschedulings of customer orders and shipments. See "Risk
Factors -- Dependence on Independent Manufacturers and Other Third Parties,
Absence of Manufacturing Capacity; Manufacturing Risks."
COMPETITION
The Company's strategy of targeting the electronic entertainment market
across the PC, coin-op arcade and home game console platforms requires the
Company to compete against different companies in each of these market segments,
all of which are intensely competitive.
PC Segment. The largest area of competition for the Company is in the PC
market. Within the entertainment segment of this market, the Company competes
primarily against companies that typically have operated in the PC 2D graphics
market and that now offer 3D capability as an enhancement to their 2D solutions,
such as ATI, Cirrus, Oak Technology, S3 and Trident. Many of these competitors
have introduced 3D functionality on new iterations of existing graphics chips.
The Company also competes with companies that have recently entered the market
with an integrated 3D/2D solution, but which have not traditionally manufactured
2D solutions such as Chromatic, nVidia and Rendition. In addition, the Company
competes with NEC/Videologic which has focused exclusively on developing a 3D
solution for the 3D interactive electronic entertainment market.
In addition to competition from companies in the entertainment segment of
the PC market, the Company also faces potential competition from companies that
have focused on the high-end of the 3D market and the production of 3D systems
targeted for the professional market, such as 3Dlabs, Integraph, Real 3D and
SGI. While these companies produce high-performance 3D systems, they do so at a
significantly higher price point than the Company and have historically focused
on the professional and engineering market. These companies are developing lower
cost versions of their 3D technology to bring workstation-like 3D graphics to
mainstream applications, but the Company believes that these companies are not
focused on interactive electronic entertainment applications. There can be no
assurance that these companies will not enter the interactive electronics
entertainment market. The Company believes that it would have a strong
competitive position against such high-end competitors due to the favorable
price/performance ratio of its Voodoo Graphics architecture and its proprietary
Glide API. However, there can be no assurance that the Company would be able to
compete successfully against them.
Recently, a substantial number of companies have announced plans to release
3D graphics chips in 1997 and 1998 that promise to provide low cost 3D
functionality for PCs and workstations. Intel and Lockheed have recently formed
a licensing and development arrangement under which Intel has indicated that it
will exploit certain 3D technologies originally developed by Lockheed for use in
flight simulators to provide 3D graphics functionality on the PC. In August
1996, Microsoft announced that it was developing Talisman, a reference
architecture with an alternative method of providing high performance 3D
functionality on the PC. Microsoft is working with certain third parties
including Cirrus, Fujitsu, Inc., Philips N.V. and Samsung Electronics Co., Ltd.,
to implement this architecture. If successful, products based on either the
Microsoft or Intel initiatives would be directly competitive with the Company's
processors and could materially adversely affect the Company's competitive
position and results of operations.
Coin-op Arcade and Console Segments. The market for electronic arcade
entertainment is comprised of a small number of companies, including Acclaim,
Midway, Namco, Sega, Taito and
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<PAGE> 48
Williams. The home game console segment is dominated by three companies,
Nintendo, Sega and Sony. In each of the coin-op and home game console segments,
the Company primarily faces competition from in-house divisions of the companies
which currently comprise such markets. The Company has formed a strategic
relationship with Sega in order to compete effectively in the console segment
but there can be no assurance that Sega will manufacture its next generation of
home game consoles or, that if it does, that it will be able to compete against
Nintendo and Sony successfully. See "Products, Products Under Development and
Technology License -- Strategic Relationship with Sega." In addition, there can
be no assurance that any of the companies which currently compete in the 3D PC
market will not enter the coin-op arcade market, or if they do, that the Company
will be able to compete against them successfully.
The Company expects competition to increase in the future from existing
competitors and from new market entrants with products that may be less costly
than the Company's 3D media processors accelerators or provide better
performance or additional features not currently provided by the Company. The
Company believes that the principal competitive factors for 3D graphics
solutions are product performance measured in terms of both processing power and
image quality, conformity to industry standard APIs, software support, access to
customers and distribution channels, manufacturing capabilities and price. The
Company believes that it competes most favorably with respect to product
performance, both in processing power and image quality, support of and
conformity to industry standard APIs and software expertise. In addition, the
Company believes that it competes favorably on price at certain product
performance levels. The Company faces a competitive disadvantage as a result of
its small size, particularly with respect to the development of a broad retail
distribution channel. The Company seeks to use strategic relationships to
augment its capabilities, but there can be no assurance that the benefits of
these relationships will be realized or be sufficient to overcome the entrenched
positions of the Company's largest competitors as incumbent suppliers to the
large PC OEMs. Regardless of the relative qualities of the Company's products,
the market power, product breadth and customer relationships of its larger
competitors, including Intel and Microsoft, can be expected to provide such
competitors with substantial competitive advantages. The Company does not seek
to compete on the basis of price alone.
Many of the Company's current and potential competitors have substantially
greater financial, technical, manufacturing, marketing, distribution and other
resources, greater name recognition and market presence, longer operating
histories, lower cost structures and larger customer bases than the Company. As
a result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. In addition, certain of the Company's
principal competitors offer a single vendor solution, since they maintain their
own semiconductor foundries and may therefore benefit from certain capacity,
cost and technical advantages. The Company's ability to compete successfully in
the rapidly evolving market for 3D media processors will depend upon certain
factors, many of which are beyond the Company's control, including, but not
limited to, success in designing and subcontracting the manufacture of new
products, implementing new technologies, access to adequate sources of raw
materials and foundry capacity, the price, quality and timing of new product
introductions by the Company and its competitors, the emergence of new
multimedia and PC standards, the widespread development of 3D applications by
ISVs, the ability of the Company to protect its intellectual property, market
acceptance of the Company's 3D solution and API, success of the competitors'
products and industry and general economic conditions. There can be no assurance
that the Company will be able to compete successfully in the emerging 3D
graphics market. See "Risk Factors -- Competition."
PATENTS AND PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, mask work
protection, trademarks, copyrights, trade secret laws, employee and third-party
nondisclosure agreements and licensing arrangements to protect its intellectual
property. The Company has five patent applications pending in the United States
Patent and Trademark Office. There can be no assurance that the Company's
47
<PAGE> 49
pending patent application or any future applications will be approved, that any
issued patents will provide the Company with competitive advantages or will not
be challenged by third parties, or that the patents of others will not have an
adverse effect on the Company's ability to do business. In addition, there can
be no assurance that others will not independently develop substantially
equivalent intellectual property or otherwise gain access to the Company's trade
secrets or intellectual property, or disclose such intellectual property or
trade secrets, or that the Company can meaningfully protect its intellectual
property. A failure by the Company to meaningfully protect its intellectual
property could have a material adverse effect on the Company's business,
financial condition and results of operations.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. There is currently no
pending intellectual property litigation against the Company. However, the
Company may from time to time receive notice of claims that the Company has
infringed patents or other intellectual property rights owned by others. The
Company may seek licenses under such patents or other intellectual property
rights. However, there can be no assurance that licenses will be offered or that
the terms of any offered licenses will be acceptable to the Company. The failure
to obtain a license from a third party for technology used by the Company could
cause the Company to incur substantial liabilities and to suspend the
manufacture of products. Furthermore, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation by or against the Company could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel, whether or not such litigation results in a favorable determination
for the Company. In the event of an adverse result in any such litigation, the
Company could be required to pay substantial damages, cease the manufacture, use
and sale of infringing products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses for the infringing technology. There can be no assurance that the
Company would be successful in such development or that such licenses would be
available on reasonable terms, or at all, and any such development or license
could require expenditures by the Company of substantial time and other
resources. Although patent disputes in the semiconductor industry have often
been settled through cross-licensing arrangements, there can be no assurance
that, in the event that any third party makes a successful claim against the
Company or its customers, a cross-licensing arrangement could be reached. If a
license is not made available to the Company on commercially reasonable terms,
the Company's business, financial condition and results of operations could be
materially adversely affected. See "Risk Factors -- Risks Relating to
Intellectual Property."
There can be no assurance that infringement claims by third parties or
claims for indemnification by other customers or end users of the Company's
products resulting from infringement claims will not be asserted in the future
or that such assertions, if proven to be true, will not materially adversely
affect the Company's business, financial condition and results of operations.
Any limitations on the Company's ability to market its products, or delays and
costs associated with redesigning its products or payments of license fees to
third parties, or any failure by the Company to develop or license a substitute
technology on commercially reasonable terms could have a material adverse effect
on the Company's business, financial condition and results of operations.
EMPLOYEES
As of March 31, 1997, the Company had 87 employees, 47 of whom were engaged
in engineering, and 40 of whom were engaged in marketing, sales, operations and
administrative positions. As of March 31, 1997, all of the Company's employees
were located in the United States. No employee of the Company is covered by
collective bargaining agreements, and the Company believes that its relationship
with its employees is good.
The Company's ability to operate successfully depends in significant part
upon the continued service of certain key technical and managerial personnel,
and its continuing ability to attract and
48
<PAGE> 50
retain additional highly qualified technical and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain such personnel or that it can attract or retain other
highly qualified technical and managerial personnel in the future, including key
sales and marketing personnel. The loss of key personnel or the inability to
hire and retain qualified personnel could have a material adverse effect upon
the Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence Upon Key Personnel."
FACILITIES
The Company sub-leases approximately 31,572 square feet in one building in
San Jose, California pursuant to a lease that expires on April 30, 1997.
Effective May 1, 1997, the Company will assume another additional 46,233 square
feet in the same building under a lease that expires in 2007, with an option to
extend the lease for an additional five-year term. Of the total 77,805 square
feet subject to such new lease, the Company initially intends to sub-lease
37,261 square feet. The Company also leases approximately 900 square feet in
Dresher, Pennsylvania for its regional sales office. The Company believes that
in general its facilities are adequate for its current needs and that additional
space will be available as needed. The Company believes that these facilities
will be adequate to meet its needs for the foreseeable future.
LEGAL PROCEEDINGS
There are no material pending or threatened legal proceedings against the
Company.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
executive officers and directors as of the date of this Prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
L. Gregory Ballard........................ 43 President, Chief Executive Officer and
Director
Gordon A. Campbell(1)..................... 53 Chairman of the Board of Directors
Gary P. Martin............................ 49 Chief Financial Officer and Vice President,
Administration
David Bowman.............................. 53 Vice President, Sales
Karl Chicca............................... 39 Vice President, Operations
Andy Keane................................ 35 Vice President, Marketing
Scott D. Sellers.......................... 28 Vice President, Research and Development and
Director
Gary Tarolli.............................. 40 Vice President and Chief Scientist
George J. Still, Jr.(2)................... 39 Director
Anthony Sun(1)............................ 44 Director
Philip M. Young(1)........................ 57 Director
James Whims(2)............................ 42 Director
</TABLE>
- ------------
(1) Member of Audit Committee
(2) Member of Compensation Committee.
L. Gregory Ballard has served as President, Chief Executive Officer and a
director of the Company since December 1996. Prior to joining the Company, Mr.
Ballard was President at Capcom Entertainment, Inc., a video game and multimedia
entertainment company, from June 1995 through November 1996. Prior to that, Mr.
Ballard served as Chief Operating Officer and Chief Financial Officer of Digital
Pictures, Inc., a video game company, from May 1994 to June 1995. Mr. Ballard
was President and Chief Executive Officer of Warner Custom Music Corporation, a
multimedia marketing division of Time Warner, Inc., from October 1992 to May
1994, and he was President and Chief Operating Officer of Personics Corporation,
a predecessor to Warner Music, from January 1991 to October 1992. Mr. Ballard
also worked for Boston Consulting Group and as a practicing attorney in
Washington, D.C. Mr. Ballard received his BA in Political Science from the
University of Redlands and his JD from Harvard Law School.
Gordon A. Campbell has served as the Chairman of the Board of Directors of
the Company since August 1994 when he co-founded the Company. Mr. Campbell also
served as President and Chief Executive Officer of the Company from January 1995
to December 1996. Prior to joining the Company, Mr. Campbell founded Techfarm,
Inc., a venture capital investment firm, and has served as President since
September 1993. In 1985, Mr. Campbell founded Chips and Technologies, Inc.
("CHIPS"), a semiconductor and related device company, and served as Chairman,
Chief Executive Officer and President of CHIPS until July 1993. Mr. Campbell
founded SEEQ Technology, Inc. ("SEEQ"), a semiconductor and related device
company, in 1981. He served as President and Chief Executive Officer of SEEQ
from 1981 to 1985. Mr. Campbell currently serves as a director of 3Com
Corporation and Bell Microproducts, Inc. He is also a director of several
private companies.
Gary P. Martin has served as Chief Financial Officer and Vice President,
Administration of the Company since June 1995. Prior to joining the Company, Mr.
Martin was Vice President, Finance and Corporate Secretary of MiniStor
Peripherals International, Limited ("MiniStor"), a disk drive company, from
October 1993 until May 1995. MiniStor filed a petition for relief under Chapter
11 of the Federal bankruptcy laws on April 14, 1995. From 1985 to April 1993,
Mr. Martin served as Senior Vice
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<PAGE> 52
President of Finance and Administration and Corporate Secretary of CHIPS from
1985 to April 1993. Mr. Martin is a director of Essex Property Trust, Inc. Mr.
Martin received a BS in Accounting from San Jose State University.
David M. Bowman has served as Vice President, Sales of the Company since
March 1996. Prior to joining the Company, he was Vice President of Worldwide
Sales at CHIPS from September 1985 to March 1995. He was a director of North
American Sales for Apple from October 1979 to September 1985.
Karl Chicca has served as Vice President, Operations of the Company since
June 1996. Prior to joining the Company, Mr. Chicca was Vice President of
Strategic Commodity Management of Maxtor Corporation, a disk drive company, from
May 1995 to May 1996. He was Vice President, Materials at MiniStor from March
1994 to April 1995. MiniStor filed a petition for relief under Chapter 11 of the
Federal bankruptcy laws on April 14, 1995. From 1979 to March 1994, Mr. Chicca
held various materials and manufacturing positions with International Business
Machine Corporation ("IBM"), most recently as Manager of Worldwide Procurement
of IBM's Storage Systems Division. Mr. Chicca received a BS in Business
Administration from San Jose State University.
Andy Keane has served as Vice President, Marketing of the Company since
March 1996. Prior to joining the Company, he was Marketing Manager of
Microprocessor Marketing for MIPS Computer Systems, Inc., subsequently SGI, each
of which is a computer system and workstation company, from 1990 to September
1994. Mr. Keane was a Design Engineer at Intel from 1986 to 1988. He received
his BS in Physics from Rensselaer Polytechnic Institute and an MBA from the
University of California at Berkeley.
Scott D. Sellers has served as Vice President, Research and Development of
the Company since January 1995. He co-founded the Company in August 1994 and has
served as a director of the Company since March 1995. Mr. Sellers was Principal
Engineer at MediaVision Technology, Inc. ("MediaVision"), a multimedia computer
products company, from June 1993 to June 1994. Prior to that, Mr. Sellers was a
Microprocessor Engineer at Pellucid, Inc. ("Pellucid"), a developer of chip and
board products, from January 1993 to June 1993. Mr. Sellers was also a Member of
the Technical Staff at SGI from October 1990 to January 1993. Mr. Sellers
received a BSEE from Princeton University.
Gary Tarolli has served as Vice President and Chief Scientist of the
Company since January 1995. Prior to co-founding the Company in August 1994, Mr.
Tarolli was an Engineering Fellow at MediaVision from 1993 to 1994. Before
joining MediaVision, Mr. Tarolli was a self-employed consultant to the 3D
graphics industry from 1992 to 1993. Mr. Tarolli was a Principal Scientist at
SGI from 1983 to 1992. Prior to joining SGI, he was a Principal Engineer at
Digital Equipment Corp. for four years. Mr. Tarolli received a BS in Mathematics
from Rensselaer Polytechnic Institute and an MS in computer science from
California Institute of Technology.
George J. Still, Jr. has served as a director of the Company since February
1996. Mr. Still is Vice President and Managing Partner of Norwest Venture
Capital, Inc. ("Norwest"), a venture capital investment firm, where he has been
employed since 1989. Prior to joining Norwest, Mr. Still was General Partner of
The Centennial Funds, Ltd., a venture capital investment firm, from 1984 to
1989. He currently serves on the Board of Directors of PeopleSoft, Inc. Mr.
Still is also a director of several private companies. Mr. Still has a BA from
Pennsylvania State University and an MBA from the Amos Tuck School at Dartmouth
College.
Anthony Sun has served as a director of the Company since March 1995. Mr.
Sun has been a General Partner at Venrock Associates, a venture capital
investment firm, since 1979. He is currently director of Award Software
International, Inc., Centura Software Corporation, Cognex Corporation,
Conductus, Inc., Fractal Design Corporation, Inference Corporation, Komag, Inc.
and Worldtalk Communications Corporation. He is also a director of several
private companies. Mr. Sun received SBEE, SMEE and Engineering degrees from the
Massachusetts Institute of Technology and an MBA from Harvard University.
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<PAGE> 53
Philip M. Young has served as a director of the Company since March 1995.
Mr. Young has been a general partner at U.S. Venture Partners, a venture capital
firm, since April 1990. He was a managing director of Dillon, Read and Co.,
Inc., and general partner of Dillon Read's Concord Partners venture capital
activity in Palo Alto from January 1986 to April 1990. He currently serves on
the Boards of Directors of Vical, Inc., CardioThoracic Systems, Inc., FemRx,
Inc., Immune Response Corporation and Zoran Corporation. Mr. Young is also a
director of several private companies. Mr. Young received a BME in nuclear
engineering from Cornell University, an MS in Engineering Physics from George
Washington University and an MBA from Harvard University.
James Whims has served as a director of the Company since November 1996.
Mr. Whims has been a Partner at Techfarm since December 1996. From November 1994
until March 1996, Mr. Whims was an Executive Vice President of Sony Computer
Entertainment, a video game software development company. From 1990 until
October 1994, Mr. Whims was Executive Vice President of the Computer Division of
The Software Toolworks, Inc., a diversified software company. From 1985 to 1990,
Mr. Whims served as Vice President of Sales of Worlds of Wonder, Inc., a toy
products company which he co-founded. Mr. Whims received a BA from Northwestern
University in Economics and Communications and an MBA in Finance and Marketing
from the University of Arizona.
The term of office for each director is one year. All directors are elected
at the annual meeting of shareholders and hold office until the election and
qualification of their successors at the next annual meeting of shareholders.
Officers of the Company serve at the discretion of the Board of Directors and,
therefore, the term of office for each officer is indefinite. There are no
family relationships among any of the directors or executive officers of the
Company.
DIRECTOR COMPENSATION
Members of the Company's Board of Directors do not receive compensation for
their services as directors. The Company's 1997 Director Option Plan provides
that options shall be granted to non-employee directors of the Company pursuant
to an automatic nondiscretionary grant mechanism.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of directors Still and Whims.
See "Certain Transactions -- Transactions with Executive Officers and
Directors".
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during the year ended December 31, 1996, by the Company's Chief
Executive Officer and the Company's next four most highly compensated executive
officers whose salary and bonus for such fiscal year exceeded $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1)
- ------------------------------------------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C>
L. Gregory Ballard(2)..................... $ 11,538 $ -- $ -- 350,000
President, Chief Executive Officer and
Director
Karl Chicca(3)............................ 75,385 -- 110,003 75,000
Vice President, Operations
Scott D. Sellers.......................... 116,667 1,400 -- 25,000
Vice President, Research and Development
and Director
Gary Tarolli.............................. 130,000 1,400 -- 25,000
Vice President and Chief Scientist
Ross Q. Smith(4).......................... 111,666 350 -- 25,000
Vice President and General Manager,
Systems Product Division
</TABLE>
- ------------
(1) These shares are subject to exercise under stock options granted under the
Company's 1995 Employee Stock Plan.
(2) Mr. Ballard joined the Company in December 1996.
(3) Other annual compensation amount relates to relocation expenses paid.
(4) Mr. Smith resigned as a full time employee of the Company in April 1997, but
will serve as a part-time employee until July 1997. Mr. Smith has
subsequently founded Quantum3D, Inc., a supplier of advanced graphics
subsystems based on 3Dfx technology. See "Business -- Products, Products
Under Development and Technology License -- Graphics Subsystems and
Development Boards."
53
<PAGE> 55
STOCK OPTION GRANTS
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended December 31, 1996.
All such options were awarded under the Company's 1995 Employee Stock Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTIONS TERM(1)
OPTIONS TO EMPLOYEES PRICE PER EXPIRATION --------------------
NAME GRANTED(1) IN FISCAL 1996 SHARE(2)(3) DATE(4) 5%($) 10%($)
- ------------------------- --------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
L. Gregory Ballard....... 350,000 26% $0.90 12/02/06 $198,102 $502,029
Karl Chicca.............. 75,000 5 0.44 06/27/06 20,754 52,594
Scott D. Sellers......... 25,000 2 0.44 07/25/06 6,918 17,531
Gary Tarolli............. 25,000 2 0.44 07/25/06 6,918 17,531
Ross Q. Smith............ 25,000 2 0.44 07/25/06 6,918 17,531
</TABLE>
- ------------
(1) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation based upon the exercise price per share are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price. Actual
gains, if any, on stock option exercises are dependent on the future
financial performance of the Company, overall market conditions and the
option holders' continued employment through the vesting period. This table
does not take into account any appreciation in the fair market value of the
Common Stock from the date of grant to the date of this Prospectus, other
than the columns reflecting assumed rates of appreciation of 5% and 10%.
(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, as determined by the Board
of Directors.
(3) Exercise price may be paid in cash, check, promissory note, delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, authorization to the Company to retain from the total number of
shares for which the option is exercised that number of shares having a fair
market value on the date of exercise equal to the exercise price for the
total number of shares as to which the option is exercised, delivery of a
properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan
proceeds required to pay the exercise price, or any combination of the
foregoing methods of payment or such other consideration or method of
payment to the extent permitted under applicable law.
(4) Options become exercisable as to 25% of the option shares on the first
anniversary of the date of grant and as to 1/48th of the option shares each
month thereafter, with full vesting occurring on the fourth anniversary of
the date of grant.
54
<PAGE> 56
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
There were no exercises of stock options by Named Executive Officers during
the year ended December 31, 1996. The following table sets forth certain
information regarding stock options held as of December 31, 1996 by the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996(#)(1) DECEMBER 31, 1996($)(2)
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
L. Gregory Ballard....... -- 350,000 -- --
Karl Chicca.............. -- 75,000 -- --
Scott D. Sellers......... -- 25,000 -- --
Gary Tarolli............. -- 25,000 -- --
Ross Q. Smith............ -- 25,000 -- --
</TABLE>
- ------------
(1) Options granted under the Company's 1995 Employee Stock Plan may be
exercised by the holder thereof prior to vesting with the shares purchased
thereby subject to repurchase by the Company until fully vested. The table
presents options as exercisable according to the vesting schedule of the
option.
(2) Based upon an assumed initial public offering price of $10.00 per share
minus the exercise price.
STOCK PLANS
Stock Option Plan. The Company's 1995 Employee Stock Plan (the "1995
Plan") was adopted by the Board of Directors in May 1995 and approved by the
shareholders in June 1995. A total of 2,675,000 shares of Common Stock has been
reserved for issuance under the 1995 Plan. The 1995 Plan, as amended, provides
for grants of incentive stock options to employees (including officers and
employee directors) and nonstatutory stock options to consultants of the
Company. The purpose of the 1995 Plan is to attract and retain the best
available personnel for positions of substantial responsibility and to provide
additional incentive to employees and consultants to promote the success of the
Company's business. The 1995 Plan is presently being administered by the Board
of Directors, which determines the optionees and the terms of options granted,
including the exercise price, number of shares subject to the option and the
exercisability thereof.
The term of options granted under the 1995 Plan is stated in the option
agreement. However, the term of an incentive stock option may not exceed 10
years and, in the case of an option granted to an optionee who, at the time of
grant, owns stock representing more than 10% of the Company's outstanding
capital stock, the term of such option may not exceed five years. Options
granted under the 1995 Plan vest and become exercisable as set forth in each
option agreement. In general, no option may be transferred by the optionee other
than by will or the laws of descent or distribution, and each option may be
exercised, during the lifetime of the optionee, only by such optionee. An
optionee whose relationship with the Company or any related corporation ceases
for any reason (other than by death or total and permanent disability) may
exercise options in the three-month period following such cessation, unless such
options terminate or expire sooner (or for nonstatutory stock options, later),
by their terms. The three-month period is extended to twelve months for
terminations due to death or permanent total disability. In the event of a
merger of the Company with or into another corporation, all outstanding options
may either by assumed or an equivalent option may be substituted by the
surviving entity or, if such options are not assumed or substituted, such
options shall become exercisable as to all of the shares subject to the options,
including shares as to which they would not otherwise be exercisable. In the
event that options become exercisable in lieu of assumption or substitution, the
Board of Directors shall notify optionees that all options shall be fully
exercisable for a period of 15 days, after which such options shall terminate.
The Board of Directors determines the
55
<PAGE> 57
exercise price of options granted under the 1995 Plan at the time of grant,
provided that the exercise price of all incentive stock options must be at least
equal to the fair market value of the shares on the date of grant unless the
grant is pursuant to a merger or other corporate transaction. With respect to
any participant who owns stock possessing more than 10% of the voting rights of
the Company's outstanding capital stock, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date. The consideration for exercising any incentive stock option or any
nonstatutory stock option may consist of cash, check, delivery of already-owned
shares of the Company's Common Stock subject to certain conditions,
authorization to the Company to retain from the total number of shares for which
the option is exercised that number of shares having a fair market value on the
date of exercise equal to the exercise price for the total number of shares as
to which the option is exercised, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the exercise
price, or any combination of the foregoing methods of payment or such other
consideration or method of payment to the extent permitted under applicable law.
No incentive stock options may be granted to a participant, which, when
aggregated with all other incentive stock options granted to such participant,
would have an aggregate fair market value in excess of $100,000 becoming
exercisable in any calendar year. No employee may be granted, in any fiscal year
of the Company, options to purchase more than 150,000 shares (or 250,000 shares
in the case of a new employee's initial employment with the Company). The 1995
Plan will terminate in May 2005, unless sooner terminated by the Board of
Directors.
As of March 31, 1997, 375,232 shares of Common Stock, net of repurchases,
had been issued upon the exercise of options granted under the 1995 Plan,
options to purchase 1,875,461 shares of Common Stock at a weighted average
exercise price of $2.72 per share were outstanding and 424,307 shares remain
available for future option grants under the 1995 Plan.
Employee Stock Purchase Plan. The Company's 1997 Employee Stock Purchase
Plan (the "Purchase Plan") was adopted by the Board of Directors in March 1997
and approved by the shareholders in April 1997. A total of 550,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, is administered by the Board of Directors or
by a committee appointed by the Board. Employees (including officers and
employee directors of the Company) are eligible to participate if they are
customarily employed for at least 20 hours per week and for more than five
months in any calendar year, provided that no Employee shall be granted an
option (i) to the extent that immediately after the grant such Employee owns
more than 5% of the voting power of outstanding capital stock of the Company or
(ii) to the extent such Employee's rights to purchase stock under all employee
stock purchase plans of the Company accrues at a rate which exceeds $25,000
worth of stock for each calendar year in which such option is outstanding at any
time. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 15% of an employee's
compensation. The Purchase Plan will be implemented in a series of overlapping
offering periods, each to be of approximately 24 months duration. The initial
offering period under the Purchase Plan will begin on the effective date of this
offering and subsequent offering periods will begin on the first trading day on
or after May 1 and November 1 of each year. Each participant will be granted an
option on the first day of the offering period and such option will be
automatically exercised on the last date of each semi-annual period throughout
the offering period. If the fair market value of the Common Stock on any
purchase date is lower than such fair market value on the start date of that
offering period, then all participants in that offering period will be
automatically withdrawn from such offering period and re-enrolled in the
immediately following offering period. The purchase price of the Common Stock
under the Purchase Plan will be equal to 85% of the lesser of the fair market
value per share of Common Stock on the start date of the offering period or on
the date on which the option is exercised. Employees may end their participation
in an offering period at any time during that period, and participation ends
automatically on termination of employment with the Company. In the event of a
proposed dissolution or liquidation of the Company, the offering periods then in
progress shall terminate immediately prior to the consummation of the
56
<PAGE> 58
proposed dissolution or liquidation, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the Company's assets
or the merger of the Company with or into another corporation, each outstanding
option shall be assumed or an equivalent option substituted by the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the option, then the offering period in progress will be
shortened by setting a new exercise date that is before the sale or merger and
the offering period in progress shall end on the new exercise date. Each
participant shall be notified at least ten business days prior to the new
exercise date, and unless such participant ends his or her participation, the
option will be exercised automatically on the new exercise date. The Purchase
Plan will terminate in March 2007, unless sooner terminated by the Board of
Directors.
Director Option Plan. The Company's 1997 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in March 1997 and
approved by the shareholders of the Company in April 1997. A total of 150,000
shares of Common Stock has been reserved for issuance under the Director Plan.
The option grants under the Director Plan are automatic and non-discretionary,
and the exercise price of the options is 100% of the fair market value of the
Common Stock on the grant date. The Director Plan provides for an initial grant
of options to purchase 5,000 shares of Common Stock to each non-employee
director of the Company upon the effective date of this offering at a per share
exercise price equal to the initial public offering; provided, that the grant to
the Chairman of the Board of Directors shall be 10,000 shares. The Director Plan
also provides for an initial grant of options to purchase 12,500 shares of
Common Stock to each new non-employee director of the Company who is neither
affiliated with or nominated by a shareholder that owns one percent or more of
the outstanding capital stock of the Company on the later of the effective date
of the Director Plan or the date he or she first becomes a director. In
addition, each non-employee director will automatically be granted an additional
option to purchase 5,000 shares of Common Stock at the next meeting of the Board
of Directors following the annual meeting of shareholders in each year beginning
with the 1998 annual meeting of shareholders, if on such date, such director has
served on the Board of Directors for at least six months; provided, however, if
such director is elected as Chairman of the Board of Directors, such option
grant shall be 10,000 shares. In addition to these grants, each director shall
automatically be granted an option to purchase 1,000 shares at the next meeting
of the Board of Directors following the annual meeting of shareholders in each
year beginning with the 1997 annual meeting of shareholders, if such director
serves on either the Audit Committee or Compensation Committee of the Board of
Directors. If such Director serves on both such Committees, this grant shall be
2,000 shares. The term of such options is ten years, provided that such options
shall terminate three months following the termination of the optionee's status
as a director (or twelve months if the termination is due to death or
disability). 12,500 share options granted to a director vest at a rate of
1/48th of the shares subject to the option per month following the date of
grant. 5,000 or 10,000 share options granted to a director vest at a rate of
1/12th of the shares subject to the option per month following the date of
grant. 1,000 share options granted to a director vest at a rate of 1/12th of the
shares subject to the option per month following the date of grant. In the event
of a merger of the Company with or into another corporation, all outstanding
options may either be assumed or an equivalent option may be substituted by the
surviving entity or, if such options are not assumed or substituted, such
options shall become exercisable as to all of the shares subject to the options,
including shares as to which they would not otherwise be exercisable. In the
event that options become exercisable in lieu of assumption or substitution, the
Board of Directors shall notify optionees that all options shall be fully
exercisable for a period of 30 days, after which such options shall terminate.
The Director Plan will terminate in March 2007, unless sooner terminated by the
Board of Directors.
401(k) Plan. Substantially all full-time employees of the Company
participate in the 3Dfx Interactive 401(k) Plan (the "401(k) Plan"), a plan
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended. Employees may begin to participate in the 401(k) Plan the first of the
month following their hire date provided they have reached the age of 18.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the lesser of 15% of eligible compensation or the
statutorily prescribed annual limit and have the amount of such
57
<PAGE> 59
reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not
require, additional matching contributions to the 401(k) Plan by the Company on
behalf of the participants. Contributions by employees or by the Company to the
401(k) Plan, and income earned on plan contributions, are generally not taxable
to employees until withdrawn, and contributions by the Company, if any, should
be deductible by the Company when made. The trustee under the 401(k) Plan, at
the direction of each participant, invests the assets of the 401(k) Plan in
selected investment options.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Pursuant to letter agreements entered into with each of L. Gregory Ballard,
Karl Chicca, Scott Sellers and Gary Tarolli, in the event there is a change of
control of the Company and such executive is terminated other than for cause
within one year following the effective date of such change of control, (i) in
the case of Messrs. Ballard and Chicca, 25% (or, in the event that less than 25%
of such executive's options remain unvested, all) of such executive's options
will be accelerated and become fully vested and (ii) in the cases of Messrs.
Sellers and Tarolli, 25% of the executive's stock subject to the Company's
repurchase option under a restricted stock purchase agreement shall be released
from such repurchase option (or all of such stock if less than 25% of the
executive's stock remains subject to the Company's repurchase option). For
purposes of these letter agreements a "change of control" means the (i) the sale
of all or substantially all of the Company's assets, or (ii) a consolidation or
merger of the Company with or into any other corporation (other than a
wholly-owned subsidiary of the Company) or engagement in a transaction or series
of transactions in which more than 50% of the voting power of the Company is
disposed. Termination other than for cause includes constructive termination
resulting from (i) the reduction of such employee's rate of compensation, (ii)
the reduction of such employee's scope of engagement or (iii) the requirement
that such employee provide services at a location more than 50 miles from the
employee's office location as of the date of the letter agreement.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that
eliminate to the fullest extent permissible under California law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
California law, including in circumstances in which indemnification is otherwise
discretionary under California law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
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<PAGE> 60
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT OF SECURITIES
Between January 12 and May 18, 1995, the Company sold an aggregate of
1,646,250 shares of its Common Stock at prices ranging from $.025 to $.10 per
share. Between March 13, 1995 and January 17, 1997 the Company sold the
following shares of its Preferred Stock in private placement transactions:
2,750,990 shares of Series A Preferred Stock at a price of $2.00 per share;
2,650,000 shares of Series B Preferred Stock at a price of $4.40 per share and
1,620,859 shares of Series C Preferred Stock at a price of $7.50 per share. In
addition, the Company issued warrants to purchase the following shares of
Preferred Stock: 43,750 shares of Series A Preferred Stock at an exercise price
of $2.00 per share; 115,919 shares of Series B Preferred Stock at an exercise
price of $4.40 per share and 35,000 shares of Series C Preferred Stock at an
exercise price of $7.50 per share.
The purchasers of Common Stock and Preferred Stock described above
included, among others, the following officers, directors and holders of more
than five percent of the Company's voting securities:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK (1)
COMMON --------------------------------------
STOCK SERIES A SERIES B SERIES C
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OFFICERS
Scott D. Sellers............................ 300,000 -- -- --
Gary Tarolli................................ 300,000 -- -- --
Ross Q. Smith(2)............................ 300,000 -- -- --
DIRECTORS
Gordon A. Campbell.......................... 90,875 44,808 231,532 --
ENTITIES AFFILIATED WITH DIRECTORS
Venture capital funds affiliated with U.S.
Venture Partners (Philip M. Young)....... -- 975,000 340,900 133,334
Venture capital funds affiliated with
Venrock Associates (Anthony Sun)......... -- 975,000 340,900 133,334
Norwest Equity Partners V (George J. Still,
Jr.)..................................... -- 795,500 133,334
Techfarm, Inc. (Gordon A. Campbell)......... 462,500 -- -- --
OTHER 5% SHAREHOLDERS
Chase Capital Partners...................... -- -- 738,637 133,334
Intel Corporation........................... -- -- -- 666,667
</TABLE>
- ------------
(1) The purchasers of these securities are entitled to registration rights. See
"Description of Capital Stock -- Registration Rights."
(2) Mr. Smith resigned as a full time employee of the Company in April 1997, but
will serve as a part-time employee until July 1997. Mr. Smith has
subsequently founded Quantum3D, Inc., a supplier of advanced graphics
subsystems based on 3Dfx technology.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Techfarm provides management services to the Company for which the Company
pays a fee of $5,000 per month. Gordon Campbell, the Chairman of the Board of
Directors of the Company, and James Whims, a director of the Company, are each
officers of Techfarm. The Company made total payments to Techfarm for such
management services during 1995 and 1996 of $45,000 and $60,000, respectively.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal shareholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
59
<PAGE> 61
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 1997 and as adjusted to
reflect the sale of the 3,000,000 shares of Common Stock offered hereby: (i) by
each person or entity who is known by the Company to own beneficially more than
5% of the Common Stock; (ii) by each director of the Company, (iii) by the Named
Executive Officers, and (iv) by all directors and executive officers of the
Company as a group. Except as otherwise noted, the shareholders 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 applicable community
property laws.
<TABLE>
<CAPTION>
SHARES PERCENT BENEFICIALLY OWNED(1)
BENEFICIALLY ----------------------------------
BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
Entities affiliated with U.S. Venture
Partners(2)................................... 1,449,235 15.9% 12.9%
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Entities affiliated with Venrock
Associates(3)................................. 1,449,236 15.9 12.9
755 Page Mill Road, A-230
Palo Alto, CA 94304
Norwest Equity Partners V(4).................... 928,834 10.2 8.3
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301-1426
Entities affiliated with Chase Capital
Partners(5)................................... 871,971 9.6 7.8
380 Madison Avenue, 12th Flr.
New York, NY 10017
Techfarm, Inc.(6)............................... 879,715 9.7 7.8
111 West Evelyn Avenue, #101
Sunnyvale, CA 94086
Intel Corporation............................... 666,667 7.3 6.0
SC-4-210
2200 Mission College Blvd.
Santa Clara, CA 95052-8119
Anthony Sun(3).................................. 1,449,236 15.9 12.9
Philip M. Young(2).............................. 1,449,235 15.9 12.9
George J. Still, Jr.(4)......................... 928,834 10.2 8.3
Gordon A. Campbell(6)........................... 879,715 9.7 7.8
L. Gregory Ballard.............................. 2,500 * *
James Whims..................................... -- -- --
Scott D. Sellers................................ 300,000 3.3 2.7
Gary Tarolli.................................... 300,000 3.3 2.7
Ross Q. Smith................................... 300,000 3.3 2.7
Karl Chicca..................................... 23,438 * *
All executive officers and directors as a group
(12 persons)(7)............................... 5,511,479 60.1 48.9
</TABLE>
- ------------
* Less than 1%.
(1) Applicable percentage ownership is based on 9,086,176 shares of Common Stock
outstanding as of March 31, 1997, and 12,086,176 shares of Common Stock
outstanding after completion of this offering, in each case together with
applicable options for such shareholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission,
based on factors including voting and investment power with respect to
shares, subject to the applicable community property laws. Shares of Common
Stock subject to options or warrants currently exercisable, or exercisable
within 60 days after March 31, 1997, are deemed outstanding for the
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<PAGE> 62
purpose of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Includes 152,170 shares held by Second Ventures, II, L.P., 43,477 shares
held by USVP Entrepreneur Partners II, L.P. and 1,253,588 shares held by
U.S. Venture Partners IV, L.P. Mr. Young, a director of the Company, is a
general partner of each of these limited partnerships. Mr. Young disclaims
beneficial ownership of the shares held by the limited partnerships except
to the extent of his proportionate partnership interest therein. In addition
to Mr. Young, the general partners of each of Second Ventures, II, L.P.,
USVP Entrepreneur Partners II, L.P. and U.S. Venture Partners IV, L.P. are
William K. Bowes, Jr., Irwin Federman, Steven M. Krausz and Dale J. Vogel.
(3) Includes 967,203 shares held by Venrock Associates, L.P. and 482,033 shares
held by Venrock Associates II, L.P. Mr. Sun, a director of the Company, is a
general partner of each of these limited partnerships. Mr. Sun disclaims
beneficial ownership of the shares held by the limited partnerships except
to the extent of his proportionate partnership interest therein. In addition
to Mr. Sun, the general partners of each of Venrock Associates, L.P. and
Venrock Associates II, L.P. are Patrick F. Latterell, Peter O. Crisp, Ted H.
McCourtney, Anthony B. Ervin, Ph.D., Kimberly A. Rummelsburg, David R.
Hathaway and Roy A. Rothrock.
(4) Includes 928,834 shares held by Norwest Equity Partners V, L.P. Mr. Still, a
director of the Company, is a general partner of Norwest Equity Partners V,
L.P. Mr. Still disclaims beneficial ownership of the shares held by Norwest
Equity Partners V, L.P. except to the extent of his proportionate
partnership interest therein. In addition to Mr. Still, the general partners
of Norwest Equity Partners V, L.P. are John P. Whaley, Daniel J. Haggerty,
John E. Lindall, John L. Thomson, Stephen R. Sefton, Kevin G. Hall and
Promod Haque.
(5) Includes 133,334 shares held by Chase Venture Capital Associates, L.P.
("Chase") and 738,637 shares held by Chemical Venture Capital Associates,
L.P. ("Chemical"). The general partner of each of Chase and Chemical is
Chase Capital Partners, Inc.
(6) Includes 462,500 shares held by Techfarm, Inc., 367,215 shares held by
Gordon A. Campbell and 50,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1997 held by Gordon A. Campbell. Mr.
Campbell is President of Techfarm, Inc. Techfarm, Inc. disclaims beneficial
ownership of the shares held by Mr. Campbell, and Mr. Campbell disclaims
beneficial ownership of the shares held by Techfarm, Inc.
(7) Includes 69,531 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1997.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 50,000,000 shares of Common Stock, no par value, and 5,000,000 shares of
undesignated Preferred Stock, no par value.
COMMON STOCK
As of March 31, 1997, there were 9,086,176 shares of Common Stock
outstanding held of record by approximately 125 shareholders. As of March 31,
1997, options to purchase an aggregate of 1,875,461 shares of Common Stock were
also outstanding. See "Management -- Stock Plans".
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by shareholders and have cumulative voting rights with
respect to the election of directors. Subject to the prior rights of holders of
Preferred Stock, if any, the holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefor. Upon
liquidation or dissolution of the Company, the remainder of the assets of the
Company will be distributed ratably among the holders of Common Stock after
payment of liabilities and the liquidation preferences of any outstanding shares
of Preferred Stock. The Common Stock has no preemptive or other subscription
rights and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All of the outstanding shares of Common
Stock are, and the shares to be sold in this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's shareholders. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the market price of, and the
voting and other rights of, the holders of Common Stock. The Company has no
current plans to issue any shares of Preferred Stock.
WARRANTS
As of March 31, 1997, there were outstanding warrants to purchase an
aggregate of 43,750 shares of Common Stock at an exercise price of $2.00 per
share, an aggregate of 115,919 shares of Common Stock at an exercise price of
$4.40 per share and an aggregate of 35,000 shares of Common Stock at $7.50 per
share. Warrants to purchase 117,510 shares of Common Stock will expire
automatically upon the closing of this offering if not exercised. Certain of
such warrants contain "net exercise" provisions that enable the warrantholders
to exercise a portion of their warrant without paying the exercise price. To the
extent the warrantholders choose to "net exercise" their warrants, the Company
will not receive the proceeds from the exercise of such warrants. The remaining
warrants expire between December 31, 2001 and January 1, 2003.
REGISTRATION RIGHTS
The holders of approximately 7,021,859 shares of Common Stock and rights to
acquire 72,159 shares of Common Stock and their permitted transferees (the
"Holders") are entitled to certain rights with respect to the registration of
such shares ("Registrable Securities") under the Securities Act. Under the terms
of an agreement between the Company and the Holders, the holders of at least
62
<PAGE> 64
40% of the Registrable Securities may require, on two occasions after nine
months from the effective date of this offering, that the Company use its best
efforts to register the Registrable Securities for public resale. In addition,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or for the account of other security holders
exercising registration rights, the Holders are entitled to notice of such
registration and are entitled to include shares of such Common Stock therein.
The holders of Registrable Securities may also require the Company on no more
than two occasions to register all or a portion of their Registrable Securities
on Form S-3 under the Securities Act when use of such form becomes available to
the Company. All such registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares to be included in such registration. In addition, the Company
need not effect a registration within six months following a previous
registration, or within six months following any offering of securities for the
account of the Company made subsequent to this offering, or after such time as
all Holders may sell under Rule 144 in a three month period all shares of Common
Stock to which such registration rights apply.
TRANSFER AGENT
The transfer agent for the Common Stock is First National Bank of Boston.
Its telephone number is (617) 575-3120.
63
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Sales of a substantial number of shares of Common Stock in the
public market following this offering could adversely affect the market price of
the Common Stock prevailing from time to time.
Upon completion of this offering, the Company will have approximately
12,086,176 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option.) Of these shares, the 3,000,000 shares sold
in this offering will be freely transferable without restriction or registration
under the Securities Act, except for any shares purchased by an existing
"affiliate" of the Company, as that term is defined by the Securities Act (an
"Affiliate"), which shares will be subject to the resale limitations of Rule 144
adopted under the Act. On the date of this Prospectus, 9,086,176 "restricted
shares" as defined in Rule 144 promulgated under the Securities Act will be
outstanding.
All officers, directors and all other shareholders of the Company have
agreed not to offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the Common Stock, until the later of 180 days after the date of this Prospectus
or the open of market on the third trading day following the date of public
disclosure of the Company's financial results for the fiscal year ending
December 31, 1997, without the prior written consent of Robertson, Stephens &
Company. Robertson, Stephens & Company may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. Robertson, Stephens & Company currently has no plans to
release any portion of the securities subject to lock-up agreements. As a result
of these contractual restrictions and the provisions of Rules 144(k), 144 and
701, the restricted shares will be available for sale in the public market as
follows: (i) no shares will be eligible for immediate sale on the date of this
Prospectus, (ii) no shares will be eligible for sale 90 days after the date of
this Prospectus, (iii) approximately 21,250 shares will be eligible for sale 120
days after the date of this Prospectus, (iv) approximately 8,977,416 shares will
be eligible for sale on the later of 180 days after the date of this Prospectus
or the open of market on the third trading day following the date of public
disclosure of the Company's financial results for the fiscal year ending
December 31, 1997 upon expiration of lock-up agreements and (v) approximately
87,510 shares will be eligible for sale approximately one year from the date of
this Prospectus.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least one year
(including the holding period of any prior owner except an affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 224,000
shares immediately after this offering); or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Subject to the contractual restrictions described above, "144(k)
shares" may therefore be sold immediately upon the completion of this offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended
64
<PAGE> 66
(the "Exchange Act"), pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this Prospectus, may be sold by persons other than Affiliates
subject only to the manner of sale provisions of Rule 144 and by Affiliates
under Rule 144 without compliance with its two-year minimum holding period
requirements.
At March 31, 1997, options to purchase 1,875,461 shares of Common Stock
were outstanding, of which options to purchase approximately 185,127 shares were
then vested and exercisable. Shortly after this offering, the Company intends to
file a registration statement on Form S-8 under the Securities Act covering
shares of Common Stock reserved for issuance under the Company's stock plans.
See "Management -- Stock Plans." Shares of Common Stock issued upon exercise of
options under the Form S-8 will be available for sale in the public market,
subject to Rule 144 volume limitations applicable to Affiliates and subject to
the contractual restrictions described above. Beginning 180 days after the
Effective Date, approximately 518,583 shares issuable upon the exercise of
vested stock options will become eligible for sale in the public market, if such
options are exercised.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
65
<PAGE> 67
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Montgomery Securities and UBS Securities LLC
(the "Representatives"), have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock set forth opposite their names below. The
Underwriters are committed to purchase and pay for all such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------------------------------------------------------------------- ----------
<S> <C>
Robertson, Stephens & Company LLC......................................
Montgomery Securities..................................................
UBS Securities LLC.....................................................
---------
Total........................................................ 3,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 3,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,000,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each executive officer and director and certain other shareholders of the
Company have agreed with the Representatives until the later of 180 days after
the effective date of the Registration Statement or the open of market on the
third trading day following the date of public disclosure of the Company's
financial results for the fiscal year ending December 31, 1997 (the "Lock-Up
Period") not to offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock owned as of the date
of this Prospectus or thereafter acquired directly by such holders or with
respect to which they have or hereinafter acquire the power of disposition,
without the prior written consent of Robertson, Stephens & Company LLC. However,
Robertson, Stephens & Company LLC may, in its sole discretion at any time or
from time to time, without notice, release all or any portion of the securities
subject to the lock-up agreements. Approximately 8,979,462 of such shares will
be eligible for immediate public sale following expiration of the Lock-Up
Period, subject to the provisions of Rule 144. In addition, the Company has
agreed that during the Lock-Up Period, it will not, without the prior written
consent of Robertson, Stephens & Company LLC, issue, sell, contract to sell or
otherwise dispose of any shares of
66
<PAGE> 68
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the issuance of Common Stock upon the exercise of
outstanding options and under the existing employee stock purchase plan and the
Company's issuance of options under existing stock option plans. See "Shares
Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby was determined through negotiations among the
Company and the Representatives. Among the factors considered in such
negotiations were prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company; estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
Of the 3,000,000 shares of Common Stock offered hereby, it is currently
anticipated that approximately 300,000 shares (assuming an initial public
offering price of $10.00) will be purchased from the Underwriters by Electronic
Arts at the price per share $ (the Price to Public less the Underwriting
Discounts and Commissions set forth on the cover of this Prospectus). See
"Investment by Electronic Arts."
The Representatives have advised the Company that, pursuant to rules
promulgated by the Commission, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
of the Common Stock originally sold by such Underwriter or syndicate member is
repurchased by the representatives in syndicate covering transactions, in
stabilizing transactions or otherwise. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
67
<PAGE> 69
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
and March 31, 1997, and for each of the two years in the period ended December
31, 1996, and the three month period ended March 31, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act,
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete. In each instance, reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, and each such statement is qualified in all respects by such
reference. Copies of the Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's principal
office in Washington, D.C., or obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. 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.
68
<PAGE> 70
3DFX INTERACTIVE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................................... F-2
Balance Sheets as of December 31, 1995, December 31 1996 and March 31, 1997.......... F-3
Statements of Operations for the years ended December 31, 1995 and 1996 and for the
three months ended March 31, 1996 (unaudited) and 1997............................. F-4
Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996 and
for the three months ended March 31, 1997.......................................... F-5
Statement of Cash Flows for the years ended December 31, 1995 and 1996 and for the
three months ended March 31, 1996 (unaudited) and 1997............................. F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
3Dfx Interactive, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, shareholders' equity and cash flows present fairly, in all
material respects, the financial position of 3Dfx Interactive, Inc. at December
31, 1995 and 1996 and March 31, 1997, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1996 and
the three month period ended March 31, 1997 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
April 11, 1997, except as to
Note 9, which is as of May 21, 1997
F-2
<PAGE> 72
3DFX INTERACTIVE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH MARCH 31,
------------------ 31, 1997
1995 1996 1997 (NOTE 1)
------ ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 865 $ 5,291 $ 4,141 $ 4,193
Accounts receivable less allowance for doubtful
accounts of $0, $78 and $128................ -- 1,393 3,985 3,985
Inventory...................................... 37 4,960 2,999 2,999
Other current assets........................... 135 321 896 896
------ ------- ------- -------
Total current assets................... 1,037 11,965 12,021 12,073
Property and equipment, net...................... 1,369 3,482 3,431 3,431
Other assets..................................... 34 134 134 134
------ ------- ------- -------
$2,440 $15,581 $15,586 $15,638
====== ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit................................. $ -- $ 1,076 $ 1,649 $ 1,649
Accounts payable............................... 471 2,236 1,394 1,394
Accrued liabilities............................ 440 1,061 937 937
Deferred revenue............................... -- -- 800 800
Accrued salaries, wages and benefits........... 124 354 577 577
Current portion of capitalized lease
obligations................................. 309 601 615 615
------ ------- ------- -------
Total current liabilities.............. 1,344 5,328 5,972 5,972
Capitalized lease obligations, less current
portion........................................ 544 632 468 468
------ ------- ------- -------
Commitments (Note 8)
Shareholders' equity:
Preferred Stock, no par value, 7,269,018 shares
authorized, 2,750,992, 6,951,692 and
7,021,859 shares issued and outstanding;
5,000,000 shares authorized pro forma, none
issued and outstanding pro forma............ 5,474 28,701 29,222 --
Common Stock, no par value, 25,033,000 shares
authorized; 50,000,000 shares authorized pro
forma; 1,771,250, 1,890,013 and 1,969,307
shares issued and outstanding and 9,086,176
shares issued and outstanding pro forma..... 310 1,626 2,078 31,685
Warrants....................................... -- 353 353 20
Notes receivable............................... (25) (19) (12) (12)
Deferred compensation.......................... (168) (1,250) (1,544) (1,544)
Accumulated deficit............................ (5,039) (19,790) (20,951) (20,951)
------ ------- ------- -------
Total shareholders' equity............. 552 9,621 9,146 9,198
------ ------- ------- -------
$2,440 $15,581 $15,586 $15,638
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 73
3DFX INTERACTIVE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- -----------------------
1995 1996 1996 1997
------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Product....................................... $ -- $ 6,390 $ -- $ 4,497
Development contract.......................... -- -- -- 750
------- -------- ------- -------
Total revenues........................ -- 6,390 -- 5,247
Cost of product revenues........................ -- 5,123 -- 2,582
------- -------- ------- -------
Gross profit.................................... -- 1,267 -- 2,665
------- -------- ------- -------
Operating expenses:
Research and development...................... 2,940 9,435 1,659 1,953
Selling, general and administrative........... 2,166 6,642 1,028 1,846
------- -------- ------- -------
Total operating expenses.............. 5,106 16,077 2,687 3,799
------- -------- ------- -------
Loss from operations............................ (5,106) (14,810) (2,687) (1,134)
Interest and other income (expense), net........ 67 59 35 (27)
------- -------- ------- -------
Net loss........................................ $(5,039) $(14,751) $(2,652) $(1,161)
======= ======== ======= =======
Pro forma net loss per share (unaudited) (Note
1)............................................ $ (1.53) $ (0.11)
-------- -------
Shares used in pro forma net loss per share
calculations (unaudited) (Note 1)............. 9,627 10,386
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 74
3DFX INTERACTIVE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
-------------------- ------------------ NOTES DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT WARRANTS RECEIVABLE COMPENSATION DEFICIT TOTAL
---------- ------- --------- ------ -------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock to founders,
investors and
employees at $0.025
per share........... -- $ -- 1,364,000 $ 34 $ -- $(19) $ -- $ -- $ 15
Issuance of Common
Stock to founders,
investors and
employees at $0.075
per share........... -- -- 73,000 6 -- (6) -- -- --
Issuance of Common
Stock to founders,
investors and
employees at $0.10
per share........... -- -- 209,250 21 -- (21) -- -- --
Issuance of Series A
Convertible
Preferred Stock in
March 1995 at $2.00
per share, net of
issuance costs...... 2,750,992 5,474 -- -- -- -- -- -- 5,474
Common Stock options
exercised........... -- -- 125,000 25 -- -- -- -- 25
Forgiveness of notes
receivable from
shareholders........ -- -- -- -- -- 21 -- -- 21
Deferred
compensation........ -- -- -- 224 -- -- (224) -- --
Amortization of
deferred
compensation........ -- -- -- -- -- -- 56 -- 56
Net loss.............. -- -- -- -- -- -- -- (5,039) (5,039)
---------- ------ --------- ----- --- --- ------ ------- -------
Balance at December
31, 1995............ 2,750,992 5,474 1,771,250 310 -- (25) (168) (5,039) 552
Issuance of Series B
Convertible
Preferred Stock in
March 1996 at $4.40
per share, net of
issuance costs...... 2,650,003 11,634 -- -- -- -- -- -- 11,634
Issuance of Series C
Convertible
Preferred Stock in
November 1996 at
$7.50 per share, net
of issuance costs... 1,550,697 11,593 -- -- -- -- -- -- 11,593
Common Stock options
exercised........... -- -- 185,209 42 -- -- -- -- 42
Forgiveness of notes
receivable from
shareholders........ -- -- -- -- -- 6 -- -- 6
Repurchased Common
Stock............... -- -- (66,446) (4) -- -- -- -- (4)
Issuance of Series B
and C Convertible
>Preferred Stock
warrants............ -- -- -- -- 353 -- -- -- 353
Deferred
compensation........ -- -- -- 1,278 -- -- (1,278) -- --
Amortization of
deferred
compensation........ -- -- -- -- -- -- 196 -- 196
Net loss.............. -- -- -- -- -- -- -- (14,751) (14,751)
---------- ------ --------- ----- --- --- ------ ------- -------
Balance at December
31, 1996............ 6,951,692 28,701 1,890,013 1,626 353 (19) (1,250) (19,790) 9,621
Issuance of Series C
Convertible
Preferred Stock in
January 1997 at
$7.50 per share, net
of issuance costs... 70,167 521 -- -- -- -- -- -- 521
Common Stock options
exercised........... -- -- 84,008 38 -- -- -- -- 38
Common Stock
repurchased......... -- -- (4,714) (1) -- -- -- -- (1)
Repayment of notes
receivable from
shareholders........ -- -- -- -- -- 7 -- -- 7
Deferred
compensation........ -- -- -- 415 -- -- (415) -- --
Amortization of
deferred
compensation........ -- -- -- -- -- -- 121 -- 121
Net loss.............. -- -- -- -- -- -- -- (1,161) (1,161)
---------- ------ --------- ----- --- --- ------ ------- -------
Balance at March 31,
1997................ 7,021,859 $29,222 1,969,307 $2,078 $353 $(12) $ (1,544) $ (20,951) $ 9,146
========== ====== ========= ===== === === ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 75
3DFX INTERACTIVE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------- ---------------------------
1995 1996 1996 1997
-------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (5,039) $ (14,751) $ (2,652) $ (1,161)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation......................... 227 1,017 146 385
Warrant valuation.................... -- 353 138 --
Stock compensation................... 56 196 14 121
Increase in allowance for doubtful
accounts.......................... -- 78 -- 50
Changes in assets and liabilities:
Accounts receivable............... -- (1,471) (92) (2,642)
Inventory......................... (37) (4,923) -- 1,961
Other assets...................... (169) (286) 21 (575)
Accounts payable.................. 471 1,765 533 (842)
Accrued liabilities............... 564 851 (205) 99
Deferred revenue.................. -- -- -- 800
-------- --------- -------- --------
Net cash used in operating
activities................... (3,927) (17,171) (2,097) (1,804)
-------- --------- -------- --------
Cash flows from investing activities for the
purchase of property and equipment........ (589) (2,210) (877) (334)
-------- --------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Convertible
Preferred Stock, net................... 5,474 23,227 11,650 521
Proceeds from issuance of Common
Stock, net............................. 61 44 18 44
Principal payments of capitalized lease
obligations............................ (154) (540) (228) (150)
Proceeds from drawdown on line of
credit................................. -- 1,076 152 573
-------- --------- -------- --------
Net cash provided by financing
activities................... 5,381 23,807 11,592 988
-------- --------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 865 4,426 8,618 (1,150)
Cash and cash equivalents at beginning
of period................................. -- 865 865 5,291
-------- --------- -------- --------
Cash and cash equivalents at end
of period.................... $ 865 $ 5,291 $ 9,483 $ 4,141
======== ========= ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for
interest............................... $ 45 $ 96 $ 26 $ 63
Acquisition of property and equipment
under capitalized lease obligations.... 1,007 920 160 --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 76
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
3Dfx Interactive Inc. (the "Company" or "3Dfx") was incorporated in
California on August 24, 1994. The Company is engaged in the design, development
and marketing of 3D media processors specifically designed for interactive
electronic entertainment applications in the PC, home game console and coin-op
arcade markets. The Company did not incur any expenses from the period of
inception (August 24, 1994) through December 31, 1994.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized upon product shipment. Revenue
resulting from development contracts is recognized under the percentage of
completion method based upon costs incurred relative to total contract costs or
when the related contractual obligations have been fulfilled and fees are
billable. Costs associated with development contracts are included in research
and development. Royalty revenue is recognized upon the sale of products subject
to royalties.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. At December 31, 1996
and March 31, 1997, approximately $3,137,000 and $2,908,000, respectively, of
money market funds and commercial paper instruments, the fair value of which
approximate cost, are included in cash and cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents and
accounts receivable.
3Dfx invests primarily in money market accounts and commercial paper
instruments. Cash equivalents are maintained with high quality institutions and
their composition and maturities are regularly monitored by management.
The Company performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for uncollectible accounts receivable based
upon the expected collectibility of all accounts receivable. One customer
accounted for 21% of accounts receivable at December 31, 1996. Three customers
accounted for 38%, 31% and 13% of accounts receivable at March 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
<S> <C> <C>
Customers comprising 10% or more of the Company's
product revenues for the periods indicated:
A..................................................... 44% 4%
B..................................................... 33% 59%
C..................................................... 11% 15%
</TABLE>
F-7
<PAGE> 77
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Inventory
Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three years or less. Assets held under
capital leases are amortized using the straight-line method over the term of the
lease or estimated useful lives, whichever is shorter.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
and recognizes deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns.
Research and Software Development Costs
Research and development costs are charged to operations as incurred.
Software development costs incurred prior to the establishment of technological
feasibility are included in research and development and are expensed as
incurred. Software development costs incurred subsequent to the establishment of
technological feasibility through the period of general market availability of
the product are capitalized, if material. To date, all software development
costs incurred subsequent to the establishment of technological feasibility have
been expensed as incurred due to their immateriality.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (see Note 6).
Interim Results (unaudited)
The accompanying statements of operations and cash flows for the three
month period ended March 31, 1996 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting solely of normal recurring
adjustments, necessary for the fair statement of results for the interim
periods. The results of operations and cash flows for the interim period are not
necessarily indicative of the results to be expected for any other interim
future period.
Pro Forma Balance Sheet (unaudited)
If the offering contemplated by this Prospectus (the "offering") is
consummated, all shares of Convertible Preferred Stock outstanding will
automatically convert into an aggregate of 7,021,859 shares of Common Stock. The
pro forma effect of this conversion has been reflected in the accompanying
unaudited balance sheet as of March 31, 1997. In addition, the pro forma balance
sheet gives effect to the assumed exercise of warrants to purchase 95,010 shares
of Common Stock that otherwise expire automatically upon the closing of this
offering.
F-8
<PAGE> 78
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Net Loss Per Share (unaudited)
Pro forma net loss per share is computed using the weighted average number
of common and common equivalent shares outstanding during the periods. Common
equivalent shares for the year ended December 31, 1996 and the three month
period ended March 31, 1997 consist of Common Stock issuable upon the conversion
of the Company's Series A, B, and C Convertible Preferred Stock using the
if-converted method. Pursuant to the requirements of the Securities and Exchange
Commission, common stock equivalent shares relating to the stock options and
warrants issued subsequent to April 15, 1996, using the treasury stock method
are included in the computation of pro forma net loss per share for all periods
presented, as if they were outstanding for the entire period. Prior period
earnings per share data have not been presented since such amounts are not
deemed meaningful.
Recent Accounting Pronouncements (unaudited)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This statement
is effective for the Company's fiscal year ending December 31, 1997. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. If the Company had adopted this Statement for the
year ended December 31, 1996 and for the three month period ended March 31,
1997, the Company's loss per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
<S> <C> <C>
Basic loss per share............. $ (7.83) $(0.52)
Diluted loss per share........... $ (2.94) $(0.22)
</TABLE>
NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------ ------- ---------
<S> <C> <C> <C>
Inventory:
Raw material............................... $ 37 $ 424 $ 428
Work in process............................ -- 231 260
Finished goods............................. -- 4,305 2,311
------ ------- -------
$ 37 $ 4,960 $ 2,999
====== ======= =======
Property and equipment:
Computer equipment......................... $ 995 $ 3,122 $ 3,328
Computer software.......................... 521 1,047 1,160
Furniture and equipment.................... 80 557 572
------ ------- -------
1,596 4,726 5,060
Less: accumulated depreciation and
amortization............................ (227) (1,244) (1,629)
------ ------- -------
$1,369 $ 3,482 $ 3,431
====== ======= =======
</TABLE>
Assets acquired under capitalized lease obligations are included in
property and equipment and totaled $1,007,000, $1,927,000 and $1,927,000 with
related accumulated amortization of $181,000, $602,000 and $909,000 at December
31, 1995 and 1996 and March 31, 1997, respectively.
F-9
<PAGE> 79
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- DEBT:
The Company has a line of credit agreement with a bank, which provides for
maximum borrowings in an amount up to the lesser of 75% of eligible accounts
receivable plus 100% of cash and cash equivalents or $4,000,000. Borrowings
under the line are secured by all of the Company's owned assets and bear
interest at the bank's prime rate plus 1.50% per annum (10.0% as of March 31,
1997). The agreement requires that the Company maintain certain financial ratios
and levels of tangible net worth, profitability and liquidity. As of March 31,
1997, the Company was in compliance with its covenants. The line of credit
expires in August 1997. At March 31, 1997, there were no borrowings outstanding
under this line of credit.
The Company has an equipment line of credit with a bank, which provides for
the purchase of up to $2,000,000 of property and equipment. Borrowings under
this line are secured by all of the Company's owned assets and bear interest at
the bank's prime rate plus 1.50% per annum. The agreement requires that the
Company maintain certain financial ratios and levels of tangible net worth,
profitability and liquidity. As of March 31, 1997, the Company was in compliance
with its covenants. The equipment line of credit expires in August 1998. At
March 31, 1997, approximately $1,649,000 was outstanding under this equipment
line of credit.
NOTE 4 -- DEVELOPMENT CONTRACT:
In March 1997, the Company entered into a development and license agreement
with Sega Enterprises, Ltd., under which the Company is entitled to receive
development contract revenues and royalties based upon a cumulative volume of
units sold by Sega which include the Company's product. The Company recognized
development contract revenues of $750,000 in the three months ended March 31,
1997, representing a non-refundable amount due for the delivery of certain
engineering designs. The Company has no further obligations to Sega with regard
to the $750,000 of development contract revenue recognized. The Company deferred
development contract revenues of $800,000 in the three months ended March 31,
1997, as no significant activity occurred under the agreement. The Company did
not earn any royalty revenue in the three months ended March 31, 1997. Costs
incurred relating to this contract are included in research and development
expense.
NOTE 5 -- SHAREHOLDERS' EQUITY:
Common Stock
The Company has issued 1,646,250 shares of its Common Stock to founders and
investors. The shares either vested immediately or will vest on various dates
through 1999. The Company can buy back unvested shares at the original price
paid by the purchasers in the event the purchasers' employment with the Company
is terminated for any reason. During the year ended December 31, 1996 and the
three month period ended March 31, 1997, 49,570 and 2,604 shares, respectively,
of Common Stock were repurchased.
In addition, during the two year period ended December 31, 1996 and the
three month period ended March 31, 1997, certain employees exercised options to
purchase 310,209 and 84,004 shares, respectively, of Common Stock which are
subject to a right of repurchase by the Company at the original share issuance
price. The repurchase right lapses over a period generally ranging from two to
four years. During the year ended December 31, 1996 and the three month period
ended March 31, 1997, 16,876 and 2,110 shares, respectively, of Common Stock
were repurchased.
As of December 31, 1996 and March 31, 1997, approximately 835,130 and
744,721 shares, respectively, of Common Stock were subject to these repurchase
rights.
F-10
<PAGE> 80
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The holders of Common Stock, voting as a class, are entitled to elect three
members of the Board of Directors.
Convertible Preferred Stock
The aggregate authorized number of preferred shares is 7,269,018, of which
2,794,742, 2,818,412 and 1,655,864 are designated as Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, and Series C Convertible
Preferred Stock, respectively.
Each share of Series A, B and C Convertible Preferred Stock outstanding is
convertible at the option of the holder into one share of Common Stock, subject
to certain adjustments, and automatically converts upon the completion of an
underwritten public offering of Common Stock with gross proceeds of at least $15
million and a public offering price of not less than $6.60 per share or in the
event of the vote of a majority of each of the holders of Series A, B and C
Convertible Preferred Stock outstanding at the time of such a vote.
The holders of Series A, B and C Convertible Preferred Stock are entitled
to elect two members, one member, and one member, respectively, to the Board of
Directors and have voting rights equal to Common Stock on an if-converted basis.
Dividends at the rate of $0.20, $0.44 and $0.75 per share for Preferred Series
A, B and C Convertible Preferred Stock, respectively, as declared by the Board
of Directors, are payable to the preferred stockholders in preference to any
dividends for Common Stock declared by the Board of Directors. Dividends are
noncumulative. No dividends have been declared by the Board of Directors through
March 31, 1997.
The holders of the Series A, B and C Convertible Preferred Stock are
entitled to receive their original issuance prices of $2.00, $4.40 and $7.50 per
share, respectively, in liquidation, plus an amount equal to all declared but
unpaid dividends, prior and in preference to any distribution to the holders of
Common Stock. As of December 31, 1996 and March 31, 1997, the aggregate
liquidation preference of the Series A, B and C Convertible Preferred Stock was
approximately $28,795,000 and $29,319,000, respectively.
At December 31, 1996 and March 31, 1997, 6,951,692 and 7,021,859 shares,
respectively, of Common Stock were reserved for issuance upon conversion of the
preferred stock.
Warrants
In March 1995, the Company issued a warrant to a vendor to purchase 43,750
shares of Series A Convertible Preferred Stock at $2.00 per share. The warrant
expires on March 31, 2002. The warrant was deemed by management to have a
nominal value at the date of grant. The Company has reserved 43,750 shares of
Series A Convertible Preferred Stock for the exercise of this warrant.
In January 1996, the Company entered into a line of credit. To secure the
line , the Company issued to the lessor a warrant to purchase 19,886 shares of
Series B Convertible Preferred Stock at an exercise price of $4.40. The warrant
expires on January 1, 2003. The warrant was deemed by management to have a
nominal value at the date of grant. The Company has reserved 19,886 shares of
Series B Convertible Preferred Stock for the exercise of this warrant.
In February 1996, the Company issued to a financial institution in
accordance with a bridge loan agreement a warrant to purchase 8,523 shares of
Series B Convertible Preferred Stock at $4.40 per share. The warrant expires on
December 31, 2001. The warrant was deemed by management to have a nominal value
at the date of grant. The Company has reserved 8,523 shares of Series B
Convertible Preferred Stock for the exercise of this warrant.
In February 1996, the Company entered into an agreement to issue warrants
to TSMC to purchase 140,000 shares of Series B Convertible Preferred Stock at an
exercise price of $4.40 per share. The
F-11
<PAGE> 81
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
purchase right of 50,000 warrants is exercisable, in whole or in part, at any
time on or before December 31, 2001. These warrants will expire, if not
previously exercised, immediately upon the closing of an underwritten public
offering in which the proceeds received by the Company equal at least $7,500,000
and the public offering price is not less than $3.00 per share. The purchase
right of 90,000 warrants became exercisable at the rate of 10 shares of Series B
Convertible Preferred Stock for each wafer above 2,000 wafers purchased from
TSMC by the Company during fiscal 1996 and became exercisable for 75,020 shares
of Series B Convertible Preferred Stock in conjunction with wafer purchases in
1996. These warrants expire on December 31, 2001. The warrant was deemed to have
a total value of approximately $211,000 and was recognized as a cost of revenues
and research and development expense during 1996. The Company has reserved
175,020 shares of Series B Convertible Preferred Stock for the exercise of this
warrant.
In 1996, the Company issued to a university and consultants warrants to
purchase 5,000 and 30,000 shares, respectively, of Series C Convertible
Preferred Stock at an exercise price of $7.50 per share. These warrants were
deemed to have a total value of approximately $142,000 at the date of grant and
the related cost was recognized as other expense and research and development
expense, respectively, during 1996. The Company has reserved 35,000 shares of
Series C Convertible Preferred Stock for the exercise of these warrants.
At March 31, 1997, the Company had reserved 247,159 shares of Common Stock
for the exercise of warrants and the subsequent conversion to Common Stock.
NOTE 6 -- STOCK OPTION PLANS:
The Option Plan
In May 1995, the Company adopted a Stock Plan, (the Option Plan) which
provides for granting of incentive and nonqualified stock options to employees
and consultants and directors of the Company. Under the Option Plan, 2,299,768
shares of Common Stock have been reserved for issuance at March 31, 1997.
Options granted under the Option Plan are generally for periods not to
exceed ten years, and are granted at prices not less than 100% and 85%, for
incentive and nonqualified stock options, respectively, of the fair market value
of the stock determined by the Board of Directors on the date of grant.
Incentive stock options granted to shareholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years, and must be issued
at prices not less than 110% of the fair market value of the stock on the date
of grant. Options granted under the Option Plan generally vest 25% on the first
anniversary of the grant date and 1/48th of the option shares each month
thereafter, with full vesting occurring on the fourth anniversary of the grant
date.
F-12
<PAGE> 82
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of activity under the Option Plan during the
years ended December 31, 1995 and 1996 and the three months ended March 31,
1997:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
----------- ----------- --------
<S> <C> <C> <C>
Balance at May 1, 1995 (date of plan
adoption)............................. 853,750 -- --
Granted................................. (640,750) 640,750 $ 0.20
Exercised............................... -- (125,000) $ 0.20
Canceled................................ 2,500 (2,500) $ 0.20
----------- ----------
Balance at December 31, 1995............ 215,500 513,250 $ 0.20
Additional shares authorized............ 1,196,250 -- --
Granted................................. (1,369,138) 1,369,138 $ 0.58
Exercised............................... -- (185,209) $ 0.23
Canceled................................ 158,670 (158,670) $ 0.41
Repurchased............................. 16,875 $ 0.20
----------- ----------
Balance at December 31, 1996............ 218,157 1,538,509 $ 0.54
Additional shares authorized............ 625,000 -- --
Granted................................. (450,419) 450,419 $ 9.62
Exercised............................... -- (84,008) $ 0.46
Canceled................................ 29,459 (29,459) $ 0.56
Repurchased............................. 2,110 -- $ 0.20
----------- ----------
Balance at March 31, 1997............... 424,307 1,875,461 $ 2.72
=========== ==========
</TABLE>
At December 31, 1996 and March 31, 1997, 186,172 and 185,127, respectively,
Common Stock options were vested.
During the years ended December 31, 1995 and 1996 and the three month
period ended March 31, 1997, the Company granted options for the purchase of
2,460,307 shares of Common Stock to employees at exercise prices ranging from
$0.20 to $12.00 per share. Management has calculated deferred compensation of
approximately $1,900,000 related to options granted during 1995 and 1996 and the
three month period ended March 31, 1997. Such deferred compensation will be
amortized over the vesting period relating to these options, of which $56,000,
$196,000 and $121,000 has been amortized during the years ended December 31,
1995 and 1996 and the three month period ended March 31, 1997.
Employee Stock Purchase Plan
In March 1997, the Company's Board of Directors approved an Employee Stock
Purchase Plan. Under this plan, employees of the Company can purchase Common
Stock through payroll deductions. A total of 550,000 shares have been reserved
for issuance under this plan. The plan was approved by the Company's
shareholders on April 1997.
Directors' Stock Option Plan
In March 1997, the Company adopted a 1997 Directors' Stock Option Plan.
Under this plan options to purchase 150,000 shares of Common Stock may be
granted. The plan provides that options may be
F-13
<PAGE> 83
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Granted at a price not less than fair value of a share at the date of grant. The
plan was approved by the Company's shareholders in April 1997.
Information relating to stock options outstanding under the Option Plan at
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
----------- ---------------- --------------
<S> <C> <C> <C>
Range of exercise prices:
$0.20 - $0.30................... 338,500 8.4 years $ 0.20
$0.44 - $0.75................... 680,042 9.3 years $ 0.48
$0.90........................... 448,250 9.7 years $ 0.90
$2.00 - $12.00.................. 408,669 10.0 years $10.50
</TABLE>
<TABLE>
<CAPTION>
OPTIONS VESTED
--------------------------
WEIGHTED
NUMBER AVERAGE
VESTED EXERCISE PRICE
------- --------------
<S> <C> <C>
Range of exercise prices:
$0.20 - $0.30...................................... 121,120 $ 0.20
$0.44 - $0.75...................................... 64,011 $ 0.44
$0.90.............................................. -- --
$2.00 - $12.00..................................... -- --
</TABLE>
Certain Pro Forma Disclosures
The Company accounts for its employee stock options plans in accordance
with the provisions of Accounting Principles Board Opinion No. 25. In October
1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation" which established a fair value based method of accounting for
employee stock option plans and shares issued to founders which are subject to
repurchase. To determine the fair value of each option on the date of grant the
following assumptions were used: dividend yield of 0.0%; a risk-free interest
rate of 6%; a weighted average expected option term of four years were used for
all periods presented. The weighted average fair value of stock options granted
in the years ended December 31, 1995 and 1996 and the three month period ended
March 31, 1997, was $0.18, $0.60 and $9.62, respectively.
Had the Company recorded compensation costs based on the estimated grant
date fair value, as defined by FAS 123, for awards granted under its stock
option plan, the Company's net loss and net loss per share would have been
reduced to the pro forma amounts below for the years ended December 31, 1995 and
1996 and the three months ended March 31, 1996 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- -------------------
1995 1996 1996 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Pro forma net loss................. $(5,045) $(14,801) $(2,657) $(1,235)
Pro forma net loss per share....... $ -- $ (1.54) $ -- $ (0.10)
</TABLE>
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding paragraph and, because
options granted prior to 1995 are not taken into consideration, the above
results are not representative of future years.
F-14
<PAGE> 84
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Benefit Plan
Effective January 1, 1995, the Company adopted a 401(k) Savings Plan which
allows all employees to participate by making salary deferral contributions to
the 401(k) Savings Plan ranging from 1% to 20% of their eligible earnings. The
Company may make discretionary contributions to the 401(k) Savings Plan upon
approval by the Board of Directors. The Company has not contributed to the
401(k) Savings Plan to date.
NOTE 7 -- INCOME TAXES:
No provision for federal or state income taxes has been recorded for the
years ended December 31, 1995 and 1996 and the three months ended March 31, 1997
as the Company incurred net operating losses.
Deferred tax assets related to the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net operating loss and credit carryforwards... $ 1,994 $ 7,278 $ 7,665
Expenses not currently deductible............. -- 357 429
Capitalized research and development.......... 100 134 141
------- ------- -------
2,094 7,769 8,235
Less: valuation allowance..................... (2,094) (7,769) (8,235)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
These factors include the Company's history of losses, recent increases in
expense levels, the fact that the market in which the Company competes is
intensely competitive and characterized by rapidly changing technology, the lack
of carryback capacity to realize deferred tax assets, and the uncertainty
regarding market acceptance of the Company's products. The Company will continue
to assess the realizability of the deferred tax assets in future periods.
At December 31, 1995 and 1996 and March 31, 1997, the Company had net
operating loss carryforwards for federal income tax purposes of approximately
$5,100,000, $18,162,000 and $19,127,000, respectively, which expire beginning in
2010.
Under the Tax Reform Act of 1986, the amount of and the benefit from net
operating losses that can be carried forward may be impaired in certain
circumstances. Events which may cause changes in the Company's tax carryovers
include, but are not limited to, a cumulative ownership change of more than 50%
over a three year period. The issuance of Series A Convertible Preferred Stock
resulted in an annual limitation of the Company's ability to utilize net
operating losses incurred prior to that date. The limitation is insignificant.
Net operating losses incurred between the time of the Series A Convertible
Preferred Stock issuance and March 31, 1997, had not been subject to any annual
limitations through March 31, 1997.
NOTE 8 -- COMMITMENTS:
The Company is obligated under noncancelable operating leases for its
facilities and certain equipment and capital leases for certain equipment. Rent
expense on the operating leases for the year ended December 31, 1995 and 1996
and the three month period ended March 31, 1997, was approximately $192,000,
$305,000 and $74,000, respectively.
F-15
<PAGE> 85
3DFX INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under the operating and capitalized leases
are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITALIZED
LEASES LEASES
--------- -----------
<S> <C> <C>
April 1, 1997 through December 31, 1997............. $ 716 $ 548
1998................................................ 1,034 508
1999................................................ 1,033 119
2000................................................ 1,027 --
2001................................................ 1,027 --
Thereafter.......................................... 5,479 --
------- ------
Total minimum lease payments........................ $10,316 1,175
=======
Less: amount representing interest.................. (92)
------
Present value of minimum lease payments............. 1,083
Less: current portion............................... (615)
------
Noncurrent portion of capitalized lease
obligations....................................... $ 468
======
</TABLE>
Purchase Commitments
The Company's manufacturing relationship with Taiwan Semiconductor
Manufacturing Corporation ("TSMC") allows for the cancellation of all
outstanding purchase orders, but requires the repayment of all expenses incurred
to date. As of March 31, 1997, TSMC had incurred approximately $626,000 of
manufacturing expenses on the Company's outstanding purchase orders.
NOTE 9 -- SUBSEQUENT EVENT:
The Company effected on May 21, 1997, a one-for-two reverse stock split.
All share information has been retroactively adjusted to reflect the one-for-two
reverse stock split.
F-16
<PAGE> 86
APPENDIX -- DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Graphic: Illustration of 3D image from computer game containing starfighter and
planets.
Caption: The Company's technology enables a highly immersive, interactive 3D
experience with compelling graphics, realistic motion and complex character and
scene interaction at real time frame rates.
GATEFOLD
Graphic: Illustrations of characters and scenes from 3D video games and
software applications designed to or utilizing the Company's 3D hardware.
Caption: 3Dfx Technology is designed to perform on a variety of
platforms . . . . and support a multitude of third-party PC titles.
Credits: Images courtesy of Criterion Studios, Eidos Entertainment, Shiny
Entertainment and Ubisoft. All other trademarks are the property of their
respective owners. Copyright (C)1996 3Dfx Interactive, Inc.
INSIDE BACK COVER
Graphic: Depiction of the steps required to create a 3D image, starting with a
wireframe model and moving into shading, mapping and additional techniques, flat
shading (addition of color), texture mapping and final techniques to complete
the image in a realistic manner.
PHOTO:
Caption: ONE. A wireframe model is created that forms the basis of the three
dimensional objects. This image shows the vertices and the outline of the set
and characters before the coloring techniques have been applied.
PHOTO:
Caption: TWO. Flat shading has been added to the wireframe. One color is
assigned to all the pixels in a given triangle. This demonstrates the simplest
of the shading techniques available.
PHOTO:
Caption: THREE. Basic point-sampled texture mapping has been added to the
image. Texture mapping is said to have the greatest impact in adding realism to
a 3D image. A fixed pattern or texture is transferred to a polygon on the
surface of a 3D object. The texture is warped to simulate the perspective of a
3D object.
PHOTO:
Caption: FOUR. Bilinear filtering and MIP mapping added to the scene further
enhance the image quality -- a subtle improvement in a static image. These
techniques more accurately simulate smoothness of color changes and the behavior
of detail as the objects grow more distant.
PHOTO:
Caption: FIVE. The final enhancement comes from lighting effects added to the
characters and set. First pass texture maps on the set are made either lighter
or darker through shadow maps that simulate the effect of lights. The lighting
effect on character texture maps is produced with Gouraud color shading during
rendering.
<PAGE> 87
BACK OUTSIDE COVER
3Dfx Interactive, Inc. logo.
<PAGE> 88
LOGO
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Shares being registered. All of the amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee..................................................... $ 12,441
NASD Filing Fee.......................................................... 4,606
The Nasdaq Stock Market Listing Fee...................................... 40,000
Blue Sky Qualification Fees and Expenses................................. 15,000
Printing and Engraving Expenses.......................................... 150,000
Legal Fees and Expenses.................................................. 300,000
Accounting Fees and Expenses............................................. 150,000
Transfer Agent and Registrar Fees........................................ 5,000
Miscellaneous............................................................ 22,953
--------
Total.......................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the Registrant or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Registrant or
its shareholders, (v) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
Registrant or its shareholders, (vi) interested transactions between the
corporation and a director in which a director has a material financial
interest, and (vii) liability for improper distributions, loans or guarantees.
This provision does not eliminate the directors' duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering indemnification
to the maximum extent permitted by the California General Corporation Law of
corporate directors, officers and other agents against certain liabilities and
expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers employees or agents, including proceedings
under the Securities Act or the Securities Exchange Act of 1934, as amended. The
Company has entered into Indemnification Agreements with its directors and
executive officers.
II-1
<PAGE> 90
In addition to the foregoing, the Underwriting Agreement provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the several Underwriters, against certain
liabilities, including liabilities arising under the Securities Act.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since August 24, 1994, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities
(as adjusted to reflect the one-for-two reverse stock split effected in May
1995).
1. On January 12, 1995, the Registrant issued and sold 1,364,000 shares of
Common Stock to investors at a price of $.025 per share.
2. From March 3, 1995 to May 18, 1995, the Registrant issued and sold
282,250 shares of Common Stock to employees at $.07 to $.10 price per
share.
3. From May 1995 to March 31, 1997, the Registrant issued and sold 394,217
shares of Common Stock to employees and consultants at prices ranging
from $.02 to $.90 per share, upon exercise of stock options and stock
purchase rights, pursuant to the Registrant's 1995 Employee Stock Plan.
4. On March 13, 1995, the Registrant issued and sold 2,750,992 shares of
Series A Preferred Stock to a total of 43 accredited investors for an
aggregate purchase price of $5,501,979.
5. On March 31, 1995, the Registrant issued a warrant to purchase an
aggregate of 43,750 shares of Series A Preferred Stock to one investor
with an exercise price of $2.00 per share.
6. From November 2, 1995 to December 31, 1996, the Registrant issued
warrants to purchase an aggregate of 168,409 shares of Series B
Preferred Stock to a total of 3 investors with an exercise price of
$4.40 per share.
7. From February 14, 1996 to February 28, 1996, the Registrant issued and
sold 2,650,003 shares of Series B Preferred Stock to a total of 33
investors for an aggregate purchase price of $11,660,000.
8. From September 12, 1996 to January 17, 1997, the Registrant issued and
sold 1,620,864 shares of Series C Preferred Stock to a total of 39
investors for an aggregate purchase price of $12,156,443.
9. From June 1, 1996 to September 1996, the Registrant issued warrants to
purchase an aggregate of 35,000 shares of Series C Preferred Stock to 1
university and 2 consultants with an exercise price of $7.50 per share.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (3) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 701 promulgated thereunder in that
they were offered and sold either pursuant to written compensatory benefit plans
or pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (4) through (8) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) or Regulation D promulgated
thereunder. The purchasers in each case represented their intention to acquire
the securities for investment only and not with a view to the distribution
thereof. Appropriate legends are affixed to the stock certificates issued in
such transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
II-2
<PAGE> 91
information about the Registrant or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement (draft dated May 22, 1997).
3.1 Articles of Incorporation of the Registrant, as currently in effect.
3.2 Form of Restated Articles of Incorporation of the Registrant, to be filed prior to
the effective date of the offering made under this Registration Statement.
3.3* Form of Restated Articles of Incorporation of the Registrant, to be filed
immediately following the closing of the offering made under this Registration
Statement.
3.4* Bylaws of the Registrant.
4.1** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of its directors
and officers.
10.2 1995 Employee Stock Plan and form of Stock Option Agreement thereunder.
10.3 1997 Director Option Plan and form of Director Stock Option Agreement thereunder.
10.4 1997 Employee Stock Purchase Plan and forms of agreement thereunder.
10.5* Lease Agreement dated August 7, 1996 between Registrant and South Bay/Fortran, and
Tenant Estoppel Certificate dated March 25, 1997 between Registrant and
CarrAmerica Realty Corporation for San Jose, California office.
10.6* Investors' Rights Agreement dated September 12, 1996, Amendment No. 1 to
Investors' Rights Agreement dated November 25, 1996, Amendment No. 2 to Investors'
Rights Agreement dated December 18, 1996 and Amendment No. 3 to Investors' Rights
Agreement dated March 27, 1997 by and among the Registrant and holders of the
Registrant's Series A, Series B and Series C Preferred Stock.
10.7.1 Warrant to purchase shares of Series A Preferred Stock issued to Lighthouse
Capital Partners.
10.7.2 Warrant to purchase shares of Series B Preferred Stock issued to MMC/GATX
Partnership No. 1.
10.7.3 Warrant to purchase shares of Series B Preferred Stock issued to Silicon Valley
Bank.
10.7.4 Warrant to purchase shares of Series B Preferred Stock issued to Taiwan
Semiconductor Manufacturing Company, Ltd.
10.7.5 Warrant to purchase shares of Series B Preferred Stock issued to Taiwan
Semiconductor Manufacturing Company, Ltd.
10.7.6 Warrant to purchase shares of Series C Preferred Stock issued to Goodin &
Associates.
10.7.7 Warrant to purchase shares of Series C Preferred Stock issued to Simon Szeto, an
individual doing business as Symtek.
10.7.8 Warrant to purchase shares of Series C Preferred Stock issued to Leland Stanford
Junior University.
10.8* Form of Restricted Stock Purchase Agreement between the Registrant and certain
shareholders.
10.9+* Technology Development and License Agreement dated as of February 28, 1997 by and
between Registrant and Sega Enterprises, Ltd.
10.10* Master Equipment Lease Agreement dated January 1, 1996 by and between the
Registrant and MMC/GATX Partnership No. 1.
</TABLE>
II-3
<PAGE> 92
<TABLE>
<S> <C>
10.11* Master Equipment Lease dated March 31, 1995 by and between the Registrant and
Lighthouse Capital Partners, L.P.
10.12* Loan Commitment Agreement dated July 1, 1996 by and between the Registrant and
Silicon Valley Bank.
10.13.1* Change of Control Letter Agreement between the Registrant and L. Gregory Ballard.
10.13.2* Change of Control Letter Agreement between the Registrant and Karl Chicca.
10.13.3* Change of Control Letter Agreement between the Registrant and Scott D. Sellers.
10.13.4* Change of Control Letter Agreement between the Registrant and Gary Tarolli.
11.1 Calculation of pro forma net loss per share.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested for portions of these agreements.
(b) Financial Statement Schedules:
None.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the California General Corporation Law, the Articles of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, 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 of 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 of 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 Registrant hereby undertakes that:
(1) 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 Rule 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.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on the 22nd day of
May, 1997.
3DFX INTERACTIVE, INC.
By /s/ L. GREGORY BALLARD
------------------------------------
L. Gregory Ballard
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- ---------------
<C> <S> <C>
/s/ L. GREGORY BALLARD President and Chief Executive Officer May 22, 1997
- ---------------------------------------- (Principal Executive Officer)
L. Gregory Ballard
/s/ GARY P. MARTIN Vice President, Administration and May 22, 1997
- ---------------------------------------- Chief Financial Officer (Principal
Gary P. Martin Financial and Accounting Officer)
/s/ GORDON A. CAMPBELL* Chairman of the Board of Directors May 22, 1997
- ----------------------------------------
Gordon A. Campbell
/s/ ANTHONY SUN* Director May 22, 1997
- ----------------------------------------
Anthony Sun
/s/ PHILIP M. YOUNG* Director May 22, 1997
- ----------------------------------------
Philip M. Young
/s/ SCOTT D. SELLERS* Director May 22, 1997
- ----------------------------------------
Scott D. Sellers
/s/ JAMES WHIMS* Director May 22, 1997
- ----------------------------------------
James Whims
/s/ GEORGE J. STILL, JR.* Director May 22, 1997
- ----------------------------------------
George J. Still, Jr.
*By: /s/ GARY P. MARTIN
- ----------------------------------------
Gary P. Martin
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 94
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ---------
<S> <C> <C>
1.1 Form of Underwriting Agreement (draft dated May 22, 1997).
3.1 Articles of Incorporation of the Registrant, as currently in effect.
3.2 Form of Restated Articles of Incorporation of the Registrant, to be
filed prior to the effective date of the offering made under this
Registration Statement.
3.3* Form of Restated Articles of Incorporation of the Registrant, to be
filed immediately following the closing of the offering made under
this Registration Statement.
3.4* Bylaws of the Registrant.
4.1** Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1995 Employee Stock Plan and form of Stock Option Agreement
thereunder.
10.3 1997 Director Option Plan and form of Director Stock Option Agreement
thereunder.
10.4 1997 Employee Stock Purchase Plan and forms of agreement thereunder.
10.5* Lease Agreement dated August 7, 1996 between Registrant and South Bay/
Fortran, and Tenant Estoppel Certificate dated March 25, 1997 between
Registrant and CarrAmerica Realty Corporation for San Jose, California
office.
10.6* Investors' Rights Agreement dated September 12, 1996, Amendment No. 1
to Investors' Rights Agreement dated November 25, 1996, Amendment No.
2 to Investors' Rights Agreement dated December 18, 1996 and Amendment
No. 3 to Investors' Rights Agreement dated March 27, 1997 by and among
the Registrant and holders of the Registrant's Series A, Series B and
Series C Preferred Stock.
10.7.1 Warrant to purchase shares of Series A Preferred Stock issued to
Lighthouse Capital Partners.
10.7.2 Warrant to purchase shares of Series B Preferred Stock issued to
MMC/GATX Partnership No. 1.
10.7.3 Warrant to purchase shares of Series B Preferred Stock issued to
Silicon Valley Bank.
10.7.4 Warrant to purchase shares of Series B Preferred Stock issued to
Taiwan Semiconductor Manufacturing Company, Ltd.
10.7.5 Warrant to purchase shares of Series B Preferred Stock issued to
Taiwan Semiconductor Manufacturing Company, Ltd.
10.7.6 Warrant to purchase shares of Series C Preferred Stock issued to
Goodin & Associates.
10.7.7 Warrant to purchase shares of Series C Preferred Stock issued to Simon
Szeto, an individual doing business as Symtek.
10.7.8 Warrant to purchase shares of Series C Preferred Stock issued to
Leland Stanford Junior University.
10.8* Form of Restricted Stock Purchase Agreement between the Registrant and
certain shareholders.
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ---------
<S> <C> <C>
10.9+* Technology Development and License Agreement dated as of February 28,
1997 by and between Registrant and Sega Enterprises, Ltd.
10.10* Master Equipment Lease Agreement dated January 1, 1996 by and between
the Registrant and MMC/GATX Partnership No. 1.
10.11* Master Equipment Lease dated March 31, 1995 by and between the
Registrant and Lighthouse Capital Partners, L.P.
10.12* Loan Commitment Agreement dated July 1, 1996 by and between the
Registrant and Silicon Valley Bank.
10.13.1* Change of Control Letter Agreement between the Registrant and L.
Gregory Ballard.
10.13.2* Change of Control Letter Agreement between the Registrant and Karl
Chicca.
10.13.3* Change of Control Letter Agreement between the Registrant and Scott D.
Sellers.
10.13.4* Change of Control Letter Agreement between the Registrant and Gary
Tarolli.
11.1 Calculation of pro forma net loss per share.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested for portions of these agreements.
<PAGE> 1
DRAFT OF MAY 22, 1997
3,000,000 SHARES(1)
3DFX INTERACTIVE, INC.
Common Stock
UNDERWRITING AGREEMENT
, 1997
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
UBS SECURITIES LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
3Dfx Interactive, Inc., a California corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several
Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
3,000,000 shares of its authorized and unissued Common Stock, no par value,
(the "Firm Shares") to the several Underwriters. The Company also proposes
to grant to the Underwriters an option to purchase up to 450,000 additional
shares of the Company's Common Stock, no par value (the "Option Shares"), as
provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common
Stock, no par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby, including the Shares, are hereinafter referred
to as "Common Stock."
2. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No.
333-25365) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration statement,
such amended prospectuses subject to completion and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and Regulations as
may have been required prior to the date hereof have been
__________________________________
(1) Plus an option to purchase up to 450,000 additional shares from the
Company to cover over-allotments, if any.
<PAGE> 2
similarly prepared and filed with the Commission; and the Company will file
such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses"), including all documents incorporated by reference therein, and
of any abbreviated registration statement pursuant to Rule 462(b) of the Rules
and Regulations have been delivered to you.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if Robertson, Stephens &
Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and
promptly file an amendment to the registration statement, including a final
form of prospectus, or, if Robertson, Stephens & Company LLC, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement
shall mean such registration statement, including financial statements,
schedules and exhibits, in the form in which it became or becomes, as the case
may be, effective (including, if the Company omitted information from the
registration statement pursuant to Rule 430A(a) or files a term sheet pursuant
to Rule 434 of the Rules and Regulations, the information deemed to be a part
of the registration statement at the time it became effective pursuant to Rule
430A(b) or Rule 434(d) of the Rules and Regulations) and, in the event of any
amendment thereto or the filing of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations relating thereto after the
effective date of such registration statement, shall also mean (from and after
the effectiveness of such amendment or the filing of such abbreviated
registration statement) such registration statement as so amended, together
with any such abbreviated registration statement. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Shares as
included in such Registration Statement at the time it becomes effective
(including, if the Company omitted information from the Registration Statement
pursuant to Rule 430A(a) of the Rules and Regulations, the information deemed
to be a part of the Registration Statement at the time it became effective
pursuant to Rule 430A(b) of the Rules and Regulations); provided, however, that
if in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the term "Prospectus"
shall mean the "prospectus subject to completion" (as defined in Rule 434(g)
of the Rules and Regulations) last provided to the Underwriters by the Company
and circulated by the Underwriters to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement at
the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters for
such use. If in reliance on Rule 434 of the Rules and Regulations and with the
consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act,
-2-
<PAGE> 3
the Prospectus and the term sheet, together, will not be materially different
from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
and at the time the Registration Statement became or becomes, as the case may
be, effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to be
purchased, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations, (ii) the Registration Statement, and any
amendments or supplements thereto, did not and will not include 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, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California with full power and authority (corporate and other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company; no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification; the Company is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities which are
material to the conduct of its business, all of which are valid and in full
force and effect; the Company is not in violation of its charter or bylaws or
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture,
note or other evidence of indebtedness, or in any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which it or its
properties may be bound; and the Company is not in material violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties of which it has knowledge.
The Company does not own or control, directly or indirectly, any corporation,
association or other entity.
(d) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
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<PAGE> 4
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company is a party or by which it or its properties may be bound, (ii) the
charter or bylaws of the Company, or (iii) any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
over its properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its
properties is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except
such as may be required under the Act or under state or other securities or
Blue Sky laws, all of which requirements have been satisfied in all material
respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or
properties or otherwise which (i) might result in any material adverse change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company or might materially and adversely affect its
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the
Act or the Rules and Regulations which have not been accurately described in
all material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Firm Shares
and the Option Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest; and
no preemptive right, co-sale right, registration right, right of first refusal
or other similar right of shareholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any shareholder, the
Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act or under
state or other securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included in the Prospectus, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the
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<PAGE> 5
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(g) Price Waterhouse LLP, which has examined the
financial statements of the Company, together with the related notes, as of
December 31, 1995 and 1996 and March 31, 1997, and for each of the years in the
two (2) years ended December 31, 1996 and for the three (3) months ended March
31, 1997 filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus, are independent accountants within the
meaning of the Act and the Rules and Regulations; the audited financial
statements of the Company, together with the related notes, and the unaudited
financial information, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company at the respective dates and for the respective periods to which
they apply; and all audited financial statements of the Company, together with
the related notes, and the unaudited financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements are required to be included
in the Registration Statement. No financial statement schedules are required
to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company, (ii) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company, incurred by
the Company, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
that is material to the Company, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (vi) any loss or
damage (whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company is
a party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements, and (iii) the Company has valid
and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration
Statement and Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be conducted.
(j) The Company has timely filed all necessary federal,
state and foreign income and franchise tax returns and has paid all taxes shown
thereon as due, and there is no tax deficiency that has
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<PAGE> 6
been or, to the best of the Company's knowledge, might be asserted against the
Company that might have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company; and all tax liabilities are adequately provided for on the books of
the Company.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has not been refused any insurance coverage sought or
applied for; and the Company does have not 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 materially and adversely
affect the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized dealers
or international distributors that might be expected to result in a material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use
all patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement and Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company; the Company has not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights
of the Company by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights;
and the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(n) The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules
and regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and
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<PAGE> 7
sale of the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(q) The Company has not at any time during the last five
(5) years (i) made any unlawful contribution to any candidate for foreign
office or failed to disclose fully any contribution in violation of law, or
(ii) made any payment to any federal or state governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each
beneficial owner of one percent (1%) or more shares of Common Stock has agreed
in writing that such person will not, until the later of (i) 180 days after the
date that the Registration Statement is declared effective by the Commission or
(ii) the open of the market on the third trading day following the date of
public disclosure of the Company's financial results for the fiscal year ending
December 31, 1997 (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition, otherwise
than (x) as a bona fide gift or gifts, provided the donee or donees thereof
agree in writing to be bound by this restriction, (y) as a distribution to
limited partners or shareholders of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, or (z)
with the prior written consent of Robertson, Stephens & Company LLC The
foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
would include, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will also agree and consent to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided
to counsel for the Underwriters true, accurate and complete copies of all of
the agreements pursuant to which its officers, directors and shareholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that
it will not release any of its officers, directors or other shareholders from
any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied
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<PAGE> 8
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site
under applicable state or local law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances 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 accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
receipt of a wire transfer reference number issued by the Federal Reserve
System evidencing payment of the purchase price therefor by the several
Underwriters by wire transfer of immediately available funds, to an account
specified in writing by the Company with regard to the Shares being purchased
from the Company, at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, California 94304 (or at such other place as may be agreed
upon among the Representatives and the Company), at 7:00 A.M., San Francisco
time (a) on the third (3rd) full business day following the first day that
Shares are traded, (b) if this Agreement is executed and delivered after 1:30
P.M., San Francisco time, the fourth (4th) full business day following the day
that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery
being herein called the "Closing Date;" provided, however, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the Closing Date and will
be in such names and denominations as you may request, such request to be made
at least two (2) full business days prior to the Closing Date. If the
Representatives so elect, delivery of the Firm Shares may be made
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<PAGE> 9
by credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose wire transfer funds shall not have been received by you
prior to the Closing Date for the Firm Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), under the
paragraph on page 2, concerning stabilization and over-allotment by the
Underwriters, and under the last paragraph under the caption "Underwriting"
in any Preliminary Prospectus and in the final form of Prospectus filed
pursuant to Rule 424(b) constitutes the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company that the statements made
therein do not include 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, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; the Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the requirements
of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason
the filing of the final form of Prospectus is required under Rule 424(b)(3) of
the Rules and Regulations, it will provide evidence satisfactory to you that
the Prospectus contains such information and has been filed with the Commission
within the time period prescribed; it will notify you promptly of any request
by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; promptly upon your
request, it will prepare and file with the Commission any amendments or
supplements
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<PAGE> 10
to the Registration Statement or Prospectus which, in the opinion of counsel
for the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or
more after the effective date of the Registration Statement in connection with
the sale of the Shares, it will prepare promptly upon request, but at the
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior
to the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements
to such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to
time reasonably request. Notwithstanding the foregoing, if Robertson, Stephens
& Company LLC, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
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<PAGE> 11
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity, and of cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to shareholders, (iv) as soon
as they are available, copies of all reports and financial statements furnished
to or filed with the Commission, any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD"), (v) every material press
release and every material news item or article in respect of the Company or
its affairs which was generally released to shareholders or prepared by the
Company or any of its subsidiaries, and (vi) any additional information of a
public nature concerning the Company or its subsidiaries, or its business which
you may reasonably request. During such five (5) year period, if the Company
shall have active subsidiaries, the foregoing financial statements shall be on
a consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 11(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 11(b)(i),
the Company will reimburse the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred
by the Underwriters in investigating or preparing to market or marketing the
Shares.
(k) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not,
without the prior written consent of Robertson Stephens & Company LLC, effect
the Disposition of, directly or indirectly, any Securities other than the sale
of the Firm Shares and the Option Shares to be sold by the Company
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<PAGE> 12
hereunder and the Company's issuance of options or Common Stock under the
Company's presently authorized 1995 Employee Stock Plan, the 1997 Employee
Stock Purchase Plan and the Director Option Plan, all as described in the
Registration Statement collectively (the "Option Plans").
(m) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Option Plans.
5. Expenses.
(a) The Company agree with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey
and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power
of Attorney, and any instruments related to any of the foregoing; the issuance
and delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any, the cost of all certificates representing the Shares
and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees and the cost of
qualifying the Shares under the laws of such jurisdictions as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); and all other
expenses directly incurred by the Company in connection with the performance of
their obligations hereunder.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(b) In addition to their other obligations under Section
8(b) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof, they will
reimburse the Company on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
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<PAGE> 13
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses which is created by
the provisions of Sections 8(a) and 8(b) hereof or the obligation to contribute
to expenses which is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company herein, to the
performance by the Company of their respective obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, there shall not have been any change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus.
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, the
following opinion of counsel for the Company, dated the Closing Date or such
later date on which Option Shares are purchased addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
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<PAGE> 14
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of California;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company. To such counsel's knowledge, the
Company does not own or control, directly or indirectly, any
corporation, association or other entity;
(iv) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the
issued and outstanding shares of capital stock of the Company
have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or
other similar right;
(v) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of
this Agreement have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms
hereof, will be duly and validly issued and fully paid and
nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right of
shareholders;
(vi) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by
it hereunder;
(vii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be
limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally
or by general equitable principles;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(ix) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the
financial statements (including supporting schedules) and
financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
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<PAGE> 15
(x) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is a fair summary of such matters
and conclusions; and the forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement
comply with the law of the State of California;
(xi) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and
of statutes are accurate and fairly present the information
required to be presented by the Act and the applicable Rules and
Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company
is a party of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(xiii) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations
hereunder, concerning which no opinion need be expressed) will
not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material
breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument known to such counsel to which
the Company is a party or by which its properties are bound, or
any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having
jurisdiction over the Company or over any of their properties or
operations;
(xiv) No consent, approval, authorization or order
of or qualification with any court, government or governmental
agency or body having jurisdiction over the Company, or over any
of its properties or operations is necessary in connection with
the consummation by the Company of the transactions herein
contemplated, except such as have been obtained under the Act or
such as may be required under state or other securities or Blue
Sky laws in connection with the purchase and the distribution of
the Shares by the Underwriters;
(xv) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against
the Company of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules
and Regulations, other than those described therein;
(xvi) To such counsel's knowledge, the Company is
not presently (a) in material violation of its charter or bylaws,
or (b) in material breach of any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge,
any order, writ or decree of any court or governmental agency or
body having jurisdiction over the Company or over any of its
properties or operations; and
(xvii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as
set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights known to such
counsel to registration of such shares of Common Stock or other
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<PAGE> 16
securities, because of the filing of the Registration Statement
by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent
to file the Registration Statement or have included securities in
the Registration Statement pursuant to the exercise of and in
full satisfaction of such rights.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom, as
to which such counsel need express no comment) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement, the Prospectus and any
amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
California upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in any
such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Brobeck, Phleger & Harrison LLP, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
a letter from Price Waterhouse LLP addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than five (5) business days prior to the Closing
Date or such later date on which Option Shares are to be purchased, as the case
may be, (i) confirming, to the extent true, that the statements and conclusions
set forth in the Original Letter are accurate as of the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect any
changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial
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<PAGE> 17
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus, which, in your sole judgment, is material and adverse
and that makes it, in your sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. The Original Letter from shall be addressed to or for the use of
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act
and the applicable published Rules and Regulations, (ii) set forth their
opinion with respect to their examination of the balance sheet of the Company
as of December 31, 1995 and 1996 and March 31, 1997, and related statements of
operations, shareholders' equity, and cash flows for the years ended December
31, 1995 and 1996 and the three (3) months ended March 31, 1997 and (iii)
address other matters agreed upon by Price Waterhouse LLP and you. In
addition, you shall have received from Price Waterhouse LLP a letter addressed
to the Company and made available to you for the use of the Underwriters
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as of December 31, 1995
and 1996 and March 31, 1997 did not disclose any weaknesses in internal
controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
a certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and
as of the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery
of such certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained
all material information required to be included therein by the
Act and the Rules and Regulations and in all material respects
conformed to the requirements of the Act and the Rules and
Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include 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, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in
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<PAGE> 18
the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, (b) any
transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the
Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company that is material
to the Company, (e) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or
(f) any loss or damage (whether or not insured) to the property
of the Company or any of its which has been sustained or will
have been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(h) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, and each beneficial
owner of one percent (1%) or more shares of Common Stock in writing prior to
the date hereof that such person will not, during the Lock-up Period, effect
the Disposition of any Securities now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to limited partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the
terms of this restriction, or (iii) with the prior written consent of
Robertson, Stephens & Company LLC The foregoing restriction is expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of the Securities held by
such person except in compliance with this restriction.
(i) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will
be in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with such
number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
450,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each
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<PAGE> 19
Underwriter upon the exercise of such option shall be the same proportion of
the total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such option as the number of Firm Shares purchased
by such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representatives in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares
to be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against receipt of a wire
transfer reference number issued by the Federal Reserve System evidencing
payment of the purchase price therefor by the several Underwriters by wire
transfer of immediately available funds, to an account specified in writing by
the Company with regard to the Shares being purchased from the Company. In the
event of any breach of the foregoing, the Company shall reimburse the
Underwriters for the interest lost and any other expenses borne by them by
reason of such breach. Such delivery and payment shall take place at the
offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304, or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered
will be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose wire transfer funds shall not have been received by you
prior to the date of payment and delivery for the Option Shares to be purchased
by such Underwriter or Underwriters. Any such payment by you shall not relieve
any such Underwriter or Underwriters of any of its or their obligations
hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such
Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company herein, to
the accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the
Company or the compliance with any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject
-19-
<PAGE> 20
under the Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of the
Company herein contained, (ii) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or any amendment
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the
time required by the Act and the Rules and Regulations, unless such failure is
the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, to which the Company may become subject under
the Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof, and agrees to reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
-20-
<PAGE> 21
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
or 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that the Underwriters severally and not jointly are responsible
pro rata for the portion represented by the percentage that the underwriting
discount bears to the initial public offering price, and the Company are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter in
excess of the amount of damages which such
-21-
<PAGE> 22
Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The contribution agreement in this Section 8(d)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls the Underwriters or the Company
within the meaning of the Act or the Exchange Act and each officer of the
Company who signed the Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
within the meaning of the Act or the Exchange Act, or by or on behalf of the
Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed
to purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees promptly to file any amendments to the Registration Statement or
-22-
<PAGE> 23
supplements to the Prospectus which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of
their underwriting obligation. If the remaining Underwriters shall not take up
and pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters
as aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than
for some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company, and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may
prevent this Agreement from becoming effective without liability of any party
to any other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse, or (ii) if additional
material governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on
either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes
it inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (v) if there shall have been an outbreak or escalation of
-23-
<PAGE> 24
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency which, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8
hereof. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability of any party to any other party except as
provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel with a copy to Brobeck,
Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto,
California 94303, Attention: Thomas A. Bevilacqua, Esq.; if sent to the
Company, such notice shall be mailed, delivered, telegraphed (and confirmed by
letter) or telecopied (and confirmed by letter) to the Company c/o 3Dfx
Interactive, Inc., 4435 Fortan Drive, San Jose, California 95134, telecopier
number (408) 262-8874, Attention: L. Gregory Ballard, Chief Executive Officer
with a copy to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304, Attention: Robert P. Latta, Esq.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or corporation, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective
executors, administrators, successors and assigns and said controlling persons
and said officers and directors, and for the benefit of no other person or
corporation. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall
act on behalf of each of the several Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement made
or given by you jointly or by Robertson, Stephens & Company LLC on behalf of
you.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
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<PAGE> 25
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
3DFX INTERACTIVE, INC.
By _____________________________________
L. Gregory Ballard
President and Chief Executive Officer
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
MONTGOMERY SECURITIES
UBS SECURITIES LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY INC.
By ________________________________________________
Authorized Signatory
-25-
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
------------ ------------
<S> <C>
Robertson, Stephens & Company LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UBS Securities LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
==========
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION OF
3Dfx INTERACTIVE, INC.
The undersigned, Gary P. Martin and John B. Montgomery, hereby certify
that:
1. They are the Vice President and Assistant Secretary,
respectively, of 3Dfx Interactive, Inc., a California
corporation.
2. So much of Article III of the Restated Articles of
Incorporation of this corporation which currently reads as
follows:
"The total number of shares of all classes of stock which the
Corporation is authorized to issue is 39,666,666, consisting of
25,033,333 shares of Common Stock, no par value, and 14,633,333 shares
of Preferred Stock, no par value. The Preferred Stock consists of
three series, of which 5,600,000 shares have been designated as Series
A Preferred Stock (the "Series A Preferred Stock"), 5,700,000 shares
have been designated as Series B Preferred Stock (the "Series B
Preferred Stock") and of which 3,333,333 have been designated as
Series C Preferred Stock (the "Series C Preferred Stock")."
is hereby amended to read in its entirety as follows:
"The total number of shares of all classes of stock which the
Corporation is authorized to issue is 64,633,333, consisting of
50,000,000 shares of Common Stock, no par value, and 14,633,333 shares
of Preferred Stock, no par value. The Preferred Stock consists of
three series, of which 5,600,000 shares have been designated as Series
A Preferred Stock (the "Series A Preferred Stock"), 5,700,000 shares
have been designated as Series B Preferred Stock (the "Series B
Preferred Stock") and of which 3,333,333 have been designated as
Series C Preferred Stock (the "Series C Preferred Stock")."
3. Section 4(c)(i)(6)(B) of Article III of the Restated Articles
of Incorporation of this corporation shall be amended to read in its entirety as
follows:
"(B) to officers, directors or employees of, or consultants
to, the Corporation pursuant to a stock grant, stock option plan,
stock purchase plan or other stock incentive agreement (collectively,
the "Plans"), (collectively, the "Reserved Shares") up to an aggregate
of 5,650,000 shares;"
4. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the Board of Directors.
5. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the
<PAGE> 2
California Corporations Code. The authorized number of shares of Common Stock
is 25,033,333, of which 3,921,679 shares are issued and outstanding. The
authorized number of shares of Preferred Stock is 14,633,333, 5,600,000 shares
have been designated as Series A Preferred Stock, 5,501,979 of which are issued
and outstanding, 5,700,000 shares have been designated as Series B Preferred
Stock, 5,300,000 of which are issued and outstanding, and 3,333,333 have been
designated as Series C Preferred Stock, 3,241,718 of which are issued and
outstanding. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50% of
the Common Stock and more than 50% of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, each voting as a separate class.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in the foregoing Certificate are
true and correct or our own knowledge.
Date: April 30, 1997
/s/ GARY P. MARTIN
________________________________________
Gary P. Martin, Vice President
/s/ JOHN B. MONTGOMERY
________________________________________
John B. Montgomery, Assistant Secretary
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION OF
3Dfx INTERACTIVE, INC.
The undersigned, L. Gregory Ballard and Gary P. Martin, hereby certify
that:
1. They are the President and Secretary, respectively, of 3Dfx
Interactive, Inc., a California corporation.
2. So much of Article III of the Restated Articles of Incorporation of
this corporation which currently reads as follows:
"The total number of shares of all classes of stock which the
Corporation is authorized to issue is 64,633,333, consisting of
50,000,000 shares of Common Stock, no par value, and 14,633,333 shares
of Preferred Stock, no par value. The Preferred Stock consists of three
series, of which 5,600,000 shares have been designated as Series A
Preferred Stock (the "Series A Preferred Stock"), 5,700,000 shares have
been designated as Series B Preferred Stock (the "Series B Preferred
Stock") and of which 3,333,333 have been designated as Series C
Preferred Stock (the "Series C Preferred Stock")."
is hereby amended to read in its entirety as follows:
"The total number of shares of all classes of stock which the
Corporation is authorized to issue is 57,269,018, consisting of
50,000,000 shares of Common Stock, no par value, and 7,269,018 shares of
Preferred Stock, no par value. The Preferred Stock consists of three
series, of which 2,794,742 shares have been designated as Series A
Preferred Stock (the "Series A Preferred Stock"), 2,818,412 shares have
been designated as Series B Preferred Stock (the "Series B Preferred
Stock") and of which 1,655,864 have been designated as Series C
Preferred Stock (the "Series C Preferred Stock").
Upon the filing of this Certificate of Amendment, each
outstanding share of Common Stock shall be combined into .5 of a share
of Common Stock and each outstanding share of Preferred Stock of this
corporation shall be combined into .5 of a share of Preferred Stock. No
fractional shares will be issued upon such reverse stock split; any
fractional shares will be rounded to the nearest whole share."
3. Section 1.1 of Article III of the Restated Articles of Incorporation
of the corporation shall be amended to read in its entirety as follows:
1.1 Dividend Rights. The holders of the Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out
of funds legally available therefor, dividends at an annual rate of $.20
per share of Series A Preferred Stock (the "Series A Dividend Rate"),
$.44 per share of Series B Preferred Stock (the "Series B Dividend
Rate") and
<PAGE> 2
$.75 per share of Series C Preferred Stock (the "Series C Dividend
Rate") payable in preference and priority to any payment of any dividend
on Common Stock of the Corporation. Such dividends shall not be
cumulative and no right to such dividends shall accrue to holders of
Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock unless declared by the Board of Directors.
Without limiting the foregoing, no distribution shall be made in
respect of the Common Stock unless the holders of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall
receive a proportionate share of any such distribution as though the
holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock were the holders of the number of shares of
Common Stock of the Corporation into which such shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are then convertible.
4. Section 2(a) of Article III of the Restated Articles of Incorporation
of the corporation shall be amended to read in its entirety as follows:
"(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, distributions to
the shareholders of the Corporation shall be made in the following
manner:
(i) Each series of Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of the Common Stock by reason
of their ownership thereof, an amount per share as may be fixed for such
series (the "Preferential Amount"). The Preferential Amount shall be
$2.00 for each share of Series A Preferred Stock, $4.40 for each share
of Series B Preferred Stock and $7.50 for each share of Series C
Preferred Stock, adjusted for any stock split, combination,
consolidation, or stock distributions or stock dividends with respect to
such shares, plus an amount equal to all declared but unpaid dividends
on the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock as provided in Section 1 above. If the assets and funds
thus distributed among the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
Preferential Amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the
holders of the Series A Preferred Stock, Seried B Preferred Stock and
Series C Preferred Stock in proportion to the respective Preferential
Amounts which each such holder is entitled to receive pursuant to this
Section 2(a)(i).
(ii) After payment has been made to the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock of the full amounts to which they shall be entitled as
set forth in Section 2(a)(i) above, then the holders of the Common Stock
shall be entitled to receive an amount per share equal to (as such
amount shall be adjusted to reflect subdivisions and combinations of
shares and stock dividends), $.20 with respect to each outstanding share
of Common Stock, plus an amount equal to all declared and unpaid
dividends
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<PAGE> 3
with respect to such share. If the assets and funds legally available
for distribution among the holders of Common Stock shall be insufficient
to permit the payment to such holders of the full preferential amount,
then such assets and funds shall be distributed ratably among the
holders of Common Stock in proportion to the total preferential amount
which each such holder is entitled to receive pursuant to this Section
2(a)(ii).
(iii) Any assets remaining after the distributions pursuant to
Sections 2(a)(i) and (ii) shall be distributed on a pro rata basis to
the holders of Common Stock and Preferred Stock based on the number of
shares (assuming conversion of each holder's shares of Preferred Stock
into the number of shares of Common Stock into which such holder's
Preferred Stock is then convertible, as adjusted from time to time
pursuant to Section 4 hereof) then held by each holder of Common Stock
and Preferred Stock."
5. So much of Section 3(b) of Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"(b) Board of Directors. The authorized number of directors shall
be set forth in the Bylaws of the Corporation and may be increased or
decreased by an amendment to such Bylaws in accordance with their
provisions. As long as there are at least 2,000,000 shares of Preferred
Stock issued and outstanding, of the authorized number of members of the
Corporation's Board of Directors:"
is hereby amended to read in its entirety as follows:
"(b) Board of Directors. The authorized number of directors shall
be set forth in the Bylaws of the Corporation and may be increased or
decreased by an amendment to such Bylaws in accordance with their
provisions. As long as there are at least 1,000,000 shares of Preferred
Stock issued and outstanding, of the authorized number of members of the
Corporation's Board of Directors:"
6. Section 4(a) of Article III of the Restated Articles of Incorporation
of the cororation shall be amended to read in its entirety as follows:
"(a) Right to Convert.
(i) Optional Conversion. Each share of Preferred Stock shall be
convertible at the option of the holder thereof at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined in the case of the
Series A Preferred Stock, by dividing $2.00 by the Series A Conversion
Price at the time in effect, as is determined in the case of the Series
B Preferred Stock, by dividing $4.40 by the Series B Conversion Price at
the time in effect and as is determined in the case of the Series C
Preferred Stock, by dividing $7.50 by the Series C Conversion Price at
the time in effect. As of the effective date of these
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<PAGE> 4
Restated Articles of Incorporation, the Series A Conversion Price shall
be $2.00, the Series B Conversion Price shall be $4.40 and the Series C
Conversion Price shall be $7.50. Such initial Series A Conversion Price,
Series B Conversion Price and Series C Conversion Price shall be subject
to adjustment as set forth below.
(ii) Series A Preferred Stock. Each share of Series A
Preferred Stock shall automatically be converted into shares of Common
Stock at the Series A Conversion Price then in effect upon the earlier
of the affirmative vote of holders of 66 2/3 percent of the Series A
Preferred, the date on which fewer than 25,000 shares of Series A
Preferred Stock (appropriately adjusted for any stock splits,
combinations, consolidations, or stock distributions or dividends with
respect to such shares) remain outstanding or the closing of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock for the account of the Corporation to the
public with an aggregate offering price to the public of not less than
$15,000,000.
(iii) Series B Preferred Stock. Each share of Series B
Preferred Stock shall automatically be converted into shares of Common
Stock at the Series B Conversion Price then in effect upon the earlier
of the affirmative vote of holders of 66 2/3 percent of the Series B
Preferred the date on which fewer than 25,000 shares of Series B
Preferred Stock (appropriately adjusted for any stock splits,
combinations, consolidations, or stock distributions or dividends with
respect to such shares) remain outstanding or the closing of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock for the account of the Corporation to the
public with an aggregate offering price to the public of not less than
$15,000,000.
(iv) Series C Preferred Stock. Each share of Series C
Preferred Stock shall automatically be converted into shares of Common
Stock at the Series C Conversion Price then in effect upon the earlier
of the affirmative vote of holders of 66 2/3 percent of the Series C
Preferred the date on which fewer than 25,000 shares of Series C
Preferred Stock (appropriately adjusted for any stock splits,
combinations, consolidations, or stock distributions or dividends with
respect to such shares) remain outstanding or the closing of an
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock for the account of the Corporation to the
public with an aggregate offering price to the public of not less than
$15,000,000.
(v) In the event of the automatic conversion of the Series
A, Series B or Series C Preferred Stock as set forth in Sections 4
(a)(ii)(3), 4(a)(iii)(3) and 4(a)(iv)(3) above, the per son(s) entitled
to receive the Common Stock issuable upon such conversion shall not be
deemed to have converted such shares until immediately prior to the
closing of such sale of securities causing the conversion, at which time
the Preferred Stock shall be converted automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares
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<PAGE> 5
of Common Stock issuable upon such conversion unless certificates
evidencing such shares of the Preferred Stock being converted are either
delivered to the Corporation or its transfer agent, as hereinafter
provided, or the holder notifies the Corporation or its transfer agent,
as hereinafter provided, that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in connection
therewith. Upon the automatic conversion of the Preferred Stock, the
holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or of any
transfer agent for the Preferred Stock. Thereupon, there shall be issued
and delivered to such holder, promptly at such office and in his name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the
shares of the Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred.
(vi) Upon conversion of the Preferred Stock, the Common
Stock so issued shall be duly and validly issued, fully paid and
nonassessable shares of the Corporation."
7. Section 4(c)(i)(6)(B) of Article III of the Restated Articles of
Incorporation of this corporation shall be amended to read in its entirety as
follows:
"(B) to officers, directors or employees of, or consultants to,
the Corporation pursuant to a stock grant, stock option plan, stock
purchase plan or other stock incentive agreement (collectively, the
"Plans"), (collectively, the "Reserved Shares") up to an aggregate of
2,825,000 shares;"
8. So much of Section 6(a) of Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"(a) Series A Preferred Stock. In addition to any other rights
provided by law and without limiting Section 6(d) below, so long as at
least 50,000 shares of Series A Preferred Stock (as such number may be
adjusted for stock splits, combinations, consolidations and stock
distributions or dividends) shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series A
Preferred Stock voting as a separate class (based on the number of
shares of Common Stock into which each holder's Series A Preferred Stock
is then convertible, as adjusted from time to time pursuant to Section 4
hereof):"
shall be amended to read in its entirety as follows:
"(a) Series A Preferred Stock. In addition to any other rights
provided by law and without limiting Section 6(d) below, so long as at
least 25,000 shares of Series A Preferred Stock (as such number may be
adjusted for stock splits, combinations, consolidations and stock
distributions or dividends) shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the outstanding shares of
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<PAGE> 6
Series A Preferred Stock voting as a separate class (based on the number
of shares of Common Stock into which each holder's Series A Preferred
Stock is then convertible, as adjusted from time to time pursuant to
Section 4 hereof):"
9. So much of Section 6(b) of Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"(b) Series B Preferred Stock. In addition to any other rights
provided by law and without limiting Section 6(d) below, so long as at
least 50,000 shares of Series B Preferred Stock (as such number may be
adjusted for stock splits, combinations, consolidations and stock
distributions or dividends) shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series B
Preferred Stock voting as a separate class (based on the number of
shares of Common Stock into which each holder's Series B Preferred Stock
is then convertible, as adjusted from time to time pursuant to Section 4
hereof):"
shall be amended to read in its entirety as follows:
"(b) Series B Preferred Stock. In addition to any other rights
provided by law and without limiting Section 6(d) below, so long as at
least 25,000 shares of Series B Preferred Stock (as such number may be
adjusted for stock splits, combinations, consolidations and stock
distributions or dividends) shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series B
Preferred Stock voting as a separate class (based on the number of
shares of Common Stock into which each holder's Series B Preferred Stock
is then convertible, as adjusted from time to time pursuant to Section 4
hereof):"
10. So much of Section 6(c) of Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"(c) Series C Preferred Stock. In addition to any other rights
provided by law and without limiting Section 6(d) below, so long as at
least 50,000 shares of Series C Preferred Stock (as such number may be
adjusted for stock splits, combinations, consolidations and stock
distributions or dividends) shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the outstanding shares of Series C
Preferred Stock voting as a separate class (based on the number of
shares of Common Stock into which each holder's Series C Preferred Stock
is then convertible, as adjusted from time to time pursuant to Section 4
hereof):"
shall be amended to read in its entirety as follows:
"(c) Series C Preferred Stock. In addition to any other rights
provided by law and without limiting Section 6(d) below, so long as at
least 25,000 shares of Series C Preferred Stock
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<PAGE> 7
(as such number may be adjusted for stock splits, combinations,
consolidations and stock distributions or dividends) shall be
outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of Series C Preferred Stock voting as a separate
class (based on the number of shares of Common Stock into which each
holder's Series C Preferred Stock is then convertible, as adjusted from
time to time pursuant to Section 4 hereof):"
11. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the Board of Directors.
12. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the California Corporations Code. The
authorized number of shares of Common Stock is 50,000,000, of which 3,995,269
shares are issued and outstanding. The authorized number of shares of Preferred
Stock is 14,633,333, 5,600,000 shares have been designated as Series A Preferred
Stock, 5,501,979 of which are issued and outstanding, 5,700,000 shares have been
designated as Series B Preferred Stock, 5,300,000 of which are issued and
outstanding, and 3,333,333 have been designated as Series C Preferred Stock,
3,241,718 of which are issued and outstanding. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the Common Stock and more than 50% of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
each voting as a separate class.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in the foregoing Certificate are true
and correct or our own knowledge.
Date: May 20, 1997
-----------------------------------------
L. Gregory Ballard, President
-----------------------------------------
Gary P. Martin, Secretary
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<PAGE> 1
Exhibit 5.1
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
[LETTERHEAD]
May 22, 1997
3Dfx Interactive, Inc.
4435 Fortran Drive
San Jose, CA 95134
RE: REGISTRATION STATEMENT ON FORM S-1
FILE NO. 333-25365
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and Exchange Commission on April 17, 1997 (Registration No.
333-25365) (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of the shares of Common Stock
registered pursuant to the Registration Statement (the "Shares"). The Shares are
to be sold 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 said sale and issuance of the Shares.
It is our opinion that the Shares, when issued and 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 Prospectuses constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 10.2
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means 3Dfx Interactive, Inc., a California
corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave, military leave or any other leave of absence
approved by the Board, provided that such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by
<PAGE> 2
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time; or (ii) in the case of transfers between locations of
the Company or between the Company, its Subsidiaries or its successor.
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported, as quoted on such system or exchange for the last market trading
day prior to the time of determination) as reported in the Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high and low asked prices for the
Common Stock; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board.
(l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
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<PAGE> 3
(o) "Optioned Stock" means the Common Stock subject to an Option.
(p) "Optionee" means an Employee or Consultant who receives an
Option.
(q) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this Employee Stock Plan, as amended from time to
time.
(s) "Purchaser" means an Employee or Consultant who exercises a
Stock Purchase Right.
(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(u) "Stock Purchase Right" means the right to purchase Restricted
Stock granted pursuant to Section 11 of the Plan.
(v) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
13 of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 3,500,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and Officers. With
respect to grants of Options or Stock Purchase Rights to Employees who are
also officers or directors of the Company, the Plan shall be administered
by (A) the Board if the Board may administer the Plan in compliance with
Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") with respect to a plan intended to qualify thereunder as a
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<PAGE> 4
discretionary plan, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted in such a manner
as to permit the Plan to comply with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan. Once appointed,
such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are neither directors nor officers of the
Company, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of state corporate
and securities laws and of the Code (the "Applicable Laws"). Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies, however caused, and
remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(j) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted
hereunder;
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<PAGE> 5
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered
by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to the share price and any restriction or limitation, based in
each case on such factors as the Administrator shall determine, in its
sole discretion);
(vii) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
(viii) to make any other such determinations with respect to awards
under the Plan as it shall deem appropriate.
(c) Effect of Committee's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and Purchasers and any other holders of any Options or Rights.
5. Eligibility for Options.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
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<PAGE> 6
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated
in the Option Agreement; provided, however, that in the case of an Incentive
Stock Option, the term shall be no more than ten (10) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price shall be
no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
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<PAGE> 7
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall be no
less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash, (ii)
check, (iii) other Shares which (x) in the case of Shares acquired upon exercise
of an Option either have been owned by the Optionee for more than six months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised, (iv) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total number of Shares as to which the Option is exercised, (v) delivery of a
properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (vi) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (vii) any combination of the
foregoing methods of payment, (viii) or such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept, the
Board shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company under the California General Corporation Law.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
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<PAGE> 8
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within the period
stated in the Option Agreement (which, in the case of an Incentive Stock Option,
shall be no more than ninety (90) days after the date of such termination and in
the case of any Option, shall be no later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise the Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of such termination, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's Consulting
relationship or Continuous Status as an Employee as a result of his or her total
and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee
may, but only within twelve (12) months from the date of such termination (but
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination. Notwithstanding the
provisions of Section 9(b) above and the preceding sentence, in the event of
termination of an Optionee's Consulting relationship or Continuous Status as an
Employee as a result of his disability, Optionee may, but only within six months
(6) months from the date of
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<PAGE> 9
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise so entitled at the date of such termination; provided, however,
that if any Incentive Stock Option is exercised after 90 days of such
termination, such option will be treated as a Nonstatutory Stock Option. To the
extent that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
10. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase Restricted Stock. Stock Purchase Rights may
be issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid (if any), and the
time within which such person must accept such offer, which shall in no event
exceed one-hundred twenty (120) days from the date of grant of the Stock
Purchase Right. The offer shall be accepted by execution of a Restricted Stock
agreement in the form determined by the Administrator. Shares purchased pursuant
to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
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<PAGE> 10
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
Purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock agreement shall be the original price paid by the Purchaser
and may be paid by cancellation of any indebtedness of the purchaser to the
Company. The repurchase option with respect to the Restricted Stock shall
lapse at such rate as the Committee may determine, but in no event as to less
than 20% of the total shares granted annually and must be exercised within 90
days of termination of employment.
(c) Other Provisions. The Restricted Stock agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion. In addition, the
provisions of Restricted Stock agreements need not be the same with respect to
each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the Purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees or Purchasers may satisfy withholding
obligations as provided in this paragraph. When an Optionee or Purchaser incurs
tax liability in connection with an Option or Stock Purchase Right, which tax
liability is subject to tax withholding under applicable tax laws, and the
Optionee or Purchaser is obligated to pay the Company an amount required to be
withheld under applicable tax laws, the Optionee or Purchaser may satisfy the
withholding tax obligation by electing to have the Company withhold from the
Shares to be issued upon exercise of the Option, or the Shares to be issued in
connection with the Stock Purchase Right, if any, that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee or Purchaser to have Shares withheld
for this purpose shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
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<PAGE> 11
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee or Purchaser and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee or
Purchaser shall receive the full number of Shares with respect to which the
Option or Stock Purchase Right is exercised but such Optionee or Purchaser shall
be unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option or Stock Purchase Right, and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, as well as the price per share of Common
Stock covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, or of a merger in which the successor corporation does not agree to
assume the
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<PAGE> 12
Option or Stock Purchase Right or substitute an equivalent Option or Stock
Purchase Right, the Board shall terminate the Plan and, at its discretion,
permit Optionees to exercise their Options to the extent already vested or make
a determination to accelerate vesting of any outstanding Options or Stock
Purchase Rights. The Board shall notify Optionees and Purchasers at least
fifteen (15) days prior to such proposed action and give such Optionees and
Purchasers to exercise their rights to the extent so permitted. To the extent it
has not been previously exercised, any Option or Stock Purchase Right will
terminate immediately prior to the consummation of such proposed action.
14. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
or Purchaser under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options and Stock Purchase Rights
already granted and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser and the Board, which
agreement must be in writing and signed by the Optionee or Purchaser and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
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<PAGE> 13
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
17. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced
by written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the degree and manner required under applicable state and federal
law.
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<PAGE> 14
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
_______________________________________
_______________________________________
You have been granted an option, consisting of the Stock Option Agreement
attached hereto as Exhibit A and this Notice of Stock Option Grant (together,
the "Option") to purchase Common Stock of 3DFX INTERACTIVE, INC. (the "Company")
as follows:
Date of Grant ________________________
Vesting Date ________________________
Option Price Per Share $_______________________
Total Number of Shares Granted ________________________
Total Price of Shares Granted ________________________
Type of Option _ Incentive Stock Option
_ Nonqualified Stock
Option
Term/Expiration Date 10 years/_________________
Exercise Schedule:
This Option may be exercised, in whole or in part, in accordance with the
Vesting Schedule set out below;
Vesting Schedule:
Date of Vesting Number of Shares
First Annual Anniversary
of Vesting Date 25%
Each Monthly Anniversary of
Vesting Date After First Annual
<PAGE> 15
Anniversary of Vesting Date 1/48th of the total
Shares until fully vested
Termination Period:
Option may be exercised for 90 days after termination of employment or
consulting relationship except as set out in Sections 7 and 8 of the Stock
Option Agreement (but in no event later than the Expiration Date).
Additional Forms of Consideration:
In addition to the forms of consideration set out in Section 3 of the
Stock Option Agreement, this Option may be exercised using the following forms
of consideration:
_ No Additional Forms
_ No Additional Forms as
noted: Promissory Note at
the discretion of the
Company._______________________
________________________________________________________________________________
________________________________________________________________________________
Exercise of this Option shall be on a form of Exercise Notice provided by the
Company.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THIS OPTION IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S EMPLOYEE STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
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<PAGE> 16
Optionee acknowledges receipt of a copy of the Plan and certain
information related to it and represents that he or she is familiar with the
terms and provisions of the Plan and this Option. Optionee accepts this Option
subject to all such terms and provisions. Optionee has reviewed the Plan and
this Option in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option and fully understands all provisions of
the Option.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Employee Stock Plan and the [Incentive/Nonstatutory]
Stock Option Agreement, all of which are attached and made a part of this
document.
OPTIONEE: 3DFX INTERACTIVE, INC., a
California company
_____________________________ By __________________________
Signature
_____________________________ Title _______________________
Print Name
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<PAGE> 17
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Stock Option. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Stock Option, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Stock Option
and further agrees that any community property interest shall be similarly
bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Stock Option.
________________________________________
Spouse of Purchaser
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<PAGE> 18
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
EXHIBIT A TO NOTICE OF GRANT
STOCK OPTION AGREEMENT
1. Grant of Option. 3DFX INTERACTIVE, INC., a California corporation
(the "Company"), hereby grants to the Optionee (the "Optionee") named in the
Notice of Grant, an option (the "Option") to purchase a number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms, conditions and
definitions of the Employee Stock Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. In the event of a conflict between
the terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined
meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option,
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form provided by the Company (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as to the holder's investment intent
with respect to the Exercised Shares as may be required by the Company pursuant
to the provisions of the Plan. The Exercise Notice shall be signed by the
Optionee and, if the Optionee is married, by the Optionee's spouse, and shall be
delivered in person or by certified mail to the Secretary of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the
<PAGE> 19
Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income tax purposes the Exercised Shares
shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) such other consideration as is indicated on the Notice of
Grant.
4. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached hereto as Exhibit B.
5. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee, Optionee
may, to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee was not entitled to exercise
this
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<PAGE> 20
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section
6 above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of his or her total and permanent disability (as defined in
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the date of termination of employment (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. Notwithstanding the provisions of Section 6 above and the preceding
sentence, in the event of termination of an Optionee's Continuous Status as an
Employee as a result of his or her disability, Optionee may, but only within six
months (6) months from the date of such termination (but in no event later than
the expiration date of the term of such Option as set forth in Section 10
below), exercise the Option to the extent otherwise so entitled at the date of
such termination; provided, however, that if any Incentive Stock Option is
exercised after 90 days of such termination, such option will be treated as a
Nonstatutory Stock Option. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by him. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option. The limitations set
out in Section 7 of the Plan regarding Option terms and Options granted to more
than ten percent (10%) shareholders shall apply to this Option.
11. Tax Consequences. Some of the federal and state tax consequences
relating to this Option, as of the date of this Option, are set forth
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<PAGE> 21
below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS
ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonqualified Stock Option ("NSO"). If this Option does not
qualify as an ISO, the Optionee may incur regular federal income tax and state
income tax liability upon exercise. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Exercised Shares on the date of
exercise over their aggregate Exercise Price. If the Optionee is an employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
(ii) Incentive Stock Option ("ISO"). If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax or state income tax
liability upon its exercise, although the excess, if any, of the fair market
value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to the alternative minimum tax
for federal tax purposes and may subject the Optionee to alternative minimum tax
in the year of exercise.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one year, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise AND two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the LESSER OF (A) the difference
between the FAIR MARKET VALUE OF THE SHARES ACQUIRED ON THE DATE OF EXERCISE and
the aggregate Exercise Price, or (B) the difference between the SALE PRICE of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or
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<PAGE> 22
before the later of (i) the date two years after the grant date, or (ii) the
date one year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or she may
be subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
-5-
<PAGE> 23
EXHIBIT B TO NOTICE OF GRANT
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : 3DFX INTERACTIVE, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. Optionee
is acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities. OPTIONEE UNDERSTANDS THAT THE CERTIFICATE EVIDENCING THE
SECURITIES WILL BE IMPRINTED WITH A LEGEND WHICH PROHIBITS THE
<PAGE> 24
TRANSFER OF THE SECURITIES UNLESS THEY ARE REGISTERED OR SUCH REGISTRATION IS
NOT REQUIRED IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ANY OTHER
LEGEND REQUIRED UNDER APPLICABLE STATE SECURITIES LAWS.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the Optionee,
such exercise will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter
the securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including among other
things: (1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of exercise of the Option, then the securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires among other
things: (1) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (2) the availability of
certain public information about the Company, (3) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934), and (4) the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable.
(d) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for the period of time prescribed by the
underwriters from the effective date of such registration, and (2) further
agrees to execute any agreement reflecting (1) above as may be requested by the
underwriters at the time of the public offering; provided however that the
officers and directors of the Company who own the stock of the Company also
agree to such restrictions.
<PAGE> 25
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
___________________________
Date:________________, 19__
<PAGE> 26
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
EXERCISE NOTICE FOR VESTED SHARES
3Dfx Interactive, Inc.
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the undersigned
("Optionee") hereby elects to exercise Optionee's option to purchase _________
shares of the Common Stock (the "Shares") of 3DFX INTERACTIVE, INC. (the
"Company") under and pursuant to the Company's Employee Stock Plan, as amended
(the "Plan"), and the Notice of Grant and [ ] Incentive [ ] Nonqualified Stock
Option Agreement dated ________ (together, the "Option").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Compliance with Securities Laws; Federal Restrictions on Transfer.
Optionee has read and executed the Investment Representation Statement attached
as Exhibit B to the Notice of Grant. Optionee represents that he or she
understands the matters set forth in the Investment Representation Statement and
that he or she is purchasing the Shares subject to the restrictions and
limitations set forth in that document.
4. Right of First Refusal. Before any Shares held by Optionee or any
transferee (either being sometimes referred to herein as the "Holder") may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section (the "Right of
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Sale Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares
<PAGE> 27
(the "Offered Price"), and the Holder shall offer the Shares at the Offered
Price to the Company or its assignee(s).
(b) Bona Fide Transfer. Within ten (10) days after receipt of the
Sale Notice, the Company shall determine the bona fide nature of the proposed
voluntary transfer and give the Optionee written notice of the Company's
determination. If the proposed transfer is deemed not to be bona fide, the
Optionee shall be responsible for providing additional information to the
Company to show the bona fide nature of the proposed transfer. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the Sale Notice fully
and accurately sets forth all of the terms and conditions of the proposed
transfer, including, without limitation, assurance that the Sale Notice fully
and accurately sets forth the consideration actually to be paid for the Shares
and all transactions, directly or indirectly, between the parties which may have
affected the price the Proposed Transferee was willing to pay for the Shares.
(c) Exercise of Right of First Refusal by Company. In the event that
the proposed transfer is deemed to be bona fide, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (d) below. Such written notice may be given within thirty (30)
days after receipt of the Sale Notice.
(d) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(e) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), by cash or check, or by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within sixty (60) days after receipt of the Sale Notice, in
the manner and at the times set forth in such notice.
(f) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s), then the Holder may sell or otherwise transfer
such Shares to that Proposed Transferee at the Offered Price or at a higher
price, provided that such sale or other transfer is consummated within one
hundred
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<PAGE> 28
twenty (120) days after the date of the Notice and provided further that any
such sale or other transfer is effected in accordance with any applicable
securities laws and the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands of
such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(g) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(h) Transfers Not Subject to the Right of First Refusal. The Right
of First Refusal shall not apply to any transfer or exchange of the shares
acquired pursuant to the exercise of the Option if such transfer is in
connection with a Change in Capitalization. If the consideration received
pursuant to such transfer or exchange consists of stock of a Parent or
Subsidiary, such consideration shall remain subject to the Right of First
Refusal unless the provisions of paragraph 4(j) result in a termination of the
Right of First Refusal.
(i) Assignment of the Right of First Refusal. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one or more persons as may be selected by
the Company.
(j) Early Termination of the Right of Refusal. The other provisions
of this paragraph 4 notwithstanding, the Right of First Refusal shall terminate,
and be or no further force and effect upon (i) a merger of the Company or
transaction in which over 80% of the voting power of the Company is transferred
and following which the shareholders of the Company have less than 20% of the
voting power or the resulting or combined entity and shall not apply with
respect to shares sold in such offering or acquisition, or (ii) the existence
of a public market for the class of shares subject to the Right of First
Refusal. A "public market" shall be deemed to exist if (x) such stock is listed
on a national securities exchange (as that term is used in the Exchange Act) or
(y) such stock is traded on the over-the-counter
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<PAGE> 29
market and prices therefor are published daily on business days in a recognized
financial journal.
5. Rights as Shareholder. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the Shares
or the Company and/or its assignee(s) exercises the Right of First Refusal
hereunder. Upon such exercise, Optionee shall have no further rights as a holder
of the Shares so purchased except the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and Optionee
shall forthwith cause the certificate(s) evidencing the Shares so purchased to
be surrendered to the Company for transfer or cancellation.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER
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<PAGE> 30
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Market Standoff Agreement. Optionee hereby agrees that if so requested
by the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the 1933
Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
9. Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
10. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
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<PAGE> 31
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
11. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
12. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
14. Delivery of Payment. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
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<PAGE> 32
15. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law.
Submitted by: Accepted by:
PURCHASER: 3D/FX INTERACTIVE, INC.
a California corporation
_____________________________ By __________________________
(Signature)
Its _________________________
Address _____________________ Address _____________________
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<PAGE> 33
3DFX INTERACTIVE, INC.
EMPLOYEE STOCK PLAN
EXERCISE NOTICE FOR UNVESTED SHARES AND RESTRICTED STOCK
AGREEMENT
3DFX INTERACTIVE, INC.
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of 3DFX INTERACTIVE, INC.
(the "Company") under and pursuant to the Company's Employee Stock Plan, as
amended (the "Plan") and the Notice of Grant and [ ] Incentive [ ] Nonqualified
Stock Option Agreement dated __________, 19__ (together, the "Option"). Of these
Shares, Optionee has elected to purchase __________ of those Shares which have
become vested under the Vesting Schedule set out in the Notice of Grant (the
"Vested Shares") and __________ Shares which have not yet vested under such
schedule (the "Unvested Shares"). The Purchase Price for the Shares shall be
$_________, as set out in the Notice of Grant, for an aggregate Purchase Price
of $_________.
2. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Compliance with Securities Laws: Federal Restrictions on
Transfer. Optionee has read and executed the Investment Representation Statement
attached as Exhibit B to the Notice of Grant. Optionee represents that he or she
understands the matters set forth in the Investment Representation Statement and
that he or she is purchasing the Shares subject to the restrictions and
limitations set forth in that document.
4. Company's Repurchase Option. The Company or its assignee(s) shall
have the option to repurchase all, but not less than all of the Unvested Shares
on the terms and conditions set forth in this section (the "Repurchase Option")
if the Optionee should cease to be employed by the Company for any reason or no
reason, including without limitation death, disability, voluntary resignation or
termination by the Company with or without cause.
<PAGE> 34
(a) Right of Termination Unaffected. Nothing in this Agreement shall
be construed to limit or otherwise affect in any manner whatsoever the right or
power of the Company to terminate Optionee's employment at any time for any
reason or no reason, with or without cause. Optionee shall be considered to be
employed by the Company if Optionee is an officer, director or full-time
employee of the Company or any Parent or Subsidiary of the Company (as defined
in the Plan) or if the Board of Directors determines that Optionee is rendering
substantial services as a part-time employee, consultant or independent
contractor to the Company or any Parent or Subsidiary of the Company (as defined
in the Plan). In case of any dispute, the Board of Directors of the Company
shall have discretion to determine (i) whether Optionee has ceased to be
employed by the Company and (ii) the date on which the employment relationship
ceases (the "Termination Date").
(b) Exercise of Repurchase Option. At any time within sixty (60)
days after Optionee's Termination Date, the Company or its assignee(s) may elect
to repurchase the Unvested Shares purchased pursuant to the Option Agreement by
giving Optionee (or Optionee's personal representative as the case may be)
written notice of exercise of the Repurchase Option.
(i) Repurchase Price. The Company or its assignee(s) shall have the
option to repurchase from Optionee all, but not less than all, of the
Unvested Shares (or from Optionee's personal representative as the case
may be) at the Exercise Price (as defined in the Option Agreement), as
such price may be adjusted from time to time to reflect any subsequent
stock dividend, stock split, reverse stock split or recapitalization of
the Company (the "Repurchase Price").
(ii) Payment of Repurchase Price. The Repurchase Price shall be
payable, at the option of the Company or its assignee(s), by check or by
cancellation of all or a portion of any outstanding indebtedness of
Optionee to the Company (or, in the case of repurchase by an assignee, to
the assignee) or any combination thereof. The Repurchase Price shall be
paid without interest within 60 days after the Termination Date.
(iii) Lapse of Repurchase Option. All Unvested Shares held by the
Optionee shall be released from the Company's Repurchase Option and cease
to be Unvested Shares according to the Vesting Schedule set out in the
Notice of Grant.
5. Right of First Refusal. Before any Shares held by Optionee or any
transferee (either being sometimes referred to herein as the "Holder") may be
sold or otherwise transferred (including transfer by gift or operation of law),
the
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<PAGE> 35
Company or its assignee(s) shall have a right of first refusal to purchase the
Shares on the terms and conditions set forth in this Section (the "Right of
First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Sale Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Bona Fide Transfer. Within ten (10) days after receipt of the
Sale Notice, the Company shall determine the bona fide nature of the proposed
voluntary transfer and give the Optionee written notice of the Company's
determination. If the proposed transfer is deemed not to be bona fide, the
Optionee shall be responsible for providing additional information to the
Company to show the bona fide nature of the proposed transfer. The Company shall
have the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the Sale Notice fully
and accurately sets forth all of the terms and conditions of the proposed
transfer, including, without limitation, assurance that the Sale Notice fully
and accurately sets forth the consideration actually to be paid for the Shares
and all transactions, directly or indirectly, between the parties which may have
affected the price the Proposed Transferee was willing to pay for the Shares.
(c) Exercise of Right of First Refusal by Company. In the event that
the proposed transfer is deemed to be bona fide, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (c) below. Such written notice may be given within thirty (30)
days after receipt of the Sale Notice.
(d) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(e) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), by cancellation of all or a portion of
any outstanding indebtedness of the Holder to the Company (or, in the case of
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<PAGE> 36
repurchase by an assignee, to the assignee), or by any combination thereof
within sixty (60) days after receipt of the Sale Notice, in the manner and at
the times set forth in such notice.
(f) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s), then the Holder may sell or otherwise transfer
such Shares to that Proposed Transferee at the Offered Price or at a higher
price, provided that such sale or other transfer is consummated within one
hundred twenty (120) days after the date of the Notice and provided further that
any such sale or other transfer is effected in accordance with any applicable
securities laws and the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands of
such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(g) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section , and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(h) Transfers Not Subject to the Right of First Refusal. The Right
of First Refusal shall not apply to any transfer or exchange of the shares
acquired pursuant to the exercise of the Option if such transfer is in
connection with a Change in Capitalization, as described in Section 13 of the
Plan. If the consideration received pursuant to such transfer or exchange
consists of stock of a Parent or Subsidiary, such consideration shall remain
subject to the Right of First Refusal unless the provisions of paragraph 5(j)
result in a termination of the Right of First Refusal.
(i) Assignment of the Right of First Refusal. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one or more persons as may be selected by
the Company.
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<PAGE> 37
(j) Early Termination of the Right of Refusal. The other provisions
of this paragraph 5 notwithstanding, the Right of First Refusal shall terminate,
and be or no further force and effect upon (i) a merger of the Company or
transaction in which over 80% of the voting power of the Company is transferred
and following which the shareholders of the Company have less than 20% of the
voting power or the resulting or combined entity and shall not apply with
respect to shares sold in such offering or acquisition , or (ii) the existence
of a public market for the class of shares subject to the Right of First
Refusal. A "public market" shall be deemed to exist if (x) such stock is listed
on a national securities exchange (as that term is used in the Exchange Act) or
(y) such stock is traded on the over-the-counter market and prices therefor are
published daily on business days in a recognized financial journal.
6. Escrow. As security for the faithful performance of this
Agreement, Optionee agrees, immediately upon receipt of the certificate(s)
evidencing the Shares, to deliver such certificate(s), together with a stock
power in the form of Attachment 1 attached hereto, executed by Optionee and by
Optionee's spouse, if any (with the date and number of Shares left blank), to
the Secretary of the Company or its designee ("Escrow Holder"), who is hereby
appointed to hold such certificate(s) and stock power in escrow and to take all
such actions and to effectuate all such transfers and/or releases of such Shares
as are in accordance with the terms of this Agreement. Such appointment shall be
evidenced by an executed form of Joint Escrow Instructions, attached hereto as
Attachment 2. Optionee and the Company agree that Escrow Holder shall not be
liable to any party to this Agreement (or to any other party) for any actions or
omissions unless Escrow Holder is grossly negligent relative thereto. The Escrow
Holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may rely on advice of counsel and obey any
order of any court with respect to the transactions contemplated herein. The
Shares shall be released from escrow upon termination of both the Repurchase
Option and the Right of First Refusal; provided, however, that such release
shall not affect the rights of the Company with respect to any pledge of Shares
to the Company.
7. Rights as Shareholder. Subject to the terms and conditions of
this Agreement, Optionee shall have all of the rights of a shareholder of the
Company with respect to the Shares from and after the date that Optionee
delivers full payment of the Exercise Price until such time as Optionee disposes
of the Shares or the Company and/or its assignee(s) exercises the Repurchase
Option or Right of First Refusal hereunder. Upon such exercise, Optionee shall
have no further rights as a holder of the Shares so purchased except the right
to receive payment for the Shares so purchased in accordance with the provisions
of this Agreement, and Optionee shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for transfer
or cancellation.
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<PAGE> 38
8. Tax Consequences.
(a) Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
(b) Section 83(b) Election For Nonqualified Stock Options. Optionee
hereby acknowledges that Optionee has been informed that, with respect to the
exercise of any nonqualified stock option, unless an election is filed by the
Optionee with the Internal Revenue Service and, if necessary, the proper state
taxing authorities, within thirty (30) days of the purchase of the Shares,
electing pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (and similar state tax provisions if applicable) to be taxed currently
on any difference between the purchase price of the Shares and their fair market
value on the date of purchase, there will be a recognition of taxable income to
the Optionee, measured by the excess, if any, of the fair market value of the
Shares, at the time the Company's Repurchase Option lapses over the purchase
price for such Shares. Optionee represents that Optionee has consulted any tax
consultant(s) Optionee deems advisable in connection with the purchase of the
Shares or the filing of the Election under Section 83(b) and similar tax
provisions. A form of Election Under Section 83(b) is attached hereto as
Attachment 3 for reference. OPTIONEE HEREBY ASSUMES ALL RESPONSIBILITY FOR
FILING SUCH ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR THE
LAPSE OF THE REPURCHASE RESTRICTIONS ON THE SHARES.
(c) Section 83(b) Election For Alternative Minimum Tax for Incentive
Stock Options. Optionee hereby acknowledges that Optionee has been informed
that, with respect to the exercise of any incentive stock option, unless an
election is filed by the Optionee with the Internal Revenue Service within
thirty (30) days of the purchase of the Shares, electing pursuant to Section
83(b) of the Internal Revenue Code of 1986, as amended (and similar state tax
provisions if applicable) to be taxed currently for alternative minimum tax
purposes on any difference between the purchase price of the Shares and their
fair market value on the date of purchase, the Optionee will be required to
include (for alternative minimum tax purposes only) an amount equal to the
excess, if any, of the fair market value of the Shares, at the time the
Company's Repurchase Option lapses over the purchase price for such Shares.
Optionee represents that Optionee has consulted any tax consultant(s) Optionee
deems advisable in connection with the purchase of the Shares or the filing of
the Election for alternative minimum tax purposes under Section 83(b) and
similar tax provisions. A form of Election Under Section 83(b) is attached
hereto as
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<PAGE> 1
EXHIBIT 10.3
3D/FX INTERACTIVE, INC.
1997 DIRECTOR OPTION PLAN
(Amended for May 1997 1-for-2 reverse stock split)
1. Purposes of the Plan. The purposes of this 1997 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means 3Dfx Interactive, Inc., a California
corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable; or
<PAGE> 2
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1500,000 (post-split) Shares of Common Stock (the
"Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
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<PAGE> 3
(ii) Each Outside Director as of the effective date of
this Plan, as determined in accordance with Section 6 hereof, shall
automatically be granted an Option to purchase 5,000 Shares at the initial
public offering price of the Company's Common Stock provided, however, the
Option granted to the Chairman of the Board of Directors shall be for 10,000
Shares (such Option shall each be known as a "First Option"). Each Outside
Director shall be automatically granted an Option to purchase 12,500 Shares
(such Option shall each be known as a "First Option") on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted
an Option to purchase 5,000 Shares (a "Subsequent Option") on the date of the
next meeting of the Board of Directors following the annual meeting of
shareholders of each year provided he or she is then an Outside Director and if
as of such date, he or she shall have served on the Board for at least the
preceding six (6) months; provided, however, if such Outside Director is elected
as Chairman of the Board of Directors, such Option shall be for 10,000 Shares.
(iv) Each Outside Director shall be automatically granted
an Option to purchase 1,000 Shares (a "Committee Option") on the date of the
next meeting of the Board of Directors following the annual meeting of
shareholders of each year provided he or she is then an Outside Director and if
such Outside Director serves as either a member of the Audit Committee or
Compensation Committee of the Board of Directors; provided, however, if such
Outside Director serves a member of both such Committees, such Option shall be
for 2,000 Shares.
(v) Notwithstanding the provisions of subsections (ii),
(iii) and (iv) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
(vi) The terms of a First Option granted hereunder shall
be as follows:
(A) the term of the First Option shall be ten
(10) years.
(B) the First Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the First Option. In the
event that the date of grant of the First Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
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<PAGE> 4
(D) subject to Section 10 hereof, the First
Option shall become exercisable as to one forty-eighth (1/48th) of the Shares
subject to the First Option on each monthly anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such dates.
(vii) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be
ten (10) years.
(B) the Subsequent Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the Subsequent Option.
In the event that the date of grant of the Subsequent Option is not a trading
day, the exercise price per Share shall be the Fair Market Value on the next
trading day immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to one twenty-fourth (1/24th) of the Shares
subject to the Subsequent Option on each monthly anniversary of its date of
grant, provided that the Optionee continues to serve as a Director on such
dates.
(viii) The terms of a Committee Option granted hereunder
shall be as follows:
(A) the term of the Committee Option shall be ten
(10) years.
(B) the Committee Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of
the Fair Market Value per Share on the date of grant of the Committee Option. In
the event that the date of grant of the Committee Option is not a trading day,
the exercise price per Share shall be the Fair Market Value on the next trading
day immediately following the date of grant of the Committee Option.
(D) subject to Section 10 hereof, the Committee
Option shall become exercisable as to one twelfth (1/12th) of the Shares subject
to the Committee Option on each monthly anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such dates.
(ix) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the
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<PAGE> 5
shareholders to increase the number of Shares which may be issued under the Plan
or through cancellation or expiration of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan shall become effective upon the effective
date of the Company's initial public offering of its Common Stock that is
registered with the Securities and Exchange Commission. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 11 of
the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option.
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<PAGE> 6
No adjustment shall be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of termination, or if he or she does not exercise such Option (to the
extent otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price
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<PAGE> 7
per Share covered by each such outstanding Option, and the number of Shares
issuable pursuant to the automatic grant provisions of Section 4 hereof shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an Option
has not been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of
the Company with or into another corporation or the sale of substantially all of
the assets of the Company, outstanding Options may be assumed or equivalent
options may be substituted by the successor corporation or a Parent or
Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the Option or equivalent option shall continue to be
exercisable as provided in Section 4 hereof for so long as the Optionee serves
as a Director or a director of the Successor Corporation. Following such
assumption or substitution, if the Optionee's status as a Director or director
of the Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its
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<PAGE> 8
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
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<PAGE> 9
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law and any stock exchange rules.
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<PAGE> 10
3D/FX INTERACTIVE, INC.
DIRECTOR OPTION AGREEMENT
3Dfx, a California corporation (the "Company"), has granted to
_______________________ (the "Optionee"), an option to purchase a total of
__________________ (_________) shares of the Company's Common Stock (the
"Optioned Stock"), at the price determined as provided herein, and in all
respects subject to the terms, definitions and provisions of the Company's 1997
Director Option Plan (the "Plan") adopted by the Company which is incorporated
herein by reference. The terms defined in the Plan shall have the same defined
meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall become exercisable in installments
cumulatively with respect to one forty-eighth (1/48th) of the Optioned Stock on
each monthly anniversary of the date of grant, so that one hundred percent
(100%) of the Optioned Stock shall be exercisable four years after the date of
grant; provided, however, that in no event shall any Option be exercisable prior
to the date the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or
other termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such written
notice, in the form attached hereto as Exhibit A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
4. Method of Payment. Payment of the exercise price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check;
<PAGE> 11
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together
with such other documentation as the Company and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and war ranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten
(10) years from the date of grant of this Option, and may be exercised during
such period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
DATE OF GRANT: ______________ 3DFX INTERACTIVE, INC.
a California corporation
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<PAGE> 12
By: ___________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated:_______________________ _______________________________________
Optionee
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<PAGE> 13
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
3Dfx Interactive, Inc.
- -------------------------------
- -------------------------------
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of 3Dfx Interactive, Inc. (the "Company") under and pursuant to the
Company's 1997 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee
has received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by
reference. This Exercise Notice and the Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the
<PAGE> 14
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: 3DFX INTERACTIVE, INC.
_________________________________ By:_______________________________
Its:______________________________
Address:
Dated:___________________________ Dated:_____________________________
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<PAGE> 1
EXHIBIT 10.4
3D/FX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
(Amended for May 1997 1-for-2 reverse stock split)
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of 3Dfx Interactive, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean 3Dfx Interactive, Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all W-2 compensation of the
participant.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board, or;
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before April 30,
1999. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
-2-
<PAGE> 3
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
prior to the applicable Enrollment Date.
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<PAGE> 4
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
Compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
-4-
<PAGE> 5
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 7,500
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
-5-
<PAGE> 6
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he
or she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be five hundred
fifty thousand (550,000) (post-split) shares, subject to adjustment upon changes
in capitalization of the Company as provided in Section 19 hereof. If, on a
given Exercise Date, the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such
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<PAGE> 7
participant's death prior to exercise of the option. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities
-7-
<PAGE> 8
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to
-8-
<PAGE> 9
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE> 10
EXHIBIT A
3D/FX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ___________________________________ hereby elects to participate in the
3Dfx Interactive, Inc. 1997 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my par ticipation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
__________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within 30 days
after the date of any disposition of my shares and I will make adequate
provision for Federal, state or
<PAGE> 11
other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only
to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________________
(First) (Middle) (Last)
- ------------------------------- ------------------------------------------
Relationship
-------------------------------------------
(Address)
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<PAGE> 12
Employee's Social
Security Number: -------------------------------
Employee's Address: -------------------------------
-------------------------------
-------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_____________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE> 13
EXHIBIT B
3D/FX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the 3Dfx
Interactive, Inc. 1997 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:___________________________
<PAGE> 1
EXHIBIT 10.7.1
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF SERIES A PREFERRED STOCK
Company: 3D\fx Interactive, Inc., a California corporation (the
"Company"), and any corporation that shall succeed to the
obligations of the Company under this Warrant.
<TABLE>
<S> <C>
Number of Shares: 87,500
-----------------------------
Class of Stock: Series A Preferred Stock
-----------------------------
Initial Exercise Price: $1.00 per share
-----------------------------
Expiration Date: March 31, 2002
-----------------------------
Date of Grant: March 31, 1995
-----------------------------
</TABLE>
THIS CERTIFIES THAT, for value received, Lighthouse Capital
Partners, L.P. is entitled to purchase the above number (as adjusted pursuant to
Section 5 hereof) of fully paid and nonassessable shares of the above Class of
Stock of the Company at the Initial Exercise Price above (as adjusted pursuant
to Section 5 hereof), subject to the provisions and upon the terms and
conditions set forth herein.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
1. "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
2. "Common Stock" shall mean shares of the presently
authorized common stock of the Company and any stock into which such common
stock may hereafter be exchanged.
3. "Expiration Date" shall mean March 31, 2002.
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<PAGE> 2
4. "Holder" shall mean any person who shall at the time be
the holder of this Warrant.
5. "Shares" shall mean the shares of the Class of Stock
that the Holder is entitled to purchase upon exercise of this Warrant, as
adjusted pursuant to Section 5 hereof.
6. "Warrant Price" shall mean the Initial Exercise Price
at which this Warrant may be exercised, as adjusted pursuant to Section 5
hereof.
2. Term.
The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time on or before the Expiration Date. Notwithstanding
the foregoing, this Warrant shall automatically be deemed to be exercised in
full pursuant to the provisions of Section 3 B, without any action on the part
of the Holder, immediately prior to the time this Warrant would otherwise expire
on the Expiration Date
3. Method of Exercise; Payment; Issuance of New Warrant.
A. Unless an election is made pursuant to clause B of this
Section 3, this Warrant shall be exercisable at the option of the Holder, at any
time or from time to time, on or before the Expiration Date for all or any
portion of the Shares of Preferred Stock (but not for a fraction of a share)
which may be purchased hereunder for the Warrant Price multiplied by the number
of Shares to be purchased. In the event, however, that pursuant to the Company's
Articles of Incorporation, as amended, an event causing automatic conversion of
the Company's Preferred Stock shall have occurred prior to the exercise of this
Warrant, in whole or in part, then this Warrant shall be exercisable for the
number of shares of Common Stock of the Company into which the Preferred Stock
not purchased upon any prior exercise of the Warrant would have been so
converted (and, where the context requires, reference to "Preferred Stock" shall
be deemed to include such Common Stock). The Company agrees that the shares of
Preferred Stock purchased under this Warrant shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares. Subject to the provisions of Section 7,
certificates for the other securities or property to which the Holder hereof is
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within ten business days after the rights
represented by this Warrant have been so exercised. Except as provided in clause
B of this Section 3, in case a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and execute
and deliver a new
-2-
<PAGE> 3
Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within 20
business days. Each stock certificate so delivered shall be in such
denominations of Preferred Stock 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, subject to the limitations contained in Section 7.
B. The Holder, in lieu of exercising this Warrant by the payment
of the purchase price pursuant to clause A of this Section 3 may elect, at any
time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the
Warrant Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 3 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); (ii)
over the Per Share Price.
C. For purposes of clause B of this Section 3, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or the National
Daily Quotation Service "Pink Sheets" or listed on any exchange, whichever is
applicable, as published in the Western Edition of the Wall Street Journal for
the ten (10) trading days prior to the date of the Holder's election hereunder
or (B) if applicable at the time of or in connection with the exercise under
clause B of this Section 3, the gross sales price of one share of the Company's
Common Stock pursuant to a registered public offering or that amount which
stockholders of the Company will receive for each share of Common Stock pursuant
to a merger, reorganization or sale of assets; and (ii) that number of shares of
Common Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the Per
Share Price of the Preferred Stock (or the equivalent number of shares of Common
Stock into which such Preferred Stock is convertible) shall be the price per
share, not less than the book value, as determined in good faith by the
Company's Board of Directors; provided, however, that (i) the Company will
notify Holder of such price within ten business days; (ii) Holder will have ten
business days after receipt of such notice to dispute such price by written
notice to Company; and (iii) thereafter the Company will appoint an appraiser
reasonably acceptable to the Holder to determine the Per Share Price, the costs
of which the Company will bear if the appraisal is 110% or more of that
determined by the Board of Directors.
4. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall be
the Initial Exercise Price, as adjusted from time to time pursuant to Section 5
hereof.
-3-
<PAGE> 4
5. Adjustment of Number and Kind of Shares and Adjustment of
Warrant Price.
A. Certain Definitions. As used in this Section 5 the following
terms shall have the following respective meanings:
1. Options: rights, options or warrants to subscribe for,
purchase or otherwise acquire either shares of Common Stock or Convertible
Securities; and
2. Convertible Securities: any evidences of indebtedness,
shares of stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation or
Merger. In the case of any reclassification of the Common Stock, or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), the Company, or such successor
corporation, as the case may be, shall execute a new warrant, providing that the
Holder shall have the right to exercise such new warrant and upon such exercise
to receive, in lieu of each share of the Class of Stock theretofore issuable
upon exercise of this Warrant, the number and kind of securities receivable upon
such reclassification, reorganization, consolidation or merger by a holder of
shares of the same Class of Stock of the Company for each share of the Class of
Stock. The aggregate warrant price of the new warrant shall be the aggregate
Warrant Price in effect immediately prior to the reclassification,
reorganization, consolidation or merger. Such new warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5 including, without limitation,
adjustments to the Warrant Price and to the number of shares issuable upon
exercise of this Warrant. The provisions of this subsection (1) shall similarly
apply to successive reclassification, reorganizations, consolidations or
mergers.
2. Split, Subdivision or Combination or Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the Class of Stock for which this Warrant is then
exercisable, the Warrant Price shall be proportionately decreased in the case of
a split or subdivision or proportionately increased in the case of a
combination. Any adjustment under this
-4-
<PAGE> 5
subsection (2) shall become effective when the split, subdivision or combination
becomes effective.
3. Stock Dividends. If the Company at any time while
this Warrant remains outstanding and unexpired shall pay a dividend with respect
to the Class of Stock for which this Warrant is then exercisable, payable in
shares of that Class of Stock, Options or Convertible Securities, the Warrant
Price shall be adjusted, from and after the date of determination of the
stockholders entitled to receive such dividend or distributions, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of that Class of Stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of the same Class of Stock outstanding immediately after
such dividend or distribution (including shares of that Class of Stock issuable
upon exercise, conversion or exchange of any Options or Convertible Securities
issued as such dividend or distribution). If the Options or Convertible
Securities issued as such dividend or distribution by their terms provide, with
the passage of time or otherwise, for any decrease in the consideration payable
to the Company, or any increase in the number of shares issuable upon exercise,
conversion or exchange thereof (by change of rate or otherwise), the Warrant
Price shall, upon any such decrease or increase becoming effective, be reduced
to reflect such decrease or increase as if such decrease or increase became
effective immediately prior to the issuance of the Options or Convertible
Securities as the dividend or distribution. Any adjustment under this subsection
(3) shall become effective on the record date.
4. Distribution. If the Company at any time while this
Warrant remains outstanding and unexpired shall declare, pay or distribute any
cash or property dividends on, or rights to acquire, capital stock, or evidences
of its indebtedness or assets to holders of shares of its capital stock, Holder
shall, without additional cost, be entitled to receive upon conversion or
exercise, in addition to the Shares, the cash, property, evidences of
indebtedness and rights which Holder would have received if Holder had been a
record holder of Shares on the record date for any such event.
5. Certain Events.If any change in the outstanding
Preferred Stock of the Company or any other event occurs as to which the other
provisions of this subsection (5) are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Warrant Price
and/or the application of such provisions in accordance with such essential
intent and principles, so as to protect such purchase rights as aforesaid. The
adjustment shall be such as will give the Holder of the Warrant upon exercise
for the same aggregate Warrant Price the total number, class and kind of
-5-
<PAGE> 6
shares as he would have owned had the Warrant been exercised prior to the event
and had he continued to hold such shares until after the event requiring
adjustment.
C. Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
6. Notice of Adjustments and Record Date of Other Matters.
A. Whenever the Warrant Price shall be adjusted pursuant to
Section 5 hereof, the Company shall issue a certificate signed by its chief
financial officer or chief executive officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed (by first class mail, postage prepaid) to the Holder at 100 Drake's
Landing Road, Suite 260, Greenbrae, CA 94904. No person or entity other than
Holder shall have any rights of first refusal with respect to the purchase, sale
or other disposition of this Warrant or the Shares. The Company shall give the
Holder 20 days prior written notice of any action that would require an
adjustment of the Warrant Price pursuant to Section 5.
B. In the event that the Company shall propose at any time:
1. to declare any dividend or distribution upon the Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus,
other than distributions to shareholders in connection with the repurchase of
securities of former employees or consultants; or
2. to offer for subscription to the holders of any class
or series of its capital stock any additional shares of stock of any class or
series or any other rights; or
3. to effect any reclassification or recapitalization; or
4. to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
-6-
<PAGE> 7
then, in connection with each such event, the Company shall send to the Holder:
a. at least 20 days' prior written notice of the date
on which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining the rights to vote in respect of the
matters referred to in Sections 6.B.3. and 4. above; and
b. in the case of the matters referred to in Sections
6.B.3. and 4. above, at least 20 days' prior written notice of the date of a
shareholders meeting at which a vote on such matters shall take place or the
effective date of any written consent (and specifying the material terms and
conditions of the proposed transaction or event and the date on which the
holders of Preferred Stock and Common Stock shall be entitled to exchange their
Preferred Stock and Common Stock for securities or other property deliverable
upon the occurrence of such event and the amount of securities or other property
deliverable upon such event).
7. Compliance With Act; Transferability of Warrant;
Disposition of Shares.
A. Legends. This Warrant and the Shares issued upon exercise
thereof shall be imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
B. Transferability and Non-negotiability of Warrant and Shares.
This Warrant and the Shares issued upon exercise thereof may not be transferred
or assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 7 B, title to this Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
-7-
<PAGE> 8
8. Financial Information. So long as Holder continues to hold a
warrant to purchase at least 25,000 shares of Series A Preferred Stock or shares
of Common Stock issued upon conversion of Series A Preferred Stock
(collectively, the "Securities"), the Company will furnish the following
information to the Holder:
(i). Annual Financials. As soon as practicable after the
end of each fiscal year, and in any event within 120 days thereafter, the
Company will provide the holder with consolidated balance sheets of the Company
and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consolidated statements of cash flows
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles, all in reasonable
detail, certified by independent public auditors of recognized national standing
selected by the Company; provided, however, that until the Company shall have
revenues in excess of $10,000,000, such financial statements may be reviewed but
not audited.
(ii). Quarterly Financials. As soon as practicable after
the end of each fiscal quarter (except the fourth fiscal quarter), and in any
event within 45 days thereafter, the Company will provide the Holder with
consolidated balance sheets of the Company and its subsidiaries, if any, as at
the end of such fiscal quarter, and consolidated statements of operations and
consolidated statements of cash flows of the Company and its subsidiaries, if
any, for such quarter, prepared in accordance with generally accepted accounting
principles (except for required footnotes and for minor year-end adjustments),
all in reasonable detail, certified by the chief financial officer of the
Company.
9. Listing on Securities Exchanges; NASD Fees.Company will list
on each national securities exchange on which any Common Stock is at any time
listed, subject to official notice of issuance, and will maintain, so long as
any other shares of its Common Stock will be so listed, all shares of Common
Stock from time to time issuable upon the conversion of the Shares; and Company
will so list on each national securities exchange, and will maintain such
listing of any shares of Company's capital stock, including Shares issuable upon
the exercise or conversion hereof if and so long as Company lists any shares of
capital stock of the same class on such national securities exchange. Any such
listing will be at the Company's expense. The Company shall pay all such fees
and file all such applications, notices and forms required to be filed by or
with any such securities exchange or the National Association of Securities
Dealers such that Shares shall be deliverable upon the exercise or conversion
hereof by Holder.
10. Miscellaneous.
-8-
<PAGE> 9
No fractional shares of the Shares shall be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor upon the basis of the Warrant Price then in
effect. The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the Holders hereof and their respective
successors and assigns. This Warrant shall be governed by and construed under
the laws of the State of California as applied to contracts entered into between
residents of the State of California to be wholly performed in the State of
California. The titles of the sections and subsections of this Warrant are for
convenience only and are not to be considered in construing this Warrant. All
pronouns used in the Warrant shall be deemed to include masculine, feminine and
neuter forms.
3D\FX INTERACTIVE, INC.
By: /s/ Ross Smith
------------------------------------
Title: Vice President
------------------------------------
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<PAGE> 10
APPENDIX A
NOTICE OF EXERCISE
TO:
1. The undersigned hereby elects to purchase _________ shares of
the __________ of 3D\fx Interactive, Inc., pursuant to terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing
said shares of the ______________ in the name of the undersigned or in such
other name as is specified below:
3. The undersigned represents it is acquiring the shares
of _____________ solely for its own account and not as a nominee for any other
party and not with a view toward the resale or distribution thereof.
---------------------------------
(Name)
---------------------------------
(Address)
---------------------------------
---------------------------------
---------------------------------
(Taxpayer Identification Number)
- --------------------------------
[print name of Holder]
By:
--------------------------
Title:
--------------------------
Date:
--------------------------
<PAGE> 1
EXHIBIT 10.7.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF SERIES B PREFERRED STOCK
Warrant B-1
Company: 3Dfx Interactive, Inc., a California corporation (the "Company"),
and any corporation that shall succeed to the obligations of the
Company under this Warrant.
<TABLE>
<S> <C>
Number of Shares: 39,772
-----------------------------
Class of Stock: Series B Preferred Stock
-----------------------------
Exercise Price: $2.20
-----------------------------
Expiration Date January 1, 2003
-----------------------------
Date of Grant: February 15, 1996
-----------------------------
</TABLE>
THIS CERTIFIES THAT, for value received, MMC/GATX Partnership No.
I is entitled to purchase 39,772 fully paid and nonassessable shares of the
Company's Series B Preferred Stock (the "Shares") at the Exercise Price (as
initially set forth above and as may be adjusted pursuant to Section 5 hereof),
subject to the provisions and upon the terms and conditions set forth herein.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
1. "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
2. "Common Stock" shall mean shares of the presently
authorized common stock of the Company and any stock into which such common
stock may hereafter be exchanged.
3. "Expiration Date" shall mean January 1, 2003.
<PAGE> 2
4. "Holder" shall mean any person who shall at the time be
the holder of this Warrant.
5. "Shares" shall mean the shares of the Class of Stock
that the Holder is entitled to purchase upon exercise of this Warrant, as
adjusted pursuant to Section 5 hereof.
6. "Warrant Price" shall mean the Exercise Price at which
this Warrant may be exercised, as adjusted pursuant to Section 5 hereof.
2. Term.
The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time on or before the Expiration Date. Notwithstanding
the foregoing, this Warrant shall automatically be deemed to be exercised in
full pursuant to the provisions of Section 3 B, without any action on the part
of the Holder, immediately prior to the time this Warrant would otherwise expire
on the Expiration Date
3. Method of Exercise; Payment; Issuance of New Warrant.
A. Unless an election is made pursuant to clause B of this
Section 3, this Warrant shall be exercisable at the option of the Holder, at any
time or from time to time, on or before the Expiration Date for all or any
portion of the Shares of Preferred Stock (but not for a fraction of a share)
which may be purchased hereunder for the Warrant Price multiplied by the number
of Shares to be purchased. In the event, however, that pursuant to the Company's
Articles of Incorporation, as amended, an event causing automatic conversion of
the Company's Preferred Stock shall have occurred prior to the exercise of this
Warrant, in whole or in part, then this Warrant shall be exercisable for the
number of shares of Common Stock of the Company into which the Preferred Stock
not purchased upon any prior exercise of the Warrant would have been so
converted (and, where the context requires, reference to "Preferred Stock" shall
be deemed to include such Common Stock). The Company agrees that the shares of
Preferred Stock purchased under this Warrant shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares. Subject to the provisions of Section 7,
certificates for the other securities or property to which the Holder hereof is
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within ten business days after the rights
represented by this Warrant have been so exercised. Except as provided in clause
B of this Section 3, in case a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and execute
and deliver a new Warrant or Warrants of like
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<PAGE> 3
tenor for the balance of the shares purchasable under the Warrant surrendered
upon such purchase to the Holder hereof within 20 business days. Each stock
certificate so delivered shall be in such denominations of Preferred Stock 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, subject to
the limitations contained in Section 7.
B. The Holder, in lieu of exercising this Warrant by the payment
of the purchase price pursuant to clause A of this Section 3 may elect, at any
time on or before the Expiration Date, to receive that number of shares of
Preferred Stock equal to the quotient of: (i) the difference between (A) the Per
Share Price (as hereinafter defined) of the Preferred Stock, less (B) the
Warrant Price then in effect, multiplied by the number of shares of Preferred
Stock the Holder would otherwise have been entitled to purchase hereunder
pursuant to clause (a) of this Section 3 (or such lesser number of shares as the
Holder may designate in the case of a partial exercise of this Warrant); (ii)
over the Per Share Price.
C. For purposes of clause B of this Section 3, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid and
asked prices of the Company's Common Stock as quoted by NASDAQ or the National
Daily Quotation Service "Pink Sheets" or listed on any exchange, whichever is
applicable, as published in the Western Edition of the Wall Street Journal for
the ten (10) trading days prior to the date of the Holder's election hereunder
or (B) if applicable at the time of or in connection with the exercise under
clause B of this Section 3, the gross sales price of one share of the Company's
Common Stock pursuant to a registered public offering or that amount which
stockholders of the Company will receive for each share of Common Stock pursuant
to a merger, reorganization or sale of assets; and (ii) that number of shares of
Common Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the Per
Share Price of the Preferred Stock (or the equivalent number of shares of Common
Stock into which such Preferred Stock is convertible) shall be the price per
share, not less than the book value, as determined in good faith by the
Company's Board of Directors; provided, however, that (i) the Company will
notify Holder of such price within ten business days; (ii) Holder will have ten
business days after receipt of such notice to dispute such price by written
notice to Company; and (iii) thereafter the Company will appoint an appraiser
reasonably acceptable to the Holder to determine the Per Share Price, the costs
of which the Company will bear if the appraisal is 110% or more of that
determined by the Board of Directors.
4. Exercise Price.
-3-
<PAGE> 4
The Warrant Price at which this Warrant may be exercised shall be
the Exercise Price, as adjusted from time to time pursuant to Section 5 hereof.
5. Adjustment of Number and Kind of Shares and Adjustment of
Warrant Price.
A. Certain Definitions. As used in this Section 5 the following
terms shall have the following respective meanings:
1. Options: rights, options or warrants to subscribe for,
purchase or otherwise acquire either shares of Common Stock or Convertible
Securities; and
2. Convertible Securities: any evidences of indebtedness,
shares of stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation or
Merger. In the case of any reclassification of the Class of Stock, or any
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Common Stock), the Company, or such successor
corporation, as the case may be, shall execute a new warrant, providing that the
Holder shall have the right to exercise such new warrant and upon such exercise
to receive, in lieu of each share of the Class of Stock theretofore issuable
upon exercise of this Warrant, the number and kind of securities receivable upon
such reclassification, reorganization, consolidation or merger by a holder of
shares of the same Class of Stock of the Company for each share of the Class of
Stock. The aggregate warrant price of the new warrant shall be the aggregate
Warrant Price in effect immediately prior to the reclassification,
reorganization, consolidation or merger. Such new warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5 including, without limitation,
adjustments to the Warrant Price and to the number of shares issuable upon
exercise of this Warrant. The provisions of this subsection (1) shall similarly
apply to successive reclassification, reorganizations, consolidations or
mergers.
2. Split, Subdivision or Combination or Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the Class of Stock for which this Warrant is then
exercisable,
-4-
<PAGE> 5
the Warrant Price shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination. Any
adjustment under this subsection (2) shall become effective when the split,
subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time while this
Warrant remains outstanding and unexpired shall pay a dividend with respect to
the Class of Stock for which this Warrant is then exercisable, payable in shares
of that Class of Stock, Options or Convertible Securities, the Warrant Price
shall be adjusted, from and after the date of determination of the stockholders
entitled to receive such dividend or distributions, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of
determination by a fraction (i) the numerator of which shall be the total number
of shares of that Class of Stock outstanding immediately prior to such dividend
or distribution, and (ii) the denominator of which shall be the total number of
shares of the same Class of Stock outstanding immediately after such dividend or
distribution (including shares of that Class of Stock issuable upon exercise,
conversion or exchange of any Options or Convertible Securities issued as such
dividend or distribution). If the Options or Convertible Securities issued as
such dividend or distribution by their terms provide, with the passage of time
or otherwise, for any decrease in the consideration payable to the Company, or
any increase in the number of shares issuable upon exercise, conversion or
exchange thereof (by change of rate or otherwise), the Warrant Price shall, upon
any such decrease or increase becoming effective, be reduced to reflect such
decrease or increase as if such decrease or increase became effective
immediately prior to the issuance of the Options or Convertible Securities as
the dividend or distribution. Any adjustment under this subsection (3) shall
become effective on the record date.
4. Distribution. If the Company at any time while this
Warrant remains outstanding and unexpired shall declare, pay or distribute any
cash or property dividends on, or rights to acquire, capital stock, or evidences
of its indebtedness or assets to holders of shares of its capital stock, Holder
shall, without additional cost, be entitled to receive upon conversion or
exercise, in addition to the Shares, the cash, property, evidences of
indebtedness and rights which Holder would have received if Holder had been a
record holder of Shares on the record date for any such event.
5. Certain Events. If any change in the outstanding
Preferred Stock of the Company or any other event occurs as to which the other
provisions of this subsection (5) are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors of
-5-
<PAGE> 6
the Company shall make an adjustment in the number and class of shares available
under the Warrant, the Warrant Price and/or the application of such provisions
in accordance with such essential intent and principles, so as to protect such
purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Warrant Price the
total number, class and kind of shares as he would have owned had the Warrant
been exercised prior to the event and had he continued to hold such shares until
after the event requiring adjustment.
C. Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
6. Notice of Adjustments and Record Date of Other Matters.
A. Whenever the Warrant Price shall be adjusted pursuant to
Section 5 hereof, the Company shall issue a certificate signed by its chief
financial officer or chief executive officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed (by first class mail, postage prepaid) to the Holder c/o GATX Capital
Corporation, Four Embarcadero Center, Suite 2200, San Francisco, CA 94111. No
person or entity other than Holder shall have any rights of first refusal with
respect to the purchase, sale or other disposition of this Warrant or the
Shares. The Company shall give the Holder 20 days prior written notice of any
action that would require an adjustment of the Warrant Price pursuant to Section
5.
B. In the event that the Company shall propose at any time:
1. to declare any dividend or distribution upon the Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus,
other than distributions to shareholders in connection with the repurchase of
securities of former employees or consultants; or
-6-
<PAGE> 7
2. to offer for subscription to the holders of any class
or series of its capital stock any additional shares of stock of any class or
series or any other rights; or
3. to effect any reclassification or recapitalization; or
4. to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Company shall send to the Holder:
a. at least 20 days' prior written notice of the date
on which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining the rights to vote in respect of the
matters referred to in Sections 6.B.3. and 4. above; and
b. in the case of the matters referred to in Sections
6.B.3. and 4. above, at least 20 days' prior written notice of the date of a
shareholders meeting at which a vote on such matters shall take place or the
effective date of any written consent (and specifying the material terms and
conditions of the proposed transaction or event and the date on which the
holders of Preferred Stock and Common Stock shall be entitled to exchange their
Preferred Stock and Common Stock for securities or other property deliverable
upon the occurrence of such event and the amount of securities or other property
deliverable upon such event).
7. Compliance With Act; Transferability of Warrant;
Disposition of Shares.
A. Legends. This Warrant and the Shares issued upon exercise
thereof shall be imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
-7-
<PAGE> 8
B. Transferability and Non-negotiability of Warrant and Shares.
This Warrant and the Shares issued upon exercise thereof may not be transferred
or assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 7 B, title to this Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
C. Excepted Transfers. The Company shall not require a legal
opinion from the Holder in connection with any transfer without any additional
consideration of, or grant of a security interest in, this Warrant or any part
hereof (i) to a partner of the Holder if the Holder is a partnership, (ii) by
the Holder to a partnership of which the Holder is a general partner, or (iii)
to any affiliate of the Holder if the Holder is a corporation; provided,
however, in any such transfer, the transferee shall on the Company's request
agree in writing to be bound by the terms of this Warrant as if an original
Holder hereof.
8. Financial Information. So long as Holder continues to hold a
warrant to purchase at least 25,000 shares of Series B Preferred Stock or shares
of Common Stock issued upon conversion of Series B Preferred Stock
(collectively, the "Securi ties"), the Company will furnish the following
information to the Holder:
(i). Annual Financials. As soon as practicable after the
end of each fiscal year, and in any event within 120 days thereafter, the
Company will provide the holder with consolidated balance sheets of the Company
and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consoli dated statements of cash flows
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles, all in reasonable
detail, certified by independent public auditors of recognized national standing
selected by the Company; provided, however, that until the Company shall have
revenues in excess of $10,000,000, such financial statements may be reviewed but
not audited.
(ii). Quarterly Financials. As soon as practicable after
the end of each fiscal quarter (except the fourth fiscal quarter), and in any
event within 45 days thereafter, the Company will provide the Holder with
consolidated balance sheets of the Company and its subsidiaries, if any, as at
the end of such fiscal quarter, and consolidated statements of operations and
consolidated statements of cash flows of the Company and its subsidiaries, if
any, for such quarter, prepared in accordance with generally accepted accounting
principles (except for required footnotes and for minor year-end adjustments),
all in reasonable detail, certified by the chief financial officer of the
Company.
-8-
<PAGE> 9
9. Listing on Securities Exchanges; NASD Fees. Company will list
on each national securities exchange on which any Common Stock is at any time
listed, subject to official notice of issuance, and will maintain, so long as
any other shares of its Common Stock will be so listed, all shares of Common
Stock from time to time issuable upon the conversion of the Shares; and Company
will so list on each national securities exchange, and will maintain such
listing of any shares of Company's capital stock, including Shares issuable upon
the exercise or conversion hereof if and so long as Company lists any shares of
capital stock of the same class on such national securities exchange. Any such
listing will be at the Company's expense. The Company shall pay all such fees
and file all such applications, notices and forms required to be filed by or
with any such securities exchange or the National Association of Securities
Dealers such that Shares shall be deliverable upon the exercise or conversion
hereof by Holder.
-9-
<PAGE> 10
10. Miscellaneous.
No fractional shares of the Shares shall be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor upon the basis of the Warrant Price then in
effect. The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the Holders hereof and their respective
successors and assigns. This Warrant shall be governed by and construed under
the laws of the State of California as applied to contracts entered into between
residents of the State of California to be wholly performed in the State of
California. The titles of the sections and subsections of this Warrant are for
convenience only and are not to be considered in construing this Warrant. All
pronouns used in the Warrant shall be deemed to include masculine, feminine and
neuter forms.
3DFX INTERACTIVE, INC.
By: /s/ Gary Martin
---------------------------------------------
Title: CFO
---------------------------------------------
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<PAGE> 11
APPENDIX A
NOTICE OF EXERCISE
TO:_____________
1. The undersigned hereby elects to purchase __________
shares of the __________ of 3Dfx Interactive, Inc., pursuant to terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing
said shares of the ____________ in the name of the undersigned or in such other
name as is specified below:
3. The undersigned represents it is acquiring the shares
of ___________ solely for its own account and not as a nominee for any other
party and not with a view toward the resale or distribution thereof.
---------------------------------
(Name)
---------------------------------
(Address)
---------------------------------
---------------------------------
---------------------------------
(Taxpayer Identification Number)
- --------------------------------
[print name of Holder]
By:
--------------------------
Title:
--------------------------
Date:
--------------------------
<PAGE> 1
EXHIBIT 10.7.3
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF SERIES B PREFERRED STOCK
Company: 3D\fx Interactive, Inc., a California corporation (the
"Company"), and any corporation that shall succeed to the
obligations of the Company under this Warrant.
<TABLE>
<S> <C>
Number of Shares: 17,045
--------------------------------
Class of Stock: Series B Preferred Stock
--------------------------------
Exercise Price: $2.20 per share
--------------------------------
Expiration Date: December 31, 2001
--------------------------------
Date of Grant: February , 1996
--------------------------------
</TABLE>
THIS CERTIFIES THAT, for value received, Silicon Valley Bank is
entitled to purchase 17,045 shares of the Company's Series B Preferred Stock
(the "Shares") at an Exercise Price of $2.20 per share (as may be adjusted
pursuant to Section 5 hereof), subject to the provisions and upon the terms and
conditions set forth herein.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
(b) "Common Stock" shall mean shares of the presently
authorized common stock of the Company and any stock into which such common
stock may hereafter be exchanged.
-1-
<PAGE> 2
(c) "Holder" shall mean any person who shall at the time
be the holder of this Warrant.
(d) "Shares" shall mean the shares of the Series B
Preferred Stock that the Holder is entitled to purchase upon exercise of this
Warrant, as adjusted pursuant to Section 5 hereof.
(e) "Warrant Price" shall mean the Exercise Price at which
this Warrant may be exercised, as may be adjusted pursuant to Section 5 hereof.
2. Term.
A. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time on or before the Expiration Date; provided,
however, this Warrant shall expire, if not previously exercised, immediately
upon the closing of the issuance of shares of Common Stock of the Company in an
underwritten public offering, pursuant to an effective registration statement
under the Securities Act of 1933, as amended, in which the aggregate proceeds
received by the Company equal at least $7,500,000 and the public offering price
is not less than $3.00 per share of Common Stock (appropriately adjusted for
stock splits, stock dividends and stock combinations).
B. The Company shall notify Holders if an event or transaction of
the kind described in Section 2.A. above is proposed, at least thirty (30) days
prior to the closing of such event or transaction and if the Company fails to
deliver such written notice at such time, anything to the contrary in this
Warrant notwithstanding, the Warrant will not expire until thirty (30) days
after the Company delivers such notice to the Holders. Such notice shall also
contain such details of the proposed event or transaction as are reasonable in
the circumstances and notice that this Warrant is expected to expire upon
closing thereof. If such closing does not take place, the Company shall promptly
notify the holders that such proposed transaction has been terminated. Anything
to the contrary in this Warrant notwithstanding, the holders may rescind any
exercise of their Warrants within thirty (30) days of such notice of termination
of the proposed transaction if the exercise of their Warrants occurred after the
Company notified such holders that an event or transaction of the kind described
in Section 2. A above was proposed or if the exercise were otherwise
precipitated by such proposed event or transaction. In the event of such
rescission, the Warrants will continue to be exercisable on the same terms and
conditions.
3. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this
-2-
<PAGE> 3
Warrant (with the notice of exercise form attached hereto as Appendix A duly
executed) at the principal office of the Company and by the payment to the
Company, by check made payable to the Company drawn on a United States bank and
for United States funds of an amount equal to the then applicable Warrant Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the purchase right represented by this Section 3,
certificates for the Shares so purchased shall be delivered to the Holder within
thirty (30) days of receipt of such payment and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
4. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall be
the Exercise Price, as adjusted from time to time pursuant to Section 5 hereof.
5. Adjustment of Number and Kind of Shares and Adjustment of
Warrant Price.
A. Certain Definitions. As used in this Section 5 the following
terms shall have the following respective meanings:
1. Options: rights, options or warrants to subscribe for,
purchase or otherwise acquire either shares of Series B Preferred Stock or
Convertible Securities; and
2. Convertible Securities: any evidences of indebtedness,
shares of stock or other securities directly or indirectly convertible into or
exchangeable for Series B Preferred Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation or
Merger. In the case of any reclassification of the Series B Preferred Stock, or
any reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Series B Preferred Stock), the Company, or such
successor corporation, as the case may be, shall execute a new warrant,
providing that the Holder shall have the right to exercise such new warrant and
upon such exercise to receive, in lieu of each share of
-3-
<PAGE> 4
the Series B Preferred Stock theretofore issuable upon exercise of this Warrant,
the number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the Series B
Preferred Stock of the Company for each share of the Series B Preferred Stock.
The aggregate warrant price of the new warrant shall be the aggregate Warrant
Price in effect immediately prior to the reclassification, reorganization,
consolidation or merger. Such new warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5 including, without limitation, adjustments to the Warrant
Price and to the number of shares issuable upon exercise of this Warrant. The
provisions of this subsection B.1 shall similarly apply to successive
reclassification, reorganizations, consolidations or mergers.
2. Split, Subdivision or Combination or Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the Series B Preferred Stock for which this Warrant
is then exercisable, the Warrant Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination. Any adjustment under this subsection B.2 shall become effective
when the split, subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time while this
Warrant remains outstanding and unexpired shall pay a dividend with respect to
the Series B Preferred Stock for which this Warrant is then exercisable, payable
in shares of the Series B Preferred Stock, Options or Convertible Securities,
the Warrant Price shall be adjusted, from and after the date of determination of
the stockholders entitled to receive such dividend or distributions, to that
price determined by multiplying the Warrant Price in effect immediately prior to
such date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Series B Preferred Stock outstanding immediately prior
to such dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of the Series B Preferred Stock outstanding immediately
after such dividend or distribution (including shares of Series B Preferred
Stock issuable upon exercise, conversion or exchange of any Options or
Convertible Securities issued as such dividend or distribution). If the Options
or Convertible Securities issued as such dividend or distribution by their terms
provide, with the passage of time or otherwise, for any decrease in the
consideration payable to the Company, or any increase in the number of shares
issuable upon exercise, conversion or exchange thereof (by change of rate or
otherwise), the Warrant Price shall, upon any such decrease or increase becoming
effective, be reduced to reflect such decrease or increase as if such decrease
or increase became effective immediately prior to the issuance of the Options or
Convertible Securities as the dividend or distribution. Any adjustment under
this subsection B.3 shall become effective on the record date.
-4-
<PAGE> 5
C. Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
6. Notice of Adjustments.
Whenever the Warrant Price shall be adjusted pursuant to Section
5 hereof, the Company shall issue a certificate signed by its chief financial
officer or chief executive officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Warrant Price after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Holder.
7. Compliance With Act; Transferability of Warrant;
Disposition of Shares.
A. Legends. This Warrant and the Shares issued upon exercise
thereof shall be imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
B. Transferability and Non-negotiability of Warrant and Shares.
This Warrant and the Shares issued upon exercise thereof may not be transferred
or assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 7.B, title to this Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
-5-
<PAGE> 6
8. Miscellaneous.
No fractional shares of the Shares shall be issued in connection
with any exercise hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor upon the basis of the Warrant Price then in
effect. The terms and provisions of this Warrant shall inure to the benefit of,
and be binding upon, the Company and the Holders hereof and their respective
successors and assigns. This Warrant shall be governed by and construed under
the laws of the State of California as applied to contracts entered into between
residents of the State of California to be wholly performed in the State of
California. The titles of the sections and subsections of this Warrant are for
convenience only and are not to be considered in construing this Warrant. All
pronouns used in the Warrant shall be deemed to include masculine, feminine and
neuter forms.
3D\FX INTERACTIVE, INC.
By: /s/ Gary Martin
--------------------------------------
Title: CFO
--------------------------------------
-6-
<PAGE> 7
APPENDIX A
NOTICE OF EXERCISE
TO:_____________
1. The undersigned hereby elects to purchase ________________
shares of the ______________ of 3D\fx Interactive, Inc. pursuant to terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said
shares of the _______________ in the name of the undersigned or in such other
name as is specified below:
3. The undersigned represents it is acquiring the shares of
____________ solely for its own account and not as a nominee for any other party
and not with a view toward the resale or distribution thereof.
---------------------------------
(Name)
---------------------------------
(Address)
---------------------------------
---------------------------------
---------------------------------
(Taxpayer Identification Number)
- --------------------------------
[print name of Holder]
By:
--------------------------
Title:
--------------------------
Date:
--------------------------
<PAGE> 1
EXHIBIT 10.7.4
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF SERIES B PREFERRED STOCK
Warrant B-2
Company: 3Dfx Interactive, Inc., a California corporation (the "Company"), and
any corporation that shall succeed to the obligations of the Company
under this Warrant.
Number of Shares: 100,000
-----------------------------
Class of Stock: Series B Preferred Stock
-----------------------------
Exercise Price: $2.20 per share
-----------------------------
Expiration Date: December 31, 2001
-----------------------------
Date of Grant: April , 1996
-----------------------------
THIS CERTIFIES THAT, for value received, Taiwan Semiconductor
Manufacturing Company, Ltd. is entitled to purchase 100,000 shares of the
Company's Series B Preferred Stock (the "Shares") at an Exercise Price of $2.20
per share (as may be adjusted pursuant to Section 5 hereof), subject to the
provisions and upon the terms and conditions set forth herein.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
(b) "Common Stock" shall mean shares of the presently
authorized common stock of the Company and any stock into which such common
stock may hereafter be exchanged.
-1-
<PAGE> 2
(c) "Holder" shall mean any person who shall at the time
be the holder of this Warrant.
(d) "Shares" shall mean the shares of the Series B
Preferred Stock that the Holder is entitled to purchase upon exercise of this
Warrant, as adjusted pursuant to Section 5 hereof.
(e) "Warrant Price" shall mean the Exercise Price at
which this Warrant may be exercised, as may be adjusted pursuant to Section 5
hereof.
2. Term.
A. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time on or before the Expiration Date; provided,
however, this Warrant shall expire, if not previously exercised, immediately
upon the closing of the issuance of shares of Common Stock of the Company in an
underwritten public offering, pursuant to an effective registration statement
under the Securities Act of 1933, as amended, in which the aggregate proceeds
received by the Company equal at least $7,500,000 and the public offering price
is not less than $3.00 per share of Common Stock (appropriately adjusted for
stock splits, stock dividends and stock combinations).
B. The Company shall notify Holders if an event or transaction of the
kind described in Section 2.A. above is proposed, at least thirty (30) days
prior to the closing of such event or transaction and if the Company fails to
deliver such written notice at such time, anything to the contrary in this
Warrant notwithstanding, the Warrant will not expire until thirty (30) days
after the Company delivers such notice to the Holders. Such notice shall also
contain such details of the proposed event or transaction as are reasonable in
the circumstances and notice that this Warrant is expected to expire upon
closing thereof. If such closing does not take place, the Company shall promptly
notify the holders that such proposed transaction has been terminated. Anything
to the contrary in this Warrant notwithstanding, the holders may rescind any
exercise of their Warrants within thirty (30) days of such notice of termination
of the proposed transaction if the exercise of their Warrants occurred after the
Company notified such holders that an event or transaction of the kind described
in Section 2. A above was proposed or if the exercise were otherwise
precipitated by such proposed event or transaction. In the event of such
rescission, the Warrants will continue to be exercisable on the same terms and
conditions.
3. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this
-2-
<PAGE> 3
Warrant (with the notice of exercise form attached hereto as Appendix A duly
executed) at the principal office of the Company and by the payment to the
Company, by check made payable to the Company drawn on a United States bank and
for United States funds of an amount equal to the then applicable Warrant Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the purchase right represented by this Section 3,
certificates for the Shares so purchased shall be delivered to the Holder within
thirty (30) days of receipt of such payment and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
4. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall be the
Exercise Price, as adjusted from time to time pursuant to Section 5 hereof.
5. Adjustment of Number and Kind of Shares and Adjustment of
Warrant Price.
A. Certain Definitions. As used in this Section 5 the following
terms shall have the following respective meanings:
1. Options: rights, options or warrants to subscribe
for, purchase or otherwise acquire either shares of Series B Preferred Stock or
Convertible Securities; and
2. Convertible Securities: any evidences of
indebtedness, shares of stock or other securities directly or indirectly
convertible into or exchangeable for Series B Preferred Stock.
B. Adjustments. The number and kind of securities purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation or
Merger. In the case of any reclassification of the Series B Preferred Stock, or
any reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Series B Preferred Stock), the Company, or such
successor corporation, as the case may be, shall execute a new warrant,
providing that the Holder shall have the right to exercise such new warrant and
upon such exercise to receive, in lieu of each share of
-3-
<PAGE> 4
the Series B Preferred Stock theretofore issuable upon exercise of this Warrant,
the number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the Series B
Preferred Stock of the Company for each share of the Series B Preferred Stock.
The aggregate warrant price of the new warrant shall be the aggregate Warrant
Price in effect immediately prior to the reclassification, reorganization,
consolidation or merger. Such new warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5 including, without limitation, adjustments to the Warrant
Price and to the number of shares issuable upon exercise of this Warrant. The
provisions of this subsection B.1 shall similarly apply to successive
reclassification, reorganizations, consolidations or mergers.
2. Split, Subdivision or Combination or Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the Series B Preferred Stock for which this Warrant
is then exercisable, the Warrant Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination. Any adjustment under this subsection B.2 shall become effective
when the split, subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time while
this Warrant remains outstanding and unexpired shall pay a dividend with respect
to the Series B Preferred Stock for which this Warrant is then exercisable,
payable in shares of the Series B Preferred Stock, Options or Convertible
Securities, the Warrant Price shall be adjusted, from and after the date of
determination of the stockholders entitled to receive such dividend or
distributions, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Series B Preferred
Stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of the Series B
Preferred Stock outstanding immediately after such dividend or distribution
(including shares of Series B Preferred Stock issuable upon exercise, conversion
or exchange of any Options or Convertible Securities issued as such dividend or
distribution). If the Options or Convertible Securities issued as such dividend
or distribution by their terms provide, with the passage of time or otherwise,
for any decrease in the consideration payable to the Company, or any increase in
the number of shares issuable upon exercise, conversion or exchange thereof (by
change of rate or otherwise), the Warrant Price shall, upon any such decrease or
increase becoming effective, be reduced to reflect such decrease or increase as
if such decrease or increase became effective immediately prior to the issuance
of the Options or Convertible Securities as the dividend or distribution. Any
adjustment under this subsection B.3 shall become effective on the record date.
-4-
<PAGE> 5
C. Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
6. Notice of Adjustments.
Whenever the Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall issue a certificate signed by its chief financial
officer or chief executive officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Warrant Price after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Holder.
7. Compliance With Act; Transferability of Warrant; Disposition
of Shares.
A. Legends. This Warrant and the Shares issued upon exercise
thereof shall be imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
B. Transferability and Non-negotiability of Warrant and Shares.
This Warrant and the Shares issued upon exercise thereof may not be transferred
or assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
Subject to the provisions of this Section 7.B, title to this Warrant may be
transferred in the same manner as a negotiable instrument transferable by
endorsement and delivery.
-5-
<PAGE> 6
8. Miscellaneous.
No fractional shares of the Shares shall be issued in connection with
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor upon the basis of the Warrant Price then in effect.
The terms and provisions of this Warrant shall inure to the benefit of, and be
binding upon, the Company and the Holders hereof and their respective successors
and assigns. This Warrant shall be governed by and construed under the laws of
the State of California as applied to contracts entered into between residents
of the State of California to be wholly performed in the State of California.
The titles of the sections and subsections of this Warrant are for convenience
only and are not to be considered in construing this Warrant. All pronouns used
in the Warrant shall be deemed to include masculine, feminine and neuter forms.
3DFX INTERACTIVE, INC.
By: /s/ Gary Martin
--------------------------
Title: CFO
-----------------------
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<PAGE> 7
APPENDIX A
NOTICE OF EXERCISE
TO:
1. The undersigned hereby elects to purchase
________________________ shares of the __________________ of 3Dfx Interactive,
Inc. pursuant to terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full, together with all applicable transfer
taxes, if any.
2. Please issue a certificate or certificates representing said
shares of the ____________________________ in the name of the undersigned or in
such other name as is specified below:
3. The undersigned represents it is acquiring the shares of
___________________ solely for its own account and not as a nominee for any
other party and not with a view toward the resale or distribution thereof.
___________________________
(Name)
___________________________
(Address)
___________________________
___________________________
___________________________
(Taxpayer Identification Number)
______________________________
[print name of Holder]
By:
___________________________
Title:
________________________
Date:
_________________________
<PAGE> 1
EXHIBIT 10.7.5
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF SERIES B PREFERRED STOCK
Warrant B-3
Company: 3Dfx Interactive, Inc., a California corporation (the "Company"), and
any corporation that shall succeed to the obligations of the Company
under this Warrant.
Number of Shares: 180,000
-----------------------------------
Class of Stock: Series B Preferred Stock
-----------------------------------
Exercise Price: $2.20 per share
-----------------------------------
Expiration Date: December 31, 2001
-----------------------------------
Date of Grant: April , 1996
-----------------------------------
THIS CERTIFIES THAT, for value received, Taiwan Semiconductor
Manufacturing Company, Ltd. is entitled to purchase 180,000 shares of the
Company's Series B Preferred Stock (the "Shares") at an Exercise Price of $2.20
per share (as may be adjusted pursuant to Section 5 hereof), subject to the
provisions and upon the terms and conditions set forth herein.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
(b) "Common Stock" shall mean shares of the presently
authorized common stock of the Company and any stock into which such common
stock may hereafter be exchanged.
-1-
<PAGE> 2
(c) "Holder" shall mean any person who shall at the time
be the holder of this Warrant.
(d) "Shares" shall mean the shares of the Series B
Preferred Stock that the Holder is entitled to purchase upon exercise of this
Warrant, as adjusted pursuant to Section 5 hereof.
(e) "Warrant Price" shall mean the Exercise Price at
which this Warrant may be exercised, as may be adjusted pursuant to Section 5
hereof.
2. Term.
A. The purchase right represented by this Warrant shall become
exercisable at the rate of 20 shares of Series B Preferred Stock for each wafer
above above 2,000 wafers delivered to the Company during 1996. The portion of
this Warrant that has become exercisable shall be exercisable, in whole or in
part, at any time on or before the Expiration Date; provided, however, this
Warrant shall expire, if not previously exercised, immediately upon the closing
of the issuance of shares of Common Stock of the Company in an underwritten
public offering, pursuant to an effective registration statement under the
Securities Act of 1933, as amended, in which the aggregate proceeds received by
the Company equal at least $7,500,000 and the public offering price is not less
than $3.00 per share of Common Stock (appropriately adjusted for stock splits,
stock dividends and stock combinations).
B. The Company shall notify Holders if an event or transaction of the
kind described in Section 2.A. above is proposed, at least thirty (30) days
prior to the closing of such event or transaction and if the Company fails to
deliver such written notice at such time, anything to the contrary in this
Warrant notwithstanding, the Warrant will not expire until thirty (30) days
after the Company delivers such notice to the Holders. Such notice shall also
contain such details of the proposed event or transaction as are reasonable in
the circumstances and notice that this Warrant is expected to expire upon
closing thereof. If such closing does not take place, the Company shall promptly
notify the holders that such proposed transaction has been terminated. Anything
to the contrary in this Warrant notwithstanding, the holders may rescind any
exercise of their Warrants within thirty (30) days of such notice of termination
of the proposed transaction if the exercise of their Warrants occurred after the
Company notified such holders that an event or transaction of the kind described
in Section 2. A above was proposed or if the exercise were otherwise
precipitated by such proposed event or transaction. In the event of such
rescission, the Warrants will continue to be exercisable on the same terms and
conditions.
-2-
<PAGE> 3
3. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender of
this Warrant (with the notice of exercise form attached hereto as Appendix A
duly executed) at the principal office of the Company and by the payment to the
Company, by check made payable to the Company drawn on a United States bank and
for United States funds of an amount equal to the then applicable Warrant Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the purchase right represented by this Section 3,
certificates for the Shares so purchased shall be delivered to the Holder within
thirty (30) days of receipt of such payment and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
4. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall be the
Exercise Price, as adjusted from time to time pursuant to Section 5 hereof.
5. Adjustment of Number and Kind of Shares and Adjustment of
Warrant Price.
A. Certain Definitions. As used in this Section 5 the following
terms shall have the following respective meanings:
1. Options: rights, options or warrants to subscribe
for, purchase or otherwise acquire either shares of Series B Preferred Stock or
Convertible Securities; and
2. Convertible Securities: any evidences of
indebtedness, shares of stock or other securities directly or indirectly
convertible into or exchangeable for Series B Preferred Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation or
Merger. In the case of any reclassification of the Series B Preferred Stock, or
any reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company
-3-
<PAGE> 4
is the continuing corporation and which does not result in any reclassification
of the Series B Preferred Stock), the Company, or such successor corporation, as
the case may be, shall execute a new warrant, providing that the Holder shall
have the right to exercise such new warrant and upon such exercise to receive,
in lieu of each share of the Series B Preferred Stock theretofore issuable upon
exercise of this Warrant, the number and kind of securities receivable upon such
reclassification, reorganization, consolidation or merger by a holder of shares
of the Series B Preferred Stock of the Company for each share of the Series B
Preferred Stock. The aggregate warrant price of the new warrant shall be the
aggregate Warrant Price in effect immediately prior to the reclassification,
reorganization, consolidation or merger. Such new warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5 including, without limitation,
adjustments to the Warrant Price and to the number of shares issuable upon
exercise of this Warrant. The provisions of this subsection B.1 shall similarly
apply to successive reclassification, reorganizations, consolidations or
mergers.
2. Split, Subdivision or Combination or Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
split, subdivide or combine the Series B Preferred Stock for which this Warrant
is then exercisable, the Warrant Price shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination. Any adjustment under this subsection B.2 shall become effective
when the split, subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time while
this Warrant remains outstanding and unexpired shall pay a dividend with respect
to the Series B Preferred Stock for which this Warrant is then exercisable,
payable in shares of the Series B Preferred Stock, Options or Convertible
Securities, the Warrant Price shall be adjusted, from and after the date of
determination of the stockholders entitled to receive such dividend or
distributions, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Series B Preferred
Stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of the Series B
Preferred Stock outstanding immediately after such dividend or distribution
(including shares of Series B Preferred Stock issuable upon exercise, conversion
or exchange of any Options or Convertible Securities issued as such dividend or
distribution). If the Options or Convertible Securities issued as such dividend
or distribution by their terms provide, with the passage of time or otherwise,
for any decrease in the consideration payable to the Company, or any increase in
the number of shares issuable upon exercise, conversion or exchange thereof (by
change of rate or otherwise), the Warrant Price shall, upon any such decrease or
increase becoming effective, be reduced to reflect such decrease or increase as
if such decrease or increase became effective
-4-
<PAGE> 5
immediately prior to the issuance of the Options or Convertible Securities as
the dividend or distribution. Any adjustment under this subsection B.3 shall
become effective on the record date.
C. Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
6. Notice of Adjustments.
Whenever the Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall issue a certificate signed by its chief financial
officer or chief executive officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Warrant Price after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Holder.
7. Compliance With Act; Transferability of Warrant; Disposition
of Shares.
A. Legends. This Warrant and the Shares issued upon exercise
thereof shall be imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
B. Transferability and Non-negotiability of Warrant and Shares.
This Warrant and the Shares issued upon exercise thereof may not be transferred
or assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory
-5-
<PAGE> 6
to the Company, if reasonably requested by the Company). Subject to the
provisions of this Section 7.B, title to this Warrant may be transferred in the
same manner as a negotiable instrument transferable by endorsement and delivery.
8. Miscellaneous.
No fractional shares of the Shares shall be issued in connection with
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor upon the basis of the Warrant Price then in effect.
The terms and provisions of this Warrant shall inure to the benefit of, and be
binding upon, the Company and the Holders hereof and their respective successors
and assigns. This Warrant shall be governed by and construed under the laws of
the State of California as applied to contracts entered into between residents
of the State of California to be wholly performed in the State of California.
The titles of the sections and subsections of this Warrant are for convenience
only and are not to be considered in construing this Warrant. All pronouns used
in the Warrant shall be deemed to include masculine, feminine and neuter forms.
3DFX INTERACTIVE, INC.
By: /s/ Gary Martin
------------------------------------
Title: CFO
---------------------------------
-6-
<PAGE> 7
APPENDIX A
NOTICE OF EXERCISE
TO:________________
1. The undersigned hereby elects to purchase
________________________ shares of the __________________ of 3Dfx Interactive,
Inc. pursuant to terms of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full, together with all applicable transfer
taxes, if any.
2. Please issue a certificate or certificates representing said
shares of the ____________________________ in the name of the undersigned or in
such other name as is specified below:
3. The undersigned represents it is acquiring the shares of
__________________ solely for its own account and not as a nominee for any other
party and not with a view toward the resale or distribution thereof.
________________________________
(Name)
________________________________
(Address)
________________________________
________________________________
________________________________
(Taxpayer Identification Number)
________________________________
[print name of Holder]
By:
_____________________________
Title:
__________________________
Date:
___________________________
<PAGE> 1
EXHIBIT 10.7.6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
Warrant C-1 WARRANT TO PURCHASE SHARES
OF SERIES C PREFERRED STOCK
Company: 3Dfx Interactive, Inc., a California corporation (the
"Company"), and any corporation that shall succeed to the
obligations of the Company under this Warrant.
Number of Shares: 20,000
------------------------
Class of Stock: Series C Preferred
------------------------
Exercise Price: (See Section 5.B.4)
------------------------
Expiration Date: June , 2001
------------------------
Date of Grant: June , 1996
------------------------
THIS CERTIFIES THAT, for value received, Goodin & Associates,
a [Describe type of entity],("Holder") is entitled to purchase 20,000 shares of
the Company's Series C Preferred Stock (the "Shares") to be created and sold by
the Company in a financing resulting in gross proceeds to the Company of at
least $1,000,000, including the principal and interest of promissory notes which
may be converted into shares of such Series C Preferred Stock, (the "Financing")
at the Exercise Price (as initially determined by Section 5.B.4 and as may be
further adjusted pursuant to Section 5 hereof), subject to the provisions and
upon the terms and conditions set forth herein.
I. Definitions.
As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
1. "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
-1-
<PAGE> 2
2. "Common Stock" shall mean shares of the
presently authorized common stock of the Company and any stock into which such
common stock may hereafter be exchanged.
3. "Holder" shall mean any person who shall at the
time be the holder of this Warrant.
4. "Shares" shall mean the shares of the Series C
Preferred Stock or Common Stock that the Holder is entitled to purchase upon
exercise of this Warrant, as adjusted pursuant to Section 5 hereof.
5. "Warrant Price" shall mean the Exercise Price at
which this Warrant may be exercised, as intially determined by Section 5.B.4 and
as further adjusted pursuant to Section 5 hereof.
II. Term.
A. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time on or before the Expiration Date;
provided, however, this Warrant shall expire, if not previously exercised,
immediately upon the closing of the issuance of shares of Common Stock of the
Company in an underwritten public offering, pursuant to an effective
registration statement under the Securities Act of 1933, as amended, in which
the aggregate proceeds received by the Company equal at least $15,000,000 and
the public offering price is not less than $6.60 per share of Common Stock
(appropriately adjusted for stock splits, stock dividends and stock
combinations).
B. The Company shall notify Holders if an event or transaction
of the kind described in Section 2.A. above is proposed, at least thirty (30)
days prior to the closing of such event or transaction and if the Company fails
to deliver such written notice at such time, anything to the contrary in this
Warrant notwithstanding, the Warrant will not expire until thirty (30) days
after the Company delivers such notice to the Holders. Such notice shall also
contain such details of the proposed event or transaction as are reasonable in
the circumstances and notice that this Warrant is expected to expire upon
closing thereof. If such closing does not take place, the Company shall promptly
notify the holders that such proposed transaction has been terminated. Anything
to the contrary in this Warrant notwithstanding, the holders may rescind any
exercise of their Warrants within thirty (30) days of such notice of termination
of the proposed transaction if the exercise of their Warrants occurred after the
Company notified such holders that an event or transaction of the kind described
in Section 2. A above was proposed or if the exercise were otherwise
precipitated by such proposed event or transaction. In the event of such
rescission, the Warrants will continue to be exercisable on the same terms and
conditions.
-2-
<PAGE> 3
III. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Appendix A duly executed) at the principal office of the Company and by the
payment to the Company, by check made payable to the Company drawn on a United
States bank and for United States funds of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased. In the event of any exercise of the purchase right represented by
this Section 3, certificates for the Shares so purchased shall be delivered to
the Holder within thirty (30) days of receipt of such payment and, unless this
Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder within such thirty (30)
day period.
IV. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall
be the Exercise Price, as determined by Section 5.B.4 and as adjusted from time
to time pursuant to Section 5 hereof.
V. Adjustment of Number and Kind of Shares and
Adjustment of Warrant Price.
A. Certain Definitions. As used in this Section 5 the
following terms shall have the following respective meanings:
1. Options: rights, options or warrants to
subscribe for, purchase or otherwise acquire either shares of Series C Preferred
Stock, Common Stock or Convertible Securities; and
2. Convertible Securities: any evidences of
indebtedness, shares of stock or other securities directly or indirectly
convertible into or exchangeable for Common Stock, including the Company's
Series C Preferred Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation
or Merger. In the case of any reclassification of the Series C Preferred Stock
or any
-3-
<PAGE> 4
reorganization, consolidation or merger of the Company with or into another
corporation (other than a merger or reorganization with respect to which the
Company is the continuing corporation and which does not result in any
reclassification of the Series C Preferred Stock), the Company, or such
successor corporation, as the case may be, shall execute a new warrant,
providing that the Holder shall have the right to exercise such new warrant and
upon such exercise to receive, in lieu of each share of the Series C Preferred
Stock, as applicable, theretofore issuable upon exercise of this Warrant, the
number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the Series C
Preferred Stock of the Company for each share of the Series C Preferred Stock.
The aggregate warrant price of the new warrant shall be the aggregate Warrant
Price in effect immediately prior to the reclassification, reorganization,
consolidation or merger. Such new warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5 including, without limitation, adjustments to the Warrant
Price and to the number of shares issuable upon exercise of this Warrant. The
provisions of this subsection B.1 shall similarly apply to successive
reclassification, reorganizations, consolidations or mergers.
2. Split, Subdivision or Combination or Shares. If
the Company at any time while this Warrant remains outstanding and unexpired
shall split, subdivide or combine the Series C Preferred Stock, for which this
Warrant is then exercisable, the Warrant Price shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination. Any adjustment under this subsection B.2 shall become
effective when the split, subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time
while this Warrant remains outstanding and unexpired shall pay a dividend with
respect to the Series C Preferred Stock for which this Warrant is then
exercisable, payable in shares of that Series C Preferred Stock, Options or
Convertible Securities, the Warrant Price shall be adjusted, from and after the
date of determination of the stockholders entitled to receive such dividend or
distributions, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Series C Preferred
Stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of the Series C
Preferred Stock outstanding immediately after such dividend or distribution
(including shares of Series C Preferred Stock issuable upon exercise, conversion
or exchange of any Options or Convertible Securities issued as such dividend or
distribution). If the Options or Convertible Securities issued as such dividend
or distribution by their terms provide, with the passage of time or otherwise,
for any decrease in the consideration payable to the Company, or any increase in
the number of shares issuable upon exercise, conversion or exchange thereof (by
change of rate or otherwise), the Warrant
-4-
<PAGE> 5
Price shall, upon any such decrease or increase becoming effective, be reduced
to reflect such decrease or increase as if such decrease or increase became
effective immediately prior to the issuance of the Options or Convertible
Securities as the dividend or distribution. Any adjustment under this subsection
B.3 shall become effective on the record date.
4. Establishment of Exercise Price. The Warrant
Price shall be fixed at a price equal to the price per share of the Company's
Series C Preferred Stock sold in the Financing.
C. Adjustment of Number of Shares. Upon each adjustment
in the Warrant Price pursuant to this Section 5, but excluding adjustments
pursuant to subsection B. 4 of this Section 5, the number of Shares issuable
upon exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
VI. Notice of Adjustments.
Whenever the Warrant Price shall be adjusted pursuant to
Section 5 hereof, the Company shall issue a certificate signed by its chief
financial officer or chief executive officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed (by first class mail, postage prepaid) to the Holder.
VII. Compliance With Act; Transferability of Warrant;
Disposition of Shares.
A. Legends. This Warrant and the Shares issued upon
exercise thereof shall be imprinted with a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
-5-
<PAGE> 6
B. Transferability and Non-negotiability of Warrant and
Shares. This Warrant and the Shares issued upon exercise thereof may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). Subject to the provisions of this Section 7.B, title
to this Warrant may be transferred in the same manner as a negotiable instrument
transferable by endorsement and delivery.
VIII. Miscellaneous.
No fractional shares of the Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and the Holders hereof and
their respective successors and assigns. This Warrant shall be governed by and
construed under the laws of the State of California as applied to contracts
entered into between residents of the State of California to be wholly performed
in the State of California. The titles of the sections and subsections of this
Warrant are for convenience only and are not to be considered in construing this
Warrant. All pronouns used in the Warrant shall be deemed to include masculine,
feminine and neuter forms.
3DFX INTERACTIVE, INC.
By: /s/ Gary Martin
------------------------------------
Title: CFO
---------------------------------
-6-
<PAGE> 7
APPENDIX A
NOTICE OF EXERCISE
TO:______________
1. The undersigned hereby elects to purchase__________ shares
of the____________ of 3Dfx Interactive, Inc., pursuant to terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing
said shares of the__________________ in the name of the undersigned or in such
other name as is specified below:
3. The undersigned represents it is acquiring the shares
of__________ solely for its own account and not as a nominee for any other party
and not with a view toward the resale or distribution thereof.
________________________________
(Name)
________________________________
(Address)
________________________________
________________________________
________________________________
(Taxpayer Identification Number)
__________________________
[print name of Holder]
By:_______________________
Title:____________________
Date:_____________________
<PAGE> 8
AMENDMENT NO. 1 TO WARRANT
This Amendment (the "Amendment No. 1") is entered into as of May __,
1997 among 3Dfx Interactive, Inc., a California corporation (the "Company") and
Goodin & Associates (the "Investor").
RECITALS
WHEREAS, on June 1, 1996 the Company issued to Investor a warrant (the
"Warrant") to purchase up to 20,000 shares of Series C Preferred Stock of the
Company, which Warrant becomes exercisable immediately upon the closing of an
initial public offering of the Company's Common Stock to the public.
WHEREAS, the Company and the Investor desire to amend the Warrant to
provide for a "net exercise" provision to facilitate the exercise of the
Warrant.
WHEREAS, concurrently with the execution of this Amendment No. 1, the
Investor will execute a form of Lock-Up Agreement in the form executed by each
of the officers and directors of the Company.
NOW THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
considerations, the parties hereby agree as follows:
1. Amendment to Section III
Section III of the Warrant is hereby amended to read in its entirety as
follows:
"Subject to Section 2 hereof, the purchase right
represented by this Warrant may be exercised by the Holder, in whole or
in part, by the surrender of this Warrant (with the notice of exercise
form attached hereto as Appendix A duly executed) at the principal
office of the Company and by the payment to the Company of the Exercise
Price. The Exercise Price may be paid in whole or in part by the Holder
to the Company:
(A) by check or wire transfer of immediately
available funds, of an amount equal to the Exercise Price per share
multiplied by the number of Shares then being purchased; or
(B) the Holder may elect to receive shares equal to
the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Notice of Exercise and
notice of such election in which event the Company shall issue to the
Holder a number of Shares computed using the following formula:
X = Y (A - B)
---------
A
<PAGE> 9
Where X = the number of Shares to be issued to the
Holder
Y = the number of Shares purchasable under the
Warrant or, if only a portion of the Warrant
is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one Share (at the
date of such calculation)
B = Exercise Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, fair market value of one Share
shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the
Company's Common Stock at the time of such exercise, the fair market
value per Share shall be the product of (i) the average of the closing
bid and asked prices of the Common Stock quoted in the Over-The-Counter
Market Summary or the last reported sale price of the Common Stock or
the closing price quoted on the NASDAQ National Market System or on any
exchange on which the Common Stock is listed, whichever is applicable,
as published in the Western Edition of The Wall Street Journal for the
five (5) trading days prior to the date of determination of fair market
value and (ii) the number of shares of Common Stock into which each
Share is convertible at the time of such exercise. Notwithstanding the
foregoing, in the event the Warrant is exercised in connection with the
Company's IPO, the fair market value per share shall be the product of
(i) the per share offering price to the public of the Company's IPO,
and (ii) the number of shares of Common Stock into which each Share is
convertible at the time of such exercise.
(C) Certificates for Shares purchased hereunder shall
be delivered to the Holder hereof within a reasonable time after the
date on which this Warrant shall have been exercised as aforesaid.
(D) The Company covenants that all Shares which may
be issued upon the exercise of rights represented by this Warrant will,
upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with
such issue).
2. Full Force and Effect. Subject to the foregoing amendments, the
Warrant remains in full force and effect and is herewith confirmed.
3. Counterparts. This Amendment No. 1 may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-2-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the date first written above.
3Dfx INTERACTIVE, INC. GOODIN & ASSOCIATES
By:__________________________ By:____________________________
Title:_______________________ Title:_________________________
-3-
<PAGE> 1
EXHIBIT 10.7.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
Warrant C-2 WARRANT TO PURCHASE SHARES
OF SERIES C PREFERRED STOCK
Company: 3Dfx Interactive, Inc., a California corporation (the "Company"), and
any corporation that shall succeed to the obligations of the Company
under this Warrant.
Number of Shares: 40,000
----------------------------
Class of Stock: Series C Preferred
----------------------------
Exercise Price: $3.75
----------------------------
Expiration Date: September 11, 2001
----------------------------
Date of Grant: September 11, 1996
----------------------------
THIS CERTIFIES THAT, for value received, Simon Szeto, an
individual also doing business as SYMTEK, ("Holder") is entitled to purchase
40,000 shares of the Company's Series C Preferred Stock (the "Shares") at $3.75
per share, (as may be further adjusted pursuant to Section 5 hereof), subject to
the provisions and upon the terms and conditions set forth herein.
I. Definitions.
As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
1. "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
2. "Common Stock" shall mean shares of the
presently authorized common stock of the Company and any stock into which such
common stock may hereafter be exchanged.
-1-
<PAGE> 2
3. "Holder" shall mean any person who shall at the
time be the holder of this Warrant.
4. "Shares" shall mean the shares of the Series C
Preferred Stock or Common Stock that the Holder is entitled to purchase upon
exercise of this Warrant, as adjusted pursuant to Section 5 hereof.
5. "Warrant Price" shall mean the Exercise Price at
which this Warrant may be exercised, as further adjusted pursuant to Section 5
hereof.
II. Term.
A. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time on or before the Expiration Date;
provided, however, this Warrant shall expire, if not previously exercised,
immediately upon the closing of the issuance of shares of Common Stock of the
Company in an underwritten public offering, pursuant to an effective
registration statement under the Securities Act of 1933, as amended, in which
the aggregate proceeds received by the Company equal at least $15,000,000 and
the public offering price is not less than $6.60 per share of Common Stock
(appropriately adjusted for stock splits, stock dividends and stock
combinations).
B. The Company shall notify Holders if an event or transaction
of the kind described in Section 2.A. above is proposed, at least thirty (30)
days prior to the closing of such event or transaction and if the Company fails
to deliver such written notice at such time, anything to the contrary in this
Warrant notwithstanding, the Warrant will not expire until thirty (30) days
after the Company delivers such notice to the Holders. Such notice shall also
contain such details of the proposed event or transaction as are reasonable in
the circumstances and notice that this Warrant is expected to expire upon
closing thereof. If such closing does not take place, the Company shall promptly
notify the holders that such proposed transaction has been terminated. Anything
to the contrary in this Warrant notwithstanding, the holders may rescind any
exercise of their Warrants within thirty (30) days of such notice of termination
of the proposed transaction if the exercise of their Warrants occurred after the
Company notified such holders that an event or transaction of the kind described
in Section 2. A above was proposed or if the exercise were otherwise
precipitated by such proposed event or transaction. In the event of such
rescission, the Warrants will continue to be exercisable on the same terms and
conditions.
III. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this
<PAGE> 3
Warrant (with the notice of exercise form attached hereto as Appendix A duly
executed) at the principal office of the Company and by the payment to the
Company, by check made payable to the Company drawn on a United States bank and
for United States funds of an amount equal to the then applicable Warrant Price
per share multiplied by the number of Shares then being purchased. In the event
of any exercise of the purchase right represented by this Section 3,
certificates for the Shares so purchased shall be delivered to the Holder within
thirty (30) days of receipt of such payment and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Holder within such thirty (30) day period.
IV. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall
be the Exercise Price, as adjusted from time to time pursuant to Section 5
hereof.
V. Adjustment of Number and Kind of Shares and
Adjustment of Warrant Price.
A. Certain Definitions. As used in this Section 5 the
following terms shall have the following respective meanings:
1. Options: rights, options or warrants to
subscribe for, purchase or otherwise acquire either shares of Series C Preferred
Stock, Common Stock or Convertible Securities; and
2. Convertible Securities: any evidences of
indebtedness, shares of stock or other securities directly or indirectly
convertible into or exchangeable for Common Stock, including the Company's
Series C Preferred Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation
or Merger. In the case of any reclassification of the Series C Preferred Stock
or any reorganization, consolidation or merger of the Company with or into
another corporation (other than a merger or reorganization with respect to which
the Company is the continuing corporation and which does not result in any
reclassification of the Series C Preferred Stock), the Company, or such
successor corporation, as the case may be, shall execute a new warrant,
providing that the Holder shall have the right to
-3-
<PAGE> 4
exercise such new warrant and upon such exercise to receive, in lieu of each
share of the Series C Preferred Stock, as applicable, theretofore issuable upon
exercise of this Warrant, the number and kind of securities receivable upon such
reclassification, reorganization, consolidation or merger by a holder of shares
of the Series C Preferred Stock of the Company for each share of the Series C
Preferred Stock. The aggregate warrant price of the new warrant shall be the
aggregate Warrant Price in effect immediately prior to the reclassification,
reorganization, consolidation or merger. Such new warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5 including, without limitation,
adjustments to the Warrant Price and to the number of shares issuable upon
exercise of this Warrant. The provisions of this subsection B.1 shall similarly
apply to successive reclassification, reorganizations, consolidations or
mergers.
2. Split, Subdivision or Combination or Shares.
If the Company at any time while this Warrant remains outstanding and unexpired
shall split, subdivide or combine the Series C Preferred Stock, for which this
Warrant is then exercisable, the Warrant Price shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination. Any adjustment under this subsection B.2 shall become
effective when the split, subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time
while this Warrant remains outstanding and unexpired shall pay a dividend with
respect to the Series C Preferred Stock for which this Warrant is then
exercisable, payable in shares of that Series C Preferred Stock, Options or
Convertible Securities, the Warrant Price shall be adjusted, from and after the
date of determination of the stockholders entitled to receive such dividend or
distributions, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Series C Preferred
Stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of the Series C
Preferred Stock outstanding immediately after such dividend or distribution
(including shares of Series C Preferred Stock issuable upon exercise, conversion
or exchange of any Options or Convertible Securities issued as such dividend or
distribution). If the Options or Convertible Securities issued as such dividend
or distribution by their terms provide, with the passage of time or otherwise,
for any decrease in the consideration payable to the Company, or any increase in
the number of shares issuable upon exercise, conversion or exchange thereof (by
change of rate or otherwise), the Warrant Price shall, upon any such decrease or
increase becoming effective, be reduced to reflect such decrease or increase as
if such decrease or increase became effective immediately prior to the issuance
of the Options or Convertible Securities as the dividend or distribution. Any
adjustment under this subsection B.3 shall become effective on the record date.
-4-
<PAGE> 5
C. Adjustment of Number of Shares. Upon each adjustment
in the Warrant Price pursuant to this Section 5, the number of Shares issuable
upon exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
VI. Notice of Adjustments.
Whenever the Warrant Price shall be adjusted pursuant to
Section 5 hereof, the Company shall issue a certificate signed by its chief
financial officer or chief executive officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed (by first class mail, postage prepaid) to the Holder.
VII. Compliance With Act; Transferability of Warrant;
Disposition of Shares.
A. Legends. This Warrant and the Shares issued upon
exercise thereof shall be imprinted with a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
B. Transferability and Non-negotiability of Warrant and
Shares. This Warrant and the Shares issued upon exercise thereof may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). Subject to the provisions of this Section 7.B, title
to this Warrant may be transferred in the same manner as a negotiable instrument
transferable by endorsement and delivery.
-5-
<PAGE> 6
VIII. Miscellaneous.
No fractional shares of the Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and the Holders hereof and
their respective successors and assigns. This Warrant shall be governed by and
construed under the laws of the State of California as applied to contracts
entered into between residents of the State of California to be wholly performed
in the State of California. The titles of the sections and subsections of this
Warrant are for convenience only and are not to be considered in construing this
Warrant. All pronouns used in the Warrant shall be deemed to include masculine,
feminine and neuter forms.
3DFX INTERACTIVE, INC.
By: /s/ Gary Martin
------------------------------------
Title: CFO
---------------------------------
-6-
<PAGE> 7
APPENDIX A
NOTICE OF EXERCISE
TO:_______________
1. The undersigned hereby elects to purchase_______________
shares of the____________ of 3Dfx Interactive, Inc., pursuant to terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing
said shares of the______________ in the name of the undersigned or in such other
name as is specified below:
3. The undersigned represents it is acquiring the shares
of_______________ solely for its own account and not as a nominee for any other
party and not with a view toward the resale or distribution thereof.
________________________________
(Name)
________________________________
(Address)
________________________________
________________________________
________________________________
(Taxpayer Identification Number)
________________________________
[print name of Holder]
By:_____________________________
Title:__________________________
Date:___________________________
<PAGE> 8
AMENDMENT NO. 1 TO WARRANT
This Amendment (the "Amendment No. 1") is entered into as of May __,
1997 among 3Dfx Interactive, Inc., a California corporation (the "Company") and
SYMTEK (the "Investor").
RECITALS
WHEREAS, on September 11, 1996 the Company issued to Investor a warrant
(the "Warrant") to purchase up to 40,000 shares of Series C Preferred Stock of
the Company, which Warrant becomes exercisable immediately upon the closing of
an initial public offering of the Company's Common Stock to the public.
WHEREAS, the Company and the Investor desire to amend the Warrant to
provide for a "net exercise" provision to facilitate the exercise of the
Warrant.
WHEREAS, concurrently with the execution of this Amendment No. 1, the
Investor will execute a form of Lock-Up Agreement in the form executed by each
of the officers and directors of the Company.
NOW THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
considerations, the parties hereby agree as follows:
1. Amendment to Section III
Section III of the Warrant is hereby amended to read in its entirety as
follows:
"Subject to Section 2 hereof, the purchase right represented by this
Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached
hereto as Appendix A duly executed) at the principal office of the
Company and by the payment to the Company of the Exercise Price. The
Exercise Price may be paid in whole or in part by the Holder to the
Company:
(A) by check or wire transfer of immediately
available funds, of an amount equal to the Exercise Price per share
multiplied by the number of Shares then being purchased; or
(B) the Holder may elect to receive shares equal to
the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of
the Company together with the properly endorsed Notice of Exercise and
notice of such election in which event the Company shall issue to the
Holder a number of Shares computed using the following formula:
X = Y (A - B)
---------
A
Where X = the number of Shares to be issued to the Holder
<PAGE> 9
Y = the number of Shares purchasable under the Warrant
or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A = the fair market value of one Share (at the date of
such calculation)
B = Exercise Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one Share
shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the
Company's Common Stock at the time of such exercise, the fair market
value per Share shall be the product of (i) the average of the closing
bid and asked prices of the Common Stock quoted in the Over-The-Counter
Market Summary or the last reported sale price of the Common Stock or
the closing price quoted on the NASDAQ National Market System or on any
exchange on which the Common Stock is listed, whichever is applicable,
as published in the Western Edition of The Wall Street Journal for the
five (5) trading days prior to the date of determination of fair market
value and (ii) the number of shares of Common Stock into which each
Share is convertible at the time of such exercise. Notwithstanding the
foregoing, in the event the Warrant is exercised in connection with the
Company's IPO, the fair market value per share shall be the product of
(i) the per share offering price to the public of the Company's IPO,
and (ii) the number of shares of Common Stock into which each Share is
convertible at the time of such exercise.
(C) Certificates for Shares purchased hereunder shall
be delivered to the Holder hereof within a reasonable time after the
date on which this Warrant shall have been exercised as aforesaid.
(D) The Company covenants that all Shares which may
be issued upon the exercise of rights represented by this Warrant will,
upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with
such issue).
2. Full Force and Effect. Subject to the foregoing amendments, the
Warrant remains in full force and effect and is herewith confirmed.
3. Counterparts. This Amendment No. 1 may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-2-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the date first written above.
3Dfx INTERACTIVE, INC. SYMTEK
By: /s/ Gary Martin By: Simon Szeto
------------------------ ------------------------------
Title: CFO Title:
-------------------- --------------------------
-3-
<PAGE> 1
EXHIBIT 10.7.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
Warrant C-3 WARRANT TO PURCHASE SHARES
OF SERIES C PREFERRED STOCK
Company: 3Dfx Interactive, Inc., a California corporation (the "Company"), and
any corporation that shall succeed to the obligations of the Company
under this Warrant.
Number of Shares: 10,000
-----------------------
Class of Stock: Series C Preferred
-----------------------
Exercise Price: $3.75
-----------------------
Expiration Date: November 30, 2001
-----------------------
Date of Grant: November 30, 1996
-----------------------
THIS CERTIFIES THAT, for value received, Leland Stanford
Junior University ("Holder") is entitled to purchase 10,000 shares of the
Company's Series C Preferred Stock (the "Shares") at $3.75 per share, (as may be
further adjusted pursuant to Section 5 hereof), subject to the provisions and
upon the terms and conditions set forth herein.
I. Definitions.
As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
1. "Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder, as shall be in effect at the time.
2. "Common Stock" shall mean shares of the
presently authorized common stock of the Company and any stock into which such
common stock may hereafter be exchanged.
-1-
<PAGE> 2
3. "Holder" shall mean any person who shall at the
time be the holder of this Warrant.
4. "Shares" shall mean the shares of the Series C
Preferred Stock or Common Stock that the Holder is entitled to purchase upon
exercise of this Warrant, as adjusted pursuant to Section 5 hereof.
5. "Warrant Price" shall mean the Exercise Price at
which this Warrant may be exercised, as further adjusted pursuant to Section 5
hereof.
II. Term.
The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time on or before the Expiration Date.
III. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by
this Warrant may be exercised by the Holder, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Appendix A duly executed) at the principal office of the Company and by payment
to the Company in accordance with the terms set forth below. In the event of any
exercise of the purchase right represented by this Section 3, certificates for
the Shares so purchased shall be delivered to the Holder within seven (7) days
of receipt of such payment and, unless this Warrant has been fully exercised or
expired, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the Holder within such seven (7) day period.
The Holder may either (i) exercise all or any portion of the
outstanding Warrant by paying to the Company, by cash or check, an amount equal
to the aggregate Exercise Price of the Shares then being purchased or (ii)
receive Shares equal to the value (as determined below) of this Warrant by
surrender of the Warrant at the principal office of the Company together with a
notice of such election in which event the Company shall issue to the Holder a
number of shares of Stock computed using the following formula:
X = Y (A-B)
-------
A
Where: X = The number of shares to be issued to the Holder.
Y = The number of shares to be exercised under this Warrant.
-2-
<PAGE> 3
A = The fair market value of one Share.
B = The Exercise Price.
As used herein, current fair market value of the Shares shall
mean with respect to each Share the average of the closing prices of the
Company's Common Stock sold on the principal securities exchange on which the
Common Stock may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day the Common Stock
is not so listed, the average of the representative bid and asked prices quoted
on the NASDAQ System as of 4:00 p.m., New York City time, or, if on any day the
Common Stock is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked price on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 10 days
consisting of the day as of which the current fair market value of Common Stock
is being determined and the nine consecutive trading days prior to such day. If
at any time the Common Stock is not listed on any securities exchange or quoted
in the NASDAQ System or the over-the-counter market, the current fair market
value of each Share shall be the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director) for Shares sold
by the Company, from authorized but unissued shares, as determined in good faith
by the Board of Directors of the Company, unless the Company shall become
subject to a merger, acquisition, or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Shares shall be deemed to be the value received by the holders of the
Shares pursuant to the Company's acquisition. If the Shares consist of multiple
classes or series of the Company's capital stock, the fair market value of one
Share shall equal the weighted average fair market value of the classes or
series comprising the Shares, the fair market value of each such class or series
to be determined as provided herein.
IV. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall
be the Exercise Price, as adjusted from time to time pursuant to Section 5
hereof.
V. Adjustment of Number and Kind of Shares and
Adjustment of Warrant Price.
A. Certain Definitions. As used in this Section 5 the
following terms shall have the following respective meanings:
-3-
<PAGE> 4
1. Options: rights, options or warrants to
subscribe for, purchase or otherwise acquire either shares of Series C Preferred
Stock, Common Stock or Convertible Securities; and
2. Convertible Securities: any evidences of
indebtedness, shares of stock or other securities directly or indirectly
convertible into or exchangeable for Common Stock, including the Company's
Series C Preferred Stock.
B. Adjustments. The number and kind of securities purchasable
upon the exercise of this Warrant and the Warrant Price shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:
1. Reclassification, Reorganization, Consolidation
or Merger. In the case of any reclassification of the Series C Preferred Stock
or any reorganization, consolidation or merger of the Company with or into
another corporation (other than a merger or reorganization with respect to which
the Company is the continuing corporation and which does not result in any
reclassification of the Series C Preferred Stock), the Company, or such
successor corporation, as the case may be, shall execute a new warrant,
providing that the Holder shall have the right to exercise such new warrant and
upon such exercise to receive, in lieu of each share of the Series C Preferred
Stock, as applicable, theretofore issuable upon exercise of this Warrant, the
number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the Series C
Preferred Stock of the Company for each share of the Series C Preferred Stock.
The aggregate warrant price of the new warrant shall be the aggregate Warrant
Price in effect immediately prior to the reclassification, reorganization,
consolidation or merger. Such new warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5 including, without limitation, adjustments to the Warrant
Price and to the number of shares issuable upon exercise of this Warrant. The
provisions of this subsection B.1 shall similarly apply to successive
reclassification, reorganizations, consolidations or mergers.
2. Split, Subdivision or Combination or Shares. If
the Company at any time while this Warrant remains outstanding and unexpired
shall split, subdivide or combine the Series C Preferred Stock, for which this
Warrant is then exercisable, the Warrant Price shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination. Any adjustment under this subsection B.2 shall become
effective when the split, subdivision or combination becomes effective.
3. Stock Dividends. If the Company at any time
while this Warrant remains outstanding and unexpired shall pay a dividend with
respect to the Series C Preferred Stock for which this Warrant is then
exercisable, payable in shares
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<PAGE> 5
of that Series C Preferred Stock, Options or Convertible Securities, the Warrant
Price shall be adjusted, from and after the date of determination of the
stockholders entitled to receive such dividend or distributions, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Series C Preferred Stock outstanding immediately prior
to such dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of the Series C Preferred Stock outstanding immediately
after such dividend or distribution (including shares of Series C Preferred
Stock issuable upon exercise, conversion or exchange of any Options or
Convertible Securities issued as such dividend or distribution). If the Options
or Convertible Securities issued as such dividend or distribution by their terms
provide, with the passage of time or otherwise, for any decrease in the
consideration payable to the Company, or any increase in the number of shares
issuable upon exercise, conversion or exchange thereof (by change of rate or
otherwise), the Warrant Price shall, upon any such decrease or increase becoming
effective, be reduced to reflect such decrease or increase as if such decrease
or increase became effective immediately prior to the issuance of the Options or
Convertible Securities as the dividend or distribution. Any adjustment under
this subsection B.3 shall become effective on the record date.
C. Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to this Section 5, the number of Shares issuable upon
exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
VI. Notice of Adjustments.
Whenever the Warrant Price shall be adjusted pursuant to
Section 5 hereof, the Company shall issue a certificate signed by its chief
financial officer or chief executive officer setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated and the Warrant Price after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed (by first class mail, postage prepaid) to the Holder.
VII. Compliance With Act; Transferability of Warrant;
Disposition of Shares.
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<PAGE> 6
A. Legends. This Warrant and the Shares issued upon
exercise thereof shall be imprinted with a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
B. Transferability and Non-negotiability of Warrant and
Shares. This Warrant and the Shares issued upon exercise thereof may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). Subject to the provisions of this Section 7.B, title
to this Warrant may be transferred in the same manner as a negotiable instrument
transferable by endorsement and delivery.
VIII. Investment Representations. By its acceptance of
this Warrant, the Holder makes the following representations and warranties:
(a) The Holder understands that the Warrant and the Shares
have not been registered under the Securities Act of 1933, as amended (the
"Act"), and will be issued pursuant to an exemption from registration contained
in the Act based in part upon the representations of the Investor contained
herein.
(b) The Holder is acquiring the Warrant and the Shares solely
for its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof.
IX. Lock-Up Provision. By acceptance of this Warrant, upon
receipt of a written request by the Company or by its underwriters, the Holder
shall not sell, sell short, grant an option to buy, or otherwise dispose of the
Warrant or any of the Shares (except for any such securities included in the
registration) for a period of one hundred and eighty (180) days following the
effective date of the initial registration of the Company's Common Stock under
the Securities Act of 1933, as amended; provided, however, that the Holder shall
have no obligation to enter into the agreement described in this Section IX
unless all executive officers and directors of the Company and all other
Investors and holders of other registration rights from the Company enter into
similar agreements. The Company may impose stop-transfer instructions with
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<PAGE> 7
respect to any Securities held by the Holder subject to the foregoing
restriction until the end of said 180 day period.
X. Miscellaneous.
No fractional shares of the Shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect. The terms and provisions of this Warrant shall inure to
the benefit of, and be binding upon, the Company and the Holders hereof and
their respective successors and assigns. This Warrant shall be governed by and
construed under the laws of the State of California as applied to contracts
entered into between residents of the State of California to be wholly performed
in the State of California. The titles of the sections and subsections of this
Warrant are for convenience only and are not to be considered in construing this
Warrant. All pronouns used in the Warrant shall be deemed to include masculine,
feminine and neuter forms. The purchase price of this Warrant, $1.00, has been
paid on behalf of the Holder by an alumnus of Leland Stanford Junior University.
3DFX INTERACTIVE, INC.
By: /s/ Gary Martin
---------------------------
Title: CFO
------------------------
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<PAGE> 8
APPENDIX A
NOTICE OF EXERCISE
TO:_________________
1. The undersigned hereby elects to purchase __________shares
of the______________ of 3Dfx Interactive, Inc., pursuant to terms of the
attached Warrant, and (i) [CHECK BOX__] tenders herewith payment of the
$__________ purchase price of such shares in full, together with all applicable
transfer taxes, if any, or (ii) [CHECK BOX __] hereby surrenders the Warrant and
elects to exercise the Warrant pursuant to the net exercise feature contained in
Section 3 of the Warrant.
2. Please issue a certificate or certificates representing
said shares of the___________________ in the name of the undersigned or in such
other name as is specified below:
3. The undersigned represents it is acquiring the shares
of_______________ solely for its own account and not as a nominee for any other
party and not with a view toward the resale or distribution thereof.
________________________________
(Name)
________________________________
(Address)
________________________________
________________________________
________________________________
(Taxpayer Identification Number)
_______________________________
[print name of Holder]
By:____________________________
Title:_________________________
Date:__________________________
<PAGE> 1
Exhibit 11.1
3Dfx Interactive, Inc.
Calculation of Pro Forma Net Loss Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------------
<S> <C> <C>
Net loss $(14,751) $(1,161)
-------- -------
Weighted average common shares outstanding 1,887 2,204
Weighted average common equivalent shares
related to convertible preferred stock
(using the if-converted method) 6,580 7,022
Common equivalent shares relating to
stock options and warrants issued (using
the treasury stock method) subsequent
to April 15, 1996 1,160 1,160
-------- -------
Shares used in pro forma net loss per
share calculation 9,627 10,386
Net loss per share $ (1.53) $ (0.11)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 11, 1997, relating
to the financial statements of 3Dfx Interactive, Inc., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."
PRICE WATERHOUSE LLP
San Jose, California
May 21, 1997
