<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
3DFX INTERACTIVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3674 77-0390421
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
4435 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 935-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALEX LEUPP
CHIEF EXECUTIVE OFFICER AND PRESIDENT
3DFX INTERACTIVE, INC.
4435 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 935-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
JOHN B. MCKNIGHT STEPHEN NEWTON
KENT JAMISON HELLER ERHMAN WHITE & MCAULIFFE LLP
LOCKE LIDDELL & SAPP LLP 601 SOUTH FIGUEROA, 40TH FLOOR
2200 ROSS AVENUE, SUITE 2200 LOS ANGELES, CALIFORNIA 90017-5758
DALLAS, TEXAS 75201 (213) 689-0200
(214) 740-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger of a wholly owned subsidiary of the Registrant with
and into GigaPixel Corporation, which shall occur as soon as practicable after
the effective date of this Registration Statement and the satisfaction or waiver
of all conditions to the closing of such merger.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value per
share (and associated
preferred stock purchase
rights)..................... 15,037,810 shares $8.02 $120,603,236.20 $24,102.65
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</TABLE>
(1) Based on the maximum number of shares of common stock (and associated
preferred stock purchase rights) of the Registrant which may be issued
pursuant to the merger described herein. Value attributable to the
associated preferred stock purchase rights, if any, is reflected in the
market price of the Registrant's common stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) of the Securities Act of 1933, as amended, based on
the average of the high and low prices of the Registrant's common stock on
June 1, 2000.
(3) Pursuant to Rule 457(b), the registration fee has been reduced by the
$29,512 paid by the Registrant on May 5, 2000 upon the filing under Section
14(a) of the Securities and Exchange Act of 1934, as amended, of the
Registrant's proxy materials included herein relating to the merger.
Accordingly, no additional registration fee is payable upon the filing of
this Registration Statement.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C>
[3dfx LOGO] [GIGAPIXEL LOGO]
</TABLE>
PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
<TABLE>
<S> <C>
PROXY STATEMENT AND PROSPECTUS OF INFORMATION STATEMENT OF
3DFX INTERACTIVE, INC. GIGAPIXEL CORPORATION
</TABLE>
The boards of directors of 3dfx Interactive, Inc. and GigaPixel Corporation
have approved the merger of 3dfx and GigaPixel. Under the terms of the merger,
based on the number of securities of GigaPixel that are expected to be
outstanding at the closing of the merger, the holders of GigaPixel common stock
and preferred stock will receive approximately 14.7 million shares of 3dfx
common stock. After giving effect to the merger, it is expected that GigaPixel
shareholders will own approximately 37.2% of 3dfx's issued and outstanding
common stock. Based on the closing stock price of 3dfx common stock of $8.38 on
June 1, 2000, the shares of 3dfx common stock to be received by GigaPixel
shareholders in the merger would have an aggregate market value of approximately
$123.5 million. The foregoing amounts and the actual number of shares of common
stock received by GigaPixel's shareholders in the merger will be subject to the
closing adjustment and indemnity escrow arrangement provisions contained in the
merger agreement.
The merger cannot be completed unless 3dfx shareholders approve the merger,
the merger agreement and the issuance of shares of 3dfx common stock to be
delivered in connection with the merger, and GigaPixel shareholders approve the
merger and the merger agreement. The board of directors of 3dfx has called an
annual meeting of 3dfx shareholders to be held on July 19, 2000 to vote on these
matters, as well as the election of directors of 3dfx, approval of an amendment
to increase the number of shares authorized for issuance under a 3dfx stock
option plan, approval of an amendment to increase the number of shares
authorized for issuance under the 3dfx stock purchase plan, and ratification of
the selection of PricewaterhouseCoopers LLP as the independent public
accountants of 3dfx for the fiscal year ending January 31, 2001. 3dfx
shareholders that own shares of 3dfx common stock as of the record date, which
is the close of business on June 5, 2000, may vote at the 3dfx annual meeting.
GigaPixel shareholders will vote on the merger by written consent. Holders of
shares of GigaPixel common stock or preferred stock at the close of business on
the date the first written consent is given are entitled to submit written
consents.
THE BOARDS OF DIRECTORS OF 3DFX AND GIGAPIXEL ARE FURNISHING THIS DOCUMENT
TO YOU TO PROVIDE YOU WITH IMPORTANT INFORMATION ABOUT THE MERGER AND OTHER
MATTERS. IN ADDITION TO FURNISHING YOU WITH THIS IMPORTANT INFORMATION, THIS
DOCUMENT ALSO CONSTITUTES NOTICE TO THE SHAREHOLDERS OF GIGAPIXEL OF APPRAISAL
RIGHTS IN ACCORDANCE WITH THE DELAWARE GENERAL CORPORATION LAW AND THE
CALIFORNIA GENERAL CORPORATION LAW. In addition to rights extended to GigaPixel
shareholders under Delaware law, the California General Corporation Law may also
apply to GigaPixel shareholders in the merger. Holders of GigaPixel shares who
are not in favor of the merger and who wish to assert appraisal rights must
comply with the relevant procedures detailed under either Delaware law or
California law, which are set forth in the statutory provisions reproduced in
Appendices L and M to this proxy statement/ prospectus/information statement.
3dfx shareholders are not entitled to appraisal rights under the California
General Corporation Law.
3dfx common stock is traded on the Nasdaq National Market under the symbol
"TDFX." On June 1, 2000, the last reported sale price for the common stock on
the Nasdaq National Market was $8.38 per share.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. 3dfx AND GIGAPIXEL STRONGLY
URGE YOU TO READ AND CONSIDER THIS PROXY STATEMENT/PROSPECTUS/INFORMATION
STATEMENT IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER "RISK
FACTORS" BEGINNING ON PAGE 13.
<TABLE>
<S> <C>
/s/ Alex Leupp /s/ George T. Haber
Alex Leupp George T. Haber
President and Chief Executive Officer of 3dfx President and Chief Executive Officer of GigaPixel
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE 3dfx COMMON STOCK TO BE ISSUED
UNDER THIS PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT OR DETERMINED THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus/information statement is dated June 6,
2000, and was first mailed to shareholders on or about June 12, 2000.
<PAGE> 3
3DFX INTERACTIVE, INC.
4435 FORTRAN DRIVE
SAN JOSE, CALIFORNIA 95134
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 19, 2000
------------------------
TO THE SHAREHOLDERS OF 3DFX INTERACTIVE, INC.:
NOTICE IS HEREBY GIVEN that an annual meeting of shareholders of 3dfx
Interactive, Inc., a California corporation, will be held on July 19, 2000 at
10:00 a.m. local time at 3dfx's principal executive offices, 4435 Fortran Drive,
San Jose, California 95134, to consider and vote upon the following proposals:
1. To approve the Agreement and Plan of Reorganization by and among 3dfx,
Galapagos Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of 3dfx, and GigaPixel Corporation, a Delaware corporation,
to approve the merger of 3dfx and GigaPixel, and to approve the issuance
of shares of 3dfx common stock to GigaPixel shareholders in the merger.
After the merger, GigaPixel will become a wholly-owned subsidiary of
3dfx. A copy of the merger agreement is attached as Appendix A to the
proxy statement/prospectus/information statement accompanying this
notice.
2. To elect five directors to serve until the next 3dfx annual meeting of
shareholders and until their successors are duly elected and qualified.
3. To approve an amendment to the 3dfx Interactive, Inc. 1995 Employee
Stock Option Plan to increase the number of shares of common stock
reserved for issuance under the stock plan by 2,500,000 shares for a
total of 8,875,000 shares.
4. To approve an amendment to the 3dfx Interactive, Inc. 1997 Employee
Stock Purchase Plan to increase the number of shares of common stock
reserved for issuance under the purchase plan by 850,000 shares for a
total of 1,600,000 shares, as well as to provide for larger annual
increases in the number of shares reserved for issuance under the
purchase plan equal to the lesser of 600,000 shares or 1.5% of 3dfx's
then outstanding shares.
5. To ratify the selection of PricewaterhouseCoopers LLP as the independent
public accountants for 3dfx's fiscal year ending January 31, 2001.
6. To transact such other business as may properly come before this annual
meeting, including any motion to adjourn to a later time to permit
further solicitation of proxies if necessary to establish a quorum or to
obtain additional votes in favor of the proposals, or before any
postponements or adjournments thereof.
The foregoing proposals are more fully described in the accompanying Proxy
Statement/Prospectus/Information Statement. The 3dfx board of directors
unanimously recommends that you vote in favor of each of the proposals listed
above, including the approval of the merger.
The Board of Directors has fixed the close of business on June 5, 2000 as
the record date for the determination of shareholders entitled to notice of and
to vote at this annual meeting of shareholders and at any adjournments or
postponements thereof.
By Order of the Board of Directors
/s/ Alex Leupp
Alex Leupp
President and Chief Executive Officer
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE 3dfx MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE 3dfx
MEETING. YOU CAN REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Where You Can Find More Information......................... 1
Questions and Answers About the Merger...................... 2
Summary..................................................... 4
The Companies............................................. 4
The Merger................................................ 4
Reasons for the Merger.................................... 5
3dfx Annual Meeting....................................... 5
GigaPixel Written Consents................................ 6
Recommendations to Shareholders........................... 6
What GigaPixel Securityholders Will Receive in the
Merger................................................. 6
Conditions to the Merger.................................. 7
Some 3dfx and GigaPixel Shareholders Have Entered Into
Voting Agreements Obligating Them to Vote in Favor of
the Merger............................................. 8
Performance Bonus Agreements.............................. 8
Employment Agreements..................................... 8
Noncompetition Agreements................................. 8
Lock-Up Agreements........................................ 8
Limitation on Negotiations................................ 9
Termination of the Merger Agreement....................... 9
Termination Fees and Expenses............................. 9
Opinion of 3dfx Financial Advisor......................... 9
GigaPixel Financial Advisor............................... 9
Interests of Some GigaPixel Officers and Directors in the
Merger May Be Conflicts of Interest.................... 10
Federal Income Tax Consequences........................... 10
Anticipated Accounting Treatment.......................... 10
Joint Development Agreement............................... 11
Management Following the Merger........................... 11
Ownership Following the Merger............................ 11
Rights of GigaPixel Shareholders Following the Merger..... 11
Rights of Dissenting Shareholders......................... 11
GigaPixel Equivalent Per Share Value...................... 11
Risk Factors................................................ 13
Risks Related to the Merger............................... 13
Risks Related to the Business and Operations of 3dfx and
GigaPixel as a Combined Company........................ 17
Investment Risk........................................... 27
Selected Consolidated Historical and Pro Forma Financial
Data...................................................... 29
Comparative Per Share Data.................................. 34
Forward-Looking Statements May Prove Inaccurate............. 35
3dfx Market Price and Dividend Information.................. 35
The 3dfx Meeting............................................ 37
GigaPixel Solicitation of Written Consents.................. 40
Approval of the Merger and Related Transactions............. 42
Background of the Merger.................................. 42
Reasons for the Merger.................................... 44
3dfx Board Considerations................................. 44
GigaPixel Board Considerations............................ 46
Board of Directors' Recommendations Relating to the
Merger................................................. 47
Opinion of 3dfx's Financial Advisor....................... 48
Interests of Some GigaPixel Officers and Directors in the
Merger................................................. 53
Prior Relationship of 3dfx and GigaPixel.................. 54
</TABLE>
i
<PAGE> 5
<TABLE>
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PAGE
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<S> <C>
Terms of the Merger Agreement and Related Transactions...... 55
General................................................... 55
Effective Time of the Merger.............................. 55
Merger Consideration...................................... 55
Indemnification Escrow Arrangements....................... 56
Disposition of GigaPixel Options and the Warrant.......... 57
Exchange of GigaPixel Stock Certificates.................. 58
The Merger Agreement...................................... 58
Voting Agreements......................................... 61
Lock-Up Agreements........................................ 62
Employment Agreements..................................... 62
Noncompetition Agreements................................. 62
Performance Bonus Agreements.............................. 63
Consents and Approvals.................................... 63
Nasdaq Listing of 3dfx Common Stock....................... 63
Anticipated Accounting Treatment.......................... 63
Material Federal Income Tax Consequences.................. 64
Appraisal Rights.......................................... 66
Unaudited Pro Forma Financial Statements and Related
Notes..................................................... 71
3dfx Business............................................... 77
3dfx Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 77
3dfx Management Following the Merger........................ 77
Executive Officers and Directors.......................... 77
Section 16(a) Beneficial Ownership Reporting Compliance... 79
Compensation Committee Interlocks and Insider
Participation.......................................... 79
Compensation of Directors................................. 79
Compensation of Executive Officers........................ 81
Employment Agreements, Severance Arrangements and Change
of Control Arrangements................................ 83
Limitations on Liability and Indemnification Matters...... 84
Certain Relationships and Related Transactions............ 84
3dfx Security Ownership of Management and Principal
Shareholders.............................................. 86
GigaPixel Business.......................................... 87
GigaPixel Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 89
GigaPixel Executive Compensation and Other Matters.......... 91
GigaPixel Certain Transactions.............................. 91
GigaPixel Security Ownership of Management and Principal
Shareholders.............................................. 92
Description of 3dfx Capital Stock........................... 93
Comparison of 3dfx and GigaPixel Shareholder Rights......... 96
Election of 3dfx Directors.................................. 108
Nominees.................................................. 108
Board Meetings and Committees............................. 108
Approval of Amendment to the 3dfx Interactive, Inc. 1995
Employee Stock Option Plan................................ 109
Vote Required............................................. 109
Summary of Plan........................................... 110
Approval of Amendment to the 3dfx Interactive, Inc. 1997
Employee Stock Purchase Plan.............................. 112
Vote Required............................................. 113
Summary of Plan........................................... 113
Ratification of Appointment of Independent Accountants...... 116
Other Information Regarding 3dfx............................ 117
Report of the Compensation Committee of the Board of
Directors.............................................. 117
3dfx Stock Price Performance Graph........................ 120
Experts..................................................... 121
</TABLE>
ii
<PAGE> 6
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PAGE
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<S> <C>
Legal Matters............................................... 121
Trademarks.................................................. 121
Index to Financial Statements............................... F-1
GigaPixel Corporation Historical Financial Statements..... F-1
</TABLE>
<TABLE>
<S> <C> <C>
Appendix A -- Agreement and Plan of Reorganization (including selected
annexes)
Appendix B -- Form of GigaPixel Voting Agreement
Appendix C -- Form of 3dfx Voting Agreement
Appendix D -- Form of Noncompetition Agreement
Appendix E -- Form of Lock-Up Agreement
Appendix F -- Form of Indemnity Escrow Agreement
Appendix G -- Form of Employment Agreements for Executive Officers
Appendix H -- Form of Consulting Agreement
Appendix I -- Form of Performance Bonus Agreement
Appendix J -- Form of GigaPixel Written Consent
Appendix K -- Fairness Opinion of FleetBoston Robertson Stephens
Appendix L -- Section 262 of the Delaware General Corporation Law:
Appraisal Rights
Appendix M -- Sections 1300-1305 and 1312 of the California General
Corporation Law:
Dissenters' Rights
</TABLE>
iii
<PAGE> 7
ABOUT THIS PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
Except where the context requires otherwise, references in this proxy
statement/prospectus/ information statement to "3dfx Interactive, Inc." and
"3dfx" refer to 3dfx Interactive, Inc., a California corporation and its
consolidated subsidiaries. References in this proxy
statement/prospectus/information statement to "3dfx common stock," or "common
stock of 3dfx" refer to the common stock, no par value per share, of 3dfx, with
each share carrying a preferred stock purchase right. References in this proxy
statement/prospectus/information statement to "3dfx shareholders" or
"shareholders of 3dfx" refer to holders of the outstanding shares of 3dfx common
stock.
References in this proxy statement/prospectus/information statement to
"Galapagos Acquisition Corp." or "Galapagos" refer to Galapagos Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of 3dfx.
References in this proxy statement/prospectus/information statement to
"GigaPixel Corporation," or "GigaPixel" refer to GigaPixel Corporation, a
Delaware corporation. References in this proxy statement/ prospectus/information
statement to "GigaPixel common stock" or "common stock of GigaPixel" refer to
the common stock, $.001 par value per share, of GigaPixel. References in this
proxy statement/ prospectus/information statement to "preferred stock of
GigaPixel" or "GigaPixel preferred stock" refer to the Series A Preferred Stock,
Series B Preferred Stock, and Series C Preferred Stock, each series having a par
value of $.001 per share, of GigaPixel, collectively. References in this proxy
statement/prospectus/ information statement to "GigaPixel stock" refer to
GigaPixel common stock or GigaPixel preferred stock. References in this proxy
statement/prospectus/information statement to "GigaPixel shareholder" or
"shareholder of GigaPixel" refer to an individual holder of the outstanding
shares of GigaPixel common stock or preferred stock.
References in this proxy statement/prospectus/information statement to
"you" or "your" refer to an individual 3dfx shareholder and/or an individual
GigaPixel shareholder, as the context requires.
You should rely only on the information contained or incorporated by
reference in this document to vote or consent with respect to the matters
submitted to you. Neither 3dfx nor GigaPixel has authorized anyone to provide
you with information that is different from what is contained in this document.
This proxy statement/prospectus/information statement is dated June 6, 2000. You
should not assume that the information contained in this proxy
statement/prospectus/information statement is accurate as of any date other than
that date, and the issuance of 3dfx common stock in the merger will not create
any implication to the contrary. 3dfx provided the information concerning 3dfx.
GigaPixel provided the information concerning GigaPixel.
iv
<PAGE> 8
WHERE YOU CAN FIND MORE INFORMATION
3dfx files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission or SEC. You may
read and copy any reports, statements or other information filed by 3dfx at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. 3dfx's filings with the SEC are also available to
the public from commercial document retrieval services and at the world wide web
site maintained by the SEC at "http://www.sec.gov."
3dfx filed a Registration Statement on Form S-4 to register with the SEC
the 3dfx common shares to be delivered in connection with the merger. This
document is a part of that Registration Statement and constitutes a prospectus
of 3dfx in addition to being a proxy statement of 3dfx for its annual meeting of
shareholders. This document is also an information statement of GigaPixel for
its solicitation of written consents. As allowed by SEC rules, this document
does not contain all the information you can find in the Registration Statement
or the exhibits to the Registration Statement.
The SEC allows 3dfx to "incorporate by reference" information into this
document, which means that 3dfx can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this proxy statement/
prospectus/information statement, except for any information superseded by
information in this document. This document incorporates by reference the
documents set forth below that 3dfx has previously filed with the SEC. These
documents contain important information about 3dfx and its finances.
1. The description of 3dfx of common stock contained in the Registration
Statement on Form 8-A filed with the SEC on June 4, 1997;
2. The description of 3dfx's Rights Agreement contained in the Registration
Statement on Form 8-A filed with the SEC on November 11, 1998;
3. 3dfx's Annual Report on Form 10-K, as well as 3dfx's Annual Report on
Form 10-K/A (Amendment No. 1), for the fiscal year ended January 31,
2000; and
4. 3dfx's Current Report on Form 8-K filed with the SEC on June 2, 2000.
3dfx is also incorporating by reference additional documents that it files
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 between the date of this document and the date of the 3dfx annual
meeting. If you are a 3dfx shareholder, 3dfx may have sent you some of the
documents incorporated by reference, but you can obtain any of them through 3dfx
or the SEC. Documents incorporated by reference are available from 3dfx without
charge. Exhibits to the documents will not be sent, however, unless those
exhibits have specifically been incorporated by reference as exhibits in this
proxy statement/prospectus/information statement. 3dfx or GigaPixel shareholders
may obtain documents incorporated by reference in this document by requesting
them in writing or by telephone from 3dfx at the following address:
3dfx Interactive, Inc.
4335 Fortran Drive
San Jose, California 95134
(408) 935-4400
Attention: David Zacarias
IF YOU ARE A 3DFX SHAREHOLDER AND WOULD LIKE TO REQUEST DOCUMENTS FROM
3DFX, PLEASE DO SO BY JULY 12, 2000 TO RECEIVE THEM BEFORE THE ANNUAL MEETING.
3dfx's world wide web home page is located at http://www.3dfx.com.
GigaPixel's world wide web home page is located at http://www.gigapixel.com.
Information contained in either 3dfx's or GigaPixel's website does not
constitute, and shall not be deemed to constitute, part of this proxy statement/
prospectus/information statement.
1
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN IS IT EXPECTED THAT THE MERGER WILL BE COMPLETED?
A: 3dfx and GigaPixel are working toward completing the merger as quickly as
possible, and hope to complete the merger shortly following the 3dfx annual
meeting to be held on July 19, 2000. In order to complete the merger, the
shareholders of both 3dfx and GigaPixel must approve the merger. Following
approval by the 3dfx and GigaPixel shareholders, the merger will be complete
when all of the other conditions to completion of the merger are satisfied or
waived. The merger will become effective when a certificate of merger is
filed with the Secretary of State of Delaware.
Q: AS A GIGAPIXEL SHAREHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: Based on the number of securities of GigaPixel that are expected to be
outstanding at the closing of the merger, you will receive approximately 0.70
of a share of 3dfx common stock for each share of GigaPixel stock that you
own, subject to some adjustments provided for in the merger agreement. For
example, if you own 1,000 shares of GigaPixel stock, you will receive
approximately 700 shares of 3dfx common stock. You will receive only whole
shares. You will receive cash for any fractional shares. Please see
"Summary -- GigaPixel Equivalent Per Share Value" for information regarding a
number of assumptions made in calculating what you will receive in the
merger.
Q: AS A 3DFX SHAREHOLDER, WILL I RECEIVE ADDITIONAL SHARES OF 3DFX COMMON STOCK
IN THE MERGER?
A: No, you will continue to hold the same number of shares of 3dfx common stock
after the merger. Shares of 3dfx common stock will be issued only to
GigaPixel shareholders in the merger. The merger will result in 3dfx
shareholders holding a smaller percentage of the combined company's stock
than the percentage of 3dfx stock they currently hold. After the merger, it
is expected that pre-merger 3dfx shareholders will own approximately 62.8% of
the outstanding shares of 3dfx common stock.
Q: HAS SOMEONE DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF THE 3DFX
AND GIGAPIXEL SHAREHOLDERS?
A: Yes, the boards of directors of 3dfx and GigaPixel have determined that the
merger is in the best interests of their respective shareholders. The board
of directors of each of 3dfx and GigaPixel has approved the merger and the
merger agreement, and the board of directors of 3dfx has approved the
issuance of 3dfx common stock in the merger.
Q: WILL 3DFX SHAREHOLDERS VOTE ON THE MERGER?
A: Yes, 3dfx shareholders will vote on the merger at 3dfx's annual meeting of
shareholders. All of 3dfx's directors and executive officers, which
beneficially hold approximately 2.5% of issued and outstanding common stock
of 3dfx, have agreed to vote their shares of 3dfx common stock in favor of
the merger, the merger agreement and the issuance of shares of 3dfx common
stock in the merger.
Q: ARE GIGAPIXEL SHAREHOLDERS ENTITLED TO APPROVE THE MERGER?
A: Yes, GigaPixel shareholders will have the opportunity to approve the merger
and the merger agreement by written consent. Holders of GigaPixel common
stock owning an aggregate of approximately 73.7% of the issued and
outstanding common stock of GigaPixel, and holders of GigaPixel preferred
stock owning an aggregate of approximately 51.5% of the issued and
outstanding preferred stock of GigaPixel have agreed to approve the merger
and the merger agreement. The merger and the merger agreement require the
approval of a majority of the issued and outstanding shares of both
GigaPixel's common stock and GigaPixel's preferred stock.
Q: WHAT DO 3DFX SHAREHOLDERS NEED TO DO NOW?
A: 3dfx shareholders should promptly mail their signed proxy card in the
enclosed postage-paid envelope so that their shares will be represented at
the 3dfx annual meeting.
2
<PAGE> 10
Q: CAN I SUBMIT MY PROXY BY TELEPHONE OR OVER THE INTERNET?
A: Only beneficial holders who hold shares in street name may submit their
proxies by telephone or over the Internet. If you are a beneficial holder,
you should refer to the proxy card included with your proxy materials for
instructions about how to vote. If you vote by telephone or over the
Internet, you do not need to complete and mail your proxy card.
Q: CAN 3DFX SHAREHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE DELIVERED THEIR
PROXIES?
A: Yes, 3dfx shareholders can change their votes by delivering a written notice
of revocation with 3dfx's secretary, sending in later-dated, signed proxy
cards to 3dfx's secretary, attending the 3dfx annual meeting and voting in
person or by delivering different instructions by phone or the Internet.
Q: IF A 3DFX SHAREHOLDER'S SHARES OF STOCK ARE HELD IN "STREET NAME" BY HIS
BROKER, WILL HIS BROKER VOTE HIS SHARES FOR HIM?
A: A broker will only vote the shares held by a 3dfx shareholder if that
shareholder provides instructions to the broker on how to vote. Without
instructions, those shares will not be voted. 3dfx shareholders should
instruct their brokers to vote their shares by following the directions
provided by their brokers. Please check the voting form used by your broker
to see if it offers telephone or Internet voting. If a 3dfx shareholder does
not instruct his broker to vote his shares, this will have the effect of a
vote against the proposals relating to the merger.
Q: WHAT DO GIGAPIXEL SHAREHOLDERS NEED TO DO NOW?
A: GigaPixel shareholders should promptly mail their signed written consents in
the enclosed postage-paid envelope to vote their shares of GigaPixel stock
for the merger.
Q: CAN GIGAPIXEL SHAREHOLDERS CHANGE THEIR VOTES AFTER THEY HAVE MAILED IN THEIR
WRITTEN CONSENTS?
A: A GigaPixel shareholder can only revoke or change an action by written
consent prior to the time that GigaPixel has received the requisite number of
consents to approve the merger. This will be a short period of time, as
GigaPixel expects to receive sufficient consents to approve the merger
promptly because GigaPixel shareholders with sufficient voting power to
approve the merger have already agreed to deliver their consents in favor of
the merger.
Q: SHOULD GIGAPIXEL SHAREHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. After the merger is completed, 3dfx will send GigaPixel shareholders a
letter of transmittal and written instructions for exchanging their stock
certificates. GigaPixel shareholders should not surrender their GigaPixel
stock certificates until after the merger and until they receive the letter
of transmittal.
Q: WHO CAN ANSWER QUESTIONS REGARDING THE MERGER?
A: If you would like additional copies of this proxy
statement/prospectus/information statement, or if you have questions about
the merger or the other matters discussed in this document, you should
contact:
<TABLE>
<S> <C>
For 3dfx Interactive, Inc.: For GigaPixel:
3dfx Interactive, Inc. GigaPixel Corporation
4435 Fortran Drive 2350 Mission College Boulevard, Suite 800
San Jose, California 95134 Santa Clara, California 95054
Telephone: (408) 935-4400 Telephone: (408) 654-8005
Attention: David Zacarias Attention: George T. Haber
</TABLE>
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<PAGE> 11
SUMMARY
This summary highlights selected information contained in this proxy
statement/prospectus/information statement. This summary may not contain all of
the information that is important to you and is qualified in its entirety by the
more detailed information appearing elsewhere in this document or that is
incorporated by reference. Page references are included in parentheses to direct
you to a more complete description of the items presented in this summary.
THE COMPANIES (PAGES 77 AND 87)
3dfx Interactive, Inc.
4435 Fortran Drive
San Jose, California 95134
Telephone: (408) 935-4400
3dfx develops high performance, cost-effective graphics chips, graphics
boards, software and related technology that enables a highly immersive,
interactive and realistic 3D experience across multiple hardware platforms. 3dfx
develops products with 2D and 3D functionality that optimize both entertainment
and general personal computer graphics applications and that are well suited to
both the personal computer retail/distributor and original equipment
manufacturer graphics board markets. 3dfx's graphic chips and graphics boards
are comprised of hardware and embedded software designed around a common
architecture. 3dfx's products are available in retail stores like CompUSA, Best
Buy and Fry's Electronics, through distributors like Ingram MicroD, D&H
Distributing and Tech Data, and through leading personal computer manufacturers
like Dell, Gateway and Compaq.
GigaPixel Corporation
2350 Mission College Boulevard, Suite 800
Santa Clara, California 95054
Telephone: (408) 654-8005
GigaPixel designs and develops advanced 3D graphics technology to enable
video devices to display images with a realistic 3D appearance. GigaPixel is
engaged primarily in the design of high performance, scalable, low cost 3D
cores, which constitute the "blueprint" for use in the manufacture of graphics
chips. GigaPixel has fabricated a prototype chip incorporating its technology
that has proven its architecture. It has licensing agreements with two customers
under which it has received up-front development fees to license 3D cores to the
customers for use in their graphic chip products and will receive royalties on
any chips incorporating its technology that are shipped by the customers. To
date, no products made with GigaPixel's 3D cores have been shipped and there is
no assurance that the two customers with whom GigaPixel has licensing agreements
will ship any such products. Graphics chips made with GigaPixel's 3D cores would
be used in a wide variety of devices featuring high-quality video graphics
display, such as desktop personal computers, laptops, video game consoles and
television set-top boxes. GigaPixel intends to license current and future
generations of graphics technology to leading manufacturers and developers of
computer graphics hardware and graphics boards for personal computers.
THE MERGER (PAGE 55)
GigaPixel will merge with a subsidiary of 3dfx and GigaPixel will become a
wholly-owned subsidiary of 3dfx. The merger is subject to various conditions and
rights of termination described in this document and in the merger agreement.
For a more detailed description of the terms of the merger agreement, see pages
55 to 64. In addition, a copy of the merger agreement is attached as Appendix A
to this proxy statement/prospectus/information statement. It is a legal document
governing the merger.
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<PAGE> 12
REASONS FOR THE MERGER (PAGE 44)
3dfx and GigaPixel believe that the merger will provide a number of
potential mutual benefits that will contribute to the success of the combined
company, including the following:
- The combined company will have broad, deep technology capabilities and
offerings with unique techniques for performing 3D rendering that will
provide performance, feature and visual quality advantages.
- The combined company will have technology that is capable of being
utilized in 3D cores and in non-PC 3D capable consumer products. The
technology will be capable of being utilized on products of the combined
company or licensed to third parties to generate additional revenues.
- The technology of the combined company will result in reduced memory
bandwidth requirements at substantially reduced power requirements. The
effect of these reduced hardware requirements is to yield a cost savings
for current and future products of the combined company. These costs
savings will enable a new class of performance low cost and low power 3D
capable devices in the PC market and in other consumer product markets.
- The addition of the GigaPixel engineering team of 37 engineers skilled in
3D design and algorithm expertise to the existing 3dfx engineering staff
will allow new products to be designed, developed and brought to market
in a reduced time frame.
3dfx ANNUAL MEETING (PAGES 37-39)
The 3dfx 2000 Annual Meeting of Shareholders will be held at 3dfx's offices
located at 4435 Fortran Drive, San Jose, California on July 19, 2000 at 10:00
a.m., local time. At the 3dfx annual meeting, holders of 3dfx common stock will
be asked to consider and vote upon:
- The merger, the merger agreement and the issuance of shares of 3dfx
common stock in the merger
- The election of five directors to serve until the next 3dfx annual
meeting of shareholders
- A proposed amendment to a 3dfx stock option plan to increase the number
of shares of common stock reserved for issuance under the stock option
plan by 2,500,000 shares to a total of 8,875,000 shares
- A proposed amendment to the 3dfx stock purchase plan to increase the
number of shares of common stock reserved for issuance under the purchase
plan by 850,000 shares for a total of 1,600,000 shares, as well as to
provide for larger annual increases in the number of shares reserved for
issuance under the purchase plan equal to the lesser of 600,000 shares or
1.5% of 3dfx's then outstanding shares
- The ratification of the selection of PricewaterhouseCoopers LLP as
independent public accountants of 3dfx for fiscal 2000
- Such other business as may properly come before the 3dfx annual meeting
or any postponement or adjournment thereof
3dfx shareholders are entitled to vote at the 3dfx annual meeting if they
owned shares of 3dfx as of June 5, 2000, 3dfx's record date. On that date, there
were 24,644,437 shares of 3dfx common stock outstanding and entitled to vote at
the 3dfx annual meeting.
The approval of the merger, the merger agreement and the issuance of shares
of 3dfx common stock in the merger will require the affirmative vote of a
majority of the outstanding shares of 3dfx common stock. The five director
nominees receiving the highest number of affirmative votes of the shares
represented and voting at the 3dfx annual meeting shall be elected as directors.
The affirmative vote of a majority of the shares of 3dfx common stock
represented and voting at the 3dfx annual meeting will be required to approve
the amendment to the 3dfx stock plan and the ratification of the 3dfx board's
selection of independent public accountants.
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<PAGE> 13
GIGAPIXEL WRITTEN CONSENTS (PAGES 40-41)
GigaPixel shareholders will have an opportunity to approve the merger and
the merger agreement by written consent. Holders of shares of GigaPixel common
stock or preferred stock at the close of business on the date the first written
consent is given are entitled to submit written consents. As of June 5, 2000,
there were 9,172,626 shares of GigaPixel common stock and 9,797,636 shares of
GigaPixel preferred stock issued and outstanding. Approval of the merger and
merger agreement requires the approval of both the holders of a majority of the
outstanding shares of GigaPixel common stock and a majority of the outstanding
shares of GigaPixel preferred stock.
RECOMMENDATIONS TO SHAREHOLDERS (PAGES 47-48)
To 3dfx Shareholders:
The 3dfx board of directors has approved the merger and the merger
agreement and believes that the terms of the merger agreement are fair to, and
that the merger is in the best interests of, both 3dfx and its shareholders. The
3dfx board of directors recommends that 3dfx shareholders vote for approval of
the merger, the merger agreement and the issuance of 3dfx common stock in
connection with the merger. The 3dfx board of directors has approved the
nominees for directors of 3dfx, the amendment to the 3dfx stock plan, the
amendment to the 3dfx stock purchase plan and the selection of
PricewaterhouseCoopers LLP as the independent public accountants for 3dfx. The
3dfx board of directors recommends that 3dfx shareholders vote for the approval
of these matters.
To GigaPixel Shareholders:
The GigaPixel board of directors has approved the merger and the merger
agreement, and has determined that the merger is fair to, and in the best
interests of, both GigaPixel and its shareholders. After careful consideration,
the GigaPixel board of directors recommends that GigaPixel shareholders vote for
approval of the merger and the merger agreement by executing and returning the
GigaPixel written consent.
WHAT GIGAPIXEL SECURITYHOLDERS WILL RECEIVE IN THE MERGER (PAGES 55-56)
GigaPixel Shareholders
Under the terms of the merger, based on the number of securities of
GigaPixel that are expected to be outstanding at the closing of the merger and
subject to the closing adjustment described below, the current holders of
GigaPixel common stock and preferred stock will receive approximately 14.7
million shares of 3dfx common stock. After giving effect to the merger, current
GigaPixel shareholders will own approximately 37.2% of 3dfx's issued and
outstanding common stock. Based on the closing stock price of 3dfx common stock
of $8.38 on June 1, 2000, the shares of 3dfx common stock to be received by
GigaPixel shareholders in the merger would have an aggregate market value of
approximately $123.5 million.
Closing Adjustment. The aggregate number of shares of 3dfx common stock
that GigaPixel shareholders will receive in the merger will be reduced under the
following circumstances:
- GigaPixel has less than a required cash balance as of the closing of the
merger of $16.0 million, provided that, if the merger does not close by
June 30, 2000, the required cash balance will be reduced by the operating
expenses incurred by GigaPixel in the ordinary course of business after
that date.
- If Microsoft Corporation ("Microsoft") does not make a $10 million
investment in GigaPixel prior to the merger, which would result in
GigaPixel not having the required cash balance indicated above (however,
the value per GigaPixel share to be received by GigaPixel shareholders in
the merger would increase; see "-- GigaPixel Equivalent Per Share
Value").
- GigaPixel's merger expenses exceed $2.5 million.
The amount by which the number of shares of 3dfx common stock received in
the merger will be reduced will be based upon a share of 3dfx common stock being
valued at $11.94 per share, which was the
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<PAGE> 14
closing stock price will be of a share of 3dfx common stock on March 24, 2000,
the last trading day prior to the announcement of the merger.
Indemnity Escrow Arrangement. At the closing of the merger 3dfx will
deposit into an escrow account with an escrow agent selected by 3dfx and
GigaPixel shares of 3dfx common stock equal to 10% of the merger consideration.
This escrowed 3dfx common stock will be held in the escrow account for losses
incurred by 3dfx in excess of $600,000 that are caused by breaches by GigaPixel
of its representations, warranties, covenants and agreements contained in the
merger agreement. Subject to the satisfaction of any claims asserted by 3dfx,
the remaining escrowed 3dfx common stock shall be distributed to GigaPixel
shareholders 380 days after the closing date of the merger.
GigaPixel Optionholders
Each outstanding option to acquire shares of GigaPixel common stock shall
be assumed by 3dfx. As a result of the merger, each GigaPixel stock option shall
be treated as an option to acquire shares of 3dfx common stock upon the same
terms and conditions, except that the number of shares shall be adjusted in a
manner determined by multiplying the number of shares presently subject to the
GigaPixel options by the exchange ratio by which the GigaPixel common and
preferred shares are to be exchanged for shares of 3dfx common stock in the
merger and by dividing the exercise price for such shares of GigaPixel common
stock by the exchange ratio to determine the new exercise price. Based on the
number of GigaPixel options that are expected to be outstanding at the closing
of the merger, these options will be converted into options to purchase
approximately 812,500 shares of 3dfx common stock.
GigaPixel Warrantholder
GigaPixel's single outstanding warrant providing for the purchase of
421,696 shares of GigaPixel preferred stock will expire on June 30, 2000. It is
expected that the warrant will be exercised on or before that date. Based upon
an exchange ratio of 0.70 of a share of GigaPixel stock for each share of 3dfx
common stock and assuming that the warrant will be exercised on a net exercise
basis, the warrantholder will receive approximately 204,000 shares of 3dfx
common stock (which amount will be in addition to the 14.7 million shares of
3dfx common stock issued to other GigaPixel shareholders).
CONDITIONS TO THE MERGER (PAGE 59)
3dfx and GigaPixel will complete the merger only if a number of contractual
and legal conditions are either satisfied or waived. In addition to these
standard conditions, 3dfx and GigaPixel will complete the merger only if:
- The 3dfx common stock to be issued in the merger is authorized for
listing on the Nasdaq National Market
- Effectiveness of and absence of any stop orders with respect to filings
with the Securities and Exchange Commission
- Neither 3dfx nor GigaPixel shall have suffered any material adverse
change
- 3dfx shall have obtained a sufficient number of votes to approve of the
merger, the merger agreement and the issuance of 3dfx common stock to be
delivered in connection with the merger, and GigaPixel shall have
obtained sufficient written consents to approve the merger and the merger
agreement
- GigaPixel shall have received at least $14 million or such other amount
structured in a manner satisfactory to 3dfx from Microsoft in connection
with the modification of an agreement between GigaPixel and WebTV
Networks, Inc. ("WebTV") (GigaPixel has already received the required
payment).
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<PAGE> 15
SOME 3dfx AND GIGAPIXEL SHAREHOLDERS HAVE ENTERED INTO VOTING AGREEMENTS
OBLIGATING THEM TO VOTE IN FAVOR OF THE MERGER (PAGES 61-62)
All of the executive officers and directors of 3dfx, and their affiliates,
have agreed with GigaPixel that they will vote their shares of 3dfx common stock
in favor of the merger. These shareholders beneficially own an aggregate of
approximately 2.5% of the outstanding shares of 3dfx common stock as of June 5,
2000.
Similarly, all of the executive officers and directors of GigaPixel that
individually own shares of GigaPixel stock, as well as some other GigaPixel
shareholders, have agreed with 3dfx that they will vote their shares of
GigaPixel stock in favor of the merger. These shareholders beneficially own an
aggregate of approximately 73.7% of the outstanding shares of GigaPixel common
stock, and an aggregate of approximately 51.5% of the outstanding shares of
GigaPixel preferred stock, as of June 5, 2000.
PERFORMANCE BONUS AGREEMENTS (PAGE 63)
Prior to the closing of the merger, GigaPixel will enter into performance
bonus agreements with several GigaPixel employees, including Philip J. Carmack,
Ming Benjamin Zhu and Scott K. Pritchett, and a consulting agreement with George
T. Haber containing comparable performance bonus provisions, by which
performance bonuses will be paid to these individuals immediately following the
closing. Under these agreements, if any of these individuals do not provide
services to 3dfx for a period of at least two years following the closing of the
merger, the individual will become obligated to repay the full amount of the
performance bonus.
EMPLOYMENT AGREEMENTS (PAGE 62 AND APPENDICES G AND H)
Philip J. Carmack, Ming Benjamin Zhu and Scott K. Pritchett, all of whom
are GigaPixel executive officers, as well as several other GigaPixel employees,
will enter into employment agreements and George T. Haber will enter into a
consulting agreement at or before the closing date of the merger. These
employment agreements will be assumed by 3dfx in the merger.
NONCOMPETITION AGREEMENTS (PAGE 62 AND APPENDIX D)
Messrs. Haber, Carmack, Zhu and Pritchett will execute three-year
noncompetition agreements with 3dfx at the closing of the merger. The
noncompetition agreements will provide for the payment of noncompetition fees.
The noncompetition agreements will restrict the individuals from disclosing any
confidential information of 3dfx and GigaPixel and prohibit them from engaging
in activities that are similar to or competitive with the business of GigaPixel.
LOCK-UP AGREEMENTS (PAGE 62 AND APPENDIX E)
Messrs. Haber, Carmack and Zhu will enter into lock-up agreements with 3dfx
at or before the closing date of the merger. The agreements provide restrictions
on the transfer of the 3dfx common stock received in the merger for a period of
15 months following the closing. No transfers of 3dfx common stock may be made
by Messrs. Haber, Carmack and Zhu during the first quarter following the merger.
Thereafter, they may each sell up to 10% of the 3dfx common stock received by
each of them in the merger during each of the next four quarterly periods. In
the event designated directors and officers of 3dfx sell during any quarter more
than twice the number of shares that Messrs. Haber, Carmack and Zhu are
permitted to sell, the restrictions on transfer in the lock-up agreements will
lapse. Based upon an exchange ratio of .70 shares of 3dfx common stock per share
of GigaPixel stock, Messrs. Haber, Carmack and Zhu will hold an aggregate of
approximately 5,679,317 shares or 14.3% of the outstanding 3dfx common stock
following the merger.
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<PAGE> 16
LIMITATION ON NEGOTIATIONS (PAGES 59-60)
Until the merger is completed or the merger agreement terminated, GigaPixel
and 3dfx have agreed not to solicit other acquisition proposals. Until the
merger is completed or the merger agreement is terminated, GigaPixel and 3dfx
have also agreed to promptly notify the other party of any third party inquiries
or requests for non-public information that may result in any acquisition
proposals.
TERMINATION OF THE MERGER AGREEMENT (PAGE 60)
The merger agreement may be terminated by either 3dfx or GigaPixel prior to
the merger:
- By mutual written consent of 3dfx and GigaPixel
- If the merger has not become effective on or before October 15, 2000
- If any court or governmental authority has taken any action seeking to
prohibit the merger or any other transaction in the merger agreement or
that could reasonably be expected to have a material adverse effect on
3dfx or GigaPixel
- By 3dfx upon informing GigaPixel of its desire not to proceed with the
transactions set forth in the merger agreement so that it can pursue a
superior third party proposal
- By GigaPixel if 3dfx informs GigaPixel of its intent to pursue a superior
third party proposal
- By 3dfx or GigaPixel upon a material breach of any representation,
warranty or covenant of the other party that is not cured within ten
business days following receipt by the breaching party of notice
TERMINATION FEES AND EXPENSES (PAGES 60-61)
GigaPixel is required to make payment to 3dfx of a breakup fee of $5.0
million and to reimburse 3dfx for its costs and expenses incurred under the
merger agreement upon violating its agreements under the merger agreement
relating to third party acquisition proposals. If GigaPixel enters into a
written agreement to consummate a third party acquisition before March 27, 2001,
it is required to pay 3dfx in cash the additional sum of $2.5 million.
3dfx is required to make payment to GigaPixel of its costs and expenses
incurred in connection with the transactions under the merger agreement upon
violating its agreements and covenants in the merger agreement relating to third
party acquisition proposals. In addition, if 3dfx has terminated the merger
agreement as a result of a superior proposal or enters into a written agreement
to consummate a superior proposal before March 27, 2001 in which GigaPixel is
not a party for reasons other than GigaPixel's termination of the merger
agreement upon 3dfx's notice of its consideration of a superior proposal, then
it is required to pay GigaPixel in cash the sum of $7.5 million.
OPINION OF 3dfx's FINANCIAL ADVISOR (PAGE 48 AND APPENDIX K)
In deciding to approve the merger, 3dfx's board of directors considered the
opinion of its financial advisor, FleetBoston Robertson Stephens, that, as of
March 26, 2000, the share exchange ratio was fair from a financial point of view
to 3dfx. The full text of the written opinion of FleetBoston Robertson Stephens,
dated March 27, 2000, is attached as Appendix K to this proxy
statement/prospectus/ information statement. You should read this entire
opinion.
GIGAPIXEL FINANCIAL ADVISOR
In deciding to approve the merger, the GigaPixel board of directors also
considered the advice of its financial advisor, Chase H&Q. Although Chase H&Q
was not asked to furnish a formal fairness opinion, it did discuss with the
GigaPixel board of directors its analysis of the relative values of the
companies.
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<PAGE> 17
INTERESTS OF SOME GIGAPIXEL OFFICERS AND DIRECTORS IN THE MERGER MAY BE
CONFLICTS OF INTEREST (PAGES 53-54)
Several officers and directors of GigaPixel have personal interests in the
merger that are different from, or in addition to, the interests of most
GigaPixel shareholders. For example, these personal interests include:
- The execution by some officers and directors of employment agreements
with GigaPixel providing for an annual base salary, incentive stock
options and other payments and benefits.
- The execution by George T. Haber of a consulting agreement providing for
the payment to him immediately following the closing of the merger of a
$400,000 consulting fee, which is subject to repayment if he does not
provide services to 3dfx for at least two years following the closing.
- The payment immediately following the closing of the merger to Ming
Benjamin Zhu, Philip J. Carmack and Scott K. Pritchett of performance
bonuses in the amounts of $400,000, $150,000 and $35,000, respectively.
These payments will be subject to a repayment obligation in the event the
individual does not provide services to 3dfx for a period of at least two
years following the closing of the merger.
- The execution of noncompetition agreements by George T. Haber, Ming
Benjamin Zhu, Philip J. Carmack and Scott K. Pritchett in exchange for
the payment at the closing of the merger of noncompetition fees in the
amounts of $700,000, $400,000, $50,000 and $15,000, respectively.
- 3dfx will at the time of the merger assume all of the outstanding options
granted to GigaPixel's officers, directors and employees, and following
the merger 3dfx will register the shares to be issued under the stock
plan relating to these options.
- The elimination of repurchase rights held by GigaPixel, and after the
merger with 3dfx, with respect to shares held by some officers of
GigaPixel if their employment or consulting relationship is terminated by
3dfx within 12 months of the completion of the merger.
- Following completion of the merger, 3dfx intends to take all actions
necessary to nominate and appoint George T. Haber and Andrei M. Manoliu
to serve on the 3dfx board of directors.
As a result of the items listed above, several GigaPixel officers and
directors may have a conflict of interest that influenced their support of the
merger.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 64)
The merger is intended to be a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), so that, in
general, except for taxes payable because of cash received by GigaPixel
shareholders instead of fractional shares, no gain or loss would be recognized
for federal income tax purposes by a GigaPixel shareholder upon receipt of 3dfx
common stock solely in exchange for shares of GigaPixel pursuant to the merger,
and 3dfx, GigaPixel and the 3dfx shareholders would not recognize gain or loss
for federal income tax purposes in the merger. Each company has received an
opinion from tax counsel that the merger constitutes a reorganization within the
meaning of Section 368 of the Internal Revenue Code. It is also a condition to
the closing of the merger that 3dfx and GigaPixel each receive another legal
opinion dated the closing from their respective tax counsel that the merger
constitutes a reorganization within the meaning of Section 368 of the Internal
Revenue Code. All of such opinions have been or will be based on various
representations, qualifications and assumptions.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT (PAGE 63)
3dfx and GigaPixel expect that the merger will be accounted for as a
purchase for financial reporting and accounting purposes.
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JOINT DEVELOPMENT AGREEMENT
3dfx and GigaPixel have entered into a joint development agreement
providing for collaborative research and development efforts pending completion
of the merger.
MANAGEMENT FOLLOWING THE MERGER (PAGE 77)
Following completion of the merger, Philip J. Carmack, the Chief Operating
Officer of GigaPixel, will be elected Senior Vice President of Engineering of
3dfx. Otherwise the management of 3dfx will not change as a result of the
merger. Immediately following completion of the merger, 3dfx intends to take all
actions necessary to nominate and appoint George T. Haber, the President and
Chief Executive Officer of GigaPixel, and Andrei M. Manoliu, a director of
GigaPixel and a former partner of Cooley Godward LLP, which previously served as
legal counsel to GigaPixel, to serve as members of the 3dfx board of directors.
OWNERSHIP FOLLOWING THE MERGER
Based on the number of securities of GigaPixel that are expected to be
outstanding at the closing of the merger and subject to various provisions
contained in the merger agreement, GigaPixel shareholders will receive
approximately 14.7 million shares of 3dfx common stock in the merger. The shares
issued to GigaPixel shareholders will represent approximately 37.2% of the
outstanding shares of 3dfx common stock after the merger. Upon completion of the
merger, GigaPixel will become a wholly-owned subsidiary of 3dfx.
RIGHTS OF GIGAPIXEL SHAREHOLDERS FOLLOWING THE MERGER (PAGE 96)
The rights of GigaPixel's shareholders are currently governed by Delaware
law and GigaPixel's certificate of incorporation and bylaws. GigaPixel's
preferred shareholders have additional rights and obligations under various
shareholders' agreements specific to them. In addition, the California General
Corporation Law provides that, because a majority of GigaPixel shareholders are
located in California and GigaPixel has other significant contacts with the
State of California, the rights of GigaPixel shareholders with respect to
various specified matters may also be governed by California law. The rights of
3dfx's shareholders are governed by California law and 3dfx's articles of
incorporation and bylaws. As of the effective time of the merger, GigaPixel
shareholders will become 3dfx shareholders. There are important differences
between the rights of shareholders of GigaPixel and the rights of shareholders
of 3dfx.
RIGHTS OF DISSENTING SHAREHOLDERS (PAGE 68)
3dfx
Under the California General Corporation Law, 3dfx shareholders do not have
appraisal rights.
GigaPixel
Under the Delaware General Corporation Law and the California General
Corporation Law, notwithstanding the approval of the merger by the holders of
the requisite number of shares of common stock and preferred stock of GigaPixel,
a GigaPixel shareholder can refuse the merger consideration and exercise his
appraisal rights and obtain payment for the fair value of his common stock and
preferred stock.
GIGAPIXEL EQUIVALENT PER SHARE VALUE
3dfx common stock is quoted on the Nasdaq National Market under the symbol
"TDFX." Neither GigaPixel common stock nor GigaPixel preferred stock is quoted
or listed on any market or exchange.
On March 24, 2000, the last trading day prior to the announcement of the
merger and, on June 1, 2000, the most recent practicable date, the last reported
sale prices per share of 3dfx common stock on the
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Nasdaq National Market and the equivalent per share values of GigaPixel stock
based on these 3dfx stock prices are set forth below:
<TABLE>
<CAPTION>
3dfx
COMMON GIGAPIXEL
STOCK EQUIVALENT
PER SHARE PER SHARE
PRICE VALUE
--------------- --------------------
<S> <C> <C>
March 24, 2000.............................................. $11.94 $8.36
June 1, 2000................................................ $ 8.38 $5.87
</TABLE>
The "GigaPixel Equivalent Per Share Values" set forth above are based on an
exchange ratio of 0.70 shares of 3dfx common stock for each share of GigaPixel
capital stock, which was determined based on the assumptions that (1) on the
indicated dates the number of outstanding securities of GigaPixel is the same as
it was on June 5, 2000, except that GigaPixel will issue an additional 2,036,660
shares of preferred stock to Microsoft in connection with its anticipated
investment of $10 million in GigaPixel, (2) there will be no downward adjustment
to the merger consideration based on the terms set forth in the merger
agreement, and (3) all escrowed shares of 3dfx common stock will ultimately be
distributed to GigaPixel shareholders. These assumptions may not prove correct,
and each GigaPixel shareholder may receive a different "GigaPixel Equivalent Per
Share Value" than that indicated above for his shares of GigaPixel common stock
or preferred stock. In the event that Microsoft does not make a $10 million
investment in GigaPixel, there will be an adjustment in the merger consideration
because GigaPixel will not have the required cash balance provided for in the
merger agreement at the closing of the merger. However, the GigaPixel Equivalent
Per Share Value would increase in this event because the dilution experienced by
GigaPixel's shareholders if Microsoft makes its investment is greater than the
impact of the downward adjustment in the merger consideration.
STOCK PRICES CAN FLUCTUATE DRAMATICALLY. GIGAPIXEL SHAREHOLDERS ARE URGED
TO CHECK RECENT STOCK PRICES OF 3dfx COMMON STOCK.
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<PAGE> 20
RISK FACTORS
The following factors should be considered together with the other
information included in this proxy statement/prospectus/information statement.
Any of the following risks could materially adversely affect the business,
operating results and financial condition of 3dfx, GigaPixel or the combined
company. You should consider these factors in conjunction with the other
information contained in this proxy statement/prospectus/information statement
and its Appendices.
RISKS RELATED TO THE MERGER
DIFFICULTIES AND SUBSTANTIAL COSTS INVOLVED IN INTEGRATING THE TECHNOLOGY,
OPERATIONS AND PERSONNEL OF 3DFX AND GIGAPIXEL MAY REDUCE THE OPERATIONAL
EFFICIENCIES AND FINANCIAL BENEFITS OF THE MERGER.
3dfx will not receive the benefits it anticipates from the merger unless it
successfully combines its operations with those of GigaPixel and integrates the
two companies' technologies, research and development activities and other
aspects of operations in a timely manner. If 3dfx and GigaPixel do not integrate
their personnel and technologies quickly and smoothly, then the combined company
may incur substantial expenses and may not attain the operational efficiencies
and financial benefits of the merger or may experience delays in new product
introductions, which may adversely affect the earnings and earnings per share of
the combined company.
The difficulties, costs and delays involved in integrating the companies,
which may be substantial, include:
- Diversion of management's attention from the business of the combined
company;
- Technical difficulties in implementing or combining the GigaPixel
technology with that of 3dfx;
- Perceived and potential problems arising out of the respective company's
differing business foci and product offerings;
- Potential incompatibility of business cultures;
- Difficulties resulting from 3dfx's lack of experience in integrating its
operations with those of another company;
- Costs and delays in implementing common systems and procedures,
particularly in integrating different information systems; and
- Inability to retain and integrate key management, technical, sales and
customer support personnel.
NEITHER 3DFX NOR GIGAPIXEL CAN PRECISELY PREDICT THE AGGREGATE NUMBER OF SHARES
OF 3DFX COMMON STOCK THAT WILL BE ISSUED IN THE MERGER OR THE VALUE THAT
GIGAPIXEL SHAREHOLDERS WILL RECEIVE FOR EACH SHARE OF GIGAPIXEL STOCK BECAUSE
BOTH OF THESE CALCULATIONS ARE BASED UPON SEVERAL VARIABLES.
The aggregate number of shares of its common stock that 3dfx will issue in
the merger will be affected primarily by the impact that the adjustments and
escrow arrangements provided for in the merger agreement have upon the number of
shares of 3dfx common stock that GigaPixel shareholders are entitled to receive.
In particular, the aggregate number of shares of 3dfx common stock payable to
GigaPixel shareholders in the merger is subject to an adjustment at the time of
the closing of the merger based on the amount of cash reflected on GigaPixel's
balance sheet as of the effective time of the merger. GigaPixel's shareholders
will receive fewer aggregate shares of 3dfx common stock if the amount of cash
reflected on GigaPixel's balance sheet as of the closing date is less than $16.0
million or, if the merger does not close by June 30, 2000, $16.0 million less
the amount of the operating expenses incurred by GigaPixel in the ordinary
course of business after that date. If Microsoft does not make an anticipated
$10 million investment in GigaPixel prior to the merger, GigaPixel will not have
the required cash balance described above. In addition, the aggregate number of
shares of 3dfx common stock payable to GigaPixel shareholders in the merger is
subject to the escrow arrangements described in the merger agreement. As
described below, a portion of the consideration to be received by GigaPixel's
shareholders in the merger
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<PAGE> 21
will be placed into an escrow account and will be subject to claims that may
result in GigaPixel's shareholders receiving less than all of the consideration
placed into the escrow account. The aggregate number of shares of 3dfx common
stock received by GigaPixel shareholders in the merger will not change due to
any increase or decrease in the market price of 3dfx common stock at the
effective time of the merger. Hence, GigaPixel shareholders risk a loss in the
value that they will receive for their shares of GigaPixel common stock in the
event of a decrease in the market value of 3dfx common stock. The market price
of 3dfx common stock upon completion of the merger may vary substantially from
its price on the date the merger agreement was signed and the date of this proxy
statement/prospectus/information statement due to numerous factors, and neither
3dfx nor GigaPixel can assure GigaPixel shareholders as to the market price of
3dfx common stock at the time of or at any time after the merger. Moreover, if
GigaPixel grants additional options at below market value or issues additional
shares of common stock prior to the merger, other than as a result of the
exercise of outstanding stock options, then each GigaPixel shareholder will
receive fewer shares of 3dfx common stock for the shares of GigaPixel stock that
he owns. An adverse outcome with respect to any of the foregoing variables could
adversely affect the value that each GigaPixel shareholder will receive in the
merger for an individual share of GigaPixel common or preferred stock.
A PORTION OF THE MERGER CONSIDERATION TO BE RECEIVED BY THE GIGAPIXEL
SHAREHOLDERS IN THE MERGER WILL BE HELD IN ESCROW, AND GIGAPIXEL SHAREHOLDERS
MAY NOT RECEIVE ALL OR A PART OF THE ESCROWED MERGER CONSIDERATION.
At the effective time of the merger, 10% of the total number of 3dfx shares
to be issued and delivered to GigaPixel shareholders in connection with the
merger will be placed in escrow to provide compensation to 3dfx for any breach
by GigaPixel. If 3dfx successfully asserts one or more claims for breach of
GigaPixel's representations, warranties or covenants in the merger agreement
that, in the aggregate, exceed $600,000 within 12 months of the effective time
of the merger, then the GigaPixel shareholders will not receive all or part of
the escrowed shares. The escrowed shares are to remain in escrow for at least
380 days after the consummation of the merger. The 3dfx shares placed into
escrow that may be subsequently distributed to the GigaPixel shareholders after
380 days may be less than the value of these shares at the time of the closing
of the merger.
DUE TO THE UNCERTAINTIES RAISED BY THE MERGER TRANSACTION, SOME CUSTOMERS OF
3DFX AND GIGAPIXEL COULD DELAY PURCHASING OR LICENSING DECISIONS, OR CEASE DOING
BUSINESS WITH 3DFX AND GIGAPIXEL ALTOGETHER, WHICH COULD ADVERSELY AFFECT THE
BUSINESS OF THE COMBINED COMPANY.
Uncertainty in the marketplace or customer concern regarding the impact of
the merger on the combined company could result in customers or potential
customers of 3dfx or GigaPixel deferring purchasing or licensing decisions until
they have had an opportunity to assess that impact, or ceasing to do business
with 3dfx and GigaPixel altogether, which could harm the business of the
combined company. In particular, some of 3dfx's and GigaPixel's respective
customers may delay their purchase or license decisions until they have the
opportunity to learn more about the business plans and future technology of the
combined company. As a result, the near-term quarterly results of 3dfx could
fail to meet the expectations of investors and analysts.
THE MERGER WILL DRAMATICALLY INCREASE THE NUMBER OF FREELY TRADEABLE 3DFX
SHARES, WHICH COULD DRIVE DOWN THE PRICE OF 3DFX COMMON STOCK.
Based on the number of securities of GigaPixel that are expected to be
outstanding at the closing of the merger, and subject to the terms of the merger
agreement, the holders of GigaPixel common stock and preferred stock will
receive approximately 14.7 million shares of 3dfx common stock in the merger.
Actual sales or the perception of the potential for significant sales in the
public market of a substantial number of these shares following completion of
the merger could adversely affect the market price of 3dfx common stock. The
terms of lock-up agreements executed by some GigaPixel shareholders that are
expected to own approximately 14.3% of the outstanding shares of 3dfx common
stock
14
<PAGE> 22
immediately following the merger contractually prohibit the resale of any of
those shares during the first fiscal quarter following the closing of the
merger. During each of the following four fiscal quarters, the lock-up
agreements prohibit the resale of more than 10% (measured on a cumulative basis)
of the shares of 3dfx common stock received by the applicable GigaPixel
shareholder in the merger. The lock-up agreements generally terminate 15 months
after the closing of the merger, but will terminate earlier if designated
officers and directors of 3dfx sell during any quarter more than twice the
number of shares of 3dfx common stock that George Haber, Philip J. Carmack and
Ming Benjamin Zhu are permitted to sell. Subject to these contractual
restrictions and relevant securities laws generally applicable to affiliates,
all of the shares of 3dfx common stock issued in the merger will be freely
tradable in the public market.
GIGAPIXEL HAS REPORTED NET LOSSES IN RECENT HISTORICAL PERIODS AND IF THESE
LOSSES CONTINUE THEY WOULD ADVERSELY AFFECT 3DFX'S FINANCIAL PERFORMANCE AND
CONDITION.
GigaPixel has incurred net losses for both of the years ended December 31,
1998 and December 31, 1999. If the combined company is not successful in
reversing the performance of GigaPixel's business operations, those business
operations would have a negative impact on the overall business of the combined
company.
THE SUBSTANTIAL EXPENSES ASSOCIATED WITH THE MERGER COULD ADVERSELY AFFECT THE
FINANCIAL RESULTS OF THE COMBINED COMPANY AND MAY REDUCE THE VALUE THAT
GIGAPIXEL SHAREHOLDERS WILL RECEIVE FOR EACH SHARE OF GIGAPIXEL COMMON STOCK.
3dfx and GigaPixel estimate that the aggregate costs and expenses that will
be incurred in connection with the merger will be approximately $7 million.
These costs will primarily relate to the costs associated with combining the
operations of the two companies and the fees of financial advisors, attorneys
and accountants. Although 3dfx and GigaPixel believe that these costs will not
exceed this estimate, the estimate may be incorrect or unanticipated
contingencies may occur that substantially increase the costs of combining their
operations. The merger agreement provides that GigaPixel will pay up to $2.5
million of the fees and expenses that it incurs in connection with the merger
and that any fees and expenses in excess of $2.5 million that are incurred by
GigaPixel will reduce the number of shares of 3dfx common stock that each
GigaPixel shareholder receives in connection with the merger. In subsequent
quarters, the combined company may incur additional charges to reflect costs
associated with the merger.
NON-CASH CHARGES ASSOCIATED WITH THE MERGER WILL REDUCE 3DFX'S EARNINGS IN THE
FUTURE, WHICH COULD ADVERSELY AFFECT 3DFX'S STOCK PRICE.
Based on the total consideration determined for the merger as set forth in
Note 2 to the Pro Forma Combined Condensed Financial Statements, 3dfx expects to
amortize approximately $110.5 million of acquired intangible assets and goodwill
over a five year period, which will negatively impact results of operations for
the duration of the applicable periods. The amortization expense relating to the
intangible assets and goodwill purchased in the merger will not be tax
deductible. In addition, 3dfx anticipates expensing the costs associated with in
process research and development, which will negatively impact results of
operations in the quarter in which the merger is completed. As a result, 3dfx's
earnings per share will be adversely affected, which may negatively affect the
market price of 3dfx common stock.
SOME EXECUTIVE OFFICERS, DIRECTORS AND SHAREHOLDERS OF GIGAPIXEL HAVE CONFLICTS
OF INTEREST ARISING FROM PERSONAL BENEFITS TO BE RECEIVED IN THE MERGER AND,
HENCE, THERE IS A RISK THAT THE MERGER CONSIDERATION THAT GIGAPIXEL SHAREHOLDERS
WILL RECEIVE IN THE MERGER IS LESS THAN IT WOULD HAVE BEEN HAD NO PERSONAL
BENEFITS BEEN EXTENDED TO THESE EXECUTIVE OFFICERS, DIRECTORS AND SHAREHOLDERS.
The personal benefits to be received in the merger by some executive
officers, directors and shareholders of GigaPixel raises conflicts of interest
because the receipt of these benefits may have favorably influenced their
support of the merger. In the absence of these personal benefits, these
executive officers, directors and shareholders may have concluded that the
consideration to be received by GigaPixel shareholders under the terms of the
merger agreement was not adequate. In particular, prior to closing the
15
<PAGE> 23
merger, some executive officers and key employees of GigaPixel will enter into
new employment and consulting agreements. GigaPixel will also pay performance
bonuses to these executive officers and key employees immediately following the
closing of the merger, subject to the individuals' or consultant's obligation to
repay the amounts received if they do not provide services to 3dfx for a period
of at least two years following the closing of the merger. In addition, 3dfx
will assume all of the outstanding options granted to officers, directors and
employees of GigaPixel, and following the merger 3dfx will register the shares
of 3dfx common stock to be issued under the stock plan relating to these
options. Further, following completion of the merger, 3dfx intends to take all
actions necessary to nominate and appoint Messrs. Haber and Manoliu to serve on
the board of directors of 3dfx. See "Approval of the Merger and Related
Transactions -- Interests of Some GigaPixel Officers and Directors in the
Merger."
BECAUSE SOME GIGAPIXEL CUSTOMERS AND LICENSEES COMPETE WITH 3DFX, SOME OF THE
RESPECTIVE COMBINED COMPANY'S CUSTOMERS AND LICENSEES MAY CEASE TO DO BUSINESS
OR REDUCE THE AMOUNT OF BUSINESS THAT THEY DO WITH THE COMBINED COMPANY, WHICH
COULD CAUSE A DECLINE IN THE COMBINED COMPANY'S REVENUES.
Since some of GigaPixel's current customers and licensees directly compete
with 3dfx, the announcement and consummation of the merger may cause some of
these customers or licensees to end or curtail their relationships with the
combined company and seek alternative vendors or licensors. All of GigaPixel's
revenues in fiscal 1999 were derived from a customer that is a direct competitor
of 3dfx. While 3dfx and GigaPixel are working to minimize any negative impact
the merger may have in this regard, one or more customers of 3dfx or GigaPixel
may nevertheless terminate or curtail their relationships with the combined
company, which could have a material adverse effect on the business, operating
results and financial condition of the combined company.
THE SECURITYHOLDERS' REPRESENTATIVE MAY NOT ACT IN THE MANNER THAT GIGAPIXEL
SHAREHOLDERS DESIRE.
The indemnity escrow agreement provides that a representative of GigaPixel
will act as the securityholders' representative in matters involving the shares
of 3dfx common stock to be held in escrow. The indemnity escrow agreement
appoints George T. Haber as the securityholders' representative. The
securityholders' representative may, among other things, dispute claims for
indemnification made by 3dfx against the escrowed shares, litigate these claims
and compromise and settle these claims. The securityholders' representative may
not act in the manner that GigaPixel shareholders desire and decisions made by
the securityholders' representative could have the effect of reducing the
consideration that GigaPixel shareholders ultimately receive in the merger.
FAILURE TO COMPLETE THE MERGER COULD ADVERSELY AFFECT THE BUSINESS AND FINANCIAL
CONDITION OF 3DFX AND GIGAPIXEL.
If the merger is not completed for any reason, 3dfx and GigaPixel may be
subject to a number of material risks, including the following:
- Potential customers or licensees may defer purchases or licenses of 3dfx
or GigaPixel services and products;
- Potential partners may refrain from entering into agreements with 3dfx or
GigaPixel;
- 3dfx and GigaPixel will have incurred significant costs for which they
will have received no benefits;
- Employee turnover may increase; and
- In light of the collaborative research and development efforts currently
being carried out by 3dfx and GigaPixel, there would be significant costs
associated with separating the companies' engineering teams and potential
lost profits to one or both companies.
The occurrence of any of these factors could result in serious harm to the
business, operating results and financial condition of 3dfx, GigaPixel or both.
16
<PAGE> 24
THE ECONOMIC TERMS OF THE MODIFICATION OF GIGAPIXEL'S DEVELOPMENT AGREEMENT WITH
WEBTV MAY DIFFER FROM THOSE CONTEMPLATED BY THE MERGER AGREEMENT, WHICH COULD
ADVERSELY AFFECT 3DFX'S STOCK PRICE AND COULD REDUCE THE CONSIDERATION THAT
GIGAPIXEL SHAREHOLDERS WILL RECEIVE FOR EACH SHARE OF GIGAPIXEL COMMON STOCK.
On March 31, 2000, GigaPixel and WebTV, an affiliate of Microsoft, entered
into an agreement modifying GigaPixel's Development and License Agreement with
WebTV. The agreement provides that Microsoft will enter into good faith
negotiations regarding a $10 million investment in GigaPixel by Microsoft. There
can be no assurance that Microsoft will invest $10 million, or any other amount,
in GigaPixel prior to the consummation of the merger, or at any other time.
Because of the attention generally focused on Microsoft's business activities, a
decision by Microsoft not to invest in GigaPixel or the combined company could
adversely affect 3dfx's and the combined company's stock price. Moreover, if
Microsoft does not invest $10 million in GigaPixel prior to the closing of the
merger, the number of shares of 3dfx common stock that will be issued in the
merger will be reduced because GigaPixel will not have the required cash balance
at closing to avoid a downward adjustment in the merger consideration.
THE RIGHTS OF THE GIGAPIXEL SHAREHOLDERS WILL DIFFER FROM THEIR RIGHTS AS 3DFX
SHAREHOLDERS.
Upon the consummation of the merger, the GigaPixel shareholders will become
3dfx shareholders. There are important differences between the rights of
shareholders of 3dfx and the rights of shareholders of GigaPixel, including
differences due to the fact that GigaPixel is a Delaware corporation and 3dfx is
a California corporation. In addition, 3dfx has adopted a shareholder rights
plan that, among other things, may discourage some types of transactions that
may involve an actual or threatened change of control of 3dfx. GigaPixel has no
such plan. For a description of these differences, see "Comparison of 3dfx and
GigaPixel Shareholder Rights."
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF 3dfx AND GIGAPIXEL AS A COMBINED
COMPANY
The risks set forth below are a number of the risks relating to the
business and operations of 3dfx and GigaPixel that could harm the business of
the combined company after the merger.
3DFX IS GROWING RAPIDLY AND MAY NOT HAVE THE RESOURCES TO MANAGE EFFECTIVELY
ADDITIONAL GROWTH.
The recent growth and potential future growth of 3dfx has placed
significant demands on its management as well as on its technical,
administrative, operational and financial resources. As a result, the combined
company may not have sufficient resources to sustain and effectively manage any
additional growth. The expansion of the combined company's business to take
advantage of new market opportunities will require significant technical
resources, management attention and financial resources. To manage additional
growth the combined company may be required to:
- Expand its engineering, sales, marketing and customer support
organizations
- Attract and retain additional qualified personnel
- Expand its physical facilities
- Invest in the development or enhancement of its current products and
develop new technologies and products that meet changing industry needs
- Develop systems, procedures or controls to support the expansion of its
operations
An inability on the part of the combined company to sustain or manage any
additional growth could have a material adverse effect on the business,
operating results and financial condition of the combined company.
17
<PAGE> 25
NEITHER 3DFX NOR GIGAPIXEL CAN ACCURATELY PREDICT THE BUSINESS ENVIRONMENT THAT
THE COMBINED COMPANY WILL FACE, AND THE COMBINED COMPANY MAY EXPERIENCE
UNEXPECTED REVENUE SHORTFALLS AND QUARTERLY VARIATIONS IN OPERATING RESULTS.
3dfx's quarterly and annual results of operations have varied significantly
in the past, and the combined company's results of operations are likely to
continue to vary in the future. These variations are the result of a number of
factors, many of which are beyond 3dfx's or the combined company's control.
These factors include:
- The ability to successfully develop, introduce and market new or enhanced
products
- The ability to introduce and market products in accordance with customer
design requirements and design cycles
- Changes in the relative volume of sales of various products with
different margins
- Changes in demand for 3dfx's or the combined company's products or for
their customers' products
- Gains or losses of significant customers or strategic relationships
- The volume and timing of customer orders
- The availability, pricing and timeliness of delivery of components for
3dfx's or the combined company's products
- The timing of new product announcements or introductions by competitors
- Product obsolescence and the management of product transitions
- Production delays
- Decreases in the average selling prices of products
Any one or more of the factors listed above or other factors could cause
3dfx or the combined company to fail to achieve its revenue and profitability
expectations. Most of the combined company's operating expenses will be
relatively fixed in the short term. The combined company may be unable to
rapidly adjust spending to compensate for any unexpected sales shortfall, which
could materially harm quarterly operating results. Neither 3dfx nor GigaPixel
believes that period-to-period comparisons of either of their past operating
results should be relied upon as an indication of future performance of the
combined company or that the results of any one quarter should be viewed as
indicative of the results to be expected for a full fiscal year.
THE COMBINED COMPANY WILL DEPEND ON ITS ABILITY TO EFFECTIVELY DEVELOP NEW
TECHNOLOGIES AND PRODUCTS TO MEET THE CHANGING INDUSTRY STANDARDS, PRACTICES AND
CUSTOMER NEEDS ASSOCIATED WITH THE RAPIDLY CHANGING AND INTENSELY COMPETITIVE PC
AND GRAPHICS CHIP AND BOARD INDUSTRIES AND OTHER MARKET OPPORTUNITIES.
The combined company will depend, in part, on its ability to develop
leading technologies, enhance its existing services and develop and introduce
new technologies and products to meet the needs of the combined company's
customers. The combined company also must continue to meet the demands of
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. Although the combined company will strive to be a
technological leader, future technology advances may not complement or be
compatible with its products. In addition, the combined company may be unable to
economically incorporate technology changes and technology advances in a timely
manner into its business including new market opportunities separate from the PC
and graphics chip and board industries. The combined company may be unsuccessful
in effectively using new technologies, adapting its services to emerging
industry standards or developing, introducing and marketing product enhancements
or new products. The combined company may also experience difficulties that
could delay or prevent the successful development, introduction or marketing of
these products or licensing of newly developed technology to third parties. The
inability or any delay of the combined company to develop and introduce new
technologies or products or to enhance existing products or services on a timely
and cost-effective
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<PAGE> 26
basis, or the failure of new technologies or products to achieve market
acceptance, could have a material adverse effect on the business, operating
results and financial condition of the combined company.
THE COMBINED COMPANY'S OPERATIONS DEPEND ON THE EXPERIENCE OF KEY PERSONNEL AND
ITS ABILITY TO RETAIN, ATTRACT AND INTEGRATE THE KEY PERSONNEL OF 3DFX AND
GIGAPIXEL.
The combined company's business operations depend on the continued services
of its executive officers and other key personnel. The combined company may be
unable to retain the key personnel of 3dfx or GigaPixel or to attract other
qualified personnel. The future operations of the combined company depend upon
the ability of the combined company to retain, attract and integrate key
management personnel.
In addition, competition for highly-skilled technical personnel is intense
in the industries in which 3dfx and GigaPixel operate. Neither GigaPixel's nor
3dfx's shareholders can be assured that the combined company will be able to
successfully identify, attract, hire and retain highly-skilled technical
personnel in a timely and effective manner. Moreover, competitors may intensify
their efforts to recruit highly-skilled technical personnel currently employed
by 3dfx and GigaPixel as a result of the merger. The loss of services of one or
more highly-skilled technical personnel, the failure to attract and retain other
highly-skilled technical personnel or the failure to recruit new highly-skilled
technical personnel could disrupt operations and have a negative effect on
employee productivity and morale of the combined company.
AS NEARLY ALL OF THE REVENUES OF THE COMBINED COMPANY WILL BE DERIVED FROM THE
PC AND GRAPHICS BOARD AND CHIP INDUSTRIES, A DOWNTURN IN ANY ONE OF THESE
INDUSTRIES WOULD LIKELY ADVERSELY AFFECT THE COMBINED COMPANY'S BUSINESS.
For the fiscal years ended December 31, 1997, December 31, 1998 and January
31, 2000, 93%, 100% and 100% of 3dfx's revenues were derived from graphics chips
and graphics boards sold for use in PCs. The combined company expects to
continue to derive its near term revenues primarily from the sale of products
for use in PCs and, in the longer term, for use in the consumer product markets.
These markets are cyclical and have been characterized by:
- Rapid technological change;
- Evolving industry standards;
- Cyclical and seasonal market patterns;
- Frequent new product introductions and short product life cycles;
- Significant price competition and 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.
The PC market has grown substantially in recent years. However, such growth
may not continue. A decline in PC or semiconductor sales or in the growth rate
of such sales would likely reduce demand for the combined 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
forecasted product transitions. In such cases, the manufacturers may abruptly
stop purchasing additional inventory from suppliers such as 3dfx until the
excess inventory has been used. Such suspension of purchases or any reduction in
demand for PCs generally, or for particular products that incorporate the
combined company's products, would materially harm the combined company's
business.
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<PAGE> 27
The PC market has experienced significant economic downturns at various
times in the past, characterized by lower product demand and accelerated
reduction of product prices. In addition, the consumer product market will
likely experience substantial volatility as it develops. The combined company
may experience substantial period-to-period fluctuations in its results of
operations due to general conditions in these markets.
BECAUSE THE COMBINED COMPANY DEPENDS ON THE RETAIL/DISTRIBUTOR DISTRIBUTION
CHANNEL, THE INABILITY TO ADEQUATELY SUPPORT SUCH RETAIL/DISTRIBUTOR
DISTRIBUTION CHANNEL WOULD LIKELY HARM THE COMBINED COMPANY'S ABILITY TO SELL
AND TO MARKET ITS PRODUCTS.
3dfx's products have historically been distributed in the
retail/distributor distribution channel. To access this channel, 3dfx depends on
getting adequate retail shelf space to sell its products. 3dfx has developed a
strong presence in the retail/distributor market through its own marketing
efforts, as well as through the significant marketing efforts of a number of its
customers. Although 3dfx successfully penetrated the retail/distributor
distribution channel, there can be no assurances that this success will continue
in the future.
3dfx's LIMITED EXPERIENCE IN MANAGING AND INTEGRATING ORGANIZATIONS MAY RESULT
IN FUTURE ACQUISITIONS OR JOINT VENTURES BEING DIFFICULT AND DISRUPTIVE.
3dfx regularly evaluates acquisition and joint venture opportunities, and
in the future the combined company may make acquisitions of other companies or
technologies or enter into joint ventures. These acquisitions or joint ventures
may divert the time and resources of the combined company's management. Further,
3dfx has limited experience in integrating newly acquired organizations into its
operations. Acquisitions involve many risks, including:
- Difficulty in integrating or otherwise assimilating technologies,
products, personnel and operations;
- Diversion of management's attention from other business concerns;
- Issuance of dilutive equity securities and incurrence of debt or
contingent liabilities;
- Large write-offs and amortized expenses related to goodwill and other
intangible assets;
- Loss of key employees of acquired organizations;
- Risks of entering markets in which the combined company has no or limited
prior experience; and
- Payments of cash, incurrence of debt or assumption of other liabilities
to acquire other businesses.
The result of one or more of these factors could have a material adverse
effect on the business, operating results and financial condition of the
combined company.
THE LIMITED OPERATING HISTORIES OF BOTH 3dfx AND GIGAPIXEL MAKE THE ASSESSMENT
OF THE COMBINED COMPANY'S FUTURE OPERATING RESULTS DIFFICULT.
3dfx has been shipping products only since the third quarter of 1996, while
GigaPixel has been in existence only since 1997. The limited operating histories
make the assessment of the combined company's future operating results
difficult. Additionally, 3dfx incurred net losses of approximately $1.7 million
in fiscal 1997 and $63.3 million in fiscal 2000. The net losses in fiscal 2000
were attributable to a substantial reduction in revenues due to a delayed
product launch, changes in component costs with no ability to adjust pricing,
additional unanticipated costs relating to the merger with STB Systems, Inc.
("STB") and continuing significant costs incurred in product research,
development and testing and in connection with the amortization of intangibles.
Moreover, GigaPixel incurred net losses for both of the years ended December 31,
1998 and December 31, 1999. The combined company may also be unable to sustain
or to increase revenues on a consistent basis in the future, and in the near
term it is unlikely to have profits due to the amortization of intangibles.
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THE FINANCIAL RESULTS OF THE COMBINED COMPANY WILL DEPEND SIGNIFICANTLY ON ITS
ABILITY TO CONTINUALLY DEVELOP NEW PRODUCTS AND TECHNOLOGIES.
The markets for which 3dfx's and GigaPixel's products and technologies are
designed are intensely competitive and are characterized by short product life
cycles, rapidly changing technology, evolving industry standards and declining
average selling prices. As a result, the financial performance of the combined
company will depend to a significant extent on the combined company's ability to
successfully develop new products. Because of the rapidly changing technologies
in the businesses in which the combined company will operate, 3dfx and GigaPixel
believe that significant expenditures for research and development will continue
to be required by the combined company in the future. To succeed in these
businesses, the combined company must anticipate the features and functionality
that customers will demand. The combined company must then incorporate those
features and functionality into products that meet the design requirements of
the PC, graphics chip and graphics board markets or other potential markets for
the combined company's technology and the timing requirements of retail selling
seasons. The success of the combined company's new product introductions will
depend on several factors, including:
- Proper new product definition;
- Timely completion and introduction of new product designs;
- The ability of subcontractors and component manufacturers to effectively
design and implement the manufacture of new products and technologies;
- The quality of new products and technologies;
- Product and technology performance as compared to competitors' products
and technologies;
- Market acceptance of the combined company's and its customers' products;
- Competitive pricing of products and technologies; and
- Introduction of new products and technologies to the market within the
limited time window for retail selling seasons and OEM design cycles.
As the markets for the combined company's products continue to develop and
competition increases, the combined company anticipates that product life cycles
will shorten and average selling prices will decline. In particular, average
selling prices and, in some cases, gross margins for the combined company's
products and technologies will decline as those products and technologies
mature. Thus, the combined company will need to introduce new products and
technologies to maintain average selling prices and gross margins. To do this,
the combined company must successfully identify new product and technology
opportunities and develop and bring new products and technologies to market in a
timely manner. 3dfx and GigaPixel have in the past experienced delays in
completing the development or the introduction of new products. The failure of
the combined company to successfully develop and introduce new products and
technologies or to achieve market acceptance for such products and technologies
would materially harm the business and financial performance of the combined
company.
BECAUSE THE COMBINED COMPANY'S PRODUCTS WILL HAVE SHORT PRODUCT LIFE CYCLES, THE
COMBINED COMPANY MUST SUCCESSFULLY MANAGE PRODUCT TRANSITIONS.
3dfx and GigaPixel believe that the combined company's products will have
short product life cycles. A failure by the combined company to successfully
introduce new products within a given product cycle could materially harm its
business for that cycle and possibly in subsequent cycles. Any such failure
could also damage the combined company's brand name, reputation and
relationships with its customers and cause long term harm to its business.
The PC market frequently undergoes transitions in which products rapidly
incorporate new features and performance standards on an industry-wide basis.
The combined company's products must be able to support the new features and
performance levels being required by PC manufacturers at the beginning of such a
transition. Otherwise, the combined company will likely lose business as well as
the opportunity to
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compete for new design contracts until the next product transition. An inability
to develop products with required features and performance levels or even a
short delay in bringing a new product to market could significantly reduce the
combined company's revenues for a substantial period.
The success of the combined company will depend upon continued market
acceptance of its existing products, and its ability to continually develop and
introduce new products and technologies and new product features and
enhancements to meet changing customer requirements. Each new product cycle
presents new opportunities for competitors of 3dfx and GigaPixel to gain market
share.
Some components used in 3dfx's products have also historically required
long lead times. Therefore, the combined company may not be able to quickly
reduce its production or inventory levels in response to unexpected shortfalls
in sales or, conversely, to increase production in response to unexpected
demand. If the combined company is unable to quickly identify, develop,
manufacture or market new products and technologies or to enhance its existing
products and technologies rapidly, then the combined company's business and
results of operations would be materially and adversely affected.
BECAUSE 3dfx AND GIGAPIXEL HAVE SIGNIFICANT CUSTOMER CONCENTRATION, THE LOSS OF
ANY OF 3dfx's OR GIGAPIXEL'S SIGNIFICANT CUSTOMERS WOULD HAVE A MATERIAL ADVERSE
EFFECT ON THE COMBINED COMPANY'S FINANCIAL PERFORMANCE AND RESULTS OF
OPERATIONS.
3dfx's sales are highly concentrated among a limited number of customers.
For the fiscal year ended January 31, 2000, 3dfx's largest customer, Ingram
MicroD, Inc., accounted for approximately 13.0% of its net revenues, while
3dfx's six largest customers collectively accounted for approximately 40.5% of
its net revenues. There can be no assurance that 3dfx will be able to retain
such customers or to continue to derive significant revenues from them. The loss
of any one of 3dfx's significant customers could have a material adverse effect
on the financial performance and results of operations of the combined company.
GigaPixel's sales are also highly concentrated among a limited number of
customers. All of GigaPixel's revenues in fiscal 1999 were derived from a
customer that is a direct competitor of 3dfx. Following the merger, GigaPixel
will not continue to seek business from these customers and others who serve the
PC market in competition with 3dfx. It is expected that GigaPixel will
concentrate its marketing efforts on customers that serve the set-top box, game
console and portable device markets. There is no assurance that GigaPixel will
be able to attract such customers and derive significant revenues from them.
BECAUSE 3dfx DOES NOT TYPICALLY ENTER INTO LONG-TERM CONTRACTS WITH ITS
CUSTOMERS, THERE CAN BE NO ASSURANCE THAT HISTORICAL SALES VOLUMES WILL CONTINUE
IN THE FUTURE.
All of 3dfx's sales are made pursuant to purchase orders. The lack of
long-term commitments, together with the customer concentration noted above,
poses a significant risk to the combined company. If a single customer of 3dfx
or the combined company cancels an order or ceases to be a customer of 3dfx or
the combined company, then 3dfx's or the combined company's business and
financial condition could be materially harmed.
BECAUSE 3dfx HAS LIMITED PRODUCT DIVERSITY, IF THE COMBINED COMPANY WERE UNABLE
TO INCREASE OR MAINTAIN 3dfx's HISTORICAL SALES VOLUMES, THERE COULD BE A
NEGATIVE IMPACT ON THE COMBINED COMPANY'S RESULTS OF OPERATIONS.
3dfx's revenues depend on the markets for 3D/2D and 3D graphics chips and
graphics boards for PCs and on 3dfx's ability to compete effectively in those
markets. Since 3dfx currently has no other products, the combined company's
business would be materially harmed if it were unable to continue to sell these
products at historical levels or to increase these historical sales levels in
the future.
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BECAUSE 3DFX DEPENDS ON THIRD PARTY DEVELOPERS AND PUBLISHERS TO CREATE AND
MARKET SOFTWARE TITLES THAT OPERATE WITH ITS GRAPHICS CHIPS, THERE CAN BE NO
ASSURANCE THAT A SUFFICIENT NUMBER OF QUALITY SOFTWARE TITLES THAT ARE
COMPATIBLE WITH THE COMBINED COMPANY'S PRODUCTS WILL BE DEVELOPED.
3dfx believes that the availability of numerous high quality, commercially
successful software entertainment titles and applications significantly affects
sales of its products. 3dfx depends on third party software developers and
publishers to create, produce and market software titles that operate with its
graphics chips. 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. Therefore, a sufficient number of high
quality, commercially successful software titles compatible with the combined
company's products may not be developed. In addition, the development and
marketing of game titles that do not fully demonstrate the technical
capabilities of the combined company's products could create the impression that
the combined company's technology offers only marginal performance improvements,
if any, over competing products.
3DFX'S DEPENDENCE ON SINGLE SOURCE MANUFACTURERS WILL EXPOSE IT TO SIGNIFICANT
RISK IF THE OPERATIONS OF THESE MANUFACTURERS AND OTHER THIRD PARTIES ARE
INTERRUPTED.
3dfx's graphics chip products require wafers manufactured with
state-of-the-art fabrication equipment and techniques. Currently, 3dfx does not
manufacture the semiconductor wafers used for its graphics chip products and
does not own or operate a wafer fabrication facility, nor does the combined
company expect to manufacture semiconductor wafers or to own or operate a wafer
fabrication facility in the future. Taiwan Semiconductor Manufacturing Company,
or TSMC, currently manufactures all of 3dfx's wafers in Taiwan. 3dfx obtains
manufacturing services from TSMC on a purchase order basis. 3dfx depends on TSMC
to:
- Produce wafers of acceptable quality and with acceptable manufacturing
yields;
- Deliver those wafers to 3dfx and its independent assembly and testing
subcontractors on a timely basis; and
- Allocate to 3dfx a portion of its manufacturing capacity sufficient to
meet 3dfx's needs.
3dfx and the combined company expect to continue to be dependent upon TSMC
in the future. 3dfx has no readily available alternative source of supply, and
it could take several months to establish a strategic relationship with a new
manufacturing partner. As a result, a manufacturing disruption (such as the one
that occurred in September 1999 when an earthquake struck Taiwan) or capacity
constraints experienced by TSMC would negatively impact the production of the
combined company's graphics chips and graphics boards and, consequently, would
have a negative effect on the combined company's business and results of
operations.
BECAUSE 3dfx PRIMARILY DEPENDS ON A SINGLE GRAPHICS BOARD MANUFACTURING
FACILITY, ANY DISRUPTION OF THE GRAPHICS BOARD MANUFACTURING OPERATIONS AT THIS
FACILITY COULD MATERIALLY HARM THE COMBINED COMPANY'S BUSINESS.
3dfx's sole graphics board manufacturing facility is located in Juarez,
Mexico. Although a portion of 3dfx's board production is secured from third
party sources, 3dfx is substantially dependent on this single manufacturing
facility. As a result, any disruption of the combined company's graphics board
manufacturing operations at this facility could materially harm its business.
Such disruption could result from various factors, including difficulties in
attracting and retaining qualified manufacturing employees, difficulties
associated with the use of new, reconfigured or upgraded manufacturing
equipment, labor disputes, human error, governmental or political risks or a
natural disaster such as an earthquake, tornado, fire or flood.
In comparison to those of its competitors that do not maintain their own
graphics board manufacturing facilities, 3dfx incurs higher relative fixed
overhead and labor costs as a result of operating
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its own manufacturing facility. Any failure to generate the level of product
revenues needed to absorb those overhead and labor costs could materially harm
the combined company's business.
THE COMBINED COMPANY'S INTERNATIONAL OPERATIONS WILL MAKE IT SUSCEPTIBLE TO
GLOBAL ECONOMIC FACTORS, FOREIGN TAX LAW ISSUES, FOREIGN BUSINESS PRACTICES AND
CURRENCY FLUCTUATIONS.
3dfx relies on third-party manufacturing, assembly and testing operations
that are located in Asia for its graphics chips and relies primarily on its own
Mexican manufacturing facility for graphics boards. 3dfx also has significant
export sales. These international operations subject 3dfx, and will subject the
combined company, to a number of risks associated with conducting business
outside of the United States. These risks include:
- Unexpected changes in legislative or regulatory requirements;
- Delays resulting from difficulty in obtaining export licenses for some
technology;
- Tariffs, quotas and other trade barriers and restrictions;
- Longer accounts receivable payment cycles;
- Difficulties in collecting payment, including increased credit exposures;
- Potentially adverse tax consequences, including repatriation of earnings;
- Burdens of complying with a variety of foreign laws;
- Unfavorable intellectual property laws;
- Political instability; and
- Foreign currency fluctuations.
Any of these factors could materially harm the international operations and
sales of the combined company, and consequently, its business. Recently,
financial markets in Asia have experienced significant turmoil, which could harm
the combined company's international sales or operations. Currently, all of
3dfx's product sales and its arrangements with its foundry, assembly and test
vendors provide for pricing and payment in U.S. dollars. To date, 3dfx has not
engaged in any currency hedging activities, although the combined company may do
so in the future. An increase in the value of the U.S. dollar relative to
foreign currencies could make the combined company's products more expensive and
potentially less competitive in foreign markets.
THE COMBINED COMPANY MAY BE UNABLE TO ADEQUATELY PROTECT ITS PROPRIETARY RIGHTS
OR PREVENT THEIR UNAUTHORIZED USE, WHICH COULD DIVERT ITS FINANCIAL RESOURCES
AND HARM ITS BUSINESS.
The combined company's success will depend upon its proprietary technology.
Both 3dfx and GigaPixel currently rely upon a combination of patents,
copyrights, trademarks, trade secrets, confidentiality procedures and
contractual provisions to protect their proprietary technology rights. Despite
current efforts to protect these proprietary rights, protective measures may not
be adequate to prevent misappropriation or independent third-party development
of the combined company's technology. The laws of many foreign jurisdictions
offer less protection of intellectual property rights than the laws of the
United States. Effective patent, copyright, trademark and trade secret
protection may not be available in other jurisdictions. In addition, the
combined company may need to litigate claims against third parties to enforce
its intellectual property rights, protect its trade secrets, determine the
validity and scope of the proprietary rights of others or defend against claims
of infringement or invalidity. On September 21, 1998, 3dfx filed suit against
nVidia Corporation ("nVidia") in Northern California District Federal Court.
3dfx's complaint alleges patent infringement relating to nVidia's use of
multi-texturing technology in its RIVA TNT product. Discovery in the case is
presently under way. This litigation, and other litigation like it, could result
in substantial cost and diversion of management resources. A successful claim
against the combined company could effectively block its ability to use or
license its technology in the United States
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or abroad. Any failure of the combined company to protect its proprietary rights
adequately could have a material adverse effect on the business, operating
results and financial condition of the combined company.
3DFX AND GIGAPIXEL RELY ON SEVERAL TECHNOLOGY LICENSES FROM THIRD PARTIES, THE
LOSS OF WHICH MAY HARM THE COMBINED COMPANY'S ABILITY TO DEVELOP AND SELL ITS
SERVICES.
3dfx and GigaPixel currently have, and in the future the combined company
may procure, licenses from third parties relating to its services or technology.
Certain of these licenses will be critical to its business and would be
difficult to replace. If the combined company were unable to obtain or maintain
these licenses, its ability to develop and to sell its products could be
impaired. If the combined company or its suppliers are unable to obtain
licenses, the combined company could be forced to market products without some
technological features. 3dfx and GigaPixel also license some software and
technology for its operations. If the combined company were unable to obtain
licenses or to obtain such licenses on competitive terms, there could be a
material adverse effect on the ability of the combined company to effectively
offer its products.
GIGAPIXEL WILL NOT CONTROL OR INFLUENCE ITS LICENSEES' MANUFACTURING, PROMOTION,
DISTRIBUTION OR PRICING OF THEIR PRODUCTS INCORPORATING ITS 3D CORE
TECHNOLOGIES, UPON WHICH IT IS DEPENDENT TO GENERATE ROYALTY REVENUE.
GigaPixel's primary business strategy is to license its intellectual
property to companies that manufacture and sell products incorporating its 3D
core technologies. GigaPixel derives revenues from up-front licensing fees that
are calculated to cover the costs of new product development. GigaPixel also
expects to derive revenues from royalties on sales of chips incorporating the
licensed 3D core technology. 3dfx and GigaPixel expect royalty revenue will
become a significant component of total revenues derived from the combined
company's operations in the future. GigaPixel does not, however, control or
influence the manufacture, promotion, distribution or pricing of products that
would be manufactured and sold by its licensees and that incorporate its 3D core
technologies. As a result, products incorporating GigaPixel's technologies may
not be brought to market, achieve commercial acceptance or generate meaningful
royalty revenue for the combined company. For GigaPixel to generate royalty
revenue, those licensees that pay it per-unit royalties must manufacture and
distribute products incorporating its 3D core technologies in a timely fashion
and generate consumer demand through marketing and other promotional activities.
If GigaPixel's licensees fail to stimulate and capitalize upon market demand for
products that generate royalties for GigaPixel, the revenues of the combined
company attributable to GigaPixel's operations will not grow. Peak demand for 3D
products, especially in the computer gaming market, typically occurs in the
third and fourth calendar quarters as a result of increased demand during the
year-end holiday season. If GigaPixel's licensees do not ship licensed products
in a timely fashion or fail to achieve strong sales in the second half of the
calendar year, the combined company would receive reduced royalty revenue.
GIGAPIXEL HAS NOT RECEIVED ANY ROYALTY REVENUES AND ITS EXISTING LICENSE
AGREEMENTS MAY NOT GENERATE ANY ROYALTY REVENUES.
GigaPixel has not received any royalty revenues from licensing its 3D
graphics chip technology. GigaPixel has license agreements with two customers
under which it has received up-front development fees for licensing its 3D cores
to these customers for use in their graphics chip products. Under the license
agreements, GigaPixel is entitled to receive royalties on any chips
incorporating its technology that are shipped by these customers. To date, no
products made with GigaPixel's 3D cores have been shipped and there is no
assurance that the two customers with whom GigaPixel has licensing agreements
will ship any products using GigaPixel's technology. One customer has announced
that it is going out of the 3D graphics business and the other is a direct
competitor of 3dfx.
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IF GIGAPIXEL IS UNABLE TO SUCCESSFULLY ENTER AND GAIN MARKET SHARE IN THE
CONSUMER PRODUCT MARKETS, THE BUSINESS AND RESULTS OF OPERATIONS OF THE COMBINED
COMPANY WILL BE SUBSTANTIALLY AND ADVERSELY AFFECTED.
GigaPixel has historically concentrated its technology development efforts
on the high-end of the 3D graphics market. For the year ended December 31, 1999,
all of GigaPixel's revenues were related to this market. Following the merger,
3dfx and GigaPixel anticipate that GigaPixel will reduce its emphasis on
marketing its technology to competitors of 3dfx and will concentrate its efforts
on enhancing products for 3dfx's principal markets and on marketing to
manufacturers of consumer products. GigaPixel has limited experience in these
markets, and if it is unable to successfully enter them and acquire market
share, revenues of the combined company attributable to GigaPixel's operations
will not grow and may decline.
BECAUSE THE MARKETS IN WHICH THE COMBINED COMPANY WILL OPERATE ARE INTENSELY
COMPETITIVE, THE COMBINED COMPANY MAY LOSE MARKET SHARE AND BE FORCED TO REDUCE
THE PRICE OF ITS PRODUCTS.
The markets in which 3dfx and GigaPixel compete are intensely competitive
and are likely to become more competitive in the future. Existing competitors
and new market entrants may introduce products that are less costly or provide
better performance or features than the combined company's products. Neither
3dfx nor GigaPixel competes on the basis of price alone. Both 3dfx and GigaPixel
believe that the principal competitive factors for 3D graphics products are:
- Product performance and quality;
- Conformity to industry standard application programming interfaces, or
APIs;
- Access to customers and distribution channels;
- Brand awareness;
- Price;
- Product support; and
- Ability to bring new products to the market in a timely manner.
Many of 3dfx's and GigaPixel's current and potential competitors have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the combined company. These competitors
may also have greater name recognition and market presence, longer operating
histories, lower cost structures and larger customer bases than the combined
company. As a result, such competitors may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements. Some of 3dfx's
principal competitors offer a single vendor solution, because they maintain
their own semiconductor foundries and may therefore benefit from some capacity,
cost and technical advantages.
3dfx and GigaPixel seek to use strategic relationships to augment their
capabilities. However, the benefits of these relationships may not be realized
or sufficient to overcome the established market positions of 3dfx's and
GigaPixel's largest competitors. Regardless of the relative qualities of the
combined company's products, the market power, product breadth and customer
relationships of its larger competitors can be expected to provide such
competitors with substantial competitive advantages.
3dfx competes primarily against companies that offer a board or chip
solution to the 3D/2D PC graphics market. These companies typically have
operated in the PC 2D graphics market and now offer 3D capability as an
enhancement to their 2D solutions. These competitors include ATI Technologies,
Inc., S3 Incorporated, Creative Technology Ltd. and nVidia. 3dfx 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, including 3Dlabs, Inc. and Silicon Graphics, Inc. These
companies are developing lower cost versions of their 3D technology to bring
workstation-like 3D graphics to mainstream applications. Intel Corporation also
competes in the 3D graphics market by offering an integrated core logic/3D/2D
solution aimed at the mainstream PC market. These companies may enter the
interactive electronics entertainment market, and, if they do, 3dfx may not be
able to compete successfully against them.
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3dfx now also competes with graphics board manufacturers, with suppliers
who sell graphics chips directly to OEMs, with OEMs who internally produce
graphics chips or integrate graphics chips on the main computer processing board
of their personal computers, commonly known as the motherboard, and with the
makers of other personal computer components and software that are increasingly
providing graphics processing capabilities.
GigaPixel competes with ArtX, Inc. a division of ATI Technologies, Inc.,
and Stellar Semiconductor, a division of Broadcom Corp. in the 3D graphics
markets. Both of these companies have greater financial and other resources than
GigaPixel. As GigaPixel redirects its marketing focus to the consumer products
market following the merger, it will compete with nVidia in the game console
market and may compete with the internal design programs of set-top box, game
console and portable device manufacturers.
THE COMBINED COMPANY MAY REQUIRE ADDITIONAL FINANCING TO MEET ITS FUTURE CAPITAL
AND OPERATIONAL REQUIREMENTS AND MAY FACE UNCERTAINTY IN OBTAINING FAVORABLE
FINANCING ALTERNATIVES.
If the liquidity and cash flow from operations of the combined company are
insufficient to meet its operating and capital requirements, then the combined
company may have to seek additional financing, including public or private debt
or equity offerings that may be dilutive to its shareholders. If adequate funds
are not available on acceptable terms, then the combined company may be unable
to develop or enhance its services, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. The combined
company's future capital requirements will depend on numerous factors, including
the combined company's profitability, operational cash requirements, competitive
pressures, development of new services and applications, acquisition of
complementary businesses or technologies and response to unanticipated
requirements. There can be no assurance that any financing alternatives sought
by the combined company will be available, or, if available, will be on terms or
in amounts attractive to the combined company.
POTENTIAL YEAR 2000 ISSUES MAY EXPOSE THE COMBINED COMPANY TO LIABILITY OR LOSS.
Neither 3dfx nor GigaPixel has experienced any material adverse impact from
the transition to the year 2000. Even though no material adverse impact from the
year 2000 transition has been noted through internal investigations and
inquiries with its major customers and suppliers, neither 3dfx nor GigaPixel can
provide any assurance that its suppliers and customers have not been affected in
a manner that is not yet apparent. Each of 3dfx and GigaPixel will continue to
monitor its year 2000 compliance and the year 2000 compliance of its suppliers
and customers.
INVESTMENT RISK
THE STOCK PRICE OF 3dfx HAS BEEN AND MAY CONTINUE TO BE EXTREMELY VOLATILE DUE
TO MANY FACTORS, WHICH MAY MAKE IT DIFFICULT FOR 3dfx SHAREHOLDERS TO SELL THEIR
SHARES AT PRICES THEY FIND ATTRACTIVE.
Several factors have caused the stock price of 3dfx common stock to be
extremely volatile in the past and may cause the stock price of 3dfx common
stock to be extremely volatile in the future, which could result in the future
market price of 3dfx common stock being lower than its market price at the
closing of the merger. The 3dfx stock price could be subject to wide
fluctuations in response to a variety of factors, including the following:
- Actual or anticipated variations in quarterly operating results;
- The ability of the combined company to successfully develop, introduce
and market new or enhanced products and technologies on a timely basis;
- Unexpected changes in demand for the combined company's products and
services;
- The pricing policies of the combined company's competitors;
- Announcements of technological innovations or new products by the
combined company or its competitors;
- Changes in securities analysts' recommendations;
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- Changes in the market valuations of other similarly situated companies;
- Announcements by the combined company or its competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments; and
- Market fluctuations and performance of the PC and graphics chip and board
industries.
In addition, the trading prices of technology stocks as a whole have
experienced particularly extreme price and volume fluctuations and such effects
have often been unrelated to the operating performance of the applicable
companies. Any negative change in the public's perception of the prospects of
technology companies or other broad market and industry factors could depress
the market price of 3dfx common stock, regardless of the combined company's
operating performance. Market fluctuations, as well as general political and
economic conditions, such as recession or interest rate or currency rate
fluctuations, also may decrease the market price of 3dfx's common stock.
LITIGATION MAY DIVERT THE COMBINED COMPANY'S RESOURCES AND REDUCE THE MARKET
PRICE OF 3dfx COMMON STOCK.
In the past, following periods of volatility in the market price of a
company's stock, securities class action litigation has been brought against the
issuing company. It is possible that similar litigation could be brought against
the combined company. Such litigation could result in substantial costs and
would likely divert management's attention and resources. Any adverse
determination in such litigation could also subject 3dfx or the combined company
to significant liabilities. For example, a securities class action lawsuit of
this type was filed October 9, 1998 in Dallas County, Texas against STB, which
3dfx acquired by merger in May, 1999. The suit was brought against STB and some
of its officers and directors and the underwriters who participated in the STB
secondary offering on March 20, 1998. The petition alleges that the registration
statement for the secondary public offering contained false and misleading
statements of material facts and omitted to state material facts. The petition
asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933,
as amended, and Sections 581-33A of the Texas Securities Act on behalf of a
purported class of persons who purchased or otherwise acquired STB common stock
in the public offering. The petition seeks recission and/or unspecified damages.
That action was removed to federal court in April 2000. On December 17, 1999, a
similar securities class action lawsuit was also filed in the United States
District Court for the Northern District of Texas, Dallas Division, against STB
and three of its officers and directors. The action asserts claims under
Sections 10 and 20 of the Securities Exchange Act of 1934. On February 8, 2000,
another similar class action lawsuit, asserting claims under Sections 10 and 20
of the Securities Exchange Act of 1934, was filed against STB and three of its
officers and directors in the United States District Court for the Northern
District of Texas. All of these actions have subsequently been consolidated, and
the parties have now reached an agreement in principle to settle them. The
settlement, which is subject to final documentation and Court approval, does not
reflect any admission of liability by any of the defendants. The principal terms
of the settlement call for the establishment of a settlement fund consisting of
$4.7 million to be paid by insurance.
3dfx's SHAREHOLDER RIGHTS PLAN MAY DISCOURAGE A THIRD PARTY FROM ACQUIRING
CONTROL OF THE COMBINED COMPANY.
On October 30, 1998, 3dfx adopted a shareholder rights plan that gives each
holder of 3dfx common stock the right to purchase one one-thousandth of a share
of 3dfx's preferred stock if a tender or exchange offer is announced by an
entity or individual that has acquired 12% or more of 3dfx's outstanding common
stock. Each share of 3dfx common stock issued to GigaPixel shareholders in
connection with the merger will be coupled with a right to purchase 3dfx
preferred stock pursuant to this shareholder rights plan. The shareholder rights
plan may increase the difficulty for a third party to acquire control of the
combined company or may discourage acquisition bids for the combined company
altogether.
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SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA
FINANCIAL DATA
The following selected historical consolidated financial data should be
read in conjunction with 3dfx's consolidated financial statements and related
notes and 3dfx's "Management's Discussion and Analysis of Financial Condition
and Results of Operations," which are incorporated by reference in this proxy
statement/prospectus/ information statement. The consolidated statement of
operations data for each of the three fiscal years ended January 31, 2000,
December 31, 1998 and 1997, and the one month ended January 31, 1999, and the
consolidated balance sheet data as of January 31, 2000 and December 31, 1998 are
derived from 3dfx's audited consolidated financial statements which are
incorporated by reference in this proxy statement/prospectus/information
statement. The consolidated statement of operations data for the years ended
December 31, 1996 and 1995, and the consolidated balance sheet data as of
January 31, 1999, December 31, 1997, 1996, and 1995, are derived from the
audited consolidated financial statements of 3dfx which are not included or
incorporated by reference in this proxy statement/prospectus/information
statement.
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3DFX SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except for per share data)
Effective as of February 1, 1999, 3dfx changed its fiscal year from a
fiscal year beginning January 1 and ending December 31, to a fiscal year
beginning February 1 and ending January 31. The statement of operations data
below reflects 3dfx's operations, including the following:
- 3dfx's merger with STB Systems, Inc., which was consummated on May 13,
1999 and was treated as a purchase for financial reporting and accounting
purposes. 3dfx's results of operations for the year ended January 31,
2000 reflect the impact of the STB merger.
- In July 1998, 3dfx reached a settlement with Sega in conjunction with a
lawsuit which 3dfx filed against Sega in August 1997. Fiscal 1998
includes a one-time recognition of income based on the settlement.
- Fiscal 1997 includes $1.8 million of development contract revenues
recognized under the Technology License and Development Agreement with
Sega Enterprises, Ltd. No amounts were recognized in any other period.
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED FISCAL YEAR ENDED DECEMBER 31,
JANUARY 31, JANUARY 31, -------------------------------------------
2000 1999 1998 1997 1996 1995
----------- ----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $360,523 $17,048 $202,601 $ 44,069 $ 6,390 $ --
Cost of revenues.............................. 287,872 14,527 119,618 22,611 5,123 --
-------- ------- -------- -------- -------- -------
Gross profit.................................. 72,651 2,521 82,983 21,458 1,267 --
-------- ------- -------- -------- -------- -------
Operating expenses:
Research and development.................... 66,062 3,340 34,045 12,412 9,435 2,940
Selling, general and administrative......... 63,468 4,614 35,441 11,390 6,642 2,166
In process R & D............................ 4,302 -- -- -- -- --
Restructuring expense....................... 4,382 -- -- -- -- --
Amortization of goodwill and intangibles.... 10,228 -- -- -- -- --
Total operating expenses.................. 148,442 7,954 69,486 23,802 16,077 5,106
-------- ------- -------- -------- -------- -------
Income (loss) from operations................. (75,791) (5,433) 13,497 (2,344) (14,810) (5,106)
Interests and other income, net............... 2,180 322 15,869 630 59 67
-------- ------- -------- -------- -------- -------
Income (loss) before income taxes............. (73,611) (5,111) 29,366 (1,714) (14,751) (5,039)
Provision(benefit) for income taxes........... (10,324) (1,636) 7,663 -- -- --
Net income (loss)............................. $(63,287) $(3,475) $ 21,703 $ (1,714) $(14,751) $(5,039)
======== ======= ======== ======== ======== =======
Basic net income (loss) per share............. $ (2.81) $ (0.22) $ 1.45 $ (0.16) $ (1.74) $ (0.82)
======== ======= ======== ======== ======== =======
Diluted net income (loss) per share........... $ (2.81) $ (0.22) $ 1.33 $ (0.16) $ (1.74) $ (0.82)
======== ======= ======== ======== ======== =======
Shares used in basic net income (loss)
calculation................................. 22,536 15,641 14,917 10,767 8,467 6,173
======== ======= ======== ======== ======== =======
Shares used in diluted net income (loss)
calculation................................. 22,536 15,641 16,353 10,767 8,467 6,173
======== ======= ======== ======== ======== =======
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 65,830 94,957 $ 95,980 $ 34,921 $ 5,291 $ 865
Working capital (deficit)..................... 98,466 106,924 110,871 37,456 6,637 (307)
Total assets.................................. 296,111 168,870 184,121 61,917 15,581 2,440
Capitalized lease obligations, less current
portion..................................... 1,881 416 284 546 632 544
Retained earnings (accumulated deficit)....... (66,563) (3,276) 199 (21,504) (19,790) (5,039)
Total shareholders' equity.................... 187,234 123,018 126,313 44,274 9,621 552
</TABLE>
RECENT 3DFX FINANCIAL RESULTS
3dfx's revenues for the first quarter of its fiscal year ending January 31,
2001 (fiscal 2001) were $108.6 million, compared to revenues of $40.4 million in
the same quarter of fiscal 2000. The increase in revenues was primarily
attributable to sales of board level products as opposed to chip level products
for the same time period in fiscal 2000. The gross profit for the quarter ended
April 30, 2000 was $26.4 million or 24.3% of revenues, compared to $14.2 million
or 35.2% of revenues in the same quarter of fiscal 2000. The decrease in gross
margin was due to product mix changes. Research and development expenses
increased from $11.8 million in the first quarter of fiscal
30
<PAGE> 38
2000 to $16.6 million the first quarter of the current fiscal year. The
difference was due primarily to costs associated with increases in R&D personnel
and the acquisition of STB Systems, Inc. in May 1999. Selling, general and
administrative expenses increased from $6.6 million in the first quarter of
fiscal 2000 to $19.1 million in the first quarter of this fiscal year. The
increase was also primarily due to the acquisition of STB Systems, Inc. The net
loss for the quarter was $12.4 million or $0.51 per share, compared to a net
loss of $2.2 million or $0.14 per share for the first quarter of fiscal 2000.
The information contained in 3dfx's press release announcing its first
quarter results is set forth in Exhibit 99.1 to its Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 2, 2000 and is
incorporated by reference in this document.
GIGAPIXEL SELECTED HISTORICAL FINANCIAL DATA
(In thousands, except for per share data)
The following selected historical financial data should be read in
conjunction with GigaPixel's financial statements and related notes and
"GigaPixel's Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included this proxy
statement/prospectus/information statement. The statement of operations data for
each of the years ended December 31, 1999 and 1998, and the period from
inception (April 21, 1997) to December 31, 1997, and the balance sheet data as
of December 31, 1999 and 1998 are derived from GigaPixel's audited financial
statements which are included in this proxy statement/prospectus/information
statement. The balance sheet data as of December 31, 1997, are derived from the
audited financial statements of GigaPixel which are not included in this proxy
statement/prospectus/information statement. The historical results presented
below are not necessarily indicative of future results.
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 21, 1997
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
------------------- -----------------
1999 1998 1997
-------- ------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 1,780 $ 667 $ 333
Operating expenses:
Research and development.................................. 7,373 3,130 315
Selling, general and administrative expenses.............. 1,304 880 177
-------- ------- ------
Total operating expenses............................... 8,677 4,010 492
Operating loss.............................................. (6,897) (3,343) (159)
Other income:
Interest income........................................... 121 127 9
-------- ------- ------
Loss before income taxes.................................... (6,776) (3,216) (150)
Income taxes................................................ -- -- --
-------- ------- ------
Net loss.................................................... $ (6,776) $(3,216) $ (150)
======== ======= ======
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 2,404 $ 3,311 $4,183
Working capital (deficit)................................... 3,075 3,048 3,528
Total assets................................................ 4,697 4,260 4,383
Mandatorily redeemable convertible preferred stock.......... 12,905 7,274 3,785
Retained earnings (accumulated deficit)..................... (10,142) (3,366) (150)
Total shareholders' deficit................................. (8,542) (3,348) (141)
</TABLE>
31
<PAGE> 39
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT DATA
(In thousands, except per share data)
The following pro forma financial data are based on the historical
consolidated financial statements and related notes of 3dfx, STB, and GigaPixel.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that would
have occurred had the merger been consummated in an earlier period, nor is it
necessarily indicative of future operating results or financial positions.
The following pro forma combined statement of operations data assume both
the STB and GigaPixel mergers took place as of February 1, 1999 and combines
3dfx's statement of operations data for the year ended January 31, 2000, STB's
statement of operations data for the year ended January 31, 2000, and
GigaPixel's statement of operations data for the year ended December 31, 1999.
The pro forma balance sheet data assume the mergers took place as of
January 31, 2000 and combines 3dfx's January 31, 2000 consolidated balance sheet
data and GigaPixel's December 31, 1999 balance sheet data.
The pro forma financial information related to the STB merger is based on a
third-party valuation of the intangible assets acquired. The pro forma financial
information related to the Gigapixel merger is based on 3dfx management's
estimates and a preliminary, third-party valuation of the tangible and
intangible assets being acquired.
Based on the timing of the closing of the transaction, the finalization of
the third party valuation, the finalization of the integration plans and other
factors, the pro forma adjustments may differ materially from those presented in
this pro forma financial data. See also "Risk Factors -- Risks Related to the
Merger" with respect to factors that may affect the pro forma adjustments. A
change in the pro forma adjustments could result in a reallocation of the
purchase price affecting the value assigned to long-term tangible and intangible
assets. The effect of these changes on the statement of operations will depend
on the nature and amount of the assets or liabilities adjusted. See "Unaudited
Pro Forma Financial Statements and Related Notes" for a further description of
the pro forma adjustments.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FOR THE FISCAL YEAR ENDED
JANUARY 31, 2000
---------------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 443,092
Cost of revenues............................................ 348,578
Gross profit................................................ 94,514
Operating expenses:
Research and development.................................. 76,939
Selling, general and administrative....................... 96,714
Restructuring costs......................................... 4,382
In process R & D............................................ 4,302
Amortization of goodwill & intangibles...................... 36,425
---------
Total operating expenses............................... 218,762
---------
Income (loss) from operations............................... (124,248)
Interest and other income, net.............................. 2,189
---------
Income (loss) before income taxes........................... (122,059)
Provision (benefit) for income taxes........................ (12,113)
---------
Net income (loss)........................................... $(109,946)
=========
Basic net income (loss) per share........................... $ (3.13)
Diluted net income (loss) per share......................... $ (3.13)
Shares used in basic net income calculation................. 35,140
Shares used in diluted net income calculation............... 35,140
</TABLE>
32
<PAGE> 40
<TABLE>
<CAPTION>
PRO FORMA COMBINED
FOR THE FISCAL YEAR ENDED
JANUARY 31, 2000
---------------------------
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 68,234
Working capital............................................. 94,541
Total assets................................................ 411,352
Debt, capitalized lease obligations and other liabilities,
less current portion...................................... 2,841
Mandatorily redeemable convertible preferred stock.......... 145
Accumulated deficit......................................... (147,492)
Total shareholders' equity.................................. 294,036
</TABLE>
33
<PAGE> 41
COMPARATIVE PER SHARE DATA
The following table sets forth the historical per share data of 3dfx and
GigaPixel and combined per share data on a pro forma basis. You should read the
information set forth below along with 3dfx's and GigaPixel's financial
statements and the unaudited pro forma combined financial information of 3dfx
and GigaPixel either incorporated by reference or included elsewhere in this
document. The pro forma combined financial data is not necessarily indicative of
the operating results that would have been achieved had the merger been
consummated as of the beginning of the periods presented and you should not
construe it as representative of future operations.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 2000
----------------
<S> <C>
Historical-3dfx:
Basic income (loss) per share............................. $(2.81)
Diluted net income (loss) per share....................... $(2.81)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Historical-GigaPixel:
Basic income (loss) per share............................. N/A
Diluted net income (loss) per share....................... N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 2000
----------------
<S> <C>
Pro forma combined diluted net income
Per 3dfx share............................................ $(3.13)
Equivalent per GigaPixel share............................ $(2.19)
</TABLE>
The above GigaPixel equivalent pro forma combined diluted net loss per
share amounts are calculated by multiplying the 3dfx combined pro forma diluted
net loss per share amounts by the assumed exchange ratio of 0.70.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 2000
----------------
<S> <C>
Book value per share:
Historical 3dfx........................................... $ 7.66
Historical GigaPixel...................................... $(1.06)
Pro forma combined per 3dfx share......................... $ 9.76
Pro forma combined per GigaPixel share.................... $ 6.84
</TABLE>
The historical book value per share is computed by dividing shareholders'
equity (deficit) by the number of shares of common stock outstanding at January
31, 2000 for 3dfx and December 31, 1999 for GigaPixel. The pro forma combined
book value per 3dfx share is computed by dividing pro forma shareholders' equity
by the pro forma number of shares of common stock of 3dfx outstanding as of
January 31, 2000, assuming the merger had occurred as of that date. The pro
forma combined book value per GigaPixel share is computed by multiplying the
3dfx pro forma combined book value per share by the assumed exchange ratio of
0.70.
3dfx estimates it will incur direct transaction costs of approximately $7
million, which will be included as part of the purchase price to be allocated to
the GigaPixel assets acquired. The pro forma combined book value per share data
gives effect to the estimated direct transaction costs as if such costs had been
incurred as of the respective balance sheet date. The direct transaction costs
are not included in the pro forma combined net income per share data. See
"Unaudited Pro Forma Financial Statements and Related Notes."
34
<PAGE> 42
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Some statements made in this document are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include statements as to:
- The anticipated closing date of the merger
- Any adjustments to the merger consideration and any distribution to
GigaPixel shareholders of shares of 3dfx common stock in escrow
- The anticipated tax treatment of the merger
- The benefits expected to result from the merger
- The performance and financial condition of the combined company following
the merger
- Projections or other forward-looking statements made in support of the
opinion of FleetBoston Robertson Stephens in this proxy
statement/prospectus/information statement.
Any statements contained in this document, including without limitation
statements to the effect that 3dfx or GigaPixel or their respective management
"believes," "expects," "anticipates," "plans," "may," "will," "projects,"
"continues" or "estimates," or statements concerning "potential," or
"opportunity" or other variations thereof or comparable terminology or the
negative thereof, that are not statements of historical fact should be
considered forward-looking statements. Actual results could differ materially
and adversely from those anticipated in the forward-looking statements as a
result of several factors, including those set forth in "Risk Factors" beginning
on page 13, which you should review carefully.
3DFX MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth for the quarters indicated the high and low
closing sale prices per share of 3dfx common stock as reported on the Nasdaq
National Market. The 3dfx common stock trades on the Nasdaq National Market
under the symbol "TDFX." Effective as of February 1, 1999, 3dfx changed its
fiscal year from a fiscal year beginning January 1 and ending December 31, to a
fiscal year beginning February 1 and ending January 31.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 2001
Second quarter (through June 1, 2000)..................... $10.38 $ 6.69
First quarter............................................. $13.44 $ 8.13
FISCAL YEAR ENDED JANUARY 31, 2000
Fourth quarter............................................ 10.56 8.50
Third quarter............................................. 15.19 7.53
Second quarter............................................ 21.25 13.13
First quarter............................................. 21.88 10.81
ONE MONTH PERIOD ENDED JANUARY 31, 1999..................... 15.00 12.25
FISCAL YEAR ENDED DECEMBER 31, 1998
Fourth quarter............................................ 17.38 8.75
Third quarter............................................. 22.50 8.00
Second quarter............................................ 35.25 15.06
First quarter............................................. 29.94 20.75
</TABLE>
Information regarding the market prices of GigaPixel's common stock and
preferred stock is omitted since there is no established trading market for
shares of GigaPixel common stock and preferred stock.
35
<PAGE> 43
RECENT CLOSING PRICES
On March 24, 2000, the last full trading day prior to the public
announcement of the execution and delivery of the merger agreement, the last
reported closing sale price on the Nasdaq National Market was $11.94 per share
of 3dfx common stock. On June 1, 2000, the latest practicable date, the last
reported sale price on the Nasdaq National Market was $8.38 per share of 3dfx
common stock.
Since the market price of 3dfx common stock is subject to fluctuation, the
market value of the shares of 3dfx common stock that GigaPixel shareholders will
receive in the merger may increase or decrease prior to and following the
merger.
NEITHER 3DFX NOR GIGAPIXEL CAN PREDICT THE FUTURE PRICES FOR 3DFX COMMON
STOCK. YOU ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR 3DFX COMMON STOCK.
DIVIDEND INFORMATION
Neither 3dfx nor GigaPixel has declared or paid cash dividends on shares of
their common stock and preferred stock. After the merger, 3dfx intends to retain
earnings for development of its business and not to distribute earnings to
shareholders as dividends. The declaration and payment by 3dfx of any future
dividends and the amount thereof will depend upon 3dfx's results of operations,
financial condition, cash requirements, future prospects and other factors
deemed relevant by the 3dfx board of directors. Further, at present, 3dfx's
revolving credit facility generally prohibits 3dfx from paying cash dividends.
NUMBER OF SHAREHOLDERS
As of June 5, 2000, there were 352 shareholders of record who held shares
of 3dfx common stock, and as of June 5, 2000, there were 82 shareholders of
record who held shares of GigaPixel common stock and preferred stock.
36
<PAGE> 44
THE 3DFX MEETING
WHEN AND WHERE THE MEETING WILL BE HELD
This proxy statement/prospectus/information statement is being furnished to
3dfx shareholders as part of the solicitation of proxies by the 3dfx board of
directors for use at the 3dfx annual meeting, to be held on July 19, 2000 at
10:00 a.m., local time at 3dfx's corporate headquarters at 4435 Fortran Drive,
San Jose, California, and at any adjournments or postponements thereof.
This proxy statement/prospectus/information statement, and the accompanying
proxy card, are first being mailed to holders of 3dfx common stock on or about
June 12, 2000.
WHAT WILL BE VOTED UPON
The purpose of the 3dfx annual meeting is to consider and vote upon the
following proposals:
- to approve the merger, the merger agreement and the issuance of shares of
3dfx common stock in connection with the merger
- to elect five directors to serve until the next annual meeting of
shareholders and until their successors are duly elected and qualified
- to approve an increase in the number of shares of 3dfx common stock
reserved for issuance under the 3dfx Interactive, Inc. 1995 Employee
Stock Plan, as amended, by 2,500,000 shares for a total of 8,875,000
shares
- to approve an increase in the number of shares of 3dfx common stock
reserved for issuance under the 3dfx Interactive, Inc. 1997 Employee
Stock Purchase Plan, as amended, by 850,000 shares for a total of
1,600,000 shares, as well as to provide for larger annual increases in
the number of shares reserved for issuance under the purchase plan equal
to the lesser of 600,000 shares or 1.5% of 3dfx's then outstanding shares
- to ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of 3dfx for the fiscal year ending January 31, 2001
The 3dfx board of directors does not presently intend to bring any business
before the 3dfx meeting other than the specific proposals referred to above and
specified in the notice of the 3dfx annual meeting. The 3dfx board of directors
knows of no other matters that are to be brought before the 3dfx annual meeting.
If any other business properly comes before the 3dfx annual meeting, including
the consideration of a motion to adjourn such meeting (including for purposes of
soliciting additional votes), it is the intention of persons named in the
enclosed form of proxy to vote the shares they represent as the 3dfx board of
directors may recommend.
WHICH SHAREHOLDERS MAY VOTE
Only holders of record of 3dfx common stock at the close of business on
June 5, 2000, the 3dfx record date, are entitled to notice of and to vote at the
3dfx annual meeting. As of the close of business on the 3dfx record date, there
were 24,644,437 shares of 3dfx common stock outstanding and entitled to vote,
held of record by 352 shareholders. A majority, or 12,322,219 of these shares,
present in person or represented by proxy, will constitute a quorum for the
transaction of business.
HOW DO 3DFX SHAREHOLDERS VOTE
The 3dfx proxy card accompanying this proxy
statement/prospectus/information statement is solicited on behalf of the 3dfx
board of directors for use at the 3dfx annual meeting. Shareholders are
requested to complete, date and sign the accompanying proxy and promptly return
it in the accompanying envelope or otherwise mail it to 3dfx. If your shares of
3dfx common stock are held in street name through a broker or other custodian,
you may also vote by telephone or by using the Internet by following the
instructions
37
<PAGE> 45
included with your proxy card. All proxies that are properly executed and
returned, and that are not revoked, will be voted at the 3dfx meeting in
accordance with the instructions indicated thereon. EXECUTED BUT UNMARKED
PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF ALL OF THE MATTERS LISTED ON
THE PROXY CARD.
HOW TO CHANGE YOUR VOTE
A 3dfx shareholder who has given a proxy may revoke it at any time before
it is exercised at the 3dfx meeting, by doing one of the following:
- delivering a written notice of revocation with Mr. David Zacarias,
Secretary, 3dfx Interactive, Inc., 4435 Fortran Drive, San Jose,
California 95134,
- executing a subsequently dated proxy and delivering it to Mr. David
Zacarias, Secretary, 3dfx Interactive, Inc., 4435 Fortran Drive, San
Jose, California 95134,
- delivering different instructions by phone or Internet, or
- attending the 3dfx annual meeting and voting in person.
Attending the 3dfx annual meeting will not, by itself, revoke a proxy. The
3dfx shareholder must also vote at the meeting.
VOTE REQUIRED TO APPROVE EACH PROPOSAL
Under California law, the charter documents of 3dfx and Nasdaq rules,
approval of the merger and approval of the merger agreement and the issuance of
shares of 3dfx common stock in connection with the merger requires the
affirmative vote of a majority of the outstanding shares of 3dfx common stock.
Under California law and the charter documents of 3dfx, directors are elected by
a plurality of votes present in person or represented by proxy and entitled to
vote. The affirmative vote of a majority of the shares of 3dfx common stock
represented and voting at the 3dfx annual meeting will be required to approve
the amendment to the stock plan, the amendment to the stock purchase plan and to
ratify the selection of PricewaterhouseCoopers LLP as the independent public
accountants of 3dfx.
Each 3dfx shareholder is generally entitled to one vote for each share
held, on each matter properly submitted for the vote of shareholders at the 3dfx
annual meeting. However, a 3dfx shareholder voting for the election of directors
may cumulate his votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of shares that the
shareholder is entitled to vote, or distribute his votes on the same principle
among as many candidates as he may elect, provided that votes cannot be cast for
more than five candidates. However, no 3dfx shareholder shall be entitled to
cumulate votes unless the candidate's name has been placed in nomination prior
to the voting and the shareholder, or any other shareholder, has given notice at
the meeting, prior to the voting, of his intention to cumulate his votes. On all
other matters, each share of common stock has one vote. The right to vote is
exercisable in person or by properly executed proxy.
THE MATTERS TO BE CONSIDERED AT THE 3dfx ANNUAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF 3dfx. ACCORDINGLY, SHAREHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT, AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
It is expected that, pursuant to voting agreements and related irrevocable
proxies, 615,791 shares of 3dfx common stock (which excludes shares subject to
stock options) beneficially owned by executive officers and directors of 3dfx
and their affiliates on June 5, 2000 (representing approximately 2.5% of the
total number of shares of 3dfx common stock outstanding at such date) will be
voted for approval of the merger, the merger agreement and the issuance of
shares of 3dfx common stock in connection with the merger. As of the 3dfx record
date, GigaPixel owned no shares of 3dfx common stock. As of the 3dfx record
date, directors and executive officers of GigaPixel together beneficially owned
less than 1% of the outstanding shares of 3dfx common stock. It is expected that
any shares of 3dfx common stock beneficially
38
<PAGE> 46
owned by GigaPixel or GigaPixel's directors and executive officers will be voted
for approval of the merger and approval and adoption of the merger agreement and
issuance of shares of 3dfx common stock pursuant to the merger agreement.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence, in person or by properly executed proxy, of the holders of at
least a majority of the outstanding shares of 3dfx common stock entitled to vote
at the 3dfx annual meeting shall constitute a quorum. Broker non-votes and
shares held by persons abstaining will be counted in determining whether a
quorum is present at the 3dfx annual meeting. However, the failure of a holder
of shares of 3dfx common stock to submit a proxy or to vote in person at the
3dfx annual meeting (including abstentions and "broker non-votes") will have the
same effect as a vote against the approval of the proposals relating to the
merger.
With respect to the proposals to approve the amendment to the stock plan,
the amendment to the stock purchase plan and to ratify the selection of
PricewaterhouseCoopers LLP as 3dfx's independent public accountants, abstentions
are counted as votes cast and accordingly have the same effect as votes against
the proposal, whereas broker non-votes are not counted as votes cast and
therefore, once a quorum is present, will have no effect on the proposal.
SOLICITATION OF PROXIES AND EXPENSES OF SOLICITATION
3dfx will bear the cost of the solicitation of proxies in the enclosed form
from its shareholders. In addition to solicitation by mail, the directors,
officers and employees of 3dfx may solicit proxies from shareholders by
telephone, telegram, letter, facsimile or in person. Following the original
mailing of the proxies and other soliciting materials, 3dfx will request that
brokers, custodians, nominees and other record holders forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
3dfx common stock and request authority for the exercise of proxies. 3dfx, upon
the request of the record holders, will reimburse record holders for their
reasonable expenses. 3dfx has retained Morrow & Co. to assist in the
solicitation of proxies at a cost of approximately $6,500 plus reasonable
expenses.
AVAILABILITY OF ACCOUNTANTS
A representative of PricewaterhouseCoopers LLP is expected to be present at
the 3dfx annual meeting. The representative will be available to respond to
appropriate questions, and will have the opportunity to make a statement.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act, a shareholder
intending to present a proposal to be included in 3dfx's proxy statement for its
2001 Annual Meeting of Shareholders must deliver a proposal in writing to its
executive offices no later than February 6, 2001. If a shareholder does not seek
to have a proposal included in the proxy statement, but nevertheless wishes to
present a proposal or nomination at the annual meeting, written notice of the
proposal or nomination must be received by the secretary of 3dfx at its
principal executive offices not later than the close of business on the 60th day
nor earlier than the close of business on the 90th day before that meeting and
must satisfy other detailed requirements specified in 3dfx's bylaws. However, in
the event that less than 65 days prior notice of the 2001 Annual Meeting of
Shareholders is given to shareholders, notice of any shareholder proposals to be
presented at that meeting must be delivered to 3dfx's secretary not later than
the close of business on the 7th day following the day on which the notice to
shareholders was mailed.
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GIGAPIXEL SOLICITATION OF WRITTEN CONSENTS
PURPOSE OF CONSENT SOLICITATION
GigaPixel is soliciting written consents from its shareholders to approve
the merger and the merger agreement.
In accordance with GigaPixel's bylaws and Delaware law, the merger may be
approved and adopted without a meeting of GigaPixel shareholders by written
consent of at least a majority of the shares of GigaPixel common stock and
preferred stock, voting separately as classes. If the holders of a majority of
the shares of both the GigaPixel common stock and GigaPixel preferred stock
consent to the merger and approve the merger agreement, no further action will
be required by GigaPixel shareholders to approve the merger and the merger
agreement.
The GigaPixel board of directors has approved the merger and the merger
agreement, believes that the terms of the merger agreement are fair to and in
the best interests of GigaPixel and its shareholders, and recommends that the
GigaPixel shareholders vote "FOR" the merger by executing and returning
GigaPixel written consents.
RECORD DATE AND CONSENT RIGHTS
The date for determining shareholders of record entitled to give or
withhold consent to the merger will be the date on which the first written
consent is given. Only holders of shares of GigaPixel common stock or preferred
stock at the close of business on the date the first written consent is given
will be entitled to submit written consents. As of June 5, 2000, there were
approximately 82 holders of record of GigaPixel shares. There were 9,172,626
shares of GigaPixel common stock issued and outstanding and 9,797,636 shares of
GigaPixel preferred stock issued and outstanding, each share of which is
entitled to one vote on the merger.
A written consent may be revoked by delivery of written notice to the
secretary of GigaPixel at any time prior to the time duly executed GigaPixel
written consents have been returned (and not revoked) by the holders of a
majority of the outstanding GigaPixel common stock or outstanding GigaPixel
preferred stock, as the case may be.
EXPENSES OF CONSENT SOLICITATION
GigaPixel written consents are being solicited by and on behalf of the
GigaPixel board of directors. GigaPixel will bear all expenses in connection
with such solicitation. In addition to solicitation by use of the mail,
GigaPixel written consents may be solicited by directors, officers and employees
of GigaPixel in person or by telephone or other means of communication. Such
directors, officers and employees will not be additionally compensated for, but
may be reimbursed for out-of-pocket expenses incurred in connection with, such
solicitation.
REQUIRED CONSENTS
Approval of the merger and merger agreement requires the approval of the
holders of a majority of the outstanding shares of GigaPixel common stock and a
majority of the outstanding shares of GigaPixel preferred stock, voting
separately as classes. Holders of GigaPixel common stock owning an aggregate of
approximately 73.7% of the issued and outstanding GigaPixel common stock and
holders of GigaPixel preferred stock owning an aggregate of approximately 51.5%
of the issued and outstanding GigaPixel preferred stock have entered into voting
agreements under which they agreed to vote in favor of, or execute written
consents approving, the merger, the merger agreement and any matter that could
reasonably be expected to facilitate the merger. The same GigaPixel shareholders
have granted 3dfx irrevocable proxies to vote their shares of GigaPixel stock to
approve of the merger and the merger agreement. All of the executive officers
and directors of GigaPixel, as well as their affiliates, have executed these
voting agreements and irrevocable proxies. All of the GigaPixel shareholders
that executed voting
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agreements were executive officers, directors, affiliates, founders or 5% or
greater shareholders of GigaPixel. As of June 5, 2000, neither 3dfx nor any of
its executive officers or directors beneficially owned any outstanding shares of
GigaPixel common stock or preferred stock.
GIGAPIXEL SHAREHOLDERS SHOULD READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS DOCUMENT, AND COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED GIGAPIXEL WRITTEN CONSENT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
BACKGROUND OF THE MERGER
3dfx develops hardware and software technology built around a core
technology designed to deliver high quality 3D performance in a cost-effective
manner. In the fall of 1999, the 3dfx board of directors evaluated its business
plan and began to explore opportunities to address the need for continued
high-end product performance.
The 3dfx board of directors made the decision to look at a number of
alternatives to provide 3dfx with the capability to develop new products,
including the core technology being developed by GigaPixel. The 3dfx board of
directors believed that the GigaPixel core technology known as GP-3 offered a
compelling solution for a core technology that could be further developed and
enhanced using the engineering resources of 3dfx. GigaPixel had progressed in
its development of a silicon product, but additional work would still be
required in the "back-end" phase of the product development process in order for
GigaPixel to have a marketable product.
In addition to GP-3, GigaPixel had also been developing graphics technology
known as GP-4 for use in the Microsoft "X-box" project. GigaPixel had been in
discussions with Microsoft regarding the license of GP-4 technology to WebTV
Networks, Inc. The discussions between GigaPixel and Microsoft resulted in a
Development and License Agreement dated February 18, 2000 between GigaPixel and
WebTV Networks, Inc., an affiliate of Microsoft. GigaPixel realized that
pursuing both the GP-3 development project with 3dfx and the GP-4 project for
Microsoft would entail significant engineering resources that were not currently
available to GigaPixel. One solution considered by the GigaPixel board of
directors to address GigaPixel's need for additional resources was to secure
engineering support services from 3dfx for the development of GP-4 in exchange
for reduced royalty rates and a possible equity investment in GigaPixel by 3dfx.
In early November 1999, Scott D. Sellers, 3dfx's Chief Technology Officer,
met with Philip J. Carmack, the Senior Executive Vice President of GigaPixel, to
explore the possibility of a license arrangement between the two companies for
the use of GigaPixel's GP-3 core technology by 3dfx. At this meeting and in
subsequent discussions, various forms of proposed license agreements were
discussed by 3dfx and GigaPixel, including exclusive and non-exclusive licensing
arrangements.
In December 1999, representatives of 3dfx and GigaPixel met to negotiate
key terms of a license agreement for the GP-3 technology, including the royalty
rate, fees for development work, GigaPixel support services and the possibility
of an equity investment by 3dfx in GigaPixel. In January 2000, various drafts of
term sheets for a license agreement were exchanged between GigaPixel and 3dfx.
The parties continued to discuss various terms without reaching any final
agreement. GigaPixel engaged Chase H&Q in January 2000 to advise GigaPixel in
connection with the proposed merger with 3dfx.
On February 18, 2000, Alex Leupp, 3dfx's President and Chief Executive
Officer, George T. Haber, President and Chief Executive Officer of GigaPixel,
and other members of the technical leadership of both companies met to continue
discussions regarding both the license of GP-3 to 3dfx and the need to
supplement the development efforts for GP-4. 3dfx and GigaPixel believed that
the synergy between the companies was an important factor in moving the GP-3 and
GP-4 projects forward. During this meeting, the possibility of a business
combination of 3dfx and GigaPixel was first introduced and discussed.
On February 24, 2000, 3dfx informally requested the assistance of
FleetBoston Robertson Stephens to advise 3dfx in connection with a possible
business combination involving GigaPixel. FleetBoston Robertson Stephens had
provided financial advisory services to 3dfx in the past and was familiar with
3dfx's business and operations, the graphics chip and board industry in which
3dfx competes and key players in the industry.
During the last week of February 2000, Mr. Haber and Scott D. Sellers,
Chief Technical Officer of 3dfx met with representatives from both FleetBoston
Robertson Stephens and Chase H&Q to discuss the
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business and financial operations of GigaPixel. The parties discussed
preliminary valuations of GigaPixel, and prepared a preliminary set of terms for
the merger between 3dfx and GigaPixel.
On March 1 through March 3, 2000, Mr. Sellers and the board of directors
and management of GigaPixel met with representatives from FleetBoston Robertson
Stephens to discuss the proposed merger in greater detail.
From March 1 through March 10, 2000, 3dfx and GigaPixel exchanged
information regarding their respective business and operations, and
representatives of the companies and their legal and financial advisors
conducted due diligence. During this same time period, the parties continued to
discuss various aspects of the contemplated merger.
On March 6, 2000, Microsoft informed GigaPixel that WebTV had decided not
to incorporate the GP-4 technology in its "X-Box" product. GigaPixel informed
3dfx of the Microsoft decision, which resulted in discussions between
representatives of 3dfx and GigaPixel regarding an adjustment to the proposed
valuation of GigaPixel. On March 7, 2000, Philip J. Carmack, George T. Haber,
and Andrei M. Manoliu met with Gordon A. Campbell, Alex Leupp and Scott D.
Sellers to discuss the proposed merger and a preliminary valuation of GigaPixel.
On March 10, 2000, the parties reviewed revised terms of the merger of 3dfx and
GigaPixel.
From March 10 through March 13, 2000, 3dfx delivered to GigaPixel a series
of preliminary, non-binding proposals outlining terms reflecting discussions to
date. These generally proposed a tax-free merger of the two companies. The
proposals were based on the issuance of shares of 3dfx common stock for all
shares of GigaPixel stock and the assumption by 3dfx of issued and outstanding
options of GigaPixel by converting them into 3dfx options. The proposals also
provided for the payment of a termination fee by either party in some instances,
and for some executive officers, directors and affiliates of 3dfx and GigaPixel
to enter into voting agreements to vote in favor of the merger. The proposals
also contemplated further due diligence investigations by both parties.
After numerous discussions, both parties reached a tentative understanding
as to the framework of the merger on March 17, 2000. A package of information
together with a preliminary report from FleetBoston Robertson Stephens was
distributed to the members of the 3dfx board of directors. Following receipt of
this information, the 3dfx board of directors held a meeting by telephone
conference on March 21, 2000 to formally discuss the merits of the proposed
merger with GigaPixel. After a lengthy discussion, the 3dfx board of directors
preliminarily concluded that the proposed merger appeared to be in the best
interests of 3dfx and its shareholders. However, the 3dfx board of directors
only approved 3dfx's entrance into a non-solicitation agreement with GigaPixel
pending the negotiation of the definitive merger agreement. The 3dfx board of
directors decided to postpone making a decision regarding the definitive merger
agreement until it received a report from 3dfx senior management as to the
definitive proposed terms of the merger.
On March 21, 2000, the board of directors of GigaPixel and Chase H&Q held a
meeting by telephone at which Mr. Haber reported that an agreement in principle
had been reached between the parties with respect to the valuation of GigaPixel
securities and other principal terms of the merger. The GigaPixel board of
directors then reviewed and considered in detail the proposed terms of the
merger with the assistance of Chase H&Q, which discussed its view of the
valuation with the GigaPixel board of directors. After discussing the
information presented, and after due consideration, all members of the GigaPixel
board of directors participating in the telephonic meeting indicated their
interest in continuing the merger discussions and approved the non-solicitation
agreement.
On March 24, 2000, the GigaPixel board of directors held a meeting by
telephone conference to review the status of the negotiations with
representatives of 3dfx and the merits of the proposed merger. Following a
report by Mr. Haber and Chase H&Q, the GigaPixel board of directors approved the
merger and the draft of the merger agreement, subject to the satisfaction of
GigaPixel's management and legal advisors of the form and substance of the
definitive merger agreement.
On the afternoon of March 26, 2000 and continuing into the early morning of
March 27, 2000, discussions and negotiations proceeded between the senior
management and financial and legal advisors of
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each of 3dfx and GigaPixel regarding the terms of the proposed merger. At the
same time, the parties conducted additional financial and legal due diligence.
At the conclusion of these discussions and negotiations, the parties reached an
agreement on the key terms of the proposed merger.
On the evening of March 26, 2000, the board of directors and senior
management of 3dfx held a meeting by telephone at which 3dfx senior management
reported that an agreement had been reached with respect to the exchange ratio
and other key terms of the proposed merger. The 3dfx board of directors
discussed with 3dfx's management, legal and financial advisors the structure of
the proposed merger, the proposed exchange ratio and the composition of the
board of directors of the combined company. In addition, the senior management
and financial and legal advisors to 3dfx reported to the 3dfx board of directors
the results of the due diligence investigation of GigaPixel, the potential
benefits and risks of the proposed merger and responded to questions from
members of the 3dfx board of directors. FleetBoston Robertson Stephens discussed
with the 3dfx board of directors various analyses relating to the merger and
responded to questions regarding such analyses. At the conclusion of its
presentation, FleetBoston Robertson Stephens delivered its oral opinion,
subsequently confirmed in writing, that, as of such date, the exchange ratio was
fair to 3dfx from a financial point of view. After further discussion, the 3dfx
board of directors approved the merger and the merger agreement, subject to
satisfaction of 3dfx's management and legal advisors with the form and substance
of the definitive merger agreement.
Thereafter, GigaPixel and 3dfx entered into the merger agreement on March
27, 2000, which was announced in a joint press release on the same day.
REASONS FOR THE MERGER
This section contains numerous forward-looking statements that involve
risks and uncertainties. See "Forward-Looking Statements May Prove Inaccurate"
on page 35.
The boards of directors of 3dfx and GigaPixel have determined that the
combined company will have the potential to realize long-term improved operating
and financial results and a stronger competitive position in the 3D graphics
market, as compared to the two companies individually. Each of the board of
directors of 3dfx and GigaPixel has identified additional potential mutual
benefits of the merger that they believe will contribute to the success of the
combined company. These potential benefits include the following:
- The combined company will have broad, deep technology capabilities and
offerings with unique techniques for performing 3D rendering that will
provide performance, feature and visual quality advantages.
- The combined company will have technology that is capable of being
utilized in 3D cores and in non-PC 3D capable consumer products. The
technology will be capable of being utilized on products of the combined
company or licensed to third parties to generate additional revenues.
- The technology of the combined company will result in reduced memory
bandwidth requirements at substantially reduced power requirements. The
effect of these reduced hardware requirements is to yield a cost savings
for current and future products of the combined company. These costs
savings will enable a new class of performance low cost and low power 3D
capable devices in the PC market and in other consumer product markets.
- The addition of the GigaPixel engineering team of 37 engineers skilled in
3D design and algorithm expertise to the existing 3dfx engineering staff
will allow new products to be designed, developed and brought to market
in a reduced time frame.
Each board of directors recognizes that the potential benefits of the merger may
not be realized. See "Risk Factors."
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3dfx BOARD CONSIDERATIONS
The decision of the 3dfx board of directors to approve the merger agreement
and recommend the approval and adoption of the merger agreement by the 3dfx
shareholders was based upon its consultation with 3dfx's management, as well as
its financial and legal advisors, and was based upon the joint benefits
described above as well as various additional factors, including the following:
(1) The financial condition, results of operations, business and
technologies of GigaPixel and 3dfx, on both an historical and prospective
basis, as well as current industry, economic and market conditions. In
particular, the 3dfx board of directors considered the following factors:
- 3dfx will be able to accelerate the product development cycle it
currently experiences.
- The GigaPixel technology has applications in future 3dfx products for
the PC market and can also be expanded to non-PC markets.
- The potential revenue stream from licensing GigaPixel technology will
provide a consistent revenue stream, potentially resulting in
somewhat less volatility in the combined company's quarterly
earnings.
- The enhanced opportunities that the combined company will have to
enter into strategic relationships within the PC market.
- The GigaPixel technology will allow reduced memory, low cost and low
power products for the PC and non-PC markets.
- The addition of 37 engineers to the current 3dfx engineering staff.
(2) The reports and opinions of 3dfx's management and legal advisors,
including reports relating to the due diligence review that had been
conducted regarding GigaPixel's business, operations, technology and
competitive position, and possible synergistic and expansion opportunities
for the two companies;
(3) Information provided by 3dfx's financial advisors as to the
acquisition prices paid in other comparable merger and acquisition
transactions in the 3D graphics industry;
(4) The opinion of FleetBoston Robertson Stephens, delivered orally
March 26, 2000, and later confirmed in writing and more fully described in
"Opinion of 3dfx's Financial Advisor," that as of such date, and based on
the matters considered and limitations on the review set forth in its
opinion, the share exchange ratio is fair from a financial point of view to
3dfx;
(5) The expectation that the merger will be tax free for federal
income tax purposes to 3dfx;
(6) With the assistance of 3dfx's legal counsel, the domestic
antitrust review process relating to the merger;
(7) A review with 3dfx's legal counsel of the terms of the merger
agreement and related agreements, including the obligation of GigaPixel not
to solicit or encourage other acquisition proposals, the breakup fee
provisions, the circumstances under which either 3dfx or GigaPixel can
terminate the merger agreement and the closing conditions to the merger;
(8) The compatibility of the corporate cultures of 3dfx and GigaPixel,
which the 3dfx board of directors believed was important for the successful
integration of the companies; and
(9) The issuance of 3dfx common stock pursuant to the merger agreement
being conditioned upon approval by the holders of a majority of the
outstanding shares of 3dfx common stock and the merger being conditioned
upon approval by the holders of a majority of the outstanding voting power
of both the GigaPixel common stock and the GigaPixel preferred stock,
voting as separate classes, of the merger agreement.
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The 3dfx board of directors also considered a variety of potentially
negative factors in its deliberations concerning the merger, including the
following factors:
- The potential dilutive effect of the issuance of 3dfx common stock in the
merger.
- The substantial costs expected to be incurred in connection with the
merger, including the amount of intangible assets recorded for accounting
purposes, the transaction expenses arising from the merger and the effect
of the impact of the immediate and long-term write off of these expenses
on quarterly operating results.
- The risk that, despite the intentions and the efforts of the parties, the
benefits sought to be achieved in the merger will not be achieved.
- The risk that the market price of 3dfx common stock might be adversely
affected by the public announcement of the merger.
- The risk that, despite the intentions and efforts of the parties, the key
technical and management personnel of GigaPixel may not be retained by
3dfx.
- The risk that significant shareholdings by retail investors could
potentially result in a low shareholder response to the merger.
- The fact that GigaPixel is an early stage development company with
minimal revenues.
- The modification of GigaPixel's development agreement with WebTV and the
risk that GigaPixel will not be able to reach an agreement relating to an
investment in GigaPixel by Microsoft.
- The other risks described above under "Risk Factors."
The foregoing discussion of the information and factors considered by the
3dfx board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the 3dfx board of directors. In view
of the variety of factors considered in connection with its evaluation of the
merger, the 3dfx board of directors did not find it possible to and did not
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the 3dfx board
of directors may have given different weights to different factors. In the
course of its deliberations, the 3dfx board of directors did not establish a
range of values for GigaPixel; however, based on the factors outlined above and
in the opinion of its financial advisor, FleetBoston Robertson Stephens, the
3dfx board of directors determined that the terms of the merger agreement are
fair to, and that the merger is in the best interests of, 3dfx.
GIGAPIXEL BOARD CONSIDERATIONS
The GigaPixel board of directors decided to recommend the merger for
approval by the shareholders of GigaPixel after consultation with GigaPixel
management and its financial, legal and accounting advisors. In reaching its
decision, the GigaPixel board of directors considered a number of factors,
including the following:
Enhanced sales, distribution and marketing channels. The GigaPixel board of
directors believes that the merger of 3dfx and GigaPixel will enhance potential
sales, distribution and marketing channels. GigaPixel and 3dfx have each
developed independent sales, distribution and marketing channels. The combined
company will provide a more developed network of sales, distribution and
marketing channels which will permit the combined company to enter more markets
at the same time and enhance its ability to distribute products to a larger
customer base on an accelerated and more efficient basis than if the parties
independently developed a comparable network of sales, distribution and
marketing channels.
Access to capital. The GigaPixel board of directors believes that, as a
public company, the combined company would have a greater ability than GigaPixel
to access the capital markets, which would enhance GigaPixel's ability to obtain
the capital necessary for its operations, product development and continued
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growth. The GigaPixel board of directors believes that, if the merger is not
completed, GigaPixel may require a near-term investment of additional capital.
Enhanced development capacity and expansion of product and customer
base. The GigaPixel board of directors believes that the combination of 3dfx and
GigaPixel will result in a combined company with an enhanced development and
production capability and expanded product and customer base. Both GigaPixel and
3dfx have developed highly qualified engineering staffs and significant research
and development capabilities. The GigaPixel board of directors believes that by
combining the two engineering departments, they will complement each other and
enhance the overall scope of expertise beyond the capabilities of the individual
companies. The GigaPixel board of directors also took into account 3dfx's
production capabilities, which complement GigaPixel's development capabilities.
The GigaPixel board of directors believes that, as a result of enhanced
development capability and other factors, the combined company will be able to
develop more innovative technology and offer more products to 3dfx's and
GigaPixel's markets which should result in a greater increase in overall sales
than that which would be achieved if the companies operated independently.
Optimized shareholder value and liquidity. The GigaPixel board of directors
considered the fact that GigaPixel shareholders will receive publicly traded
securities which are quoted on the Nasdaq National Market. By contrast there is
no way to readily determine the value of GigaPixel stock as there is no active
market in GigaPixel securities. Although the GigaPixel board of directors has
considered having GigaPixel become a public company at some time in the future,
the ability of GigaPixel to complete an initial public offering in the near term
is doubtful. The GigaPixel board of directors believes that the conversion of
GigaPixel stock to publicly traded 3dfx stock with readily determinable market
values substantially enhances shareholder value and lowers the risk that
GigaPixel shareholders will not achieve liquidity and value for their
investments in GigaPixel. This conclusion was further supported by the fact that
GigaPixel shareholders would receive registered 3dfx stock, which would provide
them with enhanced liquidity.
Merger Consideration. The GigaPixel board of directors believes that the
merger agreement provides for a fair method of combining the equities of the two
companies and that the consideration to be paid to GigaPixel shareholders is
fair to the GigaPixel shareholders. In reaching this conclusion, the GigaPixel
board of directors relied in part upon its own knowledge of GigaPixel's
financial condition, results of operations, business, technologies, services and
products, on both a historical and prospective basis, as well as the current
industry, economic and market conditions. The GigaPixel board of directors also
considered the advice of its financial advisor, Chase H&Q. Although Chase H&Q
will not be asked to furnish a formal fairness opinion, it did discuss with the
GigaPixel board of directors the negotiation of the terms of the merger and the
merger consideration and its analysis of the relative values of the companies.
Chase H&Q stated that it could recommend that the GigaPixel board of directors
approve the transaction.
In view of the variety of factors considered by the GigaPixel board of
directors in connection with its evaluation of the merger, the GigaPixel board
of directors did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination.
BOARD OF DIRECTORS' RECOMMENDATIONS RELATING TO THE MERGER
3dfx
The 3dfx board of directors has approved the merger and the merger
agreement and believes that the terms of the merger agreement are fair to, and
that the merger is in the best interests of, both 3dfx and its shareholders. The
3dfx board of directors recommends that 3dfx shareholders vote for approval of
the merger, the merger agreement and issuance of 3dfx common stock in connection
with the merger.
3dfx, as the holder of all of the outstanding capital stock of Galapagos
Acquisition Corp., has approved the merger and the merger agreement.
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GigaPixel
The GigaPixel board of directors has approved the merger and the merger
agreement, and has determined that the merger is fair to, and in the best
interests of, both GigaPixel and its shareholders. After careful consideration,
the GigaPixel board of directors recommends that GigaPixel shareholders vote for
approval of the merger and the merger agreement by executing and returning the
GigaPixel written consent.
OPINION OF 3dfx'S FINANCIAL ADVISOR
Under a letter agreement dated March 16, 2000, 3dfx engaged FleetBoston
Robertson Stephens to act as its financial advisor in connection with a possible
business combination with specified companies, and to render an opinion as to
the fairness of a transaction, from a financial point of view, to 3dfx.
On March 26, 2000, at a meeting of the 3dfx board held to evaluate the
proposed merger FleetBoston Robertson Stephens delivered to 3dfx's board its
oral opinion that, as of March 26, 2000 and based on the matters considered and
the limitations on the review undertaken described in the opinion, that the
exchange ratio was fair from a financial point of view to 3dfx. Shortly
thereafter, FleetBoston Robertson Stephens delivered a written opinion, dated
March 27, 2000 to the same effect. FleetBoston Robertson Stephens has consented
to the use of its opinion in this proxy statement/prospectus/information
statement and the full text of this opinion is reprinted as Appendix K to this
proxy statement/prospectus/information statement. No limitations were imposed by
3dfx's board on FleetBoston Robertson Stephens with respect to the
investigations made or procedures followed by it in furnishing its opinion. The
exchange ratio was determined through negotiations between the management of
3dfx and GigaPixel. FleetBoston Robertson Stephens was not asked by, and did not
recommend to, 3dfx that any specific exchange ratio constituted the appropriate
exchange ratio for the merger.
3dfx shareholders should consider the following when reading the discussion
of the opinion of 3dfx's financial advisor in this document:
- We urge you to read carefully the entire opinion of FleetBoston Robertson
Stephens, which is set forth in Appendix K to this proxy
statement/prospectus/information statement and is incorporated by
reference.
- The following description of the FleetBoston Robertson Stephens opinion
is qualified by reference to the full opinion located in Appendix K to
this proxy statement/prospectus/information statement. The full opinion
sets forth, among other things, the assumptions by FleetBoston Robertson
Stephens, the matters it considered and the limitations on the review
undertaken.
- The FleetBoston Robertson Stephens opinion was prepared for the benefit
and use of the 3dfx board in its consideration of the merger and does not
constitute a recommendation to shareholders of 3dfx as to how they should
vote at the 3dfx annual meeting, or take any other action, in connection
with the merger.
- The FleetBoston Robertson Stephens opinion does not address the relative
merits of the merger and any other transactions or business strategies
discussed by the 3dfx board as alternatives to the merger agreement or
the underlying business decision of the 3dfx board to proceed with or
effect the merger.
Although developments following the date of the FleetBoston Robertson
Stephens opinion may affect the opinion, FleetBoston Robertson Stephens assumed
no obligation to update, revise or reaffirm its opinion. The FleetBoston
Robertson Stephens opinion is necessarily based upon market, economic and other
conditions that were in effect on, and information made available to FleetBoston
Robertson Stephens as of, the date of the opinion. You should understand that
subsequent developments may affect the conclusion expressed in the FleetBoston
Robertson Stephens opinion, and that FleetBoston Robertson Stephens disclaims
any undertaking or obligation to advise any person of any change in any fact or
matter affecting its opinion. The FleetBoston Robertson Stephens opinion is
limited to the fairness, from a
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financial point of view and as of the date thereof, of the 0.774 exchange ratio
to 3dfx, which exchange ratio was calculated as of the date of the opinion. This
exchange ratio is subject to certain adjustments, as set forth in the merger
agreement and described under "Terms of the Merger Agreement and Related
Transactions -- Merger Consideration."
Opinion and Analysis of FleetBoston Robertson Stephens
In connection with the preparation of the FleetBoston Robertson Stephens
opinion, FleetBoston Robertson Stephens:
- reviewed some publicly available financial statements and other business
and financial information of 3dfx;
- reviewed some internal financial statements and other financial and
operating data, including certain financial forecasts and other forward
looking information, concerning GigaPixel prepared by the managements of
GigaPixel and 3dfx, respectively;
- reviewed some internal financial statements and other financial and
operating data, including certain financial forecasts and other forward
looking information (including, specifically, forecasts of certain
strategic, financial and operational benefits that are expected to result
from the merger (the "Expected Synergies")), concerning 3dfx prepared by
the management of 3dfx;
- reviewed some publicly available research estimates of research analysts
regarding 3dfx;
- held discussions with the respective managements of GigaPixel and 3dfx
concerning the businesses, past and current operations, financial
condition and future prospects of both GigaPixel and 3dfx, independently
and combined, including discussions with the management of 3dfx
concerning the Expected Synergies as well as their views regarding the
strategic rationale for the merger;
- reviewed the financial terms and conditions set forth in the draft merger
agreement;
- reviewed the stock price and trading history of 3dfx common stock;
- compared the financial performance of GigaPixel with that of some
publicly traded companies that it deemed comparable to GigaPixel;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions that it deemed
relevant;
- reviewed the pro forma impact of the merger on 3dfx's revenue per share
and earnings per share;
- participated in discussions and negotiations among representatives of
GigaPixel and 3dfx and their financial and legal advisors; and
- made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In its review and analysis, and in arriving at its opinion, FleetBoston
Robertson Stephens assumed and relied upon the accuracy and completeness of all
the financial and other information provided to it (including information
furnished to it orally by management of 3dfx and GigaPixel) or publicly
available and neither attempted independently to verify, nor assumed
responsibility for verifying, any of this information. FleetBoston Robertson
Stephens relied upon the assurances of the managements of 3dfx and GigaPixel
that they were not aware of any facts that would make the information inaccurate
or misleading. Furthermore, FleetBoston Robertson Stephens did not make or
obtain, or assume responsibility for making or obtaining, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent or
otherwise) of 3dfx or GigaPixel, nor was it furnished with any such evaluations
or appraisals.
With respect to the financial forecasts and projections (and the
assumptions and bases therefor) for each of 3dfx and GigaPixel that FleetBoston
Robertson Stephens reviewed (including the Expected
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Synergies), upon the advice of the managements of 3dfx and GigaPixel,
FleetBoston Robertson Stephens assumed that:
- these forecasts and projections (including the Expected Synergies) were
reasonably prepared in good faith on the basis of reasonable assumptions;
- these forecasts and projections reflected the best currently available
estimates and judgments as to the future financial condition and
performance of 3dfx and GigaPixel; and
- these projections and forecasts would be realized in the amounts and in
the time periods currently estimated.
In this regard, FleetBoston Robertson Stephens noted that each of 3dfx and
GigaPixel may face exposure to the Year 2000 problem. FleetBoston Robertson
Stephens did not undertake any independent analysis to evaluate the reliability
or accuracy of the assumptions made with respect to the potential effect that
the Year 2000 problem might have on the GigaPixel's and 3dfx's respective
forecasts.
In addition, FleetBoston Robertson Stephens assumed that:
- the merger will be consummated upon the terms set forth in the draft
merger agreement made available to it without material alteration,
including, among other things, that the merger will be accounted for as a
"purchase method" business combination in accordance with U.S. generally
accepted accounting principles;
- the merger will be treated as a tax-free "reorganization" as defined in
the Internal Revenue Code of 1986, as amended;
- the historical financial statements of each of 3dfx and GigaPixel
reviewed by it were prepared and fairly presented in accordance with U.S.
generally accepted accounting principles consistently applied; and
- the exchange ratio will not be increased as a result of escrow, purchase
price adjustment and any other provisions of the draft merger agreement.
FleetBoston Robertson Stephens relied as to all legal matters relevant to
rendering its opinion on the advice of its legal counsel.
FleetBoston Robertson Stephens expressed no opinion as to:
- the value of any employee agreement or other arrangements entered into in
connection with the merger;
- any tax or other consequences that may result from the merger; or
- the value of 3dfx common stock when issued to GigaPixel's shareholders in
connection with the merger or the price at which the shares of 3dfx
common stock that are issued in connection with the merger will be traded
in the future.
The following is a summary of the material financial analyses performed by
FleetBoston Robertson Stephens in connection with rendering its opinion. The
summary of the financial analyses is not a complete description of all of the
analyses performed by FleetBoston Robertson Stephens. Certain of the information
in this section is presented in tabular form. IN ORDER TO BETTER UNDERSTAND THE
FINANCIAL ANALYSES PERFORMED BY FLEETBOSTON ROBERTSON STEPHENS, THESE TABLES
MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE FLEETBOSTON ROBERTSON
STEPHENS OPINION IS BASED ON THE TOTALITY OF THE VARIOUS ANALYSES WHICH IT
PERFORMED, AND NO PARTICULAR PORTION OF THE ANALYSIS HAS ANY MERIT STANDING
ALONE.
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Comparable Company Analysis. Using publicly available information,
FleetBoston Robertson Stephens analyzed, among other things, the trading
multiples of 3dfx and the following selected publicly traded companies in the
graphics board industry:
- ATI Technologies Inc.
- nVidia Corp.
- S3 Incorporated
Revenues and Net Income. As set forth in the following table, applying a
range of multiples derived from multiples for these companies to corresponding
revenue data for calendar years 2001 and 2002 for GigaPixel and to corresponding
cash net income data for calendar year 2002 for GigaPixel resulted in the
following range of implied exchange ratios and equity values.
<TABLE>
<CAPTION>
RANGE OF IMPLIED IMPLIED
CALENDAR YEAR MULTIPLES EXCHANGE RATIO EQUITY VALUE
------------- ------------- ---------------------- ----------------------
<S> <C> <C> <C>
2001 Revenues............. 2.0x - 3.0x 0.52x - 0.75x $126.0 - $180.7 million
2002 Revenues............. 1.0x - 2.0x 0.59x - 1.11x $142.2 - $267.9 million
2002 Net Income........... 15.0x - 25.0x 0.57x - 0.95x $137.3 - $228.9 million
</TABLE>
Application of these comparable company multiples to GigaPixel's estimated
calendar years 2001 and 2002 revenues and 2002 cash net income when taken
together with an assumed acquisition premium of 30%, resulted in the following
range of implied exchange ratios and equity value.
ACQUISITION VALUE (A)
<TABLE>
<CAPTION>
IMPLIED IMPLIED
EXCHANGE RATIO EQUITY VALUE
-------------- -----------------------
<S> <C> <C>
Calendar Year 2001 Revenues................... 0.68x - 0.98x $163.8 - $234.9 million
Calendar Year 2002 Revenues................... 0.77x - 1.45x $184.8 - $348.2 million
Calendar Year 2002 Net Income................. 0.74x - 1.24x $178.5 - $297.6 million
</TABLE>
-------------------------
(a) Assumed a 30% premium to trading value.
Precedent Transaction Analysis. FleetBoston Robertson Stephens analyzed the
aggregate value and implied transaction value multiples paid or proposed to be
paid in selected precedent transactions, including:
- Stellar Semiconductor/Broadcom Corp. (March 1, 2000)
- Faroudja Inc./Sage Inc. (February 22, 2000)
- ArtX, Inc./ATI Technologies Inc. (February 16, 2000)
- DiviCom (C-Cube)/Harmonic (October 27, 1999)
- Armedia/Broadcom Corp. (June 1, 1999)
- Paradise Electronics/Genesis Microchip (January 22, 1999)
- Chromatic Research/ATI Technologies (October 9, 1998)
- Rendition Inc./Micron Technology Inc. (June 22, 1998)
- Chips and Technologies/Intel Corp. (July 28, 1997)
- Mediamatics/National Semiconductor (March 10, 1997)
- CompCore Multimedia/Zoran (October 21, 1996)
- DiviCom/C-Cube (May 28, 1996)
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FleetBoston Robertson Stephens compared, among other things, the aggregate
value in these transactions as a multiple of calendar year 2001 revenues and the
number of employees. Applying these multiples to similar revenue figures and
number of employees for GigaPixel resulted in the following range of implied
exchange ratios and implied equity values. Revenue data was not publicly
available for a number of the companies represented in the selected precedent
transactions.
<TABLE>
<CAPTION>
IMPLIED IMPLIED
RANGE OF MULTIPLES EXCHANGE RATIO EQUITY VALIE
------------------ -------------- -----------------------
<S> <C> <C> <C>
Calendar Year 2001 Revenues..... 4.0x - 5.5x 0.98x - 1.32x $235.4 - $317.5 million
Employees....................... $2.5 - $5.0MM 0.54x - 1.00x $129.0 - $241.5 million
</TABLE>
No company, transaction or business used in the Comparable Company Analysis
or the Precedent Transaction Analysis as a comparison is identical to 3dfx,
GigaPixel or the merger. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the comparable companies or the business segment,
company or transactions to which they are compared.
Pro Forma Merger Analysis. FleetBoston Robertson Stephens analyzed the
impact of the merger on the earnings, including and excluding goodwill
amortization, of the combined company for calendar years 2000 and 2001 based on
management estimates for 3dfx and GigaPixel with Expected Synergies and without
Expected Synergies. The following table summarizes the results of this analysis:
WITH SYNERGIES (INCLUDING GOODWILL)
<TABLE>
<S> <C>
Calendar year 2000 estimated earnings per share dilution.... 96.1%
Calendar year 2001 estimated earnings per share dilution.... 55.5%
</TABLE>
WITHOUT SYNERGIES (INCLUDING GOODWILL)
<TABLE>
<S> <C>
Calendar year 2000 estimated earnings per share dilution.... 96.1%
Calendar year 2001 estimated earnings per share dilution.... 91.6%
</TABLE>
WITH SYNERGIES (EXCLUDING GOODWILL)
<TABLE>
<S> <C>
Calendar year 2000 estimated earnings per share dilution.... 11.2%
Calendar year 2001 estimated earnings per share dilution.... 1.5%
</TABLE>
WITHOUT SYNERGIES (EXCLUDING GOODWILL)
<TABLE>
<S> <C>
Calendar year 2000 estimated earnings per share dilution.... 11.2%
Calendar year 2001 estimated earnings per share dilution.... 37.6%
</TABLE>
The actual results achieved by the combined company may vary from projected
results and such variations may be material.
Other Factors. While this summary describes the analysis and factors that
FleetBoston Robertson Stephens deemed material in its presentation to the 3dfx
board, it is not a comprehensive description of all analysis and factors
considered by FleetBoston Robertson Stephens. The preparation of a fairness
opinion is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances. Therefore, a fairness opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, FleetBoston Robertson Stephens did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, FleetBoston Robertson Stephens believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it,
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without considering all analyses and factors, could create a misleading or
incomplete view of the evaluation process underlying its opinion. Several
analytical methodologies were employed and no one method of analysis should be
regarded as critical to the overall conclusion reached by FleetBoston Robertson
Stephens. Each analytical technique has inherent strengths and weaknesses, and
the nature of the available information may further affect the value of
particular techniques. The conclusion reached by FleetBoston Robertson Stephens
is based on all analyses and factors taken as a whole and also on application of
FleetBoston Robertson Stephens' own experience and judgment. This conclusion may
involve significant elements of subjective judgment and qualitative analysis.
FleetBoston Robertson Stephens gives no opinion as to the value or merit
standing alone of any one or more parts of the analysis it performed. In
performing its analyses, FleetBoston Robertson Stephens made numerous
assumptions with respect to industry performance, general business and other
conditions and matters many of which are beyond the control of GigaPixel or
FleetBoston Robertson Stephens. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. Accordingly, analyses relating to the value of businesses do
not purport to be appraisals or to reflect the prices at which these businesses
actually may be sold in the future, and these estimates are inherently subject
to uncertainty. Furthermore, no opinion is being expressed as to the prices at
which shares of 3dfx common stock may be traded at any future time.
3dfx's engagement letter with FleetBoston Robertson Stephens provides that,
for its services, FleetBoston Robertson Stephens is entitled to receive,
contingent upon consummation of the merger, a fee equal to $1 million, plus
1.25% of the aggregate transaction value as defined in the FleetBoston Robertson
Stephens engagement letter in excess of $50 million and up to and including $250
million and plus 1.0% of the aggregate transaction value in excess of $250
million. FleetBoston Robertson Stephens was also entitled to be paid $250,000 on
the date of delivery of its opinion, which will be credited against the
transaction fee. 3dfx has also agreed to reimburse FleetBoston Robertson
Stephens for its out-of-pocket expenses and to indemnify and hold harmless
FleetBoston Robertson Stephens and its affiliates and any other person,
director, employee or agent of FleetBoston Robertson Stephens or any of its
affiliates, or any person controlling FleetBoston Robertson Stephens or its
affiliates, for certain losses, claims, damages, expenses and liabilities
relating to or arising out of services provided by FleetBoston Robertson
Stephens as financial advisor to 3dfx. The terms of the fee arrangement with
FleetBoston Robertson Stephens, which 3dfx and FleetBoston Robertson Stephens
believe are customary in transactions of this nature, were negotiated at arm's
length between 3dfx and FleetBoston Robertson Stephens, and the 3dfx board was
aware of these fee arrangements. FleetBoston Robertson Stephens was retained
based on FleetBoston Robertson Stephens' experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally,
as well as FleetBoston Robertson Stephens' investment banking relationship and
familiarity with 3dfx. FleetBoston Robertson Stephens has provided financial
advisory and investment banking services to 3dfx from time to time, including
acting as lead managing underwriter for both 3dfx's initial public offering and
a follow-on offering, as well as providing advisory services on the acquisition
of STB Systems, Inc. FleetBoston Robertson Stephens may actively trade the
equity of 3dfx for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in these securities.
FleetBoston Robertson Stephens is an internationally recognized investment
banking firm. As part of its investment banking business, FleetBoston Robertson
Stephens is frequently engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes.
INTERESTS OF SOME GIGAPIXEL OFFICERS AND DIRECTORS IN THE MERGER
Several shareholders and executive officers of GigaPixel have personal
interests in the merger that are different from, or in addition to, the
interests of most GigaPixel shareholders. As a result, these shareholders and
executive officers may have conflicts of interest that influenced their support
of the merger.
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For instance, Philip J. Carmack, Ming Benjamin Zhu and Scott K. Pritchett,
who are all officers of GigaPixel, will enter into employment agreements on or
before the completion of the merger. Under the employment agreements, these
officers will receive an annual base salary, incentive stock options and other
payments and benefits for the term of their respective agreements. Also, George
T. Haber, President and a director of GigaPixel, will enter into a consulting
agreement and will receive at the closing a consulting fee of $400,000, which is
subject to repayment if he does not continue to perform services for two years
after the closing.
In addition, prior to the closing of the merger, Ming Benjamin Zhu, Philip
J. Carmack, Scott K. Pritchett and several other GigaPixel employees will enter
into performance bonus agreements. The performance bonus agreements for Messrs.
Zhu, Carmack and Pritchett provide that they will receive immediately after the
closing bonuses in the amounts of $400,000, $150,000 and $35,000, respectively.
The amounts paid under the performance bonus agreements will be subject to a
repayment obligation in the event the individual does not continue performing
services on behalf of 3dfx for a period of at least two years following the
closing of the merger.
The following officers of GigaPixel will also enter into noncompetition
agreements at the closing of the merger under which they will receive
noncompetition fees in the amounts set forth below:
<TABLE>
<S> <C>
George T. Haber............................................. $700,000
Ming Benjamin Zhu........................................... $400,000
Philip J. Carmack........................................... $ 50,000
Scott K. Pritchett.......................................... $ 15,000
</TABLE>
Of the shares of GigaPixel common stock held by George T. Haber and Ming
Benjamin Zhu, 750,000 shares held by Mr. Haber and 500,000 shares held by Mr.
Zhu are subject to an option by GigaPixel to repurchase based on vesting
schedules contained in agreements with GigaPixel. GigaPixel's right to
repurchase these shares will be assigned to 3dfx after the merger. In accordance
with the terms of the agreements, if Mr. Haber's consulting relationship or Mr.
Zhu's employment relationship with 3dfx is terminated by 3dfx within 12 months
following the merger, then any unvested shares would automatically vest, thus
eliminating the repurchase right.
3dfx will at the time of the merger assume all of the outstanding options
granted to GigaPixel's officers, directors and employees, and following the
merger 3dfx will register shares of 3dfx common stock to be issued under the
stock plan relating to these options.
Following completion of the merger, 3dfx intends to take all actions
necessary to nominate and appoint Messrs. Haber and Manoliu to serve on the 3dfx
board of directors.
Finally, the merger agreement provides that the director and officer
indemnification provisions in GigaPixel's certificate of incorporation and
bylaws will continue to be effective for a period of six years following the
completion of the merger.
PRIOR RELATIONSHIP OF 3dfx AND GIGAPIXEL
US Venture Partners is currently a GigaPixel shareholder and was previously
a shareholder of 3dfx. Phil Young, who is affiliated with US Venture Partners,
served as a director of 3dfx until January 2000, which was prior to the time
that merger negotiations between 3dfx and GigaPixel began. Irwin Federman, also
affiliated with US Venture Partners, has served as a director of GigaPixel since
December 12, 1997.
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TERMS OF THE MERGER AGREEMENT AND RELATED TRANSACTIONS
The merger agreement, as well as the forms of several related agreements,
are attached as appendices to this proxy statement/prospectus/information
statement. 3dfx and GigaPixel encourage you to read the merger agreement and
these related agreements in their entirety. These are the legal documents
governing the merger and related transactions, and in the event of any
discrepancy between the terms of these legal documents and the following
summary, these legal documents will control.
GENERAL
On March 27, 2000, 3dfx, its wholly-owned subsidiary Galapagos Acquisition
Corp., and GigaPixel entered into the merger agreement, which provides for the
merger of Galapagos with and into GigaPixel, with GigaPixel being the surviving
corporation and a wholly-owned subsidiary of 3dfx following the merger. Attached
to this proxy statement/prospectus/information statement as Appendix A is the
merger agreement and some of its annexes. After the merger, the certificate of
incorporation of the surviving corporation will be the same as the certificate
of incorporation of GigaPixel and the bylaws of the surviving corporation will
be amended to be the same as the bylaws of Galapagos. The name of the surviving
corporation will be "GigaPixel Corporation."
If the merger is completed, holders of GigaPixel stock will no longer hold
any interest in GigaPixel other than through their interest in shares of 3dfx
common stock. They will become shareholders of 3dfx and their rights will be
governed by 3dfx's Restated Articles of Incorporation and Amended and Restated
Bylaws and the laws of the State of California. See "Comparison of 3dfx and
GigaPixel Shareholder Rights" for information about the relative rights of
shareholders of 3dfx and GigaPixel.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the signed certificate
of merger with the Secretary of State of Delaware. The merger agreement provides
that the contracting parties will cause the certificate of merger to be filed as
soon as practicable after:
- All required regulatory approvals and actions have been obtained or taken
- All other conditions to the consummation of the merger have been
satisfied or waived
There is no assurance that the conditions to the merger will be satisfied.
Moreover, the merger agreement may be terminated by either 3dfx or GigaPixel
under various conditions as specified in the merger agreement. Therefore, there
is no assurance as to whether or when the merger will become effective.
MERGER CONSIDERATION
Upon the closing of the merger, and based upon the number of securities of
GigaPixel that are expected to be outstanding at the closing of the merger, the
holders of outstanding shares of GigaPixel common and preferred stock will be
entitled to receive, on a pro rata basis, an aggregate of approximately 14.7
million shares of 3dfx common stock (or approximately 0.70 share of 3dfx common
stock for each outstanding share of GigaPixel common stock or preferred stock
held by each GigaPixel shareholder), subject to some adjustments provided for in
the merger agreement. The foregoing ratio is based upon the share exchange
formula set forth in the merger agreement, and the ratio will change
proportionately (i) based on the actual number of outstanding securities of
GigaPixel at the closing of the merger, (ii) to the extent that GigaPixel does
not have the required cash balance described in the merger agreement at the
closing and (iii) to the extent that GigaPixel incurs merger expenses in excess
of $2.5 million. See "Summary -- What GigaPixel Shareholders Will Receive in the
Merger." A copy of the share exchange formula is an annex to the merger
agreement that is attached to this proxy statement/prospectus/ information
statement in Appendix A.
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After completion of the merger, it is expected that the approximately 14.7
million shares of 3dfx common stock issued to GigaPixel shareholders in the
merger will represent approximately 37.2% of the total number of shares of
outstanding 3dfx common stock as determined in the manner described in the
preceding paragraph.
In addition, the 3dfx common stock consideration that GigaPixel
shareholders receive in the merger is subject to the adjustments and escrow
arrangements discussed below. The merger agreement does not provide any limit to
the amount of any downward adjustments to the merger consideration.
No fractional shares of 3dfx common stock will be issued in the merger.
Instead, if you would otherwise be entitled to receive a fraction of a share,
you will receive from 3dfx cash equal to the per share value of the fractional
share of 3dfx common stock.
GigaPixel does not have "walk-away" rights and cannot terminate the merger
agreement solely because the 3dfx stock price declines. You are advised to
obtain recent market quotations for 3dfx common stock. 3dfx cannot predict the
market price of its common stock at the effective time of the merger or the
market price of its common stock at any time after the merger is completed.
Adjustments to the Merger Consideration
As described above, the holders of outstanding shares of GigaPixel common
stock and preferred stock are expected to receive approximately 37.2% of the
3dfx common stock to be outstanding after the merger. Based on the number of
outstanding securities of GigaPixel that are expected to be outstanding at the
closing of the merger and assuming that there is no adjustment resulting from
GigaPixel's required cash balance at closing falling short of the amount
required under the merger agreement as described below or from GigaPixel
incurring merger expenses in excess of $2.5 million, GigaPixel shareholders are
expected to receive approximately 14.7 million shares of 3dfx common stock or
approximately 0.70 share of 3dfx common stock for each outstanding share of
GigaPixel common stock or preferred stock.
The aggregate number of shares of 3dfx common stock that GigaPixel
shareholders will receive at the closing of the merger will be reduced under the
following circumstances:
- GigaPixel has less than a required cash balance as of the closing of the
merger of $16.0 million; if the merger does not close by June 30, 2000,
the required cash balance will be $16.0 million less the operating
expenses incurred by GigaPixel in the ordinary course of business after
that date.
- If Microsoft does not make a $10 million investment in GigaPixel prior to
the merger, which would result in GigaPixel not meeting its cash
requirement indicated above (however, the value per GigaPixel share to be
received by GigaPixel shareholders in the merger would increase; see
"Summary -- GigaPixel Equivalent Per Share Value").
- GigaPixel's merger expenses exceed $2.5 million.
The amount by which the number of shares of 3dfx common stock received in
the merger will be reduced will be based upon a share of 3dfx common stock being
valued at $11.94 per share, which was the closing stock price of a share of 3dfx
common stock on March 24, 2000, the last trading day prior to the announcement
of the merger.
INDEMNIFICATION ESCROW ARRANGEMENTS
At the closing of the merger, 3dfx will deposit in escrow with an escrow
agent agreed upon by 3dfx and GigaPixel shares of 3dfx common stock equal to 10%
of the merger consideration to be held subject to the terms of the indemnity
escrow agreement. A copy of the indemnity escrow agreement is attached to this
proxy statement/prospectus/information statement as Appendix F. The shares of
3dfx common stock placed in escrow under the indemnity escrow agreement will be
withheld from each GigaPixel shareholder in proportion to the aggregate number
of shares of 3dfx common stock the shareholder would otherwise receive by virtue
of the merger. The 3dfx common stock held in escrow may be returned to 3dfx to
compensate it for losses incurred by 3dfx within the year after the closing of
the merger in excess of
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$600,000 caused by breaches by GigaPixel of its representations, warranties and
covenants contained in the merger agreement. The number of escrowed shares of
3dfx common stock to be returned to 3dfx to compensate it for any such losses
will be determined by dividing the amount of the indemnifiable loss by $11.94,
the closing price of 3dfx common stock on March 24, 2000. 3dfx may collect
amounts from the escrow account under the Indemnity Escrow Agreement only after
and to the extent that the aggregate amount of 3dfx damages relating to breaches
by GigaPixel under the terms of the merger agreement exceed $600,000. Subject to
the satisfaction of any claims asserted by 3dfx, the escrowed 3dfx common stock
shall be distributed to the GigaPixel shareholders 380 days following the
closing date of the merger.
The indemnity escrow agreement sets forth the duties of the escrow agent,
which include (1) the safeguarding of the escrowed 3dfx common stock during the
escrow period and (2) the delivery to GigaPixel shareholders at the expiration
of the escrow period of all of the escrowed 3dfx common stock in excess of any
amounts necessary to cover any claim made by 3dfx. GigaPixel will pay all of the
escrow agent's fees after the closing of the merger. Unless and until 3dfx
asserts a claim under the escrow agreement, the securityholder representative
appointed under the escrow agreement shall instruct the escrow agent as to the
manner of voting the escrowed shares. The securityholder representative is
required to use its reasonable best efforts to vote the escrowed 3dfx common
stock in accordance with the directions of the beneficial holders thereof.
Securityholder Representative
After the closing of the merger, Mr. George T. Haber will act on behalf of
GigaPixel shareholders as their representative and attorney-in-fact in
connection with the escrow arrangements. Mr. Haber was selected by the GigaPixel
board of directors. Any actions by the securityholder representative relating to
the escrow arrangements under the terms of the indemnity escrow agreement will
be the act of GigaPixel shareholders and the escrow agent and 3dfx may rely on
any act or decision of the securityholder representative as being final and
binding on GigaPixel shareholders, the escrow agent and 3dfx.
DISPOSITION OF GIGAPIXEL OPTIONS AND THE WARRANT
GigaPixel Options
Each outstanding option to acquire shares of GigaPixel common stock granted
under GigaPixel's 1997 Employee Incentive Plan shall be assumed by 3dfx. As a
result of the merger, each GigaPixel stock option shall be treated as an option
to acquire shares of 3dfx common stock upon the same terms and conditions,
except that the number of shares shall be adjusted in a manner determined by
multiplying the number of shares presently subject to the GigaPixel options by
the exchange ratio by which the GigaPixel common and preferred shares are to be
exchanged for shares of 3dfx common shares following the merger (presently
approximately 0.70 share of 3dfx common stock for each share of GigaPixel common
and preferred stock and subject to adjustment under the share exchange formula
described above) and by dividing the exercise price for such shares of GigaPixel
common stock by the exchange ratio to determine the new exercise price. Based on
the number of GigaPixel options that are expected to be outstanding at the
closing of the merger, these options will be converted into options to purchase
approximately 812,500 shares of 3dfx common stock.
GigaPixel Warrant
GigaPixel's single outstanding warrant providing for the purchase of
421,696 shares of GigaPixel preferred stock will expire on June 30, 2000. It is
expected that the warrant will be exercised on or before that date. Based upon
an exchange ratio of 0.70 of a share of GigaPixel stock for each share of 3dfx
common stock and assuming that the warrant will be exercised on a net exercise
basis, the warrantholder will receive approximately 204,000 shares of 3dfx
common stock (which amount is in addition to the 14.7 million shares of 3dfx
common stock issued to other GigaPixel shareholders.)
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EXCHANGE OF GIGAPIXEL STOCK CERTIFICATES
As soon as practicable after the effective time, 3dfx will cause EquiServe,
its exchange agent, to mail to each GigaPixel shareholder of record a letter of
transmittal with instructions to be used by the shareholder in exchanging
certificates which, prior to the merger, represented shares of GigaPixel common
stock. After the effective time, there will be no further registration of
transfers on the stock transfer books of the surviving corporation of shares of
GigaPixel stock that were outstanding immediately prior to the effective time.
Upon the surrender of a GigaPixel stock certificate to the exchange agent
together with a duly executed letter of transmittal and the other documents as
may be reasonably required by the exchange agent, the holder of the certificate
will receive a certificate representing the number of whole shares of 3dfx
common stock to which the holder of GigaPixel stock is entitled plus cash in
lieu of any fractional share. Each payment of cash may be reduced by the amount
of any withholding taxes required under applicable law.
In the event of a transfer of ownership of GigaPixel stock that is not
registered in the transfer records of GigaPixel, a certificate representing the
appropriate number of shares of 3dfx common stock may be issued to a transferee
if the certificate representing the shares of GigaPixel stock is presented to
the exchange agent, accompanied by all documents required to evidence and effect
the transfer and to evidence that any applicable stock transfer taxes have been
paid, along with a duly executed letter of transmittal.
Until a certificate representing GigaPixel stock has been surrendered to
the exchange agent, each GigaPixel certificate will be deemed at any time after
the effective time of the merger to represent only the right to receive the
certificate representing the number of shares of 3dfx common stock to which the
GigaPixel shareholder is entitled under the merger agreement plus cash in lieu
of fractional shares.
THE MERGER AGREEMENT
Representations, Warranties and Covenants
Under the merger agreement, 3dfx and/or GigaPixel made a number of
representations, including representations relating to:
- Organization and similar corporate matters of 3dfx and of GigaPixel
- The capital structure of 3dfx and of GigaPixel
- Authorization, execution, delivery, performance and enforceability of the
merger agreement and related matters
- The absence of conflicts under charter documents or bylaws, required
consents or approvals and violations of any instruments or law
- Documents filed or to be filed with the SEC and the accuracy of the
information contained therein, if applicable
- Absence of specified material adverse changes, material litigation or
material undisclosed liabilities
- Tax, labor and employee benefit matters
- Title to properties and intellectual property matters
- Compliance with applicable law including environmental laws
- The accuracy of information supplied by each of 3dfx and GigaPixel in
connection with the preparation of this proxy
statement/prospectus/information statement and the related registration
statement
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GigaPixel has covenanted that until the consummation of the merger or the
termination of the merger agreement, it will, among other things, maintain its
business, conduct its operations in the ordinary course, not take actions
outside the ordinary course without 3dfx's consent, provide 3dfx with reasonable
access to its financial, operating and other information, and use all reasonable
efforts to consummate the merger.
3dfx has made additional covenants regarding honoring GigaPixel's existing
indemnification agreements and its certificate of incorporation and bylaw
provisions concerning indemnification of officers and directors for the six-year
period from the closing date of the merger.
Conditions to the Completion of the Merger
The obligations of 3dfx and GigaPixel to consummate the merger are subject
to the satisfaction or waiver of each of the following conditions:
- The accuracy in all material respects of the representations and
warranties made by the other party, except for any inaccuracies that
would not have a material adverse effect
- The performance in all material respects by the other party of its
covenants
- The effectiveness and the absence of any stop orders or proceedings
seeking a stop order with respect to 3dfx's registration statements and
other filings with the Securities and Exchange Commission
- The absence of any legal restraint or prohibition issued or pending by
any court or governmental authority, or any statute or regulation that
would prohibit or render illegal the consummation of the merger
- The receipt of all material consents, orders and approvals and the
expiration of any waiting periods imposed by, any governmental entity
necessary for the consummation of the merger
- The approval for quotation on the Nasdaq National Market of the shares of
3dfx common stock to be issued in connection with the merger
- The absence of any material adverse change in the business, operations,
affairs, properties, assets or condition of the other party
- The receipt by GigaPixel of specified contracts and consents
- The receipt by GigaPixel of at least $14 million, or such other amount
structured in a manner satisfactory to 3dfx, from Microsoft in connection
with the modification of an existing development agreement between
GigaPixel and WebTV (GigaPixel has already received the required payment)
- The delivery of specified ancillary documents and legal and tax opinions
Limitation on Negotiations
The merger agreement provides that neither 3dfx nor GigaPixel, shall
solicit any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to an acquisition proposal from any person or
engage in any discussions or negotiations with any person with respect to any
acquisition proposal or accept any third party acquisition proposal except as
described below. The merger agreement also requires each party to immediately
notify the other of any offer or proposal to enter into negotiations relating to
an acquisition proposal. For purposes of the merger agreement, "third party
acquisition proposal" means any inquiries or proposals regarding:
- Any merger, consolidation, share exchange, business combination,
securities issuance or acquisition or tender or exchange offer in which
3dfx or GigaPixel is involved, and any person or "group" defined under
Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations thereunder acquires such party or more than 50% of such
party's business or beneficial or record ownership of securities
representing more than 50% of the outstanding securities of any class of
such party's voting stock
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- Any sale, lease, exchange, transfer, license (in each event other than in
the ordinary course of business) or disposition of more than 50% of the
net assets of such party
The 3dfx board of directors, in the exercise of and as required by its
fiduciary duties as determined after consultation with outside financial
advisors and a written opinion to such effect from its outside legal counsel,
may consider and engage in discussions or negotiations with, and furnish
information to, a party who makes a written, unsolicited third party acquisition
proposal that constitutes a superior proposal (as described below), as long as
3dfx notifies GigaPixel within 48 hours of the 3dfx directors' first
consideration of such third party acquisition proposal in writing of the
principal financial terms and conditions of the third party acquisition proposal
and whether or not 3dfx wishes to proceed with the transactions contemplated
under the merger agreement, whether as part of such third party acquisition
proposal or otherwise. As defined in the merger agreement, a "superior proposal"
means a third party acquisition proposal that is reasonably capable of being
consummated and is reasonably likely to result, from a financial point of view,
in a transaction more favorable to the holders of 3dfx common stock as
determined in each case in good faith by 3dfx's board of directors after
consultation with 3dfx's financial advisors.
Termination and Break-Up Fees
Termination. The merger agreement may be terminated at any time prior to
the effective time of the merger as follows:
- By mutual written consent of 3dfx and GigaPixel
- By 3dfx or GigaPixel if the merger has not become effective on or before
October 15, 2000
- By 3dfx or GigaPixel if any court or governmental authority with
jurisdiction has taken any action seeking to restrain or prohibit the
merger or any other transaction set forth in the merger agreement or that
could reasonably be expected to have a material adverse effect on 3dfx or
GigaPixel
- By 3dfx upon informing GigaPixel of its intent not to consummate the
transactions set forth in the merger agreement and to proceed with a
superior third party proposal
- By GigaPixel if 3dfx shall have informed GigaPixel of 3dfx's intent to
pursue a superior third party proposal
- By 3dfx or GigaPixel upon a breach of any representation, warranty or
covenant of the other party, in either case which breach could reasonably
be expected to have a material adverse effect and which is not cured
within ten business days following receipt by the breaching party of
notice
in each event unless caused by the action or failure to act of the party
seeking to terminate the merger agreement in breach of that party's
obligations under the merger agreement.
In the event the merger agreement is terminated other than because of a
party's deliberate failure to satisfy a condition, perform a covenant or
deliberate breach of a representation or warranty in the merger agreement, the
merger will be deemed abandoned and the termination will be without liability of
any party, except for liability for breach of the merger agreement and except
for any provisions relating to solicitation and breakup fees, confidentiality,
fees and expenses and termination, which shall survive. In the event the merger
agreement is terminated as a result of a party's deliberate failure to satisfy a
condition, perform a covenant or deliberate breach of a representation or
warranty in the merger agreement, the party causing such failure or breach shall
pay the other party's fees and expenses plus $7.5 million in satisfaction of the
costs, expenses, damages or losses suffered by the other party.
Break-up Fees. GigaPixel is required to make immediate payment to 3dfx of a
breakup fee of $5.0 million and reimburse 3dfx for its costs and expenses
incurred in the transaction under the merger agreement upon violating its
agreements and covenants under the merger agreement with respect to third party
acquisition proposals. If GigaPixel enters into a written agreement to
consummate a third party acquisition before March 27, 2001, it shall pay 3dfx in
cash the additional sum of $2.5 million.
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3dfx is required to make immediate payment to GigaPixel of its costs and
expenses incurred in connection with the transactions under the merger agreement
upon violating its agreements and covenants in the merger agreement with respect
to third party acquisition proposals. In addition, if 3dfx has terminated the
merger agreement as a result of a superior proposal or enters into a written
agreement to consummate a superior proposal before March 27, 2001 in which
GigaPixel is not a party for reasons other than its termination of the merger
agreement upon 3dfx's notice of its consideration of a superior proposal, it
shall pay GigaPixel in cash the sum of $7.5 million.
Waiver and Amendment
At any time before the effective time of the merger, either 3dfx or
GigaPixel may:
- Extend the time for the performance of any of the obligations or other
acts of the other party under the merger agreement
- Waive any inaccuracies in the representations and warranties of the other
contained in the merger agreement
- Waive compliance by the other with any of the agreements or conditions
contained in the merger agreement
Fees and Expenses
3dfx and GigaPixel will each pay their own fees and expenses in connection
with the merger, whether or not the merger is completed. However, 3dfx and
GigaPixel will share equally all fees and expenses, other than attorneys' fees
and accounting fees, in connection with filings of materials required under the
Hart-Scott-Rodino Act. If GigaPixel's merger fees and expenses exceed $2.5
million, any GigaPixel merger expenses in excess of this amount will be deducted
from the consideration otherwise payable to the GigaPixel shareholders in the
merger based on a share of 3dfx common stock being valued at $11.94 per share,
which was the closing stock price per share of 3dfx common stock on March 24,
2000.
VOTING AGREEMENTS
At the same time as the execution of the merger agreement, all of
GigaPixel's executive officers and directors that individually hold shares of
GigaPixel stock, and several other GigaPixel shareholders, entered into voting
agreements with 3dfx, and all of 3dfx's executive officers and directors, and
their affiliates, entered into similar voting agreements with GigaPixel, the
forms of which are attached as Appendix B and Appendix C to this proxy
statement/prospectus/information statement. Based on the number of shares of
GigaPixel common and preferred stock outstanding on June 5, 2000, the GigaPixel
shareholders that signed voting agreements beneficially own, excluding shares
subject to options to purchase GigaPixel common stock, 73.7% of the outstanding
GigaPixel common and 51.5% of the outstanding GigaPixel preferred stock. Based
on the number of shares of 3dfx common stock outstanding on June 5, 2000, the
3dfx shareholders that signed voting agreements beneficially owned, excluding
shares subject to options to purchase 3dfx common stock, 2.5% of the outstanding
3dfx common stock. All of the 3dfx shareholders who signed the voting agreements
were executive officers, directors, affiliates, founders or 5% or greater
shareholders of 3dfx. All of the GigaPixel shareholders that signed the voting
agreements were executive officers, directors, affiliates, founders or 5% or
greater shareholders of GigaPixel.
The voting agreements provide, among other things, for the following:
- The agreement on the part of the GigaPixel shareholders and the 3dfx
shareholders to vote all shares of the capital stock held by them at any
shareholders meeting and in every written consent solicited in favor of
approval of the merger and the merger agreement and to not take any
action inconsistent with their obligations under the voting agreements
- That the GigaPixel shareholders and the 3dfx shareholders will not
transfer any shares of capital stock, including shares obtained after the
date of the voting agreement
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- The grant to 3dfx by the GigaPixel shareholders and to GigaPixel by the
3dfx shareholders of an irrevocable proxy to vote the shares of GigaPixel
or 3dfx capital stock in favor of the merger agreement and the merger
- Some representations by the GigaPixel shareholders and the 3dfx
shareholders relating to ownership of their shares and authority to
execute the voting agreement and to deliver the proxy
- The provision of any necessary consents or waivers required to complete
the merger
The voting agreements terminate upon the earlier to occur of the effective date
of the merger or the date the merger agreement is terminated.
LOCK-UP AGREEMENTS
George T. Haber, Philip J. Carmack and Ming Benjamin Zhu will enter into
lock-up agreements with 3dfx at or before the closing date of the merger, the
form of which is attached as Exhibit E to this proxy
statement/prospectus/information statement. The agreements provide restrictions
on the transfer of the 3dfx common stock received by the signing GigaPixel
shareholders in the merger. Based upon an exchange ratio of .70 shares of 3dfx
common stock per share of GigaPixel stock, Messrs. Haber, Carmack and Zhu will
hold an aggregate of approximately 5,679,317 shares or 14.3% of the outstanding
3dfx common stock following the merger.
The lock-up agreements prohibit the transfer of any 3dfx common stock
received in the merger by the former GigaPixel shareholders for the first
three-month period following the closing. Thereafter, the former GigaPixel
shareholders may sell up to 10% on a cumulative basis of the 3dfx common stock
received in the merger during each of the next four quarterly periods and may
sell without restriction any or all of the shares of 3dfx common stock held by
them beginning 15 months after the closing of the merger. In the event that
designated directors and executive officers of 3dfx sell more than twice the
number of shares of 3dfx common stock that Messrs. Haber, Carmack and Zhu are
permitted to sell, then the restrictions on disposition and transfer set forth
in the lock-up agreements shall lapse and will no longer be effective.
EMPLOYMENT AGREEMENTS
Ming Benjamin Zhu, Philip J. Carmack and Scott K. Pritchett will each enter
into executive officer employment agreements, and George T. Haber will enter
into a consulting agreement, at or before the closing date of the merger. The
forms of the employment agreement and the consulting agreement are attached as
Appendices G and H to this proxy statement/prospectus/information statement. In
addition, several other current employees of GigaPixel will sign employment
agreements with GigaPixel at or before the closing date of the merger. Each of
the executive officer employment agreements, the consulting agreement and other
employment agreements will set forth the employee's or consultant's and
GigaPixel's respective rights and obligations to each other with respect to the
terms and conditions of employment, consulting compensation, termination of
employment and the protection of GigaPixel's confidential and proprietary
information.
NONCOMPETITION AGREEMENTS
As a material inducement to 3dfx entering into the merger agreement,
Messrs. Haber, Carmack, Zhu and Pritchett will execute three-year noncompetition
agreements with 3dfx at the closing of the merger. The form of the
noncompetition agreement is attached as Appendix D to this proxy
statement/prospectus/ information statement. The noncompetition agreements will
provide for the payment of noncompetition fees. The monies paid to these
individuals under these arrangements are excluded from GigaPixel's cash for
purposes of determining GigaPixel's required cash balance as of the closing of
the merger. The terms of the noncompetition agreements restrict the employees
from disclosing any confidential information of 3dfx and GigaPixel and prohibit
the employees from engaging in activities that are similar to the business of
GigaPixel or holding any equity interest in or lending money to any person or
entity engaged in a business similar to that of 3dfx or GigaPixel.
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PERFORMANCE BONUS AGREEMENTS
In addition, prior to the closing of the merger, GigaPixel will enter into
performance bonus agreements with several employees, including Ming Benjamin
Zhu, Philip J. Carmack and Scott K. Pritchett, and a consulting agreement with
George T. Haber containing comparable performance bonus provisions by which
performance bonuses will be paid to these individuals immediately following the
closing. The form of the performance bonus agreement is attached as Appendix I
to this proxy statement/prospectus/information statement. Under these
agreements, if any of these individuals do not continue performing services on
behalf of 3dfx for a period of at least two years following the closing of the
merger, the individual will become obligated to repay the full amount of the
performance bonus. The monies paid to these individuals under these arrangements
are excluded from GigaPixel's cash for purposes of determining GigaPixel's
required cash balance as of the closing of the merger.
CONSENTS AND APPROVALS
Under the merger agreement, the obligations of both 3dfx and GigaPixel to
complete the merger are subject to the following conditions:
- The expiration or early termination of any waiting period and any
extension of the waiting period applicable to the consummation of the
merger under the Hart-Scott-Rodino Act, and no action having been
instituted by the Department of Justice or the Federal Trade Commission
challenging or seeking to prevent the merger, which action shall not have
been withdrawn or terminated.
- All necessary, consents of, or filings with, or any governmental entity
or any third party, shall have been obtained or made.
3dfx cannot predict whether any regulatory authority will approve or take
other action with respect to the merger, or the timing of the regulatory
approval or other action. 3dfx and GigaPixel are not aware of any governmental
approvals or actions that are required in order to consummate the merger except
in connection with the Securities Act of 1933, the filing of merger-related
documents under Delaware Law or as described below. Should other approvals or
actions be required, it is contemplated that 3dfx and GigaPixel would seek the
other required approvals or actions.
3dfx, GigaPixel and some GigaPixel shareholders are each expected to file a
notification and report form with the Federal Trade Commission and the Antitrust
Division of the Department of Justice under the Hart-Scott-Rodino Act. The
waiting period applicable to each filing under the Hart-Scott-Rodino Act will
expire 30 days from the date of the last filing. Even if the waiting period
expires or is terminated early, the Federal Trade Commission, the Department of
Justice, state attorneys general, the antitrust regulatory agencies of various
foreign countries or a private person or entity could challenge the merger under
antitrust laws and seek, among other things, to enjoin the merger or to cause
3dfx to divest itself, in whole or in part, of GigaPixel or of other businesses
conducted by 3dfx. Based on information available to them, 3dfx and GigaPixel
believe that the merger will not violate federal, state or foreign antitrust
laws. However, a challenge to the merger on antitrust grounds could be raised.
If a challenge is made, 3dfx and GigaPixel may be required to accept several
conditions, possibly including some divestitures or hold-separate agreements in
order to consummate the merger.
NASDAQ LISTING OF 3dfx COMMON STOCK
It is a condition to the obligations of GigaPixel and 3dfx to consummate
the merger that the shares of 3dfx common stock to be issued in the merger be
approved for listing on the Nasdaq National Market. 3dfx will file an additional
listing application with Nasdaq covering the shares, and 3dfx anticipates that
the application will be approved, subject to notice of issuance.
ANTICIPATED ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles. Under this method of
accounting, the assets and liabilities of
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GigaPixel will be recorded at their fair market value and any excess of 3dfx's
purchase price over the fair value will be attributed to either goodwill or a
variety of intangible assets including technology and assembled workforce. See
the section titled "Unaudited Pro Forma Financial Statements and Related Notes"
for a description of the purchase method of accounting.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the exchange of shares of GigaPixel stock for 3dfx
common stock pursuant to the merger and does not address the tax consequences of
any related transactions. This discussion is based on currently existing
provisions of the Internal Revenue Code, currently applicable Treasury
Regulations thereunder, published administrative rulings, and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences as described herein.
GigaPixel shareholders should be aware that the following discussion does
not deal with all United States federal income tax consequences that may be
relevant to particular shareholders of GigaPixel in light of their particular
circumstances, such as parties who are:
- banks
- insurance companies
- tax-exempt organizations
- dealers in securities
- foreign persons
- persons who do not hold their GigaPixel common stock as capital assets
within the meaning of Section 1221 of the Internal Revenue Code
- persons who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions
- persons subject to the alternative minimum tax provisions of the Internal
Revenue Code or persons who hold their shares as part of a hedging,
straddle, conversion or other risk reduction or constructive sale
transaction
In addition, the following discussion does not address the tax consequences
of the merger under foreign, state or local tax laws or the tax consequences of
any other transactions completed prior or subsequent to or concurrently with the
merger, whether or not such transactions are in connection with the merger.
ACCORDINGLY, GIGAPIXEL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM IN
THEIR PARTICULAR CIRCUMSTANCES.
3dfx has received a tax opinion from its counsel, Locke Liddell & Sapp LLP,
and GigaPixel has received a tax opinion from its counsel, Heller Ehrman White &
McAuliffe LLP, that the merger will constitute a "reorganization" within the
meaning of Section 368 of the Internal Revenue Code. Such tax opinions are
subject to certain assumptions and qualifications and are based on the truth and
accuracy currently and as of the effective time of the merger of some
representations of 3dfx, Galapagos Acquisition Corp. and GigaPixel including
representations in certain certificates delivered to counsel by the respective
managements of 3dfx, Galapagos Acquisition Corp. and GigaPixel.
Subject to the limitations and qualifications referred to herein, the
merger should result in the following federal income tax consequences:
(1) No gain or loss will be recognized by holders of GigaPixel stock
upon their receipt of 3dfx common stock solely in exchange for such
GigaPixel stock in the merger, except with respect to gain or loss
attributable to the cash received by such holders in lieu of fractional
shares of 3dfx common stock.
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(2) The aggregate tax basis of 3dfx common stock received by GigaPixel
shareholders in the merger will be the same as the aggregate tax basis of
GigaPixel stock surrendered in exchange therefor, reduced by any portion of
such tax basis allocable to a fractional share of 3dfx common stock for
which cash is received.
(3) The holding period of 3dfx common stock received by each GigaPixel
shareholder in the merger will include the period for which the GigaPixel
stock surrendered in exchange therefor was held for tax purposes, provided
that the GigaPixel stock is held as a capital asset at the time of the
merger.
(4) Cash payments received by holders of GigaPixel stock in lieu of a
fractional shares of 3dfx common stock will be treated as if such
fractional shares of 3dfx common stock had been issued in the merger and
then redeemed by 3dfx. A shareholder of GigaPixel receiving such cash will
generally recognize gain or loss upon such payment, equal to the
difference, if any, between the amount of cash received and the portion of
the aggregate tax basis of the GigaPixel stock held by the shareholder
allocable to the fractional share. This gain or loss should be capital gain
or loss to the extent that the GigaPixel stock is held by such shareholder
as a capital asset at the effective time of the merger.
(5) None of 3dfx, Galapagos Acquisition Corp. or GigaPixel will
recognize gain or loss solely as a result of the merger.
(6) GigaPixel shareholders who perfect their appraisal rights under
law and receive payment for such stock in cash and who do not own any
shares of 3dfx common stock (either actually or constructively within the
meaning of Section 318 of the Internal Revenue Code) following the receipt
of such cash will generally recognize capital gain or loss (if such stock
was held as a capital asset at the effective time of the merger) measured
by the difference between the amount of cash received and the shareholder's
basis in such stock.
Neither 3dfx nor GigaPixel has requested a ruling from the Internal Revenue
Service, or IRS, with regard to any of the federal income tax consequences of
the merger. The obligations of 3dfx and GigaPixel to consummate the merger are
conditioned on the receipt by 3dfx of a closing opinion from its counsel, Locke
Liddell & Sapp LLP, and the receipt by GigaPixel of a closing opinion from its
counsel, Heller Ehrman White & McAuliffe LLP, that the merger constitutes a
reorganization within the meaning of Section 368 of the Internal Revenue Code
(collectively, the "tax opinions"). The tax opinions will be subject to certain
assumptions and qualifications and are based on the truth and accuracy of
certain representations of 3dfx, Galapagos Acquisition Corp. and GigaPixel
including representations in certain closing certificates that will be delivered
to counsel by the respective management of 3dfx, Galapagos Acquisition Corp. and
GigaPixel. If the tax opinions are not received, the merger will not be
consummated unless the conditions requiring their receipt are waived. 3dfx and
GigaPixel currently anticipate that the tax opinions will be received and that
neither 3dfx nor GigaPixel will waive its condition requiring the receipt
thereof. GigaPixel shareholders should be aware that the tax opinions will not
be binding upon the IRS, and no assurance can be given that the IRS will not
take a contrary position.
A successful IRS challenge that the merger does not constitute a
reorganization within the meaning of Section 368 of the Code would result in the
GigaPixel shareholders being taxed on the 3dfx common stock received in the
merger. Gain or loss would be computed based on the difference between the tax
basis in the shares and the fair market value, as of the effective time, of the
3dfx common stock received in exchange therefor. In that case, a shareholder's
aggregate basis in the 3dfx common stock so received would equal such fair
market value and the holding period for such stock would begin the day after the
merger.
GigaPixel shareholders will be required to attach a statement to their tax
returns for the year of the merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). Such statement must include the
shareholder's tax basis in the shareholder's GigaPixel stock and the number of
shares and value of the 3dfx common stock received.
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APPRAISAL RIGHTS
3dfx Shareholders
Holders of 3dfx common stock will not have appraisal rights under the
California General Corporation Law.
GigaPixel Shareholders
Appraisal Rights of Dissenting GigaPixel Shareholders -- Background
Under applicable state laws regarding dissenting shareholders' appraisal
rights, if the merger occurs GigaPixel shareholders who do not vote their
GigaPixel shares in favor of the merger may, under certain conditions become
entitled to be paid cash for their GigaPixel stock in lieu of receiving 3dfx
common stock in the merger. Holders of options or the warrant to purchase
GigaPixel stock will not be entitled to appraisal rights in connection with the
merger by virtue of holding such options or the warrant.
The merger agreement provides that shares of GigaPixel common stock and
GigaPixel preferred stock that are outstanding immediately prior to the
effectiveness of the merger and have not been voted in favor of the merger will
not be converted into 3dfx common stock if the holder of such shares validly
exercises and perfects statutory appraisal rights with respect to such shares,
although such shares will be automatically converted into shares of 3dfx common
stock on the same basis as all other GigaPixel shares are converted in the
merger when and if the holder of those shares withdraws his, hers or its demand
for appraisal or otherwise becomes legally ineligible to exercise appraisal
rights.
Because GigaPixel is a Delaware corporation, the availability of dissenting
shareholders' appraisal rights for GigaPixel shareholders is determined by
Delaware law, which is summarized below. However, Section 2115 of the California
General Corporation Law provides that, because of the location of a majority of
GigaPixel shareholders in California and GigaPixel's other contacts with the
State of California, California law regarding dissenting shareholders' appraisal
rights may also apply to GigaPixel shareholders in the merger (see the Section
below entitled "Comparison of 3dfx and GigaPixel Shareholder
Rights -- Dissenters/Appraisal Rights"). Because of the potential applicability
of California law, summaries of both Delaware and California law regarding
dissenting shareholders' appraisal rights are provided below. GigaPixel and 3dfx
have mutually decided that GigaPixel shareholders will be permitted to exercise
dissenters' appraisal rights under either Delaware or California law, except to
the extent that a court or applicable legal authority rules otherwise.
GigaPixel Dissenting Shareholder Appraisal Rights under Delaware Law
When the merger becomes effective, shareholders of GigaPixel who comply
with the procedures prescribed in Section 262 of the Delaware General
Corporation Law, or Section 262, will potentially be entitled to a judicial
appraisal of the fair value of their shares, exclusive of any element of value
arising from the accomplishment or expectation of the merger, and to receive
from GigaPixel payment of the fair value of their shares in cash.
The following is a brief summary of the statutory procedures that must be
followed by a shareholder of GigaPixel in order to perfect appraisal rights
under the Delaware General Corporation Law. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262, THE TEXT
OF WHICH IS INCLUDED AS APPENDIX L TO THIS PROXY
STATEMENT/PROSPECTUS/INFORMATION STATEMENT. ANY GIGAPIXEL SHAREHOLDER
CONSIDERING A DEMAND FOR APPRAISAL IS ADVISED TO CONSULT LEGAL COUNSEL.
GigaPixel shareholders electing to exercise their appraisal rights under
Section 262 must not tender written consent in favor of approval of the merger.
Dissenters' appraisal rights under Delaware law may be exercised by
shareholders of record who continuously hold such shares through the effective
date of the merger. In order to exercise appraisal rights, a shareholder must,
within twenty days after the date that a notice that the merger has been or will
be completed has been mailed to the shareholder, demand in writing from
GigaPixel, as the surviving
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corporation, an appraisal of his, her or its shares of GigaPixel common stock or
preferred stock. Such demand will be sufficient if it reasonably informs
GigaPixel of the identity of the shareholder and that the shareholder intends to
demand an appraisal of the fair value of his, her or its shares of GigaPixel
common stock or preferred stock. Failure to make such demand on or before the
expiration of such twenty day period will foreclose a shareholder's rights to
appraisal under Delaware law. Shareholders should not expect to receive any
additional notice with respect to the deadline for demanding appraisal rights.
A record owner who holds GigaPixel common stock or GigaPixel preferred
stock as a nominee for other beneficial owners of the shares may exercise
appraisal rights with respect to the GigaPixel common stock and for GigaPixel
preferred stock held for all or less than all beneficial owners of the GigaPixel
common stock and GigaPixel preferred stock for which the holder is the record
owner. In that case, the written demand must state the number of shares of
GigaPixel common stock and GigaPixel preferred stock covered by the demand.
Where the number of shares of GigaPixel common stock and GigaPixel preferred
stock is not expressly stated, the demand will be presumed to cover all shares
of GigaPixel common stock and GigaPixel preferred stock registered in the name
of that record owner. Beneficial owners who are not record owners and who intend
to exercise appraisal rights should instruct the record owner to comply strictly
with the statutory requirements with respect to the delivery of a written demand
in accordance with Section 262.
A GigaPixel shareholder who elects to exercise appraisal rights must mail
or deliver the written demand for appraisal to:
GigaPixel Corporation
2350 Mission College Boulevard, Suite 800
Santa Clara, California 95054
Attn: George T. Haber, CEO
Within 120 days after the effective date of the merger, any dissenting
shareholder who has complied with the above procedures will be entitled, upon
written request, to receive from GigaPixel a statement of the aggregate number
of GigaPixel shares not voted in favor of approval of the merger and with
respect to which demands for appraisal have been received by GigaPixel, and the
aggregate number of holders of those shares. This statement must be mailed to
the dissenting shareholder within 10 days after the dissenting shareholder's
written request has been received by GigaPixel or within 30 days after the date
of delivery of this proxy statement/prospectus/information statement, whichever
is later.
Within 120 days after the effective date of the merger, either GigaPixel or
any dissenting shareholder may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of each share of GigaPixel common
stock and GigaPixel preferred stock held by all dissenting shareholders. If a
petition for an appraisal is timely filed, then after a hearing on the petition,
the Delaware Court of Chancery will determine which of the GigaPixel
shareholders are entitled to appraisal rights and will then appraise the shares
of GigaPixel common stock and GigaPixel preferred stock owned by those
shareholders, by determining the fair value of the shares, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with the fair rate of interest to be paid, if any, on the amount
determined to be the fair value. If no petition for appraisal is filed with the
Delaware Court of Chancery by GigaPixel or any dissenting shareholder within 120
days after the effective time of the merger, then dissenting shareholders'
rights to appraisal shall cease and they shall be entitled only to receive
shares of 3dfx common stock in the merger. Inasmuch as GigaPixel has no
obligation to file a petition, any GigaPixel shareholder who desires a petition
to be filed is advised to file it on a timely basis. However, no petition timely
filed in the Delaware Court of Chancery demanding appraisal shall be dismissed
as to any GigaPixel shareholder without the approval of the Delaware Court of
Chancery, and this approval may be conditioned on any terms the Delaware Court
of Chancery deems just.
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed upon the parties as the court deems equitable in the
circumstances. Upon application of a dissenting shareholder, the court may order
that all or a portion of the expenses incurred by any dissenting shareholder in
connection with the appraisal proceeding, including, without limitation,
reasonably attorney's
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fees, and the fees and expenses of experts, be charged pro rata against the
value of all shares entitled to appraisal. In the absence of this determination
or assessment, each party bears its own expenses. A dissenting shareholder who
has timely demanded appraisal in compliance with Section 262 will not, after the
effective time of the merger, be entitled to vote the GigaPixel stock subject to
such demand for any purpose or to receive payment of dividends or other
distributions on the GigaPixel stock, except for dividends or other
distributions payable to shareholders of record at a date prior to the effective
time of the merger.
At any time within 60 days after the effective date of the merger, any
dissenting shareholder will have the right to withdraw the shareholder's demand
for appraisal and to accept the right to receive shares of 3dfx common stock in
the merger on the same basis on which GigaPixel stock is converted into 3dfx
common stock in the merger. After this 60-day period, a dissenting shareholder
may withdraw his or her demand for appraisal only with the written approval of
GigaPixel.
GigaPixel Dissenting Shareholder Appraisal Rights under California Law
Although GigaPixel is incorporated in the State of Delaware, as noted
above, due to the location of a majority of its shareholders and GigaPixel's
other contacts with the State of California, the provisions of the California
General Corporation Law relating to the rights of dissenting shareholders in a
merger may apply to the merger.
When the merger becomes effective, shareholders of GigaPixel who do not
vote in favor of the merger and comply with the procedures prescribed in Chapter
13 of the California General Corporation Law, or Chapter 13, will be entitled to
a judicial appraisal of the fair market value of their shares, which, for
purposes of the exercise of appraisal rights under California law, is determined
as of the day before the first announcement of the terms of the merger,
excluding any appreciation or depreciation in consequence of the merger, and to
require GigaPixel to purchase the shareholder's shares for cash at such fair
market value.
The following is a brief summary of the statutory procedures that must be
followed by a shareholder of GigaPixel in order to dissent from the merger and
perfect appraisal rights under the California General Corporation Law. THIS
SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO CHAPTER 13, SECTIONS OF WHICH ARE INCLUDED AS APPENDIX M TO THIS
PROXY STATEMENT/ PROSPECTUS/INFORMATION STATEMENT. ANY GIGAPIXEL SHAREHOLDER
CONSIDERING EXERCISING DISSENTERS' RIGHTS IS ADVISED TO CONSULT LEGAL COUNSEL.
In order to exercise dissenters' appraisal rights under California law, a
GigaPixel shareholder must be entitled to vote for the proposal to approve the
merger, or be a transferee of record of shares held by such a shareholder. Under
Chapter 13, appraisal rights can only be exercised with respect to shares of
GigaPixel stock that are outstanding on the record date for the determination of
GigaPixel shareholders entitled to vote for the merger.
If the merger is approved by GigaPixel's shareholders, but any GigaPixel
shareholders do not vote in favor of the merger, then within 10 days after the
date of the approval of the merger by GigaPixel's shareholders, GigaPixel will
mail to each GigaPixel shareholder who did not tender written consent in favor
of the merger a notice of approval of the merger, together with a copy of
Sections 1300, 1301, 1302, 1303 and 1304 of the California General Corporation
Law, a statement of the price determined by GigaPixel to represent the fair
market value of dissenting shares, and a brief description of the procedure to
be followed if the shareholder desires to exercise dissenters' appraisal rights
under California law. The statement of the fair market value of the GigaPixel
stock in the notice of approval will constitute an offer by GigaPixel to
purchase at that price any shares of GigaPixel stock for which dissenters'
appraisal rights are perfected.
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A shareholder of GigaPixel wishing to require GigaPixel to purchase his,
her or its GigaPixel shares pursuant to Chapter 13 must take the following
actions:
- The shareholder must not have tendered written consent in favor of
approval of the merger;
- The shareholder must make written demand upon GigaPixel to have GigaPixel
purchase those shares for cash at their fair market value. The demand
must be made by a person who was a shareholder of record on the date for
the determination of shareholders entitled to vote on the merger, must
state the number and class of dissenting shares held of record by the
dissenting shareholder and must contain a statement of what the
shareholder claims to be the fair market value of the shares as of the
last day before the merger was first announced. The statement of fair
market value by the shareholder will constitute an offer by the
shareholder to sell the shares to GigaPixel at the specified price. The
written demand must be received by GigaPixel within 30 days after the
date on which the notice of the approval of the merger by GigaPixel's
shareholders is mailed to the shareholder. If the shareholder's demand is
not received by GigaPixel within this 30-day period, then the shareholder
will forfeit his, her or its appraisal rights; and
- The shareholder must also submit to GigaPixel, within 30 days after the
date on which the notice of approval of the merger by GigaPixel's
shareholders is mailed to the shareholder, at GigaPixel's principal
office or the office of its transfer agent, the certificates representing
any shares of GigaPixel stock with respect to which demand for purchase
is being made, to be stamped or endorsed with a statement that the shares
are dissenting shares.
Written demands, notices or other communications concerning the exercise of
dissenters' rights should be addressed to:
GigaPixel Corporation
2350 Mission College Boulevard, Suite 800
Santa Clara, California 95054
Attn: George T. Haber, CEO
Under California law, a dissenting shareholder may not withdraw his, her or
its demand for payment of the fair market value of the shareholder's dissenting
shares in cash unless GigaPixel consents.
If the shareholder and GigaPixel agree that the shares of GigaPixel stock
as to which the shareholder is seeking appraisal rights are dissenting shares,
and also agree upon the price to be paid to purchase the shares, then the
dissenting shareholder is entitled to the agreed price with interest thereon at
the legal rate on judgments under California law from the date of the agreement.
Any agreements fixing the fair market value of any dissenting shares as between
GigaPixel and any dissenting shareholder must be filed with the secretary of
GigaPixel.
However, if GigaPixel denies that the shareholder's shares qualify as
dissenting shares eligible for purchase under Chapter 13, or GigaPixel and the
shareholder fail to agree upon the fair market value of the shares, then the
shareholder may, within six months after the date on which GigaPixel mailed to
the shareholder the notice of approval of the merger by GigaPixel's
shareholders, but not thereafter, file a complaint in the California Superior
Court requesting the Court to determine whether the shareholder's shares qualify
as dissenting shares that are eligible to be repurchased pursuant to the
exercise of appraisal rights, the fair market value of such shares, or both, or
may intervene in any action pending on such a complaint.
If the Court is requested to determine the fair market value of the shares,
it shall appoint one or more impartial appraisers to determine the fair market
value of the shares. However, if the appraisers cannot determine the fair market
value within ten days of their appointment or within a longer time determined by
the Court, then the Court will determine the fair market value. If the Court
determines that the shareholder's shares qualify as dissenting shares, then
following determination of their fair market value GigaPixel will be obligated
to pay the dissenting shareholder the fair market value of the shares, as so
determined, together with interest thereon at the legal rate from the date on
which judgment is entered.
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Payment on this judgment will be due upon the endorsement and delivery to
GigaPixel of the certificates for the shares as to which the appraisal rights
are being exercised.
The costs of the appraisal action, including reasonable compensation to the
appraisers appointed by the court, will be allocated among GigaPixel and
dissenting shareholders as the Court deems equitable. However, if the appraisal
of the fair market value of the shares exceeds the price offered by GigaPixel,
then GigaPixel shall pay such costs. If the fair market value of the shares
awarded by the Court exceeds 125% of the price offered by GigaPixel for the
shares in the notice of approval of the merger by GigaPixel's shareholders, then
the Court may in its discretion include attorneys' fees, fees of expert
witnesses and interest in the costs payable by GigaPixel.
Exercise of Appraisal Rights -- Written Demands
Whether submitting a written demand for appraisal under Delaware or
California law, a written demand for appraisal must reasonably inform GigaPixel
of the identity of the shareholder of record making the demand and that the
shareholder intends to demand appraisal of the shareholder's shares. A demand
for appraisal should be executed by or for the GigaPixel shareholder of record,
fully and correctly, as that shareholder's name appears on the shareholder's
stock certificate. If GigaPixel common stock or GigaPixel preferred stock is
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, the demand should be executed by the fiduciary. If GigaPixel common
stock or GigaPixel preferred stock is owned of record by more than one person,
as in a joint tenancy or tenancy in common, the demand should be executed by or
for all joint owners. An authorized agent, including an agent for two or more
joint owners, should execute the demand for appraisal for a shareholder of
record; however, the agent must identify the record owner and expressly disclose
the fact that, in exercising the demand, he, she or it is acting as agent for
the record owner.
As noted above there are several differences between the laws of Delaware
and California with respect to dissenting shareholders' appraisal rights. If
GigaPixel receives a written demand for appraisal it will treat the demand as
valid if GigaPixel determines that the demand is in compliance with the
requirements of either Section 262 or Chapter 13.
Shareholders of GigaPixel considering whether to seek appraisal should bear
in mind that the fair value of their GigaPixel common stock and GigaPixel
preferred stock determined under Section 262 or Chapter 13 could be more than,
the same as, or less than the value of the right to receive shares of 3dfx
common stock in the merger. Also, GigaPixel reserves the right to assert in any
appraisal proceeding that, for purposes thereof, the "fair value" of the
GigaPixel common stock and GigaPixel preferred stock is less than the value of
the shares of 3dfx common stock to be issued in the merger.
The process of dissenting and exercising appraisal rights requires strict
compliance with technical prerequisites. GigaPixel shareholders wishing to
dissent should consult with their own legal counsel in connection with
compliance with Section 262 of the Delaware General Corporation Law or Chapter
13 of the California General Corporation Law.
Any shareholder who fails to comply with the requirements of Section 262 of
the Delaware General Corporation Law or Chapter 13 of the California General
Corporation Law will forfeit his, her or its rights to dissent from the merger
and exercise appraisal rights and will receive shares of 3dfx common stock.
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UNAUDITED PRO FORMA FINANCIAL STATEMENTS AND RELATED NOTES
The following unaudited pro forma combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations of future periods or
the results that actually would have been realized had 3dfx and GigaPixel been a
combined company during the specified periods. The pro forma combined financial
statements, including the related notes, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical financial
statements of 3dfx and GigaPixel, including the related notes, incorporated by
reference or contained elsewhere in this proxy statement/prospectus/information
statement.
The following pro forma combined financial statements give effect to the
proposed merger of 3dfx and GigaPixel using the purchase method of accounting.
The pro forma combined financial statements are based on the respective
historical financial statements and the related notes of 3dfx and GigaPixel. The
pro forma adjustments are preliminary and based on management's estimates and a
preliminary, third-party valuation of the intangible assets acquired.
Based on the timing of the closing of the transaction, the finalization of
the third-party valuation, the finalization of the integration plans and other
factors, the pro forma adjustments may differ materially from those presented in
these pro forma financial statements. A change in the pro forma adjustments
would result in a reallocation of the purchase price affecting the value
assigned to the long-term tangible and intangible assets. The statement of
operations effect of these changes will depend on the nature and amount of the
assets or liabilities adjusted (see note 2 to the pro forma financial
statements).
The following pro forma combined statement of operations data assume both
the STB and GigaPixel mergers took place as of February 1, 1999 and combines
3dfx's statement of operations data for the year ended January 31, 2000, STB's
statement of operations data for the year ended January 31, 2000, and
GigaPixel's statement of operations data for the year ended December 31, 1999.
The pro forma balance sheet data assume the mergers took place as of
January 31, 2000 and combines 3dfx's January 31, 2000 consolidated balance sheet
data and GigaPixel's December 31, 1999 balance sheet data.
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<PAGE> 79
3DFX AND GIGAPIXEL
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
3DFX GIGAPIXEL
JANUARY 31, DECEMBER 31, PRO FORMA PRO FORMA
2000 1999 ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents................ $ 41,818 $ 2,404 $ -- $ 44,222
Short term investments................... 24,012 -- -- 24,012
Accounts receivable...................... 66,160 850 -- 67,010
Inventories.............................. 45,065 -- -- 45,065
Other current assets..................... 28,407 155 -- 28,562
-------- -------- ---------
Total current assets.................. 205,462 3,409 -- 208,871
Property & equipment....................... 40,269 1,288 -- 41,557
Intangibles................................ 12,942 -- 2,400(c) 15,342
Goodwill................................... 32,709 -- 108,144(c) 140,853
Other assets............................... 4,729 -- -- 4,729
-------- -------- -------- ---------
Total assets.......................... $296,111 $ 4,697 110,544 $ 411,352
======== ======== ======== =========
Current Liabilities:
Accounts payable......................... 60,879 117 7,000(d) 67,996
Accrued liabilities...................... 20,385 217 -- 20,602
Short term debt.......................... 25,000 -- -- 25,000
Current portion of capital lease
obligations........................... 732 -- -- 732
-------- -------- -------- ---------
Total current liabilities............. 106,996 334 7,000 114,330
Other long-term liabilities................ 1,881 -- 960(e) 2,841
-------- -------- -------- ---------
Total liabilities..................... 108,877 334 7,960 117,171
-------- -------- -------- ---------
Mandatorily redeemable convertible
preferred
stock.................................... -- 12,905 (12,760) 145
-------- -------- -------- ---------
Stockholders' Equity:
Common stock and additional paid-in
capital............................... 251,883 9,336 178,766(a) 439,614
Warrants................................. 242 -- -- 242
Deferred compensation.................... (172) (7,736) 7,736(a) (172)
Unrealized gain on equity securities..... 1,844 -- -- 1,844
Retained earnings........................ (66,563) (10,142) (71,158)(b) (147,492)
-------- -------- -------- ---------
Total stockholders' equity............ 187,234 (8,542) 115,344 294,036
-------- -------- -------- ---------
Total liabilities and stockholders'
equity.............................. $296,111 $ 4,697 $110,544 $ 411,352
======== ======== ======== =========
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
72
<PAGE> 80
3DFX AND GIGAPIXEL
PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
3DFX GIGAPIXEL
YEAR STB YEAR
ENDED FEB. 1, 1999 TO ENDED
JANUARY 31, MAY 13, PRO FORMA PRO FORMA DECEMBER 31, PRO FORMA PRO FORMA
2000 1999(F) ADJUSTMENTS COMBINED(F) 1999 ADJUSTMENTS COMBINED
----------- --------------- ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $360,523 $102,672 $(21,883) $441,312 $ 1,780 $ -- $ 443,092
Cost and expenses
Cost of revenues......... 287,872 79,878 (19,172) 348,578 -- -- 348,578
Research and
development........... 66,062 3,504 -- 69,566 7,373 -- 76,939
Marketing, general &
administrative........ 63,468 31,942 -- 95,410 1,304 -- 96,714
Restructuring costs...... 4,382 -- -- 4,382 -- -- 4,382
In process R & D......... 4,302 -- -- 4,302 -- -- 4,302
Amortization of goodwill
and intangibles....... 10,228 -- 4,280 14,508 -- 21,917(c) 36,425
-------- -------- -------- -------- ------- -------- ---------
Total operating
expenses............ 436,314 115,324 (14,892) 536,746 8,677 21,917 (567,340)
Operating income (loss).... (75,791) (12,652) (6,991) (95,434) (6,897) (21,917) (124,248)
Interest and other
income................... 2,180 (112) -- 2,068 121 -- 2,189
-------- -------- -------- -------- ------- -------- ---------
Income (loss) before income
taxes.................... (73,611) (12,764) (6,991) (93,366) (6,776) (21,917) (122,059)
Provision (benefit) for
income taxes............. (10,324) (750) (1,231) (12,305) -- 192(e) (12,113)
-------- -------- -------- -------- ------- -------- ---------
Net income (loss).......... $(63,287) $(12,014) $ (5,760) $(81,061) $(6,776) $(22,109) $(109,946)
======== ======== ======== ======== ======= ======== =========
Net income (loss) per share
Basic.................... $ (2.81) $ (0.95) -- $ (3.39) N/A -- $ (3.13)
Diluted.................. $ (2.81) $ (0.95) -- $ (3.39) N/A -- $ (3.13)
Common and common stock
equivalent shares used in
per share calculation
Basic.................... 22,536 12,612 -- 23,933 N/A -- 35,140
Diluted.................. 22,536 12,612 -- 23,933 N/A -- 35,140
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
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3DFX AND GIGAPIXEL
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The pro forma combined statement of operations data assume both the STB and
GigaPixel mergers took place as of February 1, 1999 and combines 3dfx's
statement of operations data for the year ended January 31, 2000, STB's
statement of operations data for the year ended January 31, 2000, and
GigaPixel's statement of operations data for the year ended December 31, 1999.
The pro forma balance sheet data assume the mergers took place as of
January 31, 2000 and combines 3dfx's January 31, 2000 consolidated balance sheet
data and GigaPixel's December 31, 1999 balance sheet data.
On a combined basis, there were no material transactions between 3dfx and
GigaPixel during the periods presented.
There are no material differences between the accounting policies of 3dfx
and GigaPixel.
The pro forma combined provision for income taxes may not represent the
amounts that would have resulted had 3dfx and GigaPixel filed consolidated
income tax returns during the periods presented.
NOTE 2. PRO FORMA ADJUSTMENTS
The pro forma adjustments are preliminary and based on 3dfx management's
estimates and a preliminary, third-party valuation of the intangible assets
acquired. In addition, management is in the process of assessing and formulating
its integration plans, which may include employee separations and facility
consolidation.
The purchase price of $194.5 million includes $178.1 million of stock to be
issued at fair value (fair value being determined as the average price of the
3dfx stock for a period of five days before and after the announcement of the
merger), $9.4 million in GigaPixel stock option costs and $7 million in
estimated expenses of the transaction. The purchase price was allocated on a pro
forma basis: $3.6 million to the estimated fair value of GigaPixel net tangible
assets purchased (as of June 5, 2000), $81.3 million to purchased in-process
research and development, $2.4 million to assembled workforce, ($0.9 million) to
deferred tax liabilities, and $108.1 million to goodwill. The allocation of the
purchase price to intangibles was based upon a preliminary independent, third
party appraisal and management's estimates and is subject to change upon the
finalization of the appraisals.
The value assigned to purchased in-process research and development (IPR&D)
was determined by identifying research projects in areas for which technological
feasibility had not been established. The value was determined by estimating the
expected cash flows from the projects once commercially viable, discounting the
net cash flows back to their present value and then applying a percentage of
completion to the calculated value as defined below.
Net cash flows. The net cash flows from the identified projects are based
on our estimates of revenues, cost of sales, research and development costs,
selling, general and administrative costs, royalty costs and income taxes from
those projects. These estimates are based on the assumptions mentioned below.
The research and development costs included in the model reflect costs to
sustain projects, but exclude costs to bring in-process projects to
technological feasibility.
The estimated revenues are based on management projections of each
in-process project and the business projections were compared and found to be in
line with industry analysts' forecasts of growth in substantially all of the
relevant markets. Estimated total revenues from the IPR&D product areas are
expected to peak in the year ending January 31, 2005 and decline from 2006 into
2007 as other new products are expected to become available.
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<PAGE> 82
These projections are based on management estimates of market size and
growth, expected trends in technology and the nature and expected timing of new
product introductions by GigaPixel and their competitors.
Discount rate. Discounting the net cash flows back to their present value
is based on the industry weighted average cost of capital ("WACC"). The industry
WACC is approximately 28%. The discount rate used in discounting the net cash
flows from IPR&D is 30%, a 200 basis point increase from the industry WACC. This
discount rate is higher than the industry WACC due to inherent uncertainties
surrounding the successful development of the IPR&D, market acceptance of the
technology, the useful life of such technology and the uncertainty of
technological advances which could potentially impact the estimates described
above.
Percentage of completion. The percentage of completion for GigaPixel
technology was determined using costs incurred to date on each project as
compared to the remaining research and development to be completed to bring each
project to technological feasibility. The percentage of completion related to
GigaPixel technology was 72%.
If the projects discussed above are not successfully developed, the sales
and profitability of the combined company may be adversely affected in future
periods.
Based on the timing of the closing of the transaction, the results of the
appraisal, the finalization of the integration plans and other factors, the pro
forma adjustments may differ materially from those presented in these pro forma
combined financial statements. A change in the pro forma adjustments would
result in a reallocation of the purchase price affecting the value assigned to
long-term tangible and intangible assets. The statement of operations effect of
these changes will depend on the nature and amount of the assets or liabilities
adjusted.
(a) Adjustments to record the components of the purchase
price -- $178.1 million in 3dfx common stock and $9.4 million in 3dfx
common stock options. The 3dfx common stock will be issued in exchange for
outstanding shares of GigaPixel common stock. 3dfx common stock options,
with adjusted exercise prices of $0.17 per share, will be issued in
exchange for GigaPixel options at the conversion ratio of 0.70 options to
purchase 3dfx common stock for each option to purchase GigaPixel common
stock. The value of the 3dfx common stock issued is based on the average
price of the 3dfx stock for a period of five days before and after the
announcement of the merger ($11.95). The value of the 3dfx common stock
options is based on the estimated fair market value of these options as of
the date of the merger agreement determined using the Black-Scholes option
pricing model, with a 70% volatility, a three-year estimated life, a 0%
dividend yield and a risk-free rate of 5.7%.
Adjustment also reflects the elimination of GigaPixel shareholders'
equity. In connection with the merger agreement, the mandatorily redeemable
convertible preferred stock will convert into 3dfx common stock at the same
conversion ratio of 0.70.
(b) Estimated valuation of tangible and intangible assets, including
purchased in-process technology, resulting from the preliminary allocation
of the purchase price. Valuation of the tangible and intangible assets
acquired is being conducted by an independent third-party appraisal company
and is expected to be completed at closing.
3dfx's management estimates that $81.3 million of the purchase price
represents purchased in-process technology that has not yet reached
technological feasibility and has no alternative future use. This amount
will be expensed as a non-recurring, non-tax deductible charge upon
consummation of the merger. This amount has been reflected as a reduction
to shareholders' equity and has not been included in the pro forma combined
statement of income due to its non-recurring nature.
The value assigned to purchased in-process technology will be modified
upon completion of the independent appraisal. The valuation methodology
will incorporate a "percentage of completion" approach.
(c) Intangible assets of $2.4 million are comprised of assembled
workforce which have an estimated useful life of five years. Goodwill of
$108.1 million will have an estimated useful life of five years.
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<PAGE> 83
The estimated annual amortization charge to income related to
intangible assets and goodwill acquired approximates $21.9 million. This
charge is reflected in the pro forma combined statement of income.
(d) Adjustment to reflect estimated merger-related expenses. The
impact of the fees and expenses has been reflected in the pro forma
combined balance sheet and statement of operations as an increase in the
purchase price of the transaction and is allocated to the assets acquired
and liabilities assumed, based upon their estimated fair value.
(e) Adjustment reflects the recording of deferred tax liabilities
associated with non-goodwill intangible assets recorded as part of this
transaction. These liabilities were recorded using statutory tax rates of
40%.
(f) Represents results of STB's operations for the period from
February 1, 1999 to May 13, 1999 prior to the acquisition by 3dfx, and
adjustments for intercompany activity and additional amortization of
intangibles.
NOTE 3. PRO FORMA EARNINGS PER COMMON SHARE
Basic and diluted pro forma earnings per common share was calculated based
on the conversion of 8.1 million shares of GigaPixel common stock outstanding at
December 31, 1999 into 5.7 million shares of 3dfx common stock.
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3DFX BUSINESS
The information contained in the section entitled "Item 1. Business" of
3dfx's Annual Report on Form 10-K for the fiscal year ended January 31, 2000 is
incorporated into this proxy statement/ prospectus/information statement by
reference.
3DFX MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in the section entitled "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations (other
than the information contained under the subheading "Investment Risks," which is
superseded by the information contained under "Risk Factors" in this document)"
of 3dfx's Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year
ended January 31, 2000 is incorporated into this proxy
statement/prospectus/information statement by reference.
3DFX MANAGEMENT FOLLOWING THE MERGER
EXECUTIVE OFFICERS AND DIRECTORS
At the 3dfx annual meeting, each of the current 3dfx directors other than
Anthony Sun is being nominated to serve until the next annual meeting of
shareholders and until his successor has been elected and has qualified, or
until the director's earlier death, resignation or removal. Mr. Sun has declined
to stand for re-election to the 3dfx board of directors, and as a result his
term will expire simultaneous with the 3dfx annual meeting. The 3dfx board of
directors recently took action, effective as of the 3dfx annual meeting, to
amend the 3dfx bylaws to set the exact number of directors at five. As indicated
further below, following completion of the merger, the 3dfx board of directors
intends to expand the size of the board and to nominate and appoint George T.
Haber and Andrei M. Manoliu to serve as members of the 3dfx board of directors.
Set forth below is some information about the current executive officers
and directors of 3dfx.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------------------------------------------------------
<S> <C> <C>
Alex Leupp..................... 60 President, Chief Executive Officer and Director
Scott D. Sellers............... 31 Executive Vice President, Chief Technical Officer and
Director
Randall D. Eisenbach........... 49 Senior Vice President of Operations
Richard Burns.................. 45 Senior Vice President of Worldwide Sales
Stephen A. Lapinski............ 49 Senior Vice President of Marketing
David Zacarias................. 50 Vice President, Administration and Chief Financial Officer
Gordon A. Campbell............. 55 Chairman of the Board of Directors
James L. Hopkins............... 55 Director
James Whims.................... 45 Director
</TABLE>
ALEX LEUPP has served as President and Chief Executive Officer of 3dfx
since December 1999 and has served as a director of 3dfx since October 1998.
From December 1998 until November 1999, Mr. Leupp was President and Chief
Executive Officer of Chip Express Corporation, a semiconductor company. Mr.
Leupp spent 12 years with Siemens Microelectronics, Inc, a semiconductor
company, where his most recent position was President and Chief Executive
Officer.
SCOTT D. SELLERS has served as Chief Technical Officer of 3dfx since May
1999. Between August 1998 and May 1999, Mr. Sellers served as Senior Vice
President, Product Development for 3dfx. Mr. Sellers co-founded 3dfx in August
1994 and served as Vice President, Research and Development from January 1995 to
August 1998. He has also served as a director of 3dfx since March 1995. Mr.
Sellers was Principal Engineer at MediaVision Technology, Inc., a multimedia
computer products company, from June 1993 to June 1994.
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<PAGE> 85
RANDALL D. EISENBACH has served as Senior Vice President of Operations
since September 1999, and as Vice President of Texas Operations from May 1999 to
September 1999. Prior to joining 3dfx, Mr. Eisenbach served as Executive Vice
President and Chief Operating Officer of STB Systems, Inc. Mr. Eisenbach held
various positions with STB including Director of Operations and Director of
Manufacturing.
RICHARD BURNS has served as Senior Vice President of Worldwide Sales since
January 2000. Between March 1999 and January 2000, Mr. Burns served as Vice
President -- Retail Channel Sales. Prior to joining 3dfx, Mr. Burns was a
consultant for Disney Interactive from August 1998 to March 1999 and Executive
Vice President, North America Publishing for GT Interactive Software, a
PC/Videogame software publisher, from December 1995 to May 1998.
STEPHEN A. LAPINSKI has served as Senior Vice President of Marketing since
May 2000. Prior to joining 3dfx, Mr. Lapinski was the Senior Director of Product
Marketing for the computational products division at Advanced Micro Devices from
November 1998 to May 2000 and Vice President of World Wide Corporate Marketing
and Business Development at S3 Inc., a graphics company, from April 1997 to
November 1998. In addition he was a General Manager at Cyrix Corporation, where
he was responsible for manufacturing, engineering, marketing, technical support
and sales of personal computers and upgrade microprocessors from 1992 to 1997.
DAVID ZACARIAS has served as Chief Financial Officer and Vice President,
Administration of 3dfx since February 1998. Prior to joining 3dfx, Mr. Zacarias
served as Chief Financial Officer from February 1993 to January 1998 and as
Chief Operating Officer from July 1995 to January 1998 of OPTi Inc., a fabless
semiconductor company.
GORDON A. CAMPBELL has served as the Chairman of the Board of Directors of
3dfx since August 1994 when he co-founded 3dfx. Mr. Campbell also served as
President and Chief Executive Officer of 3dfx from January 1995 to December
1996. Prior to joining 3dfx, 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. or 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. or 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 Palm, Inc. and Bell
Microproducts, Inc., is the Chairman of the Board of Cobalt Networks, Inc. and
is the managing partner of TechFund Capital, a venture capital fund, since
August 1997.
JAMES L. HOPKINS has served as a director of 3dfx since 3dfx's merger with
STB in May 1999. Mr. Hopkins is a Managing Director of Hoak Breedlove Wesneski &
Co., an investment banking firm. Mr. Hopkins served as an officer of 3dfx from
May 1999 (upon completion of the 3dfx/STB merger) to September 1999. Prior to
the 3dfx/STB merger, Mr. Hopkins was the Chief Financial Officer and Vice
President of Strategic Marketing for STB and served in these capacities since
December 1994. Mr. Hopkins' responsibilities in these positions included
directing European sales and marketing, managing specialized technology products
and planning financial strategy.
JAMES WHIMS has served as a director of 3dfx since November 1996. Mr. Whims
has been a Partner at Techfarm since November 1996. From November 1994 until
July 1996, Mr. Whims was the Executive Vice President of Sony Computer
Entertainment, a video game hardware and software company. From 1990 until July
1994, Mr. Whims was Executive Vice President of the Consumer Division of The
Software Toolworks, Inc., a diversified software company. From 1985 to 1988, Mr.
Whims served as Vice President of Sales of Worlds of Wonder, Inc., a toy
products company, which he co-founded.
In addition, following completion of the merger, 3dfx intends to take all
actions necessary to nominate and appoint George T. Haber and Andrei M. Manoliu
to serve as members of the 3dfx board of directors, and Philip J. Carmack will
serve as Senior Vice President of Engineering of 3dfx. Information with respect
to these individuals is set forth below.
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<PAGE> 86
GEORGE T. HABER has been the President, Chief Executive Officer, Chief
Financial Officer and member of the board of directors of GigaPixel since he
co-founded the company in July of 1997. Mr. Haber was previously Executive Vice
President of Zoran Corporation, and Mr. Haber currently remains on the board of
directors of Zoran Corporation. From December 1996 to August 1997, Mr. Haber was
the President, Chief Executive Officer, and co-founder of CompCore Multimedia,
Inc., a multimedia hardware and software company. CompuCore Multimedia became a
wholly-owned subsidiary of Zoran as a result of an acquisition completed in
December 1996.
ANDREI M. MANOLIU, PH.D. has been the Managing Director of GrowthPlans LLC,
a business and financial consulting firm for emerging growth companies, since
April 2000. From 1982 to March 2000, Dr. Manoliu was associated with Cooley
Godward LLP, most recently as senior partner. Dr. Manoliu studied Physics at the
University of Bucharest, Romania, obtained a Ph.D. in Solid State Physics from
the University of California, Berkeley and a J.D. from Stanford Law School. Dr.
Manoliu serves as a director of Be Incorporated, a software company.
PHILIP J. CARMACK has been the Chief Operating Officer of GigaPixel
Corporation since March 2000, and prior to his appointment to this position he
has served as Executive Vice President since November of 1999. From August 1998
to November 1999, Mr. Carmack was President, Chief Executive Officer and
Chairman of the Board of Raydiant, Inc., a design graphics and multimedia
company. From December 1995 to June 1997, Mr. Carmack was a director of Hardware
Engineering, and subsequently the Vice President of Hardware Engineering at 3dfx
until August 1998. From September 1994 through December 1995, Mr. Carmack was a
hardware engineering director at The 3DO Company, a 3D graphics hardware and
software company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires 3dfx's officers and directors,
and persons who own more than ten percent of a registered class of 3dfx's equity
securities, to file reports of ownership on Form 3 and changes in ownership on
Form 4 or Form 5 with the Securities and Exchange Commission or SEC and the
National Association of Securities Dealers, Inc. These officers, directors and
10% shareholders are also required by SEC rules to furnish 3dfx with copies of
these filings. Based solely on its review of the copies of these filings
received by 3dfx, or written representations from some reporting persons that no
Forms 5 were required for such persons, 3dfx believes that its officers,
directors and 10% shareholders have complied with all Section 16(a) filing
requirements applicable to them in fiscal 2000, except that Alex Leupp, Anthony
Sun, James Whims, Gordon A. Campbell, Philip Young, Gary Tarolli, Scott D.
Sellers and Richard Burns will each file a Form 5 late.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 2000 were Alex
Leupp and James Whims. No executive officer of 3dfx serves as a member of the
board of directors or Compensation Committee of any entity which has one or more
executive officers serving as a member of 3dfx's board of directors or
Compensation Committee.
COMPENSATION OF DIRECTORS
Members of 3dfx's board of directors do not receive compensation for their
services as directors. 3dfx's 1997 Director Option Plan provides that options
shall be granted to non-employee directors of 3dfx pursuant to an automatic
nondiscretionary grant mechanism. 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 12,500 shares of common
stock to each new non-employee director of 3dfx who is neither affiliated with
nor nominated by a shareholder that owns 1% or more of the outstanding capital
stock of 3dfx on the later of the effective date of the Director Plan or the
date he 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
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<PAGE> 87
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 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 options granted to the directors have different vesting
periods: 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; and 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.
Pursuant to such automatic grant mechanism, in fiscal 2000, directors
received the following grants:
<TABLE>
<CAPTION>
NAME SHARES EXERCISE PRICE
---- ------ --------------
<S> <C> <C>
Alex Leupp.................................................. 6,000 $8.50
Anthony Sun................................................. 6,000 $8.50
James Whims................................................. 6,000 $8.50
Gordon A. Campbell.......................................... 10,000 $8.50
Philip Young................................................ 6,000 $8.50
</TABLE>
As of January 31, 2000, no shares of common stock had been issued upon the
exercise of options granted under the Director Plan, options to purchase 105,500
shares of common stock were outstanding and 44,500 shares remain available for
future option grants under the Director Plan.
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<PAGE> 88
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the years ended December 31, 1997,
December 31, 1998 and January 31, 2000 the compensation earned by (a) each
person that served as 3dfx's Chief Executive Officer during the fiscal year
ended January 31, 2000, (b) each of the other top four executive officers whose
salary and bonus for the fiscal year ended January 31, 2000 was in excess of
$100,000 for services rendered in all capacities to 3dfx for that year and (c)
the individual for whom disclosure would have been provided pursuant to clause
(b) but for the fact that the individual was not serving as an executive officer
of 3dfx on January 31, 2000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------
------------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION(2) OPTIONS (#)(3) COMPENSATION ($)
--------------------------- ------ ------------- --------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
L. Gregory Ballard(4).......... 2000 $276,097 $63,000 $ 7,500 90,000 $504,000(5)
Former President, Chief 1998 251,923 52,000 -- -- --
Executive
Officer and Director 1997 210,167 6,200 -- 18,750 --
Alex Leupp(6).................. 2000 $ 44,711 $50,000 $ 750 806,000(6) --
President, Chief Executive 1998 -- -- -- 13,500(7) --
Officer
and Director 1997 -- -- -- -- --
David Zacarias................. 2000 $224,384 $28,667 -- 25,000 --
Vice President, Administration 1998 190,192 26,545 -- 200,000(8) --
and
Chief Financial Officer 1997 -- -- -- -- --
Scott D. Sellers............... 2000 $209,230 $26,667 -- 270,000 --
Executive Vice President, Chief 1998 177,121 25,500 -- 68,750 --
Technical Officer and Director 1997 149,079 4,665 -- 100,000(9) --
Richard Burns(10).............. 2000 $148,077 $25,000 $56,630(11) 70,000(12) --
Senior Vice President of 1998 -- -- -- -- --
Worldwide Sales 1997 -- -- -- -- --
Janet Leising(13).............. 2000 $208,159 $61,667 -- 70,000 --
Former Senior Vice President 1998 174,591 40,825 -- 50,000(9) --
of Business Development 1997 143,236 5,000 -- 32,500 --
</TABLE>
---------------
(1) The salaries for the month ended January 31, 1999 for Messrs. Ballard,
Zacarias and Sellers and Ms. Leising were $26,981, $16,538, $15,385 and
$15,000, respectively.
(2) Represents car allowances, except where otherwise indicated.
(3) Except as otherwise indicated, these shares are subject to exercise under
stock options granted under 3dfx's 1995 Employee Stock Option Plan.
(4) Mr. Ballard resigned as the President and Chief Executive Officer, and as a
director of 3dfx in October 1999.
(5) In connection with 3dfx's severance arrangement with Mr. Ballard, 3dfx paid
to Mr. Ballard a lump sum severance amount of $504,000 plus other benefits.
(6) Mr. Leupp became the President and Chief Executive Officer of 3dfx in
December 1999. Prior to that time he served as an independent director of
3dfx. Included within the number of options granted to Mr. Leupp as
indicated in the table above in fiscal 2000 are 6,000 options granted to
him in his capacity as a director of 3dfx under the Director Plan.
(7) The options were granted to Mr. Leupp under the Director Plan.
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<PAGE> 89
(8) These shares are subject to exercise under stock options granted under
3dfx's 1997 Supplementary Stock Option Plan, and constitutes a net option
to purchase 100,000 shares of 3dfx common stock granted to Mr. Zacarias in
connection with 3dfx's fiscal 1998 option repricing program in exchange for
options that had a higher exercise price.
(9) Constitutes a net option to purchase an aggregate of 50,000 shares of
common stock granted to Mr. Sellers. Ms. Leising holds an aggregate of
30,000 options, of which 20,000 net options were granted to Ms. Leising in
connection with 3dfx's option repricing program implemented in fiscal 1998
in exchange for options that had a higher exercise price.
(10) Mr. Burns joined 3dfx in March 1999.
(11) Represents commission paid to Mr. Burns in fiscal 2000.
(12) Includes 17,000 options granted under 3dfx's 1995 Employee Stock Option
Plan and 53,000 options granted under 3dfx's 1997 Employee Stock Purchase
Plan.
(13) Ms. Leising resigned in February 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended January 31, 2000.
Except as otherwise noted, all such options were awarded under 3dfx's 1995
Employee Stock Option Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS GRANTED EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME (2)(3) FISCAL 2000 SHARE DATE 5% 10%
---- --------------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
L. Gregory Ballard... 45,000 2% $11.38 2/12/09 $ 110,475 $ 237,375
45,000 $17.00 5/14/09 164,700 355,050
Alex Leupp........... 800,000(4) 17% $ 8.88 11/30/09 1,552,000 3,292,000
6,000(5) $ 8.50 1/31/10 4,920 6,780
David Zacarias....... 12,500 -- $11.38 2/12/09 30,688 65,938
12,500 $17.00 5/14/09 45,750 98,625
Scott D. Sellers..... 35,000 6% $11.38 2/12/09 85,925 184,625
35,000 $17.00 5/14/09 128,100 276,150
200,000 $8.875 11/30/09 408,000 823,000
Richard Burns........ 70,000(6) 1.5% $13.25 4/1/09 200,200 430,500
Janet Leising........ 35,000 1.5% $11.38 2/12/09 85,925 184,625
35,000 $17.00 5/14/09 128,100 276,150
</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 SEC and do not represent 3dfx's estimate or projection of the
future common stock price. Actual gains, if any, on stock option exercises
are dependent on the future financial gains, if any, on stock option
exercises are dependent on the future financial performance of 3dfx, 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 3dfx common stock from the date of grant to the
date of this proxy statement/prospectus/information statement, other than
the columns reflecting assumed rates of appreciation of 5% and 10%.
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(2) Except as otherwise indicated, options become exercisable as to 25% of the
option shares on the first anniversary of the date of grant and as to 1/48
of the option shares each month thereafter, with full vesting occurring on
the fourth anniversary of the initial vesting date.
(3) Options were granted at an exercise price equal to the fair market value of
3dfx's common stock on the date of grant. The exercise price may be paid in
cash, check, promissory note, delivery of already-owned shares of 3dfx's
common stock subject to some conditions, authorization to 3dfx 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 3dfx 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) These shares are subject to exercise under stock options granted under
3dfx's 1999 Supplementary Stock Plan.
(5) These shares are subject to exercise under stock options granted under the
Director Plan. The shares vest at the rate of 1/12 per month.
(6) Includes 17,000 options granted under 3dfx's 1995 Employee Stock Option Plan
and 53,000 options granted under 3dfx's 1997 Employee Stock Purchase Plan.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth some information regarding exercises of
stock options by the Named Executive Officers during the year ended January 31,
2000 and the stock options held as of January 31, 2000 by the Named Executive
Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JANUARY 31, 2000 JANUARY 31, 2000
ACQUIRED ON VALUE (#)(1) ($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAMES (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
L. Gregory Ballard..... 209,150 $1,967,304 -- -- -- --
Alex Leupp............. -- -- 7,906 811,594 -- --
David Zacarias......... -- -- 47,917 77,083 -- --
Scott D. Sellers....... -- -- 61,719 302,031 176,313 25,187
Richard Burns.......... -- -- -- 70,000(3) -- --
Janet Leising.......... 25,276 239,815 17,709 99,348 -- --
</TABLE>
---------------
(1) Options granted under 3dfx's 1995 Employee Stock Option Plan may be
exercised by the holder thereof prior to vesting with the shares purchased
thereby subject to repurchase by 3dfx until fully vested. The table presents
options as exercisable according to the vesting schedule of the option.
(2) Based upon the last sale price of 3dfx's common stock on January 31, 2000,
$8.50 per share, minus the exercise price.
(3) Only 17,000 of Mr. Burns' options were granted under the 1995 Employee Stock
Option Plan. The remaining options were granted under the 1997 Employee
Stock Purchase Plan.
EMPLOYMENT AGREEMENTS, SEVERANCE ARRANGEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Pursuant to a letter agreement entered into with Scott Sellers, in the
event there is a change of control of 3dfx and such executive is terminated
other than for cause within one year following the effective date of such change
of control, 25% of Mr. Sellers' stock subject to 3dfx's repurchase option under
a restricted stock purchase agreement shall be released from this repurchase
option (or all of such
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<PAGE> 91
stock if less than 25% of Mr. Sellers' stock remains subject to 3dfx's
repurchase option). For purposes of this letter agreement a "change of control"
means the (i) the sale of all or substantially all of 3dfx's assets, or (ii) a
consolidation or merger of 3dfx with or into any other corporation (other than a
wholly-owned subsidiary of 3dfx) or engagement in a transaction or series of
transactions in which more than 50% of the voting power of 3dfx 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.
Mr. Ballard was a party to a letter agreement with 3dfx similar to that
described above for Mr. Sellers. Mr. Ballard's employment with 3dfx terminated
effective October 31, 1999 and at that time Mr. Ballard and 3dfx entered into an
agreement that provided for the payment to Mr. Ballard of a lump sum severance
amount of $504,000, the payment of certain COBRA costs, one year accelerated
vesting on options held by Mr. Ballard and the release of all claims between
3dfx and Mr. Ballard.
Mr. Ogle resigned as an officer, director and employee of 3dfx effective
January 31, 2000. The terms of his severance arrangement with 3dfx are still
under discussion.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
3dfx has adopted provisions in its articles of incorporation that eliminate
to the fullest extent permissible under California law the liability of its
directors to 3dfx for monetary damages. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission. 3dfx's bylaws provide that 3dfx 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. 3dfx has entered into indemnification agreements with its
officers and directors containing provisions which may require 3dfx, among other
things, to indemnify the officers and directors against some 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 3dfx in which indemnification
would be required or permitted. 3dfx is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Techfarm provides management services to 3dfx for which 3dfx pays a fee of
$5,000 per month. Gordon Campbell, the Chairman of the Board of Directors of
3dfx, and James Whims, a director of 3dfx, are each officers of Techfarm. 3dfx
made total payments to Techfarm for such management services during fiscal years
2000, 1998 and 1997 of $55,000, $60,000 and $60,000, respectively. In addition,
Mr. Whims provides consulting services to 3dfx for which 3dfx pays a fee of
$5,000 per month. 3dfx made total payments to Mr. Whims in fiscal years 2000,
1998 and 1997 of $45,000, $60,000 and $45,000, respectively.
3dfx has an agreement with Quantum3D, a supplier of advanced graphics
subsystems based on 3dfx's technology, pursuant to which 3dfx will supply
graphic boards and components to Quantum3D. Gordon Campbell, Chairman of the
Board of Directors of 3dfx, is a Director, significant investor in and
shareholder of Quantum3D. Sales to Quantum3D during fiscal years 2000, 1998 and
1997 were $1.6 million, $670,000 and $949,000, respectively. As of January 31,
2000, 3dfx had an outstanding trade receivable from Quantum3D of approximately
$360,000.
In April 1999, 3dfx invested an amount of $3.1 million in exchange for a
minority interest in Quantum 3D in the form of convertible preferred shares in
connection with Quantum 3D's private round of financing. These terms and pricing
of these shares were equivalent to other unaffiliated third participants in the
financing round.
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In connection with the termination of Gary Martin's employment with 3dfx,
3dfx and Mr. Martin, who was Chief Financial Officer and Vice President,
Administration until January 31, 1998, entered into a Separation Agreement
pursuant to which Mr. Martin will remain a temporary employee through August 1,
2000. In addition, all options granted to Mr. Martin pursuant to 3dfx's stock
plans will continue to vest through August 1, 2000. In the event of a Change of
Control, 3dfx will (i) waive its right to repurchase any unvested shares of
common stock owned by Mr. Martin and (ii) accelerate the vesting of all unvested
stock options granted to Mr. Martin pursuant to 3dfx's stock plans. For purposes
of the separation agreement, a "Change of Control" occurs, subject to some
conditions and exceptions, upon (i) the acquisition, directly or indirectly, by
any person (other than existing beneficial owners) of securities of 3dfx
representing 50% or more of the total voting power represented by 3dfx's then
outstanding voting securities; (ii) the merger or consolidation of 3dfx with
another corporation in which the voting securities of 3dfx outstanding
immediately prior to such merger or consolidation ceased to represent at least
50% of the voting power represented by the voting securities of 3dfx thereafter,
or (iii) the liquidation of 3dfx or the sale or disposition of all or
substantially all of 3dfx's assets.
3dfx loaned $100,000 to Janet Leising during fiscal 2000. This loan is
expected to be repaid in the near future.
In March 2000, 3dfx sold the Specialized Technology Group (STG), a business
unit that provides digital video products, multi-output MPEG decoder cards and
multi-monitor display adapters to a company of which Vanessa Ogle is President.
Ms. Ogle is a former employee of 3dfx and is the daughter of William E. Ogle.
Mr. Ogle served as the Executive Vice President and Vice Chairman of the Board
of Directors of 3dfx until he resigned these positions in January 2000. The
transaction was accounted for as an asset sale, comprised primarily of inventory
and accounts receivable, in a leveraged buyout by the STG management group. 3dfx
will maintain a minority equity interest in STG following the sale. The amount
of the transaction was $5.1 million, and as a result, 3dfx recorded a note
receivable in the amount of $3.0 million. The note is payable in accordance with
a payment schedule, beginning February 1, 2001 and concluding November 1, 2004.
3dfx believes that all of the transactions set forth above were made on
terms no less favorable to 3dfx than could have been obtained from unaffiliated
third parties. All future transactions, including loans, between 3dfx 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 3dfx than could be obtained from unaffiliated third
parties.
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<PAGE> 93
3DFX SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth as of June 5, 2000 information regarding the
beneficial ownership of 3dfx's outstanding common stock by:
- Each person known by 3dfx to own beneficially more than five percent of
the outstanding common stock
- Each director and each chief executive officer and the four other most
highly compensated executive officers whose salary and bonus for fiscal
2000 exceeded $100,000
- All directors and executive officers of 3dfx as a group
The following calculations of the percentage of outstanding shares are
based on 24,644,437 shares of 3dfx's common stock outstanding as of June 5,
2000.
Beneficial ownership is determined in accordance with the rules of the
Securities Exchange Commission and generally includes voting or investment power
with respect to securities, subject to community property laws, where
applicable. Information for each 5% shareholder is derived solely from filings
with the Commission on or before June 5, 2000.
Shares of the common stock subject to options that are presently
exercisable or exercisable within 60 days of June 5, 2000 are deemed outstanding
and beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person but are not treated as
outstanding for the purpose of computing the percentage of any other person.
These options are separately set forth below in the column titled "Options."
<TABLE>
<CAPTION>
NAME AND ADDRESS (1) SHARES OPTIONS TOTAL PERCENTAGE
-------------------- -------- ------- --------- ----------
<S> <C> <C> <C> <C>
FIVE PERCENT SHAREHOLDERS:
Gilder Gagnon Howe & Co. LLC (2)................... 2,669,602 -- 2,669,602 10.8%
1775 Broadway, 26th Floor
New York, NY 10019
David A. Rocker(3)................................. 1,232,628 -- 1,232,628 5.0%
c/o Rocker Partners, L.P.
45 Rockefeller Plaza, Suite 1759
New York, NY 10111
DIRECTORS AND OFFICERS:
L. Gregory Ballard................................. 50,000 -- 50,000 *
Richard Burns...................................... -- 23,333 23,333 *
Gordon A. Campbell................................. 381,632(4) 82,000 463,632 1.9%
James L. Hopkins................................... 2,498 82,985 85,483 *
Alex Leupp......................................... -- 12,469 12,469 *
Scott D. Sellers................................... 205,000 94,974 299,974 1.2%
Anthony Sun........................................ 16,000 18,000 34,000 *
James Whims........................................ 2,400 63,833 66,233 *
David Zacarias..................................... 1,261 68,490 69,751 *
Janet Leising...................................... 2,500 -- 2,500 *
All executive officers and directors as a group (10
persons)......................................... 615,791 537,068 1,152,859 4.7%
</TABLE>
---------------
* Less than 1%.
(1) Except as otherwise noted, address is c/o 3dfx Interactive, Inc., 4435
Fortran Drive, San Jose, CA 95134.
(2) Information with respect to Gilder Gagnon Howe & Co. LLC was obtained from a
Schedule 13G filed with the Securities and Exchange Commission, which
indicates that Gilder Gagnon Howe & Co. LLC has no voting power with respect
to the shares beneficially held, but does share dispositive power over these
shares that are held in customer accounts.
(3) Information with respect to David A. Rocker was obtained from a Schedule 13G
filed with the Securities and Exchange Commission, which indicates that Mr.
Rocker has sole voting and dispositive power over all of the shares
indicated by virtue of his position as the sole managing partner of Rocker
Partners, L.P., and through Rocker Offshore Management Company, Inc., an
investment advisor to Compass Holdings, Ltd.
(4) Includes 77,084 shares held by Techfarm, L.P., and 3,854 held by Techfarm
Management Inc. (dba Techfarm, Inc.), 300,694 shares held by Gordon A.
Campbell. Mr. Campbell is President of Techfarm, Inc., the general partner
of Techfarm, L.P. and Mr. Campbell disclaims beneficial ownership of the
shares held by Techfarm, L.P. and Techfarm Management Inc.
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<PAGE> 94
GIGAPIXEL BUSINESS
GigaPixel designs and develops advanced 3D graphics technology to enable
video devices to display images with a photo-realistic 3D appearance. GigaPixel
is engaged primarily in the design of high performance, scalable, low cost 3D
cores, which constitute the "blueprint" for use in the manufacture of graphics
chips. GigaPixel has fabricated a prototype chip incorporating its technology
that has proven its architecture. It has licensing agreements with two customers
under which it has received up-front development fees to license 3D cores to the
customers for use in their graphic chip products and will receive royalties on
any chips incorporating its technology that are shipped by the customers. To
date, no products made with GigaPixel's 3D cores have been shipped and there is
no assurance that the customers with whom GigaPixel has licensing agreements
will ship any such products. One customer has announced that it is going out of
the 3D graphics business and the other customer is a direct competitor of 3dfx.
Graphics chips made with GigaPixel's 3D cores would be used in a wide variety of
devices featuring high-quality video graphics display, such as desktop PCs,
laptops, video game consoles and television set-top boxes. GigaPixel's current
customers are manufacturers of retail add-in graphics boards for PCs. GigaPixel
believes that manufacturers of PCs and consumer appliances will increasingly
make use of high performance 3D graphics in their products, and that original
equipment manufacturers will become an important market for GigaPixel's
products.
GigaPixel has based its technology on innovations in graphics chip design
that combine high quality and performance with low memory bandwidth
requirements, resulting in enhanced graphical display performance. While
GigaPixel's chip designs are innovative, at the same time GigaPixel's technology
contains a conventional interface and is capable of supporting standard
application program interfaces (API's) such as Direct3D and OpenGL, which allows
existing and new 3D games and software applications to run on popular and widely
used operating systems without re-programming software. GigaPixel's technology
supports visual quality levels and performance levels previously only available
in high-end SGI workstations, which are now used for applications such as flight
simulators, car crash simulators, and special effects generators for Hollywood
films. Exceptional visual quality is achieved by use of features including
full-scene anti-aliasing, which smoothes the appearance of jagged edges in
bitmapped images, and advanced per-pixel operations, which allows devices to
display photo-realistic effects by controlling contrast, texture, brightness,
and various lighting aspects of the pixels displayed on a screen. High
performance levels are achieved through advanced binning and visibility
algorithms, which allow graphics chips to process pixel information faster and
more efficiently. GigaPixel believes that its technology will provide content
developers a platform on which to develop the next generation of 3D
applications.
GigaPixel's strategy is to license its technology rather than to produce
and sell products. It will license its 3D cores for inclusion in chips both for
high performance and low cost consumer products. GigaPixel's licensing strategy
allows GigaPixel's technical team to focus on creating value through design
enhancements to its 3D technology. This focus on chip design, rather than on the
manufacture of finished silicon, allows GigaPixel to concentrate its research
and development expenditures on 3D technology innovations rather than on chip
manufacturing, product distribution and sales. GigaPixel expects its licensing
strategy to appeal as well to customers who are under pressure to introduce new
and improved products every six to nine months, and are increasingly looking to
outside developers for assistance amid intense competition to differentiate
their products based on performance.
To date, GigaPixel has entered into licensing agreements with manufacturers
in the markets for both laptops and PC add-in graphics boards. These agreements
provide that GigaPixel will develop and deliver graphics chip design for
inclusion in a manufacturer's chip and its software driver sources, which will
be incorporated into products for end-users. GigaPixel's two licensing
agreements provide for up-front fees to cover development costs and royalties
based on the number of chips sold.
GigaPixel entered into a development agreement with Microsoft on February
18, 2000 to develop a highly advanced graphics chip design for use in
Microsoft's soon-to-be-released "X-box." This agreement included payment of
development fees to GigaPixel, together with royalties for every chip sold using
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<PAGE> 95
GigaPixel's design. In early March, Microsoft advised GigaPixel that it intended
to cancel the development agreement with GigaPixel and use another provider's 3D
chips and technology. On March 31, 2000, Microsoft and GigaPixel entered into a
release agreement under which Microsoft paid to GigaPixel the up-front
development fees of $14 million as provided by the development agreement. The
release agreement severs the proprietary development relationship between the
companies and provides that GigaPixel will use its best efforts to deliver by
June 2001 a non-proprietary sample of a product similar to the originally
specified design. The non-proprietary sample is intended to demonstrate the
features and performance of GigaPixel's advanced graphics chip technology. In
the release agreement, GigaPixel also agreed to negotiate the terms of an equity
investment by Microsoft in GigaPixel of up to $10 million.
GigaPixel has six pending patent applications covering 3D technologies.
GigaPixel expects to rely on a combination of patents, copyrights, trade
secrets, trademarks, employee and third-party nondisclosure agreements and
licensing arrangements to protect its intellectual property rights. It considers
its ability to protect its intellectual property rights to be critical to its
success. GigaPixel's failure to obtain or maintain adequate protection for its
intellectual property rights for any reason could hurt its competitive position.
Patents may not issue from the patent applications that GigaPixel has filed or
may file. Any issued patents may be challenged, invalidated or circumvented, and
claims of any issued patents may not be of sufficient scope or strength, or
issued in the proper geographic regions, to provide meaningful protection or any
commercial advantage. Third parties may hold, or may in the future be issued,
patents that could be infringed by use or implementation of GigaPixel's
technologies. Any of these third parties might make a claim of infringement
against GigaPixel with respect to the technologies that it licenses. If a third
party claiming infringement against GigaPixel prevailed and it could not develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, its business and results of operations could be
adversely affected.
GigaPixel's customers are producers of chips for the PC plug-in graphics
card market. For the fiscal year ended December 31, 1999, one customer accounted
for 100% of GigaPixel's revenues. Following the merger, GigaPixel will not
continue to concentrate on customers who serve the PC market in competition with
3dfx. GigaPixel is focusing its marketing efforts and is currently in
discussions with customers that serve the set-top box, game console and portable
products markets.
The markets for 3D graphics technology are intensely competitive and are
likely to become more competitive in the future. GigaPixel believes that the
principal competitive factors for 3D graphics products include product
performance and quality, conformity to standard APIs, access to customers and
distribution channels, price, product support and ability to bring new products
to the market in a timely manner. GigaPixel competes with ArtX, Inc., a division
of ATI Technologies Inc., and Stellar Semiconductor, a division of Broadcom
Corp., in the PC add-in board markets. Both of these companies have greater
financial and other resources than GigaPixel. As GigaPixel redirects its
marketing focus to the consumer products market following the merger, it will
compete with nVidia Corp. in the game console market and may compete with the
internal design programs of set-top box, game console and portable device
manufacturers.
At June 5, 2000, GigaPixel had 43 employees, of whom three were engaged in
management, 37 were engaged in engineering, research and development and three
were engaged in administration, sales and marketing.
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<PAGE> 96
GIGAPIXEL MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. GigaPixel's and the combined company's actual results
could differ materially from those discussed in the forward looking-statements
as a result of some factors, including those set forth under "Risk Factors" and
elsewhere in this proxy statement/prospectus/information statement. The
following discussion and analysis should be read in conjunction with "Selected
Consolidated Historical and Pro Forma Financial Data -- GigaPixel Selected
Historical Financial Data" and the GigaPixel Corporation Historical Financial
Statements and related notes appearing elsewhere in this proxy
statement/prospectus/information statement.
OVERVIEW
GigaPixel is a development stage company engaged in the development of
advanced 3D graphics technology to enable video devices to display images with a
realistic 3D appearance. GigaPixel designs high performance, scalable, low cost
3D cores, which constitute the "blueprint" for the manufacture of graphic chips
to be used in a wide variety of devices featuring high quality video graphics
display, such as desktop personal computers, laptops, video game consoles and
television set-top boxes. These 3D cores can be modified to meet the particular
specifications and requirements of individual customers. Although GigaPixel does
not manufacture end products, GigaPixel has successfully implemented its
technology into a prototype chip, thus demonstrating that its chip designs are
fundamentally capable of being translated into end products.
From its founding in 1997 through December 31, 1999, GigaPixel entered into
licensing agreements with two customers under which it has received up-front
development fees to license 3D cores to the customers for use in their graphics
chip products. GigaPixel is entitled to receive royalties on any chips
incorporating its technology that are shipped by these customers. Under a 1997
agreement, GigaPixel recognized development revenue in 1997 and 1998. GigaPixel
recognized development revenue in 1999 under the other agreement which was
executed in 1999.
To date, no products made with GigaPixel's 3D cores have been shipped, and
GigaPixel has not received any royalty revenues. Further, there is no assurance
that the two customers with whom GigaPixel has licensing agreements will ship
any products featuring GigaPixel technology in the future. One customer has
announced that it is exiting the 3D graphics business, and the other is a direct
competitor of 3dfx.
In February 2000, GigaPixel entered into a development agreement with
WebTV, an affiliate of Microsoft, to develop technology for the Microsoft
"X-box." Microsoft later announced that WebTV had decided not to incorporate
GigaPixel's technology in the "X-box," and on March 31, 2000, GigaPixel executed
a modification of the development agreement under which GigaPixel received an up
front development fee of $14 million that will be recognized as revenue in 2000
and 2001. GigaPixel and Microsoft have also agreed to enter into good faith
negotiations with respect to the terms of an equity investment by Microsoft in
GigaPixel of up to $10 million.
COMPARISON OF 1999 TO 1998
Revenues. Revenues for the year ended December 31, 1999 increased 166% to
$1.8 million from $667,000 in 1998. The increase in revenue is due to
development fees received on achievement of engineering milestones under a new
licensing agreement with one customer during 1999. GigaPixel expects to
recognize approximately $10 million of revenue in 2000 from the payment by WebTV
in accordance with the modification agreement with WebTV. GigaPixel anticipates
that revenue from other sources will continue to increase during 2000 as it
expands beyond the set-top box and PC plug-in graphics chip market into other
consumer device markets. There is no assurance, however, that all or any of
these expectations will be realized.
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<PAGE> 97
Expenses. Because GigaPixel has derived all of its revenue from development
fees and does not sell products or services, it has no, or only nominal cost of
sales.
Research and development costs for the year ended December 31, 1999
increased 136% to $7.3 million from $3.1 million in 1998. This increase is due
primarily to an increase in the number of engineers and the cost associated with
the creation of a demonstration chip of GigaPixel's GP-1 design. GigaPixel
expects that research and development expense will continue to increase in 2000
as it continues to increase its engineering staff to complete the development of
the GP-3 design and pursue development of the GP-4 design.
Selling, general and administrative costs increased 48% due primarily to
increased marketing and sales efforts. Management expects that marketing and
sales expense will continue to increase in 2000 but will decline as a percentage
of revenue because of the anticipated increase in revenue.
Other Income. Other income, which represents interest earned on cash and
cash equivalents, decreased slightly in 1999 from 1998 due to lower average cash
balances during 1999.
Net Loss. The net loss incurred in 1999 increased 111% to $6.8 million from
$3.2 million in the prior year due to an increase in operating expenses that
exceeded the increase in revenues. GigaPixel management expects that GigaPixel
will be profitable in 2000 primarily as a result of the recognition of revenue
under the modification agreement with WebTV.
COMPARISON OF 1998 TO 1997
Revenues. Revenues for 1998 increased 100% to $667,000 from $333,000 during
the period from inception (April 21, 1997) to December 31, 1997. All of the 1998
and 1997 revenues were from the same customer and represent the recognition of
income on a percentage of completion basis.
Expenses. Research and development expenses for 1998 increased to $3.1
million from $315,000 during the period ended December 31, 1997. The increase
was due to a major increase in GigaPixel's engineering staff to pursue the
development of its technologies.
Selling, general and administrative expenses increased to $880,000 in 1998
from $177,000 in the prior year because selling, general and administrative
expense in 1997 reflected only four months of activity and because of increases
in administrative and sales staff in 1998.
Other Income. Other income, which represents interest earned on cash and
cash equivalents, for 1998 increased to $127,000 from $9,000 in 1997. The
increase resulted from larger average cash balances in 1998 from the proceeds of
preferred stock financings.
Net Loss. The net loss incurred for 1998 was $3.2 million compared to
$150,000 for 1997. The increase resulted primarily from the large increase in
research and development expense.
LIQUIDITY AND CAPITAL RESOURCES
GigaPixel is a development stage company that has relied on investments
made by venture capital limited partnerships, strategic partners and angel
investors to fund its operations. Net cash from these investors provided $5.5
million, $3.5 million and $3.8 million in working capital in 1999 and 1998 and
for the period ending December 31, 1997.
As of December 31, 1999, GigaPixel had working capital of $3.1 million,
including cash and cash equivalents of $2.4 million. GigaPixel expects that its
working capital, together with the $14 million development fee received from
Microsoft, will be sufficient to fund its operating expenses for 2000. GigaPixel
management expects that GigaPixel will require additional capital in the future,
which could be provided by an equity investment by Microsoft, or if the merger
is completed, by 3dfx. If Microsoft does not make an equity investment and if
the merger is not completed, there is no assurance that GigaPixel could obtain
capital from other sources to fund its future operations.
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<PAGE> 98
GIGAPIXEL EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table shows the compensation earned for the past three years
by the single executive officer of GigaPixel who will serve as a director or
executive officer of 3dfx and whose 1999 compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY($) BONUS OPTIONS(#) COMPENSATION($)
----------------- ---- --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
George T. Haber..................... 1999 $185,250 -- -- --
President and Chief Executive
Officer 1998 151,000 -- -- --
1997 104,000 -- -- --
</TABLE>
No options were granted to Mr. Haber in fiscal years 1997, 1998 or 1999.
GIGAPIXEL CERTAIN TRANSACTIONS
George T. Haber entered into two founder's common stock purchase agreements
with GigaPixel in July and August of 1997 for the purchase of 3,000,000 shares
of GigaPixel common stock for a total purchase price of $1,875.
GigaPixel has issued, in private placement transactions, shares of its
preferred stock as follows: 1,100,000 shares of Series A Preferred Stock at a
price of $.50 per share in September 1997, 2,794,448 shares of Series B
Preferred Stock at a price of $1.17 per share in December 1997, and 5,903,188
shares of Series C Preferred Stock at a price of $1.52 per share in December
1998 and March 1999. Mr. Haber purchased 275,000 shares of Series B Preferred
Stock and 14,758 shares of Series C Preferred Stock at the same prices that were
paid by other investors in the private placement transactions. Holders of the
preferred stock, including Mr. Haber, are entitled to registration rights,
information rights, co-sale rights and rights of inspection with respect to such
shares or the common stock issued or issuable upon conversion thereof, as
provided in the Co-Sale Agreement and Amended and Restated Investor Rights
Agreement both dated December 7, 1998. In addition, certain holders of Series C
Preferred Stock, including Mr. Haber, have entered into a voting agreement dated
December 1998 requiring such holders to vote their shares in tandem with other
shareholders in favor of approving a merger or similar transaction in the event
that a shareholder vote is required.
From the time of GigaPixel's incorporation, Cooley Godward LLP has
furnished legal services to GigaPixel. Andrei M. Manoliu, a director of
GigaPixel, was a partner of Cooley Godward LLP until March 31, 2000.
During 1998, GigaPixel paid a $110,000 fee for technology to Zoran
Corporation. George T. Haber is a board member and prior employee of Zoran
Corporation. There were no such payments made in 1999.
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<PAGE> 99
GIGAPIXEL SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL
SHAREHOLDERS
The following table sets forth information, as of June 5, 2000, known to
GigaPixel with respect to the beneficial ownership of GigaPixel capital stock
by: (1) each shareholder known to GigaPixel to be the beneficial owner of more
than 5% of GigaPixel's capital stock; (2) all directors; (3) all named executive
officers; and (4) all directors and executive officers as a group.
The percent of class reflected as owned by persons listed in the following
table is based on 9,172,626 shares of GigaPixel common stock and 9,797,636
shares of GigaPixel preferred stock outstanding as of June 5, 2000. The table
treats as outstanding, for purposes of calculating the warrantholder's
percentage ownership listed below, all shares subject to the warrant held by the
warrantholder, which is currently exercisable. Unless otherwise indicated below,
the persons and entities named in the table have sole voting and sole investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable. Unless otherwise indicated, the address of each
of these individuals is 2350 Mission College Boulevard, Suite 800, Santa Clara,
California.
<TABLE>
<CAPTION>
AMOUNT AND NATURE AGGREGATE PERCENT
OF BENEFICIAL PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS OF CLASS CAPITAL STOCK
------------------------ ----------------- --------- -------- -----------------
<S> <C> <C> <C> <C>
CTI Limited................................. 3,701,245(1) Preferred 40.3% 21.3%
1901 McCarthy Boulevard
Milpitas, California 95035
Presidio Management Group V, LLC............ 3,270,800(2) Preferred 33.4% 17.2%
2180 Sand Hill Road, Suite 300
Menlo Park, California 94025
Haber Revocable Trust....................... 2,255,000(3) Common 24.6% 13.4%**
289,758(3) Preferred 3.0%
Haber Children's Trust...................... 700,000(3) Common 7.6% 3.7%
Ming Benjamin Zhu........................... 1,948,000 Common 21.2% 10.3%
CMEA Ventures II, L.P. ..................... 983,865 Preferred 10.0% 5.2%
235 Montgomery Street, Suite 920
San Francisco, California 94104
Alexander Minkin............................ 840,000 Common 9.2% 4.4%
Andreas Bechtolsheim........................ 505,050 Preferred 5.2% 2.7%
170 West Tasman Drive
San Jose, California 95134
Benjamin Garlick............................ 500,000 Common 5.5% 2.6%
Philip J. Carmack........................... 386,559 Common 4.2% 2.0%
Andrei M. Manoliu........................... 100,000 Common 1.1% *
All executive officers and directors as a 5,389,559 Common 58.8% 32.6%**
group.....................................
794,808 Preferred 8.1%
</TABLE>
-------------------------
* Represents beneficial ownership of less than 1%.
** Represents both common and preferred stock beneficially held.
(1) Includes a warrant to purchase 421,696 shares of preferred stock.
(2) Includes 91,582 shares of preferred stock held by 2180 Associates Fund V;
2,943,719 shares of preferred stock held by U.S. Venture Partners V, L.P.;
71,958 shares of preferred stock held by USVP V Entrepreneur Partners, L.P.;
and 163,541 shares of preferred stock held by USVP V International, L.P.
Presidio Management Group V, L.L.C. is the general partner of each of these
limited partnerships. Mr. Irwin Federman is a managing member of Presidio
Management Group V, L.L.C. Mr. Federman disclaims any beneficial ownership
of the shares held by 2180 Associates Fund V, L.P., U.S. Venture Partners V,
L.P., USVP V Entrepreneur Partners, L.P., and USVP V International, L.P.,
except to the extent of his pecuniary interest therein.
(3) George T. Haber and Cornelia Haber are co-trustees of the Haber 1998
Children's Trust dated October 28, 1998 and the Haber Revocable Trust dated
September 4, 1998, and share both voting and investment power over the
shares held in these trusts.
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<PAGE> 100
DESCRIPTION OF 3DFX CAPITAL STOCK
GENERAL
3dfx is authorized to issue 50,000,000 shares of 3dfx common stock, no par
value, and 5,000,000 shares of preferred stock, no par value.
COMMON STOCK
As of June 5, 2000, there were 24,644,437 shares of 3dfx common stock
outstanding held of record by approximately 352 shareholders. As of June 5,
2000, options to purchase an aggregate of 6,592,590 shares of 3dfx common stock
were also outstanding.
The holders of 3dfx 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 senior rights of holders of
preferred stock, if any, the holders of 3dfx common stock are entitled to
receive any dividends that may be declared by the 3dfx board of directors in its
discretion from legally available funds. Upon the liquidation or dissolution of
3dfx, the remainder of the assets of 3dfx will be distributed pro rata among the
holders of 3dfx common stock after the payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. The 3dfx
common stock has no preemptive or other subscription rights and there are no
conversion rights or redemption or sinking fund provisions with respect to these
shares. All of the outstanding shares of 3dfx common stock are, and the shares
to be sold in this offering will be, fully paid and nonassessable.
PREFERRED STOCK
3dfx is authorized to issue 5,000,000 shares of preferred stock, of which
60,000 are designated Series A Participating Preferred Stock. There are no
outstanding shares of 3dfx preferred stock. The 3dfx 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 3dfx 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 3dfx without further action by the
shareholders and may adversely affect the market price of, and the voting and
other rights of, the holders of 3dfx common stock. 3dfx has no current plans to
issue any shares of preferred stock.
WARRANTS
The following table contains a list of outstanding warrants to purchase
3dfx common stock as of June 5, 2000:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF EXPIRATION DATE
3dfx COMMON STOCK EXERCISE -----------------
SUBJECT TO WARRANT PRICE
------------------- --------------
<S> <C> <C>
6,960.......................................... 4.00 January 1, 2003
5,000.......................................... 7.50 December 31, 2001
25,000.......................................... 13.88 December 3, 2002
</TABLE>
All of these warrants contain "net exercise" provisions that enable the
warrantholders to exercise a portion of the warrant without paying the exercise
price. To the extent the warrantholders choose to "net exercise" their warrants,
3dfx will not receive the proceeds from the exercise of the warrants.
A customer of 3dfx also holds a warrant to purchase shares of 3dfx common
stock. The warrant vests in increments of 34,125 shares over time based upon
specified performance thresholds. Since the performance thresholds were not met
in 1998 or 1999, the related portions of the warrant did not vest and
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<PAGE> 101
the warrant now covers 68,250 shares of 3dfx common stock. The warrant expires
in varying increments on December 31, 2001, December 31, 2002 and December 31,
2003.
ANTITAKEOVER EFFECTS OF PROVISIONS OF 3dfx CHARTER AND BYLAWS; RIGHTS AGREEMENT
The 3dfx bylaws provide that, except as otherwise required by law, special
meetings of the shareholders can only be called by the board of directors, the
chairman of the board of directors, the president of 3dfx, or shareholders
holding no less than 10% of the outstanding shares of 3dfx common stock. In
addition, the 3dfx bylaws establish an advance notice procedure for shareholder
proposals to be brought before an annual meeting of shareholders, including
proposed nominations of persons for election to the board of directors.
3dfx's board of directors has declared a dividend of one purchase right
under a Preferred Share Rights Agreement dated October 30, 1998 for each share
of 3dfx's common stock outstanding on November 16, 1998 or thereafter issued.
Each purchase right entitles the holder to purchase for $65 a fraction of a
share of 3dfx's Series A Participating Preferred Stock with economic terms
similar to one share of 3dfx's common stock. The purchase rights become
exercisable on the earlier of:
(1) the tenth day or a later date as may be determined by a majority
of 3dfx's directors not affiliated with the acquiring person or group, or
the "continuing directors," after a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 12% or more of
3dfx's outstanding common stock, or
(2) the tenth business day (or a later date as may be determined by a
majority of the continuing directors) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer
which would result in beneficial ownership by a person or group of 12% or
more of 3dfx's outstanding common stock.
If an acquiror obtains 12% or more of 3dfx's outstanding common stock,
other than in some types of permitted transactions, and unless the purchase
rights were redeemed earlier, the holder of each unexercised purchase right will
have the right to receive shares of 3dfx's common stock having a value equal to
two times the purchase price. Similarly, unless the purchase rights were
redeemed earlier, after the tenth day following some types of acquisition
transactions, proper provision must be made so that holders of purchase rights
(other than those beneficially owned by an acquiring person, which are void
after being acquired by the acquiring person) will thereafter have the right to
receive, upon exercise, shares of common stock of the acquiring company having a
value equal to two times the purchase price. Prior to the time the purchase
rights become exercisable, the 3dfx board of directors may redeem the purchase
rights for $0.001. However, if a majority of the 3dfx board of directors was
elected by a shareholder action by written consent then, for a period of 180
days following the election by written consent, the rights agreement cannot be
amended in any manner likely to have the purpose of facilitating an acquisition
of 3dfx by a person or entity who proposed, nominated or supported a director of
3dfx elected by the written consent. The purchase rights expire on October 30,
2008 or on their earlier exchange, redemption or expiration in connection with
some types of permitted transactions.
These provisions of 3dfx's bylaws, charter and the 3dfx rights agreement
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage some types of transactions which may
involve an actual or threatened change of control of 3dfx. The provisions are
designed to reduce the vulnerability of 3dfx to an unsolicited acquisition
proposal and, accordingly, could discourage potential acquisition proposals and
could delay or prevent a change in control of 3dfx. These provisions are also
intended to discourage some tactics that may be used in proxy fights but could,
however, have the effect of discouraging others from making tender offers for
3dfx's shares and, consequently, may also inhibit fluctuations in the market
price of 3dfx's shares that could result from actual or rumored takeover
attempts. These provisions may also have the effect of preventing changes in the
management of 3dfx. In addition, acquisitions of 3dfx and some other
change-in-control transactions may not be effected without the consent of the
holders of the outstanding preferred stock or without requiring the acquiring
entity to
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assume the preferred stock or cause the preferred stock to be redeemed. These
provisions are likely to make an acquisition of 3dfx more difficult and
expensive and could discourage potential acquirors.
VOTING AGREEMENTS AND IRREVOCABLE PROXIES
In connection with the merger agreement, all executive officers and
directors of 3dfx entered into voting agreements with GigaPixel, in which they
agreed to vote all of the shares of 3dfx common stock beneficially owned by them
at the time of the 3dfx annual meeting in favor of the merger. See "Terms of the
Merger Agreement and Related Transactions -- Voting Agreements."
TRANSFER AGENT
The transfer agent for 3dfx common stock is EquiServe. Its telephone number
is (781) 575-3120.
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COMPARISON OF 3DFX AND GIGAPIXEL SHAREHOLDER RIGHTS
The rights of GigaPixel shareholders are currently governed by the laws of
the State of Delaware, which is referred to as Delaware Law, GigaPixel's Amended
and Restated Certificate of Incorporation, which is referred to as the GigaPixel
charter, and GigaPixel's Amended and Restated Bylaws, which are referred to as
GigaPixel bylaws.
However, certain provisions of the California General Corporation Law may
apply to GigaPixel and its shareholders. Section 2115 of the California General
Corporation Law, which is referred to as Section 2115, makes substantial
portions of the California General Corporation Law applicable, with limited
exceptions, to a foreign corporation with more than half of its outstanding
stock held of record by persons having addresses in California and more than
half of its business conducted in the state (as measured by factors based on the
corporation's levels of property, payroll and sales as determined for California
franchise tax purposes), regardless of the corporation's state of incorporation.
Although GigaPixel was incorporated in Delaware, it is subject to Section 2115.
The statutory provisions of the California General Corporation Law to which
GigaPixel is subject include, but are not limited to, provisions governing a
director's standard of care in performing the duties of a director, a
shareholder's right to vote cumulatively in any election of directors, a
shareholder's right to inspect corporate records, indemnification requirements
concerning directors, officers and others, rules relating to reorganizations and
some aspects of merger law. Section 2115 also invokes the application of Chapter
13 of the California General Corporation Law to the merger with respect to
GigaPixel shareholders who elect to exercise dissenters' rights. Under Section
2115, the provisions of the California General Corporation Law made applicable
pursuant to such section apply to the exclusion of the law of the jurisdiction
in which the foreign corporation is incorporated.
The rights of 3dfx shareholders are governed by the laws of the State of
California, which is referred to as California Law, 3dfx's Restated Articles of
Incorporation, which are referred to as the 3dfx charter, and 3dfx's Amended and
Restated Bylaws, which are referred to as 3dfx bylaws. When the merger is
completed, GigaPixel shareholders will become shareholders of 3dfx. As a result,
the rights and obligations of the former GigaPixel shareholders will be governed
by California Law, the 3dfx charter and the 3dfx bylaws.
There are some differences between California Law, the 3dfx charter and
3dfx bylaws, and Delaware Law, the GigaPixel charter and GigaPixel bylaws. As
indicated above, however, there may be no difference in the law governing the
rights of shareholders in those areas where Section 2115 says that California
Law is applicable. We have summarized some of these differences below, although
this is only a summary of some provisions and does not purport to be a complete
description of these similarities and differences. We further invite you to read
the provisions of Delaware Law and California Law as well as the charter and
bylaws of GigaPixel and 3dfx. Copies of the charters and bylaws of GigaPixel and
3dfx are available for your review, and the sections of Delaware and California
Law governing appraisal and dissenters' rights are attached to this document for
your reference. See "Where You Can Find More Information" on page 1.
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VOTING RIGHTS
When matters are put to a vote at a When matters are put to a vote at a
shareholders meeting, 3dfx shareholders have shareholders meeting, GigaPixel shareholders
the right to cast one vote for each share of have the right to cast one vote for each
3dfx common stock they own. However, if 3dfx share of GigaPixel common stock they own.
were to issue shares of preferred stock, the Holders of GigaPixel preferred stock are
holders of the preferred stock would be entitled to such number of votes as are equal
entitled to special voting rights granted by to the whole number of shares of common stock
the 3dfx charter. California Law gives 3dfx into which such holder's aggregate number of
the ability to create series of shares that shares of preferred stock are convertible.
are entitled to cast more than one vote per The conversion rate is subject to some
share. adjustments specified in the GigaPixel
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charter. Common and preferred shares are
voted equally, and not as separate classes,
except for votes on some events described in
the GigaPixel charter. Section 2115 provides
that California Law applicable to mergers and
similar transactions would apply to
GigaPixel, and California Law requires the
vote of separate classes to approve such
transactions.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
Unless otherwise specified in a Delaware Law requires a vote of the
California corporation's articles of corporation's board of directors followed by
incorporation, an amendment to the articles the affirmative vote of a majority of the
of incorporation requires the approval of the outstanding stock of each class entitled to
corporation's board of directors and the vote for any amendment to the certificate of
affirmative vote of a majority of the incorporation, unless a greater level of
outstanding shares entitled to vote thereon. approval is required by the certificate of
Amendments to effect stock splits (including incorporation. Delaware Law states that if an
an increase in the authorized number of amendment would increase or decrease the
shares in proportion thereto) and name and aggregate number of authorized shares of a
address changes do not require shareholder class of stock, increase or decrease the par
approval. value of shares of a class of stock or alter
Under California Law, 3dfx bylaws may be or change the powers, preferences or special
amended by: rights of a particular class or series of
- a majority of the outstanding shares stock so as to affect them adversely, the
entitled to vote, or class or series adversely affected by the
- the board of directors unless they are amendment shall be given the power to vote as
prohibited from doing so by the 3dfx a class notwithstanding the absence of any
charter or 3dfx bylaws. specifically enumerated power in the
The 3dfx bylaws authorize the board of certificate of incorporation. Delaware Law
directors to amend the bylaws, except to also states that the power to adopt, amend or
change the authorized number of directors. repeal the bylaws of a corporation shall be
vested in the shareholders entitled to vote,
unless the certificate of incorporation
confers such power on the board of directors
in addition to the shareholders.
The GigaPixel bylaws may be amended or
repealed and new bylaws adopted by the
shareholders entitled to vote or the board of
directors. However, the GigaPixel charter
provides that the shareholders may change or
repeal any bylaw adopted by the board of
directors by the affirmative vote of the
percentage of holders of capital stock as
provided therein, and further, that no
amendment or supplement to the bylaws adopted
by the board or directors shall vary or
conflict with any amendment or supplement
adopted by the shareholders.
BOARD OF DIRECTORS; QUORUM; CUMULATIVE VOTING
California Law allows a corporation's Delaware Law allows a corporation's charter
charter or bylaws to determine the number of or bylaws to determine the number of
directors that will sit on the board of directors that will sit on the board of
directors provided that such number will not directors. The minimum number of directors,
be less than three. however, is one. The GigaPixel bylaws and
The 3dfx bylaws provide that the 3dfx charter allow the board of directors to fix
board of directors shall be not less than the number of directors from time to time by
five nor more than nine. An amendment resolution; the GigaPixel board of directors
reducing the minimum number currently consists of
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of directors to a number less than five five directors. The GigaPixel bylaws provide
cannot be adopted if the votes cast against that, subject to the rights of GigaPixel
its adoption at a meeting, or the shares not preferred shareholders to elect additional
consenting in the case of an action by directors under specified circumstances,
written consent, are equal to more than directors shall be elected at each annual
16 2/3% of the outstanding shares entitled to meeting of shareholders for a term of one
vote on the amendment. No amendment may year. Each director shall serve until his
change the stated maximum number of successor is duly elected and qualified or
authorized directors to a number greater than until his death, resignation or removal. No
2x the stated minimum number of directors decrease in the number of directors
minus one. No reduction of the authorized constituting the board of directors shall
number of directors shall have the effect of shorten the term of any incumbent director.
removing any director before the director's Although the GigaPixel charter does not
term of office expires. provide for cumulative voting, GigaPixel
3dfx directors hold office for the term shareholders have the same cumulative voting
for which they are elected and continue to rights as 3dfx shareholders by reason of
hold their offices until their qualified Section 2115.
successors are elected. California Law allows Delaware Law provides that a majority of the
qualifying corporations to have a classified number of authorized directors will
board of directors. constitute the number of directors that must
3dfx shareholders are entitled to be present in order for the board of
cumulative voting for the election of directors to conduct business, unless a
directors. In order to cumulate votes in the different number is required by law, the
election of directors, a shareholder must articles of incorporation or bylaws of the
give notice of the intention to cumulate corporation. However, Delaware Law prohibits
prior to the vote and such candidate or a corporation from setting a number that is
candidates' names must have been placed in less than one-third of the number of
nomination prior to the voting. If any authorized directors as the number of
shareholder gives notice of his or her directors constituting a quorum. The
intention to cumulate, all shareholders may GigaPixel bylaws fix the quorum as a majority
cumulate their votes. of the authorized directors, except for votes
Under California Law, a majority of the concerning indemnification, in which case a
authorized directors constitutes a quorum quorum shall consist of one-third of the
unless a different number is required by law, number of authorized directors.
the articles of incorporation or the bylaws
of the corporation. However, California Law
prohibits a corporation from setting the
number of directors that constitute a quorum
at less than one-third of the authorized
number of directors or less than two,
whichever is larger, unless the number of
authorized directors is one, in which case
one constitutes a quorum. The 3dfx bylaws fix
the quorum as a majority of the authorized
directors.
REMOVAL OF DIRECTORS
Under California Law, any or all of the Delaware Law states that any director or the
directors may be removed with or without entire board of directors may be removed,
cause if the removal is approved by a with or without cause, by the holders of a
majority of the shares entitled to vote, majority of the shares then entitled to vote
subject to some exceptions for (i) a at an election of directors, subject to some
corporation having a classified board of exceptions for directors elected by
directors, (ii) the entitlement of some cumulative voting and classified board of
classes or series of shares to elect a directors. The GigaPixel bylaws provide that,
director voting as a class or series, or subject to the rights of the holders of any
(iii) by order of a court pursuant to the GigaPixel preferred stock, the board of
applicable provisions of California Law. directors or any individual director may be
However, no single director may be removed removed from office at any time (i) with
unless the entire board of directors is cause by
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removed if the votes cast against the removal the affirmative vote of the holders of a
of the single director would be sufficient to majority of the voting power of all the
elect that director if voted cumulatively at outstanding shares of voting stock entitled
an election at which the same total number of to vote at an election of directors or (ii)
votes were cast and the entire number of without cause by the affirmative vote of the
directors authorized at the time of the holders of at least 66 2/3% of the voting
director's most recent election were being power of the outstanding shares of voting
elected. Shareholders holding at least 10% of stock entitled to vote at an election of
the outstanding shares in any class may sue directors. Under Section 2115, the California
in superior county court to remove from Law provisions described in the opposite
office any officer or director for fraud, column relating to removal of directors are
dishonest acts or gross abuse of authority or applicable to GigaPixel.
discretion. The board of directors may
declare vacant the office of a director who
has been declared of unsound mind by an order
of court or convicted of a felony.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under California Law, any vacancy on the Delaware Law provides that, unless otherwise
board of directors other than one created by provided in the certificate of incorporation
removal of a director may be filled by the or bylaws, vacancies may be filled by a
board of directors, unless otherwise provided majority of the directors then in office,
in the articles or bylaws. If the number of although less than a quorum, or by a sole
directors is less than a quorum, a vacancy remaining director. Further, if, at the time
may be filled by the unanimous written of filling any vacancy, the directors then in
consent of the directors then in office, by office shall constitute less than a majority
the affirmative vote of a majority of the of the whole board, the Court of Chancery
directors at a meeting held pursuant to may, upon application of any shareholder or
notice or waivers of notice or by a sole shareholders holding at least 10% of the
remaining director. A vacancy created by total number of the shares outstanding having
removal of director can only be filled by the the right to vote for such directors, order
shareholders unless board approval is any election to be held to fill any such
authorized by the articles of incorporation vacancies or newly created directorships, or
or bylaws approved by the shareholders. to replace the directors chosen by the
Under the 3dfx bylaws, vacancies in the directors then in office. Delaware Law allows
board of directors, except for a vacancy any director elected to fill a vacancy to
created by the removal of a director, may be hold office only for the remainder of the
filled by a majority of the directors then in term of the director whose departure caused
office, whether or not less than a quorum, or the vacancy.
by a sole remaining director. Each director The GigaPixel bylaws provide that a vacancy
so elected shall hold office until his in the board of directors shall be deemed to
successor is elected at an annual or a exist in the case of the death, removal or
special meeting of the shareholders. A resignation of any director. The GigaPixel
vacancy in the board of directors created by charter contains numerous provisions
the removal of a director may only be filled concerning vacancies of board seats dedicated
by the vote of a majority of the shares to the preferred shareholders.
represented and voting at a meeting at which Section 2115 makes some aspects of California
a quorum is present (which shares voting Law relating to the filling of a director
affirmatively also constitute at least a vacancy applicable to GigaPixel.
majority of the required quorum), or by the
written consent of the holders of all of the
outstanding shares.
The shareholders may elect a director or
directors at any time to fill any vacancy or
vacancies not filled by the directors. Any
such election by written consent other than
to fill a vacancy created by removal of a
director shall require the consent of holders
of a majority of the outstanding shares
entitled to vote.
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SPECIAL MEETINGS OF SHAREHOLDERS
Under California Law, a special meeting Under Delaware Law, special meetings of the
of the shareholders may be called by the shareholders may be called by the board of
board of directors, the chairman of the directors or any other person authorized to
board, the president, the holders of shares do so in the corporation's certificate of
entitled to cast not less than 10% of the incorporation or bylaws.
votes at the meeting or any additional The GigaPixel bylaws specify that special
persons as may be designated in the meetings of the shareholders of the
corporation's articles of incorporation or corporation may be called, for any purpose or
bylaws. The 3dfx bylaws specify that special purposes, by (i) the chairman of the board of
meetings of the board of directors may be directors, (ii) the chief executive officer,
called at any time by the chairman of the (iii) the board of directors pursuant to a
board or president or, if both the chairman resolution adopted by a majority of the total
of the board and the president are absent or number of authorized directors (whether or
are unable or refuse to act, by any vice not there exist any vacancies in previously
president or by any two directors. authorized directorships at the time any such
resolution is presented to the board of
directors for adoption) or (iv) by the
holders of shares entitled to cast not less
than 50% of the votes at the meeting.
If a special meeting is called by any person
or persons other than the board of directors,
the request shall be in writing, specifying
the general nature of the business proposed
to be transacted, and shall be delivered
personally or sent by registered mail or by
telegraphic or other facsimile transmission
to the chairman of the board, the chief
executive officer, or the secretary of the
corporation. No business may be transacted at
such special meeting otherwise than specified
in such notice. The board of directors shall
determine the time and place of such special
meeting, which shall be held not less than 35
nor more than 120 days after the date of the
receipt of the request.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Under Delaware and California Law, unless otherwise provided in the certificate or
articles of incorporation, respectively, any action required to be taken or which may be
taken at an annual or special meeting may be taken without a meeting if a written consent is
signed by the holders of outstanding stock having at least the minimum number of votes
required to authorize such action. If consent is sought for less than all shareholders
entitled to vote, California Law requires that notice be given. Neither the GigaPixel nor
the 3dfx charter prohibits the use of a written consent in lieu of a meeting with respect to
any action requiring shareholder approval. Both GigaPixel and 3dfx bylaws allow any action
requiring shareholder approval to be taken without a meeting, and without notice, if a
consent in writing setting forth the action taken is signed by the holders of the
outstanding shares having not less than the minimum number of votes that would be necessary
to take the action at a shareholders meeting.
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VOTE REQUIRED FOR MERGER
Under California Law, the shareholder Delaware Law requires the affirmative vote of
vote required to approve a merger is a at least a majority of the outstanding stock
majority of the outstanding shares entitled entitled to vote thereon to authorize any
to vote on the merger, except that no merger or consolidation of a corporation,
shareholder vote is required of a corporation except that, unless required by its
that is to be the surviving corporation in certificate of incorporation, no shareholder
the merger as long as the shareholders of vote is required of the surviving corporation
such corporation own, immediately after the if:
merger, more than five-sixths of the voting - such corporation's certificate of
power of the surviving corporation. incorporation is not amended in any respect
California Law further requires the by the merger;
affirmative vote of a majority of the - each share of stock of such corporation
outstanding shares entitled to vote on the outstanding immediately prior to the
merger if: effective date of the merger will be an
- the surviving corporation's articles of identical outstanding or treasury share of
incorporation will be amended and would the surviving corporation after the
otherwise require shareholder approval; or effective date of the merger; and
- shareholders of the surviving corporation - the number of shares to be issued in the
will receive shares of a non-California merger does not exceed 20% of such
corporation or shares of the surviving corporation's outstanding common stock
corporation having different rights, immediately prior to the effective date of
preferences, privileges or restrictions the merger.
than the shares surrendered. Section 2115 makes the California Law
Shareholder approval is not required provisions described in the opposite column
under California Law for mergers or relating to voting for mergers and similar
consolidations in which a parent corporation transaction applicable to GigaPixel.
merges or consolidates with a subsidiary of Shareholder approval is also not required
which it owns at least 90% of the outstanding under Delaware Law for mergers or
shares of each class of stock. consolidations in which a parent corporation
If a corporation has two classes of merges or consolidates with a subsidiary of
common shares that differ only as to voting which it owns at least 90% of the outstanding
rights, California Law provides that the shares of each class of stock.
shares shall vote as a single class. Similar The GigaPixel charter requires a separate
voting requirements apply for share exchanges vote of a majority of the preferred
or conversions. shareholders for some asset transfers or
acquisitions.
TAKEOVERS: STATUTORY PROTECTION
California Law has not adopted any Delaware Law subjects some transactions
special laws designed to make some kinds of involving a corporation and significant
"unfriendly" corporate takeovers or other shareholders to special shareholder approval
transactions involving a corporation and one requirements.
or more of its significant shareholders more Delaware Law prohibits, in some
difficult. California Law does, however, circumstances, a business combination between
generally require that the holders of the corporation and an interested shareholder
nonredeemable common stock receive within three years of the shareholder
nonredeemable common stock in a merger of the becoming an interested shareholder.
corporation where one of the merging This three-year moratorium provision does not
corporations or its parent owns more than 50% apply where:
of the voting power of the other merging - either the business combination or the
corporation, unless all of the holders of the transaction which resulted in the shareholder
common stock consent to the merger. becoming an interested shareholder is
approved by the
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This provision of California Law may corporation's board of directors prior to the
have the effect of making a "cash-out" merger date the interested shareholder acquired such
by a majority shareholder owning less than 15% interest;
90% of the outstanding shares of each class - upon the consummation of the transaction
more difficult to accomplish. which resulted in the shareholder becoming an
California Law also provides that, interested shareholder, the interested
except in some circumstances, when a tender shareholder owned at least 85% of the
offer or a proposal for a reorganization or a outstanding voting stock of the
sale of assets is made by an interested corporation, excluding for purposes of
party, an affirmative opinion in writing as determining the number of shares
to the fairness of the consideration to be outstanding shares held by persons who are
paid to the shareholders must be delivered to directors and also officers and by employee
shareholders, unless the target corporation stock plans in which participants do not
does not have shares held of record by at have the right to determine confidentiality
least 100 persons or unless the transaction whether shares held subject to the plan
has been qualified under California state will be tendered;
securities laws. Furthermore, if a tender of - the business combination is approved by a
shares or vote is sought concerning an majority of the board of directors and the
interested party's proposal and a later affirmative vote of two-thirds of the
proposal is made by another party at least 10 outstanding votes entitled to be cast by
days prior to the date of acceptance of the disinterested shareholders at an annual or
interested party proposal, then shareholders special meeting, but not by written
must be informed of the later offer and be consent;
afforded a reasonable opportunity to withdraw - the corporation does not have a class of
any vote, consent or proxy, or to withdraw voting stock that is listed on a national
any tendered shares. securities exchange, authorized for
quotation on the Nasdaq Stock Market, or
held of record by more than 2,000
shareholders unless any of the foregoing
results from action taken, directly or
indirectly, by an interested shareholder or
from a transaction in which a person
becomes an interested shareholder; or
- the corporation has elected not to be
governed by this provision.
TAKEOVERS: SHAREHOLDER RIGHTS PLANS
3dfx has adopted a shareholder rights
plan that, among other things, discourages
some types of transactions that may involve
an actual or threatened change of control of
3dfx. Holders of shares of 3dfx common stock
issued and outstanding are entitled to
purchase one-thousandth of a share of 3dfx's
preferred stock. The purchase right is
exercisable upon the acquisition of, or the
notification of an intent to acquire, a
beneficial ownership of 12% or more of 3dfx's
outstanding common stock.
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SUPERMAJORITY VOTING PROVISIONS
California Law permits the articles of Delaware Law requires the approval of a
incorporation to require greater than a majority of shareholders for most corporate
majority vote of shareholders for actions actions, although some votes, such as to fill
specified in the articles of incorporation. director vacancies and to approve
dissolution, may require a greater percentage
of shareholder approval.
DISSENTERS' APPRAISAL RIGHTS
Under California Law, if the approval of Under Delaware Law, holders of shares of any
the outstanding shares of a corporation is class or series who neither vote in favor of
required for a reorganization under a the merger or consolidation nor consent
specific provision of California Law, each thereto in writing have the right, in some
shareholder of the corporation entitled to circumstances, to dissent from a merger or
vote on the transaction may require the consolidation by demanding payment in cash
corporation to purchase for cash at the fair for their shares equal to the fair value
market value of any "dissenting shares" owned (excluding any appreciation or depreciation
by the shareholder. as a consequence or in expectation of the
Under California Law, shares listed on transaction) of such shares, plus a fair rate
any national securities exchange or listed on of interest.
the list of over-the-counter margin stocks Delaware Law grants dissenters' appraisal
issued by the Board of Governors of the rights only in the case of mergers or
Federal Reserve generally do not have these consolidations and not in the case of a sale
appraisal rights unless the holders of at or transfer of assets or a purchase of assets
least 5% of the class of outstanding shares for stock, regardless of the number of shares
demand the right, or the corporation or any being issued. Further, no appraisal rights
law restricts the transfer of such shares. are available for shares of any class or
The fair market value shall be determined as series listed on a national securities
of the day before the first announcement of exchange or designated as a national market
the terms of the proposed reorganization, system security on the Nasdaq National Market
excluding any appreciation or depreciation in or held of record by more than 2,000
consequence of the proposed action. shareholders, unless the agreement of merger
or consolidation converts such shares into
anything other than (a) stock of the
surviving corporation; (b) stock of another
corporation which is either listed on a
national securities exchange or designated as
a national market system security on the
Nasdaq National Market or held of record by
more than 2,000 shareholders; (c) cash in
lieu of fractional shares; or (d) some
combination of the above. In addition,
dissenters' rights are not available for any
shares of the surviving corporation if the
merger did not require the vote of the
shareholders of the surviving corporation.
Section 2115 makes the provisions of
California Law described opposite relating to
dissenters' appraisal rights applicable to
GigaPixel.
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LIMITATIONS ON DIRECTORS LIABILITY
Under California Law, a director is not Delaware Law provides that the charter
liable to a corporation or its shareholders documents of the corporation may include
if the director acted in good faith and with provisions which limit or eliminate the
a proper duty of care in the discharge of his liability of directors to the corporation or
or her duties as a director. In the discharge its shareholders, provided such liability
of any duty imposed or power conferred upon a does not arise from some proscribed conduct,
director, the director is entitled to rely, including breach of the director's duty of
in good faith and with ordinary care, on loyalty to the corporation or its
information, opinions, reports or statements shareholders, acts or omissions not in good
prepared or presented by officers or faith or which involve intentional misconduct
employees of the corporation, professional or or a knowing violation of law, the payment of
expert advisors or a board committee upon unlawful dividends or expenditure of funds
which such director does not serve. for unlawful stock purchases or redemptions
The articles of incorporation of a or transactions from which such director
corporation may eliminate or limit the derived an improper personal benefit.
liability of a director for monetary damages
in an action brought by or in the right of
the corporation for breach of a director's
duties to the corporation and its
shareholders. The articles may not eliminate
such liability (i) for intentional misconduct
or knowing and culpable violation of law,
(ii) for acts or omissions that a director
believes to be contrary to the best interests
of the corporation or its shareholders or
that involve the absence of good faith on the
part of the director, (iii) for the receipt
of an improper personal benefit, (iv) for
acts or omissions that show reckless
disregard for the director's duty to the
corporation or its shareholders where the
director in the ordinary course of performing
a director's duties should be aware of a risk
of serious injury to the corporation or its
shareholders, (v) for acts or omissions that
constitute an unexcused pattern of
inattention that amounts to an abdication of
the director's duty to the corporation and
its shareholders, (vi) interested
transactions between the corporation and
(vii) a director in which a director has a
material financial interest and for some
types of improper distributions.
Under California Law, no provision in
the articles of incorporation shall eliminate
or limit the liability of a director for any
act or omission occurring prior to the date
when the provision becomes effective, or
eliminate or limit the liability of an
officer for any act or omission as an
officer, even if that officer is also a
director, and even if his or her actions, if
negligent or improper, have been ratified by
the board of directors.
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INDEMNIFICATION
Under California Law, a corporation may Delaware Law generally permits a corporation
indemnify any person who was or is a party or to indemnify its directors and officers
is threatened to be made a party to any against expenses, judgments, fines and
proceeding (other than an action by or in the amounts paid in settlement actually and
right of the corporation to procure a reasonably incurred in connection with a
judgment in its favor) by reason of the fact third-party action, other than a derivative
that the person is or was an agent of the action and against expenses actually and
corporation, against expenses, judgments, reasonably incurred in the defense or
fines, settlements, and other amounts settlement of a derivative action, provided
actually and reasonably incurred in that a determination is made that the
connection with the proceeding. This individual acted in good faith and in a
indemnification is allowed only if the person manner reasonably believed to be in or not
acted in good faith and in a manner the opposed to the best interests of the
person reasonably believed to be in the best corporation. Such determination shall be
interests of the corporation. In the case of made, in the case of an individual who is a
a criminal proceeding, the person must have director or officer at the time of such
had no reasonable cause to believe his or her determination:
conduct was unlawful. - by a majority of the disinterested
The determination of the propriety of directors, even though less than a quorum;
indemnification shall be made by: - by a committee of such directors designated
- a majority vote of a quorum consisting of by a majority vote of such directors, even
directors who are not parties to such though less than a quorum;
proceeding; - by independent legal counsel, regardless of
- if such a quorum is not obtainable, by whether a quorum of disinterested directors
independent legal counsel in a written exists; or
opinion; - by a majority vote of the shareholders, at
- approval of a majority of the shareholders, a meeting at which a quorum is present.
with the shares of the person to be Without court approval, however, no
indemnified not being entitled to vote indemnification may be made in respect of any
thereon; or derivative action in which such individual is
- the court in which such proceeding is or adjudged liable to the corporation.
was pending upon application made by the Delaware Law requires indemnification of
corporation or the agent or the attorney or directors and officers for expenses relating
other person rendering services in to a successful defense on the merits or
connection with the defense. otherwise of a derivative or third-party
A corporation may also indemnify the action.
person against expenses actually and Delaware Law permits a corporation to advance
reasonably incurred by that person in expenses relating to the defense of any
connection with the defense or settlement of proceeding to directors and officers
the action. This indemnification is allowed contingent upon such individuals' commitment
only if the person acted in good faith and in to repay any advances unless it is determined
a manner the person believed to be in the ultimately that such individuals are entitled
best interests of the corporation and its to be indemnified.
shareholders. No indemnification is allowed Under Delaware Law, the rights to
under California Law for: indemnification and advancement of expenses
- any claim, issue or matter for which the provided in the law are non-exclusive, in
person has been adjudged to be liable to that indemnification and advancement of
the corporation in the performance of that expenses beyond that provided by statute may
person's duty to the corporation and its be provided by bylaw, agreement, vote of
shareholders, unless the court determines shareholders, disinterested directors or
that, in view of all the circumstances of otherwise.
the case, the person is fairly and
reasonably entitled to indemnification; or
- any amounts paid in settling or expense
occurred in defending a pending action
disposed of without court approval.
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3DFX GIGAPIXEL
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In addition, no indemnification may be GigaPixel's bylaws indemnify directors and
made under the California Law if the officers to the fullest extent permitted by
indemnification would be inconsistent with: Delaware Law, subject to some exceptions.
- the company's articles of incorporation or Section 2115 makes the provisions of
bylaws; California Law described opposite governing
- a resolution of the shareholders; director indemnification applicable to
- an agreement in effect at the time of the GigaPixel.
cause of action being asserted in the
proceeding in which the expenses were
incurred or other amounts were paid; or
- any condition expressly imposed by a court
in approving a settlement.
California Law also provides that a
corporation must indemnify directors against
expenses actually and reasonably incurred to
the extent such director has been successful
on the merits in the defense of any
proceeding.
California Law allows California
corporations to obtain and maintain insurance
on behalf of any person who is or was a
director, officer, employee or agent of the
corporation for any liability asserted
against him or her, whether or not the
corporation has the power to indemnify him or
her against liability under California Law.
Neither the 3dfx charter nor the 3dfx bylaws
limit this right in any way.
The 3dfx charter provides for director
indemnification to the fullest extent allowed
under California Law.
DISTRIBUTIONS AND DIVIDENDS
California Law dispenses with the Delaware Law retains the concept of par value
concept of par value and statutory and defines capital and surplus. Delaware Law
definitions of capital and surplus. permits a corporation to declare and pay
Generally, under California Law, a dividends out of surplus. If there is no
corporation may not make any distribution surplus, a corporation is permitted to
(including dividends, whether in cash or declare and pay dividends out of net profits
other property, and repurchases of its for the fiscal year in which the dividend is
shares) unless the corporation's retained declared and/or for the preceding fiscal year
earnings immediately prior to the proposed as long as the amount of capital of the
distribution equal or exceed the amount of corporation following the declaration and
the proposed distribution. payment of the dividend is not less than the
Alternatively, a corporation may make a aggregate amount of the capital represented
distribution if immediately after giving by the issued and outstanding stock of all
effect to such distribution, the classes having a preference upon the
corporation's assets (exclusive of goodwill, distribution of assets.
capitalized research and development expenses Section 2115 makes the California Law
and deferred charges) would be at least equal provisions described in the opposite column
to 1 1/4 times its liabilities (not including relating to distributions applicable to
deferred taxes, deferred income and other GigaPixel.
deferred credits), and the corporation's
current assets would be at least equal to its
current liabilities (or 1 1/4 times its
current liabilities if the average pre-tax
and pre-interest expense earnings for the
preceding two fiscal
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3DFX GIGAPIXEL
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years were less than the average interest
expense for such years).
Notwithstanding the foregoing, a
corporation may not make a distribution if it
is, or as a result of the distribution would
be, likely to be unable to meet its
liabilities as they mature.
</TABLE>
INVESTOR RIGHTS AGREEMENT, CO-SALE AGREEMENT AND VOTING AGREEMENT
In addition to the rights provided to all GigaPixel shareholders under the
GigaPixel charter and bylaws, GigaPixel preferred shareholders have additional
rights and obligations under an Amended and Restated Investor Rights Agreement
dated as of December 7, 1998. Some GigaPixel preferred shareholders also have
rights and obligations under a Co-Sale Agreement and a Voting Agreement executed
between them and GigaPixel, both dated December 7, 1998.
Under the terms of the Amended and Restated Investor Rights Agreement,
GigaPixel preferred shareholders are restricted from transferring the GigaPixel
common stock issuable upon conversion of their preferred stock, or issued as a
dividend or distribution in relation to the preferred stock, unless a
registration statement providing for a transfer is in effect or the holder
complies with the requirements described in the agreement. GigaPixel preferred
shareholders have the right to demand that GigaPixel file a registration
statement covering their shares of GigaPixel stock upon the earlier of December
12, 2000 or six months following an initial public offering, so long as holders
of more than 50% of the securities covered by the agreement make such a demand
and the aggregate offering price to the public of the shares exceeds $5 million.
This agreement also grants these preferred shareholders rights to participate in
other registrations of GigaPixel securities, subject to certain limitations.
Under the terms of the Co-Sale Agreement, some holders of GigaPixel capital
stock are restricted from selling their GigaPixel capital stock without first
providing notice to GigaPixel and some other shareholders, as well as providing
those other shareholders with the opportunity to participate in the sale. Some
transfers are exempt from this restriction, such as sales to ancestors,
descendants, spouses and affiliates. If a GigaPixel shareholder covered by the
Co-Sale Agreement attempts to make a transfer in violation of the agreement, the
other shareholders covered by the Co-Sale Agreement have the right to force the
selling shareholder to buy that portion of GigaPixel capital stock which they
would have had the right to sell had the selling shareholder not violated the
agreement. The Co-Sale Agreement will terminate upon the closing of the merger.
Under the terms of the Voting Agreement, some holders of GigaPixel
preferred stock have agreed to vote all shares of GigaPixel voting stock held by
them in accordance with the vote of a majority in interest on votes concerning
an acquisition or asset transfer. If the vote of the preferred shares voting as
a group could change the outcome of the vote on an acquisition or asset
transfer, however, the provisions of the Voting Agreement would not apply. Each
preferred shareholder bound by this agreement has agreed to submit an
irrevocable proxy to GigaPixel. The Voting Agreement will terminate upon the
closing of the merger.
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ELECTION OF 3DFX DIRECTORS
NOMINEES
At the 3dfx annual meeting, each of the current 3dfx directors other than
Anthony Sun is being nominated to serve until the next annual meeting of
shareholders and until his successor has been elected and has qualified, or
until the director's earlier death, resignation or removal. Mr. Sun has declined
to stand for re-election to the 3dfx board of directors, and as a result his
term will expire simultaneous with the 3dfx annual meeting. The 3dfx board of
directors recently took action, effective with the 3dfx annual meeting, to amend
the 3dfx bylaws to set the exact number of directors at five. As described under
"3dfx Management Following the Merger," following completion of the merger, the
3dfx board of directors intends to expand the size of the board and to nominate
and appoint George T. Haber and Andrei M. Manoliu to serve as members of the
3dfx board of directors.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named below, subject to
the discretionary power to cumulate votes. Proxies cannot be voted for a greater
number of persons than the number of nominees named. In the event that any
nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected and management has no reason to believe that any nominee
will be unable to serve.
The five nominees receiving the highest number of affirmative votes cast at
the meeting will be elected directors of 3dfx. Votes withheld from any director
are counted for purposes of determining the presence or absence of a quorum for
the transaction of business, but they have no legal effect under California law.
Each nominee's name and some information regarding each nominee is set
forth below. Detailed biographical information relating to each nominee is set
forth under "3dfx Management Following the Merger-Executive Officers and
Directors" in this proxy statement/prospectus/information statement. There are
no family relationships among the directors or executive officers of 3dfx.
<TABLE>
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NAME AGE POSITION WITH 3dfx
---- --- ------------------
<S> <C> <C>
Gordon A. Campbell(1)..... 55 Chairman of the Board of Directors
James L. Hopkins.......... 53 Director
Alex Leupp................ 60 President, Chief Executive Officer and Director
Scott D. Sellers.......... 31 Executive Vice President and Chief Technical Officer and Director
James Whims(2)............ 45 Director
</TABLE>
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(1) Member of the Audit Committee
(2) Member of the Compensation Committee
3DFX'S BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE FIVE NOMINEES LISTED
ABOVE.
BOARD MEETINGS AND COMMITTEES
The board of directors of 3dfx held a total of eight meetings during the
fiscal year ended January 31, 2000. No director, during the time he was a member
of the board of directors, attended fewer than 75% of the aggregate of all
meetings of the board of directors, or its committees on which he served which
occurred during fiscal 2000. The board of directors has an audit committee and a
compensation committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The audit committee is responsible for (i) recommending engagement of
3dfx's independent auditors, (ii) approving the services performed by such
auditors, (iii) consulting with such auditors and reviewing
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with them the results of their examination, (iv) reviewing and approving any
material accounting policy changes affecting 3dfx's operating results, (v)
reviewing 3dfx's control procedures and personnel, and (vi) reviewing and
evaluating 3dfx's accounting principles and its system of internal accounting
controls. The audit committee held four meetings during fiscal 2000, and Anthony
Sun and Philip Young were members of the audit committee during fiscal 2000. The
audit committee will following completion of the merger consist of Messrs.
Campbell and Manoliu.
The compensation committee is responsible for determining salaries,
incentives and other forms of compensation for executive officers and other
employees of 3dfx and administers various incentive compensation and benefit
plans. The compensation committee held three meetings during fiscal 2000, and
Messrs. Leupp and Whims were members of the compensation committee during fiscal
2000. The compensation committee will following completion of the merger consist
of Messrs. Whims and Haber.
APPROVAL OF AMENDMENT OF THE 3DFX INTERACTIVE, INC.
1995 EMPLOYEE STOCK OPTION PLAN
At the 3dfx annual meeting, 3dfx shareholders are being asked to approve
the amendment to the 3dfx Interactive, Inc. 1995 Employee Stock Option Plan, as
amended, to increase the number of shares of common stock reserved for issuance
under the stock plan by 2,500,000 shares to a total of 8,875,000. The board of
directors approved the amendment to the stock plan in May 2000. As of June 5,
2000, options to purchase an aggregate of 4,560,790 shares of 3dfx's common
stock were outstanding under this stock plan with a weighted average exercise
price of $10.78 per share. The number of shares available for future grant under
the stock plan is 37,860 shares, excluding the 2,500,000 shares subject to
shareholder approval at this meeting. The stock plan authorizes the board of
directors to grant incentive and nonstatutory stock options to eligible
employees, directors and consultants of 3dfx.
3dfx intends to grant new options to purchase 3dfx common stock to some of
the employees of GigaPixel when the merger is completed. In addition, as a
result of the merger, 3dfx will become a larger organization having a larger
employee base. The stock plan will be the primary means of providing equity
incentives to the employee base of the combined company.
The stock plan is structured to give the board of directors broad
discretion in creating equity incentives in order to assist 3dfx in attracting,
retaining and motivating the best available personnel for the successful conduct
of 3dfx's business. Since inception, 3dfx has provided stock options as an
incentive to its key employees and executives as a means to promote increased
shareholder value. 3dfx believes stock options are one of the best methods of
attracting and retaining key personnel responsible for the continued development
and growth of 3dfx's business, especially in connection with the merger. In
addition, stock options are considered a competitive necessity in the high
technology industry.
VOTE REQUIRED
The affirmative vote of a majority of the shares of 3dfx's common stock
represented and voting at the 3dfx annual meeting will be required to approve
the proposed amendment to the stock plan. In addition, the affirmative votes
must represent a majority of the required quorum. The quorum is a majority of
the shares outstanding at June 5, 2000. Votes that are cast against the proposal
will be counted for purposes of determining both the presence or absence of a
quorum and the total number of votes cast with respect to the proposal.
Abstentions will be counted for purposes of determining both the presence or
absence of a quorum and the total number of votes cast with respect to the
proposal. As a result, abstentions will have the same effect as a vote against
the proposal. Broker non-votes, if any, will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of votes cast
with respect to this proposal.
3DFX'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE STOCK PLAN.
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SUMMARY OF PLAN
The essential terms of the 3dfx Interactive, Inc. 1995 Employee Stock Plan
are summarized as follows:
Purpose
The purposes of the stock plan are to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentive to employees, directors and consultants of 3dfx and to promote the
success of 3dfx's business.
Administration
The stock plan provides for administration by the 3dfx board of directors
or by a committee of the board of directors. The board of directors or the
committee appointed to administer the stock plan is referred to in this
description as the "administrator." The administrator determines the terms of
options granted, including the exercise price, number of shares subject to the
option and the exercisability thereof. The administrator determines all
questions of interpretation and its decisions are final and binding upon all
participants. Members of the board of directors receive no additional
compensation for their services in connection with the administration of the
stock plan.
Eligibility
Incentive or nonstatutory stock options may be granted to employees
(including officers and employee directors) of 3dfx or any of its designated
subsidiaries. In addition, nonstatutory stock options may be granted to
non-employee directors and consultants of 3dfx or any of its designated
subsidiaries. The administrator selects the optionees and determines the number
of shares to be subject to each option. In making his or her determination, the
administrator takes into account the duties and responsibilities of the
optionee, the value of the optionee's services, the optionee's present and
potential contribution to the success of 3dfx and other relevant factors. The
stock plan provides a limit of $100,000 on the aggregate fair market value of
shares subject to all incentive options that are exercisable for the first time
in any one calendar year. A maximum of 150,000 shares (plus an additional
250,000 shares if in connection with initial employment) may be granted to any
employee during any fiscal year of 3dfx. There is no minimum number of option
shares that may be granted to any employee.
Terms of Options
Each option is evidenced by a stock option agreement between 3dfx and the
optionee to whom the option is granted, and is subject to the following
additional terms and conditions:
(1) Exercise of the Option: The administrator determines when options
granted under the stock plan may be exercised. An option holder exercises
by giving written notice to 3dfx, specifying the number of shares of common
stock to be purchased and paying the purchase price. Payment for shares
issued upon exercise of an option may consist of cash, check, delivery of
already-owned shares of 3dfx's common stock subject to some conditions,
pursuant to a cashless exercise procedure under which the optionee provides
irrevocable instructions to a brokerage firm to sell the purchased shares
and to remit to 3dfx, out of the sale proceeds, an amount equal to the
exercise price plus all applicable withholding taxes, or other
consideration as determined by the administrator and as permitted by
applicable laws. Options may be exercised at any time on or following the
date the options are first exercisable. An option may not be exercised for
a fraction of a share.
(2) Option Price: The option price of all incentive stock options
under the stock plan may not be less than the fair market value of the
common stock on the date the option is granted. For purposes of the stock
plan, fair market value is defined as the closing sale price per share of
the common stock on the date of grant as reported on the Nasdaq National
Market. If an optionee owns stock representing more than 10% of the voting
power of all classes of stock of 3dfx at the time of grant, the option
price of an incentive stock option must be at least 110% of the fair market
value on
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the date of grant. In the case of a nonstatutory stock option intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code, the exercise price must be at least
100% of the fair market value on the date of grant.
(3) Termination of Employment or Consulting Relationship: If the
optionee's employment or consulting relationship with 3dfx is terminated
for any reason other than death or disability, the option may be exercised
for 90 days following the termination unless another period is determined
by the administrator. The options may be exercised only to the extent the
options were exercisable on the date of termination, but in no event, later
than the expiration date of the option.
(4) Death: If an optionee dies, options may be exercised at any time
within 12 months following the date of death, but in no event later than
the expiration date of the option. 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 to the extent the optionee could have
exercised on the date of death.
(5) Disability: If an optionee's employment is terminated due to a
disability, options may be exercised at any time within 12 months from the
date of termination. Options may be exercised only to the extent that the
options were exercisable on the date of termination of employment, but in
no event later than the expiration date of the option.
(6) Termination of Options: The administrator fixes the term of each
option. In the case of incentive stock options, the term may not exceed ten
years from the date of grant. However, if an optionee owns more than 10% of
the total combined voting power of all classes of stock of 3dfx or a parent
or subsidiary corporation immediately before the grant of such option, an
incentive stock option may not have a term of more than five years. No
option may be exercised by any person after its expiration.
(7) Nontransferability of Options: Unless determined otherwise by the
administrator, an option is not transferable by the optionee, other than by
will or the laws of descent and distribution. An option is exercisable only
by the optionee during his or her lifetime or, in the event of death, by a
person who acquires the right to exercise the option by bequest or
inheritance or by reason of the death of the optionee.
Adjustment upon Changes in Capitalization
In the event any change, like a stock split or dividend, is made in 3dfx's
capitalization which results in an increase or decrease in the number of
outstanding shares of common stock without receipt of consideration by 3dfx, an
appropriate adjustment will be made in the option price and in the number of
shares subject to each option. In the event of a merger of 3dfx 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 the options
are not assumed or substituted, the options will become exercisable as to all of
the shares subject to the options, including shares as to which it would not
otherwise be exercisable. In the event that options become exercisable in lieu
of assumption or substitution, the administrator shall notify optionees that all
options will be fully exercisable for a period of 15 days, after which the
options shall terminate.
Amendment and Termination
The board of directors may amend the stock plan at any time or from time to
time or may terminate it without approval of the shareholders. However, no
action by the board of directors or shareholders may alter or impair any option
previously granted under the stock plan without the consent of the optionee. In
any event, the stock plan will terminate in May 2005.
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Tax Information
Options granted under the stock plan may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code, or
nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (1)
the fair market value of the shares at the date of the option exercise or (2)
the sale price of the shares. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of 3dfx. Generally, 3dfx will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income will be characterized as
long-term or short-term capital gain or loss, depending on the holding period.
All other options that do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize ordinary income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of 3dfx will be subject to tax withholding by
3dfx. Upon resale of such shares by the optionee, any difference between the
sales price and the optionee's purchase price, to the extent not recognized as
taxable income as described above, will be treated as long-term or short-term
capital gain or loss, depending on the holding period. Generally, 3dfx will be
entitled to a tax deduction in the same amount as the ordinary income recognized
by the optionee with respect to shares acquired upon exercise of a nonstatutory
option.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and 3dfx with respect to the grant and exercise of options
under the stock plan, does not purport to be complete, and does not discuss the
tax consequences of the optionee's death or the income tax laws of any
municipality, state or foreign country in which an optionee may reside.
Participation in the Stock Plan
The grant of options under the stock plan to executive officers is subject
to the discretion of the administrator. As of the date of this proxy
statement/prospectus/information statement, there has been no determination by
the administrator with respect to any specific future awards under the stock
plan. Accordingly, any specific future awards are not determinable.
During fiscal 2000, all current executive officers as a group, and all
other employees as a group, were granted options to purchase 412,000 shares and
2,826,397 shares, respectively, pursuant to the stock plan.
APPROVAL OF AMENDMENT TO THE 3DFX INTERACTIVE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
At the 3dfx annual meeting, 3dfx shareholders are being asked to approve
the amendment of the 3dfx 1997 Employee Stock Purchase Plan to increase the
number of shares available for purchase thereunder effective as of the date of
the 3dfx annual meeting. An amendment to the purchase plan was approved by the
board of directors in June 2000. A total of 750,000 shares of common stock has
been reserved for issuance under the purchase plan, increased automatically each
year on the date of the annual meeting of shareholders by an amount equal to the
lesser of (i) 200,000 shares, or (ii) 1% of the outstanding shares of 3dfx on
such date. As of June 5, 2000, a total of 696,149 shares had been issued to
employees at an average purchase price of $8.13 per share pursuant to the
purchase plan, and 53,851 shares remain
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available for future issuance. The fair market value of 3dfx common stock on the
first day of the most recent offering period was $8.38 per share. See "Purchase
Price" below.
As a result of the 3dfx merger with STB Systems, Inc. in fiscal 2000, as
well as the proposed merger with GigaPixel, the number of employees eligible to
participate in the purchase plan has increased and will increase significantly.
Also, the total number of outstanding shares of 3dfx common stock has increased
significantly and will increase further as a result of the merger. In 1997, when
the purchase plan was originally effective, 3dfx reserved a number of shares of
common stock for issuance under the purchase plan equal to 4.58% of its
outstanding stock. The proposed amendment to the purchase plan would increase
the number of shares available for purchase from 750,000 to 1,600,000 shares,
which represents 4% of 3dfx's outstanding shares after giving effect to the
proposed merger with GigaPixel. The proposed amendment would also provide for an
automatic increase commencing in calendar 2001 in the number of shares available
in the purchase plan as of the annual meeting of shareholders equal to 600,000
shares or 1.5% of the then outstanding shares, whichever is less.
If the amendment to the purchase plan is approved, the maximum number of
shares which could be issued under the purchase plan over its term would be
5,200,000.
The purpose of the purchase plan is to provide employees of 3dfx with an
opportunity to purchase common stock of 3dfx through accumulated payroll
deductions. In connection with its initial public offering in June 1997, 3dfx
implemented the purchase plan as an incentive to its employees and executives as
a means to promote increased shareholder value. Management believes that stock
ownership is one of the prime methods of attracting and retaining key personnel
responsible for the continued development and growth of 3dfx's business. In
addition, an employee stock purchase plan is considered a competitive necessity
in the high technology industry.
VOTE REQUIRED
The affirmative vote of a majority of the shares of 3dfx's common stock
represented and voting at the 3dfx annual meeting will be required to approve
the proposed amendment to the purchase plan. In addition, the affirmative votes
must constitute at least a majority of the required quorum, which quorum is a
majority of the shares outstanding at June 5, 2000. Votes that are cast against
the proposal will be counted for purposes of determining both the presence or
absence of a quorum and the total number of votes cast with respect to the
proposal. Abstentions will be counted for purposes of determining both the
presence or absence of a quorum and the total number of votes cast with respect
to the proposal. Accordingly, abstentions will have the same effect as a vote
against the proposal. Broker non-votes, if any, will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of votes cast
with respect to this proposal.
3DFX'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AMENDMENT
TO THE PURCHASE PLAN.
SUMMARY OF PLAN
The essential terms of the 3dfx Interactive, Inc. 1997 Employee Stock
Purchase Plan, as amended, are summarized as follows:
Purpose
The purpose of the purchase plan is to provide employees of 3dfx and of any
subsidiaries which are designated by the board of directors to participate in
the purchase plan with an opportunity to purchase common stock of 3dfx through
accumulated payroll deductions. The purchase plan is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
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Administration
The purchase plan provides for administration by the board of directors of
3dfx or a committee appointed by the board. All questions of interpretation or
application of the purchase plan are determined by the board of directors or its
appointed committee, and its decisions are final and binding upon all
participants. No charge for administrative or other costs may be made against
the payroll deductions of a participant in the purchase plan. Members of the
board receive no additional compensation for their services in connection with
the administration of the purchase plan.
Offering Periods
The purchase plan has offering periods of approximately 24 months, each
divided into four six-month purchase periods. The offering periods commence on
or after June 1 and December 1 of each year. The board of directors has the
power to alter the duration of the offering periods without shareholder
approval.
Eligibility
Employees (including officers and employee directors of 3dfx) are eligible
to participate if they are customarily employed for at least 20 hours per week
and are employed at the start of the offering period, provided that no employee
shall be granted an option to the extent that immediately after the grant such
employee owns more than 5% of the voting power of outstanding capital stock of
3dfx or to the extent such employee's rights to purchase stock under all
employee stock purchase plans of 3dfx accrues at a rate which exceeds $25,000
worth of stock for each calendar year in which such option is outstanding at any
time. Eligible employees become participants in the purchase plan by delivering
to 3dfx payroll office a subscription agreement authorizing payroll deductions.
An employee who becomes eligible to participate in the purchase plan after the
commencement of an offering may not participate in the purchase plan until the
commencement of the next offering period.
Purchase Price
The price at which shares are sold to participating employees is 85% of the
lesser of the fair market value per share of the common stock on the first day
of the offering period or the last day of the purchase period. The fair market
value of the common stock on a given date is determined by reference to the
closing sales price of the Nasdaq National Market. The closing sale price per
share of 3dfx's common stock on the Nasdaq National Market on June 1, 2000 was
$8.38.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions over
the offering period. The deductions may not exceed 15% of a participant's
compensation. A participant may discontinue his or her participation in the
purchase plan and may increase or decrease the rate of payroll deductions at any
time during the offering period. Payroll deductions shall commence on the first
payday following the offering date and shall continue at the same rate until the
end of the offering period unless sooner terminated as provided in the purchase
plan.
Purchase of Stock; Exercise of Option
By executing a subscription agreement to participate in the purchase plan,
the employee is entitled to have shares placed under option to him or her. The
maximum number of shares placed under option to a participant in an offering is
that number arrived at by dividing the amount of his or her compensation which
he or she has elected to have withheld for the purchase period by the lesser of
85% of the fair market value of a share of common stock at the beginning of the
offering period or 85% of the fair market value of a share of common stock on
the last day of the purchase period. Unless the employee's participation is
discontinued, the option for the purchase of shares will be exercised
automatically at the end of the purchase period at the applicable price.
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Notwithstanding the foregoing, no employee shall be permitted to subscribe
for shares under the purchase plan (a) if, immediately after the grant of the
option, the employe would own, and/or hold outstanding options to purchase, 5%
or more of the voting stock or value of all classes of stock of 3dfx or (b)
which permits his or her rights to purchase stock under all employee stock
purchase plans of 3dfx and its subsidiaries to accrue at a rate which exceeds
$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. Furthermore, if the number of shares which would
otherwise be placed under option at the beginning of an offering period exceeds
the number of shares then available under the purchase plan, a pro rata
allocation of the shares remaining shall be made in as equitable a manner as is
practicable.
Withdrawal
While each participant in the purchase plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest in a given offering may be terminated in whole, but not in part, by
signing and delivering to 3dfx a notice of withdrawal from the purchase plan.
Such withdrawal may be elected at any time prior to the end of the applicable
offering period. Any withdrawal by the employee during a given offering
automatically terminates the employee's interest in that offering.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the purchase plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned without interest to such participant, or, in the case
of death, to the person or persons entitled thereto as specified by the employee
in the subscription agreement.
Capital Changes
In the event of any changes in the capitalization of 3dfx, such as stock
splits or stock dividends, resulting in an increase or decrease in the number of
shares of common stock, effected without receipt of consideration by 3dfx,
appropriate adjustments will be made by 3dfx in the shares subject to purchase
and in the purchase price per share.
Nonassignability
No rights or accumulated payroll deductions of an employee under the
purchase plan may be pledged, assigned, or transferred for any reason and any
such attempt may be treated by 3dfx as an election to withdraw from the purchase
plan.
Shares Reserved for Issuance under the Purchase Plan
A total of 1,600,000 shares of common stock has been reserved for issuance
under the purchase plan. On the date of the annual meeting of shareholders in
2001 and each subsequent year, the number of shares reserved thereunder shall be
increased automatically by the lesser of 600,000 shares or 1.5% of the
outstanding shares of 3dfx on such date.
Amendment and Termination of the Purchase Plan
The board of directors may at any time amend or terminate the purchase
plan, except that such termination shall not affect options previously granted
nor may any amendment make any changes in an option granted prior thereto which
adversely affects the rights of any participant. No amendment may be made to the
purchase plan without approval of the shareholders of 3dfx if such amendment
would increase the number of shares reserved under the purchase plan or change
the eligibility requirements. The purchase plan will terminate in 2007, unless
sooner terminated by the board of directors.
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Certain United States Federal Income Tax Information
The purchase plan, and the right of participants to make purchases under
the purchase plan, is intended to qualify under the provisions of Section 423 of
the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the purchase plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
years from the first day of the offering period and more than one year from the
date the shares are purchased, the participant will recognize ordinary income
measured as the lesser of the excess of the fair market value of the shares at
the time of such sale or disposition over the purchase price or an amount equal
to 15% of the fair market value of the shares as of the first day of the
offering period. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of these
holding periods, the participant will recognize ordinary income generally
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss of
such sale or disposition will be long-term or short-term capital gain or loss,
depending on the holding period. Generally, 3dfx is entitled to a deduction for
ordinary income recognized by participants upon a sale or disposition of shares
prior to the expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and 3dfx with respect to the shares purchased under the
purchase plan. Reference should be made to the applicable provisions of the
Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which a participant may reside.
Participation in the Purchase Plan
Participation in the purchase plan is voluntary and is dependent on each
eligible employee's election to participate and such employee's determination as
to the level of payroll deductions. Accordingly, future purchases under the
purchase plan are not determinable. Non-employee directors are not eligible to
participate in the purchase plan.
During fiscal 2000, all current executive officers as a group, and all
other employees as a group, purchased 4,059 shares and 281,105 shares,
respectively, under the purchase plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The 3dfx board of directors has selected PricewaterhouseCoopers LLP,
independent public accountants, to audit the consolidated financial statements
of 3dfx for the fiscal year ending January 31, 2001 and recommends that 3dfx
shareholders vote for ratification of this appointment. Notwithstanding the
selection, the board of directors of 3dfx, in its discretion, may direct the
appointment of new independent accountants at any time during the year if the
board of directors feels that such a change would be in the best interests of
3dfx and its shareholders. In the event of a negative vote on ratification, the
board of directors will reconsider its selection.
PricewaterhouseCoopers LLP has audited 3dfx's financial statements annually
since 1995. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
3DFX'S BOARD OF DIRECTORS RECOMMENDS THAT 3DFX SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP.
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<PAGE> 124
OTHER INFORMATION REGARDING 3DFX
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Notwithstanding any statement to the contrary in any of 3dfx's previous or
future filings with the Securities and Exchange Commission, this Report of the
Compensation Committee of the Board of Directors shall not be deemed "filed"
with the Securities and Exchange Commission and shall not be incorporated by
reference into any such filings.
Introduction
Prior to 3dfx's initial public offering in June 1997, the 3dfx board of
directors was primarily responsible for establishing and administering 3dfx's
compensation policies. In this role, and consistent with 3dfx's status as a
privately held corporation, the board of directors determined the Chief
Executive Officer's salary directly and reviewed and approved employment
compensation matters for other management personnel. The Compensation Committee
was established in March 1997. During fiscal 2000, the Compensation Committee
consisted of James Whims and Alex Leupp. In general, the Committee is
responsible for reviewing and recommending for approval by the board of
directors 3dfx's compensation practices, including executive salary levels and
variable compensation programs. With respect to the compensation of 3dfx's Chief
Executive Officer, the Committee reviews and submits to the board of directors
for approval the various elements of the Chief Executive Officer's compensation.
With respect to the compensation of Mr. Leupp in connection with his election as
Chief Executive Officer in December 1999, Mr. Leupp did not participate in
3dfx's compensation deliberations. Thereafter, Mr. Whims, as the remaining
member of the Committee and in consultation with Gordon A. Campbell, the
chairman of 3dfx's board of directors, reviewed and submitted to the board of
directors for approval the various elements of Mr. Leupp's compensation. With
respect to other executive officers, the Committee reviews the recommendations
for such individuals presented by the Chief Executive Officer and the basis
therefor and approves or modifies the compensation packages for such
individuals.
The board of directors administers 3dfx's 1995 Employee Stock Option Plan,
the 1997 Supplementary Stock Option Plan, the 1999 Supplementary Stock Option
Plan, the Directors Option Plan and the 1997 Employee Stock Purchase Plan,
although the board of directors has delegated to the Compensation Committee the
authority to act as administrator under the 1995 Employee Stock Option Plan, the
1997 Supplementary Stock Option Plan and the 1999 Supplementary Stock Option
Plan with respect to option grants to non-executive officer employees.
General Compensation Philosophy
The primary objectives of 3dfx's executive compensation policies include
the following:
- To attract, motivate and retain a highly qualified executive management
team
- To link executive compensation to 3dfx's financial performance, as well
as to defined individual management objectives established by the
Committee
- To compensate competitively with the practices of similarly situated
technology companies
- To create management incentives designed to enhance shareholder value
3dfx competes in an aggressive and dynamic industry and, as a result,
believes that finding, motivating, and retaining quality employees, particularly
senior managers, sales personnel and technical personnel, are key factors to
3dfx's future success. The Committee's compensation philosophy seeks to align
the interests of shareholders and management by tying compensation to 3dfx's
financial performance, either directly in the form of salary and bonuses paid in
cash or indirectly in the form of appreciation of stock options and stock
purchase rights granted to employees through 3dfx's equity incentive programs.
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<PAGE> 125
Executive Compensation
3dfx has a compensation program that consists of two principal components:
cash-based compensation and equity-based compensation. These components are
intended to attract, retain, motivate and reward executives who are expected to
manage both the short-term and long-term success of 3dfx.
Cash-based compensation. Cash-based compensation consists of salary (base
pay) and incentive pay. The salaries of each of the executive officers (other
than Chief Executive Officers) for the year ended January 31, 2000 were approved
by the board of directors, upon the recommendation of the Chief Executive
Officer. In February 1998, the board of directors adopted the 1998 Bonus Plan
upon the recommendation of the Compensation Committee and in March 1999 the
Bonus Plan was adopted for fiscal 2000.
The Bonus Plan provides for bonuses based upon overall performance of 3dfx
as well as individual performance as measured against specific
"management-by-objective" or "MBO" objectives determined by the Committee. The
portion of the bonus attributable to MBO goals is paid in quarterly increments
based on the attainment of these objectives. The portion of the bonus
attributable to 3dfx's financial performance is paid in quarterly installments,
with an additional amount based on fiscal year performance earned and payable
following the announcement of year-end results.
Equity Incentive Programs. Long-term equity incentives, including stock
options and stock purchase rights granted pursuant to 3dfx's 1995 Employee Stock
Option Plan and the 1997 Employee Stock Purchase Plan, directly align the
economic interests of 3dfx's management and employees with those of its
shareholders. Additionally, grants may be made to executive officers under the
1997 Supplementary Stock Option Plan and under the 1999 Supplementary Stock
Option Plan in connection with the initial employment of such executive officer.
Stock options are a particularly strong incentive because they are valuable to
employees only if the fair market value of 3dfx's common stock increases above
the exercise price, which is set at the fair market value of 3dfx's common stock
on the date the option is granted. In addition, employees must remain employed
with 3dfx for a fixed period of time in order for the options to vest fully. In
general, 25% of the shares issuable upon exercise of options granted under
3dfx's stock plans became vested on the first anniversary of the date of grant
and vest at the rate of 1/48 of the shares for each month thereafter. The number
of options granted to each executive is determined by the board of directors
upon the recommendation of the Compensation Committee. In making its
determination, the board of directors and the Compensation Committee consider
the executive's position at 3dfx, his or her individual performance, the number
of options held by the executive, with particular attention to the executive's
unvested option position, and other factors.
Compensation of Chief Executive Officers
In determining the CEO's compensation, the Committee considers comparative
financial and compensation data of selected peer companies. During fiscal 2000,
L. Gregory Ballard, 3dfx's President and Chief Executive Officer through October
31, 1999, received a salary of $276,097 plus a bonus of $63,000 under the Bonus
Plan. Gordon A. Campbell, the chairman of 3dfx's board of directors, who served
as 3dfx's interim President and Chief Executive Officer until the election of
Alex Leupp in December 1999, did not receive any compensation for his service as
interim President and Chief Executive Officer. Alex Leupp, 3dfx's new President
and Chief Executive Officer, received a salary of $44,711 plus a bonus of
$50,000 in fiscal 2000. For the current fiscal year, Mr. Leupp will receive a
base salary of $375,000, which the Committee believes is comparable to the base
salaries paid to the chief executive officers of 3dfx's peer companies. Mr.
Leupp did not participate in Committee deliberations related to his salary.
At the time the Committee determines the Chief Executive Officer's salary
it also establishes a bonus target and corresponding performance objectives. The
percentage of the bonus target that the Chief Executive Officer will receive is
a function of both the financial performance of 3dfx and the Chief Executive
Officer's individual performance as measured against specific MBO goals
determined by the Committee. The portion of the bonus attributable to 3dfx's
financial performance is paid in quarterly installments, with an additional
amount based on fiscal year performance that is earned and payable
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following the announcement of fiscal year-end results. The portion of the bonus
attributable to MBO goals is paid in quarterly increments based on the
attainment of the specified MBO goals. For fiscal 2000, the Committee set Mr.
Ballard's bonus target at $189,000, of which Mr. Ballard received $63,000. Mr.
Leupp received a signing bonus of $50,000 upon commencing to serve as Chief
Executive Officer. Mr. Leupp's bonus target for the current fiscal year is
$187,500. Mr. Leupp did not participate in the Committee's deliberations related
to the establishment or attainment of his signing bonus or bonus target.
3dfx grants stock options to its Chief Executive Officer based primarily on
the Committee's evaluation of his ability to influence 3dfx's long-term growth
and profitability. The Committee determines the size of the option grant based
on its estimate of the equity incentive value of the Chief Executive Officer's
existing unvested option position. In fiscal 2000, 3dfx granted Mr. Ballard
options to acquire 90,000 shares of 3dfx common stock and granted Mr. Leupp
options to acquire 806,000 shares of 3dfx common stock.
Tax Deductibility of Executive Compensation
Section 162 of the Code limits the federal income tax deductibility of
compensation paid to 3dfx's Chief Executive Officer and to each of the other
four most highly-compensated executive officers. 3dfx may deduct such
compensation only to the extent that during any fiscal year the compensation
paid to such individual does not exceed $1 million or meet some specified
conditions (including shareholder approval). Based on 3dfx's current
compensation plans and policies and regulations interpreting this provision of
the Code, 3dfx and the Committee believe that, for the near future, there is
little risk that 3dfx will lose any significant tax deduction for executive
compensation.
Summary
The 3dfx board of directors and the Compensation Committee intend that its
compensation program shall be fair and motivating and shall be successful in
attracting and retaining qualified employees and in linking compensation
directly to 3dfx's success. The 3dfx board of directors and the Compensation
Committee intend to review this program on an ongoing basis to evaluate its
continued effectiveness.
THE COMPENSATION COMMITTEE OF THE
3DFX BOARD OF DIRECTORS
James Wimms
Alex Leupp
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3dfx STOCK PRICE PERFORMANCE GRAPH
The stock price performance graph set forth below under the caption
"Performance Graph" shall not be deemed to be incorporated by reference by any
general statement incorporating by reference this proxy
statement/prospectus/information statement into any filing under the Securities
Act or under the Exchange Act, except to the extent that 3dfx specifically
incorporates this information by reference, and shall not otherwise be deemed
"filed with" or "soliciting material" under such laws.
The following graph compares 3dfx's cumulative total shareholder return
with those of the Nasdaq Stock Market (U.S.) Index and the Nasdaq Electronic
Components Index. The graph assumes that $100 was invested on June 25, 1997 (the
effective date of 3dfx's initial public offering) in 3dfx's common stock, (ii)
the Nasdaq Stock Market (U.S.) Index and (iii) the Nasdaq Electronic Components
Index, including reinvestment of dividends. Note that historic stock price
performance is not necessarily indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG 3DFX INTERACTIVE, INC., THE NASDAQ
STOCK MARKET (U.S.) INDEX AND THE NASDAQ ELECTRONIC COMPONENTS INDEX
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
3DFX INTERACTIVE, NASDAQ STOCK NASDAQ ELECTRONIC
INC. MARKET (U.S.) COMPONENTS
----------------- ------------- -----------------
<S> <C> <C> <C>
6/25/97 100.00 100.00 100.00
6/97 121.59 99.81 98.17
9/97 152.27 116.70 127.43
12/97 204.55 109.29 95.53
3/98 256.82 127.90 105.12
6/98 155.68 131.41 97.73
9/98 102.27 118.58 101.54
12/98 114.77 154.10 147.58
4/99 157.95 178.25 161.81
7/99 121.59 185.64 192.92
10/99 87.50 208.66 230.61
1/00 77.27 278.08 332.61
</TABLE>
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EXPERTS
The consolidated financial statements of 3dfx incorporated by reference in
this proxy statement/ prospectus/information statement from 3dfx's Annual Report
on Form 10-K/A (Amendment No. 1) for the year ended January 31, 2000, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of GigaPixel as of December 31, 1999 and 1998 and
for each of the two years in the period ended December 31, 1999 and for the
period from April 21, 1997 (inception) to December 31, 1997 and the period from
April 21, 1997 (inception) to December 31, 1999 included in this proxy
statement/prospectus/information statement have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of 3dfx common stock offered hereby and the
federal income tax consequences in connection with the merger will be passed
upon for 3dfx by Locke Liddell & Sapp LLP. The federal income tax consequences
in connection with the merger will be passed upon for GigaPixel by Heller Ehrman
White & McAuliffe LLP.
TRADEMARKS
3dfx and GigaPixel own trademarks rights with respect to various trademarks
and service marks contained in this proxy statement/prospectus/information
statement. This document also includes trademarks, service marks or tradenames
of companies other than 3dfx and GigaPixel, which are the property of their
respective owners.
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INDEX TO FINANCIAL STATEMENTS
GIGAPIXEL CORPORATION HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the Years Ended December 31,
1997, 1998, and 1999 and for the
Period from April 21, 1997 (Inception) to December 31,
1999...................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998, and 1999................... F-5
Statements of Cash Flows for the Years Ended December 31,
1997, 1998, and 1999 and for the Period from April 21,
1997 (Inception) to December 31, 1999..................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 130
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
GigaPixel Corporation
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of GigaPixel Corporation (a company in
the development stage) at December 31, 1999, and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998,
for the period from April 21, 1997 (inception) to December 31, 1997 and for the
period from April 21, 1997 (inception) to December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of GigaPixel'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 auditing standards
generally accepted in the United States, 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.
PricewaterhouseCoopers LLP
San Jose, California
April 3, 2000
F-2
<PAGE> 131
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,404,000 $ 3,311,000
Accounts receivable....................................... 850,000 --
Prepaid expenses and other current assets................. 155,000 71,000
------------ -----------
Total current assets................................... 3,409,000 3,382,000
Software and equipment, net................................. 1,288,000 878,000
------------ -----------
Total assets........................................... $ 4,697,000 $ 4,260,000
============ ===========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 117,000 $ 197,000
Accrued compensation and vacation......................... 134,000 86,000
Other accrued liabilities................................. 8,000 51,000
Deferred revenues......................................... 75,000 --
------------ -----------
Total current liabilities.............................. 334,000 334,000
------------ -----------
Commitments (Note 8)
Mandatorily redeemable convertible preferred stock, $0.001
par; 10,219,332 and 10,219,332 authorized; 9,797,936 and
6,190,133 shares issued and outstanding (liquidation
value: $12,811 and $7,311)................................ 12,905,000 7,274,000
------------ -----------
Stockholders' deficit:
Common stock, $0.001 par; 30,000,000 and 30,000,000 shares
authorized; 8,077,951 and 7,864,324 shares issued and
outstanding............................................ 8,000 8,000
Notes receivable.......................................... (39,000) (27,000)
Additional paid-in capital................................ 9,367,000 37,000
Deferred compensation..................................... (7,736,000) --
Deficit accumulated during the development stage.......... (10,142,000) (3,366,000)
------------ -----------
Total stockholders' deficit............................ (8,542,000) (3,348,000)
------------ -----------
Total liabilities, mandatorily redeemable convertible
preferred stock
and stockholders' deficit............................ $ 4,697,000 $ 4,260,000
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE> 132
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE PERIOD APRIL 21,
FROM APRIL 21, 1997
YEAR ENDED DECEMBER 31, 1997 (INCEPTION) (INCEPTION) TO
-------------------------- TO DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
----------- ----------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenue............................ $ 1,780,000 $ 667,000 $ 333,000 $ 2,780,000
Operating expenses
Research and development......... 7,373,000 3,130,000 315,000 10,818,000
Selling, general and
administrative................ 1,304,000 880,000 177,000 2,361,000
----------- ----------- --------- ------------
Total operating expenses...... 8,677,000 4,010,000 492,000 13,179,000
----------- ----------- --------- ------------
Loss from operations:.............. (6,897,000) (3,343,000) (159,000) (10,399,000)
Other income, net.................. 121,000 127,000 9,000 257,000
----------- ----------- --------- ------------
Net loss........................... $(6,776,000) $(3,216,000) (150,000) $(10,142,000)
=========== =========== ========= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 133
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM APRIL 21, 1997 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON ADDITIONAL DURING THE
-------------------- NOTES PAID IN DEFERRED DEVELOPMENT
SHARES AMOUNT RECEIVABLE CAPITAL COMPENSATION STAGE TOTAL
---------- ------- ---------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK............. 8,870,000 $ 9,000 $ -- $ 1,000 $ -- $ -- $ 10,000
Issuance of Common Stock for note
receivable......................... 150,000 -- (15,000) 15,000 -- -- --
Repurchase of common stock........... (1,340,000) (1,000) -- -- -- -- (1,000)
Net loss from April 21, 1997 to
December 31, 1997.................. -- -- -- -- -- (150,000) (150,000)
---------- ------- -------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1997......... 7,680,000 8,000 (15,000) 16,000 -- (150,000) (141,000)
Issuance of Common Stock............. 84,324 -- -- 9,000 -- -- 9,000
Exercise of Common Stock options for
note
receivable......................... 100,000 -- (12,000) 12,000 -- -- --
Net loss............................. -- -- -- -- -- (3,216,000) (3,216,000)
---------- ------- -------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1998......... 7,864,324 8,000 (27,000) 37,000 -- (3,366,000) (3,348,000)
Issuance of Common Stock............. 301,127 -- -- 36,000 -- -- 36,000
Exercise of Common Stock options for
note
receivable......................... 100,000 -- (12,000) 12,000 -- -- --
Repurchase of common stock........... (187,500) -- -- -- -- -- --
Deferred compensation................ -- -- -- 9,282,000 (9,282,000) -- --
Amortization of deferred
compensation....................... -- -- -- -- 1,546,000 -- 1,546,000
Net loss............................. -- -- -- -- -- (6,776,000) (6,776,000)
---------- ------- -------- ---------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1999......... 8,077,951 $ 8,000 $(39,000) $9,367,000 $(7,736,000) $(10,142,000) $(8,542,000)
========== ======= ======== ========== =========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 134
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM APRIL 21, FROM APRIL 21,
YEAR ENDED DECEMBER 31, 1997 (INCEPTION) 1997 (INCEPTION)
-------------------------- TO DECEMBER 31, TO DECEMBER 31,
1999 1998 1997 1999
----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(6,776,000) $(3,216,000) $ (150,000) $(10,142,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 543,000 219,000 6,000 768,000
Option amortization.................... 1,546,000 -- -- 1,546,000
Warrant amortization................... 145,000 -- -- 145,000
Changes in assets and liabilities:
Accounts receivable.................. (850,000) -- -- (850,000)
Prepaid expenses and other current
assets............................ (84,000) 13,000 (84,000) (155,000)
Accounts payable..................... (80,000) 136,000 61,000 117,000
Accrued compensation and vacation.... 48,000 75,000 11,000 134,000
Other accrued liabilities............ (43,000) 51,000 -- 8,000
Deferred revenue..................... 75,000 (667,000) 667,000 75,000
----------- ----------- ---------- ------------
Net cash used in operating
activities...................... (5,476,000) (3,389,000) 511,000 (8,354,000)
----------- ----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of software and equipment..... (953,000) (981,000) (122,000) (2,056,000)
----------- ----------- ---------- ------------
Net cash used in investing
activities...................... (953,000) (981,000) (122,000) (2,056,000)
----------- ----------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily
redeemable convertible preferred stock,
net of issuance costs.................. 5,486,000 3,489,000 3,785,000 12,760,000
Proceeds from issuance of common stock,
net.................................... 36,000 9,000 10,000 55,000
Repurchase of common stock................ -- -- (1,000) (1,000)
----------- ----------- ---------- ------------
Net cash provided by financing
activities...................... 5,522,000 3,498,000 3,794,000 12,814,000
----------- ----------- ---------- ------------
Net increase (decrease) in cash and cash
equivalents............................... (907,000) (872,000) 4,183,000 2,404,000
Cash and cash equivalents at beginning of
period.................................... 3,311,000 4,183,000 -- --
----------- ----------- ---------- ------------
Cash and cash equivalents at end of
period.................................... $ 2,404,000 $ 3,311,000 $4,183,000 $ 2,404,000
=========== =========== ========== ============
Supplemental Information:
Issuance of note receivable to employees
for purchase of common stock........... $ 12,000 $ 12,000 $ 15,000 $ 39,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 135
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GigaPixel Corporation ("GigaPixel") was incorporated in the state of
Delaware on April 21, 1997. Since inception, GigaPixel has devoted substantially
all its efforts to developing its 3D architecture technology.
The preparation of these 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 reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
GigaPixel considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents. At December
31, 1999 and 1997, $2,404,000 and $3,311,000, respectively, of cash and cash
equivalents consisted primarily of money market funds. The carrying amount for
cash and cash equivalents approximates their fair value.
Revenue recognition
GigaPixel generates revenues from services provided under non-recurring
engineering service contracts. Service revenues are recognized using the
percentage of completion method. Deferred revenue represent the amount of cash
received in advance of services being performed. Costs associated with revenues
are included primarily in research and development expenses.
Equipment
Machinery and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line method over the following estimated
useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Software and computers...................................... 3
Furniture and office equipment.............................. 5
</TABLE>
Leasehold improvements are amortized over the life of the lease or the
estimated useful life, whichever is shorter.
Stock-based compensation
GigaPixel accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123").
Comprehensive income
In fiscal 1998, GigaPixel adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." GigaPixel has determined
that it did not have any components of other comprehensive income.
F-7
<PAGE> 136
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentration of credit risk
Financial instruments that potentially subject GigaPixel to significant
concentrations of credit risk consist principally of cash equivalents and
accounts receivable.
Gigapixel invests primarily in money market funds. Cash equivalents are
maintained with high quality institutions and their composition and maturities
are regularly monitored by management.
Gigapixel preforms ongoing credit evaluations of its customers' financial
condition. One customer accounted for 100% of accounts receivable at December
31, 1999.
The following table summarizes the revenues from customers in excess of 10%
of the total revenues:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
A........................................................... 100% -- --
B........................................................... -- 100% 100%
</TABLE>
Segment reporting
In fiscal 1999, GigaPixel adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information." Based on its operating management and financial reporting
structure, GigaPixel has determined that it has one reportable business segment.
2. SOFTWARE AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Software............................................ $1,235,000 $ 679,000
Computer and office equipment....................... 750,000 413,000
Leasehold improvements.............................. 71,000 11,000
---------- ----------
2,056,000 1,103,000
Less accumulated depreciation....................... (768,000) (225,000)
---------- ----------
$1,288,000 $ 878,000
========== ==========
</TABLE>
3. NOTES RECEIVABLE
In December 1997 and January 1998, GigaPixel advanced $15,000 and $12,000,
respectively, under full recourse promissory notes to two of its employees for
the purchase of common stock of GigaPixel. The principal balance of these notes,
together with interest accrued and unpaid to date, is due in December 2002 and
January 2002, respectively. Interest accrues under the notes on any unpaid
principal balance at rates of 10% and 8%, respectively per annum, compounded
annually.
In June 1999, GigaPixel advanced $12,000 under a full recourse promissory
note to one of its employees for the purchase of common stock of GigaPixel. The
principal balance of this note, together with interest accrued and unpaid, is
due in June 2004. Interest accrues under the note on any unpaid balance at a
rate of 8% per annum, compounded annually.
F-8
<PAGE> 137
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
At December 31, 1999, GigaPixel had authorized 1,100,000 shares of Series A
Convertible Preferred Stock ("Series A"), 2,794,448 shares of Series B
Convertible Preferred Stock ("Series B") and 6,324,884 shares of Series C
Convertible Preferred Stock ("Series C").
The following is a summary of activity in preferred stock:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Issuance of Series A at $0.50 per share net issuance
costs of $4,000................................... 1,100,000 $ 546,000
Issuance of Series B at $1.167 per share net
issuance costs of $22,000......................... 2,794,448 3,239,000
--------- -----------
Balance at December 31, 1997........................ 3,894,448 3,785,000
Issuance of Series C at $1.5246 per share net
issuance costs of $11,000......................... 2,295,685 3,489,000
--------- -----------
Balance at December 31, 1998........................ 6,190,133 7,274,000
Issuance of Series C at $1.5246 per share net
issuance costs of $14,000......................... 3,607,503 5,486,000
Issuance of warrant in connection with licensing
agreement......................................... -- 145,000
--------- -----------
Balance at December 31, 1999........................ 9,797,636 $12,905,000
========= ===========
</TABLE>
The holders of preferred stock have various rights, preferences and
privileges as follows:
Voting
Preferred stock has voting rights, on an as-if converted basis, identical
to common stock.
Liquidation
In the event of liquidation, holders of Series A, B, and C preferred stock
are entitled to receive $0.50, $1.17 and $1.52 per share, respectively, plus any
dividends declared but unpaid on such shares. Series C liquidation rights
precede Series B, which precede Series A. After all preferred series are paid,
the remaining assets shall be distributed ratably to holders of common and
preferred shares on an as-if converted basis up to an amount where the preferred
holders have received three times the original issuance cost of each preferred
series share. All remaining assets will then be distributed to the common
stockholders.
Conversion
Each share of Series A, B, and C preferred stock is presently convertible
at the option of the holder into common stock based on respective conversion
rates. Each series of preferred stock will automatically convert into common
stock in the event of (i) the affirmative vote of a majority of the holders of
the preferred stock, or (ii) a public offering of GigaPixel's common stock at a
price per share of not less than $3.60 and with gross proceeds of at least $15
million.
Dividends
Holders of Series A, B, and C preferred stock are entitled to receive
noncumulative dividends in preference to any dividend on any other capital stock
at rates of $0.04, $0.09, and $0.12 per share, respectively, per annum when and
if declared by the board of directors.
F-9
<PAGE> 138
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Warrant
In March 1999, in connection with the second round of Series C financing
and licensing agreement, GigaPixel granted a warrant to purchase 421,696 Series
C shares to an investor and customer. The warrant which expires in June 2000 is
immediately exercisable and allows the holder the right to purchase the shares
at $2.29 per share. GigaPixel valued the warrant under the "Black-Scholes"
formula at approximately $145,000. The warrant value has been recorded as
contra-revenue.
5. COMMON STOCK
Since inception, GigaPixel has sold and granted shares of common stock to
founders, employees, and consultants. Shares sold to founders and employees vest
over different schedules, but generally are fully vested after four years.
Shares granted to consultants vest immediately and are recorded as compensation
expense at the time of grant. Expense recorded at December 31, 1999, 1998 and
1997 was $7,000, $2,000 and $0, respectively. GigaPixel has the right to
repurchase the unvested shares at the original issuance price. At December 31,
1999, 1998 and 1997, 3,214,450, 4,998,200 and 6,680,000 shares, respectively,
were subject to repurchase. During the years ended December 31, 1999 and 1998
and 1997, 187,500, none and 1,340,000 shares were repurchased by GigaPixel.
6. STOCK OPTION PLAN
In December 1997, GigaPixel adopted the 1997 Employee Incentive Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of GigaPixel. Options granted under the Plan may be either incentive
stock options or nonqualified stock options. Incentive stock options ("ISO") may
be granted only to Company employees. Nonqualified stock options ("NSO") may be
granted to Company employees, directors, and consultants. GigaPixel has reserved
2,500,000 shares of Common Stock for issuance under the Plan.
Under the terms of the Plan, incentive stock options may be granted at
prices not lower than the fair market value at the date of grant as determined
by the Board of Directors. Nonstatutory options and stock purchase rights may be
granted at prices ranging from 85% to 110% of the fair market value at the time
of the grant. The options expire ten years after the date of grant and generally
vest 25% at the end of the first year and at the end of the second year with the
remainder vesting 6.25% per quarter for the next 2 years. No person shall be
eligible for a grant if they are in possession of more than 10% of the voting
power of GigaPixel unless the exercise price is at least 110% of the fair market
value on the grant date and the option is not exercisable after five years from
the grant date.
Options can be exercised prior to vesting. However, GigaPixel has the right
to repurchase all or any portion of unvested shares issued under the Plan at the
original purchase price per share. At December 31,
F-10
<PAGE> 139
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999, 442,500 shares have been exercised under the Plan, of which 296,250 are
subject to repurchase. 186,450 shares were vested at December 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AVAILABLE EXERCISE
FOR GRANT OUTSTANDING PRICE
---------- ----------- --------
<S> <C> <C> <C>
Authorized........................................ 1,500,000 -- $ --
December 31, 1997................................. 1,500,000 -- --
Granted......................................... (645,800) 645,800 0.12
Exercised....................................... -- (100,000) 0.12
December 31, 1998................................. 854,200 545,800 0.12
Authorized...................................... 1,000,000 -- --
Granted......................................... (1,959,200) 1,959,200 0.12
Exercised....................................... -- (342,500) 0.12
Cancelled....................................... 105,000 (105,000) 0.12
December 31, 1999................................. -- 2,057,500 0.12
</TABLE>
During fiscal 1999, an employee was granted 42,359 NSOs outside of the
Plan. None of these shares have been exercised and none have vested at December
31, 1999.
Fair value disclosures
GigaPixel calculated the minimum fair value of each option grant on the
grant date using the Black-Scholes option pricing model with the following
assumptions for the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
------- ------------
<S> <C> <C>
Expected life......................................... 4 years 4 years
Volatility............................................ 0% 0%
Risk-free interest rate............................... 5.5% 4.65%
Dividend yield........................................ 0% 0%
</TABLE>
Had compensation cost for GigaPixel's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS 123, GigaPixel's pro forma net loss would have been as
follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income as reported............................ $(5,230,000) $(3,216,000)
Pro forma net income.............................. $(5,259,000) $(3,223,000)
</TABLE>
Stock compensation
During the year ended December 31, 1999, GigaPixel granted options to
employees and directors and recognized unearned compensation of approximately
$9,282,000, on the basis that they were subsequently deemed to have been granted
below the fair value of the common stock. Such unearned stock compensation is
being amortized using an accelerated method over the vesting period of four
years and may decrease due to employees that terminate prior to vesting.
F-11
<PAGE> 140
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Net operating loss and credit carryforwards... $ 3,320,000 $ 1,271,000 $ 54,000
Accruals...................................... 42,000 24,000 4,000
----------- ----------- --------
Gross deferred tax assets..................... 3,362,000 1,295,000 58,000
Valuation allowance........................... (3,362,000) (1,295,000) (58,000)
----------- ----------- --------
Net deferred tax assets....................... $ -- $ -- $ --
=========== =========== ========
</TABLE>
Management believes that, based on GigaPixel's history of operating losses,
it is more likely than not that the deferred tax assets will not be utilized,
such that a full valuation allowance has been recorded.
At December 31, 1999, 1998 and 1997, GigaPixel had approximately
$8,556,000, $3,276,000 and $139,000 of federal and state operating loss
carryforwards which expire in varying amounts beginning in 2017 and 2005,
respectively.
The difference between the federal statutory income tax rate and
GigaPixel's effective tax rate at December 31, 1999 and 1998 is due to the
operating losses not benefited.
The amounts of and the benefit from net operating losses and credits that
can be carried forward may be impaired or limited in certain circumstances.
Events which may cause changes in GigaPixel's net operating loss and credit
carryforwards include, but are not limited to, a cumulative stock ownership
change of greater than 50%, as defined, over a three-year period.
8. COMMITMENTS
In January 1998, GigaPixel entered into a three year lease for its
principal facility. The lease expires on December 31, 2000. Rent expense totaled
$250,000, $209,000 and $19,000 for each of the years ended December 31, 1999,
1998 and 1997, respectively.
Future minimum lease commitments required under this operating lease are as
follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
---------
<S> <C>
Year ended December 31,
2000................................................. $292,000
--------
$292,000
========
</TABLE>
9. RELATED PARTY TRANSACTIONS
A member of GigaPixel's board of directors, who is also a significant
shareholder, is a member of the board of directors of a customer of GigaPixel. A
member of GigaPixel's board of directors is also the Chief Technical Officer of
a customer of GigaPixel.
A member of GigaPixel's board of directors is also a partner of a law firm
which has provided legal services to GigaPixel.
During fiscal 1998, GigaPixel paid a $110,000 technology fee to another
company, of which the President and Chief Executive Officer of GigaPixel is a
director.
F-12
<PAGE> 141
GIGAPIXEL CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENT
On March 27, 2000, GigaPixel announced it will be acquired by 3dfx
Interactive ("3dfx") for a purchase price to be based on approximately 15.7
million 3dfx shares and options. The acquisition will be a tax-free
reorganization, and will be accounted for as a purchase. GigaPixel is required
to make payment to 3dfx of a break-up fee of $5.0 million and to reimburse 3dfx
for its costs and expenses incurred under the merger agreement if GigaPixel
violates the agreements under the merger agreement relating to third party
acquisition proposals. If GigaPixel enters into a written agreement to
consummate a third party acquisition before March 27, 2001, it is required to
pay 3dfx in cash the additional sum of $2.5 million. GigaPixel will also pay
performance bonuses to certain executive officers and key employees immediately
following the closing of the merger, subject to the individuals' obligation to
repay the amounts if they do not provide services to 3dfx for a period of at
least two years following the closing of the merger. The President and CEO, and
the Secretary of GigaPixel will join 3dfx's board of directors.
F-13
<PAGE> 142
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF THE 27TH DAY OF MARCH, 2000
BY AND AMONG
3DFX INTERACTIVE, INC.
AND
GALAPAGOS ACQUISITION CORP.
AND
GIGAPIXEL CORPORATION
<PAGE> 143
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-1
1.1. Delivery and Filing of Certificate of Merger................ A-1
1.2. Effective Time of the Merger................................ A-1
Certificate of Incorporation, By-laws and Board of Directors
1.3. of Surviving Corporation.................................... A-2
Certain Information With Respect to the Capital Stock of the
1.4. Company, 3dfx and Newco..................................... A-2
1.5. Effect of Merger............................................ A-2
ARTICLE II CONVERSION OF STOCK......................................... A-3
Manner of Conversion As of the Effective Time of the
2.1. Merger...................................................... A-3
2.2. Stock Option Plan........................................... A-3
2.3. Adjustment to Stock Conversion.............................. A-4
2.4. Dissenting Shares........................................... A-4
ARTICLE III DELIVERY OF SECURITIES...................................... A-4
3.1. Delivery Procedure.......................................... A-4
ARTICLE IV CLOSING..................................................... A-5
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-5
5.1. Authorization............................................... A-5
5.2. Organization, Existence and Good Standing of the Company.... A-6
5.3. Capital Stock of the Company................................ A-6
5.4. Subsidiaries................................................ A-6
5.5. Financial Statements........................................ A-6
5.6. Accounts and Notes Receivable............................... A-7
5.7. Licenses and Permits........................................ A-7
5.8. Tax Matters................................................. A-7
5.9. Assets and Properties....................................... A-10
5.10. Real Property Leases; Options............................... A-11
5.11. Environmental Laws and Regulations.......................... A-11
5.12. Contracts................................................... A-12
5.13. No Violations............................................... A-12
5.14. Government Contracts........................................ A-12
5.15. Consents.................................................... A-12
5.16. Litigation and Related Matters.............................. A-13
5.17. Compliance with Laws........................................ A-13
5.18. Intellectual Property Rights; Year 2000..................... A-13
5.19. Employee Benefit Plans...................................... A-14
5.20. Employees; Employee Relations............................... A-15
5.21. Insurance................................................... A-16
5.22. Interests in Customers, Suppliers, Etc...................... A-16
5.23. Business Relations.......................................... A-17
5.24. Officers and Directors...................................... A-16
5.25. Bank Accounts and Powers of Attorney........................ A-17
5.26. Absence of Certain Changes or Events........................ A-17
5.27. Disclosure.................................................. A-17
5.28. Continuity of Business Enterprise........................... A-17
5.29. Spin-off by the Company..................................... A-17
5.30. Securities Representation................................... A-18
</TABLE>
i
<PAGE> 144
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VI REPRESENTATIONS OF 3DFX AND NEWCO........................... A-18
6.1. Due Organization............................................ A-18
6.2. 3dfx Common Stock........................................... A-18
6.3. Validity of Obligations..................................... A-18
6.4. Authorization............................................... A-18
6.5. No Conflicts................................................ A-18
6.6. Capitalization of 3dfx; Ownership of 3dfx Common Stock...... A-19
6.7. Financial and Other Information; SEC Reports................ A-19
6.8. Conformity with Law and Litigation.......................... A-19
6.9. Transactions in Capital Stock............................... A-20
6.10. Taxes....................................................... A-20
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.......... A-23
Representations and Warranties; Performance of
7.1. Obligations................................................. A-23
7.2. Satisfaction................................................ A-23
7.3. Consents and Approvals; No Litigation....................... A-23
7.4. Opinion of Counsel.......................................... A-23
7.5. Indemnity Escrow Agreement.................................. A-23
7.6. [Intentionally Omitted]..................................... A-23
7.7. [Intentionally Omitted]..................................... A-23
7.8. [Intentionally Omitted]..................................... A-23
7.9. Securityholder Approval..................................... A-23
7.10. Registration of Shares of 3dfx Common Stock................. A-23
7.11. Broker Release.............................................. A-23
7.12. HSR Act..................................................... A-23
7.13. No Material Adverse Change.................................. A-24
7.14. Tax Opinion................................................. A-24
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF 3DFX AND NEWCO....... A-24
Representations and Warranties; Performance of
8.1. Obligations................................................. A-24
8.2. Satisfaction................................................ A-24
8.3. Consents and Approvals; No Litigation....................... A-24
8.4. Securityholders' Release.................................... A-24
8.5. Termination of Related Party Agreements and Benefit Plans... A-24
8.6. Opinion of Counsel.......................................... A-24
8.7. Resignations................................................ A-24
8.8. Noncompetition Agreements................................... A-24
8.9. Indemnity Escrow Agreement.................................. A-25
8.10. Performance Bonus Agreements................................ A-25
8.11. Employment Agreements and Consulting Agreement.............. A-25
8.12. Lock-Up Agreements.......................................... A-25
8.13. Shareholder Approval........................................ A-25
8.14. Broker Release.............................................. A-25
8.15. Good Standing Certificates; Certificate of Satisfaction..... A-25
8.16. Microsoft Termination Agreement............................. A-25
8.17. HSR Act..................................................... A-25
8.18. Effectiveness of the S-4.................................... A-25
8.19. No Material Adverse Effect.................................. A-25
8.20. Tax Opinion................................................. A-25
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX COVENANTS OF THE PARTIES.................................... A-26
Permitted Payments of Compensation by the Company; No Change
9.1. in Operations............................................... A-26
9.2. Preparation and Filing of Tax Returns....................... A-26
9.3. Conduct of the Business..................................... A-27
9.4. Access to Information....................................... A-28
9.5. No Transfer or Encumbrance of Company Securities; Voting.... A-28
9.6. Registration of 3dfx Common Stock; 1933 Act................. A-28
9.7. The Company Options......................................... A-29
9.8. Interim Agreements.......................................... A-29
Issuance of Securities to Microsoft; Use of Microsoft
9.9. Proceeds.................................................... A-29
9.10. Establishment of Performance Bonus Arrangements............. A-30
9.11. No Solicitation............................................. A-30
9.12. Confidential Information.................................... A-31
Indemnification Under Charter and Bylaws; Existing
9.13. Agreements.................................................. A-32
9.14. Bring-Down Schedule......................................... A-32
9.15. Tax Opinions................................................ A-32
ARTICLE X ESCROW ARRANGEMENTS......................................... A-33
10.1. 3dfx Losses................................................. A-33
10.2. Notice of Loss.............................................. A-33
10.3. Right to Defend............................................. A-33
10.4. Limitations on Indemnification.............................. A-34
ARTICLE XI TERMINATION................................................. A-34
11.1. Termination................................................. A-34
11.2. Effect of Termination....................................... A-34
ARTICLE XII GENERAL..................................................... A-35
12.1. Cooperation................................................. A-35
12.2. Survival of Covenants, Agreements........................... A-35
12.3. Successors and Assigns...................................... A-35
12.4. Entire Agreement............................................ A-35
12.5. Counterparts................................................ A-35
12.6. Brokers and Agents.......................................... A-35
12.7. Expenses.................................................... A-35
12.8. Notices..................................................... A-36
12.9. GOVERNING LAW; CONSENT TO JURISDICTION...................... A-36
12.10. Exercise of Rights and Remedies............................. A-37
12.11. Reformation and Severability................................ A-37
12.12. Remedies Cumulative......................................... A-37
12.13. Specific Performance; Other Rights and Remedies............. A-37
12.14. Captions.................................................... A-37
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 27th day of March, 2000, by and among 3dfx INTERACTIVE, INC., a California
corporation ("3dfx"), GALAPAGOS ACQUISITION CORP., a Delaware corporation
("Newco"), and GIGAPIXEL CORPORATION, a Delaware corporation (the "Company").
Capitalized terms not otherwise defined in the text of this Agreement shall have
the meanings set forth in Annex II hereto.
WHEREAS, Newco is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on March 23, 2000 solely for
purposes of effecting the Merger, and is a wholly-owned subsidiary of 3dfx, a
corporation organized and existing under the laws of the State of California;
WHEREAS, the respective Boards of Directors of Newco and the Company (which
together are hereinafter collectively referred to as "Constituent Corporations")
deem it advisable and in the best interests of the respective Constituent
Corporations and their respective securityholders that Newco merge with and into
the Company pursuant to this Agreement and the applicable provisions of the laws
of the State of Delaware, such transaction sometimes being herein called the
"Merger";
WHEREAS, the Boards of Directors of 3dfx, Newco and the Company have
approved and adopted this Agreement and intend for this Agreement to be a plan
of reorganization within the provisions of Section 368 of the Code;
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to 3dfx's and Newco's willingness to enter into this
Agreement, certain securityholders of the Company are entering into Voting
Agreements, in each case in substantially the form attached hereto as Annex III
(the "Company Voting Agreements"); and
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to the Company's willingness to enter into this
Agreement, Techfarm, Inc. and all officers and directors of 3dfx are entering
into Voting Agreements, in each case in substantially the form attached hereto
as Annex IV (the "3dfx Voting Agreements").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
1.1. Delivery and Filing of Certificate of Merger. On or before the Closing
Date (as defined in Article IV), the Constituent Corporations will cause a
Certificate of Merger with respect to the Merger (the "Certificate of Merger")
to be signed, verified and filed with the Secretary of State of the State of
Delaware. The Surviving Corporation (as defined in Section 1.2) shall take all
action necessary to make the Merger effective under Delaware law as of the time
set forth in Section 1.2.
1.2. Effective Time of the Merger. The "Effective Time of the Merger" shall
be the Closing Date as defined in Section 4. At the Effective Time of the
Merger, Newco shall be merged with and into the Company, in accordance with the
Certificate of Merger, the separate existence of Newco shall cease and the
corporate name of the Company shall continue to be GigaPixel Corporation. The
Company shall be the surviving party in the Merger and is hereinafter sometimes
referred to as the "Surviving Corporation."
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1.3. Certificate of Incorporation, By-laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(a) The Certificate of Incorporation of the Company then in effect
shall become the Certificate of Incorporation of the Surviving Corporation;
and subsequent to the Effective Time of the Merger, such Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until changed as provided by law;
(b) The By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended;
(c) The Board of Directors of the Surviving Corporation shall consist
of the persons set forth on Schedule 1.3(d) hereto, to hold office subject
to the provisions of the laws of the State of Delaware and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(d) The officers of the Surviving Corporation shall be the persons set
forth on Schedule 1.3(d) hereto, each of such officers to serve, subject to
the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until such officer's successor is duly elected and
qualified.
1.4. Certain Information With Respect to the Capital Stock of the Company,
3dfx and Newco. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company,
3dfx and Newco as of the date of this Agreement are as follows:
(a) As of the date of this Agreement, the authorized capital stock of
the Company consists of the following: Thirty Million (30,000,000) shares
of Common Stock, $.001 par value per share (the "Company Common Stock"), of
which Nine Million One Hundred Forty Thousand One Hundred Twenty-Six
(9,140,126) shares are issued and outstanding; One Million One Hundred
Thousand (1,100,000) shares of Series A Preferred Stock, $.001 par value
per share (the "Series A Company Stock"), of which One Million One Hundred
Thousand (1,100,000) shares are issued and outstanding; Two Million Seven
Hundred Ninety-Four Thousand Four Hundred Forty-Eight (2,794,448) shares of
Series B Preferred Stock, $.001 par value per share (the "Series B Company
Stock"), of which Two Million Seven Hundred Ninety-Four Thousand Four
Hundred Forty-Eight (2,794,448) shares are issued and outstanding; Six
Million Three Hundred Twenty-Four Eight Hundred Eighty-Four (6,324,884)
shares of Series C Preferred Stock, $.001 par value per share (the "Series
C Company Stock"), of which Five Million Nine Hundred Three Thousand One
Hundred Eighty-Eight (5,903,188) shares are issued and outstanding; and a
warrant to purchase Four Hundred Twenty-One Thousand Six Hundred Ninety-
Six (421,696) shares of Series C Company Stock (the "Warrant");
(b) As of January 31, 2000, the authorized capital stock of 3dfx
consists of Fifty Million (50,000,000) shares of Common Stock, no par value
per share (the "3dfx Common Stock"), of which Twenty-Four Million Four
Hundred Forty-Two Thousand Three Hundred Seventy (24,442,370) shares are
issued and outstanding, and Five Million (5,000,000) shares of Preferred
Stock, no par value per share, of which no shares are issued and
outstanding; and
(c) As of the date of this Agreement, the authorized capital stock of
Newco consists of One Thousand (1,000) shares of Common Stock, $.01 par
value per share (the "Newco Stock"), of which Ten (10) shares are issued
and outstanding.
1.5. Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware. Except as herein specifically set
forth, the identity, existence, purposes, powers, objects, franchises,
privileges, rights and immunities of the Company shall continue unaffected and
unimpaired by the Merger and the corporate franchises, existence and rights of
Newco shall be merged with and into the Company, and the Company, as the
Surviving Corporation, shall be fully vested therewith. At the Effective Time of
the Merger, the separate existence of Newco shall cease and, in accordance with
the terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, powers and franchises, of a public as well as of a private
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nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, all taxes, including those
due and owing and those accrued, and all other things in action, and all and
every other interest of or belonging to or due to the Company and Newco shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectively
the property of the Surviving Corporation as they were of the Company and Newco;
and the title to any real estate, or interest therein, whether by deed or
otherwise, vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. The Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of the Company
and Newco and any claim existing, or action or proceeding pending, by or against
the Company or Newco may be prosecuted as if the Merger had not taken place, or
the Surviving Corporation may be substituted in their place. Neither the rights
of creditors nor any liens upon the property of the Company or Newco shall be
impaired by the Merger, and all debts, liabilities and duties of the Company and
Newco shall attach to the Surviving Corporation, and may be enforced against
such Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
ARTICLE II
CONVERSION OF STOCK
2.1. Manner of Conversion. The manner of converting (a) the shares of the
Company Common Stock, the Series A Company Stock, the Series B Company Stock and
the Series C Company Stock, together with any shares of equity securities that
may be issued to Microsoft as contemplated by Section 9.9 hereof, (b) the
Warrant and (c) the Newco Stock, in each case issued and outstanding immediately
prior to the Effective Time of the Merger, into (i) 3dfx Common Stock and (ii)
shares of Common Stock, $.01 par value per share, of the Surviving Corporation
(the "Surviving Corporation Stock"), shall be as follows:
As of the Effective Time of the Merger:
(a) All shares of the Company Common Stock, the Series A Company
Stock, the Series B Company Stock and the Series C Company Stock and the
Warrant issued and outstanding immediately prior to the Effective Time of
the Merger, by virtue of the Merger and without any action on the part of
the holders thereof, together with any shares of equity securities to be
issued to Microsoft as contemplated by Section 9.9 hereof, automatically
shall be converted into the right to receive that number of shares of 3dfx
Common Stock determined pursuant to Annex V, certificates for such shares
to be distributed to the holders thereof as provided in Section 3.1 hereto,
and upon conversion thereof in accordance with this Agreement, shall cease
to be outstanding and shall be automatically cancelled and retired, with
the holders thereof ceasing to have any rights with respect to such Company
Common Stock, Series A Company Stock, Series B Company Stock or Series C
Company Stock, any shares of equity securities issued to Microsoft or such
Warrant except as provided herein or by law;
(b) All securities of the Company that are held by the Company as
treasury securities shall be cancelled and retired, and no shares of 3dfx
Common Stock or other consideration shall be delivered or paid in exchange
therefor; and
(c) Each share of Newco Stock issued and outstanding immediately prior
to the Effective Time of the Merger shall, by virtue of the Merger and
without any action on the part of 3dfx, automatically be converted into one
fully paid and nonassessable share of the Surviving Corporation Stock that
shall constitute all of the issued and outstanding shares of the Surviving
Corporation Stock immediately after the Effective Time of the Merger.
2.2. Stock Option Plan. At the Effective Time of Merger, all options to
purchase the Company Common Stock then outstanding under the Company's 1997
Employee Incentive Plan (the "Option Plan") shall be treated as set forth in
Section 9.7.
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2.3. Adjustment to Stock Conversion. The parties hereby agree that the
number of shares of 3dfx Common Stock into which the Company Common Stock,
Series A Company Stock, Series B Company Stock or Series C Company Stock and any
shares of equity securities issued to Microsoft pursuant to Section 9.9 hereof
and the Warrant shall be converted pursuant to Section 2.1 shall be reduced in
accordance with the provisions of Annex V to the extent that the Company has
less than the Required Cash Balance as of the Closing Date. "Required Cash
Balance" shall mean a cash balance of $2,500,000 ((a) plus the amount of any
cash payment made by Microsoft (as defined in Section 8.16) as described in
Section 8.16 hereof less $500,000 of such monies received from Microsoft and
paid to GigaPixel employees as performance bonuses in connection with the
execution of that certain License and Development Agreement by and between the
Company and WebTV Networks, Inc. and dated as of February 18, 2000 (the "WebTV
Agreement") and (b) less the $3,500,000 to be paid as performance bonus amounts
under the Performance Bonus Agreements and the Consulting Agreement and under
George T. Haber's Noncompetition Agreement (as defined in Section 8.11)
immediately following the Closing) after (i) any and all operating expenses,
capital expenditures and other expenditures paid by the Company prior to the
Closing and in each case as contemplated or permitted by this Agreement and/or
incurred in the reasonable conduct of the Company's business a manner consistent
with past practice and, subject to the uncertainties inherent in forecasting
operating results, substantially as contemplated by the Company's projected June
30, 2000 balance sheet previously provided to 3dfx, and (ii) the Company
Advisory Fees (as defined and subject to the limitations set forth in Section
12.7) paid in accordance with the provisions of Section 12.7; provided, that, if
the Merger is not consummated on or before June 30, 2000, such Required Cash
Balance shall be reduced by the amount of the Company's operating expenses
incurred thereafter in the ordinary course of its business.
2.4. Dissenting Shares. Notwithstanding Section 2.1, shares of Company
Common Stock outstanding immediately prior to the Effective Time of the Merger
and held by a holder who has not voted in favor of the merger or consented
thereto in writing and who has demanded appraisal for such shares in accordance
with Delaware law (such shares, "Dissenting Shares"), shall not be converted
into a right to receive 3dfx Common Stock, unless such holder fails to perfect
or withdraws or otherwise loses such holder's right to appraisal. If after the
Effective time of the Merger such holder fails to perfect or withdraws or loses
the right to appraisal, then such shares shall be treated under this Agreement
as if they had been converted as of the Effective Time of the Merger into a
right to receive 3dfx Common Stock. The Company shall give 3dfx prompt notice of
any demands received by the Company for appraisal of shares of Company Common
Stock, Series A Company Stock, Series B Company Stock or Series C Company Stock,
and 3dfx shall have the right to participate in all negotiations and proceedings
with respect to such demands. The Company shall not, except with the prior
written consent of 3dfx, make any payment with respect to, or settle or offer to
settle, any such demands.
ARTICLE III
DELIVERY OF SECURITIES
3.1. Delivery Procedure. At or after the Effective Time of the Merger and
at the Closing:
(a) The holders of all outstanding certificates representing shares of
the Company Common Stock, the Series A Company Stock, the Series B Company
Stock, and the Series C Company Stock, any equity securities issued to
Microsoft pursuant to Section 9.9 hereof and the Warrant, shall, upon
surrender of such certificates, be entitled to receive the number of shares
of 3dfx Common Stock determined pursuant to Annex V, less the number of
shares of 3dfx Common Stock determined and set forth in Annex V, which
number of shares shall constitute ten percent (10%) of the total number of
shares of 3dfx Common Stock issued in connection with the transactions
contemplated hereby, to be held by an escrow agent mutually acceptable to
3dfx and the Company (the "Escrow Agent") pursuant to the terms of an
escrow agreement to be by and among 3dfx and Newco and in substantially the
form set forth in Annex VI (the "Indemnity Escrow Agreement"), as security
and as an offset for any breach of the representations, warranties,
covenants and agreements of the Company, and for the Company's
indemnification obligations, each as set forth herein; and
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(b) Until the certificates representing the Company Common Stock, the
Series A Company Stock, the Series B Company Stock, the Series C Company
Stock, any equity securities issued to Microsoft pursuant to Section 9.9
hereof and the Warrant have been surrendered by the holders thereof and
replaced by the 3dfx Common Stock, the certificates for the Company Common
Stock, the Series A Company Stock, the Series B Company Stock, the Series C
Company Stock, any equity securities issued to Microsoft pursuant to
Section 9.9 hereof and the Warrant shall for all corporate purposes be
deemed to evidence the right to receive that number of shares of 3dfx
Common Stock as set forth in Annex V hereto, notwithstanding the number of
shares of the Company Common Stock, the Series A Company Stock, the Series
B Company Stock, or the Series C Company Stock, the shares (if any) issued
to Microsoft or the Warrant that such certificates represent.
Notwithstanding any other provision of this Agreement, dividends or other
distributions declared or made after the Effective Time of the Merger with
respect to the 3dfx Common Stock with a record date after the Effective
Time of the Merger shall not be paid to the holder of any unsurrendered
certificate of Company Common Stock, Series A Company Stock, Series B
Company Stock or Series C Company Stock, Microsoft or its designee or
affiliate with respect to the equity securities that may be issued thereto
pursuant to Section 9.9 hereof, or any unsurrendered Warrant with respect
to the shares of 3dfx Common Stock represented thereby until the holder of
record of such certificate shall surrender such certificate. Following
surrender of any such certificate, there shall be paid to the record holder
of the certificates representing shares of 3dfx Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time of the Merger theretofore paid with respect to such shares
of 3dfx Common Stock and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective
Time of the Merger but prior to surrender and a payment date subsequent to
surrender payable with respect to such shares of 3dfx Common Stock.
ARTICLE IV
CLOSING
On such date as the parties hereto may agree (the "Closing Date"), the
parties shall take all actions necessary (i) to effect the Merger (including, if
permitted by applicable state law, the filing with the appropriate state
authorities of the Certificate of Merger) and (ii) to effect the conversion and
delivery of securities referred to in Article III (the "Closing"). The Closing
shall take place at the offices of Heller Ehrman White & McAuliffe LLP, 525
University Avenue, Palo Alto, California 94301, unless another place is agreed
to in writing by the parties. On the Closing Date, the Certificate of Merger
shall be filed with the Delaware Secretary of State, or if already filed shall
become effective, and the parties hereto shall perform all of their respective
obligations in connection with all other transactions contemplated by this
Agreement, to occur at or upon the Closing, including the conversion and
delivery of securities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to 3dfx and Newco that all of the
following representations and warranties set forth in this Article V are true
and correct at the date of execution hereof and at the time of the Closing.
5.1. Authorization. This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding obligation of such party,
enforceable against such party in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally, (ii) the
remedy of specific performance, injunctive relief and other equitable remedies
are subject to certain equitable defenses and to the discretion of the court
before which any proceedings may be brought and (iii) rights to indemnification
hereunder may be limited under applicable securities laws (the "Equitable
Exceptions"). The Company has full corporate power,
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<PAGE> 151
capacity and authority to execute this Agreement, the Agreement of Merger, the
Certificate of Merger and all other agreements and documents contemplated
hereby.
5.2. Organization, Existence and Good Standing of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation with all requisite corporate power and
authority to own, to lease and to operate its properties and to carry on its
business as now being conducted. The Company is duly qualified or licensed as a
foreign corporation or other applicable entity and in good standing in each
jurisdiction in which the character or location of the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so authorized or
qualified would not have a Material Adverse Effect. Set forth on Schedule 5.2 is
a list of the jurisdictions in which the Company is qualified or licensed to do
business as a foreign corporation and a list of all names of all predecessor
companies or other entities for the past four (4) years of the Company,
including the names of any entities from whom the Company previously acquired
material assets. In addition, set forth on Schedule 5.2 is a complete list of
all the names under which the Company does or has done business. Except as
disclosed in Schedule 5.2, the Company has not been a subsidiary or division of
another corporation or a party to an acquisition agreement. True, complete and
correct copies of the Certificate of Incorporation and the By-laws of the
Company are all attached hereto on Schedule 5.2 (the "Charter Documents").
Except as set forth on Schedule 5.2 the minute books of the Company, as
heretofore made available to 3dfx, are correct and complete in all material
respects.
5.3. Capital Stock of the Company. The Company's authorized capital stock
is as set forth in Section 1.4(a). All of the Company Common Stock, the Series A
Company Stock, the Series B Company Stock and the Series C Company Stock and the
Warrant have been validly issued and are fully paid and nonassessable, and no
holder thereof is entitled to any preemptive rights, statutory or otherwise.
There are no outstanding conversion or exchange rights, subscriptions, options,
warrants or other arrangements or commitments obligating the Company to issue
any shares of capital stock or other securities or to purchase, to redeem or
otherwise to acquire any shares of capital stock or other securities, or to pay
any dividend or make any distribution in respect thereof, except as set forth on
Schedule 5.3. The securityholders of the Company own their respective securities
free and clear of any Liens.
5.4. Subsidiaries. The Company does not presently own, of record or
beneficially, or control directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity nor is the Company, directly or indirectly, a
participant in any joint venture, partnership, limited liability company or
other non-corporate entity.
5.5. Financial Statements.
(a) The Company has previously furnished to 3dfx the reviewed balance sheet
of the Company as of December 31, 1999, and the related statements of
operations, shareholders' equity and cash flows for the two (2) fiscal years
then ended, as reviewed by PricewaterhouseCoopers (the "Company's Accountant"),
certified public accountants, together with the Company's unaudited balance
sheet, management's statements of operations and shareholders' equity for the
two-month period ended February 29, 2000 (collectively, the "Financial
Statements"). The Financial Statements present fairly the financial position and
results of operations of the Company as of the indicated dates and for the
indicated periods and have been prepared in accordance with GAAP.
(b) Except to the extent (and not in excess of the amounts) reflected in
the December 31, 1999 balance sheet included in the Financial Statements or as
disclosed on Schedule 5.5, the Company has no material liabilities or
obligations (including, without limitation, Taxes payable and deferred Taxes and
interest accrued since December 31, 1999) required to be reflected in the
Financial Statements (or the notes thereto) in accordance with GAAP other than
current liabilities incurred in the ordinary course of business, consistent
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with past practice, subsequent to December 31, 1999. For each such contingent
liability, the Company has provided to 3dfx the following information:
(i) A summary description of the contingent liability together with
the following:
(A) Copies of all relevant documentation relating thereto;
(B) Amounts claimed and any other action or relief sought; and
(C) Name of claimant and all other parties to the claim, suit or
proceeding.
(ii) The name of each court or agency before which such claim, suit or
proceeding is pending; and
(iii) The date such claim, suit or proceeding was instituted.
5.6. Accounts and Notes Receivable. Set forth on Schedule 5.6 is an
accurate list of the accounts and notes receivable of the Company as of February
29, 2000, and included within the Financial Statements, and including
receivables from and advances to any securityholder of the Company or any
officer, director, employee and affiliate of the Company or of any
securityholder. Schedule 5.6 sets forth an aging of all accounts and notes
receivable showing amounts due in thirty (30) day aging categories. Except to
the extent reflected on Schedule 5.6, to the Best of the Company's Knowledge,
all such accounts and notes are legal, valid and binding obligations of the
obligors and are collectible in the amount shown on Schedule 5.6, net of any
applicable reserves reflected in the February 29, 2000 balance sheet. To the
Best of the Company's Knowledge, the Company's invoices to customers are
accurate in respect to services provided. Except as set forth on Schedule 5.6,
the Company has delivered invoices to its customers or received monies therefrom
only with respect to completed work.
5.7. Licenses and Permits. The Company holds all Licenses and Permits
required for the operation of the Business. An accurate list and summary
description is set forth on Schedule 5.7 hereto of all such Licenses and
Permits. To the Best of the Company's Knowledge, the Licenses and Permits are
valid, and the Company has not received any notice that any governmental
authority intends to cancel, to terminate or not to renew any such Licenses and
Permits. The Company has conducted and is conducting the Business in compliance
with the requirements, standards, criteria and conditions of, or set forth in,
such Licenses and Permits and is not in violation of any of the foregoing.
Except as set forth on Schedule 5.7, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses and Permits, except where such default, breach, violation or adverse
effect would not have a Material Adverse Effect.
5.8. Tax Matters.
(a) The Company has filed all income Tax returns required to be filed by
the Company and all returns, reports and forms of other Taxes required to be
filed by the Company in a timely manner and has paid or provided for in
accordance with GAAP all Taxes shown to be due on such returns, and all such
returns are accurate and correct in all material respects. The Company has paid
all income Taxes attributable to the income reported on the Company's income Tax
returns. Except as set forth on Schedule 5.8, (i) no action or proceeding for
the assessment or collection of any Taxes is pending against the Company, and no
written notice of any claim for Taxes, whether pending or threatened, has been
received; (ii) no deficiency, assessment or other formal claim for any Taxes has
been asserted or made against the Company that has not been fully paid or
finally settled; and (iii) no issue has been formally raised by any taxing
authority in connection with an audit or examination of any return of Taxes. No
federal, state or foreign income tax returns of the Company have been examined,
and there are no outstanding agreements or waivers extending the applicable
statutory periods of limitation for such Taxes for any period. All Taxes that
the Company has been required to collect or to withhold have been duly withheld
or collected and, to the extent required, have been paid to the proper taxing
authority. To the Best of the Company's Knowledge, no Taxes will be assessed on
or after the Closing Date against the Company for any tax period ending on or
prior to the Closing Date other than for Taxes disclosed on Schedule 5.8.
(b) The Company is not a party to any Tax allocation or sharing agreement.
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(c) None of the assets of the Company constitutes tax-exempt bond financed
property or tax-exempt use property, within the meaning of Section 168 of the
Code. The Company is not a party to any "safe harbor lease" that is subject to
the provisions of Section 168(f)(8) of the Code as in effect prior to the Tax
Reform Act of 1986, or to any "long-term contract" within the meaning of Section
460 of the Code.
(d) The Merger is motivated by bona fide business purposes of the Company.
(e) Immediately following the Merger, the Company will hold at least ninety
percent (90%) of the fair market value of its net assets and at least seventy
percent (70%) of the fair market value of its gross assets held immediately
prior to the Merger. For purposes of making this representation, amounts paid by
the Company to pay reorganization expenses, amounts paid by the Company pursuant
to Section 9.10 and all redemptions and distributions (except for regular,
normal dividends) in anticipation of or as part of the plan of reorganization by
the Company will be included as assets of the Company immediately prior to the
Merger.
(f) At the Closing Date and except as set forth on Schedule 1.4(a), the
Company will not have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could acquire stock in
the Company, in each case that, if exercised or converted, would affect 3dfx's
acquisition or retention of ownership of more than eighty percent (80%) of the
total combined voting power of all classes or series of the Company Common Stock
and more than eighty percent (80%) of the total number of shares of each class
or series of the non-voting stock of the Company. The Company has no plan or
intention to issue additional shares of capital stock that would result in 3dfx
losing control of the Surviving Corporation within the meaning of Section 368(c)
of the Code.
(g) In the Merger, shares of the Company representing at least eighty
percent (80%) of the combined total voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of shares
of all other classes or series of stock will be exchanged solely for voting
stock of 3dfx.
(h) The Company does not expect, and it may be assumed in a tax opinion
made in connection with the Merger, that the aggregate number of Company shares
whose holders will dissent from the Merger and demand an appraisal of shares
pursuant to Delaware law will not exceed ten percent (10%) of the number of
shares of the Company's stock outstanding at the time 3dfx and the Company first
discussed the possibility of the Merger.
(i) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(j) On the date of the Merger, the fair market value of the assets of the
Company will equal or exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which those assets are subject.
(k) The Company is not under jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(l) The liabilities of the Company to be assumed by the Surviving
Corporation and the liabilities to which the transferred assets are subject were
incurred by the Company in the ordinary course of its trade or business.
(m) To the Best of the Company's Knowledge, the fair market value of the
3dfx Common Stock and other consideration received by the stockholders and
warrantholders of the Company will be approximately equal to the fair market
value of the Company Common Stock, the Series A Company Stock, the Series B
Company Stock, the Series C Company Stock, any securities issued to Microsoft
pursuant to Section 9.9 hereof and the Warrant surrendered by such stockholders
and warrantholders in the Merger.
(n) The Company has not made and has not agreed to make an "extraordinary
distribution" (as determined under Treasury regulations Section
1.368-1T(e)(1)(ii)(A)) to any stockholder or warrantholder in connection with
the Merger.
(o) Except as set forth on Schedule 5.8, neither the Company nor a "Related
Corporation" within the last two (2) years redeemed or acquired any capital
stock of the Company or entered into any agreement, arrangement or understanding
to redeem or to acquire any capital stock of the Company, nor will it redeem or
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acquire, or enter into any such agreement, arrangement or understanding to
redeem or to acquire, any capital stock of the Company at any time through the
Effective Time of the Merger. For purposes of this representation, a "Related
Corporation" with respect to another corporation means (I) a corporation that is
a member of the same "affiliated group" as determined under Section 1504(a) of
the Code (without regard to Section 1504(b)), or (ii) a corporation that owns,
or in which the other corporation owns, directly or indirectly, stock possessing
at least fifty percent (50%) of the total combined voting power of all classes
of stock entitled to vote, or at least fifty percent (50%) of the total value of
shares of all classes of stock (determined by taking into account the
constructive ownership of stock rules under Section 318(a) of the Code, as
modified by Section 304(c) of the Code). For purposes of the foregoing, a
corporation will be considered as acquiring shares of stock acquired by a
partnership (as determined for federal income tax purposes) in which it is a
partner (as determined for federal income tax purposes).
(p) Except as otherwise provided in Section 12.7, the Company, the
Company's stockholders and warrantholders, and, to the Best of the Company's
Knowledge, 3dfx and Newco will each pay their respective expenses, if any,
incurred in connection with the Merger.
(q) There is no intercorporate indebtedness existing between 3dfx and the
Company or between Newco and the Company that was issued, acquired or will be
settled at a discount.
(r) None of the compensation received by any stockholder-employee or
warrantholder-employee of the Company will be separate consideration for, or
allocable to any of their Company Common Stock, the Series A Company Stock, the
Series B Company Stock, the Series C Company Stock and the Warrant; none of the
shares of 3dfx Common Stock received by any of the Company's stockholders or
warrantholders will be separate consideration for, or allocable to, any
employment agreement or covenants not to compete; and the compensation paid to a
Company stockholder-employee or warrantholder-employee will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(s) All amounts paid by the Company pursuant to Section 9.1 to the
shareholders of the Company employed thereby and set forth on Schedule 8.8 (the
"Management Shareholders") represent reasonable compensation for services
performed by the Management Shareholders for the Company.
(t) The Company is a C corporation within the meaning of Subchapter C of
the Code. The Company presently files its income tax returns on an accrual basis
of accounting, and, to the Best of the Company's Knowledge, the Surviving
Corporation will be required to utilize an accrual method of accounting after
the Merger.
(u) The Company is not a "consenting corporation" within the meaning of
Section 341(f)(1) of the Code, or comparable provisions of any state statutes,
and none of the assets of the Company are subject to an election under Section
341(f) of the Code or comparable provisions of any state statutes.
(v) The Company is not a party to any joint venture, partnership or other
arrangement that is treated as a partnership for federal income Tax purposes.
(w) There are no accounting method changes of the Company that could give
rise to an adjustment under Section 481 of the Code for periods after the
Closing Date.
(x) The Company has reasonable authority for the treatment of, or has
disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax returns, all positions taken therein that could give rise to
a substantial understatement of federal income Tax within the meaning of Section
6662(d) of the Code.
(y) There currently are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, Tax credits or other similar
items of the Company (collectively, the "Tax Losses") under (i) Section 382 of
the Code, (ii) Section 383 of the Code, (iii) Section 384 of the Code, (iv)
Section 269 of the Code, (v) Section 1.1502-15 and Section 1.1502-15A of the
Treasury regulations, (vi) Section 1.1502-21 and Section 1.1502-21A of the
Treasury regulations or (vii) Sections 1.1502-91 through 1.1502-99 of the
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Treasury regulations, in each case as in effect both prior to and following the
Tax Reform Act of 1986, except as may be applicable as a result of entering into
this Agreement or the consummation of the Merger.
(z) The Company has not been a member of an affiliated group filing a
consolidated federal income Tax return and does not have any liability for the
Taxes of another person (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(aa) The Company's Tax basis in its assets for purposes of determining its
future amortization, depreciation and other federal income Tax deductions is
accurately reflected on the Company's Tax books and records.
(bb) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(cc) At the end of the last taxable year, the Company did not have
aggregate Tax Losses for federal income Tax purposes except as set forth on
Schedule 5.8.
(dd) The Company will pay any dissenting shareholders the value of their
stock out of its own funds.
(ee) To the Best of the Company's Knowledge, at least fifty percent (50%)
of the value of the Company shareholders' proprietary interests in the Company
will be preserved as a proprietary interest in 3dfx received in exchange for the
Company's stock. For purposes of this representation, proprietary interests will
not be preserved to the extent that, in connection with the Merger; (i) an
extraordinary distribution is made with respect to the stock of the Company;
(ii) a redemption or acquisition of stock of the Company is made by the Company
or a person related to the Company; (iii) 3dfx or a person related to 3dfx
acquires stock of the Company for consideration other than 3dfx stock; or (iv)
3dfx redeems its stock issued in the Merger. Any reference to 3dfx or the
Company includes a reference to any successor predecessor of such corporation,
except that the Company is not treated as a predecessor of 3dfx. A corporation
will be treated as related to another corporation if they are both members of
the same affiliated group within the meaning of Section 1504 of the Code
(without regard to the exceptions in Section 1504(b)) or they are related as
described in Section 304(a)(2) of the Code (disregarding Treas. Reg. Section
1.1502-80(b)), in either case whether such relationship exists immediately
before or immediately after the acquisition. Each partner of a partnership will
be treated as owning or acquiring any stock owned or acquired, as the case may
be, by the partnership (and as having paid any consideration paid by the
partnership to acquire such stock) in accordance with that partner's interest in
the partnership. As used herein, the term "partnership" shall have the same
meaning given to it in Section 7701(a)(2) of the Code.
5.9. Assets and Properties.
(a) Real Property. The Company does not own or hold any interest in real
property other than as set forth on Schedule 5.9(a). Except as set forth on
Schedule 5.9(a), the Company has good and marketable title to all Real Property,
and none of the Real Property is subject to any Lien, except for (i) statutory
Liens for current taxes, assessments or governmental charges or levies on
property not yet due and payable, (ii) Liens otherwise arising in the ordinary
course of business consistent with past practice or (iii) Liens that would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Personal Property. Except as set forth on Schedule 5.9(b) and except
for inventory, supplies and other personal property disposed of or consumed, and
accounts receivable collected or written off, and cash utilized, all in the
ordinary course of business consistent with past practice, the Company owns all
of its inventory (including Inventories), equipment and other personal property
(both tangible and intangible) reflected on the latest balance sheet included in
the Financial Statements or acquired since December 31, 1999, free and clear of
any Liens, except for statutory Liens for current taxes, assessments or
governmental charges or levies on property not yet due and payable or that would
not, individually or in the aggregate, have a Material Adverse Effect.
(c) Condition of Properties. Except as set forth on Schedule 5.9(c), the
Real Property, the leasehold estates subject to the Real Property Leases (as
defined in Section 5.10) and the tangible personal property
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owned or leased by the Company are in good operating condition and repair,
ordinary wear and tear excepted; and to the Best of the Company's Knowledge,
there is no condition not disclosed herein with respect to any such properties
that would materially affect the fair market value, use or operation thereof or
otherwise have a Material Adverse Effect.
(d) Compliance. To the Best of the Company's Knowledge, the continued
ownership, operation, use and occupancy of the Real Property and the
improvements thereto, and the continued use and occupancy of the leasehold
estates subject to the Real Property Leases as currently operated, used and
occupied, will not violate any Applicable Law or any restrictive covenant. To
the Best of the Company's Knowledge, there are no violations of any Applicable
Law affecting any portion of the Real Property or the leasehold estates, and the
Company has not received any written notice of any such violation from or on
behalf of any governmental authority.
5.10. Real Property Leases; Options. Schedule 5.10 sets forth a list of (i)
all leases and subleases under which the Company is lessor or lessee or
sublessor or sublessee of any real property, together with all amendments,
supplements, nondisturbance agreements, brokerage and commission agreements and
other agreements pertaining thereto (the "Real Property Leases"); (ii) all
material options held by the Company or contractual obligations on the part of
the Company to purchase or to acquire any interest in real property; and (iii)
all options granted by the Company or contractual obligations on the part of the
Company to sell or to dispose of any material interest in real property. Copies
of all Real Property Leases and such options and contractual obligations have
been delivered or otherwise made available to 3dfx. The Company has not assigned
any Real Property Leases or any such options or obligations. There are no
disputes, oral agreements or forbearance programs in effect as to any Real
Property Lease; and all facilities leased under the Real Property Leases are
supplied with utilities and other services necessary for the operation of said
facilities in the manner currently operated by the Company. There are no Liens
on the interest of the Company in the Real Property Leases, subject only to (i)
Liens for taxes and assessments not yet due and payable, (ii) Liens that would
not, individually or in the aggregate, have a Material Adverse Effect and (iii)
those matters set forth on Schedule 5.10. The Real Property Leases and options
and contractual obligations listed on Schedule 5.10 are in full force and effect
and constitute binding obligations of the Company and, to the Best of the
Company's Knowledge, the other parties thereto, and (x) there are no defaults
thereunder and (y) no event has occurred that with notice, lapse of time or both
would constitute a default by the Company or, to the Best of the Company's
Knowledge, by any other party thereto, which default or event would have a
Material Adverse Effect.
5.11. Environmental Laws and Regulations. During the occupancy and
operation of the Subject Property by the Company and, to the Best of the
Company's Knowledge, prior to its occupancy and operation, the operations of the
Subject Property, and any use, storage, treatment, disposal or transportation of
Hazardous Substances that has occurred in, on, to, from or under the Subject
Property prior to the date of this Agreement, have been in compliance with all
Environmental Requirements; (ii) the Company has obtained and holds all
necessary Licenses and Permits, approvals, consents and authorizations required
under applicable Environmental Requirements and is in full compliance with all
terms, conditions and provisions of the same, the failure of which to hold or to
fully comply with would be reasonably likely to have a Material Adverse Effect;
(iii) during the occupancy and operation of the Subject Property by the Company
and, to the Best of the Company's Knowledge, prior to its occupancy or
operation, no release, leak, discharge, spill, disposal or emission of Hazardous
Substances has occurred in, on, to, from or under the Subject Property in a
quantity or manner that violates or requires further investigation or
remediation under Environmental Requirements or as required by any Agency; (iv)
to the Best of the Company's Knowledge, there are no Hazardous Substances in the
Subject Property as of the date of this Agreement, except for the presence of
small quantities of Hazardous Substances utilized by the Company or other
tenants of the Subject Property in compliance with Environmental Requirements
and the ordinary course of their business; (v) there is no pending or, to the
Best of the Company's Knowledge, threatened litigation or administrative
investigation or proceeding concerning the Subject Property, the Company or the
Management Shareholders regarding Hazardous Substances or Environmental
Requirements; (vi) except as set forth on Schedule 5.11, the Company has never
owned, operated or leased any real property other than the Subject Property; and
(vii) the
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Company's current or past transportation to or disposal at any off-site location
of any Hazardous Substances from property now or formerly owned, operated or
leased by the Company at the time of the Company's ownership, operation or lease
thereof was conducted in full compliance with applicable Environmental
Requirements.
5.12. Contracts.
(a) Set forth on Schedule 5.12(a) is a list of all material contracts,
licenses, agreements, arrangements and commitments (whether oral or written) to
which the Company is a party or by which its assets or the Business are bound
including, without limitation, contracts, licenses, agreements, arrangements or
commitments (collectively, the "Contracts") that relate to (i) the sale, lease
or other disposition by the Company of all or any substantial part of the
Business or the Company's assets or the purchase by the Company of a substantial
portion of assets (in each case other than in the ordinary course of business),
(ii) the Intellectual Property, (iii) the employment of any person other than
personnel employed at the pleasure of the Company on an at-will basis in the
ordinary course of its business at rates of compensation and on terms consistent
with past good business practice, (iv) collective bargaining with, or any
representation of any employees by, any labor union or association, (v) the
acquisition of services, supplies, equipment or other personal property
involving more than $50,000 or that is not terminable by the Company upon not
more than thirty (30) days' notice without obligation on the part of the
Company, (vi) noncompetition, (vii) distribution, agency or construction, (viii)
lending or advancing of funds other than the extension of credit to trade
purchasers in the ordinary course of the Company's business consistent with good
past business practice, (ix) borrowing of funds or receipt of credit other than
by the Company in the ordinary course of business consistent with past good
business practice and except for trade payables in amounts and on terms
consistent with past good business practice, (x) incurring of any obligation or
liability individually or in the aggregate in excess of $50,000 except for
transactions engaged in by the Company in the ordinary course of business
consistent with past good business practice, (xi) the sale of personal property
(other than sales of inventory in the ordinary course of business consistent
with past good business practice) or services under which payments due after the
date of this Agreement exceed $50,000, and (xii) any matter or transaction not
in the ordinary course of the business of the Company or that is inconsistent
with the past business practice of the Company. The Company has no agreements
with customers that require the Company to provide services at no charge or at
rates significantly below the average rates for such services set forth in the
Company's written customer Contracts, except for immaterial discounts and/or
free services provided as incentives to certain accounts. Copies of all
Contracts listed on Schedule 5.12(a) have been provided or otherwise made
available to 3dfx.
(b) Except as set forth on Schedule 5.12(b), each Contract is in full force
and effect on the date hereof, the Company is not in default under any Contract,
which default could reasonably be expected to have a Material Adverse Effect,
the Company has not given or received written notice of any default under any
Contract, and, to the Best of the Company's Knowledge, no other party to any
Contract is in default thereunder.
5.13. No Violations. The execution, delivery and performance of this
Agreement and the other agreements and documents contemplated hereby by the
Company and the Management Shareholders and the consummation of the transactions
contemplated hereby will not (i) violate any provision of any Charter Document,
(ii) to the Best of the Company's Knowledge, violate any statute, rule,
regulation, order or decree of any public body or authority by which the Company
or its properties or assets are bound or (iii) result in a violation or breach
of, or constitute a default under, or result in the creation of any Lien upon,
or create any rights of termination, cancellation or acceleration in any person
with respect to, any Contract or any License or Permit or any other agreement,
contract, indenture, mortgage or instrument to which the Company is a party or
by which any of its properties or assets is bound, which violation, breach,
creation of Lien or right of termination or cancellation or acceleration would
have a Material Adverse Effect.
5.14. Government Contracts. The Company is not now and has not been a party
to any governmental contract.
5.15. Consents. Except as set forth on Schedule 5.15, no consent or
approval of, notice to, registration or filing with, or authorization or order
of, any court or governmental authority, and no consent, approval or
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notice under any Contract or other agreement or commitment to which the Company
is a party or by which its assets are bound, is required as a result of or in
connection with the execution or delivery of this Agreement and the other
agreements and documents to be executed by the Company or the consummation by
the Company of the transactions contemplated hereby.
5.16. Litigation and Related Matters. Set forth on Schedule 5.16 is a list
of all actions, suits, proceedings, investigations or grievances pending against
the Company or, to the Best of the Company's Knowledge, threatened against the
Company, the Business or any property or rights of the Company, at law or in
equity, before or by any arbitration board or panel, court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (each, an "Agency"). The Company is not
subject to any continuing court or Agency order, writ, injunction or decree
applicable specifically to the Business or to the Company's operations, assets
or employees, nor is the Company in default with respect to any order, writ,
injunction or decree of any court or Agency with respect to the Business or to
the Company's operations, assets or employees. Schedule 5.16 lists (x) all
worker's compensation claims outstanding against the Company as of the date
hereof and (y) all actions, suits or proceedings filed by or against the Company
since January 1, 1999. The Company has not during the last two (2) years been
required to make any indemnification payment as a result of any actual or
alleged act or omission of the Company or any Person under its control and, to
the Best of the Company's Knowledge, no claims for any such payment have been
made against the Company or any Person under its control.
5.17. Compliance with Laws. To the Best of the Company's Knowledge, the
Company is in compliance with all Applicable Laws except to the extent that any
noncompliance would not have a Material Adverse Effect.
5.18. Intellectual Property Rights; Year 2000. The following provisions set
forth in this Section 5.18 and Schedule 5.18 shall not apply to generic 3D
graphics technology.
(a) Except for off-the-shelf software licensed in the ordinary course
of business, Schedule 5.18 lists the Intellectual Property used by the
Company in the Business and indicates (i) the term and exclusivity of the
Company's rights with respect to such Intellectual Property and (ii)
whether each such item of Intellectual Property is owned or licensed by the
Company, and if licensed, the licensor and the license fees therefor.
Unless otherwise indicated on Schedule 5.18, the Company has the right to
use and to license any Intellectual Property owned by it, and the
consummation of the transactions contemplated hereby will not result in the
loss or material impairment of any rights of the Company in or to the
Intellectual Property; except as set forth on Schedule 5.18, no
securityholder, officer, director or employee of the Company or any third
party has any right, title or interest in any of the Intellectual Property
that is owned by the Company, and, to the Best of the Company's Knowledge,
all such persons who have been authors of any Intellectual Property owned
by the Company have waived their moral rights in any copyrighted works
within the Intellectual Property; except as set forth on Schedule 5.18, all
employees of the Company with access to the Company's confidential
Intellectual Property have agreed to maintain the confidentiality of
confidential Intellectual Property; except as set forth in Schedule 5.18,
the Company knows of no Person who has infringed the Company's rights to
the Intellectual Property, and, except as shown on Schedule 5.18, the
Company has received no notices with respect to any such infringement of
the Company's rights; to the Best of the Company's Knowledge, there is no
governmental prohibition or restriction on the license, sale or use of the
Intellectual Property under Applicable Law other than export controls.
Schedule 5.18 indicates the extent to which any item constituting part of
the Intellectual Property has been registered with, filed in or issued by,
as the case may be, the United States Patent and Trademark Office or any
other Agency; all such registrations, filings and issuances have been
maintained and have not expired, been invalidated or cancelled. Except as
stated on Schedule 5.18, there are no pending proceedings or adverse claims
made or threatened against the Company with respect to the Intellectual
Property; except as set forth on Schedule 5.18, there has been no
litigation commenced or threatened in writing within the past four (4)
years with respect to the Intellectual Property or the rights of the
Company therein; except as set forth on Schedule 5.18, the Software and
other technology included within the Intellectual Property performs in all
material respects consistent with the warranties provided therefor or the
Company has otherwise complied in all material respects with the
requirements
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of any such warranty; and, except as set forth on Schedule 5.18, the
Intellectual Property developed by the Company and the use thereof by the
Company do not and will not conflict with or infringe upon any patents,
trade names, trademarks, service marks, trademark or service mark
registrations, or, to the Best of the Company's Knowledge, copyright
registrations or other intellectual property rights of others
(collectively, the "Third Party Intellectual Property"). Except as set
forth on Schedule 5.18, the Company has not received any communication,
whether written or oral, from any third party suggesting that it would be
to the Company's advantage to take a license from any third party.
(b) Except as set forth on Schedule 5.18, the Intellectual Property is
owned by the Company free and clear of all Liens; except as set forth on
Schedule 5.18, the Company is not obligated to pay any compensation to any
Person in respect of the use of the Intellectual Property that is not set
forth on Schedule 5.18; except as set forth on Schedule 5.18, from and
after the Closing, the Surviving Corporation may use, modify and/or
distribute the Intellectual Property without restriction, and there are no
fees, charges, licenses or other costs payable by the Surviving Corporation
to any Person in respect of the Intellectual Property or the use or
distribution thereof; all versions of the Software and other technology
currently used, shipped or licensed by the Company have undergone and
passed the Company's standard testing procedures for known software viruses
and do not contain viruses that would disrupt, damage or interfere with use
of the Software and other technology; all versions of the Software and
other technology currently used, shipped or licensed by the Company have
undergone and passed the Company's standard quality assurance testing; and,
except as set forth on Schedule 5.18, the Company has not disclosed the
source code for any of the Intellectual Property or other confidential or
proprietary information constituting, embodied in or pertaining to the
Intellectual Property to any Person without using commercially reasonable
efforts to prevent such disclosure, other than disclosure of such source
code to employees or independent contractors of the Company or third
parties solely for evaluation purposes, in each case pursuant to valid and
binding non-disclosure agreements with such Persons that have not yet
expired (and, to the Best of the Company's Knowledge, the rights and
benefits under such non-disclosure agreements will be acquired by the
Surviving Corporation pursuant to the consummation of the transactions
contemplated hereby) and disclosed on Schedule 5.18. Except as set forth on
Schedule 5.18, the Intellectual Property does not contain derivative works
of any programming or materials not owned in their entirety by the Company
or without a license with respect thereto.
(c) Year 2000 Reprogramming. Except as set forth on Schedule 5.18, the
Company completed, or caused to be completed, prior to December 31, 1999
all reprogramming required to permit the proper functioning, in and
following the year 2000, of the Company's (i) computer systems and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others) and the testing of all such systems and equipment as so
reprogrammed.
5.19. Employee Benefit Plans.
(a) Each employee benefit, stock or compensation plan, including, without
limitation, employee benefit plans within the meaning of Section 3(3) of ERISA,
maintained or contributed to by the Company or any of its Group Members is
listed on Schedule 5.19, is in material compliance with Applicable Law and has
been administered and operated in all material respects in accordance with its
terms. Each Plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination letter from
the IRS, and, to the Best of the Company's Knowledge, no event has occurred and
no condition exists that could be expected to result in the revocation of any
such determination. No event that constitutes a "reportable event" (within the
meaning of Section 4043(b) of ERISA) for which the thirty (30) day notice
requirement has not been waived by the PBGC has occurred with respect to any
Plan. For purposes of this Agreement, the term "Plan" shall include each bonus,
incentive or deferred compensation, severance, termination, retention, change of
control, stock option, stock appreciation, stock purchase, phantom stock, SEPP
or equity-based, performance or other employee or retiree benefit or
compensation plan, welfare benefit program, arrangement, agreement, policy or
understanding, whether written or unwritten.
(b) No Plan is subject to Title IV of ERISA, and neither the Company nor
any Group Member has made any contributions to or participated in any "multiple
employer plan" (within the meaning of the Code or
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ERISA) or "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). Full
payment has been made of all amounts that the Company was required under the
terms of the Plans to have paid as contributions to such Plans on or prior to
the date hereof (excluding any amounts not yet due); all amounts properly
accrued to date as liabilities of the Company that have not been paid have been
properly recorded on the Financial Statements; and no Plan that is subject to
Part 3 of Subtitle B of Title 1 of ERISA has incurred any "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived. The Company and, to the Best of the Company's
Knowledge, no other "disqualified person" or "party in interest" (within the
meaning of Section 4975(e)(2) of the Code and Section 3(14) of ERISA,
respectively) has engaged in any transactions in connection with any Plan that
could be expected to result in the imposition of a material penalty pursuant to
Section 502(i) of ERISA, damages pursuant to Section 409 of ERISA or a tax
pursuant to Section 4975(a) of the Code for which the Company may be directly or
indirectly liable. No material claim, action, proceeding or litigation has been
made, commenced or, to the Best of the Company's Knowledge, threatened with
respect to any Plan (other than for benefits payable in the ordinary course and
PBGC insurance premiums). No Plan or related trust owns any securities in
violation of Section 407 of ERISA. Neither the Company nor any Group Member has
incurred any liability or taken any action, or has any knowledge of any action
or event, that could cause it to incur any liability (i) under Section 412 of
the Code or Title IV of ERISA with respect to any "single employer plan" (within
the meaning of Section 4001(a)(15) of ERISA), (ii) on account of a partial or
complete withdrawal (within the meaning of Section 4205 and 4203 of ERISA,
respectively) with respect to any "multiemployer plan" (within the meaning of
Section 3(37) of ERISA), (iii) on account of unpaid contributions to any such
multiemployer plan, or (iv) to provide health benefits or other non-pension
benefits to retired or former employees, except as specifically required by
Section 498013(f) of the Code.
(c) Except as set forth on Schedule 5.19, neither the execution and
delivery of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will (i) entitle any current or former employee
of the Company to severance pay, unemployment compensation or any similar
payment, (ii) accelerate the time of payment or vesting, or increase the amount,
of any compensation due to any such employee or former employee or (iii)
directly or indirectly result in any payment made or to be made to or on behalf
of any Person being classified or treated as a "parachute payment" (within the
meaning of Section 280G of the Code). For purposes of this Agreement, "Group
Member" shall mean any member of any "affiliated service group" (as defined in
Section 414(m) of the Code) that includes the Company, any member of any
"controlled group of corporations" (as defined in Section 414(b) of the Code)
that includes the Company or any member of any group of "trades or businesses
under common control" (as defined by Section 414(c) of the Code) that includes
the Company.
(d) With respect to each Plan, the Company has delivered or otherwise made
available to 3dfx a true and complete copy of such Plan document, including any
amendments thereto, and a copy of any related trust agreement or insurance
contract, the most recent summary Plan description, together with any summaries
of material modifications, the most recently filed Form 5500, as applicable.
5.20. Employees; Employee Relations.
(a) Schedule 5.20 sets forth (i) the name and current annual salary (or
rate of pay) and other compensation (including, without limitation, normal
bonus, profit-sharing and other compensation) now payable by the Company to each
employee (which for all purposes of this Agreement shall include employees
leased by the Company from a third party) whose current total annual
compensation or estimated compensation is $25,000 or more, (ii) any increase to
become effective after the date of this Agreement in the total compensation or
rate of total compensation payable by the Company to each such person, (iii) all
presently outstanding loans and advances (other than routine travel advances to
be repaid or formally accounted for within sixty (60) days) made by the Company
to, or made to the Company by, any director, officer or employee, (iv) all other
transactions between the Company and any director, officer or employee thereof
since December 31, 1999, and (v) all accrued but unpaid vacation pay owing to
any officer or employee that is not disclosed on the Financial Statements.
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(b) Except as disclosed on Schedule 5.20, the Company is not a party to, or
bound by, the terms of any collective bargaining agreement, and the Company has
not experienced any material labor difficulties during the last four (4) years
and during the last four (4) years, none of the employees of the Company has
been represented by any labor union or other employee collective bargaining
organization, was a party to, or bound by, any labor or other collective
bargaining agreement or has been subject to or involved in or, to the Best of
the Company's Knowledge, threatened with, any union elections, petitions or
other organizational or recruiting activities. Except as set forth on Schedule
5.20, there are no labor disputes existing, or to the Best of the Company's
Knowledge, threatened involving, by way of example, strikes, work stoppages,
slowdowns, picketing, or any other interference with work or production, or any
other concerted action by employees. No charges or proceedings before the
National Labor Relations Board, or similar agency, exist, or to the Best of the
Company's Knowledge, are threatened.
(c) To the Best of the Company's Knowledge, the relationships enjoyed by
the Company with its employees are good, and the Company has no knowledge of any
facts that would indicate that the employees of the Company are not reasonably
likely to continue in the employ thereof following the Closing on a basis
similar to that existing on the date of this Agreement. Except as disclosed on
Schedule 5.12(a), the Company is not a party to any employment contract with any
individual or employee, either express or implied. No legal proceedings or, to
the Best of the Company's Knowledge, charges, complaints or claims exist under
any federal, state or local laws affecting the employment relationship,
including, but not limited to, (i) anti-discrimination statutes such as Title
VII of the Civil Rights Act of 1964, as amended (or similar state or local laws
prohibiting discrimination because of race, sex, religion, national origin, age
and the like), (ii) the Fair Labor Standards Act or other federal, state or
local laws regulating hours of work, wages, overtime and other working
conditions, (iii) requirements imposed by federal, state or local governmental
contracts such as those imposed by Executive Order 11246, (iv) state laws with
respect to tortious employment conduct, such as slander, harassment, false
light, invasion of privacy, negligent hiring or retention, intentional
infliction of emotional distress, assault and battery, or loss of consortium or
(v) the Occupational Safety and Health Act, as amended, as well as any similar
state laws, or other regulations respecting safety in the workplace; and, to the
Best of the Company's Knowledge, no proceedings, charges, complaints or claims
are threatened under any such laws or regulations and no facts or circumstances
exist that would give rise to any such proceedings, charges, complaints or
claims, whether valid or not. The Company is not subject to any settlement or
consent decree with any present or former employee, employee representative or
any government or Agency relating to claims of discrimination or other claims in
respect to employment practices and policies; and no government or Agency has
issued a judgment, order, decree or finding with respect to the labor and
employment practices (including practices relating to discrimination) of the
Company. Since January 1, 1999, the Company has not incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act or
similar state laws, and the Company has not laid off more than ten percent (10%)
of its employees at any single site of employment in any ninety (90) day period
during the twelve (12) month period ending at the Closing Date.
(d) The Company is in compliance in all material respects with the
provisions of the Americans with Disabilities Act.
5.21. Insurance. Schedule 5.21 contains an accurate list of the policies
and contracts (including insurer, named insured, type of coverage, limits of
insurance, required deductibles or co-payments, annual premiums and expiration
date) for fire, casualty, liability and other forms of insurance maintained by,
or for the benefit of, the Company. All such policies are in still force and
effect and shall remain in full force and effect through the Closing Date and
are adequate for the Business. The Company has not received any notice of
cancellation or non-renewal or of significant premium increases with respect to
any such policy. Except as disclosed on Schedule 5.21, no pending claims made by
or on behalf of the Company under such policies have been denied or are being
defended against third parties under a reservation of rights by an insurer
thereof. All premiums due prior to the date hereof for periods prior to the date
hereof with respect to such policies have been timely paid.
5.22. Interests in Customers, Suppliers, Etc. Except as set forth on
Schedule 5.22, no officer, director or affiliate of the Company possesses,
directly or indirectly, any financial interest in, or is a director, officer,
employee or affiliate of, any Person that is a client, supplier, customer,
lessor, lessee or competitor of the
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Company. Ownership of securities of a corporation whose securities are
registered under the 1934 Act not in excess of five percent (5%) of any class of
such securities shall not be deemed to be a financial interest for purposes of
this Section 5.22.
5.23. Business Relations. Schedule 5.23 contains an accurate list of all
significant customers of the Company (i.e., disclosing either those customers
representing five percent (5%) or more of the Company's revenues for the twelve
(12) months ended February 29, 2000 or those ten (10) largest revenue-generating
customers). The Company is not required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers. Except as set forth on
Schedule 5.23, no customer records have suffered damage or have been lost or
improperly destroyed.
5.24. Officers and Directors. Set forth on Schedule 5.24 is a list of the
current officers and directors of the Company.
5.25. Bank Accounts and Powers of Attorney. Schedule 5.25 sets forth each
bank, savings institution and other financial institution with which the Company
has an account or safe deposit box or a line of credit, letter of credit or
other financial agreement, arrangement or obligation, and the names of all
persons authorized to draw thereon or to have access thereto. Each person
holding a power of attorney or similar grant of authority on behalf of the
Company is identified on Schedule 5.25. Except as disclosed on Schedule 5.25,
the Company has not given any revocable or irrevocable powers of attorney to any
person, firm, corporation or organization relating to the Business for any
purpose whatsoever.
5.26. Absence of Certain Changes or Events. Except as set forth on Schedule
5.26 or on any other schedule contemplated by this Agreement, since December 31,
1999, there has not been (a) any damage, destruction or casualty loss to the
physical properties of the Company or to the physical properties of any third
parties that are located on the Company's premises or within the Company's
control (whether or not covered by insurance), (b) any event or circumstance
that would have a Material Adverse Effect, (c) any entry into any transaction,
commitment or agreement (including, without limitation, any borrowing) material
to the Company, except transactions, commitments or agreements in the ordinary
course of business consistent with past practice, (d) any declaration, setting
aside or payment of any dividend or other distribution in cash, stock or
property with respect to the capital stock or other securities of the Company,
any repurchase, redemption or other acquisition by the Company of any capital
stock or other securities, or any agreement, arrangement or commitment by the
Company to do so, (e) any sale, transfer or other disposition of, or the
creation of any Lien upon, any part of the assets of the Company, tangible or
intangible, except for sales of inventory and use of supplies and collections of
accounts receivables in the ordinary course of business consistent with past
practice, or any cancellation or forgiveness of any debts or claims by the
Company that are material (either individually or in the aggregate), (f) any
loss of any customers or suppliers of the Company, any loss of business or
increase in the cost of inventory items or change in the terms offered to such
customers or, to the Best of the Company's Knowledge, any change in the
relations of the Company with its customers or suppliers or (g) any capital
expenditure (including any capital leases) or commitment therefor by the Company
in excess of $50,000, in each event with respect to items (a)-(g) hereof that
would be reasonably likely to have a Material Adverse Effect.
5.27. Disclosure. No representation or warranty of the Company contained in
this Agreement, in the schedules attached hereto or in any certificate furnished
or to be furnished by the Company to 3dfx or Newco in connection herewith or
pursuant hereto contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make any
statement contained herein or therein not misleading, in each case that could
reasonably be expected to have a Material Adverse Effect.
5.28. Continuity of Business Enterprise. The Company operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Treasury
regulations Section 1.368-1(d).
5.29. Spin-off by the Company. Except as set forth on Schedule 5.29, there
has not been any sale or spin-off of material assets of either the Company or
any other Person that directly, or indirectly through one or more intermediates,
controls, is controlled by or is under common control with the Company, within
the two
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(2) years prior to the date of this Agreement, and any such sale or spin-off was
not effected in contemplation of the transactions described herein.
5.30. Securities Representation. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the S-4
(as defined in Section 7.10) will, at the time the S-4 becomes effective under
the 1933 Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.
ARTICLE VI
REPRESENTATIONS OF 3DFX AND NEWCO
Each of 3dfx and Newco, jointly and severally, represent and warrant to the
Company and the securityholders of the Company that all of the following
representations and warranties set forth in this Article VI are true and correct
at the date of execution and at the time of the Closing.
6.1. Due Organization. Each of 3dfx and Newco is duly organized, validly
existing and in good standing under the laws of the State of California and the
State of Delaware, as applicable, and is duly authorized and qualified under all
applicable laws, regulations, and ordinances of public authorities to carry on
its businesses in the places and in the manner as now conducted except where the
failure to be so authorized or qualified would not have a 3dfx Material Adverse
Effect (as defined in Section 6.8).
6.2. 3dfx Common Stock. The 3dfx Common Stock to be delivered to the
securityholders of the Company at the Closing shall constitute valid and legally
issued shares of 3dfx Common Stock, fully paid and non-assessable, and (i) will
be owned free and clear of all Liens created by 3dfx, (ii) except as described
in this Agreement, will be legally equivalent in all respects to the 3dfx Common
Stock issued and outstanding as of the date hereof and (iii) will be listed on
the Nasdaq Stock Market.
6.3. Validity of Obligations. The execution and delivery of the Transaction
Documents by 3dfx and/or Newco and the performance by each of 3dfx and Newco of
the transactions contemplated therein have been duly and validly authorized by
the respective Boards of Directors of 3dfx and Newco to the extent that it is a
party thereto, and the Transaction Documents shall have each been duly and
validly authorized by all necessary corporate action, duly executed and
delivered at or prior to the Closing and shall be the legal, valid and binding
obligations of each of 3dfx and Newco to the extent that it is a party thereto,
enforceable against such party thereto in accordance with their respective
terms, subject to the Equitable Exceptions.
6.4. Authorization. The representatives of 3dfx and Newco executing this
Agreement and the other Transaction Documents have the corporate authority to
enter into and to bind 3dfx and Newco, as applicable, to the terms of this
Agreement and the other Transaction Documents. 3dfx and Newco have the full
legal right, power and authority to enter into this Agreement, the other
Transaction Documents and the Merger.
6.5. No Conflicts. Except as set forth on Schedule 6.5, the execution,
delivery and performance of this Agreement and the other Transaction Documents
and the consummation of any transactions referred to herein or contemplated
hereby will not:
(a) Conflict with, or result in a breach or violation of, the Articles
of Incorporation or the Certificate of Incorporation, as applicable, or the
By-laws of either 3dfx or Newco (collectively, the "3dfx Charter
Documents"), copies of which have been made available to the Company;
(b) Materially conflict with, or result in a material default (or
would constitute a default but for any requirement of notice or lapse of
time or both) under any material document, agreement or other instrument to
which either 3dfx or Newco is a party or by which its properties are bound
(collectively, the "3dfx Material Documents"), or violate or result in the
creation or imposition of any lien, charge or encumbrance on any of 3dfx's
or Newco's properties pursuant to (i) any law or regulation to which either
3dfx or Newco or any of their respective property is subject or (ii) any
judgment, order or decree to which 3dfx or Newco is bound or any of their
respective property is subject; or
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(c) Result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of 3dfx or
Newco or require notice to, or the consent or approval of, any Agency or
other third party to remain in full force and effect or give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.6. Capitalization of 3dfx; Ownership of 3dfx Common Stock. The authorized
and outstanding capital stock of 3dfx and Newco is as set forth in Sections
1.4(b) and 1.4(c) respectively. All issued and outstanding shares of 3dfx Common
Stock are duly authorized, validly issued, fully paid and nonassessable and free
of statutory or contractual preemptive or similar rights and are as described in
the SEC Reports. There are no obligations of 3dfx to repurchase, to redeem or
otherwise to acquire any shares of 3dfx capital stock and there are no
outstanding securities convertible into shares of 3dfx Common Stock.
6.7. Financial and Other Information; SEC Reports.
(a) 3dfx has provided to the Company 3dfx's audited financial statements
for the fiscal year ended January 31, 1999 and its unaudited financial
statements for the fiscal year ended January 31, 2000. Such 3dfx financial
statements have been prepared in accordance with GAAP and present fairly the
financial position of 3dfx as of the indicated dates and for the indicated
periods. 3dfx has provided the Company with true, complete and correct copies of
its Form 10-K Annual Report for its fiscal year ended January 31, 1999 and its
Form 10-Q Quarterly Report for the period ended October 31, 1999, which reports
(i) were prepared in accordance with Applicable Laws and all applicable SEC
requirements and (ii) do not contain any misstatements or fail to state any
material fact, in each case that could reasonably be expected to have a 3dfx
Material Adverse Effect. Newco was formed on March 23, 2000 and has no
historical financial statements or information.
(b) Since the time it became subject to the filing requirements of the SEC,
3dfx has filed all forms, reports and documents (collectively, the "SEC
Reports") with the SEC required to be filed by it pursuant to the federal
securities laws and the rules and regulations of the SEC thereunder, all of
which have complied as of their respective filing dates, or in the case of
registration statements, their respective effective dates, in all material
respects with all applicable requirements of the 1933 Act and the 1934 Act, and
the rules and regulations promulgated thereunder. None of the SEC Reports
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,
in light of the circumstances under which they were made, not misleading, except
for such statements, if any, as have been modified by subsequent filings prior
to the date hereof.
(c) The consolidated balance sheets and related consolidated statements of
income, stockholders' equity and cash flows (including the related notes and
schedules thereto) of 3dfx included in the SEC Reports complied as to form, at
the time filed, in all material respects with the published rules and
regulations of the SEC with respect thereto at the time filed. Such materials
were prepared in accordance with GAAP applied on a consistent basis during the
periods involved and include in the case of unaudited interim financial
statements all necessary adjustments, are in accordance with the books and
records of 3dfx, which books and records are complete and accurate in all
material respects, and present fairly the consolidated financial position of
3dfx as of their respective dates. The consolidated income and cash flows for
the periods presented in the SEC Reports are in conformity with GAAP applied on
a consistent basis, except as otherwise noted therein or as permitted under the
1934 Act. Since January 31, 1999, neither 3dfx nor any of its subsidiaries has
incurred any liabilities or obligations, whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due, except (i) as and to the extent set forth on the unaudited balance sheet of
3dfx as at October 31, 1999, (ii) as incurred in connection with the
transactions contemplated by this Agreement, (iii) as incurred after October 31,
1999 in the ordinary course of business and consistent with past practice, (iv)
as described in the SEC Reports, including but not limited to acquisitions
described therein, or (v) as would not, in the aggregate, constitute a 3dfx
Material Adverse Effect.
6.8. Conformity with Law and Litigation. To the Best of 3dfx's Knowledge
and except as otherwise disclosed by 3dfx in any applicable public filing made
with the SEC or any other Agency, neither 3dfx nor Newco is in violation of any
Applicable Law or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over
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either of them that would have a material adverse effect on the business,
operations, affairs, properties, assets or condition (financial or otherwise) of
3dfx and the subsidiaries of 3dfx taken as a whole (a "3dfx Material Adverse
Effect"). Except as set forth on Schedule 6.8 or as otherwise disclosed by 3dfx
in any public filing made with the SEC or any other Agency, there are no claims,
actions, suits or proceedings, pending or, to the Best of 3dfx's Knowledge,
threatened, against or affecting 3dfx or Newco, at law or in equity, or before
or by any Agency having jurisdiction over either of them, in each case that
would have a 3dfx Material Adverse Effect, and no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received. To the
Best of 3dfx's Knowledge, 3dfx has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations and is not in violation of any of the foregoing
that would have a 3dfx Material Adverse Effect.
6.9. Transactions in Capital Stock. There has been no transaction or action
taken with respect to the equity ownership of 3dfx or Newco in contemplation of
the transactions described in this Agreement that would prevent 3dfx from
accounting for such transactions on a reorganization accounting basis.
6.10. Taxes.
(a) To the Best of 3dfx's Knowledge, the fair market value of the 3dfx
Common Stock and other consideration received by the stockholders and
warrantholders of the Company will be approximately equal to the aggregate fair
market value of the Company Common Stock, the Series A Company Stock, the Series
B Company Stock, the Series C Company Stock, any securities issued to Microsoft
pursuant to Section 9.9 hereof and the Warrant surrendered by such stockholders
and warrantholders in the Merger.
(b) Prior to the Merger, 3dfx will own all of the outstanding stock of
Newco. At all times prior to the Merger, no person other than 3dfx has owned, or
will own, any of the outstanding stock of Newco.
(c)(i) Newco was formed by 3dfx solely for the purpose of engaging in the
transaction contemplated by the Agreement.
(ii) There were not as of the date of the Agreement, and there will not be
at the Closing Date, any outstanding or authorized options, warrants,
convertible securities, calls, rights, commitments or any other agreements of
any character that Newco is a party to, or may be bound by, and that require
Newco to issue, to transfer, to sell, to purchase, to redeem or to acquire any
shares of its capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for or acquire, any
shares of its capital stock.
(iii) As of the date of this Agreement and the Closing Date, except for
obligations or liabilities incurred in connection with (A) its incorporation or
organization and (B) the transactions contemplated thereby and in this
Agreement, Newco has not and will not have incurred, directly or indirectly
through any subsidiary, any obligations or liabilities or engaged in any
business or activities of any type or kind whatsoever or entered into any
agreement or arrangements with any person or entity.
(iv) Prior to the Closing Date, Newco did not own any asset other than an
amount of cash necessary to incorporate Newco and to pay the expenses of the
Merger attributable to Newco and such assets as were necessary to perform its
obligations under this Agreement.
(d) 3dfx does not own, nor has it owned during the past five (5) years,
directly or indirectly, any shares of the Company's stock or rights to acquire
such stock.
(e) To the Best of 3dfx's Knowledge, at least 50 percent (50%) of the value
of the Company shareholders' proprietary interests in the Company will be
preserved as a proprietary interest in 3dfx received in exchange for the
Company's stock. For purposes of this representation, proprietary interests will
not be preserved to the extent that, in connection with the Merger; (i) an
extraordinary distribution is made with respect to the stock of the Company;
(ii) a redemption or acquisition of stock of the Company is made by the Company
or a person related to the Company; (iii) 3dfx or a person related to 3dfx
acquires stock of the Company for consideration other than 3dfx stock; or (iv)
3dfx redeems its stock issued in the Merger. Any reference to 3dfx or the
Company includes a reference to any successor predecessor of such corporation,
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except that the Company is not treated as a predecessor of 3dfx. A corporation
will be treated as related to another corporation if they are both members of
the same affiliated group within the meaning of Section 1504 of the Code
(without regard to the exceptions in Section 1504(b)) or they are related as
described in Section 304(a)(2) of the Code (disregarding Treas. Reg. Section
1.1502-80(b)), in either case whether such relationship exists immediately
before or immediately after the acquisition. Each partner of a partnership will
be treated as owning or acquiring any stock owned or acquired, as the case may
be, by the partnership (and as having paid any consideration paid by the
partnership to acquire such stock) in accordance with that partner's interest in
the partnership. As used herein, the term "partnership" shall have the same
meaning given to it in Section 7701(a)(2) of the Code.
(f) Neither 3dfx, Newco nor any "Related Corporation" (as defined in
Section 5.8(o)) with respect to 3dfx or Newco has any plan or intention to
reacquire any of the 3dfx Common Stock issued in the Merger in a manner that
could jeopardize the status of the Merger as a "reorganization."
(g) The 3dfx Common Stock is voting stock.
(h) 3dfx has no plan or intention to cause the Company to issue, and the
Company has no plans to issue, additional shares after the Merger that would
cause 3dfx to lose control of the Company within the meaning of Section 368(c)
of the Code.
(i) In the Merger, shares of the Company representing at least eighty
percent (80%) of the total number of shares entitled to vote and at least eighty
percent (80%) of the total number of shares of all other classes or series of
stock of the Company will be exchanged solely for voting stock of 3dfx.
(j) 3dfx has no plan or intention (i) to liquidate the Surviving
Corporation or to merge the Surviving Corporation with or into another
corporation (other than as described in this Agreement), (ii) to sell or
otherwise to dispose of the stock of the Surviving Corporation or (iii) to cause
the Surviving Corporation or any of its subsidiaries to sell or otherwise to
dispose of any of their respective assets or of any of the assets acquired from
the Company, other than as contemplated by this Agreement, except for (A)
dispositions made in the ordinary course of business, (B) transfers of assets to
a corporation all of whose outstanding stock is owned directly by the Surviving
Corporation or (C) transfers of assets by direct or indirect wholly-owned
subsidiaries of the Surviving Corporation to other direct or indirect
wholly-owned subsidiaries of the Surviving Corporation.
(k) 3dfx does not expect, and it may be assumed in a tax opinion made in
connection with the Merger, that the aggregate number of Company shares whose
holders will dissent from the Merger and demand an appraisal of shares pursuant
to Delaware law will not exceed ten percent (10%) of the number of shares of the
Company's stock outstanding at the time 3dfx and the Company first discussed the
possibility of the Merger.
(l) Except as otherwise provided in Section 12.7, 3dfx, Newco and, to the
Best of 3dfx's Knowledge, the Company and the Management Shareholders will each
pay their respective expenses, if any, incurred in connection with the Merger.
(m) There is no intercorporate indebtedness existing between 3dfx and the
Company or between Newco and the Company that was issued, acquired or will be
settled at a discount.
(n) Neither 3dfx nor Newco is an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(o) Neither 3dfx nor Newco is under the jurisdiction of a court in a Title
11 or similar case within the meaning of Code Section 368(a)(3)(A).
(p) Except for cash in lieu of fractional shares and payments of cash to
the Company's shareholders perfecting dissenters rights, no consideration other
than shares of 3dfx Common Stock will be exchanged in the Merger for the
Company's Common Stock, Series A Company Stock, Series B Company Stock, Series C
Company Stock, any securities issued to Microsoft pursuant to Section 9.9 hereof
or the Company's Warrant. Furthermore, the only liabilities of Newco assumed by
the Company and incurred by Newco are expenses that are solely and directly
related to the Merger.
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(q) The payment of cash in lieu of fractional shares of 3dfx Common Stock
is solely for the purpose of avoiding the expense and inconvenience to 3dfx of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the transaction
to the Company's stockholders instead of issuing fractional shares of 3dfx
Common Stock will not exceed one percent of the total consideration that will be
issued in the transaction to the Company's stockholders in exchange for their
shares of the Company's stock. The fractional share interests of each Company
stockholder will be aggregated and no Company stockholder will receive cash in
an amount equal to or greater than the value of one full share of 3dfx Common
Stock.
(r) The Company will pay any dissenting shareholders the value of their
stock out of its own funds. No funds will be supplied for that purpose, directly
or indirectly, by 3dfx, nor will 3dfx directly or indirectly reimburse the
Company for any payments to dissenters.
(s) No stock of Newco will be issued in the Merger.
(t) Following the Merger, 3dfx will cause the Company to continue a
historic business of the Company or use a significant portion of the Company's
historic business assets in a business.
(u) None of the compensation received by any stockholder-employee or
warrantholder-employee of the Company will be separate consideration for, or
allocable to, any of their Company Common Stock, the Series A Company Stock, the
Series B Company Stock, the Series C Company Stock and the Warrant; none of the
shares of 3dfx Common Stock received by any of the Company's stockholders or
warrantholders will be separate consideration for, or allocable to, any
employment agreement or covenants not to compete; and the compensation paid to a
Company stockholder-employee or warrantholder-employee will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(v) The shares of 3dfx Common Stock to be issued to stockholders of the
Company in the Merger are issued solely as consideration for the shares of the
Company stock, and warrants to acquire Company stock, surrendered in the Merger.
(w) The proposed Merger is being undertaken for reasons germane to the
business of 3dfx and Newco.
(x) Immediately following the Merger, to the Best of 3dfx's Knowledge, the
Company will hold at least ninety percent (90%) of the fair market value of its
net assets and at least seventy percent (70%) of the fair market value of its
gross assets held immediately prior to the Merger. Immediately following the
Merger, the Surviving Corporation will hold at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of the
fair market value of the gross assets held by Newco immediately prior to the
Merger. For purposes of making this representation, amounts paid by the Company
to pay reorganization expenses, amounts paid by the Company pursuant to Section
9.10 and all redemptions and distributions (except for regular, normal
dividends) in anticipation of or as part of the plan of reorganization by the
Company will be included as assets of the Company or Newco, respectively,
immediately prior to the Merger.
(y) The escrow agreement required pursuant to Section 3.1 of the Agreement
is being established for good and valid business purposes.
(z) The 3dfx Common Stock held in escrow will appear as issued and
outstanding on the balance sheet of 3dfx and will be released within five (5)
years from the date of the Merger (unless there is a bona fide dispute as to
whom the stock should be released).
(aa) All taxable dividends, if any, paid on the 3dfx Common Stock held in
escrow will be distributed currently to the Company stockholders that exchange
their Company stock therefor.
(bb) All voting rights of the 3dfx Common Stock held in escrow will be
exercisable by or on behalf of the Company stockholders that exchange their
Company stock therefor.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company with respect to actions to be taken on the
Closing Date are subject to the satisfaction by 3dfx or Newco or the waiver by
the Company on or prior to the Closing Date of all of the following conditions,
except that no such waiver shall be deemed to affect the survival of the
representations and warranties of 3dfx and Newco contained in Article VI hereof.
7.1. Representations and Warranties; Performance of Obligations. All of the
representations and warranties of 3dfx and Newco contained in this Agreement
shall be true and correct in all material respects as of the Closing Date, and
each and all of the terms, covenants and conditions of this Agreement to be
complied with and performed by 3dfx and Newco on or before the Closing Date
shall have been duly complied with and performed in all material respects; and
the Company shall have received a certificate executed by the chief executive
officer and the chief financial officer of 3dfx to such effect.
7.2. Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
7.3. Consents and Approvals; No Litigation. All necessary consents of and
filings with any Agency or of any third party relating to the consummation of
the transactions contemplated herein and to be obtained and made by 3dfx or
Newco shall have been obtained and made. No action or proceeding before a court
or any other Agency shall have been instituted or threatened to restrain or to
prohibit the Merger, and no Agency shall have taken any other action or made any
request of the Company as a result of which the management of the Company
reasonably deems it inadvisable to proceed with the transactions hereunder.
7.4. Opinion of Counsel. The Company shall have received an opinion from
Locke Liddell & Sapp LLP, counsel for 3dfx and Newco, dated the Closing Date,
covering the matters set forth in Schedule 7.4.
7.5. Indemnity Escrow Agreement. 3dfx and Newco shall have executed and
delivered the Indemnity Escrow Agreement.
7.6. [Intentionally Omitted.]
7.7. [Intentionally Omitted.]
7.8. [Intentionally Omitted.]
7.9. Securityholder Approval. The securityholders of the Company shall have
approved the Merger and the other transactions contemplated hereby in accordance
with the provisions of the Delaware General Corporation Law.
7.10. Registration of Shares of 3dfx Common Stock. 3dfx shall have filed a
registration statement under the 1933 Act on Form S-4 (the "S-4") covering the
shares of 3dfx Common Stock to be issued in connection with the Merger, and the
S-4 shall have been declared effective by the SEC under the 1933 Act and shall
not be the subject of any stop order or proceeding by the SEC seeking a stop
order.
7.11. Broker Release. Simultaneous with the Closing, each broker or agent
of 3dfx identified on Schedule 12.6 shall have executed and delivered to the
Company an instrument dated as of the Closing Date in substantially the form
attached hereto as Annex IX or such other form as shall be reasonably
satisfactory to the Company releasing the Company, 3dfx, Newco and the Surviving
Corporation from any and all claims of such broker or agent with respect to
fees, commissions and other amounts and expenses thereof that may be payable
thereto in connection with the transactions contemplated by this Agreement.
7.12. HSR Act. Any waiting period applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act")
shall have expired or been terminated, and no action shall have been instituted
by the Department of Justice or the Federal Trade Commission (the "FTC")
challenging or seeking to enjoin the consummation of the Merger, which action
shall not have been withdrawn or terminated.
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7.13. No Material Adverse Change. No event or circumstance shall have
occurred that would constitute a 3dfx Material Adverse Effect.
7.14. Tax Opinion. The Company shall have received a written opinion of
Heller Ehrman White & McAuliffe LLP, in form and substance reasonably
satisfactory to the Company, to the effect that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF 3DFX AND NEWCO
The obligations of 3dfx and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction by the Company or waiver by
3dfx or Newco on or prior to the Closing Date of all of the following
conditions, except that no such waiver shall be deemed to affect the survival of
the representations and warranties of the Company contained in Article V.
8.1. Representations and Warranties; Performance of Obligations. All of the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects as of the Closing Date, and each
and all of the terms, covenants and conditions of this Agreement to be complied
with and performed by the Company on or before the Closing Date shall have been
duly complied with and performed in all material respects; and 3dfx and Newco
shall have received a certificate executed by the chief executive officer and
chief financial officer of the Company to such effect.
8.2. Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to 3dfx and its counsel.
8.3. Consents and Approvals; No Litigation. All necessary consents of and
filings with any Agency or any third party relating to the consummation of the
transactions contemplated herein and to be obtained and made by the Company
shall have been obtained and made. No action or proceeding before a court or any
other Agency shall have been instituted or threatened to restrain or to prohibit
the Merger, and no Agency shall have taken any other action or made any request
of 3dfx or Newco as a result of which the management of 3dfx or Newco deems it
inadvisable to proceed with the transactions hereunder.
8.4. Securityholders' Release. Each securityholder of the Company shall
have delivered to 3dfx immediately prior to the Closing Date an instrument dated
the Closing Date, in substantially the form attached hereto as Annex X (the
"Securityholders' Release").
8.5. Termination of Related Party Agreements and Benefit Plans. All
existing agreements between the Company and its securityholders or business or
personal affiliates of the Company or its securityholders and all existing bonus
and incentive plans and arrangements of the Company, other than those set forth
on Schedule 8.5, shall have been cancelled or terminated.
8.6. Opinion of Counsel. 3dfx shall have received an opinion from Heller
Ehrman White & McAuliffe LLP, counsel to the Company and the Management
Shareholders, dated the Closing Date, as to the matters set forth in Schedule
8.6.
8.7. Resignations. The officers and directors of the Company who are not to
be officers and directors of the Surviving Corporation as set forth on Schedule
1.3(d) shall have delivered their resignations to the Company, with such
resignations to be effective as of the Effective Time of the Merger.
8.8. Noncompetition Agreements. The Management Shareholders and the other
individuals set forth on Schedule 8.8 shall have executed and delivered to 3dfx
and Newco the Noncompetition Agreements in substantially the form attached
hereto as Annex VII (the "Noncompetition Agreements"), and the Management
Shareholders and each of the individuals set forth on Schedule 8.8 shall have
executed and delivered to 3dfx and Newco its standard form nondisclosure and
development agreement in substantially the form attached as Annex XI.
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8.9. Indemnity Escrow Agreement. The Company shall have executed and
delivered to 3dfx and Newco the Indemnity Escrow Agreement.
8.10. Performance Bonus Agreement. The Company and each of the individuals
who are to execute Employment and Consulting Agreements (in each case, as
defined in Section 8.11 below) shall have executed Performance Bonus Agreements.
8.11. Employment Agreements and Consulting Agreements. The Management
Shareholders (other than Andrei Manoliu and George T. Haber) and the other
individuals set forth on Schedule 8.8 shall have executed and delivered to 3dfx
the employment agreements with the Company (the "Employment Agreements"), and
Mr. Haber shall have executed and delivered to 3dfx a consulting agreement with
the Company (the "Consulting Agreement"), in each case in substantially the
forms set forth in Annex VIII.
8.12. Lock-Up Agreements. The Management Shareholders and the other
security holders listed on Schedule 8.12 shall have executed and delivered to
3dfx Lock-up Agreements, in each case in substantially the form attached hereto
as Annex XII (the "Lock-up Agreements").
8.13. Shareholder Approval. The shareholders of 3dfx shall have approved
the Merger and the other transactions contemplated hereby in accordance with the
provisions of the California General Corporation Law.
8.14. Broker Release. Simultaneous with the Closing, each broker or agent
of the Company identified on Schedule 12.6 shall have executed and delivered to
3dfx and Newco an instrument dated the Closing Date in substantially the form
annexed hereto as Annex IX or such other form as shall be reasonably
satisfactory to 3dfx and Newco releasing the Company, 3dfx, Newco and the
Surviving Corporation from any and all claims of such broker or agent with
respect to fees, commissions and other amounts and expenses thereof that may be
payable thereto in connection with the transactions contemplated by this
Agreement.
8.15. Good Standing Certificates; Certificate of Satisfaction. The Company
shall have delivered to 3dfx a certificate, dated as of a date not more than ten
(10) days prior to the Closing Date, duly issued by the appropriate governmental
authority in the state of incorporation of the Company and in each state, if
any, in which the Company is authorized to do business, showing that the Company
is in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for all periods prior to the Closing have
been filed and paid.
8.16. Microsoft Termination Agreement. The Company shall have received the
sum of at least $14,000,000 or such other amount structured in a manner
satisfactory to 3dfx from Microsoft Corporation or its affiliate WebTV Networks,
Inc. (collectively, "Microsoft") in connection with the termination of that
certain Development and License Agreement by and between the Company and WebTV
Networks, Inc. and dated as of February 18, 2000.
8.17. HSR Act. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no action
shall have been instituted by the Department of Justice or the FTC challenging
or seeking to enjoin the consummation of the Merger, which action shall not have
been withdrawn or terminated.
8.18. Effectiveness of the S-4. The S-4 shall have been declared effective
by the SEC under the 1933 Act and shall not be the subject of any stop order or
proceeding by the SEC seeking a stop order.
8.19. No Material Adverse Effect. No event or circumstance shall have
occurred that would constitute a Material Adverse Effect, which for purposes of
this Section 8.19 shall be deemed to occur only in the event of an adverse
effect on the business, operations, affairs, properties, assets or condition
(financial or otherwise) of the Company or the condition of the Business,
individually or in the aggregate, in excess of $600,000.
8.20. Tax Opinion. 3dfx shall have received a written opinion of Locke
Liddell & Sapp LLP, in form and substance reasonably satisfactory to 3dfx, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code.
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ARTICLE IX
COVENANTS OF THE PARTIES
9.1. Permitted Payments of Compensation by the Company; No Change in
Operations.
(a) Each of 3dfx and Newco acknowledges and agrees that from and after
January 1, 2000 and prior to the Effective Time of the Merger, the Company may
pay compensation for services to the Company's employees in the usual regular
and ordinary course of business in accordance with past practices. The parties
to this Agreement further acknowledge and agree that the Company shall not make
distributions to the securityholders of the Company after the date of this
Agreement. Notwithstanding the previous sentence, (i) payments of compensation
pursuant to the provisions of Section 9.10 may be made to employees, some of
whom may be securityholders and (ii) bonus payments in the aggregate amount of
$650,000 may be made to George T. Haber, Ming Benjamin Zhu and Philip J. Carmack
in connection with the execution of the WebTV Agreement.
(b) Prior to the Closing Date, the Company (i) will operate the Business
only in the usual, regular and ordinary course of business consistent with good
business practices, (ii) will preserve intact the organization of the Company,
and (iii) and will not, without the prior written consent of 3dfx, (A) mortgage,
pledge, transfer or otherwise dispose of or subject to any Lien any of the
assets of the Company, (B) waive or release any rights of value Related to the
Business, (C) transfer, grant or terminate any Licenses or Permits, Intellectual
Property or other proprietary or trade rights Related to the Business except in
the usual, regular and ordinary course of business consistent with good business
practices or (D) modify or change in any material respect or terminate any
existing Contract except in the usual, regular and ordinary course of business
consistent with good business practices.
9.2. Preparation and Filing of Tax Returns.
(a) The Company shall prepare, execute and timely file, or cause to be
prepared, executed and timely filed, all federal and state income Tax returns
for all taxable periods of the Company ending on or prior to the Closing Date
and all Tax returns due prior to the Closing Date. Such Tax returns shall be
prepared on a basis consistent with past practice. The Company and the
securityholders of the Company shall be responsible for the payment of all
income Taxes attributable to the income reported on such Tax returns. The
Company shall provide to 3dfx and the Surviving Corporation drafts of all such
Tax returns required to be prepared and filed by the Company pursuant to this
Section 9.2(a) at least thirty (30) days prior to the due date (including
extensions) for the filing of such Tax returns. In the event of a disagreement
between 3dfx and/or the Surviving Corporation and the securityholders of the
Company over the calculation of taxable income for such Tax returns, the
securityholders of the Company shall be required to obtain and produce a letter
from one of the accounting firms commonly referred to within the United States
as the "big five" concluding that the treatment of the specific item at issue
should more likely than not be sustained upon examination by the IRS. 3dfx and
the Surviving Corporation shall prepare all Tax returns attributable to the year
of the Closing Date other than those Tax returns described in the first sentence
of this Section 9.2(a). 3dfx and the Surviving Corporation shall be responsible
for the payment of all amounts (other than income Taxes) due on such other Tax
returns to the extent they were reserved for on the Financial Statements, with
the securityholders of the Company responsible to the extent not so reserved.
The securityholders of the Company shall cooperate with 3dfx and the Surviving
Corporation in the filing of such Tax returns. 3dfx and the Surviving
Corporation shall be responsible for the preparation of all Tax returns of the
Company for all taxable periods ending after the Closing Date. 3dfx and the
Surviving Corporation shall be responsible for the payment of all amounts due on
such Tax returns.
(b) The securityholders of the Company shall have responsibility for the
conduct of any audit of the Company of any taxable period ending on or prior to
the Closing Date; provided, however, that in the event that any securityholder
of the Company receives notice of a claim from the IRS or any other taxing
authority such securityholder of the Company shall promptly, but in any event
within five (5) business days, notify 3dfx and the Surviving Corporation of such
claim and of any action taken or proposed to be taken. If 3dfx and the Surviving
Corporation wish to participate in such audit, then they may do so at their own
cost and expense.
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Notwithstanding any indication in this Agreement to the contrary, the
securityholders of the Company shall not agree to an adjustment in a federal or
state income Tax audit, appeals procedure or judicial proceeding that will
adversely impact the Surviving Corporation in Tax periods after the Closing Date
without the prior written consent of the Surviving Corporation, which consent
shall not be unreasonably withheld.
9.3. Conduct of the Business. Except as expressly permitted or contemplated
by this Agreement, the Company shall observe each term set forth in this Section
9.3 and agrees that, from the date hereof until the Closing, unless otherwise
consented to by 3dfx or Newco in writing:
(a) The business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of the
Company's business, on an arm's-length basis, in the best interest of the
Company and the securityholders of the Company and in accordance in all
material respects with all Applicable Laws, rules and regulations and
consistent with the past practice of the Company;
(b) The Company shall not, directly or indirectly, do or permit to
occur any of the following: (i) issue or sell any additional shares of, or
any options, warrants, conversion privileges or rights of any kind to
acquire any shares of, any of its capital stock; (ii) sell, pledge, dispose
of or encumber any of its assets (or enter into factoring or similar
arrangements), except in the ordinary course of business and except as
identified to 3dfx or Newco in writing; (iii) amend or propose to amend its
Certificate of Incorporation or Bylaws; (iv) split, combine or reclassify
any outstanding shares of its capital stock, or declare, set aside or pay
any dividend or other distribution payable in cash, stock, property or
otherwise with respect to shares of its capital stock; (v) redeem, purchase
or acquire or offer to acquire any shares of its capital stock; (vi)
acquire (by merger, exchange, consolidation, acquisition of stock or assets
or otherwise) any corporation, partnership, joint venture or other business
organization or division or material assets thereof; (vii) incur any
indebtedness for borrowed money or issue any debt securities except the
borrowing of working capital in the ordinary course of business and
consistent with past practice; (viii) permit any accounts payable owed to
trade creditors to remain outstanding more than sixty (60) days; (ix)
accelerate, beyond the normal collection cycle, collection of accounts
receivable; or (x) enter into or propose to enter into, or modify or
propose to modify, any agreement, arrangement or understanding with respect
to any of the matters set forth in this Section 9.3(b);
(c) The Company shall not, directly or indirectly, (i) enter into or
modify any employment, severance or similar agreements or arrangements that
will be binding on, or in any way adversely affect, 3dfx or Newco other
than in the ordinary course of business consistent with past practice; or
(ii) except as otherwise contemplated by Section 9.10, take any action with
respect to the grant of any bonuses, salary increases, severance or
termination pay that will be binding on, or in any way adversely affect
3dfx or Newco after the Closing Date or increase any of the benefits
payable in effect on the date hereof that will be binding on 3dfx or Newco
after the Closing, in each event other than in the ordinary course of
business consistent with past practice;
(d) Except as otherwise contemplated by Section 9.10, the Company
shall not adopt or amend any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment or other
employee benefit plan, trust, fund or group arrangement for the benefit or
welfare of any employees;
(e) The Company shall not cancel or terminate its current insurance
policies or cause any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums
are in full force and effect;
(f) The Company shall (i) use all reasonable efforts to preserve
intact the Company's business organization and goodwill, keep available the
services of the Company's officers and employees as a group and maintain
satisfactory relationships with suppliers, distributors, customers and
others having business relationships with the Company, (ii) confer as
reasonably requested with representatives of 3dfx or Newco to report
operational matters and the general status of ongoing operations and (iii)
not
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intentionally take any action would render, or reasonably may be expected
to render, any representation or warranty made by it in this Agreement
untrue at the Closing; and
(g) The Company shall not (i) change any of its or its predecessor's
methods of accounting in effect at December 31, 1999, other than those
required by GAAP, (ii) make or rescind any express or deemed election
relating to Taxes, (iii) settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or (iv) change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income Tax returns from the taxable year ending
December 31, 1999.
9.4. Access to Information. The Company shall provide to 3dfx and Newco and
to any lenders entitled to information concerning the transactions contemplated
hereby pursuant to loan or financing agreements with 3dfx or Newco and to each
of their respective representatives and agents such access to the books and
records of the Company, and shall furnish to 3dfx and Newco and such lenders and
any such representatives or agents such financial and operating data and other
information with respect to the Business and the operations of the Company, as
are generated by the Company in the normal course of business and, in addition,
such information as 3dfx and Newco or any such lenders may reasonably request
from time to time, and shall permit 3dfx and Newco, such lenders and their
respective representatives and agents to make such inspections of each of the
Company's Real Properties and Real Property Leases and personal properties as
they may reasonably request. The Company and the Management Shareholders shall
promptly arrange for 3dfx and Newco, such lenders and their respective
representatives and agents to meet with such directors, officers, employees and
agents of the Company as they may reasonably request from time to time. Any
examination or investigation pursuant to this Section 9.4(a) shall be undertaken
in a manner so as not to unreasonably interfere with the operations and
activities of the Company.
9.5. No Transfer or Encumbrance of Company Securities; Voting. Until the
Closing or the earlier termination of this Agreement, the Company will exercise
any rights it has to restrict the transferability of the Company Common Stock,
the Series A Company Stock, the Series B Company Stock, the Series C Company
Stock and the Warrant, as applicable, beneficially owned by the securityholders
of the Company, except as contemplated by this Agreement, and the Company shall
waive any rights of first refusal to acquire shares of its capital stock as set
forth in its By-laws.
9.6. Registration of 3dfx Common Stock; 1933 Act.
(a) Upon the execution of this Agreement, 3dfx shall use all commercially
reasonable efforts to file the S-4.
(b) It is a condition precedent to the obligations of 3dfx to take any
action pursuant to this Section 9.6 with respect to the shares of 3dfx Common
Stock to be issued to the securityholders of the Company in connection with the
transactions contemplated hereby that the Company shall furnish to 3dfx such
information regarding the Company, the securityholders of the Company, the 3dfx
Common Stock held by such securityholders and the intended method of disposition
of such securities as shall be required to effect the registration of the shares
of 3dfx Common Stock to be issued to the securityholders of the Company in
connection with the transactions contemplated hereby and as may be required from
time to time to keep such registration current.
(c) In connection with any registration of 3dfx Common Stock pursuant to
this Section 9.6, 3dfx shall, except as otherwise specifically provided in the
last sentence of this Section 9.6(c), pay the expenses incurred by 3dfx in
connection with such registration, including without limitation (i) all filing
fees with the SEC, (ii) all fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of securities counsel selected
by or reasonably acceptable to 3dfx) in connection with blue sky registrations
or qualifications of such shares of 3dfx Common Stock or exemption therefrom,
(iii) all word processing, duplicating and printing expenses and (iv) all fees
and expenses of any additional experts (including, but not limited to, counsel
and independent certified public accountants) retained by 3dfx in connection
with such registration. Notwithstanding any other provision of this Agreement,
each securityholder of the Company shall
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pay any underwriting discounts or commissions or brokers' fees or commissions,
if any, attributable to the sale by such securityholder of shares of 3dfx Common
Stock.
(d) 3dfx covenants that it will at all times use all commercially
reasonable efforts to timely file any report required to be filed by it under
the 1933 Act and the 1934 Act and that it will take such other actions as may be
reasonably necessary to enable the securityholders of the Company to sell the
3dfx Common Stock without registration under applicable exemptions provided for
under the 1933 Act including, without limitation, Rule 144.
9.7. The Company Options.
(a) At the Effective Time of the Merger, each outstanding option to
purchase shares of the Company Common Stock issued pursuant to the Option Plan
(the "Company Options") shall be assumed by 3dfx. Accordingly, each Company
Option so assumed shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable immediately prior to the Effective
Time of the Merger, 3dfx Common Stock (the "New 3dfx Options"), with the
Aggregate Value of the New 3dfx Options to be equal to the Aggregate Value of
the Company Options. The "Aggregate Value" of an option shall be determined by
multiplying the number of shares of Company Common Stock for which the option
was exercisable by the ratio determined the manner set forth in Annex V (and
subject to the conditions thereof) to determine the number of shares to be
issuable under the New 3dfx Options and by dividing the exercise price for such
shares of Company Common Stock by such ratio to determine the exercise price
therefor. The number of shares of 3dfx Common Stock for which the New 3dfx
Options are exercisable shall be calculated in accordance with the Treasury
Regulations under Section 1.425-1(a), so that the ratio of the exercise price of
the New 3dfx Options to the market value per share of 3dfx Common Stock will be
equal to the same ratio calculated for the Company Options at the Closing Date.
It is the parties' intent that 3dfx's assumption of Company Options that are
incentive stock options under Section 422 of the Code will qualify under Section
424(a) of the Code as an assumption of an option that is not a modification of
such option, and the parties shall cooperate with each other in establishing
procedures for effecting the assumption to meet the requirements of the Code.
(b) As soon as practicable after the Effective Time of the Merger, 3dfx
shall deliver to each holder of a Company Option a document evidencing the
foregoing assumption of such Company Option by 3dfx.
(c) As soon as practicable after the Effective Time of the Merger, 3dfx
shall file a registration statement with the SEC on Form S-8 (or any successor
or other appropriate form), or another appropriate form with respect to the
shares of 3dfx Common Stock subject to New 3dfx Options and shall use its
reasonable efforts to maintain the effectiveness of such registration statement
(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such New 3dfx Options remain outstanding.
9.8. Interim Agreements. Each of the parties hereto acknowledges that it is
in their mutual best interests, in light of the transactions contemplated by
this Agreement, to work together with respect to product development and
marketing and hereby agrees to negotiate, to execute and to deliver prior to the
Closing such agreements as the parties mutually shall reasonably deem necessary
for the parties to satisfy their business goals and to realize the economic
benefits of the Merger and the other transactions contemplated hereby.
Accordingly, the parties agree to use their respective reasonable best efforts
to negotiate and execute a joint development and marketing agreement as soon as
practicable following the Closing and with a provision providing that revenue
margins shall be shared in a 50%/50% basis with respect to joint developments
thereunder.
9.9. Issuance of Securities to Microsoft; Use of Microsoft Proceeds. The
parties hereby acknowledge that the economic terms embodied in this Agreement
contemplate that, prior to the Closing, Microsoft will pay or otherwise
contribute to the Company up to Twenty-Four Million Dollars ($24,000,000) in
cash. The parties further acknowledge that Microsoft may receive equity
securities of the Company in exchange for up to Ten Million Dollars
($10,000,000) of the total amount so paid or otherwise contributed, and 3dfx
hereby consents to the issuance to Microsoft of up to Ten Million Dollars
($10,000,000) of equity securities of the Company. Notwithstanding anything
contained or implied herein to the contrary, the parties hereby agree that any
securities issued to Microsoft in accordance with this Section 9.9 shall reduce
the per share consideration
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otherwise due and payable to the other securityholders of the Company and shall
not in any way dilute the ownership interests of the shareholders of 3dfx.
Except as otherwise contemplated by this Agreement, all cash paid or otherwise
contributed by Microsoft to the Company shall be used for working capital
purposes and shall not, directly or indirectly, be distributed to the
securityholders of the execution of this Agreement.
9.10. Establishment of Performance Bonus Arrangements. Immediately
following the Closing, the Company shall pay to the employees executing
Employment Agreements and to the individual executing the Consulting Agreement
the aggregate amount of Three Million Five Hundred Thousand Dollars ($3,500,000)
in cash (the "Performance Bonus Pool"). Any and all funds received from the
Performance Bonus Pool (other than those paid in connection with the Consulting
Agreement) shall be forfeited to the Company if such individuals do not provide
services to the Company for two (2) full years following the Closing, except as
a result of certain conditions contained in the Performance Bonus Agreements (as
defined below) or the Consulting Agreement, as applicable. All distributions
from the Performance Bonus Pool shall be made in accordance with the provisions
of (i) this Section 9.10 and (ii) those certain Performance Bonus Agreements by
and between the Company and the employees executing the Employment Agreements
and in substantially the form attached hereto as Annex X (the "Performance Bonus
Agreements"), or the Consulting Agreement, as applicable.
9.11. No Solicitation.
(a) Neither the Company nor 3dfx shall, directly or indirectly, nor shall
either the Company or 3dfx authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor, accountant, attorney or
other representative of such party, directly or indirectly, to (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
offer or proposal (each, a "Third Party Acquisition Proposal") contemplating or
otherwise relating to any Third Party Acquisition Transaction (as defined in
Section 9.11(c)), or take any action that could reasonably be expected to lead
to a Third Party Acquisition Proposal, (ii) furnish any nonpublic information
regarding such party to any person or entity other than the other parties hereto
or their representatives (each, a "Person") in connection with, or in response
to, a Third Party Acquisition Proposal, (iii) engage in discussions with any
Person with respect to any Third Party Acquisition Proposal, (iv) approve, to
endorse or recommend any Third Party Acquisition Proposal or (v) enter into any
letter agreement of intent or similar document or any agreement contemplating or
otherwise relating to any Third Party Acquisition Transaction. Each party
further agrees that it shall immediately notify the other parties of any and all
solicitations, submissions, announcements, discussions, offers, proposals or
other actions constituting, or that could reasonably be expected to lead to, or
be deemed to be, a Third Party Acquisition Proposal. Such notification
obligation shall include disclosure of the identity of the party making the
Third Party Acquisition Proposal or inquiry, the terms and conditions of any
Third Party Acquisition Proposal and any material financing terms. Each party
shall keep the other parties fully informed of the status and details of such
Third Party Acquisition Proposal or inquiry.
(b) Nothing in this Section 9.11 shall prohibit the board of directors of
3dfx (the "3dfx Board") from considering an unsolicited Third Party Acquisition
Proposal if (i) neither 3dfx nor any of its representatives has violated any of
the restrictions set forth in Section 9.11(a), (ii) the 3dfx Board determines in
good faith, after consultation with, and receipt of advice from, independent
financial advisors of nationally recognized reputation that such Third Party
Acquisition Proposal, should reasonably result, if consummated in the manner set
forth in the Third Party Acquisition Proposal, in a transaction more favorable,
from a financial point of view, to the holders of 3dfx Common Stock (a "Superior
Proposal"), (iii) the 3dfx Board has received the written opinion from its
outside counsel that consideration of the Superior Proposal is required for the
3dfx Board to comply with its fiduciary obligations to the holders of 3dfx
Common Stock under applicable law and (iv) 3dfx promptly, but no later than
forty-eight (48) hours after the first consideration of the Superior Proposal,
communicates to the Company (I) the terms and conditions of such Superior
Proposal and (II) whether or not it wishes to proceed with the transactions
contemplated hereby, either as part of the Superior Proposal or otherwise.
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(c) As used in this Agreement, the term "Third Party Acquisition
Transaction" shall mean any transaction or series of related transactions (other
than those contemplated hereby) involving:
(i) Any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange
offer or other similar transaction in which (A) the party is a constituent
corporation, (B) a Person or "group" (as defined in the 1934 Act and the
rules promulgated thereunder) of Persons directly or indirectly acquires
such party or more than fifty percent (50%) of such party's business or,
directly or indirectly, acquires beneficial or record ownership of
securities representing more than fifty percent (50%) of the outstanding
securities of any class of voting securities of such party or (C) in which
such party issues securities representing more than fifty percent (50%) of
the outstanding securities of any class of voting securities of such party;
or
(ii) Any sale, lease (other than in the ordinary course of business
and other than a disposition in liquidation), exchange, transfer, license
(other than in the ordinary course of business) or disposition of more than
fifty percent (50%) of the assets of such party, net of liabilities,
carried at book value.
(d) The Company acknowledges that 3dfx will incur substantial costs and
will necessarily forego other strategic opportunities if it pursues the
transactions contemplated by this Agreement. In recognition of this and as an
inducement to 3dfx to execute and to deliver this Agreement and to consummate
the transactions contemplated hereby, the Company hereby agrees that if the
Company breaches any of the covenants or agreements set forth in this Section
9.11, then it shall (i) reimburse 3dfx for all costs and expenses incurred by
3dfx in connection with such transactions (the "3dfx Expenses"), (ii) pay to
3dfx in cash the sum of Five Million Dollars ($5,000,000) in cash and (iii) if
the Company enters into a written agreement to consummate a Third Party
Acquisition Transaction within one (1) year from the date hereof, pay to 3dfx in
cash the additional sum of Two Million Five Hundred Thousand Dollars
($2,500,000) (plus any additional 3dfx Expenses incurred in the interim).
(e) 3dfx acknowledges that the Company will incur substantial costs and
will necessarily forego other strategic opportunities if it pursues the
transactions contemplated hereof. In recognition of this and as an inducement to
the Company to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, 3dfx hereby agrees that, if (i) 3dfx breaches
any of the covenants or agreements set forth in this Section 9.11 or (ii) this
Agreement is terminated pursuant to the provisions of Sections 11.1(b) or
11.1(c), then it shall reimburse the Company for all costs and expenses incurred
by the Company in connection with such transactions (the "Company Expenses"). In
addition, if 3dfx (x) has breached any of the provisions of this Section 9.11,
(y) has notified the Company that as a result of the Superior Proposal it is
terminating this Agreement pursuant to Section 11.1(b) or (z) enters into a
written agreement to consummate a Superior Proposal within one (1) year from the
date of this Agreement and the Company is not a part of such transaction for
reasons other than the Company's termination of this Agreement pursuant to
Section 11.1(c), then 3dfx shall also pay to the Company in cash the sum of
$7,500,000 (plus any Company Expenses incurred in the interim).
(f) Upon execution of this Agreement, the agreements and undertakings set
forth in this Section 9.11 shall supersede the Mutual Agreement Concerning
Solicitations dated March 20, 2000 by and between 3dfx and the Company.
9.12. Confidential Information.
(a) The Company shall not directly or indirectly divulge to any Person or
entity or use any 3dfx Confidential Information, except as required for the
performance of its duties under this Agreement. As used herein, "3dfx
Confidential Information" consists of (a) any information marked as
"confidential" by 3dfx whether developed by 3dfx or Newco or disclosed to 3dfx
or Newco by a third party, (b) any trade secrets relating to any of the
foregoing and (c) any information relating to 3dfx's or Newco's product plans,
product designs, products costs, product prices, product names, finances,
marketing plans, business opportunities, personnel, research development or
know-how. The foregoing restriction will apply to information about a party
whether or not it was obtained from such party's employees, acquired or
developed by the other party during such other party's performance under this
Agreement, or otherwise learned. The foregoing restrictions
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will not apply to information that (i) has become publicly known through no
wrongful act of the receiving party, (ii) has been rightfully received from a
third party authorized by the party that owns, created or compiled such
information to make such disclosure without restriction, (iii) has been approved
or released by written authorization of the party that owns, created or compiled
such information or (iv) is being or has therefore been disclosed pursuant to a
valid court order after a reasonable attempt has been made to notify the party
that owns, created or compiled such information.
(b) Prior to the Closing Date, 3dfx and Newco will not directly or
indirectly divulge to any Person or entity or use any Company Confidential
Information, except as required for the performance of its duties under this
Agreement. As used herein, "Company Confidential Information" consists of (a)
any information marked as "confidential" by the Company whether developed by the
Company or disclosed to the Company by a third party, (b) any trade secrets
relating to any of the foregoing and (c) any information relating to the
Company's product plans, product designs, product costs, product prices, product
names, finances, marketing plans, business opportunities, personnel, research
development or know-how. The foregoing restriction will apply to information
about a party whether or not it was obtained from such party's employees,
acquired or developed by the other party during such other party's performance
under this Agreement, or otherwise learned. The foregoing restrictions will not
apply to information that (i) has become publicly known through no wrongful act
of the receiving party, (ii) has been rightfully received from a third party
authorized by the party that owns, created or compiled such information to make
such disclosure without restriction, (iii) has been approved or released by
written authorization of the party that owns, created or compiled such
information or (iv) is being or has therefore been disclosed pursuant to a valid
court order after a reasonable attempt has been made to notify the party that
owns, created or compiled such information.
9.13. Indemnification Under Charter and Bylaws; Existing Agreements. For a
period of six (6) years from the Effective Time of the Merger, the provisions of
the Company's Certificate of Incorporation and By-Laws as in effect on the date
of this Agreement with respect to indemnification of officers and directors
shall not be modified, changed or amended, except as required by mandatory
provisions of applicable law or as conditions or provisions of the Company's
Certificate of Incorporation or By-Laws being declared void, voidable or without
further binding effect. For a period of six (6) years following the Closing
Date, 3dfx shall cause the Surviving Corporation to honor the terms of any
indemnification agreements between the Company and its officers and directors in
effect on the Closing Date.
9.14. Bring-Down Schedule. Not less than two (2) business days prior to the
Closing Date, the Company shall provide Buyer on Schedule 9.14 a full and
complete list of the items added to, deleted from or amended on each of the
Company's other disclosure schedules within the period following execution of
this Agreement and prior to the Closing Date. In the event that 3dfx and Newco
proceed to consummate the transactions set forth in this Agreement and to effect
the Merger, such items shall be deemed to have been set forth on the Company's
disclosure schedules as of the date of execution of this Agreement.
9.15. Tax Opinions. The Company shall obtain from Heller Ehrman White &
McAuliffe LLP two opinions to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code, with one dated as
of the effective date of the S-4 and one dated the Closing Date. 3dfx shall
obtain from Locke Liddell & Sapp LLP two opinions to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the Code,
with one dated as of the effective date of the S-4 and one dated the closing
date. Each of the Company and 3dfx agrees to deliver to Heller Ehrman White &
McAuliffe LLP and Locke Liddell & Sapp LLP officers' certificates in form and
substance satisfactory to such firms containing all appropriate representations
to support the opinions referenced above. Such certificates shall be delivered
prior to the delivery of each of the opinions referenced above and shall be
dated as of the dates of the respective opinions.
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ARTICLE X
ESCROW ARRANGEMENTS
The Company, 3dfx and Newco each make the following covenants that are
applicable to them, respectively.
10.1. 3dfx Losses. At the Effective Time of the Merger, the securityholders
of the Company shall be deemed to have received as part of the consideration and
to have deposited with the escrow agent under the Indemnity Escrow Agreement
shares of 3dfx Common Stock equal to ten percent (10%) of the shares of 3dfx
Common Stock issued by 3dfx at the Closing. Such escrow amount shall be
available for recovery for 3dfx Losses as a result of (i) subject to the
provisions of Section 9.14, any representation or warranty made by the Company
in or pursuant to this Agreement (including, without limitation, the
representations and warranties contained in any schedule or exhibit to this
Agreement or certificate delivered pursuant hereto) being untrue or incorrect in
any respect, (ii) the termination of or withdrawal by the Company or any Group
Member from any employee pension benefit plan, as defined in Section 3(2)(A) of
ERISA that is maintained pursuant to a collective bargaining agreement under
which more than one employer makes contributions and to which the Company or any
Group Member is then making or accruing an obligation to make contributions or
has within the preceding four (4) plan years made contributions, (iii) the items
described in Schedule 5.8 or Schedule 5.11 hereof except in any instance and to
the extent 3dfx Losses result from the gross negligence or willful misconduct of
3dfx, Newco or the Surviving Corporation, (iv) any failure by the Company to
observe or to perform its covenants and agreements set forth in this Agreement
or in any other agreement or document executed by it in connection with the
transactions contemplated hereby or (v) subject to the provisions of Section
12.7, any liability arising from or based upon the engagement by the Company of
any broker or agent, whether or not disclosed on Schedule 12.6 hereto. If the
Merger is consummated, recovery from the escrow amount pursuant to this Article
X shall be 3dfx's sole and exclusive remedy for 3dfx Losses.
10.2. Notice of Loss. Except to the extent set forth in the next sentence,
3dfx will not have a right to recovery from the escrow with respect to a
particular matter unless a notice setting forth in reasonable detail the breach
or other matter that is asserted has been given to the Indemnifying Party (as
defined below) and, in addition, if such matter arises out of a suit, action,
investigation, proceeding or claim, such notice is given promptly.
Notwithstanding the preceding sentence, the failure of the Indemnified Party (as
defined below) to give notice hereunder shall not release the Indemnifying Party
from its obligations under this Article X, except to the extent the Indemnifying
Party is actually prejudiced by such failure to give notice. With respect to
3dfx Losses, the Shareholder Representative is referred to as the "Indemnifying
Party" solely for the purpose of receiving notices of claims as provided herein
and in the Indemnity Escrow Agreement, exercising its right to defend as
provided in the Indemnity Escrow Agreement, and shall have no personal liability
for 3dfx Losses or other liability to 3dfx, Newco or the Surviving Corporation
as a result of acting as the Shareholder Representative. 3dfx and Newco and
their respective directors, officers, employees, representatives, agents and
attorneys shall be the "Indemnified Party" with respect to 3dfx Losses.
10.3. Right to Defend. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed by
an Indemnified Party, the Indemnified Party shall be entitled to defend, contest
or otherwise protect against any such suit, action, investigation, claim or
proceeding, and the Indemnifying Party must cooperate in any such defense or
other action. The Indemnifying Party shall have the right, but not the
obligation, to participate at its own expense in defense thereof by counsel of
its own choosing, but the Indemnified Party shall be entitled to control the
defense unless otherwise determined by the Indemnified Party or if the
Indemnified Party fails to assume defense of the matter. If the Indemnified
Party shall fail to defend, contest or otherwise protect in a timely manner
against any such suit, action, investigation, claim or proceeding, then the
Indemnifying Party shall have the right, but not the obligation, thereafter to
defend, to contest or otherwise to protect against the same and make any
compromise or settlement thereof, and shall pay all costs thereof including,
without limitation, reasonable attorneys' fees, disbursements and all amounts
paid as a result of such suit, action, investigation, claim or proceeding or the
compromise or settlement thereof, provided, however, that the Indemnifying Party
must send a written notice to the Indemnified Party of any such proposed
settlement or compromise, which settlement or compromise the
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Indemnified Party may reject, in its reasonable judgment, within thirty (30)
days of receipt of such notice. Failure to reject such notice within such thirty
(30) day period shall be deemed an acceptance of such settlement or compromise.
The Indemnified Party shall not have the right to effect a settlement or
compromise without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld; provided, however, that if the
Indemnifying Party has assumed the defense from the Indemnified Party upon the
election of the Indemnified Party, then the Indemnified Party waives any right
to indemnity therefor. If the Indemnifying Party undertakes the defense of such
matters upon the election of the Indemnified Party, then the Indemnified Party
shall not, so long as the Indemnifying Party does not abandon the defense
thereof, be entitled to recover from the escrow amount any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than the reasonable costs of investigation undertaken by
the Indemnified Party with the prior written consent of the Indemnifying Party.
10.4. Limitations on Indemnification. The persons or entities indemnified
pursuant to this Article shall not assert any claim for indemnification
hereunder, nor shall any such persons or entities make any such claim based on
misrepresentation, breach of warranty, breach of covenant or any other legal or
equitable theory other than fraud or pursuant to Sections 5.3 or 9.4 until such
time as and solely to the extent that the aggregate of all claims that such
persons may have against the Indemnifying Parties shall exceed an amount equal
to Six Hundred Thousand Dollars ($600,000) with respect to all claims; provided,
that such $600,000 amount shall be reduced on a dollar-for-dollar basis by the
amount of any Material Adverse Effect arising prior to the Closing that did not
reach the amount set forth in Section 8.19 hereof.
ARTICLE XI
TERMINATION
11.1. Termination. This Agreement shall continue in full force and effect
unless otherwise terminated in accordance with the provisions of this Article
XI. Notwithstanding any other provision of this Agreement and subject to the
provisions of Section 9.11, this Agreement may be terminated (a) by the written
consent of each of the parties hereto, (b) by 3dfx upon written notice to the
Company of its intent not to consummate the transactions contemplated hereby in
accordance with the provisions of Section 9.11(b)(iv), (c) by the Company upon
written notice to 3dfx of its intent to pursue a Superior Proposal in accordance
with the provisions of Section 9.11(b)(iv), (d) by either 3dfx or the Company
upon the entry or issuance by any Agency or by any court of competent
jurisdiction of any injunction, order or decree seeking to restrain or otherwise
prohibit the Merger or any other transaction contemplated hereby or that could
reasonably be expected to have a Material Adverse Effect or a 3dfx Material
Adverse Effect, as applicable, (e) by 3dfx upon the breach of a representation,
warranty or covenant of the Company, which breach (I) could reasonably be
expected to have a Material Adverse Effect and (II) is not cured within ten (10)
business days of the receipt by the breaching party of notice thereof, (f) by
the Company upon the breach of a representation, warranty or covenant of 3dfx,
which breach (I) could reasonably be expected to have a 3dfx Material Adverse
Effect and (II) is not cured within ten (10) business days of the receipt by
3dfx of notice thereof, or (g) by either 3dfx or the Company if the Closing
shall not have occurred on or before October 15, 2000.
11.2. Effect of Termination. Upon any termination of this Agreement in
accordance with the provisions of Section 11. 1, this Agreement shall expire and
shall be of no further force or effect, and none of the parties hereto shall
have any further obligations hereunder; provided, however, that, notwithstanding
any other provision of this Agreement to the contrary, the provisions of
Sections 9.11(d), 9.11(e), 9.11(f), 9.11(g), 9.12, 12.6 and 12.7 and any
obligations of the parties pursuant thereto, shall survive and continue
unaffected following any termination of this Agreement; provided, however, that,
if such termination shall result from the willful and deliberate failure of any
party to fulfill a condition to the performance of the obligations of any other
party, or the willful and deliberate failure of any party to perform a covenant
of such party contained in this Agreement or the willful and deliberate breach
by any party of any representation, warranty or agreement contained herein, then
such party shall pay to the other party 3dfx's Expenses, if the Company is the
party in breach, or the Company Expenses, if 3dfx is the party in breach, plus
the sum of $7,500,000 in full and complete satisfaction of all costs, expenses,
damages or losses incurred or suffered by such other parties as a result of such
failure or breach.
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ARTICLE XII
GENERAL
12.1. Cooperation. The Company, 3dfx and Newco shall each deliver or cause
to be delivered to the other on the Closing Date, and at such other times and
places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement. The
Company will cooperate and use its reasonable efforts to have the present
officers, directors and employees thereof cooperate with 3dfx on and after the
Closing Date in furnishing information, evidence, testimony and other assistance
in connection with any Tax return filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
12.2. Survival of Covenants, Agreements. Representations and Warranties.
(a) Covenants and Agreements. All covenants and agreements made hereunder
or pursuant hereto or in connection with the transactions contemplated hereby
shall survive the Closing and shall continue in full force and effect thereafter
according to their terms without limit as to duration.
(b) Representations and Warranties. All representations and warranties
contained herein shall survive the Closing and shall continue in full force and
effect thereafter for a period of one (1) year from the Closing.
(c) Claims Made Prior to Expiration. Notwithstanding the foregoing survival
periods set forth in this Section 12.2, the termination of a survival period
shall not affect the rights of an Indemnified Party in respect of any claim made
by any party with specificity, in good faith and in writing to the Indemnifying
Party in accordance with Sections 10.2 and 12.8 hereof prior to the expiration
of the applicable survival period.
12.3. Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, and the successors of
3dfx.
12.4. Entire Agreement. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the Transaction Documents delivered pursuant
hereto constitute the entire agreement and understanding among the
securityholders of the Company, the Company, Newco and 3dfx, and supersede any
prior agreement and understanding relating to the subject matter of this
Agreement. This Agreement, upon execution, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms, and
this Agreement and the Annexes hereto may be modified or amended only by a
written instrument executed by the Company, Newco and 3dfx, acting through their
respective officers, duly authorized by their respective Boards of Directors.
12.5. Counterparts. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
12.6. Brokers and Agents. Except as disclosed on Schedule 12.6, each party
represents and warrants that it employed no broker or agent in connection with
this transaction.
12.7. Expenses. Whether or not the transactions herein contemplated shall
be consummated, 3dfx and Newco will pay the fees, expenses and disbursements of
3dfx and Newco and their respective agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by 3dfx under this Agreement.
The Company will pay up to Two Million Five Hundred Thousand Dollars
($2,500,000) of the fees, expenses and disbursements of the Company and its
agents, representatives, accountants and counsel (collectively, the "Company
Advisory Fees") in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by the Company under the
Agreement. Any Company Advisory Fees in excess of Two Million Five Hundred
Thousand Dollars ($2,500,000) shall be paid by the Company and shall be deducted
appropriately from the aggregate consideration owing to the securityholders of
the Company pursuant to Article II. The securityholders of the
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Company, and not the Company, the Surviving Corporation or 3dfx, will pay all
taxes due upon receipt of the consideration payable to the securityholders of
the Company pursuant to Article II, and all sales, use, real property, transfer,
recording, gains, stock transfer and other similar fees in connection with the
transactions contemplated by this Agreement. Notwithstanding anything contained
or implied herein to the contrary, any and all filing fees paid in connection
with any pre-Merger notifications and/or report forms under the HSR Act shall be
shared equally by 3dfx and the Company.
12.8. Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given by (a) depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, (b) delivering the same in person to an
officer or agent of such party or (c) sending a facsimile of the same with
electronic confirmation of receipt.
(i) If to 3dfx or Newco, addressed to them at:
3dfx Interactive, Inc.
4435 Fortran Drive
San Jose, California 95134
Facsimile No. (408) 262-5551
Attn: Dr. Alex Leupp
Cc: Legal Department
with copies to:
Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Facsimile No.: (214) 740-8800
Attn: John B. McKnight, Esq./Kent Jamison, Esq.
(ii) If to the securityholders of the Company, addressed thereto at
the address set forth on Annex I, with copies to counsel as set
forth below;
(iii) If to the Company, addressed to:
GigaPixel Corporation
2350 Mission College Blvd.
Suite 800
Santa Clara, California 95054
Facsimile: Attn: Mr. George T. Haber
President and Chief Executive Officer
with copies to:
Heller Ehrman White & McAuliffe LLP
601 South Figueroa Street, 40th Floor
Los Angeles, California 90017-5758
Facsimile No.: (213) 614-1868
Attn: Stephen E. Newton, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 12.8 from time to time.
12.9. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES
HERETO EXPRESSLY CONSENT AND AGREE THAT ANY DISPUTE, CONTROVERSY, LEGAL ACTION
OR OTHER PROCEEDING THAT ARISES UNDER, RESULTS FROM, CONCERNS OR RELATES TO THIS
AGREEMENT MAY BE BROUGHT IN THE FEDERAL AND STATE COURTS IN AND OF THE STATE OF
CALIFORNIA AND ACKNOWLEDGE THAT THEY WILL ACCEPT SERVICE OF PROCESS BY
REGISTERED OR CERTIFIED MAIL OR THE
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EQUIVALENT DIRECTED TO THEIR LAST KNOWN ADDRESS AS DETERMINED BY THE OTHER PARTY
IN ACCORDANCE WITH THIS AGREEMENT OR BY WHATEVER OTHER MEANS ARE PERMITTED BY
SUCH COURTS. THE PARTIES HERETO HEREBY ACKNOWLEDGE THAT SAID COURTS HAVE
JURISDICTION OVER ANY SUCH DISPUTE OR CONTROVERSY, AND THAT THEY HEREBY WAIVE
ANY OBJECTION TO PERSONAL JURISDICTION OR VENUE IN THESE COURTS OR THAT SUCH
COURTS ARE AN INCONVENIENT FORUM.
12.10. Exercise of Rights and Remedies. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
12.11. Reformation and Severability. If any provision of this Agreement
shall be invalid, illegal or unenforceable, then it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, then such provision shall be severed from this Agreement, and
in either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
12.12. Remedies Cumulative. Except as set forth in Article X, no right,
remedy or election given by any term of this Agreement shall be deemed exclusive
but each shall be cumulative with all other rights, remedies and elections
available at law or in equity.
12.13. Specific Performance; Other Rights and Remedies. Each party
recognizes and agrees that in the event the other party or parties should refuse
to perform any of its or their obligations under this Agreement, the remedy at
law would be inadequate and agrees that for breach of such provisions, each
party shall, in addition to such other remedies as may be available to it at law
or in equity, be entitled to injunctive relief and to enforce its rights by an
action for specific performance to the extent permitted by applicable law. Each
party hereby waives any requirement for security or the posting of any bond or
other surety in connection with any temporary or permanent award of injunctive,
mandatory or other equitable relief.
12.14. Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
3DFX INTERACTIVE, INC.
By: /s/ ALEX LEUPP
------------------------------------
Name: Alex Leupp
Title: President and CEO
GALAPAGOS ACQUISITION CORP.
By: /s/ ALEX LEUPP
------------------------------------
Name: Alex Leupp
Title: President and CEO
GIGAPIXEL CORPORATION
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By: /s/ GEORGE T. HABER
----------------------------------
Name: George T. Haber
Title: President and CEO
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ANNEX II
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MARCH 27, 2000
BY AND AMONG
3DFX INTERACTIVE, INC.,
GALAPAGOS ACQUISITION CORP.
AND
GIGAPIXEL CORPORATION
DEFINITIONS
Definitions. In this Agreement, the following terms shall have the meanings
set forth below unless the context requires otherwise:
(1) "3dfx Board" has the meaning given in Section 9.11(b).
(2) "3dfx Charter Documents" has the meaning given in Section 6.5(a).
(3) "3dfx Common Stock" has the meaning given in Section 1.4(b).
(4) "3dfx Confidential Information" has the meaning given in Section
9.12(a).
(5) "3dfx Expenses" has the meaning given in Section 9.11(d).
(6) "3dfx Losses" means all damages (including, without limitation, amounts
paid in settlement with the Company's consent, which consent may not be
unreasonably withheld), losses, obligations, liabilities, claims, deficiencies,
costs and expenses (including, without limitation, reasonable attorneys' fees),
penalties, fines, interest and monetary sanctions, including, without
limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and Agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of 3dfx, Newco and the Surviving Corporation or such other
persons to indemnification hereunder.
(7) "3dfx Material Adverse Effect" has the meaning given in Section 6.8.
(8) "3dfx Material Documents" has the meaning given in Section 6.5(b).
(9) "3dfx Voting Agreements" has the meaning given in the sixth paragraph
of the preamble of this Agreement.
(10) "1933 Act" means the Securities Act of 1933, as amended.
(11) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(12) "Agency" has the meaning given in Section 5.16.
(13) "Aggregate Value" has the meaning given in Section 9.7(a).
(14) "Applicable Law" means, with respect to any Person, property,
transaction, event or other matter, any Law relating or applicable to such
Person, property, transaction, event or other matter. Applicable Law also
includes, where appropriate, any interpretation of the Law (or any part) by any
Person having jurisdiction over it, or charged with its administration or
interpretation.
(15) "Best of 3dfx's Knowledge" means the knowledge of the officers of 3dfx
and Newco, in each case having made due inquiries.
(16) "Best of the Company's Knowledge" means the actual knowledge of the
officers and directors of the Company and of the Management Shareholders, in
each case having made due inquiries.
(17) "Business" means the Company's development, implementation, sale
and/or other distribution of high performance 3D graphics hardware and software.
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(18) "Certificate of Merger" has the meaning given in Section 1.1.
(19) "Charter Documents" has the meaning given in Section 5.2.
(20) "Closing" has the meaning given in Article IV.
(21) "Closing Date" has the meaning given in Article IV.
(22) "Code" means the Internal Revenue Code of 1986, as amended.
(23) "Company's Accountant" has the meaning given in Section 5.5(a).
(24) "Company Advisory Fees" has the meaning given in Section 12.7.
(25) "Company Common Stock" has the meaning given in Section 1.4(a).
(26) "Company Confidential Information" has the meaning given in Section
9.12(b).
(27) "Company Options" has the meaning given in Section 9.7(a).
(28) "Company Voting Agreement" has the meaning given in the fourth
paragraph of the preamble to this Agreement.
(29) "Constituent Corporations" has the meaning given in the third
paragraph of the preamble to this Agreement.
(30) "Contracts" has the meaning given in Section 5.12(a).
(31) "Dissenting Shares" has the meaning given in Section 2.4.
(32) "Effective Time of the Merger" has the meaning given in Section 1.2.
(33) "Employment Agreements" and "Consulting Agreement" have the meaning
given in Section 8.11.
(34) "Environmental Requirements" means all laws, statutes, rules,
regulations, ordinances, permits, guidance documents, judgments, decrees,
orders, agreements and other restrictions and requirements (whether now or
hereafter in effect) of any governmental authority, including, without
limitation, federal, state and local authorities, relating to the regulation or
protection of human health and safety, worker health and safety, natural
resources, conservation, the environment, or the storage, treatment, disposal,
transportation, handling or other management of industrial or solid waste, or
Hazardous Substances, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended from
time to time (42 U.S.C. sec.sec.9601 et seq.) ("CERCLA"); the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. sec.6901 et seq.; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. sec.1251 et seq.; the
Toxic Substances Control Act, 15 U.S.C. sec.2601 et seq.; the Clean Air Act, 42
U.S.C. sec.7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. 300f et seq.;
the 0.1 Pollution Act of 1990, 33 U.S.C. sec.2701 et seq.; and their state and
local counterparts and equivalents.
(35) "Equitable Exceptions" has the meaning given in Section 5.1.
(36) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(37) "Escrow Agent" has the meaning given in Section 3.1(a).
(38) "FTC" has the meaning given in Section 7.12.
(39) "Financial Statements" has the meaning given in Section 5.5(a).
(40) "GAAP" means generally accepted accounting principles consistently
applied.
(41) "Group Member" has the meaning given in Section 5.19(c).
(42) "HSR Act" has the meaning given in Section 7.12.
(43) "Hazardous Substance" means (i) any "hazardous substance" as defined
in sec.101(14) of CERCLA, or any regulations promulgated thereunder, or the
Occupational Safety and Health Act of 1970, as
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amended from time to time (29 U.S.C. sec.sec.651 et seq.), or any regulations
promulgated thereunder, or any analogous state or local laws or regulations,
(ii) petroleum and petroleum by-products, asbestos and asbestos-containing
materials, polychlorinated biphenyls and pesticides or (iii) any additional
substances or materials that have been or are currently classified or considered
to be pollutants, hazardous or toxic under Environmental Requirements.
(44) "IRS" means the United States Internal Revenue Service.
(45) "Indemnified Party" has the meaning given in Section 10.2.
(46) "Indemnifying Party" has the meaning given in Section 10.2.
(47) "Indemnity Escrow Agreement" has the meaning given in Section 3.1(a).
(48) "Intellectual Property" means all rights to and interests in:
(a) trademarks, service marks, trade names, names, logos, slogans and
franchises together with the goodwill related thereto including all
registrations and applications to register any of the foregoing with any
agency or authority and the exclusive right to hold oneself out as the
successor owner thereof;
(b) patents, patent applications, patent rights, inventions and
designs, and any registration thereof with any agency or authority
including issued patents, patent applications, re-issues or patents of
additions, continuations in part, divisionals and filing priorities;
(c) all Software, copyrights (including audiovisual copyrights) and
design rights and all registrations and applications thereof;
(d) trade secrets including all processes, know-how, technical data,
shop rights, and any media or other tangible embodiment thereof and all
descriptions thereof;
(e) other technology, intellectual property, maskworks, industrial and
intangible property constituting, embodied in or pertaining to, any assets
including without limitation processes, lab journals, notebooks, manuals,
data computer programs, source code, discoveries, databases, and
documentation, flow charts, research and development, reports, agency
information, technical information, engineering data, design and
engineering specifications and similar recordings;
(f) all other intellectual and industrial property rights throughout
the world and all confidential and proprietary information related to any
of (a) to (e), both inclusive, above;
(g) all rights to secure renewals, re-issuances and extension of (a)
to (f), both inclusive, above;
(h) all future income and proceeds of (a) to (g), both inclusive,
above; and
(i) all rights to damages and profits by reason of the infringement of
(a) to (g) both inclusive.
(49) "Inventories" means all (1) inventories of computer program code (in
all media) and materials, including the Software programs, (2) program
documentation, including user materials, and (3) all other inventories of
stock-in-trade and merchandise including unused or reusable materials, stores,
supplies, work-in-progress, finished goods, tooling, service parts and purchased
finished goods.
(50) "Law" means any law, including common law, rule, statute, regulation,
order, judgment, decree, treaty or other requirement having the force of law.
(51) "Licenses and Permits" means all governmental licenses, permits,
franchises, filings, authorizations, approvals or indicia of authority Related
to the Business or necessary for the conduct of the Business.
(52) "Lien" means any lien, mortgage, charge, hypothecation, pledge,
security interest, prior assignment, marital dissolution obligation, option,
warrant, lease, sublease, right to possession, encumbrance, claim, right or
restriction which affects, by way of a conflicting ownership interest or
otherwise, the right, title or interest in or to any particular property, but
excluding any contract or license rights disclosed hereunder.
(53) "Lock-up Agreements" has the meaning given in Section 8.12.
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(54) "Management Shareholders" has the meaning given in Section 5.8(s).
(55) "Material Adverse Effect" means a material adverse effect on the
business, operations, affairs, properties, assets or condition (financial or
otherwise) of the Company or the condition of the Business.
(56) "Merger" has the meaning given in the second paragraph of the preamble
to this Agreement.
(57) "Microsoft" has the meaning given in Section 8.16.
(58) "New 3dfx Options" has the meaning given in Section 9.7.
(59) "Newco Stock" has the meaning given in Section 1.4(c).
(60) "Noncompetition Agreements" has the meaning given in Section 8.8.
(61) "Option Plan" has the meaning given in Section 2.2.
(62) "PBGC" means the United States Pension Benefit Guaranty Corporation.
(63) "Performance Bonus Agreements" has the meaning given in Section 9.10.
(64) "Performance Bonus Pool" has the meaning given in Section 9.10.
(65) "Person" is to be broadly interpreted and includes an individual, a
corporation, a partnership, a trust, an unincorporated organization, the
government of a country or any political subdivision thereof, or any agency or
department of any such government, and the executors, administrators or other
legal representatives of an individual in such capacity.
(66) "Plan" has the meaning given in Section 5.19(a).
(67) "Real Property Leases" has the meaning given in Section 5.10.
(68) "Related Corporation" has the meaning given in Section 5.8(o).
(69) "Related to the Business" means used primarily in, arising primarily
from, or relating primarily to, the Business.
(70) "Required Cash Balance" has the meaning given in Section 2.3.
(71) "S-4" has the meaning given in Section 7.10.
(72) "SEC" means the United States Securities and Exchange Commission.
(73) "SEPP" means Simplified Employee Pension Plan.
(74) "SEC Reports" has the meaning given in Section 6.7(b).
(75) "Securityholders' Release" has the meaning given in Section 8.4.
(76) "Series A Company Stock" has the meaning given in Section 1.4(a).
(77) "Series B Company Stock" has the meaning given in Section 1.4(a).
(78) "Series C Company Stock" has the meaning given in Section 1.4(a).
(79) "Software" means all worldwide rights, title and interest in the
Business software programs identified in Schedule 5.18, in source and object
code (including manufacturing ready masters) forms and including any and all
existing documentation (regardless of whether such documentation is provided on
a commercial basis) including flow charts, program descriptions, program
listings, layouts, schematics, engineering and design drawings, technical
support documentation, maintenance documentation, diagrams and other
documentation depicting or specifying the designs and components of such
software programs, libraries, logs, reports, drafts, models, prototypes,
technical and other data, test and other data and programs, any and all
preceding versions, works in process, fixes, enhancements, future releases or
other developments by the Company which may be combined or embodied in any
medium or format whatsoever, and for all language versions and hardware
platforms, software platforms and operating environments and whether sold
separately
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or bundled with other applications, consisting of a set of logical instructions
and information which guide the functioning of a processor, and which shall
include all information, ephemeral aspects, so-called "look and feel," graphic
design, user methodologies, user and installation guides, user interface design,
software tools owned by the Company, know-how, systems and processes concerning
such computer program.
(80) "Subject Property" means all Real Property, all property subject to
the Real Property Leases and any properties listed on Schedules 5.10 and 5.11.
(81) "Superior Proposal" has the meaning given in Section 9.11(b).
(82) "Surviving Corporation" has the meaning given in Section 1.2.
(83) "Surviving Corporation Stock" has the meaning given in Section 2.1.
(84) "Taxes" means all taxes, charges, fees, levies, imposts and other
assessments, including all income, sales, use, goods and services, value added,
capital, capital gains, alternative, net worth, transfer, profits, withholding,
payroll, employer health, excise, franchise, real property and personal property
taxes, and any other taxes, customs duties, fees, assessments or similar charges
in the nature of a tax, unemployment insurance payments and workers compensation
premiums, together with any installments with respect thereto, and any interest,
fines and penalties, imposed by any governmental authority (including federal,
state, provincial, municipal and foreign governmental authorities), and whether
disputed or not.
(85) "Tax Losses" has the meaning given in Section 5.8(y).
(86) "Third Party Acquisition Proposal" has the meaning given in Section
9.11(a).
(87) "Third Party Acquisition Transaction" has the meaning given in Section
9.11(c).
(88) "Third Party Intellectual Property" has the meaning given in Section
5.18(a).
(89) "Transaction Documents" means this Agreement, the Voting Agreements,
the Indemnity Escrow Agreement, the Performance Bonus Agreement, the
Noncompetition Agreement, the Employment Agreements, the Consulting Agreement,
the Brokers' Releases, the Securityholders' Release and the Lock-Up Agreement.
(90) "Warrant" has the meaning given in Section 1.4(a).
(91) "WebTV Agreement" shall have the meaning set forth in Section 2.3.
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ANNEX V
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF MARCH 27, 2000
BY AND AMONG
3DFX INTERACTIVE, INC.,
GALAPAGOS ACQUISITION CORP.
AND
GIGAPIXEL CORPORATION
Each outstanding share of equity securities of the Company* shall be
converted into shares of 3dfx Common Stock as set forth in this Annex V.
At the Effective Time of the Merger, each outstanding share of Company
Common Stock, Series A Company Stock, Series B Company Stock, and Series C
Company Stock will be converted into that fraction of a share of 3dfx Common
Stock equal to the Exchange Ratio (as defined below). In accordance with the
provisions of Section 3.1(a), ten percent (10%) of the number of shares of 3dfx
Common Stock issued to the holders of equity securities of the Company at the
Effective Time of the Merger will be deposited with and held by the Escrow
Agent.
Each outstanding option to purchase GigaPixel Common Stock (a "GigaPixel
Option") shall be assumed and converted into an option to purchase a number of
shares of 3dfx Common Stock determined by multiplying the number of shares
covered by the GigaPixel Option by the Exchange Ratio exercisable at a per share
exercise price determined by dividing the exercise price of the GigaPixel Option
by the Exchange Ratio.
The outstanding Warrant to purchase 421,696 shares (the "Warrant Shares")
of Series C Company Stock outstanding immediately before the Effective Time of
the Merger will be converted into a number of 3dfx Common Stock equal to the
product of (i) the Warrant Shares less the product of (A) the Warrant Shares and
(B) the quotient of (a) the exercise price of the warrant and (b) the product of
(1) the price per share of 3dfx Common Stock at the Effective Time of the Merger
and (2) the Exchange Ratio and (ii) the Exchange Ratio (as defined below).
No fractional shares of 3dfx Common Stock will be issued in the Merger and
any fractional shares will be paid in cash at the rate of $11.94 per share of
3dfx Common Stock.
For purposes of this Annex V, the "Exchange Ratio" means a fraction, the
numerator of which is a number equal to (i) 15,829,586 minus (ii) the quotient
of (A) the difference between the Required Cash Balance and the actual amount of
cash that the Company has on hand as of the Effective Time of the Merger divided
by (B) $11.94, and the denominator of which is the number of outstanding shares
of equity securities of the Company (on a fully diluted basis) as of the
Effective Time of the Merger.
---------------
*For purposes of this Annex V and unless otherwise indicated, the number of
outstanding shares of equity securities of the Company will be calculated on a
treasury stock fully diluted basis.
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APPENDIX B
GIGAPIXEL CORPORATION
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into as of March
27, 2000 between 3dfx, Inc., a California corporation ("3dfx"), and the
undersigned shareholder ("Shareholder") of GigaPixel Corporation, a Delaware
corporation ("GigaPixel").
RECITALS
A. Concurrently with the execution of this Agreement, 3dfx, GigaPixel, and
GigaPixel Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of 3dfx ("Merger Sub"), have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Merger Agreement") which provides for
the merger (the "Merger") of Merger Sub with and into GigaPixel. Pursuant to the
Merger, shares of capital stock of GigaPixel will be converted into the right to
receive shares of Common Stock of 3dfx in the manner set forth in the Merger
Agreement.
B. The Shareholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of such number of shares of the outstanding capital stock of GigaPixel as
is indicated on the final page of this Agreement (the "Shares").
C. As a material inducement to enter into the Merger Agreement, 3dfx
desires the Shareholder to agree, and the Shareholder is willing to agree, not
to transfer or otherwise dispose of any of the Shares, or any other shares of
capital stock of GigaPixel acquired hereafter and prior to the Expiration Date
(as defined in Section 1.1 below), except as otherwise permitted hereby, and to
vote the Shares and any other such shares of capital stock of GigaPixel so as to
facilitate consummation of the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Shareholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge or
otherwise dispose of or encumber any of the Shares or any New Shares as defined
in Section 1.2 below, or to make any offer or agreement relating thereto, at any
time prior to the Expiration Date. As used herein, the term "Expiration Date"
shall mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the Merger
Agreement and (ii) such date and time as the Merger Agreement shall be
terminated in accordance with its terms.
1.2 Additional Purchases. Shareholder agrees that any shares of capital
stock of GigaPixel that Shareholder purchases or with respect to which
Shareholder otherwise acquires beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act) after the execution of this Agreement and
prior to the Expiration Date ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the shareholders of
GigaPixel called with respect to, and at every adjournment thereof, and on every
action or approval by written consent of the shareholders of GigaPixel with
respect to, approval of the Merger Agreement and the Merger and any matter that
could reasonably be expected to facilitate the Merger, Shareholder shall vote
the Shares and any New Shares in favor of approval of the Merger Agreement and
the Merger and any matter that could reasonably be expected to facilitate the
Merger. Shareholder agrees not to take any actions contrary to Shareholder's
obligations under this Agreement.
3. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Shareholder agrees to deliver to 3dfx a proxy in the form attached hereto as
Annex A (the "Proxy"), which shall be irrevocable, with
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respect to the total number of shares of capital stock of GigaPixel beneficially
owned (as such term is defined in Rule 13d-3 under the Exchange Act) by
Shareholder set forth therein.
4. Representations, Warranties and Covenants of the
Shareholder. Shareholder hereby represents, warrants and covenants to 3dfx that
Shareholder (i) is the beneficial owner of the Shares, which at the date hereof
and at all times up until the Expiration Date will be free and clear of any
liens, claims, options, charges or other encumbrances; (ii) does not
beneficially own any shares of capital stock of GigaPixel other than the Shares
(excluding shares as to which Shareholder currently disclaims beneficial
ownership in accordance with applicable law); and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
5. Additional Documents. Shareholder hereby covenants and agrees to execute
and deliver any additional documents necessary or desirable, in the reasonable
opinion of 3dfx and Shareholder, as the case may be, to carry out the intent of
this Agreement.
6. Consent and Waiver. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Shareholder is a party or pursuant to any rights
Shareholder may have.
7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. Miscellaneous.
8.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
8.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
8.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
8.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that 3dfx will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreement of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to 3dfx upon any such violation, 3dfx shall
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to 3dfx at law or in equity.
8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
<TABLE>
<S> <C>
If to 3dfx: 3dfx Interactive, Inc.
4435 Fortran Drive
San Jose, California 95134
Attention: Chief Financial Officer
Facsimile: (408) 262-5551
</TABLE>
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<TABLE>
<S> <C>
With a copy to: Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Attention: John B. McKnight, Esq.
Facsimile: (214) 740-8800
If to the Shareholder: At the address provided on the signature page hereto
With a copy to:
Heller Ehrman White & McAuliffe LLP
601 South Figueroa Street
Los Angeles, California 90017-5758
Attention: Stephen E. Newton, Esq.
Facsimile: (213) 614-1868
</TABLE>
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
8.6 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
8.7 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
8.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
8.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction of interpretation of this Agreement.
[The next page is the signature page]
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<PAGE> 193
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
3DFX INTERACTIVE, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SHAREHOLDER
--------------------------------------
By:
-----------------------------------
General Partner
By:
-----------------------------------
Its:
----------------------------------
Shareholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
Number of Shares Beneficially Owned:
shares of Common Stock
------------
shares of Preferred Stock
------------
B-4
<PAGE> 194
ANNEX A
IRREVOCABLE PROXY
The undersigned Shareholder of GigaPixel Corporation, a Delaware
corporation ("GigaPixel"), hereby irrevocably appoints the directors on the
Board of Directors of 3dfx, Inc., a California corporation ("3dfx"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the shares of capital stock of GigaPixel
beneficially owned by the undersigned, which shares are listed on the final page
of this Irrevocable Proxy (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until the earlier to occur of (i) such time as that certain Agreement and Plan
of Reorganization dated as of March 27, 2000 (the "Merger Agreement"), among
3dfx, GigaPixel Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of 3dfx ("Merger Sub"), and GigaPixel, shall be terminated in
accordance with its terms or (ii) the Merger (as defined in the Merger
Agreement) is effective. Upon the execution hereof, all prior proxies given by
the undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement
dated as of March 27, 2000 between 3dfx and the undersigned Shareholder (the
"Voting Agreement"), and is granted in consideration of 3dfx entering into the
Merger Agreement. 3dfx and the undersigned Shareholder agree and acknowledge
that the grant of this irrevocable proxy is a material inducement for 3dfx to
enter into the Merger Agreement and is therefore coupled with an interest and
irrevocable. The attorneys and proxies named above will be empowered at any time
prior to termination of the Merger Agreement to exercise all voting and other
rights (including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual, special
or adjourned meeting of GigaPixel shareholders, and in every written consent in
lieu of such a meeting, or otherwise, in favor of approval of the Merger and the
Merger Agreement and any matter that could reasonably be expected to facilitate
the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the shareholders of
GigaPixel and in every written consent in lieu of such meeting, in favor of
approval of the Merger and the Merger Agreement and any matter that could
reasonably be expected to facilitate the Merger, and may not exercise this proxy
on any other matter. The undersigned Shareholder may vote the Shares on all
other matters.
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<PAGE> 195
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: March 27, 2000
--------------------------------------
By:
-----------------------------------
General Partner
By:
-----------------------------------
Its:
---------------------------------
Shares beneficially owned:
shares of Common Stock
------------
shares of Preferred Stock
------------
B-6
<PAGE> 196
APPENDIX C
3DFX, INC.
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into as of March
27, 2000 between GigaPixel Corporation, a Delaware corporation ("GigaPixel"),
and the undersigned shareholder ("Shareholder") of 3dfx, Inc., a California
corporation ("3dfx").
RECITALS
A. Concurrently with the execution of this Agreement, 3dfx, GigaPixel, and
GigaPixel Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of 3dfx ("Merger Sub"), have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Merger Agreement") which provides for
the merger (the "Merger") of Merger Sub with and into GigaPixel. Pursuant to the
Merger, shares of capital stock of GigaPixel will be converted into the right to
receive shares of Common Stock of 3dfx in the manner set forth in the Merger
Agreement.
B. The Shareholder is the record holder and beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of such number of shares of the outstanding Common Stock of 3dfx as is
indicated on the final page of this Agreement (the "Shares").
C. As a material inducement to enter into the Merger Agreement, GigaPixel
desires the Shareholder to agree, and the Shareholder is willing to agree, not
to transfer or otherwise dispose of any of the Shares, or any other shares of
capital stock of 3dfx acquired hereafter and prior to the Expiration Date (as
defined in Section 1.1 below), except as otherwise permitted hereby, and to vote
the Shares and any other such shares of capital stock of 3dfx so as to
facilitate consummation of the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Shareholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge or
otherwise dispose of or encumber any of the Shares or any New Shares as defined
in Section 1.2 below, or to make any offer or agreement relating thereto, at any
time prior to the Expiration Date. As used herein, the term "Expiration Date"
shall mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the Merger
Agreement and (ii) such date and time as the Merger Agreement shall be
terminated in accordance with its terms.
1.2 Additional Purchases. Shareholder agrees that any shares of capital
stock of 3dfx that Shareholder purchases or with respect to which Shareholder
otherwise acquires beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act) after the execution of this Agreement and prior to the
Expiration Date ("New Shares") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the shareholders of 3dfx
called with respect to, and at every adjournment thereof, and on every action or
approval by written consent of the shareholders of 3dfx with respect to,
approval of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger, Shareholder shall vote the
Shares and any New Shares in favor of approval of the Merger Agreement and the
Merger and any matter that could reasonably be expected to facilitate the
Merger. Shareholder agrees not to take any actions contrary to Shareholder's
obligations under this Agreement.
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<PAGE> 197
3. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Shareholder agrees to deliver to GigaPixel a proxy in the form attached hereto
as Annex A (the "Proxy"), which shall be irrevocable, with respect to the total
number of shares of capital stock of 3dfx beneficially owned (as such term is
defined in Rule 13d-3 under the Exchange Act) by Shareholder set forth therein.
4. Representations, Warranties and Covenants of the
Shareholder. Shareholder hereby represents, warrants and covenants to GigaPixel
that Shareholder (i) is the beneficial owner of the Shares, which at the date
hereof and at all times up until the Expiration Date will be free and clear of
any liens, claims, options, charges or other encumbrances; (ii) does not
beneficially own any shares of capital stock of 3dfx other than the Shares
(excluding shares as to which Shareholder currently disclaims beneficial
ownership in accordance with applicable law); and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
5. Additional Documents. Shareholder hereby covenants and agrees to execute
and deliver any additional documents necessary or desirable, in the reasonable
opinion of GigaPixel and Shareholder, as the case may be, to carry out the
intent of this Agreement.
6. Consent and Waiver. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Shareholder is a party or pursuant to any rights
Shareholder may have.
7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. Miscellaneous.
8.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
8.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
8.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
8.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that GigaPixel will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreement of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to GigaPixel upon any such violation,
GigaPixel shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to
GigaPixel at law or in equity.
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<PAGE> 198
8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
<TABLE>
<S> <C>
If to GigaPixel: GigaPixel Corporation
2350 Mission College Boulevard
Suite 800
Santa Clara, California 95054
Attention: Chief Financial Officer
Facsimile: (408) 654-9123
With a copy to: Heller Ehrman White & McAuliffe LLP
601 South Figueroa Street
Los Angeles, California 90017-5758
Attention: Stephen E. Newton, Esq.
Facsimile: (213) 614-1868
If to the Shareholder: At the address provided on the signature
page hereto
With a copy to: Locke Liddell & Sapp LLP
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Attention: John B. McKnight, Esq.
Facsimile: (214) 740-8800
</TABLE>
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
8.6 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California without giving
effect to the conflicts of laws principles thereof.
8.7 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
8.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
8.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction of interpretation of this Agreement.
[The next page is the signature page]
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<PAGE> 199
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
GIGAPIXEL CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SHAREHOLDER
--------------------------------------
Name
Shareholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
Number of Shares Beneficially Owned:
shares of Common Stock
---------------
C-4
<PAGE> 200
ANNEX A
IRREVOCABLE PROXY
The undersigned Shareholder of 3dfx, Inc., a California corporation
("3dfx"), hereby irrevocably appoints the directors on the Board of Directors of
GigaPixel Corporation, a Delaware corporation ("GigaPixel"), and each of them,
as the sole and exclusive attorneys and proxies of the undersigned, with full
power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the shares of capital stock of 3dfx
beneficially owned by the undersigned, which shares are listed on the final page
of this Irrevocable Proxy (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until the earlier to occur of (i) such time as that certain Agreement and Plan
of Reorganization dated as of March 27, 2000 (the "Merger Agreement"), among
3dfx, GigaPixel Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of 3dfx ("Merger Sub"), and GigaPixel, shall be terminated in
accordance with its terms or (ii) the Merger (as defined in the Merger
Agreement) is effective. Upon the execution hereof, all prior proxies given by
the undersigned with respect to the Shares and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof are
hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement
dated as of March 27, 2000 between GigaPixel and the undersigned Shareholder
(the "Voting Agreement"), and is granted in consideration of GigaPixel entering
into the Merger Agreement. GigaPixel and the undersigned Shareholder agree and
acknowledge that the grant of this irrevocable proxy is a material inducement
for GigaPixel to enter into the Merger Agreement and is therefore coupled with
an interest and irrevocable. The attorneys and proxies named above will be
empowered at any time prior to termination of the Merger Agreement to exercise
all voting and other rights (including, without limitation, the power to execute
and deliver written consents with respect to the Shares) of the undersigned at
every annual, special or adjourned meeting of 3dfx shareholders, and in every
written consent in lieu of such a meeting, or otherwise, in favor of approval of
the Merger and the Merger Agreement and any matter that could reasonably be
expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the shareholders of
3dfx and in every written consent in lieu of such meeting, in favor of approval
of the Merger and the Merger Agreement and any matter that could reasonably be
expected to facilitate the Merger, and may not exercise this proxy on any other
matter. The undersigned Shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: March 27, 2000 Signature of
Shareholder: _______________________
Print Name of
Shareholder: _____________________
Shares beneficially owned:
____________ shares of Common Stock
C-5
<PAGE> 201
APPENDIX D
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") made and entered into as of
the day of , 2000, by and among 3dfx Interactive,
Inc., a California corporation ("Buyer"), and ("Promisor").
WITNESSETH:
WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of
March 27, 2000 (the "Purchase Agreement"), by and among Buyer, Galapagos
Acquisition Corp., a Delaware corporation and the wholly-owned subsidiary of
Buyer ("Galapagos"), and GigaPixel Corporation, a Delaware corporation (the
"Company"), Galapagos shall merge with and into the Company and the Company
shall be the surviving corporation in the Merger (as defined in the Purchase
Agreement);
WHEREAS, the Purchase Agreement provides, as a condition to the closing
thereunder, that Promisor shall execute and deliver this Agreement;
WHEREAS, the agreements of Promisor hereunder are an important aspect of
the transactions under the Purchase Agreement, and Buyer would not consummate
such transactions absent the execution and delivery by Promisor of this
Agreement;
WHEREAS, the Company has been and is presently engaged in the development,
implementation, license, sale and/or other distribution of high-performance 3D
graphics hardware and software (the "Business") in and around the territories
specified in Schedule I attached hereto (collectively, the "Territory");
WHEREAS, Promisor and Promisor's affiliates have substantial financial
resources, experience in the Business and the ability to operate a business or
businesses that could compete with the Company in the Business or in related
businesses following the Closing; and
WHEREAS, the agreements of Promisor hereunder are reasonable and necessary,
both in scope and duration, to protect the business and goodwill of the Company
that will be acquired pursuant to the Purchase Agreement, and the Company would
suffer damages, including the loss of profits, if Promisor or any of Promisor's
affiliates engaged, directly or indirectly, in a competing business with the
Company or Buyer.
NOW, THEREFORE for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and upon the terms and subject to the conditions
hereinafter set forth, the parties do hereby agree as follows:
1. Consideration; Disclosure of Information. For and in consideration of
the sum of $ , the receipt and sufficiency of which are acknowledged by
Promisor, Promisor agrees that for a period of three (3) years from the date
hereof, without the prior written consent of Buyer, Promisor shall not, directly
or indirectly, through any form of ownership, in any individual or
representative or affiliated capacity whatsoever, except as may be required by
law, reveal, divulge, disclose or communicate to any person, firm, association,
corporation or other entity in any manner whatsoever information of any kind,
nature or description concerning: (i) the names of any prior or present
suppliers or customers of the Company or Buyer, (ii) the prices for which the
Company or Buyer obtains or has obtained products or services, (iii) the names
of the personnel of the Company or Buyer, (iv) the manner of operation of the
Company or Buyer, (v) the plans, trade secrets, or other confidential or
proprietary data of any kind, nature or description, whether tangible or
intangible, of the Company or Buyer, or (vi) any other financial, statistical or
other information that the Company or Buyer designates or treats as confidential
or proprietary. The agreements set forth herein shall not apply to any
information that at the time of disclosure or thereafter is generally available
to and known by the public (other than as a result of a disclosure directly or
indirectly by Promisor in violation of this Agreement), the disclosure of which
is required by law, regulation, order, decree or process or is otherwise
approved by the
D-1
<PAGE> 202
Company or Buyer. Without regard to whether any or all of the foregoing matters
would be deemed confidential, material or important, the parties hereto
stipulate that as between them, the same are important, material and
confidential and gravely affect the effective and successful conduct of the
Business and its goodwill.
2. Noncompetition. Promisor agrees that for a period of three (3) years
from the date hereof, Promisor shall not:
(i) Call upon, solicit, divert, take away or attempt to call upon,
solicit, divert or take away any past, existing or potential customers,
suppliers, businesses, or accounts of (a) the Company or (b) the Business
in connection with any business substantially similar to the Business in
the Territory;
(ii) Hire, attempt to hire, contact or solicit with respect to hiring
for Promisor or on behalf of any other person any present or future
employee of the Company or Buyer in the Business;
(iii) Engage in, or give any advice to any person, firm, partnership,
association, venture, corporation or other entity engaged in, a business
substantially similar to the Business in the Territory;
(iv) Lend credit, money or reputation for the purpose of establishing
or operating a business substantially similar to the Business in the
Territory;
(v) Do any act that Promisor knew or reasonably should have known
might injure the Company or Buyer; and
(vi) Without limiting the generality of the foregoing provisions,
conduct a business substantially similar to the Business, whether or not
under the name "GigaPixel" or any other trade names, trademarks or service
marks used by the Company or Buyer in the Territory.
The covenants in subsections (i) through (vi) are intended to restrict
Promisor from competing in any manner with the Company or the Business in the
activities that have heretofore been carried on by the Company. The obligations
set forth in subsections (i) through (vi) above shall apply to actions by
Promisor, through any form of ownership, and whether as principal, officer,
director, agent, employee, employer, consultant, shareholder or holder of any
equity security (beneficially or as trustee of any trust), lender, partner,
joint venturer or in any other individual or representative or affiliated
capacity whatsoever. However, none of the foregoing shall prevent Promisor from
being the holder of up to 5.0% in the aggregate of any class of securities of
any corporation engaged in, directly or indirectly, the activities described in
subsections (i) through (vi) above, provided that such securities are listed on
a national securities exchange or reported on Nasdaq.
3. Enforcement of Covenants.
3.1 Promisor acknowledges that a violation or attempted violation of any
of the covenants and agreements in Sections 1 and 2 above will cause such damage
to Buyer and the Company as will be irreparable, the exact amount of which would
be difficult to ascertain and for which there will be no adequate remedy at law,
and accordingly, Promisor agrees that Buyer and the Company shall be entitled as
a matter of right to an injunction issued by any court of competent
jurisdiction, restraining such violation or attempted violation of such
covenants and agreements by Promisor, or the affiliates, partners or agents of
such Promisor, as well as recover from Promisor any and all costs and expenses
sustained or incurred by Buyer and the Company in obtaining such an injunction,
including, without limitation, reasonable attorneys' fees. Promisor agrees that
no bond or other security shall be required in connection with such injunction.
Promisor further agrees that the periods of restriction set forth in Sections 1
and 2 above shall be tolled during any period of violation thereof by Promisor.
Any exercise by Buyer or the Company of their respective rights pursuant to this
Section 3 shall be cumulative and in addition to any other remedies to which
Buyer or the Company may be entitled. Each party represents and warrants that it
has been represented by counsel in the negotiation and execution of this
Agreement, including without limitation the provisions set forth above in this
Section 3.1 concerning the recovery of attorney's fees.
3.2 Promisor understands and acknowledges that each of Buyer and the
Company shall have the right, in its sole discretion, to reduce the scope of any
covenants set forth in Sections 1 and 2, or any portion thereof, without
Promisor's consent, effective immediately upon receipt by Promisor of written
notice thereof; and
D-2
<PAGE> 203
Promisor agrees that Promisor shall comply forthwith with any covenant as so
modified, which shall be fully enforceable as so revised in accordance with the
terms of this Agreement.
4. Intellectual Property. Promisor recognizes and agrees that, on and after
the date hereof, Promisor will not have the right to use for Promisor's own
account any of the service marks, trademarks, trade names, licenses, procedures,
processes, labels, trade secrets or customer lists owned by or licensed to the
Company.
5. Validity. To the extent permitted by applicable law, if it should ever
be held that any provision contained herein does not contain reasonable
limitations as to time, geographical area or scope of activity to be restrained,
then the court so holding shall at the request of Buyer or the Company reform
such provisions to the extent necessary to cause them to contain reasonable
limitations as to time, geographical area and scope of activity to be restrained
and to give the maximum permissible effect to the intentions of the parties as
set forth herein; and the court shall enforce such provisions as so reformed.
If, notwithstanding the foregoing, any provision hereof is held to be illegal,
invalid or unenforceable under present or future laws effective during the term
hereof, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or enforceable provision or by its severance here from. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically by Buyer or the Company as a part hereof a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable, and the parties hereby agree to such provision.
6. Notice. Any notice, request, instruction, document or other
communication to be given hereunder by any party hereto to any other party
hereto shall be in writing and validly given if (i) delivered personally, (ii)
sent by telecopy with electronic confirmation of receipt, (iii) delivered by
overnight express, or (iv) sent by registered or certified mail, postage
prepaid, as follows:
If to Buyer:
3dfx Interactive, Inc.
4435 Fortran Drive
San Jose, CA 95134
Attn: President
cc: Legal Department
Facsimile Number (408) 262-5551
If to Promisor:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
and marked "Personal and Confidential"
With a copy to:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally, or sent by telecopy or overnight express in
the manner provided herein shall be deemed to have been duly given to the party
to whom it is directed upon receipt by such party. Any notice that is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been given to the party to whom it is
D-3
<PAGE> 204
addressed at the close of business, local time of the recipient, on the fourth
day after the day it is so placed in the mail.
7. Entire Agreement. This Agreement contains the entire agreement of the
parties hereto with respect to the matters covered hereby, and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
8. Modification and Waiver. No modification or amendment of any of the
terms, conditions or provisions in this Agreement may be made otherwise than by
written agreement signed by the parties hereto, except as provided in Sections
3.2 and 5 hereof. The waiver by any party to this Agreement of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party nor shall such waiver constitute a continuing
waiver.
9. Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, interests or obligations hereunder may be assigned by Promisor without
the prior written consent of the other parties hereto, and any purported
assignment in violation of this Section 9 shall be null and void.
10. Headings. The headings of the sections of this Agreement are inserted
for convenience of reference only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
11. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, ENFORCED AND GOVERNED
BY THE INTERNAL LAW OF THE STATE OF CALIFORNIA.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and such counterparts together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly caused this Agreement to be
executed as of the date first above written.
BUYER:
3DFX INTERACTIVE, INC.
By:
------------------------------------
Printed Name:
------------------------------
Title:
-----------------------------------
PROMISOR:
--------------------------------------
--------------------------------------
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<PAGE> 205
SCHEDULE I
TERRITORY
United States of America
European Union
Asia
D-5
<PAGE> 206
APPENDIX E
LOCK-UP AGREEMENT
, 2000
3dfx Interactive, Inc.
4435 Fortran Drive
San Jose, California 95134
As a condition to the closing contemplated by that certain Agreement and
Plan of Reorganization (the "Agreement") dated as of March 27, 2000 by and among
3dfx Interactive, Inc., a California corporation ("3dfx"), Galapagos Acquisition
Corp., a Delaware corporation, and GigaPixel Corporation, a Delaware corporation
(the "Company"), the undersigned is required to deliver this Lock-up Agreement.
Capitalized terms used and not otherwise defined herein have the meaning
ascribed to them in the Agreement.
The undersigned recognizes that it is in the best financial interests of
the undersigned, as a shareholder of 3dfx, and of 3dfx that the 3dfx Common
Stock received thereby be subject to such restrictions and hereby agrees as
follows:
Before the earlier of (i) the date that is fifteen (15) months after the
Closing Date or (ii) the sale, conveyance or transfer, during any such quarter
during the fifteen-month period, of or more shares of 3dfx Common
Stock in the aggregate by the officers and directors of 3dfx listed on Schedule
A, the undersigned shall not: (a) sell, assign, exchange, transfer, encumber,
pledge, distribute or otherwise dispose of (i) any shares of 3dfx Common Stock
received by the undersigned in the Merger, or (ii) any interest (including,
without limitation, an option to buy or sell) in any such shares of 3dfx Common
Stock, in whole or in part, in each case in excess of the Permitted Sale Amount
(as defined below), and no such attempted transfer shall be treated as effective
for any purpose; or (b) engage in any transaction, whether or not with respect
to any shares of 3dfx Common Stock or any interest therein, the intent or effect
of which is to reduce the risk of owning the shares of 3dfx Common Stock
acquired pursuant to the Agreement (including, but not limited to, engaging in
put, call, short-sale, straddle or similar market transactions). As used herein,
"Permitted Sale Amount" means ten percent (10%) per quarter on a cumulative
basis commencing one (1) quarter after the Closing. The certificates evidencing
the 3dfx Common Stock received by the undersigned in the Merger will bear a
legend substantially in the form set forth below and containing such other
information as 3dfx may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER
RESTRICTIONS SET FORTH IN THAT CERTAIN LOCK-UP AGREEMENT BY AND BETWEEN
3DFX INTERACTIVE, INC., A CALIFORNIA CORPORATION, AND THE HOLDER HEREOF,
DATED , 2000 (THE "LOCK-UP AGREEMENT"), AND MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR
OTHERWISE DISPOSED OF, OTHER THAN IN CERTAIN PERMITTED AMOUNTS, PRIOR TO
CERTAIN EVENTS DETAILED IN THE LOCK-UP AGREEMENT. THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) UPON (I) THE OCCURRENCE OF THE EVENTS SPECIFIED IN THE LOCK-UP
AGREEMENT AND (II) THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE. A
COPY OF THE LOCK-UP AGREEMENT IS AVAILABLE FOR REVIEW AT THE PRINCIPAL
EXECUTIVE OFFICE OF THE ISSUER.
Very truly yours,
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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APPENDIX F
INDEMNITY ESCROW AGREEMENT
THIS INDEMNITY ESCROW AGREEMENT (the "Agreement") made and entered into as
of the day of , 2000, by and among 3dfx Interactive, Inc., a
California corporation ("3dfx"), GigaPixel Corporation, a Delaware corporation
("GigaPixel"), on behalf of its holders of its Common Stock and Preferred Stock
and of the Warrant prior to the Effective Time of the Merger (the
"Securityholders"), Galapagos Acquisition Corp., a Delaware corporation
("Newco"), the Securityholder Representative named in Section 9 hereof, and
, as escrow agent (the "Agent").
WITNESSETH:
WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of
March 27, 2000 (the "Acquisition Agreement"), by and among 3dfx, Newco and
GigaPixel, each of the parties has agreed to effect the Merger;
WHEREAS, the Acquisition Agreement provides, as a condition to the closing
of the Merger, that the parties execute and deliver this Agreement whereby a
certain portion of the consideration to be payable to the Securityholders
following the Merger would be placed in escrow for a period of time.
NOW, THEREFORE, for and in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms, and subject to the
conditions hereinafter set forth, the parties hereto do agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the meaning ascribed to them in the Acquisition Agreement.
2. Appointment of Agent. 3dfx, Newco, GigaPixel and the Securityholder
Representative hereby appoint Agent as escrow agent in accordance with the terms
and conditions set forth herein, and the Agent hereby accepts such appointment.
3. Deposit of Shares of 3dfx Common Stock.
(a) At the Closing, 3dfx and Newco shall, in accordance with Section 3.1 of
the Acquisition Agreement, deposit with the Agent certificates for the number of
shares of 3dfx Common Stock described on Exhibit A hereto, with the Agent's
interest as escrow agent set forth on the face thereon (the "Escrowed Shares"),
which Escrow Shares shall be held by the Agent in accordance with Section 4
below.
(b) All taxable dividends with respect to the Escrowed Shares shall be
distributed currently to the Securityholders.
(c) Voting of Escrowed Shares. Until such time as 3dfx shall have delivered
a notice to the Agent as described in the first sentence of Section 4(a) of this
Agreement, the Securityholder Representative shall have the right to direct the
Agent as to the manner of voting of the Escrowed Shares. Such Securityholder
Representative shall use its reasonable best efforts to vote the Escrowed Shares
in accordance with the directions of the beneficial holders thereof.
4. Disposition of Escrowed Shares.
(a) If the Agent shall receive a written notice from 3dfx at any time from
the date of this Agreement through the date that is three hundred eighty (380)
days from the Closing Date certifying (i) that during the one (1) year period
following the Closing Date 3dfx has suffered 3dfx Losses as a result of the
Company's breach of any of its representations and warranties or its failure to
perform any of its covenants, in each case as set forth in the Acquisition
Agreement, and that, as a result, 3dfx is entitled to payment hereunder pursuant
to Article X of the Acquisition Agreement, (ii) the total amount that 3dfx is
entitled to be paid from the Escrowed Shares and the basis of calculation of
such amount (a "Claim") with respect to such 3dfx Losses, (iii) a description of
the asserted Claim and the basis thereof, and (iv) that 3dfx has delivered a
copy of such
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notice to the Securityholder Representative (as defined and described in Section
9 hereof) with respect to such Claim, then the Agent shall promptly (and in any
event within ten (10) days following receipt of such notice from 3dfx) deliver a
copy of such notice to the Securityholder Representative. If the Agent does not,
within twenty (20) days after its delivery of such notice, receive a written
objection from the Securityholder Representative with respect to such Claim,
then the Agent shall promptly deliver to 3dfx a number of Escrowed Shares, the
value of which (based on the closing price of such Escrowed Shares on the
Closing Date) equals the amount that 3dfx shall have specified as its Claim. If
the Agent shall receive a written objection from the Securityholder
Representative within such twenty (20) day period, then a conflict shall be
deemed to have arisen, and the Agent shall, within five (5) days of the Agent's
receipt of the written objection from the Securityholder Representative, deliver
notice of such conflict to the parties hereunder. Thereafter, the Agent shall be
entitled to refrain from taking any action until the Agent shall be directed
otherwise in accordance with Section 4(b) below.
(b) If a conflict shall have arisen as described in Section 4(a) above,
then upon receipt by the Agent during the term of this Agreement of (i) joint
written instructions signed by 3dfx and the Securityholder Representative
directing payment of all or a portion of the Escrowed Shares, or (ii) a final,
non-appealable judgment or order of a court of competent jurisdiction directing
the payment of an amount of the Escrowed Shares held hereunder, the Agent shall
promptly deliver to the person or persons specified, out of the escrow created
hereunder and in the manner specified in the applicable instructions, judgment
or order, or as otherwise agreed in writing by 3dfx and the Securityholder
Representative, (A) the number of Escrowed Shares specified therein, or (B) a
number of Escrowed Shares the value of which (based on the closing price of such
Escrowed Shares on the Closing Date) equals the amount specified in such
instructions, judgment or order, and the Agent shall thereupon be relieved and
discharged from any responsibility or obligation with respect to such amount or
amounts of the Escrowed Shares delivered in accordance with this Agreement.
(c) Unless otherwise notified by a joint instruction signed by 3dfx and the
Securityholder Representative, in the event the escrow created hereunder is not
sooner terminated pursuant to the provisions of Section 4(e) below or extended
pursuant to the provisions of this Section 4(c), the escrow period and the
escrow created hereunder shall terminate at the close of business on the date
that is three hundred eighty (380) days from the Closing Date (the "Escrow
Period"). Upon such termination, the Agent shall release and deliver to the
Securityholders the Escrowed Shares remaining in escrow; provided, however, if
3dfx has filed a Claim with the Agent and the Securityholder Representative for
a 3dfx Loss suffered during the one (1) year period following the Closing Date
prior to such termination, which Claim has not been resolved in accordance with
Section 4(a) or (b) above by the date of termination, the Agent shall release
and pay to the Securityholders only the number of Escrowed Shares the value of
which (based on the closing price of such Escrowed Shares on the Closing Date)
exceeds the aggregate amount of the outstanding and unresolved Claim(s) of 3dfx.
Upon resolving all remaining Claims in accordance with this Section 4, including
any distributions to 3dfx (which may be after the period provided herein, in
which case the Escrow Period shall be extended to such time in which all Claims
are resolved), the Agent shall release and pay to the Securityholders all
Escrowed Shares held in escrow hereunder and close the escrow, whereupon the
Escrow Period and the escrow created hereunder shall be terminated.
(d) Notwithstanding the provisions of Section 4(c) above, at the conclusion
of the Escrow Period, if any Claim has not been resolved in accordance with the
terms hereof, the Agent shall have the right, in its sole discretion, to deposit
with the registry of any state or federal court located in San Jose, California,
the number of Escrowed Shares the value of which (based on the closing price of
such Escrowed Shares on the Closing Date) equals the aggregate amount of the
outstanding and unresolved Claim(s) of 3dfx. The Agent shall implead 3dfx and
the Securityholders in any action filed with such court.
(e) Unless otherwise notified in a joint instruction signed by 3dfx and the
Securityholder Representative, if the Agent disburses to 3dfx all Escrowed
Shares held in escrow in accordance with the terms of this Section 4 prior to
the date that is the one (1) year anniversary of the Closing Date, then the
Escrow Period and the escrow created hereunder shall immediately terminate, and
the Agent shall close the escrow and give notice thereof to 3dfx and the
Securityholder Representative.
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5. Duties and Obligations.
(a) The Agent shall have no duty to enforce any obligation of any person to
make any payment or delivery, or to direct or cause any payment or delivery to
be made, or to enforce any obligation of any persons to perform any other act.
The Agent shall not be liable to 3dfx or the Securityholder Representative or to
anyone else by reason of any failure on the part of any party hereto or any
other person to perform such party's or such person's obligations under any
document or agreement.
(b) The Agent shall not be liable to 3dfx and the Securityholder
Representative or to anyone else for any action taken or omitted by it, or any
action suffered by it to be taken or omitted, in good faith and in the exercise
of its own best judgment. The Agent may rely conclusively and shall be protected
in acting upon any order, notice, demand, certificate, opinion or advice of
counsel (including counsel chosen by the Agent), statement, instrument, report
or other paper or document (not only as to its due execution and the validity
and effectiveness of its provisions, but also as to the truth and acceptability
of any information therein contained) that is believed by the Agent to be
genuine and to be signed or presented by the proper person or persons.
(c) The Agent shall not be responsible for the sufficiency or accuracy of
the form of, or the execution, validity, value or genuineness of, any document
or property received, held or delivered by it hereunder, or of any signature or
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein, nor shall the Agent be responsible or liable to 3dfx or the
Securityholder Representative or to anyone else in any respect on account of the
identity, authority, or rights of the persons executing or delivering or
purporting to execute or deliver any document or property or this Agreement. The
Agent shall not be liable to 3dfx or the Securityholder Representative or to
anyone else for any loss that may be incurred by reason of any investment of any
monies it holds hereunder.
(d) To the extent that the Agent becomes liable for the payment of taxes,
including withholding taxes, in respect of income derived from the investment of
funds held hereunder or any payment made hereunder, the Agent may pay such
taxes. The Agent may withhold from any payment of monies held by it hereunder
such amount as the Agent estimates to be sufficient to provide for the payment
of such taxes not yet paid, and may use the sum withheld for that purpose. The
Agent shall be indemnified and held harmless from and against any liability for
taxes and for any penalties or interest in respect of taxes on such investment
income or payments in the manner provided in Section 5(e) below.
(e) The Agent shall be indemnified and held harmless jointly and severally
by 3dfx and the Securityholder Representative from and against any and all
expenses, including attorneys' fees and disbursements, or losses suffered by the
Agent in connection with any action, suit or other proceeding involving any
claim, or in connection with any claim or demand that directly or indirectly
arises out of or otherwise relates to this Agreement, the services of the Agent
hereunder, the monies or other property held by the Agent hereunder or any
income earned from investment of such monies, other than expenses or losses
arising as a result of the Agent's gross negligence or willful misconduct.
6. Compensation and Reimbursement of Agent. The Agent shall be entitled to
compensation and reimbursement from GigaPixel after the Closing for all
reasonable expenses paid or incurred by it in the administration of its duties
hereunder, including, but not limited to, all reasonable attorneys' and agents'
fees and disbursements and all taxes or other governmental charges.
7. Further Assurances. From time to time on and after the date hereof, 3dfx
and the Securityholder Representative shall deliver or cause to be delivered to
the Agent such further documents and instruments and shall do and cause to be
done such further acts as the Agent shall reasonably request to carry out more
effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder.
8. Termination of Agreement and Resignation of Agent.
(a) This Agreement shall terminate upon the termination of the escrow
created hereunder as provided in Section 4(c), provided that the rights of the
Agent and the obligations of 3dfx, Newco and the Securityholders under Sections
5, 6 and 10 shall survive any termination hereof.
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(b) The Agent may resign and be discharged from its duties hereunder at any
time by giving not less than 45 days prior written notice of such resignation to
3dfx and the Securityholder Representative, which notice shall specify the date
when such resignation shall take effect. Upon such notice, 3dfx and the
Securityholder Representative shall jointly appoint a successor escrow agent. If
3dfx and the Securityholder Representative do not agree upon a successor escrow
agent within 45 days after such notice, shall be appointed
successor. The agent shall continue to serve until its successor delivers to
3dfx and the Securityholder Representative a duly executed instrument of
acceptance from such successor of the terms and conditions of this Agreement and
other property held in escrow, at which time the agent shall have no further
duties or responsibilities hereunder.
9. Appointment and Acceptance of Securityholder Representative.
(a) In order to facilitate the consummation of the transactions
contemplated by this Agreement and by the Acquisition Agreement and the
resolution of matters after the Closing, (the "Securityholder
Representative") shall serve as the attorney-in-fact and agent for each of the
Securityholders in his or her name, place and stead in connection with the
transactions contemplated by this Agreement in accordance with the terms of this
Agreement, such appointment being coupled with an interest and irrevocable. By
executing and delivering this Agreement, the Securityholder Representative
hereby accepts its authorization and appointment as the Securityholder
Representative and as attorney-in-fact and agent on behalf of the
Securityholders in accordance with the terms of this Agreement.
(b) Upon approval of the Acquisition Agreement and the Merger by the
Securityholders, each Securityholder shall be deemed to have expressly
acknowledged and agreed that (i) the Securityholder Representative is authorized
to act on his or her behalf notwithstanding any dispute or disagreement between
or among the Securityholders and (ii) 3dfx and Newco and any other person shall
be entitled to rely on any and all actions taken by the Securityholder
Representative under or pursuant to this Agreement without liability to, or
obligation to inquire of, any Securityholder.
(c) The authority of the Securityholder Representative hereunder shall
continue and be effective until all of the rights and obligations of the
Securityholders hereunder, or any dispute arising hereunder, shall terminate.
10. Consent to Service of Process. 3dfx and Newco and the Securityholder
Representative hereby irrevocably consent to the jurisdiction of the courts of
the State of California and of any federal court located in such state in
connection with any action, suit or other proceeding arising out of or relating
to this Agreement or any action taken or omitted hereunder, and each such party
waives personal service of any summons, complaint or other process and agrees
that the service thereof may be made by certified or registered mail directed to
such person at such person's address for purposes of notices hereunder.
11. Notices. Any notice, request, instruction, document or other
communication to be given hereunder by any party hereto to any other party
hereto shall be in writing and validly given if (i) delivered personally, (ii)
sent by facsimile with electronic confirmation of receipt, (iii) delivered by
overnight express, or (iv) sent by registered or certified mail, postage
prepaid, as follows:
(i) If to 3dfx or Newco:
3dfx Interactive, Inc.
4435 Fortran Drive
San Jose, California 95134
Facsimile No. (408) 262-5551
Attention: President
cc: Legal Department
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(ii) If to the Securityholder Representative:
--------------------------------------------------
-----------------------------------------------
-----------------------------------------------
(iii) If to the Agent:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
with copies to:
Heller Ehrman White & McAuliffe LLP
601 South Figueroa, 40th Floor
Los Angeles, California 90017-5758
Facsimile No.: (213) 614-1868
Attn: Stephen E. Newton, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally, or sent by telecopy or overnight express in
the manner provided herein shall be deemed to have been duly given to the party
to whom it is directed upon receipt by such party. Any notice that is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been given to the party to whom it is addressed at the close of business, local
time of the recipient, on the fifth day after the day it is so placed in the
mail.
12. Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter hereof, and no
party shall be liable or bound to the other in any manner by any representations
or warranties not set forth herein.
13. Successors and Assigns. This Agreement and the rights and obligations
hereunder may not be assigned, except that 3dfx may assign this Agreement and
its rights and obligations hereunder to any wholly-owned subsidiary of 3dfx or
to a successor to such party's entire business. This Agreement and the rights
and obligations hereunder of the Agent may be assigned by the Agent only to a
successor to its entire business. This Agreement shall be binding upon and inure
to the benefit of each party's respective successors, heirs and permitted
assigns. No other person shall acquire or have any rights under or by virtue of
this Agreement. This Agreement is intended to be for the sole benefit of the
parties hereto, and (subject to the provisions of this Section 13) their
respective successors, heirs and assigns, and none of the provisions of this
Agreement are intended to be, not shall they be construed to be, for the benefit
of any third person.
14. Rules of Construction. This Agreement shall be construed without regard
to any presumption or other rule requiring construction against the party
causing such instrument to be drafted. The terms "hereby", "hereof", "hereunder"
and any similar terms, as used in this Agreement, refer to this Agreement in its
entirety and not only to the particular portion of this Agreement where the term
is used. The word "person" shall mean any natural person, partnership,
corporation, government and any other form of business or legal entity. All
words or terms used in this Agreement, regardless of the number or gender in
which they are used, shall be deemed to include any other number and any other
gender as the context may require.
15. Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
16. Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party that is entitled to
the benefits thereof, and this Agreement may be modified or
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amended by a written instrument executed by all parties hereto. No supplement,
modification, or amendment of this Agreement shall be binding unless executed in
writing by all parties. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
17. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, ENFORCED, AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO ITS
CHOICE OF LAW PRINCIPLES).
18. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws, such provision
shall be fully severable, then this Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a part
of this Agreement, and the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
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IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to
be executed as of the day and year first above written.
3DFX:
3DFX INTERACTIVE, INC.
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
NEWCO:
GALAPAGOS ACQUISITION CORP.
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
GIGAPIXEL:
GIGAPIXEL CORPORATION
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
SECURITYHOLDER REPRESENTATIVE:
--------------------------------------
[Name]
AGENT:
[ ]
------------------------------------
By:
-----------------------------------
Printed Name:
-------------------------
Title:
--------------------------------
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APPENDIX G
EMPLOYMENT AGREEMENT FOR EXECUTIVE OFFICER
EMPLOYMENT AGREEMENT FOR EXECUTIVE OFFICER ("Agreement") made as of the
day of , 2000, between GigaPixel Corporation, a Delaware corporation
(the "Company"), and ("Executive").
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Company, its policies, methods, personnel, and plans for the
future;
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that Executive's contribution as to the growth and success of the
Company has been substantial and desires to assure the Company of Executive's
continued employment in an executive capacity and to compensate him therefor;
and
WHEREAS, Executive is desirous of committing himself to serve the Company
on the terms herein provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Employment. The Company hereby agrees to continue to employ Executive
and Executive hereby agrees to continue to serve the Company, on the terms and
conditions set forth herein, for the period commencing on the date hereof and
expiring on (unless sooner terminated as hereinafter set forth);
provided, however, that commencing on , and each
thereafter, the term of this Agreement shall automatically be renewed for one
additional year unless, at least 30 days prior to the expiration of the initial
or renewal term, the Company or Executive shall have given written notice to the
other party that it does not wish to extend this Agreement. The term of this
Agreement, as it may from time to time be extended in accordance with this
Paragraph, may be referred to herein as the "Period of Employment."
2. Position and Duties. Executive shall serve as the of the
Company performing the functions and duties as shall be reasonably prescribed
from time to time by the Company's Board of Directors provided that such
functions and duties are consistent with and attendant to Executive's position
or other positions that he may hold from time to time. Executive shall devote
his full working time and efforts to the business and affairs of the Company and
the promotion of its interests and perform all duties and services on behalf of
the Company necessary to carry out such functions.
3. Compensation and Related Matters.
(a) Base Salary. Initially, Executive shall receive an annual base salary
("Base Salary") at the rate of Dollars and /100 Cents
($ ) during the period ending . Thereafter, Executive's Base
Salary shall be redetermined at least 30 days before each in an amount
to be fixed by the Compensation Committee. The term "Base Salary" as used in
this Agreement shall mean, at any point in time, Executive's annual base salary
at such time. The Base Salary shall be payable in substantially equal
semi-monthly installments and shall in no way limit or reduce the obligations of
the Company hereunder.
(b) Incentive Compensation. In addition to Base Salary, Executive is
eligible to receive incentive compensation in accordance with the then-current
incentive plan of the Company's parent, 3dfx Interactive, Inc. ("3dfx").
(c) Sales Commissions. In addition to Base Salary and Incentive
Compensation, Executive shall receive sales commissions that shall be payable
monthly on the fifteenth of the month following the month in which they are
earned. For each period beginning and ending , the Chief
Executive Officer shall recommend and the Compensation Committee shall approve
the formula to be used to calculate sales commissions.
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(d) Expenses. Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him during any Period of Employment (in
accordance with the policies and procedures then in effect and established by
the Company for its senior executive officers) in performing services hereunder,
provided that Executive properly accounts therefor in accordance with Company
policy.
(e) Other Benefits. Executive shall be entitled to continue to participate
in or receive benefits under all of the Employee Benefit Plans of 3dfx under
which Employee may participate in accordance with applicable laws and the terms
of such plans in effect on the date hereof, or under plans or arrangements that
provide Executive with at least substantially equivalent benefits to those
provided under such Employee Benefit Plans. As used herein, "Employee Benefit
Plans" include, without limitation, each pension, and retirement plan;
supplemental pension, retirement, and deferred compensation plan; savings and
profit-sharing plan; stock ownership plan; stock purchase plan; stock option
plan; life insurance plan; medical insurance plan; disability plan; and health
and accident plan or arrangement established and maintained by the Company or
3dfx on the date hereof. Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement which may, in
the future, be made available to the Company's executives and key management
employees, subject to and on a basis consistent with the terms, conditions, and
overall administration of such plan or arrangement. Nothing paid to Executive
under the Employee Benefit Plans presently in effect or any employee benefit
plan or arrangement which may be made available in the future shall be deemed to
be in lieu of compensation payable to Executive under Subparagraphs 3(a), 3(b),
and 3(c). Any payments or benefits payable to Executive under a plan or
arrangement referred to in this Subparagraph 3(e) in respect of any calendar
year during which Executive is employed by the Company for less than the whole
of such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is so employed. Should any such payments or benefits accrue
on a fiscal (rather than calendar) year, then the proration in the preceding
sentence shall be on the basis of a fiscal year rather than calendar year.
(f) Vacations. Executive shall be entitled to the number of paid vacation
days in each calendar year determined by the Company from time to time for its
senior executive officers. Executive shall also be entitled to all paid holidays
given by the Company to its senior executive officers.
4. Offices. Executive agrees to serve as a director of the Company, if
elected or appointed thereto, provided he is indemnified for serving in such
capacity on a basis no less favorable than is currently provided by the
Company's By-laws and any indemnification agreement with any other director.
5. Confidential Information. THIS PROVISION SHALL BE OF NO FORCE OR EFFECT
IF EMPLOYEE HAS EXECUTED AN EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS
AGREEMENT WITH THE COMPANY. Executive acknowledges that in the course of his
employment with the Company, he will gain a close, personal and special
influence with the customers of the Company and of 3dfx and will be acquainted
with the Company's and 3dfx's business affairs, information, trade secrets, and
other matters which are of a proprietary or confidential nature, including but
not limited to the Company's and 3dfx's operations, business opportunities,
price and cost information, finances, customer names, prospects and customer
lists, business plans, various sales techniques, manuals, letters, notebooks,
procedures, reports, products, processes, services, inventions, research and
development, and other confidential information and knowledge (collectively,
"Confidential Information") concerning the Company's and 3dfx's business. The
term "Confidential Information" shall not include information which (a) is or
becomes generally available to the public through no violation of this
Agreement, (b) was available to Executive on a nonconfidential basis prior to
disclosure to Executive by the Company or 3dfx, or (c) becomes available to
Executive on a nonconfidential basis from a source other than the Company or
3dfx, provided that such source is not bound by a confidentiality agreement with
the Company or 3dfx. The Company agrees to provide such Confidential Information
and/or training which the Company deems necessary or desirable to aid Executive
in the performance of his duties. Executive understands and acknowledges that
such Confidential Information is confidential, and he agrees not to disclose
such Confidential Information to anyone outside the Company. Executive further
agrees that he will not during employment and/or at any time thereafter use such
Confidential Information in competing, directly or indirectly, with the Company
or 3dfx. At such time as Executive shall cease to be employed by the Company, he
will immediately turn over to the Company all such Confidential Information
including papers, documents,
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writings, electronically stored information, other property, and all copies of
them provided to him during the course of his employment with the Company.
During or upon termination, for any reason, of Executive's employment with the
Company, Executive shall sign a list acknowledging the Confidential Information
of which he has gained knowledge or information during the course of his
employment with the Company. The obligations of this Paragraph 5 shall continue
beyond the termination of Executive's employment, regardless of the reason for
such termination, and shall be binding upon Executive's assigns, executors,
administrators, and other legal representatives. NOTWITHSTANDING ANYTHING
CONTAINED OR IMPLIED HEREIN TO THE CONTRARY, THE PROVISIONS OF THIS SECTION 5
SHALL BE OF NO FORCE OR EFFECT IF EMPLOYEE HAS EXECUTED AN EMPLOYEE CONFIDENTIAL
INFORMATION AND INVENTION AGREEMENT WITH THE COMPANY.
6. Conflict of Interest. In keeping with Executive's fiduciary duties to
the Company, Executive agrees that while employed by the Company he shall not,
acting alone or in conjunction with others, directly or indirectly, become
involved in a conflict of interest or, upon discovery thereof, allow such a
conflict to continue. Moreover, Executive agrees that he shall immediately
disclose to the Company any facts which might involve any reasonable possibility
of a conflict of interest. It is agreed that any direct or indirect interest,
connection with, or benefit from any outside activities, where such interest
might in any way adversely affect the Company, involves a possible conflict of
interest. Circumstances in which a conflict of interest on the part of Executive
might arise, and which must be reported immediately by Executive to the Company,
include, but are not limited to, the following: (a) ownership of a material
interest in any supplier, contractor, subcontractor, customer, or other entity
with which the Company does business; (b) acting in any capacity, including
director, officer, partner, consultant, employee, distributor, agent, or the
like for a supplier, contractor, subcontractor, customer, or other entity with
which the Company does business; (c) accepting, directly or indirectly, payment,
service, or loans from a supplier, contractor, subcontractor, customer, or other
entity with which the Company does business, including, but not limited to,
gifts, trips, entertainment, or other favors of more than a nominal value; (d)
misuse of the Company's information or facilities to which Executive has access
in a manner which will be detrimental to the Company's interest, such as
utilization for Executive's own benefit of know-how, inventions, or information
developed through the Company's business activities; (e) disclosure or other
misuse of Confidential Information of any kind obtained through Executive's
connection with the Company; (f) appropriation by Executive or the diversion to
others, directly or indirectly, of any business opportunity in which it is known
or could reasonably be anticipated that the Company would be interested; and (g)
the ownership, directly or indirectly, of a material interest in an enterprise
in competition with the Company, or acting as an owner, director, principal,
officer, partner, consultant, employee, agent, servant, or otherwise of any
enterprise which is in competition with the Company.
7. Proprietary Information. THIS PROVISION SHALL BE OF NO FORCE OR EFFECT
IF EMPLOYEE HAS EXECUTED AN EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS
AGREEMENT WITH THE COMPANY. Executive agrees to promptly and freely disclose to
the Company in writing any and all ideas, conceptions, inventions, improvements,
suggestions for improvements, discoveries, formulae, processes, designs,
software, firmware, hardware, circuitry, diagrams, copyrights, trade secrets,
and any other proprietary information (collectively, the "Proprietary
Information"), whether patentable or not, which are conceived, and made or
acquired by Executive solely or jointly with others during the Period of
Employment by the Company or using the Company's time, data, facilities, and/or
materials, and which are related to the products, business, or activities of the
Company which Executive conceives as a result of his employment by the Company,
and Executive agrees to assign and hereby does assign all of his interest
therein to the Company, or its nominee. Whenever requested to do so by the
Company, Executive shall execute any and all applications, assignments, or other
instruments, which the Company shall deem necessary to apply for and obtain
Letters Patent or Copyrights of the United States, or any foreign country, to
otherwise protect the Company's interest in the Proprietary Information or to
vest title to the Proprietary Information in the Company. These obligations
shall continue beyond the termination of Executive's employment, regardless of
the reason for such termination, with respect to the Proprietary Information,
conceived, and made or acquired by Executive during the period of his employment
and shall be binding upon Executive's assigns, executors, administrators, and
other legal representatives. NOTWITHSTANDING ANYTHING CONTAINED OR IMPLIED
HEREIN TO THE CONTRARY, THE PROVISIONS OF THIS SECTION 7 SHALL BE OF NO FORCE OR
EFFECT IF EMPLOYEE HAS EXECUTED AN EMPLOYEE CONFIDENTIAL INFORMATION AND
INVENTION AGREEMENT WITH THE COMPANY.
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8. Termination. Executive's employment hereunder may be terminated without
any breach of this Agreement under the following circumstances:
(a) Death. Executive's employment hereunder shall terminate upon his
death.
(b) Disability. If, as a result of Executive's incapacity due to
illness, accident, or other physical or mental incapacity, Executive shall
have been absent from his duties hereunder on a full-time basis for 180
calendar days in the aggregate in any 12-month period, the Company may
terminate Executive's employment hereunder.
(c) Cause. The Company may terminate Executive's employment hereunder
for Cause. For purposes of this Agreement, the Company shall have "Cause"
to terminate Executive's employment hereunder upon: (A) the willful and
continued failure by Executive to perform substantially his duties
consistent with this Agreement in the reasonable judgment of the Company's
board of directors (other than any such failure resulting from Executive's
incapacity due to physical or mental illness) after notice demanding
substantial performance is delivered by the Company to Executive
specifically identifying the manner in which the Company believes Executive
has not substantially performed his duties and Executive has not cured such
demands within 30 days after receipt of such notice; (B) the willful
engaging by Executive in misconduct which is injurious to the Company,
monetarily or otherwise; (C) the willful violation by Executive of the
provisions of Paragraphs 5, 6, or 7; (D) the willful, persistent failure or
refusal by Executive to follow reasonable policies, standards, directives,
or orders established by the Company; or (E) the conviction of or guilty
plea by Executive of a crime of moral turpitude or other felony including
without limitation fraud, theft, or embezzlement. For purposes of this
Subparagraph 8(c), no act, or failure to act, on Executive's part shall be
considered "willful" unless done or omitted to be done by him not in good
faith and without reasonable belief that his action or omission was in the
best interest of the Company. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Executive a copy of a resolution, duly
adopted by the affirmative vote of not less than three-quarters ( 3/4) of
the entire membership of the Board at a meeting of the Board called and
held for such purposes (after reasonable notice to Executive and an
opportunity for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board, Executive was
guilty of conduct set forth above in clause (A), (B), (C), (D), or (E) of
this subparagraph.
(d) Termination by Executive. Executive may, during the Period of
Employment, upon giving Notice of Termination, terminate his employment
hereunder (i) for Good Reason or (ii) if his health should become impaired
to such an extent that the continued performance of his duties hereunder is
hazardous to his physical or mental health or his life, provided that
Executive shall have furnished the Company with a written statement from a
qualified doctor to such effect.
For purposes of this Agreement, "Good Reason" shall mean: (A) without
Executive's consent, an assignment to Executive of duties, or a material
limitation of the scope of Executive's duties or powers, materially
inconsistent with his designated position and not contemplated by Paragraph
2; (B) without Executive's consent, a removal, during the Period of
Employment, of Executive from or, with respect to a term ending prior to
the end of the Period of Employment, any failure by management to nominate,
or, if nominated by the shareholders, to re-elect, Executive to any of the
positions indicated in Paragraph 2, except in connection with termination
of Executive's employment for Cause, death, or disability; (C) without
Executive's consent, a reduction of Executive's Base Salary to an amount
less than previously determined and fixed by the Compensation Committee in
accordance with Subparagraph 3(a) other than a reduction deemed necessary
by the Board for all executive officers; or (D) breach by the Company of
any of its material obligations under this Agreement and such breach is not
cured within 30 days after written notice thereof by Executive.
(e) Notice of Termination. Except for terminations specified in
Subparagraphs 8(a) and 8(h), any termination during the Period of
Employment of Executive's employment by the Company or any such termination
by Executive shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall
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indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under
the provision so indicated.
(f) Date of Termination. "Date of Termination" shall, during the
Period of Employment, mean: (i) if Executive's employment is terminated by
his death, the date of his death; (ii) if Executive's employment is
terminated on account of disability under Subparagraph 8(b), the date on
which Notice of Termination is given; (iii) if Executive's employment is
terminated by the Company for Cause under Subparagraph 8(c), the date
specified in the Notice of Termination; (iv) if Executive's employment is
terminated by the expiration of the Period of Employment under Subparagraph
8(h), the date of such expiration; and (v) if Executive's employment is
terminated for any other reason, subject to the provisions of Subparagraphs
8(g) and 9(d) and Paragraph 10 to the contrary, the date on which a Notice
of Termination is given.
(g) Retirement. Notwithstanding any other provision hereof to the
contrary, Executive may, at any time during the Period of Employment, upon
the giving of 90 days Notice of Termination, terminate his employment
hereunder, if Executive is then permitted to retire under the provisions of
the Company's pension plan then in effect. The Date of Termination in event
of such Retirement shall be 90 days after such Notice of Termination but in
no case shall it exceed the Period of Employment.
(h) Expiration of Agreement. Executive's employment hereunder shall
terminate at the expiration of the Period of Employment as provided in
Paragraph 1.
9. Compensation Upon Termination or During Disability.
(a) If Executive's employment terminates by reason of his death, the
Company shall, within 90 days of death, pay in a lump sum amount to such person
as Executive shall designate in a notice filed with the Company or, if no such
person is designated, to Executive's estate, Executive's accrued and unpaid Base
Salary to the date of his death, plus his accrued and unpaid incentive
compensation under Subparagraph 3(b), if any, plus his accrued and unpaid sales
commissions under Subparagraph 3(c), if any, plus Executive's accrued and unpaid
vacation time, if any. In addition to the foregoing, any payments to which
Executive's spouse, beneficiaries, or estate may be entitled to receive under
any employee benefit plan shall also be paid in accordance with the terms of
such plan or arrangement. Such payments, in the aggregate, shall fully discharge
the Company's obligations hereunder.
(b) During any period that Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness, Executive shall
continue to receive his accrued and unpaid Base Salary and accrued and unpaid
incentive compensation payments under Subparagraph 3(b), if any, and accrued and
unpaid sales commissions under Subparagraph 3(c), if any, plus Executive's
accrued and unpaid vacation time, if any, until Executive's employment is
terminated due to disability in accordance with Subparagraph 8(b) or until
Executive terminates his employment in accordance with Subparagraph 8(d)(ii),
whichever first occurs. Upon termination due to death prior to the termination
first to occur as specified in the preceding sentence, Subparagraph 9(a) shall
apply.
(c) If Executive's employment is terminated for Cause, the Company shall,
through the Date of Termination, pay Executive his accrued and unpaid Base
Salary at the rate in effect at the time Notice of Termination is given and his
accrued and unpaid incentive compensation under Subparagraph 3(b), if any, and
his accrued and unpaid sales commissions under Subparagraph 3(c), if any, plus
Executive's accrued and unpaid vacation time, if any, and thereafter, the
Company shall have no further obligations to Executive under this Agreement;
provided, any such termination for Cause shall not adversely affect or alter
Executive's rights under any employee benefit plan of the Company in which
Executive, at the Date of Termination, has a vested interest.
(d) If (A) the Company terminates Executive's employment other than in
accordance with Subparagraph 8(a), 8(b), or 8(c) (it being understood that a
purported termination under Subparagraph 8(c) which is disputed and finally
determined not to have been proper shall be a termination by the Company in
material breach of this Agreement and shall be treated as if terminated by
Executive for Good Reason), or
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(B) Executive shall terminate his employment for Good Reason, or (C) the Company
gives Executive notice that it does not wish to extend this Agreement in
accordance with Paragraph 1, then
(i) the Company shall, through the Date of Termination, pay Executive
his accrued and unpaid Base Salary at the rate in effect at the time Notice
of Termination is given and his accrued and unpaid incentive compensation
under Subparagraph 3(b), if any, and his accrued and unpaid sales
commissions under Subparagraph 3(c), if any, plus Executive's accrued and
unpaid vacation time, if any;
(ii) in lieu of any further payments to or claims by Executive for
payments of salary or incentive compensation for periods subsequent to the
Date of Termination, the Company shall pay to Executive a Severance Payment
Amount equal to the sum of (1) Executive's Base Salary, (2) Executive's
annualized incentive compensation under Subparagraph 3(b), and (3)
Executive's annualized sales commissions under Subparagraph 3(c). For
purposes of calculating the Severance Payment Amount, Executive's Base
Salary will be equal to Executive's then-current Base Salary (provided,
however, that if the basis for Executive's termination is for Good Reason
under clause (C) of Subparagraph 8(d), the Severance Payment Amount shall
be based on the Base Salary in effect prior to such reduction); the
annualized incentive compensation will be four times the average of the
amount of incentive compensation earned in the eight full quarters
preceding the earlier of the Notice of Termination or Date of Termination;
and the annualized sales commissions will be 12 times the average of the
amount of sales commissions earned in the 24 full months preceding the
earlier of the Notice of Termination or Date of Termination. The Company
shall pay Executive the Severance Payment Amount in one lump sum on the
thirtieth day following the Date of Termination.
(iii) Executive shall receive all the rights and benefits granted or
in effect with respect to Executive under the Company's qualified and
nonqualified stock option plans and agreements with Executive pursuant
thereto; and
(iv) Executive shall receive payments made in lieu of accrued and
unused vacation as provided for in the Company's vacation policies.
Notwithstanding the foregoing, if Executive terminates his employment for
Good Reason, he shall be entitled to severance pay under Subparagraph 9(d)(ii)
if he gives a Notice of Termination in accordance with Subparagraph 8(e) within
30 days after the occurrence of the event or events specified in clauses (A),
(B), (C), and (D) of Subparagraph 8(d).
(e) If Executive's employment shall be terminated by reason of retirement
under Subparagraph 8(g) or by Executive giving the Company notice that he does
not wish to extend this Agreement in accordance with Paragraph 1, the Company
shall have no further obligations following such termination hereunder except
for continuing obligations arising under Subparagraphs 3(d) and 8(g).
(f) Nothing contained in the foregoing Subparagraphs 9(a) through 9(e)
shall be construed so as to affect the Executive's rights or the Company's
obligations relating to agreements or benefits which are unrelated to
termination of employment.
10. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Executive:
At his home address as shown
in the Company's personnel records;
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if to the Company:
GigaPixel Corporation
2350 Mission College Boulevard
Suite 800
Santa Clara, California 95054
Facsimile Number (408) 654-9123
Attn:
Cc: Legal Department
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified, waived,
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, unless specifically
referred to herein, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of California.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect. The invalid portion of this Agreement, if any, shall be modified by any
court having jurisdiction to the extent necessary to render such portion
enforceable.
13. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding the above,
the Company shall be entitled to seek a restraining order or injunction in any
court of competent jurisdiction to prevent any continuation of any violation of
Paragraphs 5, 6 or 7; and Executive shall be entitled to seek a restraining
order or injunction in any court of competent jurisdiction to prevent
enforcement of Paragraphs 5, 6 or 7. Furthermore, should a dispute occur
concerning Executive's mental or physical capacity as described in Subparagraphs
8(b) or 8(d), the procedure to resolve the dispute solely as to this mental or
physical condition shall be that described in Subparagraph 9(d), except that
after Employee shall have furnished the Company with a written statement from a
qualified doctor, a doctor selected by the Company shall also be entitled to
examine Executive. If the opinion of the Company's doctor and Executive's doctor
conflict, the Company's doctor and Executive's doctor shall together agree upon
a third doctor, whose opinion shall be binding.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year written above.
GIGAPIXEL CORPORATION
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EXECUTIVE
By:
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Its:
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EXHIBIT H
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (the "Agreement") made as of this day of
, 2000 ("Effective Date") by and between GigaPixel Corporation, a
Delaware corporation ("Company"), and George T. Haber ("Consultant").
WHEREAS, the Company desires consulting and similar services relating to
the Company's business; and
WHEREAS, Consultant desires to contract with the Company to perform such
services.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
recited, the sufficiency of which is hereby acknowledged, the parties agree as
follows;
1. Consultancy. The Consultant shall serve as a consultant to the Company
for a period commencing on the date of this Agreement for a period of two (2)
years unless earlier terminated in accordance with Section 9 of this Agreement.
2. Scope of Work. The Consultant shall perform the services set forth in
Exhibit A attached hereto (the "Services"). Any additions to or modifications of
the Services shall be set forth in writing and shall be signed by both parties.
The performance of services and compensation therefore necessary to the
completion of such additions or modifications shall be governed by this
Agreement unless otherwise described in the written agreement of the parties.
3. Performance Bonus Advance. Within sixty days after commencement of the
Consultant's services under this Agreement, the Company shall pay to the
Consultant, in advance of the performance of two (2) full years of service under
this Agreement, a performance bonus in the amount of $ ("Performance
Bonus").
4. Repayment Obligation. Concurrently herewith, the Consultant shall
execute the contingent recourse non-negotiable promissory note attached hereto
as Exhibit C (the "Note"). The Note shall provide that in the event that the
Consultant, as maker of the Note, ceased to be engaged as a consultant or
employee by the Company (or its successors or assigns) prior to the two year
anniversary of the Effective Date of this Agreement, the principal balance of
the Note shall become payable no later than one day after the termination of the
consulting or employment relationship between the Consultant and the Company.
Notwithstanding the foregoing, the Note shall also provide that if the
Consultant ceases to be engaged as a consultant or employed by the Company for
any of the following reasons, the repayment obligation therein shall not apply:
(a) Death or permanent disability of the Consultant;
(b) Assignment of this Agreement to a subsidiary, parent, successor or
affiliate of the Company.
5. Consulting Fees. The Company agrees to pay the Consultant a flat fee of
$ for the Services promptly upon the commencement of the consultancy
relationship between the Company and Consultant.
6. Payments. The Company shall reimburse the Consultant for out-of-pocket
expenses reasonably incurred by the Consultant in the performance of the
Services upon the Consultant's submission of any request for reimbursement in a
format consistent with the Company's policies from time to time in effect.
7. Confidentiality. The Consultant acknowledges that Confidential
Information (as defined in Section 8 of this Agreement) is of great value to the
Company. Accordingly, the Consultant agrees not to divulge to anyone, either
during or after the term of this Agreement, any Confidential Information
obtained or developed by the Consultant during the term of this Agreement. Upon
the expiration or earlier termination of this Agreement, the Consultant agrees
to deliver to the Company all documents, papers, drawings, tabulations, reports
and similar documentation which are furnished by the Company to the Consultant
or were prepared by the Consultant in performance of the Services for the
Company. Upon the expiration or termination of this Agreement, the Consultant
agrees to make no further use or utilization of any Confidential Information.
The
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provisions of this Paragraph 7 shall survive the termination of this Agreement.
8. Confidential Information. "Confidential Information," as used in this
Agreement, shall mean information regarding the business affairs, operations,
business opportunities, price and cost information, finances, customer names,
prospects and customer lists, business plans, sales techniques, manuals,
letters, notebooks, procedures, reports, products, processes, services,
inventions, research and development, and other confidential information and
knowledge concerning the Company or 3dfx Interactive, Inc., a California
corporation ("3dfx"). The term "Confidential Information" shall not include
information that (a) is or becomes generally available to the public through no
violation of this Agreement, (b) was available to the Consultant on a
nonconfidential basis prior to disclosure to the Consultant by the Company or
3dfx, or (c) becomes available to the Consultant on a nonconfidential basis from
a source other than the Company or 3dfx, provided that such source is not bound
by a confidentiality agreement with the Company or 3dfx.
9. Termination. The Company shall have the right to terminate this
Agreement at any time upon 15 days prior written notice to the Consultant. In
addition, in the event either party fails to cure a breach of this Agreement
within fifteen (15) days after receiving written notice thereof, then the
non-breaching party may terminate this Agreement upon written notice to the
breaching party. In the event of any termination of this Agreement, the Company
shall make payments to the Consultant for all work performed in accordance with
the terms and conditions of this Agreement up to the date of termination, and
the Consultant shall immediately return to the Company, without limitation, all
correspondence, reports, documents, drawings and any other items of whatever
nature supplied to the Consultant by the Company or owned by the Company
pursuant to this Agreement.
10. Independent Contractor/Taxes. The Consultant is not an agent or
employee of the Company and is not authorized to act on behalf of the Company.
Except as required by a final determination by the Internal Revenue Service or
state taxing authority and upon due notice to the other party, the Consultant
and the Company each agrees that it will treat the Consultant as an independent
contractor for tax purposes and file all tax and information returns and pay all
applicable taxes on that basis.
11. Assignment. The Consultant shall not assign this Agreement or any
interest herein, nor delegate any obligation hereunder, without the prior
written consent of the Company. The Company shall not assign its rights and
obligations under this Agreement to any third party without the written consent
of the Consultant, except that the Company may assign this Agreement to a
subsidiary, parent, successor or affiliate of the Company without the consent of
the Consultant.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
between California residents and wholly to be performed in California.
13. Headings. The headings in this Agreement are intended principally for
convenience and shall not, by themselves, determine the rights and obligations
of the parties to this Agreement.
14. Notices. All notices, requests, demands, and other communications
required by, or made in connection with, this Agreement or the transactions
contemplated by this Agreement, shall be in writing and shall be deemed to have
been duly given on the date of delivery, if delivered in person, or three days
after mailing if mailed by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Company: GigaPixel Corporation
2350 Mission College Boulevard, Suite 800
Santa Clara, California 95054
If to the Consultant: c/o George T. Haber
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--------------------------------------------------------------
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Such addresses may be changed, from time to time, by means of a notice
given in the manner provided in
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this Section 13.
15. Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
16. Waiver. The waiver of any term or condition contained in this
Agreement by any party to this Agreement shall not be construed as a waiver of a
subsequent breach or failure of the same term or condition or a waiver of any
other term or condition contained in this Agreement.
17. Entire Agreement. This Agreement, together with the Note and
Confidential Information and Inventions Agreement to be executed concurrently
herewith, contain all of the terms and conditions agreed upon by the parties
relating to its subject matter and supersedes any and all prior and
contemporaneous agreements, negotiations, correspondence, understandings and
communications of the parties, whether oral or written, respecting the subject
matter herein.
18. Counterpart Execution. This Agreement may be executed by facsimile and
in counterparts, each of which shall be deemed an original and all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Company GIGAPIXEL CORPORATION
By:
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
Consultant GEORGE T. HABER
By:
--------------------------------------
George T. Haber
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APPENDIX I
PERFORMANCE BONUS AGREEMENT
This Performance Bonus Agreement (the "Agreement") is made between
GigaPixel Corporation (the "Company"), a Delaware corporation with its principal
place of business at 2350 Mission College Boulevard, Suite 800, Santa Clara,
California and ("Employee"), on this day of , 2000 (the
"Effective Date"). The parties agree as follows:
1. Conditions Precedent. The Company's obligation to advance to Employee a
performance bonus in accordance with the terms of this Agreement is subject to
Employee's (a) execution of, and agreement to, the terms of the employment
agreement attached hereto as Exhibit A (the "Employment Agreement"); (b)
commencement of the engagement of Employee thereunder; and (c) execution of the
contingent recourse non-negotiable promissory note attached hereto as Exhibit B
(the "Note").
2. Performance Bonus Advance. Upon satisfaction of the conditions precedent
set forth in Section 1 above and within the time period set forth in Section 3
below, the Company shall pay to Employee in advance of the performance of two
years of service under the Employment Agreement a performance bonus in the
amount of $ ("Performance Bonus"), less all amounts to be withheld by
the Company in accordance with all applicable federal, state, local and foreign
tax laws and regulations.
3. Time of Payment. The Performance Bonus shall be paid to Employee within
sixty days after the effective date of the Employment Agreement.
4. Repayment Obligations. The Note shall provide that in the event that
Employee, as maker of the Note, ceases to provide services to the Company under
the Employment Agreement prior to the two-year anniversary of the effective date
of the Employment Agreement, the principal balance of the Note shall be payable
no later than one day after the termination of Employee's employment with the
Company. Notwithstanding the foregoing, the Note shall also provide that if,
Employee ceases to be employed by the Company for any of the following reasons,
then the payment obligation set forth therein shall not apply:
(a) Death or permanent disability of employee;
(b) Leave authorized by the Company not involving termination of the
employment relationship between Company and Employee; or
(c) Transfer of Employee by the Company to a subsidiary, parent,
successor or affiliate of the Company (each, a "Company Affiliate");
provided that, if Maker is transferred to any Company Affiliate, then Maker
shall be obligated to provide services to such Company Affiliate until the
expiration of the two-year period described above.
For purposes of this Section 4, the term "permanent disability" shall mean
permanent inability of Employee, due to a physical or mental illness, injury or
impairment, to perform a substantial portion of his or her duties, as determined
by the board of directors of the Company. The exceptions expressly enumerated in
this Section 4 shall be the only exceptions under this Agreement.
5. Not an Employment Agreement. This Agreement is not an employment
agreement and shall not be construed or implied to be such from the terms
herein.
6. Assignment. This Agreement is not assignable by Employee, and shall not
be subject to voluntary or involuntary alienation or transfer. The Company may
assign, in whole or in part, its rights and obligations under this Agreement to
any third party without consent of Employee.
7. Modification. This Agreement, together with the Employment Agreement and
the Note, shall constitute the entire agreement between the Company and Employee
with regard to the performance bonus to be paid to Employee by the Company, and
may not be changed, altered, or modified unless in writing and signed by the
Company and Employee.
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8. Construction. This Agreement shall be governed and construed in
accordance with the laws of the State of California. All claims, if any, arising
under this Agreement shall be brought only in the courts located in San Jose,
California, and both parties agree to the jurisdiction and venue of such courts.
9. Waiver. Any waiver by the Company of any provision of this Agreement or
breach thereof shall not be effective unless in writing, and no such waiver
shall operate or be construed as a waiver of any subsequent breach.
10. Employee Acknowledgement. Employee agrees that by his or her signature
to this Agreement that he or she has read this Agreement before signing it and
that he or she fully understands its purposes, terms and provisions, which he or
she expressly acknowledges to be reasonable in all respects. Employee further
acknowledges receipt of a copy of this Agreement.
11. Counterpart Execution. This Agreement may be executed by facsimile and
in counterparts, each of which shall be deemed an original and all of which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
--------------------------------------
[Name] ("Employee")
GIGAPIXEL CORPORATION
--------------------------------------
George T. Haber
President and Chief Executive Officer
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APPENDIX J
WRITTEN CONSENT OF THE STOCKHOLDERS OF
GIGAPIXEL CORPORATION
IN LIEU OF SPECIAL MEETING
As authorized by Section 228 of the Delaware General Corporation Law and by
Section 13 of the bylaws of GigaPixel Corporation (the "Corporation"), the
undersigned, constituting record holders of (i) a majority of the issued and
outstanding common stock of the Corporation and (ii) a majority of the issued
and outstanding preferred stock which includes issued and outstanding Series A,
Series B and Series C preferred stock collectively, without a meeting and based
upon this written consent, do hereby take and consent to the following action:
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
WHEREAS, the Boards of Directors of 3dfx Interactive, Inc. ("3dfx") and
this Corporation believe that it is advisable and in the best interests of the
corporations and their stockholders that this Corporation become a wholly-owned
subsidiary of 3dfx through a merger (the "Merger") of this Corporation and
3dfx's wholly-owned subsidiary, Galapagos Acquisition Corp. ("Galapagos"), as
provided in the Agreement and Plan of Reorganization dated as of March 27, 2000
by and among 3dfx Interactive, Inc., Galapagos Acquisition Corp., and GigaPixel
Corporation (the "Merger Agreement"); and
WHEREAS, the Board of Directors of this Corporation found that the Merger
is fair and in the best interests of this Corporation's stockholders.
RESOLVED: That the stockholders of this Corporation hereby approve the
terms of the Merger and hereby adopt the Merger Agreement;
RESOLVED FURTHER: That the said Merger Agreement and the terms and
conditions set forth and provided therein are hereby in all respects approved,
adopted, authorized, and agreed to;
RESOLVED FURTHER: That the proper officers of this Corporation are hereby
authorized and directed to execute and file a certificate of merger in the
office of the Secretary of State of the State of Delaware; and
RESOLVED FURTHER: That this Written Consent may be executed in one or more
counterparts each of which shall constitute an original, but all of which, taken
together, shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned has duly executed this Written Consent
as of the date hereof:
Dated: June , 2000 [STOCKHOLDER]
------------------------------------------
Name of Authorized Representative
(if shareholder is an institution)
------------------------------------------
Title (if applicable)
------------------------------------------
Signature
Number of Shares Held
Series A Preferred Stock
---------------------------
Series B Preferred Stock
---------------------------
Series C Preferred Stock
---------------------------
Common Stock
---------------------------
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APPENDIX K
FLEETBOSTON
ROBERTSON
STEPHENS
March 27, 2000
Board of Directors
3dfx Interactive, Inc.
4435 Fortran Dr.
San Jose, CA 95134
Members of the Board:
We understand that GigaPixel Corporation (the "Company"), 3dfx Interactive,
Inc. ("Acquiror") and Galapagos Acquisition Corp. (a wholly owned subsidiary of
Acquiror, "Merger Sub") are proposing to enter into an Agreement and Plan of
Reorganization (the "Agreement") which will provide, among other things, for the
merger (the "Merger") of Merger Sub with and into the Company. Upon consummation
of the Merger, the Company will become a wholly owned subsidiary of Acquiror.
Under the terms, and subject to the conditions, set forth in a draft of the
Agreement dated March 27, 2000 (the "Draft Agreement"), at the effective time of
the Merger, each outstanding share of common stock of the Company, par value
$.001 per share, Series A preferred stock of the Company, par value $.001 per
share, Series B preferred stock of the Company, par value $.001 per share, and
Series C preferred stock of the Company, par value $.001 per share, each
outstanding warrant to purchase the common stock of the Company, and each share
of equity securities to be issued to Microsoft Corporation (collectively,
"Company Capital Stock"), other than certain shares to be canceled pursuant to
the Agreement and shares held by stockholders who properly exercise dissenters'
rights ("Dissenting Shares"), will be converted into the right to receive 0.70
shares (the "Exchange Ratio") of the common stock of Acquiror, without par value
("Acquiror Common Stock"). Outstanding options to acquire Company Capital Stock
will be assumed and converted into options to acquire Acquiror Common Stock
pursuant to the terms of the Draft Agreement. The terms and conditions of the
Merger are set out more fully in the Draft Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view and as of the date hereof to Acquiror.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of Acquiror;
(ii) reviewed certain internal financial statements and other
financial and operating data, including certain financial forecasts and
other forward looking information, concerning the Company prepared by the
managements of the Company and Acquiror, respectively;
(iii) reviewed certain internal financial statements and other
financial and operating data, including certain financial forecasts and
other forward looking information (including, specifically, forecasts of
certain strategic, financial and operational benefits that are expected to
result from the Merger (the "Expected Synergies")), concerning Acquiror
prepared by the management of Acquiror;
(iv) reviewed certain publicly available research estimates of
research analysts regarding Acquiror;
(v) held discussions with the respective managements of the Company
and Acquiror concerning the businesses, past and current operations,
financial condition and future prospects of both the Company and Acquiror,
independently and combined, including discussions with the management of
Acquiror concerning the Expected Synergies as well as their views regarding
the strategic rationale for the Merger;
(vi) reviewed the financial terms and conditions set forth in the
Draft Agreement;
(vii) reviewed the stock price and trading history of Acquiror Common
Stock;
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(viii) compared the financial performance of the Company with that of
certain other publicly traded companies that we deemed comparable to the
Company;
(ix) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions that we
deemed relevant;
(x) reviewed the pro forma impact of the Merger on Acquiror's earnings
per share and revenue per share;
(xi) participated in discussions and negotiations among
representatives of the Company and Acquiror and their financial and legal
advisors; and
(xii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of the Company and Acquiror) or
publicly available and have neither attempted to verify, nor assumed
responsibility for verifying, any of such information. We have relied upon the
assurances of the managements of the Company and Acquiror that they are not
aware of any facts that would make such information inaccurate or misleading.
Furthermore, we did not obtain or make, or assume any responsibility for
obtaining or making, any independent evaluation or appraisal of the properties,
assets or liabilities (contingent or otherwise) of the Company or Acquiror, nor
were we furnished with any such evaluation or appraisal. With respect to the
financial forecasts and projections (and the assumptions and bases therefor) for
each of the Company and Acquiror that we have reviewed (including the Expected
Synergies), we have assumed that such forecasts and projections (including the
Expected Synergies) have been reasonably prepared in good faith on the basis of
reasonable assumptions and reflect the best currently available estimates and
judgments as to the future financial condition and performance of the Company
and Acquiror, respectively, and we have further assumed that such projections
and forecasts (including the Expected Synergies) will be realized in the amounts
and in the time periods currently estimated. In this regard, we note that each
of the Company and Acquiror face exposure to the year 2000 problem. We have not
undertaken any independent analysis to evaluate the reliability or accuracy of
the assumptions made with respect to the potential effect that the Year 2000
problem might have on the Company's and Acquiror's respective forecasts. We have
assumed that the Merger will be consummated upon the terms set forth in the
Draft Agreement without material alteration thereof, including, among other
things, that the Merger will be accounted for as a purchase business combination
in accordance with U.S. generally accepted accounting principles ("GAAP") and
that the Merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986, as amended. In addition, we have assumed that the
historical financial statements of each of the Company and Acquiror reviewed by
us have been prepared and fairly presented in accordance with U.S. GAAP
consistently applied. We have also assumed that the Exchange Ratio will not be
increased as a result of escrow, purchase price adjustment and other provisions
of the Draft Agreement. We have relied as to all legal matters relevant to
rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other
conditions as in effect on, and information made available to us as of, the date
hereof. It should be understood that subsequent developments may affect the
conclusion expressed in this opinion and that we disclaim any undertaking or
obligation to advise any person of any change in any matter affecting this
opinion which may come or be brought to our attention after the date of this
opinion. Our opinion is limited to the fairness, from a financial point of view
and as to the date hereof, to Acquiror of the Exchange Ratio. We do not express
any opinion as to (i) the value of any employee agreement or other arrangement
entered into in connection with the Merger, (ii) any tax or other consequences
that might result from the Merger or (iii) what the value of Acquiror Common
Stock will be when issued to the Company's stockholders pursuant to the Merger
or the price at which shares of Acquiror Common Stock may be traded in the
future. Our opinion does not address the relative merits of the Merger and the
other business strategies that Acquiror's Board of Directors has considered or
may be considering, nor does it address the decision of Acquiror's Board of
Directors to proceed with the Merger.
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We are acting as financial advisor to Acquiror in connection with the
Merger and will receive (i) a fee contingent upon the delivery of this opinion
and (ii) an additional fee contingent upon the consummation of the Merger. In
addition, Acquiror has agreed to indemnify us for certain liabilities that may
arise out of our engagement. In the past, we have provided certain investment
banking services to Acquiror for which we have been paid fees, including acting
as lead-manager for an initial public offering of Acquiror Common Stock and
providing advisory services on the acquisition of STB Systems, Inc. We maintain
a market in the shares of Acquiror Common Stock. In the ordinary course of
business, we may trade in Acquiror's securities for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board
of Directors of Acquiror in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of Acquiror or the Company as to how such stockholder should vote,
or take any other action, with respect to the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Rate is fair to Acquiror from a
financial point of view.
Very truly yours,
FLEETBOSTON ROBERTSON STEPHENS INC.
/s/ FLEETBOSTON ROBERTSON STEPHENS
INC.
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APPENDIX L
SECTION 262, DELAWARE GENERAL CORPORATION LAW: APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be
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available for the shares of any class or series of its stock as a result of
an amendment to its certificate of incorporation, any merger or
consolidation in which the corporation is a constituent corporation or the
sale of all or substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the procedures of
this section, including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of
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holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or
of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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APPENDIX M
CALIFORNIA GENERAL CORPORATION LAW
SECTION 1300: Reorganization or short-form merger; dissenting shares; corporate
purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the National Market System of the NASDAQ
Stock Market, and the notice of meeting of shareholders to act upon the
reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by
the corporation or by any law or regulation; and provided, further, that
this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301: Notice to holders of dissenting shares in reorganizations; demand
for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any
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dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302: Submission of share certificates for endorsement; uncertificated
securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303: Payment of agreed price with interest; agreement fixing fair
market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304: Action to determine whether shares are dissenting shares or fair
market value; limitation; joinder; consolidation; determination of issues;
appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
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<PAGE> 237
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305: Report of appraisers; confirmation; determination by court;
judgment payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1312: Right of dissenting shareholder to attack, set aside or rescind
merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's
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shares pursuant to this chapter; but if the shareholder institutes any action to
attack the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, the shareholder
shall not thereafter have any right to demand payment of cash for the
shareholder's shares pursuant to this chapter. The court in any action attacking
the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law, the
Registrant's Restated 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 to shareholders, 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
Restated 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 Registrant has entered into Indemnification Agreements
with its directors and executive officers.
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.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been 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.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and between the
Registrant and GigaPixel Corporation dated as of March 27,
2000, including selected annexes (attached as Appendix A to
the Proxy Statement/Prospectus/Information Statement
contained in this Registration Statement).
3.1 The Registrant's Restated Articles of Incorporation
(incorporated by reference to exhibits filed in response to
Item 16 of the Registration Statement on Form S-1, File No.
333-25365).
3.2 The Registrant's Bylaws, as amended May 1999 (incorporated
by reference to exhibits to the Registrant's Registration
Statement on Form S-4, dated April 15, 1999, File No.
333-76355).
3.3 The Registrant's Bylaws, amended effective as of the
Registrant's 2000 Annual Shareholders Meeting.
4.1 Form of Specimen Certificate for the Registrant's Common
Stock (incorporated by reference to exhibits filed in
response to Item 16 of the Registration Statement on Form
S-1, File No. 333-25365).
4.2 Certificate of Determination of Series A Participating
Preferred Stock (incorporated by reference to Exhibit A to
Exhibit No. 1 to the Registrant's Registration Statement on
Form 8-A, dated November 9, 1998).
5.1 Opinion of Locke Liddell & Sapp LLP regarding the legality
of the securities being issued.
8.1 Opinion of Locke Liddell & Sapp LLP regarding certain tax
issues.
8.2 Opinion of Heller Ehrman White & McAuliffe LLP regarding
certain tax issues.
9.1 Form of Voting Agreement, dated March 27, 2000, between
certain shareholders of the Registrant and GigaPixel
Corporation, a Delaware Corporation (attached as Appendix C
to the Proxy Statement/Prospectus/Information Statement
contained in this Registration Statement).
23.1 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5.1
and Exhibit 8.1).
23.2 Consents of PricewaterhouseCoopers LLP.
23.3 Consent of FleetBoston Robertson Stephens (included in the
opinion of FleetBoston Robertson Stephens attached as
Appendix K to the Proxy Statement/Prospectus/ Information
Statement contained in this Registration Statement).
23.4 Consent of Heller Ehrman White & McAuliffe LLP (included in
Exhibit 8.2).
23.5 Consent of George Haber as named a person about to become a
director.
23.6 Consent of Andrei M. Manoliu as named a person about to
become a director.
24.1 Power of Attorney (see signature page).
99.1 Form of Registrant Proxy Card.
99.2 Form of GigaPixel Written Consent (attached as Appendix J to
the Proxy Statement/Prospectus/Information Statement
contained in this Registration Statement).
</TABLE>
(b) Financial Statement Schedule. Not Applicable.
(c) Reports, Opinions or Appraisals. Furnished as Appendix K to the Proxy
Statement/Prospectus/ Information Statement contained in this Registration
Statement.
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<PAGE> 241
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of the
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form;
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements
of section 19(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
Form S-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through
the date of responding to the request; and
(4) to supply by means of a post-effective amendment all information
concerning a transaction, and 3dfx being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
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 provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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<PAGE> 242
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on the 5th day of June, 2000.
3DFX INTERACTIVE, INC.
By /s/ ALEX LEUPP
------------------------------------
Alex Leupp
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alex Leupp and David Zacarias, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-4 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALEX LEUPP
---------------------------------------------------
Alex Leupp President, Chief Executive Officer June 5, 2000
and
Director (Principal Executive
Officer)
/s/ DAVID ZACARIAS
---------------------------------------------------
David Zacarias Vice President, Administration and June 5, 2000
Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ GORDON A. CAMPBELL
---------------------------------------------------
Gordon A. Campbell Chairman of the Board June 5, 2000
/s/ JAMES L. HOPKINS
---------------------------------------------------
James L. Hopkins Director June 5, 2000
/s/ SCOTT D. SELLERS
---------------------------------------------------
Scott D. Sellers Executive Vice President, Chief June 5, 2000
Technical Officer and Director
</TABLE>
<PAGE> 243
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES WHIMS Director June 5, 2000
---------------------------------------------------
James Whims
/s/ ANTHONY SUN
---------------------------------------------------
Anthony Sun Director June 5, 2000
</TABLE>
<PAGE> 244
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and between the
Registrant and GigaPixel Corporation dated as of March 27,
2000, including selected annexes (attached as Appendix A to
the Proxy Statement/Prospectus/Information Statement
contained in this Registration Statement).
3.1 The Registrant's Restated Articles of Incorporation
(incorporated by reference to exhibits filed in response to
Item 16 of the Registration Statement on Form S-1, File No.
333-25365).
3.2 The Registrant's Bylaws, as amended May 1999 (incorporated
by reference to exhibits to the Registrant's Registration
Statement on Form S-4, dated April 15, 1999, File No.
333-76355).
3.3 The Registrant's Bylaws, amended effective as of the
Registrant's 2000 Annual Shareholders Meeting.
4.1 Form of Specimen Certificate for the Registrant's Common
Stock (incorporated by reference to exhibits filed in
response to Item 16 of the Registration Statement on Form
S-1, File No. 333-25365).
4.2 Certificate of Determination of Series A Participating
Preferred Stock (incorporated by reference to Exhibit A to
Exhibit No. 1 to the Registrant's Registration Statement on
Form 8-A, dated November 9, 1998).
5.1 Opinion of Locke Liddell & Sapp LLP regarding the legality
of the securities being issued.
8.1 Opinion of Locke Liddell & Sapp LLP regarding certain tax
issues.
8.2 Opinion of Heller Ehrman White & McAuliffe LLP regarding
certain tax issues.
9.1 Form of Voting Agreement, dated March 27, 2000, between
certain shareholders of the Registrant and GigaPixel
Corporation, a Delaware Corporation (attached as Appendix C
to the Proxy Statement/Prospectus/Information Statement
contained in this Registration Statement).
23.1 Consent of Locke Liddell & Sapp LLP (included in Exhibit 5.1
and Exhibit 8.1).
23.2 Consents of PricewaterhouseCoopers LLP.
23.3 Consent of FleetBoston Robertson Stephens (included in the
opinion of FleetBoston Robertson Stephens attached as
Appendix K to the Proxy Statement/Prospectus/Information
Statement contained in this Registration Statement).
23.4 Consent of Heller Ehrman White & McAuliffe LLP (included in
Exhibit 8.2).
23.5 Consent of George Haber as named a person about to become a
director.
23.6 Consent of Andrei M. Manoliu as named a person about to
become a director.
24.1 Power of Attorney (see signature page).
99.1 Form of Registrant Proxy Card.
99.2 Form of GigaPixel Written Consent (attached as Appendix J to
the Proxy Statement/Prospectus/Information Statement
contained in this Registration Statement).
</TABLE>
