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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended May 2, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
Commission file number: 0-23985
NVIDIA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 94-3177549
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
3535 Monroe Street
Santa Clara, California 95051
(408) 615-2500
(Address, including Zip Code, of Registrant's Principal Executive Offices
and Registrant's Telephone Number, including Area Code)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares of the registrant's common stock outstanding as of May
31, 1999 was 29,427,737 shares.
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NVIDIA CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I: FINANCIAL INFORMATION
<C> <S> <C>
ITEM 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED BALANCE SHEETS AS OF MAY 2, 1999 AND JANUARY 31, 1999.. 3
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MAY 2, 1999 AND APRIL 26, 1998.................................. 4
CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MAY 2, 1999 AND APRIL 26, 1998.................................. 5
NOTES TO CONDENSED FINANCIAL STATEMENTS.......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....... 14
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................ 20
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS......................... 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 21
SIGNATURE................................................................. 22
</TABLE>
2
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PART I: FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited)
NVIDIA CORPORATION
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 2, January 31,
1999 1999
-------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 51,823 $ 50,257
Accounts receivable, less allowances of $3,095 at May
2, 1999 and $2,627 at January 31, 1999................ 34,199 20,633
Inventory.............................................. 15,193 28,623
Prepaid expenses and other current assets.............. 2,160 1,599
-------- --------
Total current assets................................. 103,375 101,112
Property and equipment, net.............................. 22,691 11,650
Deposits and other assets................................ 590 570
-------- --------
$126,656 $113,332
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................................... $ 27,509 $ 35,730
Line of credit......................................... -- 5,000
Accrued liabilities.................................... 9,289 5,012
Current portion of capital lease obligations........... 1,858 1,386
-------- --------
Total current liabilities............................ 38,656 47,128
Capital lease obligations, less current portion.......... 1,298 1,995
Long-term payable........................................ 10,000 --
Stockholders' equity:
Common stock........................................... 29 29
Additional paid-in capital............................. 80,345 74,372
Deferred compensation.................................. (521) (780)
Accumulated deficit.................................... (3,151) (9,412)
-------- --------
Total stockholders' equity........................... 76,702 64,209
-------- --------
$126,656 $113,332
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
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NVIDIA CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended
---------------
April
May 2, 26,
1999 1998
------- -------
<S> <C> <C>
Revenue:
Product..................................................... $71,018 $24,642
Royalty..................................................... -- 3,621
------- -------
Total revenue............................................. 71,018 28,263
------- -------
Cost of revenue............................................... 45,946 20,873
------- -------
Gross profit.................................................. 25,072 7,390
------- -------
Operating expenses:
Research and development.................................... 8,785 4,642
Sales, general and administrative........................... 7,284 3,885
------- -------
Total operating expenses.................................. 16,069 8,527
------- -------
Operating income (loss)....................................... 9,003 (1,137)
Interest and other income, net................................ 342 27
------- -------
Income (loss) before income tax expense (benefit)............. 9,345 (1,110)
Income tax expense (benefit).................................. 3,084 (89)
------- -------
Net income (loss)............................................. $ 6,261 $(1,021)
======= =======
Basic net income (loss) per share............................. $ 0.21 $ (0.07)
======= =======
Diluted net income (loss) per share........................... $ 0.18 $ (0.07)
======= =======
Shares used in basic per share computation.................... 29,277 14,141
Shares used in diluted per share computation.................. 35,454 14,141
</TABLE>
See accompanying notes to condensed financial statements.
4
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NVIDIA CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
May 2, April
1999 26, 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 6,261 $ (1,021)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 1,458 743
Amortization of deferred compensation................. 259 943
Tax benefit from stock options exercised.............. 43 --
Changes in operating assets and liabilities:
Accounts receivable................................... (13,566) 4,753
Inventory............................................. 13,430 (3,579)
Prepaid expenses and other current assets............. (561) (1,897)
Deposit and other current assets...................... (20) (47)
Accounts payable...................................... (8,221) 1,755
Accrued liabilities................................... 4,277 (240)
--------- --------
Net cash provided by operating activities................. 3,360 1,410
--------- --------
Cash flows used in investing activities:
Purchase of property and equipment...................... (2,483) (2,126)
--------- --------
Cash flows from financing activities:
Payments under line of credit........................... (5,000) --
Common stock issued under stock option plans............ 120 --
Sale of common stock under public offering, net of
issuance costs......................................... 5,810 --
Payments under capital leases........................... (241) (270)
--------- --------
Net cash provided by (used in) financing activities....... 689 (270)
--------- --------
Change in cash and cash equivalents....................... 1,566 (986)
Cash and cash equivalents at beginning of period.......... 50,257 7,984
--------- --------
Cash and cash equivalents at end of period................ $ 51,823 $ 6,998
========= ========
Cash paid for interest.................................... $ 77 $ 92
========= ========
Cash paid for taxes....................................... $ 834 $ --
========= ========
Noncash financing and investing activities:
Assets recorded under capital lease..................... $ 16 $ 2,122
========= ========
Liabilities assumed in connection with long-term
software license....................................... $ 10,000 $ --
========= ========
</TABLE>
See accompanying notes to condensed financial statements.
5
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NVIDIA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
1. Basis of presentation
The accompanying condensed unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a
fair presentation have been included. The results for the interim periods
presented are not necessarily indicative of the results that may be expected
for any future period. The following information should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 31, 1999.
2. Net income (loss) per share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period, using either
the as-if-converted method for convertible preferred stock or the treasury
stock method for options and warrants.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration and options and
warrants granted for nominal consideration prior to the initial public
offering (IPO) are included in the calculation of basic and diluted net income
(loss) per share, as if they were outstanding for all periods presented. The
following is a reconciliation of the denominators of the basic and diluted net
income per share computations for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended
--------------------
May 2, April 26,
1999 1998
--------- ----------
<S> <C> <C>
Denominator:
Denominator for basic net income (loss) per share--
weighted-average shares................................ 29,277 14,141
Effect of dilutive securities:
Stock options outstanding............................... 6,035 --
Warrants................................................ 142 --
--------- ---------
Denominator for diluted net income (loss) per share....... 35,454 14,141
========= =========
</TABLE>
As of April 26, 1998, 9,327,087 shares of convertible preferred stock,
options to purchase 6,197,583 shares of common stock, and warrants to purchase
158,806 shares of common stock were outstanding. The effect of these common
equivalent shares would have been anti-dilutive for the three-month period
ended April 26, 1998, and, as a result, such effect has been excluded from the
computation of diluted net loss per share during this period.
6
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NVIDIA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(In thousands)
3. Comprehensive income
The Company had no other components of comprehensive income other than our
reported amounts of net income (loss).
4. Inventory
<TABLE>
<CAPTION>
Three Months Ended
-------------------
May 2, January 31,
1999 1999
------- -----------
<S> <C> <C>
Work in-process........................................ $ 8,626 $15,385
Finished goods......................................... 6,567 13,238
------- -------
Total inventory...................................... $15,193 $28,623
======= =======
</TABLE>
At May 2, 1999, the Company had noncancelable inventory purchase commitments
totaling $32.4 million.
5. New Accounting Pronouncement
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the costs of computer software intended for
internal use. Effective February 1, 1999, the Company adopted SOP 98-1. There
was no material change to the Company's results of operations or financial
position as a result of the adoption of SOP 98-1.
6. Segment information
The Company operates in a single industry segment: the design, development
and marketing of 3D graphics processors for the personal computer ("PC")
market. The Company's chief operating decision maker, the chief executive
officer, reviews financial information presented on a consolidated basis for
purposes of making operating decisions and assessing financial performance.
The following table summarizes geographic information on net sales:
<TABLE>
<CAPTION>
Three Months
Ended
---------------
April
May 2, 26,
1999 1998
------- -------
<S> <C> <C>
United States.............................................. $34,827 $28,263
Asia Pacific............................................... 31,321 --
Europe..................................................... 4,870 --
------- -------
Total revenue............................................ 71,018 28,263
======= =======
</TABLE>
7
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NVIDIA CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(In thousands)
Revenue from significant customers, those representing approximately 10% or
more of total revenue for the respective periods, is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
May 2, April 26,
1999 1998
------ -----------
<S> <C> <C>
Sales
Customer A............................................ 13% 53%
Customer B............................................ 27% 35%
Customer C............................................ 20% --
Customer D............................................ 10% --
Customer E............................................ 10% --
<CAPTION>
As of
------------------
May 2, January 31,
1999 1999
------ -----------
<S> <C> <C>
Accounts receivable
Customer A............................................ 6% 19%
Customer B............................................ 34% 28%
Customer C............................................ 21% 18%
Customer D............................................ 1% 14%
</TABLE>
7. Long-term Software Licensing Agreement
On April 12, 1999, the Company entered into a $10.0 million five-year
software licensing agreement with a supplier in the electronic design
automation industry. Under this agreement, the $10.0 million is due in two
installments. The first installment was settled in June 1999 for 243,902
shares of the Company's common stock valued at $5.0 million. The second
installment is due on or before March 31, 2000 and may be settled in cash or
in stock at the option of the Company.
8. Subsequent Events
On June 9, 1999, the Company entered into an agreement with a major customer
to repurchase 428,572 shares of the Company's common stock from the customer
in settlement for a portion of then outstanding accounts receivable. This
repurchase shall occur as the receivables become due and payable.
8
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are subject to the "safe harbor"
created by those sections. These forward-looking statements include but are
not limited to: statements related to industry trends and future growth in the
markets for 3D graphics processors; our product development efforts; the
timing of our introduction of new products; industry and consumer acceptance
of our products; and future profitability. These forward-looking statements
involve risks and uncertainties that could cause our actual results to differ
materially from those in the forward-looking statements. We undertake no
obligation to publicly release any revisions to the forward-looking statements
or reflect events or circumstances after the date of this document. The
business risks on pages 14 through 19, among other things, should be
considered in evaluating our prospects and future financial performance.
Overview
We design, develop and market 3D graphics processors that provide high
performance interactive 3D graphics to the mainstream PC market. Substantially
all of our revenue in the year ended January 31, 1999 and the three months
ended May 2, 1999 was derived from the sale and license of the RIVA family of
graphics processors. In the first quarter of fiscal 2000, we began commercial
shipment of the RIVA TNT2 and the VANTA graphics processors. We expect that
substantially all of our revenue for the foreseeable future will be derived
from the sale and license of our 3D graphics processors in the mainstream PC
market. We recognize product sales revenue upon shipment, net of appropriate
allowances. Our policy on sales to distributors is to defer recognition of
sales and related gross profit until the distributors resell the product.
Royalty revenue is generally recognized upon shipment of product to the
licensee's customers. Since we have no other product line, our business would
suffer if for any reason our graphics processors do not achieve widespread
acceptance in the mainstream PC market.
A majority of our sales have been to a limited number of customers and sales
are highly concentrated. We sell graphics processors to add-in board
manufacturers, primarily Creative Technology Ltd., Diamond Multimedia Systems,
Inc. and STB Systems, Inc., and motherboard manufacturers such as Intel
Corporation. These manufacturers incorporate our processors in the boards they
sell to PC original equipment manufacturers ("OEMs"), retail outlets and
systems integrators. The average selling prices ("ASPs") for our products, as
well as our customers' products, vary by distribution channel. Substantially
all of our sales are made on the basis of purchase orders rather than long-
term agreements. Sales to Diamond accounted for 27%, sales to Creative
accounted for 20%, sales to STB accounted for 13%, sales to Intel accounted
for 10% and sales to EDOM Technology Co., Ltd. accounted for 10% of our total
revenue for the three months ended May 2, 1999. Sales to STB accounted for 53%
and sales to Diamond accounted for 35% of our total revenue for the three
months ended April 26, 1998. The number of potential customers for our
products is limited, and we expect sales to Creative and Diamond will continue
to account for a substantial portion of our revenue for the foreseeable
future. 3Dfx, a 3D graphics company and a competitor, completed the
acquisition of STB in May 1999. As a result of the acquisition, we expect our
sales to STB to decline significantly from prior levels and we expect STB to
cease to be one of our significant customers. Currently, all of our product
sales and our arrangements with third-party manufacturers provide for pricing
and payment in U.S. dollars. We have not engaged in any foreign currency
hedging activities, although we may do so in the future.
As markets for our 3D graphics processors develop and competition increases,
we anticipate that product life cycles will remain short and ASPs will
continue to decline. In particular, ASPs and gross margins are expected to
decline as each product matures. Our add-in board manufacturers and major OEM
customers typically introduce new system configurations as often as twice per
year, typically based on spring and fall design cycles. Accordingly, our
existing products must have competitive performance levels in order to be
included in new system configurations, or we must timely introduce new
products with such performance characteristics at costs and in sufficient
volumes to maintain overall average selling prices and gross margins. Failure
to achieve necessary costs and volume shipments with respect to future
products or product enhancements could result in rapidly declining ASPs,
reduced margins, reduced demand for products or loss of market share.
9
<PAGE>
We currently utilize Taiwan Semiconductor Manufacturing Company ("TSMC") and
WaferTech, LLC to produce semiconductor wafers and utilize independent
contractors to perform assembly, test and packaging. We depend on these
suppliers to allocate to us a portion of their manufacturing capacity
sufficient to meet our needs, to produce products of acceptable quality and at
acceptable manufacturing yields, and to deliver those products to us on a
timely basis. These manufacturers may not always be able to meet our near-term
or long-term manufacturing requirements. Yields or product performance could
suffer due to difficulties associated with adapting our technology and product
design to the proprietary process technology and design rules of each
manufacturer. A manufacturing disruption experienced by these manufacturers
would impact the production of our products, which would harm our business. In
addition, as the complexity of our products and the accompanying manufacturing
process increases, there is an increasing risk that we will experience
problems with the performance of new products and that there will be yield
problems or other delays in the development or introduction of these products.
We have recently introduced the RIVA TNT2 and VANTA graphics processors and we
may experience problems or other delays while ramping up production of these
products.
Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. As a result, we may commit resources to the
production of products without having received advance purchase commitments
from customers. Any inability to sell products to which we have devoted
significant resources could harm our business. In addition, cancellation or
deferral of product orders could result in our holding excess inventory, which
could adversely affect our profit margins and restrict our ability to fund
operations. Revenue from sales to add-in board and motherboard manufacturers
is recognized upon shipment of products. Revenue and related gross profit from
sales to distributors are deferred until the distributors resell the product.
Product returns or delays or difficulties in collecting accounts receivable
could result in significant charges against income, which could harm our
business.
Results of Operations
Three Months Ended May 2, 1999 and April 26, 1998
Revenue
Product Revenue. Product revenue increased 188% to $71.0 million in the
three months ended May 2, 1999 from $24.6 million in the three months ended
April 26, 1998. The increase was primarily the result of increased sales of
our RIVA family of graphics processors, particularly the RIVA TNT2 graphics
processors. Revenue from sales outside of the U.S. accounted for 51% of total
revenue in the first quarter of fiscal 2000, and all of our revenue in the
comparable period for the prior fiscal year was derived from product sales in
the U.S. This increase in revenue from sales outside of the U.S. is primarily
attributable to (i) the geographic limitation of the worldwide license
agreement with ST Microelectronics, Inc. with respect to sales of the RIVA128
and RIVA128ZX graphics processors, which agreement did not restrict the sales
of the RIVA TNT, RIVA TNT2 and VANTA families of processors in the three
months ended May 2, 1999, and (ii) increased demand for our products in the
Asia Pacific region. We believe that the substantial growth in product revenue
achieved in this period is not necessarily indicative of future results. In
addition, we expect that the ASPs of our products will decline over the lives
of the products. The declines in ASPs of 3D graphics processors generally may
also accelerate as the market develops and competition increases.
Royalty Revenue. ST has a worldwide license to sell the RIVA128 and
RIVA128ZX graphics processors. Royalty revenue from sales by ST of the RIVA128
graphics processor and a derivative of the RIVA128ZX graphics processor was
$3.6 million, or 13% of our total revenue, in the three months ended April 26,
1998. Royalty revenue decreased to zero in the three months ended May 2, 1999
over the comparable period in fiscal 1999 due primarily to reduced sales of
such products and disputes with ST regarding payment. We expect royalty
revenue from ST to decrease both in absolute dollars and as a percentage of
total revenue in the future when compared to periods other than the first
quarter of fiscal 2000.
10
<PAGE>
Gross Profit
Gross profit consists of total revenue net of allowances less cost of
revenue. Cost of revenue consists primarily of the costs of semiconductors
purchased from contract manufacturers (including assembly, test and
packaging), manufacturing support costs (labor and overhead associated with
such purchases), inventory provisions and shipping costs. Gross profit
increased to $25.1 million in the three months ended May 2, 1999 from $7.4
million in the three months ended April 26, 1998. Excluding royalty revenue,
gross margin on product revenue increased to 35% in the first quarter of
fiscal 2000 from 15% in the first quarter of fiscal 1999. The sales of the
higher margin RIVA TNT and TNT2 graphics processors and reductions to costs of
manufacturing the RIVA TNT2 and VANTA graphics processors contributed to the
increase in gross margin. Although we achieved substantial growth in gross
profit and gross margin in this period, we do not expect to sustain these
rates of growth in future periods.
Operating Expenses
Research and Development. Research and development expenses consist of
salaries and benefits, cost of development tools and software, and consultant
costs. As a percentage of total revenue, research and development expenses
decreased to 12% in the three months ended May 2, 1999 from 16% in the three
months ended April 26, 1998, and increased in absolute dollars to $8.8 million
from $4.6 million. The increase in absolute dollars was primarily due to
additional personnel and related engineering costs to support our next
generations products, such as depreciation charges incurred on capital
expenditures and software license and maintenance fees. We anticipate that we
will continue to devote substantial resources to research and development, and
we expect these expenses to increase in absolute dollars in each of the
remaining quarters of fiscal 2000. Research and development expenses are
likely to fluctuate from time to time to the extent we make periodic
incremental investments in research and development and our level of revenue
fluctuates.
As part of a strategic collaboration agreement with ST, we received contract
funding in support of research and development and marketing efforts for the
RIVA128 and RIVA128ZX graphics processors. Accordingly, we recorded
approximately $625,000 in the three months ended April 26, 1998 as a reduction
primarily to research and development. We were obligated to provide continued
development and support to ST through the end of calendar 1998. We currently
do not have any plans to enter into contractual development arrangements and
do not expect to receive contract funding in the future.
Sales, General and Administrative. Sales, general and administrative
expenses consist primarily of salaries, commissions and bonuses earned by
sales, marketing and administrative personnel, promotional and advertising
expenses, travel and entertainment expenses and legal expenses. Sales, general
and administrative expenses as a percentage of total revenue decreased to 10%
in the first quarter of fiscal 2000 from 14% in the first quarter of fiscal
1999 and increased in absolute dollars to $7.3 million from $3.9 million. The
increase in absolute dollars was primarily the result of legal expenses
associated with patent litigation, as well as additional personnel and
commissions and bonuses on sales of the RIVA TNT and RIVA TNT2 graphics
processors. We expect sales, general and administrative expenses to continue
to increase in absolute dollars as we expand our operations, but we do not
expect significant changes in these expenses as a percentage of revenue in
future periods.
Interest and Other Income (Expense), Net
Interest income primarily consists of interest earned on cash and cash
equivalents. Interest expense primarily consists of interest incurred as a
result of capital lease obligations, and interest on borrowings under our line
of credit agreement. Net interest income increased to $342,000 in the three
months ended May 2, 1999 from $27,000 in the three months ended April 26,
1998. The increase in interest income was primarily due to higher average cash
balances as a result of cash proceeds received from the initial public
offering of our common stock in January 1999.
11
<PAGE>
Income Taxes
We had an effective tax rate of 33% in the three months ended May 2, 1999.
The income taxes in the three months ended April 26, 1998 consisted primarily
of deferred federal tax benefit. We anticipate our tax rates for the remainder
of fiscal 2000 will remain relatively constant, depending on the availability
and realizability of deferred tax assets. Realization of the deferred tax
assets will depend on future taxable income.
Stock-Based Compensation
With respect to stock options granted to employees, we recorded deferred
compensation of $4.3 million in 1997 and $361,000 in the one month ended
January 31, 1998. These amounts are being amortized over the vesting period of
the individual options, generally four years. We amortized approximately
$943,000 in the three months ended April 26, 1998 and $259,000 in the three
months ended May 2, 1999. We anticipate amortization of approximately $650,000
in fiscal 2000.
Liquidity and Capital Resources
As of May 2, 1999, we had $51.8 million in cash and cash equivalents. In
January 1999, we sold a total of 3.5 million shares of common stock in an
initial public offering at a price of $12.00 per share, for net proceeds of
$37.5 million. In February 1999, we received an additional $5.8 million from
the underwriters' exercise of their option to purchase an additional 525,000
shares of common stock. Approximately $5.0 million of the net proceeds were
used to repay in full amounts outstanding under a bank line of credit. The
balance of the net proceeds will be used for general corporate purposes,
including capital expenditures and working capital. We historically have held
our cash balances in cash equivalents such as money market funds or as cash.
We place the money market funds with high quality financial institutions and
limit the amount of exposure with any one financial institution. We had $32.4
million of noncancelable inventory purchase commitments outstanding at May 2,
1999.
In September 1998, we entered into a loan and security agreement with a
bank, which included a $5.0 million credit facility. Borrowings under the line
of credit carried interest at prime rate plus 1% and were due in March 1999.
We had borrowed $5.0 million against the line of credit, all of which was
repaid in March 1999.
Net cash provided by operating activities was $3.4 million in the three
months ended May 2, 1999 compared to $1.4 million in the three months ended
April 26, 1998. For the three months ended May 2, 1999, the increased cash
provided by operating activities was a result of higher net income, a
reduction in inventory, and an increase in accrued liabilities, which was
offset somewhat by an increase in accounts receivable and a decrease in
accounts payable. Our accounts receivable are highly concentrated. Five
customers accounted for approximately 72% of the accounts receivable for the
three months ended May 2, 1999. Although we have not experienced any bad debt
write-offs to date, we may be required to write off bad debt in the future,
which could harm our business. In particular, we have had discussions with a
major customer concerning the size of its obligation to us and the timing of
payments. On June 9, 1999, we entered into an agreement with the customer to
repurchase 428,572 shares of our common stock from them in settlement for a
portion of then outstanding accounts receivable.
To date, our investing activities have consisted primarily of purchases of
property and equipment. Our capital expenditures, including capital leases,
were $12.5 million in the three months ended May 2, 1999 and $4.2 million in
the three months ended April 26, 1998. The increase was primarily attributable
to a $10.0 million obligation pursuant to a long-term licensing agreement with
a supplier. We expect capital expenditures to increase as we further expand
research and development initiatives and as our employee base grows. The
timing and amount of future capital expenditures will depend primarily on our
future growth. We expect to spend an additional $5.0 to $10.0 million for
capital expenditures in the next nine months, primarily for software licenses,
emulation equipment and the purchase of computer and engineering workstations.
12
<PAGE>
We believe that our existing cash balances, anticipated cash flows from
operations and capital lease financing will be sufficient to meet our
operating and capital requirements for at least the next 12 months, although
we could be required, or could elect, to raise additional funds during that
period. We expect that we may need to raise additional equity or debt
financing in the future. Additional financing may not be available on
favorable terms or at all and may be dilutive to our then-current
stockholders. We also may require additional capital for other purposes not
presently contemplated. If we are unable to obtain sufficient capital, we
could be required to curtail capital equipment purchases and/or research and
development expenditures, which could harm our business.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software like this may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We are heavily dependent upon the proper functioning of our own computer or
data-dependent systems. These include, but are not limited to, information
systems in business, finance, operations and service. Any failure or
malfunctioning on the part of these or other systems could adversely affect us
in ways that are not currently known, discernible, quantifiable or otherwise
anticipated by us.
Our graphics processors and related software do not depend on any date-
sensitive functions in order to perform in accordance with their respective
designs, and we do not expect their functions to be negatively affected by the
Year 2000 issue. Our products are ultimately used with a number of different
hardware and software products, and to the extent these third-party products
are not Year 2000 compliant, the interoperability of our products may be
adversely affected. Given the number of third-party components and our limited
resources, we do not expect to review these third-party products.
We have conducted and completed an initial audit of our critical internal
financial, informational and operational systems and our electronic design
tools to identify and evaluate those areas of our business that may be
affected by the Year 2000 issue. We have completed a detailed plan to
implement and test any necessary modifications to these key areas to ensure
that they are Year 2000 compliant. Our plan includes the following components:
. independent validation of our Year 2000 assessment procedures;
. formal communications with all significant suppliers, large customers
and tools vendors to determine the extent to which we are vulnerable to
those third parties' failure to remedy their own Year 2000 issues; and
. the development of contingency plans to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations.
We anticipate that any required remediation programs will be completed by
the end of calendar 1999.
To date, we have not incurred material incremental costs associated with our
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. We believe that future
costs associated with our Year 2000 compliance efforts will not exceed
$500,000.
In addition to the risks associated with our own systems, we have
relationships with, and are to varying degrees dependent upon, a large number
of third parties that provide information, goods and services to us and
manufacture our graphics processors. Our business could suffer if key
suppliers experience Year 2000 issues that cause them to delay manufacturing
or shipment of finished product to us. In addition, our results of operations
could suffer if any of our key customers encounter Year 2000 issues that cause
them to delay or cancel
13
<PAGE>
substantial purchase orders or delivery of our product. We have begun to
initiate formal communications to ascertain the Year 2000 compliance of key
suppliers and determine the extent to which we may be vulnerable to those
third parties' failure to remedy their own Year 2000 issues.
We have completed an inventory of internal systems, hardware, software,
communication networks and non-information technology systems and services. We
are in the process of doing the following:
. assessing specific underlying computer systems, programs and hardware;
. evaluating remediation or replacement of Year 2000 non-compliant
technology;
. conducting validation and testing of technologically compliant Year 2000
solutions; and
. completing implementation of Year 2000 compliant systems.
While we plan to complete modifications or upgrades of our business-critical
systems prior to the Year 2000, we may be unable to develop a plan to address
the Year 2000 issue in a timely manner or to upgrade any or all of our major
systems in accordance with our plan. If any required modifications or upgrades
or modifications by key suppliers or customers are not completed in a timely
manner or are not successful, we may be unable to conduct our business. In
addition, any upgrades made may not effectively address the Year 2000 issue.
Furthermore, the systems of other companies on which we rely for the
manufacture of our products may not be converted in a timely manner. A failure
to convert by another company, or a conversion that is incompatible with our
systems, could harm our business.
We or one or more third parties may encounter unforeseen problems with
respect to any of our systems, which could harm our business. We are currently
evaluating possible actions, including accumulating excess inventory of our
finished products, to be taken in the event that our assessment of the Year
2000 issue is not successfully completed on a timely basis, but we have not
yet established a formal contingency plan.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from the investments
without significantly increasing risk. To minimize potential loss arising from
adverse changes in interest rates, we maintain a portfolio of cash and cash
equivalents primarily in highly rated domestic money market funds. In general,
money market funds are not subject to market risk because the interest paid on
such funds fluctuates with the prevailing interest rate.
Exchange Rate Risk
We consider our exposure to foreign exchange rate fluctuations to be
minimal. Currently, all of our arrangements with third-party manufacturers
provide for pricing and payment in U.S. dollars, and, therefore, are not
subject to exchange rate fluctuations. To date, we have not engaged in any
currency hedging activities, although we may do so in the future. Fluctuations
in foreign currency exchange rates could harm our business in the future.
Certain Business Risks
In addition to the risks discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our business is subject to
the risks set forth below.
Our operating results are unpredictable and they may fluctuate. Many of our
revenue components fluctuate and are difficult to predict, and our operating
expenses are largely independent of revenue in any particular period. It is
therefore difficult for us to accurately forecast revenue and profits or
losses. We believe that, even if we do achieve significant sales of our
products, our quarterly and annual results of operations will be affected by a
variety of factors that could adversely affect our revenue, gross profit and
results of operations.
14
<PAGE>
Factors that have affected our results of operations in the past, and are
likely to affect our results of operations in the future, include the
following:
. demand and market acceptance for our products;
. the successful development of next-generation products;
. unanticipated delays or problems in the introduction or performance of
next-generation products;
. market acceptance of the products of our customers;
. new product announcements or product introductions by our competitors;
. our ability to introduce new products in accordance with OEM design
requirements and design cycles;
. changes in the timing of product orders due to unexpected delays in the
introduction of products of our customers or due to the life cycles of
our customers' products ending earlier than anticipated;
. fluctuations in the availability of manufacturing capacity or
manufacturing yields;
. competitive pressures resulting in lower than expected average selling
prices;
. the volume of orders that are received and that can be fulfilled in a
quarter;
. rates of return in excess of that forecasted/expected due to quality
issues;
. the rescheduling or cancellation of customer orders;
. the unanticipated termination of strategic relationships;
. seasonal fluctuations associated with the tendency of PC sales to
decrease in the second quarter and increase in the second half of each
calendar year; and
. the level of expenditures for our research and development and sales,
general and administrative functions.
In addition, we may experience difficulties related to the production of
current or future products and other factors may delay the introduction or
volume sales of new products we develop. We believe that quarterly and annual
results of operations also could be affected in the future by other factors,
including the following:
. changes in the relative volume of sales of our products;
. seasonality in the PC market;
. our ability to reduce the process geometry of our products;
. supply constraints for the other components incorporated into our
customers' products;
. the loss of a key customer;
. changes in the pricing of dynamic random access memory devices ("DRAMs")
or other memory components;
. legal and other costs related to defending intellectual property
litigation;
. costs associated with protecting our intellectual property;
. costs related to acquiring or licensing intellectual property;
. inventory write-downs; and
. foreign exchange rate fluctuations.
Any one or more of the factors discussed above could prevent us from
achieving our expected future revenue or net income.
15
<PAGE>
Because most operating expenses are relatively fixed in the short term, we
may be unable to adjust spending sufficiently in a timely manner to compensate
for any unexpected sales shortfall. We may be required to reduce prices in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other
competitive factors require us to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, our
business could suffer. Accordingly, we believe that period-to-period
comparisons of our results of operations should not be relied upon as an
indication of our future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full
fiscal year.
We have a limited operating history and a history of losses. We have a
limited operating history and it is difficult to predict our future operating
results. Our recent revenue growth may not be sustainable and should not be
considered indicative of future revenue growth, if any. As of May 2, 1999, our
accumulated deficit was approximately $3.2 million. Although we generated net
income in the three months ended May 2, 1999, in the second half of fiscal
1999 and in the three months ended December 31, 1997, we incurred losses in
the first half of fiscal 1999, in the first three quarters of fiscal 1997 and
in each quarter of our prior fiscal years. We may not be profitable on a
quarterly or annual basis in the future.
We need to develop new products and manage product transitions in order to
succeed. Our business will depend to a significant extent on our ability to
successfully develop new products for the 3D graphics market. Our add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, our existing products must have competitive
performance levels or we must timely introduce new products with such
performance characteristics in order to be included in new system
configurations. This requires that we do the following:
. anticipate the features and functionality that consumers will demand;
. incorporate those features and functionality into products that meet the
exacting design requirements of PC OEMs and add-in board manufacturers;
. price our products competitively; and
. introduce the products to the market within the limited window for PC
OEM and add-in board manufacturer design cycles.
As a result, we believe that significant expenditures for research and
development will continue to be required in the future.
Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes has in the past resulted in initial yield problems. New
products that we introduce may not incorporate the features and functionality
demanded by PC OEMs, add-in board manufacturers and consumers of 3D graphics.
In addition, we may not successfully develop or introduce new products in
sufficient volumes within the appropriate time to meet both the PC OEMs'
design cycles and market demand. We have in the past experienced delays in the
development of some new products. Our failure to successfully develop,
introduce or achieve market acceptance for new 3D graphics products would harm
our business.
As markets for our 3D graphics processors develop and competition increases,
we anticipate that product life cycles will remain short and average selling
prices ("ASPs") will continue to decline. In particular, we expect ASPs and
gross margins for our 3D graphics processors to decline as each product
matures and as unit volumes increase. As a result, we will need to introduce
new products and enhancements to existing products to maintain overall ASPs
and gross margins. In order for our 3D graphics processors to achieve high
volumes, leading PC OEMs and add-in board manufacturers must select our 3D
graphics processor for design into their products, and then successfully
complete the designs of their products and sell them. We may be unable to
successfully identify new product opportunities or develop and bring to market
in a timely fashion any new products. In addition, we cannot guarantee that
any new products we develop will be selected for design into PC OEMs' and add-
in board manufacturers' products, that any new designs will be successfully
completed or that
16
<PAGE>
any new products will be sold. As the complexity of our products and the
manufacturing process for our products increases, there is an increasing risk
that we will experience problems with the performance of our products and that
there will be delays in the development, introduction or volume shipment of
our products. We recently introduced the RIVA TNT2 and VANTA graphics
processors. While we have not experienced yield problems to date, we may
experience problems or other delays while ramping up production of these
products. We may experience difficulties related to the production of current
or future products or other factors may delay the introduction or volume sale
of new products we developed. In addition, we may be unable to successfully
manage the production transition risks with respect to future products.
Failure to achieve any of the foregoing with respect to future products or
product enhancements could result in rapidly declining ASPs, reduced margins,
reduced demand for our products or loss of market share. In addition,
technologies developed by others may render our 3D graphics products non-
competitive or obsolete or result in our holding excess inventory, either of
which would harm our business.
In the design and development of new products and product enhancements, we
rely on third-party software development tools. While we currently are not
dependent on any one vendor for the supply of these tools, some or all of
these tools may not be readily available in the future. For example, we have
experienced delays in the introduction of products in the past as a result of
the inability of then-available software development tools to fully simulate
the complex features and functionality of our products. The design
requirements necessary to meet consumer demands for more features and greater
functionality from 3D graphics products in the future may exceed the
capabilities of the software development tools available to us. If the
software development tools we use become unavailable or fail to produce
designs that meet consumer demands, our business could suffer.
We may be unable to obtain design wins. Our future success will depend in
large part on achieving design wins, which entails having our existing and
future products chosen as the 3D graphics processors for hardware components
or subassemblies designed by PC OEMs and add-in board manufacturers. Our
failure to achieve one or more design wins would harm our business. The
process of being qualified for inclusion in a PC OEM's product can be lengthy
and could cause us to miss a cycle in the demand of end users for a particular
product feature, which also could harm our business.
Our ability to achieve design wins will depend in part on our ability to
identify and ensure compliance with evolving industry standards. Unanticipated
changes in industry standards could render our products incompatible with
products developed by major hardware manufacturers and software developers,
including Intel and Microsoft. This would require us to invest significant
time and resources to redesign our products to ensure compliance with relevant
standards. If our products are not in compliance with prevailing industry
standards for a significant period of time, our ability to achieve design wins
could suffer. Our failure to achieve design wins would result in the loss of
any potential sales volume that could be generated by newly designed PC
hardware component or board subassembly. This would give a competitive
advantage to the 3D graphics processor manufacturer that achieved the design
win.
We are dependent on the desktop PC market, which may not continue to
grow. In the year ended January 31, 1999, and the three months ended May 2,
1999, we derived all of our revenue from the sale or license of products for
use in PCs. We expect to continue to derive substantially all of our revenue
from the sale or license of products for use in PCs. The PC market is
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and significant price competition. These
factors result in short product life cycles and regular reductions of average
selling prices over the life of a specific product. Although the PC market has
grown substantially in recent years, this growth may not continue. A reduction
in sales of PCs, or a reduction in the growth rate of PC sales, would likely
reduce demand for our products. Moreover, changes in demand could be large and
sudden. Since PC manufacturers often build inventories during periods of
anticipated growth, they may be left with excess inventories if growth slows
or if they have incorrectly forecast product transitions. In these cases, PC
manufacturers may abruptly suspend substantially all purchases of additional
inventory from suppliers like us until the excess inventory has been absorbed.
Any reduction in the demand for PCs generally, or for a particular product
that incorporates our 3D graphic processors, could harm our business.
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<PAGE>
The market for mainstream PC 3D graphics is new and uncertain. Our success
will depend, in part, upon the demand for 3D graphics for mainstream PC
applications. The market for 3D graphics on mainstream PCs has only recently
begun to emerge and is dependent on the future development of, and substantial
end-user and OEM demand for, 3D graphics functionality. As a result, the
market for mainstream PC 3D graphics computing may not continue to develop or
may not grow at a rate sufficient to support our business. The development of
the market for 3D graphics on mainstream PCs will in turn depend on the
development and availability of a large number of mainstream PC software
applications that support or take advantage of 3D graphics capabilities.
Currently there are only a limited number of software applications like this,
most of which are games, and a broader base of software applications may not
develop in the near term or at all. Until very recently, the majority of
multimedia PCs incorporated only 2D graphics acceleration technology, and as a
result, the majority of graphics applications currently available for
mainstream PCs are written for 2D acceleration technology. Consequently, a
broad market for full function 3D graphics on mainstream PCs may not develop.
Our business will suffer if the market for mainstream PC 3D graphics fails to
develop or develops more slowly than expected.
We are dependent on a small number of customers and we are subject to order
and shipment uncertainties. We have only a limited number of customers and our
sales are highly concentrated. We primarily sell our products to add-in board
manufacturers, which incorporate graphics products in the boards they sell to
PC OEMs. Sales to add-in board manufacturers are primarily dependent on
achieving design wins with leading PC OEMs. We believe that a significant
portion of our revenue in the most recent quarter was attributable to products
that ultimately were incorporated into PCs sold by Compaq Computer
Corporation, Dell Computer Corporation, Gateway 2000, Inc., International
Business Machines Corporation, Micron Technology, Inc. and Packard Bell NEC,
Inc. The number of add-in board manufacturers and leading PC OEMs is limited,
and we expect that a small number of add-in board manufacturers directly, and
a small number of PC OEMs indirectly, will continue to account for a
substantial portion of our revenue for the foreseeable future. As a result,
our business could be harmed by the decision of a single PC OEM or add-in
board manufacturer to cease using our products or by a decline in the number
of products sold by a single PC OEM or add-in board manufacturer or by a small
number of customers. In addition, revenue from add-in board manufacturers or
PC OEMs that have directly or indirectly accounted for significant revenue in
past periods, individually or as a group, may not continue, or may not reach
or exceed historical levels in any future period.
We depend on third-party manufacturers to produce our products. We do not
manufacture the semiconductor wafers used for our products and do not own or
operate a wafer fabrication facility. Our products require wafers manufactured
with state-of-the-art fabrication equipment and techniques. We utilize TSMC
and WaferTech to produce our semiconductor wafers and utilize independent
contractors to perform assembly, test and packaging. We depend on these
suppliers to allocate to us a portion of their manufacturing capacity
sufficient to meet our needs, to produce products of acceptable quality and at
acceptable manufacturing yields, and to deliver those products to us on a
timely basis. These manufacturers may be unable to meet our near-term or long-
term manufacturing requirements. We obtain manufacturing services on a
purchase order basis and TSMC has no obligation to provide us with any
specified minimum quantities of product. TSMC fabricates wafers for other
companies, including certain of our competitors, and could choose to
prioritize capacity for other users or reduce or eliminate deliveries to us on
short notice. Because the lead time needed to establish a strategic
relationship with a new manufacturing partner could be several months, there
is no readily available alternative source of supply for any specific product.
We believe that long-term market acceptance for our products will depend on
reliable relationships with TSMC and any other manufacturers used by us to
ensure adequate product supply to respond to customer demand.
We are dependent primarily on TSMC and we expect in the future to continue
to be dependent upon third-party manufacturers to do the following:
. produce wafers of acceptable quality and with acceptable manufacturing
yields;
. deliver those wafers to us and our independent assembly and testing
subcontractors on a timely basis and;
. allocate to us a portion of their manufacturing capacity sufficient to
meet our needs.
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<PAGE>
Our wafer requirements represent a small portion of the total production
capacity of TSMC. Although our products are designed using TSMC's process
design rules, TSMC may be unable to achieve or maintain acceptable yields or
deliver sufficient quantities of wafers on a timely basis or at an acceptable
cost. Additionally, TSMC may not continue to devote resources to the
production of our products or to advance the process design technologies on
which the manufacturing of our products are based. Any difficulties like this
would harm our business.
Low manufacturing yields would harm our business. Semiconductor
manufacturing yields are a function both of product design, which is developed
largely by us, and process technology, which is typically proprietary to the
manufacturer. Since low yields may result from either design or process
technology failures, yield problems may not be effectively determined or
resolved until an actual product exists that can be analyzed and tested to
identify process sensitivities relating to the design rules that are used. As
a result, yield problems may not be identified until well into the production
process, and resolution of yield problems would require cooperation by and
communication between us and the manufacturer. The risk of low yields is
compounded by the offshore location of our manufacturers, increasing the
effort and time required to identify, communicate and resolve manufacturing
yield problems. Because of our potentially limited access to wafer fabrication
capacity from our manufacturers, any decrease in manufacturing yields could
result in an increase in our per unit costs and force us to allocate our
available product supply among our customers. This could potentially harm
customer relationships as well as revenue and gross profit. Our wafer
manufacturers may be unable to achieve or maintain acceptable manufacturing
yields in the future. Our inability to achieve planned yields from our wafer
manufacturers could harm our business.
We face many other risks. Also inherent in our business are additional
risks, which include but are not limited to the following:
. our ability to manage growth;
. our dependence on key personnel;
. our dependence on third parties to assemble and test our products;
. the risk of product returns, product defects or product
incompatibilities;
. our inability to transition to new manufacturing process technologies;
. the risks associated with international operations, which accounted for
a significant portion of our revenue in the three months ended May 2,
1999;
. the cyclical nature of the semiconductor industry; and
. our ability to adequately protect our intellectual property rights.
19
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On May 24, 1999, we were notified that 3Dfx had filed an additional patent
infringement lawsuit against us in the United States District Court for the
Northern District of California. The suit alleges that the sale and use of our
RIVA TNT2 graphics processor infringes a United States patent held by 3Dfx.
The suit seeks unspecified damages (including treble damages), an order
permanently enjoining further alleged infringement and attorneys' fees. Based
on our investigations to date, we believe that the allegations against us are
without merit, and we intend to vigorously defend the lawsuit.
Item 2. Changes in Securities and Use of Proceeds
Use of Proceeds from Sales of Registered Securities
We commenced our initial public offering on January 21, 1999 pursuant to a
Registration Statement on Form S-1 (File No. 333-47495). The managing
underwriters of the public offering were Morgan Stanley & Co., Hambrecht &
Quist and Prudential Securities (the "Underwriters"). In the offering, we sold
an aggregate of 3,500,000 shares of our common stock for an initial price of
$12.00 per share. On February 2, 1999, we sold an additional 525,000 shares of
our common stock at a price of $12.00 per share pursuant to the exercise of
the Underwriter's over-allotment option. The aggregate proceeds from the
offering were $48.3 million. We paid expenses of approximately $5.0 million,
of which approximately $3.4 million represented underwriting discounts and
commissions and approximately $1.6 million represented expenses related to the
offering. Net proceeds from the offering were $43.3 million. Of the net
proceeds, as of May 2, 1999, $5.0 million had been used to repay in full
amounts outstanding under a bank line of credit. The use of the proceeds from
the offering does not represent a material change in the use of proceeds
described in our Registration Statement. As of May 2, 1999, the remainder of
the net proceeds were invested in money market funds.
Recent Sales of Unregistered Securities
On April 12, 1999, we issued an aggregate of 243,902 shares of common stock
in settlement of a $5.0 million installment payable by us under a five-year
software licensing agreement with a supplier in the electronic design
automation industry. We claimed exemptions under the Securities Act from
registration under the Securities Act for this transaction by virtue of
Section 4(2) and Regulation D promulgated thereunder as transactions not
involving a public offering. The investor represented its intention to acquire
the securities for investment only and not with a view to the distribution
thereof. Appropriate legends are affixed to the stock certificate issued in
the transaction. In addition, the investor is an "accredited investor" (as
that term is defined in Rule 501(a)(3) promulgated under the Securities Act).
20
<PAGE>
(a) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.4 Second Amendment to Second Amended and Restated Investors' Rights
Agreement, dated April 12, 1999.
10.13 Stock Purchase Agreement dated April 12, 1999 between the Company and
Synopsys, Inc.
10.14 Stock Repurchase Agreement dated June 9, 1999 between the Company and
Diamond Multimedia Systems, Inc.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the registrant during the three months
ended May 2, 1999.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on June 15, 1999.
NVIDIA CORPORATION
By: /s/ Christine B. Hoberg
----------------------------------
Christine B. Hoberg
Chief Financial Officer
(Principal Financial and
Accounting Officer)
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.4 Second Amendment to Second Amended and Restated Investors' Rights
Agreement, dated April 12, 1999.
10.13 Stock Purchase Agreement dated April 12, 1999 between the Company and
Synopsys, Inc.
10.14 Stock Repurchase Agreement dated June 9, 1999 between the Company and
Diamond Multimedia Systems, Inc.
27.1 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 4.4
NVIDIA Corporation
SECOND AMENDMENT
TO
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Second Amendment to Second Amended and Restated Investors' Rights Agreement
(this "Amendment") is made and entered into as of the date first written above,
by and among NVIDIA Corporation, a California corporation (the "Company"), the
undersigned security holders of the Company (the "Existing Parties") who are
parties to that certain Second Amended and Restated Investors' Rights Agreement
dated August 19, 1997, as amended (the "Rights Agreement") and the undersigned
investor (the "Investor") of the Company listed on Schedule 1 attached hereto.
----------
RECITALS
A. The Existing Parties possess certain registration rights under the
Rights Agreement.
B. In connection with the Stock Purchase Agreement dated as of the date
hereof between the Company and the Investor (the "Purchase Agreement"), the
Investor will purchase Common Stock of the Company.
C. In order to effect the sale of the Shares under the Purchase Agreement,
the parties to this Amendment, including the Existing Parties, desire to amend
the Rights Agreement to provide the Investor with certain rights pursuant to the
terms of the Rights Agreement.
AGREEMENT
THEREFORE, the parties to this Amendment agree as follows:
1. Amendment to Rights Agreement.
(a) For purposes of Section 1 of the Rights Agreement only, each
Investor shall be deemed a "Holder" as such term is defined in Section 1(d) of
the Rights Agreement, and each Investor shall have all the rights granted to
each Holder pursuant to Section 1 of the Rights Agreement.
(b) The definition of "Registrable Securities" in Section 1(g) of the
Rights Agreement is hereby amended and restated to read as follows (additions
are double-underlined):
"Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable pursuant to the conversion of the Shares, (ii)
shares of Common Stock issued pursuant to the Stock Purchase Agreement
dated as of April 12, 1999, and (ii) any Common Stock of the Company
issued or issuable as a dividend or
1.
<PAGE>
other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above, provided, however,
that Registrable Securities shall not include any shares of Common
Stock which have previously been registered or which have been sold to
the public.
2. Effect of Amendment.
(a) It is an express condition to this Amendment that the parties to
it include the Company and Existing Parties who hold more than fifty percent
(50%) of the Registrable Securities, as defined in the Rights Agreement. The
Company and the Existing Parties agree that the execution of this Amendment
constitutes a written amendment of the Rights Agreement effected in compliance
with Section 3.7 thereof. This Amendment shall be binding on each party to the
Rights Agreement, whether or not such party has signed it. Except as expressly
provided in this Amendment, the provisions, terms and conditions of the Rights
Agreement shall remain in full force and effect.
(b) The Rights Agreement shall be binding upon and inure to the
benefit of each Investor who signs this Amendment, as if each such Investor had
been a party to the Rights Agreement upon its original execution and delivery
among the parties thereto.
3. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
4. Governing Law. This Amendment shall be governed and construed in
accordance with the laws of the State of California.
5. Entire Agreement; Successors and Assigns. This Amendment constitutes
the full and entire understanding and agreement among the parties hereto
regarding the subject matter hereof. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.
<PAGE>
The foregoing Second Amendment to Second Amended and Restated
Investors' Rights Agreement is hereby executed as of the date first above
written.
"COMPANY"
NVIDIA Corporation
By: /s/ C B Hoberg
Its: CFO
3.
<PAGE>
"EXISTING PARTIES"
Sutter Hill Ventures,
a California Limited Partnership
By: Sutter Hill Management Company, L.P.
By: /s/ Tench Coxe
General Partner of the General Partner
Sequoia Capital VI,
a California Limited Partnership
Sequoia Technology Partners VI,
a California Limited Partnership
Sequoia XXIII,
a California Limited Partnership
Sequoia XXIV,
a California Limited Partnership
Sequoia Technology Partners III
Sequoia Growth Fund
SQP 1997
Sequoia 1997
By: /s/ Mark Stevens
General Partner, on behalf of the above-named entities
4.
<PAGE>
Worldview Technology Partners I, L.P.
By: Worldview Capital I, L.P., its General Partner
By: Worldview Equity I, L.L.C., its General Partner
By:
------------------------
General Partner
Worldview Technology International I, L.P.
By: Worldview Capital I, L.P., its General Partner
By: Worldview equity I, L.L.C., its General Partner
By:
------------------------
General Partner
Worldview Strategic Partners I, L.P.
By: Worldview Capital I, L.P., its General Partner
By: Worldview Equity I, L.L.C., its General Partner
By:
------------------------
General Partner
5.
<PAGE>
"INVESTORS"
Synopsys, Inc.
By: Steven K. Shevick
Its: Vice President
General Counsel
6.
<PAGE>
Schedule 1
List of Investor
Investor Name and Address Date of Purchase
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attn: Steven K. Shevick, Esq.
(f) (650) 584-1184
7.
<PAGE>
Exhibit 10.13
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
April 12, 1999 (the "Effective Date"), by and between NVIDIA Corporation, a
Delaware corporation (the "Company"), and Synopsys, Inc., a Delaware corporation
(the "Investor").
A. WHEREAS, the Company and Investor have entered into a License Agreement
dated as of April 3, 1999, under which the Company has agreed to license certain
software from the Investor (the "License Agreement").
B. WHEREAS, pursuant to the License Agreement, the Investor will purchase,
and the Company will sell shares of the Company's Common Stock (the "Common
Stock") to Investor in payment for the software licensed by the Company from
Investor upon the terms and conditions hereinafter described.
In consideration of the mutual covenants and conditions contained herein,
the parties agree as follows:
1. Purchase and Sale of Shares.
---------------------------
1.1 Sale and Issuance of Shares.
---------------------------
(a) First Closing. The First Closing shall take place
-------------
on the date hereof at the offices of Brobeck, Phleger & Harrison LLP, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, California, 94303 at 10:00 a.m.
(Pacific Time), or at such other time and place as the Company and Investor
mutually agree upon orally or in writing (which time and place are designated as
the "First Closing"). Subject to the terms and conditions of this Agreement,
Investor agrees to purchase at the First Closing and the Company agrees to sell
and issue to the Investor at the First Closing, for a purchase price of five
million dollars ($5,000,000) (the "First Purchase Price"), that 243,902 shares
of Common Stock (the "First Closing Shares"); provided, however, that the
Company will not issue any fractional shares of Common Stock. Any such
fractional shares will be rounded to the nearest whole share.
(b) Second Closing. The Second Closing shall take
--------------
place on the earlier to occur of (i) the date that is ten (10) business days
after the date that the Company provides written notice to Investor of its
desire to effect the Second Closing; or (ii) March 31, 2000 at the offices of
Brobeck, Phleger & Harrison LLP, 2200 Geng Road, Two Embarcadero Place, Palo
Alto, California 94303 at 10:00 a.m. (Pacific Time), or at such other time and
place as the Company and the Investor mutually agree upon orally or in writing
(the "Second Closing", and collectively with the First Closing, a "Closing").
Subject to the terms and conditions of this Agreement, Investor agrees to
purchase at the Second Closing and the Company agrees to sell and issue to the
Investor at the Second Closing, for a purchase price of five million dollars
($5,000,000) (the "Second Purchase Price"), that number of shares of Common
Stock (the "Second Closing Shares" and together with the First Closing Shares
the "Shares") as is determined by dividing five million dollars ($5,000,000) by
the average of the closing bid and
<PAGE>
ask price per share for the Common Stock as quoted on the Nasdaq National Market
System, or such national securities exchange or over-the-counter trading system
on which the Common Stock is traded at such time, on the four trading days
immediately preceding the date of the Second Closing; provided, however, that
the Company will not issue any fractional shares of Common Stock. Any such
fractional shares will be rounded to the nearest whole share. Notwithstanding
the foregoing, at the Second Closing (whether such Second Closing occurs
pursuant to subpart (i) or (ii) above), the Company may, at its option, deliver
to the Investor, by check or wire transfer, payment in the amount of five
million dollars ($5,000,000) (the "Cash Option") in lieu of delivering the
Second Closing Shares, and such payment shall satisfy in full the Company's
obligations under this Section 1.1(b).
1.2 Closing. At each Closing, Investor will make payment for the
-------
First Closing Shares or Second Closing Shares (provided the Cash Option is not
exercised by the Company), respectively, by forgiving amounts owed to Investor
by the Company under the License Agreement in the amount of the First Purchase
Price, in the case of the First Closing Shares, and $6,090,997, in the case of
the Second Closing Shares. The Company shall deliver to the Investor a
certificate representing the First Closing Shares or the Second Closing Shares
(provided the Cash Option is not exercised by the Company), respectively, within
three (3) business days of the date of each respective Closing; provided,
however, that until delivery of such certificates, Investor shall have all the
rights and incidences of ownership of the First Closing Shares or Second Closing
Shares, as the case may be, as if such certificates were issued on each
respective closing date.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investor that, except as set forth on a
Disclosure Schedule provided to Investors prior to each Closing, specifically
identifying the relevant subparagraph hereof, which exceptions shall be deemed
to be representations and warranties as if made hereunder:
2.1 Organization; Good Standing; Qualification. The Company is a
------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of its state of incorporation, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, to issue and sell the Shares, and to carry out the
provisions of this Agreement and is qualified to do business as a foreign
corporation in each jurisdiction where the failure to qualify would have a
material adverse effect on the business or properties of the Company ("Material
Adverse Effect").
2.2 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors, and stockholders necessary for the authorization,
execution and delivery of this Agreement and that certain amendment to the
Second Amended Investors' Rights Agreement between the parties of even date
herewith (the "Amendment to Rights Agreement"), the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance (or reservation for issuance), sale and delivery of the Shares has been
taken or will be taken prior to the each Closing, and this Agreement and the
Amendment to the Rights Agreement constitute the valid and legally binding
obligations of the Company, enforceable in accordance with their terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of
2
<PAGE>
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
2.3 Valid Issuance of Common Stock. The Shares that are being
------------------------------
purchased by the Investor hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration set forth
herein, will be duly and validly issued, fully paid, and nonassessable, and,
based in part upon the representations of the Investor in this Agreement, will
be issued in compliance with all applicable federal and state securities laws
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws.
2.4 Consents. No consent, approval, qualification, order or
--------
authorization of, or filing with, any local, state or federal governmental
authority or any third party is required on the part of the Company in
connection with the Company's valid execution, delivery, or performance of this
Agreement, or the offer, sale or issuance of the Shares by the Company, except
for filings under applicable securities laws which will be made by the Company
within the prescribed periods.
2.5 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company which questions the validity of this Agreement, or the right
of the Company to enter into it, or to consummate the transactions contemplated
hereby. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality which would reasonably be expected to result in a Material
Adverse Effect.
2.6 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default of any provisions of its Restated Certificate of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
material contract to which it is a party or by which it is bound and which is
filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-47495) or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company, which would
reasonably be expected to result in a Material Adverse Effect. The execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or contract or an event which results in the
creation of any material lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties, except
to the extent that would not reasonably result in a Material Adverse Effect.
2.7 Filings. The Company has timely filed all reports, required to
-------
be filed by it with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act") or the Securities Exchange Act of
1934, as amended (the "Exchange Act"). As of its filing date no such report
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
3
<PAGE>
2.8 Charter Documents. The Company has furnished Investor with
certified copies of its Restated Certificate of Incorporation and Bylaws,
together with any amendments thereto as of the date hereof.
3. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants to the Company that:
3.1 Authorization. This Agreement constitutes its valid and legally
-------------
binding obligation, enforceable in accordance with its terms and that Investor
has full power and authority to enter into this Agreement.
3.2 Purchase Entirely for Own Account. The Shares to be received by
----------------------------------
Investor will be acquired for investment for Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares.
3.3 Restricted Securities. Investor understands that the Shares are
---------------------
"restricted securities" under the Act as they are being acquired from the
Company in a transaction not involving a public offering and that under the Act
and the rules and regulations thereunder such securities may be resold without
registration under the Act, only in certain limited circumstances. In this
connection, the Investor represents that it is familiar with Rule 144
promulgated under the Act, as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
3.4 Accredited Investor. Investor is an "accredited investor" within
-------------------
the meaning of paragraph (a) of Rule 501 of Regulation D promulgated under the
Act and was not organized for the specific purpose of acquiring the Shares.
Investor has sufficient knowledge and experience to analyze the Company so as to
be able to evaluate the risks and merits of its investment in the Company and is
financially able to bear the risks of such investment.
3.5 Legends. It is understood that the certificates evidencing the
-------
Shares may bear one or all of the following legends:
(a) "These securities have not been registered under
the Securities Act of 1933, as amended, or any state securities law and such
securities may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of
California or Delaware or any other applicable state securities law.
3.6 Restrictions on Transfer. Investor agrees not to make any
disposition of all or any portion of the Shares unless and until:
4
<PAGE>
(a) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) (i) The transferee has agreed in writing to be
bound by the terms of this Agreement and the Amendment to the Rights Agreement,
(ii) Investor shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (iii) if reasonably requested by the
Company, Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such Shares under the Securities Act; provided, however, that
3.6(b)(i) and (b)(iii) shall not apply in the event of sales pursuant to Rule
144.
4. Conditions of Investor's Obligations at First Closing and Second
----------------------------------------------------------------
Closing. The obligation of the Investor to purchase and pay for the Shares to
- -------
be purchased at each of the First Closing and Second Closing, as the case may
be, is subject to the fulfillment, or Investor's specific written waiver, on or
before each such Closing, of each of the following conditions:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 herein shall be true and
correct on and as of such Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement, the
Amendment to Rights Agreement and the License Agreement that are required to be
performed or complied with by it on or before such Closing.
4.3 Compliance Certificate. For the Second Closing only, the
----------------------
President of the Company shall have delivered to the Investor a certificate
certifying that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled and stating that there has been no material adverse change in the
business, affairs, properties, assets or conditions of the Company since the
Effective Date, except as otherwise disclosed in any report or other document
filed by the Company with the SEC under the Act or the Exchange Act from the
date hereof through the date of such Closing.
4.4 Qualifications. There shall not be in effect any law, rule or
--------------
regulation prohibiting or restricting the sale and issuance of the Shares or
requiring any consent or approval of any person or governmental entity which
shall not have been obtained prior to the issuance of the Shares in such
Closing.
4.5 Registration Rights Agreement. With respect to the First Closing
-----------------------------
only, the Company and the Investor shall have executed and delivered the
Amendment to Rights Agreement in substantially the form attached hereto as
Exhibit A.
- ---------
4.6 Proceedings and Documents. All corporate or other proceedings in
-------------------------
connection with the transactions contemplated at such Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Investor and Investor's counsel and the
5
<PAGE>
Investor shall have received all such counterpart original and certified or
other copies of such documents as they may reasonably request.
4.7 Issuance of Shares. The Company shall have taken all steps
------------------
necessary to instruct its transfer agent to issue a share certificate or
certificates representing the Shares issued in such Closing.
4.8 Securities Laws. The offer and sale of the Shares to the
---------------
Investor pursuant to this Agreement shall be exempt from the registration
requirements of the Act and qualification requirements of all applicable state
securities laws.
4.9 Consents. The Company and Investor shall have obtained all
--------
consents (including all governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and delivery of
this Agreement), permits and waivers necessary or appropriate for consummation
of the transactions at such Closing, as the case may be, under this Agreement.
4.10 Listing of Shares. The Company shall have taken all steps
------------------
reasonably necessary to list the Shares to be issued at each Closing on the
Nasdaq National Market or such exchange on which the Company's Common Stock
shall then be primarily traded.
5. Conditions of the Company's Obligations at the First Closing and Second
-----------------------------------------------------------------------
Closing. The obligations of the Company to sell and issue the Shares to the
- -------
Investor at each of the First Closing and the Second Closing, as the case may
be, is subject to the fulfillment, or the Company's waiver, on or before each
such Closing, of each of the following conditions:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of Investor contained in Section 3 shall be true and correct on and
as of such Closing with the same effect as though such representations and
warranties had been made on and as of such Closing.
5.2 Credit of Purchase Price. The Investor shall have delivered to
------------------------
the Company a certificate in form and substance reasonably satisfactory to the
Company acknowledging that the issuance of such Shares shall be credited against
the Company's payment obligations under the License Agreement.
5.3 Performance. Investor shall have performed and complied in all
-----------
material respects with all agreements, obligations and conditions contained in
this Agreement and the License Agreement that are required to be performed or
complied with by it on or before such Closing.
5.4 Qualifications. There shall not be in effect any law, rule or
--------------
regulation prohibiting or restricting the sale and issuance of the Shares or
requiring any consent or approval of any person or governmental entity which
shall not have been obtained prior to the issuance of the Shares in such
Closing.
6. Covenants of the Company and Investor.
-------------------------------------
6.1 Registration Rights. The Company and Investor shall execute the
-------------------
Registration Rights Agreement in substantially the form attached hereto as
Exhibit A.
- ---------
6
<PAGE>
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Other than the representations in
----------------------
section 2.7, which shall terminate as to each Closing on the Closing Date, the
representations, warranties and covenants of the Company and the Investor
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement, and shall terminate as to each Closing one (1) year
after the date of such Closing.
7.2 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified, or by facsimile upon
receipt of electronic confirmation by the sending party, at the following
addresses or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties:
If to the Company:
NVIDIA Corporation
3535 Monroe Street
Santa Clara CA 95051
Attn: Chief Financial Officer
(f) (408) 615-2800
With a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Eric Jensen, Esq.
(f) (650) 857-0663
7
<PAGE>
If to the Investor:
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attn: Steven K. Shevick, Esq.
(f) (650) 584-1184
With a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: Timothy R. Curry, Esq.
(f) (650) 496-2736
7.7 Expenses. Irrespective of whether either the First Closing or
--------
the Second Closing is effected, the Company shall pay its own and Investor shall
pay its own costs and expenses with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.8 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
7.9 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.10 Public Disclosure. Neither party shall make any public
-----------------
disclosure concerning the transactions contemplated hereby without prior
consultation with the other party; provided, however, that nothing herein shall
preclude either party from making such disclosure as is required by applicable
laws binding on it as long as the disclosing party has exercised good faith
efforts under the circumstances to consult with the other party as provided in
this Section 7.10.
7.11 No Waiver; Cumulative Remedies. No failure or delay on the part
------------------------------
of Investor or the Company in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
7.12 Prior Agreements. This Agreement, the Rights Agreement (as
----------------
amended by the Amendment to Rights Agreement) and the License Agreement
constitute the entire
8
<PAGE>
agreement between the parties and supersede any prior understandings or
agreements concerning the subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NVIDIA CORPORATION,
a Delaware corporation
By: _____________________________
Name: ___________________________
Title: __________________________
INVESTOR: ________________________
SYNOPSYS, INC.,
a Delaware corporation
By: _____________________________
Name: ___________________________
Title: __________________________
10
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
-----------------------------
11
<PAGE>
Exhibit 10.14
STOCK REPURCHASE AGREEMENT
This Stock Repurchase Agreement (the "Agreement") is made as of this 9th
day of June, 1999 by and among NVIDIA Corporation, a Delaware corporation
("NVIDIA") and Diamond Multimedia Systems, Inc., a Delaware corporation
("Diamond").
WHEREAS, in connection with the purchase of certain graphics chipsets and
related components from NVIDIA, Diamond is currently obligated to pay NVIDIA
between $10 Million and $11 Million in trade receivables; and
WHEREAS, Diamond owns 428,572 shares of common stock of NVIDIA, par value
$0.001 per share (the "Common Stock") as evidenced by stock certificate number
C-298; and
WHEREAS, Diamond and NVIDIA each desire that NVIDIA repurchase such shares
of Common Stock held by Diamond as payment toward invoices as they become due
under their terms;
NOW THEREFORE, in consideration of the mutual promises, agreements and
covenants set forth herein, the parties hereby agree as follows:
1. In consideration of the Stock Value (as defined below) Diamond hereby
transfers, conveys and assigns to NVIDIA, and NVIDIA hereby repurchases, stock
certificate number C-298 representing the 428,572 shares of Common Stock held by
Diamond, with delivery to take place on the date hereof, following which Diamond
will no longer have any right, title or interest in or to the Common Stock.
2. The dollar value represented by the Common Stock to be delivered
hereunder (the "Stock Value") shall be equal to the product of (i) the number
of shares to be delivered hereunder times (ii) average per share closing price
of the Common Stock as quoted by the Nasdaq National Market for the five (5)
trading days immediately preceding the date hereof.
3. Diamond and NVIDIA hereby agree that upon the delivery of the Common
Stock pursuant to paragraph (1) above and in consideration therefor, the amount
owed by Diamond to NVIDIA pursuant to agreed upon invoices or partial invoices
(attached as Exhibit A hereto) shall be reduced by an amount equal to the Stock
Value, such reduction to apply first to those invoices which are furthest past
due and forward sequentially to those invoices which are least past due the
forward sequentially to invoices as they become due under their terms and
conditions until the amount of the Stock Value has been fully applied. Any
amounts owed by Diamond in excess of the Stock Value shall remain payable to
NVIDIA pursuant to the terms of the respective transactions under which such
obligations were incurred.
4. Each party hereto hereby acknowledges that except as expressly set
forth in paragraph (3) above, nothing herein shall be deemed to permit the
modification or amendment of any existing
<PAGE>
purchase arrangements or terms of trade or sale between Diamond and NVIDIA.
5. This Agreement contains the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof. The terms of this
Agreement are contractual and are not a mere recital. By executing this
agreement, Diamond represents and warrants that it has full right, title and
interest in and to the shares of Common Stock to be delivered hereunder, and
that all of such shares are free and clear of any pledge, lien, security
interest, encumbrance claim or equitable interest other than pursuant to this
Agreement. NVIDIA represents and warrants that the transactions contemplated
hereby shall be exempt from the registration requirements of, and shall be
consummated in accordance with, applicable federal and state securities laws.
Each party hereby represents and warrants further that it has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, that such party has obtained
all necessary consents or waivers and taken all corporate actions necessary to
perform its obligations under this Agreement, and that neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will conflict with any instrument, agreement, order, law or regulation by
which such party may be bound. No modification or amendment of this Agreement,
nor any waiver of any of the rights subject to this Agreement will be effective
unless in writing signed by the party to be charged.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of California. This Agreement shall become effective as
of the date hereof, and thereafter shall be binding upon and inure to the
benefit of each of the parties' respective successors, heirs, assignees, and
personal representatives.
7. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one agreement
which shall be binding on all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Diamond Multimedia Systems, Inc. NVIDIA Corporation
By: By:
----------------------------- ----------------------------
Name: Name:
--------------------------- --------------------------
Title: Title:
-------------------------- -------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INOFRMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MAY 2, 1999 AND THE STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MAY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> MAY-02-1999
<CASH> 51,823
<SECURITIES> 0
<RECEIVABLES> 37,294
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0
0
<COMMON> 29
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</TABLE>
