3dfx is to dissolve, transferring its assets to Nvidia in a cash/stock deal worth $112 million.

The outstanding patent litigation between the two companies will also be dropped once they have finalized the sale.

The agreement was signed and announced Friday, when Nvidia agreed to pay $70 million in cash and one million shares of its common stock to acquire 3dfx. In the short-term Nvidia is lending 3dfx $15 million, which will be credited to the cash portion of the price when the deal completes.

Patents Nvidia will acquire 3dfx's patents, pending patent applications, trademarks, brand names and chip inventory.

Alex Leupp, 3dfx's CEO, said: "We strongly believe that to reduce expenses, sell our assets and dissolve the company provides the highest return to our creditors, shareholders and employees."

3dfx also plans to "substantially reduce" its workforce by early next year, cutting costs and conserving cash prior to the deal's completion. Last month, 3dfx announced plans to license its technology to third-party OEM's, and cease manufacturing cards itself.

Final approval The deal has been agreed by the board of directors of both companies, but remains subject to approval by 3dfx's shareholders. The sale is expected to reach completion in the final quarter 2001.

The dissolution and sale of 3dfx follows Friday's announcement of its third-quarter results. 3dfx returned 14 per cent less in revenues for the nine months ended October 31 2000, than for the same period last year - $214.8 million against $251.1 million. Revenues in the quarter also fell – down 63 per cent to $39.2 million, compared to $105.9 million in the same quarter last year.

"Our financial results illustrate the dramatic shift we've seen in the retail market over the past quarter," said Alex Leupp, president and CEO of 3dfx Interactive. He added: "We have experienced a significant slowdown in demand for our products, especially the Voodoo3 and Voodoo5 boards. This slowdown is consistent with the overall softness experienced by the PC market, especially in Western Europe. In addition, we've experienced pricing pressures in the channel. Finally, our inability to secure a line of credit has impacted our ability to build inventory to meet even the existing demand."