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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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S3 INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 77-0204341
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2770 San Tomas Expressway
Santa Clara, California 95051
(408) 980-5400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY J. JOHNSON
President and Chief Executive Officer
S3 INCORPORATED
2770 San Tomas Expressway
Santa Clara, California 95051
(408) 980-5400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
JORGE DEL CALVO
STANTON D. WONG
KAREN A. DEMPSEY
PILLSBURY MADISON & SUTRO LLP
P.O. Box 7880
San Francisco, California 94120
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
maximum maximum
offering aggregate Amount of
Title of each class of Amount to be price per offering registration
securities to be registered registered unit(1) price(1) fee
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<S> <C> <C> <C> <C>
5 3/4% Convertible $103,500,000 100% $103,500,000 $31,363.64
Subordinated Notes due 2003 . .
- ---------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par (2) -- -- (3)
value . . . . . . . . . . . . .
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Such indeterminate number of shares of Common Stock as shall be
required for issuance upon conversion of the Notes being registered
hereunder.
(3) No additional consideration will be received for the Common Stock and,
therefore, no registration fee is required pursuant to Rule 457(i).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1996
PROSPECTUS
S3 INCORPORATED
$103,500,000
5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
This Prospectus relates to $103,500,000 aggregate principal amount of
5 3/4% Convertible Subordinated Notes due 2003 (the "Notes") of S3 Incorporated
("S3" or the "Company") and the shares of Common Stock, par value $.0001 per
share (the "Common Stock"), of the Company issuable upon the conversion of the
Notes (the "Conversion Shares"). The Notes and the Conversion Shares may be
offered from time to time for the accounts of the holders named herein (the
"Selling Securityholders").
The Notes are convertible at the option of the holder into shares of
Common Stock of the Company, at any time prior to redemption or maturity, at a
conversion price of $19.22 per share (equal to a conversion rate of 52.0291
shares per $1,000 principal amount of Notes and representing in the aggregate
5,385,015 shares), subject to adjustment under certain circumstances. Interest
on the Notes is payable semi-annually in arrears on April 1 and October 1 of
each year, commencing on April 1, 1997.
The Notes are unsecured general obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture). See "Description of the Notes--Subordination."
The Notes will mature on October 1, 2003, and may be redeemed, at the option of
the Company, in whole or in part, at any time on or after October 8, 1999 at
the redemption prices set forth herein plus accrued interest. Each holder of
Notes will have the right to cause the Company to repurchase all of such
holder's Notes, payable in cash or, at the Company's option, in Common Stock,
in the event the Common Stock is no longer publicly traded or in certain
circumstances involving a Change of Control (as defined in the Indenture).
The Notes and the Conversion Shares may be offered by the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the Notes
or Conversion Shares directly or to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Notes or Conversion Shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Company will not receive any of
the proceeds from the sale of the Notes or Conversion Shares by the Selling
Securityholders. The Company has agreed to pay all expenses incident to the
offer and sale of the Notes and Conversion Shares offered by the Selling
Securityholders hereby, except that the Selling Securityholders will pay all
underwriting discounts and selling commissions, if any. See "Plan of
Distribution."
The Notes have been designated for trading on the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. Notes sold
pursuant to this Prospectus are not expected to remain eligible for trading on
the PORTAL Market. The Common Stock is traded on the Nasdaq National Market
under the symbol "SIII." On December 6, 1996, the last reported sale price of
the Common Stock on the Nasdaq National Market was $17.875 per share.
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THE NOTES AND THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is December , 1996
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements, and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C., as
well as the regional offices of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois, and 7 World Trade Center,
Suite 1300, New York, New York. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements, and
other information that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes and Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, the Notes and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. Copies of the Registration
Statement, including all exhibits thereto, may be obtained from the
Commission's principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission, or may be examined without charge at the offices
of the Commission described above.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Prospectus: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, (ii) the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996, and September 30, 1996, (iii) the Company's Current Report on Form 8-K
dated September 18, 1996, and (iv) the description of the Common Stock
contained in the Company's Registration Statement on Form 8-A filed under the
Exchange Act on January 21, 1993. All documents subsequently filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior
to the termination of the offering to which this Prospectus relates shall be
deemed to be incorporated by reference into this Prospectus and to be part of
this Prospectus from the date of filing thereof.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
and the Registration Statement of which it is a part to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated herein modifies or replaces such statement. Any statement
so modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement. The
Company will provide without charge to each person to whom a copy of the
Prospectus has been delivered, and who makes a written or oral request, a copy
of any and all of the foregoing documents incorporated by reference in the
Registration Statement (other than exhibits unless such exhibits are
specifically incorporated by reference into such documents). Requests should
be submitted in writing or by telephone to Investor Relations, S3 Incorporated,
at the Company's principal executive offices, 2770 San Tomas Expressway, Santa
Clara, California 95051, telephone (408) 980-5400.
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S3 is a registered trademark of the Company and the Trio, ViRGE and
Vision families of marks are trademarks of the Company. Other trademarks
referenced in this Prospectus are owned by their respective companies.
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THE COMPANY
S3 Incorporated ("S3" or the "Company") is a leading supplier of high
performance multimedia accelerator solutions for the PC market. The Company's
accelerators are designed to work cooperatively with a PC's central processing
unit ("CPU"), implementing functions best suited for a dedicated accelerator
while allowing the CPU to perform the more general purpose computing functions
of today's advanced graphical user interface ("GUI") environment and
applications. By complementing the computing power of the general purpose CPU,
the Company's integrated software and silicon-based accelerator solutions
significantly improve the multimedia performance of PCs while reducing overall
system cost and complexity. S3 has been a pioneer in graphics acceleration
since 1991, when it was the first company to ship in volume a single chip
graphics accelerator with a local bus interface. S3 has since delivered new
generations of high performance accelerator solutions with 32-bit and 64-bit
multimedia products such as integrated 2D graphics and video accelerators,
integrated 3D graphics and video accelerators, MPEG decoders and audio
processors enabling more advanced graphics and integrated full-motion video
acceleration. In November 1995, S3 introduced its initial members of a family
of 3D graphics and video accelerator products to enable 3D graphics on
mainstream PCs. As the demand for greater multimedia capabilities in PCs
increases, particularly the demand for 3D technology, the Company is focused on
continuing to deliver accelerator solutions for use in business desktop, home
and mobile computing systems. The Company sells its graphics and multimedia
accelerators to leading systems and motherboard manufacturers such as Acer
Incorporated, AST Research Incorporated, Compaq Computer Corporation, Dell
Computer Corporation, Digital Equipment Corporation, Gateway 2000, Inc.,
Hewlett-Packard Company, Intel Corporation, International Business Machines
Corporation ("IBM"), Packard Bell NEC, and VTech Holdings Limited, and to
leading add-in board manufacturers such as Diamond Multimedia Systems, Inc.,
miro Computer Products AG, Number Nine Visual Technology Corporation, and STB
Systems, Inc.
When used in this Prospectus, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements contained in "Risk
Factors" concerning the timing of availability and functionality of products
under development, product mix, trends in average selling prices, the growth
rate of the market for PCs, the percentage of export sales and sales to
strategic customers, the adoption or retention of industry standards, the
availability and cost of products from the Company's suppliers, and the initial
operating results for the Company's joint venture foundry, are subject to risks
and uncertainties, including those set forth under "Risk Factors" and elsewhere
in this Prospectus, that could cause actual results to differ materially from
those projected. These forward-looking statements speak only as of the date of
this Prospectus. The Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE NOTES AND CONVERSION SHARES OFFERED HEREBY.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's operating results have historically been, and will
continue to be, subject to quarterly and other fluctuations due to a variety of
factors, including changes in pricing policies by the Company, its competitors
or its suppliers, anticipated and unanticipated decreases in unit average
selling prices of the Company's products, availability and cost of products
from the Company's suppliers, changes in the mix of products sold and in the
mix of sales by distribution channels, the gain or loss of significant
customers, new product introductions by the Company or its competitors, market
acceptance of new or enhanced versions of the Company's products, seasonal
customer demand, and the timing of significant orders. Operating results could
also be adversely affected by general economic and other conditions affecting
the timing of customer orders and capital spending, a downturn in the market
for PCs, and order cancellations or rescheduling. In particular, the market
for PCs in 1996 has experienced a weakening in the trends for demand as
compared with the comparable period in 1995 and is expected to grow at a lower
rate for the entire year as compared with 1995. These factors could adversely
affect demand for the Company's products.
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In addition, the pricing environment for graphics accelerators has recently
experienced and is expected to continue to experience increasing pricing
pressures due in part to the alleviation of supply constraints that contributed
to more stable pricing in 1995 and to aggressive pricing from certain of the
Company's competitors. In particular, the Company's Trio family of integrated
2D accelerators, which accounted for a majority of the Company's revenues in
the first half of 1996, has experienced significant decreases in average
selling prices in 1996. The Company expects that the graphics accelerator
market will transition from 2D acceleration to 3D acceleration, and the Company
has introduced its ViRGE family of 3D accelerators in response to this expected
transition. As a result of the entry of competitors into the 3D acceleration
market, the Company anticipates that it may experience increased pricing
pressures on average selling prices for the ViRGE family of 3D accelerators.
If the transition occurs slower than expected, if the Company's 3D products do
not achieve market acceptance, or if pricing pressures increase, the Company's
operating results could be adversely affected. Further, because the Company is
continuing to increase its operating expenses for personnel and new product
development, the Company's operating results would be adversely affected if
budgeted sales levels were not achieved. PC graphics and multimedia subsystems
include, in addition to the Company's products, a number of other components,
which are supplied by third-party manufacturers. Any shortage of such
components in the future could adversely affect the Company's business and
operating results. Furthermore, it is possible that the Company's products may
be found to be defective after the Company has already shipped significant
volume production. There can be no assurance that the Company would be able to
successfully correct such defects or that such corrections would be acceptable
to customers, and the occurrence of such events could have a material adverse
effect on the Company's business and operating results.
Because the Company must order products and build inventory
substantially in advance of product shipments, and because the markets for the
Company's products are volatile and subject to rapid technological and price
changes, there is a risk that the Company will forecast incorrectly and produce
excess or insufficient inventories of particular products. In addition, the
Company's customers may change delivery schedules or cancel orders without
significant penalty. To the extent the Company produces excess or insufficient
inventories of particular products, the Company's operating results could be
adversely affected.
The Company ships more product in the third month of each quarter than
in either of the first two months of the quarter, with shipments in the third
month higher at the end of the month. This pattern, which is common in the
semiconductor industry, is likely to continue. The concentration of sales in
the last month of the quarter may cause the Company's quarterly results of
operations to be more difficult to predict. Moreover, a disruption in the
Company's production or shipping near the end of a quarter could materially
reduce the Company's net sales for that quarter. The Company's reliance on
outside foundries and independent assembly and testing houses reduces the
Company's ability to control, among other things, delivery schedules.
IMPORTANCE OF NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The PC industry in general, and the market for the Company's products in
particular, is characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions and significant price
competition, resulting in short product life cycles and regular reductions of
unit average selling prices over the life of a specific product. Products in
the Company's market typically have a life cycle of 12 to 24 months, with
regular reductions of unit average selling prices over the life of a specific
product. The successful development and commercialization of new products
required to replace or supplement existing products involve many risks,
including the identification of new product opportunities, the successful and
timely completion of the development process, and the selection of the
Company's products by leading systems suppliers and board manufacturers for
design into their products. There can be no assurance that the Company will
successfully identify new product opportunities and develop and bring to market
in a timely manner successful new products, that products or technologies
developed by others will not render the Company's products or technologies
noncompetitive, or that the Company's products will be selected for design into
its customers' products.
The Company is continually developing new products to address changing
market needs, and its operating results may fluctuate from those in prior
quarters or may be adversely affected in quarters in which it is undergoing a
product transition or in which existing products are under price pressures due
to competitive factors. The Company also intends to add increased
functionality to its products, such as system logic, audio, communications or
other
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additional functions. Market acceptance of the Company's products will also
depend upon acceptance of other components, such as memory, that the Company's
products are designed to work with. For example, if performance of synchronous
graphics RAM ("SGRAM") and/or synchronous DRAM ("SDRAM") improves relative to
the performance of more expensive video RAM ("VRAM"), market demand for higher
performance multimedia accelerators may shift away from VRAM-based accelerators
toward SGRAM or SDRAM-based accelerators. If new products are not brought to
market in a timely manner or do not address market needs or achieve market
acceptance, then the Company's operating results will be adversely affected.
The Company's 1994 operating results were adversely affected in part because
the Company had made a strategic decision to transition its product offerings
from 32-bit to 64-bit accelerators during the first half of 1994, but due to a
lack of PC system logic chipsets based on the PCI bus standard and a slower
than anticipated shift from 32- to 64-bit graphics, sales of S3's PCI-based
Vision64 family of accelerators were less than expected. During the same
period of time, competitors' 32-bit integrated accelerator products offered a
more competitive solution to the Company's customers and ultimately
necessitated an adjustment in the valuation of the Company's 32-bit
non-integrated inventory. In anticipation of a shift in demand from 2D to 3D
technology, the Company has introduced the initial products from its ViRGE
family of 3D multimedia accelerators. If the transition from 2D to 3D in the
PC market is slower than the Company expects or if these products are not
brought to market in a timely manner or do not address market needs or achieve
market acceptance, the Company's operating results could be adversely affected.
DEPENDENCE ON FOUNDRIES AND OTHER THIRD PARTIES
The Company currently relies on several independent foundries to
manufacture its products either in finished form or wafer form. The Company
currently has a long-term supply agreement with only one of its foundries,
Taiwan Semiconductor Manufacturing Company ("TSMC"), which is a "take or pay"
contract, and has invested in a joint venture foundry, United Semiconductor
Corporation ("USC"). The Company conducts business with its other current
foundries by delivering written purchase orders specifying the particular
product ordered, quantity, price, delivery date and shipping terms and,
therefore, such foundries are generally not obligated to supply products to the
Company for any specific period, in any specific quantity or at any specified
price, except as may be provided in a particular purchase order. To the extent
a foundry terminates its relationship with the Company or should the Company's
supply from a foundry be interrupted or terminated for any other reason, such
as a natural disaster, the Company may not have a sufficient amount of time to
replace the supply of products manufactured by that foundry. From time to
time, the Company is unable to obtain a sufficient supply of products to enable
it to meet demand and is required to allocate available supply of its products
among its customers. Until recently, there has been a worldwide shortage of
advanced process technology foundry capacity and there can be no assurance that
the Company will obtain sufficient foundry capacity to meet customer demand in
the future, particularly if that demand should increase. The Company is
continuously evaluating potential new sources of supply. However, the
qualification process and the production ramp-up for additional foundries has
in the past taken, and could in the future take, longer than anticipated, and
there can be no assurance that such sources will be able or willing to satisfy
the Company's requirements on a timely basis or at acceptable quality or per
unit prices.
In the third quarter of 1995, the Company entered into an agreement with
United Microelectronics Corporation ("UMC") and Alliance Semiconductor
Corporation ("Alliance") to form a separate Taiwanese company, USC, for the
purpose of building and managing a semiconductor manufacturing facility in the
Science-Based Industrial Park in Hsin Chu City, Taiwan. To the extent USC
experiences operating losses during the ramp up of production or thereafter,
the Company will recognize its proportionate share of such losses and may be
required to contribute additional capital. There can be no assurance that USC
will ramp to planned capacity, that such operating losses will not continue
after the ramp up of production or that such losses will not have a material
adverse effect on the Company's consolidated results of operations.
The Company's foundry agreement with TSMC requires the Company, under
certain circumstances, to purchase certain committed capacity amounts or
forfeit advance payments against such amounts. To the extent the Company
purchases excess inventories of particular products or chooses to forfeit
advance payments, the Company's operating results could be adversely affected.
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Two of the Company's principal foundries, TSMC and UMC, and the
Company's foundry joint venture, USC, are located in the Science-Based
Industrial Park in Hsin Chu City, Taiwan. Disruption of operations at these
foundries for any reason, including work stoppages, fire, earthquakes or other
natural disasters, would cause delays in shipments of the Company's products,
and could have a material adverse effect on the Company's results of
operations. In addition, as a result of the rapid growth of the semiconductor
industry based in the Science-Based Industrial Park, severe constraints have
been placed on the water and electricity supply in that region. Any shortages
of water or electricity could adversely affect the Company's foundries' ability
to supply the Company's products, which could have a material adverse effect on
the Company's results of operations.
The Company is using multiple sources of supply for certain of its
products, which may require the Company's customers to perform separate product
qualifications. The Company has not, however, developed alternate sources of
supply for certain other products, and its newly introduced products are
typically produced initially by a single foundry until alternate sources can be
qualified. The requirement that a customer perform separate product
qualifications or a customer's inability to obtain a sufficient supply of
products from the Company may cause that customer to satisfy its product
requirements from the Company's competitors, which would adversely affect the
Company's results of operations.
The Company's products are assembled and tested by a variety of
independent subcontractors. The Company's reliance on independent assembly and
testing houses to provide these services involves a number of risks, including
the absence of guaranteed capacity and reduced control over delivery schedules,
quality assurance and costs. The Company also is subject to the risks of
shortages and increases in the cost of raw materials used in the manufacture or
assembly of the Company's products.
Constraints or delays in the supply of the Company's products, whether
because of capacity constraints, unexpected disruptions at the foundries or
assembly or testing houses, delays in obtaining additional production at
existing foundries or in obtaining production from new foundries, shortages of
raw materials, or other reasons, could result in the loss of customers and
other material adverse effects on the Company's operating results, including
effects that may result should the Company be forced to purchase products from
higher cost foundries or pay expediting charges to obtain additional supply.
TRANSACTIONS TO OBTAIN MANUFACTURING CAPACITY; FUTURE CAPITAL NEEDS
In order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company has entered into
and will continue to consider various possible transactions, including the use
of "take or pay" contracts that commit the Company to purchase specified
quantities of wafers over extended periods, equity investments in or advances
or issuances of equity securities to wafer manufacturing companies in exchange
for guaranteed production capacity, or the formation of joint ventures to own
and operate or construct foundries or to develop certain products. Any of
these transactions would involve financial risk to the Company and could
require the Company to commit substantial capital or provide technology
licenses in return for guaranteed production capacity. In particular, the
Company has entered into a "take or pay" contract with TSMC and a joint venture
with UMC and another semiconductor company. The need to commit substantial
capital may require the Company to seek additional equity or debt financing.
The sale or issuance of additional equity or convertible debt securities could
result in additional dilution to the Company's stockholders. There can be no
assurance that such additional financing, if required, will be available when
needed or, if available, will be on terms acceptable to the Company.
DEPENDENCE ON ACCELERATOR PRODUCT LINE
S3's products are designed to improve the graphics and multimedia
performance of x86-based PCs and Microsoft Windows, Windows NT and IBM OS/2
operating systems, the predominant standards in today's PC market. Any shift
away from such standards would require the Company to develop new products.
The Company expects that additional specialized graphics and multimedia
processing and general purpose computing capabilities will be integrated into
future versions of Intel and other x86-based microprocessors and that standard
multimedia accelerators in the future will likely integrate memory, system
logic, audio, communications or other additional
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functions. The Company has not previously offered either single function or
integrated accelerator products that provide these functions, which have
traditionally been provided by separate single function chips or chipsets. The
Company has been and will continue to be required to expand the scope of its
research and development efforts to provide these functions, which will require
the hiring of engineers skilled in the respective areas and additional
management and coordination among the Company's design and engineering groups.
Alternatively, the Company may find it necessary or desirable to license or
acquire technology to enable the Company to provide these functions, and there
can be no assurance that any such technology will be available for license or
purchase on terms acceptable to the Company. Furthermore, there is a limited
amount of space on PC motherboards, and companies that offer solutions that
provide the greatest amount of functionality within this limited space may have
a competitive advantage. While the Company's strategy is to develop new and
enhanced graphics and multimedia accelerator products that will be
complementary to present and future versions of Intel and other x86-based
microprocessors and integrate significant additional functionality, there can
be no assurance that the Company will be able to develop such new or enhanced
products or correctly anticipate the additional functionality that will be
required to compete effectively in this market. There can be no assurance
that, if developed, the Company's new or enhanced products that incorporate
these functions will achieve market acceptance. There also can be no assurance
that the market for graphics and multimedia accelerators will continue to grow
in the future or that new technological developments or changes in standards
will not result in decreased demand for graphics and multimedia accelerators or
for the Company's products that are not compatible with such changed standards.
For example, to date, there has been an absence of an industry standard 3D
graphics application programming interface ("API"). While the Company's 3D
accelerators currently support the Company's proprietary API and Microsoft's
Direct 3D API, there can be no assurance that another API will emerge as an
industry standard. While the PC industry in recent periods has been
characterized by substantial demand, such demand has historically been
cyclical, and there can be no assurance that this demand will continue in
future periods or that demand for the Company's products will continue. The
occurrence of any such events would have a material adverse effect on the
Company's operating results.
SUBSTANTIAL COMPETITION
The market for the Company's products is extremely competitive and is
characterized by declining selling prices over the life of a particular product
and rapid technological changes. The Company's principal competitors for
graphics accelerators include ATI Technologies, Inc., Cirrus Logic, Inc.,
Matrox Graphics Inc., and Trident Microsystems, Inc. The Company's principal
competitors in the multimedia market include the companies named in the
preceding sentence and a number of small, privately-held companies which may
have greater flexibility to address specific market needs. Potential
competitors in these markets include both large and emerging domestic and
foreign semiconductor companies. In particular, there is a significant number
of established and emerging companies that have developed, are developing or
have announced plans to develop 3D graphics chips, including Intel Corporation
and Lockheed Martin Corporation, which have announced that they are jointly
developing such chips, and Texas Instruments Incorporated, which has announced
a development and marketing agreement with 3Dlabs Inc. There can be no
assurance that the Company's product offerings to address the demand for the
next generation of 3D accelerators will be competitive, and if such product
offerings are not competitive, the Company's results of operations in 1997 and
future periods could be materially and adversely affected. To the extent the
Company expands its product line to add products with additional functionality,
such as audio, communications and system logic functions, it will encounter
substantial competition from established semiconductor companies and may
experience competition from companies designing chips based on different
technologies, such as software-centric multimedia processors. Further, the
need of PC manufacturers to rapidly introduce a variety of products aimed at
different segments of the PC market may lead to the shift by such system OEMs
to the purchase of graphics and multimedia add-in cards provided by others.
Certain of the Company's competitors supply both add-in cards and accelerator
chips, which may provide those competitors with an advantage over suppliers
such as the Company that supply only accelerator chips. Certain of the
Company's current and potential competitors have greater technical,
manufacturing, financial and marketing resources than the Company. The Company
believes that its ability to compete successfully depends upon a number of
factors both within and outside of its control, including product performance,
product features, product availability, price, quality, timing of new product
introductions by the Company and its competitors, the emergence of new graphics
and PC standards, customer support, and industry and general economic trends.
There can be no assurance that the Company will have the financial resources,
technical expertise, or marketing, distribution and support capabilities to
compete successfully. The Company's future success
7
<PAGE> 9
will be highly dependent upon the successful development and introduction of
new products that are responsive to market needs. There can be no assurance
that the Company will be able to successfully develop or market any such
products.
CUSTOMER CONCENTRATION
The Company's sales are concentrated within a limited customer base.
One customer, Diamond Multimedia Systems, Inc., accounted for 18% of net sales
in the nine months ended September 30, 1996. Two customers, Diamond Multimedia
Systems, Inc. and Intel Corporation, accounted for 17% and 12%, respectively,
of net sales in 1995, and two customers, IBM and Digital Equipment Corporation,
accounted for 19% and 16%, respectively, of net sales in 1994. The Company
expects a significant portion of its future sales to remain concentrated within
a limited number of strategic customers. There can be no assurance that the
Company will be able to retain its strategic customers or that such customers
will not otherwise cancel or reschedule orders, or in the event of canceled
orders, that such orders will be replaced by other sales. In addition, sales
to any particular customer may fluctuate significantly from quarter to quarter.
The occurrence of any such events could have a material adverse effect on the
Company's operating results.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL
Since its inception, the Company has experienced significant growth in
the number of its employees and in the scope of its operating and financial
systems, resulting in increased responsibilities for the Company's management.
To manage future growth effectively, the Company will need to continue to
improve its operational, financial and management information systems,
procedures and controls, and expand, train, motivate, retain and manage its
employee base. The Company is in the process of implementing a new management
information system. Any problems encountered in the implementation of such
system could adversely affect the Company's operations. There can be no
assurance that the Company will be able to manage its growth effectively, and
failure to do so could have a material adverse effect on the Company's
operating results.
The Company's future success depends in part on the continued service of
its key engineering, sales, marketing and executive personnel, including highly
skilled semiconductor design personnel and software developers, and its ability
to identify and hire additional personnel. In August 1996, the Company
appointed a new President and Chief Executive Officer to replace Terry N.
Holdt, who retired, and there can be no assurance as to the effects of this
management transition on the Company's business and operating results.
Competition for such personnel is intense and there can be no assurance that
the Company can retain and recruit adequate personnel to operate its business.
The loss of key personnel could have a material adverse effect on the Company's
business and operating results. The Company does not maintain key man
insurance on any of its employees.
IMPORTANCE OF INTELLECTUAL PROPERTY; LITIGATION INVOLVING INTELLECTUAL PROPERTY
The Company's ability to compete will be affected by its ability to
protect its proprietary information. The Company has filed several United
States and foreign patent applications and to date has four issued United
States patents. The Company relies primarily on its trade secrets and
technological know-how in the conduct of its business. There can be no
assurance that the steps taken by the Company to protect its intellectual
property will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. The
semiconductor and software industries are characterized by frequent claims and
related litigation regarding patent and other intellectual property rights.
The Company is party to various claims of this nature. Although the ultimate
outcome of these matters is not presently determinable, management presently
believes that the resolution of all such pending matters will not have a
material adverse effect on the Company's operating results. There can be no
assurance that third parties will not assert additional claims or initiate
litigation against the Company, its foundries or its customers with respect to
existing or future products. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to determine the scope and validity of the proprietary rights of the
Company or others. Litigation by or against the Company has in the past, in
the case of litigation with Brooktree Corporation ("Brooktree"), resulted and
could in the future result in significant expense to the Company
8
<PAGE> 10
and diversion of the efforts of the Company's technical and management
personnel, whether or not litigation is determined in favor of the Company. In
the event of an adverse result in any such litigation, the Company could be
required to pay substantial damages, cease the manufacture, use, sale, offer
for sale and importation of infringing products, expend significant resources
to develop or obtain non-infringing technology, discontinue the use of certain
processes, or obtain licenses to the technology which is the subject of the
litigation. There can be no assurance that the Company would be successful in
such development or acquisition or that any such licenses, if available, would
be available on commercially reasonable terms, and any such development or
acquisition could require expenditures by the Company of substantial time and
other resources. Any such litigation or adverse result therefrom could have a
material adverse effect on the Company's operating results.
In October 1995, Brooktree filed a complaint against the Company in the
United States District Court for the Southern District of California, alleging
that the Company's current products infringe a Brooktree patent. Such lawsuit
resulted in substantial expense to the Company to defend the action and
diverted the efforts of the Company's technical and management personnel. In
August 1996, the Company and Brooktree entered into a settlement and license
agreement pursuant to which all claims and counterclaims between the parties
were dismissed and the Company agreed to pay to Brooktree a license fee and
royalties over a five-year period.
INTERNATIONAL OPERATIONS
Export sales accounted for 58%, 44%, 42% and 49% of the Company's net
sales in the nine months ended September 30, 1996 and in the years ended
December 31, 1995, 1994 and 1993, respectively, and the Company expects that
export sales will continue to represent a significant portion of net sales,
although there can be no assurance that export sales, as a percentage of net
sales, will remain at current levels. In addition, a substantial proportion of
the Company's products are manufactured, assembled and tested by independent
third parties in Asia. Due to its export sales and independent third party
manufacturing, assembly and testing operations and its joint venture foundry,
and to the extent the Company qualifies an additional foundry or foundries in
Asia to manufacture its products, the Company is subject to the risks of
conducting business internationally, including unexpected changes in, or
impositions of, legislative or regulatory requirements, fluctuations in the
U.S. dollar, which could increase the sales price in local currencies of the
Company's products in foreign markets or increase the cost of wafers purchased
by the Company, delays resulting from difficulty in obtaining export licenses
for certain technology, tariffs and other barriers and restrictions,
potentially longer payment cycles, greater difficulty in accounts receivable
collection, potentially adverse taxes, and the burdens of complying with a
variety of foreign laws. In addition, the Company is subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships, in connection with its international
operations. Two of the Company's independent foundries, UMC and TSMC, which
produce a significant portion of the Company's products, and the Company's
joint venture foundry, USC, are located in Taiwan. The People's Republic of
China and Taiwan have recently experienced strained relations, and the
worsening of relations or the development of hostilities between the two
parties could have a material adverse effect on the Company. Although the
Company has not to date experienced any material adverse effect on its
operations as a result of such regulatory, geopolitical, economic and other
factors, there can be no assurance that such factors will not adversely impact
the Company's operations in the future or require the Company to modify its
current business practices. In addition, the laws of certain foreign countries
may not protect the Company's intellectual property rights to the same extent
as do the laws of the United States.
INCREASED LEVERAGE
In connection with the sale of the Notes, the Company's ratio of its
long-term debt to its total capitalization increased from approximately 9.5% at
June 30, 1996 to approximately 32.8% at September 30, 1996. As a result of
this increased leverage, the Company's principal and interest obligations will
increase substantially. The degree to which the Company will be leveraged
could adversely affect the Company's ability to obtain additional financing for
working capital or other purposes and could make it more vulnerable to economic
downturns and competitive pressures. The Company's increased leverage could
also adversely affect its liquidity, as a substantial portion of available cash
from operations may have to be applied to meet debt service requirements and,
in the event of a cash shortfall, the Company could be forced to reduce other
expenditures to be able to meet such requirements.
9
<PAGE> 11
SUBORDINATION
The Notes are unsecured obligations of the Company subordinated to all
existing and future Senior Indebtedness of the Company. As of September 30,
1996, the principal amount of the Company's outstanding Senior Indebtedness was
approximately $42.9 million. The Indenture will not limit the amount of
indebtedness, including Senior Indebtedness, which the Company can incur or
guarantee. Upon any distribution of assets of the Company pursuant to any
insolvency, bankruptcy, dissolution, winding up, liquidation or reorganization,
the payment of the principal of and interest on the Notes will be subordinated
to the extent provided in the Indenture to the prior payment in full of all
Senior Indebtedness. In addition, the Company may not repurchase any Notes in
the event the Common Stock is no longer publicly traded or in certain
circumstances involving a Change of Control if at such time the subordination
provisions of the Indenture would prohibit the Company from making payments of
principal in respect of the Notes. The failure to so repurchase the Notes when
required would result in an Event of Default (as defined herein) under the
Indenture and may constitute a default under the terms of other indebtedness of
the Company. See "Description of Notes."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
Prior to date hereof, there has been no established trading market for
the Notes. The Notes have been designated for trading on the PORTAL Market;
however, Notes sold pursuant to this Prospectus are not expected to remain
eligible for trading on the PORTAL Market. The Company does not intend to list
the Notes on any national securities exchange or on The Nasdaq Stock Market.
There can be no assurance that an active trading market for the Notes will
develop or, if one does develop, that it will be maintained. If an active
trading market for the Notes fails to develop or be sustained, the trading
price of such Notes could be adversely affected and holders of the Notes may
experience difficulty in reselling the Notes or may be unable to sell them at
all. If a public trading market develops for the Notes, future trading prices
of the Notes will depend upon many factors, including, among other things,
prevailing interest rates and the market price of the shares of Common Stock.
LIMITATION ON REPURCHASE OF NOTES
In the event the Common Stock is no longer publicly traded or in certain
circumstances involving a Change of Control, each holder of Notes may require
the Company to repurchase all or a portion of such holder's Notes. In such
event, there can be no assurance that the Company would have sufficient
financial resources or would be able to arrange financing to pay the repurchase
price. (The Company may also elect to make such payment using shares of Common
Stock.) The Company's ability to repurchase the Notes in such event may be
limited by law, the Indenture and by the terms of other agreements relating to
borrowings that constitute Senior Indebtedness, as such indebtedness or
agreements may be entered into, replaced, supplemented or amended from time to
time. The Company may be required to refinance Senior Indebtedness in order to
make any such payment. The Company may not have the financial ability to
repurchase the Notes in the event payment of Senior Indebtedness is
accelerated. See "Description of Notes--Repurchase at Option of Holders."
VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock, like that of the common
stock of many other semiconductor companies, has been and is likely to be
highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of particular companies. The market price of the Common Stock could be subject
to significant fluctuations in response to quarter-to-quarter variations in the
Company's anticipated or actual operating results, announcements of new
products, technological innovations or setbacks by the Company or its
competitors, conditions in the semiconductor and PC industries, the
commencement of, developments in or outcome of litigation, changes in or the
failure by the Company to meet estimates of the Company's performance by
securities analysts, market conditions for high technology stocks in general,
and other events or factors.
10
<PAGE> 12
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Securityholders of the Notes or the Conversion Shares.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratio of
earnings to fixed charges for the periods shown.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges . . . -- 19.45x 137.34x 165.95x -- -- 150.26x
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income (loss) before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred and the
portion of rental expense under operating leases deemed by the Company to be
representative of the interest factor. Earnings were inadequate to cover fixed
charges by $4.3 million in 1991. The Company had no fixed charges in 1995 or
the nine months ended September 30, 1995.
11
<PAGE> 13
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company in a private placement
and were resold by the initial purchasers thereof to qualified institutional
buyers (within the meaning of Rule 144A under the Securities Act) or other
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) in transactions exempt from registration under
the Securities Act, and in sales outside the United States to persons other
than U.S. persons in reliance upon Regulation S under the Securities Act. The
Notes and the Conversion Shares that may be offered pursuant to this Prospectus
will be offered by the Selling Securityholders. The following table sets forth
certain information as of November 8, 1996 concerning the principal amount of
Notes beneficially owned by each Selling Securityholder and the number of
Conversion Shares that may be offered from time to time pursuant to this
Prospectus.
From time to time, Lehman Brothers Inc. or its affiliates have provided,
and may continue to provide, investment banking services to the Company, for
which they received or will receive customary fees. None of the other Selling
Securityholders has had any position, office or other material relationship
with the Company or its affiliates within the past three years.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
OWNED NOTES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD (1) OUTSTANDING (2)
---- ---------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Bank of New York . . . . . . . . . $4,880,000 4.7% 253,902 *
Bank of New York-James Capel London 6,500,000 6.3 338,189 *
Bankers Trust Company . . . . . . . 3,190,000 3.1 165,972 *
Bear Stearns Securities
Corp./Portal . . . . . . . . . . . 3,500,000 3.4 182,101 *
Boatmen's Trust Company . . . . . . 55,000 * 2,861 *
Booth & Co. . . . . . . . . . . . . 420,000 * 21,852 *
Bost & Co. . . . . . . . . . . . . 230,000 * 11,966 *
Boston Safe Deposit & Trust Co. . . 10,400,000 10.0 541,103 1.1%
Brown Brothers Harriman & Co. . . . 4,000,000 3.9 208,116 *
Chase Manhattan Bank . . . . . . . 3,525,000 3.4 183,402 *
Chase Manhattan Bank/Chemical . . . 3,180,000 3.1 165,452 *
Chase Manhattan Bank, Trust . . . . 390,000 * 20,291 *
Chase Manhattan Bank Trust Co.
of California . . . . . . . . . 500,000 * 26,014 *
Citicorp Services, Inc. . . . . . . 25,000 * 1,300 *
Corestates Bank N.A. . . . . . . . 2,000,000 1.9 104,058 *
CS First Boston Corporation (The) . 4,000,000 3.9 208,116 *
Custodial Trust Company . . . . . . 1,000,000 * 52,029 *
Deutsche Morgan Grenfell/C.J.
Lawrence Inc. . . . . . . . . . 1,350,000 1.3 70,239 *
Deutsche Bank-Custody Services . . 1,700,000 1.6 88,489 *
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . 300,000 * 15,608 *
First Interstate Bank of California 495,000 * 25,754 *
First Tennessee Bank, N.A.
(Memphis) . . . . . . . . . . . . . 620,000 * 32,258 *
Fleet Bank of Massachusetts, N.A. . 95,000 * 4,942 *
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
OWNED NOTES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD (1) OUTSTANDING (2)
---- ---------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
First National Bank of Boston (The) 175,000 * 9,105 *
First National Bank of Maryland
(The) . . . . . . . . . . . . . . . 240,000 * 12,486 *
Harris Trust & Savings Bank . . . . 225,000 * 11,706 *
Investors Bank & Trust/M.F. Custody 1,120,000 1.1 58,272 *
Morgan (J.P.) Securities Inc., WF . 15,000,000 14.5 780,437 1.6
Lehman Brothers Inc. . . . . . . . 3,065,000 3.0 159,469 *
Lehman Brothers International
(Europe)-Equity Division
Account (LBI) . . . . . . . . . 100,000 * 5,202 *
Lehman Brothers International
(Europe)-Prime Broker (LBI) . . 4,250,000 4.1 221,123 *
Mercantile, Safe Deposit and
Trust Company . . . . . . . . . 780,000 * 40,582 *
Morgan Stanley & Co., Incorporated 3,475,000 3.4 180,801 *
Nomura International Trust
Company Incorporated . . . . . 1,200,000 1.2 62,434 *
Northern Trust Company . . . . . . 2,045,000 2.0 106,399 *
PNC National Association . . . . . 475,000 * 24,713 *
Pondwave & Co. . . . . . . . . . . 1,770,000 1.7 92,091 *
Republic New York Securities Corp. 560,000 * 29,136 *
Robertson, Stephens & Company, L.P. 700,000 * 36,420 *
Salkeld & Co. . . . . . . . . . . . 350,000 * 18,210 *
Salomon Brothers Inc. . . . . . . . 5,300,000 5.1 275,754 *
SBC Warburg Inc. . . . . . . . . . 4,300,000 4.2 223,725 *
Scotia McLeod Inc. . . . . . . . . 3,000,000 2.9 156,087 *
SSB-Custodian . . . . . . . . . . . 1,355,000 1.3 590,790 1.2
Trust Company Bank . . . . . . . . 45,000 * 2,341 *
Wachovia Bank North Carolina . . . 115,000 * 5,983 *
Wagner, Stott & Co. . . . . . . . . 1,500,000 1.4 78,043 *
- -------------
</TABLE>
* Less than 1%.
(1) Assumes conversion of the full amount of Notes held by such holder at
the initial conversion price of $19.22 per share; such conversion price
is subject to adjustment as described under "Description of the
Notes--Conversion." Accordingly, the number of shares of Common Stock
issuable upon conversion of the Notes may increase or decrease from time
to time. Under the terms of the Indenture, fractional shares will not
be issued upon conversion of the Notes; cash will be paid in lieu of
fractional shares, if any.
(2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the
Exchange Act and based upon 48,083,827 shares of Common Stock
outstanding as of November 8, 1996, treating as outstanding the number
of Conversion Shares shown as being issuable upon the assumed
conversion by the named holder of the full amount of such holder's Notes
but not assuming the conversion of the Notes of any other holder.
The preceding table has been prepared based upon the information
furnished to the Company by State Street Bank and Trust Company of California,
N.A., as trustee (the "Trustee") for the Notes, and by The Depository Trust
Company ("DTC").
13
<PAGE> 15
The Selling Securityholders identified above may have sold, transferred
or otherwise disposed of, in transactions exempt from the registration
requirements of the Securities Act, all or a portion of their Notes since the
date on which the information in the preceding table is presented. Information
concerning the Selling Securityholders may change from time to time and any
such changed information will be set forth in supplements to this Prospectus if
and when necessary. Because the Selling Securityholders may offer all or some
of the Notes that they hold and/or Conversion Shares pursuant to the offering
contemplated by this Prospectus, no estimate can be given as to the amount of
the Notes or Conversion Shares that will be held by the Selling Securityholders
upon the termination of this offering. See "Plan of Distribution."
DESCRIPTION OF THE NOTES
The Notes have been issued under an indenture, dated as of September 12,
1996, between the Company and State Street Bank and Trust Company of
California, N.A., as Trustee (the "Indenture"). The following summaries of
certain provisions of the Notes and the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Notes and the Indenture, including the definitions
therein of certain terms that are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture (or of the
form of Note that is a part thereof) are referred to, such provisions or
defined terms are incorporated herein by reference.
GENERAL
The Notes are unsecured general obligations of the Company subordinate
in right of payment to certain other obligations of the Company as described
under "--Subordination," and convertible into Common Stock as described under
"--Conversion." The Notes are limited to $103,500,000 aggregate principal
amount, and will mature on October 1, 2003, unless earlier redeemed at the
option of the Company or repurchased by the Company at the option of the holder
upon the occurrence of a Designated Event (as defined).
The Notes bear interest from the most recent date that interest has been
paid, or if no interest has been paid, from September 18, 1996, at 5 3/4% per
annum. Interest is payable semi-annually on April 1 and October 1, commencing
on April 1, 1997, to holders of record at the close of business on the
preceding March 15 and September 15, respectively. Interest may, at the
Company's option, be paid by check mailed to such holders, provided that a
holder of Notes with an aggregate principal amount in excess of $5,000,000 will
be paid by wire transfer in immediately available funds at the election of such
holder. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
Principal will be payable, and the Notes may be presented for
conversion, registration of transfer and exchange, without service charge, at
the office of the Company maintained by the Company for such purposes in New
York, New York, which shall initially be the office or agency of the Trustee in
New York, New York.
The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of the
Company or the incurrence of Senior Indebtedness or other indebtedness. The
Indenture contains no covenants or other provisions to afford protection to
holders of Notes in the event of a highly leveraged transaction or a change in
control of the Company except to the extent described under "--Repurchase at
Option of Holders" below.
CONVERSION
The holders of Notes are entitled at any time through the close of
business on the final maturity date of the Notes, subject to prior redemption
or repurchase, to convert any Notes or portions thereof (in denominations of
$1,000 or multiples thereof) into Common Stock of the Company, initially at the
conversion price of $19.22 per share (equal to a conversion rate of 52.0291
shares per $1,000 principal amount of Notes), subject to adjustment as
described below. Except as described below, no adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued.
14
<PAGE> 16
If Notes are converted after a record date for the payment of interest
and prior to the next succeeding interest payment date, such Notes, other than
Notes called for redemption during such period, must be accompanied by funds
equal to the interest payable on such succeeding interest payment date on the
principal amount so converted. No such payment will be required if the Company
exercises its right to redeem such Notes on a redemption date that is an
interest payment date. The Company is not required to issue fractional shares
of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash
adjustment based upon the market price of the Common Stock on the last business
day prior to the date of conversion. In the case of Notes called for
redemption, conversion rights will expire at the close of business on the fifth
business day preceding the date fixed for redemption, unless the Company
defaults in payment of the redemption price.
The right of conversion attaching to any Note may be exercised by the
holder by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issue or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issue or delivery of the Common Stock in a name other than the
holder of the Note. Certificates representing shares of Common Stock will not
be issued or delivered unless all taxes and duties, if any, payable by the
holder have been paid.
The initial conversion price is subject to adjustment in certain events,
including: (i) the issuance of Common Stock as a dividend or distribution on
Common Stock of the Company; (ii) certain subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants to purchase Common Stock at less than the current market
price of the Common Stock; (iv) the dividend or other distribution to all
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock) or evidences of indebtedness of the Company or assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above and dividends and distributions in connection with the
consolidation or merger of the Company or paid exclusively in cash); (v)
dividends or other distributions consisting exclusively of cash (excluding any
cash portion of distributions referred to in clause (iv)) to all holders of
Common Stock to the extent that such distributions, combined together with (A)
all other such all-cash distributions made within the preceding 12 months in
respect of which no adjustment has been made plus (B) any cash and the fair
market value of other consideration payable in respect of any tender offers by
the Company or any of its subsidiaries for Common Stock concluded within the
preceding 12 months in respect of which no adjustment has been made, exceeds
10% of the Company's market capitalization (being the product of the then
current market price of the Common Stock times the number of shares of Common
Stock then outstanding) on the record date for such distribution; and (vi) the
purchase of Common Stock pursuant to a tender offer made by the Company or any
of its subsidiaries to the extent that the same involves an aggregate
consideration that, together with (X) any cash and the fair market value of any
other consideration payable in any other tender offer by the Company or any of
its subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus (Y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer. The Company is entitled, in lieu of making certain
adjustments under clause (v) above, to provide that, subject to satisfying
certain conditions, upon conversion of the Notes, the holders of the Notes will
receive, in addition to the Common Stock issuable upon conversion of such
Notes, the amount of such distribution referred to in clause (v).
The Indenture provides that if the Company implements a stockholders'
rights plan, such rights plan must provide that upon conversion of the Notes
the holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least l% in the conversion price then
in effect; provided that any adjustment that would otherwise be required to be
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<PAGE> 17
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
In the case of (i) any reclassification or change of the Common Stock
(other than changes resulting from a subdivision or combination) or (ii) a
consolidation, merger or combination involving the Company or a sale or
conveyance to another corporation of the property and assets of the Company as
an entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or
been entitled to receive upon such reclassification, change, consolidation,
merger, combination, sale or conveyance had such Notes been converted into
Common Stock immediately prior to such reclassification, change, consolidation,
merger, combination, sale or conveyance (assuming, in a case in which the
Company's stockholders may exercise rights of election, that a holder of Notes
would not have exercised any rights of election as to the stock, other
securities or other property or assets receivable in connection therewith and
received per share the kind and amount received per share by a plurality of
non-electing shares).
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law,
reduce the conversion price of the Notes by any amount for any period of at
least 20 days, in which case the Company shall give at least 15 days' notice of
such decrease, if the Board of Directors has made a determination that such
decrease would be in the best interests of the Company, which determination
shall be conclusive. See "Certain Federal Income Tax Considerations." The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to
October 8, 1999. At any time on or after that date the Notes may be redeemed
at the Company's option on at least 20 but not more than 60 days' notice, as a
whole or, from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to, but
excluding, the date fixed for redemption; provided that if a redemption date is
an interest payment date, the semi-annual payment of interest becoming due on
such date shall be payable to the holder of record as of the relevant record
date.
If redeemed during the 12-month period beginning October 1 (October 8 in
the case of 1999):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- -----------------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . 102%
2000 . . . . . . . . . . . . . . . . . . . . . . . 101
2001 and thereafter . . . . . . . . . . . . . . . 100
</TABLE>
If fewer than all the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed in principal amounts of $1,000 or multiples thereof by
lot or, in its discretion, on a pro rata basis. If any Note is to be redeemed
in part only, a new Note or Notes in principal amount equal to the unredeemed
principal portion thereof will be
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<PAGE> 18
issued. If a portion of a holder's Notes is selected for partial redemption
and such holder converts a portion of such Notes, such converted portion shall
be deemed to be taken from the portion selected for redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS
The Indenture provides that if a Designated Event (as defined below)
occurs, each Holder of Notes shall have the right, at the Holder's option, to
require the Company to repurchase all of such Holder's Notes, or any portion
thereof that is an integral multiple of $1,000, on the date (the "Repurchase
Date") fixed by the Company that is not less than 30 days nor more than 45
calendar days after the date of the Company Notice (as defined below), for cash
at a price equal to 100% of the principal amount of such Notes to be
repurchased (the "Repurchase Price"), together with accrued interest, if any,
to the Repurchase Date.
The Company may, at its option, in lieu of paying the Repurchase Price
in cash, pay the Repurchase Price in Common Stock valued at 95% of the average
of the closing prices of the Common Stock for the five consecutive trading days
ending on and including the third trading day preceding the Repurchase Date.
Such payment may not be made in Common Stock unless the Company satisfies
certain conditions with respect to such payment as provided in the Indenture.
Within 15 calendar days after the occurrence of a Designated Event, the
Company is obligated to mail to all Holders of record of such Notes a notice
(the "Company Notice") of the occurrence of such Designated Event and of the
repurchase right arising as a result thereof. The Company must deliver a copy
of the Company Notice to the Trustee and cause a copy or a summary of such
notice to be published in a newspaper of general circulation in The City of New
York. To exercise the repurchase right, a Holder of such Notes must deliver on
or before the Repurchase Date irrevocable written notice to the Trustee of the
Holder's exercise of such right, together with the Notes with respect to which
the right is being exercised, duly endorsed for transfer to the Company.
"Designated Event" means a Change of Control (as defined below) or a
Termination of Trading (as defined below).
"Change of Control" means an event or series of events as a result of
which (i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act) of shares representing more
than 50% of the combined voting power of the then outstanding securities
entitled to vote generally in elections of directors of the Company ("Voting
Stock"); (ii) the Company consolidates with or merges into any other
corporation, or conveys, transfers or leases all or substantially all of its
assets to any person, or any other corporation merges into the Company, and in
the case of any such transaction, the outstanding common stock of the Company
is changed or exchanged into or for other assets or securities as a result,
unless the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least a
majority of the combined voting power of the outstanding voting securities of
the corporation resulting from such transaction in substantially the same
proportion as their ownership of the Voting Stock immediately before such
transaction; or (iii) any time Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of the Company (or, if
applicable, a successor corporation to the Company); provided, however, that a
Change of Control shall not be deemed to have occurred if either (x) the
closing price per share of the Common Stock for any five trading days within
the period of ten consecutive trading days ending immediately before the Change
of Control shall equal or exceed 105% of the conversion price of the Notes in
effect on each such trading day, or (y) at least 90% of the consideration
(excluding cash payments for dissenting and fractional shares) in the
transaction or transactions constituting the Change of Control consists of
shares of common stock or securities convertible into common stock that are, or
immediately upon issuance will be, listed on a national securities exchange or
The Nasdaq Stock Market and as a result of the transaction or transactions such
Notes become convertible solely into such common stock.
"Continuing Director" means at any date a member of the Company's Board
of Directors (i) who was a member of such board on September 12, 1996 or (ii)
who was nominated or elected by at least a majority of the
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<PAGE> 19
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Company's Board of Directors was recommended
or endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election. (Under this definition,
if the current Board of Directors of the Company were to approve a new director
or directors and then resign, no Change of Control would occur even though the
current Board of Directors would thereafter cease to be in office.)
No quantitative or other established meaning has been given to the
phrase "all or substantially all" (which appears in the definition of Change of
Control) by courts which have interpreted this phrase in various contexts. In
interpreting this phrase, courts, among other things, make a subjective
determination as to the portion of assets conveyed, considering such factors as
the value of assets conveyed, the proportion of an entity's income derived from
the assets conveyed and the significance of those assets to the ongoing
business of the entity. To the extent the meaning of such phrase is uncertain,
uncertainty will exist as to whether or not a Change of Control may have
occurred (and, accordingly, as to whether or not the holders of Notes will have
the right to require the Company to repurchase their Notes).
A "Termination of Trading" shall have occurred if the Common Stock (or
other common stock into which the Notes are then convertible) is neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the- counter trading market in the
United States.
The right to require the Company to repurchase Notes as a result of the
occurrence of a Designated Event could create an event of default under Senior
Indebtedness as a result of which any repurchase could, absent a waiver, be
blocked by the subordination provisions of the Notes. See "--Subordination."
Failure of the Company to repurchase the Notes when required could result in an
Event of Default with respect to the Notes whether or not such repurchase is
permitted by the subordination provisions. The Company's ability to pay cash
to the holders of Notes upon a repurchase may be limited by certain financial
covenants contained in the Company's revolving credit loan agreement.
Certain leveraged transactions sponsored by the Company's management or
an affiliate of the Company could constitute a Change of Control that would
give rise to the repurchase right. The Indenture does not provide the
Company's Board of Directors with the right to limit or waive the repurchase
right in the event of any such leveraged transaction. Conversely, the Company
could, in the future, enter into certain transactions, including certain
recapitalizations of the Company, that would not constitute a Change of Control
but that would increase the amount of Senior Indebtedness (or other
indebtedness) outstanding at such time. There are no restrictions in the
Indenture or the Notes on the creation of additional Senior Indebtedness (or
any other indebtedness) of the Company or any of its subsidiaries and the
incurrence of significant amounts of additional indebtedness could have an
adverse impact on the Company's ability to service its debt, including the
Notes. The Notes are subordinate in right of payment to all existing and
future Senior Indebtedness as described under "--Subordination" below.
The right to require the Company to repurchase Notes as a result of a
Designated Event could have the effect of delaying, deferring or preventing a
Change of Control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all of the
Notes at the repurchase date. Consequently, the right may render more
difficult or discourage a merger, consolidation or tender offer (even if such
transaction is supported by the Company's Board of Directors or is favorable to
the stockholders), the assumption of control by a holder of a large block of
the Company's shares and the removal of incumbent management.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.
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<PAGE> 20
SUBORDINATION
The payment of principal of and interest on the Notes (including,
without limitation, the payment of the redemption or repurchase price with
respect to the Notes) is, to the extent provided in the Indenture, subordinate
to the prior payment in full of all Senior Indebtedness (as defined).
Upon any payment or distribution of assets of the Company to creditors
resulting from any liquidation, dissolution, winding-up, reorganization or any
insolvency proceedings of the Company, the holders of all Senior Indebtedness
will first be entitled to receive payment in full before the holders of the
Notes will be entitled to receive any payment upon the principal of or premium,
if any, or interest on the Notes (including, without limitation, the payment of
the redemption price or repurchase price with respect to the Notes).
Upon the happening and during the continuance of an event of default in
any payment with respect to any Senior Indebtedness, no payment may be made by
the Company on or in respect of the Notes. Upon the happening and during the
continuance of a default on any Senior Indebtedness (other than a payment event
of default) that occurs and is continuing that permits the holders of such
Senior Indebtedness to accelerate its maturity, and following receipt by the
Company and the Trustee of the notice provided for by the Indenture, no payment
may be made on the Notes for a period of up to 179 days after receipt of such
notice, unless such default is cured or waived.
By reason of the subordination, in the event of the Company's
bankruptcy, dissolution or reorganization, holders of Senior Indebtedness may
receive more, ratably, and holders of the Notes may receive less, ratably, than
the other creditors of the Company. Such subordination will not prevent the
occurrence of an Event of Default under the Indenture.
Subject to the qualifications described below, the term "Senior
Indebtedness" means the principal of, premium, if any, interest on, and any
other payment due pursuant to, any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created: (a) all indebtedness
of the Company for money borrowed or evidenced by notes, debentures, bonds or
other securities (including, but not limited to, those which are convertible or
exchangeable for securities of the Company); (b) all indebtedness of the
Company due and owing with respect to letters of credit (including, but not
limited to, reimbursement obligations with respect thereto); (c) all
indebtedness or other obligations of the Company due and owing with respect to
interest rate and currency swap agreements, cap, floor and collar agreements,
currency spot and forward contracts and other similar agreements and
arrangements; (d) all indebtedness consisting of commitment or standby fees due
and payable to lending institutions with respect to credit facilities or
letters of credit available to the Company; (e) all obligations of the Company
under leases required or permitted to be capitalized under generally accepted
accounting principles; (f) all indebtedness or obligations of others of the
kinds described in any of the preceding clauses (a), (b), (c), (d) or (e)
assumed by or guaranteed in any manner by the Company or in effect guaranteed
(directly or indirectly) by the Company through an agreement to purchase,
contingent or otherwise, and all obligations of the Company under any such
guarantee or other arrangements; and (g) all renewals, extensions, refundings,
deferrals, amendments or modifications of indebtedness or obligations of the
kinds described in any of the preceding clauses (a), (b), (c), (d), (e) or (f);
unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement, the instrument or
other document creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, renewal, extension,
refunding, amendment, modification or supplement is subordinate to, or is not
superior to, or is pari passu with, the Notes; provided that Senior
Indebtedness shall not include (i) any indebtedness of any kind of the Company
to any subsidiary of the Company, a majority of the voting stock of which is
owned, directly or indirectly, by the Company and (ii) indebtedness for trade
payables or constituting the deferred purchase price of assets or services
incurred in the ordinary course of business.
In the event that notwithstanding any of the foregoing prohibitions, the
Trustee or the holders of the Notes receive any payment or distribution on
account of or in respect of the Notes, such payment or distribution will be
paid over and delivered to the holders of Senior Indebtedness or, in the case
of a bankruptcy, insolvency or similar proceeding of the Company, to the
trustee, receiver or other person making payment or distribution of the assets
of the Company. For purposes of the subordination provisions, the payment,
issuance or delivery of cash property or
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<PAGE> 21
securities (other than stock and certain subordinated securities of the
Company) upon conversion of a Note will be determined to constitute payment on
account of the principal of such Note.
As of September 30, 1996, the principal amount of the Company's
outstanding indebtedness that would have constituted Senior Indebtedness was
approximately $42.9 million. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company can
create, incur, assume or guarantee, nor will the Indenture limit the amount of
indebtedness which any subsidiary of the Company can create, incur, assume or
guarantee.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as the following: (i) a
default in payment of the principal of, or premium, if any, on the Notes
whether or not such payment is prohibited by the subordination provisions of
the Indenture; (ii) default for 30 days in payment of any installment of
interest on the Notes whether or not such payment is prohibited by the
subordination provisions of the Indenture; (iii) failure by the Company to
comply with any of its other agreements in the Notes or the Indenture upon the
receipt by the Company of notice of such default by the Trustee or by holders
of not less than 25% in aggregate principal amount at maturity of the Notes
then outstanding and the Company's failure to cure such default within 60 days
after receipt by the Company of such notice; (iv) default in the payment of the
repurchase price in respect of any Note on the repurchase date therefor
(whether or not such payment is prohibited by the subordination provisions of
the Indenture); (v) a default under certain indebtedness for money borrowed by
the Company, which default shall constitute a failure to pay any portion of
such indebtedness in an amount exceeding $15,000,000 when due and payable after
the expiration of any applicable grace period with respect thereto or shall
have resulted in such indebtedness in an amount exceeding $15,000,000 becoming
or being declared due and payable prior to the date on which it would otherwise
have become due and payable, if such indebtedness is not discharged, or such
acceleration is not annulled, within 30 days after written notice as provided
in the Indenture; or (vi) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary, as defined in the
Indenture.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of the Notes notice of
all uncured defaults known to it, but the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the best interest to such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the Notes when due or in the payment of any redemption or
repurchase obligation. The Indenture provides that if any Event of Default
shall have occurred and be continuing, the Trustee or the holders of not less
than 25% in principal amount of the Notes then outstanding may declare the
principal of and premium, if any, on the Notes to be due and payable
immediately, but if the Company shall cure all defaults (except the nonpayment
of interest on, premium, if any, and principal of any Notes which shall have
become due by acceleration) and certain other conditions are met, such
declaration may be canceled and past defaults may be waived by the holders of a
majority in principal amount of Notes then outstanding. If an Event of Default
resulting from certain events of bankruptcy, insolvency or reorganization were
to occur, all unpaid principal of and accrued interest on the outstanding Notes
will become due and payable immediately without any declaration or other act on
the part of the Trustee or any holders of Notes, subject to certain
limitations.
The Indenture provides that the holders of a majority in principal
amount of the outstanding Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, subject to certain limitations
specified in the Indenture. Before proceeding to exercise any right or power
under the Indenture at the direction of such holders, the Trustee shall be
entitled to receive from such holders reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in complying
with any such direction. The right of a holder to institute a proceeding with
respect to the Indenture is subject to certain conditions precedent, including
the written notice by such holder of an Event of Default and an offer to
indemnify to the Trustee, along with the written request by the holders of not
less than 25% in principal amount of the outstanding Notes that such a
proceeding be instituted, but the holder has an absolute right to institute
suit for the enforcement of payment of the principal of, and premium, if any,
and interest on, such holder's Notes when due and to convert such Notes.
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<PAGE> 22
The holders of not less than a majority in principal amount of the
outstanding Notes may on behalf of the holders of all Notes waive any past
defaults, except (i) a default in payment of the principal of, or premium, if
any, or interest on, any Note when due, (ii) a failure by the Company to
convert any Notes into Common Stock or (iii) in respect of certain provisions
of the Indenture which cannot be modified or amended without the consent of the
holder of each outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually a statement
of certain officers of the Company stating whether or not to the best of their
knowledge the Company is in default in the performance and observation of
certain terms of the Indenture and, if they have knowledge that the Company is
in default, specifying such default.
CONSOLIDATION OR MERGER
The Company may, without the consent of holders of the Notes,
consolidate with, merge into, or convey or transfer all or substantially all of
its assets to any other corporation organized under the laws of the United
States or any political subdivision thereof or therein, provided that (i) the
successor corporation assumes all obligations of the Company under the
Indenture and the Notes, (ii) after giving effect to the transaction no Event
of Default, and no event which, after notice or lapse of time, would become an
Event of Default, shall have occurred and be continuing and (iii) certain other
conditions are met.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the holders of the Notes, except
that no such modification shall (i) extend the fixed maturity of any Note,
reduce the rate or extend the time of payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption or repurchase thereof, impair or change in any respect adverse
to the holders of Notes, the obligation of the Company to repurchase any Note
upon the happening of a Designated Event, impair or adversely affect the right
of a holder to institute suit for the payment thereof, change the currency in
which the Notes are payable, or impair or change the right to convert the Notes
into Common Stock subject to the terms set forth in the Indenture or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the holders of the Notes, without the consent of the holder
of each Note so affected, or (ii) reduce the aforesaid percentage of Notes the
holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all of the Notes then outstanding.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., the Trustee
under the Indenture, has been appointed by the Company as the initial paying
agent, conversion agent, registrar and custodian with regard to the Notes. The
Company may maintain deposit accounts and conduct other banking transactions
with the Trustee or its affiliates in the ordinary course of business, and the
Trustee and its affiliates may from time to time in the future provide banking
and other services to the Company in the ordinary course of their business.
During the existence of an Event of Default, the Trustee will exercise
such rights and powers vested in it under the Indenture and use the same degree
and care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Indenture
contains limitations of the rights of the Trustee, should it become a creditor
of the Company, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claim or otherwise.
BOOK-ENTRY
The Notes have been issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof. Except as
otherwise provided in the Indenture, Notes will be evidenced by one or more
global Notes ("Global Notes") deposited with the Trustee as custodian for DTC
and registered in the name of
21
<PAGE> 23
Cede & Co. ("Cede") as DTC's nominee. Record ownership of the Global Notes may
be transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Owners of beneficial interests in the Notes may hold their interests in
the Global Notes directly through DTC if they are participants in DTC
("Participants"), indirectly through Participants, through the Euroclear System
("Euroclear") or Cedel Bank, societe anonyme ("Cedel"), if they are
participants in such systems, or indirectly through organizations that clear
through or maintain a custodial relationship with a Participant ("Indirect
Participants"). Euroclear and Cedel will hold interests in the Global Notes on
behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositaries, which, in turn,
will hold such interests in the Global Notes in customers' securities accounts
in the depositaries' names on the books of DTC. All interests in Global Notes,
including those held through Euroclear or Cedel, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear and
Cedel may also be subject to the procedures and requirements of such systems.
Payment of principal of and interest on the Global Notes will be made to
Cede, the nominee for DTC, as the registered owner of the Global Notes by wire
transfer of immediately available funds. Neither the Company, the Trustee nor
any paying agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment
of principal of and interest on the Global Notes, DTC's practice is to credit
Participants' accounts on the payment date therefor with payments in amounts
proportionate to their respective beneficial interests in the Notes represented
by the Global Notes, as shown on the records of DTC, unless DTC has reason to
believe that it will not receive payment on such payment date. Payments by
Participants to owners of beneficial interests in Notes represented by the
Global Notes held through such Participants will be the responsibility of such
Participants, as is now the case with securities held for the accounts of
customers registered in "street name."
Holders who desire to convert their Notes into Common Stock pursuant to
the terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Notes represented by the Global Notes to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below) only at the direction of
one or more Participants to whose account with DTC interests in the Global
Notes are credited and only in respect of the principal amount of the Notes
represented by the Global Notes as to which such Participant or Participants
has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Certain of such Participants (or their representatives),
together with other entities, own DTC. Indirect access to the DTC system is
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<PAGE> 24
available to others such as banks, brokers, dealers and trust companies that
clear through, or maintain a custodial relationship with a Participant, either
directly or indirectly.
Although DTC, Euroclear and Cedel have agreed to the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will cause Notes to be issued in definitive
form in exchange for the Global Notes. None of the Company, the Trustee nor
any of their respective agents will have any responsibility for the performance
by DTC, Euroclear and Cedel, their Participants or Indirect Participants of
their respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records
relating to, or payments made on account of, beneficial ownership interests in
Global Notes.
PLAN OF DISTRIBUTION
Pursuant to a Registration Rights Agreement dated as of September 12,
1996 (the "Registration Rights Agreement") between the Company and the initial
purchasers named therein entered into in connection with the offering of the
Notes, the Registration Statement of which this Prospectus forms a part was
filed with the Commission covering the resale of the Notes and the Common Stock
issuable upon conversion of the Notes (the "Securities"). The Company has
agreed to use all reasonable efforts to keep the Registration Statement
effective until September 20, 1999 (or such earlier date when the holders of
the Securities are able to sell all such Securities immediately without
restriction pursuant to Rule 144(k) under the Securities Act or any successor
rule thereto or otherwise). The Company will be permitted to suspend the use
of this Prospectus (which is a part of the Registration Statement) in
connection with sales of Securities by holders during certain periods of time
under certain circumstances relating to pending corporate developments and
public filings with the Commission and similar events. The specific provisions
relating to the registration rights described above are contained in the
Registration Rights Agreement, and the foregoing summary is qualified in its
entirety by reference to the provisions of such agreement.
Sales of the Notes and the Conversion Shares may be effected by or for
the account of the Selling Securityholders from time to time in transactions
(which may include block transactions in the case of the Conversion Shares) on
any exchange or market on which such securities are listed or quoted, as
applicable, in negotiated transactions, through a combination of such methods
of sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Notes or Conversion Shares directly to purchasers,
through broker-dealers acting as agents for the Selling Securityholders, or to
broker-dealers who may purchase Notes or Conversion Shares as principals and
thereafter sell the Notes or Conversion Shares from time to time in
transactions (which may include block transactions in the case of the
Conversion Shares) on any exchange or market on which such securities are
listed or quoted, as applicable, in negotiated transactions, through a
combination of such methods of sale, or otherwise. In effecting sales,
broker-dealers engaged by Selling Securityholders may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Notes or Conversion Shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions).
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Notes or Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act. Any commissions paid
or any discounts or concessions allowed to any such persons, and any profits
received on the resale of the Notes or Conversion Shares offered hereby and
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
At the time a particular offering of the Notes and/or the Conversion
Shares is made and to the extent required, the aggregate principal amount of
Notes and number of Conversion Shares being offered, the name or names of the
Selling Securityholders, and the terms of the offering, including the name or
names of any underwriters, broker-dealers
23
<PAGE> 25
or agents, any discounts, concessions or commissions and other terms
constituting compensation from the Selling Securityholders, and any discounts,
concessions or commissions allowed or reallowed or paid to broker-dealers, will
be set forth in an accompanying Prospectus Supplement.
Pursuant to the Registration Rights Agreement, the Company has agreed to
pay all expenses incident to the offer and sale of the Notes and Conversion
Shares offered by the Selling Securityholders hereby, except that the Selling
Securityholders will pay all underwriting discounts and selling commissions, if
any. The Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments the Selling Securityholders may be required to make in
respect thereof.
To comply with the securities laws of certain jurisdictions, if
applicable, the Notes and Conversion Shares offered hereby will be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Notes or the Conversion Shares may be
limited in its ability to engage in market activities with respect to such
Notes or Conversion Shares. In addition and without limiting the foregoing,
each Selling Securityholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchase and sales of any of the Notes and Conversion
Shares by the Selling Securityholders. The foregoing may affect the
marketability of the Notes and the Conversion Shares.
From time to time, Lehman Brothers Inc. or its affiliates have provided,
and may continue to provide, investment banking services to the Company, for
which they received or will receive customary fees. See "Selling
Securityholders."
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, Menlo Park and San Francisco, California. A member of Pillsbury Madison &
Sutro LLP holds an option to purchase 16,000 shares of Common Stock.
EXPERTS
The consolidated financial statements and related financial statement
schedules incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
24
<PAGE> 26
<TABLE>
<S> <C>
=============================================================== =========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER S3 INCORPORATED
TO BUY THE SECURITIES DESCRIBED HEREIN BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS $103,500,000
PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS 5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN AND
THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE SHARES OF COMMON STOCK
DATE OF THIS PROSPECTUS. ISSUABLE UPON CONVERSION THEREOF
----------------------------
------------------------------
PROSPECTUS
TABLE OF CONTENTS
----------------------------
PAGE
----
Available Information . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . 11
Ratio of Earnings to Fixed Charges . . . . . . . . . . 11
Selling Securityholders . . . . . . . . . . . . . . . . 12
Description of the Notes . . . . . . . . . . . . . . . 14
Plan of Distribution . . . . . . . . . . . . . . . . . 23
Legal Matters . . . . . . . . . . . . . . . . . . . . . 24
Experts . . . . . . . . . . . . . . . . . . . . . . . . 24 December , 1996
=============================================================== ======================================================
</TABLE>
<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Stockholders. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee . . . . . . . . . . . . $31,363.64
Accounting fees and expenses . . . . . . . . 10,000.00
Legal fees and expenses . . . . . . . . . . 20,000.00
Miscellaneous fees and expenses . . . . . . 8,636.36
----------
Total . . . . . . . . . . . . . . . $70,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VII of the
Registrant's Restated Certificate of Incorporation and Article V of the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the Delaware General Corporation Law. The Registrant has also
entered into agreements with its directors and officers that will require the
Registrant, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as directors or officers to
the fullest extent not prohibited by law.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
4.1 Indenture, dated as of September 12, 1996, between the Company
and State Street Bank and Trust Company of California, N.A., as
Trustee, including the form of Note (filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).
4.2 Registration Rights Agreement, dated as of September 12, 1996,
among the Company, Lehman Brothers Inc., PaineWebber Incorporated
and Cowen & Company, (filed as Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996 and incorporated herein by reference).
5.1 Opinion of Pillsbury Madison & Sutro LLP.
12.1 Statement re computation of ratios.
23.1 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit
5.1).
23.2 Consent of Deloitte & Touche LLP.
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as
Trustee on Form T-1.
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3)
of the Act;
(b) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement; and
(c) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) For purposes of determining any liability under the Act,
each filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Santa Clara, State of California on December 6,
1996.
S3 INCORPORATED
By /s/ GARY J. JOHNSON
-----------------------------
Gary J. Johnson
President and
Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints Gary J. Johnson and George A.
Hervey and each of them (with full power to act alone), as attorneys and agents
for the undersigned, with full power of substitution for and in the same place
and stead of the undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 any and all amendments and exhibits
to this Registration Statement and any and all applications, instruments or
other documents to be filed with the Securities and Exchange Commission
pertaining to the registration of the securities covered hereby, with full
power and authority to do and perform any and all acts and things whatsoever
required or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ GARY J. JOHNSON President and Chief Executive December 6, 1996
- ----------------------------------------- Officer (Principal Executive
Gary J. Johnson Officer) and Director
/s/ GEORGE A. HERVEY Senior Vice President, Finance and December 6, 1996
- ----------------------------------------- Chief Financial Officer (Principal
George A. Hervey Financial and Accounting Officer)
/s/ DIOSDADO P. BANATAO Chairman of the Board December 6, 1996
- -----------------------------------------
Diosdado P. Banatao
</TABLE>
II-3
<PAGE> 30
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ TERRY N. HOLDT Vice Chairman of the Board December 6, 1996
- -----------------------------------------
Terry N. Holdt
/s/ RONALD T. YARA Director December 6, 1996
- -----------------------------------------
Ronald T. Yara
/s/ JOHN C. COLLIGAN Director December 6, 1996
- -----------------------------------------
John C. Colligan
/s/ ROBERT P. LEE, Ph.D. Director December 6, 1996
- -----------------------------------------
Robert P. Lee, Ph.D.
/s/ CARMELO J. SANTORO, Ph.D. Director December 6, 1996
- -----------------------------------------
Carmelo J. Santoro, Ph.D.
</TABLE>
II-4
<PAGE> 31
EXHIBIT INDEX
4.1 Indenture, dated as of September 12, 1996, between the Company
and State Street Bank and Trust Company of California, N.A.,
as Trustee, including the form of Note (filed as Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by
reference).
4.2 Registration Rights Agreement, dated as of September 12, 1996,
among the Company, Lehman Brothers Inc., PaineWebber
Incorporated and Cowen & Company, (filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference).
5.1 Opinion of Pillsbury Madison & Sutro LLP.
12.1 Statement re computation of ratios.
23.1 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit
5.1).
23.2 Consent of Deloitte & Touche LLP.
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as
Trustee on Form T-1.
<PAGE> 1
EXHIBIT 5.1
LAW OFFICES OF
PILLSBURY MADISON & SUTRO LLP
LOS ANGELES POST OFFICE BOX 7880 MENLO PARK
NEW YORK SAN FRANCISCO, CALIFORNIA 94120 ORANGE COUNTY
SACRAMENTO TELEPHONE (415) 983-1000 SAN DIEGO
SAN FRANCISCO TELECOPIER (415) 983-1200 SAN JOSE
WASHINGTON, D.C. HONG KONG
TOKYO
December 6, 1996
S3 Incorporated
2770 San Tomas Expressway
Santa Clara, CA 95051
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as counsel for S3 Incorporated, a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act
of 1933, as amended, of $103,500,000 aggregate principal amount of 5 3/4%
Convertible Subordinated Notes due 2003 (the "Notes"), and such indeterminate
number of shares of Common Stock, $.0001 par value (the "Common Stock"), of the
Company, as may be required for issuance upon conversion of the Notes (the
"Conversion Shares"). The Notes and the Conversion Shares are to be offered
and sold by certain securityholders of the Company (the "Selling
Securityholders"). In this regard we have participated in the preparation of a
Registration Statement on Form S-3 relating to the Notes and the Conversion
Shares. (Such Registration Statement, as it may be amended from time to time,
is herein referred to as the "Registration Statement.")
We are of the opinion that the Notes have been duly authorized and are
binding obligations of the Company entitled to the benefits of the Indenture
dated as of September 12, 1996 between the Company and State Street Bank and
Trust Company of California, N.A., as Trustee. We are of the further opinion
that the Conversion Shares have been duly authorized and, when issued by the
Company upon conversion of the Notes in accordance with the Indenture, will be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
/s/ PILLSBURY MADISON & SUTRO LLP
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
-------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes . . . . . . $ (4,937) $ 4,667 $ 24,405 $ 6,929 55,441 $ 37,803 $ 50,598
Fixed charges(1) . . . . . . . . . . . . . . . 337 253 179 42 -- -- 339
--------- ------- -------- --------- ------ -------- --------
Total earnings and fixed charges . . . . . . (4,600) 4,920 24,584 6,971 55,441 37,803 50,937
Fixed charges(1) . . . . . . . . . . . . . . . 337 253 179 42 -- -- 339
Ratio of earnings to fixed charges(2) . . . . . -- 19.45x 137.34x 165.98x -- -- 150.26x
========= ======= ======== ========= ====== ======= ========
</TABLE>
__________
(1) Fixed charges consist of interest expense incurred and the portion of
rental expense under oprating leases deemed by the Company to be
representative of the interest factor.
(2) Earnings were inadequate to cover fixed charges by $4.3 million in
1991.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in this Registration Statement of
S3 Incorporated on Form S-3 of our reports dated January 17, 1996 appearing in
and incorporated by reference in the Annual Report on Form 10-K of S3
Incorporated for the year ended December 31, 1995 and reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
December 9, 1996
<PAGE> 1
EXHIBIT 25.1
FORM T-1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) [X]
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
(Exact name of trustee as specified in its charter)
UNITED STATES 06-1143380
- --------------------------------------------------------------------------------
(Jurisdiction of Incorporation) (IRS Employer Identification No.)
725 SOUTH FIGUEROA STREET, SUITE 3100, LOS ANGELES, CALIFORNIA 90017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
725 SOUTH FIGUEROA STREET, SUITE 3100, LOS ANGELES, CALIFORNIA, 90017
213-362-7369
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
S3 INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Obligor as specified in its charter)
DELAWARE 77-0204341
- --------------------------------------------------------------------------------
(Jurisdiction of Incorporation) (IRS Employer Identification No.)
2770 SAN THOMAS EXPRESSWAY, SANTA CLARA, CALIFORNIA 95051-0981
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
$103,500,000 5 3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2003
- --------------------------------------------------------------------------------
(Title of the indenture securities)
<PAGE> 2
Item 1. General Information.
(a) The trustee is subject to the supervision of the Comptroller of the
Currency, Western District Office, 50 Fremont Street, Suite 3900, San
Francisco, CA 94105-2292.
(b) The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with the obligor.
The trustee is not affiliated with the obligor.
No responses are included for Items 3-15 of this form T-1 because the obligor
is not in default on securities issued under indentures under which State
Street Bank and Trust Company of California, N.A. is trustee.
Item 16. List of Exhibits
1. Articles of Association of State Street Bank and Trust Company of
California, National Association.*
2. Certificate of Corporate Existence (with fiduciary powers) from the
Comptroller of the Currency, Administrator of National Banks.*
3. Authorization of the Trustee to exercise fiduciary powers (included in
Exhibits 1 and 2; no separate instrument).
4. By-laws of State Street Bank and Trust Company of California, National
Association.*
5. Consent of State Street Bank and Trust Company of California, National
Association required by Section 321(b) of the Act.*
6. Consolidated Report of Income for the period January 1, 1996 -
September 30, 1996, Federal Financial Institutions Examination
Council, Consolidated Reports of Condition and Income for A Bank With
Domestic Offices Only and Total Assets of Less Than $100 Million -
FFIEC 034.*
* The indicated documents have been filed as exhibits with corresponding
exhibit numbers to the Form T-1 of Oasis Residential, Inc., filed
pursuant to Section 305(b)(2) of the Act, filed with the Securities
and Exchange Commission on November 18, 1996 (Registration No.
033-90488), and are incorporated herein by reference.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, State Street Bank and Trust Company of California, National
Association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Los
Angeles, and State of California, on the 18th day of November, 1996.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ Scott C. Emmons
-----------------------------------
Scott C. Emmons
Trust Officer
