<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21126
S3 INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 77-0204341
--------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2801 Mission College Boulevard
P.O. Box 58058
Santa Clara, California 950252-8058
- -------------------------------------- -----------
(Address of principle executive officer (Zip Code)
Registrant's telephone number, including area code: (408) 588-8000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $.0001 par value,
outstanding at July 30, 1997 was 49,615,803
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<PAGE> 2
S3 INCORPORATED
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
Three months ended and six months
ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Defaults Upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
Page 2 of 23
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
S3 INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 67,416 $ 94,616
Short-term investments 55,851 62,768
Accounts receivable (net of allowances of $2,329 in 1997
and $2,648 in 1996) 104,997 76,120
Inventories, net 46,615 53,466
Prepaid expenses and other 33,413 34,369
------------ ------------
Total current assets 308,292 321,339
Property and equipment, net 47,578 34,047
Production capacity rights 14,400 14,400
Investment in joint venture 104,708 93,430
Other assets 33,303 17,246
------------ ------------
Total $ 508,281 $ 480,462
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,796 $ 51,160
Notes payable 22,230 17,802
Accrued liabilities 16,011 12,687
Income taxes payable 2,837 7,361
------------ ------------
Total current liabilities 91,874 89,010
Notes payable 14,400 14,400
Other liabilities 8,892 6,452
------------ ------------
Total liabilities 115,166 109,862
------------ ------------
Convertible Subordinated Notes 103,500 103,500
------------ ------------
Commitments and contingencies (Notes 4 and 5)
Stockholders' equity:
Common Stock, $.0001 par value; 70,000,000 shares authorized;
49,440,104 and 48,331,794 shares outstanding in 1997 and 1996 173,700 169,411
Unrealized loss on short-term investments (14) (54)
Retained earnings 115,929 97,743
------------ ------------
Total stockholders' equity 289,615 267,100
------------ ------------
Total $ 508,281 $ 480,462
============ ============
</TABLE>
See accompanying notes to the unaudited
condensed consolidated financial statements.
Page 3 of 23
<PAGE> 4
S3 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------- --------- --------- ---------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 108,892 $ 103,825 $ 247,058 $ 213,897
Cost of sales 70,429 64,357 151,352 130,867
--------- --------- --------- ---------
Gross margin 38,463 39,468 95,706 83,030
Operating expenses:
Research and development 21,029 15,057 39,971 29,778
Selling, marketing and administrative 13,502 11,587 26,132 22,501
--------- --------- --------- ---------
Total operating expenses 34,531 26,644 66,103 52,279
--------- --------- --------- ---------
Income from operations 3,932 12,824 29,603 30,751
Other income (expense), net (279) 703 (271) 1,709
--------- --------- --------- ---------
Income before income taxes 3,653 13,527 29,332 32,460
Provision for income taxes 1,388 4,735 11,146 11,360
--------- --------- --------- ---------
Net income $ 2,265 $ 8,792 $ 18,186 $ 21,100
========= ========= ========= =========
Net income per common and equivalent share:
Primary $ 0.05 $ 0.18 $ 0.36 $ 0.42
========= ========= ========= =========
Assuming full dilution $ 0.05 $ 0.18 $ 0.36 $ 0.42
========= ========= ========= =========
Shares used in computing net income per common and equivalent share:
Primary 49,933 50,114 51,026 50,081
========= ========= ========= =========
Assuming full dilution 49,933 50,114 51,026 50,081
========= ========= ========= =========
</TABLE>
See accompanying notes to the unaudited
condensed consolidated financial statements.
Page 4 of 23
<PAGE> 5
S3 INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 18,186 $ 21,100
Adjustments to reconcile net income to net cash used for
operating activities:
Deferred income taxes 3,229 (557)
Depreciation and amortization 8,222 4,690
Equity in income from joint venture (11,278) ---
Changes in assets and liabilities:
Accounts receivable (28,877) (7,120)
Inventories 6,851 (8,680)
Prepaid expenses and other (919) (5,551)
Accounts payable (364) (16,895)
Accrued liabilities and other 3,646 6,483
Income taxes payable (4,524) (416)
-------- --------
Net cash used for operating activities (5,828) (6,946)
-------- --------
Investing activities:
Property and equipment purchases, net (20,212) (9,418)
Investment in real estate partnership --- (2,100)
Sales/maturities of short-term investments, net 6,957 9,509
Technology investment (5,000) ---
Other assets (12,063) ---
-------- --------
Net cash used for investing activities (30,318) (2,009)
-------- --------
Financing activities:
Sale of common stock, net 4,288 2,392
Net borrowings of notes payable 4,658 6,500
-------- --------
Net cash provided by financing activities 8,946 8,892
-------- --------
Net decrease in cash and equivalents (27,200) (63)
Cash and cash equivalents at beginning of period 94,616 69,289
-------- --------
Cash and cash equivalents at end of period $ 67,416 $ 69,226
======== ========
</TABLE>
See accompanying notes to the unaudited
condensed consolidated financial statements.
Page 5 of 23
<PAGE> 6
S3 INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The condensed consolidated financial statements have been prepared by S3
Incorporated, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and include the accounts of S3 Incorporated
and its wholly-owned subsidiaries ("S3" or collectively the "Company"). Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
the Company, the financial statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position at June 30, 1997 and December 31, 1996, and the operating
results and cash flows for the three and six months ended June 30, 1997 and
1996. These financial statements and notes should be read in conjunction with
the Company's audited financial statements and notes thereto for the year ended
December 31, 1996, included in the Company's Form 10-K filed with the Securities
and Exchange Commission.
The results of operations for the three months and six months ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the future quarters or the year ending December 31, 1997.
2. Inventories:
Inventories consist of work in process and finished goods and are stated at
the lower of cost (first-in, first-out) or market.
<TABLE>
<CAPTION>
June 30, December 31,
Inventories consist of: 1997 1996
------- -------
(in thousands)
<S> <C> <C>
Work in process $28,129 $22,556
Finished goods 18,486 30,910
======= =======
Total $46,615 $53,466
======= =======
</TABLE>
3. Net income per share:
Primary per share data is computed based on the weighted average number of
common and dilutive common equivalent shares outstanding. Common equivalent
shares include stock options and shares subscribed under the employee stock
purchase plan (computed using the treasury stock method). Fully diluted per
share data is computed using the most dilutive assumptions and by adjusting the
primary per share data and net income for the effect of the conversion of the
5-3/4% Convertible Subordinated Notes outstanding during the period and the
elimination of the related interest and amortization of issue costs, net of
income taxes.
Page 6 of 23
<PAGE> 7
4. Wafer supply agreements and commitments
During 1995, the Company entered into two long-term manufacturing capacity
arrangements. The Company entered into an agreement with United Microelectronics
Corporation (UMC) and Alliance Semiconductor Corporation to form United
Semiconductor Corporation (USC), a separate Taiwanese company, for the purpose
of building and managing a semiconductor manufacturing facility in Taiwan,
Republic of China. The Company has invested a total of $89.4 million for its
equity interest of 23.75%. The Company has the right to purchase up to 31.25% of
the output from the foundry.
In addition, in 1995 the Company expanded and formalized its relationship
with Taiwan Semiconductor Manufacturing Company (TSMC) to provide additional
capacity over the 1996 to 2000 timeframe. The agreement with TSMC requires the
Company to make certain annual advance payments to be applied against the
following years capacity. The Company has signed promissory notes to secure
these payments over the term of the agreement. At June 30, 1997, the remaining
advance payments (and corresponding promissory notes) totaled $24.0 million
($9.6 million in prepaid expenses and $14.4 million in production capacity
rights).
In the ordinary course of business, the Company places purchase orders with
its wafer suppliers based on its existing and anticipated customer orders for
its products. Should the Company experience a substantial unanticipated decline
in the selling price of its products and/or demand thereof, it could result in a
material loss on such purchase commitments.
5. Contingencies
The semiconductor and software industries are characterized by frequent
litigation regarding patent and other intellectual property rights. The Company
has been and can be in the future party to various claims of this nature.
Although the ultimate outcome of these matters is not presently determinable,
management believes that the resolution of all such pending litigation will not
have a material adverse effect on the Company's financial position or results of
operations.
6. Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1997 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 will replace current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the weighted
average of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $0.05 and $0.19 for the three months ended June 30,
1997 and 1996 respectively. Basic EPS would have been $0.37 and $0.47 for the
six months ended June 30, 1997 and 1996 respectively. Diluted EPS under SFAS 128
would not have been significantly different than fully diluted EPS reported for
those periods.
Page 7 of 23
<PAGE> 8
In June 1997, the Financial Accounting Standards Board adopted Statements
of Financial Accounting Standards No. 130 (Reporting Comprehensive Income),
which requires that an enterprise report, by major components and as a single
total, the change in its net assets during the period from nonowner sources; and
No. 131 (Disclosures about Segments of an Enterprise and Related Information),
which establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements will not
impact the Company's consolidated financial position, results of operations or
cash flows. Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.
Page 8 of 23
<PAGE> 9
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
When used in this discussion, the words "expects," "anticipates,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements concerning the timing of
availability and functionality of products under development, product mix,
trends in average selling prices, trends in the PC market, the percentage of
export sales and sales to strategic customers and the availability and cost of
products from the Company's suppliers, are subject to risks and uncertainties,
including those set forth below under "Factors That May Affect Results," that
could cause actual results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements 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 statement is based.
OVERVIEW
The Company is a leading supplier of multimedia acceleration hardware and
its associated software 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.
The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 23 through 28 of the Company's annual report on Form 10-K
for the year ended December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.7 62.0 61.3 61.2
---------- ---------- --------- -----------
Gross margin 35.3 38.0 38.7 38.8
---------- ---------- --------- -----------
Operating expenses:
Research and development 19.3 14.5 16.2 13.9
Selling, marketing and administrative 12.4 11.2 10.6 10.5
---------- ---------- --------- -----------
Total operating expenses 31.7 25.7 26.8 24.4
---------- ---------- --------- -----------
Income from operations 3.6 12.3 11.9 14.4
Other income (expense), net (0.2) 0.7 (0.1) 0.8
---------- ---------- --------- -----------
Income before income taxes 3.4 13.0 11.8 15.2
Provision for income taxes 1.3 4.5 4.5 5.3
---------- ---------- --------- -----------
Net income 2.1% 8.5% 7.3% 9.9%
========== ========== ========= ===========
</TABLE>
Page 9 of 23
<PAGE> 10
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, marketing acceptance of new or
enhanced versions of the Company's products, seasonal customer demand, and the
timing of significant orders.
The Company's operating results may fluctuate from those in prior quarters
or may be adversely affected in quarters in which it is undergoing a product
line transition in which production and sales of new products are ramping up and
in which existing products are under extreme price pressures due to competitive
factors. If new products are not brought to market in a timely manner or do not
address market needs or performance requirements, then the Company's operating
results will be adversely affected. As a result of the foregoing, the Company's
operating results and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in net sales or net income from
levels expected by securities analysts could have an immediate and significant
adverse effect on the trading price of the Company's common stock.
NET SALES
The Company's net sales to date have been generated from the sale of its
graphics and multimedia accelerators. The Company's products are used in, and
its business is dependent on, the personal computer industry with sales
primarily in the U.S., Asia, and Europe. Net sales were $108.9 million for the
three months ended June 30, 1997, a 5% increase above the $103.8 million of net
sales for the three months ended June 30, 1996. Net sales were $247.1 million
for the six months ended June 30, 1997 or 15% above the $213.9 million of new
sales for the six months ended June 30, 1996. Net sales increased primarily as a
result of strong demand for the Company's ViRGE and Trio families of integrated
accelerators that resulted in increased unit shipments. The increase in unit
shipments was partially offset by lower overall average selling prices.
Due to competitive price pressures, the Company's products experience
declining unit average selling prices over time, which at times can be
substantial. The pricing environment for 2D graphics accelerators, which
accounted for a majority of the Company's net sales in 1996, has recently
experienced and is expected to continue to experience increasing pricing
pressures due to aggressive pricing from certain of the Company's competitors.
In particular, the Company's Trio family of integrated 2D accelerators
experienced significant decreases in average selling prices in 1996 which
continued in the first half of 1997. The graphics accelerator market is
transitioning from 2D acceleration to 3D acceleration, and the Company
introduced its ViRGE family of 2D/3D accelerators in response to this
transition. As a result of the entry of competitors into the 3D acceleration
market, the Company has experienced and anticipates that it may continue to
experience increased pricing pressures on average selling prices for the ViRGE
family of 2D/3D accelerators. The Company experienced significant price
competition for its products in the three and six months ended June 30, 1997.
The Company currently anticipates price declines to return to a more normalized
environment and traditional demand to rise in the third quarter. The Company
expects that the percentage of its net sales represented by any one product or
type of product may change significantly from period to period as new products
are introduced and existing products reach the end of their product life cycles.
If the transition occurs slower than expected, if the Company's graphic products
do not achieve market acceptance, or if the pricing pressures increase or
continue in the manner experienced in the first half of 1997, then the Company's
operating results could be adversely affected.
Page 10 of 23
<PAGE> 11
Export sales accounted for 77% and 56% of net sales for the three months
ended June 30, 1997 and 1996, respectively. Export sales accounted for 69% and
56% of net sales in the six months ended June 30, 1997 and 1996 respectively.
Approximately 19% and 17% of export sales for the three and six months ended
June 30, 1997 were to affiliates of United States customers. 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. All sales transactions were denominated in
U.S. dollars.
One customer accounted for 11% and 13% of net sales for the three and six
months ended June 30, 1997, and one customer accounted for 24% and 17% of net
sales for the three and six months ended June 30, 1996. Three other customers
accounted for 18%, 13% and 12% of net sales for the three months ended June 30,
1997. 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 cancel or reschedule orders or, in the event orders
are canceled, 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 or the loss of a strategic customer
could have a material adverse effect on the Company's operating results.
The occurrence of any supply problems for the Company's products may
adversely affect the rate of growth in net sales. Net sales may also be
adversely affected by delays in the production ramp of customers' new programs
and systems which incorporate the Company's products. In addition, 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.
GROSS MARGIN
Gross margin percentage decreased to 35.3% for the three months ended June
30, 1997 from 38.0% for the three months ended June 30, 1996. The decrease was
due to decreases in overall average selling prices. Gross margin percentage
remained relatively constant in the six months ended June 30, 1997 and 1996. The
Company currently expects its gross margin percentage for the three months
ending September 30, 1997 to approximate current levels.
In the future, the Company's gross margin percentages may be affected by
increased competition and related decreases in unit average selling prices
(particularly with respect to older generation products), timing of volume
shipments of new products, the availability and cost of products from the
Company's suppliers, changes in the mix of products sold, the profitability of
the USC joint venture (the Company recognizes its proportionate share of USC
profits and losses), the extent to which the Company forfeits or utilizes its
production capacity rights with TSMC, the extent to which the Company will incur
additional licensing fees and shifts in sales mix between add-in card and
motherboard manufacturers to systems OEMs.
Page 11 of 23
<PAGE> 12
RESEARCH AND DEVELOPMENT EXPENSES
The Company has made and intends to continue to make significant
investments in research and development to remain competitive by developing new
and enhanced products. Research and development expenses were $21.0 million for
the three months ended June 30, 1997, an increase of $5.9 million from $15.1
million for the three months ended June 30, 1996. Research and development
expenses were $40.0 million for the six months ended June 30, 1997, an increase
of $10.2 million from $29.8 million for the six months ended June 30, 1996.
Research and development spending increases reflect additions to the Company's
engineering staff and nonrecurring engineering and initial product verification
expenses related to the expected introduction of new products. Research and
development spending is expected to increase in absolute dollars in 1997 as a
result of the product development activities currently underway for the desktop,
mobile and home PC markets with a focus on full motion video, 3D, and audio.
Products in the Company's market typically have a life cycle of 12 to 24
months. 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 the market in a
timely manner successful new products, that products or technologies developed
by others will not render the Company's products noncompetitive, or that the
Company's products will be selected for design into its customers' products. In
addition, it is possible that the Company's products may be found 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
problems or that such corrections would be acceptable to customers. The
occurrence of any such events would have a material adverse effect on the
Company's operating results.
SELLING, MARKETING AND ADMINISTRATIVE EXPENSES
Selling, marketing and administrative expenses were $13.5 million for the
three months ended June 30, 1997, an increase of $1.9 million from $11.6 million
for the three months ended June 30, 1996. Selling, marketing and administrative
expenses were $26.1 million for the six months ended June 30, 1997 an increase
of $3.6 million from $22.5 million in the six months ended June 30, 1996.
Selling and marketing costs increased as a result of additional personnel,
increased commissions and increased marketing costs associated with the expected
introduction of new products. Administrative costs have increased due to the
hiring of additional personnel necessary to support the increased level of
operations. The Company anticipates that selling, marketing and administrative
expenses will increase in absolute dollars in 1997.
OTHER INCOME (EXPENSE), NET
Other expense, decreased to $0.3 million for the three months ended June
30, 1997, from $0.7 million of interest income for the three months ended June
30, 1996. Other expense decreased to $0.3 million for the six months ended June
30, 1997, from $1.7 million of interest income for the six months ended June 30,
1996. The decrease is attributable to the interest expense incurred on $103.5
million aggregate principal amount of convertible subordinated notes, which were
issued by the Company in September 1996. The interest expense is partially
offset by the interest income due to the higher average amounts of cash and
short-term investments as a result of the net proceeds of approximately $100.1
million from the sale of the convertible subordinated notes.
INCOME TAXES
The Company's effective tax rate for the three months and six months ended
June 30, 1997 is 38%, compared to the 35% effective rate for the three months
and six months ended June 30, 1996. The increased tax rate is primarily
attributable to the expiration of the federal research and development credit as
of May 31, 1997.
Page 12 of 23
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cash used for operating activities for the six months ended June 30, 1997
was $5.8 million, as compared to $6.9 million for the six months ended June 30,
1996. The Company experienced an increase from December 31, 1996 in accounts
receivable, other assets and accrued liabilities and other liabilities. These
increases were partially offset by decreases in inventories, prepaid expenses
and income taxes payable. The Company experienced an increase in accounts
receivable from the level at December 31, 1996 due to the substantial
concentration of sales in June 1997 resulting from increased shipments in the
third month of the second quarter over either of the first two months of the
quarter relative to what the Company experienced in previous quarters.
Investing activities for the six months ended June 30, 1997 and 1996
reflected property and equipment purchases, net, of $20.2 million and $9.4
million, respectively, short term investments, and deferred royalties related to
the Brooktree license agreement. Continued expansion of the Company's business
may require higher levels of capital equipment purchases, technology
investments, foundry investments and other payments to secure manufacturing
capacity. In June 1997, the Company made a $5.0 million equity investment in
Faroudja, Laboratories, Inc. ("Faroudja"). The Company and Faroudja are working
jointly, pursuant to a license agreement, to develop integrated circuits
incorporating Faroudja's video processing technology for use in PC's.
Financing activities provided cash of $8.9 million in the six months ended
June 30, 1997 and 1996. Borrowings on the line of credit and proceeds from the
issuance of common stock were the principal financing activities that generated
cash in these periods.
In 1995, the Company entered into two long-term manufacturing capacity
arrangements. The Company entered into an agreement with UMC and Alliance
Semiconductor Corporation to form USC, a separate Taiwanese company, for the
purpose of building and managing a semiconductor manufacturing facility in the
Science Based Industrial Park in Hsin Chu City, Taiwan, Republic of China. The
Company invested $53.0 million in 1996 and $36.4 million in 1995 for its 23.75%
equity interest. The facility commenced production utilizing advanced submicron
semiconductor manufacturing processes in late 1996. The Company has the right to
purchase up to 31.25% of the output from the foundry. In addition, the Company
expanded and formalized its relationship with TSMC to provide additional
capacity over the 1996 to 2000 timeframe. The agreement with TSMC requires the
Company to make certain annual advance payments to be applied against the
following years capacity. The Company has signed promissory notes to secure
these payments, which total $24.0 million as of June 30, 1997, over the term of
the agreement.
Working capital at June 30, 1997 and December 31, 1996 was $216.4 million
and $232.3 million, respectively. At June 30, 1997, the Company's principal
sources of liquidity included cash and equivalents of $67.4 million and $55.9
million in short-term investments. In addition, the Company has a $25.0 million
unsecured revolving line of credit that expires September 1, 1997. The Company
is currently in the process of renewing the line of credit. The Company had $5.0
million outstanding under the line of credit as of June 30, 1997. In addition,
the Company has a separate secured equipment line of credit totaling $3.5
million. The Company had $2.4 million outstanding under this secured equipment
line of credit at June 30, 1997. The Company believes that its available funds
and its anticipated funds from operations will satisfy the Company's projected
working capital, existing foundry supply agreement and capital expenditure
requirements for at least the next 12 months, other than expenditures for future
potential manufacturing agreements.
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
Page 13 of 23
<PAGE> 14
extended periods, equity investments in, advances or issuances of equity
securities to wafer manufacturing companies in exchange for guaranteed
production or the formation of joint ventures to own and operate or construct
wafer fabrication facilities. Manufacturing arrangements such as these may
require substantial capital investments, which may require the Company to seek
additional equity or debt financing. There can be no assurance that such
additional financing, if required, will be available when needed or, if
available, will be on satisfactory terms. In addition, the Company may, from
time to time, as business conditions warrant, invest in or acquire businesses,
technology or products that complement the business of the Company.
The cyclical nature of the semiconductor industry periodically results in
shortages of advanced process wafer fabrication capacity such as the Company
experiences from time to time. The Company's ability to maintain adequate levels
of inventory is primarily dependent upon the Company obtaining sufficient supply
of products to meet future demand, and any inability of the Company to maintain
adequate inventory levels may adversely affect its relations with its customers.
In addition, because the Company must order products and build inventory
substantially in advance of product shipments, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products because the Company's products are volatile and subject to
rapid technology and price change. This inventory risk is heightened because
certain of the Company's key customers place orders with short lead times. The
Company's customers' ability to reschedule or cancel orders without significant
penalty could adversely affect the Company's liquidity, as the Company may be
unable to adjust its purchases from its independent foundries to match such
customer changes and cancellations. To the extent the Company produces excess or
insufficient inventories of particular products, the Company's operating results
could be adversely affected.
FACTORS THAT MAY AFFECT RESULTS
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, order cancellations or
rescheduling and the other factors discussed below. These factors could
adversely affect demand for the Company's products. In addition, the pricing
environment for graphics accelerators has recently experienced increasing
pricing pressures and is expected to continue to experience pricing pressures,
due in part 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 1996, experienced
significant decreases in average selling prices in 1997. The graphics
accelerator market is transitioning from 2D acceleration to 3D acceleration, and
the Company has introduced its ViRGE family of 2D/3D accelerators in response to
this transition. As a result of the entry of competitors into the 3D
acceleration market, the Company has experienced and anticipates that it may
continue to experience increased pricing pressures on average selling prices for
the ViRGE family of 2D/3D accelerators. If the transition occurs slower than
expected, if the Company's 2D/3D products do not achieve market acceptance, or
if pricing pressures increase above normal anticipated levels, 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 such
budgeted sales levels were not achieved. PC graphics and multimedia subsystems
include, in
Page 14 of 23
<PAGE> 15
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.
Due to the foregoing factors, it is likely that in some future quarter or
quarters the Company's operating results may be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected.
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 add-in card and motherboard 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. Market acceptance of the Company's products will also
depend upon acceptance of other components,
Page 15 of 23
<PAGE> 16
such as memory, that the Company's products are designed to work with. For
example, the Company has recently introduced accelerators designed to work with
synchronous graphics RAM ("SGRAM") and/or synchronous DRAM ("SDRAM") which the
Company believes offer better performance for its price than the more expensive
video RAM ("VRAM"). However, there can be no assurance that other memory
technologies, such as Rambus DRAM, will not achieve a greater degree of market
acceptance than SGRAMs or SDRAMs.
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 could be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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 long-term supply arrangements with two of its foundries, a "take
or pay" contract with Taiwan Semiconductor Manufacturing Company ("TSMC") and a
joint venture foundry, United Semiconductor Corporation ("USC"). In 1995, the
Company expanded and formalized its relationship with TSMC to provide additional
capacity over the 1996 to 2000 timeframe. The foundry agreement with TSMC
requires the Company to make certain annual advance payments to purchase certain
committed capacity amounts to be applied against the following year's capacity
or forfeit advance payments against such amounts. In addition, the Company
entered into an agreement with United Microelectronics Corporation ("UMC") and
Alliance Semiconductor Corporation to form a separate Taiwanese company, USC,
for the purpose of building and managing a semiconductor manufacturing facility.
The Company invested $53.0 million in 1996 and $36.4 million in 1995 for its
23.75% equity interest. The facility commenced production utilizing advanced
submicron semiconductor manufacturing processes in late 1996. The Company has
the right to purchase up to 31.25% of the output from the foundry. 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. To the extent USC experiences operating losses, the Company will
recognize its proportionate share of such losses and may be required to
contribute additional capital. The Company believes that a number of
manufacturers are expanding or planning to expand their fabrication capacity
over the next several years, which could lead to overcapacity in the market and
resulting decreases in costs of finished wafers. If the wafers produced by USC
cannot be produced at competitive prices, USC could sustain operating losses.
There can be no assurance that such operating losses will not have a material
adverse effect on the Company's results of operations.
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
Page 16 of 23
<PAGE> 17
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 or an injunction arising from alleged violations of third
party intellectual property rights, the Company may not have a sufficient amount
of time to replace the supply of products manufactured by that foundry. Until
1996, due to worldwide semiconductor supply constraints, especially with respect
to advanced process technologies required by the Company's products, the Company
was unable to obtain a sufficient supply of products to enable it to meet demand
and was required to allocate available supply of its products among its
customers. There can be no assurance that the Company will obtain sufficient
advanced process technology foundry capacity to meet customer demand in the
future. 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.
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. The Company currently expects these three foundries to
supply the substantial portion of the Company's products in 1997. 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 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 adequate availability of certain packaging technologies, 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.
Page 17 of 23
<PAGE> 18
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 may consider in the future various 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 such 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 has entered into the USC joint venture. 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 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 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 additional functionality, there can be no assurance that the Company
will be able to develop such new or enhanced products in a timely manner 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, in 1996, there was an absence of an industry standard 3D graphics API.
As a result, the Company developed and promoted its proprietary API. Microsoft
has since introduced its Direct3D API, which has emerged as the standard API for
3D acceleration. 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 that the
Company's accelerators will not support. 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.
Page 18 of 23
<PAGE> 19
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 smaller 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,
which are currently expected to become available in the second half of 1997, and
Texas Instruments Incorporated, which has announced a development and marketing
agreement with 3Dlabs Inc., Ltd. Microsoft is working with a number of
companies, including Cirrus Logic, Inc., Samsung Electronics Co., Ltd., Philips
N.V. and Fujitsu Ltd., to implement this architecture. In addition, Intel
Corporation has entered into a definitive agreement to acquire Chips and
Technologies, Inc., a leading provider of accelerators for the mobile PC market.
There can be no assurance that the Company's product offerings to address the
demand for the next generation of 2D/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. The entry
of additional competitors into the 2D/3D accelerator market has resulted in and
is expected to continue to result in pricing pressures on average selling prices
of the Company's products. To the extent the Company expands its product line to
add products with additional functionality, 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. In addition, certain of the Company's potential
competitors that supply add-in cards and/or motherboards, such as Intel
Corporation, may seek to use their card/board business to leverage the startup
of their graphics accelerator business. 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 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 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.
Page 19 of 23
<PAGE> 20
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 final stage of implementing a new management information
system. Any problems encountered with the new 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. Competition for such personnel is
intense and there can be no assurance that the Company can retain and recruit
necessary personnel to operate its business and support its future growth. In
August 1996, the Company appointed a new President and Chief Executive Officer
to replace Terry N. Holdt, who retired, and in March 1997, the Company's Chief
Financial Officer resigned, and there can be no assurance as to the effects of
this management transition on the Company's business and operating results. 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 a number of 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 has been and can be in the
future 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 the
Brooktree Corporation ("Brooktree") litigation, resulted and could in the future
result in substantial expense to the Company 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 litigation to determine the
validity of any third-party claims, such litigation could result in significant
expense to the Company and divert 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.
Page 20 of 23
<PAGE> 21
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 a 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
related to certain product revenues over a five-year period.
International Operations
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, 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, and the Company's joint venture foundry, USC, are located in
Taiwan. The Company currently expects these three foundries to supply the
substantial portion of the Company's products in 1997. The People's Republic of
China and Taiwan at times experienced strained relations in 1995 and 1996, 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.
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 earnings estimates by securities analysts, market conditions for
high technology stocks in general, and other events or factors.
Page 21 of 23
<PAGE> 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on May 7, 1997.
(b) The following directors were elected at the meeting to serve one year
terms:
Diosdado P. Banatao
John C. Colligan
Terry N. Holdt
Gary J. Johnson
Robert P. Lee
Carmelo J. Santoro
Ronald T. Yara
(c) The matters voted upon at the meeting and results of the voting with
respect to those matters were as follows:
<TABLE>
<CAPTION>
(1) Election of Directors For Withheld
--- --------
<S> <C> <C>
Diosdado P. Banatao 40,434,816 374,041
John C. Colligan 40,434,416 374,441
Terry Holdt 40,435,091 373,766
Gary Johnson 40,430,556 378,301
Robert P. Lee 40,432,156 376,701
Carmelo J. Santoro 40,434,331 374,526
Ronald T. Yara 40,432,556 376,301
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(2) Ratification of Deloitte & Touche LLP For Against Abstain
--- ------- -------
as the company's independent auditors 40,660,605 55,568 92,684
for fiscal 1997
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i).3 Certificate of Designation of Series A Participating Preferred
Stock.
3(ii) Amended and Restated Bylaws.
4.4 Rights Agreement dated as of May 14, 1997 between S3
Incorporated and the First National Bank of Boston, Rights
Agent.
27 Financial Data Schedule (filed only with the electronic submission of
Form 10-Q in accordance with the Edgar requirements)
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on May 20, 1997.
Page 22 of 23
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
S3 INCORPORATED
(Registrant)
/S/DALE R. LINDLY
------------------------------
DALE R. LINDLY
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
August 12, 1997
Page 23 of 23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C>
3(i).3 Certificate of Designation of Series A Participating
Preferred Stock
3(ii) Amended and Restated Bylaws.
4.4 Rights and Agreement dated as of May 14, 1997 between S3
Incorporated and The First Boston National Bank of Boston,
Rights Agent.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3(i).3
CERTIFICATE OF DESIGNATION
OF SERIES A PARTICIPATING PREFERRED STOCK
OF
S3 INCORPORATED
We, Gary J. Johnson, the President and Chief Executive Officer, and
Ronald T. Yara, the Secretary, of S3 Incorporated, a corporation organized and
existing under the General Corporation Law of the State of Delaware, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Corporation, the said Board of
Directors on May 14, 1997, adopted the following resolution creating a series
of 500,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be
designated as "Series A Participating Preferred Stock," par value $0.0001 per
share, and the number of shares constituting such series shall be 500,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series A Participating Preferred Stock to a number less than that of the shares
then outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating Preferred Stock in preference to
the holders of shares of Common Stock, par value $0.0001 per share (the "Common
Stock"), of the Corporation and any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
first day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Participating Preferred Stock in an amount
per share (rounded to the nearest cent) equal to the greater of (a) $25.00, or
(b) subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by
<PAGE> 2
reclassification or otherwise), declared on the Common Stock, since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Participating Preferred Stock. In the event
the Corporation shall at any time after the close of business on June 1, 1997
(the "Rights Declaration Date") (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
by reclassification or otherwise, then in each such case the amount to which
holders of shares of Series A Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per share
on the Series A Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Preferred Stock unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series A Participating Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date in either
of which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Participating
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Participating
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter
set forth, each share of Series A Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to
a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock into a greater
number of shares, or (iii) combine the outstanding Common Stock into a
smaller number of shares, by reclassification or otherwise, then in
each such case the number of votes per share to which holders of
shares of Series A Participating Preferred Stock were entitled
<PAGE> 3
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the
Certificate of Incorporation or by law, the holders of shares of
Series A Participating Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A
Participating Preferred Stock shall be in arrears in an amount equal
to six quarterly dividends thereon, the holders of the Series A
Participating Preferred Stock, voting as a separate series from all
other series of Preferred Stock and classes of capital stock, shall be
entitled to elect two members of the Board of Directors in addition to
any Directors elected by any other series, class or classes of
securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of
this Corporation shall, as soon as may be practicable, call a special
meeting of holders of Series A Participating Preferred Stock for the
purpose of electing such members of the Board of Directors. Said
special meeting shall in any event be held within 45 days of the
occurrence of such arrearage.
(ii) During any period when the holders of Series A
Participating Preferred Stock, voting as a separate series, shall be
entitled and shall have exercised their right to elect two Directors,
then and during such time as such right continues (a) the then
authorized number of Directors shall be increased by two, and the
holders of Series A Participating PreferredStock, voting as a separate
series, shall be entitled to elect the additional Directors so
provided for, and (b) each such additional Director shall not be a
member of any existing class of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election
of Directors, or until his or her successor shall be elected and shall
qualify, or until his or her right to hold such office terminates
pursuant to the provisions of this Section 3(C).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Participating
Preferred Stock entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of
Series A Participating Preferred Stock shall be entitled to elect two
Directors, there are fewer than two such Directors in office by reason
of resignation, death or removal, then, promptly thereafter, the Board
of Directors shall call a special meeting of the holders of Series A
Participating Preferred Stock for the purpose of filling such
vacancy(ies) and such vacancy(ies) shall be filled at such special
meeting. Such special meeting shall in any event be held within 45
days of the occurrence of any such vacancy(ies).
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A
Participating Preferred Stock outstanding are paid, and, in addition
thereto, at least one regular dividend has been
<PAGE> 4
paid subsequent to curing such arrearage, the term of office of any
Director elected pursuant to this Section 3(C), or his or her
successor, shall automatically terminate, and the authorized number of
Directors shall automatically decrease by two, and the rights of the
holders of the shares of the Series A Participating Preferred Stock to
vote as provided in this Section 3(C) shall cease, subject to renewal
from time to time upon the same terms and conditions.
(D) Except as set forth herein or as otherwise provided
by law, holders of Series A Participating Preferred Stock shall have
no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock and any other capital stock of the Corporation having general
voting rights as set forth herein) for taking any corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Participating Preferred Stock except dividends paid ratably
on the Series A Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Participating Preferred Stock provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock or any shares of
stock ranking on a parity with the Series A Participating Preferred
Stock except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders
of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
<PAGE> 5
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Participating
Preferred Stock shall have received per share, the greater of $1,000.00 or
1,000 times the payment made per share of Common Stock, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series A Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of
the Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Participating Preferred Stock and Common Stock,
respectively, holders of Series A Participating Preferred Stock and holders of
shares of Common Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment Number to
1 with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to
permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series A Participating Preferred Stock then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event
there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
<PAGE> 6
7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
8. Redemption. The shares of Series A Participating Preferred
Stock shall not be redeemable.
9. Ranking. The Series A Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
10. Amendment. The Certificate of Incorporation and the By-Laws
of the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of at least 66-2/3% of the outstanding
shares of Series A Participating Preferred Stock voting separately as a class.
11. Fractional Shares. Series A Participating Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury as of the
____ day of May 1997.
/s/ GARY J. JOHNSON
-----------------------------------------
Gary J. Johnson
President and Chief Executive Officer
Attest:
/s/ RONALD T. YARA
----------------------------------------
Ronald T. Yara
Secretary
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
S3 INCORPORATED
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at such place within or without the State of Delaware as may be fixed
from time to time by the board of directors or the chief executive officer, or
if not so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held at such date and time as shall be designated from time to time by the
board of directors or the chief executive officer and stated in the notice of
meeting. At the annual meeting the stockholders shall elect by a plurality
vote a board of directors and shall transact such other business as may
properly be brought before the meeting.
To be properly brought before an annual meeting, business must be
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the board of directors, (b) otherwise properly
brought before the meeting by or at the direction of the board of directors, or
(c) otherwise properly brought before the meeting by a stockholder of record.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the secretary of the corporation. To
be timely, a stockholder's notice must be delivered by a nationally recognized
courier service or mailed by first class United States mail, postage or
delivery charges prepaid, and received at the principal executive offices of
the corporation, not less than fifty days nor more than seventy-five days prior
to the meeting; provided, however, that in the event that less than sixty-five
days' notice or prior public disclosure of the date of the scheduled meeting is
given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the earlier of (a) the close of business on the 15th
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made, whichever first occurs, and (b)
two days prior to the date of the scheduled meeting. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class, series and number of
shares of the corporation which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2 by any
<PAGE> 2
stockholder of any business properly brought before the annual meeting in
accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 2. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, may, unless otherwise prescribed by statute or by
the certificate of incorporation, be called by only the board of directors, the
chairman of the board, or the president. Business transacted at any special
meeting shall be limited to matters relating to the purpose or purposes stated
in the notice of meeting.
Section 3. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 4. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city or town where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these bylaws.
Section 6. Adjournments. Any meeting of stockholders may be
adjourned from time to time to any other time and to any other place at which a
meeting of stockholders may be held under these bylaws, which time and place
shall be announced at the meeting, by a majority of the stockholders present in
person or represented by proxy at the meeting and entitled to vote, though less
than a quorum, or, if no stockholder is present or represented by proxy, by any
officer entitled to preside at or to act as secretary of such meeting, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the original meeting. If the adjournment is for more than thirty days, or
if after the adjournment a new record date is fixed for the adjourned meeting,
a
-2-
<PAGE> 3
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 7. Action at Meetings. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock present in person
or represented by proxy and entitled to vote on the question shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of law, the certificate of incorporation or these bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 8. Voting and Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
Section 9. Action Without Meeting. No action required or permitted
to be taken at any annual of special meeting of the stockholders of the
corporation may be taken without a meeting and the power of the stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
directors which shall constitute the whole board shall not be less than three
nor more than nine. Within such limit, the number of directors shall be
determined by resolution of the board of directors. The directors shall be
elected at the annual meeting or at any special meeting of the stockholders,
except as provided in Section 3 of this Article, and each director elected
shall hold office until his successor is elected and qualified, unless sooner
displaced. Directors need not be stockholders.
Section 2. Nominations. Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for election to the board of
directors of the corporation at a meeting of stockholders may be made on behalf
or at the direction of the board by any nominating committee appointed by the
board; nominations may also be made by any stockholder of record of the
corporation entitled to vote for the election of directors at the annual
meeting of stockholders of the corporation who complies with the notice
procedures set forth in this Section. Such nominations, other than those made
by any nominating committee on behalf or at the direction of the board, shall
be made by notice in writing delivered by a nationally recognized courier
service or mailed by first class United States mail, postage or delivery
charges prepaid, and received at the principal executive offices of the
corporation addressed to the attention of the secretary of the corporation not
less than one hundred twenty days prior to the scheduled date of the annual
meeting (regardless of
-3-
<PAGE> 4
any postponements, deferrals or adjournments of that meeting to a later date);
provided, however, that if less than one hundred days' notice or prior public
disclosure of the date of the scheduled meeting is given or made to
stockholders, such nomination shall have been mailed or delivered to be
received by the secretary of the corporation not later than the close of
business on the seventh day following the day on which such notice of scheduled
meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election who is not an incumbent director (i) the name, age,
business address and, if known, residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class, series and
number of shares of stock of the corporation which are beneficially owned by
such person, (iv) a statement of such person's citizenship, and (v) any other
information concerning the nominee that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Section 14 of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice, (i)
the name and record address of the stockholder and (ii) the class, series and
number of shares of capital stock of the corporation which are beneficially
owned by the stockholder. The corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the corporation
to determine the eligibility of such proposed nominee to serve as director of
the corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth
herein.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. In the
event of a vacancy in the board of directors, the remaining directors, except
as otherwise provided by law or these bylaws, may exercise the powers of the
full board until the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any
time upon written notice to the corporation at its principal place of business
or to the chief executive officer or the secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event. Any director or the entire
board of directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors,
unless otherwise specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the
corporation shall be managed by its board of directors, which may exercise all
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
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Section 6. Chairman of the Board. If the board of directors appoints
a chairman of the board, he shall, when present, preside at all meetings of the
stockholders and the board of directors. He shall perform such duties and
possess such powers as are customarily vested in the office of the chairman of
the board or as may be vested in him by the board of directors.
Section 7. Place of Meetings. The board of directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 8. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board; provided that any director who is
absent when such a determination is made shall be given prompt notice of such
determination. A regular meeting of the board of directors may be held without
notice immediately after and at the same place as the annual meeting of
stockholders.
Section 9. Special Meetings. Special meetings of the board may be
called by the chief executive officer, secretary, or on the written request of
two or more directors, or by one director in the event that there is only one
director in office. Two days notice to each director, either personally or by
telegram, cable, telecopy, commercial delivery service, telex or similar means
sent to his business or home address, or three days notice by written notice
deposited in the mail, shall be given to each director by the secretary or by
the officer or one of the directors calling the meeting. A notice or waiver of
notice of a meeting of the board of directors need not specify the purposes of
the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings
of the board, a majority of directors then in office, but in no event less than
one third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall
mean the number of directors last fixed by the stockholders or directors, as
the case may be, in accordance with law and these bylaws; provided, however,
that if less than all the number so fixed of directors were elected, the
"entire board" shall mean the greatest number of directors so elected to hold
office at any one time pursuant to such authorization. If a quorum shall not
be present at any meeting of the board of directors, a majority of the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee
thereof may be taken without a meeting, if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all
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persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the board of directors, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the certificate of
incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation; and, unless the resolution designating such
committee or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors. Each committee shall keep regular minutes of its
meetings and make such reports to the board of directors as the board of
directors may request. Except as the board of directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
bylaws for the conduct of its business by the board of directors.
Section 14. Compensation. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the board of directors shall have
the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and the performance of their responsibilities as
directors and may be paid a fixed sum for attendance at each meeting of the
board of directors and/or a stated salary as director. No such payment shall
preclude any director from serving the corporation or its parent or subsidiary
corporations in any other capacity and receiving compensation therefor. The
board of directors may also allow compensation for members of special or
standing committees for service on such committees.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be
chosen by the board of directors and shall be a president, a secretary and a
treasurer and such other officers with such titles, terms of office and duties
as the board of directors may from time to time determine, including a chairman
of the board, one or more vice-presidents, and one or more assistant
secretaries and assistant treasurers. If authorized by resolution of the board
of directors, the chief executive officer may be empowered to appoint from time
to time assistant secretaries and
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assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these bylaws otherwise provide.
Section 2. Election. The board of directors at its first meeting
after each annual meeting of stockholders shall choose a president, a secretary
and a treasurer. Other officers may be appointed by the board of directors at
such meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal. Any officer elected or appointed by the board of
directors or by the chief executive officer may be removed at any time by the
affirmative vote of a majority of the board of directors or a committee duly
authorized to do so, except that any officer appointed by the chief executive
officer may also be removed at any time by the chief executive officer. Any
vacancy occurring in any office of the corporation may be filled by the board
of directors, at its discretion. Any officer may resign by delivering his
written resignation to the corporation at its principal place of business or to
the chief executive officer or the secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event.
Section 4. Chairman of the Board. The Chairman of the Board, if
there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors or
prescribed by the Bylaws.
Section 5. President. The president shall be the chief operating
officer of the corporation. He shall also be the chief executive officer
unless the board of directors otherwise provides. The president shall, unless
the board of directors provides otherwise in a specific instance or generally,
preside at all meetings of the stockholders and the board of directors, have
general and active management of the business of the corporation and see that
all orders and resolutions of the board of directors are carried into effect.
The president shall execute bonds, mortgages, and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to
some other officer or agent of the corporation.
Section 6. Vice-Presidents. In the absence of the president or in
the event of his inability or refusal to act, the vice-president, or if there
be more than one vice-president, the vice-presidents in the order designated by
the board of directors or the chief executive officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The
vice-presidents shall perform such other duties and have such other powers as
the board of directors or the chief executive officer may from time to time
prescribe.
Section 7. Secretary. The secretary shall have such powers and
perform such duties as are incident to the office of secretary. He shall
maintain a stock ledger and prepare lists of stockholders and their addresses
as required and shall be the custodian of corporate records. The
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secretary shall attend all meetings of the board of directors and all meetings
of the stockholders and record all the proceedings of the meetings of the
corporation and of the board of directors in a book to be kept for that purpose
and shall perform like duties for the standing committees when required. He
shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the board of directors, and shall perform such. other
duties as may be from time to time prescribed by the board of directors or
chief executive officer, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The board of directors may give general authority
to any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 8. Assistant Secretaries. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by
the board of directors, the chief executive officer or the secretary (or if
there be no such determination, then in the order determined by their tenure in
office), shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors, the chief executive officer or the secretary may from time
to time prescribe. In the absence of the secretary or any assistant secretary
at any meeting of stockholders or directors, the person presiding at the
meeting shall designate a temporary or acting secretary to keep a record of the
meeting.
Section 9. Treasurer. The treasurer shall perform such duties and
shall have such powers as may be assigned to him by the board of directors or
the chief executive officer. In addition, the treasurer shall perform such
duties and have such powers as are incident to the office of treasurer. The
treasurer shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories
as may be designated by the board of directors. He shall disburse the funds of
the corporation as may be ordered by the board of directors, taking proper
vouchers for such disbursements, and shall render to the chief executive
officer and the board of directors, When the chief executive officer or board
of directors so requires, an account of all his transactions as treasurer and
of the financial condition of the corporation.
Section 10. Assistant Treasurers. The assistant treasurer, or if
there shall be more than one, the assistant treasurers in the order determined
by the board of directors, the chief executive officer or the treasurer (or if
there be no such determination, then in the order determined by their tenure in
office), shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors, the chief executive officer or the treasurer may from time
to time prescribe.
Section 11. Bond. If required by the board of directors, any officer
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the corporation
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of all books, papers, vouchers, money and other property of whatever kind in
his possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of
the certificate of incorporation or these bylaws, written notice is required to
be given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the
United States mail. Unless written notice by mail is required by law, written
notice may also be given by telegram, cable, telecopy, commercial delivery
service, telex or similar means, addressed to such director or stockholder at
his address as it appears on the records of the corporation, in which case such
notice shall be deemed to be given when delivered into the control of the
persons charged with effecting such transmission, the transmission charge to be
paid by the corporation or the person sending such notice and not by the
addressee. Oral notice or other in-hand delivery, in person or by telephone,
shall be deemed given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of law or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
INDEMNIFICATION
Section 1. Actions Other than by or in the Right of the Corporation.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
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Section 2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancer of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the
State of Delaware or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person
described in Section 1 or 2 of this Article V has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section
1 or 2 of this Article V (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he has met the applicable standard of conduct set forth
in said Sections. Such determination shall be made (1) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the corporation.
Section 5. Advance Payment. Expenses incurred in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the board of directors in the manner provided for in Section 4 of
this Article V upon receipt of an undertaking by or on behalf of any person
described in said Section to repay such amount unless it shall ultimately be
determined that he is entitled to indemnification by the corporation as
authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification provided by this
Article V shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be director, officer, employee
or agent of the
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corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 7. Insurance. The board of directors may authorize, by a
vote of the majority of the full board, the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article V.
Section 8. Severability. If any word, clause or provision of this
Article V or any award made hereunder shall for any reason be determined to be
invalid, the provisions hereof shall not otherwise be affected thereby but
shall remain in full force and effect.
Section 9. Intent of Article. The intent of this Article V is to
provide for indemnification to the fullest extent permitted by section 145 of
the General Corporation Law of Delaware. To the extent that such Section or
any successor section may be amended or supplemented from time to time, this
Article V shall be amended automatically and construed so as to permit
indemnification to the fullest extent from time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue. Certificates may be issued for partly paid
shares and in such case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
Section 2. Lost Certificates. The board of directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give
reasonable evidence of such loss, theft or destruction, to advertise the same
in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be
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made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares, duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, and proper evidence of compliance with other conditions
to rightful transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Record Date. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the board of directors may fix,
in advance, a record date, which shall not be more than sixty days nor less
then ten days before the date of such meeting, nor more than sixty days prior
to any other action to which such record date relates. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned
meeting. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice is
given, or, if notice is waived, at the close of business on the day before the
day on which the meeting is held. The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the board of directors is necessary, shall be the day
on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating to such purpose.
Section 5. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the board or committee thereof which
authorizes the contract or transaction or solely because his or their votes are
counted for such purpose, if:
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(a) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, if any, may be declared by the board of directors at any regular
or special meeting or by written consent, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
Section 2. Reserves. The directors may set apart out of any funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the word "Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced. The seal may be altered from time to time by
the board of directors.
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ARTICLE IX
AMENDMENTS
The board of directors is expressly empowered to adopt, amend or
repeal Bylaws of the corporation, provided, however, that any adoption,
amendment or repeal of Bylaws of the corporation by the board of directors
shall require the approval of at least sixty-six and two- thirds percent of the
total number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the board). The stockholders
shall also have power to adopt, amend or repeal Bylaws of the corporation,
provided, however, that in addition to any vote of the holders of any class or
series of stock of this corporation required by law or by the Restated
Certificate of Incorporation of the corporation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent of the voting power of all
of the then outstanding shares of the stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class,
shall be required for such adoption, amendment or repeal by the stockholders of
any provisions of the Bylaws of the corporation.
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EXHIBIT 4.4
===============================================================================
S3 INCORPORATED,
a Delaware corporation
and
THE FIRST NATIONAL BANK OF BOSTON,
a national banking association
Rights Agent
____________
RIGHTS AGREEMENT
Dated as of May 14, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Issue of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Exercise of Rights; Purchase Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . . . . 6
8. Cancellation and Destruction of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. Reservation and Availability of Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. Preferred Stock Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights . . . . . . . . . . . . . . . . 9
12. Certificate of Adjusted Purchase Price or Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . . . . . . . . . . . . . . . . . . . 16
14. Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
15. Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16. Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
17. Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18. Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
19. Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
20. Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 21
21. Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
22. Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
23. Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
24. Redemption, Termination and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
26. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27. Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
28. Determination and Actions by the Board of Directors, etc. . . . . . . . . . . . . . . . . . . . . . . . . 27
29. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
30. Benefits of This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
31. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
32. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
33. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
34. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Exhibit A -- Certificate of Designation of Series A Participating Preferred Stock . . . . . . . . . . . . . . . . . A-1
Exhibit B -- Form of Rights Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C -- Form of Summary of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
</TABLE>
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<PAGE> 4
RIGHTS AGREEMENT
THIS AGREEMENT is dated as of May 14, 1997, between S3 INCORPORATED, a
Delaware corporation (the "Company"), and THE FIRST NATIONAL BANK OF BOSTON, a
national banking association (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, on May 14, 1997, the Board of Directors of the Company
authorized and declared a dividend distribution of one Right (as hereinafter
defined) for each share of Common Stock, par value $0.0001 per share, of the
Company (the "Common Stock") outstanding as of the close of business on June 1,
1997 (the "Record Date"), and contemplates the issuance of one Right (subject
to adjustment as provided herein) for each share of Common Stock of the Company
issued between the Record Date and the earlier of the Distribution Date and the
Expiration Date, as such terms are hereinafter defined (with Rights also to be
issued in connection with certain issuances of Common Stock after the
Distribution Date, as provided more fully herein), each Right representing the
right to purchase one one-thousandth of a share of Series A Participating
Preferred Stock, par value $0.0001 per share, of the Company ("Preferred
Stock") having the rights, powers and preferences set forth in the form of
Certificate of Designation attached hereto as Exhibit A ("Certificate of
Designation"), upon the terms and subject to the conditions hereinafter set
forth (the "Rights").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all
Affiliates (as such term is hereinafter defined) and Associates (as
such term is hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of securities
representing 15% or more of the shares of Common Stock then
outstanding or who was such a Beneficial Owner at any time on or after
the date hereof, whether or not such Person continues to be the
Beneficial Owner of securities representing 15% or more of the
outstanding shares of Common Stock. Notwithstanding the foregoing,
(i) in no event shall a Person who or which, together with all
Affiliates and Associates of such Person, is the Beneficial Owner of
less than 15% of the Company's outstanding shares of Common Stock
become an Acquiring Person solely as a result of a reduction of the
number of shares of outstanding Common Stock, including repurchases of
outstanding shares of Common Stock by the Company, which reduction
increases the percentage of outstanding shares of Common Stock
beneficially owned by such Person (provided that any subsequent
increase in the amount of Common Stock beneficially owned by such
Person, together with all Affiliates and Associates of such Person,
without the prior writtenapproval of the Board of Directors of the
Company shall cause such Person to be an Acquiring Person); (ii) the
term Acquiring Person shall not mean (A) the Company, (B) any
subsidiary of the Company (as such term is hereinafter defined), (C)
any employee benefit plan of the Company or any of its subsidiaries,
(D) any entity holding securities of the Company organized, appointed
or established by the Company or any of its subsidiaries for or
pursuant to the terms of any such plan, or (E) any underwriter acting
in good faith in a firm commitment underwriting of an offering of the
Company's securities pursuant to arrangements with the Company that
have been approved by the Board of Directors of the Company (however,
the exception provided by this clause (E) shall no longer be available
in the event that any such
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<PAGE> 5
underwriter is otherwise an Acquiring Person on or after the date
which is forty days after the date of initial acquisition of the
Company's securities by such underwriter in connection with such
offering); and (iii) no Person shall be deemed to be an Acquiring
Person if: (A) (1) any Schedule 13D under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any comparable or
successor report, filed (or required to be filed) by such Person does
not (or would not) state any intention to or reserve the right to
control or influence the management or policies of the Company or
engage in any of the actions specified in Item 4 (or any comparable or
successor Item) of such Schedule 13D (other than the disposition of
Common Stock), (2) either (x) within two Business Days of being
requested by the Company to advise the Company regarding the same,
such Person certifies in writing to the Company that such Person
acquired Beneficial Ownership of securities representing shares of
Common Stock in excess of 15% inadvertently or without knowledge of
the terms of the Rights, or (y) the Board of Directors of the Company
determines in good faith that such Person has become an Acquiring
Person inadvertently, (3) such Person divests as promptly as
practicable a sufficient number of securities representing shares of
Common Stock so that such Person shall not be deemed to be an
Acquiring Person pursuant to the first sentence of this Section 1(a),
and (4) promptly following such Person's divestiture of such
securities, such Person certifies to the Board of Directors of the
Company that such Person is no longer an Acquiring Person as defined
pursuant to the first sentence of this Section 1(a); or (B) by reason
of such Person's Beneficial Ownership of 15% or more of the
outstanding shares of Common Stock on the date hereof if prior to the
Record Date, such Person notifies the Board of Directors that such
Person is no longer the Beneficial Owner of 15% or more of the then
outstanding shares of Common Stock.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this
Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of,
and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right or obligation to
acquire (whether such right or obligation is exercisable or
effective immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding
(whether or not in writing) or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights),
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," securities tendered pursuant to a tender
or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for payment or exchange; or (B) the right to vote
pursuant to any agreement, arrangement or understanding
(whether or not in writing); provided, however, that a Person
shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this clause (B) if the
agreement, arrangement or understanding to vote such security
(1) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and
in accordance with, the applicable rules and regulations of
the Exchange Act and (2) is not also then reportable by such
Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
-2-
<PAGE> 6
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) (other than
customary agreements with and between underwriters and selling
group members with respect to a bona fide public offering of
securities), or with which such Person or any of such Person's
Affiliates or Associates have otherwise formed a group, for
the purpose of acquiring, holding, voting (except pursuant to
a revocable proxy as described in clause (B) of subparagraph
(ii) of this paragraph (c)) or disposing of any securities of
the Company.
(d) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State
of California are authorized or obligated by law or executive order to
close.
(e) "Close of business" on any given date shall mean 5
P.M., San Francisco time, on such date; provided, however, that if
such date is not a Business Day it shall mean 5 P.M., San Francisco
time, on the next succeeding Business Day.
(f) "Common Stock" shall mean the Common Stock, par value
$0.0001 per share, of the Company, except that "Common Stock" when
used with reference to stock issued by any Person other than the
Company shall mean the capital stock with the greatest voting power,
or the equity securities or other equity interest having power to
control or direct the management, of such Person or, if such Person is
a subsidiary of another Person, of the Person which ultimately
controls such first-mentioned Person and which has issued and
outstanding such capital stock, equity securities or equity interests.
(g) "Person" shall mean any individual, firm,
corporation, partnership, limited liability company, joint venture,
association, trust or other entity.
(h) "Preferred Stock" shall mean the Series A
Participating Preferred Stock, par value $0.0001 per share, of the
Company.
(i) "Stock Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such.
(j) A "subsidiary" of any Person shall mean any
corporation or other entity of which a majority of the voting power of
the voting equity securities or voting interests is owned, directly or
indirectly, by such Person, or which is otherwise controlled by such
Person.
(k) "Voting power" shall mean the voting power of all
securities of the Company then outstanding and generally entitled to
vote for the election of directors of the Company.
2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable. In the event the Company appoints one or more
Co-Rights Agents, the respective duties of the Rights Agents and any Co-Rights
Agents shall be as the Company shall determine.
-3-
<PAGE> 7
3. Issue of Rights Certificates.
(a) Until the earlier of (i) the Stock Acquisition Date or (ii)
the tenth day (or such later date as may be determined by action of the Board
of Directors) after the date of the commencement of, or first public
announcement of the intent of any Person (other than the Company, any
subsidiary of the Company, any employee benefit plan of the Company or any of
its subsidiaries, or any entity organized, appointed or established by the
Company or any of its subsidiaries for or pursuant to the terms of any such
plan) to commence (which intention to commence remains in effect for five
Business Days after such announcement), a tender or exchange offer which would
result in such Person becoming an Acquiring Person (including any such date
which is on or after the date of this Agreement and prior to the issuance of
the Rights) (the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights shall be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for Common
Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights (and the right to
receive certificates therefor) shall be transferable only in connection with
the transfer of the underlying shares of Common Stock. As soon as practicable
after the Distribution Date, the Rights Agent shall send, by first-class,
insured, postage prepaid mail, to each record holder of the Common Stock as of
the close of business on the Distribution Date, at the address of such holder
shown on the records of the Company, a certificate for Rights, in substantially
the form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right
for each share of Common Stock so held. As of and after the Distribution Date,
the Rights shall be evidenced solely by such Rights Certificates.
As soon as practicable following the Record Date, the Company shall
send a copy of a Summary of Rights, in substantially the form attached hereto
as Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail,
to each record holder of the Common Stock as of the close of business on the
Record Date, at the address of such holder shown on the records of the Company.
With respect to certificates for the Common Stock outstanding as of the Record
Date, until the Distribution Date (or earlier redemption, expiration or
termination of the Rights), the Rights shall be evidenced by such certificates
for the Common Stock together with the Summary of Rights and the registered
holders of the Common Stock shall also be the registered holders of the
associated Rights. Until the Distribution Date (or earlier redemption,
expiration or termination of the Rights), the surrender for transfer of any of
the certificates for the Common Stock outstanding on the Record Date, even
without a copy of the Summary of Rights attached thereto, shall also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
(b) Certificates issued for Common Stock (including, without
limitation, certificates issued upon transfer or exchange of Common Stock)
after the Record Date, but prior to the earlier of the Distribution Date or the
Expiration Date (as such term is hereinafter defined), shall be deemed also to
be certificates for Rights, and shall have impressed, printed, stamped, written
or otherwise affixed onto them the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in a Rights Agreement between S3
Incorporated (the "Company") and The First National Bank of Boston
(the "Rights Agent") dated as of May 14, 1997 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file atthe principal offices of
the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be redeemed, may expire, or may be
evidenced by separate Certificates and will no longer be evidenced by
this Certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge within five
days after receipt of a written request therefor. Under certain
circumstances, Rights issued to Acquiring Persons (as defined in the
Rights Agreement) or certain related Persons and any subsequent holder
of such Rights may become null and void.
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<PAGE> 8
With respect to such certificates containing the foregoing legend, until the
Distribution Date (or earlier redemption, expiration or termination of the
Rights), the Rights associated with the Common Stock represented by such
certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any of such certificates shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.
4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
shares and of assignment and certificates to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or interdealer
quotation system on which the Rights may from time to time be listed or traded,
or to conform to usage. Subject to the provisions of Section 11 and Section 23
hereof, the Rights Certificates, whenever distributed, shall be dated as of the
Record Date, and on their face shall entitle the holders thereof to purchase
such number of one one-thousandths of a share of Preferred Stock as shall be
set forth therein at the price per one one-thousandth of a share set forth
therein (the "Purchase Price"), but the number of such shares and the Purchase
Price shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) hereof
that represents Rights beneficially owned by an Acquiring Person or any
Associate or Affiliate thereof and any Rights Certificate issued at any time
upon the transfer of any Rights to such an Acquiring Person or any Associate or
Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate, and any Rights Certificate issued pursuant to Section 6 or Section
11 upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain the following legend:
The Rights represented by this Rights Certificate were issued to a
Person who was an Acquiring Person or an Affiliate or an Associate of
an Acquiring Person, as such terms are defined in the Rights
Agreement. This Rights Certificate and the Rights represented hereby
may become void under the circumstances specified in Section 7(e) of
the Rights Agreement.
The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any such Rights
Certificate.
5. Countersignature and Registration. The Rights Certificates
shall be executed on behalf of the Company by its Chairman of the Board, any
Vice Chairman of the Board, its President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be countersigned by the Rights Agent,
either manually or by facsimile signature, and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Rights Certificates shall cease to be such officer of
the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent, and issued and delivered by the Company with
the same force and effect as though the Person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such Person was not such an officer.
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<PAGE> 9
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its office designated for such purpose, books for registration
and transfer of the Rights Certificates issued hereunder. Such books shall
show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
Subject to the provisions of Sections 7(e), 7(f) and 15 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the
close of business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder to
purchase a like number of shares of Preferred Stock as the Rights Certificate
or Rights Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any
Rights Certificate shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Rights Certificate or Rights Certificates, as the
case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
Subject to the provisions of Sections 7(e), 7(f) and 15 hereof, upon
receipt by the Company and the Rights Agent of evidence reasonably satisfactory
to them of the loss, theft, destruction or mutilation of a Rights Certificate
and such additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and reimbursement to the Company and
the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company shall execute and deliver a new Rights Certificate of
like tenor to the Rights Agent for countersignature and delivery to the
registered owner in lieu of the Rights Certificate so lost, stolen, destroyed
or mutilated.
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Rights Certificate may exercise
the Rights evidenced thereby (except as otherwise provided herein) in whole or
in part at any time after the Distribution Date upon presentation of the Rights
Certificate, with the appropriate form of election to purchase on the reverse
side thereof duly executed, to the Rights Agent at the principal office of the
Rights Agent, together with payment of the Purchase Price for each one
one-thousandth of a share of Preferred Stock (or such other number of shares or
other securities) as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on May 14, 2007 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section
24 hereof, (iii) the consummation of a transaction contemplated by Section
13(d) hereof or (iv) the time at which the Rights are exchanged as provided in
Section 24(c) hereof (such earliest time being herein referred to as the
"Expiration Date"). Notwithstanding any other provision of this Agreement, any
Person who prior to the Distribution Date becomes a record holder of shares of
Common Stock may exercise all of the rights of a registered holder of a Rights
Certificate with respect to the Rights associated with such shares of Common
Stock in accordance with and subject to the provisions of this Agreement,
including the provisions of Section 7(e) hereof, as of the date such Person
becomes a record holder of shares of Common Stock.
(b) The Purchase Price for each one one-thousandth share of
Preferred Stock pursuant to the exercise of a Right shall initially be $85.00,
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below.
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<PAGE> 10
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the appropriate form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares (or other
securities or property) to be purchased and an amount equal to any applicable
transfer tax (as determined by the Rights Agent) in cash, or by certified check
or bank draft payable to the order of the Company, the Rights Agent shall,
subject to Section 21(k), thereupon promptly (i)(A) requisition from any
transfer agent of the shares of Preferred Stock (or make available, if the
Rights Agent is the transfer agent) certificates for the number of shares of
Preferred Stock to be purchased, and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) if the Company, in
its sole discretion, shall have elected to deposit the shares of Preferred
Stock issuable upon exercise of the Rights hereunder into a depositary,
requisition from the depositary agent depositary receipts representing such
number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company shall direct the depositary agent to comply
with such request, (ii) when appropriate, requisition from the Company the
amount of cash, if any, to be paid in lieu of issuance of fractional shares in
accordance with Section 15, (iii) promptly after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt promptly deliver such cash to or upon the order of the registered
holder of such Rights Certificate. In the event that the Company is obligated
to issue other securities of the Company, and/or distribute other property
pursuant to Section 11(a), the Company shall make all arrangements necessary so
that such other securities and/or property are available for distribution by
the Rights Agent, if and when appropriate. In addition, in the case of an
exercise of the Rights by a holder pursuant to Section 11(a)(ii), the Rights
Agent shall return such Rights Certificate to the registered holder thereof
after imprinting, stamping or otherwise indicating thereon that the rights
represented by such Rights Certificate no longer include the rights provided by
Section 11(a)(ii) of the Rights Agreement and if less than all the Rights
represented by such Rights Certificate were so exercised, the Rights Agent
shall indicate on the Rights Certificate the number of Rights represented
thereby which continue to include the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Rights Certificate shall
exercise (except pursuant to Section 11(a)(ii)) less than all the Rights
evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the
Rights remaining unexercised shall be issued by the Rights Agent and delivered
to the registered holder of such Rights Certificate or to such registered
holder's duly authorized assigns, subject to the provisions of Section 15
hereof.
(e) Notwithstanding anything in this Agreement to the contrary, if
there occurs any of the events set forth in Section 11(a)(ii) or Section 13(a)
then any Rights that are or were on or after the Distribution Date beneficially
owned by an Acquiring Person or any Associate or Affiliate of an Acquiring
Person shall become null and void, without any further action, and any holder
of such Rights shall thereafter have no rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. Without
limiting the foregoing sentence, Rights held by the following Persons shall be
null and void without any further action: (i) any direct or indirect transferee
of any Rights that are or were on or after the Distribution Date beneficially
owned by an Acquiring Person or any Associate or Affiliate of an Acquiring
Person; (ii) any direct or indirect transferee of any Rights that were on or
before the Distribution Date beneficially owned by an Acquiring Person or any
Associate or Affiliate of an Acquiring Person if the transferee received such
Rights, directly or indirectly, (A) from an Acquiring Person or any Associate
or Affiliate of an Acquiring Person (x) as a result of a distribution by such
Acquiring Person or any Associate or Affiliate of an Acquiring Person to
holders of its equity securities or similar interests (including, without
limitation, partnership interests) or (y) pursuant to any continuing agreement,
arrangement or understanding with respect to the Rights or (B) in a transfer
(or series of transfers) which the Board of Directors of the Company determines
is part of a plan, arrangement or understanding which has the purpose or effect
of avoiding the provisions of this Section 7(e); and (iii) subsequent
transferees of Persons referred to in the foregoing clauses (i) and (ii) as
well as this clause (iii). The Company
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<PAGE> 11
shall use all reasonable efforts to ensure that the provisions of this Section
7(e) are complied with, but shall have no liability to any holder of Rights or
any Rights Certificate or to any other Person as a result of the Company's
failure to make any determination with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless the certificate contained in the
appropriate form of election to purchase set forth on the reverse side of the
Rights Certificate surrendered for such exercise shall have been properly
completed and duly executed by the registered holder thereof and the Company
shall have been provided with such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
9. Reservation and Availability of Preferred Stock. The Company
covenants and agrees that it shall cause to be reserved and kept available out
of its authorized and unissued shares of Preferred Stock, or any authorized and
issued shares of Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights and, after the occurrence of an event specified in Section
11(a)(ii) or Section 13(a), shall so reserve and keep available a sufficient
number of shares of Common Stock (and/or other securities) which may be
required to permit the exercise in full of the Rights pursuant to this
Agreement.
So long as the shares of Preferred Stock (and, after the occurrence of
an event specified in Section 11(a)(ii) or Section 13(a), any other securities)
issuable upon the exercise of the Rights may be listed on any national
securities exchange or national quotation system, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares (or other securities) reserved for such issuance to be
listed on such exchange or system upon official notice of issuance upon such
exercise.
The Company covenants and agrees that it shall take all such action as
may be necessary to ensure that all shares of Preferred Stock and/or other
securities delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such shares or other securities (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable shares or securities.
The Company further covenants and agrees that it shall pay when due
and payable any and all federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Rights Certificates or
of any certificates for shares of Preferred Stock and/or other securities upon
the exercise of Rights. The Company shall not, however, be required to (i) pay
any transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or in respect of the issuance or
delivery of the shares of Preferred Stock and/or other securities in a name
other than that of, the registered holder of the Rights Certificates
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<PAGE> 12
evidencing Rights surrendered for exercise or (ii) issue or deliver any
certificates for shares of Preferred Stock and/or other securities in a name
other than that of the registered holder upon the exercise of any Rights until
such tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established
to the Company's satisfaction that no such tax is due.
The Company shall use its best efforts to (i) file, if required by
law, as soon as practicable following the Distribution Date, a registration
statement under the Securities Act of 1933, as amended (the "Act"), with
respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act and the rules and regulations thereunder) until the
Expiration Date (unless and until the Company shall have received an opinion of
counsel to the effect that the maintenance of such registration statement in
effect is no longer necessary). The Company will also take such action as may
be appropriate under the blue sky laws of the various states.
10. Preferred Stock Record Date. Each Person in whose name any
certificate for shares of Preferred Stock (or other securities) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares of Preferred Stock (or other securities)
represented thereby on, and such certificate shall be dated, the date upon
which the Rights Certificate evidencing such Rights was duly presented and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such presentation and payment is a date
upon which the Preferred Stock (or other securities) transfer books of the
Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or other securities)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate, as such, shall not be
entitled to any rights of a stockholder of the Company with respect to shares
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number of shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred
Stock payable in shares of Preferred Stock, (B) subdivide the
outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and in Section
7(e), the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be
entitled to receive the aggregate number and kind of shares of capital
stock and other securities which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock
transfer books of the Company were open, such holder would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both Section 11(a)(i)
and Section 11(a)(ii), the adjustment provided for in this Section
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<PAGE> 13
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) Subject to Section 24(c) of this Agreement, in the event
any Person, alone or together with its Affiliates and Associates,
shall become an Acquiring Person (except pursuant to a tender or
exchange offer for all outstanding shares of Common Stock at a price
and on terms determined by at least a majority of the members of the
Board of Directors who are not officers of the Company and are not
Acquiring Persons or Affiliates or Associates thereof to be in the
best interests of the Company and its stockholders (other than the
Person or an Affiliate or Associate thereof on whose behalf the offer
is being made) (a "Permitted Offer")), then, promptly following the
first occurrence of an event described in this Section 11(a)(ii),
proper provision shall be made so that each holder of a Right, except
as provided in Section 7(e) hereof, shall, for a period of 60 days
after the later of the occurrence of any such event and the effective
date of an appropriate registration statement pursuant to Section 9,
have a right to receive, upon exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, in lieu
of shares of Preferred Stock, such number of shares of Common Stock of
the Company as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the then number of one one-thousandths
of a share of Preferred Stock for which a Right is then exercisable
(prior to any adjustment required pursuant to this Section 11(a)(ii))
and (y) dividing that product by 50% of the current market price per
one share of Common Stock (determined pursuant to Section 11(d)) on
the date of the occurrence of the event set forth in this subparagraph
(ii) (such number of shares being referred to as the "number of
Adjustment Shares"); provided, however, that if the transaction that
would otherwise give rise to the foregoing adjustment is also subject
to the provisions of Section 13 hereof, then only the provisions of
Section 13 hereof shall apply and no adjustment shall be made pursuant
to this Section 11(a)(ii); and provided, further, that such 60-day
period shall not be deemed to run during any period in which the
exercise of the Rights or the fulfillment by the Company or the Rights
Agent of its or their obligations under this Agreement shall be
enjoined or otherwise prohibited in full or in part by any court or
other governmental agency or body.
(iii) In lieu of issuing shares of Common Stock in accordance
with Section 11(a)(ii) hereof, the Company may, if a majority of the
Board of Directors then in office determines that such action is
necessary or appropriate and not contrary to the interests of holders
of Rights, elect to (and, in the event that the Board of Directors has
not exercised the exchange right contained in Section 24(c) hereof and
there are not sufficient treasury shares and authorized but unissued
shares of Common Stock to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Company shall)
take all such action as may be necessary to authorize, issue or pay,
upon the exercise of the Rights, cash (including by way of a reduction
of the Purchase Price), property, shares of Common Stock, other
securities or any combination thereof having an aggregate value equal
to the value of the shares of Common Stock which otherwise would have
been issuable pursuant to Section 11(a)(ii), which aggregate value
shall be determined by a nationally recognized investment banking firm
selected by a majority of the Board of Directors. For purposes of the
preceding sentence, the value of the Common Stock shall be determined
pursuant to Section 11(d) hereof and the value of any preferred stock
or preference stock which a majority of the Board of Directors
determines to be a "common stock equivalent" shall be deemed to have
the same value as the Common Stock. Any such election by the Board of
Directors must be made and publicly announced within 60 days following
the date on which the event described in Section 11(a)(ii) shall have
occurred. Following the occurrence of the event described in
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<PAGE> 14
Section 11(a)(ii) hereof, a majority of the Board of Directors then in
office may suspend the exercisability of the Rights for a period of up
to 60 days following the date on which the event described in Section
11(a)(ii) shall have occurred to the extent that such directors have
not determined whether to exercise their rights of election under this
Section 11(a)(iii). In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended.
(b) If the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred
Stock entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Stock
(or shares having the same or more favorable rights, privileges and
preferences as the Preferred Stock ("equivalent preferred stock")) or
securities convertible into Preferred Stock or equivalent preferred
stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if
a security convertible into Preferred Stock or equivalent preferred
stock) less than the current market price (as defined in Section
11(d)) per share of Preferred Stock on such record date, the Purchase
Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the
number of shares of Preferred Stock which the aggregate offering price
of the total number of shares of Preferred Stock and/or equivalent
preferred stock to be offered (and/or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the
number of shares of Preferred Stock outstanding on such record date,
plus the number of additional shares of Preferred Stock and/or
equivalent preferred stock to be offered for subscription or purchase
(or into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be determined reasonably
and with good faith to the holders of Rights by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent
and conclusive for all purposes. Shares of Preferred Stock owned by or
held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the
event that such rights or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be
in effect if such record date had not been fixed.
(c) If the Company shall fix a record date for the making
of a distribution to all holders of Preferred Stock (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation) of evidences of
indebtedness, cash (other than a regular quarterly cash dividend out
of the earnings or retained earnings of the Company), assets (other
than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or
warrants (excluding those referred to in Section 11(b)), the Purchase
Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current
market price (as defined in Section 11(d)) per share of Preferred
Stock on such record date, less the fair market value (as determined
reasonably and with good faith to the holders of Rights by the Board
of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the
Rights Agent and conclusive for all purposes) of the portion of the
cash, assets or
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<PAGE> 15
evidences of indebtedness so to be distributed or of such subscription
rights or warrants distributable in respect of one share of Preferred
Stock and the denominator of which shall be the current market price
(as defined in Section 11(d)) per share of the Preferred Stock. Such
adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the
Purchase Price shall again be adjusted to be the Purchase Price which
would be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder,
other than as provided in Section 11(a)(iii), the "current market
price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for
the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event
that the current per share market price of the Common Stock is
determined during a period following the announcement by the issuer of
such Common Stock of (A) a dividend or distribution on such Common
Stock payable in shares of such Common Stock or securities convertible
into shares of such Common Stock or (B) any subdivision, combination
or reclassification of such Common Stock, and prior to the expiration
of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market
price" shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the shares of Common Stock are not
listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to
trading or, if the shares of Common Stock are not listed or admitted
to trading on any national securities exchange but are listed or
quoted on The Nasdaq Stock Market, the last reported sale price, or,
in case no such sale takes place on such day, the average of the
closing bid and asked prices as reported by Nasdaq or, if the shares
of Common Stock are not listed or quoted on The Nasdaq Stock Market,
the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported
by the Nasdaq Bulletin Board or such other system then in use, or, if
on any such date the shares of Common Stock are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common
Stock selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in the Common Stock, the
fair value of such shares on such date as determined reasonably and
with good faith by the Board of Directors of the Company shall be used
and shall be binding on the Rights Agent. The term "Trading Day"
shall mean a day on which the national securities exchange or The
Nasdaq Stock Market, as the case may be, on which the shares of Common
Stock are principally listed or admitted to trading or quoted is open
for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading or quoted on any national securities
exchange or The Nasdaq Stock Market, a Business Day. If the Common
Stock is not publicly held or not so listed or traded, "current market
price" per share shall mean the fair value per share determined
reasonably and with good faith to the holders of Rights by the Board
of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the
Rights Agent.
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<PAGE> 16
(ii) For the purpose of any computation hereunder, the
"current market price" per share (or one one-thousandth of a share) of
Preferred Stock shall be determined in the same manner as set forth
above for the Common Stock in Section 11(d)(i) (other than the last
sentence thereof). If the current market price per share (or one
one-thousandth of a share) of Preferred Stock cannot be determined in
the manner provided above or if the Preferred Stock is not publicly
held or listed or traded in a manner described in Section 11(d)(i),
the "current market price" per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 1,000 (as such number may
be appropriately adjusted for such events as stock splits, stock
dividends and recapitalization with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the current
market price per share of the Common Stock and the "current market
price" per one one-thousandth of a share of Preferred Stock shall be
equal to the current market price per share of the Common Stock (as
appropriately adjusted). If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, "current
market price" per share shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest
cent or to the nearest thousandth of a share of Common Stock or other
share or one-millionth of a share of Preferred Stock, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which
mandates such adjustment or (ii) the Expiration Date.
(f) If as a result of any provision of Section 11(a), the
holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than
Preferred Stock, thereafter the number of such other shares so
receivable upon exercise of any Right shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares contained in
Section 11(a) through (c), inclusive, and the provisions of Sections
7, 9, 10, 13 and 15 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder
shall evidence the right to purchase, at the adjusted Purchase Price,
the number of shares of Preferred Stock purchasable from time to time
hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Section 11(b) and (c),
each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-thousandths of a share
of Preferred Stock (calculated to the nearest one-millionth) obtained
by (i) multiplying (x) the number of one one-thousandths of a share of
Preferred Stock covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price and (ii) dividing the
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<PAGE> 17
product so obtained by the Purchase Price in effect immediately after
such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in
substitution for any adjustment in the number of shares of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights (calculated
to the nearest one millionth) obtained by dividing the Purchase Price
in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to
be made. This record date may be the date on which the Purchase Price
is adjusted or any day thereafter, but, if the Rights Certificates
have been issued, shall be at least ten days later than the date of
the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record
date Rights Certificates evidencing, subject to Section 15 hereof, the
additional Rights to which such holders shall be entitled as a result
of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to
the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which
such holders shall be entitled after such adjustment. Rights
Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein (and may bear, at the
option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of shares of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price per
share and the number of shares which were expressed in the initial
Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par value, if
any, of the shares of Preferred Stock, Common Stock or other
securities issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Preferred Stock, Common Stock
or other securities at such adjusted Purchase Price. If upon any
exercise of the Rights, a holder is to receive a combination of Common
Stock and common stock equivalents, a portion of the consideration
paid upon such exercise, equal to at least the then par value of a
share of Common Stock of the Company, shall be allocated as the
payment for each share of Common Stock of the Company so received.
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer
until the occurrence of such event the issuing to the holder of any
Right exercised after such record date the shares of Preferred Stock
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<PAGE> 18
and other capital stock or securities of the Company, if any, issuable
upon such exercise over and above the shares of Preferred Stock and
other capital stock or securities of the Company, if any, issuable
upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver
to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything to the contrary in this Section 11
notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Stock, issuance wholly
for cash of any shares of Preferred Stock at less than the current
market price, issuance wholly for cash of shares of Preferred Stock or
securities which by their terms are convertible into or exchangeable
for shares of Preferred Stock, stock dividends or issuance of rights,
options or warrants referred to hereinabove in this Section 11,
hereafter made by the Company to holders of its Preferred Stock shall
not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after
the date of this Agreement and prior to the Distribution Date (i)
declare a dividend on the outstanding shares of Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, (iii) combine the outstanding Common Stock into a smaller
number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the outstanding Common Stock, the number of Rights
associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter
associated with each share of Common Stock following any such event
shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such
event by a fraction the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(o) The exercise of Rights under Section 11(a)(ii) shall
only result in the loss of rights under Section 11(a)(ii) to the
extent so exercised and shall not otherwise affect the rights
represented by the Rights under this Rights Agreement, including the
rights represented by Section 13.
12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall (a) promptly prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the Preferred Stock
and the Common Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Rights Certificate in accordance with Section 26
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of any adjustment unless and until it shall have received such
certificate. Notwithstanding the foregoing provisions of this Section 12, the
failure of the Company to make such certification or give such notice shall not
affect the validity of or the force or effect of the requirement for such
adjustment.
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<PAGE> 19
13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person, (y) any Person shall consolidate with the Company,
or merge with and into the Company and the Company shall be the continuing or
surviving corporation of such merger (other than, in the case of either
transaction described in (x) or (y), a merger or consolidation which would
result in all of the voting power represented by the securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) all of the voting power represented by the securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation and the holders of such securities not having changed as a result
of such merger or consolidation), or (z) the Company shall sell, mortgage or
otherwise transfer (or one or more of its subsidiaries shall sell, mortgage or
otherwise transfer), in one or more transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
subsidiaries (taken as a whole) to any other Person, then, and in each such
case, proper provision shall be made so that (i) following the Distribution
Date, each holder of a Right (other than as provided in Section 7(e) hereof)
shall have the right to receive, upon the exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, such number of
shares of freely tradable Common Stock of the Principal Party (as hereinafter
defined), free and clear of liens, rights of call or first refusal,
encumbrances or other adverse claims, as shall be equal to the result obtained
by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable (without taking into account any adjustment previously made
pursuant to Section 11(a)(ii) hereof) and (y) dividing that product by 50% of
the current market price per share of the Common Stock of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply to such Principal Party; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock in accordance
with Section 9 hereof) in connection with such consummation as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (x) or (y) of
the first sentence of this Section 13, the Person that is the issuer
of any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to the merger or
consolidation (including, if applicable, the Company, if it is the
surviving corporation); and
(ii) in the case of any transaction described in (z) of the
first sentence in this Section 13, the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions; provided,
however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, and
such Person is a direct or indirect subsidiary or Affiliate of another
Person, "Principal Party" shall refer to such other Person; (2) in
case such Person is a subsidiary, directly or indirectly, or Affiliate
of more than one Person, the Common Stock of two or more of which are
and have been so registered, "Principal Party" shall refer to
whichever of such
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<PAGE> 20
Persons is the issuer of the Common Stock having the greatest
aggregate market value; and (3) in case such Person is owned, directly
or indirectly, by a joint venture formed by two or more Persons that
are not owned, directly or indirectly, by the same Person, the rules
set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party
were a "Subsidiary" of both or all of such joint venturers and the
Principal Parties in each such chain shall bear the obligations set
forth in this Section 13 in the same ratio as their direct or indirect
interests in such Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock that have not been issued or
reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and each
Principal Party and each other Person who may become a Principal Party as a
result of such consolidation, merger, sale or transfer shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable after the date of any consolidation, merger, sale
or transfer of assets mentioned in paragraph (a) of this Section 13, the
Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, will use its best
efforts to cause such registration statement to become effective as
soon as practicable after such filing and will use its best efforts to
cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date;
(ii) use its best efforts to (x) qualify or register the
Rights and the securities purchasable upon exercise of the Rights
under the blue sky laws of such jurisdictions as may be necessary or
appropriate and (y) cause the Rights and the securities purchasable
upon exercise of the Rights to be listed on any national securities
exchange or national quotation system upon which its Common Stock is
listed, traded or quoted; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all material respects with the requirements for registration
on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers. The rights under this Section
13 shall be in addition to the rights to exercise Rights and adjustments under
Section 11(a)(ii) and shall survive any exercise thereunder.
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Common Stock pursuant to a Permitted
Offer (or a wholly owned subsidiary of any such Person or Persons), (ii) the
price per share of Common Stock offered in such transaction is not less than
the price per share of Common Stock paid to all holders of Common Stock whose
shares were purchased pursuant to such Permitted Offer and (iii) the form of
consideration being offered to the remaining holders of Common Stock pursuant
to such transaction is the same as the form of consideration paid pursuant to
such Permitted Offer. Upon consummation of any such transaction contemplated
by this subsection (d), all Rights hereunder shall expire.
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<PAGE> 21
14. Additional Covenants.
(a) The Company covenants and agrees that after the Stock
Acquisition Date it shall not (i) consolidate with, (ii) merge with or into, or
(iii) sell or transfer to any other Person, in one or more transactions, assets
or earning power aggregating more than 50% of the assets or earning power of
the Company and its subsidiaries taken as a whole, if at the time of or after
such consolidation, merger or sale there are any charter or by-law provisions
or any rights, warrants or other instruments outstanding or any other action
taken which would diminish or otherwise eliminate the benefits intended to be
afforded by the Rights. The Company shall not consummate any such
consolidation, merger or sale unless prior thereto the Company and such other
Person shall have executed and delivered to the Rights Agent a supplemental
agreement evidencing compliance with this subsection.
(b) The Company covenants and agrees that, after the Stock
Acquisition Date, it will not, except as permitted by Section 24 hereof, take
any action the purpose or effect of which is to diminish or otherwise eliminate
the benefits intended to be afforded by the Rights.
15. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(n), or
to distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 15(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price of the Rights for any day
shall be the last sale price, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by The Nasdaq Stock Market or such other system then in use or, if on
any such date the Rights are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market maker
making a market in the Rights selected by the Board of Directors of the
Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined reasonably and
with good faith to the holders of Rights by the Board of Directors of the
Company shall be used and shall be binding on the Rights Agent.
(b) The Company shall not be required to issue fractions of shares
of Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). Fractions of shares of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of the shares of Preferred Stock represented
by such depositary receipts. In lieu of fractional shares of Preferred Stock
that are not integral multiples of one one-thousandth of a share of Preferred
Stock, the Company may pay to the registered holders of Rights Certificates at
the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one one-thousandth of a
share of Preferred Stock. For purposes of this Section 15(b), the current
market value of one one-thousandth of a share of Preferred Stock shall be one
one-thousandth of the closing price of a share of Preferred Stock (as
determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of one of the transactions or events
specified in Section 11 or Section 13 giving rise to the right to receive
common stock equivalents (other than Preferred
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<PAGE> 22
Stock) or other securities upon the exercise of a Right, the Company shall not
be required to issue fractions of shares or units of such common stock
equivalents or other securities upon exercise of the Rights or to distribute
certificates which evidence fractional shares of such common stock equivalents
or other securities. In lieu of fractional shares or units of such common
stock equivalents or other securities, the Company may pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of a share or unit of such common stock equivalent or other securities.
For purposes of this Section 15(c), the current market value shall be
determined in the manner set forth in Section 11(d) hereof for the Trading Day
immediately prior to the date of such exercise and, if such common stock
equivalent is not traded, each such common stock equivalent shall have the
value of one one-thousandth of a share of Preferred Stock.
(d) Except as otherwise expressly provided herein, the holder of a
Right by the acceptance of the Right expressly waives such holder's right to
receive any fractional Rights or any fractional shares (other than, in the case
of Preferred Stock, fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of a Right.
16. Rights of Action. All rights of action in respect of this
Agreement, except those rights of action vested in the Rights Agent pursuant to
Section 21, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), may, in such holder's own behalf
and for such holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, such holder's right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement. Holders of Rights shall be
entitled to recover the reasonable costs and expenses, including attorneys'
fees, incurred by them in any action to enforce the provisions of this
Agreement.
17. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates
are transferable only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat
the Person in whose name a Rights Certificate (or, prior to the
Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
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<PAGE> 23
18. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the shares of Preferred
Stock, Common Stock or any other securities of the Company which may at any
time be issuable upon exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings
or other actions affecting stockholders (except as provided in Section 25
hereof), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions thereof.
19. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom,
directly or indirectly.
The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Rights Certificate or
certificate for Common Stock or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged by the proper Person or Persons.
20. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may
be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust or stockholder services business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 22
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have
been countersigned but not delivered, any such successor Rights Agent may adopt
the countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor or
in the name of the successor Rights Agent; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
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<PAGE> 24
21. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
selected by it (who may be legal counsel for the Company), and the
opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken or omitted by it
in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter (including, without limitation, the identity of any
Acquiring Person and the determination of "current market price") be
proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in
respect thereof shall be herein specifically prescribed) may be deemed
to be conclusively proved and established by a certificate signed by
the Chairman of the Board, any Vice Chairman of the Board, the
President, any Vice President, the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by
it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for
its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Rights Certificates (except as to the fact that it
has countersigned the Rights Certificates) or be required to verify
the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Rights Agent) or in respect of the validity or execution of any Rights
Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of
Section 11 or 13 hereof or responsible for the manner, method or
amount of any such adjustment or the ascertaining of the existence of
facts that would require any such adjustment (except with respect to
the exercise of Rights evidenced by Rights Certificates after receipt
of a certificate pursuant to Section 12 describing any such
adjustment); nor shall it be responsible for any determination by the
Board of Directors of the Company of the current market value of the
Rights or Preferred Stock or Common Stock pursuant to the provisions
of Section 15 hereof; nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to be
issued pursuant to this Agreement or any Rights Certificate or as to
whether any shares of Preferred Stock or other securities will, when
so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights
Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
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<PAGE> 25
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder and certificates delivered pursuant to any provision hereof
from the Chairman of the Board, any Vice Chairman of the Board, the
President, any Vice President, the Secretary, any Assistant Secretary,
the Treasurer or any Assistant Treasurer of the Company, and is
authorized to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action
taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer. Any application by the Rights Agent
for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent with respect to its duties or obligations
under this Rights Agreement and the date on and/or after which such
action shall be taken or omitted and the Rights Agent shall not be
liable for any action taken or omitted in accordance with a proposal
included in any such application on or after the date specified
therein (which date shall not be less than three Business Days after
the date any such officer actually receives such application, unless
any such officer shall have consented in writing to an earlier date)
unless, prior to taking or omitting any such action, the Rights Agent
has received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any
of the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not the Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, omission,
default, neglect or misconduct of any such attorneys or agents or for
any loss to the Company or to the holders of the Rights resulting from
any such act, omission, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued
employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder
or in the exercise of its rights if there shall be reasonable grounds
for believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate
surrendered to the Rights Agent for exercise or transfer, the
Certificate attached to the form of assignment or form of election to
purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause l and/or 2 thereof, the
Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the
Company.
22. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer
agent of the Common Stock and Preferred Stock by registered or certified mail,
and holders of the Rights Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the
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<PAGE> 26
Common Stock and Preferred Stock by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after giving notice of
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit such holder's Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or of the
State of New York or the State of California (or of any other state of the
United States so long as such corporation is authorized to do business as a
banking institution in the State of New York or the State of California), in
good standing, having a principal office in the State of New York or the State
of California, which is authorized under such laws to exercise corporate trust
or stockholder services powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50,000,000.00 or (b)
an affiliate of a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment the Company shall mail notice thereof in
writing to the predecessor Rights Agent and each transfer agent of the Common
Stock and Preferred Stock, and mail a notice thereof in writing to the
registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 22, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
23. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such
form as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price per share and the number or kind or class of
shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of
the Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or otherwise under any
employee plan or arrangement, which plan or arrangement is existing as of the
Distribution Date, or upon the exercise, conversion or exchange of any other
securities issued by the Company on or prior to the Distribution Date, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing the
appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificates shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificates would be issued, and
(ii) no such Rights Certificates shall be issued if, and to the extent that
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
24. Redemption, Termination and Exchange.
(a) (i) The Board of Directors of the Company may, at its option,
at any time prior to the earlier of (x) the Stock Acquisition Date or (y) 5
P.M., San Francisco time, on the Final Expiration Date, redeem all but not less
than all of the then outstanding Rights at a redemption price of $0.01 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price
being hereinafter referred to as the "Redemption Price").
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<PAGE> 27
(ii) In addition, and notwithstanding the provisions of Section
24(a)(i), the Board of Directors of the Company may redeem all but not less
than all of the then outstanding Rights at the Redemption Price following the
Stock Acquisition Date but prior to any event described in Section 13(a) either
(x) in connection with any event specified in Section 13(a) in which all
holders of Common Stock are treated alike and not involving (other than as a
holder of Common Stock being treated like all other such holders) an Acquiring
Person or an Affiliate or Associate thereof or any other Person in which such
Acquiring Person or Affiliate or Associate thereof has any interest, or any
other Person acting directly or indirectly on behalf of or in association with
any such Acquiring Person or Affiliate or Associate thereof, or (y) following
the occurrence of an event set forth in, and the expiration of any period
during which the holder of Rights may exercise the rights under, Section
11(a)(ii) if and for as long as any Acquiring Person having triggered such
event is not thereafter the Beneficial Owner of securities representing 15% or
more of the outstanding shares of Common Stock, and at the time of redemption
there are no other Persons who are Acquiring Persons.
(b) In the case of a redemption permitted under Section 24(a)(i),
immediately upon the action of the Board of Directors of the Company ordering
the redemption of the Rights, evidence of which shall have been filed with the
Rights Agent and without any further action and without any notice, the right
to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. In the case of a
redemption permitted only under Section 24(a)(ii), evidence of which shall have
been filed with the Rights Agent, the right to exercise the Rights will
terminate and represent only the right to receive the Redemption Price only
after ten Business Days following the giving of notice of such redemption to
the holders of such Rights if no event set forth in Section 11(a)(ii) shall
have occurred, and, if such event shall have occurred, upon the later of ten
Business Days following the giving of such notice or the expiration of any
period during which the rights under Section 11(a)(ii) may be exercised.
Within ten days after the action of the Board of Directors ordering any such
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to the Rights Agent and to all such holders at their last addresses as
they appear upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent for the Common
Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the Redemption
Price will be made.
In the case of a redemption permitted under Section 24(a)(i) or (ii),
the Company may, at its option, discharge all of its obligations with respect
to the Rights by (i) issuing a press release announcing the manner of
redemption of the Rights and (ii) mailing payment of the Redemption Price to
the registered holders of the Rights at their last addresses as they appear on
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent of the Common Stock, and upon such
action, all outstanding Rights Certificates shall be null and void without any
further action by the Company.
(c) (i) Subject to the limitations of applicable law, the Board
of Directors of the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) hereof) for (A) shares of Common
Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (the "Exchange Shares") or (B)
Substitute Consideration (as that term is defined below). The Board of
Directors may determine, in its sole discretion, whether to deliver Exchange
Shares or Substitute Consideration. Notwithstanding the foregoing, the Board
of Directors shall not be empowered to effect such exchange at any time after
any Person (other than the Company, any subsidiary of the Company, any employee
benefit plan of the Company or any such subsidiary, or any entity holding
Common Stock for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50%
or more of the Common Stock then outstanding.
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<PAGE> 28
(ii) In the event the Board of Directors shall determine to deliver
Substitute Consideration in exchange for Rights, the Company shall (1)
determine the value of the Exchange Shares (the "Exchange Value"), and (2) with
respect to each Right to be exchanged, make adequate provision to substitute
for Exchange Shares the following (the "Substitute Consideration"): (v) cash,
(w) Common Stock or common stock equivalents (as that term is defined in
Section 11(a)(iii) hereof) or Preferred Stock or equivalent preferred stock (as
that term is defined in Section 11(b) hereof), (x) debt securities of the
Company, (y) other assets, or (z) any combination of the foregoing, having an
aggregate value equal to the Exchange Value, where such aggregate value has
been determined by the Board of Directors of the Company based upon the advice
of a nationally recognized investment banking firm selected by the Board of
Directors of the Company. For purposes of this Section 24(c), the value of a
share of Common Stock shall be the current market price (as determined pursuant
to Section 11(d) hereof) per share of Common Stock on the day that is the later
of (x) the first occurrence of an event described in Section 11(a)(ii) hereof
and (y) the date on which the Company's right of redemption pursuant to Section
24(a) expires; and the value of any common stock equivalent shall be deemed to
have the same value as the Common Stock on such date.
(iii) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to this Section 24(c), and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive Exchange Shares or Substitute Consideration for each Right
exchanged by such holder. The Company shall promptly give public notice of any
such exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last address as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such
notice of exchange will state the method by which the exchange of Common Stock
for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) hereof) held by each
holder of Rights.
(iv) In the event that there shall not be sufficient shares of Common
Stock or Preferred Stock issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this
Section 24(c), the Company shall take all such action as may be necessary to
authorize additional shares of Common Stock or Preferred Stock for issuance
upon exchange of the Rights.
(v) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of the Rights Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a
whole share of Common Stock. For the purposes of this Section 24(c)(v), the
current market value of a whole share of Common Stock shall be the closing
price of a share of Common Stock (as determined pursuant to Section 11(d)
hereof) for the Trading Day immediately prior to the date of exchange pursuant
to this Section 24(c).
25. Notice of Certain Events. In case the Company shall propose
(a) to pay any dividend payable in stock of any class to the holders of
Preferred Stock or to make any other distribution to the holders of Preferred
Stock (other than a regular quarterly cash dividend out of earnings or retained
earnings of the Company) or (b) to offer to the holders of Preferred Stock
rights or warrants to subscribe for or to purchase any additional shares of
Preferred Stock or shares of stock of any class or any other securities, rights
or options, or (c) to effect any reclassification of its Preferred Stock (other
than a reclassification involving only the subdivision of outstanding shares of
Preferred Stock), or (d) to effect any consolidation or merger into or with, or
to effect any sale or
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<PAGE> 29
other transfer (or to permit one or more of its subsidiaries to effect any sale
or other transfer), in one or more transactions, of more than 50% of the assets
or earning power of the Company and its subsidiaries (taken as a whole) to, any
other Person, or (e) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each holder of
a Rights Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered
by clause (a) or (b) above at least 20 days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least 20 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the shares of Preferred Stock whichever shall be the earlier.
In case any of the events set forth in Section 11(a)(ii) or 13(a) of
this Agreement shall occur, then, in any such case, the Company or the
Principal Party, as the case may be, shall as soon as practicable thereafter
give to each holder of a Rights Certificate, in accordance with Section 26
hereof, a notice of the occurrence of such event, which shall specify the event
and the consequences of the event to holders of Rights under Section 11(a)(ii)
or 13(a) hereof, as the case may be.
The failure to give notice required by this Section 25 or any defect
therein shall not affect the legality or validity of the action taken by the
Company or the vote upon any such action.
26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
S3 Incorporated
2801 Mission College Boulevard
P.O. Box 58058
Santa Clara, CA 95052-8058
Attention: Corporate Secretary
Subject to the provisions of Section 22, any notice or demand authorized by
this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or
made if sent by first class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
The First National Bank of Boston
150 Royall Street
Canton, Massachusetts 02021
Attention: Shareholder Services
Mail Stop: 45-02-623
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
27. Supplements and Amendments. The Company and the Rights Agent
may from time to time supplement or amend this Agreement without approval of
any holders of Rights or Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) prior
to the
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<PAGE> 30
Distribution Date, to change or supplement any provision hereunder in any
manner which the Company may deem necessary or desirable or (iv) on or
following the Distribution Date, to change or supplement any provision
hereunder in any manner which the Company may deem necessary or desirable and
which shall not adversely affect the interests of the holders of Rights
Certificates. Upon the delivery of a certificate from an appropriate officer
of the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment unless the Rights Agent shall have determined in
good faith that such supplement or amendment would adversely affect its
interests under this Agreement. Prior to the Distribution Date, the interests
of the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
28. Determination and Actions by the Board of Directors, etc. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common
Stock or any other securities of which any Person is the Beneficial Owner,
shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of
the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement. Except as otherwise provided herein, the Board of
Directors of the Company shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement, and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent,
the holders of the Rights Certificates and all other parties, and (y) not
subject the Board to any liability to the holders of the Rights Certificates.
29. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
30. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders
of the Rights Certificates (and, prior to the Distribution Date, the Common
Stock).
31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and to be performed entirely within such state.
33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
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<PAGE> 31
34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Attest: S3 INCORPORATED
/s/ RONALD T. YARA By /s/ GARY JOHNSON
- ---------------------------------- --------------------------------
Name Ronald T. Yara Name Gary Johnson
------------------------------ -------------------------------
Title Corporate Secretary, Title President & CEO
Sr. VP, Strategic Marketing -------------------------------
-----------------------------
Attest: THE FIRST NATIONAL BANK OF BOSTON,
as Rights Agent
/s/ JOSEPH S. BAGGARELLA By /s/ KATHARINE S. ANDERSON
- ---------------------------------- --------------------------------
Name Joseph S. Baggarella Name Katherine S. Anderson
------------------------------ -------------------------------
Title Account Manager Title Director, Client Services
----------------------------- ------------------------------
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<PAGE> 32
EXHIBIT A
CERTIFICATE OF DESIGNATION
OF SERIES A PARTICIPATING PREFERRED STOCK
OF
S3 INCORPORATED
We, Gary J. Johnson, the President and Chief Executive Officer, and
Ronald T. Yara, the Secretary, of S3 Incorporated, a corporation organized and
existing under the General Corporation Law of the State of Delaware, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the Corporation, the said Board of
Directors on May 14, 1997, adopted the following resolution creating a series
of 500,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
powers, preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
1. Designation and Amount. The shares of such series shall be
designated as "Series A Participating Preferred Stock," par value $0.0001 per
share, and the number of shares constituting such series shall be 500,000.
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series A Participating Preferred Stock to a number less than that of the shares
then outstanding plus the number of shares issuable upon exercise of
outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating Preferred Stock in preference to
the holders of shares of Common Stock, par value $0.0001 per share (the "Common
Stock"), of the Corporation and any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on the
first day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Participating Preferred Stock in an amount
per share (rounded to the nearest cent) equal to the greater of (a) $25.00, or
(b) subject to the provision for adjustment hereinafter set forth, 1,000 times
the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date,
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<PAGE> 33
since the first issuance of any share or fraction of a share of Series A
Participating Preferred Stock. In the event the Corporation shall at any time
after the close of business on June 1, 1997 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, by reclassification or otherwise, then
in each such case the amount to which holders of shares of Series A
Participating Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on
the Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per share
on the Series A Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Preferred Stock unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series A Participating Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date in either
of which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Participating
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series A Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting
rights:
(A) Subject to the provision for adjustment hereinafter
set forth, each share of Series A Participating Preferred Stock shall
entitle the holder thereof to 1,000 votes on all matters submitted to
a vote of the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock into a greater
number of shares, or (iii) combine the outstanding Common Stock into a
smaller number of shares, by reclassification or otherwise, then in
each such case the number of votes per share to which holders of
shares of Series A Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock
outstanding immediately prior to such event.
A-2
<PAGE> 34
(B) Except as otherwise provided herein, in the
Certificate of Incorporation or by law, the holders of shares of
Series A Participating Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A
Participating Preferred Stock shall be in arrears in an amount equal
to six quarterly dividends thereon, the holders of the Series A
Participating Preferred Stock, voting as a separate series from all
other series of Preferred Stock and classes of capital stock, shall be
entitled to elect two members of the Board of Directors in addition to
any Directors elected by any other series, class or classes of
securities and the authorized number of Directors will automatically
be increased by two. Promptly thereafter, the Board of Directors of
this Corporation shall, as soon as may be practicable, call a special
meeting of holders of Series A Participating Preferred Stock for the
purpose of electing such members of the Board of Directors. Said
special meeting shall in any event be held within 45 days of the
occurrence of such arrearage.
(ii) During any period when the holders of Series A
Participating Preferred Stock, voting as a separate series, shall be
entitled and shall have exercised their right to elect two Directors,
then and during such time as such right continues (a) the then
authorized number of Directors shall be increased by two, and the
holders of Series A Participating Preferred Stock, voting as a
separate series, shall be entitled to elect the additional Directors
so provided for, and (b) each such additional Director shall not be a
member of any existing class of the Board of Directors, but shall
serve until the next annual meeting of stockholders for the election
of Directors, or until his or her successor shall be elected and shall
qualify, or until his or her right to hold such office terminates
pursuant to the provisions of this Section 3(C).
(iii) A Director elected pursuant to the terms hereof may be
removed with or without cause by the holders of Series A Participating
Preferred Stock entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of
stockholders for the election of Directors and while the holders of
Series A Participating Preferred Stock shall be entitled to elect two
Directors, there are fewer than two such Directors in office by reason
of resignation, death or removal, then, promptly thereafter, the Board
of Directors shall call a special meeting of the holders of Series A
Participating Preferred Stock for the purpose of filling such
vacancy(ies) and such vacancy(ies) shall be filled at such special
meeting. Such special meeting shall in any event be held within 45
days of the occurrence of any such vacancy(ies).
(v) At such time as the arrearage is fully cured, and all
dividends accumulated and unpaid on any shares of Series A
Participating Preferred Stock outstanding are paid, and, in addition
thereto, at least one regular dividend has been paid subsequent to
curing such arrearage, the term of office of any Director elected
pursuant to this Section 3(C), or his or her successor, shall
automatically terminate, and the authorized number of Directors shall
automatically decrease by two, and the rights of the holders of the
shares of the Series A Participating Preferred Stock to vote as
provided in this Section 3(C) shall cease, subject to renewal from
time to time upon the same terms and conditions.
(D) Except as set forth herein or as otherwise provided
by law, holders of Series A Participating Preferred Stock shall have
no special voting rights and their
A-3
<PAGE> 35
consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock and any other capital stock of
the Corporation having general voting rights as set forth herein) for
taking any corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Participating Preferred Stock except dividends paid ratably
on the Series A Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Participating Preferred Stock provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock or any shares of
stock ranking on a parity with the Series A Participating Preferred
Stock except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders
of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
A-4
<PAGE> 36
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Participating
Preferred Stock shall have received per share, the greater of $1,000.00 or
1,000 times the payment made per share of Common Stock, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series A Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of
the Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Participating Preferred Stock and Common Stock,
respectively, holders of Series A Participating Preferred Stock and holders of
shares of Common Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment Number to
1 with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to
permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series A Participating Preferred Stock then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event
there are not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Participating Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
A-5
<PAGE> 37
8. Redemption. The shares of Series A Participating Preferred
Stock shall not be redeemable.
9. Ranking. The Series A Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
10. Amendment. The Certificate of Incorporation and the By-Laws
of the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of at least 66-2/3% of the outstanding
shares of Series A Participating Preferred Stock voting separately as a class.
11. Fractional Shares. Series A Participating Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series A Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury as of the
___ day of May 1997.
----------------------------------------
Gary J. Johnson
President and Chief Executive Officer
Attest:
----------------------------------------
Ronald T. Yara
Secretary
A-6
<PAGE> 38
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R-______________ _____________ Rights
NOT EXERCISABLE AFTER MAY 14, 2007, OR EARLIER IF NOTICE OF REDEMPTION IS
GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. [THE
RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE WERE ISSUED TO A PERSON WHO WAS
AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). THIS RIGHTS CERTIFICATE AND
THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID UNDER THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.]*
Rights Certificate
S3 INCORPORATED
This certifies that ____________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of May 14, 1997 (the "Rights Agreement") between
S3 Incorporated, a Delaware corporation (the "Company"), and The First National
Bank of Boston, a national banking association (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5 P.M. (San Francisco time) on
May 14, 2007, at the office of the Rights Agent designated for such purpose,
one one- thousandth of a fully paid, nonassessable share of Series A
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of $85.00 per one one-thousandth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with the
appropriate Form of Election to Purchase and Certificate duly executed.
The number of Rights evidenced by this Rights Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
the close of business on the record date relating to the initial distribution
of the Rights, based on the Preferred Stock as constituted at such date. As
provided in the Rights Agreement, the Purchase Price and the number of shares
of Preferred Stock or other securities which may be purchased upon the exercise
of the Rights evidenced by this Rights Certificate are subject to modification
and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies
of the Rights Agreement are on file at the principal office of the Company and
are also available upon written request to the Company.
___________________________
* The portion of the legend in brackets shall be inserted only if
applicable.
B-1
<PAGE> 39
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised (other than
pursuant to Section 11(a)(ii) of the Rights Agreement) in part, the holder
shall be entitled to receive upon surrender hereof another Rights Certificate
or Rights Certificates for the number of whole Rights not exercised. If this
Rights Certificate shall be exercised in whole or in part pursuant to Section
11(a)(ii) of the Rights Agreement, the holder shall be entitled to receive this
Rights Certificate duly marked to indicate that such exercise has occurred as
set forth in the Rights Agreement.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right. Subject to the provisions of the Rights
Agreement, the Company, at its option, may elect to mail payment of the
redemption price to the registered holder of the Right at the time of
redemption, in which event this certificate may become void without any further
action by the Company.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-thousandth of a share of Preferred Stock,
which may, at the election of the Company, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
B-2
<PAGE> 40
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated: ____________, 19__.
Attest: S3 INCORPORATED
__________________________________ By ___________________________________
Name _____________________________ Name _________________________________
Title ____________________________ Title ________________________________
Countersigned:
__________________________________
as Rights Agent
By _______________________________
B-3
<PAGE> 41
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED, __________________________ hereby sells, assigns
and transfers unto ____________________________________________________________
(please print name and address of transferee)
_______________________________________________________________ this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _______________ Attorney, to transfer
the within Rights Certificate on the books of the within-named Company, with
full power of substitution.
Dated: ____________, ______.
------------------------------------
Signature
Signature Guaranteed:
B-4
<PAGE> 42
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being sold, assigned and transferred by or on behalf of a Person who is
or was an Acquiring Person or an Affiliate or Associate of any such Acquiring
Person (as such terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ____________, ______.
------------------------------------
Signature
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of this Rights Certificate in every particular,
without alteration or enlargement or any change whatsoever.
B-5
<PAGE> 43
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate pursuant to
Section 11(a)(ii) of the Rights Agreement.)
To: S3 INCORPORATED
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Rights Certificate to purchase the shares of Common
Stock (or such other securities of the Company) issuable upon the exercise of
the Rights and requests that certificates for such shares be issued in the name
of:
- -------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
The Rights Certificate indicating the balance, if any, of such Rights
which may still be exercised pursuant to Section 11(a)(ii) of the Rights
Agreement shall be returned to the undersigned unless such Person requests that
the Rights Certificate be registered in the name of and delivered to:
- -------------------------------------------------------------------------------
Please insert social security or other identifying number (complete only if
Rights Certificate is to be registered in a name other than the undersigned)
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Dated: ____________, ______.
------------------------------------
Signature
Signature Guaranteed:
B-6
<PAGE> 44
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms are
defined in the Rights Agreement); and
(3) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ____________, ______.
------------------------------------
Signature
NOTICE
The signature to the foregoing Election to Purchase must correspond to
the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
B-7
<PAGE> 45
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
the Rights Certificate other than pursuant to
Section 11(a)(ii) of the Rights Agreement.)
To: S3 INCORPORATED
The undersigned hereby irrevocably elects to exercise __________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock (or such other securities of the Company or any other Person)
issuable upon the exercise of the Rights and requests that certificates for
such shares be issued in the name of:
- -------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
The Rights Certificate indicating the balance, if any, of such Rights
which may still be exercised pursuant to Section 11(a)(ii) of the Rights
Agreement shall be returned to the undersigned unless such Person requests that
the Rights Certificate be registered in the name of and delivered to:
- -------------------------------------------------------------------------------
Please insert social security or other identifying number (complete only if
Rights Certificate is to be registered in a name other than the undersigned)
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Dated: ____________, ______.
------------------------------------
Signature
Signature Guaranteed:
B-8
<PAGE> 46
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being sold, assigned and transferred by or on behalf of a Person who is
or was an Acquiring Person or an Affiliate or Associate of any such Acquiring
Person (as such terms are defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ____________, ______.
------------------------------------
Signature
NOTICE
The signature to the foregoing Election to Purchase must correspond to
the name as written upon the fact of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
B-9
<PAGE> 47
EXHIBIT C
SUMMARY OF RIGHTS
On May 14, 1997, the Board of Directors of S3 Incorporated (the
"Company") declared a dividend distribution of one "Right" for each outstanding
share of common stock, par value $0.0001 per share (the "Common Stock"), of the
Company to stockholders of record at the close of business on June 1, 1997 (the
"Record Date"). Except as set forth below, each Right, when exercisable,
entitles the registered holder to purchase from the Company one one-thousandth
of a share of a new series of preferred stock, designated as Series A
Participating Preferred Stock, par value $0.0001 per share (the "Preferred
Stock"), at a price of $85.00 (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement
(the "Rights Agreement") between the Company and The First National Bank of
Boston, as "Rights Agent."
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
certificates will be distributed. The Rights will separate from the Common
Stock and a "Distribution Date" will occur upon the earliest of (i) a public
announcement that a person, entity or group of affiliated or associated persons
and/or entities (an "Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of
Common Stock, other than as a result of repurchases of stock by the Company or
certain inadvertent actions by institutional or certain other stockholders, or
(ii) ten days (unless such date is extended by the Board of Directors)
following the commencement of (or a public announcement of an intention to
make) a tender offer or exchange offer which would result in any person, entity
or group of affiliated or associated persons and/or entities becoming an
Acquiring Person.
Until the Distribution Date the Rights will be evidenced, with respect
to any of the Common Stock certificates outstanding as of the Record Date, by
such Common Stock certificate together with this Summary of Rights. The Rights
Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with Common Stock certificates. From as soon as
practicable after the Record Date and until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuance of the Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Stock outstanding as of
the Record Date (with or without this Summary of Rights attached) will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date, and the separate Rights
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on the earliest of (i) May 14, 2007, (ii) consummation of a
merger transaction with a Person or group who acquired Common Stock pursuant to
a Permitted Offer (as defined below), and is offering in the merger the same
price per share and form of consideration paid in the Permitted Offer, or (iii)
redemption or exchange of the Rights by the Company as described below.
The number of Rights associated with each share of Common Stock shall
be proportionately adjusted to prevent dilution in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock. The Purchase Price payable, and the number of shares of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a
C-1
<PAGE> 48
subdivision, combination or reclassification of the Preferred Stock, (ii) upon
the grant to holders of the Preferred Stock of certain rights or warrants to
subscribe for Preferred Stock, certain convertible securities or securities
having the same or more favorable rights, privileges and preferences as the
Preferred Stock at less than the current market price of the Preferred Stock,
or (iii) upon the distribution to holders of the Preferred Stock of evidences
of indebtedness or assets (excluding regular quarterly cash dividends out of
earnings or retained earnings) or of subscription rights or warrants (other
than those referred to above). With certain exceptions, no adjustments in the
Purchase Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price.
In the event that, after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such, the
Company is involved in a merger or other business combination transaction
(whether or not the Company is the surviving corporation) or 50% or more of the
Company's assets or earning power are sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
(other than an Acquiring Person) shall thereafter have the right to receive,
upon the exercise thereof at the then current Purchase Price, that number of
shares of common stock of either the Company, in the event that it is the
surviving corporation of a merger or consolidation, or the acquiring company
(or, in the event there is more than one acquiring company, the acquiring
company receiving the greatest portion of the assets or earning power
transferred) which at the time of such transaction would have a market value of
two times the Purchase Price (such right being called the "Merger Right"). In
the event that a Person becomes the beneficial owner of 15% or more of the
outstanding shares of Common Stock (unless pursuant to a tender offer or
exchange offer for all outstanding shares of Common Stock at a price and on
terms determined prior to the date of the first acceptance of payment for any
of such shares by at least a majority of the members of the Board of Directors
who are not officers of the Company and are not Acquiring Persons or Affiliates
or Associates thereof to be both adequate and otherwise in the best interests
of the Company and its stockholders (a "Permitted Offer")), then proper
provision shall be made so that each holder of a Right will for a 60-day period
(subject to extension under certain circumstances) thereafter have the right to
receive upon exercise that number of shares of Common Stock (or, at the
election of the Company, which election may be obligatory if sufficient
authorized shares of Common Stock are not available, a combination of Common
Stock, property, other securities (e.g., Preferred Stock) and/or a reduction in
the exercise price of the Right) having a market value of two times the
Purchase Price (such right being called the "Subscription Right"). The holder
of a Right will continue to have the Merger Right whether or not such holder
exercises the Subscription Right. Notwithstanding the foregoing, upon the
occurrence of any of the events giving rise to the exercisability of the Merger
Right or the Subscription Right, any Rights that are or were at any time after
the Distribution Date owned by an Acquiring Person shall immediately become
null and void.
At any time prior to the earlier to occur of (i) a Person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $0.01 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of the
Board of Directors. Additionally, the Company may thereafter redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price (i) if
such redemption is incidental to a merger or other business combination
transaction or series of transactions involving the Company but not involving
an Acquiring Person or certain related Persons or (ii) following an event
giving rise to, and the expiration of the exercise period for, the Subscription
Right if and for as long as the Acquiring Person triggering the Subscription
Right beneficially owns securities representing less than 15% of the
outstanding shares of Common Stock and at the time of redemption there are no
other Acquiring Persons. The redemption of Rights described in the preceding
sentence shall be effective only as of such time when the Subscription Right is
not exercisable, and in any event, only after ten business days' prior notice.
Upon the effective date of the
C-2
<PAGE> 49
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption
Price.
Subject to applicable law, the Board of Directors, at its option, may
at any time after a Person becomes an Acquiring Person (but not after the
acquisition by such Person of 50% or more of the outstanding Common Stock),
exchange all or part of the then outstanding and exercisable Rights (except for
Rights which have become void) for shares of Common Stock at a rate of one
share of Common Stock per Right or, alternatively, for substitute consideration
consisting of cash, securities of the Company or other assets (or any
combination thereof).
The Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any other series of preferred stock the Company may
issue (unless otherwise provided in the terms of such stock). Each share of
Preferred Stock will have a preferential quarterly dividend in an amount equal
to 1,000 times the dividend declared on each share of Common Stock, but in no
event less than $25.00. In the event of liquidation, the holders of shares of
Preferred Stock will receive a preferred liquidation payment equal to the
greater of $1,000.00 or 1,000 times the payment made per each share of Common
Stock. Each share of Preferred Stock will have 1,000 votes, voting together
with the shares of Common Stock. In the event of any merger, consolidation or
other transaction in which shares of Common Stock are exchanged, each share of
Preferred Stock will be entitled to receive 1,000 times the amount and type of
consideration received per share of Common Stock. The rights of the Preferred
Stock as to dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Fractional
shares of Preferred Stock will be issuable; however, (i) the Company may elect
to distribute depositary receipts in lieu of such fractional shares and (ii) in
lieu of fractional shares other than fractions that are multiples of one one-
thousandth of a share, an adjustment in cash will be made based on the market
price of the Preferred Stock on the last trading date prior to the date of
exercise.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends. The Company and the Rights Agent retain
broad authority to amend the Rights Agreement; however, following any
Distribution Date any amendment may not adversely affect the interests of
holders of Rights.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company.
THIS SUMMARY DESCRIPTION OF THE RIGHTS DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, WHICH IS
INCORPORATED HEREIN BY REFERENCE.
C-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM S3
INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997, AND
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 67,416
<SECURITIES> 55,851
<RECEIVABLES> 107,326
<ALLOWANCES> 2,329
<INVENTORY> 46,615
<CURRENT-ASSETS> 308,292
<PP&E> 73,300
<DEPRECIATION> 25,722
<TOTAL-ASSETS> 508,281
<CURRENT-LIABILITIES> 91,874
<BONDS> 0
0
0
<COMMON> 173,700
<OTHER-SE> 115,915
<TOTAL-LIABILITY-AND-EQUITY> 508,281
<SALES> 247,058
<TOTAL-REVENUES> 247,058
<CGS> 151,352
<TOTAL-COSTS> 151,352
<OTHER-EXPENSES> 66,103
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> 29,332
<INCOME-TAX> 11,146
<INCOME-CONTINUING> 18,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,186
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
