<PAGE> 1
SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
S3 INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
[LOGO OF S3 INCORPORATED]
S3 INCORPORATED
2801 MISSION COLLEGE BOULEVARD
SANTA CLARA, CA 95052
(408) 588-8000
April 7, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of S3 Incorporated, which will be held on Wednesday, May 7, 1997, at 9:00 a.m.,
at Techmart, 5201 Great America Parkway, Santa Clara, California.
The formal notice of the Annual Meeting and the Proxy Statement have
been made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return,
at an early date, the enclosed proxy in the prepaid envelope addressed to
Boston EquiServe, our agent, to ensure that your shares will be represented.
YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY
OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1996 Annual Report to Stockholders is also
enclosed.
The Board of Directors and management look forward to seeing you at
the meeting.
Sincerely,
/s/ Diosdado P. Banatao /s/ Gary J. Johnson
Diosdado P. Banatao Gary J. Johnson
Chairman of the Board President and
Chief Executive Officer
<PAGE> 3
S3 INCORPORATED
____________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1997
____________
To the Stockholders of S3 Incorporated:
The Annual Meeting of Stockholders of S3 Incorporated, a Delaware corporation
(the "Company"), will be held on Wednesday, May 7, 1997, at 9:00 a.m. Pacific
Standard Time, at Techmart, 5201 Great America Parkway, Santa Clara,
California, for the following purposes:
1. To elect seven directors;
2. To ratify appointment of Deloitte & Touche LLP as the Company's
independent auditors; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment of the Annual Meeting.
Stockholders of record as of the close of business on March 10, 1997 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. A complete list of stockholders entitled to vote will be available at
the Secretary's office, 2801 Mission College Boulevard, Santa Clara,
California, for ten days before the meeting.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING. EVEN IF
YOU PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL PROMPTLY MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY. THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND OR
VOTE AT THE MEETING.
By Order of the Board of Directors
/s/ Ronald T. Yara
Ronald T. Yara
Secretary
Santa Clara, California
April 7, 1997
<PAGE> 4
S3 INCORPORATED
--------------------
PROXY STATEMENT
--------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of S3 Incorporated, a Delaware corporation (the "Company"),
of proxies in the accompanying form to be used at the Annual Meeting of
Stockholders to be held at Techmart, 5201 Great America Parkway, Santa Clara,
California, on Wednesday, May 7, 1997 and any adjournment thereof (the "Annual
Meeting"). The shares represented by the proxies received in response to this
solicitation and not revoked will be voted at the Annual Meeting. A proxy may
be revoked at any time before it is exercised by filing with the Secretary of
the Company a written revocation or a duly executed proxy bearing a later date
or by voting in person at the Annual Meeting. On the matters coming before the
Annual Meeting for which a choice has been specified by a stockholder by means
of the ballot on the proxy, the shares will be voted accordingly. If no choice
is specified, the shares will be voted FOR the election of the nominees for
directors listed in this Proxy Statement and FOR approval of Proposal 2
described in the Notice of Annual Meeting and in this Proxy Statement.
Stockholders of record at the close of business on March 10, 1997 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, the Company had 48,985,864 shares of Common Stock
outstanding and entitled to vote. The presence in person or by proxy of the
holders of a majority of the Company's outstanding shares constitutes a quorum
for the transaction of business at the Annual Meeting. Each holder of Common
Stock is entitled to one vote for each share held as of the record date.
Directors are elected by a plurality vote. The other matters submitted for
stockholder approval at this Annual Meeting will be decided by the affirmative
vote of a majority of shares present in person or represented by proxy and
entitled to vote on each such matter. Abstentions with respect to any matter
are treated as shares present or represented and entitled to vote on that
matter and thus have the same effect as negative votes. If a broker who is the
record holder of certain shares indicates on a proxy that he or she does not
have discretionary authority to vote on a particular matter as to such shares,
or if shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to any matter, these non-voted
shares will be counted for quorum purposes but are not deemed to be present or
represented for purposes of determining whether stockholder approval of a
particular matter has been obtained.
The expense of printing and mailing proxy materials will be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation may
be made by certain directors, officers and other employees of the Company by
personal interview, telephone or facsimile. No additional compensation will be
paid to such persons for such solicitation. The Company will reimburse
brokerage firms and others for their reasonable expenses in forwarding
solicitation materials to beneficial owners of the Company's Common Stock. The
Company has retained Georgeson & Company, Inc. to assist in the solicitation of
proxies at a cost of approximately $7,500.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about April 7, 1997.
IMPORTANT
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT, WHETHER
YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OR NOT, YOUR SHARES CAN BE
VOTED. THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND OR VOTE AT THE ANNUAL
MEETING.
<PAGE> 5
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
The Board of Directors proposes the election of seven directors of the
Company for a term of one year. Directors are elected to serve until the next
annual meeting of stockholders and until their successors are elected and
qualified. If any nominee is unable or declines to serve as director at the
time of the Annual Meeting, an event not now anticipated, proxies will be voted
for any nominee designated by the Board of Directors to fill the vacancy.
Nominations for the Board of Directors may be made by stockholders of the
Company following the procedures set forth in the Bylaws no later than the
seventh day following the day notice of the Annual Meeting was mailed.
Names of the nominees and certain biographical information about them are set
forth below:
MR. DIOSDADO P. BANATAO, age 50, co-founded the Company and has served as
Chairman of the Board since January 1992. Mr. Banatao is also currently
serving as acting Senior Vice President of Audio/Communications Business Unit
until a replacement can be appointed. Mr. Banatao also served as President
and Chief Executive Officer of the Company from its inception until January
1992. From December 1984 to December 1988, Mr. Banatao held various
executive level positions at Chips & Technologies, Inc., a semiconductor
company he co-founded, most recently as Vice President and General Manager of
the Advanced Products Operation. From February 1984 to December 1984, Mr.
Banatao served as Chief Technical Officer and Vice President of Engineering
of Mostron, Inc., a single-board computer design company. From June 1981 to
February 1984, he served as Director of Logic Products at Seeq Technology,
Inc. a semiconductor manufacturer. Mr. Banatao holds a B.S.E.E. from the
Mapua Institute of Technology and an M.S. in electrical engineering and
computer science from Stanford University.
MR. JOHN C. COLLIGAN, age 42, has been a director of the Company since March
1993. From January 1993 until November 1996, Mr. Colligan served as
President and Chief Executive Officer of Macromedia Inc., a multimedia
software tools company, and from April 1992 to January 1993, was President
and Chief Operating Officer of Macromedia. From January 1989 to March 1992,
Mr. Colligan was President and Chief Executive Officer of Authorware, a
multimedia software company that merged with Macromind Paracomp to form
Macromedia in March 1992. He also held various positions with Apple
Computer, Inc. from May 1983 to December 1988. Mr. Colligan is presently
Chairman of Macromedia and a director of C|NET, Inc. He holds a B.S. in
International Economics from Georgetown University and an M.B.A. from the
Stanford Graduate School of Business.
MR. TERRY N. HOLDT, age 53, has served as Vice Chairman since August 1996 and
has been a director of the Company since January 1992. From January 1992 to
August 1996, Mr. Holdt served as President and Chief Executive Officer of the
Company. Mr. Holdt was Chairman of the Board of Paradigm Technology, Inc., a
semiconductor company, from June 1991 to January 1992 and was its President
and Chief Executive Officer from June 1988 to May 1991. From September 1986
to June 1988, Mr. Holdt held various executive positions at Linear
Corporation, a manufacturer of electronic telemetry and infrared security
systems, where he was most recently President. From 1981 to 1985, he held
various executive positions at Western Digital Corporation, a manufacturer of
computer peripherals, where he was most recently Executive Vice President and
Chief Operating Officer. Mr. Holdt holds a B.S.E.E. and an M.S.E.E. from the
University of Illinois.
MR. GARY J. JOHNSON, age 37, has served as President, Chief Executive Officer
and director of the Company since August 1996. Prior to being elected
President and Chief Executive Officer, Mr. Johnson served as Senior Vice
President of Graphics Business Units of the Company since July 1994. From
1986 to June 1994, Mr. Johnson held various positions at National
Semiconductor Corporation, a semiconductor manufacturer, including Managing
Director/General Manager of the Wireless Networking Group, Operations and
Marketing Director of the Wireless Communications Group and other Senior
marketing
-2-
<PAGE> 6
positions. From 1975 to 1986, he held various engineering positions at
British Telecommunications, most recently Systems Development Manager. Mr.
Johnson holds a B.Sc., C.Eng. from Leicester Polytechnic, U.K., and is a
member of I.E.E. and I.E.E.E.
DR. ROBERT P. LEE, age 44, has been a director of the Company since April
1994. Since March 1997, he has served as Vice Chairman of Insignia Solutions
plc, which provides Windows compatibility software for personal computers and
workstations. From April 1995 to March 1997, Dr. Lee served as Chairman of
Insignia Solutions, and from December 1993 to March 1997, he served as
President and Chief Executive Officer of Insignia Solutions. Prior to that,
he was Chief Executive Officer of a healthcare software company. From June
1990 to August 1992, Dr. Lee was Executive Vice President at Symantec
Corporation, and from April 1988 to June 1990, he served as Senior Vice
President at Shared Medical Systems, a supplier of software and computer
services to the healthcare industry. Prior to April 1988, he worked at IBM
for 11 years in technical and business management positions. Dr. Lee holds a
B.A. in computer science from the University of California at Berkeley and an
M.S. and a Ph.D. in computer science from the University of California at Los
Angeles.
DR. CARMELO J. SANTORO, age 54, has been a director of the Company since May
1992. He was the Chairman of the Board of Silicon Systems, Inc. from 1984
to 1995, and served as President and Chief Executive Officer of Silicon
Systems, Inc. from 1982 through 1991. Dr. Santoro is currently a director of
Platinum Software Corporation, Dallas Semiconductor Corporation, and
Techniclone Corporation. He holds a B.S. in Science, Physics from Manhattan
College and a Ph.D. in Solid State Physics from Rensselaer Polytechnic
Institute.
MR. RONALD T. YARA, age 49, co-founded the Company and has served as a
director of the Company since July 1995. Mr. Yara is currently Senior Vice
President, Strategic Marketing and Secretary. Mr. Yara is also currently
serving as Senior Vice President of Corporate Marketing until a replacement
can be appointed. From the inception of the Company in 1989 until December
1993, he served as Vice President, Marketing. From December 1984 to December
1989, Mr. Yara held various positions at Chips & Technologies, Inc., a
semiconductor company he co-founded, most recently as Vice President of
Business Development. From February 1975 to 1984, Mr. Yara served in various
positions at Intel Corporation, most recently as Product Marketing Manager of
Communication Products. He earned a B.S.E.E. from Purdue University and an
M.S.E.E. from the University of Santa Clara.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION FOR DIRECTOR OF THE
NOMINEES SET FORTH ABOVE.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 14 meetings during the year ended December 31,
1996. All directors attended at least 75% of the aggregate number of meetings
of the Board of Directors and of the committees on which such directors serve.
The Board of Directors has appointed a Compensation Committee and an Audit
Committee. The Compensation Committee and Audit Committee are comprised
entirely of independent directors.
The members of the Compensation Committee during 1996 were John C. Colligan,
Robert P. Lee and Carmelo J. Santoro. The Compensation Committee held five
meetings during 1996. The Compensation Committee's functions are to assist in
the administration of, and the grant of options under, the 1989 Stock Plan and
to assist in the implementation of, and provide recommendations with respect
to, general and specific compensation policies and practices of the Company.
The members of the Compensation Committee also serve as the Employee Stock
Option Committee.
-3-
<PAGE> 7
The members of the Audit Committee during 1996 were John C. Colligan, Robert
P. Lee and Carmelo J. Santoro. The Audit Committee held two meetings during
1996. The Audit Committee's functions are to review the scope of the annual
audit, monitor the independent auditor's relationship with the Company, advise
and assist the Board of Directors in evaluating the auditor's examination,
supervise the Company's financial and accounting organization and financial
reporting, and nominate for stockholder approval at the annual meeting, with
the approval of the Board of Directors, a firm of certified public accountants
whose duty it is to audit the financial records of the Company for the fiscal
year for which it is appointed.
DIRECTORS' COMPENSATION
Employee directors (including Messrs. Banatao, Holdt, Johnson and Yara)
receive no additional compensation for service on the Board of Directors.
Non-employee directors of the Company receive an annual retainer fee of
$24,000, plus $1,000 for each Board meeting attended. Non-employee directors
are reimbursed for their expenses for each meeting attended.
Under the terms of the Company's 1989 Stock Plan, upon appointment to the
Board, each non-employee director receives an option to purchase 40,000 shares
of Common Stock at an exercise price of 100% of the fair market value of the
stock on the date of grant, which option vests ratably over the next four
anniversary dates of the date of grant. In addition, following each annual
meeting of the Company's stockholders, each non-employee director who will
continue to serve as a member of the Board will automatically receive an option
to purchase 20,000 shares of Common Stock at an exercise price of 100% of the
fair market value of the stock on the date of grant, which option vests ratably
over the next four anniversary dates of the date of grant. See "Employment
Agreements" for a description of the compensation arrangements with Mr. Holdt.
-4-
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 10, 1997, as
to shares of the Company's Common Stock beneficially owned by: (i) each of the
Named Officers listed in the Summary Compensation Table, (ii) each of the
Company's directors, (iii) all directors and executive officers of the Company
as a group, and (iv) each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Owned(1) Owned(1)(2)
------------ --------------
<S> <C> <C>
Diosdado P. Banatao(3)(4) . . . . . . . . . . . . . . . . . . . . . . . . 802,594 1.6
John C. Colligan(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 *
Terry N. Holdt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,271 *
Gary J. Johnson(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,212 *
Robert P. Lee(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 *
Carmelo J. Santoro(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 28,536 *
Ronald T. Yara(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,442 *
Harry L. Dickinson(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 65,820 *
George A. Hervey(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,056 *
Neal D. Margulis(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,852 *
All directors and executive officers as a group
(12 persons)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,926,803 3.9
J. & W. Seligman & Co. Incorporated(5) . . . . . . . . . . . . . . . . . 2,961,800 6.0
100 Park Avenue
New York, NY 10017
</TABLE>
________________
* Amount represents less than 1% of the Company's Common Stock.
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes to this table.
(2) For purposes of computing the percentage of outstanding shares held
by each person or group of persons named above on a given date,
shares which such person or group has the right to acquire within 60
days after such date are deemed to be outstanding, but are not deemed
to be outstanding for the purposes of computing the percentage
ownership of any other person.
(3) Includes shares issuable upon exercise of options within 60 days of
March 10, 1997 as follows: Mr. Banatao, 149,681 shares, Mr.
Colligan, 25,000 shares, Mr. Holdt, 110,844 shares, Mr. Johnson,
131,573 shares, Mr. Lee, 35,000 shares, Mr. Santoro, 28,536 shares,
Mr. Yara, 161,406 shares, Mr. Dickinson, 57,020 shares, Mr. Hervey,
5,983 shares and Mr. Margulis, 15,828 shares.
(4) Includes 6,600 shares held by Mr. Banatao's children, as to which Mr.
Banatao disclaims beneficial ownership.
(5) According to a Schedule 13G dated February 12, 1997 filed by J. & W.
Seligman & Co. Incorporated, J. & W. Seligman & Co. Incorporated
has sole voting power and sole dispositive power with respect to all
shares listed in the table.
-5-
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation for services rendered in all
capacities to the Company for the three fiscal years ended December 31, 1996 of
(i) the Company's Chief Executive Officer, (ii) the Company's four other most
highly compensated executive officers as of December 31, 1996 and (iii) one
additional highly compensated executive officer who was no longer serving as
such as of December 31, 1996, whose total annual salary and bonus for fiscal
year 1996 exceeded $100,000 (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- ------------------------
Awards
------------------------
Name and Securities Underlying
Principal Position Year Salary($) Bonus($) Options(#)
- ------------------ ---- --------- -------- ------------------------
<S> <C> <C> <C> <C>
Diosdado P. Banatao 1996 353,540 124,000(3) 35,000
Chairman 1995 283,874 639,275 --
1994 226,395 1,700 150,000
Terry N. Holdt(1) 1996 258,840 97,333 35,000
Vice Chairman 1995 283,847 639,275 --
1994 227,309 1,700 150,000
Gary J. Johnson(2) 1996 249,100 102,667 550,000
President and Chief 1995 184,519 365,275 --
Executive Officer 1994 65,231 56,719 254,000
Harry L. Dickinson 1996 218,865 88,000 50,000
Senior Vice President, Sales 1995 172,480 334,875 --
1994 164,520 3,500 140,000
George A. Hervey(4) 1996 225,340 88,000 50,000
Senior Vice President, Finance 1995 176,131 352,475 --
and Chief Financial Officer 1994 148,283 1,700 70,000
Neal D. Margulis 1996 203,130 183,000 255,000
Senior Vice President, 1995 141,140 303,275 --
Research and Technology 1994 123,040 23,098 164,000
</TABLE>
________________
(1) Prior to August 1996, Mr. Holdt served as President and Chief
Executive Officer. Since August 1996, Mr. Holdt has served as Vice
Chairman and is not an executive officer.
(2) Prior to August 1996, Mr. Johnson served as Senior Vice President,
Graphics Business Units.
(3) Of the total bonus earned in 1996, $120,000 was not paid at December
31, 1996.
(4) Mr. Hervey resigned as Senior Vice President, Finance and Chief
Financial Officer, effective March 21, 1997.
-6-
<PAGE> 10
STOCK OPTIONS
The following tables summarize option grants to, and exercises by, the
Company's Chief Executive Officer and the Named Officers during fiscal 1996,
and the value of the options held by each such person at the end of fiscal
1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(5)
---------------------------------------------------------- ------------------------
Number of % of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh)(3) Date(4) 5%($) 10%($)
- ---- ---------- ------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Diosdado P. Banatao 35,000(1) 0.5 $13.8750 March 8, 2006 $ 305,406 $ 773,962
Terry N. Holdt 35,000(1) 0.5 13.8750 March 8, 2006 305,406 773,962
Gary J. Johnson 50,000(1) 0.8 13.8750 March 8, 2006 436,295 1,105,660
400,000(1) 6.2 10.0625 July 15, 2006 2,531,301 6,414,812
100,000(2) 1.5 10.0625 July 15, 2006 632,825 1,603,703
Harry L. Dickinson 50,000(1) 0.8 13.8750 March 8, 2006 436,295 1,105,660
George A. Hervey 50,000(1) 0.8 13.8750 March 8, 2006 436,295 1,105,660
Neal D. Margulis 55,000(1) 0.9 13.8750 March 8, 2006 479,925 1,216,226
100,000(1) 1.5 10.0625 July 15, 2006 632,825 1,603,703
100,000(2) 1.5 10.0625 July 15, 2006 632,825 1,603,703
</TABLE>
____________
(1) Options vest ratably on a daily basis over a four-year period
commencing on the date of grant and become exercisable as to vested
options beginning six months from the date of grant.
(2) Options vest ratably on a daily basis over a four-year period
commencing three years after the date of grant and become exercisable
as to vested options beginning three years after grant, subject to
acceleration of vesting in whole or in part upon the achievement of
specified milestones based upon the Company's financial and operating
performance.
(3) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(4) The options have a term of 10 years, subject to earlier termination
in certain events related to termination of employment.
(5) The 5% and 10% assumed rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the future Common Stock
price.
-7-
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Securities Underlying Value of
Unexercised Unexercised
Options at In-the-Money Options at
December 31, 1996(#) December 31, 1996($)(2)
-------------------------- -------------------------
Shares Acquired Value
Name on Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Diosdado P. Banatao -- -- 173,013 90,491 $2,224,247 $707,960
Terry N. Holdt 50,000 569,000 281,821 90,491 3,979,320 707,960
Gary J. Johnson 70,500 799,377 39,214 642,286 459,542 4,425,794
Harry L. Dickinson 10,000 173,640 69,345 97,249 700,188 739,107
George A. Hervey 64,400 873,794 31,184 69,488 217,644 395,255
Neal D. Margulis 83,642 925,848 7,762 309,238 68,154 2,135,433
- ------------
</TABLE>
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1996 ($16.25 per share) minus the exercise price.
PENSION AND LONG-TERM INCENTIVE PLANS
The Company has no pension or long-term incentive plans.
EMPLOYMENT AGREEMENTS
In August 1996, the Company entered into an agreement with Terry N. Holdt,
pursuant to which Mr. Holdt is employed on a part-time basis as Vice Chairman
at a salary of $2,000 per month. The agreement continues until terminated with
or without cause by either party upon 30 days' notice. Any termination by the
Company must be approved by a unanimous vote by the Board of Directors
(excluding the vote of Mr. Holdt for such purposes if he is then a member of
the Board of Directors). The agreement also provides that Mr. Holdt will
receive a non-qualified stock option to purchase 20,000 shares of Common Stock
each time he is re-elected as a member of the Board of Directors at a regular
annual meeting of the Company's stockholders. Each such option will have an
exercise price equal to 100% of the fair market value of the stock on the date
of grant and will vest ratably over the next four anniversary dates of the date
of grant.
-8-
<PAGE> 12
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's compensation programs and policies applicable to its executive
officers are administered by the Compensation Committee of the Board of
Directors. The Compensation Committee is made up entirely of non-employee
directors. The programs and policies are designed to provide competitive
compensation and to enhance stockholder value by aligning the financial
interests of the executive officers of the Company with those of its
stockholders.
It is the Company's policy generally to qualify compensation paid to
executive officers for deductibility under section 162(m) of the Internal
Revenue Code. Section 162(m) generally prohibits the Company from deducting
the compensation of executive officers that exceeds $1,000,000 unless that
compensation is based on the satisfaction of objective performance goals. The
Company's 1989 Stock Option Plan and the Executive Bonus Plan are structured to
qualify awards under such plans as performance-based compensation and to
maximize the tax deductibility of such awards. However, the Company reserves
the discretion to pay compensation to its executive officers that may not be
deductible.
There are four primary components of executive compensation: Base Salary,
Bonus, Employee Profit Sharing Plan and Stock Options.
In August 1996, Mr. Terry N. Holdt, the Company's President and Chief
Executive Officer since 1993, retired, although he remains Vice Chairman of the
Company. In August 1996, Mr. Gary J. Johnson, then Senior Vice President of
Graphics Business Units, was promoted to President and Chief Executive Officer
and elected a director of the Company.
BASE SALARY
Base salaries for fiscal 1996 reported herein were determined by the
Compensation Committee. The Compensation Committee reviews salaries
recommended by the Chief Executive Officer for executive officers other than
the Chief Executive Officer. In conducting its review, the Compensation
Committee takes into consideration the overall performance of the Company, the
Chief Executive Officer's evaluation of individual executive officer
performance and independent compensation surveys such as the Radford Survey for
Fabless Semiconductor Companies in the $500 million revenue range. Final
decisions on base salary adjustments for executives other than the Chief
Executive Officer are made in conjunction with the Chief Executive Officer.
The Compensation Committee independently determines the base salary for the
Chief Executive Officer by: (a) examining the Company's performance against
its preset goals, (b) examining the Company's performance within the
semiconductor industry, (c) evaluating the overall performance of the Chief
Executive Officer, and (d) comparing the base salary of the Chief Executive
Officer to that of other chief executive officers in the semiconductor,
computer graphics and personal computer software industries. Mr. Johnson's
base salary for 1996 was initially $220,000, as Senior Vice President, as was
determined by the prior Chief Executive Officer, and was increased to $300,000
in August 1996 to reflect his promotion to President and Chief Executive
Officer and the added responsibilities of that office. Based upon the data and
performance, the Chief Executive Officer's base salary was raised from $300,000
to $400,000 per year, effective January 1, 1997.
BONUSES
The Executive Bonus Plan is a cash-based incentive bonus program. The
Executive Bonus Plan provides for payment of cash bonuses to each named
executive officer that are directly related to the earnings per share (EPS),
profitability and gross revenues of the Company. The bonuses are determined
each year by the Compensation Committee under a predetermined objective
formula; provided, however, the maximum aggregate annual bonus payable under
the Executive Bonus Plan to any executive officer shall not exceed $3,000,000.
The first bonus is the product of (i) the executive officer's individual
multiplier set by the Compensation Committee before the performance period
begins, (ii) a multiplier determined from a matrix that charts EPS and gross
revenues as a percentage of the Company's annual operating plan EPS and gross
revenue goals established by the
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<PAGE> 13
Compensation Committee before the performance period begins, and (iii) the
executive officer's annual base pay in effect on the first day of the
performance period. An additional bonus is payable out of an amount that
equals each 10% increase in the Company's profit before taxes for the
performance period over 125% of the Company's profitability plan (the Executive
Bonus Plan was amended in March 1997 to permit the Compensation Committee to
set the percentage targets for the additional bonus). This bonus is allocated
on a per capita basis. Under the terms of the Company's Executive Bonus Plan
and the EPS, profitability and revenue performance goals set for 1996, the
Company's executives would receive no bonuses under the plan. However, the
Compensation Committee noted that the Company had an exceptional year in 1996
in terms of its achievement of market share relative to its competitors and in
terms of its shipments of units, which was substantially more than planned. In
view of such performance, the Compensation Committee determined to grant
discretionary bonuses to the executive officers. The Chief Executive Officer
was awarded a discretionary bonus of $98,667. These bonuses were granted
independent of the terms of the Executive Bonus Plan pursuant to the discretion
of the Compensation Committee.
EMPLOYEE PROFIT SHARING PLAN
This plan is a nonqualified current cash profit sharing plan under which all
employees of the Company, including officers, are eligible to receive, on an
annual basis, an equal amount of pre-tax profits, prorated for service with the
Company during 1996, as a cash bonus. For fiscal 1996, the maximum annual
individual payment was $4,000.
STOCK OPTIONS
The Compensation Committee annually grants options under the 1989 Stock Plan
with an exercise price equal to the fair market value on the date of grant.
The grants are intended to be competitive in order to retain and motivate key
executives and to provide a direct link with the interests of the stockholders
of the Company. The Compensation Committee, in making its determination as to
grant levels, takes into consideration: (i) prior award levels, (ii) award
levels necessary to replace particular executives, (iii) the total stock award
to be made and the executive's percentage participation in that award, (iv) the
executive's direct ownership of the Company's shares, (v) the number of options
vested and nonvested, and (vi) the options outstanding as a percentage of total
shares outstanding. The 1989 Stock Plan limits the total number of shares
subject to options that may be granted to a participant during any fiscal year
to 1,500,000 shares. The Compensation Committee awarded the Chief Executive
Officer options to purchase 550,000 shares of stock in 1996, 100,000 of which
are subject to accelerated vesting based upon achievement of performance
conditions.
STOCK PURCHASE PLAN
The Company maintains a qualified employee stock purchase plan to encourage
employees to own Company stock, which is generally available to all employees.
This plan allows participants to buy Company stock at a discount to market
price with up to 10% of their salaries, not to exceed 2,000 shares, per six
month period. However, the number of shares that may be purchased by each
participant is limited by applicable tax laws.
The foregoing report has been furnished by the Compensation Committee of the
Board of Directors of S3 Incorporated:
Carmelo J. Santoro, Ph.D., Chairman
John C. Colligan
Robert P. Lee, Ph.D.
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<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return of the
Company's Common Stock with The Nasdaq Stock Market Index (U.S.) and The Nasdaq
Electronic Components Stock Index. The comparison assumes the investment of
$100 on March 5, 1993 (the date the Company's Common Stock became registered
under Section 12 of the Securities Exchange Act of 1934) based on the initial
public offering price of such stock on that date and that dividends were
reinvested when paid. The comparisons in the graph are required by the
Securities and Exchange Commission and are not intended to forecast or be
indicative of possible future performance of the Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG S3 INCORPORATED, THE NASDAQ
STOCK MARKET INDEX (U.S.) AND THE NASDAQ ELECTRONIC COMPONENTS STOCK INDEX
[GRAPH]
3/5/93 12/31/93 12/31/94 12/31/95 12/31/96
------- -------- -------- -------- --------
S3 Incorporated 100.00 171.00 159.00 178.00 165.00
Nasdaq Stock Market
Index (U.S.) 100.00 116.00 114.00 161.00 198.00
Nasdaq Electronic
Components Stock
Index 100.00 114.00 125.00 208.00 359.00
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<PAGE> 15
PROPOSAL 2 - TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ended December 31, 1997, subject to ratification
by the stockholders. Deloitte & Touche LLP has audited the Company's financial
statements since the Company's inception in January 1989. Representatives of
Deloitte & Touche LLP are expected to be present at the Company's Annual
Meeting. They will have an opportunity to make a statement, if they desire to
do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF DELOITTE &
TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Proposals of stockholders of the Company that are intended to be presented by
such stockholders at the Company's 1998 Annual Meeting of Stockholders must be
received by the Secretary of the Company no later than January 7, 1998 in order
that they may be included in the Company's proxy statement and form of proxy
relating to that meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10 percent of a registered class of the Company's equity securities, to file
reports of ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission (the "SEC"). Officers, directors and greater than 10 percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for specified fiscal years, the Company
believes that all of its officers, directors and greater than 10 percent
beneficial owners complied with all filing requirements applicable to them with
respect to transactions during fiscal year 1996, except that Jackson Hu, former
Senior Vice President of Engineering and Operations, filed two transactions on
a Form 4 report 90 days late.
OTHER MATTERS
The Company knows of no other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting,
it is intended that proxies in the enclosed form will be voted in accordance
with the judgment of the persons voting the proxies.
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<PAGE> 16
Whether or not you intend to be present at the Annual Meeting, we urge you to
return your signed proxy promptly.
By Order of the Board of Directors.
/s/ Ronald T. Yara
Ronald T. Yara
Secretary
Santa Clara, California
April 7, 1997
UPON WRITTEN REQUEST OF ANY STOCKHOLDER ENTITLED TO RECEIVE THIS PROXY
STATEMENT, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL
REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY
SUCH REQUEST SHOULD BE ADDRESSED TO THE COMPANY AT 2801 MISSION COLLEGE
BOULEVARD, SANTA CLARA, CALIFORNIA 95052, ATTENTION: INVESTOR RELATIONS
DEPARTMENT. THE REQUEST MUST INCLUDE A REPRESENTATION BY THE STOCKHOLDER THAT
AS OF MARCH 10, 1997, THE STOCKHOLDER WAS ENTITLED TO VOTE AT THE ANNUAL
MEETING.
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<PAGE> 17
S3 INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
The undersigned hereby authorizes DIOSDADO P. BANATAO, TERRY N.
R HOLDT AND GARY J. JOHNSON, as Proxies with full power in each to act
without the other and with the power of substitution in each, to
O represent and to vote all the shares of stock the undersigned is
entitled to vote at the Annual Meeting of Stockholders of S3
X Incorporated to be held on May 7, 1997 at 9:00 a.m., or at any
postponement or adjournment thereof.
Y
--------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
--------------
<PAGE> 18
DETACH HERE
Please mark
[X] votes as in
this example.
THIS PROXY WILL BE VOTED AS DIRECTED BUT IF NOT OTHERWISE DIRECTED, FOR THE
ELECTION OF SEVEN DIRECTORS AND FOR PROPOSAL 2. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. Election of seven Directors to serve until the 1998 FOR AGAINST ABSTAIN
Annual Meeting of Stockholders 2. To ratify the selection of Deloitte & [ ] [ ] [ ]
Touche LLP as independent auditors.
NOMINEES: Diosdado P. Banatao, John C. Colligan, Terry N.
Holdt, Gary J. Johnson, Robert P. Lee, Carmelo J. Santoro, 2. In their discretion, the proxies are authorized to vote upon
Ronald T. Yara such other business as may properly come before the
meeting.
FOR WITHHELD MARK HERE
[ ] [ ] FOR ADDRESS
CHANGE AND [ ]
NOTE AT LEFT
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
[ ] ______________________________________
For all nominees except as noted above Please sign exactly as your name or names appear
hereon. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If shares are held jointly,
each holder must sign.
Signature: Date: Signature: Date:
---------------------------- ------- ------------------------------- ------------
</TABLE>
