S3 and VIA Sign Restructured Agreement to Transfer Graphics Chip Business

Business Wire, August 29, 2000

Business Editors and Technology Writers

SANTA CLARA, Calif.--(BUSINESS WIRE)--Aug. 29, 2000

S3(R) Incorporated (Nasdaq:SIII) announced today that it has signed a restructured agreement with VIA Technologies (TAIEX:2388) to complete the transfer of S3's graphics chip assets into a new venture.

The restructured agreement addresses accounting-related concerns expressed by the Taiwanese government that had previously delayed(1) the closing of S3 and VIA's original agreement(2). The strategic aspects of the new agreement structure remain as originally announced, while certain accounting considerations have been revised by accelerating the payment schedule and restructuring the transfer of certain assets and liabilities that are not directly related to graphics chip development. S3 has also eliminated in the revised agreement certain obligations to provide continued support for the graphics chip manufacturing operations that were provided for in the previous version of the agreement.

Under the terms of the new agreement, S3 will receive a cash payment of $208 million at the closing of the agreement and the benefit of approximately $60 million in assumed or reduced contingent and other liabilities, as compared to the prior agreement. In addition, the revised agreement is expected to reduce S3's tax liability by up to $45 million as compared to the original agreement.

VIA may elect to substitute its 13 million shares of S3 stock for the initial cash payment. S3 may also receive additional earn-out payments as defined in the prior agreement if the new venture meets certain aggressive profitability goals. VIA will also receive a warrant to purchase up to 2 million shares of S3 stock, exercisable for an additional $20 million. The revised transaction will be promptly resubmitted for any necessary government review.

"We believe that not only does this new agreement address the concerns of the Taiwanese Government by reducing the accounting impact on VIA, but this is a better deal financially for S3," stated Ken Potashner, CEO and Chairman of S3 Incorporated. "The accelerated payment schedule in the new agreement allows us to put the proceeds to work immediately to fuel the growth of our business. Should VIA elect to fund the initial payment with its 13 million S3 shares, it will have all the attributes of a substantial stock buy back initiative. We view this as a powerful opportunity for the company."

"We are pleased to have successfully worked with S3 to achieve this restructured agreement," said Wen-Chi Chen, President and CEO of VIA Technologies, Inc. "We have significant expectations for this graphics business moving forward and we anticipate highlighting the success of S3 and VIA's joint graphics efforts to date with a series of new design win announcements following the clear approval of our new agreement with S3."

About S3 Incorporated (www.S3.com)

Combining the recently announced shutdown of its graphics board business with the revision of its graphics chip agreement with VIA Technologies, S3 has taken the next step in completing its transition from a PC graphics company to an internet and digital media device company focusing on high-growth consumer markets. With significant financial assets, global marketing capabilities and a focused technology portfolio, that includes Rio(TM) digital audio players, HomeFree(TM) home networking solutions, internet access products and forthcoming information appliances, S3 is now set to relaunch itself as a leading innovator in the rapidly converging Internet and consumer device markets

Except for historical information contained herein, the matters set forth in this press release, such as the expected timing of the closing of the formation of the joint venture, whether S3 would receive future earn-outs upon achievement of financial milestones, the lack of disruption in S3's current business and financial performance arising from the delay in closing the transaction, the ability of S3 to achieve success in the home networking, internet access, digital networking and information appliance markets, the ultimate value of the reduction or assumption of contingent liabilities achieved by this revised agreement relative to the previous version thereof and any tax savings achieved under the revised agreement relative to the prior version thereof, are forward-looking statements that are subject to risk and uncertainties, including the achievement of all of the conditions to closing under the joint venture formation agreement, whether the parties will obtain regulatory and other approvals required as conditions to closing, whether the joint venture can successfully achieve any of the financial milestones set forth in the agreement, S3's ability to sublet its premises, the ability of S3 to transition smoothly the graphics chip operations to the joint venture, the ability of S3 to work with its strategic partners and S3's strategic partners' business objectives, the impact of competitive products and pricing and of alternative technological advances, the ability of S3 to timely introduce products that address market demands, and other risks detailed from time to time in S3's SEC reports, including its annual report on Form 10-K for the year ended December 31, 1999. S3 is a registered trademark of S3 Incorporated. The S3 corporate logo, Rio and HomeFree are trademarks of S3 Incorporated. Other marks referenced herein are the property of their respective owners.