EDWARD P. DIETRICH (176118)
FELIX M. MARTIN (178337)
STULL, STULL & BRODY
10940 Wilshire Blvd., Suite 2300
Los Angeles, CA 90024
(310) 209-2468

KEVIN J. YOURMAN (147159)
ANTHONY P. SERRITELLA (72597)
WEISS & YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
(310) 208-2800

Counsel for Plaintiff

[Additional Counsel Listed on Signature Page]

Plaintiffs Zev Freidus and Jose Sanchez, as and for their complaint, allege the following upon personal knowledge as to themselves and their own acts, and upon information and belief as to all other matters. Plaintiffs information and belief are based, inter alia, on the investigation of their counsel, including a review of public filings of defendant S3 Incorporated ("S3" or the "Company"), securities analyst reports, press releases and articles pertaining to S3.

1. Preceding and during the Class Period, the Company's growth and earnings became more and more inextricably tied to its international sales. For example, sales to international customers represented 42% and 44% of the Company's net sales in 1994 and 1995, respectively. In calendar year 1996, the year preceding the Class Period, S3's export sales to international customers jumped by approximately 50%, accounting for 61% of the Company's total net sales for the year.

2. This is a class action on behalf of purchasers of S3 common stock between January 27, 1997 and November 3, 1997 (the "Class Period"). This action charges that throughout the Class Period defendants made statements about S3's business, revenues and earnings which they knew or recklessly disregarded were materially false and misleading when made, and/or included phantom "revenue" from purported sales to international distributors, recognized in contravention of Generally Accepted Accounting Principles ("GAAP") and the Company's own internal accounting policies.

3. As a result of these false and misleading representations, the Company's common stock traded at artificially inflated prices, resulting in injury to plaintiffs and the other members of the Class who purchased shares of S3's common stock during the Class Period.

4. Defendants' fraudulent scheme began to unravel after the close of the market on November 3, 1997, when the Company disclosed that it had committed material errors in the timing of its recognition of sales to several international distributors and consequently expected to restate its revenues downward for prior quarters by a cumulative total of between $40 million and $70 million. The Company's recently appointed Chief Financial Officer and Senior Vice President of Finance, Walt Amaral, stated, "We have initiated tighter monitoring and control procedures to ensure strict compliance with our revenue recognition policy moving forward." The November 3, 1997 press release indicated that the Company's Audit Committee was in the process of reviewing and resolving the revenue recognition matters.

5. Jurisdiction exists pursuant to §27 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §78aa, and 28 U.S.C. § § 1331 and 1337. The claims asserted herein arise under §§10(b), 20(a) of the Exchange Act, 15 U.S.C. § § 78j(b), 78t(a) and 78t-1, and Rule 10b-5 promulgated thereunder and under state law.

6. Venue is proper in this District pursuant to §27 of the Exchange Act and 28 U.S.C. §1391(b). Many of the acts giving rise to the violations complained of occurred in this District.

7. In connection with the wrongs complained of, defendants used the instrumentalities of interstate commerce including the U.S. mails and the facilities of the national securities markets.

8. Plaintiff Jose Sanchez ("Sanchez") purchased shares of S3 common stock during the Class Period as set forth in the attached certification. As alleged herein, Sanchez purchased these shares at artificially inflated prices and was damaged thereby.

9. Plaintiff Zev Freidus ("Freidus") purchased shares of S3 common stock during the Class Period as set forth in the attached certification. As alleged herein, Freidus purchased these shares at artificially inflated prices and was damaged thereby.

10. Defendant S3 is a corporation duly organized and existing under the laws of the state of Delaware. The Company maintains its headquarters at 2801 Mission Boulevard, Santa Clara, California. S3 is a leading supplier of high performance multimedia acceleration solutions for the PC market. The Company's products are designed to work cooperatively with a PC's central processing unit (CPU) to significantly improve the video, audio, graphics, and communication performance of PC's while reducing overall system cost and complexity. S3's common stock was openly and actively traded on the NASDAQ, an efficient market, during all times relevant to the action.

11. Defendant Diosdado P. Banatao ("Banatao") at all relevant times served as the Chairman of the Board of Directors of S3. Until January 1992, Banatao was also the President and Chief Executive Officer of S3. Upon information and belief, because of defendant Banatao's positions with the Company, he knew the adverse nonpublic information about its business, finances, products, markets and business prospects via his access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, defendant Banatao sold at least 56,600 shares of S3 stock at artificially inflated prices as high as $18.50 per share, realizing at least $975,100 in insider trading proceeds.

12. Defendant George A. Hervey ("Hervey") was Vice President of Finance and Chief Financial Officer of S3 until his resignation in March 1997. Upon information and belief, because of defendant Hervey's positions with the Company, he knew the adverse nonpublic information about its business, finances, products, markets and business prospects via his access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, defendant Hervey sold at least 47,800 shares of S3 stock at artificially inflated prices as high as $18.31 per share, realizing at least $744,400 in insider trading proceeds.

13. Defendant Gary J. Johnson ("Johnson") was at all relevant times the President and Chief Executive Officer of S3. Upon information and belief, because of defendant Johnson's positions with the Company, he knew the adverse nonpublic information about its business, finances, products, markets and business prospects via his access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management committees thereof and via reports and other information provided to her in connection therewith. During the Class Period, defendant Johnson sold at least 16,000 shares of S3 stock at artificially inflated prices as high as $18.50 per share, realizing at least $288,000 in insider trading proceeds.

14. Defendant Ronald T. Yara ("Yara") was at all relevant times Senior Vice President of Strategic Marketing, a member of the Board of Directors and Secretary of S3. Upon information and belief, because of defendant Yara's positions with the Company, he knew the adverse nonpublic information about its business, finances, products, markets and business prospects via his access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, defendant Yara sold at least 125,000 shares of S3 stock at artificially inflated prices as high as $18.26 per share, realizing at least $2,235,000 in insider trading proceeds.

15. Defendant Terry N. Holdt ("Holdt") was at all relevant times Vice Chairman of the Board of Directors of S3. Upon information and belief, because of defendant Holdt's position with the Company, he knew the adverse nonpublic information about its business, finances, products, markets and business prospects via his access to internal corporate documents (including the Company's operating plans, budgets and forecasts and reports of actual operations compared thereto), conversations and connections with other corporate officers and employees, attendance at management and Board of Directors' meetings and committees thereof and via reports and other information provided to him in connection therewith. During the Class Period, defendant Holdt sold at least 125,000 shares of S3 stock at artificially inflated prices as high as $18.00 per share, realizing at least $2,150,000 in insider trading proceeds.

16. The individuals named as defendants in ¶¶11-15 above are referred to herein as the "Individual Defendants."

17. During the Class Period, each Individual Defendant occupied a position that, upon information and belief, made him privy to nonpublic information concerning S3. Because of this access, each of the Individual Defendants knew that the adverse facts specified herein were being concealed. Notwithstanding their duty to refrain from selling S3 stock while in the possession of material, adverse, nonpublic information concerning S3, some of the Individual Defendants sold over 370,000 shares of the Company's stock, profiting from their fraudulent scheme.

18. Plaintiffs bring this action as a class action pursuant to Federal Rules of Civil Procedure 23 (a) and 23(b)(3) on behalf of all persons who purchased the stock of S3 during the Class Period (the "Class"), except defendants, members of their immediate families and any entity in which a defendant has a controlling interest.

19. The members of the Class are so numerous that joinder of all members is impracticable. S3 has more than 49 million shares of stock outstanding. During the Class Period, millions of shares of S3 stock were purchased by hundreds of persons who were damaged thereby. Plaintiffs' claims are typical of the claims of the Class because plaintiffs and the Class members sustained damages arising from and proximately caused by defendants' wrongful conduct.

20. Plaintiffs will adequately protect the interests of the Class. Plaintiffs have retained counsel experienced and competent in class action securities litigation. Plaintiffs have no interests which are in conflict with those of the Class.

21. A class action is superior to other available methods for the fair and efficient adjudication of this controversy.

22. Common questions of law and fact predominate over questions which affect only individual members. Among the questions of law and fact common to the Class are:

(a) Whether the federal securities laws were violated by defendants' acts;

(b) Whether S3's statements during the Class misrepresented and/or omitted material facts;

(c) Whether defendants pursued the fraudulent scheme and course of business complained of;

(d) Whether defendants acted intentionally or recklessly;

(e) Whether the market price of S3's stock was inflated due to the activities complained of; and

(f) The extent and measure of damage sustained by the Class.

23. On January 20, 1997, S3 reported its results for the fourth quarter of 1996 ended December 31, 1996 and its 1996 fiscal year. The Company reported revenues of $132 million and earnings of $0.30 per share for the quarter and revenues of $465.4 million and earnings of $0.95 per share for the year.

24. On January 27, 1997, the Company announced that it expected sales for 1997 of $600 million, an increase of almost 30% over the recently announced 1996 sales and revenue numbers. A First Call Corp. survey of nine analysts estimated 1997 net income at $1.33 a diluted share. President and Chief Executive Gary Johnson told AP-Dow Jones that S3 expects to maintain its worldwide market share of about 50%, achieving a sales increase of 29% this year. Johnson also said that although prices of graphics chips are expected to fall by about 20% to 30% a year, S3 has a lead because it is now selling its third-generation chips while its competitors are still "struggling" with older technologies.

25. Contrary to this announcement, by the end of January the defendants already knew or recklessly disregarded based upon available interim sales and revenue figures that the first quarter of calendar year 1997 was not unfolding as represented. Recognizing the adverse impact the truth about the Company's interim sales and revenue figures would have on the Company's common stock price, the defendants entered into a scheme and common course of conduct to pad sales and revenue figures in an effort to artificially inflate and maintain the Company's common stock price. Based upon the material role international sales played on S3's total sales and revenues -- accounting for approximately two-thirds of all sales in 1996 -- the defendants turned to the area of shipments to international distributors as the best place to pad revenue. Thus, pursuant to the scheme, the defendants began to recognize revenue not upon the ultimate sale to end customers, but rather upon the "sale" to international distributors on a consignment basis, contrary to GAAP and the Company's own internal accounting policies.

26. Knowingly or recklessly disregarding the adverse impact the truth of the Company's declining sales and revenue figures would have on the price of the Company's stock, beginning in February the Individual Defendants, as well as other corporate insiders, sold off hundreds of thousands of shares of the Company's common stock, with the Individual Defendants alone garnering over $6.5 million.

27. On or about March 4, 1997, the Company announced that defendant Hervey was resigning his position as Chief Financial Officer and Senior Vice President of Finance and leaving the Company, and that the corporate controller, Dale Lindly, would assume the role of acting Chief Financial Officer. Because of his lack of experience and expertise as a Chief Financial Officer, Lindly's appointment as interim head of corporate finance facilitated the defendants' continued perpetration of the fraudulent scheme.

28. Pursuant to the scheme and common course of conduct, on April 21, 1997, S3 reported financial results for the first quarter of 1997, ended March 31, 1997. The Company reported that revenues for the quarter increased 26% to $138.2 million, compared to $110.1 million of the first quarter of 1996. Net income for the quarter increased 29% to $15.9 million, or $0.30 per share, compared to net income for the same quarter in 1996 of $12.3 million, or $0.25 per share. In the press release, defendant Johnson was quoted as stating: "We exit the first quarter of 1997 with a great sense of satisfaction with the accomplishments we have achieved with leadership products and technology."

29. On or about May 12, 1997, the Company filed its Report on Form 10-Q with the SEC for its first quarter ended March 31, 1997. The first quarter 10-Q contained, inter alia, the financial information released on April 21, 1997. The first quarter 10-Q also reported that export sales accounted for 63% of net sales for the quarter, up 7% from the same quarter in 1996. The 10-Q stated that: "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 March 31, 1997 and December 31, 1996, and the operating results and cash flows for the three months ended March 31, 1997 and 1996."

30. On July 21, 1997, S3 reported its financial results for its second quarter ended June 30, 1997. The Company reported that its net revenues for the second quarter of 1997 were $108.9 million, increasing 5% from $103.8 million for the second quarter of 1996. Net income for the quarter was $2.3 million, or $0.05 per share, compared to net income for the same quarter in 1996 of $8.8 million, or $0.18 per share.

31. Defendant Johnson was quoted in the press release as stating:

As anticipated, financial results in the second quarter were hampered by pricing pressure and a seasonal slowdown. Moving into the second half of the year, however, S3 expects to return to double digit growth in quarterly revenues. This growth will be fueled by the continuing ramp of our products in the corporate desktop and mobile market, along with the further acceptance of our audio offerings. In addition, pricing appears to be returning to a more normalized environment and we expect to see the traditional rise in demand during the third quarter.

32. On or about August 12, 1997, S3 filed its Report on Form 10-Q with the SEC for its second quarter, ended June 30, 1997. The 10-Q contained, inter alia, the financial results announced on July 21, 1997 and reported that purported export sales for the quarter accounted for 77% of net sales (up over 10% from the same period, 1996), for the first six months accounted for 69% of net sales (up 13% from the sale period, 1996). The 10-Q stated that: "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."

33. On August 26, 1997, the Company announced that Walter D. Amaral had been named as the new Senior Vice President and Chief Financial Officer.

34. On October 20, 1997, S3 reported its financial results for its third quarter 1997. The Company reported that net revenues for the third quarter of 1997 were $120.4 million compared to $119.4 million for the third quarter of 1996. Net income for the quarter was $3.9 million, or $0.08 per share, compared to net income for the same quarter in 1996 of $11.8 million, or $0.23 per share. Defendant Johnson was quoted in the press release as stating: "S3 met the challenge of achieving double digit revenue growth in a highly competitive market during the third quarter by maintaining its leadership position in the mid and low-end segments of the graphics market."

35. On November 3, 1997, S3 stunned the market when it disclosed that the Company had uncovered material errors in the timing of its recognition of sales to several international distributors and consequently expected to restate its revenues downward for prior quarters by a cumulative total of between $40 million and $70 million -- between 11% and almost 20% of total reported revenue for the three month period. The Company stated it expected the resulting effect on net income for those quarters to be a cumulative decrease of 14 cents -- or approximate 33% -- to 29 cents per share. The Company disclosed that it had failed to adhere to its own internal accounting policies which appropriately require the deferral of recognition of revenue on all contingent sales to distributors until the product is actually sold to end customers. Amaral, the Company's new Chief Financial Officer, stated: "We have initiated tighter monitoring and control procedures to ensure strict compliance with our revenue recognition policy moving forward."

36. In reaction to the Company's disclosure, S3 stock dropped 1 13/32 to 7 11/32 per share -- or 15.4% -- on volume of over 5 million shares.

37. S3's first quarter 1997, second quarter 1997 and third quarter 1997 reported financial results were materially false and misleading in that S3 grossly overstated its revenues and earnings in violation of GAAP and SEC reporting requirements. Specifically, defendants caused S3 to improperly report revenue from products sold to distributors when in fact the Company granted such distributors the right to return and/or cancel such sales on ultimately unsold products. Despite these contingencies, S3 recognized revenue from such purported "sales" and did not adequately reserve for expected returns and/or cancellations causing its financial results to be grossly overstated and in violation of GAAP, SEC regulations and the Company's own internal accounting policies.

38. Defendants recognized these transactions as sales when in fact these transactions were nothing more than consignment arrangements whereby distributors were allowed to return unsold S3 products to the Company. In order for S3's financial statements to comply with GAAP, as represented by defendants in S3's filings with the SEC, and the Company's own internal accounting policies, S3 could not recognize as revenue in its financial statements the shipment of products to its distributors until the distributor had resold the product to the distributor's customer.

39. Regulation S-X (17 C.F.R. §210.4-O1(a)(1)) states that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate, despite footnote or other disclosures. GAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at the particular time.

40. S3 released public statements regarding its financial results for each of the quarters ended March 31, June 30, and September 30, 1997. In addition, the Company filed with the SEC financial statements in its Forms 10-Q for the quarters ended March 31 and June 30, 1997. The reports on Form 10-Q were jointly prepared and approved by the Individual Defendants. Each 10-Q also represented, for the subject quarter, that S3's financial statements, included all adjustments necessary "to present fairly" S3's financial condition and results of operations for those respective periods.

41. The foregoing financial statements reported inflated net income and earnings per share during the Class Period because defendants caused S3 to improperly report revenue from purported sales to distributors, despite the existence of contingencies granting such customers the right, inter alia, to return the product to S3 where ultimate sales to end users did not occur. Also defendants failed to record timely and adequate reserves for product returns in gross violation of GAAP.

42. S3 improperly recognized revenue and/or materially understated its accrual for sales returns during the quarters ended March 31, June 30, and September 30, 1997, thus materially inflating its reported revenues, net income and earnings per share for the period.

43. S3 granted its distributors the right to return unsold products. S3's 1996 report on Form 10-K states:

Revenue from product sales direct to customers is generally recognized upon shipment. Accruals for estimated sales returns and allowances are recorded at the time of sale. Certain of the Company's sales are made to distributors under agreements allowing price protection and rights of return on unsold products by the distributors. The Company defers recognition of revenue on such sales until the product is sold by the distributors.

Notwithstanding the existence of contingencies related to "sales" of S3 product during the Class Period, the Company did not defer revenue recognition and/or reserve for potential cancellations and/or returns to reflect the contingent nature of these "sales." Such revenue recognition violated GAAP, which, as set forth in SOP 91-1, states:

If, after delivery, there is significant uncertainty about customer acceptance of the software, license revenue should not be recognized until the uncertainty becomes insignificant.

Revenues associated with software transactions for which there is no reasonable basis of estimating the degree of collectibility of related receivables should be accounted for using either the installment method or the cost recovery method of accounting.

SOP 91-1 also states:

As part of their standard sales terms or as matters of practice, vendors may grant resellers rights to exchange unsold software for other software. Such exchange, including those referred to as "stock balancing arrangements," are returns and should be accounted for in conformity with FASB statement No. 48, even if the vendors require the resellers to purchase additional software to exercise the exchange right.

44. FASB Statement No. 48 (revenue recognition where the right of return exists) specifies criteria for recognizing revenue on a sale in which a product may be returned, whether as a matter of contract or as a matter of existing practice, either by the ultimate customer or by a party who resells the product to others and requires that the amount of future returns can be reasonably estimated in order to recognize revenue. FASB Statement No. 48 also states:

The ability to make a reasonable estimate of the amount of future returns depends on many factors and circumstances that will vary from one case to the next. However, the following factors may impair the ability to make a reasonable estimate:

a. The susceptibility of the product to significant external factors, such as technological obsolescence or changes in demand

b. Relatively long periods in which a particular product may be returned

c. Absence of historical experience with similar types of sales of similar products, or inability to apply such experience because of changing circumstances, for example, changes in the selling enterprise's marketing policies or relationships with its customers

d. Absence of a large volume of relatively homogeneous transactions

The existence of one or more of the above factors, in light of the significance of other factors, may not be sufficient to prevent making a reasonable estimate; likewise, other factors may preclude a reasonable estimate.

45. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the false forward-looking statements pleaded in this Complaint. None of the forward-looking statements pleaded herein were sufficiently identified as a "forward-looking statement" when made. Nor did meaningful cautionary statements identifying important factors that could cause actual results to differ materially from that in the forward-looking statements accompany those statements. To the extent that the statutory safe harbor does apply to any forward-looking statements pleaded, the defendants are liable for those false forward-looking statements because at the time each of those statements was made, the speaker actually knew the forward-looking statement was false and the forward-looking statement was authorized and/or approved by an executive officer of S3 who actually knew that those statements were false when made.

46. As alleged herein, defendants acted with scienter in that the Individual Defendants knew or recklessly disregarded that the public documents and statements issued or disseminated in the name of S3 were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly or recklessly substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violators of the federal securities laws. As set forth elsewhere herein in detail, defendants, by virtue of their receipt of information reflecting the true facts regarding S3, their control over, and/or receipt and/or modification of S3's allegedly materially misleading misstatements and/or their associations with S3 which made them privy to confidential proprietary information concerning S3, participated in the fraudulent scheme alleged herein. Defendants knew and/or recklessly disregarded the falsity and misleading nature of the information which they caused to be disseminated to the investing public.

47. The Individual Defendants engaged in such a scheme to inflate and maintain the price of S3 common stock in order to, inter alia, allow for profitable insider sales, yielding huge insider trading profits.

48. In addition, while the defendants were issuing the false and misleading statements about S3's revenue and earnings detailed above, the Individual Defendants sold and/or distributed for sale over 370,400 shares of S3 stock, thereby reaping more than $6.6 million in insider trading proceeds during the Class Period. The following chart sets forth the Individual Defendants' sales of S3 stock during the Class Period at artificially inflated prices:

49. The Individual Defendants were not the only S3 insiders profiting from the sale of S3 stock during the Class Period at artificially inflated prices. During the Class Period, other Company insiders collectively sold at least 127,900 shares of S3 stock.

50. Also giving rise to a strong inference of scienter was the fact that international sales constituted the principle source of revenue and income for the Company, making the accurate recordation of sales and revenue in this area a fundamental responsibility of the defendants. Likewise, the nature of the improper accounting practices at issue in this restatement, namely the improper recognition of revenue based upon shipments to distributors who operate under what is, in effect, a consignment arrangement, is so elemental that the failure to do so could only reasonably be the results of intentional or reckless conduct by the defendants.

51. Defendants' failure to disclose the above information allowed for the artificial inflation of S3 stock to the detriment of the Plaintiffs and the other members of the Class, but to the benefit of the Individual Defendants and other insiders who sold large volumes of S3 stock for huge profits.

52. The undisclosed adverse information concealed by defendants during the Class Period is the type of information which, because of SEC regulations, regulations of the national stock exchanges and customary business practice, is expected by investors and securities analysts to be disclosed and is known by corporate officials and their legal and financial advisors to be the type of information which is expected to be and must be disclosed.

54. Each of the defendants: (a) knew or had access to the material, adverse nonpublic information about S3's financial results and existing business conditions, which was not disclosed; and (b) participated in drafting, reviewing and/or approving the misleading statements, releases, reports and other public representations of and about S3.

55. During the Class Period, with knowledge of or reckless disregard for the truth, defendants disseminated or approved the false statements specified above, which were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

56. Defendants have violated §10 (b) of the Exchange Act and Rule 10b-5 promulgated thereunder in that they: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices and a course of business that operated as a fraud or deceit upon the purchasers of S3 stock during the class Period.

57. Plaintiffs and the Class have suffered damage in that, in reliance on the integrity of the market, they paid artificially inflated prices for S3 stock. Plaintiffs and the Class would not have purchased S3 stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' false and misleading statements.

58. Plaintiffs incorporate by reference all preceding paragraphs of the Complaint.

59. The Individual Defendants acted as controlling persons of S3 within the meaning of §20(a) of the Exchange Act. By reason of their respective positions with S3, the Individual Defendants had the power and authority to cause S3 to engage in the wrongful conduct complained of herein.

60. By reason of such wrongful conduct, defendants are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of the defendants' wrongful conduct, plaintiff and the other members of the Class suffered damages in connection with their purchases of S3 stock during the Class Period.

62. By virtue of making the foregoing materially false and misleading statements, defendants directly or indirectly, have committed common law fraud and deceit upon plaintiffs and the other members of the Class.

63. Plaintiffs, and the other members of the Class, ignorant of the falsity of these statements, relied upon them, as well as the integrity of the marketplace, in purchasing S3 common stock.

64. As a result, plaintiffs and the other members of the class have suffered substantial damages arising out of defendants' foregoing unlawful conduct.

65. Plaintiffs incorporate by reference all preceding paragraphs of the Complaint.

66. The individual defendants' negligence and failure to exercise reasonable care and competence was a direct and proximate cause of the misrepresentations and omissions to state material facts complained of herein.

67. Defendants knew and intended that plaintiffs and the other members of the Class would rely on the reports, filings, press releases and other statements disseminated by defendants during the Class Period which are described herein in making investment decisions with respect to S3 common stock. Defendants owed a duty to plaintiffs and the other members of the Class to disseminate accurate, truthful and complete information concerning the business, financial condition and prospects of S3.

68. The decision by each member of the Class whether to invest in S3 constituted a business decision by each such person.

69. At the time defendants made the material misrepresentations and omissions complained of herein, plaintiffs and the other members of the Class were ignorant of their falsity and believed them to be true. In reasonable and justifiable reliance on said misrepresentations and omissions and on the fidelity, integrity, superior knowledge and expertise of the defendants, and in ignorance of the true facts, plaintiffs and the other members of the Class were induced to, and did, purchase S3 common stock at artificially inflated prices. Had plaintiffs and the other members of the Class known the truth with respect to the aforesaid misrepresentations and omissions they would not have taken such action.

70. By reason of the foregoing, plaintiffs and the other members of the Class have suffered substantial damages.

WHEREFORE, plaintiffs pray for judgment as follows:

A. Declaring this action to be a proper class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class defined herein;

B. Awarding plaintiffs and the members of the Class compensatory damages

C. Awarding plaintiffs and the members of the Class pre- and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees and other costs;

D. Awarding extraordinary, equitable and/or injunctive relief as permitted by law, equity and the federal statutory provisions sued hereunder, pursuant to Rules 64, 65 and any appropriate state law remedies; and

E. Awarding such other relief as this Court may deem just and proper.

Plaintiffs demand a trial by jury.

COMPLNTS\S3.CPT