VICR » Topics » Certain Relationships and Related Transactions

This excerpt taken from the VICR DEF 14A filed Apr 29, 2009.
Certain Relationships and Related Transactions
 
Mr. Anderson, a director of the Corporation, is the founder, Chairman of the Board, President and Chief Executive Officer (“CEO”), as well as the majority voting shareholder, of Great Wall Semiconductor Corporation (“GWS”). GWS and its subsidiary design and sell semiconductors, conduct research and development activities, develop and license patents, and litigate against those who infringe upon patented technology. In February 2008, the Corporation invested $1,000,000 in non-voting convertible preferred stock of GWS, increasing its ownership in GWS to approximately 30% and its cumulative investment in GWS to $5,000,000. The Corporation accounts for the investment in GWS under the equity method of accounting and periodically evaluates the investment in GWS to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. During the year ended December 31, 2008, the investment was adjusted for a decline in value judged to be other-than-temporary of $706,000 in the second quarter and $555,000 in the fourth quarter of 2008, respectively, bringing the investment balance to zero as of December 31, 2008. The decision to reduce the remaining investment balance to zero was based on GWS’ continued operating losses, the impact of the current global economic crisis on the current and short-term outlook for its operations, a negative working capital position as of December 31, 2008, and a valuation based on discounted cash flows.
 
The Corporation and GWS are parties to an intellectual property cross-licensing agreement, and the Corporation purchases certain components from GWS. Purchases from GWS totaled approximately $1,702,000 in 2008. In the fourth quarter of 2008, approximately $500,000 of product purchased from GWS in 2008 was returned by the Corporation to GWS under a warranty claim resulting in a net receivable from GWS of approximately $420,000 as of December 31, 2008.
 
During the first quarter of 2009, the Corporation signed a memorandum of understanding with GWS to enter into an agreement which will expand the Corporation’s existing license to technology associated with certain GWS semiconductor devices, provide technical assistance for the manufacture by the Corporation of such licensed devices, and facilitate the execution of a contract between the Corporation, GWS and GWS’ current and future foundries that will provide direct access to such foundries on terms equal to those enjoyed by GWS. In addition, GWS agreed to develop, design, tool up


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and manufacture four new high voltage devices for the Corporation. The aggregate amount of milestone payments to GWS from the Corporation under these arrangements will be $700,000. Payment is contingent on the completion of the definitive agreements between the parties as outlined in the memorandum of understanding and meeting of stipulated milestones.
 
The Corporation’s policies and procedures with respect to the review, approval and/or ratification of related party transactions are as follows per the Corporation’s Audit Committee Charter. The Audit Committee shall review and approve all related party transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404, and discuss with management the business rationale for the transactions and whether appropriate disclosures have been made. The related party transactions described above were subject to this policy.
 
This excerpt taken from the VICR DEF 14A filed Apr 29, 2008.
Certain Relationships and Related Transactions
 
In August 2003, the Corporation purchased a number of shares of non-voting preferred stock of Great Wall Semiconductor Corporation (“GWS”) representing an approximately 5% equity interest in GWS for $1,000,000. In March and August 2004, the Corporation purchased additional shares of non-voting preferred stock of GWS representing an additional approximately 13% equity interest in GWS for $2,000,000. In May 2007 and February 2008, the Corporation purchased additional shares of non-voting preferred stock representing an additional approximately 12% equity interest in GWS for $2,000,000. The Corporation’s total investment in GWS was $5,000,000 as of March 31, 2008. The additional investment made in May 2007 resulted in the Corporation owning approximately 24% of GWS which management believes, along with other qualitative factors considered, gives the


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Corporation significant influence over GWS. In addition, the Corporation has an option to purchase an additional 1.5% equity interest of GWS for $81,000 in connection with technical consulting services. As a result, the additional investment required the Corporation to account for the investment in GWS under the equity method of accounting and to retroactively restate its previously issued consolidated financial statements for the fiscal years 2006 and prior. Previously, the Corporation accounted for the investment as a cost method investment as management believed it did not have significant influence over GWS.
 
The Corporation periodically evaluates the investment in GWS to determine if there are any events or circumstances that are likely to have a significant adverse effect on the fair value of the investment. In the second quarter of 2007, the investment was adjusted for a decline in value judged to be other than temporary of $620,000. This, along with other adjustments made due to equity method accounting, resulted in a net investment balance of $687,000 at December 31, 2007.
 
Mr. Anderson, a director of the Corporation, is the founder, President, Chairman of the Board, Chief Executive Officer and the majority voting shareholder of GWS. In addition to the investment, the Corporation and GWS have entered into a cross-license agreement and the Corporation purchases certain components from GWS. These purchases were approximately $1,260,000 in 2007.
 
The Corporation’s policies and procedures with respect to the review, approval and/or ratification of related party transactions are as follows per the Corporation’s Audit Committee Charter. The Audit Committee shall review and approve all related party transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404, and discuss with management the business rationale for the transactions and whether appropriate disclosures have been made. The related party transactions described above were subject to this policy.
 
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