<PAGE>
As filed with the Securities and Exchange Commission on July 15, 1998
Registration No. 333-[_______]
------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------------------------
V3 SEMICONDUCTOR, INC.
(Name of Small Business Issuer as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 87-0429263 3674
(State or other jurisdiction of (I.R.S. Employer Identification Number) (Primary Standard Industrial
incorporation or organization) Classification Code Number)
</TABLE>
250 Consumers Road
Suite 901
North York, Ontario
Canada M2J 4V6
(416) 497-8884
(Address and telephone number of principal executive offices)
Carl O. Mitchell, Secretary
250 Consumers Road
Suite 901
North York, Ontario
Canada M2J 4V6
(416) 497-8884
(Name, address and telephone number of agent for service)
Copies of all communications to:
Gregory Sichenzia, Esq.
Richard A. Friedman, Esq.
Sichenzia Ross & Friedman,
LLP
135 West 50th Street
New York, New York 10022
Telephone No.: (212) 664-1200
Facsimile No.: (212) 664-7329
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box
<PAGE>
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
ii
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Dollar Offering Aggregate Amount of
Class of Securities Amount to be Price Per Offering Registration
to be Registered Registered Security(1) Price(1) Fee
- ------------------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C>
Common Stock, $.001
par value(2) 58,750 $ 1.75 $102,812.50 $ 30.33
Common Stock, $.001
par value(2) 55,000 $ 1.93 106,150 31.31
Common Stock, $.001
par value(2) 27,000 $ 2.02 54,540 16.09
Common Stock, $.001
par value(2) 40,000 $ 2.22 88,800 26.20
Common Stock, $.001
par value(2) 4,000 $ 2.50 10,000 2.95
Common Stock, $.001
par value(2) 10,000 $ 2.75 27,500 8.11
Common Stock, $.001
par value(2) 10,000 $ 3.05 30,500 9.00
Common Stock, $.001
par value(2) 30,000 $ 3.11 93,300 27.52
Common Stock, $.001
par value(2) 12,500 $ 3.25 40,625 11.98
Common Stock, $.001
par value(2) 96,505 $ 3.50 337,767.50 99.64
Common Stock, $.001
par value(2) 160,000 $ 3.75 600,000 177.00
Common Stock, $.001
par value(2) 3,000 $ 3.86 11,580 3.42
Common Stock, $.001
par value(2) 1,000 $ 4.00 4,000 1.18
Common Stock, $.001
par value(2) 3,000 $ 4.13 12,390 3.66
Common Stock, $.001
par value(2) 5,000 $ 4.25 21,250 6.27
Common Stock, $.001
par value(2) 15,833 $ 4.50 71,248.50 21.02
Common Stock, $.001
par value(2) 4,000 $ 4.63 18,520 5.46
Common Stock, $.001
par value(2) 1,000 $ 4.75 4,750 1.40
Common Stock, $.001
par value(2) 5,000 $ 4.86 24,300 7.17
Common Stock, $.001
par value(2) 2,000 $ 5.13 10,260 3.03
Common Stock, $.001
par value(2) 9,000 $ 5.50 49,500 14.60
Common Stock, $.001
par value(2) 7,000 $ 5.86 41,020 12.10
Common Stock, $.001
par value(2) 40,000 $ 6.25 250,000 73.75
------- ------ --------- ------
Totals 2,010,813.5 593.19
=========== ======
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933,
iii
<PAGE>
as amended.
(2) Issuable upon exercise of options, together with such indeterminate
number of securities as may be issuable by reason of anti-dilution
provisions contained therein.
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
iv
<PAGE>
V3 SEMICONDUCTOR, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Captions In Prospectus
--------------------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front Cover of Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus Cover Page, Inside Cover Page,
Outside Back Page
3. Summary Information and Risk Factors Prospectus Summary, Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page, Risk Factors
6. Dilution Dilution
7. Selling Securityholders Selling Shareholders, Plan of
Distribution
8. Plan of Distribution Prospectus Summary, Selling
Securityholders
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Control Persons Management, Principal
Stockholders
11. Security Ownership of Certain Beneficial Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters
14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Management
15. Organization Within Last Five Years *
16. Description of Business Prospectus Summary, Business
17. Management's Discussion and Analysis or Plan of Operation Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Shareholder Matters Front Cover Page, Description of
Securities
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure *
</TABLE>
- ------------------
*Not Applicable
v
<PAGE>
SUBJECT TO COMPLETION, DATED July 15, 1998
PROSPECTUS
V3 SEMICONDUCTOR, INC.
599,588 Shares of Common Stock, Consisting of
Shares of Common Stock Underlying Various Options and Warrants
This Prospectus relates to 599,588 shares of common stock, $.001 par
value per share (the "Common Stock"), of V3 Semiconductor, Inc., a Nevada
corporation (the "Company"), issuable upon exercise of 599,588 Options and or
Warrants (the "Options") which are currently outstanding. Each Option entitles
the holder to purchase one share of Common Stock at exercise prices ranging
from $1.75 to $6.25 per share (subject to adjustment). Options expire between
July 7, 1999 and February 22, 2006. See "Description of Securities."
The Common Stock is quoted on the Over the Counter ("OTC") Bulletin
Board under the symbol VVVI. On June 29, 1998, the last reported sale price of
the Common Stock was $3.94.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE
5 AND "DILUTION" ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------------------
The date of this Prospectus is , 1998
<PAGE>
PROSPECTUS SUMMARY
The following discussion summarizes certain information contained in
this Prospectus. It does not purport to be complete and is qualified in its
entirety by reference to more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Prospective investors are cautioned that the statements in this
Prospectus that are not descriptions of historical facts may be forward
looking statements that are subject to risks and uncertainties. Actual results
could differ materially from those currently anticipated due to a number of
factors, including those identified under "Risk Factors" and elsewhere in this
Prospectus or in documents incorporated by reference in this Prospectus.
The Company
V3 Semiconductor Inc. ("V3" or the "Company"') originates, designs,
develops and markets a family of high-performance, highly integrated chips and
chipsets for microprocessors which are found in computer peripheral devices,
network servers and telecommunications devices. Such microprocessors are
referred to in the industry as embedded processors ("Embedded Processors") and
are the central controllers for embedded systems ("Embedded Systems"). The
Company specializes in designing and developing semiconductor products that
provide direct-connect interfaces to popular embedded processors, such as the
Intel i960, the IBM PowerPC and the AMD 29K Series. The Company's products are
designed to facilitate implementation of common functions, such as
input/output ("I/O"), dynamic random access memory ("DRAM") and peripheral
component interconnect ("PCI") Bridge Controllers. V3 has designed its devices
to interface seamlessly with a wide variety of processors, which eliminates
the need for customers to expend time and effort converting a "generic
interface" to support their particular system architecture. The Company's
products are utilized in numerous applications, including networking,
communications, storage, printing and imaging, and multi-media.
The Embedded Systems market, which is the Company's primary market,
is expanding rapidly in response to the increasing need for speed and
functionality in servers, mass storage devices, computer networks and
telecommunications. The Company's major customers and/or technology partners
in the Embedded Systems market include; Intel, Motorola, IBM, Hitachi, QED,
Hewlett Packard, NorTel, Data General, Cabletron, Sony, Hughes, Adaptec and
Ascend/Cascade Communications.
The Company is at the leading edge of Embedded Systems architecture
and has developed products for new emerging standards, such as Intelligent I/O
("I2O") which provide solutions to data transfer problems that slow processor
performance. In an embedded system, the transfer of data between chips is a
crucial design issue that can negatively impact system performance. The
increasing need to move data faster and more efficiently will require
solutions supported by the Company's current and future products.
V3 was incorporated in Nevada in 1985 and is a public company with
its principal offices located in Toronto, Canada. The Company's shares began
trading on the OTC Bulletin Board in 1994 (symbol: VVVI). The Company's
principal offices are located at 250 Consumers Road, Suite 901, North York,
Ontario, Canada M2J 4V6 and its telephone number is (416) 497-8884.
The Offering
Securities Offered by the Company................ Stock issuable upon
exercise of outstanding
Options. See "Selling
Stockholder and Plan of
Distribution" for a
complete description of the
Options outstanding and the
holders of such Options.
Use of Proceeds.................................. Any money received by the
Company upon the exercise
of Options will be used for
working capital and other
corporate purposes. See
"Use of Proceeds."
Risk Factors..................................... An investment in the
securities offered involves
substantial risks, and
should be considered only
by investors who can afford
to sustain a loss of their
entire investment. See
"Risk Factors."
2
<PAGE>
Common Stock Outstanding Before
the Offering............5,461,528
Common Stock Outstanding After
the Offering.............6,061,116(1)
Special Voting Shares
Outstanding.............46,368(2)
OTC Bulletin Board Symbol VVVI
(1) Assuming all outstanding options and warrants are exercised.
(2) Special voting shares convert to Common Stock on a one for one basis and
have the same voting power as Common Stock.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary of financial information should be read in
conjunction with the Financial Statements and notes thereto appearing
elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
Six Months Ended March 31, Year ended September 30,
-------------------------- ------------------------
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ...................................... $ 1,725,888 $ 714,136 $ 1,951,453 $ 882,042
Gross profit .................................. 1,097,083 425,388 1,165,144 410,832
Income (loss) from operations ................. 1,188,063 681,986 1,424,856 1,190,830
Net income (loss) ............................. 268,200 (18,206) (124,596) (551,467)
Earnings (loss) per share(1) .................. 0.06 (0.00) (0.03) (0.13)
Shares of Common Stock outstanding(2) ......... 4,088,870 3,437,928 3,437,928 3,425,428
Voting Special Shares outstanding(2) .......... 46,368 697,310 697,310 709,810
Total Common Stock and Voting Special
Shares(1) .................................... 4,135,238 4,135,238 4,135,238 4,135,238
</TABLE>
Balance Sheet Data:
March 31, 1998 Year ended September 30,
-------------- ------------------------
Actual As Adjusted 1997 1996
------ ----------- ---- ----
Working Capital(3) ....... $ 774,431 $2,709,938 $ 485,292 $ 590,648
Total Assets(3) .......... 1,455,590 3,466,097 1,289,901 1,326,042
Total Liabilities ........ 317,522 317,522 431,900 345,648
Stockholders' Equity(3) .. 1,138,068 3,148,575 858,001 979,394
(1) Earnings (loss) per share are based upon the weighted average of the
total number of shares of Common Stock outstanding plus total number of
Voting Special Shares. Such computation represents basic and full dilution.
(2) Does not reflect conversion of 9,300 Voting Special Shares into 9,300
shares of Common Stock in November 1997, after the Company's fiscal year
end.
(3) Assuming all the 503,083 options and 96,505 warrants outstanding at June
22, 1998 are exercised.
4
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following
factors, in addition to the other information contained in this Prospectus, in
connection with investments in the securities offered hereby. This prospectus
contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this prospectus. An
investment in the securities offered hereby involves a high degree of risk.
Competition. Competition in the semiconductor industry is intense. As
the Embedded Systems market gains popularity due to its rapid growth, the
number of competitors will increase dramatically. In addition, new
architectures and new concepts may be responsible for new products that can
perform similar functions as the Company's products. Competition is based on
design and quality of the products, product performance, price and service,
with the relative importance of such factors varying among products and
markets. There can be no assurance that the Company will be able to compete
successfully in the future against existing or new competitors or that the
Company's operating results will not be adversely affected by increased price
competition.
The Semiconductor Industry. The semiconductor industry is
characterized by rapid technological change and frequent introduction of new
technology leading to more complex and powerful products. The result is a
cyclical economic environment generally characterized by short product life
cycles, rapid selling price erosion and high sensitivity to the overall
business cycle. In addition, substantial capital, engineering resources and
R&D investment is required for development and manufacture of products and
processes. Overall, the Company may experience periodic fluctuations in its
operating results because of industry wide conditions.
Product Complexity. Products as complex as those offered by the
Company may contain errors, "bugs" and defects that may impact device
specification and related performance, when first introduced or when new
versions are released. These errors, "bugs" or defects may impact the
Company's ability to ship its products and may necessitate a redesign, which
will have an adverse effect on production of new customer designs and product
shipments. Although every effort is made to alleviate these problems, there
are no assurances that, when the parts are tested either at the Company or at
the Samsung or Hyundai fabrication facilities, these problems will be
detected. The same part may have to go through several modifications to
correct these problems. Such defects could have a material adverse effect on
the Company's ability to ship and sustain existing customers.
Fluctuations in Financial Results. The Company's financial results
are affected by the business cycles and seasonal trends of the semiconductor
and related industries. Shifts in product mix toward, or away from, higher
margin products can also have a significant impact on the Company's operating
results. As a result of these and other factors, the Company's financial
results can fluctuate significantly from period to period.
Potential Failure to Develop New Products; Potential for
Technological Obsolescence. The semiconductor industry as a whole is
characterized by rapidly changing technology and industry standards, along
with frequent new product introductions. The Company's success in these
markets will depend on its ability to design, develop, manufacture, assemble,
test, market and support new products and enhancements on a timely and
cost-effective basis. There can be no assurance that the Company will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost-effective manner, or that products or
technologies developed by others will not render the Company's products or
technologies obsolete or noncompetitive. A fundamental shift in technology in
the Company's product markets could have a material adverse effect on the
Company.
Dependence on Key Customers and Strategic Relationships. The Company
has several large customers, certain of which have entered into strategic
alliances with the Company. Many of the Company's key customers operate in
cyclical industries and as a result their order levels have varied
significantly from period to period in the past and may vary significantly in
the future. Such customer orders are dependent upon their markets and
customers and may be subject to delays or cancellations. The loss of one or
more of such customers, or a declining market in which such customers reduce
orders or request reduced prices, could have a material adverse effect on the
Company.
Dependence on Third Party Manufacturers, Manufacturing Risks. The
Company does not manufacture any of its products, what is referred to in the
semiconductor industry as a "fabless" producer of semiconductors. Therefore
the Company is highly dependent upon third party manufacturers that can
produce semiconductors that meet the Company's specifications. The Company
currently has third party manufacturers that can produce semiconductors which
meet the Company's needs. However, as the industry continues to progress to
smaller manufacturing and design geometries, the complexities of producing
semiconductors will increase. Decreasing sizes may introduce new problems and
delays that may effect product deployment and deliveries. Due to the nature of
the industry and the Company being a "fabless" semiconductor company, there
could be, from time to time, fabrication
5
<PAGE>
related problems that may influence product availability. Introducing new
products or transferring existing products to a new fab or process may result
in unforeseen device specification and operating problems that may effect
product shipments which may be costly to correct. Silicon fab capacity may
also change or the costs per (silicon) wafer may increase as worldwide
semiconductor demand increases.
No Assurance of Market Acceptance. The Company's future success and
competitive position depends upon the continued market acceptance of its
current products and market acceptance of its new products in development.
There can be no assurance that the Company's products will continue to be
accepted in the market.
Dependence on Key Personnel. The Company's success depends to a
significant extent upon certain senior management, technical personnel and
electronic engineers. The Company believes that its future success will depend
in large part on its ability to hire and retain highly skilled technical,
managerial and marketing personnel, as well as its ability to attract and
retain replacements for or additions to such personnel in the future. As the
demand for new, specially trained and experienced electronic engineers
increases worldwide, there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of certain key
employees or the Company's inability to attract and retain other qualified
employees could have a material adverse effect on the Company's business. See
"Management."
Need for Additional Financing. The Company may not have sufficient
capital resources to develop and implement its business plan for the Company.
Therefore, the ultimate success of the Company may depend upon its ability to
raise additional capital. The Company has not investigated the current
availability, sources or terms of acquiring additional capital, and the Board
of Directors will not in all likelihood do so until it has determined a need
for such additional capital. If additional capital is needed, there is no
assurance that such capital will be available from any source or, if
available, made or proposed on terms which are acceptable to the Company. If
such capital is not available, it will be necessary for the Company to limit
its operations to those that can be financed with existing financial
resources.
Risks Associated with Intellectual Property. The Company's future
success and competitive position depends in part upon its ability to obtain
and maintain certain proprietary technology used in its principal products,
and the Company relies in part on patent, trade secret, trademark and
copyright law to protect that technology. Some of the technology is not
covered by any patent or patent application, and there can be no assurance
that any of the 4 patent applications filed by the Company will not be
invalidated, circumvented, challenged or licensed to others, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop technologies that are similar
or superior to the Company's technology, duplicate the Company's technology or
design around the patents owned or licensed by the Company. In addition,
effective patent, trademark, copyright and trade secret protection may be
unavailable, limited or not applied for in certain foreign countries. There
can be no assurance that steps taken by the Company to protect its technology
will prevent misappropriation of such technology.
The semiconductor industry is characterized by vigorous protection
and pursuit of intellectual property rights or positions, which have resulted
in significant and often protracted and expensive litigation. There is no
intellectual property litigation currently pending against the Company;
however, the Company may from time to time be notified of claims that it may
be infringing patents or other intellectual property rights owned by other
third parties. If it is necessary or desirable, the Company may seek licenses
under such patents or intellectual property rights. However, there can be no
assurance that licenses will be offered or that the terms of any offered
licenses will be acceptable to the Company. The failure to obtain a license
from a third party for technology used by the Company could cause the Company
to incur substantial liabilities and to suspend the manufacture or shipment of
products or the use by the Company of processes requiring the technology.
Litigation could result in significant expense to the Company, adversely
affecting sales of the challenged product or technology and diverting the
efforts of the Company's technical and management personnel, whether or not
such 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 or importation of
infringing products, expend significant resources to develop or acquire
non-infringing technology, discontinue the use of certain processes or obtain
licenses to the infringing technology. There can be no assurance that the
Company would be successful in such development or acquisition or that such
licenses would be available under reasonable terms and any such development,
acquisition or license could require expenditures by the Company of
substantial time and other resources.
Effects of Competition on Pricing; Unanticipated Competing Products.
The semiconductor industry is highly competitive. Competition is based on
price, product performance, quality, reliability and customer service. The
gross profit margins realizable in the Company's markets can differ across
regions, depending on the economic strength of end-product markets in those
regions. In addition, even in strong markets price pressures may emerge as
competitors attempt to increase market share by lowering
6
<PAGE>
prices on those products. Competition in the various markets served by the
Company comes from companies of various sizes, many of which are larger and
have greater financial and other resources than the Company and thus can
better withstand adverse economic or market conditions than can the Company.
In addition, companies not currently in direct competition with the Company
may introduce competing products in the future.
No Foreseeable Dividends. To date, the Company has paid no dividends
on its Common Stock. The payment of any future dividends will be at the sole
discretion of the Company's Board of Directors. The Company intends to retain
earnings to finance the expansion of its business and does not anticipate
paying dividends on the Common Shares in the foreseeable future. See "Dividend
Policy."
Control by Existing Shareholders; Anti-Takeover Effects. The
Company's executive officers, directors and other principal shareholders, in
the aggregate, beneficially own approximately 26% of the Company's outstanding
Common Shares. The voting power of these shareholders, under certain
circumstances, could have the effect of delaying or preventing a change in
control of the Company. See "Principal Shareholders." Further, the holders of
the Company's Common Shares are not entitled to accumulate their votes.
Accordingly, the holders of a majority of the Common Shares present at a
meeting of shareholders will be able to elect all of the directors of the
Company and the minority shareholders will not be able to elect a
representative to the Company's Board of Directors. See "Description of
Capital Stock; Common Shares."
Issuance of Additional Securities. The Board of Directors of the
Company will have authority to issue further Common Shares or other securities
without the consent or vote of the shareholders of the Company. The issuance
of additional Common Shares by the Company's management, whether in respect of
a transaction involving a business opportunity or otherwise, may have the
effect of further diluting the proportionate equity interest and voting power
of holders of Common Shares, including investors under this offering. See
"Description of Securities; Common Shares". Although the Company's Board of
Directors has no present intention to do so, it has authority, without action
by the Company's shareholders, to issue the authorized and unissued Preferred
Shares in one or more series and to determine the voting rights, preferences
as to dividends and liquidation, conversion right and other rights of such
securities, which rights may be superior to those of the Common Shares offered
hereby.
Restrictions on Resale; No Assurance of Market Making Activity. The
Common Shares are quoted on the OTC Bulletin Board, a regulated quotation
service that captures and displays real-time quotes and/or indications of
interest in securities not listed on The NASDAQ Stock Market or any U.S.
exchange. Although the Company shall make a good faith effort to have its
Common Stock listed on the NASDAQ SmallCap Market, there can be no assurance
that such listing will be obtained. No assurance can be given that an active
market will always be available for the Common Shares or as to the liquidity
of the trading market for the Common Shares. If a trading market is not
maintained, holders of the Common Shares may experience difficulty in
reselling such Common Shares or may be unable to resell them at all. Any such
market may be discontinued at any time. In addition, there is no assurance
that the price of the Common Shares in the market will be equal to or greater
than the offering price hereof. See "Description of Capital Stock"; "Trading
Information."
Potential Change to OTC Bulletin Board Listing Qualifications. NASD
Regulation, Inc. has introduced a proposed rule to limit quotations on the OTC
Bulletin Board to the securities of issuers that make current filings pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"). Furthermore, NASD
Regulation, Inc. has proposed rules which would require members to review
current issuer financial statements prior to recommending a transaction to a
customer in an OTC Bulletin Board security and to deliver a disclosure
statement to a customer prior to an initial purchase of an OTC equity
security. Such proposed rule changes, if enacted, could result in the
Company's Common Stock becoming de-listed from the OTC Bulletin Board and/or
may severely limit the trading activity of its securities.
Dilution. The present owners of shares of the Company's issued and
outstanding Common Stock have acquired a controlling interest in the Company
at a cost substantially less than that which the investors pursuant to this
Offering may purchase their Shares. Therefore, the investors pursuant to this
Offering will bear a substantial portion of the risk of loss, while control of
the Company will remain in the hands of the current management of the Company.
Investors in this Offering will suffer immediate and substantial dilution. See
"Dilution."
Necessity of Continuing Post-Effective Amendments to the Company's
Registration Statement and State Blue Sky Registration; Exercise of Warrants;
Obligation to Optionholders. Although the Options have not knowingly been sold
to purchasers in jurisdictions in which the Options are not registered or
otherwise qualified for sale, purchasers may move to jurisdictions in which
the Options and the Common Stock underlying the Options are not so registered
or qualified. In this event, the Company would be unable to issue Common Stock
to those persons desiring to exercise their Options unless and until the
Options and the underlying Common Stock are qualified for sale in
jurisdictions in which such purchasers reside, or an exemption from such
7
<PAGE>
qualification exists in such jurisdictions. There can be no assurance that the
Company will be able to effect any required qualification.
The Options will not be exercisable unless the Company maintains a
current Registration Statement on file with the Commission through
post-effective amendments to the Registration Statement containing this
Prospectus. This Registration Statement will no longer be "current" as of
August 14, 1998. Although the Company intends to file appropriate
post-effective amendments to the Registration Statement containing this
Prospectus, and to maintain a current Registration Statement on file with the
Commission relating to the Common Stock underlying the Options that is offered
hereby, there can be no assurance that such will be accomplished or that the
Options will continue to be so registered. See "Description of Securities."
The obligation to maintain a current registration statement may
impose a financial burden on the Company and create a contractual liability of
the Company to the Optionholders.
Shares Eligible for Future Sale. No assurance can be given as to the
effect, if any, that future sales of Common Stock, will have here on the
market price of Common Stock. Of the Company's shares of Common Stock
currently outstanding at June 29,1998, 3,934,816 are "restricted securities"
as that term is defined in Rule 144 under the Securities Act of 1933, as
amended ("Act"), and under certain circumstances may be sold without
registration pursuant to that rule. Subject to compliance with the notice and
manner of sale requirements of Rule 144 and provided that the Company is
current in its reporting obligations under the Securities Exchange Act of
1934, as amended, a person who beneficially owns restricted shares for a
period of at least two years is entitled to sell, within any three month
period, shares equal to the greater of 1% of the then outstanding shares of
Common Stock, or if the Common Stock is quoted on the NASDAQ System, the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of the required notice of sale with the Securities
and Exchange Commission. See "Shares Eligible For Future Sale." As of June 29,
1998, 2,566,488 shares of Common Stock, held by 23 beneficial owners, are
eligible for sale pursuant to Rule 144. The Company is unable to predict the
effect that sales made under Rule 144 or otherwise may have on the market
price of the Common Stock prevailing at the time of any sales. Nevertheless,
sales of substantial amounts of the restricted shares of Common Stock in the
public market could adversely affect the then prevailing market for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "Description of Securities - Shares Eligible for
Future Sale."
Possible Delisting and Risk of Low-Priced Securities. The Common
Stock currently trades on the NASD's OTC Electronic Bulletin Board. At June
15, 1998, the bid and asked prices were $3.94 and $4.13, respectively. The
NASD has more stringent criteria for listing of securities on NASDAQ. To
qualify for NASDAQ Small-Cap listing, NASDAQ requires satisfaction of certain
financial tests, including the attainment of specified minimum levels of
assets, income, net worth, and certain minimum requirements relating to the
market value of the securities to be listed (exclusive of shares owned by
insiders), as well as the number of shares and stockholders. Specifically, the
Company must have at least $4,000,000 in net tangible assets and a minimum bid
price of at least $4.00. However, there can be no assurance that the Company
will be able to satisfy certain other specified financial tests and market
related criteria required for quotation on NASDAQ. If the Company is unable to
satisfy the NASDAQ listing criteria in the future, its Common Stock will not
be eligible for trading on NASDAQ. Trading, if any, would continue to be
conducted in the over-the-counter market in the so-called "pink sheets" or the
"Electronic Bulletin Board" of the National Association of Securities Dealers,
Inc. ("NASD"), and consequently an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the price of the Company's
securities.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to include an equity security that
has a market price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on NASDAQ and
any equity security issued by an issuer that has (i) net tangible assets of at
least $2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has
been in continuous operation for less than three years, or (iii) average
annual revenue of at least $6,000,000, if such issuer has been in continuous
operation for less than three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the
risks association therewith. The broker-dealer must also provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer, and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and broker-dealer and salesperson
compensation information must be given to the customer orally or in writing
prior to effecting the transaction and must be given in writing before or with
the customer's confirmation. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules
the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market
for a stock that becomes subject to the penny stock rules. If the Company's
securities become subject to the penny stock rules, investors in this offering
may find it more difficult to sell such securities.
In addition, if the Company's securities are not quoted on NASDAQ, or
the Company does not have $2,000,000 in net tangible assets, trading in the
Common Stock would be covered by Rule 15g-9 promulgated under the Exchange Act
for non-NASDAQ and non-exchange listed securities. Under such rule,
broker/dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement
to a transaction prior to sale. Securities also are exempt from this rule if
the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Company's securities
could be severely affected. In such an event, the regulations on penny stocks
could limit the ability of broker/dealers to sell the Company's securities and
thus the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
Environmental Regulations. The Company believes that compliance with
federal, state and local laws or regulations which have been enacted or
adopted to regulate the environment has not had, nor will have, a material
effect upon the Company's capital expenditures, earnings, competitive or
financial position.
Forward Looking Statements and Associated Risks. This Prospectus contains
certain forward-looking statements, including among others (i) anticipated
trends in the Company's financial condition and results of operations, and (ii)
the Company's business strategy for managing and expanding its operations. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to other risks described elsewhere in this "Risk Factors" discussion,
important factors to consider in evaluating such forward-looking statements
include (i) changes in external competitive market factors or in the Company's
internal budgeting process which might impact trends in the Company's results of
operations; (ii) unanticipated working capital or other cash requirements; (iii)
changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the industries in which it operates;
and (iv) various competitive factors that may prevent the Company from competing
successfully in the marketplace. In light of these risks and uncertainties, many
of which are described in greater detail elsewhere in this "Risk Factors"
discussion, there can be no assurance that the events predicted in
forward-looking statements contained in this Prospectus will, in fact,
transpire.
Year 2000 Uncertainties. Recently, national attention has focused on the
potential problems and costs resulting from computer programs being written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 2000 complaint, there can be no assurance until the year 2000 that all
systems will function adequately then. If they do not, the result could be a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
8
<PAGE>
USE OF PROCEEDS
Any money received by the Company upon the exercise of the Options
will be used for working capital and general corporate purposes. The maximum
amount of proceeds that the Company will receive upon the exercise of the
Options is $2,010,694 (assuming the current exercise prices), less
approximately $75,000 in costs associated with this Offering. However, there
can be no assurance that any or all of the Options will be exercised and that
the Company will receive any proceeds therefrom.
DIVIDENDS
To date, the Company has paid no dividends on any shares of its
Common Stock and the Company's Board of Directors has no present intention of
paying any dividends on its Common Stock in the foreseeable future. See
"Description of Securities." The payment by the Company of dividends on the
Common Stock in the future, if any, rests solely within the discretion of the
Board of Directors and will depend upon, among other things, the Company's
earnings, capital requirements and financial condition, as well as other
factors deemed relevant by the Company's Board of Directors. Although
dividends are not limited currently by any agreements, it is anticipated that
future agreements, if any, with institutional lenders or others may also limit
the Company's ability to pay dividends on the Common Stock.
DILUTION
The net tangible book value of the Company's Common Stock at March
31, 1998 was approximately $.28 per share. Net tangible book value represents
the amount of the Company's tangible assets reduced by the amount of its
liabilities. Without taking into effect any change in net tangible book value of
the Company after March 31, 1998 other than as a result of the issuance of the
599,588 shares of Common Stock upon exercise of the options and warrants
outstanding, the Company's tangible book value as of March 31, 1998 would
have been approximately $.66 per share. This amount represents an immediate
increase in net tangible book value per share of approximately $.39 to the
present stockholders and an immediate dilution (the difference between the
exercise price of the shares and the net tangible book value per share after
the Offering) per share of approximately $2.69 to the purchasers of the Common
Stock.
The following table illustrates the dilution of one share of Common
Stock as of March 31, 1998.
DILUTION
Offering price per share of common stock (1) $3.35
Net tangible book value per share at March 31, 1998 $0.28
9
<PAGE>
Increase per share attributable to exercise of Options $0.39
Pro Forma tangible book value after exercise of Options $0.66
-----
Dilution to public investors $2.69
=====
(1) Represents weighted average exercise price per Common Stock based on the
assumption that all the 503,083 Options and 96,505 Warrants issued through
June 22, 1998 are exercised. Assuming all the Options and Warrants are
exercised such exercise will result in the issuance of 599,588 shares of
Common Stock.
10
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the capitalization of the Company
as of March 31, 1998, (ii) the pro forma capitalization of the Company on such
date assuming all of the outstanding Options are exercised into shares of Common
Stock and (iii) the Capitalization of the Company as adjusted for the net
proceeds of a subsequent private placement of securities. This table should be
reviewed in conjunction with the Company's Financial Statements attached as an
exhibit hereto.
<TABLE>
<CAPTION>
Capitalization As of
March 31, 1998
Actual Proforma(2) As Adjusted(3)
------ ----------- --------------
<S> <C> <C> <C>
Bank term loan 24,456 24,456 24,456
================ ============== ==============
Obligation under capital lease 4,246 4,246 4,246
================ ============== ==============
Shareholders equity
Special shares (1) 124 124 124
Common Shares (1) 4,089 4,666 6,061
Additional paid in capital (1) 1,648,849 3,658,757 8,031,384
Cumulative Translation Adjustment(1) 2,336 2,336 2,336
Deficit (517,330) (517,330) (517,330)
------------ ----------- --------------
Total Shareholders' equity 1,138,068 3,148,553 7,522,575
============ =========== ==============
Total Capitalization 1,166,770 3,177,277 7,551,277
============ =========== ==============
</TABLE>
(1) See Notes to the financial statements.
(2) Assuming all the 503,083 options and 96,505 warrants outstanding at
June 22, 1998 are exercised.
(3) Adjusted to reflect the net proceeds from a private placement which was
consummated subsequent to March 31, 1998, in the amount of $4,374,000,
representing the issuance of 1,372,658 shares of Common Stock.
11
<PAGE>
MARKET FOR SECURITIES
The high and low bid (price which a market maker is willing to pay
for the Share) and offered (price at which a market maker will sell the
Shares) quotations for the Company's Shares, as reported to the Company's
management by the OTC Bulletin Board are listed in the following chart. These
quotations are between dealers, do not include retail mark-ups, markdowns or
other fees and commissions, and may not represent actual transactions.
Date Low Bid High Bid Low Ask High Ask
- ---- ------- -------- ------- --------
Fiscal 1996
- -----------
December 31, 1995 $4.50 $7.50 $5.50 $8.25
March 31, 1996 $3.50 $5.875 $4.25 $6.875
June 30, 1996 $1.50 $6.00 $2.00 $8.00
September 30, 1996 $1.50 $4.125 $2.25 $8.00
Fiscal 1997
- -----------
December 31, 1996 $0.625 $3.25 $1.75 $4.25
March 31, 1997 $1.00 $3.00 $2.50 $4.50
June 30, 1997 $1.25 $4.125 $2.25 $5.00
September 30, 1997 $3.50 $4.375 $4.25 $5.25
Fiscal 1998
- -----------
December 31, 1997 $2.375 $4.25 $3.25 $5.00
March 31, 1998 $3.75 $7.00 $4.00 $7.75
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The statements contained in this Prospectus that are not historical
are forward looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future.
Forward-looking statements include the Company's statements regarding
liquidity, anticipated cash needs and availability and anticipated expense
levels. All forward looking statements included in this Prospectus are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward looking statement. It is
important to note that the Company's actual results could differ materially
from those in such forward-looking statements. Among the factors that could
cause actual results to differ materially are the factors detailed in the
risks discussed in the "Risk Factors" section.
Results of Operations
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September
30, 1996.
Sales
Sales increased 121% to $1,951,453 in fiscal 1997 from $882,042 for
the 1996 fiscal year. This increase in sales was a result of (i) an increase
in the number of customers purchasing the Company's products, (ii) an increase
in the number of products available for sale, (iii) an increase in shipments,
and (iv) additional sales personnel marketing the Company's products.
Gross Profit
Gross profit increased 184% to $1,165,144 in fiscal 1997 from
$410,832 in fiscal 1996. The increase in gross profit was a result of
increased sales combined with higher profit margins. The Company was able to
increase its gross profit percentage by (i) reducing the prices the Company
pays to its ASIC manufacturing subcontractors by 20% to 60% through negotiating
better pricing terms, and (ii) streamlining the product delivery structure.
Most of the Company's products are now shipped directly from its manufacturing
subcontractor to V3's third party inventory logistics partner. The logistics
partner, at the direction of V3, is responsible for shipping product to the
customer. As a result, all costs related to inventory storage, product handling,
quality inspections and product delivery are incurred by the logistics partner.
Other Income
Other income decreased by 67% to $259,712 in fiscal 1997 from
$779,998 in fiscal 1996. This decrease was a direct result of a reduction in
royalty payment from National Semiconductor Corporation ("NSC"). NSC has the
rights to manufacture and market an earlier version of the Company's Burst
Memory Controller ("BMC") product family. NSC paid the Company a royalty equal
to 50% of the selling price on the first 100,000 units shipped to their
customers; thereafter the royalty is reduced to 7.5% per unit. In January
1997, NSC shipped their 100,000th unit and as a result the royalty payable on
all additional units sold was reduced to 7.5% per unit. The reduction in
"Other Income" is a direct reflection of the reduction in the royalty
percentage. The Company believes that the decrease in royalty payments from
NSC will be offset by increased sales of its newer BMC products. The Company
is currently contacting customers that have purchased the Company's older BMC
products and converting them to its new line of BMC products.
Research & Development ("R&D") Expenditures
R&D expenditures decreased by 31% to $332,927 in fiscal 1997 from
$483,651 in fiscal 1996. The Company reduced the costs of its R&D by reducing
the number of modifications made to its products. Products are often modified
after they have been designed and produced due to shifting standards in the
semiconductor industry and because of bugs that may be discovered in early
versions of products. The Company has been able to reduce the number of
modifications or "re-spins" that it has to make to its products. For example,
in 1996 the Company re-spun its PCI Bridge Controllers ("PBC") three times and
in 1997 the Company did not have to re-spin its PBC device at all. The Company
further reduced its R&D expenses in 1997 by reducing the number of evaluation
boards designed and built in favor of an increased number of application
notes. In the past, the Company would demonstrate how its products worked in
applications by producing actual evaluation boards containing the Company's
products. Customers could then use these boards to evaluate the Company's
products. During 1997, the Company shifted to using application notes to
demonstrate its products rather than producing evaluation boards. The
application notes are essentially paper designs which demonstrate on paper how
customers can build systems with the Company's parts, without incurring the
costs of actually building
13
<PAGE>
the board level systems.
Loss for the year
Losses for the fiscal year 1997 were reduced by 77% to $124,596 as
compared to the loss of $551,467 for fiscal year 1996. The Company's reduction
in losses was a result of increased sales, increased profit margins, reduced
R&D costs and improvements in operating efficiencies.
Six Months Ended March 31, 1997 and 1998
Sales
Sales increased 142% to $1,725,888 for the first six months of fiscal
1998 from $714,136 for the first six months of the1997 fiscal year. This
increase in sales was a result of (i) an increase in the number of design wins
that are now shipping in production volumes, (ii) the introduction of an
updated SSC device and the release of the first members of the EPC product
family, (iii) an increase in the number of manufacturers representatives
promoting the V3 products and (iv) an increase in the number of design wins.
Gross Profit
Gross profit increased 158% to $1,097,083 in the first six months of
fiscal 1998 from $425,388 in the first six months of fiscal 1997. The increase
in gross profit was a result of increased sales and the continuing effort to
reduce the cost of goods sold. The Company was able to negotiate reduced
costing for all its products which resulted in a gross margin of 64% during the
first six months of fiscal 1998 versus a gross profit margin of 60% for the same
period in fiscal 1997. Most notable of these cost reductions was the 51%
reduction in the cost of the SSC device as a result of re-spinning that product.
There was a significant increase in commissions paid to the manufacturers
representatives however that increase can be attributed to the increased number
of manufacturers representatives promoting the V3 products as well as the
increase in sales.
Other Income
Other income decreased by 65% to $90,980 in the first six months of
fiscal 1998 from $256,598 in the first six months of fiscal 1997. Other income
is comprised, almost entirely of royalty income paid to V3 by National
Semiconductor Corporation ("NSC") for the rights to manufacture and market a
BMC design. The trend of decreasing royalty revenue is expected to continue as
NSC is simply maintaining their current customer base and is not trying to
expand it. Royalty payments are also expected to be reduced as more customers
upgrade to the newer versions of the BMC device that are only available from V3.
R&D expenditures
R&D expenditures increased by 63% to $230,904 in the first six months
of fiscal 1998 from $141,546 in the first six months of fiscal 1997. The
increase in R&D expenditures is due entirely to an increase in R&D salaries
and personnel. In order to release new products to the marketplace within the
ever shortening time windows the Company expects to more than double the
number of engineering personnel that it currently employs.
Net Income
Net income for the first six months of fiscal year 1998 was $268,200
as compared to the loss of $18,205 for first six months of fiscal year 1997.
The Company's return to profitability was a result of increased sales,
increased profit margins and improvements in operating efficiencies.
Liquidity and Capital Resources
14
<PAGE>
In the first six months of fiscal 1998, the Company had an increase
in cash from operations of $21,920. Cash flow from investing activities was
reduced $37,129 as a result of purchases of fixed assets.
On March 16, 1998, the Company through it s Placement Agent, The
Mason Cabot ("Mason Cabot") Division of W.J. Nolan & Co., undertook the
private placement of Common Stock of the Company at a price of $3.50 per
share. The offering contemplated a minimum gross amount of $1,000,000 and a
maximum of $5,500,000. On May 6, 1998, the initial closing was conducted in
which the Company sold 687,926 shares for aggregate gross proceeds of
$2,407,741. On June 15, 1998, the second and final closing was conducted in
which the Company sold 684,732 shares for aggregate gross proceeds of
$2,396,562. In the two closings the Company sold a total of 1,372,658 shares
of Common Stock for $4,804,303. Mason Cabot received a 7% selling commission
and a 1.5% non-accountable expense allowance for its services as placement
agents. The Company received net proceeds of this sale of approximately
$4,374,000. Management believes that the net proceeds of the private placement
together with accumulated cash deposits from operations will be sufficient to
meet the Company's capital need for the next 12 months.
In September 1997, the Company entered into a line of credit with the
Canadian Imperial Bank of Commerce ("CIBC") for a maximum of $140,000. No funds
have ever been drawn on this facility. This facility bears interest at the prime
rate, as established by the Royal Bank of Canada, plus two percent.
In April 1998, the Company entered into an agreement with the Export
Development Corporation ("EDC"), a company developed by the Government of
Ontario, Canada, whereby the Company purchases from EDC insurance, which covers
up to 90% of the Company's receivables. The premium for such insurance, on
average, equals one half of one percent of the Company's receivables in a given
month.
Year 2000
Many computer systems used today may be unable to interpret data
correctly after December 31, 1999, because they allow only two digits to
indicate the year in a date. The Company has been engaged in assessing this Year
2000 issue as it relates to its business. This project, along with developing
and implementing solutions to the Year 2000 issue is continuing. Management
currently anticipates that the project will be substantially completed before
the end of calendar year 1998 and will not have a material impact on the
Company's financial result or position.
Forward-Looking Statements
Certain statements in Management's Discussion and Analysis of financial
condition and Results of Operations and certain sections in this Prospectus are
forward looking. These may be identified by the use of forward-looking words or
phrases such as "believe", "expects", "anticipate", "should", "estimated" and
"potential", among others. These forward-looking statements are based on the
Company's reasonable current expectations. The Company notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements.
15
<PAGE>
BUSINESS
History
The Company was incorporated under the laws of the State of Nevada on
December 23, 1985 under the name Ariel, Inc. The Company was dormant and did
not engage in any business activities until April 1994 when the Company merged
with V3 Corporation and changed its name from Ariel, Inc. to V3 Incorporated.
V3 Corporation, was incorporated under the Ontario Business Corporations on
October 22, 1985. During the period from October 22, 1985 to April 1994, V3
Corporation engaged in the business of designing, engineering and marketing
semiconductors and integrated circuits. On April 18, 1994, the Company and V3
Corporation entered into a plan of reorganization agreement through which the
two companies merged into V3 Incorporated and in 1996, V3 Incorporated changed
its name to V3 Semiconductor, Inc.
Overview
The overall mission of the Company is to originate, design and market
high performance peripheral and core silicon products for the Embedded Systems
market. The Company believes that the Embedded Systems market has the
potential for significant growth as Embedded System applications evolve in
functionality from relatively simple industrial controllers to use in highly
complex networking and telecommunications applications.
The Company's products are designed to function in tandem with
specific microprocessors manufactured by third parties such as Intel
Corporation ("Intel"), Motorola Corporation ("Motorola"), International
Business Machines ("IBM"), Hitachi Semiconductor of America ("Hitachi"),
Quantum Effect Design ("QED"), Texas Instruments ("T.I."), Integrated Device
Technology ("IDT") and Advanced Micro Devices ("AMD"). Microprocessors, which
include microcontrollers or central processing units ("CPUs"), are the central
controllers of virtually all computer systems. In addition, they are also used
in a relatively invisible but very large segment of the computer industry as
"Embedded Controllers" in a variety of products and applications. The
Company's products work with these CPUs by directing and controlling the flow
of data between the CPUs and the various peripherals that the CPUs control.
Applications include servers, communication routers, data switches, mass
storage controllers, modems, facsimiles (fax) and imaging equipment,
telecommunication switching equipment, networking controllers,
instrumentation, industrial tools and consumer appliances.
The Company's products are co-peripherals to all major RISC
processors including, but not limited to, Intel's i960 family of processors,
IBM's PowerPC series and AMD's 29K, as well as embedded x86 processors which
are used for lower cost applications. In addition, with a minimum of
programming, the Company's controllers (System, Memory and PCI) can be used
with any and all embedded processors, such as: Motorola (PowerPC TM, 68K TM,
Coldfire TM, PowerQUICC TM families), Hitachi (Super-H TM, SCA-II TM Series),
MIPS TM Processors (QED, MIPS TM, IDT, NEC, Toshiba). The Company's products
are designed to be compatible with existing and new standards and technologies
such as PCI with I2O and are used in such new technologies as ATM, xDSL,
Ethernet (10BaseT), Fast Ethernet (100BaseT), Gigabit Ethernet etc.
The Company has identified target markets for its business, designed
and developed products that satisfy the requirements of key customers in those
markets, and established a number of important strategic alliances with Intel,
IBM, Motorola, Hitachi and QED. The Company is presently listed on Intel's and
Motorola's websites and believes it will be on Hitachi's, T.I.'s and QED's
websites in the near future. The Company's sales and marketing channels are
designed in order to provide total market coverage. The Company has now
reached the stage in the development of its business plan and has the right
management team in place, to aggressively pursue marketing and sales
strategies to maximize market share in its target markets and reinforce its
competitive advantages in the Embedded Systems market.
Product Lines
The Company produces processor specific semiconductors for the
Embedded Systems market. Semiconductors are integrated circuits (in which a
number of transistors and other elements are combined to form a more
complicated circuit) or discrete devices (such as individual transistors). In
an integrated circuit, various elements are fabricated in a small area of
silicon die or "chip", which is then encapsulated in plastic, ceramic or other
advanced forms of packaging and connected to a circuit board or substrate.
The Company's products are used by system designers creating Embedded
Systems utilizing high-speed RISC and 'Super Scalar' microprocessors. These
processors demand efficient coupling to memory and peripheral input/output
(I/O) devices in order to attain any degree of efficiency. The system designer
faces three alternative choices in achieving this coupling: (1) use PLDs or
FPGAs (Field Programmable Gate Array) which must be customized to the
application, (2) completely designing an ASIC from the
16
<PAGE>
beginning, or (3) using a V3 Semiconductor standard product which requires no
design work and whose functionality has been fully tested.
The Company's principal product lines fall into three categories:
Burst (DRAM) Memory Controllers (BMC Family), Small System Controllers (SSC
Family) and PCI Bridge Controllers (PBC, EPC & PSC Families). Today's market
demands also require support for these silicon devices in the form of
evaluation and reference design boards, application notes, documentation and
software that will enable engineers ease of interfacing to other devices in
their design.
Burst (DRAM) Memory Controllers
Semiconductor memory is typically available in two major types,
Static Random Access Memory ("SRAM") and Dynamic Random Access Memory
("DRAM"). For purposes of executing a program, a microprocessor has to read
and write data to and from memory. The overall speed of executing the program
is a function of the time spent waiting for data to be read or written.
Both SRAM and DRAM can perform this read/write function with equal
facility. SRAM devices are somewhat faster than DRAMs, however, they are
considerably more expensive, particularly in systems where a significant
amount of random access memory is required. DRAMs, while less expensive than
SRAMs, have a shorter data retention time and stored information must be
"refreshed" many times per second. Therefore, memory in DRAM devices require
greater amounts of control and management than SRAMs. In systems with
substantial read/write requirements, the savings that may result from using
DRAM are often negated as a result of the increased costs of efficient DRAM
management. With the advent of even higher speed RISC and "Super Scalar"
processors, an efficient control strategy is increasingly important if DRAMs
are to be included as a viable component for systems using these processors.
DRAM Controllers are integrated devices that are physically installed
between the microprocessor and an array of DRAM devices and execute the
appropriate control strategy to make DRAM devices behave like SRAM devices. If
a well designed DRAM Controller is used, the cost advantage of DRAM can be
enjoyed along with read/write capabilities that perform at levels approaching
those of SRAMs.
The Company's Burst Memory Controllers ("BMCs") are DRAM Controllers
designed specifically to reflect the particular requirements of the host
microprocessor selected by the system designer. The DRAM Controller interfaces
the host processor to the low cost commodity DRAMs manufactured by merchant
semiconductor manufacturers. Systems employing these controllers can replicate
the performance of a SRAM based system at a fraction of the cost, at lower
power levels, at higher speeds and with no design or production overhead to
either the DRAM manufacturer or the system designer. In order to increase
flexibility to system designers and to expand their marketability, most BMCs
have features that are software programmable, enabling these features to be
easily modified for performance or convenience.
The Company has a Canadian patent on a DRAM Controller design which
minimizes the power required and heat generated during the access stage with a
proprietary design feature that may only be functionally replicated by other
technologies at materially higher prices.
Small System Controllers ("SSC")
System Controllers are integrated chips that expand the functional
use of DRAM controllers by adding additional control features that would
normally be provided by external devices into a single, integrated device. The
Company's system controllers are designed to operate with specific
microprocessors such as Intel's i960 Sx/Jx, and IBM's PPC401 PowerPC
processors and are typically used in high-performance network equipment and
RAID (Storage) Controllers. The Company's SSC product family, allows system
designers to replace many lower integration support components with a single
integrated component. The Company's system controllers are designed to connect
directly to the processors they support without the need for any special
programming. This "glueless" interface greatly reduces development time for
system designers.
The Company's SSC System Controller family includes a high
performance DRAM controller, DMA controllers, interrupt management, serial
ports, I/O control logic, timers and I/O ports. The SSC can be combined with
Intel i960 or IBM PowerPC processors to build powerful, low-component count
add-in cards, robotics controllers and networking systems.
PCI Bridge Controllers (PBC)
17
<PAGE>
Peripheral Component Interconnect (PCI) is a new system "bus"
standard developed by more than 100 industry leading companies, including
Intel, IBM, AMD, H.P. and Apple to define a single standard method of
connecting CPUs to peripheral devices such as disk controllers, graphics
controllers and communication devices. A computer's "bus" is the medium
through which data is moved between the CPU and other peripheral devices (i.e.
the hard disc drive, graphics/video controllers, etc.). Various "bus"
standards have developed over the years that have allowed hard disc drives and
peripherals to be interchangeable among different computers. Most computers
today use the PCI bus interface which has replaced the Industry Standard
Architecture (ISA) bus interface.
The Company was the first company to go to production with devices
that supported the intelligent input/output (I2O) standard. This new standard
provides a software solution (along with PCI, a standard bus interface) which
optimizes CPU and system performance by handling the overhead of I/O
interrupts.
The Company has now launched its Second Generation of I2O PCI
Controllers, the EPC (Enhanced PCI Controller). The EPC has additional
functionality such as DMA Chaining, which supports Multi-Processor
capabilities. These features are in demand by mainly networking companies such
as: Cisco, Bay Networks, 3 Comm, Ascend/Cascade Communications, Hewlett
Packard, Cabletron, Nortel, Newbridge and others.
A more recent and more widely applicable family of PCI Controllers is
the PCI Slave Controller ("PSC"). This family is targeted for the cost
sensitive ISA devices, which are now migrating to PCI adapter cards. These are
lower cost, high volume products targeted for a lower-end adapter mass market
which in turn addresses the conversion from older limited and obsolete data
buses (ISA) to wider and more efficient ones (PCI).
Embedded Systems Industry Overview
According to Frost and Sullivan, a market research company, the total
embedded market (4, 8, 16 and especially 32 and 64 bit RISC Processors) is
expected to grow to approximately $34 billion by the year 2002. The embedded
market is driven by the increasing performance demands for speed and
functionality, of the server, mass storage, networking and communications
technologies. Global players, such as Intel, Motorola, IBM, Hitachi and
Hewlett Packard, who also are the Company's technology partners and/or
customers, attest to this unprecedented growth by investing heavily into
product development in RISC processors, new standards such as I2O and new 32
and 64 bit peripherals. Their heavy investments are driven either by the need
to develop, design and market end-user equipment or semiconductor products in
support of the embedded market.
According to Frost and Sullivan, the high-end 32 and 64 bit processor
segment of the embedded market is expected to exceed $9 billion by the year
2002. The embedded PCI market, a major subsection of the embedded market that
the Company serves, is expected to grow to $1.7 billion during the same time
period. The Company is targeting a subset of this market, the peripherals
sector, which is expected to grow to over $1 billion by the year 2002. The
Company's goal is to attain significant market share of this surging market by
2001. Emerging standards, such as I2O (Intelligent I/O) - which address and
resolve the serious and costly systems problem of data bottlenecks - create
new opportunities in this market, by providing solutions to data transfer and
CPU overhead problems. In an embedded system, these are crucial design issues
that seriously impact system performance. The increasing need to move data
faster and more efficiently will require solutions supported by the Company's
current and future products.
Initially the Company's products were developed to support RISC
processors in embedded applications. As Embedded Systems requirements have
evolved, driven mainly by networking and office equipment applications, the
Company has moved to designing more advanced products in support of the I/O
(input/output) needs that are driven by such industry leaders as Intel, IBM,
H.P., US Robotics, Compaq, Cisco, Bay Networks etc. New products may include a
RISC processor core or "coring" with a partner as part of a highly integrated
silicon based system, as well as other highly integrated peripherals targeted
for certain segments (telecom and data equipment, imaging, set-top and
high-end server) of the market.
Semiconductor Industry Market Structure
There are three major segments in the semiconductor industry: the
standard integrated circuit ("IC") segment, the application specific
integrated circuit ("ASIC") segment and the "chipset" segment which is a
hybrid of the other two segments. Each of these market segments can be further
subdivided into "merchant" and "captive" markets. The merchant market consists
of producers involved in sales to unrelated third parties, while the captive
market involves sales to affiliated parties. For example, while IBM is
reportedly the largest producer of semiconductors in the world, its production
is principally consumed internally by its "captive" vertically integrated
business groups. AMD , T.I., Motorola, SGS-Thompson and NSC, on the other
hand, are examples of merchant semiconductor suppliers.
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<PAGE>
IC Business Segment
The IC business segment generally sells two types of products:
relatively generic high volume, low margin devices (such as DRAM memory
devices), and proprietary technologies (such as microprocessors, peripheral
controllers, graphics ICs and signal processing ICs). In the "high volume"
product lines, key factors for success are cost controls, manufacturing
efficiency and quality. In the "proprietary" product areas, while cost and
quality issues remain relevant, intellectual property and innovative design
take precedence.
For most large semiconductor producers in the merchant market, volume
output and economies of scale are critical to success. However, costs of
production being relatively uniform (or at least potentially so) for larger
manufacturers, the value of a semiconductor manufacturer's products is
determined by market demand for the features embodied in those products.
Consumers of merchant market ICs select semiconductors for incorporation into
their products based principally on their functionality (roughly determined by
the surface area consumed per product unit) and the degree to which competing
designs can be excluded from the marketplace.
The volume requirements of major merchant market suppliers, their
cost of production constraints, and the effect that this has on product
selection for inclusion in the semiconductors they design and produce has
created opportunities for smaller and innovative semiconductor companies, such
as Cyrix, Atmel, Actel and Xilinx. This is the niche market in which the
Company operates. These kinds of producers are known in the industry as
"fabless" semiconductor manufacturers. These companies, under subcontracting
arrangements with larger semiconductor manufacturers, focus on developing
niche designs and products which can be incorporated into, or added on to, the
semiconductors manufactured by principal merchant market semiconductor
suppliers. Because fabless manufacturers do not have the high fixed costs
associated with semiconductor manufacturing, profitable sales can be made at
lower volume targets and their niche products can be brought to market both
independently and through arrangements with the principal merchant market
semiconductor manufacturers.
The Company, for example, has partnered with a traditional
semiconductor maker, National Semiconductor Corporation, to not only "make"
products for incorporation into NSC designs but also to develop, market and
sell ICs jointly with NSC.
ASIC Business Segment
ASICs are essentially customized ICs designed for specific customer
applications. The desire among manufacturers who use embedded control systems
to pursue differentiation in developing their own product designs, and their
needs to increase performance and reduce costs in a number of specific areas,
has fueled the demand for ASICs. While this should be, in theory, a highly
profitable value added undertaking for larger semiconductor manufacturers,
several factors have impeded market growth and profitability in this area. The
major problems of ASICs is that they are expensive to design, do not achieve
full functionality without substantial upgrading and have limited market scope
in the semiconductor merchant market as specific-purpose products. ASICs also
are not easily accommodated within the established architecture of most
systems. As a result, a number of semiconductor manufacturers specializing in
ASIC products have encountered serious financial difficulties and have either
discontinued operations or have been acquired by other firms in recent years.
For this reason, the Company has focused upon the chipset segment of the
semiconductor industry.
Chipset Business Segment
Traditionally, "chipsets" were not a part of the embedded market. The
Company's entry into the semiconductor business was founded on the premise
that 32-Bit RISC processors would change the embedded design marketplace. The
32-Bit RISC processors are inexpensive and powerful, and allow functions
traditionally implemented in hardware through the use of "chipsets" to be
moved into software without sacrifice in performance or cost. Through the use
of 32-Bit processors, the Company has defined "chipsets" for the embedded
marketplace. These "chipset" devices are part of a new segment of the IC
business segment known as Application Specific Standard Products ("ASSPs").
ASSPs are designed, manufactured, marketed and sold as merchant
market commodity devices or standard products and they are targeted at
interfacing key functions like memory control and other peripheral functions
to specific processors. The Company's interface devices cost less than
equivalent ASICs or discrete solutions that would otherwise be required, and
there are no development costs to the end-user.
The 32-Bit Embedded RISC market has exploded over the past 6 years
from 100,000 units shipped in 1989 to 7 million units shipped in 1994. In
1996, volumes are expected to exceed 15 million units for a total value of
over $1 billion and by 2002 to exceed
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<PAGE>
$7 billion. The Company has had an early start in this marketplace and given
its current and planned product mix, anticipates being a major player in this
market.
Marketing and Sales Strategy & Strategic Partnerships
The Company has identified target markets for its business, designed
and developed products that satisfy the requirements of key customers in those
markets, and established a number of important strategic alliances with Intel,
IBM, Motorola, Hitachi and QED. The Company is presently listed on Intel's and
Motorola's websites and believes it will be on Hitachi's, T.I.' s and QED's
websites in the near future. The Company markets it products through direct
sales to its major, global corporate customers; sales through the Company's
network of manufacturers' representatives which include major original
equipment manufacturers worldwide and sales through distributors. The Company
believes that it has reached the stage in the development of its business to
aggressively pursue marketing and sales strategies to maximize market share in
its target markets and reinforce its competitive advantages in the Embedded
Systems market.
The Company markets its products worldwide through a network of
manufacturers' representatives and distributors. The Company utilizes the
technical support, customer service and materials management of its
representatives and distributors. The Company's customers include Adaptec,
Ascend/Cascade, Cabletron, Data General, Hewlett Packard, Hitachi, Hughes
Communications, IBM, Kodak, NEC, Netspeed, Nortel, Samsung, Scitex and Sony.
The Company has developed a number of relationships with strategic
partners who combine the Company's products with their own in recommended
system solutions for customers. These include the i960 division of Intel, the
High End Microprocessor group of Motorola, the Embedded Processor Division of
AMD, the RISC product group of IDT, the Embedded Processor group of IBM, the
Embedded Super-H group of Hitachi and the MIPs Intellectual Property House
QED.
To date the Company's marketing strategy has focused on building
end-user and strategic partner confidence in its IC products. Information has
been disseminated to strategic partners and consultations have been held with
a view to presenting the Company's products as part of the strategic partners'
overall design solution to their customer's specific requirements. The Company
has been able to access the resources of its strategic partners to identify
target markets, determine market sizes, develop design proposals and
solutions, and establish pricing policies.
This third party marketing approach has enabled the Company to
develop a substantial base of customers. These alliances have been
particularly important in developing relationships and product distribution
channels to smaller customers who are more risk averse and less prepared to
embrace technology solutions offered by smaller suppliers such as the Company.
Due to its strategic relationships with established merchant market
manufacturers, the Company has been able to develop a level of confidence in
smaller suppliers that makes it easier to establish ongoing relationships with
them. Smaller customers are important to the Company's overall market
development strategy since they purchase smaller quantities of its products at
higher average selling prices. They also provide a more diverse and stable
revenue base than that which would apply if the Company held a small number of
large accounts.
Manufacturing
The Company does not own or operate silicon fabrication facilities
and therefore is referred to as a "fabless" semiconductor company. The Company
has chosen to be fabless as a result of (i) the significant front end costs of
constructing and owning silicon fabrication facilities (estimated at $500
million to $1 billion) and (ii) the overabundance of low cost fabrication
capacity available in the market. The Company has established strategic
foundry alliances with three semiconductor fabricators ("fabs") that meet the
Company's high-yield, low-cost requirements. The Company's semiconductor
manufacturers include: (i) Samsung, a high-volume production facility,
especially for new products, located in Korea, (ii) Hyundai, another
high-volume production facility in Korea, and (iii) Chip Express, a low
volume, quick-turnaround producer located in California. The Company is also in
discussions with IBM, Hitachi, TSMC, SGS-Thompson, KLSI, S-MOS/Seiko Epson and
UMC regarding fabrication.
To assure its products meet high-quality standards, the Company has
established a Manufacturing/Process Engineering group and a Quality Assurance
department. The continuous audits by these groups assure that the Company's
manufacturing partners and its employees have the discipline to meet the
quality requirements to establish ISO 9001 certification. The ISO 9001
certification is a quality management and quality assurance certification
standard developed by the International Organization for Standardization
("ISO"). The ISO 9001 certification is the highest standard in the ISO 9000
series. The ISO 9000 series was developed to provide an internationally
accepted system of rating quality and for providing product standardization V3
is the only company among its competitors that is ISO 9001 compliant, a
definite asset in getting approved with large customers such as NorTel and
H.P. etc.
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<PAGE>
Research and Development / Product Development
The Company has assembled a strong engineering team, comprised of
senior architects and designers from companies such as ATI and LSI Logic. The
Company's engineering group has designed and developed the Company's product
families, including the Burst Mode Controller and the System Controller
series, both of which remain in production today. The Company plans to expand
its product line and enter the 64-Bit PCI Controller market, based on customer
demands and embedded market and RISC processor evolution. The Company
maintains a continuous dialogue with customers and technology partners to
ensure that the Company's products incorporate features that are essential for
the rapidly evolving (embedded) systems design requirements. As a result, the
Company's new products will incorporate inputs from current customers (Hewlett
Packard, IBM, Bay Networks, Cisco, Nortel, Scitex, US Robotics, Kodak, Ascend
etc.) and leverage the expertise gained from joint product development with
Intel, IBM, Motorola, Hitachi, QED, IDT and Hewlett Packard. For example, the
Company utilized such expertise to become the first semiconductor company to
introduce and demonstrate a family of products compatible with the newly
emerging I2O standard.
Beta-Site and Key Customer Support Programs
As part of its product and market development strategy, the Company
supplies unpublished designs that it has developed to a small number of
end-users on a trial basis, and works with those end-users to further refine
and develop new products or modifications to existing products, that will meet
the requirements of a particular market segment.
The Company retains ownership and control over any proprietary
information disclosed under a Beta-site agreement and retains clear title to
any developments that may result from such joint efforts.
When the design specifications are finalized and product
functionality has been demonstrated, the Company is well positioned to provide
the ongoing supply requirements of those end-users or other end users in the
same market segment. This process of complementary development work with
end-users enhances the Company's design reputation, instills customer
confidence and expands potential markets for the Company's products.
V3 Cubed Corporation ("V Cubed")
V Cubed was incorporated under the laws of the State of Nevada on
September 30, 1994, and is qualified to do business in the State of
California. V Cubed is a wholly owned subsidiary of the Company that was
formed for the sole purpose of providing sales and marketing support for the
products of the Company. V Cubed's principal office is located at 2348 Walsh
Avenue, Santa Clara, California 95051.
In order to maximize the exposure of the Company's products to the
marketplace, it is important that strict attention be paid to product
marketing, customer support and sales support. While the design, manufacturing
and strategic positioning of the Company products are managed from the
corporate head office in Toronto, it was felt that the public face of the
Company should be located in a geographical region (historically and)
presently associated with the business of the Company and one with
geographical proximity to the Company's largest customer base in the world.
The net effect of establishing a presence in the heart of "Silicon
Valley" has been to spread the ability to support customers across several
time zones and to develop an image of the Company consistent with that which
customers expect. V Cubed is chartered with the responsibility of managing
customer contact on both a regional and worldwide basis even though resources
from the Toronto office are sometimes required to assist in this regard. The
Company's Vice President of Sales and Marketing resides at V Cubed and it is
the Company's goal to expand this location's resources significantly to take
advantage of this huge market.
V3 Semiconductor Corp.
V3 Semiconductor Corp. is a corporation organized under the laws of
the Province of Ontario, Canada and is a wholly owned subsidiary of the
Company. The Company's research and development (R&D) activities are conducted
through V3 Semiconductor Corp.
Properties
The Company leases its headquarters, a 7500 square foot facility
(soon to be expanded to 14,000 square feet) located in North York, Ontario.
The lease is for a term of 5 years and 6 months, expiring January 31, 2002,
with an annual base rent of Cdn.$7,491 for the first year, Cdn.$9,363.75 the
second year, Cdn.$11,236.50 the third year, Cdn.$14,982 the fourth year, and
Cdn.$18,727.50
21
<PAGE>
for the remaining term of the lease. The headquarters houses the Company's
President & CEO, Vice President of Engineering, General Manager and Financial
Officer and Corporate Secretary and the Director of Manufacturing and Quality.
The Company leases office space located in Santa Clara, California,
which is the principal office of its subsidiary, V3 Cubed. The lease is for a
term of one year, renewable annually, with an annual base rent of $1,785.
Employees
As of June 1, 1998, the Company currently employs approximately 28
individuals, including 4 senior executives, 11 engineers, 9 individuals in
sales and marketing, 4 individuals in operations and support staff. The plan
is to expand in 1998 engineering to 21, sales and marketing to 9, operations
to 6, finance to 1 and corporate to 3 for a total of 40, essentially doubling
the Company's personnel.
Legal Proceedings
A former employee and original founder of the Company filed a claim
against V3 Corporation, a wholly owned subsidiary of the Company, in August
1995. The suit, which has been brought in the Ontario Court (General Division)
(Commercial List), court file number B224/95, seeking damages of an undetermined
number of Class "A" preferred shares of V3 Corporation. In addition, a person
who was going to act as a finder to find investors for the Company filed a claim
against the Company in November 1995 alleging breach of contract. The suit has
been brought in the Ontario Court (General Division) court file number
95-CU-94054 and seeks damages of $6,000,000. The Company believes that it has
meritorious defenses to both of these actions and intends to vigorously contest
the actions. The Company is not aware of any other material legal proceedings
now pending or threatened against the Company.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position
John Zambakkides................. 48 President, Chief Executive
Officer and Director
Carl Mitchell.................... 37 General Manager, Secretary
and Treasurer
Michael Alford................... 37 Vice President of Engineering
Gregg Smith...................... 50 Vice President Sales and Marketing
Bernard N. Slade................. 74 Director
Jim Wilkinson.................... 50 Director
John A. Fazackerley.............. 62 Director
Robert Skinner................... 47 Director
Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
John Zambakkides. Mr. John Zambakkides joined the Board of Directors
of the Company in May, 1995 and on April 13, 1996, he was appointed as
President and Chief Executive Officer of the Company. Mr. Zambakkides has an
Electronics Diploma from Niagara College and an Electronics Bachelor of
Engineering from Ryerson Polytechnical Institute. From 1992 to 1996, Mr.
Zambakkides worked with InTELaTECH, Inc. From 1972 to 1992, Mr. Zambakkides
served as Regional Manager for Fairchild Semiconductor during which time he
helped to establish Fairchild in the Canadian market. After National
Semiconductor Corp. ("NSC") acquired Fairchild, Mr. Zambakkides was made
General Manager for NSC. Mr. Zambakkides served on the Board of Directors of
the Canadian subsidiaries of both Fairchild and NSC for a total of 13 years
where he contributed his expertise in the areas of sales, engineering and
corporate development. In addition, his expertise was supplemented by numerous
courses in management, finance as well as Total Quality Management ("TQM"),
whereby he was also an accredited instructor for the Canadian organization.
Carl Mitchell. Mr. Mitchell has served as the Company's General
Manager & Corporate Secretary since June 1994 and is responsible for the
General Administration and Management of the business operations of the
Company. Mr. Mitchell joined V3 Semiconductor Corp. in 1987 and was
responsible for writing and documenting the user interface for the Pc/La
Personal Logic Analyzer, as well as setting up and maintaining the
distribution channels for that product family. In 1989 Mr. Mitchell was
appointed Company Controller and was responsible for the accounting functions
as well as the preparation of the financial statements. Mr. Mitchell is
currently responsible for the operations, administration and financial &
corporate reporting of the V3 group of companies. Mr. Mitchell graduated from
the University of Toronto in 1984 with a Specialist Degree in Computer
Science. Prior to joining the Company, Mr. Mitchell was Software Group Manager
at Syntronics Inc.
Michael Alford. Michael Alford, B.E.Sc. (Electrical) graduated from
the University of Western Ontario in 1983 with a degree in Electrical
Engineering. Since that time Mr. Alford has developed a wide range of
experience in all phases of electronic design, with a particular emphasis on
the design of semiconductors. Mr. Alford was one of the first design engineers
employed by V3 and has recently returned as hardware design manager. Prior to
his return, he was the design group leader for multi-media products at ATI.
While at ATI Technologies, he led a team that designed part of an Intel i750
derivative for acceleration of digital video. He was also a project manager
for ATI's first video re-sizing and reformatting chip. He has experience in
ASIC and custom VLSI chip designs (CMOS technology), and he holds several
patents in the area of multi-media architectures. Mr. Alford graduated from
the University of Western Ontario in 1983 with a degree in Electrical
Engineering.
Gregg Smith. Mr. Smith has been the Vice President Sales and
Marketing since he joined the Company in 1997. Prior thereto, from 1986 to
1997, he was the Western Area Vice President with Future Electronics, Corp.
responsible for the largest territory in the world where he supervised the
management of eleven sales offices, employing more than 250 people. From 1975
to 1986 Mr. Smith worked for National Semiconductor Corp., first as Canadian
Regional Manager, then starting in 1979 as an Area Sales Manager
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<PAGE>
based in Arizona, then in 1982 as Area Sales Manager based in Southern
California. From 1972 to 1975 he was General Manager for one of Hamilton
Avnet's largest branches in North America. Mr. Smith is senior sales executive
with over 20 years experience in sales and sales management with national and
regional organizations in the manufacturer and distribution areas of the
Semiconductor Industry. Mr. Smith graduated from the University of New
Brunswick with a Bachelor of Science and Business Degree.
Bernard N. Slade. Mr. Slade was elected to the Company's board of
directors in April, 1996. Mr. Slade also serves on the board of directors of
YieldUp International, a firm he founded in 1993. From 1993 to 1984, Mr. Slade
acted as a consultant for Arthur D. Little, Inc. and Gemini Consulting. Prior
to becoming a consultant, Mr. Slade spent 28 years working for IBM, from 1956
to 1984, where he held a number of senior positions including management of
product development and manufacturing for the components division and
Corporate Director of Manufacturing Technology. From 1948 to 1956 Mr. Slade
worked in research and development for RCA. Mr. Slade is the author of
"Compressing Product Development Cycle" and "Winning the Productivity Race."
James Wilkinson. Mr. Wilkinson was elected to the Company's board of
directors in April, 1996 and is also currently working as a consultant in the
industry. From 1994 to 1997, Mr. Wilkinson served as the Vice-President, Chief
Operating Officer and Secretary to Tee-Comm Electronics, Inc. and has 30 years
of experience in corporate finance. From 1987 to 1994, Mr. Wilkinson served as
Vice President and Treasurer of Northern Telecom Ltd., and from 1984 to 1987
Mr. Wilkinson was the Assistant Treasurer of Corporate Finance for Northern
Telecom Ltd. Prior thereto, he held senior financial positions with Shell
Canada Ltd. and Canadian National Railway Co.
John A. Fazackerley. Mr. Fazackerley was elected to the board of
directors in September, 1997. Mr. John Fazackerley , founded Digital
Processing Systems in 1987 and is currently serving as its Chairman of the
Board. From 1975 to 1987, Mr. Fazackerley was employed by Scientific Atlanta.
When he joined Scientific Atlanta, he served as head of Broadband sales for
their newly established Canadian facility. In 1977 he was promoted to General
Manager and in 1987 he purchased Scientific Atlanta's studio (equipment)
products, under its Digital Video Systems division, and formed Digital
Processing Systems. Mr. Fazackerley has served as a director on the Board of
the Canadian Cable Television Association for seven years and he presently
serves as an international representative on the Management Committee of the
International broadcasting Convention in London, England. He was born in
Cheshire, England were he received his Radio and Television Engineering
diploma from Sanford University.
Robert Skinner. Mr. Skinner was elected to the board of directors in
March 1998. From 1992 to 1998 Mr. Skinner has managed his own investments,
specializing in emerging companies in the technology market. From 1980 to
1992, Mr. Skinner was an executive director of Bain Capital Markets Ltd., Bain
Securities Ltd., and Bain and Co. Ltd., the group holding company. He first
joined Bain and Co. in 1980 working in its Fixed Income Division, and soon
thereafter became a partner in the firm in December 1981. During his career
with Bain and Co. he was also involved in risk management, mortgage
securitization, and commodities markets with emphasis on both coal and
industrial metals. Mr. Skinner's experience in the securities industry
commenced in 1977, when he joined Capel Court Corporation Ltd., a merchant
bank, where he engaged in securities trading and structuring transactions.
Directors serve until the next annual meeting of stockholders or
until their successors are elected and qualified. Officers serve at the
discretion of the Board of Directors. Directors do not currently receive fees
for their services as directors, but are reimbursed for travel expenses.
Committees of the Board
The Company's Board of Directors has an Audit Committee responsible
for overseeing the preparation and approval of the Company's audited financial
statements and a Compensation Committee responsible for overseeing the
compensation of executive officers. In addition, the Company's Board of
Directors has appointed a committee, the Stock Option Plan Committee,
comprised of outside directors, which administers the Stock Option Plan, and a
committee to administer the Company's Employee Stock Purchase Plan.
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<PAGE>
Compensation of Directors
The Company's directors are compensated for their reasonable
out-of-pocket expenses for each meeting of the Board of Directors and for each
Board of Directors Committee meeting they attend. In addition, directors will
be awarded 10,000 options pursuant to the 1996 Stock Option Plan upon their
reelection and the next Annual Meeting.
Executive Compensation
The following table sets forth certain summary information with
respect to the compensation paid to the Company's Chief Executive Officer for
services rendered in all capacities to the Company for the year ended December
31, 1997. Other than as listed below, the Company had no executive officers
whose total annual salary and bonus exceeded $100,000 for that fiscal year:
<TABLE>
<CAPTION>
Other Annual All Other Long Term
Name and Principal Year Salary Compensation Bonus Compensation Compensation
Position Awards/Option(1)
<S> <C> <C> <C> <C> <C> <C>
John Zambakkides 1995 - - - - 160,000
President and Chief 1996 $72,282 - - -
Executive Officer 1997 $99,397 $8,172 - -
</TABLE>
(1) Options were granted on February 23, 1996 at an exercise price or $3.75
per share
The following table shows the value at December 31, 1997, of unexercised
options held by the named executive officers:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Value of
securities unexercised
underlying in-the-
unexercised money
options at options at
fiscal fiscal year-
year-end (#) end ($)
Name Shares Value Exercisable / Exercisable /
acquired on Realized unexercisable unexercisable
exercise (#) ($)
<S> <C> <C> <C> <C>
John
Zambakkides 0 0 95,000 / 65,000 $118,750 / $81,250
</TABLE>
Employment Arrangements
John Zambakkides has a five year employment agreement with the
Company, commencing January 1998 and thereafter renewable annually. The
agreement provides for a base salary of Cdn. $160,000, however Mr. Zambakkides
has elected to receive a salary of Cdn. $140,000. The employment agreement
provides for a car allowance of Cdn. $1,000 per month. In addition, Mr.
Zambakkides is entitled to receive a bonus and options based upon achieving
certain goals and objectives as determined by the Board of Directors.
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Employee Stock Option Plan
In February 1996, the Company adopted, by action of the board of
directors and stockholders, the 1996 Employee Stock Option Plan (the "Plan").
The Plan which was amended in February 1997, provides for the issuance of
incentive stock options to qualified employees. The Plan does not have an
expiration date. Set forth below is a summary of the Plan, but this summary is
qualified in its entirety by reference to the full text of the Plan, a copy of
which is filed as an exhibit to the Registration Statement, of which this
Prospectus is a part.
The Plan is authorized to grant options or other equity-based
incentives for 400,000 shares of the Common Stock. If shares subject to an
option under the Plan cease to be subject to such option, or if shares awarded
under the Plan are forfeited, or otherwise terminated without a payment being
made to the participant in the form of stock, such shares will again be
available for future distribution under the Plan.
Awards under the Plan may be made to key employees, including
officers of and consultants to the Company, its subsidiaries and affiliates,
including any director. The Plan Imposes no limit on the number of officers
and other key employees to whom awards may be made; however, no person shall
be entitled to receive awards which would entitle such person to acquire more
than 10% of the number of shares of Common Stock available under the Plan.
The Plan is to be administered by a committee of no less than two
disinterested directors to be appointed by the board (the "Committee"). No
member or alternate member of the Committee shall be eligible to receive
options or stock under the Plan (except as to the automatic grant of options
to directors) or under any plan of the Company or any of its affiliates. The
Committee has broad discretion in determining the persons to whom stock
options or other awards are to be granted, the terms and conditions of the
award, including the type of award, the exercise price and term and the
restrictions and forfeiture conditions. If no Committee is appointed, the
functions of the Committee shall be performed by the board of directors.
The Committee will have the authority to grant the following types of
awards under the Plan: incentive or non-qualified stock options. The Plan is
designed to provide the Committee with broad discretion to grant incentive
stock-based rights.
As of the date of this Prospectus, the Board granted stock options to
purchase an aggregate of 343,083 shares of Common Stock at exercise prices
between $1.25 and $6.25. Such exercise prices were determined by the Board to be
the fair market value per share on the date of grant. Under the Plan the options
become exercisable as to 20% upon grant and 20% on each of the next four
anniversaries of the grant, however the Committee at its discretion can
establish other vesting schedules. The options which have been granted expire
between July 7, 1999 and February 22, 2006.
Employee Stock Purchase Plan
On February 12, 1996, the Board of Directors approved an employee
stock purchase plan. The plan reserves 20,000 shares of Common Stock, out of
the shares of Common Stock reserved under the Stock Option Plan, for eligible
employees and permits employees to purchase Common Stock through payroll
deductions at a purchase price of 90% of the fair market value of the Common
Stock on the purchase date.
Limitation on Liability of Directors
The Nevada General Corporation Law permits a corporation, through its
Certificate of Incorporation, to exonerate its directors from personal
liability to the corporation, or to its stockholders, for monetary damages for
breach of fiduciary duty of care as a director, with certain exceptions. The
exceptions include a breach of the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, improper declarations of dividends, and transactions from
which the directors derived an improper personal benefit. The Company's
Certificate of Incorporation exonerates its directors from monetary liability
to the extent permitted by this statutory provision. The Company has been
advised that it is the position of the Securities and Exchange Commission that
insofar as the foregoing provision may be invoked to disclaim liability for
damages arising under the Act, that provision is against public policy as
expressed in the Act and is therefore unenforceable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1998, and as adjusted
to give effect to the sale of 599,588 shares of Common Stock issuable upon
exercise of the Option, certain information concerning beneficial ownership of
shares of Common Stock with respect to (i) each person known to the Company to
own 5% or more of the outstanding shares of Common Stock, (ii) each director
of the Company, (iii) the executive officers of the Company, and (iv) all
directors and officers of the Company as a group:
Name Number of Shares Approximate
Beneficially Percentage of As
Owned Common Stock Adjusted
John Zambakkides(1) 0 0% 3%
Carl Mitchell(2) 712,339 13% 12%
Michael Alford(3) 443,248 8% 8%
Alan Simmons(4) 730,409 13% 12%
Bernard N. Slade(5) 60,000 1% 1%
Jim Wilkinson(6) 0 0% 0%
John A. Fazackerley(7) 0 0% 0%
Robert Skinner(8) 200,002 4% 3%
Patrick Prentiss 543,654 10% 9%
Bellingham Industries Inc. 599,857 11% 10%
All Officers and Directors as 1,415,589 26% 28%
a Group (4 persons)
- ------------------
Except as noted above, the address for the above identified officers
and directors of the Company is c/o V3 Semiconductor, Inc., 250 Consumers
Road, Suite 901, North York, Ontario, Canada M2J 4V6.
(1) Does not include 160,000 shares of Common Stock issuable upon exercise of
the stock options granted John Zambakkides as part of a special grant,
which are immediately exercisable.
(2) Includes 50,000 shares of Common Stock owned by Mr. Mitchell's wife.
(3) Includes 140,000 shares of Common Stock owned by Mr. Alford's wife.
(4) Includes 159,000 shares of Common Stock owned by Mr. Simmons' wife and
21,205 shares of Common Stock owned by Mr. Simmons' parents and 174,650
shares of Common Stock owned by Mr. Simmons' mother-in-law.
(5) Does not include 25,000 shares of Common Stock issuable upon exercise of
stock options granted under the Company's ESOP plan. Includes 20,000
shares owned by Mr. Slade's wife and 6,000 shares owned by Mr. Slade's
son.
(6) Does not include 25,000 shares of Common Stock issuable upon exercise of
stock options granted under the Company's ESOP plan.
(7) Does not include 15,833 shares of Common Stock issuable upon exercise of
stock options granted under the Company's ESOP plan.
(8) Includes 200,002 shares of Common Stock owned by Cedar Capital Limited.
Robert Skinner is the sole shareholder of Cedar Capital Limited. Does not
include 10,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's ESOP plan.
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CERTAIN TRANSACTIONS
A shareholder, Alan Simmons, provided consulting and management
services to the Company for fees in the amount of $67,757 for 1997 and $65,814
in 1996. These amounts are included in the Company's Research and Development
expense.
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DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 50,000,000 Common
Shares, par value $0.001 per share, 10,000,000 Preferred Shares, par value
$0.001 per share ("Common Stock" or "Common Shares") and 3,400,000 shares of
special voting stock ("Voting Special Shares"), par value $.0005 per share. As
of the date hereof, 5,461,528 shares of Common Stock and 46,368 Voting Special
Shares are currently issued and outstanding.
Common Stock
Holders of shares of Common Stock are entitled to one vote per share
on each matter submitted to vote at any meeting of shareholders. Common Stock
does not carry cumulative voting rights and, therefore, holders of a majority of
the outstanding shares of Common Stock will be able to elect the entire Board
of Directors, and, if they do so, minority shareholders would not be able to
elect any members to the Board of Directors. The Company's Board of Directors
has authority, without the action by the Company's shareholders, to issue all
or any portion of the authorized but unissued Common Stock, which would
reduce the percentage ownership of the Company of its shareholders and which
may dilute the book value of the Common Stock.
The Company's by-laws provide that one third of the shares issued and
outstanding and entitled to vote on a matter shall constitute a quorum for
shareholders' meetings, except with respect to matters for which a greater
quorum is required by law.
Shareholders of the Company have no pre-emptive rights to acquire
additional Common Stock. The Common Stock are not subject to redemption and
carry no subscription or conversion rights. In the event of liquidation of the
Company, the Common Stock are entitled to share equally in corporate assets
after satisfaction of all liabilities. All of the Common Stock currently
issued and outstanding are fully paid and non-assessable.
Holders of Common Stock are entitled to receive such dividends as
the Board of Directors may from time to time declare out of funds legally
available for the payment of dividends. The Company has not paid dividends on
its Common Stock and there can be no assurance that it will pay dividends in
the foreseeable future. See "Dividend Policy" and "Risk Factors".
Holders of 1,372,658 shares of Common Stock which were purchased from
the Company in a private placement of securities in May and June of 1998 have
certain registration rights and are entitled to include in certain
registration statements filed by the Company during the five year period
following the completion of such Private Placement such information as
may be required to permit a public offering of any of the Common Stock
purchased in the Private Placement (the "Registerable Securities") limited in
the case of a Regulation A offering to the amount of the available exemption,
except for any registration statement filed by the Company on Forms S-4 or S-8
(including any Form S-3 related to such Form S-8) or any other comparable form
or any registration statement relating to Common Stock underlying employee
stock options. The Company shall bear all costs relating to the registration
except for the holders' pro rata portion of the legal costs and except
commissions or discounts and fees of the under holder's own professionals, if
any. Provided, however, that this provision shall not apply to any shares of
Common Stock if such Shares of Common Stock may then be sold within a
six-month period under Rule 144 of the Act, assuming the holder's compliance
with the provisions of such Rule, and the Company delivers an opinion of
counsel to that effect to the transfer agent; and provided, further, that if
the offering with respect to which a registration statement is filed is
managed by an independent underwriter, then (i) if in the reasonable judgment
of the managing underwriter, which shall be evidenced by a writing delivered
to the undersigned, the sale of the shares of Common Stock in connection with
the proposed offering would have a material adverse effect on the offering,
the undersigned shall not sell its shares of Common Stock under such
registration statement until 90 days after the effective date of such
registration statement, and (ii) if securities are to be registered for the
benefit of any other selling security holder ("Selling Holder"), the holder
shall be entitled to sell immediately under such registration statement a
percentage of the total number of shares of a particular class of securities
owned by the undersigned equal to the highest percentage of that class to be
sold under such registration statement (vis-a-vis the total number of
securities of that class owned) by any such Selling Holder, with the holder
being entitled to sell the balance of its shares of Common Stock under such
registration statement commencing 90 days after the effective date of the
registration statement.
The Company has agreed to provide holders of the 1,372,658 shares of
Common Stock thirty days prior written notice of the intended filing date of
any registration statement, other than a registration statement held on Form
S-4 or Form S-8 (including any Form S-3 related to such Form S-8) or any other
comparable form or any registration statement relating to Common Stock
underlying employee stock options.
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Voting Special Shares
Holders of Voting Special Shares are entitled to one vote per share
but are not otherwise entitled to receive any dividends from the Company or
any proceeds in the event of the liquidation, dissolution or winding up of the
Company. The Voting Special Shares are convertible at any time into shares of
Common Stock on a one for one basis.
Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Company's Board of
Directors. The Company's Board of Directors has authority, without action by
the shareholders, to determine the voting rights, preferences as to dividends
and liquidation, conversion rights and any other rights of such series. Any
Preferred Shares, if and when issued, may carry rights superior to those of
the Common Shares. The Company currently has no plans to issue any Preferred
Shares.
Options and Warrants
Of the 599,588 Options and Warrants outstanding, Options and Warrants
representing 485,373 shares have vested and are currently exercisable. 343,083
Options have been issued pursuant to the Company's ESOP. Options granted under
the ESOP are granted at an exercise price which equals 100% of the fair market
value of the Common Stock on the date of the grant. John Zambakkides, the
President and Chief Executive Officer of the Company has received 160,000
Options outside of the ESOP (120,000 of which have vested). Mr. Zambakkides'
Options are exercisable at $3.75 per share. 120,000 of these Options expire on
February 22, 2006 and 40,000 of these Options expire on February 22, 2001. The
Mason Cabot division of W.J. Nolan & Co., received 96,505 Warrants as part of
its compensation for acting as placement agent in the Company's 1998 private
placement. These Warrants expire three years from the date of grant and are
exercisable at $3.50 per share.
Trading Information
The Common Shares are quoted on the OTC Bulletin Board, a regulated
quotation service that captures and displays real-time quotes and/or
indications of interest in securities not listed on The NASDAQ Stock Market or
any U.S. exchange. As of June 29, 1998, the closing price for the Common Stock
was $3.94 and the 52 week high and low prices were $7.75 and $2.75,
respectively. Information as to trading volumes, and bid and asked prices, for
the Common Shares may be obtained directly from the OTC Electronic Bulletin
Board. See "Market for Securities".
Legal Matters
Certain legal matters in connection with the Offering will be passed
upon for the Company by its United States securities counsel, Sichenzia, Ross
& Friedman LLP 135 West 50th Street, 20th Floor, New York, New York, 10020.
Certain members of Sichenzia, Ross & Friedman LLP are the beneficial owners of
an aggregate 10,000 shares of Common Stock of the Company.
Experts
The financial statements for each of the two fiscal years ended
September 30, 1997 and 1996, appearing in this Prospectus and Registration
Statement have been audited by KPMG, Toronto, Chartered Accountants, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company has outstanding
5,461,528 shares of Common Stock, without taking into account shares of Common
Stock issuable upon exercise of the Options.
Of the Company's shares of Common Stock currently outstanding,
3,939,146 are "restricted securities" as that term is defined in Rule 144
under the Securities Act of 1933, as amended ("Act"), and under certain
circumstances may be sold without registration pursuant to that rule. As of
the date of this Prospectus, 2,566,488 shares of Common Stock, held by 23
beneficial owners, are eligible for sale pursuant to Rule 144.
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<PAGE>
In general, under Rule 144 as currently in effect, subject to
satisfaction of certain other conditions, a person (or persons whose shares
are required to be aggregated), including any affiliate of the Company, who
beneficially owns "restricted shares" for a period of at least two years is
entitled to sell within any three-month period, a number of shares that does
not exceed the greater of 1% (54,675 as of the date of this prospectus) of the
then outstanding shares of Common Stock, or if the Common Stock is quoted on
the NASDAQ System, the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of the required notice of
sale with the Securities and Exchange Commission. The seller also must comply
with the notice and manner of sale requirements of Rule 144, and there must be
current public information available about the Company. In addition, any
person (or persons whose shares are aggregated) who is not, at the time of the
sale, nor during the preceding three months, an affiliate of the Company, and
who has beneficially owned restricted shares for at least three years, can
sell such shares under Rule 144 without regard to any of the limitations
described above.
No predictions can be made of the effect, if any, that future sales
of restricted shares or the availability of restricted shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the restricted shares of Common Stock in the public
market could adversely affect the then prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities.
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<PAGE>
SELLING STOCKHOLDER AND
PLAN OF DISTRIBUTION
The Selling Stockholders and number of securities owned are as
follows:
Options and Warrants
John Zambakkides 160,000 ( 1)
Carl Mitchell 40,000 ( 2)
Michael Alford 40,000 ( 3)
Gregg Smith 30,000 ( 4)
Steven Eng 10,000 ( 5)
Alan Simmons 15,000 ( 6)
Bernard Slade 25,000 ( 7)
Jim Wilkinson 15,833 ( 8)
John A. Fazackerley 25,000 ( 9)
Phillip J. Sikora 5,000 (10)
Vikram Gandhi 10,000 (11)
Michael Tressider 15,000 (12)
Mansur Abdulhusein 5,000 (13)
Mack Baba 6,000 (14)
Kam - Pui Tang 4,000 (15)
Alan Tsun 21,000 (16)
Ann McMichael 4,750 (17)
Debra Fraser 2,500 (18)
Emily Hodgkinson 8,000 (19)
Farborz Pourbigharaz 12,000 (20)
Felix Ho 1,000 (21)
Gregory Agostinelli 4,000 (22)
Mitchell Kahn 10,000 (23)
Watany Benjamel 3,000 (24)
Robert Skinner 10,000 (25)
Jayesh Patel 2,000 (26)
Jaclyn Beder 2,000 (27)
Mark Sprague 5,000 (28)
David Fox 2,000 (29)
Myil Rumkumar 2,000 (30)
Ali Djamalian 2,000 (31)
Hassan M, Anklis 3,000 (32)
Michael Feldman 3,000 (33)
W.J. Nolan & Co. 96,505 (34)
(1) John Zambakkides, the Company's President and Chief Executive Officer, was
issued an aggregate 160,000 Options to purchase Common Stock of the Company.
These options were not issued under the Company's ESOP. Of such options: (i)
120,000 options are exercisable at $3.75 per share, expire on February 22,
2006, and were granted in February 1996 in connection with Mr. Zambakkides
original employment with the Company; and (ii) 40,000 options are exercisable
at $3.75 per share, expire on February 22, 2001, and were granted in February
1996 in connection with Mr. Zambakkides. employment as a Director of the
Company.
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<PAGE>
(2) Carl Mitchell, the General Manager, Secretary and Treasurer of the
Company, received an aggregate of 40,000 Options to purchase Common Stock of
the Company in connection with the Company's ESOP. Of such options: (i) 25,000
options were granted on May 3, 1996, and are exercisable at $1.93, expire on
May 2, 2001; and (ii) 15,000 options were granted on March 26, 1997, are
exercisable at $ $2.22 per share and expire on March 25, 2002.
(3) Michael Alford, Vice President of Engineering of the Company, received an
aggregate of 40,000 Options to purchase Common Stock of the Company pursuant
to the Company's ESO. Of such Options: (i) 25,000 Options were granted on May
3, 1996, and are exercisable at $1.93, expire on May 2, 2001; and (ii) 15,000
Options were granted on March 26, 1997, are exercisable at $2.22 per share and
expire on March 25, 2002.
(4) On November 3, 1997, Gregg Smith, the Company's Vice President of Sales
and Marketing, received an aggregate of 30,000 Options to purchase Common
Stock of the Company in connection with the Company's ESOP. Such Options are
exercisable at $3.125 per share and expire on November 2, 2002.
(5) On August 11, 1997, Steven Eng, the Company's Director of Manufacturing
and International Marketing, received an aggregate of 10,000 options to
purchase Common Stock of the Company in connection with the Company's ESOP.
Such options are exercisable at $3.25 share and expire on August 10, 2002.
(6) Alan Simmons, received an aggregate of 15,000 options to purchase Common
Stock of the Company in connection with the Company's ESOP. Of such options:
(i) 5,000 options were granted on May 3, 1996, and are exercisable at $1.93,
expire on May 2, 2001; and (ii)10,000 options were granted on March 26, 1997,
are exercisable at $2.22 per share and expire on March 25, 2002.
(7) Bernard N. Slade, a member of the Board of Directors of the Company,
received an aggregate of 15,000 options to purchase Common Stock of the
Company in connection with the Company's ESOP. Of such options: (I) 5,000
options were granted on May 3, 1996, and are exercisable at $1.93, expire on
May 2, 2001; (ii)10,000 options were granted on March 26, 1997, are
exercisable at $2.22 per share and expire on March 25, 2002 and (iii) 10,000
options were granted on March 26, 1998 at $6,25 per share which expire March
25, 2003.
(8) Jim Wilkinson, a member of the Board of Directors of the Company, received
an aggregate of 15,000 options to purchase Common Stock of the Company in
connection with the Company's ESOP. Of such options: (i) 5,000 Options were
granted on May 3, 1996, and are exercisable at $1.93, expire on May 2, 200;
(ii) 10,000 Options were granted on March 26, 1997, are exercisable at $2.02
per share and expire on March 25, 2002 and (iii) 10,000 options were granted.
(9) On August 26, 1997, John A. Fazackerley, a member of the Board of
Directors of the Company, received an aggregate of 5,833 Options to purchase
Common Stock of the Company in connection with the Company's ESOP. Such
Options are exercisable at $4.50 per share and expire on August 25, 2002 and
10,000 Options were granted.
(10) On October 6, 1997, Phillip J. Sikora, an employee of the Company,
received an aggregate of 5,000 Options to purchase Common Stock of the Company
in connection with the Company's ESOP. Such Options are exercisable at $4,86
per share and expire on October 5, 2002.
(11) On September 2, 1997, Vikram Gandhi, an employee of the Company, received
an aggregate of 10,000 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $4,50 per
share and expire on September 1, 2002.
(12) On June 16, 1997, Michael Tressider, an employee of the Company, received
an aggregate of 10,000 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $3.0470
per share and expire on June 15, 2002. On March 1, 1998 he received 5,000
options exercisable at $5,50 which expire February 28th, 2003.
(13) On May 3, 1996, Mansur Abdulhusein, an employee of the Company, received
an aggregate of 5,000 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $1.75 per
share and expire on May 3, 2001.
(14) On May 3, 1996, Mark Baba, an employee of the Company, received an
aggregate of 5,000 options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $1.75 per
share and expire on May 3, 2001. On March 26, 1997 he received 1,000 Options
under the ESOP exercisable at $2.02 which expire March 25, 2002.
(15) On March 26, 1997, Kam-pui Tang, an employee of the Company, received an
aggregate of 4,000 Options to purchase Common
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Stock of the Company in connection with the Company's ESOP. Such Options are
exercisable at $2.02 per share and expire on March 25, 2002. Mr. Tang
exercised 100 Options at $2.02 on February 20, 1998.
(16) On May 3, 1996, Alan Tsun, an employee of the Company, received an
aggregate of 17,000 options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $1.75 per
share and expire on May 2, 2002. On March 1, 1998 he received 4,000 Options at
$5,50 exercisable per share which expire February 28, 2003.
(17) On May 3, 1996, Ann McMichael, an employee of the Company, received an
aggregate of 3,750 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $1.75 per
share and expire on May 2, 2002. She received 1,000 Options under the ESOP on
September 21st, 1997 at $4.75 per share which expire September 20, 2002.
(18) On February 26, 1997, Debra Fraser, an employee of the Company, received
an aggregate of 2,500 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options will be exercisable at $3,25
per share and expire on February 25, 2002.
(19) On May 3, 1996, Emily Hodgkinson, an employee of the Company, received an
aggregate of 6,000 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $1.75 per
share and expire on May 2, 2001. On March 26, 1997 she received 2,000 Options
at an exercise price or $2.02 which expire March 25, 2002.
(20) On May 3, 1996, Fariborz Pourbigharaz, an employee of the Company,
received an aggregate of 12,000 Options to purchase Common Stock of the
Company in connection with the Company's ESOP. Such Options are exercisable at
$1.75 per share and expire on May 2, 2001.
(21) On December 19, 1997 Felix Ho, an employee of the Company, received an
aggregate of 1,000 Options to purchase Common Stock of the Company in
connection with the Company's ESOP. Such Options are exercisable at $4,00 per
share and expire on December 18, 2002.
(22) On May 16, 1997, Gregory Agostinelli, an employee of the Company,
received an aggregate of 4,000 Options to purchase Common Stock of the Company
in connection with the Company's ESOP. Such Options are exercisable at $2.50
per share and expire on May 15, 2002.
(23) On July 8, 1996, Mitchell Kahn, the former President of the Company,
received an aggregate of 10,000 Options to purchase Common Stock of the
Company in connection with his employment termination settlement. Such Options
are exercisable at $2.75 per share and expire on July 7, 1999.
(24) Watany Benjamel received Options on December 22, 1997 to purchase 3.000
shares of Common Stock under the ESOP. The Options are exercisable at $3.86
per share and expire on December 21, 2002.
(25) Robert Skinner a director of the Company received Options on March 26,
1998 to purchase 10,000 of Common Stock at an exercise price of $6.25 per
share. The Options expire on March 25, 2003.
(26) Jayesh Patel received Options on April 28, 1998 to purchase 2,000 shares
of Common Stock under the ESOP. The Options are exercisable at $5.13 per share
and expire on April 27, 2003.
(27) Jaclyn Beder received Options on April 21, 1998 to purchase 2,000 shares
of Common Stock under the ESOP. The Options are exercisable at $5.86 per share
and expire on April 20, 2003.
(28) Mark Sprague received Option on ESOP April 6, 1997 to purchase 5,000
shares of Common Stock at $5.86 per share. The Options expire on April 5,
2003.
(29) David Fox received 2,000 Options under the ESOP on May 25, 1998. The
Options are exercisable at $4.63 per share and expire on May 24, 2003.
(30) Myil Rumkumar received 2,000 Options under the ESOP on May 25, 1998. The
Options are exercisable at $4.63 per share and expire on May 24, 2003.
(31) Ali Djamalian received 2,000 Options under the ESOP on June 1, 1998. The
Options are exercisable at $4.25 per share and
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<PAGE>
expire on May 31, 2003.
(32) Hassan M. Anklis received 3,000 Options under the ESOP on June 1, 1998.
The Options are exercisable at $4.25 per share and expire on May 31, 2003.
(33) Michael Feldman received 3,000 Options under the ESOP on June 15, 1998.
The Options are exercisable at $4.13 per share and expire on June 14, 2003.
(34) W. J. Nolan & Co. Received 96,505 Options (48,154 on May 6, 1998 and
48,351 on June 22, 1998). The Options are exercisable at $3.50 per share and
expire three years from the date of grant.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement
under the Act with respect to the Securities offered hereby. This Prospectus
omits certain information contained in the Registration Statement and the
exhibits thereto, and reference is made to the Registration Statement and the
exhibits thereto for further information with respect to the Company and the
Securities offered hereby. Each such statement is qualified in its entirety by
such reference. The Registration Statement, including exhibits and schedules
filed therewith, may be inspected without charge at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and its public reference facilities
in New York, New York and Chicago, Illinois upon payment of the prescribed
fees. Electronic registration statements filed through the Electronic Data
Gathering, Analysis, and Retrieval System are publicly available through the
Commission's Website (http://www.sec.gov). At the date hereof, the Company was
not a reporting company under the Securities Exchange Act of 1934, as amended.
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INDEX TO FINANCIAL STATEMENTS
V3 Semiconductor Inc.:
Report of Independent Auditors.............................. F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders Equity............................ F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7 - F-24
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
V3 Semiconductor Inc.
We have audited the accompanying consolidated balance sheets of V3
Semiconductor Inc. as at September 30, 1997 and 1996 and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as at September 30, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in accordance with generally
accepted accounting principles in the United States.
KPMG
Chartered Accountants
North York, Canada
November 27, 1997, except for note 16
which is dated June 22, 1998
F-2
<PAGE>
V3 SEMICONDUCTOR INC.
Consolidated Balance Sheets
(Stated in United States dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
March 31 September 30
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
(unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 520,373 $ 558,676 $ 313,250
Accounts receivable, net of allowance for doubtful
accounts of $3,332 at March 31, 1998; $1,104 at
September 30, 1997 and $Nil at September 30, 1996 397,088 231,892 390,211
Inventories (note 2) 143,324 95,452 148,549
Prepaid expenses 31,168 31,172 19,726
- ----------------------------------------------------------------------------------------------------------
1,091,953 917,192 871,736
Capital assets (note 3) 363,637 372,709 453,306
- ----------------------------------------------------------------------------------------------------------
$1,455,590 $1,289,901 $1,325,042
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 233,979 $ 331,844 $ 195,563
Accrued liabilities 32,193 27,160 16,642
Income taxes payable 2,465 2,534 367
Deferred revenue 20,183 6,699 --
Current portion of bank term loan (note 4(a)) 24,456 55,313 61,191
Current portion of obligation under capital
leases (note 5) 4,246 8,350 7,325
- ----------------------------------------------------------------------------------------------------------
317,522 431,900 281,088
Bank term loan (note 4(a)) -- -- 56,092
Obligation under capital leases (note 5) -- -- 8,468
Shareholders' equity:
Capital stock:
Preferred shares:
Authorized 10,000,000; no shares
issued and outstanding (note 6) -- -- --
Special shares:
Authorized 3,400,000; 46,368 shares
issued and outstanding at March 31,
1998; 697,310 and 709,810 shares issued and
outstanding at
September 30,1997 and 1996 (note 6) 124 449 455
Common shares:
Authorized 50,000,000; 4,088,870 shares issued and
outstanding at March 31, 1998; 3,437,928 and
3,425,428 shares issued and outstanding at
September 30, 1997 and 1996 (note 6) 4,089 3,438 3,425
Additional paid-in capital 1,648,849 1,649,175 1,649,182
- ----------------------------------------------------------------------------------------------------------
1,653,062 1,653,062 1,653,062
Cumulative translation adjustment 2,336 (9,531) (12,733)
Deficit (517,330) (785,530) (660,935)
- ----------------------------------------------------------------------------------------------------------
1,138,068 858,001 979,394
Commitments (note 11)
Contingent liabilities (note 12)
Subsequent event (note 16)
- ----------------------------------------------------------------------------------------------------------
$1,455,590 $1,289,901 $1,325,042
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
V3 SEMICONDUCTOR INC.
Consolidated Statements of Operations
(Stated in United States dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Six months ended Years ended
March 31 September 30
1998 1997 1997 1996
- ------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Sales $ 1,725,888 $ 714,136 $ 1,951,453 $ 882,042
Cost of sales:
Cost of goods sold 563,280 278,009 749,083 413,962
Selling commissions 65,525 10,739 37,226 57,248
- ------------------------------------------------------------------------------------------------------
628,805 288,748 786,309 471,210
- ------------------------------------------------------------------------------------------------------
1,097,083 425,388 1,165,144 410,832
Other income (note 7) 90,980 256,598 259,712 779,998
- ------------------------------------------------------------------------------------------------------
1,188,063 681,986 1,424,856 1,190,830
Expenses:
Selling, general and
administrative 595,359 431,918 950,390 1,012,802
Research and
development (note 8) 230,904 141,546 332,927 483,651
Depreciation and amortization 46,201 67,003 143,151 128,497
Rent and utilities 43,562 43,902 77,252 56,786
Bank charges and interest 3,837 6,444 10,700 21,429
- ------------------------------------------------------------------------------------------------------
919,863 690,813 1,514,420 1,703,165
- ------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 268,200 (8,827) (89,564) (512,335)
Income taxes:
Current 119,617 14,370 54,877 39,132
Tax benefit of utilization
of loss carryforward (119,617) (4,992) (19,845) --
- ------------------------------------------------------------------------------------------------------
-- 9,378 35,032 39,132
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ 268,200 $ (18,205) $ (124,596) $ (551,467)
- ------------------------------------------------------------------------------------------------------
Net income (loss)
per share - basic and
diluted (note 13) $ 0.06 $ 0.00 $ (0.03) $ (0.13)
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
V3 SEMICONDUCTOR INC.
Consolidated Statements of Changes in Shareholders' Equity
(Stated in United States dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Total Share
- ----------------------------------------------------------------------------------------------------------------------------------
Paid-In
Capital
Special Capital Total
shares and Retained Share-
Special shares Common shares and Additional Earnings Cumulative holders'
Par Par Common Paid-in (Accumulated) Translation Equity
Shares Value Shares Value Shares Capital Deficit) Adjustment (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1995 1,623,194 $ 812 2,712,044 $2,712 $1,649,538 $1,653,062 $(109,468) $(9,784) $1,533,810
Changes during the
year:
Conversion of special
shares to common shares (713,384) (357) 713,384 713 (358) -- -- -- --
Cancellation of special
shares (note 6(a)) (200,000) -- -- -- -- -- -- -- --
Loss for the year -- -- -- -- -- -- (551,467) -- (551,467)
Translation adjustment -- -- -- -- -- -- -- (2,949) (2,949)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30,
1996 709,810 455 3,425,428 3,425 1,649,182 1,653,062 (660,935) (12,733) 979,394
Changes during the
period:
Conversion of special
shares to common shares (12,500) (6) 12,500 13 (7) -- -- -- --
Loss for the period -- -- -- -- -- -- (18,205) -- (18,205)
Translation adjustment -- -- -- -- -- -- -- (10,489) (10,489)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997
(unaudited) 697,310 449 3,437,928 3,438 1,649,175 1,653,062 (679,140) (23,222) 950,700
Changes during the
period:
Loss for the period -- -- -- -- -- -- (106,390) -- (106,390)
Translation adjustment -- -- -- -- -- -- 13,691 13,691
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30,
1997 697,310 449 3,437,928 3,438 1,649,175 1,653,062 (785,530) (9,531) 858,001
Changes during the
period:
Conversion of special
shares to common shares
(unaudited) (650,942) (325) 650,942 651 (326) -- -- -- --
Net income (unaudited) -- -- -- -- -- -- 268,200 -- 268,200
Translation adjustment
(unaudited) -- -- -- -- -- -- -- 11,867 11,867
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31,
1998 (unaudited) 46,368 $ 124 4,088,870 $4,089 $1,648,849 $1,653,062 $(517,330) $ 2,336 $1,138,068
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
V3 SEMICONDUCTOR INC.
Consolidated Statements of Cash Flows
(Stated in United States dollars)
- --------------------------------------------------------------------------------
Six months ended Years ended
March 91 September 30
1998 1997 1997 1998
- --------------------------------------------------------------------------------
Operating activites:
Net income (loss) $ 268,200 $(18,205) $(124,596) $(551,487)
Add items not involving cash:
Depreciation and
amortization 46,201 67,003 143,151 128,497
Changes in non-cash working
capital balances:
Accounts receivable (165,196) 28,400 158,319 (240,345)
Income taxes (69) 6 2,167 13,704
Inventories (47,872) 30,711 53,097 (17,018)
Prepaid expenses 4 10,000 (11,446) (5,948)
Accounts payable (97,865) (646) 136,281 (71,552)
Accrued liabilities 5,033 (16,642) 10,518 16,642
Deferred revenue 13,484 -- 6,699 --
- --------------------------------------------------------------------------------
Total resources provided by
(used by) operating activities 21,920 101,627 374,190 (727,487)
Investing activities:
Additions to capital assets (37,129) (22,216) (62,553) (254,929)
- --------------------------------------------------------------------------------
Total resources used
by investing activities (37,129) (22,216) (62,553) (254,929)
Financing activities:
Repayment of bank term loan (30,857) (32,007) (61,970) (69,042)
Repayment of loan payable -- -- -- (99,733)
Repayment of obligations
under capital lease (4,104) (11,411) (7,443) --
Increase in obligations under
capital lease -- -- -- 15,793
- --------------------------------------------------------------------------------
Total resources used by
financing activities (34,961) (43,418) (69,413) (152,982)
- --------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (50,170) 35,993 242,224 (1,135,398)
Effect of currency translation
adjustments on cash flow 11,867 (10,489) 3,202 (2,949)
Cash and cash equivalents,
beginning of period 558,676 313,250 313,250 1,451,597
- --------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 520,373 $ 338,754 $ 558,676 $ 313,250
- --------------------------------------------------------------------------------
Cash paid for:
Interest $ 2,358 $ 4,969 $ 8,337 $ 18,305
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
1. Significant accounting policies:
(a) Basis of presentation:
V3 Semiconductor Inc. (the "Company"), is incorporated under the laws of
the State of Nevada. The consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries, V3 Semiconductor
Corp., a Canadian company incorporated under the Ontario Business
Corporations Act and V Cubed Corporation, a California-based company,
registered in the State of Nevada. All intercompany balances and
transactions have been eliminated. The Company's principal business
activities are the design and development of integrated circuits for the
embedded computer market.
(b) Inventories:
Raw materials, which are used in the production of computer boards,
are valued at the lower of cost or replacement value. Finished
goods, which consists of embedded chips are valued at the lower of
cost (cost has been determined on the average cost basis) or net
realizable value.
(c) Capital assets:
The Company records capital assets at cost, net of accumulated
depreciation and amortization. These assets are depreciated over
their estimated useful lives as follows:
- --------------------------------------------------------------------------------
Asset Basis Rate
- --------------------------------------------------------------------------------
Furniture and equipment Declining balance 20%
Computer equipment Declining balance 30%
Computer software Declining balance 30%
Patent Straight line 17 years
- --------------------------------------------------------------------------------
(d) Share issue costs:
Share issue costs are charged against share capital.
(e) Revenue recognition:
Revenues from the sale of chipsets and chips are recognized at the
time of shipment.
F-7
<PAGE>
1. Significant accounting policies (continued):
(f) Research and development costs:
Research and development costs are charged to operations as incurred
less investment tax credits related to these costs.
(g) Foreign currency translation:
The Company's Canadian subsidiary measures and reports its results
in Canadian dollars. The amounts relating to assets and liabilities
have been translated into United States dollars at the current
balance sheet rate and amounts relating to the profit and loss
accounts have been translated using the year's average exchange
rate. Differences arising from currency translation are presented as
a component of shareholders' equity.
(h) Income taxes:
The Company records income taxes using the asset and liability
method as required by the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts that are more likely than not to be realized. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rates changes are enacted.
(i) Use of estimates:
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements,
and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-8
<PAGE>
1. Significant accounting policies (continued):
(j) Cash and cash equivalents:
The Company considers all highly liquid investments purchased with a
maturity of 90 days or less to be cash equivalents. Cash and cash
equivalent balances consist of cash balances and monthly term
deposits.
2. Inventories:
Inventories are comprised of the following:
- --------------------------------------------------------------------------------
March 31 September 30
1998 1997 1996
- --------------------------------------------------------------------------------
Raw materials $ 18,999 $ 14,501 $ 18,243
Finished goods 124,325 80,951 130,306
- --------------------------------------------------------------------------------
$143,324 $ 95,452 $148,549
- --------------------------------------------------------------------------------
3. Capital assets:
- --------------------------------------------------------------------------------
Accumulated Net Book
March 31, 1998 Cost Amortization Value
- --------------------------------------------------------------------------------
Furniture and equipment $119,050 $ 49,097 $ 69,953
Computer equipment 252,886 131,607 121,279
Computer software 383,490 229,559 153,931
Patent 9,124 1,452 7,672
Computer equipment under
capital lease 21,361 10,559 10,802
- --------------------------------------------------------------------------------
$785,911 $422,274 $363,637
- --------------------------------------------------------------------------------
F-9
<PAGE>
3. Capital assets (continued):
- --------------------------------------------------------------------------------
Accumulated Net Book
September 30, 1997 Cost Amortization Value
- --------------------------------------------------------------------------------
Furniture and equipment $111,387 $ 41,158 $ 70,229
Computer equipment 231,100 115,204 115,896
Computer software 384,657 219,208 165,449
Patent 9,381 1,312 8,069
Computer equipment under
capital lease 21,962 8,896 13,066
- --------------------------------------------------------------------------------
$758,487 $385,778 $372,709
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Accumulated Net Book
September 30, 1996 Cost Amortization Value
- --------------------------------------------------------------------------------
Furniture and equipment $ 97,110 $ 24,646 $ 72,464
Computer equipment 196,079 72,505 123,574
Computer software 381,114 151,326 229,788
Patent 9,513 963 8,550
Computer equipment under
capital lease 22,271 3,341 18,930
- --------------------------------------------------------------------------------
$706,087 $252,781 $453,306
- --------------------------------------------------------------------------------
4. Banking facilities:
(a) The bank term loan bears interest at the bank prime rate plus 2%, is
repayable in monthly payments of $5,028 plus interest, is secured by
a specific charge on certain capital assets, a general assignment of
accounts receivable and a general security agreement. The loan
matures on August 31, 1998.
(b) The Company has a $143,980 line of credit payable on demand, which
bears interest at the Canadian bank prime rate plus 2% of which none
was drawn at March 31, 1998. Advances under the facility are secured
by a general security agreement covering substantially all the
assets of the Company.
F-10
<PAGE>
5. Obligation under capital leases:
The obligation under capital leases represents the total present value of
future minimum lease payments discounted at the implicit interest rate of
12.9% in the lease.
The following is a schedule, by year, of future minimum lease payments
under capital lease:
- --------------------------------------------------------------------------------
March 31 September 30
1998 1997 1996
- --------------------------------------------------------------------------------
Year ending September 30:
1997 $ - $ - $ 8,868
1998 4,253 8,746 8,130
- --------------------------------------------------------------------------------
Total minimum lease
payments 4,253 8,746 16,998
Less amount representing
interest (7) (396) (1,205)
- --------------------------------------------------------------------------------
4,246 8,350 15,793
Current portion of obligation
under capital leases 4,246 (8,350) (7,325)
- --------------------------------------------------------------------------------
$ - $ - $ 8,468
- --------------------------------------------------------------------------------
6. Capital stock:
The authorized capital stock of the Company consists of: 50,000,000
common shares with a par value of $.001 each, 10,000,000 preferred
shares, which may be issued in different series and whose rights and
privileges are to be determined at the time of issue, and 3,400,000
special shares with a par value of $0.0005 each. The special shares are
voting, are not entitled to any dividends and can not be transferred
without the consent of the Board of Directors.
The holders of the special shares are able to exchange one special share
together with one preferred share of V3 Semiconductor Corp. for one
common share of the Company. Except for this conversion right, it is the
intention of the directors to refuse to permit any sales, transfers or
other dispositions of the special shares of the Company or the preferred
shares of V3 Semiconductor Corp.
F-11
<PAGE>
6. Capital stock (continued):
(a) Pursuant to the terms of an escrow agreement, the Company's stock
transfer agent held 400,000 special shares of the Company and
400,000 preferred shares of V3 Semiconductor Corp., which would be
issued if certain profit performance targets were met by June 30,
1995 and March 31, 1996, otherwise they are subject to cancellation.
In 1996 and 1995, 200,000 shares were cancelled each year, since the
targets had not been met.
(b) During fiscal 1996, the board of directors approved an employee
share purchase plan. The plan reserves 20,000 common shares for
purchase by eligible employees and permits employees to purchase
common stock through payroll deductions at a purchase price of 90%
of the fair market value of the common shares on the purchase date.
No shares have yet been issued under this plan.
(c) Stock option plan:
During fiscal 1996, the board of directors approved an employee
stock option plan. Pursuant to the plan, 250,000 common shares are
reserved for issue to eligible employees. During fiscal 1997, the
board of directors approved an amendment to the employee stock
option plan to increase the shares reserved for issue from 250,000
common shares to 400,000. In addition, the board of directors
approved the issuance of 10,000 options to each director as
compensation.
A total of 481,983 share options were granted and approved by the
board of directors which expire between July 1999 and March 2003. Of
this total, 90,833 options were granted to the members of the board
of directors and 160,000 options were granted to an officer and
director of the Company. The options granted to the officer and
director of the Company are in addition to the options reserved for
under employee stock option plan. The options exercise prices range
from $1.75 to $6.25 per share.
F-12
<PAGE>
6. Capital stock (continued):
The Company measures compensation cost for stock option awards issued to
employees using the intrinsic value based method of accounting prescribed
by the United States Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Had compensation cost for
these plans been determined under the provisions of the United States
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" which
utilizes a fair value based method, the Company's net income (loss) and
earnings (loss) per share would have been changed to the following pro
forma amounts:
- --------------------------------------------------------------------------------
March 31
1998 1997
- --------------------------------------------------------------------------------
As Pro As Pro
reported forma reported forma
- --------------------------------------------------------------------------------
Net income(loss) $ 268,200 $ (68,475) $ (18,205) $ (128,273)
Basic earnings
(loss) per share 0.06 (0.02) (0.00) (0.03)
- --------------------------------------------------------------------------------
September 30
1997 1996
- --------------------------------------------------------------------------------
As Pro As Pro
reported forma reported forma
- --------------------------------------------------------------------------------
Net income(loss) $ (124,596) $ (319,321) $ (551,467) $(1,156,910)
Basic earnings
(loss) per share (0.03) (0.08) (0.13) (0.27)
- --------------------------------------------------------------------------------
For purposes of the pro forma disclosures, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option
pricing model with following weighted average assumptions used for
options as at March 31, 1998 and 1997, September 30, 1997 and 1996,
respectively: risk-free interest rates of 5.2%, 5.4%, 5.0% and 5.0%;
expected dividend yields of 0%, 0%, 0% and 0%; expected volatility of
90%, 90%, 90% and 90%; and expected lives of 5 years, 5 years, 5 years
and 5 years.
F-13
<PAGE>
6. Capital stock (continued):
Certain additional disclosures with respect to stock-based compensation
are as follows:
Stock option information:
- --------------------------------------------------------------------------------
March 31
1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
- --------------------------------------------------------------------------------
Balance, beginning
of period 384,083 $2.87 283,750 $2.95
Options granted 98,000 4.75 69,500 2.18
Options exercised 100 2.02 -- --
- --------------------------------------------------------------------------------
Balance, end of period 481,983 $3.27 353,250 $2.80
- --------------------------------------------------------------------------------
Exercisable, at end
of period 381,938 302,895
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
September 30
1997 1996
- --------------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
- --------------------------------------------------------------------------------
Balance, beginning
of period 283,750 $2.95 -- $ --
Options granted 100,333 2.67 283,750 2.95
- --------------------------------------------------------------------------------
Balance,
end of period 384,083 $2.87 283,750 $2.95
- --------------------------------------------------------------------------------
Exercisable, at end
of period 322,798 243,750
- --------------------------------------------------------------------------------
F-14
<PAGE>
6. Capital stock (continued):
Stock options outstanding and exercisable as at March 31, 1998 are as
follows:
- --------------------------------------------------------------------------------
Options outstanding Options exercisable
- --------------------------------------------------------------------------------
Weighted
average
remaining
contractual
Exercise price Number life Number
- --------------------------------------------------------------------------------
$ 1.75 - 2.00 113,750 1.0 - 3.0 years 163,750
2.02 - 2.75 80,900 3.1 - 4.0 years 95,218
3.00 - 3.86 215,500 4.1 - 5.0 years 42,970
4.00 - 6.25 71,833 5.0 - 8.0 years 80,000
- --------------------------------------------------------------------------------
481,983 381,938
- --------------------------------------------------------------------------------
7. Other income:
- --------------------------------------------------------------------------------
Six months ended Year ended
March 31 December 31
1998 1997 1997 1996
- --------------------------------------------------------------------------------
Royalty income $ 60,720 $ 189,202 $ 257,472 $ 605,070
Consulting fees 29,847 67,198 2,188 174,450
Interest 413 198 52 478
- --------------------------------------------------------------------------------
$ 90,980 $ 256,598 $ 259,712 $ 779,998
The Company's Canadian subsidiary entered in a royalty agreement with one
of its suppliers whereby the supplier was granted the right to sell the
Company's product. The royalty agreement provided for a 50% royalty payment
on the first 100,000 units shipped to customers and a 7.5% royalty payment
on any additional units shipped to customers up to a maximum royalty
payment of approximately $1.7 million. As at March 31, 1998, approximately
$1.5 million of royalty payments have been received.
F-15
<PAGE>
8. Research and development:
(a) Government assistance:
Research and development is undertaken by the Canadian subsidiary. The
Company received government assistance covering a portion of the salaries
incurred on qualifying research and development projects. At September 30,
1997 Government assistance has been accrued and netted against the research
and development expense as follows:
- --------------------------------------------------------------------------------
Year ended September 30, 1997 $ 124,989
Year ended September 30, 1996 73,430
Six months ended March 31, 1998 59,212
Six months ended March 31, 1997 31,603
- --------------------------------------------------------------------------------
(b) Investment tax credits ("ITCs"):
The Company's Canadian subsidiary incurs current and capital expenditures
which are eligible as scientific research and experimental development
("SR&ED") expenditures. The Company earns ITCs at a rate of 20% on SR&ED
expenditures each year. These ITCs are available for application against
the Canadian subsidiary's federal income taxes payable. Unclaimed ITCs can
be carried forward for a period of 10 years. The Company has unclaimed ITCs
which expire as follows:
- --------------------------------------------------------------------------------
2005 $ 132,000
2006 153,000
2007 94,000
- --------------------------------------------------------------------------------
(c) Research and development expenditures:
The Company's Canadian subsidiary incurs SR&ED expenditures which can be
deducted against taxable income. The Company has undeducted SR&ED
expenditures of approximately $1,098,000 available to be deducted against
future years' taxable income and can be carried forward indefinitely.
F-16
<PAGE>
9. Income taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March
31, 1998, are presented below:
- --------------------------------------------------------------------------------
Canada United States Total
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 42,370 $ 33,500 $ 75,870
Unclaimed research and
development expenditures 288,562 - 288,562
Unclaimed investment tax credits 425,200 - 425,200
Fixed assets 56,356 - 56,356
- --------------------------------------------------------------------------------
Total gross deferred tax assets 812,488 33,500 845,988
Less valuation allowance (622,849) (33,500) (656,349)
- --------------------------------------------------------------------------------
Net deferred tax assets 189,639 - 189,639
Deferred tax liabilities:
Investment tax credits 189,639 - 189,639
- --------------------------------------------------------------------------------
Total gross deferred tax
liabilities 189,639 - 189,639
- --------------------------------------------------------------------------------
Net deferred tax liability $ - $ - $ -
- --------------------------------------------------------------------------------
F-17
<PAGE>
9. Income taxes (continued):
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1997, are presented below:
- --------------------------------------------------------------------------------
Canada United States Total
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 257,788 $ 100,400 $ 358,188
Unclaimed research and
development expenditures 219,878 - 219,878
Unclaimed investment tax credits 379,000 - 379,000
Fixed assets 48,730 - 48,730
- --------------------------------------------------------------------------------
Total gross deferred tax assets 905,396 100,400 1,005,796
Less valuation allowance (736,362) (100,400) (836,762)
- --------------------------------------------------------------------------------
Net deferred tax assets 169,034 - 169,034
Deferred tax liabilities:
Investment tax credits 169,034 - 169,034
- --------------------------------------------------------------------------------
Total gross deferred tax
liabilities 169,034 - 169,034
- --------------------------------------------------------------------------------
Net deferred tax liability $ - $ - $ -
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1996, are presented below:
- --------------------------------------------------------------------------------
Canada United States Total
- --------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 273,406 $ 77,200 $ 350,606
Unclaimed research and
development expenditures 206,944 - 206,944
Unclaimed investment tax credits 328,000 - 328,000
Fixed assets 79,797 - 79,797
- --------------------------------------------------------------------------------
Total gross deferred tax assets 888,147 77,200 965,347
Less valuation allowance (741,859) (77,200) (819,059)
- --------------------------------------------------------------------------------
Net deferred tax assets 146,288 - 146,288
Deferred tax liabilities:
Investment tax credits 146,288 - 146,288
- --------------------------------------------------------------------------------
Total gross deferred tax
liabilities 146,288 - 146,288
Net deferred tax liability $ - $ - $ -
F-18
<PAGE>
9. Income taxes (continued):
At September 30, 1997, the Company and its subsidiaries had operating loss
carryforwards for tax purposes which expire as follows:
- --------------------------------------------------------------------------------
United States Canada
- --------------------------------------------------------------------------------
2000 $ - $ 47,000
2001 - 425,000
2002 - 106,000
2003 - -
2004 - -
2005 - -
2006 - -
2007 - -
2008 - -
2009 36,000 -
2010 81,000 -
2011 76,000 -
2012 58,000 -
- --------------------------------------------------------------------------------
$ 251,000 $ 578,000
- --------------------------------------------------------------------------------
The effective tax rate on income is different from the statutory income tax
rate as follows:
- --------------------------------------------------------------------------------
March 31 September 30
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory tax rate 44.6% 44.6% 44.6%
Increase (reduction) resulting from:
Tax benefit of loss carryforwards (44.6) (16.6) -
Reduction of provincial taxes due to
SR&ED superallowance - - (15.6)
- --------------------------------------------------------------------------------
- 28.0% 29.0%
- --------------------------------------------------------------------------------
F-19
<PAGE>
10. Related party transactions:
A shareholder provided consulting and management services for fees which
are included in research and development expense as follows:
- --------------------------------------------------------------------------------
Year ended September 30, 1997 $ 67,757
Year ended September 30, 1996 65,814
Six months ended March 31, 1998 28,855
Six months ended March 31, 1997 39,733
- --------------------------------------------------------------------------------
These transactions are in the normal course of operations and are measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
11. Commitments:
The Company leases office premises under operating leases which expire at
various dates through 2002.
The minimum lease payments due under these leases are as follows:
- --------------------------------------------------------------------------------
Year ending September 30:
1998 $ 80,851
1999 60,788
2000 63,274
2001 71,491
2002 23,830
- --------------------------------------------------------------------------------
$ 300,234
- --------------------------------------------------------------------------------
F-20
<PAGE>
12. Contingent liabilities:
(a) A lawsuit was instituted against the Company's subsidiary by a former
employee for entitlement of additional preferred shares of the company
in 1995. The company has contested the legal action and management
believes that it has a valid defense in this matter.
(b) During 1996, a breach of contract lawsuit was instituted against the
Company's subsidiary in the amount of $6,000,000. Management, after
consulting with legal counsel, is of the opinion that the Company has a
strong defense to the claim. As at September 30, 1997, the outcome of
the lawsuit is not determinable.
13. Net income (loss) per share:
Net income (loss) per share has been calculated using the weighted average
number of common and special shares outstanding during the periods. Special
shares have been included in the weighted average number of shares
outstanding as the special shares are exchangeable into common shares of
the Company (note 6).
The weighted average number of common and special shares outstanding which
was used to calculate the net income (loss) per share was:
- --------------------------------------------------------------------------------
September 30, 1996 $ 4,284,827
September 30, 1997 4,135,238
March 31, 1997 4,135,238
March 31, 1998 4,135,238
- --------------------------------------------------------------------------------
Application of the provisions of Statement of Financial Accounting
Standards No. 128 results in disclosure of two income per share measures,
basic and assuming dilution, on the face of the consolidated statement of
income.
F-21
<PAGE>
13. Net income (loss) per share (continued):
The reported net income represents the net income available to common and
special shareholders for purposes of computing both measures. The following
reconciles shares outstanding at the beginning of the year to average
shares outstanding used to compute both income per share measures:
- -------------------------------------------------------------------------------
March 31 September 30
1998 1997 1997 1996
- -------------------------------------------------------------------------------
Common and special
shares outstanding,
beginning of year 4,135,238 4,135,238 4,135,238 4,335,238
Weighted average
shares cancelled - - - (50,411)
- -------------------------------------------------------------------------------
Average shares
outstanding - basic 4,135,238 4,135,238 4,135,238 4,284,827
Effect of dilutive securities:
Dilutive shares contingently
issuable upon the exercise
of stock options 426,384 286,423 325,719 145,486
Shares assumed to have been
purchased for treasury with
assumed proceeds from the
exercise of stock options (344,304) (65,738) (90,603) (92,227)
- -------------------------------------------------------------------------------
Average shares outstanding
- assuming dilution 4,517,176 4,438,133 4,458,036 4,528,577
- -------------------------------------------------------------------------------
14. Financial instruments:
The reported values of financial instruments which consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
bank term loan payable approximate their fair values due to the short-term
nature of these instruments.
15. Concentration of credit risk:
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of accounts receivable.
The Company's exposure to credit risk is impacted by the economic
conditions of the embedded systems market which could affect the customers'
ability to satisfy their obligations to the Company. In order to reduce
risks, the Company has credit procedures in place whereby trade receivables
are insured and the insuring company performs analysis to control the
granting of credit to high-risk customers.
F-22
<PAGE>
16. Subsequent event:
Subsequent to March 31, 1998, the Company undertook a private placement
offering (the "Offering") of a minimum of $1,000,000 and a maximum of
$5,500,000 of common shares at $3.50 per common share. In connection with
the Offering between the Company and The Mason Cabot Division of W. J.
Nolan & Co., (the "Placement Agent"), the Placement Agent will offer the
minimum offering on a "best efforts, all or none" basis and any additional
shares up to the maximum offering on a "best efforts" basis. The Company
has agreed to pay the Placement Agent a fee of 7% of each common share
sold, plus an expense allowance of 1.5% of the aggregate purchase price of
the common shares sold. The Company has also granted to the Placement
Agent, warrants to purchase 96,505 common shares. Each warrant has a 3 year
exercise period commencing on the date of the Final Closing (June 22, 1998)
at $3.50 per common share. The Company received net proceeds in the amount
of $2,188,000 representing the issuance of 687,926 common shares in May
1998 and $2,186,000 representing the issuance of 684,732 common shares in
June 1998.
17. New Accounting Standards Not Yet Adopted:
SFAS 130, "Reporting Comprehensive Income", establishes standards for
reporting and display of comprehensive income (which is all changes in the
net equity of a business due to transactions or other events not involving
owners) and its components (revenues, expenses, gains and losses). While it
does not specify a format of presentation, SFAS 130 does require that all
items that are required to be recognized as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominance as other financial statements. SFAS 130, which does not address
issues of recognition or measurement of comprehensive income, is effective
for fiscal years beginning after December 15, 1987.
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes new standards for the reporting of information
about the operating segments of a business. It also establishes standards
for related disclosures about products and services, geographic areas and
major customers. Generally, SFAS 131 requires that the definition of
operating segments reflect the manner in which the enterprise's chief
operating decision maker decides how to allocate resources and assess
performance. SFAS 131 is effective for fiscal years beginning after
December 15, 1997.
Management does not believe that the adoption of these new accounting
standards will materially affect its historical results of operations or
shareholders' equity.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ('SFAS 133'). 'Accounting for
Derivative Instruments and Hedging Activities.' This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management has not determined the effect of
SFAS 133 on its financial statements.
F-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such a director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities offered hereby.
SEC registration fee............................. $593.19
NASD registration fee............................ 0.00
Printing and engraving........................... $10,000.00
Accountants' fees and expenses................... $30,000.00
Legal fees....................................... $25,000.00
Transfer agent's fees and expenses............... 0.00
Blue Sky fees and expenses....................... 0.00
Miscellaneous.................................... $9,406.81
Total................................... $75,000.00
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
In the past three years the Company has issued securities to a limited
number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In July 1995, the Company sold to 5 investors an aggregate of 220,375
shares of Common Stock for $2.75 per share (an aggregate of $303,531.25). The
sale of securities was exempt form registration pursuant to Rule 506 under
Section 4(2) of the Act.
In September 1995, the Company sold to 20 investors an aggregate of 434,863
shares of Common Stock for $2.75 per share (an aggregate of $1,195,873.25). The
sale of securities was exempt from registration pursuant to Rule 506 under
Section 4(2) of the Act.
On February 23, 1996, the Company granted 160,000 shares to John
Zambakkides, the President and Chief Executive Officer of the Company. The
transaction was exempt from registration under Section 4(2) of the Act.
In May 1998, the Company sold to 22 investors an aggregate of 687,926
shares of Common Stock for $2,407,741. The Mason Cabot Division of W.J. Nolan &
Co., placed the Common Stock and received 7% placement agent fees plus expenses
of 1.5% and warrants to purchase 48,154 shares of common stock at an exercise
price of $3.50 per share. Such warrants expire on May 5, 2001. The sale of
securities was exempt from registration pursuant to Rule 506 under Section 4(2)
of the Act.
In June 1998, the Company sold to 26 investors an aggregate of 684,732
shares of Common Stock for $2,396,562. The Mason Cabot Division of W.J. Nolan
&Co. placed the Common Stock and received 7% placement agent fees plus expenses
of 1.5% and warrants to purchase 48,351 shares of common stock at an exercise
price of $3.50 per share. Such warrants expire on June 21, 2001. The sale of
securities was exempt from registration pursuant to Rule 506 under Section 4(2)
of the Act.
In July 1998, the Company issued to Sichenzia, Ross & Friedman LLP ("SRF"),
United States legal counsel to the Company, in consideration of certain legal
services performed by SRF for the benefit of the Company The issuance of
securities was exempt from registration pursuant to Section 4(2) of the Act. The
Company has valued these 10,000 shares of stock at $28,000.
Between February 23, 1996 and June 15, 1998 the Company granted options to
purchase an aggregate 343,083 shares of Common Stock under its 1997 Stock Option
Plan to its officers and directors. The transactions were exempt from
registration under Section 4(2) of the Act.
Item 27. Exhibits
3.1 Certificate of Incorporation, as amended to date.
3.2 By-Laws.
4.1 Form of Common Stock Certificate.*
4.2 1996 Stock Option Plan
4.3 Form of Warrant issued to Mason Cabot division of W.J. Nolan & Co.
5.1 Opinion of Sichenzia, Ross & Friedman, LLP. *
10.1 Lease of premises located at 250 Consumers Road, North York,
Ontario, Canada*
II-2
<PAGE>
24.1 Consent of KPMG, the Company's Independent Auditors.
24.2 Consent of Sichenzia, Ross & Friedman, LLP
(Included in Exhibit 5.1).*
25.1 Powers of Attorney (see Page II-5).
- --------------------------
* To be filed by amendment
Item 28. Undertakings
(1)To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1)To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2)To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(3)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(1)For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(2)To remove from the registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(3)Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(4)For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(5)For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-3
<PAGE>
II-4
<PAGE>
(5) SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe it meets all the
requirements of filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
, , 1998.
V3 SEMICONDUCTOR, INC.
By:
------------------------------
Carl Mitchell, Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl Mitchell his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits and schedules thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully ratifying and confirming all that said attorney-in-fact and
agent or their substitutes or substitute may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on , 1998.
Signature Title Date
--------- ----- ----
President, Chief Executive
John Zambakkides Officer (Principal Executive July , 1998
Officer) and Director
General Manager, Secretary July , 1998
Carl Mitchell and Treasurer
Director July , 1998
Bernard N. Slade
Director July , 1998
James Wilkinson
Director July , 1998
John A. Fazackerley
Director July , 1998
Robert Skinner
II-5
<PAGE>
ARTICLES OF INCORPORATION
OF
V3 SEMICONDUCTOR INC.
I, the undersigned, being a natural person more than eighteen (18)
years of age, acting as incorporator of the above-named corporation
(hereinafter referred to as the "Corporation") under the provisions of the
Nevada Business Corporation Act, do hereby adopt the following Articles of
Incorporation for such Corporation:
ARTICLE I
NAME
The name of the Corporation hereby created shall be:
V3 Semiconductor Inc.
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE III
PURPOSE
The purposes for which the Corporation is organized are:
(a) To acquire by purchase or otherwise, own, hold, lease, rent,
mortgage or otherwise, to trade with and deal in real estate, lands
and interests in lands and all other property of every kind and
nature;
(b) To manufacture, use, work, sell and deal in chemicals,
biologicals, pharmaceuticals, electronics and products of all types
owned or hereafter owned by it for manufacturing, using and vending
any device or devices, machine or machines or manufacturing, working
or producing any or all products;
(c) To borrow money and to execute notes and obligations and
security contracts therefor, to lend any of the monies or funds of
the Corporation and to take evidence of indebtedness therefor; and to
negotiate loans; to carry on a general mercantile and merchandise
business and to purchase, sell and deal in such goods, supplies and
merchandise of every kind and nature;
(d) To guarantee the payment of dividends or interest on any
other contract or obligation of any corporation whenever proper or
necessary for the business of the Corporation in the judgement of its
directors;
(e) To do all and everything necessary, suitable, convenient,
or proper for the accomplishment of any of the purposes or the
attainment of any one or more of the objects herein enumerated or
incidental to the powers therein named or which shall at any time
appear conclusive or expedient for the protection or benefit of the
Corporation, with all the powers hereafter conferred by the laws
under which this Corporation is organized; and
(f) To engage in any and all other 1awful purposes, activities
and pursuits, whether similar or dissimilar to the foregoing, and the
Corporation shall have all the powers allowed or permitted by the
laws of the state of Nevada.
<PAGE>
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60,000,000 shares, consisting of
10,000,000 shares of preferred stock, par value $0.001 per share (hereinafter
the "Preferred Stock"), and 50,000,000 shares of common stock, par value
$0.001 per share (hereinafter the "Common Stock"). The Common Stock shall be
nonassessable and shall not have cumulative voting rights.
(a) Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series as may from time to time be
determined by the Board of Directors. Each series shall be distinctly
designated. All shares of any one series of the Preferred Stock shall
be alike in every particular, except that there may be different
dates from which dividends thereon, if any, shall be cumulative, if
made cumulative. The powers, preferences and relative, participating,
optional and other rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, nay
differ from those of any and all other series at any time
outstanding. Except as hereinafter provided, the Board of Directors
of this corporation is hereby expressly granted authority to fix, by
resolution or resolutions adopted prior to the issuance of any shares
of each particular series of Preferred Stock, the designation,
powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations and restrictions thereof,
if any, of such series, including but without limiting the generality
of the foregoing, the following:
(i) the distinctive designation of, and the number of
shares of Preferred Stock which shall constitute the series,
which number may be increased (except as otherwise fixed by the
Board of Directors) or decreased (but not below the number of
shares thereof then outstanding) from time to time by action of
the Board of Directors;
(ii) the rate and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the
series shall be paid, the extent of preferences or relations,
if any, of such dividends to the dividends payable on any other
class or classes of stock of this corporation, or on any series
of Preferred Stock or of any other class or classes of stock of
this corporation, and whether such dividends shall be
cumulative or non-cumulative.
(iii) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same f or,
shares of any other class or classes of stock of this
corporation, or of any series of Preferred Stock or of any
other class or classes of stock of this corporation, and the
terms and conditions of such conversion or exchange;
(iv) whether shares of the series shall be subject to
redemption, and the redemption price or prices including,
without limitation, a redemption price or prices payable in
shares of the Common Stock and the time or times at which, and
the terms and conditions upon which, shares of the series may
be redeemed;
(v) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution or
winding-up of this corporation;
(vi) the terms of the sinking fund or redemption or
purchase account, if any, to be provided for shares of the
series; and
(vii) the voting Power, if any, of the holders of shares
of the series which may, without limiting the generality of the
foregoing, include the right to more or less than one vote per
share of any or all matters voted upon by the shareholders and
the right to vote, as a series by itself or together with other
series of Preferred Stock as a class, upon such matters, under
such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of
Preferred Stock or together with all series of Preferred Stock
as a class, to elect one or more directors of this corporation
in the event there shall have been a default in the payment of
dividends on any one or more series of Preferred Stock or under
such other circumstances and upon such condition as the Board
may determine.
(b) Common Stock
-2-
<PAGE>
(i) after the requirements with respect to preferential
dividends on Preferred Stock (fixed in accordance with the
provisions of subparagraph (a)(ii) of this Article, if any,
shall have been met and after this corporation shall have
complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or
purchase accounts as sinking funds or redemption or purchase
accounts (fixed in accordance with the provisions of
subparagraph (a)(ii) of this Article) and subject further to
any other conditions which may be fixed in accordance with the
provisions of paragraph (a). of this Article, then, but not
otherwise, the holders of Common Stock shall be entitled to
receive such dividends, if any, as may be declared from time to
time by the board of directors;
(ii) after distribution in full of the preferential amount
(fixed in accordance with the provisions of paragraph (a) of
this Article), if any, to be distributed to the holders of
Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or
winding-up of the corporation, the holders of the Common Stock
shall be entitled to receive all the remaining assets of this
Corporation, tangible and intangible, of whatever kind
available for distribution to stockholders, ratabaly in
proportion to the number of shares of the Common Stock held by
each; and
(iii) no holder of any of the shares of any class or
series of stock or of options, warrants or other rigpurchase
share of any class or series of stock or of other securities of
the Corporation shall have any pre-emptive right to purchase or
subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason
of any increase of the authorized capital stock of the
Corporation of any class or series, or bonds, certificates of
indebtedness, debentures or other securities convertible into
or exchangeable for stock of the Corporation or any class or
series, or carrying any right to purchase stock of any class or
series, but any such unissued stock, additional authorized
issue of shares of any class or series of stock or securities
convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant
to resolution of the board of directors to such persons, firms,
corporation or association, whether such holders or others, and
upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
Special Stock. In addition to the classes of stock authorized in the
introductory paragraph of this Article IV, the Corporation shall have
authority to issue 3,400,000 shares of Voting Special Stock, par value
$.0005 per share (hereinafter the "Voting Special Stock") with the
following rights:
(i) Each share of Voting Special Stock shall be entitled to one
vote per share on a basis equivalent to all outstanding shares of
the Corporation's common stock. The Voting Special Stock shall not
be entitled to any pre-emptive, cumulative voting, dividend,
redemption, conversion, liquidation or any other rights whatsoever
except as set forth herein.
(ii) The shares of Voting Special Stock may be converted at
anytime at the option of the holders thereof, all or in part, into
common stock of the Corporation on the basis of the exchange of one
share of Voting Special Stock plus one share of V3 Corporation
Preferred Stock for one share of the Corporation's common stock.
(iii) The shares of Voting Special Stock shall not be
transferable by the holder thereof and shall not be sold, disposed
of, or pledged, without the express written consent of the Board of
Directors of the Corporation by majority vote and in no event shall
be transferable separately or apart from an equal number of shares
of V3 Preferred Stock.
(iv) The shares of the Corporation's common stock which the
holder of the Voting Special Stock is entitled to receive upon
exchange shall be automatically adjusted to reflect stock splits,
stock dividends, a stock recapitalization, stock consolidations or
other capital reorganizations affecting the voting securities of the
Corporation, so as to maintain the proportionate voting interest
represented by the stock covered by this exchange privilege.
(v) Any shares of Voting Special Stock surrendered for
conversion to common shares shall immediately be cancelled on the
records of the Corporation.
-3-
<PAGE>
ARTICLE V
DENIAL OF PRE-EMPTIVE RIGHTS
No holder of any shares of the Corporation, whether new or hereafter
authorzied, shall have any pre-emptive or preferential rights to acquire
shares-or securities of the Corporation.
ARTICLE VI
PAID IN CAPITAL
The Corporation will not commence business until the consideration of
the value of at least $1,000.00 has been received by it as consideration for
the issuance of the shares.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify any and all persons who may serve or
who have served at any time as directors or officers or who at the request of
the Board of Directors of the Corporation, may serve or any time have served
as directors or officers of another corporation in which the Corporation at
such time owned or may own shares of stock or of which it was or may be a
creditor, and their respective heirs, administrators, successors and assigns,
against any and all expenses, including amounts paid upon judgements, counsel
fees and amounts paid in settlement (before or after suit is commenced),
actually and necessarily by such persons in connection with the defence or
settlement of any claim, action, suit or proceeding in which they, or any of
them, are made parties, or a party, or which may be asserted against them or
any of them, by reason of being or having been directors or officers of the
Corporation, or of such other corporation, except in relation to matters as to
which any such director or officer of the Corporation, or of such other
corporation or former director or officer or person shall be adjudged in any
action, suit or proceeding to be liable for his own negligence or misconduct
in the performance of his duty. Such indemnification shall be in addition to
any other rights to which those indemnified may be entitled under any law, by
law, agreement, vote of shareholder or otherwise.
-4-
<PAGE>
ARTICLE VIII
OFFICERS' AND DIRECTORS' CONTRACTS
No contract or other transaction between this Corporation and any
other firm or corporation shall be affected by the fact that a director or
officer of this Corporation has an interest in, or is a director or officer of
this Corporation or any other corporation. Any officer or director,
individually or with others, may be a party to, or may have an interest in,
any transaction of this Corporation or any transaction in which this
Corporation is a party or has an interest. Each person who is now or may
become an officer or director of this Corporation is hereby relieved from
liability that he might otherwise obtain in the event such officer or director
contracts with this Corporation for the benefit of himself or any firm or
other corporation in which he may have an interest, provided such officer or
director acts in good faith.
ARTICLE IX
ADOPTION AND AMENDMENT OF BY-LAWS
The initial By-Laws of the Corporation shall be adopted by its board
of directors. The power to alter or amend or repeal the By-Laws or adopt new
By-Laws shall be vested in the board of directors, but the holders of common
stock of the Corporation may also alter, amend, or repeal the By-Laws or adopt
new By~Laws. The By-Laws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent with law or
these Articles of Incorporation.
ARTICLE X
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation and
its initial registered agent at such address is:
The Corporation Trust Company of Nevada One East First Street Reno,
Nevada 89501
ARTICLE XI
D1RECTORS
The Corporation shall not have fewer directors than the number of
shareholders who own an equity interest in the Corporation. At such time as
the Corporation has three (3) or more shareholders, it shall not have less
than three (3) nor more than nine (9) directors. The permissible number of
directors may be increased or decreased from time to time by the board of
directors in accordance with 78.330 of the Nevada Revised Statutes or any
amendment or successor statute. The original board of directors shall be
comprised of one (1) person. The name and address of the person who is to
serve as director until the first annual meeting of shareholders and until his
successor is duly elected and shall qualify is:
Robert A. Hill 650 North 1100 East Bountiful, Utah 84010
Removal of Directors: Directors may be removed from office, with or
without cause, by a majority vote of shareholders entitled to vote on such
matters.
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ARTICLE XII
INCORPORATOR
The name and address of the incorporator is:
Robert A. Hill 650 North 1100 East Bountiful, Utah 84010
ARTICLE XIII
ANTI-TAKEOVER
The Corporation elects not to be governed by Sections 78.411 to
78.444 of Title 7, Chapter 78 of the Nevada Revised Statutes.
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V3 SEMICONDUCTOR INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. The registered office of the corporation shall be in the city
of Las Vegas, county of Clark, state of Nevada.
Section 2. The corporation may also have offices at such other places
both within and without the state of Nevada as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders shall he held at the
principal executive office of the corporation or such other place as the board
of directors shall determine. Special meetings of the stockholders may he held
at such time and place within or without the state of Nevada as shall be
stated in the notice of the meeting, or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders shall be held at such place
and time not less than 90 nor more than 180 days after the end of the
corporation's fiscal year as the board of directors shall determine, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or the articles of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning 10% or more in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the
president or a vice-president, or the secretary, or an assistant secretary, or
by such other person or persons as the directors shall designate. Such notice
shall state the purpose or purposes for which the meeting is called and the
time and the place at which it is to be held, which may be mailed, postage
prepaid, to each stockholder of record entitled to vote at such meeting not
less than ten nor more than 60 days before such meeting. If mailed, it shall
be directed to a stockholder at his address as it appears upon the records of
the corporation and upon such mailing of any such notice, the service thereof
shall be complete ' and the time of the notice shall begin to run from the
date upon which such notice is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association, or partnership. In
the event of the transfer of stock after delivery or mailing of the notice of
and prior to the holding of the meeting it shall not be necessary to deliver
or mail notice of the meeting to the transferee.
Section 5. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 6. The holders of at least 33-1/3% of 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 or for
the transaction of business except as otherwise provided by statute or by the
articles of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, 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 meeting as
originally notified.
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Section 7. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the articles of incorporation a different vote is required in
which case such express provision shall govern and control the decision of
such question.
Section 8. Every stockholder of record of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of stock
standing in his name on the books of the corporation.
Section 9. At any meeting of the stockholders, any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall he present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of
the persons so designated unless the instrument shall otherwise provide. No
such proxy shall be valid after the expiration of six months from the date of
its execution, unless coupled with an interest, or unless the person executing
it specifies therein the length of time for which it is to continue in force,
which in no case shall exceed seven years from the date of its execution.
Subject to the above, any proxy duly executed is not revoked and continues in
full force and effect until an instrument revoking it or a duly executed proxy
bearing a later date is filed with the secretary of the corporation.
Section 10. Any action, except election of directors, which may be taken
by the vote of the stockholders at a meeting, may be taken without a meeting
if authorized by the written consent of stockholders holding at least a
majority of the voting power, unless the provisions of the statutes or of the
articles of incorporation require a greater proportion of voting power to
authorize such action in which case such greater Proportion of written
consents shall be required.
ARTICLE III
DIRECTORS
Section 1. The number of directors, which shall constitute the whole
board, shall be three. The board of directors may increase or decrease the
number of directors by resolution to not less than three. The directors shall
be elected at the annual meeting of the stockholders and except as provided in
Section 2 of this Article III, each director elected shall hold office until
his successor is erected and qualified. Directors need not be stockholders.
Section 2. Vacancies, including those caused by an increase in the number
of directors, may be filled by a majority of the remaining directors though
less than a quorum. When one or more directors shall give notice of his or
their resignation to the board, effective at a future date, the board shall
have power to fill such vacancy or vacancies to take effect when such
resignation or resignations shall become effective, each director so appointed
to hold office during the remainder of the term of office of the resigning
director or directors.
Section 3. The business of the corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the articles of
incorporation or by these Bylaws directed or required to be exercised or done
by the stockholders.
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the state of Nevada.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The first meeting of each newly elected board of directors
shall he held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order Legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
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Section 6. Regular meetings of the board of directors may be held without
notice at such time and place as shall from time to time be determined by the
board.
Section 7. Special meetings of the board of directors may be called by
the president or secretary on the written request of two directors. Written
notice of special meetings of the board of directors shall be given to each
director at least five days before the date of the meeting.
Section 8. A majority of the board of directors, at a meeting duly
assembled, shall be necessary to constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except
as may be otherwise specifically provided by statute or by the articles of
incorporation. Any action required or permitted to be taken at a meeting of
the directors may he taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the directors entitled to
vote with respect to the subject matter thereof.
COMMITTEES OF DIRECTORS
Section 9. 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, which, to the
extent provided in the resolution, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation, and may have power to authorize the seal of the corporation to be
affixed to all papers which may require it. 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.
Section 10. The committees shall keep regular minutes of their
proceedings and report the same to the board when required.
COMPENSATION OF DIRECTORS
Section 11. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. Whenever all parties entitled to vote at any meeting, whether
of directors or stockholders, consent, either by a writing on the records of
the meeting or filed with the secretary, or by presence at such meeting and
oral consent entered on the minutes, or by taking part in the deliberations at
such meeting without objection, the doings of such meeting shall be as valid
as if a meeting had regularly been called and noticed, and at such meeting any
business may be transacted which is not excepted from the written consent or
to the consideration of which no objection for want of notice is made at the
time, and if any meeting be irregular for want of notice or of such consent,
provided a quorum was present at such meeting, the proceedings of said meeting
may be ratified and approved and rendered likewise valid and the irregularity
or defect therein waived by a writing signed by all parties having the right
to vote at such meetings; and such consent or approval of stockholders may he
by proxy or attorney, but all such proxies and powers of attorney must be in
writing.
Section 3. Whenever any notice whatever is required to be given under the
provisions of the statutes, of the articles 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.
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ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a vice-president, a secretary, and a
treasurer. Any person may hold two or more offices.
Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, a vice-president, a
secretary, and a treasurer, none of whom need be a member of the board.
Section 3. The board of directors may appoint additional vice-presidents,
and assistant secretaries and assistant treasurers, and such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation by death, resignation, removal, or otherwise shall be filled by
the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board
of directors, shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He 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.
THE VICE-PRESIDENT
Section 8. The vice-president shall, in the absence or disability of the
president, perform the duties and exercise the powers of the president and
shall perform such other duties as the board of directors may from time to
time prescribe.
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THE SECRETARY
Section 9. The 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 prescribed by the board of
directors or president, under whose supervision he shall be. He shall keep in
safe custody the seal of the corporation and, when authorized by the board of
directors, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by his signature or by the signature of the treasurer or
an assistant secretary.
THE TREASIJRER
Section 10. The treasurer shall have the custody of the corporate funds
and securities and shall keen 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.
Section 11. 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 president and the board of directors,
at the regular meetings of the board, or when the board of directors so
requires, an account of all his transactions as treasurer and of the financial
condition of the corporation.
Section 12. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control belonging to the corporation.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every stockholder shall be entitled to have a certificate,
signed by 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. When the
corporation is authorized to issue shares of more than one class or more than
one series of any class, there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the corporation
will furnish to any stockholders upon request and without charge, a full or
summary statement of the designations, preferences, and relative,
participating, optional, or other special rights of the various classes of
stock or series thereof and the qualifications, limitations, or restrictions
of such rights, and, if the corporation shall be authorized to issue only
special stock, such certificate shall set forth in full or summarize the
rights of the holders of such stock.
Section 2. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then
a facsimile of the signatures of the officers or agents of the corporation may
be printed or lithographed upon such certificate in lieu of the actual
signatures. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation, or otherwise, before such
certificate or certificates shall have been delivered by the corporation, such
certificate or certificates may nevertheless be adopted by the corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates, or whose facsimile signature or signatures shall
have been used thereon, had not ceased to be the officer or officers of such
corporation.
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LOST CERTIFICATES
Section 3. 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 or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost 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 or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
TRANSFER OF STOCK
Section 4. 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, 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.
CLOSING OF TRANSFER BOOKS
Section 5. The directors may prescribe a period not exceeding 60 days
prior to any meeting of the stockholders during which no transfer of stock on
the books of the corporation may be made, or may fix a day not more than 60
days prior to the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined; and only stockholders of record on such day shall be entitled to
notice or to vote at such meeting.
REGISTERED STOCKHOLDERS
Section 6. 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
the state of Nevada.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the articles of incorporation, if any, may be declared by
the board of directors at any regular or special meeting pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
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CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall he signed by such officer or officers of such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its incorporation and the words "Corporate Seal,
Nevada".
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.
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V3 SEMICONDUCTOR INC. AMENDED
1996 STOCK OPTION PLAN
1. Purpose.
The purpose of the V3 Semiconductor Inc. Amended 1996 Stock Option
Plan (the "Plan") is to align the interests of officers, other employees and
non-employee directors of V3 Semiconductor Inc. and its subsidiaries
(collectively, the "Company") with those of the stockholders of V3
Semiconductor Inc. ("V3"); to reinforce corporate, organizational and business
development goals; to promote the achievement of year-to-year and long-range
financial and other business objectives; and to reward the performance of
individual officers, other employees and non-employee directors in fulfilling
their personal responsibilities for long-range achievements.
2. Definitions.
The following terms, as used herein, shall have the following meanings:
(a) "Award" shall mean any Option granted pursuant to the Plan.
(b) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document between V3 and a Participant evidencing
an Award.
(c) "Board" shall mean the Board of Directors of V3.
(d) "Change in Control" shall mean the occurrence of an event described
in Section 10(f) hereof.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean a committee appointed by the Board to
administer the Plan and to perform the functions set forth herein.
(g) "Company" shall mean, collectively, V3 and all of its subsidiaries
now held or hereafter acquired.
(h) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Executive Officer" shall mean an officer of the Company who, as of
the beginning of a Performance Period, is an, executive officer',
within the meaning of Rule 3b-7 promulgated under the Exchange Act.
(k) "Fair Market Value" as of a particular date shall mean the fair
market value of the shares of
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Common Stock as determined by the Committee in its sole discretion;
provided, however, that (A) if the shares are admitted to trading on
a national securities exchange, Fair Market Value on any date shall
be the average of the high and low sale prices reported for the
shares on such exchange on such date or on the last date preceding
such date on which a sale was reported, (B) if the shares are
admitted to quotation on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") or other comparable
quotation system and have been designated as a National Market
System ("NMS") security, Fair Market Value on any date shall be the
average of the high and low sale price reported for the shares on
such system on such date or on the last day preceding such date on
which a sale was reported, or (C) if the shares are admitted to
quotation on Nasdaq and have not been designated a NMS security,
Fair Market Value on any date shall be the average of the highest
bid and lowest asked prices of the shares on such system on such
date.
(1) "Incentive Stock Option" shall mean an option that meets the
requirements of Section 422 of the Code, or any successor provision,
and that is designated by the Committee as an Incentive Stock
Option.
(m) "Initial Director" shall mean a Non-Employee Director of the Company
who is a member of the Board at the date of requisite approval of
this Plan by the stockholders of V3.
(n) "Non-Employee Director" shall mean a member of the Board who is not
also an employee of the Company.
(o) "Nonqualified Stock Option" shall mean an option other than an
Incentive Stock Option.
(p) "Option" shall mean the right, granted pursuant to this Plan, of a
holder to purchase shares of Stock under the Stock Option Program
(or, with respect to a Non-Employee Director, pursuant to Section 7
hereof) at a price and upon the terms to be specified by the
Committee (or pursuant to Section 7 hereof).
(q) "Participant" shall mean an officer or other employee of the Company
who is, pursuant to Section 4 of the Plan, selected to participate
herein and, with respect to Awards under Section 7 hereof, each
Non-Employee Director.
(r) "Plan" shall mean the V3 Incorporated 1996 Stock Option Plan.
(s) "Plan Year" shall mean the Company's fiscal year.
(t) "Stack" shall mean shares of common stock, par value $0.001 per
share, of V3.
(u) "Stock Option Program" shall mean the program set forth in Section 6
hereof.
(v) "Subsequent Director" shall mean a Non-Employee Director of V3 who
becomes a member of the Board (or with respect to directors who are
also employees of the Company, a director who
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becomes a Non-Employee Director) subsequent to the requisite
approval of the Plan by the stockholders of V3.
(w) "Ten Percent Stockholder" shall mean a Participant who, at the time
an Incentive Stock Option is to be granted to such Participant, owns
(within the meaning of Section 422(b)(6) of the Code) stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company within the meaning of
Sections 422(e) and 422(f), respectively, of the Code.
(x) "V3" shall mean V3 Semiconductor Inc., a Nevada corporation.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its sole discretion, subject to and not inconsistent
with the express provisions of the Plan, to administer the Plan and to
exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Awards; to determine the
persons to whom and the time or times at which Awards shall be granted; to
determine the type and number of Awards to be granted, the number of shares of
Stack to which an Award may relate and the terms, conditions, restrictions and
performance criteria relating to any Award; to determine whether, to what
extent, and under what circumstances an Award may be settled, cancelled,
forfeited, exchanged, or surrendered (provided that in no event shall the
foregoing be construed to permit the repricing of an Option (whether by
amendment, cancellation and regrant or otherwise) to a lower exercise price);
to construe and interpret the Plan and any Award; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of Award Agreements; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Committee shall consist of two or more persons each of whom is
an, outside director,' within the meaning of Section 162(m) of the Code and a
"disinterested person,' within the meaning of Rule 16b-3 under the Exchange
Act. The Committee may appoint a chairperson and a secretary and may make such
rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person
or participating by conference telephone at a meeting or by written consent.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility the Committee
or such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights
under the Plan from or through any Participant) and any stockholder.
No member of the Board or the Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or
any Award granted hereunder.
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4. Eligibility.
Awards may be granted to officers and other employees of the Company
in the sole discretion of the Committee. In determining the persons to whom
Awards shall be granted and the type of Award, the Committee shall take into
account such factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan. Awards shall also be made to
Non-Employee Directors in accordance with the provisions of Section 7 hereof.
5. Stock Subject to the Plan; Limitation on Grants.
The maximum number of shares of Stock reserved for issuance pursuant
to the Plan shall be 400,000 shares, subject to adjustment as provided herein.
Such shares may, in whole or in part, be authorized but unissued shares or
shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an
Award are forfeited, cancelled, exchanged or surrendered or if an Award
otherwise terminates or expires without a distribution of shares to the
Participant, the shares of Stock with respect to such Award shall, to the
extent of any such forfeiture, cancellation, exchange, surrender, termination
or expiration, again be available for Awards under the Plan; provided that, to
the extent required for the Plan to comply with Rule 16b-3 promulgated under
the Exchange Act, in the case of forfeiture, cancellation, exchange or
surrender of shares of Restricted Stock, the number of shares with respect to
such Awards shall not be available for Awards hereunder unless dividends paid
on such shares are also forfeited, cancelled, exchanged or surrendered.
During the term of this plan, no Participant can receive options
relating to shares of Stock which in the aggregate exceed 10% of the total
number of shares of Stock authorized pursuant to the Plan, as adjusted
pursuant to the terms hereof.
In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse Stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems necessary or appropriate to any
or all of (i) the number and kind of shares of Stock which may thereafter be
issued in connection with Awards, (ii) the number and kind of shares of Stock
issued or issuable in respect of outstanding Awards, and (iii) the exercise
price, grant price, or purchase price relating to any Award; provided that,
with respect to Incentive Stock Options, such adjustment shall be made in
accordance with Section 424 of the Code.
6. Stock Option Program.
4
<PAGE>
Each Option granted pursuant to this Section 6 shall be evidenced by
an Award Agreement, in such form and containing such terms and conditions as
the Committee shall from time to time approve, which Award Agreement shall
comply with and be subject to the following terms and conditions, as
applicable.
(1) Number of Shares. Each Award Agreement shall state the number of
shares of Stock to which the Option relates.
(2) Type of Option. Each Award Agreement shall specifically state
that the Option constitutes an Incentive Stock Option or a Nonqualified Stock
Option.
(3) Option Price. Each Award Agreement shall state the Option price,
which shall not be less than one hundred percent (100%) of the Fair Market
Value of the shares of Stock covered by the option on the date of grant. The
Option price shall be subject to adjustment as provided in Section 5 hereof.
The date as of which the Committee adopts a resolution expressly granting an
Option shall be considered the day on which such option is granted.
(4) Method and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in cash or in shares of Stock having a Fair
Market Value equal to such option price or in a combination of cash and Stock
or, in the sale discretion of the Committee, through a cashless exercise
procedure.
(5) Term and Exercisability of Options. Each Award Agreement shall
provide that each option shall become exercisable as to 20% of the shares of
Stock covered by the Option on the first anniversary of the date the option
was granted and as to an additional 20% of the shares of Stock covered by the
Option on each of the next four anniversaries of the date the Option was
granted, unless the Committee prescribes an exercise schedule of longer
duration, provided, that, the Committee shall have the authority to accelerate
the exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The exercise
period shall be ten (10) years from the date of the grant of the Option or
such shorter period as is determined by the Committee. The exercise period
shall be subject to earlier termination as provided in Section 6(a)(6) hereof.
An Option may be exercised, as to any or all full shares of Stock as to which
the option has become exercisable, by written notice delivered in person or by
mail to the Secretary of V3, specifying the number of shares of Stock with
respect to which the option is being exercised. For purposes of the preceding
sentence, the date of exercise will be deemed to be the date upon which the
Secretary of V3 receives such notification.
(6) Termination. If a Participant's employment by the Company
terminates, Options granted to such Participant prior to such termination
shall remain exercisable following the effective date of such termination as
follows:
(i) Cause. If employment of a Participant by the Company is
terminated for cause, all Options granted to such Participant shall be
cancelled as of the effective date of such termination;
(ii) Retirement or Disability. Upon a Participant's termination
of employment by reason of retirement or disability, all Options granted to
such Participant that are "deemed
5
<PAGE>
exercisable" (as defined in the following sentence) on the effective date of
such Participant's retirement or disability shall remain exercisable for a
period of three years following such effective date (or for such longer period
as may be prescribed by the Committee, but in no event beyond the expiration
date of such Option). Those Options that are "deemed exercisable" on and
after the effective date of a Participant's retirement or disability, as
provided above, shall consist of all unexercised options (or portions thereof)
that are immediately exercisable on such date plus those Options (or portions
thereof) that would have become exercisable had such Participant not retired
or had his employment not terminated until after the next succeeding
anniversary of the date of grant of each such option;
(iii) Other Terminations of Employment. If a Participant's
employment by the Company is terminated for any reason other than those
described in subsections (i) or (ii) above, his "deemed exercisable" options,
which, for purposes of this subsection, shall mean all Options (or portions
thereof) granted to such Participant that are immediately exercisable on the
effective date of such termination of employment shall remain exercisable (A)
for a period of one year from the effective date of such termination of
employment if such Participant has 10 or more years of service with the
Company, such period of service to be determined as of such effective date of
termination (or for such longer period as may be prescribed by the Committee,
but in no event beyond the expiration date of such option), or (B) for a
period of three months from the effective date of such termination of
employment (or for such longer period as may be prescribed by the Committee,
but in no event beyond the expiration date of such Option).
(iv) Death.
(A) If a Participant dies during the applicable Option
exercise period following the effective date of his retirement,
disability or other termination of employment, as described in
subsections (ii) or (iii) above, his executors, administrators, legatees
or distributees shall have a period expiring on the date one year from
the date of his death (or for such longer period as may be prescribed by
the Committee, but in no event beyond the expiration date of such Option)
within which to exercise his "deemed exercisable" Options, as described
in such applicable subsection.
(B) If a Participant dies while employed by the Company, his
executors, administrators, legatees or distributees shall have a period
expiring on the date one year from the date of his death (or for such
longer period as may be prescribed by the Committee, but in no event
beyond the expiration date of such Option) within which to exercise his
"deemed exercisable" Options, which shall consist of all unexercised
options (or portions thereof) that are immediately exercisable on such
date of death plus those Options (or portions thereof) that would have
become exercisable had such Participant not died until after the next
succeeding anniversary of the date of grant of each such option.
(7) Incentive Stock Options. Options granted as Incentive Stock
Options shall be subject to the following special terms and conditions, in
addition to the general terms and conditions specified in this Section 6.
6
<PAGE>
(A) Value of Shares. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and all other Plans of the Company become exercisable for the first
time by each Participant during any calendar year shall not exceed $100,000.
(B) Ten Percent Stockholder. In the case of an Incentive
Stock Option granted to a Ten Percent Stockholder, (x) the Option Price shall
not be less than one hundred ten percent (110%) of the Fair Market Value of
the shares of Stock on the date of grant of such Incentive Stock Option, and
(y) the exercise period shall not exceed five (5) years from the date of grant
of such Incentive Stock Option.
Non-Emplovee Directors Formula Award Program.
The provisions of this Section 7 shall apply only to grants of
Options to Non-Employee Directors.
(a) General. Non-Employee Directors shall receive Nonqualified Stock
Options under the Plan. The exercise price per share of Stock purchasable
under Options granted to Non-Employee Directors shall be the Fair Market Value
of a share of Stock on the date of grant. No Option granted to a Non-Employee
Director may be subject to a discretionary acceleration of exercisability
except upon a Change in Control as defined in Section 10(f) hereof.
(b) Initial Grants to Initial Directors. Upon the requisite approval
of the Plan by the stockholders of V3, each Initial Director shall be granted
automatically an Option to purchase [1,0001 shares of Stock.
(c) Initial Grants To Subsequent Directors. Each Subsequent Director
will, at the time such director becomes a member of the Board, be granted
automatically an Option to purchase [1,0001 shares of Stock.
(d) Subsequent Grants To Directors. On the date of each annual
meeting of stockholders of V3 subsequent to the 1996 annual meeting, each
continuing Initial Director will be granted automatically an Option to
purchase [1,0001 shares of Stock. On the date of each annual meeting of
stockholders of V3 subsequent to a Subsequent Director's becoming a
Non-Employee Director, each Subsequent Director will be granted automatically
an Option to purchase [1,0001 shares of Stock.
(e) Method and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in cash or in shares of Stock having a Fair
Market Value equal to such option price or in a combination of cash and Stock.
(f) Exercisability. Each Option granted under this Section 7 shall be
exercisable as to 20 percent of the shares of Stock covered by the Option on
the first anniversary of the date the option is granted and as to an
additional 20 percent of the shares of Stock covered by the option on each of
the next four anniversaries of
7
<PAGE>
such date of grant. To the extent not exercised, instalments shall accumulate
and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the option expires.
(g) Termination. Upon the termination of a NonEmployee Director from
such position, for any reason, all Options granted to such Non-Employee
Director pursuant to this Section 7 shall remain exercisable for a period of
one year following the date of such termination, but in no event may the term
of an Option be extended beyond its expiration date.
8. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting and
exercising of Awards, and the other obligations of the Company under the Plan
and any Award Agreement or other agreement shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Stock under any Award as
the Company may consider appropriate, and may require any Participant to make
such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Stock in compliance
with applicable laws, rules and regulations.
(b) Nontransferability. Awards shall not be transferable by a
Participant except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order
as defined under the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder, and shall be
exercisable during the lifetime of a Participant only by such Participant or
his guardian or legal representative.
(c) No Right To Continued Employment. Nothing in the Plan or in any
Award granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Participant the right to continue in the employ
of the Company or to be entitled to any remuneration or benefits not set forth
in the Plan or such Award Agreement or other agreement or to interfere with or
limit in any way the right of the Company to terminate such Participant's
employment.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive shares of Stock pursuant to the exercise of an Option or
is otherwise entitled to receive shares of Stock or cash pursuant to an Award
hereunder, the Company shall have the right to require the Participant or such
other person to pay to the Company the amount of any taxes which the Company
may be required to withhold before delivery to such Participant or other
person of cash or a certificate or certificates representing such shares.
Upon the disposition of shares of Stock acquired pursuant to the
exercise of an Incentive Stock option, the Company shall have the right to
require the payment of the amount of any taxes which are required by law to be
withheld with respect to such disposition.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy
8
<PAGE>
any such withholding tax obligation by any of the following methods, or by a
combination of such methods: (a) tendering a cash payment; (b) authorizing the
Company to withhold from the shares of Stock or cash otherwise payable to such
Participant (1) one or more of such shares having an aggregate Fair Market
Value, determined as of the date the withholding tax obligation arises, less
than or equal to the amount of the total withholding tax obligation or (2)
cash in an amount less than or equal to the amount of the total withholding
tax obligation; or (c) delivering to the Company previously acquired shares of
Stock (none of which shares may be subject to any claim, lien, security
interest, community property right or other right of spouses or present or
former family members, pledge, option, voting agreement or other restriction
or encumbrance of any nature whatsoever) having an aggregate Fair Market
Value, determined as of the date the withholding tax obligation arises, less
than or equal to the amount of the total withholding tax obligation. A
Participant's election to pay his or her withholding tax obligation (in whole
or in part) by the method described in (b)(1) above is irrevocable once it is
made, may be disapproved by the Committee and, if made by any director,
officer or other person who is subject to Section 16(b) of the Exchange Act,
must be made (x) only during the period beginning on the third business day
following the date of release of the Company's quarterly or annual summary
statement of sales and earnings and ending on the twelfth business day
following the date of such release or (y) not less than six
(e) Amendment and Termination of the Plan. The Board or the Committee
may at any time and from time to time alter, amend, suspend, or terminate the
Plan in whole or in part; provided that, no amendment which requires
stockholder approval under applicable Nevada law or in order for the Plan to
continue to comply with Rule 16b-3 or Code Section 162(m) shall be effective
unless the same shall be approved by the requisite vote of the stockholders of
the Company. Notwithstanding the foregoing, no amendment shall affect
adversely any of the rights of any Participant, without such Participant's
consent, under any Award theretofore granted under the Plan. The power to
grant Options under the Plan will automatically terminate ten years after the
adoption of the Plan by the stockholders. If the Plan is terminated, any
unexercised option shall continue to be exercisable in accordance with its
terms and the terms of the Plan in effect immediately prior to such
termination.
(f) Change in Control. Notwithstanding any other provision of the
Plan to the contrary, if, while any Awards remain outstanding under the Plan,
a "Change in Control" of V3 (as defined in this Section 10(f)) shall occur,
(1) all Options granted under the Plan that are outstanding at the time of
such Change in Control shall become immediately exercisable in full, without
regard to the years that have elapsed from the date of grant.
For purposes of this paragraph 10(f), a Change in Control of V3 shall
occur upon the happening of the earliest to occur of the following:
(i) any "Person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than (1) V3, (2) any trustee or
other fiduciary holding securities under an employee benefit plan of
V3, or (3) any corporation owned, directly or indirectly, by the
stockholders of V3 in substantially the same proportions as their
ownership of Stock (each an ,excluded person")), is or becomes the
"beneficial owner', (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of V3 (not including in
the securities beneficially owned by such person any securities
acquired directly from V3 or its affiliates)
(ii) during any period of not more than two consecutive
years, individuals who at the
9
<PAGE>
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with V3 to effect a transaction described in clause (i),
(iii), or (iv) of this paragraph (f)) whose election by the Board or
nomination for election by V3,s stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved (other
than approval given in connection with an actual or threatened proxy
or election contest), cease for any reason to constitute at least a
70 percent majority of the Board;
(iii) the stockholders of V3 approve a merger or
consolidation of V3 with any other corporation, other than (A) a
merger or consolidation which would result in the voting securities
of V3 outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving or parent entity) 80% or more of the
combined voting power of the voting securities of V3 or such
surviving or parent entity outstanding immediately after such merger
or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of V3 (or similar transaction) in which
no "person" (as hereinabove defined) acquired 20% or more of the
combined voting power of V3's then outstanding securities; or
(iv) the stockholders of V3 approve a plan of complete
liquidation of V3 or an agreement for the sale or disposition by V3
of all or substantially all of V3's assets (or any transaction having
a similar effect).
(g) Participant Rights. No Participant shall have any claim to be
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares covered by any Award until the date of the issuance
of a Stock certificate to him for such shares.
(h) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
(i) No Fractional Shares. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or
any rights thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of Nevada
without giving effect to the conflict of laws principles thereof.
(k) Effective Date. The Plan shall take effect upon its adoption by
the Board, but the Plan (and any grants of Awards made prior to the
stockholder approval mentioned herein) shall be subject to the requisite
approval of the stockholders of the Company. In the absence of such approval,
such Awards shall be null
10
<PAGE>
and void.
(1) Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the
Committee and may, from time to time, amend or revoke such designation. If no
designated beneficiary survives the Participant, the executor or administrator
of the Participant's estate shall be deemed to be the grantee's beneficiary.
(m) Interpretation. The Plan is designed and intended to comply with
Rule 16b-3 promulgated under the Exchange Act and, to the extent applicable,
with Section 162(m) of the Code, and all provisions hereof shall be construed
in a manner to so comply.
11
<PAGE>
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT
MAY BE MADE UNTIL THE EFFECTIVENESS OF A REGISTRATION STATEMENT OR OF A
POST-EFFECTIVE AMENDMENT THERETO UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), COVERING THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT,
OR UNTIL THE COMPANY IS IN RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT. TRANSFER OF THIS WARRANT IS RESTRICTED UNDER
PARAGRAPH 2 BELOW.
PLACEMENT AGENTS WARRANT TO PURCHASE
COMMON STOCK
V3 SEMICONDUCTOR INC.
(a Nevada corporation)
Dated: June 22, 1998
THIS CERTIFIES THAT The Mason Cabot Division of W.J. Nolan & Co. (the
"Placement Agent" and together with its assigns, the "Holder") is entitled to
purchase from V3 Semiconductor, Inc., a Nevada corporation (the "Company"), up
to 48,351 shares of the Company's common stock, $.001 par value per share (the
"Common Stock") at a purchase price of $3.50 per share of Common Stock.
This Placement Agents Warrant is issued pursuant to a Placement Agent
Agreement dated February 19, 1998, between the Company and the Placement Agent
in connection with a private offering through the Placement Agent (the
"Private Offering") of up to a maximum of $5,500,000 of shares of Common
Stock.
<PAGE>
1. Exercise of the Placement Agent's Warrant.
(a) The rights represented by this Placement Agent's Warrant shall
be exercised at the prices and during the periods as follows:
(i) Between June 22, 1998 and June, 21, 2001, inclusive, the
Holder shall have the option to purchase shares of Common Stock hereunder at a
price equal to the price per share of Common Stock sold in the Private
Offering.
(ii) After June 22, 1998, the Holder shall have no right to
purchase any Securities hereunder and this Placement Agent's Warrant shall
expire effective at 5:00 p.m., New York time.
(b) The rights represented by this Placement Agent's Warrant may
be exercised at any time within the period above specified, in whole or in
part, by (i) the surrender of the Placement Agent's Warrant (with the purchase
form at the end hereof properly executed) at the principal executive office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on
the books of the Company); (ii) payment to the Company of the Exercise Price
then in effect for the number of Securities specified in the above mentioned
purchase form together with applicable stock transfer taxes, if any; and (iii)
delivery to the Company of a duly executed agreement signed by the person(s)
designated in the purchase form to the effect that such person(s) agree(s) to
be bound by the provisions of paragraph 5 and of paragraph 6 hereof. The
Placement Agent's Warrant shall be deemed to have been exercised, in whole or
in part to the extent specified, immediately prior to the close of business on
the date the Placement Agent's Warrant is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 1, and the person
or persons in whose name or names the certificates for shares of Common Stock
shall be issuable upon such exercise shall become the holder or holders of
record of such shares of Common Stock at that time and date. Certificates
representing the shares of Common Stock so purchased shall be delivered to the
Holder within a reasonable time, not exceeding ten (10) business days, after
the rights represented by this Placement Agents Warrant shall have been so
exercised.
2. Restrictions on Transfer.
This Placement Agent's Warrant shall not be transferred, sold,
pledged, assigned, or hypothecated unless such assignment shall be effected by
the Holder by (i) completing and executing the form of assignment at the end
hereof and (ii) surrendering this Placement Agent's Warrant with such duly
completed and executed assignment form for cancellation, accompanied by funds
sufficient to pay any transfer tax, at the office or agency of the Company
referred to in Paragraph 1 hereof, accompanie by a certificate (signed by a
duly authorized representative of the Holder), stating that each transferee is
a permitted transferee under this Paragraph 2 hereof; whereupon the
<PAGE>
Company shall issue, in the name or names specified by the Holder (including
the Holder) a new Placement Agent's Warrant or Placement Agent's Warrants of
like tenor and representing in the aggregate rights to purchase the same
number of Securities as are then purchasable hereunder.
3. Covenants of the Company
(a) The Company covenants and agrees that all Common Stock will,
upon issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof by reason of being such a
holder, other than as set forth herein.
(b) The Company covenants and agrees that during the period within
which this Placement Agent's Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of this Placement Agent's Warrant.
4. No Rights of Stockholder.
This Placement Agent's Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company, either at law
or in equity, and the rights of the Holder are limited to those expressed in
this Placement Agent's Warrant and are not enforceable against the Company
except to the extent set forth herein.
5. Registration Rights.
(a) The Company shall advise the Holder or its transferee, whether
the Holder holds this Placement Agent's Warrant or has exercised this
Placement Agent's Warrant and holds Common Stock by written notice at least 30
days prior to the filing of any registration statement under the Act, covering
any securities of the Company, for its own account or for the account of
others, and will for a period of three years from June 22, 1998, upon the
request of the Holder, include in any such registration statement such
information as may be required to permit a public offering of any of the
Common Stock issuable hereunder (the registerable Securities) limited in the
case of a Regulation A offering to the amount of the available exemption,
except for any registration statement filed by the Company on Forms S-4 or S-8
(including any Form S-3 related to such Form S-8) or any other comparable form
or any registration statement relating to Common Stock underlying employee
stock options. The Company shall supply prospectuses in order to facilitate
the public sale or other disposition of the Registerable Securities and to any
and all reasonable actions which may be necessary to enable such Holder to
consummate the public sale of the Registerable Securities, and furnish
indemnification in the manner provided in Paragraph 6 hereof. The Holder shall
furnish information reasonably requested by the Company in accordance with
such registration statements or amendments thereto, including its intentions
with respect thereto, and shall furnish indemnification as set forth in
Paragraph 6. The Company shall continue to advise the Holders of the
Registerable Securities of its intention to file a registration statement or
amendment pursuant to this Paragraph 5(a) until the earlier of (i) June 21,
2001; or (ii) such time as all of the Registerable Securities have been
registered and sold under the Act.
(b) The following provisions of this Paragraph 5 shall also be
applicable:
<PAGE>
(i) The Company and Holder shall bear their pro rata costs and
expenses of any registration of securities initiated by it under Paragraph
5(a) hereof notwithstanding that the Registerable Securities subject to this
Placement Agent's Warrant may be included in any such registration.
Notwithstanding the foregoing, any Holder whose Registerable Securities are
included in any such registration statement pursuant to this Paragraph 5
shall, however, bear the fees of any counsel retained by him or her and any
transfer taxes or underwriting discounts or commissions applicable to the
Registerable Securities sold by him or her pursuant thereto and, in the case
of a registration pursuant to Paragraph 5(a) hereof, any additional
registration fees attributable to the registration of such Holder's
Registerable Securities.
(ii) If the managing underwriter in any such underwritten
offering shall advise the Company that it declines to include a portion or all
of the Registerable Securities requested by the Holders to be included in the
registration statement as provided for in Section 5(a), then distribution of
all or a specified portion of the Registerable Securities shall be excluded
from such registration statement (in case of an exclusion as to a portion of
such Registerable Securities, such portion to be allocated among such Holders
in proportion to the respective numbers of Registerable Securities requested
to be registered by each such Holder). In such event the Company shall give
the Holder prompt notice of the number of Registerable Securities excluded.
Further, in such event the Company shall, within six (6) months of the
completion of such subsequent offering, file and use its best efforts to have
declared effective, at its sole expense, a registration statement relating to
such excluded securities.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each officer, employee, partner or agent of the
Distributing Holder, if the Distributing Holder is a broker or dealer, against
any losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof or
any amendment or supplement thereto, or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
the Distributing Holder for any legal or other expenses reasonably incurred by
the Distributing Holder, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case (i) to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each
<PAGE>
officer, employee, partner or agent of the Distributing Holder, any other
Distributing Holder or any such underwriter for use in the preparation
thereof, and (ii) such losses, claims, damages or liabilities arise out of or
are based upon any actual or alleged untrue statement or omission made in or
from any preliminary prospectus, but corrected in the final prospectus, as
amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registerable Securities is filed under the Act, or is amended
or supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) and
each officer, employee, partner or agent of the Company against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, controlling person, employee, partner or agent may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final prospectus
constituting a part thereof, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent that such untrue statement or alleged untrue statement or omission was
made in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such director,
officer, controlling person, employee, partner or agent for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party, give the indemnifying party notice of the commencement
thereof; but the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise
than under this Paragraph 6.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to so assum the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
7. Adjustments of Warrant Price and Number of Securities.
(a) The Warrant Price shall be subject to adjustment from time to
time as follows:
<PAGE>
(1) In case the Company shall at any time after the date
hereof pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, then upon such dividend or distribution the Warrant
Price in effect immediately prior to such dividend or distribution shall
forthwith be reduced to a price determined by multiplying the Warrant Price by
a fraction:
(a) the numerator of which is an amount equal to the total
number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and
(b) the denominator of which is the total number of shares
of Common Stock outstanding immediately after such issuance or sale.
(c) for the purposes of any computation to be made in
accordance with the provisions of this clause (1), the following provisions
shall be applicable: Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the date following the date fixed
for the determination of stockholders entitled to receive such dividend or
other distribution.
(2) In case the Company shall at any time subdivide or combine
the outstanding Common Stock, the Warrant Price shall forthwith be
proportionately decreased in the case of subdivision or increased in the case
of combination to the nearest one cent. Any such adjustment shall become
effective at the time such subdivision or combination shall become effective.
(3) In the event that the number of outstanding shares of
Common Stock is increased by a stock dividend payable in Common Stock or by a
subdivision of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to Subsection (a)
of this Section by reason of such dividend or subdivision, the number of
shares of Common Stock issuable upon the exercise of each Warrant shall be
increased in proportion to such increase in outstanding shares. In the event
that the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to Subsection (a)
of this Section by reason of such combination, the number of shares of Common
Stock issuable upon the exercise of each Warrant shall be decreased in
proportion to such decrease in the outstanding shares of Common Stock.
(b) Notwithstanding anything contained herein to the contrary, no
adjustment of the Warrant Price shall be made if the amount of such adjustment
shall be less than $.05, but in such case any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to not less than $.05.
(c) Irrespective of any adjustments in the Warrant Price or the
number or kind of shares purchasable upon exercise of the Warrants, Warrants
previously or thereafter issued may continue to express
<PAGE>
the same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Warrant Agreement.
(d) The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to
make any computation required under this Section, and any certificate setting
forth such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section.
(e) No adjustment to the Warrant Price or to the number of shares
of Common Stock purchasable upon the exercise of such Warrants will be made,
however under the following circumstances:
(1) upon the grant or exercise of any of the options presently
outstanding (or options which may hereafter be granted and/or exercised) under
the Company's Stock Option Plan for officers, directors and/or employees,
consultants and similar situated parties of the Company; or
(2) upon exercise of this Warrant; or
(3) upon exercise or sale of the Warrants issuable upon
exercise of the Placement Agent's Warrants; or
(4) upon any amendment to or change in the term of any rights
or warrants to subscribe for or purchase, or options for the purchase of
Common Stock or convertible securities, including, but not limited to, any
extension of any expiration date of any such right, warrant or option, any
change in any exercise or purchase price provided for in any such right,
warrant or option, any extension of any date through which any convertible
securities are convertible into or exchangeable for Common Stock or any change
in the rate at which any convertible securities are convertible into or
exchangeable for Common Stock (other than rights, warrants, options or
convertible securities issued or sold after the close of business on the date
of the original issue of the Common Stock, (i) for presently outstanding
securities, or (ii) for which an adjustment in the Warrant Price then in
effect was theretofore made or required to be made, upon issuance or sale
thereof.
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of shares
of Common Shares on the exercise of the Warrants subject to this Placement
Agent's Warrant. The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any
Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in
lieu of fractional interests, provided, however, that if a holder exercises
all the Warrants held of record by such holder, the fractional interests shall
be eliminated by rounding any fraction up to the nearest whole number of
shares.
(b) The Holder of this Placement Agent's Warrant, by acceptance
hereof, expressly waives his or her right to receive any fractional share of
Common Stock upon exercise of the Warrants subject to this Placement Agent's
Warrant.
<PAGE>
9. Miscellaneous.
(a) This Placement Agent's Warrant shall be governed by and in
accordance with the laws of the State of New York.
(b) All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed to have been duly made
when delivered, or mailed by registered or certified mail, return receipt
requested: (i) if to a Holder, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, 250 Consumers Road, Suite
901, North York, Ontario, Canada, M2J 4V6, Attention: Carl Mitchell
(c) The Company and the Placement Agent may from time to time
supplement or amend this Placement Agent's Warrant without the approval of any
other Holders in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Placement Agent may deem
necessary or desirable and which the Company and the Placement Agent deem not
to adversely affect the interest of the Holders.
(d) All the covenants and provisions of this Placement Agent's
Warrant by or for the benefit of the Company and the Holders inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Placement Agent's Warrant shall be construed
to give to any person or corporation other than the Company and the Placement
Agent and any other registered Holder or Holders, any legal or equitable right
and that any such right is for the sole and exclusive benefit of the Company
and the Placement Agent and any other Holder or Holders.
(f) This Placement Agent's Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, V3 Semiconductor, Inc. has caused this Placement Agent's
Warrant to be signed by its duly authorized officer and this Placement Agent's
Warrant to be dated ____________ __ , 1998.
V3 SEMICONDUCTOR INC.
By:
-----------------------------------------
John Zambakkides, Chief Executive Officer
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of the Placement Agent's Warrant)
The undersigned, the Holder of the foregoing Placement Agent's
Warrant, hereby irrevocably elects to exercise the purchase rights represented
by such Placement Agent's Warrant for, and to purchase thereunder, ______
shares of Common Stock of V3 Semiconductor, Inc. and herewith makes payment of
$________ thereof, and requests that the certificates for Common Stock be
issued in the name(s) of, and delivered to whose address(es) is (are)
- -----------------------------------------------------------
Dated:
-----------------
- -------------------------
- -------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Placement Agent's Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________ the right to purchase shares of Common
Stock of V3 Semiconductor Inc. represented by the foregoing Placement Agent's
Warrant to the extent of __________ shares of Common Stock and appoints
________________, attorney to transfer such rights on the books of
________________, with full power of substitution in the premises.
Dated:
--------------------
(name of holder)
Address
In the presence of:
<PAGE>
[KPMG LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form SB-2 of our report dated November 27, 1997
(except for note 16 which is dated June 22, 1998) relating to the financial
statements of V3 Semiconductor, Inc., which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ KPMG
------------------------------
KPMG Chartered Accountants
July 14, 1998
