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EXHIBIT 10.01
MICRON
ELECTRONICS, INC.
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LETTER OF INTENT
FEBRUARY 25, 1997
Micron Electronics, Inc. ("Micron") and Micronics Computers, Inc. ("Micronics")
agree that they shall negotiate in good faith to complete the necessary
agreements to memorialize the understanding set forth below.
A. INTENT:
1. Micron has purchased motherboards and other products (the "Products")
from Micronics in the past, is currently purchasing such Products from
Micronics and intends to continue to make such purchases from
Micronics.
2. Given the importance of a constant, ongoing, uninterruptable source of
Product to Micron's business, Micron desires that Micronics take
certain steps to ensure that Micron shall be able to obtain
Micronics-designed Products even in the event that Micronics is unable
to supply such Product itself, and Micronics is willing to take steps
to ensure such a source.
3. The parties therefore agree that they shall negotiate and enter into
agreements to formalize their existing understanding under which: a)
Micronics shall place the necessary technology (the "Technology") into
a mutually agreeable escrow account so that a competent manufacturer of
computer motherboards and similar products would be able to manufacture
all Micronics-designed Products that Micronics' sells or has sold to
Micron, and such Technology shall be released to Micron in the event
that Micronics is unable to supply Micron with Product as set forth
below; b) the parties shall cooperatively qualify a mutually acceptable
third party manufacturer to manufacture Products for Micron and that
Micronics shall, within the time table set forth below, exercise its
best efforts to ensure that such manufacturer is capable of
manufacturing Products Micronics sells to Micron; and c) in the event
Micronics is unable to completely fulfill Micron's orders for Product
due to problems outside the ordinary course of business (e.g. financial
difficulties, force majeure, or other problems outside of Micronics'
control), Micronics agrees that upon Micron obtaining Micronics'
written approval, which approval shall not be unreasonably withheld,
Micron may negotiate directly with Orient Semi-Conductor Electronics,
Ltd. ("OSE") to obtain an amount of Product sufficient to meet Micron's
needs. Notwithstanding the foregoing, in a force majeure situation,
Micronics agrees that if it does not provide Micron with approval
pursuant to this section 3, subsection (c) within three (3) business
days of Micron's request,
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**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Micron may negotiate the purchase of Product directly with OSE without
first obtaining Micronics' approval.
4. Micron agrees that in the event it obtains the right to purchase
Product directly from OSE pursuant to section 3(c) above, upon
Micronics providing Micron with reasonable assurance that it is able to
reinitiate manufacture of Products, Micron shall cease purchasing
Products directly with OSE, and shall reissue all pending Purchase
Orders to Micronics under the same terms and conditions previously in
effect between Micron and Micronics.
5. The parties agree that execution of this Letter of Intent shall satisfy
the requirements of section 3(a) of the Operating Guidelines dated July
30, 1996 that Micron and Micronics execute a Motherboard Manufacturing
License Agreement.
B. THE SECONDARY MANUFACTURING SOURCE
1. The parties agree that within 30 days of the signing of this Letter of
Intent they shall cooperatively qualify a mutually acceptable third
party manufacturing contractor for manufacturing Product. Micronics
agrees that it shall expedite the initiation of manufacturing at such
third party manufacturing contractor's facility, and shall make its
best efforts to start manufacturing at such facility within 60 days of
the signing of this Letter of Intent, unless otherwise requested by
Micron.
2. Micronics further agrees that within 90 days of the initiation of
production of Products at the third party manufacturing contractor, it
shall make its best efforts to ensure that such contractor will be
capable of producing all such Product Micronics sells to Micron.
C. THE ESCROW ACCOUNT
1. Micronics will place the latest version of all the Technology into a
mutually agreeable escrow account, at Micron's expense, within 30 days
of the signing of this letter agreement, and Micronics shall keep the
Technology updated for all Products. The Technology shall include
information concerning not only Products Micronics is currently selling
to Micron but also all Products Micronics has sold to Micron in the
past.
2. The "Technology" shall be provided as a "Manufacturing Package"
including Detailed Bills of Materials, Gerber Files, PBA and PB
Drawings, Specifications, CAD Drawings, Schematics, known errata,
Object Code BIOS all ECN and OCNs, Test Programs, fixtures and/or
Fixture Designs and Specifications, Test Procedures, and any other
materials necessary to provide Micron the necessary know how to
manufacture (or have manufactured on its behalf) the Products. The
Technology shall be separated into distinct Manufacturing Packages with
each such Manufacturing Package containing all Technology necessary so
that a competent manufacturer could manufacture a particular model or
version of the Products.
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3. The Escrow Agreement between Micronics and the escrow agent shall
require the escrow agent to release a Manufacturing Package to Micron
if any of the conditions set forth in the Manufacturing Rights section
below occur.
D. MANUFACTURING RIGHTS
1. Micronics and Micron agree that Micron shall have the right to access
the Technology held in the above-mentioned escrow account, and to
initiate manufacture of a particular Product in the event:
(a) Micron submits, or has submitted, Purchase Orders for the
purchase of 65,000 units of new Product to which such
Manufacturing Package relates; or
(b) [ ]** days following Micronics' first delivery of a
production unit of a new Product to Micron to which such
Manufacturing Package relates; or
(c) Micronics fails to completely fulfill any Micron Purchase
Order which Micronics has previously acknowledged and
accepted, for the purchase of the Product to which such
Manufacturing Package relates and is unable to cure such
failure upon notice within five (5) business days; or
(d) Micron reasonably believes that Micronics is either:
(1) currently unable or (2) within the next thirty (30) days
is unlikely to be able to completely meet Micron's Purchase
Orders that Micronics has acknowledged and accepted for
Products and within ten (10) business days of Micron's
informing Micronics of its concern, Micronics is unable to
cure the problem by providing Micron with reasonable
assurances of its ability to provide such Product.
Notwithstanding the foregoing, the parties agree that in the
event Micronics' failure to completely meet such Purchase
Orders is caused by the cross-industry failure of a component
manufactured by Intel Corporation necessary to manufacture the
Products, which failure has been acknowledged by Intel
Corporation, Micron may not exercise its right to manufacture
such Product until after fifteen (15) business days have
passed from the date Micron first informed Micronics of its
concern.
(e) For the purposes of subsections (a) and (b) of this section, a
"new" Product shall be a Product that utilizes a new core
logic or that contains new features.
2. The parties further agree that the 65,000 units referenced in clause
1(a) shall include both units of product covered by Purchase Orders
that Micron may submit to Micronics for a particular Product after the
signing of this Letter of Intent and also any units of such Product
Micron may have already ordered from Micronics.
3. Micron agrees that within fifteen (15) business days of its receipt of
a "complete" Manufacturing Package relating to a particular Product
from the escrow agent, Micron shall
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**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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pay Micronics $[ ]**. A Manufacturing Package shall be "complete"
when it contains all information necessary so that a competent
manufacturer could initiate production on that Product. If Micron
determines that a Manufacturing Package is not "complete" Micronics
shall supplement the Manufacturing Package with the information
reasonably necessary to complete the Manufacturing Package so that a
competent manufacturer could initiate production of the Product.
4. Micronics agrees that in the event Micron obtains a Manufacturing
Package for a particular Product pursuant to the terms of the Escrow
Agreement referenced herein, Micronics shall provide Micron, at
Micronics' expense, a reasonable level of telephone support to assist
in the start up of manufacturing (during the initial thirty (30) days
of Micron obtaining a Manufacturing Package). Additional support shall
be on a time and material basis only.
5. Upon Micron obtaining the right to manufacture a Product:
(a) Micron will pay Micronics $[ ]** per motherboard (the
"Royalty") that Micron (or its subcontracting manufacturers)
manufactures:
(b) Micron may manufacture (or have a third party manufacture on
its behalf) Product anywhere in the world except at the Orient
Semiconductor Electronics facility in Taiwan (unless the terms
of section A3(c), above, are met);
(c) Micron will not label any Products it manufactures with
Micronics logos;
(d) All intellectual property rights relating to the Products
currently owned by Micronics will remain Micronics properly;
(e) Micron agrees that it shall not manufacture (or have
manufactured by a third party manufacturer on its behalf) more
Product than the amount of Product it purchases from
Micronics. Notwithstanding the foregoing, in the event
Micronics is unable to provide Micron with sufficient Product
to satisfy fifty percent (50%) of Micron's total demand for
such Product, Micron may manufacture (or have manufactured by
a third party manufacturer on its behalf) more than fifty
percent (50%) of the total amount of such Product it requires;
(f) Upon ten (10) days notice Micronics shall have the right to
audit Micron's records at Micronics' expense to determine
whether Micron has paid Micronics the proper Royalty for the
Product it has purchased. Micron agrees that in the event
Micronics' audit discovers an uncontested underpayment, Micron
shall promptly pay such uncontested amounts;
(g) Micron agrees that it shall pay any reasonable BIOS or similar
royalties, or fees or taxes on the Product Micron may
manufacture (or have manufactured by a third party
manufacturer on its behalf);
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**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(h) Micron shall use all Product Micron may manufacture (or have
manufactured by a third party manufacturer on its behalf) for
the manufacture of computers and similar products and Micron
expressly agrees that it shall not sell such Product as a
finished good on the open market;
(i) Micron agrees that it shall not sublicense its right to
manufacture (or have manufactured by a third party
manufacturer on its behalf) Product without receiving the
prior written approval of Micronics.
6. The parties further agree that for Products manufactured by Micron (or
a third party manufacturer on its behalf), Micronics shall provide
Micron with solely a warranty on the design of the Technology, and thus
that Micronics shall warrant that the Products are free from design
defects and do not infringe upon the intellectual property rights of
any third party. The parties expressly agree that Micronics shall not
provide Micron a warranty on the workmanship of any Products Micron may
manufacture or have manufactured by a third party manufacturer on its
behalf. Notwithstanding the foregoing, Micronics agrees that it shall
continue to provide Micron with its standard warranty on all products
Micronics supplies to Micron.
7. Micron further agrees that upon obtaining its right to manufacture
Product under either subsections D1(a) or (b), it shall not exercise
such right until such time Micron reasonably believes that Micronics is
either: (1) currently unable or (2) within the next thirty (30 days is
unlikely to be able to completely meet Micron's Purchase Orders that
Micronics has acknowledged and accepted for Products within ten (10)
business days of Micron's informing Micronics of its concern, Micronics
is unable to cure the problem by providing Micron with reasonable
assurances of its ability to provide such Product. Notwithstanding the
foregoing, the parties agree that in the event Micronics' failure to
completely meet such Purchase Orders is caused by the cross-industry
failure of a component manufactured by Intel Corporation necessary to
manufacture the Products, which failure has been acknowledged by Intel
Corporation, Micron may not exercise its right to manufacture Product
until after fifteen (15) business days have passed from the date Micron
first informed Micronics of its concern.
MICRONICS COMPUTERS, INC. MICRON ELECTRONICS, INC.
By:/s/ By:/s/
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Title: Vice President and CFO Title: Director of Procurement
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Date: February 25, 1997 Date: 2-25-1997
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